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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the
Registrant þ
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Registrant o
Check the appropriate box:
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o Preliminary
Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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þ Definitive
Proxy Statement
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o Definitive
Additional Materials
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o Soliciting
Material Pursuant to §240.14a-12
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BRUSH ENGINEERED MATERIALS INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
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Fee computed on table below per Exchange Act
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Title of each class of securities to which
transaction applies:
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Aggregate number of securities to which
transaction applies:
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transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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Proposed maximum aggregate value of transaction:
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Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the filing
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TABLE OF CONTENTS
Brush
Engineered Materials Inc.
6070 Parkland Blvd.
Mayfield Heights, Ohio 44124
Notice of
Annual Meeting of Shareholders
The annual meeting of shareholders of Brush Engineered Materials
Inc. will be held at the Clarion Hotel, 26300 Chagrin Blvd.,
Beachwood, Ohio 44122 on May 5, 2010 at 11:00 a.m.,
local time, for the following purposes:
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(1)
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To elect four directors, each to serve for a term of three years
and until a successor is elected and qualified;
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(2)
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To ratify Ernst & Young LLP as the independent
registered public accounting firm for Brush Engineered Materials
Inc. for the year 2010; and
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(3)
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To transact any other business that may properly come before the
meeting.
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Shareholders of record as of the close of business on
March 10, 2010 are entitled to notice of the meeting and to
vote at the meeting or any adjournment or postponement of the
meeting.
Michael C. Hasychak
Secretary
March 25, 2010
Important
your proxy is enclosed.
Please
sign, date and return your proxy in the accompanying
envelope.
BRUSH
ENGINEERED MATERIALS INC.
6070 Parkland Blvd.
Mayfield Heights, Ohio 44124
PROXY
STATEMENT
March 25,
2010
GENERAL
INFORMATION
Your Board of Directors is furnishing this proxy statement to
you in connection with our solicitation of proxies to be used at
our annual meeting of shareholders to be held on May 5,
2010. The proxy statement is being mailed to shareholders on
March 25, 2010.
Registered Holders. If your shares are
registered in your name, you may vote in person or by proxy. If
you decide to vote by proxy, you may do so by telephone, over
the Internet or by mail.
By telephone. After reading the proxy
materials and with your proxy card in front of you, you may call
the toll-free number
1-800-560-1965,
using a touch-tone telephone. You will be prompted to enter the
last four digits of your Social Security Number or Tax
Identification Number. Then follow the simple instructions that
will be given to you to record your vote.
Over the Internet. After reading the proxy
materials and with your proxy card in front of you, you may use
a computer to access the web site
http://www.eproxy.com/bw.
You will be prompted to enter the last four digits of your
Social Security Number or Tax Identification Number. Then follow
the simple instructions that will be given to you to record your
vote.
By mail. After reading the proxy materials,
you may mark, sign and date your proxy card and return it in the
enclosed prepaid and addressed envelope.
The Internet and telephone voting procedures have been set up
for your convenience and have been designed to authenticate your
identity, allow you to give voting instructions and confirm that
those instructions have been recorded properly. Without
affecting any vote previously taken, you may revoke your proxy
by delivery to us of a new, later dated proxy with respect to
the same shares, or giving written notice to us before or at the
annual meeting. Your presence at the annual meeting will not, in
and of itself, revoke your proxy.
Participants in the Savings and Investment Plan
and/or the
Payroll Stock Ownership Plan
(PAYSOP). If you participate in the
Savings and Investment Plan
and/or the
PAYSOP, the independent Trustee for each plan, Fidelity
Management Trust Company, will vote your plan shares
according to your voting directions. You may give your voting
directions to the plan Trustee in any one of the three ways set
forth above. If you do not return your proxy card or do not vote
over the Internet or by telephone, the Trustee will not vote
your plan shares. Each participant who gives the Trustee voting
directions acts as a named fiduciary for the applicable plan
under the provisions of the Employee Retirement Income Security
Act of 1974, as amended.
Nominee shares. If your shares are held by a
bank, broker, trustee or some other nominee, that entity will
give you separate voting instructions.
At the close of business on March 10, 2010, the record date
for the determination of shareholders entitled to notice of, and
to vote at, the annual meeting, we had outstanding and entitled
to vote 20,638,247 shares of common stock.
Each outstanding share of common stock entitles its holder to
one vote on each matter brought before the meeting. Under Ohio
law, shareholders have cumulative voting rights in the election
of directors, provided that the shareholder gives not less than
48 hours notice in writing to the President, any Vice
President or the Secretary of Brush Engineered Materials Inc.
that the shareholder desires that voting at the election be
cumulative, and provided further that an announcement is made
upon the convening of the meeting informing shareholders that
notice requesting cumulative voting has been given by the
shareholder. When cumulative voting applies, each share has a
number of votes equal to the number of directors to be elected,
and a
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shareholder may give all of the shareholders votes to one
nominee or divide the shareholders votes among as many
nominees as he or she sees fit. Unless contrary instructions are
received on proxies given to us, in the event that cumulative
voting applies, all votes represented by the proxies will be
divided evenly among the candidates nominated by the Board of
Directors, except that if voting in this manner would not be
effective to elect all the nominees, the votes will be cumulated
at the discretion of the Board of Directors so as to maximize
the number of the Board of Directors nominees elected.
In addition to the solicitation of proxies by the use of the
mails, we may solicit the return of proxies in person and by
telephone, facsimile or
e-mail. We
will request brokerage houses, banks and other custodians,
nominees and fiduciaries to forward soliciting material to the
beneficial owners of shares and will reimburse them for their
expenses. We will bear the cost of the solicitation of proxies.
At the annual meeting, the inspectors of election appointed for
the meeting will tabulate the results of shareholder voting.
Under Ohio law, our articles of incorporation and our code of
regulations provide that, properly signed proxies that are
marked abstain or are held in street
name by brokers and not voted on one or more of the items
before the meeting will, if otherwise voted on at least one
item, be counted for purposes of determining whether a quorum
has been achieved at the annual meeting. Votes withheld in
respect of the election of directors will not be counted in
determining the election of directors. Abstentions and broker
non-votes will not affect the vote against Proposal 2.
If you sign, date and return your proxy card but do not specify
how you want to vote your shares, your shares will be voted for
the election of all the Director nominees and for the
ratification of the appointment of the independent registered
public accounting firm.
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1.
ELECTION OF DIRECTORS
Our articles of incorporation and code of regulations provide
for three classes of directors whose terms expire in different
years. At the present time, it is intended that proxies will be
voted for the election of Joseph P. Keithley, Vinod M.
Khilnani, William R. Robertson and John Sherwin, Jr.
Your
Board of Directors recommends a vote for these
nominees.
If any of these nominees becomes unavailable, it is intended
that the proxies will be voted as the Board of Directors
determines. We have no reason to believe that any of the
nominees will be unavailable. The four nominees receiving the
greatest number of votes will be elected as directors of Brush
Engineered Materials Inc.
The following sets forth information concerning the nominees and
the directors whose terms of office will continue after the
meeting:
Directors
Whose Terms End in 2010
Joseph P. Keithley, Chairman, Chief Executive Officer and
President, Keithley Instruments, Inc. (Electronic test and
measurement products). Mr. Keithley has been Chairman of
the Board of Keithley Instruments, Inc. since 1991 and a member
of its Board of Directors since 1986. He has served as Chief
Executive Officer of Keithley Instruments, Inc. since November
1993 and as its President since May 1994. He has also served on
the Board of Directors of Nordson Corporation since 2001.
Mr. Keithley is 61 years old and has been a director
of Brush Engineered Materials since 1997. Mr. Keithley
brings an extensive, broad-based business background from his
leadership roles at Keithley Instruments, Inc. to his role on
our Board of Directors. Among other things, Mr. Keithley
draws upon his extensive knowledge in the global semiconductor,
fiber optics, telecommunications and electronics industries
garnered while at Keithley Instruments, Inc.
Vinod M. Khilnani, Chairman, Chief Executive Officer and
President, CTS Corporation (Electronic components and
accessories). Mr. Khilnani was appointed Chairman of CTS in
May of 2009. He has served as President and Chief Executive
Officer of CTS Corporation since July 2007. Prior to that
time, he served as Senior Vice President and Chief Financial
Officer since May 2001. Mr. Khilnani is 57 years old
and has been a director of Brush Engineered Materials since
February 2009. As the Chairman, Chief Executive Officer and
President of CTS Corporation and its former Chief Financial
Officer, Mr. Khilnani offers a wealth of management
experience and business knowledge regarding operational,
financial and corporate governance issues, as well as extensive
international experience with CTS global operations.
William R. Robertson, Retired Partner, Kirtland Capital
Partners (Private equity investments). Mr. Robertson
retired as Partner of Kirtland Capital Partners on
December 31, 2006. Prior to his retirement, he was a
Consulting Partner since August 2005 and from September 1997
through August 2005, he was a Managing Partner of Kirtland
Capital. He was President and a director of National City
Corporation (Diversified financial holding company) from October
1995 until July 1997. He also served as Deputy Chairman and a
director from August 1988 until October 1995. Mr. Robertson
was appointed to Huntington Bancshares Inc.s Board of
Directors on September 14, 2009. Mr. Robertson is also
a member of the Board of Managers of the Prentiss Foundation, an
emeritus member of the Board of Trustees of the Cleveland Museum
of Art and serves as a director of Hartland & Co.
Mr. Robertson is 68 years old and has been a director
of Brush Engineered Materials since 1997. With his background
and expertise in private equity and banking, Mr. Robertson
brings a unique and valuable perspective on the capital markets
and acquisitions to our Board of Directors.
John Sherwin, Jr., President, Mid-Continent
Ventures, Inc. (Venture capital company). Mr. Sherwin has
been President of Mid-Continent Ventures, Inc. during the past
five years. Mr. Sherwin is a director of John Carroll
University, an executive in residence at Lakeland Community
College, an advisor to Shorebank Cleveland and a trustee of The
Cleveland Clinic Foundation. Mr. Sherwin is 71 years
old and has been a director of Brush Engineered Materials since
1981 and the Lead Director since 2005. Mr. Sherwin brings
extensive business and governance experience to our Board of
Directors, including a deep understanding of the Company gained
in his 29 years of service on the Board of Directors,
positioning him well to serve as our Lead Director.
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Directors
Whose Terms End in 2011
Albert C. Bersticker, Retired Chairman and Chief
Executive Officer, Ferro Corporation (Paint, varnishes,
lacquers, enamels and allied products). Mr. Bersticker had
served as Non-executive Chairman of Oglebay Norton Company
(Mining, processing and distributing limestone, lime and
industrial sand) from May 2003 until January 2005.
Mr. Bersticker was Chairman of Ferro Corporation from
February 1996 and retired in 1999. He served as Chief Executive
Officer of Ferro Corporation from 1991 until January of 1999 and
as President from 1988 until February 1996. He also had served
as Secretary, Treasurer and a member of the Board of Directors
of St. Johns Medical Center in Jackson, Wyoming until
January 2005. Mr. Bersticker is 75 years old and has
been a director of Brush Engineered Materials since 1993. With
his background as the former Chairman and Chief Executive
Officer of Ferro Corporation and as the Non-executive Chairman
of Oglebay Norton Company, Mr. Bersticker brings extensive
experience in managing a large, complex global organization to
our Board of Directors.
William G. Pryor, Retired President, Van Dorn Demag
Corporation, Former President and Chief Executive Officer, Van
Dorn Corporation (Plastic injection molding equipment).
Mr. Pryor was President of Van Dorn Demag Corporation from
1993 and retired in 2002. He had also served as President and
Chief Executive Officer of Van Dorn Corporation, predecessor to
Van Dorn Demag Corporation. Mr. Pryor served on the Board
of Directors of Oglebay Norton Company from 1997 until January
2005. Mr. Pryor is 70 years old and has been a
director of Brush Engineered Materials since 2003.
Mr. Pryors experience at the Van Dorn Corporation and
Oglebay Norton Company provides our Board of Directors with
knowledge on a wide range of operational and manufacturing
issues facing large industrial companies such as Brush
Engineered Materials Inc.
N. Mohan Reddy, Ph.D., Dean and Albert J.
Weatherhead III Professor of Management, Weatherhead School
of Management, Case Western Reserve University. Dr. Reddy
was appointed Dean of the Weatherhead School of Management, Case
Western Reserve University in December 2006 and was named Albert
J. Weatherhead III Professor of Management, effective
January 2007. Prior to that, Dr. Reddy had been Associate
Professor of Marketing since 1991 and Keithley Professor of
Technology Management from 1996 to 2006 at the Weatherhead
School of Management, Case Western Reserve University.
Dr. Reddy has served on the Board of Directors of Keithley
Instruments, Inc. since 2001. Dr. Reddy also serves as
consultant to firms in the electronic and semiconductor
industries, primarily in the areas of product and market
development. Dr. Reddy is 56 years old and has been a
director of Brush Engineered Materials since 2000.
Dr. Reddys knowledge of industrial marketing,
technology development and extensive global knowledge in the
electronic and semiconductor industries provides valuable
insight to our Board of Directors.
Directors
Whose Terms End in 2012
Richard J. Hipple, Chairman, President and Chief
Executive Officer, Brush Engineered Materials Inc. In May 2006,
Mr. Hipple was named Chairman of the Board and Chief
Executive Officer of Brush Engineered Materials Inc. He has
served as President since May 2005 and as Chief Operating
Officer from May 2005 until May 2006. Mr. Hipple was
President of Alloy Products from May 2002 until May 2005. He
joined the Company in July 2001 as Vice President of Strip
Products and served in that position until May 2002. Prior to
joining Brush Engineered Materials, Mr. Hipple was
President of LTV Steel Company, a business unit of The LTV
Corporation, an integrated steel producer and metal fabricator.
Mr. Hipple has served on the Board of Directors of Ferro
Corporation since June of 2007. Mr. Hipple is 57 years
old. Mr. Hipples broad experience and deep
understanding of the Company and the materials business,
combined with his drive for innovation and excellence, positions
him well to serve as our Chairman, President and Chief Executive
Officer.
William B. Lawrence, Former Executive Vice President,
General Counsel and Secretary, TRW, Inc. (Advanced
technology products and services). Prior to the sale of TRW,
Inc. to Northrop Grumman Corporation in December 2002,
Mr. Lawrence served as TRWs Executive Vice President,
General Counsel and Secretary since 1997 and held various other
executive positions at TRW since 1976. Mr. Lawrence also
has served on the Board of Directors of Ferro Corporation since
1999. Mr. Lawrence is 65 years old and has been a
director of Brush Engineered Materials since 2003.
Mr. Lawrences background as an Executive Vice
President, General Counsel and Secretary of TRW, Inc. and
as a director at Ferro Corporation provides him
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with the knowledge and experience to address the complex
legislative, governance and financial issues facing global
companies today.
William P. Madar, Retired Chairman of the Board and
Former Chief Executive Officer, Nordson Corporation (Industrial
application equipment manufacturer). Mr. Madar retired as
Chairman of the Board of Nordson Corporation effective March
2004. He had been Chairman since 1997. Prior to that time, he
served as Vice Chairman of Nordson Corporation from August 1996
until October 1997 and as Chief Executive Officer from February
1986 until October 1997. From February 1986 until August 1996,
he also served as Nordson Corporations President.
Mr. Madar has also served on the Board of Directors of
Nordson Corporation since 1985. Mr. Madar is 70 years
old and has been a director of Brush Engineered Materials since
1988. Through his roles at Nordson Corporation as Chairman and
Chief Executive Officer, Mr. Madar has demonstrated
leadership capability and extensive knowledge of complex
financial and operational issues facing large global
organizations.
Craig S. Shular, Chairman, Chief Executive Officer and
President, GrafTech International Ltd. (Electrical industrial
apparatus). Mr. Shular was elected Chairman of the Board of
GrafTech International in February 2007. He has served as Chief
Executive Officer and a director since January 2003 and as
President since May 2002. From August 2001 until May 2002, he
served as Executive Vice President of GrafTechs largest
business, Graphite Electrodes. Mr. Shular joined GrafTech
as its Vice President and Chief Financial Officer in January
1999 and assumed the additional duties of Executive Vice
President, Electrode Sales and Marketing in February 2000 until
August 2001. Mr. Shular serves on the Board of Directors of
Junior Achievement of Greater Cleveland. Mr. Shular is
57 years old and has been a director of Brush Engineered
Materials since May 2008. As the Chairman, Chief Executive
Officer and President and former Chief Financial Officer of
GrafTech International Ltd., Mr. Shular brings a breadth of
financial and operational management experience and provides the
Board with a perspective of someone with all facets of a global
enterprise.
5
CORPORATE
GOVERNANCE; COMMITTEES OF THE BOARD OF DIRECTORS
We have adopted a Policy Statement on Significant Corporate
Governance Issues and a Code of Conduct Policy in compliance
with New York Stock Exchange and Securities and Exchange
Commission requirements. These materials, along with the
charters of the Audit, Compensation, Governance and Organization
and Retirement Plan Review Committees of our Board of Directors,
which also comply with applicable requirements, are available on
our web site at www.beminc.com, or upon request by any
shareholder to Secretary, Brush Engineered Materials Inc., 6070
Parkland Blvd., Mayfield Heights, Ohio 44124. We also make our
reports on
Forms 10-K,
10-Q and
8-K
available on our web site, free of charge, as soon as reasonably
practicable after these reports are filed with the Securities
and Exchange Commission. Any amendments or waivers to our Code
of Conduct Policy, Committee Charters and Policy Statement on
Significant Corporate Governance Issues will also be made
available on our web site. The information on our web site is
not incorporated by reference into this proxy statement or any
of our periodic reports.
Director
Independence
The New York Stock Exchange listing standards require that all
listed companies have a majority of independent directors. For a
director to be independent under the New York Stock
Exchange listing standards, the board of directors of a listed
company must affirmatively determine that the director has no
material relationship with the Company, or its subsidiaries or
affiliates, either directly or as a partner, shareholder or
officer of an organization that has a relationship with the
Company, or its subsidiaries or affiliates. Our Board of
Directors has adopted the following standards, which are
identical to those of the New York Stock Exchange listing
standards, to assist it in its determination of director
independence. A director will be determined not to be
independent under the following circumstances:
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the director is, or has been within the last three years, an
employee of the Company, or an immediate family member is, or
has been within the last three years, an executive officer, of
the Company;
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the director has received, or has an immediate family member who
has received, during any
12-month
period within the last three years, more than $120,000 in direct
compensation from the Company, other than director and committee
fees and pension or other forms of deferred compensation for
prior service (provided such compensation is not contingent in
any way on continued service);
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(a) the director is a current partner or employee of a firm
that is the Companys internal or external auditor;
(b) the director has an immediate family member who is a
current partner of such a firm; (c) the director has an
immediate family member who is a current employee of such a firm
and personally works on the Companys audit; or
(d) the director or an immediate family member was within
the last three years a partner or employee of such a firm and
personally worked on the Companys audit within that time;
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the director or an immediate family member is, or has been
within the last three years, employed as an executive officer of
another company where any of the Companys present
executive officers at the same time serves or served on that
companys compensation committee; or
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the director is a current employee, or an immediate family
member is a current executive officer, of a company that has
made payments to, or received payments from, the Company for
property or services in an amount which, in any of the last
three fiscal years, exceeds the greater of $1,000,000, or two
percent of such other companys consolidated gross revenues.
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Additionally, for purposes of determining whether a director has
a material relationship with the Company apart from his or her
service as a director, our Board of Directors has deemed the
following relationships as categorically immaterial:
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the director (or an immediate family member) is a current
employee, director or trustee of a
tax-exempt
organization and the Companys contributions to the
organization (excluding Company matching of employee
contributions) in any fiscal year are less than $120,000; or
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the director is a director of a company that has made payments
to, or received payments or deposits from, the Company for
property, goods or services in the ordinary course of business
in an amount which, in any fiscal year, is less than the greater
of $1,000,000, or two percent of such other companys
consolidated gross revenues.
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Our Board of Directors has affirmatively determined that each of
our directors, other than Mr. Hipple, is:
independent within the meaning of that term as
defined in the New York Stock Exchange listing standards; a
non-employee director within the meaning of that
term as defined in
Rule 16b-3(b)(3)
promulgated under the Securities Exchange Act of 1934 (the
Exchange Act); and an outside director
within the meaning of that term as defined in the regulations
promulgated under section 162(m) of the Internal Revenue
Code of 1986.
Charitable
Contributions
Within the last three years, we have made no charitable
contributions during any single fiscal year to any charity in
which an independent director serves as an executive officer, of
over the greater of $1 million or 2% of the charitys
consolidated gross revenues.
Non-management
Directors
Our Policy Statement on Significant Corporate Governance Issues
provides that the non-management members of the Board of
Directors will meet during each regularly scheduled meeting of
the Board of Directors. Presently Mr. Sherwin is the lead
non-management director.
In addition to the other duties of a director under the
Corporations Board Governance Principles, the Lead
Director, in collaboration with the other independent directors,
is responsible for coordinating the activities of the
independent directors and in that role will:
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chair the executive sessions of the independent directors at
each regularly scheduled meeting;
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make recommendations to the Board Chairman regarding the timing
and structuring of Board meetings;
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make recommendations to the Board Chairman concerning the agenda
for Board meetings, including allocation of time as well as
subject matter;
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advise the Board Chairman as to the quality, quantity and
timeliness of the flow of information from management to the
Board;
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serve as the independent point of contact for shareholders
wishing to communicate with the Board other than through
management;
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interview all Board candidates, and provide the Governance and
Organization Committee with recommendations on each candidate;
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maintain close contact with the Chairman of each standing
committee and assist in ensuring communications between each
committee and the Board;
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lead the Chief Executive Officer evaluation process; and
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be the ombudsman for the Chief Executive Officer to provide
two-way communication with the Board.
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Board
Communications
Shareholders or other interested parties may communicate with
the Board of Directors as a whole, the lead non-management
director or the non-management directors as a group, by
forwarding relevant information in writing to Lead Director,
c/o Secretary,
Brush Engineered Materials Inc., 6070 Parkland Blvd., Mayfield
Heights, Ohio 44124. Any other communication to individual
directors or committees of the Board of Directors may be
similarly addressed to the appropriate recipients,
c/o Secretary,
Brush Engineered Materials Inc., 6070 Parkland Blvd., Mayfield
Heights, Ohio 44124.
7
Board
Leadership
Currently, the Chairman of the Board of Directors also serves as
the Chief Executive Officer. The Board of Directors has no
policy with respect to the separation of these offices. The
Board of Directors believes that this issue is part of the
succession planning process and that considering this issue each
time that it elects the Chief Executive Officer is in the best
interests of the Company. The Board of Directors recognizes that
there may be circumstances in the future that would lead it to
separate these offices, but the Board of Directors believes that
there is no reason to do so at this time.
As both a director and officer, Mr. Hipple fulfills a
valuable leadership role that the Board believes is essential to
the continued success of the Companys business operations
at this time. In the Boards opinion,
Mr. Hipples dual role enhances the Companys
ability to coordinate long-term strategic direction with
important business opportunities at the operational level and
enhances his ability to provide insight and direction on
important strategic initiatives impacting the Company and its
shareholders to both management and the independent directors.
Unless the Chairman of the Board of Directors is an independent
director, the independent directors periodically select from
among their number, one director who will serve as the lead
independent director, which we refer to as the Lead Director.
The Lead Director works with the Chairman and Chief Executive
Officer and other Board members to provide strong, independent
oversight of the Companys management and affairs.
Risk
Oversight
Our Board of Directors oversees an enterprise-wide approach to
risk management, designed to support the achievement of
organizational objectives, including strategic objectives, to
improve long-term organizational performance and enhance
shareholder value. A fundamental part of risk management is not
only understanding the risks a company faces and what steps
management is taking to manage those risks, but also
understanding what level of risk is appropriate for the company.
The involvement of the full Board of Directors in setting the
Companys business strategy is a key part of its assessment
of managements appetite for risk and also a determination
of what constitutes an appropriate level of risk for the Company.
While the Board of Directors has the ultimate oversight
responsibility for the risk management process, various
committees of the Board also have responsibility for risk
management. In particular, the Audit Committee focuses on
financial risk, including internal controls, and receives an
annual risk assessment report from the Companys internal
auditors. In addition, in setting compensation, the Compensation
Committee strives to create incentives that encourage a level of
risk-taking behavior consistent with the Companys business
strategy. Finally, the Companys Governance and
Organization Committee conducts an annual assessment of the
Boards structure for compliance with corporate governance
and risk management best practices.
Audit
Committee
The Audit Committee held six meetings in 2009. We adopted a
revised Audit Committee charter in February 2010. The Audit
Committee membership consists of Mr. Lawrence, as Chairman,
and Messrs. Bersticker, Keithley, Pryor and Shular. Under the
Audit Committee Charter, the Audit Committees principal
functions include assisting our Board of Directors in fulfilling
its oversight responsibilities with respect to:
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the integrity of our financial statements and our financial
reporting process;
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compliance with ethics policies and legal and other regulatory
requirements;
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our independent registered public accounting firms
qualifications and independence;
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our systems of internal accounting and financial
controls; and
|
|
|
|
the performance of our independent registered public accounting
firm and of our internal audit functions.
|
8
We currently do not limit the number of audit committees on
which our Audit Committee members may serve. No member of our
Audit Committee serves on the audit committee of three or more
public companies in addition to ours. The Audit Committee also
prepared the Audit Committee report included under the heading
Audit Committee Report in this proxy statement.
Audit
Committee Expert, Financial Literacy and Independence
Although our Board of Directors has determined that more than
one member of the Audit Committee has the accounting and related
financial management expertise to be an audit committee
financial expert, as defined by the Securities and
Exchange Commission, it has named the Audit Committee Chairman,
Mr. Lawrence, as the Audit Committee financial expert. Each
member of the Audit Committee is financially literate and
satisfies the independence requirements in Section 303A.02
of the New York Stock Exchange listing standards.
Compensation
Committee
The Compensation Committee held five meetings in 2009. We
adopted a revised Compensation Committee charter in February
2010. Its membership consists of Dr. Reddy as Chairman, and
Messrs. Khilnani, Madar, Robertson and Sherwin. The
committee may, at its discretion, delegate all or a portion of
its duties and responsibilities to a subcommittee; provided that
such subcommittee has a published charter in accordance with the
rules of the New York Stock Exchange. In particular, the
committee may delegate the approval of certain transactions to a
subcommittee consisting solely of members of the committee who
are (a) Non-employee Directors for the purposes
of Rule
16b-3 of the
Exchange Act, as in effect from time to time, and
(b) outside directors for the purposes of
section 162(m) of the Internal Revenue Code of 1986. The
committees principal functions include:
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|
|
|
|
reviewing and approving executive compensation, including
severance payments;
|
|
|
|
administering and recommending equity and non-equity incentive
plans;
|
|
|
|
overseeing regulatory compliance with respect to compensation
matters;
|
|
|
|
advising on senior management compensation; and
|
|
|
|
reviewing and discussing the Compensation Discussion and
Analysis and Compensation Committee Report.
|
For additional information regarding the operation of the
Compensation Committee, see the Compensation Discussion
and Analysis in this proxy statement.
Governance
and Organization Committee
The Governance and Organization Committee held four meetings in
2009. We adopted a revised Governance and Organization Committee
charter in February 2010. The Governance and Organization
Committee membership consists of Mr. Sherwin, as Chairman,
and Messrs. Bersticker, Keithley, Khilnani, Lawrence,
Madar, Pryor, Reddy, Robertson and Shular. All the members are
independent in accordance with the New York Stock Exchange
listing requirements. The committees principal functions
include:
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|
|
evaluation of candidates for board membership, including any
nominations of qualified candidates submitted in writing by
shareholders to our Secretary;
|
|
|
|
making recommendations to the full Board of Directors regarding
directors compensation;
|
|
|
|
making recommendations to the full Board of Directors regarding
governance matters;
|
|
|
|
overseeing the evaluation of the Board and management of the
Company;
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|
assisting in management succession planning; and
|
|
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|
reviewing related party transactions.
|
9
As noted above, the Governance and Organization Committee is
involved in determining compensation for our directors. The
Governance and Organization Committee administers our equity
incentive plans with respect to our directors, including
approval of grants of stock options and other equity or
equity-based awards, and makes recommendations to the Board of
Directors with respect to incentive compensation plans and
equity-based plans for directors. The Governance and
Organization Committee periodically reviews director
compensation in relation to comparable companies and other
relevant factors. Any change in director compensation must be
approved by the Board of Directors. Other than in his capacity
as a director, no executive officer other than the Chief
Executive Officer participates in setting director compensation.
From time to time, the Governance and Organization Committee or
the Board of Directors may engage the services of a compensation
consultant to provide information regarding director
compensation at comparable companies.
Nomination
of Director Candidates
The Governance and Organization Committee will consider
candidates recommended by shareholders for nomination as
directors of Brush Engineered Materials. Any shareholder
desiring to submit a candidate for consideration by the
Governance and Organization Committee should send the name of
the proposed candidate, together with biographical data and
background information concerning the candidate, to the
Governance and Organization Committee,
c/o our
Secretary. The Governance and Organization Committee did not
receive any recommendation for a candidate from a shareholder or
shareholder group as of March 10, 2010.
In recommending candidates to the Board of Directors for
nomination as directors, the Governance and Organization
Committees charter requires it to consider such factors as
it deems appropriate, consistent with our Policy Statement on
Significant Corporate Governance Issues. These factors are as
follows:
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|
|
broad-based business, governmental, non-profit, or professional
skills and experiences that indicate whether the candidate will
be able to make a significant and immediate contribution to the
Boards discussion and decision making in the array of
complex issues facing the Company;
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|
|
exhibited behavior that indicates he or she is committed to the
highest ethical standards and the values of the Company;
|
|
|
|
special skills, expertise, and background that add to and
complement the range of skills, expertise, and background of the
existing directors;
|
|
|
|
whether the candidate will effectively, consistently and
appropriately take into account and balance the legitimate
interests and concerns of all our shareholders and other
stakeholders in reaching decisions; and
|
|
|
|
a global business and social perspective, personal integrity and
sound judgment. In addition, directors must have time available
to devote to Board activities and to enhance their knowledge of
the Company.
|
The Governance and Organization Committees evaluation of
candidates recommended by shareholders does not differ
materially from its evaluation of candidates recommended from
other sources.
The Governance and Organization Committee utilizes a variety of
methods for identifying and evaluating director candidates. The
Governance and Organization Committee regularly reviews the
appropriate size of the Board and whether any vacancies on the
Board are expected due to retirement or otherwise. In the event
that vacancies are anticipated, or otherwise arise, the
Governance and Organization Committee considers various
potential candidates for director. Candidates may come to the
attention of the Governance and Organization Committee through
current Board members, professional search firms, shareholders
or other persons.
A shareholder of record entitled to vote in an election of
directors who timely complies with the procedures set forth in
our code of regulations and with all applicable requirements of
the Exchange Act and the rules and regulations thereunder, may
also directly nominate individuals for election as directors at
a shareholders meeting. Copies of our code of regulations
are available by a request addressed to
c/o Secretary.
To be timely, notice of a shareholder nomination for an annual
meeting must be received at our principal executive offices not
fewer than 60 nor more than 90 days prior to the date of
the annual meeting. However, if the date of the meeting is more
than one week before or after the first anniversary of the
previous years
10
meeting and we do not give notice of the meeting at least
75 days in advance, nominations must be received within
10 days from the date of our notice.
Retirement
Plan Review Committee
The Retirement Plan Review Committee held three meetings in
2009. Its membership consists of Mr. Keithley, as Chairman,
and Messrs. Bersticker, Pryor and Sherwin. Its principal
functions include:
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|
|
|
|
reviewing defined benefit pension plans as to current and future
costs, funded position, and actuarial and accounting assumptions
used in determining benefit obligations;
|
|
|
|
establishing and reviewing policies and strategies for the
investment of defined benefit pension plan assets; and
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|
|
reviewing investment options offered under employee savings
plans and the performance of those investment options.
|
Director
Attendance
Our Board of Directors held nine meetings in 2009. All of the
directors who were directors in 2009 attended at least 75% of
the Board and assigned committee meetings during 2009. Our
policy is that directors are expected to attend all meetings
including the annual meeting of shareholders. All of our
directors who were directors at the time of last years
annual meeting of shareholders attended such meeting.
11
2009
DIRECTOR COMPENSATION
Annual compensation for non-employee directors for 2009 was
comprised of cash compensation, consisting of annual retainer
fees, and equity compensation, consisting of restricted stock
units. Each of these components is described in more detail
below.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
Stock
|
|
|
|
|
Paid in Cash
|
|
Awards(2)
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
Albert C. Bersticker
|
|
|
66,750
|
(1)
|
|
|
45,017
|
|
|
|
111,767
|
|
Joseph P. Keithley
|
|
|
71,750
|
|
|
|
45,017
|
|
|
|
116,767
|
|
Vinod M. Khilnani
|
|
|
56,333
|
|
|
|
145,023
|
(3)
|
|
|
201,356
|
|
William B. Lawrence
|
|
|
71,750
|
|
|
|
45,017
|
|
|
|
116,767
|
|
William P. Madar
|
|
|
61,750
|
|
|
|
45,017
|
|
|
|
106,767
|
|
William G. Pryor
|
|
|
66,750
|
|
|
|
45,017
|
|
|
|
111,767
|
|
N. Mohan Reddy
|
|
|
66,750
|
|
|
|
45,017
|
|
|
|
111,767
|
|
William R. Robertson
|
|
|
61,750
|
|
|
|
45,017
|
|
|
|
106,767
|
|
John Sherwin, Jr.
|
|
|
81,750
|
|
|
|
45,017
|
|
|
|
126,767
|
|
Craig S. Shular
|
|
|
67,153
|
(1)
|
|
|
45,017
|
|
|
|
112,170
|
|
The columns entitled Option Awards, Non-Equity
Incentive Plan Compensation, Change in Pension Value
and Nonqualified Deferred Compensation Earnings and
All Other Compensation to this table have been
omitted because no compensation was reportable thereunder.
|
|
|
(1) |
|
Pursuant to the 2006 Non-employee Director Equity Plan (the
2006 Director Plan), Messrs. Bersticker and Shular
elected to defer 100% of their compensation in the form of
deferred stock units in 2009. |
|
(2) |
|
The amounts reported in this column reflect the aggregate grant
date fair value as computed in accordance with FASB ASC Topic
718 for stock awards to each non-employee director. See
Note K to the consolidated financial statements contained
in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 for the assumptions
used in calculating the fair value. Each non-employee director
was automatically awarded 2,464 restricted stock units, with a
grant date fair value of $18.27 per share, pursuant to the
2006 Director Plan. |
|
(3) |
|
Mr. Khilnanis stock award includes 8,065 shares
of common stock, with a grant date fair value of $12.40 per
share, granted upon appointment to the Board of Directors on
February 3, 2009, as described below under Equity
Compensation. |
As of December 31, 2009, the aggregate number of stock
options outstanding and the aggregate number of stock awards
subject to forfeiture were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Stock Options
|
|
Stock Units
|
|
Albert C. Bersticker
|
|
|
10,000
|
|
|
|
2,464
|
|
Joseph P. Keithley
|
|
|
|
|
|
|
2,464
|
|
Vinod M. Khilnani
|
|
|
|
|
|
|
2,464
|
|
William B. Lawrence
|
|
|
9,000
|
|
|
|
2,464
|
|
William P. Madar
|
|
|
10,000
|
|
|
|
2,464
|
|
William G. Pryor
|
|
|
9,000
|
|
|
|
2,464
|
|
N. Mohan Reddy
|
|
|
|
|
|
|
2,464
|
|
William R. Robertson
|
|
|
|
|
|
|
2,464
|
|
John Sherwin, Jr.
|
|
|
4,000
|
|
|
|
2,464
|
|
Craig S. Shular
|
|
|
|
|
|
|
2,464
|
|
12
Annual
Retainer Fees
Effective May 7, 2008, non-employee directors receive an
annual retainer fee in the amount of $65,000. On April 1,
2009, the directors annual retainer fee was reduced by
10%, or $6,500 annually, due to the global economic crisis. In
September 2009, the 10% reduction was eliminated, returning the
directors retainer fee to $65,000 annually. Non-employee
directors who chair a committee receive an additional $5,000
annually, with the exception of the Chairman of the Audit
Committee, who receives an additional $10,000 annually. The Lead
Director receives an additional $15,000 annually. Members of the
Audit Committee, with the exception of the Chairman, receive an
additional $5,000 annually.
Equity
Compensation
Under the 2006 Director Plan, non-employee directors who
continue to serve as a director following an annual meeting of
shareholders receive $45,000 worth of restricted stock units,
which will be paid out in common stock at the end of a one-year
restriction period unless the participant elects that the shares
be received in the form of deferred stock units. These
restricted stock units are automatically granted on the day
following the annual meeting. The number of restricted stock
units granted is equal to $45,000 divided by the closing price
of our common stock on the date of grant. If the calculation
results in fractional shares, the shares are rounded up, in
accordance with the plan. In the event a new director is elected
or appointed, common stock will be granted on the first business
day following the election or appointment to the Board of
Directors. This grant of common stock will be equal to $100,000
divided by the closing price of our common stock on the day the
director is elected or appointed to the Board of Directors.
Deferred
Compensation
Non-employee directors may defer all or a part of their annual
retainer fees in the form of deferred stock units under the
2006 Director Plan until ceasing to be a member of the
Board of Directors. A director may also elect to have restricted
stock units or other stock awards made under the
2006 Director Plan deferred in the form of deferred stock
units.
13
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of Brush Engineered Materials common stock
by each person known by Brush Engineered Materials to be the
beneficial owner of more than 5% of the common stock, by each
present director of Brush Engineered Materials, by each of the
Chief Executive Officer, Chief Financial Officer and other
mostly highly compensated executive officer (each named
executive officer or NEO) of Brush Engineered Materials and by
all directors and executive officers of Brush Engineered
Materials as a group, as of February 12, 2010, unless
otherwise indicated. The shareholders listed in the table have
sole voting and investment power with respect to shares
beneficially owned by them unless otherwise indicated. Shares
that are subject to stock options and stock appreciation rights
(SAR) that may be exercised within 60 days of
February 12, 2010 are reflected in the number of shares
shown and in computing the percentage of Brush Engineered
Materials common stock beneficially owned by the person who owns
those options.
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Percent
|
Non-officer Directors
|
|
Shares
|
|
of Class
|
|
Albert C. Bersticker
|
|
|
42,821
|
(1)(2)
|
|
|
*
|
|
Joseph P. Keithley
|
|
|
20,372
|
(2)
|
|
|
*
|
|
Vinod M. Khilnani
|
|
|
10,529
|
(2)
|
|
|
*
|
|
William B. Lawrence
|
|
|
16,714
|
(1)(2)
|
|
|
*
|
|
William P. Madar
|
|
|
31,215
|
(1)(2)
|
|
|
*
|
|
William G. Pryor
|
|
|
16,714
|
(1)(2)
|
|
|
*
|
|
N. Mohan Reddy
|
|
|
24,297
|
(2)
|
|
|
*
|
|
William R. Robertson
|
|
|
16,503
|
(2)
|
|
|
*
|
|
John Sherwin, Jr.
|
|
|
22,641
|
(1)(2)(3)
|
|
|
*
|
|
Craig S. Shular
|
|
|
13,434
|
(2)
|
|
|
*
|
|
Named Executive
Officers
|
|
|
|
|
|
|
|
|
Richard J. Hipple
|
|
|
130,178
|
(1)
|
|
|
*
|
|
John D. Grampa
|
|
|
94,926
|
(1)
|
|
|
*
|
|
Daniel A. Skoch
|
|
|
100,632
|
(1)
|
|
|
*
|
|
All directors and executive officers as a group (including the
Named Executive Officers) (13 persons)
|
|
|
540,976
|
(4)
|
|
|
2.7
|
%
|
Other Persons
|
|
|
|
|
|
|
|
|
BlackRock, Inc.
|
|
|
1,575,535
|
(5)
|
|
|
7.8
|
%
|
40 East 52nd Street
New York, NY 10022
|
|
|
|
|
|
|
|
|
Keeley Asset Management Corp.
|
|
|
1,205,000
|
(6)
|
|
|
6.0
|
%
|
401 South LaSalle Street
Chicago, IL 60605
|
|
|
|
|
|
|
|
|
Fidelity Management & Research Company
|
|
|
1,200,000
|
(7)
|
|
|
5.9
|
%
|
82 Devonshire Street
Boston, MA 02109
|
|
|
|
|
|
|
|
|
Minneapolis Portfolio Management Group, LLC
|
|
|
1,167,278
|
(8)
|
|
|
5.8
|
%
|
80 South
8th Street,
Suite 1902
Minneapolis, MN 55402
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Less than 1% of common stock. |
|
(1) |
|
Includes shares covered by outstanding options and SARs
exercisable within 60 days as follows: Mr. Hipple
65,700; Mr. Grampa 69,000 and Mr. Skoch 71,000; and
options exercisable for each of Messrs. Bersticker and
Madar for 10,000; 9,000 for each of Messrs. Lawrence and
Pryor; and 4,000 for Mr. Sherwin. The shares for
Messrs. Hipple, Grampa and Skoch also include performance
restricted shares issued under the
2008-2010
Long-term Incentive Plan (LTIP) in the amounts of 14,609; 4,416
and 4,215, respectively. See the CD&A for further
discussion of this plan. |
14
|
|
|
(2) |
|
Includes deferred shares under the Deferred Compensation Plans
for Non-employee Directors as follows: Mr. Bersticker
21,425; Mr. Keithley 17,908; Mr. Khilnani 10,529;
Mr. Lawrence 3,852; Mr. Madar 5,974; Mr. Pryor
1,000; Dr. Reddy 19,456; Mr. Robertson 9,789;
Mr. Sherwin 7,101; and Mr. Shular 10,970. |
|
(3) |
|
Includes 1,429 shares owned by Mr. Sherwins
children of which Mr. Sherwin disclaims beneficial
ownership. |
|
(4) |
|
Includes 247,700 shares subject to outstanding options held
by officers and directors and exercisable within 60 days. |
|
(5) |
|
BlackRock, Inc. reported on a Schedule 13G filed with the
Securities and Exchange Commission on January 29, 2010,
that as of December 31, 2009, it had sole voting and sole
dispositive power with respect to 1,575,535 shares. |
|
(6) |
|
Keeley Asset Management Corp., an investment adviser in
accordance with
Rule 13d-1(b)(ii)(E),
reported on a
Schedule 13G-A
filed with the Securities and Exchange Commission on
February 12, 2010, that as of December 31, 2009, it
had sole voting and sole dispositive power with respect to
1,205,000 shares. |
|
(7) |
|
Fidelity Management & Research Company, reported on a
Schedule 13G filed with the Securities and Exchange
Commission on February 16, 2010, that as of
December 31, 2009, it had beneficial ownership with respect
to 1,200,000 shares. |
|
(8) |
|
Minneapolis Portfolio Management Group, LLC, an investment
adviser in accordance with
Rule 13d-1(b)(1)(ii)(E),
reported on a Schedule 13G filed with the Securities and
Exchange Commission on February 12, 2010, that as of
December 31, 2009, it had sole voting and sole dispositive
power with respect to 1,167,278 shares. |
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors,
officers and persons who own 10% or more of our common stock to
file reports of ownership and changes in ownership on
Forms 3, 4 and 5 with the Securities and Exchange
Commission. Directors, officers and 10% or greater shareholders
are required by Securities and Exchange Commission regulations
to furnish us with copies of all Forms 3, 4 and 5 they file.
Based solely on our review of copies of forms that we have
received, and written representations by our directors, officers
and 10% or greater shareholders, all of our directors, officers
and 10% or greater shareholders complied with all filing
requirements applicable to them with respect to transactions in
our equity securities during the fiscal year ended
December 31, 2009.
EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
This overview explains the 2009 outcomes of our various
compensation plans for named executive officers (NEOs) and
illustrates the linkage between our compensation philosophy and
our financial and shareholder return performance.
Our compensation philosophy is targeted at the competitive
market median and is designed to attract, motivate and retain
the type of executives we need to manage and grow our portfolio
of businesses. In addition, our philosophy has a significant
pay-for-performance
component as reflected in the design of our executive incentive
plans and provides opportunities for share ownership to match
the interests of our NEOs and shareholders.
During 2009, our financial performance was below minimal
expectations, although our share price performance was positive.
Specifically, our key measure of financial performance, adjusted
operating profit, declined from $46.5 million in 2008 to a
loss of $19.5 million in 2009. Our share price increased
from a
15
closing price of $12.72 on December 31, 2008 to $18.54 on
December 31, 2009, an increase of 45.8%, but still below
our closing price of $37.02 on December 31, 2007.
The impact of our financial and shareholder return performance
in 2009 on our executive compensation plans for our NEOs was as
follows:
|
|
|
|
|
salaries We did not increase salaries at the
beginning of 2009 because of a lack of clarity going forward in
2009 about the status of the economy in general and our
businesses in particular. As we moved through 2009, we elected
to decrease salaries for all NEOs by 10% on April 4, 2009.
We restored the decreases on September 26, 2009 as the
economy and our businesses were beginning to turn around. As a
result, salaries were lower in 2009 than 2008 as we did not make
up for the 10% salary reduction between April and September;
|
|
|
|
Management Performance Compensation Plan (MPCP) Our
financial performance was such that we paid partial annual
incentives for 2009 financial performance, primarily based on
our relative change in pre-tax return on invested capital (ROIC)
performance measured against a peer group and the achievement of
individual goals and objectives by our executives. We did not
pay for the achievement against targets of our primary goal of
adjusted operating profit;
|
|
|
|
Long-term Incentive Plan (LTIP) The LTIP covering
the
2007-2009
performance period did not reach minimum threshold performance
levels and, as a result, there were no payouts from this plan;
|
|
|
|
stock appreciation rights (SAR) and restricted stock
grants We made grants of SAR and time-based
restricted stock in February 2009 at a price of $15.01. Since
that time, our share price has increased, meaning the 2009 SAR
grant is
in-the-money
and the restricted share values are higher than the value upon
grant; and
|
|
|
|
existing equity grants The increase in our share
price during 2009 has caused one of the SAR grants to be
in-the-money
while others remain
out-of-the-money
and restricted stock granted in years prior to 2009 to have
increased in value, mirroring the experience of our shareholders
in 2009.
|
Compensation
Philosophy and Objectives
Our long-standing compensation philosophy has three key
objectives:
|
|
|
|
|
attract, motivate and retain key executives with the ability to
profitably grow our business portfolio;
|
|
|
|
build a
pay-for-performance
environment targeted at the middle of the competitive
market; and
|
|
|
|
provide opportunities for share ownership to match the interests
of our executives with our shareholders.
|
We achieved the following objectives in 2009:
|
|
|
|
|
we did not need to attract any new NEOs and we retained all of
our current NEOs in 2009. The compensation programs with
retention aspects include salaries, time-based restricted stock
and our various retirement plans;
|
|
|
|
we created a
pay-for-performance
environment and motivated our NEOs through the use of incentive
plans, including the cash-based MPCP and SAR grants. Our
pay-for-performance
philosophy is significant in that we only pay incentives when
warranted by financial performance as demonstrated by the fact
that our MPCP and LTIP plans have paid out only about 50% of the
time in the past 10 years. We believe this set of outcomes
over a long time period demonstrates the degree of difficulty of
the performance targets associated with the MPCP and
LTIP; and
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our equity-based plans, including the LTIP, SAR and restricted
stock provide share ownership opportunities to our NEOs. We also
have a seven-year holding period for restricted stock grants,
which begins after the end of the three-year vesting period to
ensure continued share ownership.
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16
Other aspects of our compensation programs designed to help
achieve the above objectives include:
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salaries are targeted at the market median as defined by
comparison with a peer group of companies of comparable size and
industry and pay survey data provided by the Compensation
Committees outside consultant;
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we provide MPCP payout targets at levels above the market median;
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we set performance objectives for the MPCP as follows:
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target performance objectives are set at the market median and
usually reflect improved performance from the prior year;
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minimum performance objectives are set at levels below which we
do not pay incentives; and
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maximum performance objectives are linked to payouts
significantly above the market median;
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as part of the MPCP, we also measure our performance against a
peer group of companies on a relative basis as well as set
subjective, but measurable, individual performance goals that,
if met, will result in payment of another part of the
competitive total pay package;
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our equity grants, including SAR and restricted stock, are
targeted to result in payouts at levels below the market median,
offsetting the above-market annual incentive opportunities in
the MPCP. Share price performance could result in compensation
both above and below the targeted levels;
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we provide standard and competitive benefits programs, including
health, life and other group benefits along with retirement and
deferred compensation opportunities and a few executive
perquisites; and
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we do not have ownership guidelines or requirements for the
NEOs. However, our intention is that the extended seven-year
ownership period of restricted shares will increase the
executives exposure to a loss of value, should the stock
value fall below the price on the date the shares were vested.
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Overall, our executive compensation programs are targeted, in
total, at the market median, recognizing that individual NEOs
may be higher or lower based on experience, individual
performance and other factors.
Factors
Influencing Compensation Decisions
All the members of the Compensation Committee are independent,
non-employee directors. The Committee makes policy and strategy
recommendations to the Board and has authority delegated from
the Board to:
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implement executive pay decisions;
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design the base pay, incentive pay, and benefits for the top
fourteen executives; and
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administer our equity incentive plans.
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The Committee met five times in 2009, including two
teleconferences, and also took action on one occasion by written
consent. Most meetings included an executive session during
which management was not present. Most compensation decisions
are finalized in the first quarter of each fiscal year. The
Compensation Committee Charter, which discusses the
Committees responsibilities on a more comprehensive basis,
is available at www.beminc.com.
The Committee determines compensation elements and performance
goals for the NEOs. The Committee relies on several resources to
accomplish this task, including the services of Pearl
Meyer & Partners (PM&P), an independent
compensation consultant that was engaged by, and reports
directly to the Committee. However, the Committee also approved
managements request to use PM&P to help prepare this
Compensation, Discussion & Analysis. The Committee
determined that providing this limited service to management did
not impair PM&Ps independence in its services to the
Committee. As a result, PM&P provides only executive
compensation services to the Company.
The Committee received input from the CEO with respect to
salaries, incentives, and total pay for the other NEOs, and
input from the other NEOs for the other eleven executives who
are part of the Committees
17
responsibility. In addition, the Committee reviews tally sheets
of overall compensation element values and totals, primarily to
identify any competitive issues, gain an understanding of the
relative dollar values of each compensation element and to
understand the magnitude of total compensation. Finally, the
Committee reviews other business documents such as budgets,
financial statements and management reports on our business
activities in making its decisions.
Compensation
Consultant and Comparative Pay Data
The Committee retained the services of PM&P in 2008 to
conduct a competitive pay analysis for our top fourteen
executives, including the NEOs. In addition, the Committee
retained PM&P to review the overall executive incentive
structure and make recommendations for changes that would be
effective in the 2009 fiscal year. The Committee relied on this
information for its decisions in 2009 as well and expects to
update the information during 2010.
PM&P based the competitive pay analysis, used to set base
salary and total pay targets, on two sources of information.
First, PM&P provided information from surveys published by
CHiPS (Executive and Senior Management Total Compensation Survey
(2007)), Mercer Human Resource Consulting (U.S. Executive
Benchmark Database (2007)) and Watson Wyatt Worldwide (Top
Management Compensation Survey
(2007-08)).
Each survey contained several hundred participants. Second,
PM&P surveyed a selected peer group of companies.
The Committee used the information collected from the published
surveys to determine market median salary and target annual and
long-term award amounts to match our pay philosophy. The target
for both salary and total direct pay (the sum of salary and
target annual and long-term incentives) was the median of the
companies represented in the published survey data provided by
PM&P. Overall, total compensation was within 5-15% of the
median for the NEOs and the total group of fourteen executives
reviewed by the Committee when compared to the survey data.
The Committee selected the peer group of companies used in the
pay analysis, with PM&Ps assistance and input from
management, by applying criteria to identify companies of
similar size, complexity and in similar/aspirational positions
on end users supply chains, as well as competitors for
executive talent. The peer group had:
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reported 2007 annual revenue generally between 50% and 200% of
our expected revenue for 2009;
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business-to-business
operations, with sales to other companies rather than the
ultimate consumer;
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a durable goods manufacturing focus; and
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an orientation toward specialty products and advanced materials,
with an emphasis on consumer electronics.
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The members of the peer group and their 2007 revenue, in
millions, were as follows:
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Company
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Revenue
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Company
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Revenue
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Cabot Corp.
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$
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2,616
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RF Micro Devices Inc.
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$
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956
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Ferro Corp.
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2,205
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Kemet Corp.
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850
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Carpenter Technology
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1,954
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Integrated Device Technology, Inc.
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781
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Atmel Corp.
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1,639
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Ceradyne Inc.
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757
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Novellus Systems
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1,570
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Skyworks Solutions Inc.
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742
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Stepan Co.
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1,330
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Hutchinson Technology Inc.
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716
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Hexcel Corp.
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1,171
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CTS Corp.
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686
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Minerals Technologies Inc.
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1,078
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RTI International Metals Inc.
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627
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Technitrol Inc.
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1,027
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Coherent Inc.
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601
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OM Group Inc.
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1,022
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|
|
Haynes International Inc.
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|
|
560
|
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18
The median 2007 peer group revenue was $989 million,
comparable to our 2007 revenue of $956 million. Cabot and
Ferro were included because they are direct competitors for
executive talent.
The Committee used the median pay data among CEOs and CFOs of
the peer group as an additional checkpoint in determining
salaries and targets for annual and long-term awards within a
competitive total compensation pay opportunity for the
executives. The peer group data showed our CEO and CFO at the
45th and 57th percentiles, respectively, for total
compensation, within a competitive range of the market median
target.
Total
Compensation Mix for 2009
Our major direct compensation components consist of salary, an
annual cash incentive and equity-based long-term incentives. The
following table illustrates the relative pay mix, based on
initial award values, for our NEOs if the target levels for the
2009 MPCP are achieved and equity grants were made at target
rates. For simplicity and to illustrate the Committees key
goals and objectives, we have only included the major direct pay
programs:
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Equity
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Equity
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Incentives -
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Incentive -
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Retention
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MPCP at
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Performance
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(Restricted
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Named Executive Officer
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Title
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Salary
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Target
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(LTIP & SAR)
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Stock)
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Total
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Richard J. Hipple
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Chairman, President and CEO
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23.3
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%
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36.6
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%
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26.7
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%
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13.4
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%
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100.0
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%
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John D. Grampa
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Senior VP Finance and CFO
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34.5
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%
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31.9
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%
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22.4
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%
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11.2
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%
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100.0
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%
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Daniel A. Skoch
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|
Senior VP Administration
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35.1
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%
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30.7
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%
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22.8
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%
|
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|
11.4
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%
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|
100.0
|
%
|
Dollar-based Average
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27.9
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%
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34.5
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%
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|
25.1
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%
|
|
|
12.5
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%
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|
|
100.0
|
%
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Note: The basis for the calculations is the salary that was in
place in 2009 for each NEO without taking into account the
salary reduction that took place between April and September
2009.
Our long-standing
pay-for-performance
philosophy has caused the Committee to:
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|
set salaries, a fixed-cash payment, as a smaller part of total
compensation for the NEOs;
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|
provide a greater portion of the NEOs total pay in
performance-based pay, including the MPCP and SAR grants. In
2009, SAR grants represented 67% of the equity opportunities
offered to the NEOs; and
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provide an instrument targeted specifically at retention,
time-based restricted stock grants, which represent 33% of the
equity opportunities.
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Overall, the table illustrates the following:
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cash-based pay, as well as short-term pay (salaries and MPCP),
is about 62% of the total, with equity-based/long-term oriented
pay representing the other 38%; and
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fixed pay (salaries and restricted stock) average about 40% of
the total versus 60% for performance-based pay.
|
The pay mixes noted above are different from the market median
data derived from the competitive pay analysis as we chose in
2009 to move a portion of the equity grant value into the MPCP,
which resulted in a higher proportion of targeted pay comprised
of annual incentives and a lower proportion in equity incentives
than the typical company. Specifically, we discontinued the LTIP
we have had in place for a number of years, which provided pay
for three-year financial performance, and shifted 50% of its
value to the MPCP with the remaining 50% being split between SAR
and restricted stock grants, such that SAR grants represented
two thirds of the total equity grant and restricted stock
represented one third.
We undertook this change because of the ongoing difficulty of
reliably forecasting three-year financial performance. Our lack
of precision on this issue resulted in a significant number of
prior LTIPs either not paying out at all, indicating performance
below the threshold levels, or paying at maximum, often
indicating performance well above maximum. We are more confident
in our ability to forecast annual financial
19
performance through the MPCP, while SAR and restricted stock
grants do not require forecasting future financial performance.
These changes generally maintained the level of
pay-for-performance
in our overall executive compensation program.
Executive
Compensation Elements
To meet our objectives and reward executives for demonstrating
the desired actions and behaviors, we compensate our executive
officers through:
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salary;
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MPCP;
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equity awards;
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payments upon severance and
change-in-control;
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retirement and deferred compensation benefits;
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health and welfare benefits; and
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executive perquisites.
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The following is an explanation of the reasons each pay element
is included in the total compensation package of an executive;
the intended value, targeted competitive level and targeted
portion of total compensation for each pay element; the reasons
behind that targeted value, competitive level and proportion of
total pay; and the interaction, if any, of each pay element with
the other pay elements.
Base
Salary
At the beginning of 2009, the Committee elected to defer
consideration for any salary increases until mid-year. However,
as economic conditions and the Companys financial
performance continued to deteriorate in early 2009, management
recommended to the Committee, and the Committee approved, the
reduction of salaries by 10% indefinitely (including each of the
NEOs) as one in a series of Company responses to the economic
crisis. The salary reduction began on April 4, 2009 and
continued until September 26, 2009, when management and the
Committee agreed that salaries could be reinstated at their
prior levels. As such, NEO salaries paid in 2009 were less than
those paid in 2008.
In late 2009, the Committee considered and approved salary
increases, effective as of January 1, 2010, given the
ongoing economic recovery and the Companys stronger
financial position relative to the prior year. The salaries
approved for Messrs. Hipple, Grampa and Skoch for 2010 are
$705,000, $375,000 and $345,000. Each executives salary
will be close to the market median as defined in the
2008 PM&P study.
Salaries directly affect the determination of life and
disability benefits, which are set as a multiple of salary, and
are considered in retirement benefit formulas, including
deferral and matching contribution calculations for retirement
benefits. Salary is also used as the basis for calculating MPCP
awards, as described below, and in calculating payments that may
be paid upon a change in control, as described in Other
Potential Post-employment Payments.
2009
MPCP
We established annual performance goals for the MPCP including
objective financial performance goals and individual goals for
2009. Objective goals are based solely on financial measures,
specifically operating profit at the corporate and individual
business unit levels and changes in ROIC performance relative to
changes among a peer group, which the Committee believes are the
Companys key success factors.
20
Target incentives as a percent of salary for 2009 were set at
154.5% for Mr. Hipple, 89.5% for Mr. Grampa and 84.5%
for Mr. Skoch, reflecting the partial reallocation of
equity incentives in 2009. The above figures are allocated to
several performance measures as follows:
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Relative Return
|
|
Individual
|
|
Operating
|
|
Total
|
Name
|
|
Title
|
|
on Invested Capital
|
|
Performance
|
|
Profit
|
|
MPCP Target
|
|
Richard J. Hipple
|
|
Chairman, Pres. and CEO
|
|
|
57.5
|
%
|
|
|
7.0
|
%
|
|
|
90.0
|
%
|
|
|
154.5
|
%
|
John D. Grampa
|
|
Senior VP Finance and CFO
|
|
|
32.5
|
%
|
|
|
7.0
|
%
|
|
|
50.0
|
%
|
|
|
89.5
|
%
|
Daniel A. Skoch
|
|
Senior VP Administration
|
|
|
32.5
|
%
|
|
|
7.0
|
%
|
|
|
45.0
|
%
|
|
|
84.5
|
%
|
Awards for individual goals are payable only if threshold
financial performance is achieved and represent an additional 7%
of salary at target for all NEOs.
The operating profit goals for 2009 for the NEOs were based on
the achievement of overall corporate adjusted operating profit
as well as the achievement of operating profit targets at each
of the Companys major business units. None of the
thresholds for earning MPCP incentives for operating profit were
met in 2009 and no payouts to the NEOs were made for this
component of the MPCP. The threshold, target and maximum
corporate operating profit targets were $1.2 million,
$13.7 million and $35.6 million, respectively, while
the actual corporate operating loss was $19.5 million.
As noted above, we also implemented a performance measure in
2009 designed to compare the relative change from
year-to-year
of our ROIC versus the twenty company peer group outlined above.
We measure the change in ROIC over the course of the trailing
four quarters ending on September 30, 2009 (i.e., the
fourth quarter of 2008 and the first three quarters of
2009) in order to determine our ROIC performance versus the
four quarters ending on September 30, 2008. We then
determine our rank within the peer group, which then correlates
to a percentage of target payout scale.
For 2009, a rank of 11 of 21 (the twenty peer companies plus the
Company) correlates to a target payout, while a rank of 1
correlates to a maximum payout at 200% of target and a rank of
16 generates a threshold payout at 50% of target. A rank below
16 does not generate a payout. For 2009, the Company achieved a
ranking of 12, correlating to a 90% of target payout. The
Companys actual performance was a decline of 14.6% in ROIC
versus a median (rank: 11) of a decline of 14.1%, with the
threshold representing a decline of 23.4%.
The Committee set individual goals for the CEO in 2009 designed
to focus attention on moving the Company towards its strategic
objectives and initiatives, while recognizing the very
challenging macro-economic environment. The accomplishment of
these goals is a measurable, objective result. The CEOs
2009 individual goals included:
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reduce costs and manage the balance sheet;
|
|
|
|
improved shareholder value;
|
|
|
|
profitable increases in the Companys critical mass;
|
|
|
|
improved succession planning and organization development;
|
|
|
|
increased Asian business base;
|
|
|
|
continued development of a broader earnings base for the Company
designed to achieve better earnings stability; and
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|
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|
improved corporate-wide systems designed to improve consistency
and reduce overall corporate risk.
|
2009 individual goals for the other NEOs also included
environmental health and safety objectives and improvement of
internal business processes. Payments were made for individual
objectives to the NEOs, per the MPCP plan provisions.
21
The table below shows the total payments made from the MPCP
based on the achievement of the relative ROIC measure and the
individual objectives. Actual payments represent about 40% of
target in the aggregate.
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|
|
|
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|
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|
|
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Relative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on
|
|
Actual MPCP
|
|
|
|
|
MPCP
|
|
Total MPCP
|
|
Individual
|
|
Operating
|
|
Invested
|
|
Payment
|
Name
|
|
Title
|
|
Target
|
|
Target
|
|
Objectives
|
|
Profit
|
|
Capital
|
|
Total
|
|
Richard J. Hipple
|
|
Chairman, Pres. and CEO
|
|
|
154.5
|
%
|
|
$
|
1,052,454
|
|
|
$
|
61,308
|
|
|
$
|
|
|
|
$
|
352,521
|
|
|
$
|
413,829
|
|
John D. Grampa
|
|
Senior VP Finance and CFO
|
|
|
89.5
|
%
|
|
$
|
307,164
|
|
|
$
|
29,172
|
|
|
$
|
|
|
|
$
|
100,386
|
|
|
$
|
129,558
|
|
Daniel A. Skoch
|
|
Senior VP Administration
|
|
|
84.5
|
%
|
|
$
|
276,822
|
|
|
$
|
22,932
|
|
|
$
|
|
|
|
$
|
95,823
|
|
|
$
|
118,755
|
|
Awards made from the MPCP are taken into account in pension
benefit formulas and are used to determine deferral and matching
contribution calculations for other retirement and deferred
compensation benefits. They also may affect the calculation of
payments that may be paid upon a change in control or other
potential severance payments, as described below in Other
Potential Post-employment Payments.
Equity
Awards
Our equity award program is targeted at levels below the market
median for comparable long-term incentive programs among our pay
survey group and peer group, offsetting the higher than median
targets we have set for the MPCP. As noted, the program for 2009
had two components, including:
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|
|
|
|
SAR grants, which comprised 67% of the total equity value. SAR
are granted at fair market value and gain value based on
increases in the Companys share price and, consequently,
total shareholder return. SAR vest three years after the grant
date, have a term of 10 years and are settled in
shares; and
|
|
|
|
time-based restricted shares, the remaining 33% of the total
equity value, were designed for retention purposes and are
earned by NEOs based on the passage of time and continued
employment. The restricted shares vest after three years of
service, with the added stipulation that the net after-tax
shares be held by the NEOs for an additional seven years,
assuming continued employment, before the shares may be sold.
|
All equity components in 2009 were granted pursuant to the 2006
Stock Incentive Plan (2006 Plan). NEOs are required to forfeit
outstanding awards and pay back any amounts realized from the
above grants if they engage in activity deemed to be detrimental
to the Company, as defined in the equity award agreements.
In addition, each of the NEOs holds two remaining LTIP grants,
made at the beginning of 2007 and 2008, each with three-year
terms. The LTIP is a combination of performance restricted
shares and performance shares. Performance restricted shares
consist of stock grants that will be forfeited if performance
targets are not achieved during the performance period. LTIP
values are earned based on the achievement of cumulative
pre-determined operating profit targets over a three-year
period. The LTIPs established for the NEOs are three-year
performance plans designed to promote the achievement of
cumulative corporate operating profit goals.
In 2007, the LTIP was established using performance restricted
and performance shares under our 2006 Plan with management
objectives based on cumulative operating profit with a
performance period of
2007-2009.
The adjusted actual cumulative operating profit for
2007-2009 of
$93.1 million was below the threshold of the targeted range
of $135 million (minimum, target and maximum were
$135 million, $169 million and $185 million,
respectively). As a result, the participants earned no payouts
from the shares originally granted at the beginning of 2007.
In 2008, the Committee established the last three-year LTIP
using both performance restricted shares and performance shares
under our 2006 Plan, with objectives based on cumulative
operating profit for the period from
2008-2010.
Payouts, if any, will be payable in early 2011. The Committee
designed these awards such that, once target performance is
attained and the performance restricted shares are earned,
results above the targeted level will be paid in performance
shares. A cumulative operating profit threshold must be met
before any payout is attained. However, should the cumulative
operating profit threshold not be met, and our stock performance
during the three-year performance period is in the top quartile
compared to the Russell 2000, then a payout can be made, but
only at the threshold (25% of target) level.
22
The relative values of total compensation among comparable
companies in the survey data are the most important determining
factors in setting the long-term incentive amounts, along with
consideration of the experience, responsibilities and
performance of the executive. The equity grants currently held
by each NEO are not taken into consideration in making new
grants to that NEO.
The Committee is solely responsible for the grant of equity
awards. The awards traditionally are granted in February after
the Companys annual earnings have been announced. In
February 2007, the Committee adopted Stock Award Administrative
Procedure Guidelines related to the various forms of equity
grants designed to formalize the process of establishing the
date of grant, grant prices at fair market value and other
administrative practices appropriate to equity grants to
executives.
The amounts realized by the NEOs from the LTIP, but not the
amounts realized from the SAR and restricted stock, are taken
into account in the pension benefit formulas and used for
determining deferral and matching contribution calculations for
other retirement benefits. None of the equity awards are
included in compensation for purposes of determining any other
benefit amount, except that they may affect calculation of
payments that may be paid upon a change in control or other
potential severance payments, as described below in Other
Potential Post-employment Payments.
Severance
Payments and Payments Upon a
Change-in-Control
Each NEO is party to a Severance Agreement that provides
two-year severance benefits in the event of involuntary
termination of employment by us, other than for cause or gross
misconduct, or if he resigns as a result of a reduction in his
salary or incentive pay opportunity, provided that such a
reduction in salary or incentive pay opportunity is not part of
a general reduction in compensation opportunity for all
officers. The Severance Agreements were adopted at a time of
transition to a new CEO with the objective to help secure the
continued employment of each NEO through and beyond this time of
change.
The Severance Agreements also provide each NEO with benefits in
specified circumstances following a change in control. The
triggering events for a change in control are described in the
section entitled Other Potential Post-employment
Payments. When the Committee chose these triggering events
in July 2008, they were understood to be competitive and
appropriate at that time, and were based primarily on advice
from legal counsel as well as their experiences with other
companies our directors have been associated with during their
careers. If the NEO resigns for defined Good Reason,
or his employment is terminated by the Company for reasons other
than for cause during the three years following a change in
control, he will receive three-year severance benefits, as
described under Other Potential Post-employment
Payments. In addition, the NEO can resign for any reason
during the
30-day
period following the first anniversary of a change in control.
The NEO also receives these benefits if any employment change
occurs during discussions with any third party that results in a
change in control.
The Committee adopted a
gross-up
provision in February 2007 for the parachute tax
under the Internal Revenue Code Section 280G in the context
of a change in control. The parachute tax applies to
separation compensation beyond a determined cap as defined under
Section 280G of the Internal Revenue Code. Average
W-2
compensation for the prior five years is used in calculating the
cap. The Committee decided a
gross-up
feature was appropriate because the CEO was new to his role and
the cap would be determined by his compensation in a lesser
capacity and the Company had been in a turnaround situation for
five years prior to 2007. Based on this logic, the Committee
also included a sunset provision in the
gross-up
feature so that it would automatically end five years after
adoption.
The Committee believes the Severance Agreements are an important
part of the competitive executive compensation package because
they help ensure the continuity and stability and provide
protection to the NEOs. The Committee also believes the
Severance Agreements reduce the NEOs interest in working
against a potential change in control and help to minimize
interruptions in business operations by reducing any concerns
they have of being terminated prematurely and without cause
during an ownership transition. In exchange, each NEO agrees not
to compete while employed or for two years after an involuntary
termination of employment; nor to solicit any employees, agents,
or consultants to terminate their relationship with us; and to
protect our confidential information. Each NEO also assigns to
the Company any intellectual property rights
23
to any discoveries, inventions or improvements made while
employed by us or within one year after his employment
terminates.
Retirement
Benefits
We provide a variety of plans and benefits to our NEOs that fall
under the heading of retirement and deferred compensation
benefits, including:
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|
|
Brush Engineered Materials Inc. Pension Plan (Pension Plan);
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|
|
|
special awards;
|
|
|
|
Savings and Investment Plan (401(k) Plan); and
|
|
|
|
Executive Deferred Compensation Plan II (EDCP II).
|
The special awards are designed to make up for Internal Revenue
Code limitations associated with the Pension Plan for the NEOs,
while the EDCP II is designed to make up for similar limitations
related to the 401(k) Plan. The Committee believed each of these
programs to be necessary from a competitive viewpoint and for
retention purposes.
Pension
Plan
The Pension Plan is the primary vehicle for providing retirement
compensation to all employees and is a tax-qualified defined
benefit pension plan. All the NEOs participate in the Pension
Plan. Before June 1, 2005, the benefit formula was 50% of
final average earnings over the highest five consecutive years
minus 50% of the annual Social Security benefit with the result
prorated for service of less than 35 years. Effective as of
May 31, 2005, we froze the benefit under the prior formula
for all employees including the NEOs.
Beginning June 1, 2005, the Pension Plan formula was
reduced for all participants, including the NEOs, to 1% of each
years compensation, as defined in the Pension Plan. The
retirement benefit for these individuals will be equal to the
sum of that earned as of May 31, 2005 and that earned under
the new formula for service after May 31, 2005. However,
because the amount of compensation that may be included in the
formula for calculating pension benefits and the amount of
benefit that may be accumulated in the Pension Plan are limited
by the Internal Revenue Code, the NEOs will not receive a
Pension Plan benefit equal to 1% of their total pay.
The tax code limitations associated with the Pension Plan are
taken into account by the Committee in determining amounts
intended to supplement retirement income for the NEOs, such as
the special awards described below. The benefit accumulated
under the Pension Plan does not affect any other element of
compensation for the NEOs, except to the extent it is included
in the calculation of payments that may be paid upon a change in
control or other potential severance payments, as described
below in Other Potential Post-employment Payments.
Special
Awards
As noted, the NEOs will not receive a full benefit from the
Pension Plan and we do not provide a supplemental retirement
plan for our NEOs. At its December 2009 meeting, the Committee
exercised its discretion to authorize special awards in lieu of
a supplemental retirement benefit plan for Messrs. Hipple,
Grampa and Skoch in the amounts of $168,450, $78,315 and
$131,770, respectively, all of which were paid in January 2010.
The amounts of these payments were derived by making assumptions
regarding future anticipated earnings and actuarially
calculating a present value benefit equivalent to what would
have been accrued if we had a supplemental retirement benefit
plan in effect. This calculation used the reduced Pension Plan
formula for all service after May 31, 2005. The Committee
added an additional five years of service to the calculation as
part of Mr. Hipples overall compensation package upon
his becoming CEO. No obligation exists for future special awards.
24
These payments may be taken into account in calculating future
supplemental retirement amounts, if any are awarded. They also
affect the calculation of payments that may be paid upon a
change in control or other potential severance payments, as
described below in Other Potential Post-employment
Payments, but generally are not intended to affect the
amounts of any other compensation element for the NEOs.
401(k)
Plan
The 401(k) Plan is a tax-qualified defined contribution plan.
All of the NEOs participate in this plan as part of their
competitive total compensation package. The 401(k) Plan offers
the NEOs and all other employees the opportunity to defer
income. In addition, we made a matching contribution to each
employee equal to 25% of the first 6% of compensation deferred
by the employee, beginning on January 1, 2009. However, as
of April 4, 2009, we eliminated the match for the remainder
of 2009 in response to the economic crisis.
This compensation element is tax-deferred and is not intended to
affect the value of any other compensation element, but the
amount of contributions that may be made under the 401(k) plan
may affect calculation of payments that may be paid upon a
change in control or other potential severance payments, as
described below in Other Potential Post-employment
Payments.
EDCP
II
In 2004, the Committee established the EDCP II to replace the
Key Employee Share Option Plan (KESOP), which is described in
the section entitled 2009 Nonqualified Deferred
Compensation. The EDCP II provides an opportunity for the
NEOs to defer a portion of their compensation. The EDCP II also
provides a nonelective deferred compensation credit to each
NEOs account in an amount equal to 1.5% of the NEOs
annual compensation above the qualified plan limit in 2009. As
of April 4, 2009, we eliminated this credit in response to
the economic crisis. The limit for 2009 was $245,000, as
determined under the Internal Revenue Code. The Committee
considers this contribution to be a replacement for the loss of
any 401(k) Plan matching contribution that otherwise would have
been attributable to compensation earned over the qualified plan
limit. Earnings are credited to each NEOs account based on
his choice of investment alternatives from a list provided by
the Committee.
This compensation element is tax-deferred and is not intended to
affect the value of any other compensation element.
Health
and Welfare Benefits
The NEOs participate in group life, health and disability
programs provided to all salaried employees. Except for periodic
executive physicals, no other special health or welfare benefits
are provided for the NEOs. Almost all of the value of these
benefits is not taxable and does not affect the value of any
other elements of compensation for the NEOs, but they may affect
calculation of payments that may be paid upon a change in
control or other potential severance payments, as described
below in Other Potential Post-employment Payments.
Perquisites
We pay for financial planning services, to a maximum of $12,500
each year for each NEO, and annual dues for various club
memberships for the NEOs, subject to Committee approval. The
Committee believes that such memberships provide the NEOs with
important contacts within the business community and provide a
good environment for business entertainment needs.
These benefits are included in taxable income, and do not affect
the determination of retirement benefits. They are not expected
to affect the value of any other elements of compensation for
the NEOs, except to the extent that they may affect calculation
of payments that may be paid upon a change in control or other
potential severance payments, as described below in Other
Potential Post-employment Payments.
25
Accounting
and Tax Effects
The Committee considers both the financial reporting and the
taxation of compensation elements in its decision making
process. The Committee seeks a balance between the
Companys best interests, fair treatment for the executives
and minimizing taxation of the compensation offered to the
executive while maximizing immediate deductibility.
The Committee designed the severance plans for all executives,
except the NEOs, to reduce amounts payable that otherwise would
have been subject to an excise tax known as excess golden
parachute payments as defined under Internal Revenue Code
section 280G. The Committee is also aware of Internal
Revenue Code Section 162(m), which limits deductions for
compensation paid to individual NEOs (with the exception of the
CFO) in excess of $1 million. In response, the Committee
designs much of the total compensation package of the NEOs to
qualify for the exemption of performance-based
compensation from the deductibility limit. However, the
Committee reserves the right to design and use compensation
instruments that may not be deductible within the rules of
Internal Revenue Code section 162(m), if those instruments
are in the Companys best interests.
2009
Compensation Mix Change
The Committee made several changes to the total compensation
mix, beginning in 2009. First, the Committee increased the
annual and equity opportunity for the NEOs to the new market
medians based on information derived from the PM&P data
developed during 2008. These changes are shown in the table
below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Annual
|
|
2008 Equity
|
|
2009 Annual
|
|
2009 Equity
|
|
|
Incentive
|
|
Incentive
|
|
Incentive
|
|
Incentive
|
Named Executive Officers
|
|
Opportunity
|
|
Opportunity
|
|
Opportunity
|
|
Opportunity
|
|
Richard J. Hipple
|
|
|
75
|
%
|
|
|
200
|
%
|
|
|
100
|
%
|
|
|
230
|
%
|
John D. Grampa
|
|
|
55
|
%
|
|
|
120
|
%
|
|
|
60
|
%
|
|
|
130
|
%
|
Daniel A. Skoch
|
|
|
50
|
%
|
|
|
120
|
%
|
|
|
55
|
%
|
|
|
130
|
%
|
The above changes were made to ensure that our total
compensation program remains targeted at the competitive market
median, based on our pay philosophy. In addition, the changes
place greater emphasis on variable compensation versus fixed
salary compensation, again linking closely to our pay philosophy.
Second, the Committee eliminated the three-year equity-based
LTIP and reallocated the values associated with it.
Specifically, 50% of the former LTIP opportunity was shifted to
the 2009 MPCP, with the remaining 50% of the LTIP value
allocated to SAR and restricted stock grants. These changes are
summarized in the table below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reallocated
|
|
Reallocated
|
|
Reallocated
|
|
|
2009 Annual
|
|
2009 Equity
|
|
Total 2009
|
|
2009 Annual
|
|
2009 Equity
|
|
Total 2009
|
|
|
Incentive
|
|
Incentive
|
|
Incentive
|
|
Incentive
|
|
Incentive
|
|
Incentive
|
Named Executive Officers
|
|
Opportunity
|
|
Opportunity
|
|
Opportunity
|
|
Opportunity
|
|
Opportunity
|
|
Opportunity
|
|
Richard J. Hipple
|
|
|
100
|
%
|
|
|
230
|
%
|
|
|
330
|
%
|
|
|
157.5
|
%
|
|
|
172.5
|
%
|
|
|
330
|
%
|
John D. Grampa
|
|
|
60
|
%
|
|
|
130
|
%
|
|
|
190
|
%
|
|
|
92.5
|
%
|
|
|
97.5
|
%
|
|
|
190
|
%
|
Daniel A. Skoch
|
|
|
55
|
%
|
|
|
130
|
%
|
|
|
185
|
%
|
|
|
87.5
|
%
|
|
|
97.5
|
%
|
|
|
185
|
%
|
The Committee found these changes to be necessary because of the
difficulty inherent in setting long-term financial performance
objectives for the LTIP. Specifically, the timing and magnitude
of the cyclicality associated with our major customers
businesses renders setting such goals extremely difficult. The
resulting volatility introduces a lottery effect to
the LTIP, which the Committee believes is counter to the
underlying incentive motive of such a plan. The Committee
believes such volatility has been reflected in the LTIP over the
past 10 years in which performance outcomes and the
associated payouts have oscillated from below threshold to above
maximum.
The Committee believes we have better success forecasting on an
annual basis, which accounts for the shift in values to the MPCP
for 2009. The Committee used the additional allocation to the
2009 MPCP to create a
26
relative performance measure based on ROIC versus the peer
group. This measure is designed to motivate participants to use
capital more efficiently, which we believe will lead to the
creation of shareholder value.
The reallocations from the LTIP to SAR does not require
forecasting and will serve to increase the emphasis placed on
share price appreciation, which is a key aspect of our pay
philosophy.
COMPENSATION
COMMITTEE REPORT
We have reviewed and discussed with management the foregoing
Compensation Discussion and Analysis. Based on our review and
discussion with management, we have recommended to the Board of
Directors that the Compensation Discussion and Analysis be
included in this proxy statement and in our Annual Report on
Form 10-K
for the year ended December 31, 2009.
The foregoing report has been furnished by the Compensation
Committee of the Board of Directors.
N. Mohan Reddy (Chairman)
Vinod M. Khilnani
William P. Madar
William R. Robertson
John Sherwin, Jr.
Notwithstanding anything to the contrary as set forth in any of
our previous filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended,
that incorporate future filings, including this proxy statement,
in whole or in part, the foregoing Compensation Committee Report
shall not be incorporated by reference into any such filings
other than our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009.
Compensation
Policies and Practices to Risk Management
The Compensation Committee and management do not believe that
the Company maintains compensation policies or practices that
are reasonably likely to have a material adverse effect on Brush
Engineered Materials. However, as part of a larger enterprise
risk management review, during 2010 we will review our
compensation policies and practices with respect to executive
and non-executive employees to ensure that the compensation
program continues to align the interests of our employees with
those of our shareholders and does not create any unnecessary or
excessive risk.
27
2009
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the
compensation of our Chief Executive Officer and our other named
executives who served in such capacities during the fiscal year
ended December 31, 2009 (the Named Executive
Officers):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Non-qualified
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Plan
|
|
Deferred
|
|
All Other
|
|
|
Name and
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Compensation
|
|
Total
|
Principal Position
|
|
Year
|
|
(1)($)
|
|
(2)($)
|
|
(3)($)
|
|
(4)($)
|
|
($)(5)
|
|
Earnings ($)(7)
|
|
($)(8)
|
|
($)
|
|
Richard J. Hipple
|
|
|
2009
|
|
|
|
674,650
|
|
|
|
168,450
|
|
|
|
1,377,633
|
|
|
|
705,932
|
|
|
|
413,829
|
|
|
|
49,034
|
|
|
|
34,555
|
|
|
|
3,424,083
|
|
Chairman, President and
|
|
|
2008
|
|
|
|
680,092
|
|
|
|
177,850
|
|
|
|
705,825
|
|
|
|
155,983
|
|
|
|
181,858
|
|
|
|
24,136
|
|
|
|
103,002
|
|
|
|
2,028,746
|
|
Chief Executive Officer
|
|
|
2007
|
|
|
|
649,056
|
|
|
|
163,750
|
|
|
|
444,198
|
|
|
|
341,550
|
|
|
|
1,512,038
|
(6)
|
|
|
14,949
|
|
|
|
67,484
|
|
|
|
3,193,025
|
|
John D. Grampa
|
|
|
2009
|
|
|
|
339,900
|
|
|
|
78,315
|
|
|
|
407,838
|
|
|
|
201,027
|
|
|
|
129,558
|
|
|
|
58,982
|
|
|
|
17,556
|
|
|
|
1,233,176
|
|
Senior Vice President Finance
|
|
|
2008
|
|
|
|
342,642
|
|
|
|
114,120
|
|
|
|
291,791
|
|
|
|
47,152
|
|
|
|
63,243
|
|
|
|
37,126
|
|
|
|
47,668
|
|
|
|
943,742
|
|
and Chief Financial Officer
|
|
|
2007
|
|
|
|
328,471
|
|
|
|
61,882
|
|
|
|
134,280
|
|
|
|
103,604
|
|
|
|
829,080
|
(6)
|
|
|
20,199
|
|
|
|
41,424
|
|
|
|
1,518,940
|
|
Daniel A. Skoch
|
|
|
2009
|
|
|
|
324,450
|
|
|
|
131,770
|
|
|
|
389,430
|
|
|
|
191,888
|
|
|
|
118,755
|
|
|
|
88,010
|
|
|
|
26,585
|
|
|
|
1,270,888
|
|
Senior Vice President,
|
|
|
2008
|
|
|
|
327,068
|
|
|
|
131,770
|
|
|
|
316,793
|
|
|
|
45,002
|
|
|
|
63,243
|
|
|
|
66,330
|
|
|
|
56,765
|
|
|
|
1,006,971
|
|
Administration
|
|
|
2007
|
|
|
|
314,046
|
|
|
|
88,625
|
|
|
|
128,193
|
|
|
|
100,188
|
|
|
|
788,580
|
(6)
|
|
|
24,548
|
|
|
|
47,994
|
|
|
|
1,492,174
|
|
|
|
|
(1) |
|
For 2009, Salary includes deferred compensation to
the 401(k) plan in the amount of $22,000 for each of
Messrs. Hipple, Grampa and Skoch. |
|
(2) |
|
In 2009, the Compensation Committee again exercised its
discretion to authorize special awards in lieu of a supplemental
retirement benefit plan. |
|
(3) |
|
The amounts reported in this column reflect the aggregate grant
date fair value as computed in accordance with FASB ASC Topic
718 for restricted shares and performance restricted shares
granted to each NEO. Included in the 2009 amounts for
Messrs. Hipple, Grampa and Skoch are $887,692; $256,246 and
$268,320, respectively, which represent the grant date fair
value of performance restricted shares based on the probable
outcome of the performance conditions of such awards. If all
performance conditions had been met at their maximum levels, the
grant date fair value of these performance restricted shares
would have been $1,331,538; $384,369 and $402,480, respectively
for Messrs. Hipple, Grampa and Skoch. See Note K to
the consolidated financial statements contained in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 for the assumptions
used in calculating the fair value. See the 2009 Grants of
Plan-based Awards table for information on awards made in
2009. |
|
(4) |
|
The amounts reported in this column reflect the aggregate grant
date fair value as computed in accordance with FASB ASC Topic
718 for stock appreciation rights granted to each NEO. See
Note K to the consolidated financial statements contained
in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 for the assumptions
used in calculating the fair value. See the 2009 Grants of
Plan-based Awards table for information on awards made in
2009. |
|
(5) |
|
The amounts in this column for 2009 represents the payments made
to the NEOs under the Management Performance Compensation Plan.
There were no payments made under the
2007-2009
Long-term Incentive Plan. |
|
(6) |
|
The 2007 Non-equity Incentive Plan Compensation
included an overpayment of bonus due to an accounting error that
was identified after these payments were made. In 2008, shares
of performance restricted stock were waived to correct this
overpayment in the amounts of 7,765; 2,708 and 2,298 for
Messrs. Hipple, Grampa and Skoch, respectively, valued at
$12.72 per share. |
|
(7) |
|
The amounts in this column for 2009 represent the change in
pension value and earnings in excess of 120% of the applicable
federal rate in effect during 2009 for the Kesop and EDCP II
Plans discussed later in this proxy statement. The amounts for
the change in pension value and the earnings in excess of 120%
of the applicable federal rate in effect during 2009 are as
follows: |
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kesop/
|
|
|
|
|
Pension
|
|
EDCP II
|
|
Total
|
|
Richard J. Hipple
|
|
$
|
27,559
|
|
|
$
|
21,475
|
|
|
$
|
49,034
|
|
John D. Grampa
|
|
|
41,031
|
|
|
|
17,951
|
|
|
|
58,982
|
|
Daniel A. Skoch
|
|
|
68,738
|
|
|
|
19,272
|
|
|
|
88,010
|
|
|
|
|
(8) |
|
For all the NEOs, All Other Compensation for 2009
included the Company match to the 401(k) plan, reimbursement of
club dues, financial planning fees and group life premiums. Club
dues for Mr. Hipple were $18,678; financial planning fees
for Messrs. Grampa and Skoch were $10,559 and $12,500,
respectively. All Other Compensation included a
Company contribution to the Health Savings Account for
Mr. Skoch. |
2009
GRANTS OF PLAN-BASED AWARDS
We currently are utilizing two incentive plans that provide
executives opportunities to earn cash or stock compensation. The
MPCP provides cash compensation for annual performance. The 2006
Stock Incentive Plan provides opportunities for equity-based
compensation for service and performance for periods of more
than one year.
The following table sets forth information concerning annual
incentive cash awards, grants of SAR and restricted shares to
the NEOs during the fiscal year ended December 31, 2009, as
well as estimated future payouts under those incentive plans.
See the CD&A for further discussion of these incentive
plans, these types of grants and the reason for these types of
grants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
Estimated Future Payouts
|
|
Awards:
|
|
Number of
|
|
Exercise or
|
|
Fair Value
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
Under Equity Incentive
|
|
Number
|
|
Securities
|
|
Base Price of
|
|
of Stock
|
|
|
|
|
Compensation
|
|
Plan Awards
|
|
Plan Awards
|
|
of Shares
|
|
Underlying
|
|
Option
|
|
and Option
|
|
|
Grant
|
|
Committee
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
of Stock
|
|
Options
|
|
Awards
|
|
Awards
|
Name
|
|
Date
|
|
Approval Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
or Units (#)(1)
|
|
(#)(2)
|
|
($/Sh)
|
|
($)(3)
|
|
Richard J. Hipple
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
1,052,454
|
|
|
|
2,104,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,641
|
|
|
|
|
|
|
|
15.01
|
|
|
|
489,941
|
|
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,147
|
|
|
|
15.01
|
|
|
|
705,932
|
|
John D. Grampa
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
307,164
|
|
|
|
614,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,295
|
|
|
|
|
|
|
|
15.01
|
|
|
|
139,518
|
|
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,671
|
|
|
|
15.01
|
|
|
|
201,027
|
|
Daniel A. Skoch
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
276,822
|
|
|
|
553,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,873
|
|
|
|
|
|
|
|
15.01
|
|
|
|
133,184
|
|
|
|
|
2/10/2009
|
|
|
|
2/2/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,504
|
|
|
|
15.01
|
|
|
|
191,888
|
|
|
|
|
(1) |
|
This column shows the restricted shares granted in 2009. |
|
(2) |
|
This column shows the SAR that were granted in 2009. These SAR
become fully exercisable and vest 100% after three years. |
|
(3) |
|
The amounts reported in this column reflect the aggregate grant
date fair value as computed in accordance with FASB ASC Topic
718 for stock and option awards. See Note K to the
consolidated financial statements contained in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 for the assumptions
used in calculating the fair value. |
Executive
Employment Arrangements
None of the NEOs has an employment agreement. However, each NEO
has a Severance Agreement that provides the executive with
three-year severance benefits upon termination or significant
change in the duties of the executive as a result of a change in
control as defined in the agreement, and two-year severance
benefits in the event of certain involuntary terminations.
Discussion of the payouts provided for under various termination
situations is set forth in the section Other Potential
Post-employment Payments below.
Base
Salary
The Compensation Committee annually reviews and adjusts base
pay, in keeping with the overall objectives, pay philosophy and
relative position with comparable companies, all as discussed in
more detail in the CD&A.
29
Bonuses
Bonus compensation in 2009, as shown in the 2009 Summary
Compensation Table, consisted of discretionary amounts
paid in lieu of supplemental retirement benefits, as discussed
in more detail in the CD&A under the section entitled
Special Awards.
Non-equity
Incentive Plan Compensation
For 2009, base salaries and bonuses (including amounts deferred
to the 401(k) plan) as a percentage of total compensation shown
in the 2009 Summary Compensation Table, were 33% for
Mr. Hipple; 43% for Mr. Grampa; and 45% for
Mr. Skoch.
Stock
Awards
Stock-based awards under the 2006 Stock Incentive Plan during
2009 were made in the form of SAR and restricted stock.
Descriptions and the reason for these types of grants are in the
CD&A.
Grants of restricted stock and SAR were made in 2007, 2008 and
2009. The associated expense recorded in accordance with
accounting guidelines is disclosed in the 2009 Summary
Compensation Table. The restricted shares and SAR vest
after three years from the date of grant.
30
2009
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
Value of
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
Market Value
|
|
|
Awards
|
|
|
Unearned
|
|
|
|
Number of
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Number of
|
|
|
of Share
|
|
|
Number of
|
|
|
Shares,
|
|
|
|
Securities
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
or Units
|
|
|
Unearned
|
|
|
Units or Other
|
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
Units of
|
|
|
of Stock
|
|
|
Shares, Units
|
|
|
Rights
|
|
|
|
Unexercised
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Option
|
|
|
Stock That
|
|
|
That
|
|
|
or Other Rights
|
|
|
That Have
|
|
|
|
Options (#)
|
|
|
Unexercisable
|
|
|
Price
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Have Not
|
|
|
That Have Not
|
|
|
Not Vested
|
|
Name
|
|
Exercisable
|
|
|
(1)
|
|
|
($)
|
|
|
Date
|
|
|
Vested (#)(2)
|
|
|
Vested ($)(3)
|
|
|
Vested (#)(4)
|
|
|
($)(3)
|
|
|
Richard J. Hipple
|
|
|
9,000
|
|
|
|
|
|
|
|
17.075
|
|
|
|
2/3/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
17.68
|
|
|
|
2/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
14.10
|
|
|
|
4/29/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,700
|
|
|
|
|
|
|
|
24.03
|
|
|
|
5/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
44.72
|
|
|
|
2/15/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,102
|
|
|
|
27.78
|
|
|
|
2/15/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,147
|
|
|
|
15.01
|
|
|
|
2/10/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,869
|
|
|
|
924,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,609
|
|
|
|
270,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,700
|
|
|
|
116,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John D. Grampa
|
|
|
10,000
|
|
|
|
|
|
|
|
22.43
|
|
|
|
2/6/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
12.15
|
|
|
|
2/5/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
17.075
|
|
|
|
2/3/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
17.68
|
|
|
|
2/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000
|
|
|
|
|
|
|
|
24.03
|
|
|
|
5/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,550
|
|
|
|
44.72
|
|
|
|
2/15/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,356
|
|
|
|
27.78
|
|
|
|
2/15/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,671
|
|
|
|
15.01
|
|
|
|
2/10/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,503
|
|
|
|
305,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,416
|
|
|
|
81,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,000
|
|
|
|
33,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel A. Skoch
|
|
|
12,000
|
|
|
|
|
|
|
|
22.43
|
|
|
|
2/6/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
12.15
|
|
|
|
2/5/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
17.075
|
|
|
|
2/3/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
17.68
|
|
|
|
2/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000
|
|
|
|
|
|
|
|
24.03
|
|
|
|
5/2/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400
|
|
|
|
44.72
|
|
|
|
2/15/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,203
|
|
|
|
27.78
|
|
|
|
2/15/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,504
|
|
|
|
15.01
|
|
|
|
2/10/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,845
|
|
|
|
312,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,215
|
|
|
|
78,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,000
|
|
|
|
32,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The column entitled Equity Incentive Plan Awards, Number
of Securities Underlying Unexercised Unearned Options to
this table has been omitted because no awards were reportable
thereunder.
|
|
|
(1)
|
|
These amounts represent the SAR
that were granted in 2009, 2008 and 2007. These SAR vest 100%
after three years. The SAR expiring on 2/15/17 were granted on
2/15/07, the SAR expiring on 2/15/18 were granted on 2/15/08 and
the SAR expiring on 2/10/19 were granted on 2/10/09.
|
|
(2)
|
|
Restricted shares were granted to
Messrs. Hipple, Grampa and Skoch on 2/15/07, 2/15/08 and
2/10/09. Shares are subject to forfeiture if these executives
are not continuously employed for a three-year period from the
date of grant.
|
|
(3)
|
|
Amounts in these columns were
calculated using the December 31, 2009 Brush Engineered
Materials Inc. common stock closing price of $18.54 times the
number of shares in the preceding column.
|
|
(4)
|
|
These awards represent the
performance restricted shares that were granted under the
2008-2010
LTIP.
|
31
2009
OPTION EXERCISES AND STOCK VESTED
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
|
|
on Exercise (#)
|
|
|
on Exercise ($)
|
|
|
Richard J. Hipple
|
|
|
|
|
|
|
|
|
John D. Grampa
|
|
|
8,000
|
|
|
|
18,878
|
|
Daniel A. Skoch
|
|
|
|
|
|
|
|
|
The columns under the heading entitled Stock Awards
to this table have been omitted because no stock awards were
reportable thereunder.
2009
PENSION BENEFITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Present
|
|
|
Payments
|
|
|
|
|
|
Years Credited
|
|
|
Value of
|
|
|
During Last
|
|
|
|
|
|
Service
|
|
|
Accumulated
|
|
|
Fiscal Year
|
|
Name
|
|
Plan Name
|
|
(#)
|
|
|
Benefit ($)
|
|
|
($)
|
|
|
|
|
Brush Engineered Materials Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. Hipple
|
|
Pension Plan
|
|
|
8
|
|
|
|
134,408
|
|
|
|
|
|
|
|
Brush Engineered Materials Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
John D. Grampa
|
|
Pension Plan
|
|
|
11
|
|
|
|
249,912
|
|
|
|
|
|
|
|
Brush Engineered Materials Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel A. Skoch
|
|
Pension Plan
|
|
|
26
|
|
|
|
571,759
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
measurement date: December 31, 2009
|
|
|
|
interest rate for present value: 5.875%
|
|
|
|
mortality (pre-commencement): None
|
|
|
|
mortality (post-commencement): RP-2000 Mortality Table (separate
male and female rates)
|
|
|
|
withdrawal and disability rates: None
|
|
|
|
retirement rates: None prior to age 65, except age 64
for Mr. Skoch
|
|
|
|
normal retirement age: Age 65, except age 64 for
Mr. Skoch as explained in the narrative below
|
|
|
|
accumulated benefit is calculated based on credited service and
pay as of December 31, 2009
|
|
|
|
all results shown are estimates only; actual benefits will be
based on data, pay and service at time of retirement
|
The Brush Engineered Materials Inc. Pension Plan (qualified
pension plan) is a defined benefit plan under which
Messrs. Hipple, Grampa and Skoch are currently accruing
benefits. Effective as of the close of business on May 31,
2005, the benefit under the prior formula for
Messrs. Hipple, Grampa and Skoch (50% of final average
earnings over highest 5 consecutive years minus 50% of annual
Social Security benefit, the result prorated for service less
than 35 years) was frozen. The frozen annual benefits as of
May 31, 2005, payable beginning at age 65 as a single
life annuity, for Messrs. Hipple, Grampa and Skoch are
$9,855; $17,252 and $54,856, respectively. Credited service for
pension benefit purposes as of May 31, 2005 for
Messrs. Hipple, Grampa and Skoch is 3, 6 and 21,
respectively.
Beginning June 1, 2005, the qualified pension plan formula
was changed for Messrs. Hipple, Grampa and Skoch to 1% of
each years earnings. The retirement benefit for these
individuals will be equal to the sum of that earned as of
May 31, 2005 and that earned under the new formula for
service after May 31, 2005.
The 2009 Pension Benefits table shows for
Messrs. Hipple, Grampa and Skoch the number of years of
credited service, present value of accumulated benefit and
payments during the last fiscal year under the
32
qualified pension plan. We do not sponsor any other qualified or
nonqualified defined benefit plan that provides benefits to
Messrs. Hipple, Grampa and Skoch.
The Present Value of Accumulated Benefit is the
lump-sum value as of December 31, 2009 of the annual
pension benefit that was earned as of December 31, 2009
that would be payable under the qualified pension plan for
Messrs. Hipple, Grampa and Skoch for life beginning at
their normal retirement age. The normal retirement age is
defined as age 65 in the qualified pension plan. Certain
assumptions were used to determine the lump-sum value and to
determine the annual pension that is payable beginning at normal
retirement age. Those assumptions are described immediately
following the 2009 Pension Benefits table.
If the participant terminates employment before completing
10 years of service, the annuity may not commence prior to
age 65. If the participant terminates employment after
completing 10 years of service, the annuity may commence as
early as age 55 and is reduced 6.67% per year between
ages 60 and 65 and 3.33% per year between ages 55 and
60 based on the participants age at commencement, if the
benefit commences prior to normal retirement age. An unreduced
benefit is available commencing at age 62 for those
participants who terminate after age 55 with at least
30 years of service. At year-end 2009, Messrs. Grampa
and Skoch had attained early retirement eligibility and
Mr. Hipple had not attained early retirement eligibility.
Mr. Skoch is the only named executive who may become
eligible to commence his benefit on an unreduced basis prior to
age 65. Assuming continued uninterrupted employment with
the Company, Mr. Skoch would reach 30 years of service
at the end of the month in which he attains age 64.
Benefits provided under the qualified pension plan are based on
compensation up to a compensation limit under the Internal
Revenue Code (which was $245,000 in 2009). In addition, benefits
provided under the qualified pension plan may not exceed a
benefit limit under the Internal Revenue Code (which was
$195,000 payable as a single life annuity beginning at normal
retirement age in 2009).
Compensation is generally equal to the total amount that is
included in income (such as regular base salary, incentive
compensation under any form of incentive compensation plan,
sales commissions and performance restricted shares of stock at
the time these shares are includable in the participants
gross income for Federal income tax purposes), plus salary
reduction amounts under sections 125 and 401(k) of the
Internal Revenue Code. The annual salary and bonus for the
current year for Messrs. Hipple, Grampa and Skoch is
indicated in the 2009 Summary Compensation Table.
Each years compensation for the qualified pension plan is
limited by the compensation limits under the Internal Revenue
Code.
Generally, a participants years of credited service are
based on the years an employee participates in the qualified
pension plan. However, in certain cases, credit for service
prior to participation in the qualified pension plan is granted.
Such cases include employment with the Company in a position
that is not eligible for participation in the qualified pension
plan and service with a predecessor employer. The years of
credited service for Messrs. Hipple and Grampa are based
only on their service while eligible for participation in the
qualified pension plan. The years of credited service for
Mr. Skoch include service for the period June 29, 1983
through December 1, 1985 during which time he was covered
under The S.K. Wellman Corp. Retirement Plan for Salaried
Employees. All S.K. Wellman Corp. salaried employees who had
transferred to Brush Wellman Inc. as salaried employees prior to
May 4, 1986 and were still employed after May 4, 1986,
receive credited service under the qualified pension plan equal
to their credited service under The S.K. Wellman Corp.
Retirement Plan for Salaried Employees at the time of their
transfer. Mr. Skoch received a lump-sum payment during
January 1987 in lieu of the benefit he had accrued for the
period June 29, 1983 through December 1, 1985 under
The S.K. Wellman Corp. Retirement Plan for Salaried Employees.
Mr. Skochs accrued benefit under the qualified
pension plan has been offset for the benefit for which he
received this lump-sum payment.
Lump sums are available under the qualified pension plan only
for the portion of the participants benefit that was
accrued prior to July 1, 1992. Mr. Skoch is eligible
to elect to receive the portion of his benefit that was accrued
prior to July 1, 1992 as a lump sum with the remaining
portion of his benefit payable in the form of an annuity with
monthly benefit payments. Messrs. Hipple and Grampa are
eligible only to have their benefits payable in the form of an
annuity with monthly benefit payments.
33
The qualified pension plan was designed to provide tax-qualified
pension benefits for most of our employees. Benefits under the
qualified pension plan are funded by an irrevocable tax-exempt
trust. An executives benefits under the qualified pension
plan are payable from the assets held by the tax-exempt trust.
2009
NONQUALIFIED DEFERRED COMPENSATION
We maintain two nonqualified arrangements for executives, the
Key Employee Share Option Plan (the KESOP) and the Executive
Deferred Compensation Plan II (the EDCP II). A primary
purpose of each is to provide benefits in the event a
participants compensation exceeds the amount of
compensation that may be taken into account for deferring income
and matching contributions under the Brush Engineered Materials
Inc. Savings and Investment Plan.
Key
Employee Share Option Plan
The KESOP was established in 1998 to provide executives with
options to purchase property other than our common stock (in
this case, options to purchase certain mutual fund shares as
further described below), which options replace a portion of the
executives compensation. The options cover property with
an initial value equal to the amount of compensation they
replace, divided by 75%, with an exercise price equal to the
difference between that amount and the amount of compensation
replaced (in other words, 25% of the fair market value of the
option property). Thus, the executive may receive the increase
or decrease in market value of the entire amount of the property
covered by the option, including the exercise price. Due to the
American Jobs Creation Act of 2004 which added section 409A
to the Internal Revenue Code, the KESOP was frozen effective
December 31, 2004. Moreover, options for purchase of
property that did not become exercisable prior to 2005 under the
KESOP and corresponding elections under the KESOP were
cancelled. Each participant who had such KESOP options and
elections cancelled received payment in the amount of the
cancelled deferrals. Eligibility to participate and the property
(consisting of shares of mutual funds) subject to the KESOP
options were determined by the Compensation Committee of the
Board. Mutual fund selection was intended to be the same or
similar to that offered under the 401(k) plan, but was not
required. Executives were permitted to select among those mutual
funds to determine those covered by the options obtained by them
as a result of their compensation elections, but generally were
not permitted to change that selection once made.
Although the KESOP was frozen as noted above, options that
became exercisable prior to January 1, 2005 and which have
not as yet been exercised remain on the books for some
executives.
The KESOP balance of each executive is equal to the most recent
closing price of the mutual funds under the options accumulated
by the executive as of the end of the year. To obtain the
portion of this balance based on any particular option, however,
the executive must pay the 25% exercise price set when the
option was granted. In addition to potential gains through
changes in the market value for the underlying mutual funds, the
executive may accumulate value whenever any dividends or other
cash distributions are made relative to those mutual funds.
Starting with dividends for the year ending December 31,
2004, the value of any such dividends or distributions is
credited to the executives EDCP II account (see discussion
below of the EDCP II) as part of the compensation deferred
under that program.
Unless the amount of mutual funds available under an option is
adjusted as a result of a stock split, merger, divestiture,
consolidation or other corporate transaction, or unless other
property is substituted for the mutual fund shares originally
subject to the option, an option becomes exercisable
184 days after the grant of the option and remains
exercisable at any time after that date until the earlier of the
fifteenth anniversary of the grant or the third anniversary of
the executives termination of employment. If any
adjustment in the number of mutual fund shares or any
substitution of new property occurs, the exercise period will be
interrupted for 184 days and the deadline to exercise will
be extended by 184 days, but not more than 5 years
beyond the original exercise deadline. Any option not exercised
by the deadline may not be exercised after that.
The KESOP is unfunded. The options obligation for each executive
is maintained in a book reserve account. We are under no
obligation to set aside funds specifically designated to satisfy
this obligation or to invest in any of the optioned mutual funds
selected by the executive. However, we maintain a trust, as part
of
34
the general assets of the Company, intended to hold property for
use in meeting this obligation, unless we become insolvent. In
that case, the assets in the trust would be available to satisfy
our creditors just as any other general assets of the Company,
before the option property would be delivered. In other words,
each executive participating in the KESOP is an unsecured
general creditor of the Company with respect to the value of the
property optioned as his KESOP benefits.
When an option is exercised, the executive pays the applicable
exercise price to the Company and we deliver to the executive
the underlying property, which may have been obtained and held
as general assets of the Company before the option was
exercised. The value of the underlying property delivered, less
the exercise price paid, is treated as taxable income to the
executive and he must pay the Company for any income taxes or
other payroll taxes required to be withheld by the Company on
that income. We may take an income tax deduction for the value
of the property delivered, reduced by the exercise price paid.
No executive may transfer or sell his KESOP options during his
life, except for a transfer, for no payment and only as approved
by the Committee, to a member of the executives immediate
family, to a trust for the benefit of such a family member or to
a partnership consisting only of such family members as
partners. Upon an executives death, his KESOP options will
pass to his beneficiaries or estate, but they must be exercised
before the earlier of the original deadline or the first
anniversary of his death. No other transfers or withdrawals are
permitted under the KESOP.
The latest exercise deadline for any existing KESOP options is
June 30, 2019. As noted earlier, options may expire
earlier, within three years of the executives termination
of employment.
Executive
Deferred Compensation Plan II
The EDCP II provides executives an opportunity to make deferral
elections generally not permitted under the 401(k) plan.
Internal Revenue Code section 401(a)(17) limits the amount
of compensation that may be taken into account for deferrals
under the 401(k) plan. For 2009, that limit was $245,000.
Executives may elect each year to defer all or any portion of
the sum of his Management Performance Compensation Plan payouts
payable in cash for that year, plus the portion of his base
salary for that year that is in excess of the compensation limit
under Internal Revenue Code section 401(a)(17). Previously
we had provided a non-elective deferral equal to three percent
(3%) of his total compensation in excess of the Internal Revenue
Code section 401(a)(17) limit (his Excess Compensation)
designed to reflect the employer matching contribution not
permitted under the 401(k) plan because of the Internal Revenue
Code section 401(a)(17) compensation limit. In 2009, the Company
contribution was eliminated. Credits in amounts equal to the
value of any dividends or other cash distributions payable from
mutual funds optioned to the executive under the KESOP (see
discussion of the KESOP above) are also credited to the
executives EDCP II account balance starting with dividends
for the year 2004.
The compensation deferrals credited to each executive are
credited with earnings at a rate equal to the return on
hypothetical investments selected by the executive from a list
of mutual funds identified by the Compensation Committee of the
Board. Investment selection is intended to be the same or
similar to that offered under the 401(k) plan, but this is not
required. The executives investment selection is used only
to determine earnings credits on the compensation deferrals
under the EDCP II. We are not obligated to invest any funds in
the mutual funds selected by the executive. Earnings returns
will change from year to year.
The EDCP II is unfunded. Deferred compensation credits and
related earnings credits for each executive are maintained in a
book reserve account. We are under no obligation to set aside
funds specifically designated to pay these deferred income
amounts. However, we maintain a trust, as part of the general
assets of the Company, intended to pay these deferred income
amounts, unless we become insolvent. In that case, the assets in
the trust would be available to satisfy creditors of the
Company, just as any other general assets of the Company, before
the deferred income amounts would be paid. In other words, each
executive participating in the EDCP II is an unsecured general
creditor of the Company with respect to the payment of his EDCP
II benefits.
35
Upon termination of employment for any reason other than death,
distribution from the EDCP II will be made as a lump sum or
installments over three or five years, as elected by the
executive when the deferral election was initially made. If no
distribution election was made, the benefit will be paid in a
lump sum. If the executive dies before his full EDCP II account
is distributed, any remaining balance credited to that account
will be paid to his beneficiary in a single lump sum.
Distribution will be made or begin 60 days following the
executives termination of employment (or as soon as
practicable after that date), except that in the case of certain
specified executives, section 409A of the Internal Revenue
Code requires that payment not be made earlier than six months
after he separates from service for any reason other than death.
Distribution or withdrawal for any other reason is not permitted
under the EDCP II.
2009
NONQUALIFIED DEFERRED COMPENSATION TABLE
The 2009 Nonqualified Deferred Compensation Table
shows deferrals to the EDCP II by Brush Engineered Materials on
behalf of each NEO for 2009 earnings, if applicable, credited to
his EDCP II account and KESOP account for 2009, any
distributions made from his KESOP account during 2009, and the
aggregate balance of his EDCP II credits and KESOP credits as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
Aggregate
|
|
Aggregate
|
|
|
|
|
Contributions in
|
|
Contributions in
|
|
Earnings
|
|
Withdrawals/
|
|
Balance
|
|
|
|
|
Last FY
|
|
Last FY
|
|
in Last FY
|
|
Distributions
|
|
at Last FYE
|
|
|
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)
|
|
($)(4)
|
|
Richard J. Hipple
|
|
KESOP
|
|
|
|
|
|
|
|
|
|
|
1,639
|
|
|
|
|
|
|
|
11,413
|
|
|
|
EDCP II
|
|
|
|
|
|
|
2,197
|
|
|
|
24,270
|
|
|
|
|
|
|
|
105,011
|
|
John D. Grampa
|
|
KESOP
|
|
|
|
|
|
|
|
|
|
|
309
|
|
|
|
|
|
|
|
1,382
|
|
|
|
EDCP II
|
|
|
|
|
|
|
|
|
|
|
20,018
|
|
|
|
|
|
|
|
66,281
|
|
Daniel A. Skoch
|
|
KESOP
|
|
|
|
|
|
|
|
|
|
|
3,433
|
|
|
|
|
|
|
|
27,497
|
|
|
|
EDCP II
|
|
|
|
|
|
|
|
|
|
|
19,567
|
|
|
|
|
|
|
|
69,775
|
|
|
|
|
(1) |
|
There were no executive contributions credited to either plan in
2009. |
|
(2) |
|
Amounts in this column are also included in the All Other
Compensation column of the 2009 Summary Compensation
Table. |
|
(3) |
|
These earnings include dividends credited in 2008 for the KESOP,
which were credited under the EDCP II in the amounts as follows:
Mr. Hipple $493; Mr. Grampa $3; and Mr. Skoch
$968. |
|
(4) |
|
The Aggregate Balance as of Last FYE for the KESOP for each of
the executive officers listed above rep- resents the net amount
due the participant upon exercise (i.e., net of the 25% option
price due back to the Company). |
OTHER
POTENTIAL POST-EMPLOYMENT PAYMENTS
The Company has entered into severance agreements with the NEOs
to help ensure the continuity and stability of our senior
management. The other incentive arrangements maintained by the
Company also provide for payments to be made to the NEOs upon
certain terminations of employment.
Severance
Agreements
Basic Severance Benefits. The severance
agreements provide that if the executives employment is
terminated by the Company or one of its affiliates except for
cause or gross misconduct, or if he resigns as a result of a
reduction in his salary or incentive pay opportunity, severance
benefits will apply. Severance benefits include rights to:
|
|
|
|
|
a lump-sum payment of two times salary and incentive
compensation;
|
|
|
|
a lump-sum payment of two times any special award paid in lieu
of benefits under the Companys former Supplemental
Retirement Benefit Plan for the year in which termination occurs;
|
36
|
|
|
|
|
the continuation of retiree medical and life insurance benefits
for two years;
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a lump-sum payment of two times the benefit under the
Companys Executive Deferred Compensation Plan II for
the year in which termination occurs;
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a lump-sum payment equal to the sum of the present value of any
bonus he would have received under any long-term incentive plan,
including the earn out of any performance restricted shares;
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any retirement benefits he would have earned under the
Companys qualified retirement plans during the next two
years; and
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reasonable fees for outplacement services, up to a maximum of
$20,000.
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In addition, all equity incentive awards vest, and all stock
options become fully exercisable, if the severance benefits are
applicable.
Change in Control Severance Benefits. In the
event of a change in control of the Company, as
defined in these agreements, and if the executives
employment is terminated by the Company or one of its affiliates
except for cause, or he resigns within one month after the first
anniversary of the change, or the nature and scope of his duties
worsens or certain other adverse changes occur and the Board of
Directors so decides (referred to in the table below as Good
Reason Termination), the executives are entitled to receive
similar severance benefits based on a three-year period, plus
the cash value of certain other benefits (such as club dues and
financial counseling) (collectively, the Change in Control
Benefits). A termination or demotion following the commencement
of discussions with a third party which ultimately results in a
change in control will also activate the Change in Control
Benefits. The severance agreements include a tax
gross-up
provision under section 280G of the Internal Revenue Code
that will apply until February 8, 2012. Payment of the
Change in Control Benefits under the severance agreements are
subject to the tax gross up for the first five years and
thereafter are subject to a reduction in order to avoid the
application of the excise tax on excess parachute
payments under the Internal Revenue Code, but only if the
reduction would increase the net after-tax amount received by
the executive. In addition, the Company must secure payment of
the Change in Control Benefits under the severance agreements
through a trust that is to be funded upon the change in control,
and amounts due but not timely paid earn interest at the prime
rate plus 4%. The Company must pay attorneys fees and
expenses incurred by an executive in enforcing his right to
Change in Control Benefits under his severance agreement.
Nonsolicitation and Noncompetition
Provisions. Under the severance agreements, each
executive agrees not to solicit any of our employees, agents or
consultants to terminate their relationship with us, to protect
our confidential business information and not to compete with
the Company during employment or for a period of (i) two
years following termination of the executives employment
by the Company or one of its affiliates except for cause or
gross misconduct, or if he resigns as a result of a reduction in
his salary or incentive pay opportunity or (ii) one year
following a termination of employment for any other reason. Each
executive also assigns to us any intellectual property rights he
may otherwise have to any discoveries, inventions or
improvements made while in our employ or within one year
thereafter.
Section 409A of the Internal Revenue
Code. In July of 2008, the severance agreements
were amended and restated to comply with the documentary
compliance requirements of section 409A of the Internal
Revenue Code. section 409A generally became effective
January 1, 2005, and covers most programs that defer
receipt of compensation to a succeeding year, including the
severance agreements. Section 409A provides strict rules for the
timing of payouts, including a six-month delay for payments made
in connection with a termination of employment, which is now
reflected in the severance agreements.
Amounts Payable Under Severance
Agreements. The following table sets forth the
amounts payable under the severance agreements. Note that this
table does not include any benefits payable to the NEO under the
retirement plan(s) of the Company or any subsidiary, or any
payout to the NEO under the Companys Key Employee Share
Option Plan or the Executive Deferred Compensation Plan II.
Additional information about
37
the amounts payable to the NEO in the event of retirement, death
or permanent disability is presented separately after the table.
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Richard J. Hipple
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John D. Grampa
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Daniel A. Skoch
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Involuntary or
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Involuntary or
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Involuntary or
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Involuntary Not
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Good Reason
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Involuntary Not
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Good Reason
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Involuntary Not
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Good Reason
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For Cause
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Termination after
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For Cause
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Termination after
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For Cause
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Termination after
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Termination
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a Change in Control
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Termination
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a Change in Control
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Termination
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a Change in Control
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Base Salary/Annual Bonus
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$
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3,467,308
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$
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5,200,962
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$
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1,300,728
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$
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1,951,092
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$
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1,208,844
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$
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1,813,266
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LTIP Bonus
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611,832
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611,832
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184,940
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184,940
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176,578
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176,578
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Welfare Benefits
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33,758
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50,637
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24,027
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36,040
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33,515
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50,272
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Additional Benefits Under Retirement Plans
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40,737
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61,105
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52,055
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78,082
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47,549
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71,324
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SRBP Replacement Benefits
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336,900
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505,350
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156,630
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234,945
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263,540
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395,310
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Nonelective Contribution Credit Under EDCP II
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4,394
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6,591
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Perquisites
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20,000
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104,909
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20,000
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63,881
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20,000
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86,684
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Annual MPCP Bonus
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N/A
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1,052,454
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N/A
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307,164
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N/A
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276,822
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Stock Options/SAR Accelerated Vesting
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318,219
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318,219
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90,619
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90,619
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86,499
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86,499
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Restricted Stock Accelerated Vesting
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924,571
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924,571
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305,966
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305,966
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312,306
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312,306
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Total Without
Gross-Up
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$
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5,757,719
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$
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8,836,630
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$
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2,134,965
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$
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3,252,729
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$
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2,148,831
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$
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3,269,061
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280G
Gross-Up
Payment
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N/A
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3,784,533
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N/A
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1,156,589
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N/A
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Total With
Gross-Up
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$
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5,757,719
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$
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12,621,163
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$
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2,134,965
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$
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4,409,318
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$
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2,148,831
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$
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3,269,061
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(1) |
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The severance agreements include a tax
gross-up
provision under section 280G of the Internal Revenue Code
that will apply for five years from the date of the agreement. |
BENEFITS
PAYABLE UPON RETIREMENT, DEATH OR DISABILITY UNDER INCENTIVE
PLANS
Annual
and Long-term Cash Incentive Plans
Management Performance Compensation Plan
(MPCP). The NEOs are participants in the
Companys MPCP, which provides for annual, single-sum cash
payments that are based on achieving preestablished financial
objectives and qualitative performance factors. Generally, an
executive must be employed on the last day of the plan year in
order to receive an award under the MPCP. However, if an
executive retires under a retirement plan of the Company or any
subsidiary during a plan year, the executive will receive an
award pro- rated to the beginning of the month following the
executives retirement date.
2006
Stock Incentive Plan
In March 2006, the Company adopted the Brush Engineered
Materials Inc. 2006 Stock Incentive Plan (the 2006 Plan). The
2006 Plan authorizes the Compensation Committee to provide
equity-based compensation in the form of performance restricted
shares, performance shares, performance units, restricted
shares, option rights, stock appreciation rights and restricted
stock units for the purpose of providing incentives and rewards
for superior performance.
Performance Restricted Shares (PRS), Performance Shares (PS)
and Restricted Shares (RS). Each of the NEOs has
received grants of PRS and PS under the 2006 Plan. The award
agreements provide that all PRS will immediately vest if the
executive dies or becomes permanently disabled while employed by
the Company or any subsidiary during the applicable performance
period. Assuming a termination of employment due to death or
permanent disability on December 31, 2009, the value of
accelerated vesting of the PRS would have been $638,870;
$193,113 and $184,380 for Messrs. Hipple, Grampa and Skoch,
respectively. In addition, if the executive retires, a pro-rata
portion of the PRS will vest at the end of the applicable
performance period, provided that management objectives have
been attained. Assuming a termination of employment due to
retirement on December 31, 2009, the value of pro-rata
accelerated vesting of the PRS would have been
38
$548,586; $165,822 and $158,332 for Messrs. Hipple, Grampa
and Skoch, respectively. Each of the NEOs also has received
grants of RS under the 2006 Plan. The RS award agreements
provide that all RS will immediately vest if the executive dies
or becomes permanently disabled while employed by the Company or
any subsidiary during the applicable vesting period and that a
pro-rata portion (or such higher portion as may be determined by
the Compensation Committee in its sole discretion) of the RS
will immediately vest if the executive retires during the
applicable vesting period. Assuming a termination of employment
due to death or permanent disability on December 31, 2009,
the value of accelerated vesting of the RS would have been
$638,870; $1193,113 and $184,380 for Messrs. Hipple, Grampa
and Skoch, respectively. Assuming a termination of employment
due to retirement on December 31, 2009, the value of
pro-rata accelerated vesting of the RS would have been $548,586;
$165,822 and $158,382 for Messrs. Hipple, Grampa and Skoch,
respectively.
Stock Options and Stock Appreciation
Rights. Each of the NEOs has received grants of
stock options
and/or stock
appreciation rights under the 2006 Plan. The award agreements
generally provide that awards terminate 190 days after
termination of employment. However, the award agreements also
provide that all awards will immediately vest if the executive
dies while employed by the Company or any subsidiary or retires
under a retirement plan of the Company or any subsidiary. At the
discretion of the Committee, all awards will immediately vest
upon a termination of the executives employment under
circumstances determined by the Board to be for the convenience
of the Company. Assuming a termination of employment due to
death, retirement or upon a termination of employment described
in the preceding sentence on December 31, 2009, the value
of any accelerated vesting of the awards would have been
$318,219; $90,619 and $86,499 for each of Messrs. Hipple,
Grampa and Skoch, respectively, as the closing price on
December 31, 2009 was lower than all but one grant price
for each of the SAR grants.
RELATED
PARTY TRANSACTIONS
In 2002, we entered into life insurance agreements with several
employees, including Mr. Skoch, and purchased life
insurance policies pursuant to those agreements. These
agreements, and the policies, which are owned by the employees,
remain outstanding, and the portions of the premiums we paid are
treated as loans to the employees, secured by the insurance
policies, for financial purposes. The agreements require the
employees to maintain the policies cash surrender values
in amounts at least equal to the outstanding loan balances.
Mr. Skochs principal balance, which has not changed
since inception, is $39,951. Interest on the loans is based on
the applicable federal rate, which is currently 4.1%.
Mr. Skoch paid $1,155 in interest for the year.
We recognize that transactions between any of our directors or
executive officers and us can present potential or actual
conflicts of interest and create the appearance that our
decisions are based on considerations other than the best
interests of our shareholders. Pursuant to its charter, the
Governance and Organization Committee considers and makes
recommendations to the Board with regard to possible conflicts
of interest of Board members or management. The Board then makes
a determination as to whether to approve the transaction.
The Governance and Organization Committee reviews all
relationships and transactions in which Brush Engineered
Materials and its directors and executive officers or their
immediate family members are participants to determine whether
such persons have a direct or indirect material interest. Our
Secretary is primarily responsible for the development and
implementation of processes and controls to obtain information
from the directors and executive officers with respect to
related person transactions in order to enable the Governance
and Organization Committee to determine, based on the facts and
circumstances, whether Brush or a related person has a direct or
indirect material interest in the transaction. As set forth in
the Governance and Organization Committees charter, in the
course of the review of a potentially material-related person
transaction, the Governance and Organization Committee considers:
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the nature of the related persons interest in the
transaction;
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the material terms of the transaction, including, without
limitation, the amount and type of transaction;
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the importance of the transaction to the related person;
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39
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the importance of the transaction to Brush;
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whether the transaction would impair the judgment of a director
or executive officer to act in the best interest of
Brush; and
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any other matters the Governance and Organization Committee
deems appropriate.
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Based on this review, the Governance and Organization Committee
will determine whether to approve or ratify any transaction
which is directly or indirectly material to Brush or a related
person.
Any member of the Governance and Organization Committee who is a
related person with respect to a transaction under review may
not participate in the deliberations or vote with respect to the
approval or ratification of the transaction; however, such
director may be counted in determining the presence of a quorum
at a meeting of the Governance and Organization Committee that
considers the transaction.
AUDIT
COMMITTEE REPORT
The Audit Committee oversees the Companys financial
reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial
statements and the reporting process including the
Companys systems of internal controls. In fulfilling its
oversight responsibilities, the Committee reviewed the audited
financial statements in the annual report with management, and
discussed the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant
judgments and the clarity of disclosures in the financial
statements.
The Committee has discussed with the independent registered
public accounting firm the matters required to be discussed by
the statement of Auditing Standards No. 61, as amended
(AICPA, Professional Standards, Vol. 1, AU section 380), as
adopted by the Public Company Accounting Oversight Board in
Rule 3200T. The Audit Committee has received the written
disclosures and the letter from the independent registered
public accounting firm required by applicable requirements of
the Public Company Accounting Oversight Board regarding the
independent registered public accounting firms
communications with the Audit Committee concerning independence,
and has discussed with the independent registered public
accounting firm the independent registered public accounting
firms independence.
The Committee discussed with the Companys internal
auditors and the independent registered public accounting firm
the overall scope and plans for the respective audits. The Audit
Committee meets with the internal auditors and the independent
registered public accounting firm, with and without management
present, to discuss the results of their examinations, their
evaluations of the Companys internal controls, and the
overall quality of the Companys financial reporting. The
Audit Committee held six meetings during 2009.
In reliance on these reviews and discussions, the Audit
Committee recommended to the Board of Directors (and the Board
has approved) that the audited financial statements be included
in the Annual Report on
Form 10-K
for the year ended December 31, 2009 for filing with the
Securities and Exchange Commission.
The current Audit Committee charter is available on our web site
at www.beminc.com.
William B. Lawrence (Chairman)
Albert C. Bersticker
Joseph P. Keithley
William G. Pryor
Craig S. Shular
40
2.
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee has appointed Ernst & Young LLP as
the independent registered public accounting firm for the year
2010 and presents this selection to the shareholders for
ratification. Ernst & Young LLP will audit our
consolidated financial statements for the year 2010 and perform
other permissible, preapproved services. Representatives of
Ernst & Young LLP are expected to be present at the
2010 annual meeting. These representatives will have the
opportunity to make a statement if they desire to do so and will
respond to appropriate questions.
Preapproval
Policy for External Auditing Services
The Audit Committee has established a policy regarding
preapproval of all audit and non-audit services expected to be
performed by our independent registered public accounting firm,
including the scope of and estimated fees for such services. Our
independent registered public accounting firm, after
consultation with management, will submit a budget, based on
guidelines set forth in the policy, for the Audit
Committees approval for its annual audit and associated
quarterly reviews and procedures. Management, after consultation
with our independent registered public accounting firm, will
submit a budget, based on guidelines set forth in the policy,
for the Audit Committees approval for audit-related, tax
and other services to be provided by our independent registered
public accounting firm for the upcoming fiscal year. The policy
prohibits our independent registered public accounting firm from
providing certain services described in the policy as prohibited
services. The Audit Committee approved all of the estimated fees
described below under the heading External Audit
Fees.
External
Audit Fees
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2009
|
|
|
2008
|
|
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Audit Fees
|
|
$
|
1,270,000
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|
|
$
|
1,435,500
|
|
Audit-related Fees
|
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|
54,000
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|
54,000
|
|
Tax Fees
|
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311,000
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|
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344,900
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All Other Fees
|
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Total
|
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$
|
1,635,000
|
|
|
$
|
1,834,400
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Audit
Fees
Audit fees consist of fees billed for professional services
rendered for the integrated audit of our consolidated financial
statements and the effectiveness of internal control over
financial reporting and review of the interim consolidated
financial statements included in quarterly reports and audits in
connection with statutory requirements.
Audit-related
Fees
Audit-related services principally include the audit of
financial statements of our employee benefit plans.
Tax
Fees
Tax fees include corporate tax compliance, tax advice and tax
planning.
All Other
Fees
We had no fees included in All Other Fees during
2009 or 2008.
The Board of Directors of Brush Engineered Materials
unanimously recommends a vote FOR Proposal 2 to ratify
Ernst & Young LLP as the independent registered public
accounting firm for the year 2010.
41
SHAREHOLDER
PROPOSALS
We must receive by November 25, 2010, any proposal of a
shareholder intended to be presented at the 2011 annual meeting
of Brush Engineered Materials shareholders and to be
included in our proxy, notice of meeting and proxy statement
related to the 2011 annual meeting pursuant to
Rule 14a-8
under the Exchange Act. These proposals should be submitted by
certified mail, return receipt requested. Proposals of
shareholders submitted outside the processes of
Rule 14a-8
under the Exchange Act in connection with the 2011 annual
meeting must be received by us on or before the date determined
in accordance with our code of regulations or they will be
considered untimely under
Rule 14a-4(c)
of the Exchange Act. Under our code of regulations, proposals
generally must be received by us no fewer than 60 and no more
than 90 days before an annual meeting. However, if the date
of a meeting is more than 10 days from the anniversary of
the previous years meeting and we do not give notice of
the meeting at least 75 days in advance, proposals must be
received within 10 days from the date of our notice. Our
proxy related to the 2011 annual meeting of Brush Engineered
Materials shareholders will give discretionary authority
to the proxy holders to vote with respect to all proposals
submitted outside the processes of
Rule 14a-8
received by us after the date determined in accordance with our
code of regulations.
Important
Notice Regarding the Availability of Proxy Materials for
the Annual Meeting of Shareholders to be held on May 5,
2010.
This proxy statement, along with our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 and our 2009
Annual Report, are available free of charge at
http://www.investor.shareholder.com/bw/financials.cfm.
OTHER
MATTERS
We do not know of any matters to be brought before the meeting
except as indicated in the notice. However, if any other matters
properly come before the meeting for action of which we did not
have notice prior to February 5, 2010, or that applicable
laws otherwise permit proxies to vote on a discretionary basis,
it is intended that the person authorized under solicited
proxies may vote or act thereon in accordance with his or her
own judgment.
By order of the Board of Directors,
Brush Engineered Materials Inc.
Michael C. Hasychak
Secretary
Mayfield Heights, Ohio
March 25, 2010
42
Shareowner ServicesSMP.O. Box 64945 St. Paul, MN 55164-0945 COMPANY # Address Change? Mark
box, sign, and indicate changes below: n TO VOTE BY INTERNET OR TELEPHONE, SEE REVERSE SIDE OF THIS
PROXY CARD. TO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW, SIMPLY SIGN,
DATE, AND RETURN THIS PROXY CARD. The Board of Directors Recommends a Vote FOR all the nominees in
Item 1 and a Vote FOR Item 2. 1. Election of directors: 01 Joseph P. Keithley 03 William R.
Robertson n Vote FOR n Vote WITHHELD 02 Vinod M. Khilnani 04 John Sherwin, Jr. all nominees from
all nominees (except as marked) (Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) in the box provided to the right.) Please fold here
Do not separate 2. Ratifying the appointment of Ernst & Young LLP as the independent registered
public accounting firm of the Company. n For n Against n Abstain THIS PROXY WHEN PROPERLY EXECUTED
WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. Date
Signature(s) in Box Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy,
all persons should sign. Trustees, administrators, etc., should include title and authority.
Corporations should provide full name of corporation and title of authorized officer signing the
Proxy. |
BRUSH ENGINEERED MATERIALS INC. ANNUAL MEETING OF SHAREHOLDERS Wednesday, May 5, 2010 11:00 A.M.
Clarion Hotel 26300 Chagrin Blvd. Beachwood, OH 44122 Brush Engineered Materials Inc. 6070 Parkland
Blvd. Mayfield Heights, OH 44124 proxy This proxy is solicited by the Board of Directors for use at
the Annual Meeting on May 5, 2010. The shares of stock you hold in your account or in a dividend
reinvestment account will be voted as you specify on the reverse side. If no choice is specified,
the proxy will be voted FOR all the nominees in Item 1 and FOR Item 2. By signing the proxy,
you revoke all prior proxies and appoint Richard J. Hipple and Michael C. Hasychak, and each of
them with full power of substitution, to vote your shares on the matters shown on the reverse side
and any other matters which may come before the Annual Meeting and all adjournments. Vote by
Internet, Telephone or Mail 24 Hours a Day, 7 Days a Week Your phone or Internet vote authorizes
the named proxies to vote your shares in the same manner as if you marked, signed and returned your
proxy card. 3 3 3 INTERNET PHONE MAIL www.eproxy.com/bw 1-800-560-1965 Mark, sign and date your
proxy Use the Internet to vote your proxy Use a touch-tone telephone to card and return it in the
until 12:00 p.m. (ET) on vote your proxy until 12:00 p.m. postage-paid envelope provided. May 4,
2010. (ET) on May 4, 2010. If you vote your proxy by Internet or by Telephone, you do NOT need to
mail back your Proxy Card. |