DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
KMG Chemicals, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
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KMG CHEMICALS, INC.
9555 W. Sam Houston Parkway S., Suite 600
Houston, Texas 77099
October 29, 2010
Dear Shareholder:
The Board of Directors of KMG Chemicals, Inc. invites you to this years annual meeting of the
shareholders to be held at Hotel Granduca, 1080 Uptown Park Blvd, Houston, TX 77056, on December 7,
2010 at 10:00 a.m., Houston time. The Board of Directors is also soliciting your proxies and your
votes and is recommending the approval of the proposals described in the enclosed Proxy Statement.
For the date, time and location of the 2010 Annual Meeting and an identification of the
matters to be voted upon at the 2010 Annual Meeting, please see this Notice of Annual Meeting of
Shareholders. For the Boards recommendations regarding those matters, please refer to Proposal
Number 1 Election of Directors and Proposal Number 2 Ratification of Our Independent Auditor
For 2011. For information on how to obtain directions to be able to attend the meeting and vote in
person, please contact our Corporate Secretary.
If you are a shareholder of record, we have enclosed a proxy card that enables you to vote on
the matters to be considered at the meeting if you do not plan to attend in person. To vote, simply
complete, sign and date your proxy card and mail it in the enclosed addressed envelope. If your
shares are held in street name that is, held for your account by a bank, brokerage firm or
other intermediary you should obtain instructions from the bank, brokerage firm or other
intermediary that you must follow for your shares to be voted.
The ability to have your vote counted at the 2010 Annual Meeting is an important shareholder
right. Regardless of the number of shares you hold, and whether or not you plan to attend the
meeting, we hope that you will promptly cast your vote.
We appreciate your continued confidence in us and look forward to seeing you at the annual
meeting.
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Sincerely, |
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David L. Hatcher
Chair of the Board |
KMG CHEMICALS, INC.
9555 W. Sam Houston Parkway S., Suite 600
Houston, Texas 77099
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
The Annual Meeting of the Shareholders of KMG Chemicals, Inc., a Texas corporation (the
Company), will be held at Hotel Granduca, 1080 Uptown Park Blvd, Houston, TX 77056, on December
7, 2010 at 10:00 a.m., Houston time:
1. To elect nine (9) directors to hold office until the next annual meeting of shareholders or
until their respective successors have been duly elected and qualified;
2. To ratify the appointment of UHY LLP as the independent registered public accounting firm
and auditors for the Company for fiscal year 2011; and
3. To transact such other business as may properly come before the meeting or any adjournment
or postponement thereof.
Shareholders of record at the close of business on October 22, 2010 are entitled to notice of
and to vote at this Annual Meeting of Shareholders or any adjournment or postponement thereof.
All shareholders are cordially invited and urged to attend the Annual Meeting of Shareholders
in person. Even if you plan to attend the meeting, you are requested to complete, sign, date and
return your proxy in the enclosed addressed envelope. A return of a blank proxy will be deemed a
vote in favor of the proposals contained in the Proxy Statement. If you attend, you may vote in
person if you wish, even though you have sent in your proxy.
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By Order of the Board of Directors, |
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Roger C. Jackson |
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Secretary |
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October 29, 2010 |
Important Notice Regarding Availability of Proxy Materials for the Annual Meeting of
Shareholders to be Held on December 7, 2010: The Annual Report to shareholders, this Proxy
Statement and the related form of proxy are available at kmgchemicals.com. This information and
similar information for future Annual Meetings will also be available by email from our Corporate
Secretary, Roger C. Jackson, at rjackson@kmgchemicals.com.
KMG CHEMICALS, INC.
9555 W. Sam Houston Parkway S., Suite 600
Houston, Texas 77099
PROXY STATEMENT
General Information
This Proxy Statement and the accompanying form of proxy are being furnished to the
shareholders of KMG Chemicals, Inc., a Texas corporation (the Company, we, us and our), in
connection with the solicitation of proxies by our Board of Directors for use at the Annual Meeting
of Shareholders (the Annual Meeting) to be held on December 7, 2010, at 10:00 a.m. Houston time,
at Hotel Granduca, 1080 Uptown Park Blvd, Houston, TX 77056, and any adjournment or postponement
thereof.
This Proxy Statement and the related form of proxy accompanying this proxy statement are being
mailed on or about October 29, 2010 to all shareholders of record as of October 22, 2010 (the
Record Date). A copy of our Annual Report on Form 10-K for the fiscal year ended July 31, 2010
accompanies this proxy statement and is available at www.kmgchemicals.com. This information will
also be available by email from our Corporate Secretary, Roger C. Jackson, at
rjackson@kmgchemicals.com.
Unless otherwise indicated, shares of our common stock, par value $.01 per share (the Common
Stock), represented by proxies will be voted in favor of (i) the election of the nine (9) director
nominees to the Board of Directors named in the Proxy Statement, and (ii) the ratification of the
appointment of UHY LLP as our independent registered public accounting firm for fiscal year 2011.
With respect to the election of directors, a shareholder may, by checking the appropriate box on
the proxy: (i) vote for all director nominees as a group; (ii) withhold authority to vote for all
director nominees as a group; or (iii) vote for all director nominees as a group except those
nominees identified by the shareholder in the appropriate area. With respect to the other proposals
contained in this Proxy Statement, a shareholder may, by checking the appropriate box on the proxy:
(i) vote for the proposal; (ii) vote against the proposal; or (iii) abstain from voting on the
proposal.
Any shareholder who executes and delivers a proxy may revoke it at any time prior to its use
by (i) giving written notice of revocation to our Corporate Secretary, (ii) executing and
delivering a proxy bearing a later date or (iii) appearing at the Annual Meeting and voting in
person.
If the proxy in the accompanying form is properly executed and not revoked, the shares
represented by the proxy will be voted in accordance with the instructions thereon.
If no instructions are given on the matters to be acted upon, the shares represented by the
proxy will be voted: (i) FOR election of the directors nominated herein; (ii) to RATIFY the
appointment of UHY LLP as our independent registered public accounting firm and auditors for fiscal
year 2011, and (iii) in the discretion of the proxy holders as to any business that may properly
come before the Annual Meeting or any adjournment or postponement thereof.
Who May Vote
Only holders of record of outstanding shares of Common Stock at the close of business on the
Record Date are entitled to one vote for each share held on all matters coming before the Annual
Meeting or any adjournment or postponement thereof. There were 11,303,708 shares of Common Stock
outstanding and entitled to vote on the Record Date.
Voting Requirements to Elect Directors and Auditors
The holders of a majority of the total shares of Common Stock issued and outstanding on the
Record Date, whether present in person or represented by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting. For purposes of determining whether a quorum is
present under Texas law, broker non-votes and abstentions count towards the establishment of a
quorum. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have discretionary voting power with
respect to that item, and the broker has not received voting instructions from the beneficial
owner. Votes cast at the meeting will be counted by the inspector of the election.
The election of directors requires the favorable vote of the holders of a plurality of the
shares of Common Stock present and voting, in person or by proxy, at the Annual Meeting.
Abstentions and broker non-votes have no effect on determinations of plurality except to the extent
that they affect the total votes received by any particular candidate. A majority of the votes
represented by the shareholders present at the Annual Meeting, in person or by proxy, is necessary
for the ratification and approval of the ratification of the appointment of the independent
registered public accounting firm. Abstaining shares will be considered present at the Annual
Meeting for these matters so that the effect of abstentions will be the equivalent of a no vote.
With respect to broker non-votes, the shares will not be considered present at the Annual Meeting
for these matters so that broker non-votes will have the practical effect of reducing the number of
affirmative votes required to achieve a majority vote by reducing the total number of shares from
which the majority is calculated.
Pursuant to recent regulatory changes, if you hold your shares in street name, your broker,
banker or other nominee will not have discretion to vote these shares on the election of directors.
Accordingly, unlike prior years, if your shares are held in street name and you do not submit
voting instructions to your broker, bank or other nominee, these shares will not be counted in
determining the outcome of the election of directors at the Annual Meeting.
Security Ownership of Certain Beneficial Owners, Directors
and Named Executive Officers
The following table sets forth certain information as of October 25, 2010 with regard to the
beneficial ownership of Common Stock by (i) each person known to us to be the beneficial owner of
5% or more of our outstanding Common Stock, (ii) our named executive officers and the directors
individually and (iii) our officers and directors as a group. All addresses are in care of KMG
Chemicals, Inc., 9555 W. Sam Houston Parkway S., Suite 600, Houston, Texas 77099.
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Shares Including |
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Common Stock |
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Stock Options |
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Options Exercisable |
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Percent of Total |
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Beneficially Owned |
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Exercisable Within |
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Within |
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Beneficial Shares |
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Excluding Options |
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60 Days |
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60 Days |
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(%)(1) |
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Directors and Named Executive Officers |
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David L. Hatcher |
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3,118,067 |
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3,118,067 |
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27.6 |
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J. Neal Butler |
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35,431 |
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65,000 |
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100,431 |
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Gerald G. Ermentrout |
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9,948 |
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9,948 |
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Christopher T. Fraser |
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9,948 |
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9,948 |
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George W. Gilman |
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17,344 |
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30,000 |
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47,344 |
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Roger C. Jackson |
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64,574 |
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64,574 |
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Ernest C. Kremling II |
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7,800 |
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7,800 |
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Fred C. Leonard (2) |
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719,455 |
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20,000 |
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739,455 |
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6.5 |
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John V. Sobchak |
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28,403 |
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22,500 |
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50,903 |
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Stephen A. Thorington |
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78,014 |
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78,014 |
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Karen A. Twitchell |
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1,995 |
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1,995 |
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Richard L. Urbanowski |
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51,269 |
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20,000 |
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71,269 |
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Directors and Named Executive Officers as a Group |
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4,142,248 |
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157,500 |
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4,299,748 |
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37.5 |
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Five Percent Shareholders |
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Valves Incorporated of Texas (3)
10600 Fallstone Road Houston, Texas 77099 |
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672,085 |
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672,085 |
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5.9 |
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Less than 1%. |
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This table is calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934.
Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights, or
conversion privileges exercisable within 60 days are deemed outstanding for the purpose of
calculating the number and percentage owned by a person, but not deemed outstanding for the
purpose of calculating the number and percentage owned by any other person listed. As of October
25, 2010, we had 11,303,708 shares of Common Stock outstanding. |
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Includes shares held by Valves Incorporated of Texas, Inc., a company in which Mr. Leonard is
an officer, director and a principal shareholder. |
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Based on the Schedule 13G filed with the SEC on October 31, 2007 by Valves Incorporated of
Texas, Valves Incorporated of Texas and Fred C. Leonard, and Mr. Leonards most report on Form
4 filed October 14, 2010, the reporting persons share dispositive and voting power over the
indicated number of shares. |
2
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors has nominated nine persons to serve as directors until the next annual
meeting of shareholders or until his successor is elected and qualified. Each of the nominees is a
current director. We believe that our directors should possess the highest personal and
professional integrity. We endeavor to have a Board with diverse backgrounds and experience. In
light of our business and structure, we believe that the following are among the important
experience and skills our directors bring to the Board:
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Leadership and corporate governance experience; |
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Industry and acquisitions experience; and |
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Public company experience. |
The experience and skills of each director that are included in their individual biographies
were considered by the Board in their renomination. The following table sets forth certain
information with respect to each of our directors as of October 25, 2010.
The Board of Directors recommends a vote FOR all nominees for director.
Nominees for Director
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Director |
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Name and Age |
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Since |
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Business Experience during the Past 5 Years and Other Information |
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David L. Hatcher
(67)
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1985 |
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Mr. Hatcher was our Chief Executive Officer from 1996 until June
2007, and was our President from 1996 until March 2005, after
which he has continued as an employee. Mr. Hatcher has also
served as a director of our subsidiary KMG-Bernuth from 1985 to
2007 and as President from 1985 until 2005. Mr. Hatcher has
worked in the wood treating industry since 1980 for predecessors
and affiliates of KMG-Bernuth in various capacities, including
as an engineer, general manager and President. He also currently
serves as a director of Sterling Bancshares, Inc., a
publicly-held banking and financial services company. Mr.
Hatcher is the Chairman of the Board of Directors. His long,
in-depth, experience with our company, in particular with our
wood treating chemicals business, and his understanding of
banking and finance, provides a unique and invaluable skill set. |
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J. Neal Butler
(58)
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2007 |
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Mr. Butler is a director and is our President and Chief
Executive Officer (CEO). He joined us in 2004 as Chief
Operating Officer. He became our President in March 2005, and
became the CEO in June 2007. Mr. Butler has worked in various
capacities for agricultural chemical companies since 1976. From
1976 to 1998 he worked for ISK Biosciences, Inc. in sales and in
operations, becoming Vice President and General Manager/Americas
in the specialty chemical division. From 1998 to 2001, he was
Vice President and team leader for Horticulture for Zeneca
Agrichemicals, Inc., a leading agricultural products chemical
company. From 2001 to 2003, Mr. Butler was President and CEO of
Naturize Biosciences, Inc., a company providing biological
products for agriculture, and from 2003 until he joined us he
did consulting in the agricultural chemicals industry. He has
also served on several industry association boards. Mr. Butler
is a member of the Risk Oversight Committee. Mr. Butlers
judgment, leadership experience and his knowledge of our
businesses gained while serving in several executive capacities,
most recently as our President and CEO, are important resources
on which the Board relies. |
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Director |
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Name and Age |
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Business Experience during the Past 5 Years and Other Information |
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Gerald G. Ermentrout
(62)
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2008 |
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Mr. Ermentrout has over 30 years experience in industrial gases
and electronic chemicals. He joined Air Products and Chemicals,
Inc. in 1975 and held various positions until his retirement in
early 2007. From 1996 to 2007, Mr. Ermentrout served as the Vice
President and General Manager of the Electronic Chemicals
Division, which included the high-purity process chemicals
business that we acquired in December 2007. In that position, he
managed Air Products global materials and equipment business
serving the semiconductor and flat panel display industries,
with responsibility for sales, marketing and operations. During
his tenure at Air Products, Mr. Ermentrout also held positions
where he managed oxygen, nitrogen and hydrogen plants and
pipeline systems, as well as managed major acquisitions and
divestitures. Currently he serves on the board of directors of
AZ Electronic Materials, a private company. He received a
Bachelor of Science in Engineering from the United States Naval
Academy and a Masters of Business Administration from Lehigh
University. Mr. Ermentrout is a member of the Risk Oversight
Committee and the Compensation Committee. Mr. Ermentrout brings
critical industry experience and specialized knowledge in
electronic chemicals, our largest business segment, to our
board. That experience includes managing electronic chemical
operations in North America and internationally, and pursuing
merger and acquisition opportunities in that business. |
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Christopher T. Fraser
(52)
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2008 |
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Mr. Fraser has broad experience in the chemical industry, much
of that experience with major, global participants. He retired
in 2009, but most recently he was the President and CEO of
Chemical Lime Company, a position held from 2006. Chemical Lime
is the leading North American producer of calcium based
(limestone), alkaline products with various industrial
applications including the manufacture of steel, water
treatment, flue gas desulphurization, and chemical production.
Before joining Chemical Lime, Mr. Fraser was President and CEO
of OCI Chemical Corporation, a wholly-owned subsidiary of DC
Chemical Co. OCI is among the worlds leading producers of high
quality soda ash and sodium percarbonate. Prior to joining OCI
in 1996, Mr. Fraser held various positions of responsibility in
sales, marketing, business development, operations and general
management. Mr. Fraser holds Bachelor of Science in Chemistry
and in Business Administration from the University of
Connecticut, as well as a Masters of Business Administration
from Pepperdine University. Mr. Fraser is Chair of the Risk
Oversight Committee and a member of the Compensation Committee
and the Audit Committee. His leadership, industry and
governance experience as the CEO of chemical manufacturing
companies, in mergers and acquisitions, and in creating and
maintaining an appropriate corporate structure, have been a
valuable resource to the Board. |
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George W. Gilman
(68)
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1996 |
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Mr. Gilman also served as a director of our subsidiary
KMG-Bernuth from 1995 until 1997. Mr. Gilman has served as the
CEO, President and as a director of Commerce Securities
Corporation, a Financial Industry Regulatory Authority member
firm, since 1982. He practiced law with the law firm of George
Gilman, P.C. from 1986 to 1998, and since 1998 has practiced
with the law firm of Gilman & Gilman, P.C. He also has been
involved in the commercial real estate business since 1987, and
currently through Gulf Equities Realty Advisors and Tex Sun
Commercial Realty Co. Mr. Gilman is a certified public
accountant. Mr. Gilman is the Chair of the Audit Committee and a
member of the Nominating and Corporate Governance Committee.
Mr. Gilmans understanding of accounting and legal matters, and
his experience in public company financing and investor
relations, provides the Board an important resource. |
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Fred C. Leonard III
(65)
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1996 |
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Mr. Leonard also served as a director of our subsidiary
KMG-Bernuth from 1992 until 1997, and served as the Secretary of
KMG-Bernuth from 1993 until 2001. Since 1972, Mr. Leonard has
served as the Chair of the Board, CEO and President of Valves
Incorporated of Texas, Inc., a manufacturing company located in
Houston, Texas. Mr. Leonard also currently serves as a board
member of Integrity Bank, SSB, an independent community bank in
Houston, Texas. Mr. Leonard is the Chair of the Compensation
Committee and a member of the Audit Committee. He provides the
Board with critical expertise in compensation systems and
strategies, and as the long-time CEO of private manufacturing
company, he brings to the Board leadership experience and a
broad-based expertise in a variety of business disciplines. |
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Director |
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Name and Age |
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Since |
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Business Experience during the Past 5 Years and Other Information |
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Stephen A. Thorington
(54)
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2007 |
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Mr. Thorington is a private investor. He served as Executive
Vice President and Chief Financial Officer of Plains Exploration
& Production Company, a New York Stock Exchange listed company
from 2002 until he retired from that position in May 2006. He
also served as Executive Vice President and Chief Financial
Officer of Plains Resources, Inc. from 2002 until 2004. From
1999 to 2002 he was Senior Vice President-Finance & Corporate
Development of Ocean Energy, Inc. and from 1996 until 1999 he
was Vice President-Finance of Seagull Energy Company. Prior to
1996, Mr. Thorington was a Managing Director of Chase Securities
and the Chase Manhattan Bank. Mr. Thorington now serves as
a director and audit committee member of EQT Corporation, a
publicly held, diversified energy company focusing on
Appalachian Basin natural gas production, transportation and distribution. Mr. Thorington is a member of the
Audit Committee and the Nominating and Corporate Governance
Committee. The Board looks to Mr. Thorington for his experience
and knowledge of accounting matters, financial markets and
financing transactions, and for his background in public company
investor relations. |
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Karen A. Twitchell
(55)
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2010 |
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Ms. Twitchell was Vice President and Treasurer of LyondellBasell
Industries and Lyondell Chemical Company (a predecessor by
merger to LyondellBasell) from 2001 to 2009, where she was
responsible for global treasury operations for this worldwide
chemical and refining company. She previously served as Vice
President and Treasurer of Kaiser Aluminum Corporation and of
Southdown Inc. Before joining Southdown, Ms. Twitchell was an
investment banker with Credit Suisse First Boston in its
corporate finance department. Ms. Twitchell holds a B.A. in
Economics from Wellesley College and an M.B.A. from Harvard
University. Ms. Twitchell is a member of the Audit Committee and
the Risk Oversight Committee. She brings important experience
to the Board in accounting matters, in financing and capital
structures, including in international finance, in merger and
acquisition transactions and enterprise risk management. |
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Richard L. Urbanowski
(74)
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2000 |
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Mr. Urbanowski retired in 1998 as President and Chief Operating
Officer of ISK Biosciences Corporation, a specialty chemicals
company selling crop protection chemicals and wood preservative
products. Mr. Urbanowski began his career with Diamond Alkali
Company where he held various positions in research and
development, engineering, operations, production and sales. He
is currently a director of the CropLife of America Foundation.
Mr. Urbanowski also served from 2005 until August 2007 as a
director of Pioneer Companies, Inc., a publicly-held chemical
company. Mr. Urbanowski is our Lead Director, the Chair of the
Nominating and Corporate Governance Committee, and is a member
of the Compensation Committee. He brings leadership experience
and valuable commercial operations experience in the chemical
industry to the Board, and has become an important resource for
corporate governance matters. |
Named Executive Officers Who Are Not Directors
The following table sets forth certain information with respect to our named executive
officers who are not directors.
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Name and Age |
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Business Experience during the Past 5 Years and Other Information |
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Roger C. Jackson
(59)
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Mr. Jackson was elected Secretary in 2001, and became Vice
President and General Counsel in 2002. Prior to then, Mr.
Jackson had been a partner since 1995 in Woods & Jackson, L.L.P.
and had been a partner in the Houston law firm Brown, Parker &
Leahy L.L.P. beginning in 1985. |
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Ernest C. Kremling II
(46)
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Mr. Kremling became our Vice President-Operations in 2008. Prior
to that, Mr. Kremling spent 20 years with the Dow Chemical
Company in various manufacturing roles, which included project
management and plant and site leadership. During the course of
his employment with Dow, he worked in Asia for several years and
held positions of global responsibility that covered Asia,
Europe and South America. |
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John V. Sobchak
(50)
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Mr. Sobchak became our Chief Financial Officer (CFO) in 2001.
Before he joined us, Mr. Sobchak had been the CFO of Novistar,
Inc., a joint venture between Torch Energy Advisors, Inc. and
Oracle Corporation, and prior to that he had been the Treasurer
of Torch Energy Advisors, Inc. He was employed from 1988 to 1997
by Mesa, Inc, a publicly traded oil and gas company, most
recently as its Treasurer. |
5
Board of Directors and Committees
Communication with the Board
In order to provide our shareholders and other interested parties with a direct and open line
of communication to the Board of Directors, the Board of Directors has adopted the following
procedures for communications to directors. Shareholders and other interested persons may
communicate with the Board or with our non-management directors as a group by written
communications addressed in care of our Lead Director, Richard L. Urbanowski or our Corporate
Secretary, 9555 W. Sam Houston Parkway S., Suite 600, Houston, Texas 77099.
All communications received in accordance with these procedures will be reviewed initially by
senior management. Senior management will relay all such communications to the appropriate director
or directors unless it is determined that the communication (a) does not relate to our business or
affairs or the functioning or constitution of the Board of Directors or any of its committees; (b)
relates to routine or insignificant matters that do not warrant the attention of the Board of
Directors; (c) is an advertisement or other commercial solicitation or communication; (d) is
frivolous or offensive; or (e) is otherwise not appropriate for delivery to directors.
The director or directors who receive any such communication will have discretion to determine
whether the subject matter of the communication should be brought to the attention of the full
Board of Directors or one or more of its committees and whether any response to the person sending
the communication is appropriate. Any such response will be made only in accordance with applicable
law and regulations relating to the disclosure of information.
The Corporate Secretary will retain copies of all communications received pursuant to these
procedures for a period of at least one year. The Board of Directors will review the effectiveness
of these procedures from time to time and, if appropriate, recommend changes. As of the Record
Date, no such communications had been received.
Board Meetings
The Board of Directors held nine meetings in fiscal year 2010, including special meetings, and
took action by unanimous consent in several instances. All directors attended at least 75% of such
meetings. All Board members are expected to attend the Annual Meeting and last year they all did
attend.
Director Independence
The Board of Directors is composed of seven non-employee directors and two employee directors.
Under our guidelines and the listing requirements of The Nasdaq Global Market, at least a majority
of our Board of Directors must be independent. The Board of Directors has determined that all seven
of its non-employee directors meet The Nasdaq Global Market requirement of independence. The only
non-independent directors are Mr. Hatcher, our Chairman, and Mr. Butler, our CEO.
Stock Ownership Guideline for Non-Employee Directors
We have adopted a stock ownership guideline for non-employee directors. Non-employee directors
are to own the greater of 4,000 shares or the number of shares of our Common Stock whose value
equals three times the sum of their annual retainer plus the value of their equity awards.
Non-employee directors have two years to achieve the 4,000 shares level and five years to achieve
the 3x guideline, but no director is required to meet the 3x target until July 31, 2013. The
Compensation Committee may enforce the guideline by paying director compensation in restricted
stock. As of July 31, 2010, each of our non-employee directors had satisfied their applicable
requirement.
6
Board Committee Membership
The Board of Directors has four standing committees, an Audit Committee, a Nominating and
Corporate Governance Committee (Governance Committee), a Compensation Committee and a Risk
Oversight Committee. The Audit Committee, the Governance Committee and the Compensation Committee
are composed entirely of non-employee directors whom the Board has determined are independent. The
table below provides the fiscal year 2010 membership for the four standing committees.
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Nominating & |
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Corporate |
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Audit |
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Governance |
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Compensation |
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Risk Oversight |
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Committee |
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Committee |
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Committee |
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Committee |
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J. Neal Butler |
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X |
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Gerald G. Ermentrout |
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X |
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X |
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Christopher T. Fraser |
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X |
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X |
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X |
* |
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George W. Gilman |
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X |
* |
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X |
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Fred C. Leonard |
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X |
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X |
* |
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Stephen A. Thorington |
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X |
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X |
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Karen A. Twitchell |
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X |
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X |
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Richard L. Urbanowski |
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X |
* |
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X |
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Board Leadership Structure
The Board does not have a policy on whether or not the role of the chairman and CEO should be
separate and, if it is to be separate, whether the chairman should be selected from the
non-employee directors or be an employee. The Board makes this choice on the basis of what is best
for us at a given point in time. Currently, David L. Hatcher serves as our Chairman, and J. Neal
Butler serves as our President and CEO. The Board determined that Mr. Hatchers knowledge and past
experience as the CEO would serve us well, and his insights have been and continue to be invaluable
to the Board.
To ensure the representation of the non-employee directors in the leadership structure, we
have designated Richard L. Urbanowski as our Lead Director. The responsibilities of the Lead
Director include calling and setting the agenda for executive sessions and other meetings of the
non-employee directors, serving as principal liaison for the non-employee directors with the Board
Chair and the CEO, substituting for the Board Chair when he is unavailable, and serving as the
contact for shareholder communication.
The Boards Oversight of Risk Management
Responsibility for risk oversight rests with the full Board. Three committees lend support to
the Board in reviewing our consideration of material risks and overseeing our management of
material risks. The Audit Committee makes inquiries of senior management about our risk assessment
and risk management policies. These policies address our major financial risk exposures and the
steps management has taken to monitor and mitigate these risks. The Compensation Committee reviews
compensation policies and practices to ensure that our compensation policies are not reasonably
likely to have a material adverse effect. We also have a Risk Oversight Committee to assist the
Board with oversight of material risk generally, and specifically to assist with oversight of
managements responsibility to identify, assess, prioritize and manage material risks related to
our business, and to ensure alignment between our risk-taking activities and our strategic
objectives. We have an enterprise risk management steering committee which is comprised of senior
executive management. The steering committee is responsible for the administration of our
enterprise risk management process. The Risk Oversight Committee receives regular reports from our
enterprise risk management steering committee, and presents a quarterly report to the Board.
7
Committee Charters and the Code of Business Conduct
The Audit, Governance, Compensation and Risk Oversight Committees have each adopted charters
that have been approved by the Board of Directors. The Board of Directors has also adopted a Code
of Business Conduct applicable to directors and all employees, including the CEO, the CFO and other
senior management. The Code of Business Conduct covers such topics as financial reporting,
conflicts of interest, compliance with laws, fair dealing and use of our assets. The Code of
Business Conduct satisfies the requirements of a code of ethics under Section 406(c) of the
Sarbanes-Oxley Act of 2002, and requires that any waiver of those provisions as they relate to
executive officers or directors may be made only by the Board of Directors and must be promptly
disclosed to shareholders along with the reason for the waiver.
The charters of the Audit, Compensation, Risk Oversight and Governance Committees, and the
Code of Business Conduct, are available on our website at kmgchemicals.com or by writing to
Corporate Secretary, KMG Chemicals, Inc., 9555 W. Sam Houston Parkway S., Suite 600, Houston, Texas
77099. These documents will be provided free of charge. Material contained on our website is not
incorporated by reference in, or considered to be part of, this Proxy Statement.
Audit Committee
The Audit Committee met four times during fiscal year 2010. The Audit Committee advises the
Board and management from time to time with respect to internal controls, systems and procedures,
accounting policies and other significant aspects of our accounting, auditing and financial
reporting practices. The Audit Committee also monitors the preparation of our quarterly and annual
reports and supervises our relationship with our external auditors.
The Audit Committee operates under a charter approved by the Board of Directors. The Audit
Committees function under its written charter is to appoint the independent registered public
accounting firm and auditors to audit our financial statements and perform other services related
to the audit; review the scope and results of the audit with the independent accountants; review
with management and the independent accountants our interim and year-end operating results; oversee
our external reporting; consider the adequacy of the internal accounting and auditing procedures;
evaluate the independence of the external auditors; and approve and review any non-audit services
to be performed by the independent accountants. The Audit Committee has also established procedures
for the receipt, retention, and treatment of complaints we receive regarding accounting, internal
accounting controls or audit matters, and the confidential, anonymous submission to us by our
employees of concerns regarding questionable accounting or auditing matters.
The Audit Committee consists currently of five non-employee directors, Christopher T. Fraser,
George W. Gilman, Fred C. Leonard, III, Stephen A. Thorington, and Karen A. Twitchell. Mr. Gilman
is the current Chair. Mr. Gilman has served on our Board of Directors since 1996, and he is a
certified public accountant. In the course of his career, Mr. Gilman, has acquired (i) an
understanding of generally accepted accounting principles and financial statements, (ii) the
ability to assess the general application of such principles in connection with the accounting for
estimates, accruals and reserves, (iii) experience preparing, auditing, analyzing or evaluating
financial statements that present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can reasonably be expected to be
raised by our financial statements, (iv) an understanding of internal control over financial
reporting, and (v) an understanding of audit committee functions. The Board of Directors has
determined that Mr. Gilman is an audit committee financial expert within the meaning of that term
under the rules of the SEC. The Board has also determined that all of the members of the Audit
Committee are independent and financially sophisticated within the meaning of the listing standards
of The Nasdaq Global Market and as defined in Securities Exchange Act Rule 10A-3.
Report of the Audit Committee
The Audit Committee reviewed our audited financial statements for the fiscal year ended July
31, 2010, with the independent auditors and management. Management has the responsibility for the
preparation, presentation and integrity of the financial statements, and the independent registered
public accounting firm and auditors have the responsibility for auditing the financial statements
and expressing an opinion as to their conformity with accounting principles generally accepted in
the United States of America.
Among other things, the Audit Committee discussed and reviewed with the independent auditors
all communications required by accounting principles generally accepted in the United States,
including those described in auditing standards regarding The Auditors Communication with those
Charged with Governance, and discussed and reviewed the results of the audit by the independent
auditors of the financial statements.
8
In discharging its oversight responsibility with respect to the audit process, the Audit
Committee obtained from the independent auditors a formal written statement describing all
relationships between the auditors and the Company that might bear on the auditors independence
consistent with the Public Company Accounting Oversight Boards Rule 3526, Communication with
Audit Committees Concerning Independence. The Audit Committee also discussed with the auditors any
relationship that may impact their objectivity and independence and satisfied itself as to the
auditors independence. The Audit Committee also discussed with management and the independent
auditors the quality and adequacy of our responsibilities, budget and staffing.
Based on the above-mentioned review and discussions with management and the independent
auditors, the Committee recommended to the Board that the audited financial statements be included
in our report on Form 10-K for the fiscal year ended July 31, 2010, for filing with the Securities
and Exchange Commission (SEC).
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Audit Committee: |
|
|
Christopher T. Fraser |
|
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George W. Gilman, Chair |
|
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Fred C. Leonard III. |
|
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Stephen A. Thorington |
|
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Karen A. Twitchell |
This report by the Audit Committee shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934 except to the extent that we
specifically incorporate this information by reference, and shall not otherwise be deemed filed
under such acts.
Nominating and Corporate Governance Committee
During fiscal year 2010, the Governance Committee held five meetings. The committee is
responsible for developing and implementing policies and practices relating to corporate
governance, including establishing and monitoring implementation of corporate governance
guidelines. The committee also plans for the succession of the CEO and other executives. The
committee is responsible for identifying and assessing candidates for the Board of Directors,
including making recommendations to the Board regarding candidates. In fulfilling its duties, the
Governance Committee, among other things,
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identifies individuals qualified to be Board members consistent with criteria established
by the committee, and with a view to selecting persons whose background and skills support
our strategy for increasing shareholder value; |
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recommends to the Board nominees for the next annual meeting of shareholders; and |
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evaluates individuals suggested by shareholders. |
In recommending director candidates to the Board, the Governance Committee charter requires
the committee to select individuals who possess the highest personal and professional integrity.
The selection process includes reviewing a candidates depth of experience and availability, the
balance of the business interest and experience of the incumbent or nominated directors, and the
need for any required expertise on the Board or one of its committees, including the expertise
needed to support and oversee the execution of our corporate strategy. In making its nominations,
the Governance Committee first evaluates the current Board members. The process the Governance
Committee uses to accomplish its responsibilities includes having each current director complete a
self evaluation, a peer evaluation, an evaluation of the Board of Directors as a whole and an
evaluation of each committee of the Board of Directors. The committee has developed a matrix of
desirable skills and experience to apply to director candidates and in the appropriate case has
retained a third party consulting firm that specializes in locating candidates for the boards of
directors of public companies. The objective of this selection process is to assemble a group of
Directors with diverse backgrounds and experience that can best represent shareholder interest
through the exercise of sound judgment.
The Governance Committee is comprised solely of non-employee directors who are independent
within the meaning of listing standards of The Nasdaq Global Market. Members of the Governance
Committee are Messrs. George W. Gilman, Steven A. Thorington and Richard L. Urbanowski. Mr.
Urbanowski is the Chair.
9
The Governance Committee will consider recommendations for director made by shareholders for
fiscal year 2012, if such recommendations are received in writing, addressed to the Chair of the
committee, Mr. Urbanowski, in care of KMG Chemicals, Inc., at 9555 W. Sam Houston Parkway S., Suite
600, Houston, Texas 77099 by July 3, 2011. Recommendations by shareholders that are made in
accordance with these procedures will receive equal consideration by the Governance Committee,
although in fiscal year 2010 no such recommendations were received. Directors and members of
management may also suggest candidates for director.
Compensation Committee
During fiscal year 2010, the Compensation Committee held four meetings. The Compensation
Committee establishes compensation for our CEO and other executive officers, and makes
recommendations to the Board of Directors regarding compensation of directors. The committee also
administers our incentive compensation, stock option and other equity based compensation plans,
which included in fiscal year 2010 our 1996 Stock Option Plan, our 2004 Long-Term Incentive Plan
and our 2009 Long-Term Incentive Plan. The Compensation Committee is composed currently of four
non-employee directors, Gerald G. Ermentrout, Christopher T. Fraser, Fred C. Leonard, III, and
Richard L. Urbanowski. Mr. Leonard is the current Chair. The Board has determined that each of the
members of the committee is independent within the meaning of the listing standards of The Nasdaq
Global Market.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Messrs. Ermentrout, Fraser, Leonard (Chair) and
Urbanowski. None of them have been our officers or employees nor of any of our subsidiaries or had
a relationship requiring disclosure under this caption.
During our fiscal year 2010, none of our executive officers served as a member of a
compensation committee or board of directors of any other entity, which has an executive officer
serving as a member of our Compensation Committee or Board of Directors.
Risk Oversight Committee
The Risk Oversight Committee is responsible for leading the Board in reviewing our
consideration of material risks, providing oversight of our management on material risks and making
recommendations to the Board regarding material risks and risk mitigation where appropriate. The
committee is composed of J. Neal Butler, Gerald G. Ermentrout, Christopher T. Fraser and Karen A.
Twitchell. Mr. Fraser is the current Chair. The Risk Oversight Committee held seven meetings
during fiscal year 2010.
Compensation Discussion and Analysis
Executive Summary
This Compensation Discussion and Analysis contains the philosophy underlying our compensation
strategy and the major elements of compensation paid to the persons included in our Summary
Compensation Table. We refer to those persons as named executive officers. Specifically, in this
Compensation Discussion and Analysis, we address the following:
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the objectives underlying our executive compensation program; |
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what our compensation program is designed to reward; |
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the elements of compensation that make up our compensation program; |
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how we determine executive compensation; and |
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other important compensation policies. |
10
Objectives of Our Compensation Program
We manufacture, formulate and distribute specialty chemicals. Our strategy includes growing in
a manner that increases shareholder value by purchasing additional product lines and businesses. We
target for acquisition products and businesses in specialty chemicals that we believe provide an
opportunity to obtain a significant market share through further acquisition and growth, that are
of a size that larger industry participants often find too small to be attractive, that have
products with well established uses, that do not require substantial on-going research and
development, and that have significant barriers to entry. To assist in carrying out this strategy,
our Compensation Committee has designed our compensation program to:
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reward executive officers for long-term strategic management and the enhancement of
shareholder value; |
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integrate the compensation program with our short and long-term strategic business plans;
and |
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attract, motivate, reward and retain experienced and highly qualified executive officers. |
What Our Compensation Program Is Designed To Reward
Our compensation program is designed to reward executive officers who are capable of leading
us in achieving our business strategy on both a short-term and long-term basis. When making
compensation decisions, we consider:
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individual performance of our executives; |
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relative internal relationships within the executive pay structure; |
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compensation at our peer companies; and |
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whether we are capable of providing certain compensation to a particular individual
within our budgetary constraints. |
The Elements of Our Compensation
In fiscal year 2010, we utilized the following elements of compensation to further our
executive compensation philosophy and to assist us in achieving our business strategy:
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base salary; |
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annual incentive compensation; |
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long-term incentive compensation; |
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other broad-based employee benefits; and |
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executive benefits and perquisites. |
How We Determine Each Element of Compensation And Why We Pay Each Element
The Compensation Committee continues to refine our compensation program by more heavily
weighting the compensation of our named executive officers toward at-risk performance-based
incentives. We believe that our compensation program will enhance our profitability and increase
shareholder value by more closely aligning the financial interests of our executive officers with
those of our shareholders.
11
In fiscal year 2010 we determined to delay by one additional year the implementation of our
refined compensation program, but once that program has been fully implemented in fiscal year 2012,
the Compensation Committee expects that compensation for our named executive officers will be based
on the following allocations:
Allocation of Major Elements of Compensation
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Annual Incentives |
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Long-Term Incentives |
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Major Elements of Compensation |
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Base Salary |
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(Pay at Risk) |
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(Pay at Risk) |
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CEO |
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25 |
% |
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19 |
% |
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56 |
% |
CFO |
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32 |
% |
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17 |
% |
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51 |
% |
Other Named Executive Officers |
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37 |
% |
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17 |
% |
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46 |
% |
We believe that the achievement of long-term goals increases shareholder value to a greater
degree than the achievement of short-term goals. Therefore, to recognize this philosophy, we intend
that long-term incentives be weighted more heavily than either base salary or annual incentives.
Below we discuss each element of compensation listed above, including why we elect to pay each
element of compensation and how the Compensation Committee determines each element of compensation.
Base Salary
Base salary is compensation paid to an executive for performing specific job responsibilities
and it represents the minimum income an executive might receive in any given year. Base salary is
essential to attracting and retaining experienced and highly qualified executives, including our
named executive officers. We initially establish base salary based upon the abilities,
accomplishments, and prior work experience and performance of the executive officer. Adjustments in
base salary are considered on a discretionary basis, taking into account internal pay relationships
and consistency, the executives historical contributions, and the experience, level of
responsibility, changes in responsibilities, retention risk and market survey data.
Increases in base salary in fiscal year 2010 were primarily driven by market adjustments in
order to continue to implement a compensation strategy that by fiscal year 2012 is intended to pay
base salary at approximately the 45th percentile (90% of the median) of market survey data/national
survey and peer group data. See How We Determine Executive Officer CompensationBenchmarking and
Other Market Data. Before adjustments to base salaries in November 2009, the base salaries for
our named executive officers ranged between the 36th and 41st percentiles of the market survey
data. After our November 2009 salary increases, base salaries of our named executive officers
ranged between the 43rd and 44th percentiles of the market survey data. In addition, increases in
base salary reflect that we have grown substantially in size and in the complexity of our
operations with the acquisition of the electronic chemicals business in December 2007.
Annualized Base Salaries of Named Executive Officers
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Year |
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Butler |
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Jackson |
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Kremling |
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Sobchak |
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FY 2009 |
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$ |
351,000 |
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$ |
181,500 |
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$ |
208,000 |
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$ |
196,000 |
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FY 2010 |
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$ |
409,000 |
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$ |
218,000 |
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$ |
220,000 |
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$ |
223,000 |
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% Increase |
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16.4% |
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20.2% |
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5.8% |
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13.7% |
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Annual Incentive Compensation
Our annual incentive compensation is designed to focus and motivate our executives to achieve
our strategic objectives.
The Compensation Committee administers our annual incentive awards to executives, but
delegates to our CEO the day-to-day responsibility for the program. Annual incentive compensation
rewards executives based upon achievement of company performance objectives, strategic objectives
and individual performance objectives that are established by the Compensation Committee, based
upon the recommendation of the CEO, as to other executive officers. The Compensation Committee
establishes the performance objectives for the CEO. Each objective receives greater or lesser
weight based primarily on the Compensation Committees evaluation of the relative importance of the
objective. The Compensation Committee evaluates each particular individuals achievement or
progress toward the objectives, and determines the degree to which the objectives have been
achieved. Although the Compensation
Committee may make adjustments to the objectives or weight given to a particular objective to
take into account special or unforeseen circumstances, it did not do so in fiscal year 2010.
12
Annual incentive compensation is paid as a percentage of base salary based upon the proportion
that performance objectives are achieved. The annual incentive is calculated for each performance
objective using the formula: Base Salary × % Objective Achieved × % Objective Weight. When our
refined compensation strategy is fully phased-in, the Compensation Committee intends to set annual
incentive compensation at approximately the median of the national survey and our peer group data
The Board of Directors establishes company performance objectives based upon one or more of
the following performance measures: return on equity, assets, capital or investment; revenue
growth; earnings per share growth; gross margin; and operating cash flow or cash flow from
operating activities. These objectives may be identical for all executives or may differ among
executives to reflect more appropriate measures related to a particular individuals performance.
Performance measures are adopted and weighted by the Compensation Committee annually to give
emphasis to performance for which executives have the most direct control.
For fiscal year 2010, the table below lists the objectives and their relative weights used in
determining the annual incentive compensation for our named executive officers.
Annual Incentive Performance Objectives and Weightings in Fiscal Year 2010
for the Named Executive Officers
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Performance Objective |
|
Butler |
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|
Jackson |
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Kremling |
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Sobchak |
|
Earnings per Share |
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|
25 |
% |
|
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25 |
% |
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25 |
% |
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25 |
% |
Return on Invested Capital |
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20 |
% |
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20 |
% |
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20 |
% |
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20 |
% |
Strategic Plan Goals |
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25 |
% |
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0 |
% |
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0 |
% |
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|
0 |
% |
Personal Objectives |
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30 |
% |
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|
55 |
% |
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|
55 |
% |
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|
55 |
% |
For fiscal year 2010, our earnings per share performance objective was $0.93 per share and the
return on invested capital performance objective was 17.5%. For fiscal year 2010, our earnings per share was
$1.37, which satisfied greater than the target level for the annual incentive objective. Return on
invested capital for fiscal year 2010 was calculated by dividing pre-tax earnings plus interest,
depreciation and amortization by the average for the year of total assets less cash. Solely for the
purpose of establishing annual incentive compensation for fiscal year 2010, the committee
determined that the return on invested capital was 21.6%, which satisfied greater than the target
level for the annual incentive objective.
Strategic goals and personal goals for named executive officers are selected by the
Compensation Committee based on input from the CEO, as to other executive officers, and the input
of other Board members. Only Mr. Butler had strategic goals for fiscal year 2010, and they involved
leading our strategic initiatives and updating our 5-year strategy, closing a meaningful
acquisition, and launching a process to identify a new business area for potential acquisitions.
The personal goals for each individual are generally selected from areas of our business where
the executive has the most direct and substantial involvement, and usually number from three to
about five items. They are often very specific, and usually include initiating or completing
projects having a strategic or operational impact. Although achievement of the strategic and
personal goals is determined by the Compensation Committee most often on the basis of a subjective
or qualitative analysis, the committee tries to define the goals in a way that they can readily
determine that they have been met. When the goals lend themselves to a quantitative approach, that
method is used. In fiscal year 2010, the personal goals of the named executive officers were:
Neal Butler
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|
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Lead integration of enterprise risk management (ERM) process in coordination with the
Risk Oversight Committee |
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Enhance executive leadership and director skills through interaction with experienced
executives and attending focused conferences |
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Further develop our leadership team with an internal executive development program and an
external executive identification effort |
13
John Sobchak
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Complete acquisition integration within acquisition model parameters |
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Expand equity analyst coverage |
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Enhance and manage the CFO succession plan, including training for potential candidates |
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Expand acquisitions capabilities by year end by identifying an internal candidate who
could take on the roll |
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Lead and expand the internal audit process |
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Implement capital market strategy to maintain adequate short term liquidity |
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Oversee implementation of our ERM program |
Ernie Kremling
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Achieve a .75 injury rate/200,000 man hours per year |
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Have less than 2 process safety incidents per year |
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Complete operations/supply chain integration of acquisition within acquisition model
parameters |
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Reduce railcar cleaning costs by 50% from fiscal year 2009 baseline |
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Implement V.P. operations succession planning |
Roger Jackson
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Records retention implementation by the third quarter |
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Hire a corporate environmental, health and safety manager and enhance environmental,
health and safety and regulatory structures and processes |
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Enhance timely communication and document flow between the Board and management |
Each executives objectives have a threshold level below which no award will be payable, a
target level and a maximum award level. The target level for executives is generally set based on
performance at 100% of budget for the fiscal year. Threshold performance is generally set at 90% of
budget, and the maximum award level is generally set for performance at 120% of budget. The
following table describes the potential award levels, as a percentage of base salary, for the named
executive officers:
Potential Annual Incentive Levels as a Percentage of Base Salary for Objectives
for Fiscal Year 2010 for the Named Executive Officers
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Name/Title |
|
Threshold |
|
|
Target |
|
|
Maximum |
|
J. Neal Butler, CEO and President |
|
|
21 |
% |
|
|
70 |
% |
|
|
91 |
% |
John V. Sobchak, Vice President and CFO |
|
|
15 |
% |
|
|
50 |
% |
|
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65 |
% |
Roger C. Jackson, Vice President and General Counsel |
|
|
14 |
% |
|
|
45 |
% |
|
|
59 |
% |
Ernest C. Kremling II, Vice PresidentOperations |
|
|
14 |
% |
|
|
45 |
% |
|
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59 |
% |
Prior to our November 2009 increases in salary and annual incentive
compensation, base salaries in fiscal year 2010 plus the target level of annual incentive
compensation for our named executive officers ranged between the 35th and 40th percentiles of the
market survey data. After the November 2009 increases in salary and annual incentive compensation
took effect, base salaries plus the target level of
annual incentive compensation in fiscal year 2010 for our named executive officers ranged
between the 40th and 44th percentiles of the market survey data.
14
For fiscal year 2010, the committee determined that Mr. Butler had satisfied two of his
strategic goals at maximum and one at target, and satisfied one of his personal objectives at
maximum and two at target. The committee also determined that Mr. Sobchak achieved three personal
goals at maximum and four at target, Mr. Jackson achieved two personal goals at target and one at
threshold, and Mr. Kremling achieved three goals at maximum and two at threshold.
In fiscal year 2010, the annual incentive compensation actually earned by our named executive
officers ranged from 46.7% to 85.8% of their respective base salaries. The table below indicates
the annual incentive award paid to the named executive officers by performance objective for fiscal
year 2010, as a percentage of base salary. Mr. Butlers 2010 annual incentive compensation was $350,460,
Mr. Sobchaks was $133,183, Mr. Jacksons was $101,816 and Mr. Kremlings was $116,820.
Award Level Paid as a Percentage of Base Salary for Fiscal Year 2010
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|
Performance Objective |
|
Butler |
|
|
Jackson |
|
|
Kremling |
|
|
Sobchak |
|
|
Earnings per Share |
|
|
22.8 |
% |
|
|
14.8 |
% |
|
|
14.8 |
% |
|
|
16.3 |
% |
Return on Invested Capital |
|
|
18.2 |
% |
|
|
11.8 |
% |
|
|
11.8 |
% |
|
|
13.0 |
% |
Strategic Plan Goals |
|
|
21.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Personal Objectives |
|
|
23.1 |
% |
|
|
20.1 |
% |
|
|
26.5 |
% |
|
|
30.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
85.8 |
% |
|
|
46.7 |
% |
|
|
53.1 |
% |
|
|
59.8 |
% |
Long-Term Incentive Compensation
General
We provide senior executives, including our named executive officers, with long-term equity
compensation tied to our performance. We believe that this aligns the financial interests of our
executives with the interests of our shareholders and motivates our executive officers to enhance
shareholder value. Additionally, the Compensation Committee believes that long-term equity
compensation serves as an important retention tool. Long-term equity compensation can comprise the
largest percentage of executive compensation. When our refined compensation approach is fully
implemented, long-term equity incentives for senior executives will be targeted above the market
median if performance objectives are achieved.
In the past, we have awarded equity compensation in two forms: stock options and
performance-based restricted stock awards. The Compensation Committee currently administers equity
incentives under our 1996 Stock Option Plan, our 2004 Long-Term Incentive Plan, and our 2009
Long-Term Incentive Plan.
Stock options that were granted in the past to employees under our 1996 plan remain
outstanding. We stopped issuing stock options under the 1996 Stock Option Plan in fiscal year 2005,
and the plan terminated on July 31, 2007. Although the Compensation Committee has had the power to
grant stock options under the 2004 and 2009 Long-Term Incentive Plans, no stock options have been
granted under either plan. Beginning in fiscal year 2006, we have granted performance-based
restricted stock awards to certain executives.
The Compensation Committee determines long-term incentive award levels and the types of awards
after the release in October of financial results for the prior fiscal year. Long-term incentive
grants vary in amount from year to year based on the performance of the executive, his expected
role in our future performance and on our financial performance. In setting new long-term equity
awards, the Compensation Committee also considers prior stock option and performance-based
restricted stock awards made to the executive officer, which were often made as new hire awards.
When the awards are considered, the value of stock option awards is annualized over a 10-year
period. Stock options are valued using the Black-Scholes method. Performance-based restricted stock
awards are valued at 100% of the grant date stock price.
15
Performance-Based Restricted Stock Awards
Current long-term incentives are outlined below for the targeted market percentile of our peer
group for all executives. In fiscal year 2010, the Compensation Committee chose to use
performance-based restricted stock for long-term incentives because it has a greater perceived
value to executives over stock options, since their expected base value is not dependent on share
price appreciation. Performance-based restricted stock, when compared to stock options, is usually
favored by shareholders because of the direct link to company performance and the fact that
restricted stock is less subject to manipulation based upon the timing of the grant. The
Compensation Committee has also designed performance-based restricted stock awards to encourage
retention of executives by using three year performance periods.
Performance-based restricted stock awards were granted to each of the named executive officers
in fiscal year 2010. The awards were granted as Series 1 and Series 2 awards of shares of
restricted stock, subject to performance vesting requirements. Performance under the awards is
measured over a three-year period beginning August 1, 2009. We also granted Series 1 and Series 2
awards of restricted shares to employees other than the named executive officers. The awards grant
up to an aggregate maximum amount of 106,007 shares of performance-based restricted stock to the
named executive officers and the other employees. Shares for all recipients vest based on
satisfaction of performance requirements at the end of the three years.
The fiscal year 2010 Series 1 awards granted the named executive officers up to an aggregate
of 51,019 shares of restricted stock, subject to performance requirements of revenue growth
and average return
on invested capital (operating income divided by average total assets
less payables), for the
three year measurement period. The Series 2 awards granted the named executive officers up to an
aggregate of 34,012 shares of restricted stock, subject to a performance requirement of earnings
per share growth over the three year measurement period. The individual awards to particular named
executive officers are described in the Grants of Plan Based Awards table.
When considering the individual awards, the Compensation Committee determines, based on market
survey data, a target award level as a percentage of base pay appropriate for each executive. The
value of the restricted stock used to calculate the number of shares then awarded may take into
consideration anticipated share appreciation, and in fiscal year 2010 the Compensation Committee
assumed a Common Stock price of $15.00 per share when establishing awards (at the beginning of the
3-year performance measurement period for the awards the actual share price was $7.52). Our fiscal
year 2010 long-term incentive awards were at or above the market median of the market survey data,
when using the higher share value. The Compensation Committees overall strategy for the long-term
incentive component of compensation is to target above the market median if performance objectives
are achieved. Based on the market survey data and the plan to phase implementation of the
compensation strategy through fiscal year 2012, the committee determined to make the performance
awards a greater proportion of total compensation than in prior years.
Prior to our November 2009 salary increases, total targeted direct compensation for the named
executive officers ranged between the 39th and 47th percentiles of the market survey data. After
the November 2009 base salary increases took effect, and including long-term equity awards in
fiscal year 2010, total targeted direct compensation for the named executive officers ranged
between the 45th and 52nd percentiles of the market survey data. The Grants of Plan Based Awards
table sets forth the performance-based restricted stock awards made to the named executive officers
in fiscal year 2010.
In fiscal year 2010, the number of shares of restricted stock listed below vested for the
following named executive officers from the Series 1 and Series 2 performance-based restricted
stock awards granted in fiscal year 2008:
Performance-Based Restricted Stock Awards Vested in Fiscal Year 2010
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|
Long-Term Incentive Performance Objectives |
|
Butler |
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|
Jackson |
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|
Kremling |
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|
Sobchak |
|
Average annual earnings before interest, tax,
depreciation and amortization divided by average
assets in relationship to cumulative revenue growth
(Series 1) (1) |
|
|
6,379 |
|
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|
1,796 |
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|
|
|
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|
2,615 |
|
Cumulative Growth in Earnings per Share (Series 2) (2) |
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|
Total |
|
|
6,379 |
|
|
|
1,796 |
|
|
|
|
|
|
|
2,615 |
|
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|
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|
|
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|
|
(1) |
|
The average annual return on assets percentage was 17.9%, and the cumulative revenue growth
$554 million, which resulted in 52.5% of the maximum award vesting. |
|
(2) |
|
The cumulative growth in earnings per share was $2.73 per share, which was less than the
required minimum of $3.22 per share. No award vested. |
16
Time-Based Awards
In fiscal year 2010, we granted time-based restricted stock awards to executives other than
the named executive officers. The awards grant up to an aggregate amount of 7,029 shares of
time-based restricted stock to those employees. The time-based restricted stock awards generally
vest over three-year periods.
Stock Options
The Outstanding Equity Awards at 2010 Fiscal Year End table sets forth the number and dollar
value of options outstanding as of July 31, 2010, made previously to certain named executives. The
plan does not allow the re-pricing of options without stockholder approval. The Compensation
Committee also prohibits the cancellation and re-issuance of options.
Broad-based Employee Benefits
Our employee benefits are designed to allow us to be attractive to current and potential
employees and to remain competitive in the market.
Health and Welfare Plans
We offer health and welfare benefits to substantially all employees, including executives.
These benefits include medical, dental, life, accidental death, short and long-term disability, and
long-term care coverage. Executives make the same contributions for the same type of coverage, and
receive the same level of benefits as other employees for each form of coverage or benefit. We
provide vacation and paid holidays to all eligible employees, including executives, that is
comparable to other similarly sized companies.
Retirement Plans
We offer a defined contribution 401(k) plan to substantially all of our employees in the
United States. In calendar years 2009 and 2010, participants may contribute up to $16,500 of their
compensation. We make matching contributions under the plan up to 3% of the participants
compensation. Employees age 50 or over are entitled to make an additional pre-tax contribution of
up to $5,500 per year. Employees become fully vested in employer contributions after five years of
employment and are ratably vested prior to that time. The Summary Compensation Table reflects our
contributions to the 401(k) Plan for each named executive officer.
Executive Benefits and Perquisites
Executive benefits or perquisites may be provided on a limited basis to attract and retain key
executives. Currently, we do not offer executive benefits or perquisites with a value over $10,000
to any executive, other than the supplemental executive retirement plan outlined below.
Supplemental Executive Retirement Plan
We adopted a supplemental executive retirement plan (SERP) in fiscal year 2001. Only
executives specifically designated by us may be participants in the plan, and currently none of our
named executive officers is a participant in the plan. The plan only has one participant, Mr.
Mitchell. The SERP is unfunded, and amounts payable to participants are our general obligations.
The SERP provides that an executive will be paid a supplemental retirement benefit for 10 years
equal to a percentage of the participants three-year average base salary at normal retirement
multiplied by the years of credited service up to a maximum of 20 years. The benefit payable to
participants is reduced by the equivalent actuarial value of our portion of the contributions to
the 401(k) plan and one-half of social security benefits. Normal retirement is the earlier of age
65 and completion of 10 years credited service or age 60 with 30 years credited service. Early
retirement is possible after reaching age 60 and completion of 10 years credited service. A
participant may elect payment of benefits in any one of the following forms: Joint and 100%
Survivor Annuity, Joint and 50% Survivor Annuity, 10 Year Certain and Life, and Single Sum. The
Compensation Committee, in its sole discretion and without any obligation to exercise reasonable
discretion, may approve a single sum payment. If the Compensation Committee does not grant approval
of a single sum payment, a participant must elect to receive benefits in any one of the other three
options. If a participants employment with us terminates before attainment of early retirement or
normal retirement age, and if that termination is not due to death or disability, benefits that
would otherwise be payable under the SERP may be forfeited. The CEO, with the consent of the
Compensation Committee, may waive the application of this provision.
17
Employment and Severance Agreements
We have employment agreements that contain severance provisions with three of our named
executive officers and one other employee. One named executive officer is eligible for severance
payments under our executive severance plan along with one other employee.
Currently, each employment agreement automatically renews for a one-year period, and will
continue to do so unless we provide at least 60 days prior written notice of non-renewal. Under the
terms of all but one of the employment agreements, if we terminate the executives employment
(other than for cause or due to death or disability) or elect not to extend the executives term of
employment for the renewal term, or if the executive voluntarily terminates his employment for good
reason following a change of control, then we must pay the executive a termination payment equal to
a multiple of his base salary at termination. See Potential Payments upon Termination or Change in
Control for additional information.
The employment and severance agreements contain provisions for the assignment to us of any
right, title and interest in all works, copyrights, materials, inventions, ideas, discoveries,
designs, improvements, trade secrets, patents and trademarks, and any applications related thereto,
during their respective employment. In addition, each agreement contains provisions prohibiting the
disclosure of confidential information.
Additionally, each executive signed an agreement with non-compete obligations prohibiting the
executive from engaging and being financially interested in any business which is competitive with
us during his term of employment and for a period of one year after his employment with us
terminates, unless he first obtains our prior written consent. In the event an executive breaches
any of these provisions, we may terminate any payments then owing to the executive and/or seek
specific performance or injunctive relief for such breach or threatened breach.
Executive Severance Plan
The Board of Directors approved an executive severance plan (ESP) in fiscal year 2009. The
ESP provides that any regular, full-time employee who is designated by the Compensation Committee
may become a participant in the ESP. As of the date of this proxy statement, one named executive
officer, Mr. Kremling, has been designated as eligible employees under the ESP. The Compensation
Committee intends, in appropriate cases, to use the ESP to offer severance to eligible employees,
including future hires. In anticipation of additional participants, the Compensation Committee has
established three participation levels. The ESP may also be used to offer severance payments in
lieu of the severance payments under current employment or severance agreements to eligible
employees wishing to convert to the ESP.
The ESP is designed to provide an eligible employee with a severance payment in the event of a
qualifying termination, which is with respect to an eligible employee who (i) is affirmatively
discharged from employment by us, other than a discharge for cause, or (ii) voluntarily terminates
for good reason, as defined in the ESP. The severance benefit is based on the participation level
of the eligible employee as assigned by the Compensation Committee, and is calculated at a multiple
of (i) base salary or (ii) base salary and annual incentive award at the target level. The
severance benefit is paid in a lump sum.
For a qualifying termination occurring more than 30 days before a change of control, the
severance benefit is 2.0x, 1.5x or 1.0x of base salary for the three participation levels. The
highest participation level is for a CEO-participant, the second is for other senior executives who
are participants and the third level is for all other participants. For a qualifying termination
occurring within 30 days before or two years after a change of control, the benefit is 2.5x, 2.0x
or 1.5x of base salary plus annual incentive compensation at the target level. If the qualifying
termination was not for cause but was instead related to performance issues, the severance benefit
is 1.0x, 0.75x or 0.5x of base salary only. In the case of a qualifying termination occurring
within 30 days before or two years after a change of control or a qualifying termination occurring
for good reason, the eligible employee is also paid a prorated portion his or her annual incentive
compensation.
In order for an eligible employee to receive severance benefits under the ESP, he or she must
execute and deliver an acceptable release of all claims.
18
How We Determine Executive Officer Compensation
Role of the Compensation Committee
The Compensation Committee is composed of independent, outside members of the Board of
Directors in accordance with NASDAQ rules, current SEC regulations, and Section 162(m) of the
Internal Revenue Code, and is responsible for establishing, reviewing, approving and monitoring the
compensation paid to the named executive officers.
Role of Executive Officers in Setting Compensation
Our CEO provides input on the Compensation Committee agenda, including background information
regarding our strategic objectives, suggestions on annual performance targets and reports on his
evaluations of the other executive officers. He makes compensation recommendations with respect to
base salary merit increases and annual and long-term incentive awards that are then reviewed by the
Compensation Committee and passed on to the Board for approval. Since our CEO is a member of the
Board, he has input on the final approval of the overall compensation program. The Board, excluding
the CEO, based upon the recommendation of the Compensation Committee makes decisions related to the
CEOs compensation.
The CFO evaluates the financial implications of the Compensation Committees actions.
The Compensation Committee meetings are attended by the committee members, and as needed, by
other directors, the CFO, and outside advisors, including our compensation consultant. The
Compensation Committee regularly meets in executive session without any members of management
present.
Benchmarking and Other Market Data
The Compensation Committee has the sole authority, to the extent deemed necessary and
appropriate, to retain and terminate any compensation consultants. In fiscal year 2010, the
Compensation Committee engaged Stone Partners, Inc. to advise it on executive compensation. Stone
Partners, Inc. is independent of us, reports directly to the Compensation Committee and has no
other business relationship with us other than assisting the Compensation Committee with its
executive compensation and board compensation practices. In fiscal year 2010, we incurred expense
of approximately $61,000 with Stone Partners, Inc. The Compensation Committee and Stone Partners,
Inc. review salaries based on our current and projected company size and annual and long-term
incentive programs established for each executives position based on data from general industry
surveys and our peer companies relating to our current and projected company size.
For fiscal year 2010, Stone Partners, Inc. prepared an analysis of comparative data from the
Watson Wyatt and William M. Mercer national surveys and data from a peer group of publicly-traded
chemical companies of annual and long-term incentive targets. For fiscal year 2009, Stone Partners,
Inc. prepared an analysis of comparative data from the Watson Wyatt and William M. Mercer national
surveys and data from a peer group of publicly-traded chemical companies of base salaries. The base
salary data was aged 4.1% in consideration of increase size of the company and market base salary
increase trends. We collectively refer to the national surveys and peer group information as
market survey data in this CD&A. The composition and performance of the peer group is reviewed
each year. In fiscal year 2010, the peer group included 13 publicly-traded chemical companies
having comparable annual revenues and a comparable value for ongoing operations: American Pacific
Corporation, American Vanguard Corporation, Balchem Corporation, Calgon Carbon, Inc., Cambrex
Corporation, Chase Corporation, Hawkins Inc., ICO, Inc., Landec Corporation, Oil-Dri Corporation,
Penford Corp., Ultra Clean Holdings, Inc. and WD 40 Corporation. The 25th, 50th and 75th
percentiles for the data sources were analyzed to gain an understanding of the range of competitive
pay practices. Although the 50th percentile of the combined data was used by the Compensation
Committee as a reference point for establishing base salary, annual incentive targets and total
direct compensation, the compensation of individual executives may vary above or below the
reference point because of the background, personal performance, skills and experience, the
comparative compensation of our executives and our ability to provide certain compensation within
our budgetary constraints.
19
Other Important Compensation Policies
Consideration of Risk
The Compensation Committee, with assistance of its independent compensation consultant,
extensively reviewed the elements of our executive compensation during fiscal year 2010 to
determine whether any portion of executive compensation encouraged
excessive risk taking. Management assessed risk with respect to the compensation of other
employees. Management then reviewed this risk assessment with the Compensation Committee.
Management and the Compensation Committee believe that risks arising from our compensation policies
and practices for our executive officers and other employees are not reasonably likely to have a
material adverse effect on us. In addition, we believe that the mix and design of the elements of
compensation do not encourage management to assume excessive risks.
Stock Ownership Requirements for Named Executives
We have adopted a stock ownership requirement for certain executives. The requirement calls
for stock ownership related to base salary to equal three times base salary for the CEO, two times
base salary for the VP-Operations, CFO and Chief Legal Officer and one time base salary for other
designated executives. Executives covered by the requirement must achieve the stock ownership by
August 1, 2012. As of October 25, 2010, our CEO, Mr. Butler, owned 35,431 shares of Common Stock,
our CFO, Mr. Sobchak, owned 28,403 shares, our Vice President of Operations, Mr. Kremling, owned
7,800 shares and our Chief Legal Officer, Mr. Jackson, owned 64,574 shares. If the required stock
ownership level is not met by an executive, the Compensation Committee may pay out the after-tax
portion of any cash bonus due to that executive in shares of our Common Stock.
Trading in Our Stock Derivatives
Our Insider Trading Policy prohibits directors and employees from purchasing or selling
options on our Common Stock, engaging in short sales with respect to our Common Stock, or trading
in puts, calls, straddles, equity swaps or other derivative securities that are directly linked to
our Common Stock.
Financial Restatement
The Compensation Committee does not have a policy in place governing modifications to
compensation where the payment of such compensation was based upon the achievement of specific
results that were subsequently subject to restatement. If the Compensation Committee deems it
appropriate, however, to the extent permitted by governing law, we will seek to recoup amounts
determined by a financial restatement to have been inappropriately paid to an executive officer.
Tax and Accounting Implications of our Forms of Compensation
Section 162(m) of the Code limits the deductibility of certain compensation to $1 million per
year for our CEO and our three other most highly compensated executive officers. There is an
exception to the $1 million limit for compensation meeting certain requirements. None of our
executive officers currently receives compensation exceeding the limits imposed by the Code. While
the Compensation Committee cannot predict with certainty how our executive compensation might be
affected in the future by the Code, the Compensation Committee intends to try to preserve the tax
deductibility of all executive compensation while maintaining an executive compensation program
consistent with our compensation philosophy.
Our compensation program contains the following tax and accounting implications:
|
|
|
Salary is expensed when earned, but it is not deductible over $1 million for our covered
employees (our CEO and our three other highest paid executives). |
|
|
|
Annual incentives are expensed during the year when payout is probable. Annual incentives
paid under our shareholder-approved 2004 Long-Term Incentive Plan meet the requirements of
Section 162(m) of the Code and are deductible. Any portion paid under non-objectively
verifiable criteria is not deductible over $1 million under Section 162(m) of the Code for
covered employees. |
|
|
|
Stock options are expensed over the vesting period. Our 1996 Stock Option Plan and our
2004 and 2009 Long-Term Incentive Plans have been approved by shareholders, and awards are
deductible under Section 162(m) of the Code. |
|
|
|
Performance-based restricted share awards are expensed over the performance and service
period when payout is probable. Our plan has been approved by shareholders and compensation
is deductible under Section 162(m) of the Code. No dividends are paid on performance
restricted stock until shares are actually issued. |
|
|
|
Our 401(k) contributions and SERP benefits are accrued and expensed in the year of
service. |
20
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the foregoing
Compensation Discussion and Analysis. The Compensation Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this proxy statement.
|
|
|
|
|
The Compensation Committee: |
|
|
Gerald G. Ermentrout |
|
|
Christopher T Fraser |
|
|
Fred C. Leonard III, Chair |
|
|
Richard L. Urbanowski |
The following table presents information for the three fiscal years ended July 31, 2010 for our
President and CEO, our Vice President and CFO, and our other two named executive officers. We have
four named executive officers.
Summary Compensation Table
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
All Other |
|
|
|
|
Name and |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Total |
|
Principal Position |
|
Year |
|
|
($) |
|
|
($)(1) |
|
|
($)(2) |
|
|
($)(2) |
|
|
($)(3) |
|
|
($)(4) |
|
|
($) |
|
J. Neal Butler,
Director, President and CEO |
|
|
2010 |
|
|
|
393,277 |
|
|
|
750 |
|
|
|
677,203 |
|
|
|
|
|
|
|
350,460 |
|
|
|
11,798 |
|
|
|
1,433,488 |
|
|
|
|
2009 |
|
|
|
339,454 |
|
|
|
500 |
|
|
|
117,654 |
|
|
|
|
|
|
|
132,018 |
|
|
|
11,516 |
|
|
|
601,142 |
|
|
|
|
2008 |
|
|
|
289,270 |
|
|
|
1,000 |
|
|
|
200,240 |
|
|
|
|
|
|
|
97,480 |
|
|
|
8,341 |
|
|
|
596,331 |
|
|
John V. Sobchak,
Vice President and CFO |
|
|
2010 |
|
|
|
215,655 |
|
|
|
750 |
|
|
|
223,967 |
|
|
|
|
|
|
|
133,183 |
|
|
|
6,224 |
|
|
|
579,779 |
|
|
|
|
2009 |
|
|
|
193,345 |
|
|
|
500 |
|
|
|
39,939 |
|
|
|
|
|
|
|
57,233 |
|
|
|
6,093 |
|
|
|
297,110 |
|
|
|
|
2008 |
|
|
|
176,387 |
|
|
|
1,000 |
|
|
|
82,074 |
|
|
|
|
|
|
|
39,009 |
|
|
|
4,623 |
|
|
|
303,093 |
|
|
Roger C. Jackson,
Vice President, General
Counsel and Secretary |
|
|
2010 |
|
|
|
208,375 |
|
|
|
750 |
|
|
|
181,593 |
|
|
|
|
|
|
|
101,816 |
|
|
|
7,561 |
|
|
|
500,095 |
|
|
|
|
2009 |
|
|
|
178,590 |
|
|
|
500 |
|
|
|
29,045 |
|
|
|
|
|
|
|
43,210 |
|
|
|
5,964 |
|
|
|
257,309 |
|
|
|
|
2008 |
|
|
|
160,188 |
|
|
|
1,000 |
|
|
|
56,364 |
|
|
|
|
|
|
|
21,253 |
|
|
|
5,414 |
|
|
|
244,219 |
|
|
Ernest C. Kremling,
Vice PresidentOperations |
|
|
2010 |
|
|
|
216,769 |
|
|
|
750 |
|
|
|
239,470 |
|
|
|
|
|
|
|
116,820 |
|
|
|
6,520 |
|
|
|
580,329 |
|
|
|
|
2009 |
|
|
|
210,684 |
|
|
|
500 |
|
|
|
46,446 |
|
|
|
|
|
|
|
61,152 |
|
|
|
7,423 |
|
|
|
326,205 |
|
|
|
|
2008 |
|
|
|
104,146 |
|
|
|
|
|
|
|
130,728 |
|
|
|
|
|
|
|
24,733 |
|
|
|
2,077 |
|
|
|
261,684 |
|
|
|
|
(1) |
|
A holiday bonus given to employees. |
|
(2) |
|
Stock awards and option awards reflect the grant-date fair value of awards granted in each of
the respective fiscal years calculated in accordance with accounting principles generally
accepted in the United States. Stock awards represent the fair value of the award based on the
probable outcome of the performance conditions for performance awards, as determined on the date of grant. For the fiscal year 2010 and 2009
awards, amounts reflected the expected vesting of 100% for each of the Series 1 and Series 2
performance awards as determined on the date of grant. For the fiscal year 2008 award for
Ernest Kremling, the amount reflected the grant-date fair value of time-based shares granted
during the respective year, whose vesting was subject to service period requirements only. For
the remaining three executives, the fiscal year 2008 award reflected an aggregate amount for
the expected vesting on performance awards of 85% and 20%, for Series 1 and Series 2 awards,
respectively, as determined on the date of grant. For those performance awards the maximum
award for the Series 1 and Series 2 in the aggregate was $339,390, $139,108 and $95,532,
respectively for Neal Butler, John Sobchak and Roger Jackson. No option awards were granted in
each of three fiscal years presented. The assumptions used in calculating those amounts are
set forth in note 11 of our audited consolidated financial statements in our Annual Report on Form 10-K for
the year ended July 31, 2010. See also the table respecting Grants of Plan-Based Awards in Fiscal
Year 2010 for the fiscal year 2010 award. |
21
|
|
|
(3) |
|
Non-equity incentive plan compensation represents payments under our annual incentive plan.
See the discussion of our incentive plan under the Compensation Discussion and Analysis
section of this Proxy Statement. |
|
(4) |
|
Under our 401(k) plan for United States based employees, we match up to 3% of participants
compensation. All other compensation included in the table was for contributions to our 401(k)
plan plus, for Mr. Jackson an additional $1,310 in for an annual executive physical. |
The following table presents information respecting grants of plan based awards for fiscal
year 2010.
Grants of Plan-Based Awards in Fiscal Year 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payouts Under |
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
Estimated Future Payouts |
|
|
|
|
|
|
Equity Incentive Plan |
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
|
Under Non-Equity |
|
|
|
|
|
|
Awards |
|
|
All Other |
|
|
Value of |
|
|
|
Grant |
|
|
Incentive Plans(1) |
|
|
|
|
|
|
(#)(1) (2) |
|
|
Stock |
|
|
Stock |
|
Name |
|
Date |
|
|
Target |
|
|
Series |
|
|
Target |
|
|
Maximum |
|
|
Awards |
|
|
Awards(3) |
|
J. Neal Butler |
|
|
3/17/2010 |
|
|
$ 350,460 |
|
|
Series 1 |
|
|
26,130 |
|
|
|
26,130 |
|
|
|
|
|
$ |
406,322 |
|
|
|
|
|
|
|
|
|
|
|
Series 2 |
|
|
17,420 |
|
|
|
17,420 |
|
|
|
|
|
$ |
270,881 |
|
|
John V. Sobchak |
|
|
3/17/2010 |
|
|
$ 133,183 |
|
|
Series 1 |
|
|
8,642 |
|
|
|
8,642 |
|
|
|
|
|
$ |
134,383 |
|
|
|
|
|
|
|
|
|
|
|
Series 2 |
|
|
5,761 |
|
|
|
5,761 |
|
|
|
|
|
$ |
89,584 |
|
|
Roger C. Jackson |
|
|
3/17/2010 |
|
|
$ 101,816 |
|
|
Series 1 |
|
|
7,007 |
|
|
|
7,007 |
|
|
|
|
|
$ |
108,959 |
|
|
|
|
|
|
|
|
|
|
|
Series 2 |
|
|
4,671 |
|
|
|
4,671 |
|
|
|
|
|
$ |
72,634 |
|
|
Ernest C. Kremling |
|
|
3/17/2010 |
|
|
$ 116,820 |
|
|
Series 1 |
|
|
9,240 |
|
|
|
9,240 |
|
|
|
|
|
$ |
143,682 |
|
|
|
|
|
|
|
|
|
|
|
Series 2 |
|
|
6,160 |
|
|
|
6,160 |
|
|
|
|
|
$ |
95,788 |
|
|
|
|
(1) |
|
See the discussion of our incentive plan under the Compensation Discussion and Analysis
section of this Proxy Statement. |
|
(2) |
|
On March 17, 2010, certain executives, including executives in the above table, were
granted performance-based restricted stock awards, Series 1 and Series 2. |
|
(3) |
|
This amount represents that aggregate grant date fair value, which is generally the
amount that we expect, as of the grant date, to expense on our financial statements over
the awards vesting schedule. See note 11 to our audited
consolidated financial statements in our Annual Report on Form 10-K for the year ended July
31, 2010. The Series 1 awards are subject to a performance requirement composed of revenue
growth and annual return on invested capital measured across a three-year period beginning
August 1, 2009. The maximum award vests if, over the measuring period, the average
annualized revenue growth rate is at least 11.5% while the average annual return on assets
is at least 22.0%. Based on performance through July 31, 2010, we projected that 100% of
the Series 1 awards would vest. The Series 1 award was projected to have an aggregate fair
value of $793,346 for the executives in the table based on the grant date price of our
Common Stock of $15.55. The Series 2 awards are subject to a performance requirement
pertaining to the growth rate in our earnings per share over the same three year
measurement period. If the annualized increase in earnings per share is 15.0% over the
measuring period, a threshold of 20.0% of the award would vest. If the annualized increase
is at least 23.0%, the entire award would vest. In our consolidated financial statements
for the year ended July 31, 2010, we estimated that 100% of the Series 2 award would vest.
The aggregate fair value of the award for the executives in the table was projected to be
$528,887 based on the grant date price of $15.55 for our Common Stock. |
22
The following table presents information respecting outstanding equity awards at July 31,
2010. In fiscal year 2010, we did not grant any stock option awards.
Outstanding Equity Awards at 2010 Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1) |
|
|
Stock Awards (1) |
|
|
|
|
|
|
|
Equity Incentive |
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
Equity Incentive |
|
|
|
Number of |
|
|
Plan Awards |
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
Plan Awards: |
|
|
|
Securities |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Market or Payout |
|
|
|
Underlying |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
Unearned Shares, |
|
|
Value of Unearned |
|
|
|
Unexercised |
|
|
Underlying |
|
|
Option |
|
|
|
|
|
|
Units or Other |
|
|
Shares, Units or |
|
|
|
Options |
|
|
Unexercised |
|
|
Exercise |
|
|
Option |
|
|
Rights That Have |
|
|
Other Rights That |
|
|
|
Exercisable |
|
|
Unearned Options |
|
|
Price |
|
|
Expiration |
|
|
Not Vested |
|
|
Have Not Vested |
|
Name |
|
(#) |
|
|
(#) |
|
|
($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
J. Neal Butler |
|
|
5,000 |
|
|
|
|
|
|
|
4.37 |
|
|
|
3/8/2016 |
|
|
|
26,130 |
(2) |
|
|
396,392 |
|
|
|
|
15,000 |
|
|
|
|
|
|
|
4.37 |
|
|
|
3/8/2017 |
|
|
|
17,420 |
(2) |
|
|
264,261 |
|
|
|
|
15,000 |
|
|
|
|
|
|
|
4.37 |
|
|
|
3/8/2018 |
|
|
|
12,171 |
(3) |
|
|
184,634 |
|
|
|
|
15,000 |
|
|
|
|
|
|
|
4.37 |
|
|
|
3/8/2019 |
|
|
|
2,951 |
(3) |
|
|
44,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
4.37 |
|
|
|
3/8/2020 |
|
|
|
58,672 |
|
|
|
890,054 |
|
|
|
|
|
|
|
|
15,000 |
|
|
|
4.37 |
|
|
|
3/8/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
4.37 |
|
|
|
3/8/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
4.37 |
|
|
|
3/8/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
4.37 |
|
|
|
3/8/2024 |
|
|
|
|
|
|
|
|
|
|
John V. Sobchak |
|
|
5,000 |
|
|
|
|
|
|
|
3.58 |
|
|
|
6/26/2015 |
|
|
|
8,642 |
(2) |
|
|
131,099 |
|
|
|
|
7,500 |
|
|
|
|
|
|
|
3.58 |
|
|
|
6/26/2016 |
|
|
|
5,761 |
(2) |
|
|
87,394 |
|
|
|
|
2,500 |
|
|
|
|
|
|
|
3.58 |
|
|
|
6/26/2017 |
|
|
|
4,132 |
(3) |
|
|
62,682 |
|
|
|
|
2,500 |
|
|
|
|
|
|
|
3.58 |
|
|
|
6/26/2018 |
|
|
|
1,002 |
(3) |
|
|
15,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
3.58 |
|
|
|
6/26/2019 |
|
|
|
19,537 |
|
|
|
296,375 |
|
|
|
|
2,500 |
|
|
|
|
|
|
|
3.58 |
|
|
|
6/26/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
3.58 |
|
|
|
6/26/2021 |
|
|
|
|
|
|
|
|
|
|
Roger C. Jackson |
|
|
50,000 |
(4) |
|
|
|
|
|
|
4.00 |
|
|
|
7/31/2012 |
|
|
|
7,007 |
(2) |
|
|
106,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,671 |
(2) |
|
|
70,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,005 |
(3) |
|
|
45,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
728 |
(3) |
|
|
11,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,411 |
|
|
|
233,785 |
|
|
Ernest C. Kremling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,240 |
(2) |
|
|
140,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,160 |
(2) |
|
|
93,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,805 |
(3) |
|
|
72,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,165 |
(3) |
|
|
17,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,370 |
|
|
|
324,183 |
|
|
|
|
(1) |
|
Outstanding option awards reflect grants under our 1996 Stock Option Plan which terminated
effective July 31, 2008. Stock awards reflect grants of performance-based restricted stock
awards and time-based restricted stock awards under our 2004 Long-Term Incentive Plan. See the
Compensation Discussion and Analysis section of this Proxy Statement and note 11 of our
audited consolidated financial statements in our Annual Report on Form 10-K for the year ended
July 31, 2010. |
|
(2) |
|
Represents fiscal year 2010 awards under our 2004 Long-Term Incentive Plan of Series 1 and
Series 2 performance-based restricted stock. Awards vest July 31, 2012, if performance
requirements are satisfied. The table reflects our estimate that 100% of the Series 1 awards
and of the Series 2 awards will vest. See note 11 of our audited consolidated financial
statements in our Annual Report on Form 10-K for the year ended July 31, 2010. See the table
Grants of Plan Based Awards in Fiscal 2010. |
|
(3) |
|
Represents fiscal year 2009 awards under our 2004 Long-Term Incentive Plan of Series 1 and
Series 2 performance-based restricted stock. Awards vest July 31, 2011, if performance
requirements are satisfied. The table reflects our estimate that 55.0% of the Series 1 awards
will vest and 20.0% of the Series 2 awards will vest. See note 11 of our audited consolidated
financial statements in our Annual Report on Form 10-K for the year ended July 31, 2010. |
|
(4) |
|
This option was exercised for 50,000 shares in August, 2010. |
23
The following table presents information respecting options exercised and stock vested by
named executive officers during fiscal year 2010.
Option Exercises and Stock Vested in Fiscal Year 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
Number of Shares |
|
|
Number of Shares |
|
|
Value Realized |
|
|
|
Acquired on |
|
|
Acquired |
|
|
On |
|
Name |
|
Exercise (#) |
|
|
on Vesting (#) |
|
|
Vesting ($) |
|
J. Neal Butler |
|
|
|
|
|
|
6,379 |
|
|
|
96,769 |
|
John V. Sobchak |
|
|
|
|
|
|
2,615 |
|
|
|
39,670 |
|
Roger C. Jackson |
|
|
|
|
|
|
1,796 |
|
|
|
27,245 |
|
Ernest C. Kremling |
|
|
|
|
|
|
2,600 |
|
|
|
39,442 |
|
Potential Payments upon Termination or Change in Control
The following describes the payments and benefits that would be provided to each named
executive officer in the event that this employment is terminated with us for any reason, including
death, disability, retirement, voluntary termination, termination for
cause and termination without cause, with and without
a change in control.
We have employment agreements that contain severance provisions with three of our named
executive officers and one other employee. One named executive officer, Mr. Kremling, is eligible
for severance payments under our Executive Severance Plan (the ESP) along with one other
employee. Under the terms of the employment agreements that contain severance provisions, if we
terminate the executives employment (other than for cause or due to death or disability) or elect
not to extend the executives term of employment for the renewal term, or if the executive
voluntarily terminates his employment for good reason due to a change of control, then we must pay
the executive a termination payment equal to a multiple of his base salary. Mr. Jacksons multiple
is three times base salary, and the multiple is two times base salary for Messrs. Butler and
Sobchak. The termination payments are paid in a lump sum at termination, except that Mr. Jacksons
amounts would be paid in equal annual payments if the termination is not within one year of a
change of control. If the termination or election not to extend the employment agreement by us or
voluntary resignation for good reason by the executive occurs within one year of a change of
control, then any option to acquire shares of our Common Stock held by the executive becomes fully
vested as of the date of termination, and are exercisable for a period of two years. Under the ESP
Mr. Kremling would be paid severance equal to a pro-rated portion of annual incentive compensation
plus a lump sum payment of 1.5 times base salary if the termination of employment was not in
connection with a change of control or 2.0 times the sum of base salary and annual incentive, if it was in
connection with a change of control. Currently outstanding options do not vest for termination upon
death or disability. Performance-based restricted awards do not vest on termination, except upon
death, total and permanent disability or retirement. On death and total and permanent disability,
performance-based restricted awards vest proportionally based on months of service in the three
year performance measurement period, but based on performance achieved as of the termination. On
retirement, the awards vest 100%, subject to satisfaction of the performance criteria at the end of
the performance measurement period. Resignation by the executive for good reason includes failure
to pay any amount due to such executive, demotion, relocation or an uncured breach of the
employment agreement by us. A change of control includes, among other events, the acquisition by
an individual or group of beneficial ownership of more than 50% of the combined voting power of our
then-outstanding Common Stock.
24
The table below presents information respecting amounts payable upon a death, disability, or
termination of a named executive officer as of July 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination |
|
|
Cause but |
|
|
|
|
|
|
|
|
|
|
|
Voluntary |
|
|
Termination |
|
|
Without Cause |
|
|
with a |
|
|
|
|
|
|
|
Disability |
|
|
Termination |
|
|
For Cause |
|
|
But No Change |
|
|
Change of |
|
Name |
|
Death ($)(1) |
|
|
($)(1) |
|
|
($)(2) |
|
|
($) |
|
|
of Control ($) |
|
|
Control ($) |
|
J. Neal Butler |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
818,000 |
|
|
|
818,000 |
|
Value of Unvested Stock Options(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
648,000 |
|
Value of
Unvested Stock Awards(3) |
|
|
371,714 |
|
|
|
371,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
890,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John V. Sobchak |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
446,000 |
|
|
|
446,000 |
|
Value of Unvested Stock Options(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,975 |
|
Value of
Unvested Stock Awards(3) |
|
|
124,284 |
|
|
|
124,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger C. Jackson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
654,000 |
|
|
|
654,000 |
|
Value of Unvested Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
Unvested Stock Awards(3) |
|
|
96,403 |
|
|
|
96,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ernest C. Kremling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,820 |
|
|
|
116,820 |
|
Cash Severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
|
|
673,640 |
|
Value of Unvested Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
Unvested Stock Awards(3) |
|
|
137,772 |
|
|
|
137,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,183 |
|
|
|
|
(1) |
|
The value of the unvested stock awards is computed using the closing price of
our Common Stock on The NASDAQ Global Market on July 30, 2010 of $15.17. |
|
|
|
(2) |
|
None of our executive officers are eligible for retirement, and
any retirement would be treated as a voluntary termination. |
|
|
|
(3) |
|
The service period requirement is prorated as of
July 31, 2010 for death and disability, and the performance
objectives are estimated as described in notes 2 and 3 to the
Outstanding Equity Awards at 2010 Fiscal YearEnd table. |
25
The table below presents information respecting compensation paid to directors in fiscal year
2010 who were not named executive officers. We also reimburse our directors for travel, lodging and
related expenses incurred in attending Board, committee or other business meetings.
Director
Compensation in Fiscal Year 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
Or Paid in |
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
All Other |
|
|
|
|
|
|
Cash |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Total |
|
Name |
|
($)(1) |
|
|
($)(2) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Gerald G. Ermentrout |
|
|
57,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher T. Fraser |
|
|
63,400 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George W. Gilman |
|
|
66,400 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David L. Hatcher(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320,650 |
|
|
|
320,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fred C. Leonard, III |
|
|
56,400 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles L.
Mears(4) |
|
|
40,400 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen A. Thorington |
|
|
56,400 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen A.
Twitchell(4) |
|
|
23,800 |
|
|
|
41,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard L. Urbanowski |
|
|
79,200 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,200 |
|
|
|
|
(1) |
|
Each director is paid a fee of $2,000 for each regular or special meeting of the Board of
Directors, and paid an annual retainer of $20,000 per year. Directors are also paid $1,400 for
attending committee meetings and business meetings, and the Chair of each committee is paid a
retainer of $5,000 per year, except for the Chair of the Audit Committee who is paid a
retainer of $10,000 per year. The Lead Director, currently Mr. Urbanowski, is selected from
among the non-employee directors, and the Lead Director is paid an annual retainer of $15,000.
Annual retainers are paid quarterly. Directors are reimbursed for out-of-pocket expenses
incurred in attending meetings and for other expenses incurred in performing in their capacity
as directors. |
|
(2) |
|
This amount represents that aggregate grant date fair value, which is generally the amount
that we expect, as of the grant date, to expense on our financial statements over the awards
vesting schedule. The assumptions used in calculating the compensation expense are set forth
in note 11 of our audited consolidated financial statements in our Annual Report on Form 10-K
for the year ended July 31, 2010. |
|
(3) |
|
Mr. Hatcher is a non-executive employee. All other compensation for Mr. Hatcher includes
salary, a holiday bonus of $750 and a matching contribution under our 401(k) plan for United
States based employees. |
|
(4) |
|
Mr. Mears resigned from our Board in February, 2010
and Ms. Twitchell was elected to fill his position. Consequently,
$37,500 of the amount in the above table for Mr. Mears stock
award was forfeited. |
26
PROPOSAL 2:
RATIFIFCATION OF OUR INDEPENDENT AUDITORS FOR 2011
The Board of Directors has appointed UHY LLP as independent registered public accounting firm
and auditors to conduct the annual audit of our accounts for fiscal year 2011. Although action by
the shareholders in this matter is not required, the Board of Directors believes that it is
appropriate to seek shareholder ratification of this appointment in light of the important role
played by the independent auditors in maintaining the integrity of our financial controls and
reporting. If ratification of the appointment is not approved, the Board of Directors will
reconsider the appointment. A representative of UHY LLP will be present at the Annual Meeting and
will have the opportunity to respond to appropriate questions.
UHY LLP acts as our principal independent registered public accounting firm. UHY LLP leases
all its personnel, who work under the control of UHY LLP partners, from wholly-owned subsidiaries
of UHY Advisors, Inc. in an alternative practice structure.
The Board of Directors recommends that you vote to ratify the appointment of UHY LLP as our
independent registered public accounting firm for the fiscal year 2011. Unless otherwise indicated,
all properly executed proxies received by us will be voted FOR such ratification at the Annual
Meeting.
Principal Accounting Firm Fees
The aggregate fees billed by our independent registered public accounting firm and auditors,
UHY LLP for professional services rendered to us for the two fiscal years ended July 31, 2010 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Audit Fees (1) |
|
$ |
590,609 |
|
|
$ |
391,459 |
|
Audit-Related Fees (2) |
|
|
61,839 |
|
|
|
|
|
All Other Fees (3) |
|
|
2,647 |
|
|
|
2,686 |
|
|
|
|
|
|
|
|
Total |
|
$ |
655,095 |
|
|
$ |
394,145 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees and reimbursable expenses for professional services rendered for the audits of
our consolidated financial statements, quarterly reviews of the financial statements included
in quarterly reports on Form 10-Q, and audit of internal control over
financial reporting. There were no tax fees paid.
|
|
(2) |
|
Includes fees and reimbursable expenses paid to UHY LLP in
fiscal year 2010 for assistance with an
acquisition and other technical matters. |
|
(3) |
|
Includes reimbursable expenses for services rendered primarily for minor technical
assistance. |
The policy of the Audit Committee is to pre-approve all audit and non-audit services conducted
by our independent registered public accounting firm and auditors. Under the policy, pre-approval
is required before the independent accountants are engaged for the particular services. The Audit
Committee has considered whether the provision of the services included in other fees is compatible
with maintaining the independence of our independent registered accounting firm and auditors.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3, 4 and 5 and amendments thereto furnished to us, we know
of no failure in Section 16(a) beneficial ownership reporting compliance except that through
inadvertence certain directors or executives filed late.
Shareholder Proposals for 2011 Annual Meeting
Any shareholder who intends to present a proposal at the 2011 Annual Meeting of Shareholders
must file such proposal with us by July 3, 2011, for possible inclusion in our proxy statement and
form of proxy relating to that meeting. If the date of the 2011 Annual Meeting of Shareholders is
changed by more than 30 days from the date of the 2010 Annual Meeting, the deadline for submitting
proposals is a reasonable time before we begin to print and mail the proxy materials for our 2011
Annual Meeting, and we will disclose any such new deadline.
27
Other Matters
The Board of Directors knows of no matters other than those stated above which are to be
brought before the Annual Meeting. However, if any such other matters should be presented for
consideration and voting, the persons named in the proxy to vote thereon will do so in accordance
with their judgment.
By Order of the Board of Directors,
Roger C. Jackson
Secretary
28
KMG CHEMICALS, INC.
9555 W. SAM HOUSTON PARKWAY S., SUITE 600, HOUSTON, TEXAS 77099
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David L. Hatcher as proxy with power of substitution to vote
all shares of KMG Chemicals, Inc. (the Company) which the undersigned is entitled to vote at an
Annual Meeting of Shareholders on December 7, 2010, at Hotel Granduca, 1080 Uptown Park Blvd,
Houston, Texas 77056, or any adjournment or postponement thereof, with all the powers the
undersigned would have if personally present as specified, respecting the following matters
described in the accompanying Proxy Statement and, in his discretion, on other matters which come
before such meeting.
|
|
|
|
|
|
|
1. |
|
To elect nine directors to hold office until the next annual meeting of shareholders or until their respective successors have been duly elected and qualified. |
|
|
|
|
|
|
|
|
|
o FOR the nominees listed below
|
|
o WITHHOLD AUTHORITY to vote for all nominees listed below
|
|
o FOR ALL NOMINEES EXCEPT: |
|
|
|
|
|
|
|
|
|
Instructions: To withhold authority to vote for (an) any individual(s), choose the third box and write in the name of the nominee(s) on this line |
|
|
|
|
|
|
|
|
|
|
|
|
Nominees: David L. Hatcher, J. Neal Butler, Gerald G. Ermentrout, Christopher T. Fraser, George W. Gilman, Fred C. Leonard III, Stephen A. Thorington, Karen A. Twitchell,
Richard L. Urbanowski |
|
|
|
|
|
|
|
2. |
|
To ratify the appointment of UHY LLP as the independent registered public accounting firm and auditors for the Company for fiscal year 2011. |
|
|
|
|
|
|
|
|
|
|
|
FOR o AGAINST o ABSTAIN o |
|
|
|
|
|
|
|
|
|
3. |
|
To transact such other business as may properly come before the meeting or any adjournment thereof. |
29
This proxy will be voted in accordance with shareholder specifications. Unless directed to the
contrary, this proxy will be voted FOR each proposal and in his discretion for any other matters
coming before the meeting. A majority (or if only one, then that one) of the proxies or substitutes
acting at the meeting may exercise the powers conferred herein. Receipt of accompanying Notice of
Meeting and Proxy Statement is hereby acknowledged.
|
|
|
|
|
|
|
|
(Signature) |
|
|
|
|
|
|
|
|
(Please print your name) |
|
|
|
|
|
(Please sign name as fully and exactly as it appears opposite.
When signing in a fiduciary or representative capacity, please
give full title as such. When more than one owner, each owner
should sign. Proxies executed by a corporation should be
signed in full corporate name by duly authorized officer.) |
PLEASE MARK, SIGN, DATE AND MAIL TO THE COMPANY AT THE ADDRESS STATED ABOVE.
30