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OMB APPROVAL |
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OMB Number:
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3235-0059 |
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Expires:
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February 28, 2006 |
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12.75 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant x |
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Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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x Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Carbo Ceramics Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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x No fee required. |
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o
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11. |
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1) Title of each class of securities to which transaction applies: |
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2) Aggregate number of securities to which transaction applies: |
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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4) Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
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SEC 1913 (02-02) |
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number. |
TABLE OF CONTENTS
CARBO CERAMICS INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Shareholders of CARBO Ceramics Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of CARBO Ceramics Inc. will be held
Tuesday, April 18, 2006, at 9:00 A.M. local time, at The Mansion on Turtle Creek, 2821 Turtle Creek
Boulevard, Dallas, Texas, for the following purposes:
1. To elect seven Directors, the names of whom are set forth in the accompanying proxy
statement, to serve until the 2007 Annual Meeting.
2. To approve certain amendments to the CARBO Ceramics Inc. 2004 Long-Term Incentive Plan
primarily to permit non-employee Directors to receive grants under such Plan (as more fully
described on page 19 of the accompanying proxy statement).
3. To ratify the appointment of Ernst & Young LLP as the Companys independent registered
public accounting firm.
4. To transact such other business as may properly be brought before the meeting.
Shareholders of record at the close of business on February 17, 2006, are the only shareholders
entitled to notice of, and to vote at, the Annual Meeting of Shareholders.
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By Order of the Board of Directors, |
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Ann J. Bruder |
Corporate Secretary |
March 17, 2006 |
IMPORTANT
Whether or not you expect to attend the meeting, please vote, sign, date, and return the enclosed
proxy in the enclosed self-addressed envelope as promptly as possible. If you attend the meeting,
you may vote your shares in person, even though you have previously signed and returned your proxy.
CARBO CERAMICS INC.
6565 MacArthur Boulevard
Suite 1050
Irving, Texas 75039
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed Proxy is solicited on behalf of the Board of Directors of CARBO Ceramics Inc. (the
Company) for use at the Companys Annual Meeting of Shareholders (the Annual Meeting) to be
held April 18, 2006, at 9:00 A.M. local time, or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders. The
Annual Meeting will be held at The Mansion on Turtle Creek, 2821 Turtle Creek Boulevard, Dallas,
Texas.
The Companys principal executive offices are located at 6565 MacArthur Boulevard, Suite 1050,
Irving, Texas 75039. The telephone number at that address is (972) 401-0090.
Most shareholders (including participants in the Company stock fund in the Companys Savings and
Profit Sharing Plan) have a choice of granting their proxies over the internet or by using a
traditional proxy card. Refer to your proxy or voting instruction card to see which options are
available to you and how to use them. The internet voting procedures are designed to authenticate
shareholders identities and to confirm that their instructions have been properly recorded.
The cost of preparing, assembling and mailing the proxy material, and of reimbursing brokers,
nominees and fiduciaries for the out-of-pocket and clerical expenses of transmitting copies of the
proxy material to the beneficial owners of shares held of record by such persons, will be borne by
the Company. The Company intends to solicit proxies only by use of the postal mail and telephonic
and internet voting; however, certain employees of the Company, without additional compensation,
may use personal efforts, by telephone or otherwise, to obtain proxies. These proxy solicitation
materials are being mailed on or about March 17, 2006, to all shareholders entitled to vote at the
Annual Meeting.
A shareholder giving a proxy pursuant to this solicitation (including via telephone or via the
internet) may revoke it at any time before its use by delivering to the Secretary of the Company a
written notice of revocation or a valid proxy (including via telephone or via the internet) bearing
a later date or by attending the Annual Meeting and voting in person.
Deadline for Receipt of Shareholder Proposals
Proposals of shareholders of the Company that are intended to be presented at the Companys 2007
Annual Meeting must be received by the Secretary of the Company no later than November 17, 2006, in
order to be considered for inclusion in the proxy statement and form of proxy for that meeting.
Record Date, Shares Outstanding and Voting
Only shareholders of record at the close of business on February 17, 2006, are entitled to notice
of, and to vote at, the Annual Meeting. At the record date, 24,321,412 shares of the Companys
Common Stock were issued and outstanding and entitled to be voted at the meeting.
Numbers of shares and stock prices provided in this section and throughout this proxy statement
give effect to the Companys dividend in the form of a 3 for 2 stock split effected on August 19,
2005.
Every shareholder is entitled to one vote for each share held with respect to each matter,
including the election of Directors, which comes before the Annual Meeting. Shareholders do not
have the right to cumulate their votes in the election of Directors. If a shareholder specifies how
the proxy is to be voted with respect to any of the proposals for which a choice is provided, the
proxy will be voted in accordance with such specifications. If a shareholder fails to specify with
respect to such proposals, the proxy will be voted FOR all Director nominees, FOR the approval of
the proposed amendments to the 2004 CARBO Ceramics Inc. Long-Term Incentive Plan (the Incentive
Plan), and FOR the ratification of the appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm. The affirmative vote of holders of a plurality of
the shares of Common Stock present in person or represented by proxy at the meeting and entitled to
vote is required to elect each Director nominee. The affirmative vote of holders of a majority of
all the shares of Common Stock voted with respect to the proposed amendments to the Incentive Plan
is required for their approval; provided that the total number of votes cast with respect to such
approval must represent over 50% of the shares of the Companys Common Stock outstanding on the
record date. New York Stock Exchange (NYSE) rules prohibit brokers from voting on the proposed
amendments to the Incentive Plan without receiving instructions from the beneficial owner of the
shares. In the absence of instructions, the shares are viewed as being subject to broker
non-votes. Pursuant to the NYSE rules, with respect to the approval of the proposed amendments to
the Incentive Plan, abstentions will count as votes cast and will have the same effect as votes
against the proposed amendments to the Incentive Plan and broker non-votes will not be treated as
votes cast.
1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists as of February 17, 2006, with respect to each person who is known to the
Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock of the
Company, the name and address of such owner, the number of shares of Common Stock beneficially
owned and the percentage such shares comprised of the outstanding shares of Common Stock of the
Company. Except as indicated, each holder has sole voting and dispositive power over the listed
shares.
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Shares Beneficially |
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Name and Address |
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Owned |
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of Beneficial Owner |
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Number |
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Percent |
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William C. Morris (1) |
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3,230,424 |
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13.3 |
% |
100 Park Avenue
New York, New York 10017 |
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Lewis L. Glucksman (2) |
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1,515,000 |
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6.2 |
% |
Two Fifth Avenue, Apt. 16D/E
New York, New York 10011 |
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Capital Research and Management Company (3) |
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1,370,880 |
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5.6 |
% |
333 South Hope Street
Los Angeles, California 90071 |
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Kayne Anderson Rudnick Investment Management, LLC (4) |
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1,215,852 |
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5.0 |
% |
1800 Avenue of the Stars, Second Floor
Los Angeles, California 90067 |
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Neuberger Berman, Inc. (5) |
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2,740,041 |
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11.3 |
% |
605 Third Avenue
New York, New York 10158 |
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New
Amsterdam Partners,
LLC (6) |
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1,234,507 |
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5.1 |
% |
475 Park Avenue South (20th Floor)
New York, New York 10016 |
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(1) |
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Shares shown as beneficially owned by Mr. Morris include 33,174
shares of Common Stock owned by certain charitable foundations as
to which Mr. Morris disclaims any beneficial ownership. |
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(2) |
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Shares shown as beneficially owned by Mr. Glucksman include
135,000 shares of Common Stock owned by Mr. Glucksmans wife as to
which Mr. Glucksman disclaims any beneficial ownership. |
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(3) |
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Based on a Schedule 13G filed with the Securities and Exchange
Commission (the SEC), as of December 31, 2005, Capital Research
and Management Company reported sole voting and dispositive power
as to 1,370,880 shares. |
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Based on a Schedule 13G filed with the SEC, as of December 31,
2005, Kayne Anderson Rudnick Investment Management, LLC reported
sole voting and dispositive power as to 1,215,852 shares. |
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(5) |
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Based on a Schedule 13G filed with the SEC, as of December 31,
2005, Neuberger Berman, Inc. reported sole voting power as to
101,553 shares, and reported shared voting power as to 1,776,772
shares and shared dispositive power as to 2,740,041 shares with
Neuberger Berman, LLC, Neuberger Berman Management, Inc. and
Neuberger Berman Equity Funds. |
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(6) |
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Based on a Schedule 13G filed with the SEC, as of December 31,
2005, New Amsterdam Partners, LLC reported sole voting power as to
777,102 shares and sole dispositive power as to 1,234,507 shares. |
2
The following table sets forth the number of shares of Common Stock of the Company
beneficially owned by each of the current Directors and named executive officers, and by all
Directors and named executive officers as a group, as of March 1, 2006. Except as indicated, each
holder has sole voting and dispositive power over the listed shares.
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Percent of |
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Amount and Nature of |
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Common |
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Beneficial Ownership |
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Stock |
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Currently |
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Acquirable |
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Beneficially |
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Owned |
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within 60 days |
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Owned |
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Directors |
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Claude E. Cooke, Jr. |
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2,250 |
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0 |
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* |
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Chad C. Deaton |
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750 |
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0 |
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* |
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H. E. Lentz, Jr. (1) |
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6,000 |
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0 |
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* |
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William C. Morris (2) |
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3,230,424 |
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0 |
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13.3 |
% |
John J. Murphy |
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5,250 |
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0 |
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* |
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Jesse P. Orsini |
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75,000 |
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0 |
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* |
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Robert S. Rubin |
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748,350 |
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0 |
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3.1 |
% |
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Other Named Executive Officers |
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Mark L. Edmunds |
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3,515 |
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19,415 |
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* |
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C. Mark
Pearson (3) |
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34,929 |
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0 |
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* |
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Paul G. Vitek |
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5,840 |
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34,455 |
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* |
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Christopher A. Wright |
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80,619 |
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45,640 |
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* |
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Directors
and Named Executive Officers as a Group (11
persons) (1)(2)(3) |
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4,192,927 |
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99,510 |
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17.6 |
% |
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* |
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Less than 1% of total shares outstanding. |
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(1) |
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Shares shown as beneficially owned by Mr. Lentz are held jointly by Mr. Lentz and his wife,
with whom Mr. Lentz shares voting and dispositive power. |
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(2) |
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Shares shown as beneficially owned by Mr. Morris include 33,174 shares of Common Stock
owned by certain charitable foundations as to which Mr. Morris disclaims any beneficial
ownership. |
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(3) |
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Dr. Pearson resigned as President, Chief Executive Officer and Director on December 2, 2005. |
ELECTION OF DIRECTORS
Nominees. A board of seven Directors is to be elected at the meeting. Each Director elected to the
board will hold office until the next Annual Meeting or until his or her successor has been elected
and qualified. Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the seven nominees named below, all of whom are presently Directors of the Company. In the
event that any nominee is unable or declines to serve as a Director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of
Directors to fill the vacancy, unless the size of the Board is reduced. The proxies cannot be voted
for a greater number of persons than the number of nominees named in this proxy statement. It is
not expected that any nominee will be unable or will decline to serve as a Director. Biographical
information regarding each nominee is set forth on the following page.
3
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Business Experience |
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During Past 5 Years and |
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Director |
Name (Age) |
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Other Information |
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Since |
William C. Morris (67)
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Mr. Morris currently
serves as Chairman of
the Board of the
Company. He is also
Chairman of the Board of
Directors of J. & W.
Seligman & Co.
Incorporated (a New
York-based investment
advisory firm); Chairman
of the Board of
Tri-Continental
Corporation; and
Chairman of each of the
investment companies in
the Seligman Group of
Funds.
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1987 |
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Dr. Claude E. Cooke, Jr. (76)
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Dr. Cooke is an
independent practitioner
of intellectual property
law in Conroe, Texas. In
December 2005, he
retired from his
position as Of Counsel
to Baker Botts LLP (a
Houston-based law firm),
a position he had held
since 1997. He was a
Partner with the law
firm Hutcheson & Grundy
LLP from 1996 to 1997
and Of Counsel with the
law firm Pravel, Hewitt,
Kimball & Krieger from
1990 to 1996. Dr. Cooke
was employed by Exxon
Production Research
Company from 1954 to
1986, and is the
inventor of sintered
bauxite, the original
ceramic proppant.
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1996 |
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Chad C. Deaton (53)
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Since October 2004, Mr.
Deaton has served as
Chairman of the Board
and Chief Executive
Officer of Baker Hughes,
Inc. (a Houston-based
oilfield services
company). From August
2002 to October 2004, he
served as President,
Chief Executive Officer,
and a Director of the
Hanover Compressor
Company (a Houston-based
natural gas compression
package supplier). Mr.
Deaton was a Senior
Advisor to Schlumberger
Oilfield Services from
1999 to 2001. Mr. Deaton
was employed in a
variety of positions by
Schlumberger Oilfield
Services and/or its
affiliates from 1976
through 1999, including
as Executive Vice
President of
Schlumberger Oilfield
Services from 1998 to
1999.
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2004 |
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H. E. Lentz, Jr. (61)
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Since January 2004, Mr.
Lentz has served as an
Advisory Director to
Lehman Brothers Inc. (a
New York-based
investment banking firm)
(Lehman). Mr. Lentz
was a consultant to
Lehman from January 2003
to December 2003 and a
Managing Director of
Lehman and a Principal
in its Merchant Banking
Group from 1998 to 2002.
Mr. Lentz is a Director
of Rowan Companies, Inc.
and Peabody Energy
Corporation.
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2003 |
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John J. Murphy (74)
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Mr. Murphy is a Director
of W.R. Grace & Co. and
ShawCor Ltd. Mr. Murphy
was Chairman of the
Board of Dresser
Industries, Inc. (a
provider of energy
services and products)
in 1996. He served as
Chairman and Chief
Executive Officer of
Dresser Industries, Inc.
from 1983 to 1995 and
was President of Dresser
Industries, Inc. from
1982 to 1992.
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1996 |
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Jesse P. Orsini (65)
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On December 2, 2005, the
Board of Directors
elected Mr. Orsini to
serve as President and
Chief Executive Officer
and a Director of the
Company. Mr. Orsini
previously served as
President and Chief
Executive Officer of the
Company from 1978 to
2001, and as a Director
of the Company from 1987
to 2003. Mr. Orsini
also serves as a
Director of Unifrax
Corporation.
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2005 |
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Robert S. Rubin (74)
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Mr. Rubin has served as
a Senior Vice President
of JPMorgan Chase & Co.
(a New York-based
financial holding
company) and a
predecessor firm since
2001. Mr. Rubin was a
Managing Director of
Salomon Smith Barney (an
investment banking firm)
and predecessor firms
from 1989 to 2001.
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1997 |
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4
The Board of Directors has determined that each of the following Directors is independent within
the meaning of the applicable rules of the SEC and the listing standards of the NYSE:
William C. Morris
Dr. Claude E. Cooke, Jr.
Chad C. Deaton
H. E. Lentz, Jr.
John J. Murphy
Robert S. Rubin
The Board has evaluated the independence of the members of the Board under the independence
standards promulgated by the NYSE. In conducting this evaluation, the Board considered transactions
and relationships between each Director nominee or his immediate family and the Company to
determine whether any such transactions or relationships were material and, therefore, inconsistent
with a determination that each such Director nominee is independent. Based upon that evaluation,
the Board determined that Messrs. Morris, Cooke, Deaton, Lentz, Murphy and Rubin have no material
relationship with the Company and, thus, are independent. In determining the independence of Mr.
Deaton, the Board specifically considered his employment as Chairman of the Board and Chief
Executive Officer of Baker Hughes, Inc. and Baker Hughes, Inc.s status as a customer of the
Company and concluded that such employment was not inconsistent with a determination that Mr.
Deaton is independent. In determining the independence of Mr. Lentz, the Board specifically
considered his employment as an Advisory Director to Lehman and Lehmans ongoing provision of
brokerage services to the Company, and concluded that such employment was not inconsistent with a
determination that Mr. Lentz is independent.
Please see the Companys Annual Report on Form 10-K for information about the Companys executive
officers.
Interested parties may contact the Board of Directors, or the non-management Directors as a group,
at the following address:
Board of Directors
Or
Non-Management Directors
c/o CARBO Ceramics Inc.
6565 MacArthur Boulevard
Suite 1050
Irving, Texas 75039
Communications may also be sent to individual Directors at the above address. Communications to
Directors will be reviewed and referred in compliance with the Procedures for Unsolicited
Communications, as approved by the Nominating and Corporate Governance Committee of the Board of
Directors on July 12, 2004. Communications to the Board, the non-management Directors or any
individual Director that relate to the Companys accounting, internal accounting controls or
auditing matters will also be referred to the Chairman of the Audit Committee. Other communications
will be referred to the appropriate Committee chairman and may also be sent, as appropriate, to the
Companys Chief Compliance Officer.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The Board of Directors met seven times during the last fiscal year. Each Director attended at least
75% of all meetings of the Board of Directors and the Committees of which such Director is a
member. Although there is no formal policy as to Director attendance at the Annual Meeting of
Shareholders, all Directors attended the 2005 Annual Meeting of Shareholders, and all are
anticipated to attend the 2006 Annual Meeting as well.
The Board of Directors has an Audit Committee comprised of five members, and Compensation Committee
and Nominating and Corporate Governance Committee, each of which is comprised of six members. The
charters of each of these committees and the Companys Corporate Governance Guidelines are
available free of charge on the Companys website at www.carboceramics.com or by writing to the
Company at: CARBO Ceramics Inc., c/o Corporate Secretary, 6565 MacArthur Blvd., Suite 1050, Irving,
Texas 75039. The Board of Directors votes annually on the membership and chairmanship of all
Committees.
5
The Audit Committee consists of Robert S. Rubin (Chairman), Dr. Claude E. Cooke, Jr., Chad C.
Deaton, H. E. Lentz, Jr., and John J. Murphy. The Committee met nine times during the last fiscal
year. The Board of Directors has determined that all of the members of the Audit Committee are
independent within the meaning of the applicable rules of the SEC and the listing standards of the
NYSE. The Board of Directors has also determined that Robert S. Rubin meets the requirements for
being an audit committee financial expert, as that term is defined by applicable SEC rules. The
Audit Committee appoints and retains the Companys independent registered public accounting firm,
approves the fee arrangement and scope of the audit, reviews the financial statements and the
independent registered public accounting firms report, considers comments made by the independent
registered public accounting firm with respect to the Companys internal control structure, and
reviews internal accounting procedures and controls with the Companys financial and accounting
staff. The Audit Committee also conducts the review of the non-audit services provided by the
independent registered public accounting firm to determine their compatibility with its
independence. The Audit Committee reviews the independent registered public accounting firms
performance, qualification, and quality control procedures, and establishes policies for: (i) the
pre-approval of audit and permitted non-audit services by the independent registered public
accounting firm; (ii) the hiring of former employees of the independent registered public
accounting firm; and (iii) the submission and confidential treatment of concerns from employees or
others about accounting, internal controls, auditing or other matters. The Audit Committee reviews
with management the Companys disclosure controls and procedures and internal controls over
financial reporting, and the processes supporting the certifications of the Chief Executive Officer
and Chief Financial Officer. It also reviews with management and the Companys independent
registered public accounting firm the Companys critical accounting policies. The Audit Committee
reviews the Companys annual and quarterly SEC filings and other related Company disclosures. The
Audit Committee reviews the Companys compliance with the Code of Business Conduct and Ethics as
well as other legal and regulatory matters. In performing these duties, the Audit Committee has
full authority to: (i) investigate any matter brought to its attention with full access to all
books, records, facilities, and personnel of the Company; (ii) retain outside legal, accounting or
other consultants to advise the Committee; and (iii) request any officer or employee of the
Company, the Companys in-house or outside counsel, internal auditor, internal audit service
providers or independent registered public accounting firm to attend a meeting of the Committee or
to meet with any members of, or consultants to, the Committee.
The Compensation Committee consists of John J. Murphy (Chairman), Dr. Claude E. Cooke, Jr., Chad C.
Deaton, H. E. Lentz, Jr., William C. Morris and Robert S. Rubin. The Committee met four times
during the last fiscal year. The Board of Directors has determined that all of the members of the
Compensation Committee are independent within the meaning of the listing standards of the NYSE. The
Compensation Committee (i) establishes policies relating to the compensation of the non-employee
Directors, executive officers and key management employees of the Company; (ii) reviews and
approves the compensation of the non-employee Directors, executive officers and the President and
Chief Executive Officer; (iii) reviews and approves the President and Chief Executive Officers
recommendations with respect to incentive compensation awards for non-executive employees; and (iv)
oversees the administration of the Companys restricted stock and stock option plans. The
Compensation Committee also evaluates and approves post-service arrangements with management,
appoints and monitors named fiduciaries for the Companys employee benefit plans and establishes
and reviews periodically the Companys perquisite policies for management and Directors. In
performing its duties, the Compensation Committee has ultimate authority and responsibility to
engage and terminate any outside consultant to assist in determining appropriate compensation
levels for the Chief Executive Officer or any other member of the Companys management and to
approve the terms of any such engagement and the fees of any such consultant. In addition, the
Committee has full access to any relevant records of the Company and may also request that any
officer or other employee of the Company (including the Companys senior compensation or human
resources executives), the Companys in-house or outside counsel, or any other person meet with any
members of, or consultant to, the Committee.
The Nominating and Corporate Governance Committee consists of William C. Morris (Chairman), Dr.
Claude E. Cooke, Jr., Chad C. Deaton, H. E. Lentz, Jr., John J. Murphy and Robert S. Rubin. The
Committee met twice during the last fiscal year. The Board of Directors has determined that all of
the members of the Nominating and Corporate Governance Committee are independent within the meaning
of the listing standards of the NYSE. The Nominating and Corporate Governance Committee establishes
the Companys corporate governance principles and guidelines. These principles and guidelines
address, among other matters, the size, composition and responsibilities of the Board of Directors
and its Committees, including their oversight of management and consultations with management. The
Committee also advises the Board of Directors with respect to the charter, structure, and operation
of each Committee of the Board of Directors. The Nominating and Corporate Governance Committee
oversees the evaluation of the Board of Directors and senior executives of the Company, and reviews
Company succession planning periodically. The Committee has full access to any relevant records of
the Company and may retain outside consultants to advise it. The Committee has the ultimate
authority and responsibility to engage or terminate any outside consultant to identify Director
candidate(s) and to approve the terms and fees of such engagement of any such consultant. The
Committee may also request that any officer or other employee of the Company, the Companys outside
counsel, or any other person meet with any members of, or consultant to, the Committee.
6
The Companys Board of Directors has charged the Nominating and Corporate Governance Committee with
identifying individuals qualified to become members of the Board and recommending Director nominees
for each Annual Meeting of Shareholders, including the recommendation of nominees to fill any
vacancies on the Board of Directors. The Nominating and Corporate Governance Committee considers
Director candidates suggested by its members, other Directors, senior management and shareholders.
Shareholders desiring to make such recommendations should timely submit the candidates name,
together with biographical information and the candidates written consent to be nominated and, if
elected, to serve to: Chairman, Nominating and Corporate Governance Committee of the Board of
Directors of CARBO Ceramics Inc., 6565 MacArthur Boulevard, Suite 1050, Irving, Texas, 75039. To
assist it in identifying Director candidates, the Committee is also authorized to retain, at the
expense of the Company, third party search firms and legal, accounting, or other advisors,
including for purposes of performing background reviews of potential candidates. The Committee
provides guidance to search firms it retains about the particular qualifications the Board of
Directors is then seeking. In 2005, the Board of Directors did not retain any search firms or other
advisors. In January 2006, in accordance with the Committees recommendation, the Board authorized
management to retain the search firm of Russell Reynolds Associates to assist the Board in
identifying individuals qualified to fill the role of the President, Chief Executive Officer and a
Director.
All Director candidates, including those recommended by shareholders, are evaluated on the same
basis. Candidates are selected for their character, judgment, business experience and specific
areas of expertise, among other relevant considerations, such as the requirements of applicable law
and listing standards (including independence standards). The Board of Directors recognizes the
importance of soliciting new candidates for membership on the Board of Directors and that the needs
of the Board of Directors, in terms of the relative experience and other qualifications of
candidates, may change over time. In determining the needs of the Board of Directors and the
Company, the Nominating and Corporate Governance Committee considers the qualifications of sitting
Directors and consults with other members of the Board of Directors (including as part of the
Boards annual self-evaluation), the Chief Executive Officer, and other members of senior
management and, where appropriate, external advisors. All Directors are expected to exemplify the
highest standards of personal and professional integrity and to assume the responsibility of
challenging management through their active and constructive participation and questioning in
meetings of the Board of Directors and its various committees, as well as in less formal contacts
with management. Director candidates, other than sitting Directors, are interviewed at the
direction of the Committee, which may include (at the Committees direction) interviews by the
Chairman of the Board of Directors, other Directors, the Chief Executive Officer and other key
management personnel, and the results of those interviews are considered by the Committee in its
deliberations.
The members of the Nominating and Corporate Governance Committee constitute all of the
non-management Directors on the Companys Board of Directors. As the Chairman of the Nominating and
Corporate Governance Committee, William C. Morris serves as the presiding Director for
non-management executive sessions of these Directors.
REPORT OF THE AUDIT COMMITTEE
The Committee met nine times during the last fiscal year. The Committee reviewed with management
and the independent registered public accounting firm the interim financial information included in
the March 31, June 30, and September 30, 2005 Quarterly Reports on Form 10-Q prior to their filing
with the SEC. In addition, the Committee reviewed all earnings releases with management and the
Companys independent registered public accounting firm prior to their release.
Consistent with Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, the Companys independent registered public accounting firm provided the Committee a
written statement describing all the relationships between it and the Company that might bear on
its independence. The Committee also discussed and reviewed with the Companys independent
registered public accounting firm all communications required by generally accepted auditing
standards, including those described in Statement of Auditing Standards No. 61, as amended,
Communication with Audit Committees.
The Audit Committee oversees the Companys financial reporting process on behalf of the Board of
Directors. Management has the primary responsibility for the financial statements and the reporting
process including the systems of internal controls. In fulfilling its oversight responsibilities,
the Committee has reviewed with management the audited financial statements in the Companys Annual
Report on Form 10-K, including a discussion of the acceptability and quality of the accounting
principles, the reasonableness of significant judgments and the clarity of disclosures in the
financial statements.
The Committee reviewed with the Companys independent registered public accounting firm, who is
responsible for expressing an opinion on the conformity of those audited financial statements with
generally accepted accounting principles, their judgments as to the acceptability and quality of
the Companys accounting principles and such other matters appropriate for discussion with the
Committee under generally accepted auditing standards. In addition, the Committee has discussed
with the independent registered public accounting firm its independence from management and the
Company and considered the compatibility of non-audit services with its independence.
7
The Committee discussed with the Companys independent registered public accounting firm the
overall scope and plans for its audit. The Committee meets with the independent registered public
accounting firm, with and without management present, to discuss the results of its examinations,
its evaluations of the Companys internal controls and the overall quality of the Companys
financial reporting.
In reliance on the reviews and discussions referred to above, the Committee recommended to the
Board of Directors that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2005, for filing with the SEC. The Committee and the Board
have also approved, subject to shareholders ratification, the selection of the Companys
independent registered public accounting firm.
This report of the Audit Committee shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that
the Company specifically incorporates this information by reference, and shall not otherwise be
deemed filed under such acts.
|
CARBO Ceramics Inc. Audit Committee |
|
Robert S. Rubin, Chairman |
Dr. Claude E. Cooke, Jr. |
Chad C. Deaton |
H. E. Lentz, Jr. |
John J. Murphy |
|
March 7, 2006 |
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Policy. The goal of the Companys compensation policy is to ensure that executive
compensation is related to and supports the Companys overall objectives of improving profitability
and enhancing shareholder value. To achieve this goal, the Compensation Committee has adopted the
following guidelines to direct compensation decisions:
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Provide a competitive compensation package that enables the Company to attract and retain superior
management personnel; |
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Relate compensation to the performance of the Company and the individual; and |
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Align employee objectives with the objectives of shareholders by encouraging executive stock ownership. |
Elements of Compensation. The Committee believes that the above objectives are best achieved
by combining current and deferred cash compensation with equity based compensation. The Companys
compensation program for executive officers and other key managers consists of (i) base salary;
(ii) performance-based current and deferred bonuses based upon individual performance and the
Companys net income before tax; (iii) restricted stock grants under the Incentive Plan and option
grants under the Companys 1996 Stock Option Plan for Key Employees, as amended (the 1996 Option
Plan) and the 1996 Stock Option Plan of Pinnacle Technologies, Inc., as amended and restated as of
May 31, 2002 (the Pinnacle Option Plan, and together with the 1996 Option Plan, the Stock Option
Plans, and the Stock Option Plans together with the Incentive Plan, the Stock Plans); and (iv)
matching and discretionary contributions under the Companys Savings and Profit Sharing Plan. As of
December 31, 2005, only 47,250 shares of Common Stock remained available to be granted under the
1996 Option Plan and 5,400 shares remained available under the Pinnacle Option Plan. It is,
therefore, not anticipated that grants under these plans will be a significant element of
compensation in the future.
8
Base Salary. Executives base salary levels are reviewed annually to determine whether they are
near the median range for persons holding similar positions with companies that are of a similar
size and nature and that are also included in the S&P Small Cap 600 Index, Oil and Gas Equipment
and Services sub-industry group (Similar Companies). It is the goal of the Compensation Committee
to set salary ranges for the Companys executive officers at the 50th percentile when compared to
these Similar Companies. The Compensation Committee uses various salary surveys, prepared by
independent compensation analysts, to determine the salary level that falls at the 50th percentile.
Individual salaries are established within the established base salary range based on individual
performance in the most recently completed twelve months, subject, for Mr. Orsini, Dr. Pearson and
Mr. Wright, to the floor contemplated in their employment agreements.
Current and Deferred Bonuses. Since the inception of the Company, it has been managements
objective to have a significant portion of key employee compensation be performance-based. In order
to achieve this objective, the Company established the CARBO Ceramics Inc. Incentive Compensation
Plan (the Incentive Compensation Plan) in 1987. Upon its formation in 1996, the Compensation
Committee reviewed and ratified the Incentive Compensation Plan. The Incentive Compensation Plan
was subsequently modified effective January 1, 2004.
The Incentive Compensation Plan provides for incentive payments to key managers based on components
of both Company and individual performance. For each plan year, target incentive payments (stated
as a percentage of base salary) are determined for each plan participant based on a review and
comparison of both internal and external compensation data. A key factor in determining target
incentive payments is a comparison of total cash compensation to the 75th percentile of the total
cash compensation of the same category of employee in Similar Companies. In addition, a target is
established annually for the Companys net income before tax. Payments to plan participants are
calculated based on a formula that takes into consideration the individuals performance relative
to predetermined performance objectives, as assessed by their immediate supervisors (and subject to
second level review), and the Companys actual performance relative to the net income target. The
Compensation Committee has the ultimate authority to establish the Company net income target and
individual target incentive payments. In order to enhance the retention of key employees, it is
intended that a portion of the amount awarded under the Incentive Compensation Plan be paid on a
deferred basis over a three-year period and be subject to forfeiture if the key employees
employment with the Company ceases for any reason other than death, permanent disability or normal
retirement. In 2005, the portion of incentive compensation that was deferred for executive
officers, excluding Mr. Orsini, Dr. Pearson and Mr. Wright, was 50 percent. Mr. Wrights annual
bonus is determined in accordance with his employment agreement and is based on Pinnacles pre-tax
earnings.
Stock Options and Restricted Stock. The Compensation Committee strongly believes that the interests
of shareholders and executives become more closely aligned when executives are provided with an
opportunity to acquire a proprietary interest in the Company through ownership of the Companys
Common Stock. Accordingly, key employees and executive officers are eligible to participate in the
Stock Plans whereby they are granted either restricted shares of the Companys Common Stock
pursuant to the Incentive Plan or options to purchase shares of the Companys Common Stock in the
future at a price that is specified at the time of the grant pursuant to the Stock Option Plans.
Individual grants under the Incentive Plan are determined based on individual and Company
performance. The Compensation Committee will only grant awards in a calendar year if the Companys
net income in the immediately preceding calendar year was greater than zero, other than inducement
awards granted to persons who become employees of the Company during such calendar year. Stock
options have been granted in the past pursuant to the Stock Option Plans with an exercise price of
no less than the fair market value on the date of the grant and exercisable in four equal
consecutive annual installments beginning one year after the date of the grant. Individual stock
option grants were determined in the past based on individual and Company performance, and have
historically not been granted on a set periodic schedule.
CEO Compensation. Dr. C. Mark Pearson was appointed to the position of President and Chief
Executive Officer of the Company effective April 10, 2001, and resigned from this position on
December 2, 2005. Dr. Pearsons compensation package was designed to encourage short and long-term
performance in line with shareholder interests. Dr. Pearson had an employment agreement with the
Company that terminated upon his resignation. Under the terms of the agreement, Dr. Pearson
received an annual base salary of not less than $200,000 per year and an incentive bonus based on
earnings before interest income and expense, and taxes generated by the Company, as set forth in
his employment agreement. In light of the employment agreement between the Company and Dr. Pearson,
none of the incentive bonus earned under the terms of the agreement was deferred. The Compensation
Committee believes that Dr. Pearsons total compensation (inclusive of salary, annual bonus and
equity grants) was reflective of his position and responsibility and that he was paid comparably to
chief executive officers of Similar Companies. The terms of Dr. Pearsons separation agreement
were guided by the circumstances of his resignation. Dr. Pearson retained vested cash and equity
compensation, which was reflective of his historical service to the Company; but forfeited all
unvested cash and equity compensation as a result of his resignation. In addition, Dr. Pearsons
accrued 2005 bonus compensation was prorated to reflect his length of service during fiscal year
2005.
Jesse P. Orsini was appointed to the position of President and Chief Executive Officer of the
Company effective December 2, 2005, to serve until his successor is elected. Mr. Orsinis
compensation was designed to fairly compensate him for his interim service to the Company. Under
the terms of the agreement, Mr. Orsini will receive a monthly salary of $75,000 for a minimum of
six months.
9
Internal Revenue Code Section 162(m). Internal Revenue Code Section 162(m), and the regulations
thereunder, places a limit of $1,000,000 on the amount of compensation that may be deducted by the
Company in any year with respect to certain of the Companys most highly compensated officers.
Section 162(m) does not however, disallow a deduction for qualified performance-based
compensation, the material terms of which are disclosed to and approved by shareholders. The
Companys policy is to carefully monitor the potential impact of Section 162(m) on the tax
deductibility of executive compensation, and to pay executive compensation that may not be
deductible if it believes it is necessary and appropriate in light of the Companys compensation
objectives and in the interests of the Company and its shareholders.
|
CARBO Ceramics Inc. Compensation Committee |
|
John J. Murphy, Chairman |
Dr. Claude E. Cooke, Jr. |
Chad C. Deaton |
H. E. Lentz, Jr. |
William C. Morris |
Robert S. Rubin |
|
March 7, 2006 |
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct and Ethics that applies to its Directors and
employees, including its Chief Executive Officer, Chief Financial Officer and Controller. The Code
of Business Conduct and Ethics, including future amendments, is available free of charge on the
Companys website at www.carboceramics.com or by writing to the Company at: CARBO Ceramics Inc.,
c/o Chief Corporate Counsel, 6565 MacArthur Blvd., Suite 1050, Irving, Texas 75039. The Company
will also post on its website any waiver under the Code of Business Conduct and Ethics granted to
any of its Directors or executive officers. No such waivers were requested or granted in 2005.
10
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning annual compensation for all persons
serving as the Companys Chief Executive Officer during the year ended December 31, 2005, and other
executive officers whose total salary and bonus exceeded $100,000 for services rendered in all
capacities to the Company during the year ended December 31, 2005 (collectively, the named
executive officers).
SUMMARY COMPENSATION TABLE
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Long-Term |
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Compensation |
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Awards |
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Number of |
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All |
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Restricted |
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Securities |
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Other |
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Annual Compensation |
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Stock |
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Underlying |
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Compen- |
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Name and Principal Position |
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Year |
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Salary |
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Bonus(1) |
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Awards(2) |
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Options |
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sation(3) |
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Jesse P. Orsini, President |
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2005 |
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$ |
75,000 |
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$ |
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$ |
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$ |
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and Chief Executive Officer(4) |
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C. Mark Pearson, Former President |
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2005 |
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287,164 |
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554,999 |
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183,429 |
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5,250 |
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and Chief Executive Officer(5) |
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2004 |
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261,250 |
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556,520 |
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183,786 |
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19,617 |
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2003 |
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220,000 |
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359,210 |
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18,322 |
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Paul G. Vitek, Senior Vice President of |
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2005 |
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175,000 |
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172,463 |
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87,249 |
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19,041 |
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Finance & Administration and |
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2004 |
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173,750 |
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211,106 |
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87,547 |
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19,617 |
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Chief Financial Officer |
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2003 |
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170,000 |
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182,000 |
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18,322 |
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Mark L. Edmunds, Vice President of |
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2005 |
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168,750 |
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164,236 |
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82,440 |
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19,041 |
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Operations |
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2004 |
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163,250 |
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187,329 |
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82,580 |
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19,617 |
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2003 |
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158,000 |
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140,000 |
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15,000 |
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18,322 |
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Christopher A. Wright, President of |
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2005 |
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166,000 |
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81,344 |
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79,349 |
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13,994 |
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Pinnacle Technologies, Inc., Vice |
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2004 |
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158,000 |
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99,262 |
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79,475 |
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14,795 |
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President of CARBO Ceramics Inc. |
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2003 |
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150,000 |
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80,040 |
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9,607 |
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(1) |
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For Messrs. Vitek and Edmunds, the bonus amount for each year includes amounts of
such bonus deferred under the Companys Incentive Compensation Plan, which are
payable in equal annual amounts over a consecutive three-year period, and may be
forfeited to the Company under certain circumstances. The deferred portion of the
bonus for Messrs. Vitek and Edmunds was $86,231 and $82,118, respectively, for
2005; $105,553 and $93,665, respectively, for 2004; and $95,000 and $85,000,
respectively, for 2003. $14,000 of Mr. Wrights bonus for 2003 was deferred under
the same terms as the foregoing executive officers deferred bonuses. |
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(2) |
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Amounts granted for 2005 represent the dollar value of 4,005, 1,905, 1,800, and
1,732 shares of restricted stock awarded in 2005 to Dr. Pearson and Messrs. Vitek,
Edmunds and Wright, respectively, pursuant to the Incentive Plan, based on the
closing price of the Companys Common Stock on the date of grant (January 18,
2005) of $45.80 per share. Amounts granted for 2004 represent the dollar value of
4,440, 2,115, 1,995, and 1,920 shares of restricted stock awarded in 2004 to Dr.
Pearson and Messrs. Vitek, Edmunds, and Wright, respectively, pursuant to the
Incentive Plan, based on the closing price of the Companys Common Stock on the
date of grant (April 14, 2004) of $41.39 per share. Dr. Pearson forfeited all of
his unvested shares of restricted stock in connection with his resignation on
December 2, 2005 (a total of 6,966 shares), and therefore held no shares of
restricted stock as of December 31, 2005. As of December 31, 2005, Mr. Vitek held
4,020 shares of restricted stock valued at $227,210; Mr. Edmunds held 3,795 shares
of restricted stock valued at $214,493; and Mr. Wright held 3,652 shares of
restricted stock valued at $206,411, in each case, based on the closing market
price of the Companys Common Stock on December 31, 2005, of $56.52 per share.
Shares of restricted stock granted pursuant to the Incentive Plan are subject to
transfer restrictions and forfeiture during the three-year period following the
grant. Generally, one-third of the shares subject to each award will vest (i.e.,
will no longer be subject to transfer restrictions or forfeiture) on each of the
first three anniversaries of the grant date. Generally, awards that have not
vested will be forfeited upon any termination of employment other than termination
due to death or disability, in which case the awards will continue to vest for one
additional year following such termination as if the officer were still employed.
The officers may not vote any restricted shares while such shares are subject to
forfeiture. To encourage officers to retain their ownership of the Companys
stock, the Compensation Committee may provide (and has so provided in the grants
reported above) that officers restricted shares will continue to be subject to
transfer restrictions for an additional two-year period, except that if an
officers employment terminates prior to the end of such two-year period, the
shares will cease to be subject to transfer restrictions at the time of
termination. All shares of restricted stock will vest upon a change of control of
the Company. Dividends are paid currently with respect to shares of restricted
stock granted pursuant to the Incentive Plan. |
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(3) |
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Consists of Company contributions to the Companys Savings and Profit Sharing Plan. |
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(4) |
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Mr. Orsini became President and Chief Executive Officer effective December 2,
2005, and his salary reflected in the table was solely for the month of December. |
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(5) |
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Dr. Pearson resigned as President and Chief Executive Officer on December 2, 2005. |
11
The following table sets forth certain information concerning options exercised during 2005
and presents the value of unexercised options held by the named executive officers at December 31,
2005. No options were granted in 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
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Number of |
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Number of Securities |
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Value of Unexercised |
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Shares |
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Underlying Unexercised |
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In-the-Money Options |
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Acquired |
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Value |
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Options At Fiscal Year-End |
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At
Fiscal
Year-End
(1) |
Name |
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on Exercise |
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Realized |
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Exercisable |
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Unexercisable |
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Exercisable |
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Unexercisable |
Jesse P. Orsini
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$ |
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$ |
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$ |
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C. Mark Pearson
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168,000 |
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6,440,975 |
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Paul G. Vitek
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11,250 |
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409,815 |
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33,750 |
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1,130,861 |
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Mark L. Edmunds
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18,750 |
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609,839 |
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22,500 |
|
|
|
|
|
|
|
684,893 |
|
|
Christopher A. Wright
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
15,000 |
|
|
|
1,541,385 |
|
|
|
513,795 |
|
|
|
|
(1) |
|
In-the-Money Options are those for which the 2005 year-end market price of the underlying
shares of Common Stock exceeded the exercise price of the option. The value of the In-the-Money
Options is the difference between the market price (determined on the basis of the closing sale
price as reported by the NYSE on the last business day of 2005) of the Common Stock ($56.52 per
share) and the exercise price of the option multiplied by the number of shares underlying the
option. |
EMPLOYMENT AND SEPARATION AGREEMENTS
Pearson Agreements. The Company had an employment agreement with Dr. Pearson pursuant to which Dr.
Pearson was employed as President and Chief Executive Officer of the Company. During the term of
this agreement, Dr. Pearson received an annual base salary of not less than $200,000, and an
incentive bonus for each fiscal year equal to the sum of (a) 0.5% of the Companys earnings before
interest income and expense, and taxes for such fiscal year (EBIT) up to $20,000,000 plus (b)
1.0% of EBIT in excess of $20,000,000. Dr. Pearson was also entitled to continue to participate in
all benefit plans available to other executive officers of the Company during the employment term,
other than the Companys Incentive Compensation Plan.
In connection with the resignation of Dr. Pearson as President, Chief Executive Officer and a
Director of CARBO Ceramics Inc. on December 2, 2005, the Company and Dr. Pearson executed a
separation agreement setting forth the terms and conditions of Dr. Pearsons separation from
service with the Company (the Separation Agreement). The Separation Agreement superseded Dr.
Pearsons employment agreement with the Company. Under the terms of the Separation Agreement, Dr.
Pearson was entitled to (a) payment of his accrued but unpaid base salary, unused vacation and
reimbursement of business expenses as of December 2, 2005; (b) payment, as soon as practicable
after the completion of the audited financial statements and determinations of the Companys EBIT
for the 2005 fiscal year, of a pro rata portion (through December 2, 2005) of his 2005 incentive
bonus (calculated in accordance with the terms of his employment agreement set forth in the
immediately preceding paragraph); and (c) exercise his vested outstanding options for a period of
thirty days after December 2, 2005, at which time they expired. All unvested awards of restricted
stock held by Dr. Pearson were immediately forfeited and cancelled effective as of December 2,
2005. Under the terms of the Separation Agreement, Dr. Pearson also agreed to render to the Company
such consulting services, at the rate of $325.00 per hour, as the Company may from time to time
reasonably request for the period commencing on December 2, 2005, and ending on June 30, 2006.
Pursuant to the Separation Agreement, Dr. Pearson agreed to non-disclosure and non-disparagement
covenants (each unlimited by time), as well as a two-year non-competition covenant and a one-year
non-solicitation covenant. Dr. Pearson also agreed to a release of any claims against the Company
for matters occurring prior to the execution of the Separation Agreement.
Orsini Agreement. The Company entered into a letter agreement effective December 2, 2005, with Mr.
Orsini, its President and Chief Executive Officer, setting forth the significant terms of Mr.
Orsinis employment with the Company. The agreement provides that the Company will pay him a
salary of $75,000 per month (payable in accordance with the Companys normal payroll practices) and
expects such payments to continue for a minimum of six months (unless Mr. Orsini is unwilling to
continue serving as President and Chief Executive Officer). At the end of six months, his
employment term will be extended automatically for successive one-month periods, at the rate of
$75,000 per month, unless one months notice is given by either party.
12
Wright Agreement. The Company has entered into an employment agreement with Christopher A. Wright,
dated May 21, 2002, pursuant to which Mr. Wright is employed as Vice President of the Company and
President of Pinnacle Technologies, Inc. The agreement runs through May 31, 2007, unless the
Company or Mr. Wright terminates his employment earlier. During the term of this agreement, Mr.
Wright receives an annual base salary of not less than $150,000, and is eligible to receive an
incentive bonus for each fiscal year equal to 3% of Pinnacles pre-tax earnings up to $5,000,000.
Mr. Wright is entitled to three weeks of vacation per year, subject to the Companys applicable
policies. In addition, Mr. Wright was granted options to purchase 60,000 shares of the Companys
Common Stock under the Companys 1996 Stock Option Plan for Key Employees as of the effective date
of the Pinnacle transaction. In the event Mr. Wrights employment is terminated, Mr. Wright will
receive his earned but unpaid base salary, earned but unused vacation, and any un-reimbursed
expenses. The employment agreement also contains a twelve-month non-solicitation covenant (with
regard to employees, suppliers and clients) that would become effective upon termination of Mr.
Wrights employment for any reason.
13
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2005, about the Companys Common Stock
that may be issued upon the exercise of outstanding options under the Stock Option Plans and that
are available for grants of restricted shares under the Incentive Plan.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
Number of |
|
|
|
|
|
|
remaining |
|
|
|
securities |
|
|
Weighted- |
|
|
available for future |
|
|
|
to be issued upon |
|
|
average |
|
|
issuance |
|
|
|
exercise of |
|
|
exercise price |
|
|
under |
|
|
|
outstanding |
|
|
of outstanding |
|
|
equity compensation plans |
|
|
|
options, |
|
|
options, |
|
|
(excluding securities |
|
|
|
warrants and |
|
|
warrants and |
|
|
reflected |
|
Plan Category |
|
rights |
|
|
rights |
|
|
in 1st column ) |
|
Equity compensation plans approved by security holders |
|
|
169,500 |
(1) |
|
$ |
24.27 |
(1) |
|
|
354,595 |
(2) |
Equity compensation plans not approved by security holders(3) |
|
|
121,748 |
|
|
|
19.22 |
|
|
|
5,400 |
(4) |
Total |
|
|
291,248 |
|
|
|
22.16 |
|
|
|
359,995 |
|
|
|
|
(1) |
|
Includes options issued under the 1996 Option Plan but does not include issued and outstanding restricted
shares granted under the Incentive Plan. |
|
(2) |
|
Represents 47,250 shares that may be issued pursuant to options to be granted under the 1996 Option Plan
and 307,345 shares that may be granted as restricted shares under the Incentive Plan. |
|
(3) |
|
Includes options issued under the Pinnacle Option Plan, which was assumed by the Company in the acquisition
of Pinnacle Technologies, Inc. in May 2002. For additional information about this plan, see Note 7 to the
consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2005. |
|
(4) |
|
Represents 5,400 shares that may be issued pursuant to options to be granted under the Pinnacle Option Plan. |
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Messrs. Lentz and Deaton each filed a Form 3 after the required filing date.
14
DIRECTORS FEES
Directors who are employees of the Company are not compensated for serving as Directors. Effective
January 1, 2006, all Directors who are not employees of the Company are paid $6,250 per calendar
quarter plus $1,000 per meeting for attending meetings of the Board of Directors or meetings of any
Committee thereof not immediately preceding or following a meeting of the Board of Directors. In
addition, if the proposed amendments to the 2004 CARBO Ceramics Inc. Long-Term Incentive Plan are
approved by shareholders, each Director will receive a grant of 2,000 shares of restricted stock in
April 2006. The terms of this grant are more fully described below. In addition to their
compensation as Directors, the Chairmen of the Audit and Compensation Committees each receive
$10,000 annually as compensation for their service as Chairmen of these committees. In addition to
his compensation as a Director, the Chairman of the Board of Directors receives $20,000 annually,
paid in equal quarterly installments, as compensation for his service as Chairman of the Board. All
Directors are reimbursed for reasonable out-of-pocket expenses incurred by them in attending
meetings of the Board of Directors and its committees and otherwise in performing their duties as
Directors. On December 19, 2005, the Board of Directors adopted the Deferred Compensation Plan for
Directors (the Deferral Plan). Under the terms of the Deferral Plan, Directors are allowed to
defer their annual cash compensation otherwise payable in a given fiscal year and to receive such
fees instead in the form of shares of the Companys Common Stock on the later of a date certain
chosen by the Director or the cessation of the Directors service on the Board, either in a lump
sum or in installment payments. Under the Deferral Plan, Directors may receive such shares early in
the event of certain changes in control of the Company or termination of the Deferral Plan. The
Deferral Plan requires each Director who wishes to defer compensation for any fiscal year (starting
with the 2006 fiscal year) to have notified the Company in writing prior to December 31 of the
immediately preceding fiscal year. Three Directors elected to defer their 2006 compensation.
APPROVAL OF AMENDMENTS TO THE 2004 CARBO CERAMICS INC. LONG-TERM INCENTIVE PLAN
General. On April 13, 2004, shareholders approved the Incentive Plan. The purpose of the
Incentive Plan is to provide the Company with the means to attract and retain highly qualified key
employees, as well as to align the interests of the Companys employees and shareholders by
encouraging employees to acquire or increase their equity interest in the Company, and to relate
compensation to the performance goals of the Company through the grant of restricted stock. On
January 18, 2006, the Board of Directors adopted amendments to the Incentive Plan (Amendments),
subject to the approval of the Companys shareholders. The purposes of the Amendments are to:
|
|
|
permit grants of restricted stock to non-employee Directors under the Incentive Plan; |
|
|
|
|
adjust the effect of a participants retirement on grants under the Incentive Plan; and |
|
|
|
|
clarify certain administrative features of the Incentive Plan. |
As of
March 1, 2006, approximately 80 employees were and (upon approval of shareholders) 6 non-employee
Directors will be eligible to participate in the Incentive Plan, as proposed to be amended. The
closing per share price on NYSE of a share of the Companys Common Stock on March 1, 2006, was
$55.87. The Amendments will become effective only upon approval by the Companys shareholders and,
if so approved, will become effective on the date of such approval. In addition, if the Amendments
are approved by the Companys shareholders, each non-employee Director will be required to hold a
minimum of 2,000 shares of the Companys Common Stock during his tenure as Director.
Summary of the Amendments and the Incentive Plan. The following summary of the Amendments and the
Incentive Plan is qualified in its entirety by reference to the copy of the Amendments attached
hereto as Annex A and the copy of the Incentive Plan filed as an exhibit to the Companys Current
Report on Form 8-K filed with the SEC on January 24, 2005.
Incentive Plan. Under the Incentive Plan, the Compensation Committee may grant restricted
stock awards with respect to a number of shares of Common Stock of the Company that in the
aggregate does not exceed 375,000 shares, plus (i) the number of shares with respect to which
awards of restricted shares previously granted thereunder have been forfeited by the employee back
to the Company; and (ii) the number of shares subject to awards that are withheld by the Company or
tendered by the participant to the Company to satisfy tax withholding obligations in connection
with such awards. No more than 75,000 shares of restricted stock may be granted to any single
employee pursuant to the Incentive Plan. Shares issued under the Incentive Plan may be either
newly issued shares or treasury shares, as determined by the Compensation Committee. In the event
of any change in the capitalization of the Company or in the event of any corporate change
involving the Company, the Compensation Committee may adjust the share limitations described above
and/or the type of securities available for grant under the Incentive Plan, as well as the number
and/or the type of securities underlying outstanding awards, as it considers appropriate in order
to prevent dilution or enlargement of rights.
The Compensation Committee is authorized to grant awards, designating both the employees of the
Company or its affiliates who will be granted the awards and the number of shares underlying such
awards from time to time, except that no grants will be made in a calendar year if the Companys
net income in the immediately preceding calendar year was not positive (as determined in accordance
with U.S. GAAP, and as reflected in the Companys audited financial statements for such preceding
year), other than inducement awards granted to persons who are becoming employees during such
calendar year.
15
Generally, shares granted pursuant to awards under the Incentive Plan are subject to transfer
restrictions (i.e., may not be transferred, pledged, assigned or otherwise encumbered) and to
forfeiture during the three-year period following grant; provided, that one-third of such shares
vest (i.e., cease to be subject to the transfer restrictions and cease to be subject to forfeiture)
on each of the first three anniversaries of the grant date. With respect to officers, however, the
Compensation Committee may provide that the shares will continue to be subject to transfer
restrictions for an additional two-year period, except that if the participants employment
terminates prior to the end of such two-year period, the shares will cease to be subject to
transfer restrictions at the time of such termination. If a participant fails to comply with the
transfer restrictions for this additional two-year period, any awards held by such participant
which are then subject to forfeiture will be forfeited and the Compensation Committee may take
whatever other action it deems appropriate, including not making any additional grants of awards
under the Incentive Plan to such participant. Generally, awards that have not vested will be
forfeited upon any termination of employment except for a termination of employment due to death or
disability, in which case the awards will continue to vest for one additional year following such
termination as if the participant were still employed. Upon a change in control of the Company,
awards will immediately vest. In addition, the Compensation Committee may, in its discretion,
accelerate the date on which any award granted under the Incentive Plan ceases to be subject to
transfer restrictions and/or ceases to be subject to forfeiture.
A participant will generally have all the rights of a shareholder with respect to the shares
underlying an award except that such participant shall have no voting rights prior to the date that
such shares cease to be forfeitable.
The Board of Directors may amend, modify, or terminate the Incentive Plan at any time, except that
the participants consent will be required if such amendment, modification or termination reduces
any participants award or otherwise materially affects the rights of such participant. No award
will be granted under the Incentive Plan after April 13, 2009.
Amendments
Inclusion of Non-Employee Directors in the Incentive Plan. The Amendments would provide for a
grant of 2,000 shares of restricted stock to each of the current non-employee Directors of the
Company on the date that shareholders approve the Amendments and to each future non-employee
Director of the Company on the first day he or she is elected or appointed as a Director. Unlike
grants to employees, these grants would occur regardless of the Companys net income in the
immediately preceding calendar year. Otherwise, the grants to the non-employee Directors would be
subject to the same vesting provisions as described above for employee grants. As of March 1, 2006,
all Directors other than Mr. Orsini were eligible to receive
such a grant upon the approval of the Amendments by shareholders.
Retirement Provisions. As described above, upon a termination of employment other than due to
death or disability, a participant forfeits any unvested shares of restricted stock. In the case of
a termination of employment due to death or disability, such shares continue to vest for one
additional year following termination as if the participant were still employed. The Amendments
would modify the latter provision to provide that, upon a termination of employment (or with
respect to a non-employee Director, service on the Board of Directors) due to death, disability or
retirement, a participants unvested shares would vest on the date of such termination. Under
the Amendments, retirement is defined as a participants voluntary termination of employment or
service on the Board of Directors (with the approval of the Board of Directors) at or after age 62
(unless otherwise defined in a participants award agreement).
Administrative Adjustments to the Incentive Plan. The Amendments would clarify the definition of
Company Affiliates and the current payment of dividends on shares of restricted stock. The
Amendments also include a savings clause relating to Section 409A of the Internal Revenue Code.
New Plan Benefits. With respect to employees, future awards under the Incentive Plan are not
determinable at this time. Any such grant will be in the discretion of the Compensation Committee
in accordance with the terms of the Incentive Plan. With respect to non-employee Directors, if the
Amendments are approved each of the six current non-employee Directors would receive a grant of
2,000 shares of restricted stock as of the date of the Annual Meeting.
The Board of Directors recommends that the shareholders vote FOR approval of the Amendments to
the 2004 CARBO Ceramics Inc. Long-Term Incentive Plan.
16
RATIFICATION OF APPOINTMENT OF THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Subject to ratification by the shareholders, the Audit Committee of the Board of Directors has
reappointed Ernst & Young LLP (Ernst & Young) as the Companys independent registered public
accounting firm to audit the financial statements of the Company for the current fiscal year. Ernst
& Young has acted as the Companys independent registered public accounting firm since its
formation in 1987. Representatives of the firm of Ernst & Young are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Audit Fees. Ernst & Youngs fees for the Companys annual audit and review of interim financial
statements were $504,471 in 2005 and $483,390 in 2004.
Audit-Related Fees. Ernst & Youngs fees for audit-related services were $33,467 during 2005 and
$15,000 during 2004. Audit related services for 2005 and 2004 include fees for employee benefit
plan audits.
Tax Fees. Ernst & Youngs fees for tax services were $133,334 during 2005 and $104,082 during 2004.
Tax services primarily involve assistance with tax return compliance and consultations regarding
foreign tax jurisdictions.
All Other Fees. Ernst & Youngs fees for all other products and services were $125 during 2005 and
$2,408 during 2004. These other products and services include various consultation services.
Under the Audit Committees Pre-Approval Procedures for Audit and permitted Non-Audit Services, the
Chairman of the Audit Committee is allowed to pre-approve audit and non-audit services if such
services will commence prior to the next regularly scheduled meeting of the Committee and where the
cost of such services in the aggregate will not exceed $50,000. The Committee is then informed of
such pre-approval at its next meeting. For 2005, there were no non-audit related services approved
in this manner.
The Audit Committee and the Board of Directors recommend the shareholders vote FOR such
ratification.
17
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return (assuming reinvestment of
dividends) to CARBO Ceramics Inc. shareholders during the period beginning December 31, 2000, and
ending December 31, 2005, as well as an overall stock market index (the S&P 500 Index) and one
peer-group index, the S&P Small Cap 600 Index, Oil and Gas Equipment and Services sub-industry
group, Source: Standard & Poors:
The stock performance graph assumes $100 was invested on December 31, 2000. For CARBO Ceramics
Inc., the December 31, 2000 closing price of $24.96 per share (as adjusted to reflect the 3 for 2
split of the Companys stock in August 2005) was used to establish the value as of December 31,
2000.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the Annual Meeting. However,
if other matters should properly come before the Annual Meeting, it is the intention of each of the
persons named in the proxy to vote in accordance with his judgment on such matters.
18
ANNEX A
2004 CARBO CERAMICS INC. LONG-TERM INCENTIVE PLAN
AMENDMENT NUMBER ONE
Pursuant to Section 12(e) of the 2004 CARBO Ceramics Inc. Long-Term Incentive Plan (the
Plan), the Plan is amended as follows, effective as of April 18, 2006:
1. Section 1. Section 1 shall be amended and restated to read in its entirety as
follows:
The purpose of the 2004 CARBO Ceramics Inc. Long-Term Incentive Plan is to
attract and retain highly qualified employees and non-employee directors of the
Company and reward them for making significant contributions to the success of the
Company and to strengthen the alignment of interests between such persons and the
Companys stockholders by providing them with a proprietary interest in the Company.
2. Section 2. Section 2(a) shall be amended and restated to read in its entirety as
follows:
Affiliate shall mean, with respect to any Person, any other Person
that, directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the first Person (it being understood,
that a Person shall be deemed to control another Person, for purposes of this
definition, if such Person directly or indirectly has the power to direct or cause the
direction of the management and policies of such other Person, whether through holding
ownership interests in such other Person, through agreements or otherwise).
3. Section 2. Section 2(k) shall be amended and restated to read in its entirety as
follows:
Disability shall mean any physical or mental impairment which qualifies
a Participant for (i) disability benefits under any long-term disability plan
maintained by the Company or (ii) Social Security disability benefits, or as otherwise
determined by the Board. For purposes of this Plan, a Participants employment or
service on the Board shall be deemed to have terminated as a result of Disability on
the date as of which he is first entitled to receive disability benefits under such
policy or as otherwise determined by the Board.
4. Section 2. Section 2(l) shall be amended and restated to read in its entirety as
follows:
Effective Date shall mean April 13, 2004.
5. Section 2. The following definition shall be added as a new Section 2(p) and the
former Section 2(p) and all subsequent subsections of Section 2 and all cross-references thereto
shall be relettered accordingly:
Non-Employee Director shall mean a member of the Board who is not an
employee of the Company or any of its Affiliates.
6. Section 2. Section 2(r) (as newly relettered pursuant to the foregoing) shall be
amended and restated to read in its entirety as follows:
Participant shall mean an employee or Non-Employee Director of the
Company who is eligible to participate in the Plan and to whom an Award has been
granted pursuant to the Plan and, upon his death, his successors, heirs, executors and
administrators, as the case may be.
7. Section 2. The following definition shall be added as a new Section 2(u) and the
former Section 2(u) (as newly relettered pursuant to the foregoing) and all subsequent subsections
of Section 2 and all cross-references thereto shall be relettered accordingly:
Retirement shall mean, unless otherwise stated by the Committee (or the
Board) in an applicable Award Agreement, Participants voluntary termination of
employment or service on the Board (with the approval of the Board) after achieving 62
years of age.
19
8. Section 4. The first paragraph of Section 4 shall be amended and restated to read
in its entirety as follows:
The Plan shall be administered by the Committee. The Committee shall have full
authority to administer the Plan, including authority to interpret and construe any
provision of the Plan and the terms of any Award granted thereunder and to adopt such
rules and regulations for administering the Plan as it may deem necessary. Decisions
of the Committee shall be final and binding on all parties.
9. Section 5. Section 5 shall be amended and restated to read in its entirety as
follows:
The persons who shall be eligible to receive Awards pursuant to the Plan shall be
such key employees of the Company (including any member of the Board who is also an
employee of the Company or any of its Affiliates) who have made or who the Committee
believes will make substantial contributions to the management, growth and protection
of the business of the Company and Non-Employee Directors.
10. Section 6. The following shall be added as a new Section 6(a) and the former
Section 6(a) and all subsequent subsections of Section 6 and all cross-references thereto shall be
relettered accordingly:
The Committee shall from time to time grant Awards to eligible employees of the
Company designating the employees of the Company who shall be granted Awards and the
number of Shares underlying such Awards; provided that the Committee shall not
grant any Awards in a calendar year if the Companys net income with respect to the
immediately preceding calendar year was not greater than $0 (as determined in
accordance with U.S. Generally Accepted Accounting Principles and as reflected in the
Companys audited financial statements for such preceding calendar year), other than
inducement Awards granted to persons who are becoming employees of the Company during
such calendar year and Awards granted to Non-Employee Directors. In making such
grants, the Committee may consider, among other criteria and factors as it determines
in its discretion, the recommendations of the President and Chief Executive Officer of
CARBO. Each Non-Employee Director shall be granted an Award with respect to 2,000
Shares as of the later of (x) the first day on which he is elected or otherwise
appointed to the Board or (y) the date of the annual meeting of stockholders of the
Company held in 2006.
11. Section 6. Section 6(c) (as newly relettered pursuant to the foregoing) shall be
amended and restated to read in its entirety as follows:
Notwithstanding the foregoing, in the event that a Participants employment with
the Company or service on the Board is terminated prior to the Vesting Date with
respect to any of such Participants Shares (i) for any reason other than as a result
of death, Disability or Retirement, all such Shares shall be forfeited on the date of
such termination without payment of any consideration therefor; and (ii) as a result
of death, Disability or Retirement, all such Shares shall cease to be subject to the
Transfer Restrictions and cease to be forfeitable as of the date of such termination.
12. Section 8. Section 8 shall be amended and restated to read in its entirety as
follows:
In the event that CARBO declares any ordinary cash dividends or distributions on
its Common Stock to its stockholders generally, whether stock or cash dividend or
otherwise, the Participants to whom Shares have been awarded (including any Shares
held during the Holding Period) shall be entitled to receive such cash dividends or
distributions at the same time as stockholders generally. In the event that CARBO
declares any ordinary stock dividend, the Participants to whom Shares have been
awarded (including any Shares held during the Holding Period shall be entitled to such
stock dividends or distribution, provided that such dividends or distributions shall
be subject to the provisions of Sections 6(b), (c), (d) and (e) hereof in the same
manner as the corresponding Shares to which such dividends or distributions relate and
shall be held by the Company or subject to a legend as determined by the Committee to
effectuate the purposes of this Plan.
20
13. Section 10. Section 10(a) shall be amended and restated to read in its entirety
as follows:
Corporate Changes. In the event of any change in the number of shares of Common
Stock outstanding or any change in the capitalization of CARBO by reason of any stock
dividend or split, recapitalization, merger, consolidation, combination or exchange of
shares, extraordinary dividends, whether cash or stock or any other corporate change,
the Committee may, in its absolute discretion, make such adjustments to the number and
type of securities underlying any outstanding Awards, to the maximum aggregate number
of Shares and/or type of securities available for grant (with respect to the entire
Plan and with respect to the individual Participant limitation set forth in Section 3
hereof) and to the number and type of securities to be granted to Non-Employee
Directors under Section 6(a) hereof, as the Committee may consider appropriate to
prevent dilution or enlargement of rights.
14. Section 12. The following shall be added as a new Section 12(j):
Code Section 409A. Unless otherwise specifically determined by the Committee,
other provisions of the Plan notwithstanding, the terms of any Award, including any
authority of the Board or Committee and rights of a Participant with respect to the
Award, shall be limited to those terms permitted under Section 409A of the Code and
any regulations promulgated thereunder, including any successor provisions and
regulations, and including any applicable guidance or pronouncement of the Department
of the Treasury and Internal Revenue Service (collectively, Code Section
409A), and any terms not permitted under Code Section 409A shall be automatically
modified and limited to the extent necessary to conform with Code Section 409A;
provided, that for purposes of the foregoing, references to a term or
event (including any authority or right of the Board or Committee or a Participant)
being permitted under Code Section 409A mean that the term or event will not cause
the Award to be treated as subject to Code Section 409A.
21
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR THE
PROPOSALS.
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Please Mark Here for Address Change or Comments SEE REVERSE SIDE |
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To elect seven Directors. The Board of Directors recommends a vote FOR the nominees listed below. |
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FOR all nominees listed |
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WITHHOLD AUTHORITY to vote for all nominees listed |
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01 Claude E. Cooke, Jr.
02 Chad C. Deaton
03 H. E. Lentz, Jr.
04 William C. Morris
05 John J. Murphy
06 Jesse P. Orsini
07 Robert S. Rubin |
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INSTRUCTIONS: To withhold authority to vote for any individual nominee, write that nominees name in the space provided below.
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FOR |
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AGAINST |
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ABSTAIN |
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Proposal to ratify and approve Amendment Number One to the 2004 CARBO Ceramics Inc. Long-Term Incentive Plan. |
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FOR |
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AGAINST |
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ABSTAIN |
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Proposal to ratify the appointment
of Ernst & Young LLP, certified public accountants, as independent auditors for the fiscal year ending December 31, 2006. |
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In their discretion to vote upon such other business as may properly come before the meeting. |
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The Board of Directors recommends that you vote FOR the nominees and proposal listed above. This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. If no direction is given, this proxy will be voted FOR the nominees and proposal.
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DATED: |
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, 2006 |
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(SIGNATURE OF SHAREHOLDER)
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(SIGNATURE IF HELD JOINTLY)
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Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign full corporate name by president or other authorized officer. If partnership, please sign in partnership name by authorized person.
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
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Internet
http://www.proxyvoting.com/crr Use the internet to vote your proxy. Have your proxy card in hand when you access the web site. |
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Telephone
1-866-540-5760 Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. |
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OR
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Mail Mark, sign and date your proxy card and
return it in the enclosed postage-paid envelope. |
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the internet at www.carboceramics.com
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CARBO CERAMICS INC.
The undersigned hereby appoints Jesse P. Orsini and Paul G. Vitek, or either one of them, as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse side, all the shares of Common Stock of CARBO Ceramics Inc., held of record
by the undersigned on February 15, 2006, at the Annual Meeting of Shareholders to be held on April 18, 2006, or any adjournment or continuation thereof.
(PLEASE SEE REVERSE SIDE)
Address Change/Comments
(Mark the corresponding box on the reverse side)