The New York Stock Exchange listing rules require that a majority of the Company’s directors be independent. The Board determined that (i) Messrs. Bayly, O’Connell, Smith and Ussery and Ms. Sardini have no direct or indirect material relationships with management, and that they satisfy the New York Stock Exchange’s independence guidelines and are independent, (ii) Ms. Ferguson and Ms. Sardini havehas only an immaterial relationshipsrelationship with us satisfyand satisfies the New York Stock Exchange’s independence guidelines and areis independent and (iii) Messrs.Mr. Reed and Engles areis not independent.
In making its independence determination with respect to Ms. Ferguson, the Board considered that Ms. Ferguson iswas a director of Integrys Energy Corporation until March 31, 2008 whose subsidiary, Wisconsin Public Service, provides energy services to the Company. The Board noted, however, that the amount of the services provided was less than the thresholds contained in the New York Stock Exchange’s independence guidelines and that such services were provided to the Company on an arms’-lengtharms-length basis and in accordance with normal sourcing procedures for this type of service. The Board has concluded that this relationship is not material and that Ms. Ferguson is independent.
All members of our Audit, Compensation and Nominating and Corporate Governance committees are independent directors. The Board has determined that all of the members of our Audit Committee also satisfy the additional Securities and Exchange Commission independence requirement, which provides that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries other than their directors’ compensation. The portion of the Corporate Governance Guidelines addressing director independence is attached to this proxy statement asAppendix A.
The Board, which is responsible for approving candidates for Board membership, has delegated the process of screening and recruiting potential director nominees to the Nominating and Corporate Governance Committee in consultation with the Chairman of the Board and Chief Executive Officer. The Nominating and Corporate Governance Committee seeks candidates who have a reputation for integrity, honesty and adherence to high ethical standards and who have demonstrated business acumen, experience and ability to exercise sound judgment in matters that relate to the current and long-term objectives of the Company. When the committee reviews a candidate for Board membership, the committee looks specifically at the candidate’s background and qualifications in light of the needs of the Board and the Company at that time, given the then current composition of the Board.
All directors, officers and employees of the Company must act ethically at all times and in accordance with the policies comprising the Company’s Code of Ethics. The Company’s Code of Ethics is published on the investor relations section of the Company’s website atwww.treehousefoods.com.
The Board of Directors has appointed a non-management director to serve in a lead capacity (“Lead Independent Director”) to coordinate the activities of the other non-management directors, and to perform such other duties and responsibilities as the Board of Directors may determine.
STOCK OWNERSHIP
Holdings of Management
The executive officers and directors of the Company own shares, and exercisable rights to acquire shares, representing an aggregate of 2,074,0612,186,167 shares of Common Stock or approximately 6.6%6.9% of the outstanding shares of Common Stock (see “Security Ownership of Certain Beneficial Owners and Management”). Such officers and directors have indicated an intention to vote in favor of each Proposal.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the close of business on February 18, 2008,20, 2009, certain information with respect to the beneficial ownership of common stock beneficially owned by (i) each director of the Company, (ii) the Chief Executive Officer, Chief Financial Officer of the Company and three most highly compensated executive officers of the Company other than the Chief Executive Officer (collectively, the “TreeHouse Executive Officers” or “TEOs”), (iii) all executive officers and directors as a group and (iv) each stockholder who is known to the Company to be the beneficial owner, as defined inRule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of more than 5% of the outstanding Common Stock. Each of the persons listed below has sole voting and investment power with respect to such shares, unless otherwise indicated. The address of the Directors and Officers listed below isc/o TreeHouse Foods, Inc., Two Westbrook Corporate Center, Suite 1070, Westchester, Illinois 60154.
| | | | | | | | | | | | | | | | |
| | Common Stock
| | Percent of
| | | Common Stock
| | Percent of
| |
Name of Beneficial Owner | | Beneficially Owned | | Class(1) | | | Beneficially Owned | | Class(1) | |
|
Directors and Named Officers: | | | | | | | | | | | | | | | | |
Sam K. Reed | | | 550,234 | (2) | | | 1.8 | % | | | 687,054 | (2) | | | 2.2 | % |
George V. Bayly | | | 7,231 | (3) | | | * | | | | 14,731 | (3) | | | * | |
Gregg L. Engles | | | 781,447 | (4) | | | 2.5 | % | | | 460,932 | (4) | | | 1.5 | % |
Diana S. Ferguson | | | 0 | | | | | | | | 1,166 | (5) | | | | |
Frank J. O’Connell | | | 7,031 | (5) | | | * | | | | 14,531 | (6) | | | * | |
Ann M. Sardini | | | | 0 | | | | | |
Gary D. Smith | | | 9,031 | (6) | | | * | | | | 16,531 | (7) | | | * | |
Terdema L. Ussery, II | | | 7,031 | (7) | | | * | | | | 14,531 | (8) | | | * | |
David B. Vermylen | | | 289,041 | (8) | | | * | | | | 380,255 | (9) | | | 1.2 | % |
Dennis F. Riordan | | | 71,659 | (9) | | | * | | | | 120,698 | (10) | | | * | |
Thomas E. O’Neill | | | 175,678 | (10) | | | * | | | | 237,869 | (11) | | | * | |
Harry J. Walsh | | | 175,678 | (11) | | | * | | | | 237,869 | (12) | | | * | |
All directors and executive officers as a group (11 persons) | | | 2,074,061 | | | | 6.6 | % | | | 2,186,167 | | | | 6.9 | % |
| | |
Principal Stockholders: | | | | | | | | | | | | | | | | |
FMR Corp. | | | 4,123,506 | (12) | | | 13.2 | % | |
Iridian Asset Management LLC | | | 3,337,908 | (13) | | | 10.7 | % | |
Farallon Capital Partners, L.P. | | | 2,203,000 | (14) | | | 7.1 | % | |
Barclays Global Investor, NA | | | 1,662,331 | (15) | | | 5.3 | % | |
Barclays Global Investors, NA | | | | 2,196,526 | (13) | | | 7.0 | % |
FMR LLC | | | | 4,726,456 | (14) | | | 15.0 | % |
Friess Associates LLC | | | | 1,637,400 | (15) | | | 5.2 | % |
Keeley Asset Management Corp. | | | | 1,785,000 | (16) | | | 5.7 | % |
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Except as otherwise noted, the directors and executive officers, and all directors and executive officers as a group, have sole voting power and sole investment power over the shares listed.
| | |
(1) | | An asterisk indicates that the percentage of common stock projected to be beneficially owned by the named individual does not exceed one percent of our common stock. |
|
(2) | | Includes 273,557410,377 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(3) | | Includes 7,03114,531 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
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| | |
(4) | | Includes 351,83631,321 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(5) | | Includes 7,0311,166 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(6) | | Includes 7,03114,531 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(7) | | Includes 7,03114,531 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(8) | | Includes 182,37114,531 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(9) | | Includes 66,659273,585 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(10) | | Includes 124,343115,698 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(11) | | Includes 124,343186,534 shares of Common Stock issued under options currently exercisable within 60 days of February 18, 2008.20, 2009. |
|
(12) | | We have been informed pursuant to the Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2008 by FMR LLC (“FMR”), that (i) Fidelity Management and Research Company, a wholly owned subsidiary of FMR and a registered investment adviser, is the beneficial owner of 4,123,506Includes 186,534 shares of our Common Stock as a resultissued under options currently exercisable within 60 days of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940; (ii) the ownership of one investment company, Fidelity Contrafund, amounted to 3,119,827 shares of our Common Stock; (iii) FMR has (A) sole voting power as to 1,300 shares and (B) sole dispositive power as to 4,123,506 shares; (iv) Edward C. Johnson 3d., Chairman of FMR, has sole dispositive power as to 4,123,506 shares; and (v) members of the family of Mr. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR, representing 49% of the voting power of FMR. The principal business address of FMR and Fidelity Contrafund is 82 Devonshire Street, Boston, Massachusetts 02109.February 20, 2009. |
|
(13) | | We have been informed pursuant to the Schedule 13G/A filed with the Securities and Exchange Commission on February 4, 2008 by Iridian Asset Management LLC (“Iridian”) that (i) each of Iridian, BIAM (US) Inc., BancIreland (US) Holdings, Inc., The Governor and Company of the Bank of Ireland (“Bank of Ireland”) and BIAM Holdings have shared voting and dispositive power as to 3,337,908 shares of our Common Stock; (ii) Iridian has direct beneficial ownership of the shares of Common Stock in the accounts for which it serves as the investment adviser under its investment management agreements; (iii) BIAM (US) Inc., as the controlling member of Iridian, may be deemed to possess beneficial ownership of the shares of Common Stock beneficially owned by Iridian; (iv) BancIreland (US) Holdings, Inc, as the sole shareholder of BIAM (US) Inc., may be deemed to possess beneficial ownership of the shares of Common Stock beneficially owned by BIAM (US) Inc.; (v) BIAM Holdings, as the sole shareholder of BancIreland (US) Holdings, Inc, may be deemed to possess beneficial ownership of the shares of Common Stock beneficially owned by BancIreland (US) Holdings, Inc.; and (vi) Bank of Ireland, as the sole shareholder of BIAM Holdings, may be deemed to possess beneficial ownership of the shares of Common Stock beneficially owned by BIAM Holdings. The principal business address of Iridian is 276 Post Road West, Westport, CT06880-4704. The |
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| | |
| | principal business address of Bank of Ireland and BIAM Holdings is Head Office, Lower Baggot Street, Dublin 2, Ireland. The principal business address of BancIreland (US) Holdings, Inc. and BIAM (US) Inc. is Liberty Park #15, 282 Route 101, Amherst, NH 03110. |
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(14) | | We have been informed pursuant to the Schedule 13G/A filed with the Securities and Exchange Commission on February 1, 2008 by Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., Farallon Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners III, L.P., Tinicum Partners, L.P., Farallon Capital Offshore Investors II, L.P. (referred to collectively as the “Farallon Funds”), Farallon Capital Management, L.L.C. (“Farallon Management”), Farallon Partners, L.L.C. (“Farallon Partners”), Chun R. Ding, William F. Duhamel, Richard B. Fried, Monica R. Landry, Douglas M. MacMahon, William F. Mellin, Stephen L. Millham, Jason E. Moment, Ashish H. Pant, Rajiv A. Patel, Derek C. Schrier, Andrew J. M. Spokes, Thomas F. Steyer and Mark C. Wehrly (referred to collectively as the “Individual Reporting Persons”) that (i) Farallon Capital Partners, L.P. has shared voting and dispositive power as to 442,500 shares of Common Stock; (ii) Farallon Capital Institutional Partners, L.P. has shared voting and dispositive power as to 284,100 shares of Common Stock; (iii) Farallon Capital Institutional Partners II, L.P., has shared voting and dispositive power as to 52,200 shares of Common Stock; (iv) Farallon Capital Institutional Partners III, L.P. has shared voting and dispositive power as to 34,400 shares of Common Stock; (v) Tinicum Partners, L.P. has shared voting and dispositive power as to 16,100 shares of Common Stock; (vi) Farallon Capital Offshore Investors II, L.P. has shared voting and dispositive power as to 443,600 shares of Common Stock; (vii) Farallon Capital Management, L.L.C. has shared voting and dispositive power as to 930,100 shares of Common Stock; (viii) Farallon Partners, L.L.C. has shared voting and dispositive power as to 1,272,900 shares of Common Stock; (ix) Chun R. Ding does not have voting or dispositive power as to any shares; and (x) each of the Individual Reporting Persons has shared voting and dispositive power as to 2,203,000 shares. Additionally, the shares of Common Stock reported for (i) the Farallon Funds are owned directly by the Farallon Funds; (ii) shares of Common Stock reported by Farallon Management on behalf of a certain account managed by Farallon Management, are owned directly by such account; (iii) Farallon Partners, as general partner of the Farallon Funds, may be deemed to be the beneficial owner of all such shares of Common Stock owned by the Farallon Funds; (iv) Farallon Management, as investment adviser to a certain account managed thereby, may be deemed to be the beneficial owner of all such shares owned by such account; (v) the Individual Reporting Persons, other than Mr. Ding, as managing members of both Farallon Partners and Farallon Management, with the power to exercise investment discretion, may each be deemed to be the beneficial owner of all such shares owned by the Farallon Funds and the certain account managed by Farallon Management; and (vi) each of Farallon Management, Farallon Partners and the Individual Reporting Persons have disclaimed any beneficial ownership of any shares of Common Stock. The principal business address of each of the Farallon Funds, Farallon Management, Farallon Partners and the Individual Reporting Persons isc/o Farallon Capital Management, L.L.C., One Maritime Plaza, Suite 2100, San Francisco, California 94111. |
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(15) | | We have been informed pursuant to the Schedule 13G filed with the Securities and Exchange Commission on February 6, 20085, 2009 that (i) Barclays Global Investors, NA, Barclays Global Fund Advisors, Barclays Global Investors, LTD, Barclays Global Investors Japan Trust and Banking Company Limited, Barclays Global Investors Japan Limited Barclays Global Investors Canada Limited, Barclays Global Investors Australia Limited, and Barclays Global Investors (Deutschland) AG may be deemed to beneficially own 1,662,3312,196,526 shares of our Common Stock; (ii) Barclays Global Investors, NA has (A) sole voting power as to 581,801682,753 shares and (B) sole dispositive power as to 686,065803,036 shares; (iii) Barclays Global Fund Advisors has (A) sole voting power as to 684,0561,013,436 shares and (B) sole dispositive power as to 944,4491,372,402 shares; (iv) Barclays Global Investors, LTD has (A) sole voting power as to 840 shares and (B) sole dispositive power of 31,81721,088 shares; and (v) Barclays Global Investors Japan Trust and Banking Company Limited, Barclays Global Investors Japan Limited, Barclays Global Investors Canada Limited, Barclays Global Investors Australia Limited, and Barclays Global Investors (Deutschland) AG do not have voting or dispositive power over any of our Common Stock. The principal business address of Barclays Global Investors, NA and Barclays Global Fund Advisors is 45 Fremont,400 Howard Street, San Francisco, CA 94105. The principal business address of Barclays Global Investors, LTD is Murray House, 1 Royal Mint Court, London, EC3N 4HH. The principal business address of Barclays Global Investors Japan Trust and Banking Company Limited is Ebisu Prime Square Tower; 8th Floor, 1-1-39 Hiroo Shibuya-Ku Tokyo150-0012 Japan.4HH England. The principal business address of Barclays Global Investors Japan Limited is Ebisu Prime Square Tower; 8th Floor, |
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| | 1-1-39 Hiroo Shibuya-Ku Tokyo150-8402150-0012 Japan. The principal business address of Barclays Global Investors Canada Limited is Brookfield Place, 161 Bay Street, Suite 2500, PO Box 614 Toronto, Canada Ontario M5J 2S1.2S1 Canada. The principal business address of Barclays Global Investors Australia Limited is Level 43, Grosvenor Place, 225 George Street, PO Box N43, Sydney, Australia NSW 1220. The principal business address of Barclays Global Investors (Deutschland) AG is Apianstrasse 6, D-85774, Unterfohring, Germany. |
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(14) | | We have been informed pursuant to the Schedule 13G filed with the Securities and Exchange Commission on February 17, 2009 by FMR LLC (“FMR”), that (i) Fidelity Management and Research Company, a wholly owned subsidiary of FMR and a registered investment adviser, is the beneficial owner of 4,726,456 shares of our Common Stock as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940; (ii) the ownership of one investment company, Fidelity Contrafund, amounted to 3,120,427 shares of our Common Stock; (iii) neither FMR nor Edward C. Johnson 3d in his capacity as Chairman of FMR have sole voting power over any of the shares owned directly by Fidelity Contrafund; and (iv) Edward C. Johnson 3d. and FMR has sole dispositive power as to 4,726,456 shares. The principal business address of FMR and Fidelity Contrafund is 82 Devonshire Street, Boston, Massachusetts 02109. |
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(15) | | We have been informed pursuant to Schedule 13G filed with the Securities and Exchange Commission on February 17, 2009 that (i) Friess Associates LLC may be deemed to beneficially own 1,637,400 shares of our |
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| | |
| | Common Stock; and (ii) Friess has sole voting power and sole dispositive power as to 1,637,400 of our Common Stock. The principal business address of Friess Associates LLC is 115 E. Snow King, Jackson, WY 83001. |
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(16) | | We have been informed pursuant to Schedule 13G filed with the Securities and Exchange Commission on February 13, 2009 that (i) Keeley Asset Management Corp. and Keeley Small Cap Value Fund, a series of Keeley Funds, Inc. may be deemed to beneficially own 1,785,000 shares of our Common Stock; (ii) Keeley Asset Management Corp. has (A) sole voting power as to 1,785,000 shares and (B) sole dispositive power as to 1,785,000; and (iii) Keeley Small Cap Value Fund does not have voting or dispositive power over any of our Common Stock. The principal business address of Keeley Asset Management and Keeley Small Cap Value Fund, a series of Keeley Funds, Inc. is 401 South LaSalle Street, Chicago, Illinois 60605. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities (collectively, the “reporting persons”) to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish the Company with copies of these reports. Based on the Company’s review of the copies of these reports received by it, and written representations, if any, received from reporting persons with respect to such filings, the Company believes that all filings required to be made by the reporting persons for 2007,2008, were made on a timely basis.
DIRECTORS AND MANAGEMENT
Directors and Executive Officers
The following table sets forth the names and ages of the Company’s directors and executive officers. In addition, biographies of Company’s directors and officers are also provided below, with the exception of Mr. ReedMessrs. O’Connell and Ms. Sardini,Ussery, whose biographies are set forth in “Election of Directors”Directors Proposal 1” beginning on page 45 of this Proxy Statement.
| | | | | | |
Name | | Age | | Position |
|
Sam K. Reed | | | 6162 | (b) | | Chief Executive Officer and Chairman of the Board |
George V. Bayly | | | 6566 | (b) | | Director |
Gregg L. Engles | | | 50 | (a) | | Director |
Diana S. Ferguson | | | 4445 | (b)(a) | | Director |
Frank J. O’Connell | | | 6465 | (a) | | Director |
Ann M. Sardini | | | 59 | (b) | | Director |
Gary D. Smith | | | 6566 | (b)(a) | | Director |
Terdema L. Ussery, II | | | 4950 | (a) | | Director |
David B. Vermylen | | | 5758 | | | President and Chief Operating Officer |
Dennis F. Riordan | | | 5051 | | | Senior Vice President and Chief Financial Officer |
Thomas E. O’Neill | | | 5253 | | | Senior Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary |
Harry J. Walsh | | | 5253 | | | Senior Vice President of OperationsTreeHouse Foods, Inc. and President of Bay Valley Foods, LLC |
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(a) | | Messrs. O’Connell and Ussery comprise a class of directors whose terms expires in 2009. |
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(b) | | Ms. Ferguson and Messrs. Bayly and Smith comprise a class of directors whose terms expires in 2010. |
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(b) | | Mr. Reed and Ms. Sardini comprise a class of directors whose terms expires in 2011. |
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Directors
George V. Baylywas elected as a Director on June 6, 2005. Currently,Since August 12, 2008, Mr. Bayly serveshas served as principal of Whitehall Investors, LLC, a consulting and venture capital firm. Mr. Bayly served as Chairman and Interim-Chief Executive Officer of Altivity Packaging LLC located in Carol Stream, IL. PriorIL from September 2006 to that, Mr. BaylyMarch 10, 2008. He also served as Co-Chairman of U.S. Can Corporation from 2003 to 2006; as well as Chief Executive Officer in 2005. In addition, Mr. Bayly has been a principal of Whitehall Investors, LLC, a consulting and venture capital firm, since January 2002. Fromfrom January 1991 to December 2002, Mr. Bayly served as Chairman, President and Chief Executive Officer of Ivex Packaging Corporation. From 1987 to 1991, Mr. Bayly served as Chairman, President and Chief Executive Officer of Olympic Packaging, Inc. Mr. Bayly also held various management positions with Packaging
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Corporation of America from 1973 to 1987. In addition to our Board, Mr. Bayly serves on the Board of Directors of ACCO AltivityBrands Corporation, Graphic Packaging LLCHolding Company, Huhtamaki Oyj and Huhtamaki Oyj.Ryt-Way Industries Inc. Mr. Bayly holds a B.S. from Miami University and an M.B.A from Northwestern University. Mr. Bayly also served as a Lieutenant Commander in the United States Navy. Mr. Bayly is the Chairman of ourthe Audit Committee and is a member of the Compensation Committee of our Board of Directors.
Gregg L. Engleswas elected as a Director on June 6, 2005. Mr. Engles served as Dean Foods Company’s Chief Executive Officer and as a director of Dean Foods Company from its formation in October 1994 until April 2002 when he resigned as Chief Executive Officer, but continued in his position as a director. From October 1994 until December 21, 2001, Mr. Engles also served as Chairman of the Board of Dean Foods. When Dean Foods acquired the former Dean Foods Company (“Legacy Dean”) on December 21, 2001, Mr. Howard Dean was named Chairman of the Board pursuant to the merger agreement concerning Dean Foods’ acquisition of Legacy Dean, and Mr. Engles was named Vice Chairman of the Board. In April 2002, Mr. Dean retired from his position as Chief Executive Officer of Dean Foods and resumed his position as Chairman of the Board. Prior to the formation of Dean Foods, Mr. Engles served as Chairman of the Board and Chief Executive Officer of certain predecessors to Dean Foods. Mr. Engles holds a B.A. from Dartmouth College and a J.D. from Yale Law School.
Diana S. Fergusonwas elected as a Director on January 25, 2008. Ms. Ferguson hasserved as Senior Vice President and Chief Financial Officer of The Folgers Company from April 2008 to November 2008. Prior to joining Folgers, Ms. Ferguson served as the Executive Vice President and Chief Financial Officer of Merisant Worldwide, Inc. since 2007. Prior to joiningfrom April 2007 until March 2008. On January 6, 2009, Merisant Worldwide, Inc. filed for reorganization under Chapter 11 of the U.S. Bankruptcy Laws. Ms. Ferguson was Senior Vice President Strategy and Corporate Development andalso served as the Chief Financial Officer of Sara Lee Foodservice, a division of Sara Lee Corporation from June 2006 to March 2007. She had previously served in a number of leadership positions at Sara Lee Corporation including Senior Vice President of Strategy and Corporate Development from January 2004February 2005 to AprilJune 2006 as well as Treasurer from January 2001 to December 2004.February 2005. Earlier, she held treasury management positions at Fort James Corporation, from 2000 to 2001 and Eaton Corporation andfrom 1995 to 2000, she also served in various financial positions at Federal National Mortgage Association (Fannie Mae), from 1993 to 1995, the First National Bank of Chicago from 1989 to 1993 and IBM.IBM from 1985 to 1989. Ms. Ferguson holds a B.A. from Yale University and a Masters degree from Northwestern University. In addition to our Board, Ms. Ferguson serves on the Board of Directors of Integrys Energy Corporation. Ms. Ferguson is a member of the Company’s Compensation Committee and Nominating and Corporate Governance Committee.
Frank J. O’ConnellSam K. Reedwas elected as a Director on June 6, 2005.is the Chairman of our Board of Directors. Mr. O’ConnellReed has served as our Chief Executive Officer since January 27, 2005. Prior to joining us, Mr. Reed was a senior partner of The Parthenon Group since June 2004.principal in TreeHouse LLC, an entity unrelated to the Company that was formed to pursue investment opportunities in consumer packaged goods businesses. From November 2000March 2001 to JuneApril 2002, Mr. O’ConnellReed served as Vice Chairman of Kellogg Company. From January 1996 to March 2001, Mr. Reed served as the President and Chief Executive Officer, and as a director of Keebler Foods Company. Prior to joining Keebler, Mr. Reed served as Chief Executive Officer of Specialty Foods Corporation’s (unrelated to Dean Foods) Western Bakery Group division from 1994 to 1995. Mr. Reed has also served as President and Chief Executive Officer of Indian Motorcycle Corporation,Mother’s Cake and he served as Chairman of Indian Motorcycle Corporation from June 2002 to May 2004. Indian Motorcycle Corporation was liquidated under applicable California statutory procedures in January 2005. From 1996 to 2000, Mr. O’Connell served as Chairman, PresidentCookie Co. and Chiefhas held Executive Officer of Gibson Greetings, Inc. From 1991 to 1995, Mr. O’Connell served as President and Chief Operating Officer of Skybox International. Mr. O’Connell has previously served as President of Reebok Brands, North America, President of HBO Video and Senior Vice President of Mattel’s Electronics Division.positions at Wyndham Bakery Products and Murray Bakery Products. Mr. O’ConnellReed holds a B.A. from Rice University and an M.B.A. from CornellStanford University. Mr. O’Connell
Ann M. Sardiniwas elected as a Director on May 1, 2008. Ms. Sardini has served as the Chief Financial Officer of Weight Watchers International, Inc. since April 2002. Ms. Sardini has over 20 years of experience in senior financial management positions in branded media and consumer products companies. She served as Chief Financial Officer of Vitamin Shoppe.com, Inc. from September 1999 to December 2001, and from March 1995 to August 1999 she served as Executive Vice President and Chief Financial Officer for the Children’s Television Workshop. In addition, Ms. Sardini has held finance positions at QVC, Inc., Chris Craft Industries and the National Broadcasting Company. Ms. Sardini holds a B.A. from Boston College and an M.B.A from Simmons College Graduate School of Management. Ms. Sardini is the Chairman of the Compensation Committee and a member of the Company’s Audit Committee and Nominating and Corporate Governance Committee of our Board of Directors.Committee.
Gary D. Smithwas elected as a Director on June 6, 2005. Mr. Smith has served as Chief Executive Officer and Chairman of Encore Associates, Inc. since January 2001, and he has also been a managing director of Encore Consumer Capital since 2005. From April 1995 to December 2004, Mr. Smith served as Senior Vice President — Marketing of Safeway Inc. Mr. Smith also held various management positions at Safeway Inc. from 1961 to 1995. In addition to our Board, Mr. Smith serves on the Board of Directors of Supply Chain Systems Ltd., Altierre Corporation, Philly’s Famous Water Ice, Inc. and AgriWise, Inc. Mr. Smith is the Chairman of the Nominatingour Lead Independent Director and Corporate Governance Committee and is also a member of the AuditCompensation Committee of our Board of Directors.
Terdema L. Ussery, IIwas elected as a Director on June 6, 2005. Mr. Ussery has served as the President and Chief Executive Officer of the Dallas Mavericks since April 1997. Since September 2001, Mr. Ussery has also served as Chief Executive Officer of HDNet. From 1993 to 1996, Mr. Ussery served as the President of Nike Sports Management. From 1991 to 1993, Mr. Ussery served as Commissioner of the Continental Basketball Association (the “CBA”). Prior to becoming Commissioner, Mr. Ussery served as Deputy Commissioner and General Counsel
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of the CBA from 1990 to 1991. From 1987 to 1990, Mr. Ussery was an attorney at Morrison & Foerster LLP. In addition to our Board, Mr. Ussery serves on the Board of Directors of The Timberland Company, Entrust, Inc., and is on the Advisory Board of Wingate Partners, LP. Mr. Ussery holds a B.A. from Princeton University, an M.P.A. from Harvard University and a J.D. from the University of California at Berkeley. Mr. Ussery is a member of the Audit and Compensation Committee of our Board of Directors, and he also serves as our Lead Independent Director.
Executive Officers
David B. Vermylenis our President and Chief Operating Officer and has served in that position since January 27, 2005. Prior to joining us, Mr. Vermylen was a principal in TreeHouse, LLC. From March 2001 to October 2002, Mr. Vermylen served as President and CEOChief Executive Officer of Keebler Foods Company, a division of Kellogg Company. Prior to becoming CEOChief Executive Officer of Keebler, Mr. Vermylen served as the President of Keebler Brands from January 1996 to February 2001. Mr. Vermylen has also served as the Chairman, President and CEOChief Executive Officer of Brother’s Gourmet Coffee, and Vice President of Marketing and Development and later President and CEOChief Executive Officer of Mother’s Cake and Cookie Co. His prior experience also includes three years with the Fobes Group and fourteen years with General Foods Corporation where he served in various marketing positions. Mr. Vermylen serves on the Boards of Directors of Aeropostale, Inc. and Birds Eye Foods, Inc. Mr. Vermylen holds a B.A. from Georgetown University and an M.B.A. from New York University.
Dennis F. Riordanhas been our Senior Vice President and Chief Financial Officer since January 3, 2006. Prior to joining us, Mr. Riordan was Senior Vice President and Chief Financial Officer of Océ-USA Holding, Inc., where he was responsible for the company’s financial activities in North America. Mr. Riordan joined Océ-USA, Inc. in 1997 as Vice President and Chief Financial Officer and was elevated to Chief Financial Officer of Océ-USA Holding, Inc. in 1999. In 2004, Mr. Riordan was named Senior Vice President and Chief Financial Officer and assumed the chairmanship of the company’s wholly owned subsidiaries Arkwright, Inc. and Océ Mexico de S.A. Previously, Mr. Riordan held positions with Sunbeam Corporation, Wilson Sporting Goods and Coopers & Lybrand. Mr. Riordan has also served on the Board of Directors of Océ-USA Holdings, Océ North America, Océ Business Services, Inc. and Arkwright, Inc., all of which are wholly owned subsidiaries of Océ NV.
Thomas E. O’Neillis our Senior Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary and has served in that position since January 27, 2005. Prior to joining us, Mr. O’Neill was a principal in TreeHouse, LLC. From February 2000 to March 2001, he served as Senior Vice President, Secretary and General Counsel of Keebler Foods Company. He previously served at Keebler as Vice President, Secretary and General Counsel from December 1996 to February 2000. Prior to joining Keebler, Mr. O’Neill served as Vice President and Division Counsel for the Worldwide Beverage Division of the Quaker Oats Company from December 1994 to December 1996; Vice President and Division Counsel of the Gatorade Worldwide Division of the Quaker Oats Company from 1991 to 1994; and Corporate Counsel at Quaker Oats from 1985 to 1991. Prior to joining Quaker Oats, Mr. O’Neill was an attorney at Winston & Strawn LLP. Mr. O’Neill holds a B.A. and J.D. from the University of Notre Dame.
Harry J. Walshis oura Senior Vice President of OperationsTreeHouse Foods, Inc. and hasPresident of Bay Valley Foods, LLC. TreeHouse Foods is the parent company of Bay Valley Foods. From January 2005 through July 2008 Mr. Walsh served in thatthe position since January 2005.of Senior Vice President — Operations of TreeHouse Foods. Prior to joining us, Mr. Walsh was a principal in TreeHouse, LLC. From February 2001June 1996 to October 2002, Mr. Walsh served as Senior Vice President of the Specialty Products Division of Keebler Foods Company. Mr. Walsh was President and Chief Operations Officer of Bake-Line Products from March 1999 to February 2001; Vice President-Logistics and Supply Chain Management from April 1997 to February 1999; Vice President-Corporate Planning and Development from January 1997 to April 1997; and Chief Operating Officer of Sunshine Biscuits from June 1996 to December 1996. Prior to joining Keebler, Mr. Walsh served as Vice President of G.F. Industries, Inc. and President and Chief Operating Officer and Chief Financial Officer for Granny Goose Foods, Inc. Prior to entering the food industry, Mr. Walsh was an accountant with Arthur Andersen & Co. Mr. Walsh holds a B.A. from the University of Notre Dame.
As noted above, prior to joining us Messrs. Reed, Vermylen, O’Neill and Walsh were, for varying periods of time, principals of TreeHouse, LLC. TreeHouse, LLC and its predecessor partnership were formed to bring together certain members of the former Keebler Foods Company management team following the expiration of their
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employment with Keebler Foods Company to investigate investment opportunities in the consumer packaged goods industry. TreeHouse, LLC was member managed and, as a result, none of the individuals held officer positions. Messrs. Reed, Vermylen, O’Neill and Walsh joined TreeHouse, LLC in April 2002, October 2002, March 2001 and October 2002, respectively. As a result of the executive officers joining us on January 27, 2005, TreeHouse, LLC ceased operations.
COMPENSATION DISCUSSION AND ANALYSIS
This section provides information regarding the compensation program in place for our Chief Executive Officer, Chief Financial Officer and, in addition, the three most highly compensated executive officers. Collectively we refer to these executives as the TreeHouse Executive Officers (“TEOs”). This section includes information regarding, among other things, the overall objectives of our compensation program and each element of compensation that we provide.
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Objectives of Our Compensation Program
TreeHouse was formed in June 2005 by Dean Foods Company through a spin-off of the Dean Specialty Foods Group and the subsequent issuance of TreeHouse common stock to Dean Foods shareholders. Six months prior to the spin-off, Dean Foods Company recruited Messrs. Reed, Vermylen, O’Neill, Walsh and E. Nichol McCully (our former CFO who retired in April 2006) to lead the Company. These individuals collectively invested $10 million of their own money in Company stock and received a compensation package that Dean Foods Company determined was fair and comparable to other spun-off companies. In connection with the spin-off, Messrs. Reed, Vermylen, O’Neill, McCully and Walsh received restricted stock and restricted stock units which vest only after performance criteria are achieved. In addition, these individuals received pre-approved stock options which were issued on June 28, 2005 with a strike price of $29.65, which was equal to the closing price of Company common stock on the New York Stock Exchange on the grant date. As a new company, we assumed the existing employment agreements of Dean Specialty Foods Group and undertook a detailed study of compensation practices in the food industry. Our overriding goals and objectives for executive compensation programs are:
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| • | To attract, motivate and retain superior leadership talent for the Company. |
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| • | To closely link TEO compensation to our performance goals with particular emphasis on rapid growth, operational excellence and acquisitions through attractive bonus opportunities based on aggressive targets. |
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| • | To align our TEOs’ financial interests with those of our shareholders by delivering a substantial portion of their total compensation in the form of equity awards. |
We have worked with Hewitt Associates LLC (“Hewitt”), our compensation consultant, to review our compensation programs to ensure competitiveness with companies with whom we compete with for our management talent. Hewitt helped us determine the salary levels, as well as the bonus target percentages and the metrics used in the bonus plan. In addition to stock options that reward increase in stock price, we provided restricted stock, restricted stock units and performance units to our management investorsmanagement. We issued restricted stock, in conjunction with vestingthe spin-off and later to other Senior Vice Presidents, which vests based on exceeding the total shareholder return of companies in our business category. We refer to this group of companies as the “Comparator Group”. We also use this Comparator Group as the benchmark for determining our financial performance. We reward our management team based on how well we perform compared to our Comparator Group. We believe this provides a clear and objective way of ensuring our management team’s compensation and incentives are aligned with shareholder interests. The following companies are included in our Comparator Group: Kraft Foods Inc., Sara Lee Corp., General Mills, Inc., Kellogg Co., ConAgra Foods Inc., Archer Daniels Midland Co., H.J. Heinz Company, Campbell Soup Co., McCormick & Co. Inc., The JM Smucker Co., Del Monte Foods Co., Corn Products Int’l., Lancaster Colony Corp., Flower Foods, Inc., Ralcorp Holdings Inc., The Hain Celestial Group, Inc., Lance, Inc., J&J Snack Foods Corp., B&G Foods, Inc., American Italian Pasta Co., Farmer Bros. Inc. and Peet’s Coffee and Tea. Restricted Stock Units may vest when our stock price exceeds $29.65 for any 20 consecutive trading days.
In addition to the Comparator Group, our compensation consultant provides us with survey information for other companies of similar size to TreeHouse from both general industry and the packaged foods sector. We believe that this additional information broadens our awareness of the practices of companies who compete for
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management talent with TreeHouse. The Compensation Committee also considers recommendations from the Company’s Chief Executive Officer regarding salary, bonus and stock option awards for senior executives.
Components of Compensation
There are three primary components to our management compensation program: base salary, annual incentive bonus and long-term incentive compensation. We seek to have each of these components at levels that are competitive with comparable companies. Each of these components was evaluated based on assessment of competitive conditions for employment agreements for executives at spun-off companies at the time of our spin-off from Dean Foods.
Base Salary:Salary: Our management team has been assembled to lead a growth company that will expand significantly in size and complexity over time. We believe that the base salary component should be in the third quartile of our competitive benchmarks when those benchmarks are size adjusted (through regression analysis) to
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our current revenue size. By positioning the base salary somewhat above the median for similarly sized businesses we have been able to attract talent that has the ability to grow and lead a much larger business in the near future. For 2007,2008, we elected to increase the salaries for the executive officers and management by 3.5%. While this action is somewhat below inflation trend for executive salaries, according to Hewitt Associates after evaluating market surveys it is consistent with our practice for our non-executive management group.by Hewitt.
Annual Incentive Bonus: Our TEOs’ annual incentive bonus opportunity also reflects a third quartile position. The annual incentive bonus for TEOs is based on attaining specific annual performance targets such as the net income targets determined by the Board, as adjusted positively or negatively for one-time items.items, and cash flow targets. For 2007,2008, the amount of the potential bonus was 80% tied to the achievement of a net income target of $43.34$49.66 million (based on the Company’s budgeted net income established by the Compensation Committee), adjusted (as approved by the Compensation Committee) for acquisitions and one-time items which occurred duringitems. For 2008, 20% of the yearpotential bonus was tied to athe achievement of an operating cash flow target of $44.5$57.05 million. We do not otherwise use discretion in determining the amount of bonus paid to TEOs. We consider the market expectations of our competitorsthe Comparator Group in setting our budget with targets reflecting performance that exceeds the expected performance of our peer group. Our goal is to provide meaningful yet challenging goals relative to the expected performance of our peer group. In establishing final goals, the Committee strives to ensure that the targets are consistent with the strategic goals set by the Board, and that the goals set are sufficiently ambitious so as to provide meaningful results, but with an opportunity to exceed targets if performance exceeds expectations. We believe the annual incentive bonus keeps management focused on attaining strong near term financial performance. The 20072008 annual incentive bonus opportunity for the TEOs was awarded as follows:
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| | | | Minimum | | Target | | Maximum | | | | | Minimum | | Target | | Maximum | |
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Sam K. Reed | | Chief Executive Officer | | $ | 0 | | | $ | 803,500 | | | $ | 1,607,000 | | | Chief Executive Officer | | $ | 0 | | | $ | 832,000 | | | $ | 1,664,000 | |
David B. Vermylen | | Chief Operating Officer | | $ | 0 | | | $ | 428,800 | | | $ | 857,600 | | | Chief Operating Officer | | $ | 0 | | | $ | 444,000 | | | $ | 888,000 | |
Dennis F. Riordan | | Chief Financial Officer | | $ | 0 | | | $ | 217,500 | | | $ | 435,000 | | | Chief Financial Officer | | $ | 0 | | | $ | 233,100 | | | $ | 466,200 | |
Thomas E. O’Neill | | Chief Administrative Officer | | $ | 0 | | | $ | 225,000 | | | $ | 450,000 | | | Chief Administrative Officer | | $ | 0 | | | $ | 233,100 | | | $ | 466,200 | |
Harry J. Walsh | | Senior Vice President of Operations | | $ | 0 | | | $ | 225,000 | | | $ | 450,000 | | | Senior Vice President and President of Bay Valley Foods | | $ | 0 | | | $ | 233,100 | | | $ | 466,200 | |
TEOs begin to earn amounts under the plan upon achievement of 90% of the net income targetand operating cash flow targets ratably up to the achievement of targeted payment upon the full achievement of 100% of the net income target.and operating cash flow targets. In addition, a TEO can earn 200% of the targeted payment if 110% or more of the targeted net income and operating cash flow is achieved. In 2007,2008, after adjusting for one-time items, we attained $42.7$50 million in net income or 96%100.7% of the net income target, $145.2 million of the cash flow or 255% of the cash flow target which together resulted in a 60%125.6% of target payment under the annual incentive plan.
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Long-Term Incentive Compensation:Compensation: The long-term incentive compensation program was established to ensure that our senior management is focused on long-term growth and profitability. We believe our key stakeholders, including shareholders and employees, are best served by having our executives focused and rewarded based on the longer-term results of our company. We accomplish this through threefour primary programs:
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| • | Stock Options |
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| • | Performance Based Restricted Stock |
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| • | Restricted Stock Units |
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| • | Performance Based Restricted Stock Units |
Historic Long-Term Incentive Compensation Approach
We usehave historically used stock options as a means of aligning the executive management team with the interests of our shareholders by ensuring that they have a direct interest in increasing shareholder value. The stock options vest ratably over three years, and the holder must exercise vested options within 10 years of the original grant. WeStarting in 2005 we annually grantgranted options to key management employees (except for Messrs. Reed, Vermylen, O’Neill, McCully and Walsh) to link their financial opportunity to the overall performance of the Company. The first grants under this program were made on the first day of regular trading following the spin-off
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date. We have continued to use the anniversary of that date as the measurement date for all recurring option and equity grants since that is the anniversary date of the Company.Company as a public entity. We also grant options to certain new employees. Historically these options have been dated as of the date of their commencement of employment or as of the last trading day of the month following their employment with the Company. All of our option grants are approved prior to or on the grant date with a strike price equal to the closing price of our common stock on the NYSE on the date of grant. Messrs. Reed, Vermylen, O’Neill and Walsh havewere not been granted options since the spin-off datein 2006 or 2007 because the original grant of options andas well as performance-based restricted shares arestock and restricted stock units were designed to cover a three year period.period which ended January 2, 2008.
In addition to stock options, we awarded 2% of the outstanding stock of the Company in the form of restricted sharesstock and an additional 2% of the outstanding shares in the form of restricted stock units on June 28, 2005 to the original five management investors of the Company per their employment agreements. These include Messrs. Reed, Vermylen, O’Neill and Walsh, along with Mr. Nick McCully who retired in April 2006. All of the restricted stock and restricted stock units granted prior to 2008 are performance based, which means the Company must meet certain performance goals in order for the award to vest. For the restricted stock to vest, the Company must exceed the median shareholder return of the Comparator Group since the grant date as measured each year on January 31. For the restricted stock units, the Company’s closing share price must exceed $29.65 as ofon June 28, each year.2006, June 28, 2007 and June 28, 2008 or any 20 trading day period subsequent to June 28, 2008 through June 28, 2010. The restricted stock vests ratably, based on performance over three years with a two-year catch up provision and a five-year term. The restricted stock units vest ratably, based on performance over three-years, with a two-year catch up provision and a ten-yearfive-year term. Shares that do not vest based upon performance are forfeited at the end of the term.
We granted performance-based restricted sharesstock to the following TreeHouse senior vice presidents: Dennis F. Riordan Danny Joe Coning, Alan T. Gambrel and Erik T. Kahler on January 30, 2007. These shares of restricted sharesstock have the same performance goals and remaining term as the restricted sharesstock granted in 2005 to Messrs. Reed, Vermylen, O’Neill and Walsh. The purpose of the restricted stock grant was to have all executive officers motivated to achieve the same performance goals.
2008 Long-Term Incentive Grants
The executive grants that were issued in conjunction with the spin-off were designed to cover a period that expired on January 2, 2008. At the conclusion of that period, our Compensation Committee, working closely with Hewitt, conducted a full evaluation of our long-term incentive compensation approach for all management employees, including the TEOs, during 2008. A survey was conducted by Hewitt of all of our management equity program participants to understand better the effectiveness of previous grants in aligning incentives with performance and retention. The Committee reviewed the survey responses and also engaged Hewitt to report on the type, amount and metrics of long-term incentive programs at comparable companies. The Committee reviewed the Hewitt analysis and the views of senior management including, our Chief Executive Officer.
After a full evaluation of the information, the Compensation Committee determined that for the 2008 annual grant structure a mix of approximately 50% options, 25% performance units and 25% restricted stock would best align the incentives of senior management with the shareholders’ interests of motivating long-term performance and management retention. The Committee took special note that the previous restricted stock and restricted stock unit programs had not vested and that the Company did not have an effective retention program in place for the TEOs. Consequently, in addition to a normal annual grant, the Committee determined that it was in the shareholders’ best interest to establish in 2008 a restricted stock grant designed to achieve a commitment by the senior executives of the Company to remain with the business for the next three years. The Committee, in consultation with Hewitt, designed the 2008 Restricted Stock grant to achieve this retention objective. Finally, the Committee recognized that the long-term incentive program for Messrs. Reed, Vermylen, O’Neill and Walsh expired on January 2, 2008. Instead of making a grant at that time the Compensation Committee decided to delay their grants to June 27, 2008 so that all annual grants are made at the same time to all management team members. The Committee elected to adjust the grant size to reflect 17 months instead of 12 months to equitably reflect the delayed timing of the grant. The grant for each of our TEOs is listed in the 2008 Grants of Plan Based Awards Table on page 21 of this Proxy Statement.
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2008 Option Grant Features
The TEOs and certain other senior managers of the Company received stock option grants which were issued on June 27, 2008. We used this date because it coincides with the anniversary of our first public offering. We believe it is good corporate governance to select a grant date that is consistent on an annual basis. These options have a strike price of $24.06 and vest ratably over a three year period on the anniversary of the grant date. They expire on the tenth anniversary of the grant.
2008 Performance Unit Features
The TEOs and certain other senior managers of the Company received performance units that were issued on June 27, 2008. The performance units vest on June 27, 2011 based on achieving targeted operating net income of $30.9 million for the six month period from July 1, 2008 through December 31, 2008; $53.84 million for fiscal year 2009; $58.14 million for fiscal year 2010 and $142.96 million cumulatively over the entire period. The number of units that will be awarded is based on the level of achievement relative to the targets. There is no payout below 80% achievement, and up to 200% if achievement meets or exceeds 120% of the targets. Vested units pay out in cash or shares of the Company’s common stock at the discretion of the Compensation Committee.
2008 Restricted Stock Features
The TEOs and certain other managers of the Company received an annual restricted stock grant and a retention restricted stock grant that were issued on June 27, 2008. These restricted stock grants vest ratably over a three year period on the anniversary of the grant date. No restricted stock awards will vest in any year in which the Company is not profitable.
General Compensation Matters
All matters of our executive compensation programs are reviewed and approved by the Compensation Committee of the Board of Directors. This includes approving both the amounts of compensation and the timing of all grants. The Compensation Committee hasis given full access to compensation experts, and has usedelected to use Hewitt Associates to provide consulting services with respect to the Company’s executive compensation practices including salary, bonus, perquisites, equity incentive awards, deferred compensation and other matters. The Compensation Committee regularly meets with Hewitt representatives without the presence of Company management.
More details regarding the employment agreements of our management investors are summarized below .below.
Executive Perquisites:Perquisites: We annually review the Company’s practices for executive perquisites with the assistance of our compensation consultant. We believe that the market trend is moving toward a cash allowance in lieu of various specific executive benefits such as automobile plans, financial planning consulting or club fees. We have granted an annual allowance of $25,000 to Mr. Reed, $15,000 to Mr. Vermylen and $10,000 to Messrs. O’Neill, Walsh and Riordan to cover these types of benefits. This approach reduces the administrative burden of such programs and satisfies the desire to target market practices. These allowances are not included as eligible compensation for bonus or other purposes and do not represent a significant portion of the executive’s total compensation. Our Board has also adopted policies regarding the personal use of the company owned aircraft by our TEOs. Generally, personal use is permitted, subject to availability. Personal use of the Company aircraft is principally that of our Chief Executive Officer. Personal use by other TEOs is infrequent. We calculate compensation for personal use based on the incremental costs of operating the aircraft. The largest single component of this cost is fuel. The 2008 Summary Compensation Table beginning on page 20 of this proxy statement contains itemized disclosure of all perquisites to our TEOs, regardless of amount.
Deferred Compensation Plans:Plan: Our Deferred Compensation Plan allows certain employees, including the TEOs, to defer receipt of salaryand/or bonus payments. Deferred amounts are credited with earnings or losses based on the rate of return of mutual funds selected by the participants in the plan. We do not “match” amounts that are deferred by employees in the Deferred Compensation Plan except to the extent that employees in the plan have
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their match in the 401(k) plan limited as a result of participating in the Deferred Compensation Plan. In those cases, the lost match would be credited to the Deferred Compensation Plan. Distributions are paid either upon termination
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of employment or returned at a specified date (at least two years after the original deferral) in the future, as elected by the employee. The employee may elect to receive payments in either a lump sum or a series of installments. Participants may defer up to 100% of salary and bonus payments. The Deferred Compensation Plan is not funded by us, and participants have an unsecured contractual commitment from us to pay the amounts due. When such payments are due to employees, the cash will be distributed from our general assets.
We provide deferred compensation to permit our employees to save for retirement on a tax-deferred basis. The Deferred Compensation Plan permits them to do this while also receiving investment returns on deferred amounts, as described above. We believe this is important as a retention and recruitment tool as many if not all of the companies with which we compete for executive talent provide a similar plan for their senior employees.
Employment Agreements:Agreements: We have entered into employment agreements with Messrs. Reed, Vermylen, O’Neill, Walsh and Walsh.Riordan. These agreements provide for payments and other benefits if the officer’s employment terminates for a qualifying event or circumstance, such as being terminated without “Cause” or leaving employment for “Good Reason,” as these terms are defined in the employment agreements. The agreements also provide for benefits, upon a qualifying event or circumstance after there has been a“Change-in-Control” (as defined in the agreements) of the Company. Additional information regarding the employment agreements, including a definition of key terms and a quantification of benefits that would have been received by our TEOs had termination occurred on December 31, 2007,2008, is found under the heading“Potential “Potential Payments upon Termination orChange-in-Control”beginning on page 1925 of this Proxy Statement.proxy statement.
We believe these severance programs are an important part of overall arrangements for our TEOs. We also believe these agreements will help to secure the continued employment and dedication of our TEOs prior to or following a change in control, without concern for their own continued employment. We also believe it is in the best interest of our shareholders to have a plan in place that will allow management to pursue all alternatives for the Company without undue concern for their own financial security. We also believe these agreements are important as a recruitment and retention device, as most of the companies with which we compete for executive talent have similar agreements in place for their senior employees. We have received consulting services from Hewitt Associates with regard to market practices in an evaluation of severance programs.
In 2008, we amended the agreements with Messrs. Reed, Vermylen, O’Neill and Walsh to delay payments for six months in certain circumstances to conform to recently adopted deferred compensation rules contained in Internal Revenue Code Section 409A.
401(k) Savings Plan: Under our TreeHouse Foods Savings Plan (the “Savings Plan”), a tax-qualified retirement savings plan, employees, including our TEOs, may contribute up to 20 percent of regular earnings on a before-tax basis into their Savings Plan accounts (subject to IRS limits). Total contributions may not exceed 20 percent of regular earnings. In addition, under the Savings Plan, we match an amount equal to one dollar for each dollar contributed by participating employees on the first two percent of their regular earnings and fifty cents for each additional dollar contributed on the next four percent of their regular earnings. Amounts held in Savings Plan accounts may not be withdrawn prior to the employee’s termination of employment, or such earlier time as the employee reaches the age of 591/2, subject to certain exceptions as directed by the IRS.
Effective in 2006,In 2008, the Savings Plan limited the “annual additions” that could be made to an employee’s account to $44,000$46,000 per year. “Annual additions” include our matching contributions and before-tax contributions made by us or the employee under Section 401(k) of the Internal Revenue Code.
Of those annual additions, the current2008 maximum before-tax contribution iswas $15,500 per year. In addition, no more than $220,000$230,000 of annual compensation in 2008 may be taken into account in computing benefits under the Savings Plan.
Participants age 50 and over may also contribute, on a before-tax basis, and without regard to the $44,000$46,000 limitation on annual additions or the $15,500 general limitation on before-tax contributions,catch-up contributions of up to $5,000 per year.
Tax Treatment of Executive Compensation:Compensation: Section 162(m) of the Internal Revenue Code imposes a limitation on the deductibility of nonperformance-based compensation in excess of $1 million for the Chief
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Executive Officer, Chief Financial Officer of the Company and each of the other three most highly compensated executive officers. Our plans link all of
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our key incentive programs to the financial performance of the Company, therefore, we believe that we will preserve the deductibility of the executive compensation payments.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth annual and long-term compensation for the Company’s Chief Executive Officer, Chief Financial Officer and three other most highly compensated officers during 2007 (collectively, the “TEOs”),2008, as well as certain other compensation information for the named officers during the years indicated.
20072008 Summary Compensation Table
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| | | | | | Non-Equity
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| | | | | | Incentive Plan
| | Other
| | Stock
| | Option
| | All Other
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| | Other
| | Stock
| | Option
| | All Other
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| | | | Salary
| | Compensation
| | Bonus
| | Awards
| | Awards
| | Compensation
| | Total
| | | | | Salary
| | Compensation
| | Bonus
| | Awards
| | Awards
| | Compensation
| | Total
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Name and Principal Position | | Year | | ($) | | ($)(a) | | ($)(b) | | ($)(c) | | ($)(d) | | ($)(e) | | ($) | | | Year | | ($) | | ($)(a) | | ($) | | ($)(b) | | ($)(c) | | ($)(d) | | ($) | |
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Sam K. Reed | | | 2007 | | | | 798,958 | | | | 485,314 | | | | 0 | | | | 2,489,419 | | | | 1,510,187 | | | | 36,475 | | | | 5,320,353 | | | | 2008 | | | | 827,250 | | | | 1,045,306 | | | | 0 | | | | 1,978,505 | | | | 909,883 | | | | 123,309 | | | | 4,884,253 | |
Chief Executive Officer | | | 2006 | | | | 771,875 | | | | 1,046,950 | | | | 0 | | | | 4,592,853 | | | | 1,510,187 | | | | 36,275 | | | | 7,958,140 | | | | 2007 | | | | 798,958 | | | | 485,314 | | | | 0 | | | | 2,489,419 | | | | 1,510,187 | | | | 36,475 | | | | 5,320,353 | |
| | | | 2006 | | | | 771,875 | | | | 1,046,950 | | | | 0 | | | | 4,592,853 | | | | 1,510,187 | | | | 36,275 | | | | 7,958,140 | |
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David B. Vermylen | | | 2007 | | | | 532,917 | | | | 258,995 | | | | 0 | | | | 1,659,617 | | | | 1,006,793 | | | | 25,710 | | | | 3,484,032 | | | | 2008 | | | | 551,833 | | | | 557,832 | | | | 0 | | | | 1,395,198 | | | | 572,970 | | | | 40,791 | | | | 3,118,624 | |
President and Chief Operating Officer | | | 2006 | | | | 514,583 | | | | 558,400 | | | | 0 | | | | 3,061,907 | | | | 1,006,793 | | | | 25,510 | | | | 5,167,193 | | | | 2007 | | | | 532,917 | | | | 258,995 | | | | 0 | | | | 1,659,617 | | | | 1,006,793 | | | | 25,710 | | | | 3,484,032 | |
| | | | 2006 | | | | 514,583 | | | | 558,400 | | | | 0 | | | | 3,061,907 | | | | 1,006,793 | | | | 25,510 | | | | 5,167,193 | |
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Dennis F. Riordan | | | 2007 | | | | 360,417 | | | | 131,370 | | | | 0 | | | | 140,761 | | | | 302,714 | | | | 20,197 | | | | 955,459 | | | | 2008 | | | | 384,167 | | | | 292,862 | | | | 0 | | | | 219,533 | | | | 408,956 | | | | 20,504 | | | | 1,326,022 | |
Senior Vice President and Chief Financial Officer | | | 2006 | | | | 350,000 | | | | 283,250 | | | | 46,602 | | | | 0 | | | | 230,853 | | | | 19,997 | | | | 930,702 | | |
Senior Vice President and Chief Financial | | | | 2007 | | | | 360,417 | | | | 131,370 | | | | 0 | | | | 140,761 | | | | 302,714 | | | | 20,197 | | | | 955,459 | |
Officer | | | | 2006 | | | | 350,000 | | | | 283,250 | | | | 46,602 | | | | 0 | | | | 230,853 | | | | 19,997 | | | | 930,702 | |
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Thomas E. O’Neill | | | 2007 | | | | 372,875 | | | | 135,900 | | | | 0 | | | | 1,131,556 | | | | 686,445 | | | | 20,197 | | | | 2,346,973 | | | | 2008 | | | | 386,250 | | | | 292,862 | | | | 0 | | | | 963,487 | | | | 391,897 | | | | 20,516 | | | | 2,055,012 | |
Senior Vice President, General Counsel and Chief Administrative Officer | | | 2006 | | | | 360,208 | | | | 293,150 | | | | 0 | | | | 2,087,656 | | | | 686,445 | | | | 19,997 | | | | 3,447,456 | | |
Senior Vice President, General Counsel and | | | | 2007 | | | | 372,875 | | | | 135,900 | | | | 0 | | | | 1,131,556 | | | | 686,445 | | | | 20,197 | | | | 2,346,973 | |
Chief Administrative Officer | | | | 2006 | | | | 360,208 | | | | 293,150 | | | | 0 | | | | 2,087,656 | | | | 686,445 | | | | 19,997 | | | | 3,447,456 | |
| | |
Harry J. Walsh | | | 2007 | | | | 372,875 | | | | 135,900 | | | | 0 | | | | 1,131,556 | | | | 686,445 | | | | 20,197 | | | | 2,346,973 | | | | 2008 | | | | 386,250 | | | | 292,862 | | | | 0 | | | | 963,487 | | | | 391,897 | | | | 20,516 | | | | 2,055,012 | |
Senior Vice President of Operations | | | 2006 | | | | 360,208 | | | | 293,150 | | | | 0 | | | | 2,087,656 | | | | 686,445 | | | | 19,997 | | | | 3,447,456 | | |
Senior Vice President of TreeHouse Foods, Inc | | | | 2007 | | | | 372,875 | | | | 135,900 | | | | 0 | | | | 1,131,556 | | | | 686,445 | | | | 20,197 | | | | 2,346,973 | |
President of Bay Valley Foods, LLC | | | | 2006 | | | | 360,208 | | | | 293,150 | | | | 0 | | | | 2,087,656 | | | | 686,445 | | | | 19,997 | | | | 3,447,456 | |
| | |
a) | | The amounts shown in this column include payments made under our Annual BonusIncentive Plan. At the beginning of each year, the Compensation Committee sets target bonuses and performance criteria that will be used to determine whether and to what extent the TEOs will receive payments under the Annual Incentive Plan. For fiscal 2007,2008, the Compensation Committee selected operating net income and cash flow as the relevant performance criterion.criteria. |
| | |
b) | | The bonus paid to Mr. Riordan in 2006 was compensation for an incentive bonus opportunity forfeited as a result of leaving his former employer. |
|
c) | | The awards shown in this column include restricted stock, and restricted stock units and performance units granted under our Long-TermEquity and Incentive Plan.Plan in 2005, 2007 and 2008. No restricted stock, restricted stock units or performance units were granted in 2006. The amounts listed above are based on the compensation expense recognized for the award pursuant to Statement of Financial Accounting Standards No. FAS 123R. See123R, disregarding any estimates of forfeitures. For a detailed description of the assumptions used in the valuation of these awards, please see Note 13 to the Consolidated Financial Statements included in our Annual ReportReports onForm 10-K for the yearyears ended December 31, 2007 for a discussion of the relevant assumptions used in calculating grant date fair value2008 and current year expense pursuant to FAS 123R. For further information on this award, see the 2007 Grants of Plan Based Awards table beginning on page 19 of this Proxy Statement.2007. |
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d)c) | | The awards shown in this column include stock options granted under our Long-TermEquity and Incentive Plan.Plan in 2005, 2006, 2007 and 2008. The amounts listed above are based on the compensation expense recognized for the award pursuant to Statement of Financial Accounting Standards No. 123R. SeeFAS 123R, disregarding any estimates of forfeitures. For a detailed description of the assumptions used in the valuation of these awards, please see Note 13 to the Consolidated Financial Statements included in our Annual ReportReports on FormForm 10-K for the yearyears ended December 31, 2007 for a discussion of the relevant assumptions used in calculating grant date fair value pursuant to FAS 123R. For further information on this award, see the 2007 Grants of Plan Based Awards table beginning on page 19 of this Proxy Statement.2008 and 2007. |
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e)d) | | The amounts shown in this column include matching contributions under the Company’s 401(k) plan, life insurance premiums, and cash payments in lieu of perquisites as detailed below.and personal use of the Company’s corporate aircraft. |
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DETAILS BEHIND ALL OTHER COMPENSATION COLUMNCOLUMNS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Registrant
| | Insurance
| | Cash Payment in
| | | | | Registrant
| | Insurance
| | Cash Payment in
| | | | | |
Name | | Defined Contribution | | Premiums | | Lieu of Perquisites | | Total | | | Defined Contribution | | Premiums | | Lieu of Perquisites | | Aircraft Usage | | Total | |
|
Sam K. Reed | | $ | 9,000 | | | $ | 2,475 | | | $ | 25,000 | | | $ | 36,475 | | | $ | 9,200 | | | $ | 2,786 | | | $ | 25,000 | | | $ | 86,323 | | | $ | 123,309 | |
David B. Vermylen | | $ | 9,000 | | | $ | 1,710 | | | $ | 15,000 | | | $ | 25,710 | | | $ | 9,200 | | | $ | 1,876 | | | $ | 15,000 | | | $ | 14,715 | | | $ | 40,791 | |
Dennis F. Riordan | | $ | 9,000 | | | $ | 1,197 | | | $ | 10,000 | | | $ | 20,197 | | | $ | 9,200 | | | $ | 1,304 | | | $ | 10,000 | | | $ | 0 | | | $ | 20,504 | |
Thomas E. O’Neill | | $ | 9,000 | | | $ | 1,197 | | | $ | 10,000 | | | $ | 20,197 | | | $ | 9,200 | | | $ | 1,316 | | | $ | 10,000 | | | $ | 0 | | | $ | 20,516 | |
Harry J. Walsh | | $ | 9,000 | | | $ | 1,197 | | | $ | 10,000 | | | $ | 20,197 | | | $ | 9,200 | | | $ | 1,316 | | | $ | 10,000 | | | $ | 0 | | | $ | 20,516 | |
20072008 Grants of Plan Based Awards
The following table sets forth annual and long-term compensation for the Company’s Chief Executive Officer, Chief Financial Officer and three other most highly compensated officers during 2007 (collectively, the “TEOs”),2008, as well as certain other compensation information for the named officers during the years indicated.
20072008 GRANTS OF PLAN BASED AWARDsAWARDS
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| | | | | Estimated
| | | | | | Estimated
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| | | | | Future
| | Estimated
| | Estimated
| | Future
| | Estimated
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payouts
| | Future
| | Future
| | Payouts
| | Future
| | Estimated
| | All Other
| | Exercise
| | | |
| | | | Estimated
| | | | | | All Other
| | | | | | | | | Under
| | Payouts
| | Payouts
| | Under
| | Payouts
| | Future
| | Option
| | or
| | | |
| | | | Future
| | Estimated Payouts
| | Estimated Future
| | Option Awards:
| | | | | | | | | Non-Equity
| | Under Non-
| | Under
| | Equity
| | Under
| | Payouts
| | Awards:
| | Base
| | Grant Date
| |
| | | | Payouts Under
| | Under
| | Payouts Under
| | Number of
| | Exercise or
| | Grant Date
| | | | | Incentive
| | Equity
| | Non-Equity
| | Incentive
| | Equity
| | Under
| | Number of
| | Price
| | Fair Value of
| |
| | | | Non-Equity
| | Non-Equity
| | Non-Equity
| | Securities
| | Base Price
| | Fair Value
| | | | | Plan
| | Incentive Plan
| | Incentive Plan
| | Plan
| | Incentive
| | Equity
| | Securities
| | Of
| | Stock and
| |
| | | | Incentive Plan
| | Incentive Plan
| | Incentive Plan
| | Underlying
| | of Option
| | of Stock and
| | | | | Awards:
| | Awards:
| | Awards:
| | Awards:
| | Plan
| | Incentive Plan
| | Underlying
| | Option
| | Option
| |
| | Grant
| | Awards:
| | Awards:
| | Awards:
| | Options
| | Awards
| | Option
| | | Grant
| | Threshold
| | Target
| | Maximum
| | Threshold
| | Awards:
| | Awards:
| | Options
| | Awards
| | Awards
| |
Name | | Date | | Threshold ($(a) | | Target $(a) | | Maximum $(a) | | (#)(b) | | ($/Sh)(b) | | Awards $(b) | | | Date | | ($(a) | | $(a) | | $(a) | | #(b) | | Target #(b) | | Maximum #(b) | | (#)(c) | | ($/Sh) | | $ | |
|
Sam K. Reed | | | 1/1/07 | | | | 0 | | | | 803,500 | | | | 1,607,000 | | | | 0 | | | | 0 | | | | 0 | | | | 1/1/08 | | | | 0 | | | | 832,000 | | | | 1,664,000 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 114,800 | | | $ | 24.06 | | | $ | 928,732 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 25,500 | | | | 25,500 | | | | 0 | | | | 0 | | | $ | 613,530 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 180,000 | | | | 180,000 | | | | 0 | | | | 0 | | | $ | 4,330,800 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 25,500 | | | | 51,000 | | | | 0 | | | | 0 | | | $ | 613,530 | |
David B. Vermylen | | | 1/1/07 | | | | 0 | | | | 428,800 | | | | 857,600 | | | | 0 | | | | 0 | | | | 0 | | | | 1/1/08 | | | | 0 | | | | 444,000 | | | | 888,000 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 51,600 | | | $ | 24.06 | | | $ | 417,444 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 11,500 | | | | 11,500 | | | | 0 | | | | 0 | | | $ | 276,690 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 150,000 | | | | 150,000 | | | | 0 | | | | 0 | | | $ | 3,609,000 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 11,500 | | | | 23,000 | | | | 0 | | | | 0 | | | $ | 276,690 | |
Dennis F. Riordan | | | 1/1/07 | | | | 0 | | | | 217,500 | | | | 435,000 | | | | 0 | | | | 0 | | | | 0 | | | | 1/1/08 | | | | 0 | | | | 233,100 | | | | 466,200 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | 1/30/07 | | | | 0 | | | | 0 | | | | 0 | | | | 12,000 | | | $ | 29.81 | | | $ | 242,400 | | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 25,500 | | | $ | 24.06 | | | $ | 206,295 | |
| | | 6/27/07 | | | | 0 | | | | 0 | | | | 0 | | | | 47,100 | | | $ | 26.48 | | | $ | 431,160 | | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 5,700 | | | | 5,700 | | | | 0 | | | | 0 | | | $ | 137,142 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 18,000 | | | | 18,000 | | | | 0 | | | | 0 | | | $ | 433,080 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | 5,700 | | | | 11,400 | | | | 0 | | | | 0 | | | $ | 137,142 | |
Thomas E. O’Neill | | | 1/1/07 | | | | 0 | | | | 225,000 | | | | 450,000 | | | | 0 | | | | 0 | | | | 0 | | | | 1/1/08 | | | | 0 | | | | 233,100 | | | | 466,200 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 36,100 | | | $ | 24.06 | | | $ | 292,049 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 8,000 | | | | 8,000 | | | | 0 | | | | 0 | | | $ | 192,480 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 105,000 | | | | 105,000 | | | | 0 | | | | 0 | | | $ | 2,526,300 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 8,000 | | | | 16,000 | | | | 0 | | | | 0 | | | $ | 192,480 | |
Harry J. Walsh | | | 1/1/07 | | | | 0 | | | | 225,000 | | | | 450,000 | | | | 0 | | | | 0 | | | | 0 | | | | 1/1/08 | | | | 0 | | | | 233,100 | | | | 466,200 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 36,100 | | | $ | 24.06 | | | $ | 292,049 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 8,000 | | | | 8,000 | | | | 0 | | | | 0 | | | $ | 192,480 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 105,000 | | | | 105,000 | | | | 0 | | | | 0 | | | $ | 2,526,300 | |
| | | | 6/27/08 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 8,000 | | | | 16,000 | | | | 0 | | | | 0 | | | $ | 192,480 | |
| | |
(a) | | Consists of awards under our annual incentive plan. In each case, 60%approximately 126% of the target amount was actually earned by each TEO and is reported as Non-Equity Incentive Plan Compensation in the 2008 Summary Compensation Table. |
|
(b) | | Consists of options (47,100)Performance Units that permit the holder to purchase shares of our common stockearn between 0% and restricted stock (12,000) awarded under our Long-Term Incentive Plan. One-third200% of the optionsaward, based on the criteria as described in footnote (e) on page 24 of this proxy statement. Also included are Restricted Stock Awards. The amount of Restricted Stock is not subject to change, and will vest on eachan annual basis over three years, subject to operating net income for the previous twelve months being greater than $0. Restricted Stock was issued as follows: Sam K. Reed — 25,500 and 180,000, David B. Vermylen — 11,500 and 150,000, |
21
| | |
| | Dennis F. Riordan — 5,700 and 18,000, Thomas E. O’Neill — 8,000 and 105,000, Harry J. Walsh — 8,000 and 105,000. |
|
(c) | | Consists of the first through third anniversaries of the grant date.Stock Option Awards, that vest on an annual basis over three years. |
Employment Agreements
On January 27, 2005, the Company entered into employment agreements with Messrs. Reed, Vermylen, O’Neill and Walsh. These individuals are referred to as the “management investors.” The terms of these employment agreements are substantially similar, other than the individual’s title, salary, bonus, option, restricted stock and restricted stock entitlements, which are summarized in the tables above.unit entitlements. The employment agreements provideprovided for a three-year term ending on June 28, 2008. The employment agreements also provide for one-year automatic extensions absent written notice from either party of its intention not to extend the agreement.
Under the employment agreements, each management investor is entitled to a base salary at a specified annual rate, plus an incentive bonus based upon the achievement of certain performance objectives to be determined by the Board. The employment agreements also provide that each management investor will receive restricted shares and restricted stock units of our common stock and options to purchase additional shares of our common stock, subject to certain conditions and restrictions on transferability.
Each management investor is also entitled to participate in any benefit plan we maintain for our senior executive officers, including any life, medical, accident, or disability insurance plan; and any pension, profit sharing, retirement, deferred compensation or savings plan for our senior executive officers. We also will pay the
19
reasonable expenses incurred by each management investor in the performance of his duties to us and indemnify the management investor against any loss or liability suffered in connection with such performance.
We are entitled to terminate each employment agreement with or without cause (as defined in the employment agreements). Each management investor is entitled to terminate his employment agreement for good reason, which includes a reduction in base salary or a material alteration in duties and responsibilities or for certain other specified reasons, including the death, disability or retirement of the management investor. If an employment agreement is terminated without cause by us or with good reason by a management investor, the management investor will be entitled to a severance payment equal to two times (or three times, in the case of Mr. Reed) the sum of the annual base salary payable and the target bonus amount owed to the management investor immediately prior to the end of the employment period plus any incentive bonus the management investor would have been entitled to receive for the calendar year had he remained employed by the Company. If an employment agreement is terminated under the same circumstances and within 24 months after a change of control of the Company, the management investor will be entitled to a severance payment equal to three times the annual base salary and target bonus amount payable to the management investor immediately prior to the end of the employment period, plus any incentive bonus the management investor would have been entitled to receive for the calendar year had he remained employed by us.
In 2008, we amended the agreements with Messrs. Reed, Vermylen, O’Neill and Walsh to delay payments for six months in certain circumstances to conform to recently adopted deferred compensation rules contained in Internal Revenue Code Section 409A.
On November 7, 2008 the Company entered into an employment agreement with Mr. Riordan. The terms and conditions of the Riordan employment agreement are similar in all material respects to the management investor agreements with regard to salary, bonus, benefits plans and severance except that the restricted shares, restricted stock units and options provided to the management investors in 2005 are not included since Mr. Riordan has been receiving long-term incentive grants which are summarized in the tables above and described below since he joined the Company on January 3, 2006.
22
Awards
During 2006,The grant for each TEO is listed in the Committee granted options to Mr. Riordan in connection with his joining2008 Grants of Plan Based Awards Table on page 21 above. The significant features of the 2008 equity incentives are as follows:
2008 Option Grant Features
The TEOs and certain other senior managers of the Company as the Chief Financial Officer under our Long-Term Incentive Plan. One-thirdreceived stock option grants which were issued on June 27, 2008 with a strike price of these$24.06. The options vest ratably over a three year period on eachthe anniversary of the first, secondgrant date and third anniversariesexpire on the tenth anniversary of the grant.
2008 Performance Unit Features
The TEOs and certain other senior managers of the Company received performance units which were issued on June 27, 2008 which vest on June 27, 2011 based upon achievement of a targeted operating net income of $30.9 million for the six month period from July 1, 2008 through December 31, 2008, $53.84 million for fiscal year 2009, $58.14 million for fiscal year 2010 and $142.96 million cumulatively over the entire period. The number of units is subject to adjustment based upon achievement of targets with no payout below 80% and up to 200% if achievement meets or exceeds 120% of the targets. Vested units pay out in cash or shares of the Company’s Common Stock at the discretion of the Compensation Committee.
2008 Restricted Stock Features
The TEOs and other managers of the Company received an annual restricted stock grant and a retention restricted stock grant that were issued on June 27, 2008, and vest ratably over a three year period on the anniversary of the grant date. During 2007, Mr. Riordan was granted options andNo restricted stock under the Company’s Long-Term Incentive Plan. The Options were granted as part of the Company’s annual award to all eligible non-management investor employees. Options were not granted to the other four TEOsawards will vest in 2007 as the grantany year in 2005 was intended to cover a three year period.
At the time of the spin-off from Dean Foods in 2005,which the Company awarded one-time option grants and 2% of the outstanding stock of the Company in the form of restricted shares and an additional 2% of the outstanding shares in the form of restricted stock units to the original five management investors of the Company. These include Messrs. Reed, Vermylen, O’Neill and Walsh, along with Mr. Nick McCully who retired in April 2006. All of the restricted stock and restricted units are performance based and vest only if the Company meets certain performance goals. For the restricted stock, the Company must exceed the median shareholder return of the Comparator Group as measured each year on January 31. For the restricted stock units, the Company’s closing share price must exceed $29.65 as of June 28 each year. The restricted stock vests ratably over three-years with a two-year catch up provision and a five-year term. The restricted stock units vest ratably over three years with a two-year catch up provision and terminate after ten-years. The four remaining management investors didis not receive any additional equity grant awards in 2007.
In 2007, the Compensation Committee established potential bonuses for each of our TEOs under the Annual Incentive Bonus Plan. The amount of the potential bonuses was tied to the achievement of net income targets established by the Committee. In each case, in 2007 the Annual Bonuses were earned by the TEOs at 60% of the target level and are reported as “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table on page 18 of this Proxy Statement.profitable.
Salary and Bonus in Proportion to Total Compensation
We believe our key stakeholders, including shareholders and employees, are best served by having our executives focused and rewarded based on the long-term results of the Company. In 2005, in addition to stock options, we have awarded 2% of the outstanding stock of the Company in the form of restricted shares and an additional 2% of the outstanding shares in the form of restricted stock units to the original five management investors of the Company. These include Messrs. Reed, Vermylen, O’Neill and Walsh, along with Mr. Nick McCully who retired in April 2006. All of the restricted stock and restricted units are performance based, which means the Company must meet certain performance goals in order for the awards to vest. In 2008, we included our TEOs in the annual grant, and awarded them a combination of stock options, restricted stock and performance units. Please see “Compensation Discussion and Analysis” beginning on page 14 of this Proxy Statementproxy statement for a description of the objectives of our compensation program and overall compensation philosophy.
2023
20072008 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards | |
| | Option Awards | | Stock Awards | | | | | | | | | | | Equity Incentive
| | Equity Incentive
| |
| | Number of
| | | | | | | | | | Equity Incentive
| | | Number of
| | Number of
| | | | | | Plan Awards:
| | Plan Awards:
| |
| | Securities
| | Number of
| | | | | | Equity Incentive
| | Plan Awards: Market
| | | Securities
| | Securities
| | | | | | Number
| | Market
| |
| | Underlying
| | Securities
| | | | | | Plan Awards: Number
| | or Payout Value of
| | | Underlying
| | Underlying
| | | | | | of Unearned
| | or Payout Value of
| |
| | Unexercised
| | Underlying
| | | | | | of Unearned Shares,
| | Unearned Shares,
| | | Unexercised
| | Unexercised
| | | | | | Shares,
| | Unearned Shares,
| |
| | Options
| | Unexercised
| | Option
| | Option
| | Units, or Other
| | Units, or Other
| | | Options
| | Options
| | Option
| | Option
| | Units, or Other
| | Units, or Other
| |
| | Exercisable
| | Options
| | Exercise
| | Expiration
| | Rights that Have
| | Rights that have
| | | Exercisable
| | Unexercisable
| | Exercise
| | Expiration
| | Rights that Have
| | Rights that have
| |
Name | | (#) | | Unexercisable(#)(a) | | Price ($) | | Date | | not Vested(#) | | not Vested($) | | | (#) | | (#)(a) | | Price ($) | | Date | | not Vested(#) | | not Vested($) | |
|
Sam K. Reed | | | 273,557 | | | | 136,820 | | | | 29.65 | | | | 6/27/2015 | | | | 208,211 | (b) | | | 4,786,771 | | | | 410,377 | | | | 0 | | | | 29.65 | | | | 6/28/2015 | | | | 208,211 | (b) | | | 5,671,668 | |
| | | | | | | | | | | | | | | | | | | 214,257 | (c) | | | 4,925,768 | | | | | | | | 114,800 | | | | 24.06 | | | | 6/27/2018 | | | | 214,257 | (c) | | | 5,836,361 | |
| | | | | | | | | | | | | | | | | | | | 25,500 | (d) | | | 694,620 | |
| | | | | | | | | | | | | | | | | | | | 180,000 | (d) | | | 4,903,200 | |
| | | | | | | | | | | | | | | | | | | | 25,500 | (e) | | | 694,620 | |
David B. Vermylen | | | 182,371 | | | | 91,214 | | | | 29.65 | | | | 6/27/2015 | | | | 138,808 | (b) | | | 3,191,196 | | | | 273,585 | | | | 0 | | | | 29.65 | | | | 6/28/2015 | | | | 138,808 | (b) | | | 3,781,130 | |
| | | | | | | | 51,600 | | | | 24.06 | | | | 6/27/2018 | | | | 142,838 | (c) | | | 3,890,907 | |
| | | | | | | | | | | | | | | | | | | | 11,500 | (d) | | | 313,260 | |
| | | | | | | | | | | | | | | | | | | | 150,000 | (d) | | | 4,086,000 | |
| | | | | | | | | | | | | | | | | | | 142,838 | (c) | | | 3,283,846 | | | | | | | | | | | | | | | | | | | | 11,500 | (e) | | | 313,260 | |
Dennis F. Riordan | | | 33,329 | | | | 66,671 | | | | 18.60 | | | | 1/3/2016 | | | | | | | | | | | | 66,659 | | | | 33,341 | | | | 18.60 | | | | 1/3/2016 | | | | 12,000 | (b) | | | 326,880 | |
| | | 0 | | | | 47,100 | | | | 26.48 | | | | 6/27/2017 | | | | 12,000 | (b) | | | 275,880 | | | | 15,698 | | | | 31,402 | | | | 26.48 | | | | 6/27/2017 | | | | 5,700 | (d) | | | 155,268 | |
| | | | | | | | | | | | | | | | | | | | 18,000 | (d) | | | 490,320 | |
| | | | | | | | 25,500 | | | | 24.06 | | | | 6/27/2018 | | | | 5,700 | (e) | | | 155,268 | |
Thomas E. O’Neill | | | 124,343 | | | | 62,191 | | | | 29.65 | | | | 6/27/2015 | | | | 94,641 | (b) | | | 2,175,797 | | | | 186,534 | | | | 0 | | | | 29.65 | | | | 6/28/2015 | | | | 94,641 | (b) | | | 2,578,021 | |
| | | | | | | | 36,100 | | | | 24.06 | | | | 6/27/2018 | | | | 97,390 | (c) | | | 2,652,904 | |
| | | | | | | | | | | | | | | | | | | | 8,000 | (d) | | | 217,920 | |
| | | | | | | | | | | | | | | | | | | | 105,000 | (d) | | | 2,860,200 | |
| | | | | | | | | | | | | | | | | | | 97,390 | (c) | | | 2,238,996 | | | | | | | | | | | | | | | | | | | | 8,000 | (e) | | | 217,920 | |
Harry J. Walsh | | | 124,343 | | | | 62,191 | | | | 29.65 | | | | 6/27/2015 | | | | 94,641 | (b) | | | 2,175,797 | | | | 186,534 | | | | 0 | | | | 29.65 | | | | 6/28/2015 | | | | 94,641 | (b) | | | 2,578,021 | |
| | | | | | | | | | | | | | | | | | | 97,390 | (c) | | | 2,238,996 | | | | | | | | 36,100 | | | | 24.06 | | | | 6/27/2018 | | | | 97,390 | (c) | | | 2,652,904 | |
| | | | | | | | | | | | | | | | | | | | 8,000 | (d) | | | 217,920 | |
| | | | | | | | | | | | | | | | | | | | 105,000 | (d) | | | 2,860,200 | |
| | | | | | | | | | | | | | | | | | | | 8,000 | (e) | | | 217,920 | |
| | |
(a) | | The unvested option awardsaward for each TEO with an option exercise price of $24.06, will vest in one-third increments beginning on the anniversary date of the TEOs, except for Mr. Riordan, will vest ongrant, which was June 28,27, 2008. Mr. Riordan’s options will vest in one-third increments beginning on the anniversary date of the grant date of the awards, which were January 3, 2006, June 27, 2007, and June 27, 2007.2008. |
| | |
(b) | | For thethis restricted stock, the Company must exceed the median shareholder return of the Comparator Group as measured each year on January 31. TheThis restricted stock vests ratably over three years if the targeted return is achieved and havehas a10-year5-year term. As of January 31, 2008,2009, no shares of restricted stock have vested. |
|
(c) | | For thethese restricted stock units, the Company’s closing share price must exceed $29.65 as offor any 20 consecutive trading day period, beginning June 28, each year. The2008 through June 28, 2010. These restricted stock units vest ratably over three years if the targeted share price is achieved and have a10-year5-year term. As of December 31, 2007,2008, no restricted stock units have vested. |
|
(d) | | Restricted stock granted on June 27, 2008 that vests annually on the grant date over athree-year period, subject to the Company having operating net income greater than $0. |
|
(e) | | Performance units granted on June 27, 2008 that vest on June 27, 2011 based on achievement of targeted operating net income of $30.9 million for the six month period from July 1, 2008 through December 31, 2008, $53.84 million for fiscal year 2009, $58.14 million for fiscal year 2010, and $142.96 million cumulatively over |
24
| | |
| | the entire performance period. The number of units is subject to adjustment based upon achievement of targets, with no payout below 80% and up to 200%, if achievement meets or exceeds 120% of these targets. |
20072008 OPTION EXERCISES AND STOCK VESTED
In 2007,2008, no restricted shares or restricted stock units vested, and no options were exercised by TEOs.
20072008 NON-QUALIFIED DEFERRED COMPENSATION
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Executive
| | Registrant
| | Aggregate
| | Aggregate
| | Aggregate
| | | Executive
| | Registrant
| | Aggregate
| | Aggregate
| | Aggregate
| |
| | Contributions
| | Contributions
| | Earnings
| | Withdrawals/
| | Balance at
| | | Contributions
| | Contributions
| | Earnings
| | Withdrawals/
| | Balance at
| |
| | in Last FY
| | in Last FY
| | in Last FY
| | Distributions
| | Last FYE
| | | in Last FY
| | in Last FY
| | in Last FY
| | Distributions
| | Last FYE
| |
Name | | ($)(a) | | ($) | | ($)(b) | | ($) | | ($) | | | ($)(a) | | ($) | | ($)(b) | | ($) | | ($) | |
|
Sam K. Reed | | | 181,839 | | | | 0 | | | | 24,556 | | | | 0 | | | | 544,490 | | | | 255,343 | | | | 0 | | | | (221,980 | ) | | | 0 | | | | 577,853 | |
David B. Vermylen | | | 811,658 | | | | 0 | | | | 60,613 | | | | 0 | | | | 1,412,0544 | | | | 253,200 | | | | 0 | | | | (430,674 | ) | | | 0 | | | | 1,234,580 | |
Dennis F. Riordan | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Thomas E. O’Neill | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Harry J. Walsh | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | |
(a) | | Amounts in this column are included in the “Salary” and/or “Non-Equity Incentive Plan Compensation” column in the 2008 Summary Compensation Table. |
| | |
(b) | | Amounts in this column are not included in the 2008 Summary Compensation Table on page 1620 of this Proxy Statement. |
The 20072008 Nonqualified Deferred Compensation tableTable presents amounts deferred under our Deferred Compensation Plan. Participants may defer up to 100% of their base salary and annual incentive plan payments under the Deferred Compensation Plan. Deferred Amounts are credited with earnings or losses based on the return of mutual funds selected by the executive, which the executive may change at any time. We do not make contributions to
21
participants’ accounts under the Deferred Compensation Plan, except to the extent that employees in the plan have their match in the 401(k) plan limited as a result of participating in the Deferred Compensation Plan. Distributions are made in either a lump sum or an annuity as chosen by the executive at the time of the deferral.
The earnings on Mr. Reed’s Deferred Compensation Plan account were measured by reference to a portfolio of publicly available mutual funds chosen by Mr. Reed in advance and administered by an outside third party, which generated an annual returnloss of 4.72%27.75% in 2007.2008. The earnings on Mr. Vermylen’s Deferred Compensation Plan account were measured by reference to a portfolio of publicly available mutual funds chosen by Mr. Vermylen in advance and administered by an outside third party, which generated an annual returnloss of 4.49%25.86% in 2007.2008.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
As noted on pagespage 19 of this Proxy Statement, we have entered into employment agreements with certain of our TEOs. The employment agreements provide for payments of certain benefits, as described below, upon the termination of a TEO. The TEOs rights upon termination of his or her employment depend upon the circumstance of the termination. Central to an understanding of the rights of each TEO under the employment agreements is an understanding of the definitions of “Cause” and “Good Reason” that are used in the employment agreements. For purposes of the employment agreements:
| | |
| • | We have Cause to terminate the TEO if the TEO has engaged in any of a list of specified activities, including refusing to perform duties consistent with the scope and nature of his or her position, committing an act materially detrimental to the financial conditionand/or goodwill of us or our subsidiaries, commission of a felony or other actions specified in the definition. |
|
| • | The TEO is said to have Good Reason to terminate his or her employment and thereby gain access to the benefits described below if we assign the TEO duties that are materially inconsistent with his or her position, reduce his or her compensation, call for relocation, or take certain other actions specified in the definition. |
25
The employment agreements require, as a precondition to the receipt of these payments, that the TEO sign a standard form of release in which hethe TEO waives all claims that he or shethe TEO might have against us and certain associated individuals and entities. They also include noncompetenon-compete and nonsolicitnon-solicit provisions that would apply for a period of one year following the TEO’s termination of employment and nondisparagementnon-disparagement and confidentiality provisions that would apply for an unlimited period of time following the TEO’s termination of employment.
The employment agreement for each TEO specifies the payment to each individual in each of the following situations:
| | |
| • | Involuntary termination without cause or resignation with good reason |
|
| • | Retirement |
|
| • | Death or Disability |
|
| • | WithoutTermination without cause or with good reason after Change in Control |
In the event of an involuntary termination of the employee without cause, or resignation by the employee for good reason, the TEO will receive two times the employee’s base salary and target bonus (three times in the case of Mr. Reed), and continuation of all health and welfare benefits for two years (three years in the case of Mr. Reed). In addition, any unvested options issued in connection with their employment agreement, shall become vested and exercisable and any restricted stock and restricted stock units outstanding and issued in connection with their employment agreement, shall continue to vest on the same terms that would have applied if the TEO’s termination had not occurred.
Hewitt Associates LLC has reviewed the existingchange-in-control severance provisions of our TEOs relative to the current practices of our Comparator Group and has found our practices to be within the norms of the group.
The performance-based restricted stock and restricted stock units we granted in 2005 at the time of the spin-off and were intended to provide long-term incentive over a multi-year period. None of these awards have yet vested based upon the performance criteria. The stock options, restricted stock, performance based restricted stock and performance units issued in June 2008 are intended to ensure that our senior management is focused on long-term growth and profitability. None of these awards have vested. Achange-in-control would cause these shares to fully vest and the full incremental value would be realized immediately. As these shares vest in the future based upon performance, we
22
would expect this incremental value delivered upon achange-in-control to decrease significantly. This is also expected to significantly decrease the potential cost of excise taxgross-ups.
In the event of an involuntary termination of the employee without cause, or resignation by the employee for good reason within a 24 month period immediately following a change in control of the Company, the TEO will receive three times the amount of their base salary and target bonus, and continuation of all health and welfare benefits for three years. In addition, all unvested options shall become vested and exercisable and any restricted stock, and restricted stock units outstanding shall fully vest. The TEOs are eligible to receive a“gross-up” payment from the Company to the extent they incur excise taxes under section 4999 of the Internal Revenue Code.
In the event of death, disability or retirement, the TEO will receive no additional payment but all unvested options shall become vested and exercisable and any restricted stock, and restricted stock units outstanding shall continue to vest on the same terms that would have applied if the TEO’s death, disability or retirement had not occurred.
In 2008, the Company issued equity awards to our TEOs that are only subject to the terms and conditions of the Equity and Incentive Plan, and include stock options, restricted stock and performance units. In the event of a change in control, unvested stock options will become fully vested, the restrictions on the restricted stock will lapse, and the restrictions on the greater of the units awarded or accrued will lapse in full. In the event of death, disability, or retirement, unvested options will become fully vested, and a pro rata portion of the restricted stock that would be eligible for lapse of restrictions on the next anniversary date of the grant will lapse. No performance units will vest upon death, disability or retirement. Unvested stock options, restricted stock and performance units will be forfeited for any other reason of termination.
26
The tables below illustratesillustrate the payouts to each TEO under each of the various separation situations. The tables assume that the terminations took place on December 31, 2007.2008.
Name of Participant: Sam K. Reed
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Involuntary
| | | |
| | | | | | | | | Termination
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | without
| | | |
| | Involuntary
| | | | | | | | | | | Involuntary
| | | | | | Cause or
| | | |
| | Termination
| | | | | | | | | | | Termination
| | | | | | Resignation
| | | |
| | without
| | | | | | Involuntary
| | | | | without
| | | | | | for Good
| | | |
| | Cause or
| | | | | | Termination
| | Change in
| | | Cause or
| | | | | | Reason
| | Change in
| |
| | Resignation
| | | | | | Following
| | Control
| | | Resignation
| | | | | | Following
| | Control
| |
| | for Good
| | Retirement
| | | | Change in
| | Without
| | | for Good
| | Retirement
| | | | Change in
| | Without
| |
| | Reason(1)
| | or Death
| | Disability
| | Control
| | Termination
| | | Reason(1)
| | or Death
| | Disability
| | Control
| | Termination
| |
| | ($) | | ($) | | ($) | | ($) | | ($) | | | ($) | | ($) | | ($) | | ($) | | ($) | |
|
Severance | | | 4,821,000 | | | | 0 | | | | 0 | | | | 4,821,000 | | | | 0 | | | | 5,025,946 | | | | 0 | | | | 0 | | | | 5,025,946 | | | | 0 | |
Pro-rated Annual Incentives | | | 0 | | | | 0 | | | | 0 | | | | 803,500 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 832,000 | | | | 0 | |
Stock Options | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 365,064 | | | | 365,064 | | | | 365,064 | | | | 365,064 | |
Basic and Supplemental Restricted Shares | | | 0 | | | | 0 | | | | | | | | 9,712,539 | | | | 9,712,539 | | |
Restricted Stock, Restricted Stock Units and Performance Units | | | | 0 | | | | 932,970 | | | | 932,970 | | | | 17,800,468 | | | | 17,800,468 | |
Welfare Benefits | | | 31,230 | | | | 0 | | | | 31,230 | | | | 31,230 | | | | 0 | | | | 37,322 | | | | 0 | | | | 37,322 | | | | 37,322 | | | | 0 | |
Excise Tax &Gross-Up | | | 0 | | | | 0 | | | | 0 | | | | 6,345,184 | | | | 3,927,418 | | | | 0 | | | | 0 | | | | 0 | | | | 10,336,633 | | | | 7,818,080 | |
| | | | | | | | | | | | | | | | | | | | | | |
Aggregate Payments | | | 4,852,230 | | | | 0 | | | | 31,230 | | | | 21,713,453 | | | | 13,639,957 | | | | 5,063,268 | | | | 1,298,034 | | | | 1,335,356 | | | | 34,397,433 | | | | 25,983,612 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Assumes Mr. Reed is acting as CEO at the time of involuntary or Good Reason Termination. If Mr. Reed were not acting in the capacity of CEO, termination would result in the full vesting of stock options, basic restricted shares and supplemental restricted shares. |
Name of Participant: David B. Vermylen
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Involuntary
| | | |
| | | | | | | | | Termination
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | without
| | | |
| | Involuntary
| | | | | | | | | | | Involuntary
| | | | | | Cause or
| | | |
| | Termination
| | | | | | | | | | | Termination
| | | | | | Resignation
| | | |
| | Without
| | | | | | Involuntary
| | | | | Without
| | | | | | for Good
| | | |
| | Cause or
| | | | | | Termination
| | Change in
| | | Cause or
| | | | | | Reason
| | Change in
| |
| | Resignation
| | | | | | Following
| | Control
| | | Resignation
| | | | | | Following
| | Control
| |
| | for Good
| | Retirement
| | | | Change in
| | Without
| | | for Good
| | Retirement
| | | | Change in
| | Without
| |
| | Reason
| | or Death
| | Disability
| | Control
| | Termination
| | | Reason
| | or Death
| | Disability
| | Control
| | Termination
| |
| | ($) | | ($) | | ($) | | ($) | | ($) | | | ($) | | ($) | | ($) | | ($) | | ($) | |
|
Severance | | | 1,929,600 | | | | 0 | | | | 0 | | | | 2,894,400 | | | | 0 | | | | 2,018,380 | | | | 0 | | | | 0 | | | | 3,017,380 | | | | 0 | |
Pro-rated Annual Incentives | | | 0 | | | | 0 | | | | 0 | | | | 428,800 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 444,000 | | | | 0 | |
Stock Options | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 164,088 | | | | 164,088 | | | | 164,088 | | | | 164,088 | |
Basic and Supplemental Restricted Shares | | | 0 | | | | 0 | | | | 0 | | | | 6,475,042 | | | | 6,475,042 | | |
Restricted Stock, Restricted Stock Units and Performance Units | | | | 0 | | | | 733,210 | | | | 733,210 | | | | 12,384,557 | | | | 12,384,557 | |
Welfare Benefits | | | 23,075 | | | | 0 | | | | 23,075 | | | | 34,612 | | | | 0 | | | | 25,048 | | | | 0 | | | | 25,048 | | | | 37,572 | | | | 0 | |
Excise Tax &Gross-Up | | | 0 | | | | 0 | | | | 0 | | | | 4,171,592 | | | | 2,718,697 | | | | 0 | | | | 0 | | | | 0 | | | | 7,177,237 | | | | 5,665,129 | |
| | | | | | | | | | | | | | | | | | | | | | |
Aggregate Payments | | | 1,952,675 | | | | 0 | | | | 23,075 | | | | 14,004,446 | | | | 9,193,739 | | | | 2,043,428 | | | | 897,298 | | | | 922,346 | | | | 23,224,834 | | | | 18,213,774 | |
| | | | | | | | | | | | | | | | | | | | | | |
2327
Name of Participant: Dennis F. Riordan
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Involuntary
| | | |
| | | | | | | | | Termination
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | without Cause
| | | |
| | Involuntary
| | | | | | | | | | | Involuntary
| | | | | | or Resignation
| | | |
| | Termination
| | | | | | Involuntary
| | | | | Termination
| | | | | | for Good
| | | |
| | Without
| | | | | | Termination
| | Change in
| | | Without
| | | | | | Reason
| | Change in
| |
| | Cause or
| | | | | | Following
| | Control
| | | Cause or
| | | | | | Following
| | Control
| |
| | Resignation
| | Retirement
| | | | Change in
| | Without
| | | Resignation
| | Retirement
| | | | Change in
| | Without
| |
| | for Good Reason | | Death | | Disability | | Control | | Termination | | | for Good Reason | | or Death | | Disability | | Control | | Termination | |
| | ($) | | ($) | | ($) | | ($) | | ($) | | | ($) | | ($) | | ($) | | ($) | | ($) | |
|
Severance | | | 1,160,000 | | | | 0 | | | | 0 | | | | 1,740,000 | | | | 0 | | | | 1,255,881 | | | | 0 | | | | 0 | | | | 1,877,481 | | | | 0 | |
Pro-rated Annual Incentives | | | 0 | | | | 0 | | | | 0 | | | | 217,500 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 233,100 | | | | 0 | |
Stock Options | | | 0 | | | | 292,666 | | | | 292,666 | | | | 292,666 | | | | 292,666 | | | | 0 | | | | 392,954 | | | | 392,954 | | | | 392,954 | | | | 392,954 | |
Basic and Supplemental Restricted Shares | | | 0 | | | | 0 | | | | 0 | | | | 275,880 | | | | 275,880 | | |
Restricted Stock, Restricted Stock Units and Performance Units | | | | 0 | | | | 107,598 | | | | 107,598 | | | | 1,127,736 | | | | 1,127,736 | |
Welfare Benefits | | | 23,991 | | | | 0 | | | | 23,991 | | | | 35,986 | | | | 0 | | | | 24,657 | | | | 0 | | | | 24,657 | | | | 36,985 | | | | 0 | |
Excise Tax &Gross-Up | | | 0 | | | | 0 | | | | 0 | | | | 674,356 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,087,662 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | |
Aggregate Payments | | | 1,183,991 | | | | 292,666 | | | | 316,657 | | | | 3,236,389 | | | | 568,546 | | | | 1,280,538 | | | | 500,552 | | | | 525,209 | | | | 4,755,918 | | | | 1,520,690 | |
| | | | | | | | | | | | | | | | | | | | | | |
Name of Participant: Thomas E. O’Neill
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Involuntary
| | | |
| | | | | | | | | Termination
| | | |
| | | | | | | | | without
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Cause or
| | | |
| | Involuntary
| | | | | | | | | | | Involuntary
| | | | | | Resignation
| | | |
| | Termination
| | | | | | Involuntary
| | | | | Termination
| | | | | | for Good
| | | |
| | Without
| | | | | | Termination
| | Change in
| | | Without
| | | | | | Reason
| | Change in
| |
| | Cause or
| | | | | | Following
| | Control
| | | Cause or
| | | | | | Following
| | Control
| |
| | Resignation for
| | Retirement
| | | | Change in
| | Without
| | | Resignation for
| | Retirement
| | | | Change in
| | Without
| |
| | Good Reason | | Death | | Disability | | Control | | Termination | | | Good Reason | | or Death | | Disability | | Control | | Termination | |
| | ($) | | ($) | | ($) | | ($) | | ($) | | | ($) | | ($) | | ($) | | ($) | | ($) | |
|
Severance | | | 1,200,000 | | | | 0 | | | | 0 | | | | 1,800,000 | | | | 0 | | | | 1,255,881 | | | | 0 | | | | 0 | | | | 1,877,481 | | | | 0 | |
Pro-rated Annual Incentives | | | 0 | | | | 0 | | | | 0 | | | | 225,000 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 233,100 | | | | 0 | |
Stock Options | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 114,798 | | | | 114,798 | | | | 114,798 | | | | 114,798 | |
Basic and Supplemental Restricted Shares | | | 0 | | | | 0 | | | | 0 | | | | 6,475,042 | | | | 6,475,042 | | |
Restricted Stock, Restricted Stock Units and Performance Units | | | | 0 | | | | 513,020 | | | | 513,020 | | | | 10,968,077 | | | | 10,968,077 | |
Welfare Benefits | | | 22,023 | | | | 0 | | | | 22,023 | | | | 33,035 | | | | 0 | | | | 24,721 | | | | 0 | | | | 24,721 | | | | 37,081 | | | | 0 | |
Excise Tax &Gross-Up | | | 0 | | | | 0 | | | | 0 | | | | 3,700,254 | | | | 2,800,783 | | | | 0 | | | | 0 | | | | 0 | | | | 5,926,219 | | | | 4,977,320 | |
| | | | | | | | | | | | | | | | | | | | | | |
Aggregate Payments | | | 1,222,023 | | | | 0 | | | | 22,023 | | | | 12,233,331 | | | | 9,275,825 | | | | 1,280,602 | | | | 627,818 | | | | 652,539 | | | | 19,156,756 | | | | 16,060,195 | |
| | | | | | | | | | | | | | | | | | | | | | |
Name of Participant: Harry J. Walsh
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Involuntary
| | | |
| | | | | | | | | Termination
| | | |
| | | | | | | | | without
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Cause or
| | | |
| | Involuntary
| | | | | | | | | | | Involuntary
| | | | | | Resignation
| | | |
| | Termination
| | | | | | Involuntary
| | | | | Termination
| | | | | | for Good
| | | |
| | Without
| | | | | | Termination
| | Change in
| | | Without
| | | | | | Reason
| | Change in
| |
| | Cause or
| | | | | | Following
| | Control
| | | Cause or
| | | | | | Following
| | Control
| |
| | Resignation for
| | Retirement
| | | | Change in
| | Without
| | | Resignation for
| | Retirement
| | | | Change in
| | Without
| |
| | Good Reason | | Death | | Disability | | Control | | Termination | | | Good Reason | | or Death | | Disability | | Control | | Termination | |
| | ($) | | ($) | | ($) | | ($) | | ($) | | | ($) | | ($) | | ($) | | ($) | | ($) | |
|
Severance | | | 1,200,000 | | | | 0 | | | | 0 | | | | 1,800,000 | | | | 0 | | | | 1,255,881 | | | | 0 | | | | 0 | | | | 1,877,481 | | | | 0 | |
Pro-rated Annual Incentives | | | 0 | | | | 0 | | | | 0 | | | | 225,000 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 233,100 | | | | 0 | |
Stock Options | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 114,798 | | | | 114,798 | | | | 114,798 | | | | 114,798 | |
Basic and Supplemental Restricted Shares | | | 0 | | | | 0 | | | | 0 | | | | 6,475,042 | | | | 6,475,042 | | |
Restricted Stock, Restricted Stock Units and Performance Units | | | | 0 | | | | 513,020 | | | | 513,020 | | | | 10,968,077 | | | | 10,968,077 | |
Welfare Benefits | | | 21,365 | | | | 0 | | | | 21,365 | | | | 32,047 | | | | 0 | | | | 22,938 | | | | 0 | | | | 22,938 | | | | 34,407 | | | | 0 | |
Excise Tax &Gross-Up | | | 0 | | | | 0 | | | | 0 | | | | 3,702,281 | | | | 2,803,329 | | | | 0 | | | | 0 | | | | 0 | | | | 5,925,903 | | | | 4,978,341 | |
| | | | | | | | | | | | | | | | | | | | | | |
Aggregate Payments | | | 1,221,365 | | | | 0 | | | | 21,365 | | | | 12,234,370 | | | | 9,278,371 | | | | 1,278,819 | | | | 627,818 | | | | 650,756 | | | | 19,153,766 | | | | 16,061,216 | |
| | | | | | | | | | | | | | | | | | | | | | |
2428
20072008 DIRECTOR COMPENSATION
Directors who are our employees of the Company receive no additional fee for service as a director.Non-employee directors receive a combination of cash payments, equity-based compensation, and reimbursements as shown in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fees Earned
| | | | | | | | | Fees Earned
| | | | Restricted
| | | |
| | or Paid
| | Option
| | | | | | | or Paid
| | Option
| | Stock
| | | |
| | in Cash
| | Awards
| | All Other
| | | | | in Cash
| | Awards
| | Units
| | | |
| | ($)
| | ($)
| | Compensation
| | Total
| | | ($)
| | ($)
| | ($)
| | Total
| |
Name | | (a) | | (b) | | ($) | | ($) | | | (a) | | (b) | | (c) | | ($) | |
|
George V. Bayly | | | 69,750 | | | | 61,656 | | | | 0 | | | | 131,406 | | | | 77,500 | | | | 63,864 | | | | 44,511 | | | | 185,875 | |
Gregg L. Engles | | | 41,750 | | | | 61,656 | | | | 0 | | | | 103,406 | | | | 2,250 | | | | 37,980 | | | | 0 | | | | 40,230 | |
Michelle R. Obama(c) | | | 12,750 | | | | 0 | | | | 0 | | | | 12,750 | | |
Diana S. Ferguson | | | | 73,801 | | | | 10,049 | | | | 44,511 | | | | 128,361 | |
Frank J. O’Connell | | | 63,250 | | | | 61,656 | | | | 0 | | | | 124,906 | | | | 71,000 | | | | 85,540 | | | | 44,511 | | | | 201,051 | |
Ann M. Sardini | | | | 60,000 | | | | 2,416 | | | | 44,511 | | | | 106,927 | |
Gary D. Smith | | | 67,750 | | | | 61,656 | | | | 0 | | | | 129,906 | | | | 69,500 | | | | 63,864 | | | | 44,511 | | | | 177,875 | |
Terdema L. Ussery, II | | | 61,000 | | | | 61,656 | | | | 0 | | | | 122,656 | | | | 76,250 | | | | 85,540 | | | | 44,511 | | | | 206,301 | |
| | |
(a) | | Consists of the amounts described below under “Cash Compensation.” With respect to Mr. Ussery,Smith, includes $5,000 paid for service as lead independent director. With respect to Mr. Bayly, includes $10,000 paid for service as Chairman of the Audit Committee. With respect to Mr. Smith,O’Connell, includes $5,000 paid for service as Chairman of the Nominating and Corporate Governance Committee. With respect to Mr. O’Connell,Ussery, includes $5,000 paid for service as Chairman of the Compensation Committee. |
| | |
(b) | | The awards shown in this column constitute stock options granted under our Long-Term Incentive Plan. As of December 31, 2008, Messrs. Bayly, O’Connell, Smith and Ussery had outstanding 22,499 options, Ms. Ferguson had outstanding 3,500 options and Ms. Sardini had outstanding 1,300 options under the Long-Term Incentive Plan. Mr. Engles had a total of 31,321 options outstanding, which consists of grants from the Company in 2007 of 8,200 options plus 23,121 options he received in connection with the spin-off of the Company from Dean Foods. The amounts shown above are based on the compensation expense recognized for these awards pursuant to Statement of Financial Accounting Standards No. 123R. See Note 13 to the Consolidated Financial Statements included in our Annual Reports onForm 10-K for the years ended December 31, 2008 and 2007. |
|
(c) | | In 2008, each director (except for Mr. Engles, whose Term expired in May 2008 and did not seek re-election) was granted 3,700 restricted stock units with a grant date fair value of $24.06. The amounts are based on the compensation expense recognized for the award pursuant to Statement of Financial Accounting Standards No. 123R. See Note 13 to the Consolidated Financial Statements included in our Annual ReportsReport onForm 10-K for the year ended December 31, 20072008 for a discussion of the relevant assumptions used in calculating grant date fair value pursuant to FAS 123R. In 2007, each director was granted 8,200 options with a grant date fair value of $9.15. The optionsrestricted stock units will vest in equal increments on June 27, 2008, June 27, 2009 and June 27, 2010.are payable per the deferral election chosen by each director. As of December 31, 2007, each director, with the exception of Mr. Engles2008, Messrs. Bayly, O’Connell, Smith and Ussery and Ms. Obama hadFerguson and Ms. Sardini, have 3,700 restricted stock units outstanding 22,499 options under the Long-Term Incentive Plan. Mr. Engles had a total of 367,304 options, which consists of grants from the Company in 2005, 2006, and 2007 of 6,799, 7,500, and 8,200 shares respectively, plus 344,805 options he received in connection with the spin-off of the Company from Dean Foods. As of December 31, 2007, Ms. Obama had no options outstanding. Ms. Obama’s options expired and were cancelled upon her resignation. |
|
(c) | | Ms. Obama resigned from the board in May 2007. |
Cash Compensation
Directors who are not employees of the Company receive a fee of $35,000$45,000 per year plus $1,500 per board and committee meeting attended in person, and $750 for meetings attended telephonically.
Equity-Based Compensation
To ensure that directors have an ownership interest aligned with other stockholders, each outside director will be granted optionsand/or restricted shares of the Company’s stock having a value determined by the Board.
29
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
No member of the Compensation Committee was, during the year ended December 31, 2007,2008, an officer, former officer or employee of the Company or any of its subsidiaries. No executive officer of the Company served as a member of (i) the compensation committee of another entity in which one of the executive officers of such entity served on the Company’s Compensation Committee, (ii) the board of directors of another entity in which one of the executive officers of such entity served on the Company’s Compensation Committee, or (iii) the compensation
25
committee of another entity in which one of the executive officers of such entity served as a member of the Company’s Board of Directors, during the year ended December 31, 2007.2008.
COMMITTEE REPORTS
Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that might incorporate by reference this Proxy Statement or future filings with the Securities and Exchange Commission, in whole or in part, the following Committee reports shall not be deemed to be incorporated by reference into any such filings,except to the extent we specifically incorporate by reference a specific report into such filing.Further, the information contained in the following committee reports shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C other than as set forth in Item 407 ofRegulation S-K, or subject to the liabilities of Section 18 of the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), except to the extent that we specifically request that the information contained in any of these reports be treated as soliciting materials.
The Board of Directors has established three committees to help oversee various matters of the Company. These include the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each of these Committees operateoperates under the guidelines of their specific charters. These charters may be reviewed on our website atwww.treehousefoods.com.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee (the “Committee”) is currently composed of three independent directors, Ms. Sardini and Messrs. Bayly Smith and Ussery, and operates pursuant to a written charter. Ms. Obama served on the Committee until she resigned from the Board in May 2007. The Company’s management is responsible for its internal accounting controls and the financial reporting process. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an independent audit of the Company’s consolidated financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board and to issue reports thereon. The Committee’s responsibility is to monitor and oversee these processes, and appoint, evaluate, and auditreview the performance of Messrs. Bayly, Smith and Ussery,the Audit Committee, and compensate the independent registered public accounting firm.
In discharging its oversight responsibility as to the audit process, the Committee obtained from the independent registered public accounting firm a formal written statement describing all relationships between the independent registered public accounting firm and the Company that might bear on the independent registered public accounting firm’s independence consistent with PCAOB Ethics and Independence Standards Board Standard No. 1, “Independence DiscussionsRule 3526, Communication with Audit Committees” Concerning Independence, and discussed with Deloitte & Touche LLP any relationships that may impact its objectivity and independence, and the Committee satisfied itself as to Deloitte & Touche LLP’s independence. The Committee has reviewed and discussed the financial statements with management. The Committee also discussed with management and Deloitte & Touche LLP the quality and adequacy of the Company’s internal controls and the internal audit department’s organization, responsibilities, budget and staffing. The Committee reviewed both with Deloitte & Touche LLP and the internal auditors their audit plans, audit scope, and identification of audit risks.
The Committee discussed and reviewed with Deloitte & Touche LLP all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees,” and, with and without management present, discussed and reviewed the results of Deloitte & Touche LLP’s examination of the financial statements. The Committee also discussed the results of the internal audit examinations.
30
Based on the Audit Committee’s discussions with management and Deloitte & Touche LLP and the Audit Committee’s review of the representations of management and the report of the independent registered public accounting firm, the Audit Committee recommended to the Board of Directors that the audited consolidated
26
Stockholders who currently receive multiple copies of the proxy materials at their address and would like to request “householding” of their communications should contact their broker. In addition, if any stockholder that receives a “householding” notification wishes to receive a separate annual report and proxy statement at his, her or its address, such stockholder should also contact his, her or its broker directly. Stockholders who in the future wish to receive multiple copies may also contact the Company at Two Westbrook Corporate Center, Suite 1070, Westchester, Illinois 60154, attention: Investor Relations;(708) 483-1300.