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Kaiser Aluminum Corporation

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Kaiser Aluminum Corporation

27422 Portola Parkway, Suite 350

Foothill Ranch, CA 92610-2831

 

 

April [  ], 2008

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Kaiser Aluminum Corporation to be held at The Westin, South Coast Plaza, 686 Anton Boulevard, Costa Mesa, California 92626 on Wednesday, June 4, 2008, at 9:00 a.m., local time.

 

During the Annual Meeting, stockholders will consider and vote upon the election of four members to the Board of Directors, the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm and the amendment of our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock. The attached Notice of Annual Meeting of Stockholders and Proxy Statement describe fully the formal business to be transacted at the Annual Meeting.

 

Certain directors and officers will be present at the Annual Meeting and will be available to respond to any questions you may have. I hope you will be able to attend.

 

Whether or not you plan to attend the Annual Meeting, we urge you to review carefully the accompanying material and to vote by proxy without delay. To do so, please submit your voting instructions over the Internet or by telephone as indicated on the enclosed proxy card or by completing, signing and dating the enclosed proxy card and returning it by mail in the accompanying envelope. If you attend the Annual Meeting, you may vote in person even if you have previously submitted your voting instructions over the Internet, by telephone or by mail.

 

Sincerely,

 

Jack A. Hockema
President, Chief Executive Officer and
Chairman of the Board

Kaiser Aluminum Corporation

27422 Portola Parkway, Suite 350

Foothill Ranch, CA 92610-2831

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 2008

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Kaiser Aluminum Corporation will be held at The Westin, South Coast Plaza, 686 Anton Boulevard, Costa Mesa, California 92626 on Wednesday, June 4, 2008, at 9:00 a.m., local time, for the following purposes:

 

(1) To elect four members to our board of directors for three-year terms to expire at our 2011 annual meeting of stockholders;

 

(2) To ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for 2008;

 

(3) To consider the amendment of our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 45,000,000 to 90,000,000; and

 

(4) To consider such other business as may properly come before the Annual Meeting or any adjournments thereof.

 

Information concerning the matters to be acted upon at the Annual Meeting is set forth in the accompanying Proxy Statement.

 

The close of business on April 15, 2008 has been fixed as the record date for determining the stockholders entitled to notice of, and to vote at, the Annual Meeting or any adjournments thereof.

 

We urge stockholders to vote by proxy by submitting voting instructions over the Internet or by telephone as indicated on the enclosed proxy card or by completing, signing and dating the enclosed proxy card and returning it by mail in the accompanying envelope, which does not require postage if mailed in the United States.

 

By Order of the Board of Directors,

 

John M. Donnan

Senior Vice President, General Counsel and Secretary

 

Foothill Ranch, California

April [  ], 2008

 

Kaiser Aluminum Corporation

27422 Portola Parkway, Suite 350

Foothill Ranch, CA 92610-2831

 

PROXY STATEMENT
FOR

ANNUAL MEETING OF STOCKHOLDERS

To Be Held On June 4, 2008

 

 

TABLE OF CONTENTS

 

 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on June 4, 2008: The Proxy Statement and our Annual Report to Stockholders are available at http://www.[          ].

 

 

 

General

 

Our board of directors currently has ten members, consisting of our President and Chief Executive Officer and nine independent directors. Our current directors are:

 

 

Mr. Hockema, our President and Chief Executive Officer, serves as the Chairman of the Board, and Dr. Osborne serves as the Lead Independent Director.

 

Our certificate of incorporation and bylaws provide for a classified board of directors consisting of three classes. The term of the Class II directors will expire at the 2008 annual meeting of stockholders; the term of the Class III directors will expire at the 2009 annual meeting of stockholders; and the term of the Class I directors will expire at the 2010 annual meeting of stockholders.

 

The nominating and corporate governance committee of our board of directors has recommended, and our board of directors has approved, the nomination of the four nominees listed below. The nominees have indicated their willingness to serve as members of the board of directors if elected; however, in case any nominee becomes unavailable for election to the board of directors for any reason not presently known or contemplated, the proxy holders have discretionary authority to vote proxies for a substitute nominee. Proxies cannot be voted for more than four nominees.

 

The board of directors recommends a vote “FOR” each of the persons nominated by the board of directors.

 

Nominees for Election as Class II Directors

 

Set forth below is information as to the nominees for election as Class II Directors at the Annual Meeting, including their ages, present principal occupations, other business experiences, present directorships in other public companies and membership on committees of our board of directors.

 

Carolyn Bartholomew, 50, has served as a director of Kaiser since June 2007. Ms. Bartholomew has served as Vice Chairman of U.S.-China Economic and Security Review Commission since January 2008. She was the Commissioner of U.S.-China Economic and Security Review Commission from April 2003 until she was elected Vice Chairman in January 2006 and served as its Chairman from January 2007 to December 2007. She has been the Executive Director of the Basic Education Coalition, a non-profit organization that works to raise public and private support for basic education for children in the United States and abroad, since July 2004. From August 1987 to April 2003, Ms. Bartholomew served as Legislative Director, District Director and Chief of Staff to Congresswoman Nancy Pelosi. Ms. Bartholomew graduated cum laude with a Bachelor of Arts degree in anthropology from the University of Minnesota. She also holds a Master of Arts degree in anthropology from Duke University and a Juris Doctorate from Georgetown University. Ms. Bartholomew serves on the nominating and corporate governance committee.

 

Jack A. Hockema, our President and Chief Executive Officer, serves as Chairman of the Board and serves on the executive committee. For information as to Mr. Hockema, see “Executive Officers” below.

 

Georganne C. Proctor, 51, has served as a director of Kaiser since July 2006. Ms. Proctor is currently the Executive Vice President and Chief Financial Officer of TIAA-CREF, a financial services company. Previously, Ms. Proctor was the Executive Vice President — Finance for Golden West Financial Corp., the second largest financial thrift in the United States and holding company of World Savings Bank, from February 2003 to April

2005. From July 1997 through September 2002, Ms. Proctor was Senior Vice President and Chief Financial Officer of Bechtel Corporation and served as the Vice President and Chief Financial Officer of Bechtel Enterprises, one of its subsidiaries, from June 1994 through June 1997. Ms. Proctor was a member of the board of directors of Bechtel Corporation from April 1999 to December 2002. She also served in several other financial positions with the Bechtel Group from 1982-1991. From 1991 through 1994, Ms. Proctor was Director of Project and Division Finance of Walt Disney Imagineering and Director of Finance & Accounting for Buena Vista Home Video International. Ms. Proctor currently serves on the board of directors of Redwood Trust, Inc. She holds a Master’s degree in Business Administration from California State University, Hayward, and a Bachelor’s degree in Business Administration from the University of South Dakota. Ms. Proctor serves on the audit and compensation committees.

 

Brett E. Wilcox, 54, has served as a director of Kaiser since July 2006. Mr. Wilcox is currently Chief Executive Officer of Summit Power Alternative Resources where he manages the development of wind generation and new energy technologies. Mr. Wilcox has been an active investor in, on the board of directors of, or an executive consultant for, a number of metals and energy companies since 2005. From 1986 to 2005, Mr. Wilcox served as Chief Executive Officer of Golden Northwest Aluminum Company and its predecessors. Golden Northwest Aluminum Company, together with its subsidiaries, filed a petition for reorganization under the United States Bankruptcy Code on December 22, 2003. Mr. Wilcox has also served as Executive Director of Direct Services Industries, Inc., a trade association of large aluminum and other energy-intensive companies; an attorney with Preston, Ellis & Gates in Seattle, Washington; Vice Chairman of the Oregon Progress Board; Chairman of the Oregon Economic and Community Development Commission; a member of the Oregon Governor’s Comprehensive Review of the Northwest Regional Power System; a member of the Oregon Governor’s Task Forces on structure and efficiency of state government, employee benefits and compensation, and government performance and accountability. Mr. Wilcox received a Bachelor’s degree from the Woodrow Wilson School of Public and International Affairs at Princeton University and a Juris Doctorate from Stanford Law School. Mr. Wilcox serves on the executive and audit committees.

 

Continuing Directors

 

Set forth below is information as to the continuing directors, including their ages, present principal occupations, other business experiences, present directorships in other public companies and membership on committees of our board of directors.

 

Class III Directors

 

Carl B. Frankel, 73, has served as a director of Kaiser since July 2006. Mr. Frankel currently serves as a union-nominated member of LTV Steel Corporation’s board of directors and as a member of the board of directors of Us TOO, a prostate cancer support and advocacy organization. Previously, Mr. Frankel was General Counsel to the USW from May 1997 until his retirement in September 2000. Prior to May 1997, Mr. Frankel served as Assistant General Counsel and Associate General Counsel of the USW for 29 years. From 1987 through 1999, Mr. Frankel served at the staff level of the Collective Bargaining Forum, a government sponsored tripartite committee consisting of government, union and employer representatives designed to improve labor relations in the United States. Mr. Frankel is also an elected fellow of the College of Labor and Employment Lawyers and a published author of several articles. Mr. Frankel has earned the Sustained Superior Performance Award from the National Labor Relations Board, or NLRB, and the Outstanding Performance Award from the NLRB. Mr. Frankel earned a Bachelor’s degree and Juris Doctorate from the University of Chicago. Mr. Frankel serves on the nominating and corporate governance committee.

 

Teresa A. Hopp, 48, has served as a director of Kaiser since July 2006. Prior to Ms. Hopp’s retirement, she was the Chief Financial Officer for Western Digital Corporation, a hard disk drive manufacturer, from January 2000 to October 2001 and its Vice President, Finance from September 1998 to December 1999. Prior to her employment with Western Digital Corporation, Ms. Hopp was with Ernst & Young LLP from 1981 where she served as an audit partner for four years. During her tenure at Ernst & Young LLP, she managed audit department resource planning and scheduling and served as internal education director and information systems audit and security director. She graduated summa cum laude from the California State University, Fullerton, with a Bachelor’s degree in Business Administration. Ms. Hopp serves on the executive and audit committees.

William F. Murdy, 66, has served as a director of Kaiser since July 2006. Mr. Murdy has been the Chairman and Chief Executive Officer of Comfort Systems USA, a commercial heating, ventilation and air conditioning construction and service company, since June 2000. Mr. Murdy previously served as President and Chief Executive Officer of Club Quarters, and Chairman, President and Chief Executive Officer of Landcare USA, Inc. Mr. Murdy has also served as President and Chief Executive Officer of General Investment & Development, and as President and Managing General Partner with Morgan Stanley Venture Capital, Inc. He previously served as Senior Vice President and Chief Operating Officer of Pacific Resources, Inc. Mr. Murdy currently serves on the board of directors of Comfort Systems USA and UIL Holdings Corp. He holds a Bachelor of Science degree in Engineering from the U.S. Military Academy, West Point, and a Master’s degree in Business Administration from the Harvard Business School. Mr. Murdy serves on the compensation and nominating and corporate governance committees.

 

Class I Directors

 

Alfred E. Osborne, Jr., Ph.D., 63, has served as a director of Kaiser since July 2006. Dr. Osborne has been the Senior Associate Dean at the UCLA Anderson School of Management since July 2003 and an Associate Professor of Global Economics and Management since July 1978. From July 1987 to June 2003, Dr. Osborne served as the Director of the Harold and Pauline Price Center for Entrepreneurial Studies at the UCLA Anderson School of Management. Dr. Osborne currently serves on the board of directors of EMAK Worldwide, Inc., First Pacific Advisor’s New Income Fund, Capital Fund and Crescent Fund. He holds a Doctorate degree in Business Economics, a Master’s degree in Business Administration, a Master of Arts degree in Economics and a Bachelor’s degree in Electrical Engineering from Stanford University. Dr. Osborne serves on the audit and nominating and corporate governance committees.

 

Jack Quinn, 57, has served as a director of Kaiser since July 2006. Mr. Quinn has recently accepted the position of president with Erie Community College in Buffalo, New York, and began his service in April 2008. Mr. Quinn was the President of Cassidy & Associates, a government relations firm, from January 2005 to March 2008, which assists clients to promote policy and appropriations objectives in Washington, D.C. with a focus on transportation, aviation, railroad, highway, infrastructure, corporate and industry clients. From January 1993 to January 2005, Mr. Quinn served as a United States Congressman for the state of New York. While in Congress, Mr. Quinn was Chairman of the Transportation and Infrastructure Subcommittee on Railroads. He was also a senior member of the Transportation Subcommittees on Aviation, Highways and Mass Transit. In addition, Mr. Quinn was Chairman of the Executive Committee in the Congressional Steel Caucus. Prior to his election to Congress, Mr. Quinn served as supervisor of the town of Hamburg, New York. Mr. Quinn currently serves as a trustee of the AFL-CIO Housing Investment Trust. Mr. Quinn received a Bachelor’s degree from Siena College in Loudonville, New York, and a Master’s degree from the State University of New York, Buffalo. Mr. Quinn received honorary Doctorate of Law degrees from Medaille College and Siena College. Mr. Quinn is also a certified school district superintendent through the New York State Education Department. Mr. Quinn serves on the compensation and nominating and corporate governance committees.

 

Thomas M. Van Leeuwen, 51, has served as a director of Kaiser since July 2006. Mr. Van Leeuwen served as a Director — Senior Equity Research Analyst for Deutsche Bank Securities Inc. from March 2001 until his retirement in May 2002. Prior to that, Mr. Van Leeuwen served as a Director — Senior Equity Research Analyst for Credit Suisse First Boston from May 1993 to November 2000. Prior to that time, Mr. Van Leeuwen was First Vice President of Equity Research with Lehman Brothers. Mr. Van Leeuwen held the position of research analyst with Sanford C. Bernstein & Co., Inc. and systems analyst with The Procter & Gamble Company. Mr. Van Leeuwen holds a Master’s degree in Business Administration from the Harvard Business School and a Bachelor of Science degree in Operations Research and Industrial Engineering from Cornell University. Mr. Van Leeuwen serves on the audit, compensation and nominating and corporate governance committees.

 

Pursuant to the audit committee charter, the audit committee has the sole authority to retain an independent registered public accounting firm for our company. The board of directors requests that the stockholders ratify the audit committee’s selection of Deloitte & Touche LLP as our independent registered public accounting firm for 2008.

The audit committee will not be bound by the ratification of, or failure to ratify, the selection of Deloitte & Touche LLP, but the audit committee will consider any failure to ratify the selection of Deloitte & Touche LLP in connection with the appointment of our independent registered public accounting firm for 2009.

 

The board of directors recommends a vote “FOR” ratification of the audit committee’s selection of Deloitte & Touche LLP as Kaiser’s independent registered public accounting firm for 2008.

 

Our board of directors has unanimously adopted a resolution setting forth a proposed amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 45,000,000 to 90,000,000, declaring the advisability of such amendment and directing that the amendment be considered at the Annual Meeting. If approved by stockholders at the Annual Meeting, the amendment will become effective upon the filing of a certificate of amendment with the Secretary of State of the State of Delaware.

 

Our Amended and Restated Certificate of Incorporation currently authorizes us to issue a total of 50,000,000 shares, consisting of 45,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of April 2, 2008, 20,620,169 shares of our common stock were issued and outstanding and 1,467,661 shares of common stock were reserved for issuance in connection with our Amended and Restated 2006 Equity and Performance Incentive Plan, leaving 22,777,778 shares of common stock available for other uses. As of the date of this Proxy Statement, no shares of preferred stock are issued and outstanding. If approved by stockholders at the Annual Meeting, the amendment to our Amended and Restated Certificate of Incorporation will result in the increase of the total number of authorized shares from 50,000,000 to 95,000,000 and the increase of the number of authorized shares of common stock from 45,000,000 to 90,000,000. No increase in the number of authorized shares of preferred stock is being proposed at this time.

 

The board of directors believes that it is in the best interests of Kaiser and its stockholders to increase the number of authorized but unissued shares of common stock in order to have additional shares available to meet future business needs and provide us with the flexibility to issue additional shares for, among other things, stock splits or dividends, compensation plans and arrangements, offerings to raise additional capital, corporate acquisitions and other corporate purposes. We have no current plans for the use of the additional shares of common stock proposed to be authorized.

 

The additional shares of common stock for which approval is sought would be part of the existing class of our common stock and, if and when issued, would have the same rights and privileges as the shares of common stock currently outstanding. Such shares would be available for issuance without any action or vote by our stockholders, except as otherwise required by the rules of any national securities exchange or association on which our securities are then traded.

 

While the proposed increase will provide additional shares to meet future business needs and provide flexibility as more fully described above, the existence of additional authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of our company by means of a proxy contest, tender offer, merger or otherwise. In addition, any future issuance of such additional shares of common stock, whether or not in connection with an anti-takeover measure, could have the effect of diluting the earnings per share, book value per share and voting power of shares held by our existing stockholders.

 

The board of directors recommends a vote “FOR” the amendment of the Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 45,000,000 to 90,000,000.

 

Our board of directors is responsible for providing effective governance over the affairs of our company. Kaiser’s corporate governance practices are designed to align the interests of the board of directors and management

with those of our stockholders and to promote honesty and integrity throughout the company. Highlights of our corporate governance practices are described below.

 

A copy of the current charter, as approved by our board of directors, for each of the executive committee, audit committee, compensation committee and nominating and corporate governance committee and a copy of our corporate governance guidelines and code of business conduct and ethics, which applies to all of our employees, including our executive officers, are available on our Internet website at www.kaiseraluminum.com under “Investor Relations — Corporate Governance.” Copies are also available to stockholders upon request from our Corporate Communications Department, Kaiser Aluminum Corporation, 27422 Portola Parkway, Suite 350, Foothill Ranch, CA 92610-2831. Furthermore, we will post any amendments to our Code of Business Conduct and Ethics, or waivers of the Code for our directors or executive officers, on our Internet website at www.kaiseraluminum.com under “Investor Relations — Corporate Governance.”

 

Stockholders may communicate with our board of directors as a group or with the chair of the executive committee, audit committee, compensation committee or nominating and corporate governance committee by sending an email to boardofdirectors@kaiseraluminum.com, execchair@kaiseraluminum.com, auditchair@kaiseraluminum.com,
compchair@kaiseraluminum.com, or nominatingchair@kaiseraluminum.com, respectively, or by writing to such group or person at Kaiser Aluminum Corporation, Attn: Corporate Secretary (Board of Directors), 27422 Portola Parkway, Suite 350, Foothill Ranch, California 92610-2831. Communications that are intended specifically for any other group of directors or for any individual director, such as the independent directors as a group or the Lead Independent Director, should be sent to the attention of our corporate secretary at the address above or via email at corpsecretary@kaiseraluminum.com and should clearly state the individual director or group of directors that is the intended recipient of the communication.

 

Our corporate secretary will review each communication and, following such review, determine whether or not the communication is appropriate for delivery to the director or group of directors to whom it is addressed. Communications that, in the judgment of our corporate secretary, are clearly of a marketing nature, that advocate that Kaiser engage in illegal activity, that do not reasonably relate to Kaiser or our business or that are similarly inappropriate will not be furnished to the intended recipient. If, in the judgment of the corporate secretary, any communication pertains to an accounting matter, it will be forwarded to our compliance officer.

 

Communications that, in the judgment of our corporate secretary, are appropriate for delivery to the director or group of directors to whom they are addressed will, unless requiring immediate attention, be assembled and delivered to the intended recipients on a periodic basis, generally at or in advance of each regularly scheduled meeting of our board of directors. Any communication that, in the judgment of our corporate secretary, requires immediate attention will be promptly delivered to the director or group of directors to whom such communication is addressed. In no case will the corporate secretary provide anyone but a member of our board of directors with access to any such communication.

 

During 2007, our board of directors held eight meetings and acted by unanimous written consent three times. In addition to meetings of the full board of directors, directors attended meetings of board of directors committees. Each incumbent director attended at least 75% of the aggregate number of meetings of the full board of directors held during the period he or she was a director in 2007 and each committee on which he or she served held during the period he or she served on such committee in 2007.

 

Members of our board of directors are expected to make reasonable efforts to attend our annual meetings of stockholders. All directors then serving attended our 2007 annual meeting of stockholders.

 

Our corporate governance guidelines require that a majority of the members of our board of directors satisfy the independence requirements set forth in the Nasdaq Marketplace Rules and other applicable criteria of the National Association of Securities Dealers, or NASD. We refer to these requirements as the general independence criteria. Additionally, the audit committee charter, compensation committee charter and nominating and corporate governance committee charter require that all respective committee members satisfy the general independence criteria. There are no family relationships among our officers or directors.

 

Based upon information requested from and provided by each director concerning their background, employment and affiliations, including family relationships, our board of directors has determined that each of Mmes. Bartholomew, Hopp and Proctor and Messrs. Frankel, Murdy, Osborne, Quinn, Van Leeuwen and Wilcox, representing nine of our ten directors, satisfy the general independence criteria and are independent within the meaning of such term under our corporate governance guidelines. In making such determination, the board of directors considered the relationships that each of the directors had with our company and all other facts and circumstances the board of directors deemed relevant in determining the independence of each of the directors in accordance with the general independence criteria.

 

Our corporate governance guidelines require our independent directors to meet at least quarterly in executive sessions at which only independent directors are present. The guidelines further provide that the position of Lead Independent Director will be selected by a majority of the independent directors. Stockholders may communicate with the independent directors as provided above. See “— Stockholder Communications with the Board of Directors” above.

 

On July 6, 2006, we entered into a Director Designation Agreement with the USW under which the USW has certain rights to nominate individuals to serve on our board of directors and committees until December 31, 2012. The USW has the right to nominate, for submission to our stockholders for election at each annual meeting, the minimum number of candidates necessary to ensure that, assuming such candidates are included in the slate of director candidates recommended by our board of directors in our proxy statement relating to the annual meeting and our stockholders elect each candidate so included, at least 40% of the members of our board of directors immediately following such election are directors who were either designated by the USW pursuant to our chapter 11 plan of reorganization or have been nominated by the USW in accordance with the Director Designation Agreement. The Director Designation Agreement contains requirements as to the timeliness, form and substance of the notice the USW must give to the nominating and corporate governance committee in order to nominate such candidates. The nominating and corporate governance committee will determine in good faith whether each candidate properly submitted by the USW satisfies the qualifications set forth in the Director Designation Agreement. If the nominating and corporate governance committee determines that such candidate satisfies the qualifications, the committee will, unless otherwise required by its fiduciary duties, recommend such candidate to our board of directors for inclusion in the slate of directors to be recommended by the board of directors in our proxy statement. The board of directors will, unless otherwise required by its fiduciary duties, accept the recommendation and include the director candidate in the slate of directors that the board of directors recommends.

 

The Director Designation Agreement also provides that the USW will have the right to nominate an individual to fill a vacancy on the board of directors resulting from the death, resignation, disqualification or removal of a director who was either designated by the USW to serve on the board of directors pursuant to our chapter 11 plan of reorganization or has been nominated by the USW in accordance with the Director Designation Agreement. The Director Designation Agreement further provides that, in the event of newly created directorships resulting from an increase in the number of our directors, the USW will have the right to nominate the minimum number of individuals to fill such newly created directorships necessary to ensure that at least 40% of the members of the board of directors immediately following the filling of the newly created directorships are directors who were either designated by the USW pursuant to our plan of reorganization or have been nominated by the USW in accordance with the Director Designation Agreement. In each such case, the USW, the nominating and corporate governance

committee and the board of directors will be required to follow the nomination and approval procedures described above.

 

A candidate nominated by the USW may not be an officer, employee, director or member of the USW or any of its local or affiliated organizations as of the date of his or her designation as a candidate or election as a director. Each candidate nominated by the USW must satisfy:

 

 

Finally, the Director Designation Agreement provides that, so long as our board of directors maintains an audit committee, executive committee or nominating and corporate governance committee, each such committee will, unless otherwise required by the fiduciary duties of the board of directors, include at least one director who was either designated by the USW to serve on the board of directors pursuant to our plan of reorganization or has been nominated by the USW in accordance with the Director Designation Agreement (provided at least one such director is qualified to serve on such committee as determined in good faith by the board of directors).

 

Current members of our board of directors that have been either designated by the USW to serve on the board of directors pursuant to our plan of reorganization or nominated by the USW in accordance with the provisions of the Director Designation Agreement are Ms. Bartholomew and Messrs. Frankel, Quinn and Wilcox. Ms. Bartholomew and Mr. Wilcox have been nominated for re-election at the Annual Meeting in accordance with the provisions of the Director Designation Agreement.

 

Currently, we have four standing committees of the board of directors: an executive committee; an audit committee; a compensation committee; and a nominating and corporate governance committee.

 

Executive Committee

 

The executive committee of the board of directors manages our business and affairs that require attention prior to the next regular meeting of our board of directors. However, the executive committee does not have the power to (1) approve or adopt, or recommend to our stockholders, any action or matter expressly required by law to be submitted to our stockholders for approval, (2) adopt, amend or repeal any bylaw of our company, or (3) take any other action reserved for action by the board of directors pursuant to a resolution of the board of directors or otherwise prohibited to be taken by the executive committee by law or pursuant to our certificate of incorporation or bylaws.

 

The executive committee charter requires that a majority of the members of the executive committee satisfy the general independence criteria. The members of the executive committee must include the Chairman of the Board and at least one of the directors either designated by the USW pursuant to our chapter 11 plan of reorganization or nominated by the USW in accordance with the Director Designation Agreement (so long as at least one such director is qualified to serve thereon).

 

The executive committee currently consists of Messrs. Hockema and Wilcox and Ms. Hopp. Mr. Hockema currently serves as the chair of the executive committee. During 2007, the executive committee held one meeting and acted by unanimous written consent five times.

 

Audit Committee

 

The audit committee of the board of directors oversees our accounting and financial reporting practices and processes and the audits of our financial statements on behalf of the board of directors. The audit committee is

responsible for appointing, compensating, retaining and overseeing the work of our independent auditors. Other duties and responsibilities of the audit committee include:

 

 

The audit committee charter requires that all members of the audit committee satisfy the general independence criteria. The charter also requires that no audit committee member may have participated in the preparation of our financial statements during the three years prior to his or her appointment as a member and that each audit committee member be able to read and understand fundamental financial statements, including a balance sheet, an income statement and a cash flow statement. Additionally, at least one member of the audit committee must have had past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in that individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities and that member or another member must have sufficient education or experience to have acquired the attributes necessary to meet the criteria of an “audit committee financial expert,” as that term is defined in the rules promulgated by the Securities and Exchange Commission, or SEC. The members of the audit committee must include at least one of the directors either designated by the USW pursuant to our chapter 11 plan of reorganization or nominated by the USW in accordance with the Director Designation Agreement (so long as at least one such director is appropriately qualified).

 

The audit committee consists of Mmes. Hopp and Proctor and Messrs. Osborne, Van Leeuwen and Wilcox. Ms. Hopp currently serves as the chair of the audit committee. Our board of directors has determined that all five members of the audit committee (1) meet the general independence criteria, as well as the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, and (2) are able to read and understand fundamental financial statements. Our board of directors also determined that no member of the audit committee participated in the preparation of our financial statements during the three years prior to their appointment as members of the committee. Our board of directors has determined that Mmes. Hopp and Proctor and Mr. Wilcox satisfy the financial sophistication criteria described above and satisfy the criteria necessary to serve as the “audit committee financial expert.”

 

During 2007, the audit committee held seven meetings.

 

Compensation Committee

 

General

 

The compensation committee of the board of directors establishes and administers our policies, programs and procedures for compensating our senior management, including determining and approving the compensation of our executive officers. Other duties and responsibilities of the compensation committee include:

 

 

The compensation committee solicits the views of our chief executive officer on compensation matters, including as they relate to the compensation of the other members of senior management reporting to the chief executive officer. The compensation committee has retained Hewitt Associates, LLC to advise the compensation committee on all matters related to compensation of our chief executive officer and other members of senior management. Hewitt’s services in this regard include (1) providing competitive market data and related assessments of executive compensation as background against which the compensation committee considers executive compensation, (2) preparing and reviewing tally sheets for the named executive officers, (3) apprising the compensation committee of trends and best practices associated with executive and director compensation, (4) providing support with respect to legal, regulatory and accounting considerations impacting compensation and benefit programs, and (5) attending meetings of the compensation committee and board of directors when requested. These services are typically directed by the compensation committee and coordinated with our human resources department.

 

The compensation committee charter requires that all members of the compensation committee satisfy the general independence criteria, as well as qualify as a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act.

 

The compensation committee currently consists of Messrs. Murdy, Quinn and Van Leeuwen and Ms. Proctor. Mr. Murdy currently serves as the chair of the compensation committee. During 2007, the compensation committee held five meetings and acted by unanimous written consent one time.

 

Compensation Committee Interlocks and Insider Participation

 

During 2007, Messrs. Murdy, Quinn and Van Leeuwen and Ms. Proctor served as members of the compensation committee. None of the members of the compensation committee (1) was an officer or employee of our company during the year, (2) was formerly an officer of our company, or (3) had any relationships requiring disclosure by us under the SEC’s rules with respect to certain relationships and related-party transactions. Furthermore, none of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

 

Nominating and Corporate Governance Committee

 

The nominating and corporate governance committee of the board of directors identifies individuals qualified to become members of our board of directors, recommends candidates to fill vacancies and newly-created positions on our board of directors, recommends director nominees for the election by stockholders at the annual meetings of stockholders and develops and recommends to the board of directors our corporate governance principles.

 

To ensure flexibility with respect to the director nominee evaluation process, the nominating and corporate governance committee has not established specific, minimum qualifications that an individual must meet in order to become a member of the board of directors. The nominating and corporate governance committee evaluates director candidates submitted by stockholders as described below in the same manner as those candidates identified by the nominating and corporate governance committee. The nominating and corporate governance committee believes that our company is best served when each member of the board of directors:

 

 

 

Other duties and responsibilities of the nominating and corporate governance committee include:

 

 

The nominating and corporate governance committee has adopted policies and procedures by which our stockholders may submit director candidates to the nominating and corporate governance committee for consideration. If the nominating and corporate governance committee receives, by a date not less than 120, nor more than 150, calendar days before the anniversary of the date that the proxy statement was mailed to stockholders in connection with our previous year’s annual meeting, a recommendation for a director nominee from a stockholder or group of stockholders that beneficially owned more than 5% of our outstanding common stock for at least one year as of the date of the recommendation, then such director candidate will be considered and evaluated by the nominating and corporate governance committee for the annual meeting immediately succeeding the date that proper written notice was timely delivered to and received by the nominating and corporate governance committee. When the date of our annual meeting of stockholders changes by more than 30 calendar days from the previous year’s annual meeting, such written notice of the recommendation for the director candidate will be considered timely if, and only if, it is received by the nominating and corporate governance committee no later than the close of business on the tenth calendar day following the first day on which notice of the date of the upcoming annual meeting is publicly disclosed by us.

 

Written notice from an eligible stockholder or group of eligible stockholders to the nominating and corporate governance committee recommending a director candidate must contain or be accompanied by:

 

 

 

The notice must be signed by each stockholder submitting the proposal and the director candidate. The notice must be sent to the following address by registered or certified mail: Kaiser Aluminum Corporation, Attn: Corporate Secretary (Nominating and Corporate Governance Committee), 27422 Portola Parkway, Suite 350, Foothill Ranch, California 92610-2831.

 

The nominating and corporate governance committee charter requires that all members of the nominating and governance committee satisfy the general independence criteria. The members of the nominating and corporate governance committee must include at least one of the directors either designated by the USW pursuant to our chapter 11 plan of reorganization or nominated by the USW in accordance with the Director Designation Agreement (so long as at least one such director is appropriately qualified).

 

The nominating and corporate governance committee currently consists of Ms. Bartholomew and Messrs. Frankel, Murdy, Osborne, Quinn and Van Leeuwen. Dr. Osborne currently serves as the chair of the nominating and corporate governance committee. During 2007, the nominating and corporate governance committee held two meetings and acted by unanimous written consent one time.

 

The following table sets forth the names and ages of each of the current executive officers of the company and the positions they hold.

 

 

Set forth below are brief descriptions of the business experience of each of our executive officers.

 

Jack A. Hockema has served as our President and Chief Executive Officer and a director since October 2001, and as Chairman of the Board since July 2006. He previously served as Executive Vice President of Kaiser and President of the Kaiser Fabricated Products division from January 2000 to October 2001, and Executive Vice President of Kaiser from May 2000 to October 2001. He served as Vice President of Kaiser from May 1997 to May 2000. Mr. Hockema was President of Kaiser Engineered Products from March 1997 to January 2000. He served as President of Kaiser Extruded Products and Engineered Components from September 1996 to March 1997. Mr. Hockema served as a consultant to Kaiser and acting President of Kaiser Engineered Components from September 1995 to September 1996. Mr. Hockema was an employee of Kaiser from 1977 to 1982, working at our Trentwood facility, and serving as plant manager of our former Union City, California can plant and as operations

manager for Kaiser Extruded Products. In 1982, Mr. Hockema left Kaiser to become Vice President and General Manager of Bohn Extruded Products, a division of Gulf+Western, and later served as Group Vice President of American Brass Specialty Products until June 1992. From June 1992 to September 1996, Mr. Hockema provided consulting and investment advisory services to individuals and companies in the metals industry. He holds a Master of Science degree in Industrial Management and a Bachelor of Science degree in Civil Engineering, both from Purdue University.

 

Joseph P. Bellino has served as our Executive Vice President and Chief Financial Officer since May 2006. Prior to joining Kaiser, Mr. Bellino was employed by Steel Technologies Inc., a flat-rolled steel processor, where he served as chief financial officer and treasurer for nine years and was a member of the board of directors from 2002 to 2004. From 1996 to 1997, Mr. Bellino was president of Beacon Capital Advisors Company, a consulting firm specializing in mergers and acquisitions, valuations and executive advisory services. Prior to 1996, Mr. Bellino held senior executive positions with a privately held holding company with investments in the manufacturing and distribution industries for 15 years. Mr. Bellino holds a Bachelor of Science degree in finance and a Master of Business Administration degree, both from The Ohio State University.

 

John Barneson has served as our Senior Vice President — Corporate Development since December 2007. He previously served as our Senior Vice President and Chief Administrative Officer from August 2001 to December 2007 and as our Vice President and Chief Administrative Officer from December 1999 through August 2001. He served as Engineered Products Vice President of Business Development and Planning from September 1997 to December 1999. Mr. Barneson served as Flat-Rolled Products Vice President of Business Development and Planning from April 1996 to September 1997. Mr. Barneson has been an employee of Kaiser since September 1975 and has held a number of staff and operation management positions within the Flat-Rolled and Engineered Products business units. He holds a Master of Science degree and a Bachelor of Science degree in Industrial Engineering from Oregon State University.

 

John M. Donnan has served as our Senior Vice President, General Counsel and Secretary since December 2007. He previously served as our Vice President, Secretary and General Counsel from January 2005 to December 2007. Mr. Donnan joined the legal staff of Kaiser in 1993 and was named Deputy General Counsel of Kaiser in 2000. Prior to joining Kaiser, Mr. Donnan was an associate in the Houston, Texas office of the law firm of Chamberlain, Hrdlicka, White, Williams & Martin. He holds a Juris Doctorate degree from the University of Arkansas School of Law and Bachelor of Business Administration degrees in finance and accounting from Texas Tech University. He is a member of the Texas and California bars.

 

James E. McAuliffe, Jr. has served as our Senior Vice President — Human Resources since December 2007. He previously served as our Vice President — Human Resources from January 2002 to December 2007. Mr. McAuliffe joined Kaiser in 1998 as Vice President — Human Resources for our fabricating business. Prior to joining Kaiser, Mr. McAuliffe served as Vice President of Human Resources for Rexam, Inc., a manufacturer of industrial coatings for graphics, photographic and computer industries and J.P Industries, a manufacturer of automotive engine and transmission components. He holds a Bachelor of Arts degree in Labor Relations and Industrial Psychology from Michigan State University and attended graduate school at Central Michigan University.

 

Daniel J. Rinkenberger has served as our Vice President and Treasurer since January 2005. He previously served as our Vice President of Economic Analysis and Planning from February 2002 through January 2005. He served as Vice President, Planning and Business Development of Kaiser Fabricated Products division from June 2000 through February 2002. Prior to that, he served as Vice President, Finance and Business Planning of Kaiser Flat-Rolled Products division from February 1998 to February 2000, and as our Assistant Treasurer from January 1995 through February 1998. Before joining Kaiser, he held a series of positions of increasing responsibility in the Treasury Department at Pennzoil Corporation. He holds a Master of Business Administration degree in finance from the University of Chicago and a Bachelor of Education degree from Illinois State University. He is a Chartered Financial Analyst.

 

Lynton J. Rowsell has served as our Vice President and Chief Accounting Officer since December 2007. He previously served as our Chief Accounting Officer from April 2007 to December 2007. Mr. Rowsell joined Kaiser in October 2006 as Director of External Reporting. Prior to joining Kaiser, Mr. Rowsell worked as assistant

corporate controller of GeoLogistics, an international freight management and logistics company, from March 2006 to October 2006. Prior to joining GeoLogistics, Mr. Rowsell was with Ernst & Young as audit senior manager from October 2004 to March 2006, audit manager from October 2001 to September 2004 and supervising senior from October 1999 to September 2001. Mr. Rowsell holds a Bachelor of Science Honours degree in Mathematics, Operations Research, Statistics and Economics from the University of Warwick in the United Kingdom. He is a Chartered Accountant.

 

The compensation committee has reviewed and discussed with management the compensation discussion and analysis section included below. Based on its review and discussions with management, the compensation committee recommended to the board of directors that such compensation discussion and analysis be included in this Proxy Statement.

 

This report is submitted by the members of the compensation committee of the board of directors:

 

Compensation Committee

William F. Murdy (Chair)

Georganne C. Proctor

Jack Quinn

Thomas M. Van Leeuwen

 

Introduction

 

This section provides (1) an overview of the compensation committee of our board of directors, (2) a discussion of the objectives of our post-emergence comprehensive compensation structure and the design of our overall 2007 compensation program for senior management, and (3) a discussion of all material elements of the 2007 compensation for each of the executive officers identified in the following table, who we refer to as our named executive officers:

 

 

During 2007, we continued the transition from compensation programs implemented in 2002 during our chapter 11 bankruptcy as part of our creditor-supported and court-approved key employee retention program, which we refer to as our Chapter 11 KERP, to the comprehensive compensation structure approved by the compensation committee upon our emergence from chapter 11 bankruptcy following an extensive review of all aspects of our executive compensation programs. In addition to base salary, the key components of our overall 2007 compensation program were:

 

 

Since our emergence from chapter 11 bankruptcy, two of our key objectives have been, and in 2007 continued to be, ensuring that we align our senior management and stockholders by rewarding senior management for achieving strategic goals that successfully drive our operations and enhance stockholder value and attracting, motivating and retaining executives vital to our short-term and long-term success, profitability and growth.

 

Overview of Compensation Committee

 

The compensation committee of our board of directors is comprised entirely of independent directors. By design, members of the compensation committee also serve on other board committees, including the audit committee and the nominating and corporate governance committee. We believe this structure helps coordinate the efforts of the respective committees. The compensation committee’s primary duties and responsibilities are to establish and implement our compensation policies and programs for senior management. While the nominating and corporate governance committee has the responsibility to evaluate the overall performance of our chief executive officer, the compensation committee coordinates with and assists the nominating and corporate governance committee in connection with that evaluation.

 

The compensation committee has the authority under its charter to engage the services of outside advisors, experts and others to assist it. Pursuant to that authority, the compensation committee engaged Hewitt Associates LLC in 2006 to advise it on all matters related to compensation of our chief executive officer and other members of senior management, including the other named executive officers, and has continued to engage Hewitt in 2007 and 2008.

 

The compensation committee meets formally and informally throughout the year. Informal meetings frequently occur when our directors are together for meetings of the full board of directors and telephonically at the request of one or more committee members. Our chief executive officer, other members of our management and outside advisors may be invited to attend all or a portion of a compensation committee meeting depending on the nature of the agenda items; however, neither our chief executive officer nor any other member of management votes on items before the compensation committee.

 

The compensation committee works with our senior management and Hewitt to determine the agenda for its formal meetings and to prepare meeting materials. The compensation committee and board of directors also solicit the views of our chief executive officer on compensation matters, including, among others:

 

 

Objectives of our Comprehensive Compensation Structure

 

Our comprehensive compensation structure was developed in 2006 in connection with our emergence from chapter 11 bankruptcy to achieve the following objectives, which we believe are critical for enhancing stockholder value and our long-terms success:

 

 

 

 

Design of our Overall 2007 Compensation Program

 

Our overall 2007 compensation program for senior management, including the named executive officers, reinforces performance and accountability at both the corporate and individual levels. In addition to focusing on “pay for performance,” our overall 2007 compensation program:

 

 

 

 

 

 

Periodically, but not less than annually, each element of compensation is reviewed and considered by the compensation committee and our board of directors both individually and collectively with the other elements of compensation to ensure that it is consistent with the objectives of both our post-emergence comprehensive compensation structure and that particular element of compensation. Any suggestions or concerns identified in the course of that review and consideration are shared with senior management and Hewitt and addressed in a manner that is satisfactory to the compensation committee and our board of directors. This process occurs over a series of meetings of the compensation committee, the board of directors and the independent directors meeting in executive sessions without members of management present.

 

In designing the overall compensation program, as well as the individual compensation, for senior management, including the named executive officers, for any particular year, the compensation committee considers the following factors, among others:

 

 

The compensation committee uses “tally sheets” that provide a summary of the compensation history of our chief executive officer and those members of senior management reporting to the chief executive officer. These tally sheets, which are prepared by our senior management and Hewitt, include a historical summary of base salary, annual bonus and equity awards.

The compensation committee also reviews the compensation and benefit practices, as well as levels of pay, of a compensation peer group of companies. In 2006, working with Hewitt, our management selected for inclusion in the compensation peer group companies that were determined to: (1) be of a similar size; (2) have positions of similar complexity and scope of responsibility; and/or (3) compete with us for talent. Our management, working with Hewitt, reviews, evaluates and updates the compensation peer group, which includes companies in both similar and different industries, at least annually. For 2007, our compensation peer group consisted of the following 37 companies:

 

 

There were no changes to our compensation peer group in 2007 as compared to 2006 other than changes as a result of mergers, acquisitions and restructurings involving individual companies in our compensation peer group. Importantly, the compensation committee recognizes that we compete for talent with companies much larger than those included in our compensation peer group. These larger companies aggressively recruit for the best qualified talent in particularly critical functions. As a result, to attract and retain talent, the compensation committee may from time to time determine that it is in the best interests of our company and stockholders to provide compensation packages that deviate from targeted pay levels.

 

Elements of Compensation

 

Elements of compensation for 2007 included base salary, annual cash incentives, long-term incentives, retirement benefits and certain perquisites.

 

Base salary

 

The compensation committee annually reviews base salaries for our chief executive officer and those members of senior management reporting to the chief executive officer, including the other named executive officers, and determines if a change is appropriate. In reviewing base salaries, the compensation committee considers factors, including, among others:

 

 

 

The intent is to fix base salaries at levels consistent with the design of the overall compensation program for the particular year. During 2007, the compensation committee increased the base salaries of our named executive officers by 3.7% to 4.0%, principally to align base salaries with targeted levels based on a review of our compensation peer group. Base salaries for our named executive officers in 2007 were as follows:

 

 

Annual cash incentives

 

In 2007, we completed our transition from the annual incentive programs implemented during our chapter 11 bankruptcy using a variety of measures, including earnings before interest, taxes, depreciation and amortization, or EBITDA, economic value added, or EVA, and return on net assets, to a short-term incentive plan using solely an EVA measure.

 

Our 2007 Short-Term Incentive Plan, which we refer to as our 2007 STI Plan, was designed to reward participants for EVA of our core Fabricated Products business, including corporate expenses, with modifiers for safety performance (as measured by the total case incident rate), segment performance and individual performance. The 2007 STI Plan was consistent with the post-emergence comprehensive compensation structure and the design of the overall 2007 compensation program. Under the 2007 STI Plan, EVA equaled our pre-tax operating income (subject to certain adjustments) less a capital charge, calculated as a percentage of our net assets (subject to certain adjustments). The adjustments to EVA included, among others:

 

 

The 2007 STI Plan provided a threshold performance level below which no payout would be made, a target performance level at which the target payout was available and a maximum performance level at or above which the maximum payout would be available. Payout opportunities ranged from zero up to three times the target payout amount. Performance in excess of the threshold resulted in an increase in the overall incentive pool by 6% of adjusted operating income in excess of the threshold performance up to the maximum payout opportunity.

 

Threshold and maximum payouts required a return on net assets of approximately 7.5% and 35%, respectively, and would have resulted in payouts equal to one-half and three times target, respectively. In addition, the 2007 STI Plan tied pay to performance, only increased the incentive pool by only 6% of operating income for returns in excess of threshold performance (subject to the payout maximum) when performance exceeded threshold performance and did not dilute the performance required as we continued to invest in our business.

At the beginning of 2007, a monetary incentive target was established under the 2007 STI Plan for each participant based on a percentage of base salary, with such percentage generally determined based on, among other things:

 

 

When establishing the performance levels for the 2007 STI Plan, the compensation committee reviewed and discussed with both senior management and the board of directors:

 

 

In addition to being designed to reward participants for EVA, the 2007 STI Plan recognized that our business is cyclical. The EVA target for 2007 was set at a level believed to be achievable in the then-existing economic environment if management performed as expected. Applying historical performance to the 2007 STI Plan, the annual cash incentive compensation over the nine years prior to 2007 would have averaged approximately 60% of target and there would have been no such compensation in six out of those nine years.

 

Our key strategic initiatives for 2007 were established at the beginning of 2007 through a series of board and committee meetings. These initiatives were consistent with the business and strategic plan previously approved by our board and included specific actions expected to:

 

 

Individual performance goals for other members of senior management, including the other named executive officers, were established by our chief executive officer and consistent with the 2007 key strategic initiatives.

 

Based on the Fabricated Products business results and safety performance, as well as segment and individual performance, a participant’s base award could be modified, in the aggregate, up to plus or minus 100 percent of the incentive target or base award, subject to an overall cap on the aggregate award of three times the incentive target. A cash pool was established based upon the award multiple multiplied by the sum of individual monetary incentive targets for all plan participants. Although individual monetary awards could be adjusted up or down, the entire cash pool was paid to participants.

 

In early 2008, our actual results for 2007, EVA based on those results and the resulting award multiple were determined. Each participant’s base award under the 2007 STI Plan was determined by multiplying his or her monetary incentive target by the award multiple. The compensation committee, the nominating and corporate governance committee and our board of directors also reviewed the actual performance of both our company and our chief executive officer for the 2007 performance period as compared to the 2007 key strategic initiatives and performance goals.

 

Based on the 2007 results, the compensation committee determined the 2007 STI Plan award multiple to be approximately 2.3. The effective award multiple for our named executive officers, other than Mr. Rinkenberger was approximately 2.2. The award multiples for our named executive officers were less than the approximately 2.3 2007 STI Plan award multiple approved by the compensation committee, as a result of higher payouts awarded to other

participants in the 2007 STI Plan and the dilutive effect of those higher payouts on the rest of the pool available for distribution. Mr. Rinkenberger’s multiple was approximately 2.3 as a result of a positive multiplier based on individual performance.

 

The table below sets forth for the 2007 STI Plan the possible payouts that could have been earned by our named executive officers at each performance level and the actual amounts earned by them.

 

 

Long-term incentives

 

On March 30, 2007, the compensation committee approved grants of restricted stock and option rights for the named executive officers, with such grants being effective April 3, 2007. In making such grants, the compensation committee established a target monetary value for the equity grants to be made to each named executive officer and determined that each named executive officer should receive restricted stock having an economic value equal to 75% of his target monetary value and option rights having an economic value equal to 25% of his target monetary value. The use of restricted stock and option rights was determined by the compensation committee to effectively align long-term incentive compensation with the interests of our stockholders and enhance retention through the use of three-year cliff vesting on April 3, 2010 for the restricted stock and ratable vesting over the three-year period from the grant date through April 3, 2010 for the options rights.

 

 

 

 

Upon our emergence from chapter 11 bankruptcy in July 2006, each of our named executive officers (other than Mr. Bellino, who joined us in May 2006), as well as other members of senior management, received an “emergence grant” of restricted stock. The compensation committee determined that the emergence grants to senior management were appropriate to retain senior management, including the named executive officers, and to immediately align the interests of senior management with the interests of our stockholders. The compensation committee also wanted to recognize and reward the commitment and efforts of members of senior management through the four and one-half years we were in chapter 11 bankruptcy and their ability during that period to both grow our Fabricated Products business and complete a restructuring that allowed us to emerge with a strong balance sheet and platform for future growth. The compensation committee accomplished these objectives by providing stock ownership of approximately two percent of our outstanding common stock in the aggregate to members of senior management, including our named executive officers, through the issuance of restricted stock with three-year cliff vesting precluding the recipients from becoming unconditionally entitled to receive any of the shares granted at emergence until July 6, 2009, subject to certain exceptions related to the termination of employment.

 

The size of the emergence grants was developed based on extensive data provided by Hewitt on emergence grant practices at other companies emerging from chapter 11 bankruptcy. Mr. Bellino, who joined us in May 2006, did not receive an “emergence grant” but did receive a grant of shares of restricted stock based on an analysis of competitive market practice for a normal annual grant and the terms of his employment agreement. The table below summarizes the grants made to our named executive officers in July 2006:

 

 

Recognizing that our business is cyclical and that the market value of our common stock may fluctuate during business cycles, the compensation committee also intended the grants to provide an incentive for the named executive officers and other members of senior management to remain with us throughout business cycles. While the emergence grants are viewed as a one-time event, the compensation committee took the emergence grants into account when it made the 2007 equity grants described above and the 2008 equity grants described below and will continue to take the emergence grants into account in the design of future compensation programs and awards.

 

Retirement benefits

 

We no longer maintain a defined benefit pension plan or retiree medical program that covers members of senior management. Retirement benefits to our senior management, including the named executive officers, are currently provided through a defined contribution retirement program consisting of the following two principal plans:

 

 

Each of these plans is discussed more fully below. Although these plans provide reduced benefits to members of senior management when compared to the benefits available prior to and during our chapter 11 bankruptcy, the compensation committee believes that they support the objectives of our post-emergence comprehensive compensation structure, including the ability to attract and retain senior and experienced mid- to late-career executives for critical positions within our organization.

The defined contribution retirement program has three primary components, which are discussed more fully below:

 

 

Under the terms of our Restoration Plan, cash balances are maintained in a “rabbi trust” where they remain subject to the claims of our creditors and are otherwise invested in funds designated by each individual from a menu of possible investments. In addition, the cash balances maintained in the rabbi trust are forfeited if the individual is terminated for cause.

 

Perquisites

 

During 2007, all of our named executive officers received a vehicle allowance and Messrs. Hockema, Bellino and Barneson were reimbursed for admission to, and the dues for, a club membership. Additionally, we reimbursed the housing and other expenses incurred by Mr. Bellino in connection with the completion of his relocation to California. Our use of perquisites as an element of compensation is limited and is largely based on business-related entertainment needs and the historical practices and policies of our company. We do not view perquisites as a significant element of our comprehensive compensation structure but do believe that they can be used in conjunction with base salary to attract, motivate and retain individuals in a competitive environment.

 

Stock Ownership Guidelines

 

In order to further align the interests of senior management, including the named executive officers, with those of our stockholders, we have stock ownership guidelines. Under those guidelines, members of our senior management are expected to hold common stock having a value equal to a multiple of their base salary as determined by their position. The guidelines contemplate a multiple of five times base salary for our chief executive officer and three times base salary for the other named executive officers. Each member of senior management covered by our stock ownership guidelines is expected to retain at least 75 percent of the net shares resulting from equity compensation awards until he or she achieves the applicable ownership level contemplated by the stock ownership guidelines. For purposes of these guidelines, stock ownership includes shares over which the holder has direct or indirect ownership or control, including restricted stock and restricted stock units, but does not include unexercised stock options. The ownership guidelines are expected to be met within five years. Based on the closing price per share of our common stock as reported on the Nasdaq Global Select Market on March 3, 2008, each named executive officer owns common stock above the applicable stock ownership requirements under the stock ownership guidelines.

 

Employment Contracts, Termination of Employment Arrangements and Change-in-Control Arrangements

 

As discussed more fully below, in 2006 we entered into employment agreements with Messrs. Hockema and Bellino. The decisions to enter into employment agreements and the terms of those agreements were based on the facts and circumstances at the time and an analysis of competitive market practice. The compensation committee, working with Hewitt, determined that employment agreements and the negotiated terms of those agreements were consistent with market practice. The compensation committee also determined that entering into an employment agreement with Mr. Hockema was important to, among other things:

 

 

In each case, the compensation committee determined that the agreements and the terms of those agreements were in the best interests of our company and stockholders.

 

Also, as discussed more fully below, we provide all named executive officers with benefits related to terminations of employment in specified circumstances, including in connection with a change in control, by us without cause and by the named executive officer with good reason. Importantly, these protections limit our ability to downwardly adjust certain aspects of compensation, including base salaries and target incentive compensation, without triggering the ability of the affected named executive officer to receive termination benefits. The compensation committee views these termination protection benefits as an important component of the total compensation package for each of our named executive officers. In the view of the compensation committee, these protections help to maintain the named executive officer’s objectivity in decision-making and provide another mechanism to align the interests of our named executive officer with the interests of our stockholders.

 

Tax Deductibility

 

Section 162(m) of the Internal Revenue Code limits the deductibility of compensation in excess of $1 million paid to our chief executive officer and our four other highest-paid executive officers unless certain specific and detailed criteria are satisfied. We believe that it is often desirable and in our best interests to deduct compensation payable to our executive officers. In this regard, the compensation committee considers the anticipated tax treatment to our company and our executive officers in the review and establishment of compensation programs and payments. Although the various components of our compensation program are not fully deductible under Section 162(m), management and the compensation committee continue to evaluate steps that can be taken to increase or otherwise preserve deductibility. In the interim, the compensation committee has determined that we will not limit compensation to that deductible under Section 162(m), particularly in light of the substantial tax attributes, including net operating loss carry-forwards, available to us to offset taxable income.

 

Actions With Respect to 2008 Compensation

 

Set forth below is a brief discussion of actions taken since December 31, 2007 with respect to our 2008 compensation of our senior management, including the named executive officers.

 

Base Salary

 

We have fixed base salaries for 2008 effective April 1, 2008. Base salaries for our named executive officers were adjusted as follows:

 

 

As indicated by the table above, the compensation committee increased the base salaries by 3.4% to 3.9% for all of our named executive officers other than Mr. Donnan, principally to align base salaries with targeted levels based on a review of our compensation peer group. Mr. Donnan’s increase was 9.3% and also reflected his assumption of additional responsibilities with respect to environmental, health, safety and product liability matters in late 2007.

 

Short-Term Incentive Plan

 

On February 27, 2008, the compensation committee approved a short-term incentive plan for 2008, which we refer to as our 2008 STI Plan. Like the 2007 STI Plan, the 2008 STI Plan is designed to reward participants for EVA of our core Fabricated Products business with modifiers for safety performance (as measured by the total case incident rate), business unit performance and individual performance. Under the 2008 STI Plan, EVA will equal our

pre-tax operating income (subject to certain adjustments) less a capital charge, calculated as a percentage of our net assets (subject to certain adjustments). The 2008 STI Plan provides for (1) a threshold performance level below which no payout is made, a target performance level at which the target award is available and a performance level at or above which the maximum payout is available, and (2) minimum and maximum payout opportunities ranging from zero up to three times the target payout amount. The table below sets forth the estimated future payouts that can be earned by each of the named executive officers under the 2008 STI Plan below threshold performance levels and at the threshold, target and maximum performance levels.

 

 

Under the 2008 STI Plan, a pro rata incentive award is earned based on actual eligibility during the performance period if prior to December 31, 2008 a participant (1) dies, (2) retires under “normal” retirement (age 62) or in connection with full early retirement (position elimination), (3) is involuntarily terminated due to position elimination, or (4) becomes disabled. Under the 2008 STI Plan, incentive awards are forfeited for voluntary terminations without good reason prior to December 31, 2008. A participant will be entitled to the full payment of his or her award if his or her employment terminates on or after December 31, 2008, unless the participant’s employment is voluntarily terminated by him or her without good reason or by us for cause, in which case he or she would forfeit the award.

 

Long-term incentives

 

On February 27, 2008, the compensation committee approved a long-term incentive program for 2008 through 2010, which we refer to as our 2008 — 2010 LTI Program. The 2008 — 2010 LTI Program was designed to enhance and increase the “pay-for-performance” and retention features of our overall 2008 compensation program by rewarding participants with (1) a fixed number of shares of restricted stock that vest over time and (2) a fixed number of performance shares that vest, if at all, based on the average annual EVA of our core Fabricated Products business for 2008, 2009 and 2010. EVA under the 2008 — 2010 LTI Program will equal our pre-tax operating income (subject to certain adjustments) less a capital charge, calculated as a percentage of our net assets (subject to certain adjustments). The 2008 — 2010 LTI Program provides with respect to the performance shares for (1) a threshold performance level at which no performance shares will vest, a target performance level at which the target number of performance shares will vest and a performance level at or above which the maximum number of performance shares will vest and (2) minimum and maximum vesting opportunities ranging from zero up to two times the target number. Each performance share that becomes vested entitles the participant to receive one share of our common stock.

 

On February 27, 2008, to effectuate the 2008 — 2010 LTI Program, the compensation committee approved the following grants of restricted stock and performance shares, with such grants being effective as of March 3, 2008, for the named executive officers:

 

 

 

 

 

The table below sets forth information regarding compensation for our named executive officers: (1) Jack A. Hockema, our President, Chief Executive Officer and Chairman of the Board; (2) Joseph P. Bellino, our Executive Vice President and Chief Financial Officer (who joined us in May 2006); and (3) each of John Barneson, John M. Donnan and Daniel J. Rinkenberger, our three other most highly compensated executive officers (based on total compensation for 2007).

 

 

 

As reflected in the table above, the salary received by each of our named executive officers as a percentage of their respective total compensation was as follows:

 

 

 

All Other Compensation

 

The table below sets forth information regarding each component of compensation included in the “All Other Compensation” column of the Summary Compensation Table above.

 

 

 

 

The table below sets forth information regarding grants of plan-based awards made to our named executive officers during 2007.

 

 

 

 

Employment Agreement with Jack A. Hockema

 

On July 6, 2006, in connection with our emergence from chapter 11 bankruptcy, we entered into an employment agreement with Jack A. Hockema, pursuant to which Mr. Hockema continued his duties as our President and Chief Executive Officer. The terms of Mr. Hockema’s employment agreement provide for an initial base salary of $730,000, subject to annual increases, if any, agreed by us and Mr. Hockema and for an annual short-term incentive target equal to 68.5% of his base salary. The short-term incentive is to be paid in cash, but is subject to both our meeting the applicable underlying performance thresholds and an annual cap of three times the target. If Mr. Hockema’s employment terminates other than on a date which is the last day of a fiscal year, then his annual short-term incentive target with respect to the fiscal year in which his employment terminates will be prorated for the actual number of days of employment during such fiscal year, and such amount will be paid to Mr. Hockema or his estate unless his employment was terminated by us for cause or was voluntarily terminated by him without good reason. Under the employment agreement, Mr. Hockema received a grant of 185,000 shares of restricted stock on July 6, 2006 under our Equity Incentive Plan; the restrictions on all such shares will lapse on July 6, 2009 or earlier if his employment is terminated as a result of his death, disability or retirement, his employment is terminated by us without cause or his employment is voluntarily terminated by him with good reason, or if there is a change in control. The employment agreement provides that Mr. Hockema is entitled to receive annual equity awards (such as restricted stock, stock options or performance shares) with a target economic value of 165% of his base salary; the

terms of all equity grants to Mr. Hockema are to be similar to the terms of equity grants made to other senior executives at the time they are made, except that the grants must provide for full vesting at retirement and pro rata vesting upon any other termination of his employment except termination by us for cause or voluntary termination by him without good reason. The initial term of Mr. Hockema’s employment agreement is five years and it will be automatically renewed and extended for one-year periods unless either party provides notice one year prior to the end of the initial term or any extension period. Mr. Hockema also participates in the various benefit plans for salaried employees.

 

Under Mr. Hockema’s employment agreement, following any termination of his employment, we must pay or provide to Mr. Hockema or his estate:

 

 

In addition, if Mr. Hockema’s employment is terminated as a result of his death or disability, all of his outstanding equity awards will vest in accordance with their terms, subject to the provisions described above, and all of his vested but unexercised grants will remain exercisable through the second anniversary of such termination. If Mr. Hockema’s employment is terminated by us for cause or is voluntarily terminated by him without good reason, all of his unvested equity grants will be forfeited and all of his vested but unexercised equity grants will be forfeited on the date that is 90 days following such termination. If Mr. Hockema’s employment is terminated by us without cause or is voluntarily terminated by him with good reason, in addition to the payment of his accrued benefits as described above, (1) we will make a lump-sum payment to Mr. Hockema in an amount equal to two times the sum of his base salary and annual short-term incentive target, (2) his medical, dental, vision, life insurance and disability benefits, which we refer to as welfare benefits, will continue for two years commencing on the date of such termination, and (3) all of his outstanding equity awards will vest in accordance with their terms, subject to the provisions described above, and all of his vested but unexercised grants will remain exercisable through the second anniversary of such termination.

 

If there is a change in control of our company, all of Mr. Hockema’s equity awards outstanding as of the date of such change in control will fully vest. If Mr. Hockema’s employment is terminated by us without cause or is voluntarily terminated by him with good reason within two years following a change in control, in addition to the payments of his accrued benefits as described above, (1) we will make a lump-sum payment to Mr. Hockema in an amount equal to three times the sum of his base salary and annual short-term incentive target, (2) his welfare benefits will continue for three years commencing on the date of such termination, and (3) all previously unvested equity grants will become exercisable and vested but unexercisable grants will remain exercisable through the second anniversary of such termination. If any payments to Mr. Hockema would be subject to federal excise tax by reason of being considered contingent on a change in control, we must pay to Mr. Hockema an additional amount such that, after satisfaction of all tax obligations imposed on such payments, Mr. Hockema retains an amount equal to such federal excise tax.

 

Mr. Hockema will be subject to noncompetition, nonsolicitation and confidentiality restrictions following his termination of employment.

 

For quantitative disclosure regarding estimated payments and other benefits that would have been received by Mr. Hockema or his estate if his employment had terminated on December 31, 2007, the last business day of 2007, under various circumstances, see “— Potential Payments and Benefits upon Termination of Employment” below.

Employment Agreement with Joseph P. Bellino

 

On July 6, 2006, in connection with our emergence from chapter 11 bankruptcy, we entered into an employment agreement with Joseph P. Bellino, pursuant to which Mr. Bellino continued his duties as our Executive Vice President and Chief Financial Officer. The agreement supersedes an employment agreement with Mr. Bellino that was entered into when he joined us in May 2006. The terms of Mr. Bellino’s employment agreement provide for an initial base salary of $350,000, subject to annual increases, if any, agreed by us and Mr. Bellino and for an annual short-term incentive target equal to 50% of his base salary. The short-term incentive is to be paid in cash, but is subject to both our meeting the applicable underlying performance thresholds and an annual cap of three times the target. If Mr. Bellino’s employment terminates other than on a date which is the last day of a fiscal year, then his annual short-term incentive target with respect to the fiscal year in which his employment terminates will be prorated for the actual number of days of employment during such fiscal year, and such amount will be paid to Mr. Bellino or his estate unless his employment was terminated by us for cause or was voluntarily terminated by him without good reason. Under the employment agreement, Mr. Bellino received an initial grant of 15,000 shares of restricted stock on July 6, 2006 under our Equity Incentive Plan; the restrictions on all such shares will lapse on July 6, 2009 or earlier if his employment is terminated as a result of his death, disability or retirement, his employment is terminated by us without cause or his employment is voluntarily terminated by him with good reason, or if there is a change in control. The employment agreement provides that Mr. Bellino is entitled to receive annual equity awards (such as restricted stock, stock options or performance shares) with a target economic value of $450,000; the terms of all equity grants are to be similar to the terms of equity grants made to other senior executives at the time they are made. Mr. Bellino also participates in the various benefit plans for salaried employees. The initial term of his employment agreement is through May 15, 2009 and will be automatically renewed and extended for one-year periods unless either party provides notice one year prior to the end of the initial term or any extension period.

 

Under Mr. Bellino’s employment agreement, following any termination of his employment, we must pay or provide to Mr. Bellino or his estate:

 

 

In addition, if Mr. Bellino’s employment is terminated as a result of his death or disability, all of his outstanding equity awards will vest in accordance with their terms, subject to the provisions described above, and all of his vested but unexercised grants will remain exercisable through the second anniversary of such termination. If Mr. Bellino’s employment is terminated by us for cause or is voluntarily terminated by him without good reason, all of his unvested equity grants will be forfeited and all of his vested but unexercised equity grants will be forfeited on the date that is 90 days following such termination. If Mr. Bellino’s employment is terminated by us without cause or is voluntarily terminated by him with good reason, in addition to the payment of his accrued benefits as described above, (1) we will make a lump-sum payment to Mr. Bellino in an amount equal to two times the sum of his base salary, (2) his welfare benefits will continue for two years commencing on the date of such termination, and (3) all of his outstanding equity awards will vest in accordance with their terms, subject to the provisions described above, and all of his vested but unexercised grants will remain exercisable through the second anniversary of such termination.

 

If there is a change in control of our company, all of Mr. Bellino’s equity awards outstanding as of the date of such change in control will fully vest. If Mr. Bellino’s employment is terminated by us without cause or is voluntarily terminated by him with good reason within two years following a change in control, in addition to the payments of his accrued benefits as described above, (1) we will make a lump-sum payment to Mr. Bellino in an

amount equal to three times the sum of his base salary and annual short-term incentive target, (2) his welfare benefits will continue for three years commencing on the date of such termination, and (3) all previously unvested equity grants will become exercisable and vested but unexercisable grants will remain exercisable through the second anniversary of such termination. If any payments to Mr. Bellino would be subject to federal excise tax by reason of being considered contingent on a change in control, we must pay to Mr. Bellino an additional amount such that, after satisfaction of all tax obligations imposed on such payments, Mr. Bellino retains an amount equal to such federal excise tax.

 

Mr. Bellino will be subject to noncompetition, nonsolicitation and confidentiality restrictions following his termination of employment.

 

For quantitative disclosure regarding estimated payments and other benefits that would have been received by Mr. Bellino or his estate if his employment had terminated on December 31, 2007, the last business day of 2007, under various circumstances, see “— Potential Payments and Benefits upon Termination of Employment” below.

 

Salaried Severance Plan

 

Effective September 3, 2002, in connection with the commencement of our chapter 11 bankruptcy and the implementation of the Chapter 11 KERP, we adopted a severance plan to provide selected executive officers, including Messrs. Hockema, Barneson, Donnan and Rinkenberger, and other key employees with appropriate protection in the event of certain terminations of employment and entered into severance agreements with plan participants. Mr. Hockema’s employment agreement discussed above replaced his participation in the severance plan and superseded his severance agreement. The severance plan and related severance agreements, including those with Messrs. Barneson, Donnan and Rinkenberger, terminated on July 6, 2007. Mr. Bellino, who joined us in May 2006, was not covered by the Chapter 11 KERP or related severance plan, but his employment agreement discussed above, like Mr. Hockema’s, contains protections in the event of certain terminations of employment.

 

Messrs. Barneson, Donnan and Rinkenberger are now subject to our severance plan for salaried employees, which we refer to as our Salaried Severance Plan. Our Salaried Severance Plan provides for payment of a termination allowance and continuation of welfare benefits upon an involuntary separation of employment that is intended to be permanent and that is due to our convenience. The termination allowance and continuation of welfare benefits are not available under our Salaried Severance Plan if:

 

 

The termination allowance payable to covered employees under our Salaried Severance Plan consists of a lump-sum cash payment equal to the covered employee’s weekly base salary multiplied by a number of weeks (not to exceed 26), which we refer to as the continuation period, determined based on the covered employee’s number of years of full employment. Under our Salaried Severance Plan, welfare benefits are continued following the termination of employment for the shorter of the continuation period and the period commencing on the termination of employment and ending on the date that the covered employee is no longer eligible for coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA. As of December 31, 2007, the continuation periods for Messrs. Barneson, Donnan and Rinkenberger were 26, 12 and 12 weeks, respectively

 

For quantitative disclosure regarding estimated payments and other benefits that would have been received by each of Messrs. Barneson, Donnan and Rinkenberger or his estate if his employment had terminated on December 31, 2007, the last business day of 2007, under various circumstances, see “— Potential Payments and Benefits upon Termination of Employment” below.

 

Change in Control Agreements

 

In 2002, in connection with the commencement of our chapter 11 bankruptcy and the implementation of the Chapter 11 KERP, we also entered into Change in Control Agreements with certain key executives, including

Messrs. Hockema, Barneson, Donnan and Rinkenberger, in order to provide them with appropriate protection in the event of a termination of employment in connection with a change in control or, except as otherwise provided, a significant restructuring. Mr. Hockema’s employment agreement discussed above supersedes his Change in Control Agreement. Mr. Bellino, who joined us in May 2006, was not covered by the Chapter 11 KERP and did not receive a Change in Control Agreement thereunder, but his employment agreement discussed above, like Mr. Hockema’s, contains change-in-control severance arrangements. The Change in Control Agreements terminate on the second anniversary of a change in control.

 

The Change in Control Agreements provide for severance payments and continuation of welfare benefits upon termination of employment in certain circumstances. The participants are eligible for severance benefits if their employment is terminated by us without cause or by the participant with good reason during a period that commences 90 days prior to the change in control and ends on the second anniversary of the change in control. Participants (including Messrs. Donnan and Rinkenberger but excluding Mr. Barneson) also are eligible for severance benefits if their employment is terminated by us due to a significant restructuring even when there has been no change in control. These benefits are not available if:

 

 

In consideration for the severance payment and continuation of benefits, a participant will be subject to noncompetition, nonsolicitation and confidentiality restrictions following his or her termination of employment with us.

 

Upon a qualifying termination of employment, each of Messrs. Barneson, Donnan and Rinkenberger are entitled to receive the following:

 

 

In addition, welfare benefits and perquisites are continued for a period of three years (for Mr. Barneson) or two years (for Messrs. Donnan and Rinkenberger) after termination of employment with us.

 

In general, if any payments would be subject to federal excise tax or any similar state or local tax by reason of being considered contingent on a change in control, the participant will be entitled to receive an additional amount such that, after satisfaction of all tax obligations imposed on such payments, the participant retains an amount equal to the federal excise tax or similar state or local tax imposed on such payments. However, if no such federal excise tax or similar state or local tax would apply if the aggregate payments were reduced by 5%, then the aggregate payments to the participant will be reduced by the amount necessary to avoid application of such federal excise tax or similar state or local tax.

 

For quantitative disclosure regarding estimated payments and other benefits that would have been received by each of Messrs. Barneson, Donnan and Rinkenberger or his estate if his employment had terminated on December 31, 2007, the last business day of 2007, under various circumstances, see “— Potential Payments and Benefits Upon Termination of Employment” below.

 

Equity Incentive Plan

 

On July 6, 2006, upon our emergence from chapter 11 bankruptcy and the implementation of our plan of reorganization, our 2006 Equity and Performance Incentive Plan became effective. Our 2006 Equity and

Performance Incentive Plan was amended and restated on February 6, 2008. We refer to such plan, both before and after its amendment and restatement, as our Equity Incentive Plan.

 

The Equity Incentive Plan is an omnibus plan that facilitates the issuance of future long-term incentive awards as part of our comprehensive compensation structure and is administered by a committee of non-employee directors of our board of directors, currently the compensation committee.

 

Our officers and other key employees, as selected by the compensation committee are eligible to participate in the Equity Incentive Plan. As of December 31, 2007, approximately 40 officers and other key employees had been selected by the compensation committee to receive awards under the Equity Incentive Plan. Our non-employee directors also participate in the Equity Incentive Plan.

 

Subject to certain adjustments that may be required from time to time to prevent dilution or enlargement of the rights of participants under the Equity Incentive Plan, a maximum of 2,222,222 shares of common stock may be issued under the Equity Incentive Plan. As of December 31, 2007, there were 1,604,197 shares of common stock available for issuance in respect of future awards under the Equity Incentive Plan.

 

Our Equity Incentive Plan permits the granting of awards in the form of options to purchase our common stock, stock appreciation rights, shares of restricted stock, restricted stock units, performance shares, performance units and other awards. The Equity Incentive Plan will expire on July 6, 2016. No grants will be made under the Equity Incentive Plan after that date, but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of the Equity Incentive Plan.

 

Under our Equity Incentive Plan, any award agreement may provide that, if the compensation committee of our board of directors determines that a participant has engaged in any detrimental activity, either during employment by us, or within a specified period after termination of employment, the participant is required to, among other things:

 

 

Under the Equity Incentive Plan, “detrimental activity” is generally defined to include (1) conduct resulting in an accounting restatement due to material noncompliance with any financial reporting requirements under U.S. federal securities laws, (2) competing with us, (3) soliciting any of our employees to terminate his or her employment with us, (4) disclosing our confidential business information, (5) failing or refusing to promptly disclose and assign to us rights in certain intellectual property that the participant conceived during his or her employment with us, and (6) activity that results in the termination of the participant’s employment by us for cause, which we typically define to include violation of our code of business conduct and ethics. To date, each award agreement under the Equity Incentive Plan, other than award agreements with non-employee directors, contains such provisions that are applicable if the compensation committee determines the participant has engaged in detrimental activity, either during employment by us or within one year after termination of employment.

 

The Equity Incentive Plan also permits non-employee directors to elect to receive shares of our common stock in lieu of any or all of his or her annual cash retainer, including retainers for serving as a committee chair or lead outside director.

 

Our board of directors may, in its discretion, terminate the Equity Incentive Plan at any time. The termination of the Equity Incentive Plan would not affect the rights of participants or their successors under any awards outstanding and not exercised in full on the date of termination.

 

Our board of directors may at any time and from time to time amend the Equity Incentive Plan in whole or in part. Any amendment which must be approved by our stockholders in order to comply with applicable law or the

rules of the principal securities exchange, association or quotation system on which our common stock is then traded or quoted will not be effective unless and until such approval has been obtained. The compensation committee will not, without the further approval of the stockholders, authorize the amendment of any outstanding option or appreciation right to reduce the exercise price or base price. Furthermore, no option will be cancelled and replaced with awards having a lower exercise price without further approval of the stockholders.

 

Savings Plan

 

We sponsor a tax-qualified profit sharing and 401(k) plan, our Savings Plan, in which eligible salaried employees may participate. Pursuant to the Savings Plan, employees may elect to reduce their current annual compensation up to the lesser of 75% or the statutorily prescribed limit of $15,500 in calendar year 2008 (plus up to an additional $5,000 in the form of “catch-up” contributions for participants near retirement age), and have the amount of any reduction contributed to the Savings Plan. Our Savings Plan is intended to qualify under sections 401(a) and 401(k) of the Internal Revenue Code, so that contributions by us or our employees to the Savings Plan and income earned on contributions are not taxable to employees until withdrawn from the Savings Plan and so that contributions will be deductible by us when made. We match 100% of the amount an employee contributes to the Savings Plan, subject to a 4% maximum based on the employee’s compensation as defined in the Savings Plan.

 

Employees are immediately vested 100% in our matching contributions to our Savings Plan. We also make annual fixed-rate contributions on behalf of our employees in the following amounts:

 

 

An employee is required to be employed on the last day of the year in order to receive the fixed-rate contribution. Employees are vested 100% in our fixed-rate contributions to the Savings Plan after three years of service. The total amount of elective, matching and fixed-rate contributions in any year cannot exceed the lesser of 100% of an employee’s compensation or $45,000 in 2007 (adjusted annually). We may amend or terminate these matching and fixed-rate contributions at any time by an appropriate amendment to our Savings Plan. Upon termination of employment, employees are eligible to receive a distribution of their vested plan balances under our Savings Plan. The independent trustee of the Savings Plan invests the assets of the Savings Plan as directed by participants.

 

Restoration Plan

 

We sponsor a nonqualified, deferred compensation plan which we refer to as our Restoration Plan in which a select group of our management and highly compensated employees may participate. Eligibility to participate in our Restoration Plan is determined by the compensation committee. The purpose of our Restoration Plan is to restore the benefit of matching and fixed-rate contributions that we would have otherwise paid to participants under our Savings Plan but for the limitations on benefit accruals and payments imposed by the Internal Revenue Code. We maintain an account on behalf of each participant in the Restoration Plan and contributions to a participant’s Restoration Plan account to restore benefits under the Savings Plan are made generally in the manner described below:

 

 

 

A participant is required to be making elective contributions under our Savings Plan on the first day of the year in order to receive a matching contribution from us under our Restoration Plan for that year. However, matching contributions under the Restoration Plan are calculated as though the participant elected to make the maximum permissible elective contributions under the Savings Plan sufficient to receive the maximum matching contribution from us under the Savings Plan, without regard for the participant’s actual elective contributions. Participants are immediately vested 100% in our matching contributions to the Restoration Plan.

 

 

A participant is entitled to distributions six months following his or her termination of service, except that any participant who is terminated for cause will forfeit the entire amount of matching and fixed-rate contributions made by us to that participant’s account under the Restoration Plan.

 

We may amend or terminate these matching and fixed-rate contributions at any time by an appropriate amendment to our Restoration Plan. The value of each participant’s account under our Restoration Plan changes based upon the performance of the funds designated by the participant from a menu of various money market and investment funds.

 

Chapter 11 Long-Term Incentive Plan

 

During 2002, in connection with the commencement of our chapter 11 bankruptcy and the implementation of the Chapter 11 KERP, we adopted our Chapter 11 Long-Term Incentive Plan, pursuant to which key management employees, including Messrs. Hockema, Barneson, Donnan and Rinkenberger, became eligible to receive an annual cash award based on our attainment of sustained cost reductions above $80 million annually for the period 2002 through our emergence from chapter 11 bankruptcy on July 6, 2006. Under the Chapter 11 Long-Term Incentive Plan, 15% of cost reductions above the stipulated threshold were placed in a pool to be shared by participants based on the percentage their individual targets comprised of the aggregate target for all participants. Annual awards during this period ranged between approximately (16%) to 81% of target, with an average award of approximately 55% of target over the four and one-half year period. In general, approximately one-half of the award payable under the Chapter 11 Long-Term Incentive Plan was paid to participants in August 2006 and the remaining portion of the award was paid to participants in July 2007. No further amounts are payable under the Chapter 11 Long-Term Incentive Plan.

 

Chapter 11 Retention Plan

 

Effective September 3, 2002, in connection with the commencement of our chapter 11 bankruptcy and the implementation of the Chapter 11 KERP, we adopted the Chapter 11 Retention Plan and entered into retention agreements with selected key employees, including Messrs. Hockema, Barneson, Donnan and Rinkenberger. In general, awards payable under the Chapter 11 Retention Plan vested, as applicable, on September 30, 2002, March 31, 2003, September 30, 2003 and March 31, 2004. The Chapter 11 Retention Plan was not extended beyond March 2004. Except with respect to payments of the withheld amounts (as described below) to Messrs. Hockema and Barneson, no payments were made after March 31, 2004.

For Messrs. Hockema and Barneson, $730,000 and $250,000, respectively, of accrued awards payable under the Chapter 11 Retention Plan were withheld for subsequent payment. One-half of such withheld amount was paid in a lump sum in August 2006 upon our emergence from chapter 11 bankruptcy, and one-half was paid in a lump sum in July 2007. No further amounts are payable under the Chapter 11 Retention Plan.

 

The table below sets forth the information regarding equity awards held by our named executive officers as of December 31, 2007.

 

 

 

 

The table below sets forth information regarding the present value as of December 31, 2007 of the accumulated benefits of our named executive officers (other than Mr. Bellino) under our Old Pension Plan. As discussed further below, our Old Pension Plan was terminated on December 17, 2003, at which time the number of years of credited service for participants was frozen. Mr. Bellino joined us in May 2006 and did not participate in the Old Pension Plan prior to its termination.

 

 

 

 

The Old Pension Plan previously maintained by us was a qualified, defined-benefit retirement plan for our salaried employees who met certain eligibility requirements. Effective December 17, 2003, the PBGC terminated and effectively assumed responsibility for making benefit payments in respect of the Old Pension Plan. As a result of the termination, all benefit accruals under the Old Pension Plan were terminated and benefits available to certain executive officers, including Messrs. Hockema and Barneson, were significantly reduced due to the limitation on benefits payable by the PBGC. Benefits payable to participants will be reduced to a maximum of $34,742 annually for retirement at age 62, a lower amount for retirement prior to age 62, and a higher amount for retirements after age 62, up to $43,977 at age 65, and participants will not accrue additional benefits. In addition, the PBGC will not make lump-sum payments to participants.

 

The table below sets forth, for each of our named executive officers, information regarding his participation in our Restoration Plan during 2007.

 

 

 

 

The tables below set forth for each named executive officer quantitative disclosure regarding estimated payments and other benefits that would have been received by the named executive officer or his estate if his employment had terminated on December 31, 2007, the last business day of 2007, under the following circumstances:

 

 

Information regarding estimated payments and other benefits upon termination of employment at normal retirement is provided for illustrative purposes notwithstanding the fact that none of the named executive officers had reached retirement age as of December 31, 2007.

 

JACK A. HOCKEMA