UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A
INFORMATION
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Additional Materials.
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Material Pursuant to Section 240.14a-12.
Colfax
Corporation
(Name
of Registrant as Specified In Its Charter)
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COLFAX
CORPORATION
8730
Stony Point Parkway, Suite 150
Richmond,
Virginia 23235
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
April 9,
2009
To Our
Stockholders:
Notice is
hereby given that the 2009 Annual Meeting of Stockholders (the “Annual Meeting”)
of Colfax Corporation will be held at The Jefferson Hotel, 101 West Franklin
Street, Richmond, Virginia 23220 on Tuesday, May 12, 2009, at 3:00 p.m., local
time, for the following purposes:
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1.
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To
elect nine members of the Board of Directors from the nominees named in
the attached proxy statement;
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2.
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To
ratify the appointment of Ernst & Young LLP as the independent
registered public accounting firm for the Company for the fiscal year
ending December 31, 2009;
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3.
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To
approve the Colfax Corporation Annual Incentive Plan;
and
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4.
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To
consider any other matters that properly come before the Annual Meeting or
any adjournment or postponement
thereof.
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The accompanying proxy statement
describes the matters to be considered at the Annual Meeting. Only
stockholders of record at the close of business on March 27, 2009 are entitled
to notice of, and to vote at, the Annual Meeting and at any adjournments or
postponements thereof.
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By
Order of the Board of Directors
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Thomas
M. O’Brien
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Secretary
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April 9,
2009
WHETHER
OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, WE URGE YOU TO VOTE
YOUR SHARES AT YOUR EARLIEST CONVENIENCE. THIS WILL ENSURE THE PRESENCE OF A
QUORUM AT THE ANNUAL MEETING. PROMPTLY VOTING YOUR SHARES BY SIGNING, DATING AND
RETURNING THE ENCLOSED PROXY CARD WILL SAVE US THE EXPENSE AND EXTRA WORK OF
ADDITIONAL SOLICITATION. AN ADDRESSED ENVELOPE FOR WHICH NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES IS ENCLOSED. SUBMITTING YOUR PROXY NOW WILL NOT
PREVENT YOU FROM VOTING YOUR SHARES AT THE MEETING IF YOU DESIRE TO DO SO, AS
YOUR PROXY IS REVOCABLE AT YOUR OPTION. YOUR VOTE IS IMPORTANT, SO PLEASE ACT
TODAY.
COLFAX
CORPORATION
8730
Stony Point Parkway, Suite 150
Richmond,
Virginia 23235
PROXY
STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
May
12, 2009
This
Proxy Statement (the “Proxy Statement”), which was first mailed to stockholders
on or about April 9, 2009, is furnished in connection with the solicitation by
the Board of Directors (the “Board”) of Colfax Corporation (hereinafter, “we”
“us” and the “Company”), of proxies for use at the 2009 Annual Meeting of
Stockholders (the “Annual Meeting”) to be held at The Jefferson Hotel, 101 West
Franklin Street, Richmond, Virginia 23220 on Tuesday, May 12, 2009, at 3:00
p.m., local time, and at any adjournments or postponements thereof. The purpose
of the meeting is to: elect nine members of the Board from the nominees named in
this Proxy Statement; ratify the selection of Ernst & Young LLP as the
Company’s independent registered public accounting firm for the fiscal year
ending December 31, 2009; approve the Colfax Corporation Annual Incentive Plan;
and to consider any other matters that properly come before the Annual Meeting
or any adjournment or postponement thereof.
Important
Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting
to be Held on
May 12, 2009
May 12, 2009
Our
Annual Report to Stockholders and this Proxy Statement are available at
www.colfaxcorp.com.
OUTSTANDING
STOCK AND VOTING RIGHTS
The Board has fixed the close of
business on March 27, 2009 (the “Record Date”) as the record date for
determining the stockholders entitled to notice of, and to vote at, the Annual
Meeting. Only stockholders of record on that date will be entitled to vote.
Proxies will be voted as specified in the stockholder’s proxy. In the absence of
specific instructions, proxies will be voted in accordance with the Company’s
recommendations and in the discretion of the proxy holders on any other matter
which properly comes before the meeting or any adjournment or postponement
thereof. The Board has selected Mitchell P. Rales and Joseph O. Bunting III to
act as proxies with full power of substitution.
Any stockholder giving a proxy has the
power to revoke the proxy at any time before it is exercised by either (i)
delivering a written notice of revocation to Colfax Corporation, 200 American
Metro Blvd., Suite 111, Hamilton Township, New Jersey 08619, Attn: Corporate
Secretary, (ii) delivery prior to the Annual Meeting of a properly executed and
subsequently dated proxy, or (ii) attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not cause your previously granted
proxy to be revoked unless you specifically so
request.
The total expense of this solicitation
will be borne by the Company, including reimbursement paid to brokerage firms
and others for their expenses in forwarding material regarding the Annual
Meeting to beneficial owners. Solicitation of proxies may be made personally or
by mail, telephone, internet, e-mail or facsimile by officers and other
management employees of the Company, who will receive no additional compensation
for their services.
Shares of
the Company’s common stock are entitled to vote at the Annual Meeting. As of the
Record Date, 43,211,026 shares of the Company’s common stock were outstanding.
Each outstanding share of the Company’s common stock entitles the holder to one
vote on all matters brought before the Annual Meeting. The quorum necessary to
conduct business at the Annual Meeting consists of a majority the shares of the
Company’s common stock outstanding on the Record Date and entitled to vote at
the Annual Meeting, either present in person or represented by proxy. A list of
stockholders of record as of the Record Date will be available for inspection
during ordinary business hours at our offices located at 8730 Stony Point
Parkway, Suite 150, Richmond, VA 23235, for 10 days prior to the date of our
Annual Meeting. The list will also be available for inspection at the Annual
Meeting.
In accordance with the Company’s
Amended and Restated Bylaws (the “Bylaws”), to be elected each director nominee
must receive a majority of the votes cast with respect to that director’s
election. Incumbent directors nominated for election by the Board are required,
as a condition to such nomination, to submit a conditional letter of resignation
to the chairman of the Board. In the event that a nominee for director does not
receive a majority of the votes cast at the Annual Meeting with respect to his
or her election, the Board will promptly consider whether to accept or reject
the conditional resignation of that nominee, or whether other action should be
taken. The Board will then take action and will publicly disclose its decision
and the rationale behind it no later than 90 days following the certification of
election results.
1
The affirmative vote of a majority of
the shares present in person or represented by proxy at the Annual Meeting and
entitled to vote is required for the ratification of the appointment of Ernst
& Young LLP as the Company’s independent registered public accounting firm
for the fiscal year ending December 31, 2009 and for the approval of the Colfax
Corporation Annual Incentive Plan.
Under the NYSE rules, the proposals to
elect members of our Board and to ratify the selection of our registered public
accounting firm are considered “discretionary” items. This means that brokerage
firms may vote in their discretion on these matters on behalf of clients who
have not furnished voting instructions at least 15 days before the date of the
Annual Meeting. In contrast, the proposal to approve the Colfax Corporation
Annual Incentive Plan is a “non-discretionary” item. This means brokerage firms
that have not received voting instructions from their clients on these matters
may not vote on this proposal (a “broker non-vote”). Under the NYSE rules, the
total votes cast on the proposal to approve the Colfax Corporation Annual
Incentive Plan must represent over 50% of the shares entitled to vote on that
proposal at that Annual Meeting. For this proposal, broker non-votes are
included in the shares counted as entitled to vote but will not vote on the
proposal and therefore are not included in the number of votes cast to reach the
total vote cast 50% threshold. Abstentions also count as shares entitled to vote
on this proposal and, unlike broker non-votes, will be included in the number of
total votes cast on the proposal to approve the Colfax Corporation Annual
Incentive Plan; however, they will not count as an affirmative vote on the
proposal.
2
PROPOSAL
1
ELECTION
OF DIRECTORS
The
Company’s directors will be elected at the Annual Meeting to serve until the
next annual meeting of the Company and until their successors are duly elected
and qualified. At the recommendation of the Nominating and Corporate Governance
Committee, the Board has nominated the following persons to serve as directors
for the term beginning at the Annual Meeting on May 12, 2009: John A. Young,
Mitchell P. Rales, Patrick W. Allender, C. Scott Brannan, Joseph O. Bunting III,
Thomas S. Gayner, Rhonda L. Jordan, Clay Kiefaber, and Rajiv Vinnakota. All
nominees are currently serving on the Board.
Upon the
consummation of our initial public offering on May 13, 2008, Patrick W.
Allender, C. Scott Brannan, Joseph O. Bunting III, Thomas S. Gayner, Clay
Kiefaber and Rajiv Vinnakota joined the Board. These directors were identified
and appointed to the Board by our board of directors at that time. Rhonda L.
Jordan was appointed to the Board on February 17, 2009 following a search for
qualified director candidates.
The Board
has been informed that all of the nominees listed below are willing to serve as
directors, but if any of them should decline or be unable to act as a director,
the individuals named in the proxies may vote for a substitute designated by the
Board. The Company has no reason to believe that any nominee will be unable or
unwilling to serve.
Nominees
for Director
The names
of the nominees for director, their ages as of March 27, 2009, principal
occupations and employment during at least the last five years, period of
service as a director of the Company, and certain other directorships held for
each nominee is set forth below:
Mitchell P. Rales (52) has
served as a director of the Company since its founding in 1995. He is the
Chairman of our Board of Directors. Mr. Rales has served as the
Chairman of the Executive Committee of Danaher Corporation since 1990. For more
than the past five years, Mitchell Rales has been a principal in a number of
private business entities with interests in manufacturing companies and publicly
traded securities.
John A. Young (43) has served
as a director of the Company since November 1, 2005. He is our
President and Chief Executive Officer. Prior to becoming President in
2000, Mr. Young was Vice President, Chief Financial Officer and
Treasurer of the Company since its founding in 1995.
Patrick W. Allender (62) has
served as a director of the Company since May 13, 2008. He is the former
Executive Vice President and Chief Financial Officer of Danaher Corporation,
where he served from 1987 until 2006. Mr. Allender is a director of the Brady
Corporation where he is a member of the audit and compensation
committees.
C. Scott Brannan (50) has
served as a director of the Company since May 13, 2008. He is a partner of
Aronson & Company. Prior to joining Aronson & Company in 2003, Mr.
Brannan served as Director of International Finance of our Company for one year.
Mr. Brannan is a certified public accountant.
Joseph O. Bunting III (47)
has served as a director of the Company since May 13, 2008. From 1997 until
consummation of our initial public offering in 2008, Mr. Bunting served as Vice
President of our Company. For more than the past five years, Mr. Bunting has
been an officer, member or director in a number of private business entities
with interests in manufacturing companies and publicly traded securities and
which are affiliated with Mitchell Rales and Steven Rales.
Thomas S. Gayner (48) has
served as a director of the Company since May 13, 2008. He is Executive Vice
President and Chief Investment Officer of Markel Corporation. Since 1990, Mr.
Gayner has served as President of Markel Gayner Asset Management, Inc. Mr.
Gayner served as a director of Markel Corporation from 1998 to 2003. Mr. Gayner
currently serves on the board of directors of The Washington Post Company and
The Davis Funds.
Rhonda L. Jordan (51) has
served as a director of the Company since February 17, 2009. She is the
President of the Cheese and Dairy business unit of Kraft Foods Inc. From 2006 to
2008 she served at the President of the Grocery business unit of Kraft and from
2004 to through 2005 she was the Senior Vice President, Global Marketing of
Kraft.
3
Clay Kiefaber (53) has served
as a director of the Company since May 13, 2008. He served as Group President of
Masco Corporation from 2006 to 2007. Prior to serving as Group President, Mr.
Kiefaber was Group Vice President of Masco Builder Cabinet Group and President
of Merillat Industries, both companies of which are subsidiaries of Masco
Corporation. Mr. Kiefaber joined Merillat Industries in 1989.
Rajiv Vinnakota (37) has
served as a director of the Company since May 13, 2008. He has been Managing
Director and President of The SEED Foundation, a non-profit educational
organization, since 1997. Prior to co-founding SEED, Mr. Vinnakota was an
associate at Mercer Management Consulting.
The
Board unanimously recommends that stockholders vote “FOR” the election of each
of the nominees for director listed above.
4
CORPORATE
GOVERNANCE
Director
Independence
In
accordance with the rules of the New York Stock Exchange (“NYSE”), our Corporate
Governance Guidelines require that a majority of our Board members be
independent directors. In addition, NYSE rules and the respective charters of
the Audit Committee, Compensation Committee and Nominating and Corporate
Governance Committee require that each member of these committees be independent
directors. In order for a director to qualify as “independent,” our
Board must affirmatively determine that the director has no material
relationship with the Company that would impair the director’s
independence. The Board has determined that Mr. Allender, Mr.
Brannan, Mr. Gayner, Ms. Jordan, Mr. Kiefaber, and Mr. Vinnakota each qualify as
“independent.”
The
independent members of our Board must hold at least two “executive session”
meetings each year without the presence of management. If the chairman of the
Board is not an independent director, the independent directors select an
independent director to serve as chairperson for each executive session. In
general, these meetings are intended to be used as a forum to discuss such
topics as the independent directors deem necessary or appropriate, including the
annual evaluation of the Chief Executive Officer’s performance, the annual
review of the Chief Executive Officer’s plan for management succession and the
annual evaluation of the Board’s performance.
Board
of Directors and its Committees
The Board
and its committees meet regularly throughout the year, and may also hold special
meetings and act by written consent from time to time. The Board held a total of
6 meetings during the year ended December 31, 2008. During this time all
directors attended 100% of the aggregate number of meetings held by the Board
and all committees of the Board on which such director served (during the period
which such director was a member of the Board). Our Corporate Governance
Guidelines request Board members to make every effort to attend our annual
meeting of stockholders.
The Board
has a standing Audit Committee, Compensation Committee, and Nominating and
Corporate Governance Committee. The charters for the Audit Committee,
Compensation Committee, and Nominating and Corporate Governance Committee are
available on the Company’s website at www.colfaxcorp.com on the Investors page
under the Corporate Governance tab. These materials also are
available in print to any stockholder upon request. The Board
committees review their respective charters on an annual basis. The
Nominating and Corporate Governance Committee oversees an annual evaluation of
the Board and each committee’s operations and performance.
Audit
Committee
The Board has established a separately
designated standing audit committee in accordance with Section 3(a)(58)(A) of
the Securities Exchange Act of 1934 (the “Exchange Act”). The Audit Committee is
responsible, among its other duties and responsibilities, for overseeing our
accounting and financial reporting processes, the audits of our financial
statements, the qualifications of our independent registered public accounting
firm, and the performance of our internal audit function and independent
registered public accounting firm. The Audit Committee reviews and assesses the
qualitative aspects of our financial reporting, our processes to manage business
and financial risks, and our compliance with significant applicable legal,
ethical and regulatory requirements. The Audit Committee is directly responsible
for the appointment, compensation, retention and oversight of our independent
registered public accounting firm. The members of our Audit Committee are Mr.
Brannan, Chair, Mr. Allender and Mr. Gayner. The Board has determined that Mr.
Brannan qualifies as an “audit committee financial expert,” as that term is
defined under the SEC rules. The Board has determined that each member of our
Audit Committee is independent and financially literate under the NYSE’s Listing
Standards and that each member of our Audit Committee is independent under the
requirements of SEC Rule 10A-3.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance
Committee is responsible for recommending candidates for election to the board
of directors. The committee is also responsible, among its other duties and
responsibilities, for making recommendations to the board of directors or
otherwise acting with respect to corporate governance policies and practices,
including board size and membership qualifications, new director orientation,
committee structure and membership, succession planning for our Chief Executive
Officer and other key executive officers, and communications with stockholders.
The members of our Nominating and Corporate Governance Committee are Mr.
Allender, Chair, Mr. Brannan and Mr. Vinnakota. The Board has determined that
each member of our Nominating and Corporate Governance Committee is independent
under the NYSE’s Listing Standards.
5
Compensation
Committee
The Compensation Committee is
responsible, among its other duties and responsibilities, for determining and
approving the compensation and benefits of our Chief Executive Officer and other
executive officers, monitoring compensation arrangements applicable to our Chief
Executive Officer and other executive officers in light of their performance,
effectiveness and other relevant considerations and adopting and administering
our equity and incentive plans. The members of our Compensation
Committee are Mr. Kiefaber, Chair, Ms. Jordan and Mr. Vinnakota. Mr.
Gayner was a member of the committee until February 17, 2009, at which time he
resigned effective upon the appointment of Ms. Jordan to the Board and the
Compensation Committee. The Board has determined that each member of
our Compensation Committee is an “outside director” within the meaning of
Section 162(m) of the Internal Revenue Code, a “non-employee director” within
the meaning of SEC Rule 16b-3, and is independent under the NYSE’s Listing
Standards.
The Compensation Committee annually
reviews and approves the corporate goals and objectives relevant to the
compensation of our Chief Executive Officer, evaluates his performance in light
of those goals and objectives, and determines his compensation level based on
that analysis. The Compensation Committee also annually reviews and approves all
elements of the compensation of our executive officers. Executive officers are
evaluated by our Chief Executive Officer and he makes compensation
recommendations to the Compensation Committee based on these evaluations. The
Compensation Committee also reviews and makes recommendations to the Board for
all new agreements with our executive officers and for all elements of director
compensation. All of the Company’s incentive compensation and equity-based
compensation plans are administered by the Compensation Committee, and the
Compensation Committee considers whether to make recommendations to the Board
for new incentive compensation plans and equity-based compensation plans or for
any increase in the shares reserved for issuance under these plans on an annual
basis. For further information on our compensation practices,
including a description of our processes and procedures for determining
compensation, the scope of the Compensation Committee’s authority and the role
executive officers play in compensation determinations please see the
Compensation Discussion and Analysis below.
In 2008, our management engaged Watson
Wyatt Worldwide to conduct a comprehensive competitive review
of compensation practices at peer companies and from
published survey sources. This review was conducted prior to our
initial public offering and was used by our board at that time as a
reference in setting compensation for our executive officers.
Additional information on the nature of the competitive review and the way
it was used by the board can be found below in the Compensation Discussion
and Analysis.
Compensation
Committee Interlocks and Insider Participation
No member
of the Compensation Committee is, or during the last fiscal year was, an officer
or an employee of the Company or any of its subsidiaries, and no Committee
member has any interlocking or insider relationship with the Company which is
required to be reported under the rules of the SEC.
Identification
and Evaluation of Individual Director Candidates
Criteria
for Nomination to the Board
The
Nominating and Corporate Governance Committee considers candidates for Board
membership suggested by its members and other Board members, as well as by
management and stockholders. It evaluates candidates submitted by stockholders
in the same manner as other candidates identified to it. The Nominating and
Corporate Governance Committee may also use outside consultants to assist in
identifying candidates. The Nominating and Corporate Governance Committee is
responsible for assessing whether a candidate would be an independent director.
Each possible candidate is discussed and evaluated in detail before being
recommended to the Board.
6
Director
Qualifications. The Nominating and Corporate Governance
Committee considers, among other things, the following criteria in selecting
director nominees:
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personal
and professional integrity;
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skills,
business experience and industry knowledge useful to the oversight of the
Company based on the perceived needs of the Company and the Board at any
given time;
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the
ability and willingness to devote the required amount of time to the
Company’s affairs, including attendance at Board and committee
meetings;
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the
long-term interests of the Company and its stockholders;
and
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the
lack of any personal or professional relationships that would adversely
affect a candidate’s ability to serve the best interests of the Company
and its stockholders.
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The
Nominating and Corporate Governance Committee looks for candidates with the
expertise, skills, knowledge and experience that, when taken together with that
of other members of the Board, will lead to a Board that is effective, collegial
and responsive to the needs of the Company. In 2009, the Nominating and
Corporate Governance Committee paid a fee to a third party search firm to assist
in the identification of candidates for the Board. The third party search firm
identified potential director candidates based on the guidance provided by the
Nominating and Corporate Governance Committee. Ms. Jordan was identified by the
firm as a qualified candidate.
Director
Nomination Process
The
Nominating and Corporate Governance Committee recommends, and the Board
nominates, candidates to stand for election as directors. Stockholders may also
nominate persons to be elected as directors. If a stockholder wishes to nominate
a person for election as director, he or she must follow the procedures
contained in Section 3.3 of our Bylaws. To nominate a person to stand for
election as a director at the annual meeting of stockholders for 2010, our
Corporate Secretary must receive such nominations at our principal executive
offices not less than 90 days nor more than 120 days before the anniversary date
of the preceding annual meeting, except that if the annual meeting is set for a
date that is more than 30 days before or more than 70 days after such
anniversary, the nomination must be received not earlier than the close of
business on the 120th day
prior to the annual meeting date and not later than the close of business on the
later of the 90th day
prior to such annual meeting or the tenth day following the day when the Company
makes a public announcement of the annual meeting date. Each submission must
include the following information:
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the
name and address of the stockholder who intends to make the nomination
(and the beneficial owner, if any) and the name and address of the person
or persons to be nominated;
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the
number of shares of common stock owned by the
stockholder;
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a
representation that the stockholder is a holder of record of Company’s
common stock entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or
persons;
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a
representation whether the stockholder intends to deliver proxies to the
percentage of the Company’s outstanding common stock required to elect the
nominee or to solicit proxies in support of such
nomination;
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if
applicable, the extent of any hedging or other transactions or any other
arrangements by the stockholder, the effect or intent of which is to
mitigate loss or manage risk of stock price changes for, or to increase
the voting power of, the
stockholder;
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if
applicable, a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons, naming
such person or persons, pursuant to which the nomination is to be made by
the stockholder;
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such
other information regarding each nominee to be proposed by such
stockholder as would be required to be included in a proxy statement filed
under the SEC’s proxy rules if the nominee had been nominated, or intended
to be nominated, by the Board;
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if
applicable, the consent of each nominee to serve as a director if elected
and a statement that the nominee, if elected, intends to tender the
irrevocable resignation letter required of incumbent directors described
in “Outstanding Stock and Voting Rights” above;
and
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such
other information that the Board may request in its
discretion.
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The Board
may require any proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed nominee to
serve as one of its directors.
Additional
information regarding requirements for stockholder nominations for next year’s
annual meeting and for the inclusion of stockholder proposals in the Proxy
Statement is described in this Proxy Statement under “General Matters
– Stockholder Proposals and Nominations.”
Standards
of Conduct
The Board
has adopted Corporate Governance Guidelines, which set forth a framework to
assist the Board in the exercise of its responsibilities. The Corporate
Governance Guidelines cover, among other things, the composition and certain
functions of the Board and its committees, executive sessions, Board
responsibilities, expectations for directors, and director orientation and
continuing education.
As part
of our system of corporate governance, the Board has also adopted a Code of
Business Conduct and Ethics (the “Code of Ethics”) that is applicable to all
directors, officers and employees of the Company. The Code of Ethics sets forth
Company policies, expectations and procedures on a number of topics, including
but not limited to conflicts of interest, compliance with laws, rules and
regulations (including insider trading laws), honesty and ethical conduct, and
quality. The Code of Ethics also sets forth procedures for reporting violations
of the Code and investigations thereof.
The
Corporate Governance Guidelines and Code of Ethics are available on the
Company’s website at www.colfaxcorp.com on the Investors page under the
Corporate Governance tab. These materials also are available in print to any
stockholder upon request.
Certain
Relationships and Related Person Transactions
Policies
and Procedures for Related Person Transactions
We have adopted a written Policy
Regarding Related Person Transactions pursuant to which our executive officers,
directors and principal stockholders, including their immediate family members,
are not permitted to enter into a related person transaction with us without the
consent of our Audit Committee, another independent committee of our Board or
the full Board. Any request to enter into a transaction with any of
these persons, in which the amount involved exceeds $120,000, is required to be
presented to our Audit Committee for review, consideration and approval. All of
our directors, executive officers and employees are required to report to our
Audit Committee any such transaction. In approving or rejecting the proposed
agreement, our Audit Committee takes into account, among other factors it deems
appropriate, whether the proposed related person transaction is on terms no less
favorable than terms generally available to an unaffiliated third party under
the same or similar circumstances, the extent of the person’s interest in the
transaction and, if applicable, the impact on a director’s independence. Under
the policy, if we discover related person transactions that have not been
approved, the Audit Committee is to be notified and will determine the
appropriate action, including ratification, rescission or amendment of the
transaction.
Related
Person Transactions
Set forth
below is a summary of certain transactions since January 1, 2008 among us, our
directors, our executive officers, beneficial owners of more than 5% of either
our common stock or our preferred stock, which was outstanding before completion
of our initial public offering, and entities with which the foregoing persons
are affiliated or associated in which the amount involved exceeds or will exceed
$120,000:
Management Fee. Prior to our
initial public offering in May 2008, we paid a quarterly management fee of
$250,000 to Colfax Towers, Inc., an entity that is wholly owned by Mitchell P.
Rales, the Chairman of the Board and Steven M. Rales, one of our principal
stockholders. Joseph O. Bunting III, who was a Vice President of the Company
until the initial public offering and is currently a director of the Company,
serves as an officer of Colfax Towers. Payment of this management fee was
discontinued in April 2008. Since the beginning of 2008 until
discontinuance of the management fee, $500,000 in management fees were paid to
Colfax Towers.
8
Underwriting Discount
Reimbursement. We reimbursed the selling stockholders in our
initial public offering, Mitchell P. Rales and Steven M. Rales (and certain
entities wholly owned by them), for the underwriting discount on the shares sold
by them in the offering. The amount of this reimbursement was $11.8
million.
Preferred Stock Dividends.
The holders of our all of our preferred stock that was converted into shares of
common stock in our initial public offering, Mitchell P. Rales and Steven M.
Rales (and certain entities wholly owned by them), were entitled to receive
dividends in preference to any dividend on the common stock at the rate of LIBOR
plus 2.50% per annum, when and if declared by the board of
directors. Dividends of $3.5 million, $12.2 million, $13.7 million
and $9.2 million were declared on May 12, 2008, December 31, 2007, May 15, 2007
and December 31, 2005, but were not paid when declared due to restrictions on
the payment of dividends in our credit facility at that time. These declared but
unpaid dividends were paid out of the proceeds of the initial public
offering. In aggregate, we paid dividends to existing preferred
stockholders of record immediately prior to the consummation of the initial
public offering in the amount of $38.5 million in 2008.
Transactions with Danaher
Corporation. We have purchased approximately $265,000 in goods from
Danaher Corporation (“Danaher”) in transactions that took place in the ordinary
course of business and on an arm’s-length basis. Mitchell P. Rales is
the Chairman of Danaher’s executive committee and Steven M. Rales is the
Chairman of Danaher’s board of directors, and both are the beneficial owners of
at least 5% of Danaher’s outstanding common stock.
Contacting
the Board of Directors
Stockholders
wishing to communicate with our Board may do so by writing to any of the Board,
the chairman of the Board, or the non-management members of the Board as a
group, at:
Colfax
Corporation
200
American Metro Blvd., Suite 111
Hamilton
Township, New Jersey 08619
Attn:
Corporate Secretary
Complaints or concerns relating to our
accounting, internal accounting controls or auditing matters will be referred to
members of the Audit Committee. Other correspondence will be referred to the
relevant individual or group. All correspondence is required by our Policy on
Stockholder Communications with the Board of Directors (the “Stockholder
Communications Policy”) to prominently display the legend “Board Communication” in order
to indicate to the Corporate Secretary that it is communication subject to our
policy and will be received and processed by the Corporate Secretary’s office.
Each communication received by the Corporate Secretary will be copied for our
files and will be promptly forwarded to the addressee. In our Stockholder
Communications Policy, the Board has requested that certain items not related to
the Board’s duties and responsibilities be excluded from its communications,
such as mass mailings and business advertisements. In addition, the Corporate
Secretary is not required to forward any communication that the Corporate
Secretary, in good faith, determines to be frivolous, unduly hostile,
threatening, illegal or similarly unsuitable. However, the Corporate Secretary
will maintain a list of each communication subject to this policy that is not
forwarded, and on a quarterly basis, will deliver the list to the Chairperson of
the Board. In addition, each communication subject to this policy that is not
forwarded because it was determined by the Secretary to be frivolous shall
nevertheless be retained in our files and made available at the request of any
member of the Board to whom such communication was addressed.
9
DIRECTOR
COMPENSATION
Pursuant
to our current directors’ compensation policy for non-employee directors, our
Board members receive an initial equity grant of 5,556 restricted stock units
upon their joining the Board, an annual cash retainer of $35,000, and an annual
equity award of $60,000 in restricted stock units, which is awarded in
connection with our annual meeting of stockholders and which vests in three
equal installments on the first three anniversaries of the date of the
grant. In addition, the chairman of our Audit Committee receives an
annual retainer of $15,000, and the chairmen of the Compensation Committee and
Nominating and Corporate Governance Committee each receive annual retainers of
$10,000. On December 11, 2008, the Board amended the director compensation
package to adjust the initial equity grant amount received upon joining the
Board from $100,000 in restricted stock units to 5,556 restricted stock
units. This amendment was approved by the Board in order to fix the
number restricted stock units received upon joining the Board at the amount of
restricted stock units received pursuant to our directors’ compensation policy
at the time of our initial public offering.
Our
non-executive chairman of the Board is entitled to receive an annual cash
retainer of $1 and does not receive any other cash fees or the initial or annual
equity awards described above.
The Board
has also approved a share ownership policy for our directors. Each director will
be required to have economic ownership of our common stock (including shares
issued upon exercise of stock options and shares underlying restricted stock
units) equal to five times the annual cash retainer within five years of joining
the board of directors. If the initial and annual restricted stock unit grants
are retained, each director will be in compliance with this requirement after
the first annual grant of restricted stock units is made in connection the
Annual Meeting.
In
addition, the Board has adopted a Director Deferred Compensation Plan which
permits non-employee directors to receive, at their discretion, deferred stock
units, or DSUs, in lieu of their annual cash retainers and meeting fees. A
director who elects to receive DSUs receives a number of units determined by
dividing the cash fees earned during, and deferred for, the quarter by the
closing price of our common stock on the date of the grant, which is the last
trading day of the quarter. A non-employee director also may convert restricted
stock unit grants to DSUs under the plan. DSUs granted to our directors convert
to shares of our common stock after termination of service from the board of
directors, based upon a schedule elected by the director in advance. In the
event that a director elects to receive DSUs, the director will receive dividend
equivalent rights on such DSUs to the extent dividends are issued on our common
stock. Dividend equivalents are deemed reinvested in additional DSUs (or
fractions thereof).
We also
reimburse all directors for travel and other necessary business expenses
incurred in the performance of their services for us and extend coverage to them
under our directors’ and officers’ indemnity insurance policies.
The
following table sets forth information regarding compensation paid to our
non-executive directors during 2008:
|
Name (1)
|
Fees Earned or
Paid in Cash
($)
|
Stock
Awards
($) (2)
|
Total
($)
|
|||||||||
|
Mitchell
P. Rales
|
1
|
—
|
1
|
|||||||||
|
Patrick
W. Allender
|
29,188
|
21,737
|
50,925
|
|||||||||
|
C.
Scott Brannan
|
32,432
|
21,737
|
54,169
|
|
||||||||
|
Joseph
O. Bunting III
|
22,702
|
21,737
|
44,439
|
|||||||||
|
Thomas
S. Gayner
|
22,702
|
21,737
|
44,439
|
|||||||||
|
Clay
Kiefaber
|
29,188
|
21,737
|
50,925
|
|||||||||
|
Rajiv
Vinnakota
|
22,702
|
21,737
|
44,439
|
|||||||||
|
(1)
|
See
the Summary Compensation Table in the Executive Compensation section of
this Proxy Statement for compensation disclosure related to Mr. Young. Mr.
Young does not receive any additional compensation in connection with his
services as a director.
|
|
(2)
|
Amounts
represent the compensation expense recognized for financial statement
purposes for stock awards to each director during 2008, as computed
pursuant to SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
123R”), excluding any estimates of forfeitures relating to service-based
vesting conditions. The restricted stock awards granted to each
non-executive director in fiscal 2008 had a full grant date fair value
equal to $100,000. For a discussion of the assumptions used in determining
these values, see Note 13 to our Consolidated Financial Statements in our
2008 Annual Report on Form 10-K.
|
10
As of
December 31, 2008, the aggregate number of vested and unvested stock awards
outstanding held by our non-employee directors were as follows:
|
Name
|
Stock
Awards
(1)
|
|||
|
Mitchell
P. Rales
|
0
|
|||
|
Patrick
W. Allender
|
5,556
|
|||
|
C.
Scott Brannan
|
5,556
|
|||
|
Joseph
O. Bunting III
|
5,556
|
|||
|
Thomas
S. Gayner
|
5,556
|
|||
|
Clay
Kiefaber
|
5,556
|
|||
|
Rajiv
Vinnakota
|
5,556
|
|||
|
(1)
|
The restricted stock awards vest
in three equal annual installments beginning on May 7, 2009 and are
delivered upon the termination of service on the
Board.
|
11
COMPENSATION
DISCUSSION AND ANALYSIS
The
following discussion and analysis of compensation arrangements of our named
executive officers for 2008 (as set forth in the Summary Compensation Table
below) should be read together with the compensation tables and related
disclosures set forth below. This discussion contains forward-looking statements
that are based on our current plans, considerations, expectations and
determinations regarding future compensation programs. Actual compensation
programs that we adopt may differ materially from the currently planned programs
summarized in this discussion.
Executive
Compensation Philosophy and Objectives
Our
executive compensation philosophy has been to offer our executive officers,
including our named executive officers, compensation that is competitive and
that meets our goals of attracting, keeping, incentivizing and rewarding highly
skilled management so that we can achieve our financial and strategic objectives
and continue to grow our company.
Utilizing
this philosophy, our executive compensation program has been designed
to:
|
|
·
|
be
competitive and flexible to reflect the industry in which we
operate;
|
|
|
·
|
continually
focus on, and reward our executives for, achievement of company financial
and strategic objectives, both over the short and longer-term;
and
|
|
|
·
|
consistently
apply our compensation program to each of our named executive officers, as
well as all of our management, in all of our locations (although our
specific programs may vary slightly between the United States and our
other international locations, as required by local law or
practice).
|
Setting of Executive
Compensation
In May of 2008, in connection with our
initial public offering (the “IPO”), our board of directors established a
Compensation Committee. Prior to the IPO, all compensation decisions
affecting our named executive officers were made by our full
board. Accordingly, except where noted below, all compensation
decisions for our named executive officers for the 2008 fiscal year were made by
our pre-IPO board of directors, based upon their collective experience and
reasoned business judgment, with recommendations from our Chief Executive
Officer, Mr. Young, for each of the named executive officers other than
himself.
Other
than our compensation philosophy and objectives discussed above, which were
informally followed by the board, the board had not historically adopted formal
compensation policies for such matters as long-term versus currently-paid
compensation and cash versus non-cash compensation, or any other compensation
policies. In addition, the board historically looked at each compensation
element individually such that decisions regarding one element have not affected
decisions regarding other elements. This is because each element of our
compensation program has had a different purpose:
|
|
·
|
base
salaries—should be competitive in order to attract and retain our
executive talent;
|
|
|
·
|
annual
cash bonus plan—are designed to reward our executive officers for
achievement in key areas of company operational and financial performance;
and
|
|
|
·
|
long-term
incentive plans—are designed to align the rewards of the executives with
the interests of shareholders by encouraging long-term operational and
financial performance and shareholder
value.
|
In making its decisions with respect to
2008 compensation, our pre-IPO board considered a comprehensive competitive
review prepared by Watson Wyatt Worldwide (“Watson Wyatt”), who was engaged by
our management to provide advice to our board. Watson Wyatt conducted
a review of public filings of 13 public peer companies. The peer companies used
were Enpro Industries Inc, Nordson Corp, Graftech International Ltd., Graco
Inc., Baldor Electic Co., Robbins & Myers Inc., Williams Scotsman Intl.,
Ceradyne Inc., Standex International Corp., Tennant Co., Circor Intl Inc.,
Columbus Mckinnon Corp., Franklin Electric Co Inc., Ameron International Corp.,
Chart Industries Inc., Esco Technologies, which were selected to reflect capital
goods manufacturing companies with revenues between $500 million and $1
billion. This list of companies in the peer group was compiled by
Watson Wyatt with input from our board. Watson Wyatt also developed market
reference data for each named executive officer position from several published
survey sources. The survey data primarily represented manufacturing
companies similar in size to Colfax and the data points used were based on the
role and scope of responsibility of each Colfax named executive
officer. The survey data generally reflected capital goods
manufacturing companies with revenues between $500 million and $1
billion. The data from the competitive review provided the board with
a reference for executive data around which compensation decisions could be
analyzed.
12
In December 2008, our Board, at the
recommendation of our Compensation Committee, adopted guidelines for grants of
equity awards. These guidelines were adopted by the board in
recognition of the importance of adhering to a set of practices and procedures
for the grant of equity awards. The Compensation Committee has the
power to grant equity awards. This power has been delegated to the
chairman of the Compensation Committee for equity grants made in connection with
any new hires by the Company at the employee director level or
below. Grants of equity awards (other than to newly-appointed
directors or newly-hired or promoted employees or executive officers) are
expected to be made annually by the Compensation Committee during “open-window”
periods, which are the periods when officers and directors are not expressly
prohibited from trading in shares of our common stock by our applicable
policies. Equity awards to newly-appointed directors, and to
newly-hired or promoted employees or executive officers, are expected to be
during an “open–window” period, or effective as of their first day of service to
the Company.
Elements
of Our Executive Compensation Program
Base Salary. As
noted above, one of our guiding compensation objectives is to be flexible in
order to reflect the competitive environment we encounter in recruiting and
retaining senior management. Base salaries are reviewed annually with this
objective in mind. The annual base salary increases awarded to our
named executive officers in fiscal 2008 were based on our pre-IPO board’s
assessment of the longevity and relative scope of responsibility of the named
executive officers and an analysis of the competitive review data provided by
Watson Wyatt in connection with this assessment. The salaries set by the pre-IPO
board were generally around the 50% percentile of the data provided by Watson
Wyatt and resulted in increases of approximately 13%, 10%, 15%, 10% and 4% for
Mr. Young, Mr. Faison, Mr. Roller, Mr. DiDomenico, and Mr. O’Brien,
respectively. At the time the pre-IPO board set the 2008 salary for Mr. Young
and Mr. Faison, the pre-IPO board, using the same methodology discussed above,
also determined that the salaries for these two officers should be further
increased upon the consummation of our IPO by an additional 29% and 15% for Mr.
Young and Mr. Faison, respectively. These salary increases were
designed to recognize the significant additional demands on our CEO and CFO that
would result from the transition of our Company from a private to a public
company.
Annual Cash
Bonus. Each of our named executive officers is also entitled
to participate in our annual cash bonus plan. Our annual cash bonus plan
provides our named executive officers the opportunity to receive a bonus
payment, which is expressed as a percentage of their base salary, based on
performance. For 2008, the board set the bonus payment percentage based upon
their collective experience and reasoned business judgment after also
considering the competitive review data provided by Watson Wyatt. The
bonus level targets set by the pre-IPO board were generally around the 50%
percentile of the data provided by Watson Wyatt and resulted in targets of 75%,
50%, 45%, 45% and 45% for Mr. Young, Mr. Faison, Mr. Roller, Mr. DiDomenico, and
Mr. O’Brien, respectively. We believe the annual cash bonus plan incentivizes
our named executive officers to achieve annual improvements in what we view as
key company financial and operational metrics, thus resulting in continued
growth for Colfax from year to year. The performance measures and specific
financial and operational metrics used, which are discussed below in greater
detail, are set at the beginning of each year. The structure of our annual cash
bonus plan in 2008 was substantially similar to the annual cash bonus plan in
2007 and prior years. As discussed below under “Annual Incentive Plan,” our
Board has proposed for shareholder approval the Colfax Corporation Annual
Incentive Plan, which is similar to our prior annual cash bonus plans except
that cash or shares may be awarded under the plan at the board’s
discretion.
Financial and Operational
Targets. Consistent with prior years, a substantial percentage
of the funding for the annual bonus plan in 2008 was determined by the
achievement of financial performance targets based on the board-approved
corporate budget for the year. For each named executive officer other than
Mr. Roller and Mr. DiDomenico, the achievement of financial
performance targets represented 70% of the funding for their potential annual
bonuses. These financial performance targets consisted of sales, EBITDA (as
adjusted to remove the impact of legacy asbestos income and expense as well as
discontinued operations) and working capital turns (each of sales, EBITDA and
working capital turns as adjusted to negate the effects of foreign currency
exchange rates). The board chose these metrics, as it has in recent years, as we
believe these are the three performance metrics that most influence and support
our growth and, as a result, shareholder value.
13
For each
of Mr. Roller and Mr. DiDomenico, the achievement of financial
performance targets represented 75% of the funding of their respective potential
annual bonuses. The financial performance targets applicable to Mr. Roller
and Mr. DiDomenico included the performance metrics discussed above that are
applicable to our other named executive officers. However, the board
believed that the financial metrics for Mr. Roller’s and Mr. DiDomenico’s
potential annual bonuses should be based on the primary business unit that each
oversees, and not only on the Company as a whole, as it is for the other named
executive officers. Thus, 65% of the potential bonus for each of Mr. Roller
and Mr. DiDomenico was based on sales (as adjusted), EBITDA (as adjusted) and
working capital turns (as adjusted) with respect to their respective business
units. The additional 10% of each of Mr. Roller’s and Mr.
DiDomenico’s potential bonus was based on achievement of the company-wide sales
(as adjusted) target for the year.
The
remaining 30% (or 25%, in the case of Mr. Roller and Mr. DiDomenico) of the
annual bonus plan was based on board-approved personal objectives for each named
executive officer, as discussed below.
The
following table outlines the annual bonus plan goal structure and respective
weighting for each of the named executive officers, other than Mr. Roller
and Mr. DiDomenico, during fiscal 2008:
|
Measure
|
Weighting
|
|||
|
Sales
(as adjusted)
|
17.5%
|
|||
|
EBITDA
(as adjusted)
|
35.0%
|
|||
|
Working
capital turns (as adjusted)
|
17.5%
|
|||
|
Personal
objectives
|
30.0%
|
|||
The
following table outlines the annual bonus plan goal structure and respective
weighting for Mr. Roller and Mr. DiDomenico during fiscal
2008:
|
Measure
|
Weighting
|
|||
|
Sales
(as adjusted)—business unit
|
15.0%
|
|||
|
EBITDA
(as adjusted)—business unit
|
35.0%
|
|||
|
Working
capital turns (as adjusted)—business unit
|
15.0%
|
|||
|
Sales
(as adjusted)—Colfax consolidated
|
10.0%
|
|||
|
Personal
objectives
|
25.0%
|
|||
The board
placed a greater emphasis on EBITDA (as adjusted) as compared to the other
performance metrics as we believe profitability and cash flow are the primary
drivers of our growth. With respect to the financial and operational performance
metrics, the annual bonus plan is strictly formulaic in nature, and neither the
board nor any executive officer exercised any discretion with respect to the
targets, or the resulting payments, in fiscal 2008.
The
“target goal” relating to each financial or operations performance metric,
including the business units specific to Mr. Roller and Mr. DiDomenico,
represented our internal budget amount for 2008 and were set to represent
amounts or metrics for each goal that demonstrated an improvement in that
category over prior year performance. The board then set “threshold goals” (the
level of performance necessary to achieve the minimum bonus payout) and “maximum
goals” (the level of performance necessary to achieve the maximum bonus payment)
based upon their collective experience and business judgment to reward the named
executive officers for achievements in each of the key metrics, including
rewarding each of Mr. Roller and Mr. DiDomenico for achievements in the
metrics for the respective business unit he oversees. To determine the actual
bonus paid to each named executive officer, the actual financial performance is
multiplied by each named executive officer’s target bonus (as set forth in
footnote 3 to the Summary Compensation Table below) and the corresponding
weighting for the measure. The 2008 financial performance goals for each of the
named executive officers, other than Mr. Roller and Mr. DiDomenico (other
than with respect to the 10% of each of Mr. Roller’s and Mr. DiDomenico’s
potential bonus based on the company-wide sales target) are set forth
below:
14
|
Measure
(weighting)
|
Target Goal
|
Threshold Goal
|
Threshold
Payment
|
Maximum Goal
|
Maximum
Payment
|
||||||
|
Sales (as adjusted)
(17.5%)(1)
|
$589.9 million
|
$555.5 million
|
65%
|
$648.9
million
|
250%
|
||||||
|
EBITDA
(as adjusted) (35.0%)
|
$107.7 million
|
$96.6
million
|
65%
|
$126.6
million
|
250%
|
||||||
|
Working
Capital Turns (as adjusted) (17.5%)
|
5.0
|
4.6
|
20%
|
5.5
|
200%
|
|
(1)
|
For
both Mr. Roller’s and Mr. DiDomenico’s 2008 annual bonus,
company-wide sales represented 10% of the potential
bonus.
|
We do not
disclose the specific sales (as adjusted), EBITDA (as adjusted) and working
capital turns (as adjusted) targets applicable to the business units overseen by
Mr. Roller and Mr. DiDomenico as they are highly confidential to our business.
We believe that disclosure of these targets would be competitively harmful to
us, as it would provide our competitors with strategic information specific to
our regional operations, thus providing our competitors in these regions insight
into our plans and projections for the region. The actual achievement of the
financial performance targets for fiscal 2008 for Mr. Roller and Mr.
DiDomenico was as follows:
|
Mr.
Roller
|
Mr.
DiDomenico
|
|
|
·
104% of the sales (as adjusted) target;
|
·
98% of the sales (as adjusted) target;
|
|
|
·
103% of the EBITDA (as adjusted) target; and
|
·
109% of the EBITDA (as adjusted) target; and
|
|
|
·
102% of working capital turns (as adjusted) target.
|
·
84% of working capital turns (as adjusted)
target.
|
For each
of the named executive officers other than Mr. Roller and Mr. DiDomenico,
results for 2008 were as follows:
|
|
·
|
$606.6
million in sales (as adjusted) (103% of
target);
|
|
|
·
|
$111.9
million in EBITDA (as adjusted) (104% of target);
and
|
|
|
·
|
4.6
in working capital turns (as adjusted) (92% of
target).
|
Individual Performance
Objectives. As stated above, 30% of each named executive
officer’s annual bonus (or 25%, with respect to Mr. Roller and Mr.
DiDomenico) was determined by achievement of board-approved individual
performance objectives. Individual performance objectives were included as part
of the annual cash bonus plan to ensure that more targeted, non-financial
company objectives over which the executive has primary control are factored in
as part of the individual’s total annual bonus for the year. We do not view
these individual performance objectives as material to an understanding of this
portion of our annual bonus plan as there are several individual objectives
established for each named executive officer and, individually, no one factor
materially affects the total potential amount of the bonus award.
The
actual bonus award paid to each named executive officer pursuant to the 2008
annual cash bonus plan is disclosed in the “Non-Equity Incentive Plan
Compensation” column of the Summary Compensation Table below.
Long-Term
Incentives.
2001 and 2006 Long-Term
Incentive Plans. In each of 2001 and 2006, our board of directors
implemented long-term cash incentive plans as a direct means to motivate our
senior management, or those most responsible for the overall growth and
direction of our company, with the purpose of growing and increasing the value
of our company and positioning it for an IPO or other liquidity event, such as a
sale of our company. Each of the named executive officers participated in the
Colfax Corporation 2001 Employee Appreciation Rights Plan (the “2001 Plan”) and
the 2006 Executive Stock Rights Plan (the “2006 Plan”). Initially, our board of
directors approved the 2001 Plan as we were starting to grow as a company.
Accordingly, the 2001 Plan was designed to allow our senior management to share
in the growth of our company and to attract new executive talent to our company.
More recently, our board approved the 2006 Plan as a means of re-emphasizing
this upside potential.
15
Generally,
each of these plans provided the named executive officers with the opportunity
to receive a certain percentage, in cash (or, with respect to the 2001 Plan
only, in a mix of cash and equity, in the sole discretion of the board of
directors), of the increase in value of our company from the date of grant of
the award until the date of a liquidity event. The board of directors determined
that our IPO qualified as a liquidity event under both the 2001 Plan and the
2006 Plan. As a result, upon consummation of our IPO each of the named executive
officers received payouts under these plans and thereafter the plans
terminated.
For the
2001 Plan, the percentage interest of participation for each named executive
officer was determined solely in the discretion of the board of directors, based
on their business judgment. For the 2006 Plan, while the board determined the
percentage interest for each named executive officer based on its discretion,
the board also took into account, in its subjective judgment, the level of the
officer’s responsibility with the company, his term of service with the company
and his contributions to date. The 2001 Plan rights fully vested on the third
anniversary of the grant date, subject to the participating named executive
officer’s continued employment and thus each such named executive officer is
fully vested in his percentage interest under the 2001 Plan. The 2006 Plan
rights vested at the time of our IPO.
The board
of directors in its sole discretion elected to award the named executive officer
50% of the value of the 2001 plan in common stock. The delivery of
these shares is deferred for a period of 3 years with 1/3 of the shares being
delivered each year beginning on May 7, 2009. The awards and payments
under these plans are included in the “Stock Awards” and “Non-Equity Incentive
Plan Compensation” columns, as applicable, of the Summary Compensation Table
below.
2008 Omnibus Incentive
Plan. The board adopted the 2008 Omnibus Incentive Plan in
connection with our IPO. On May 7, 2008, the board of directors
granted stock options and performance-based restricted stock units under the
2008 Omnibus Incentive Plan to each of the named executive officers with a
targeted aggregate value as follows:
|
Stock Options
|
Performance-based
Restricted Stock Units
|
Targeted
Aggregate Value
($)
|
||||||||||
|
Mr.
Young
|
62,500
|
25,000
|
900,000
|
|||||||||
|
Mr.
Faison
|
19,097
|
7,639
|
275,000
|
|||||||||
|
Mr.
Roller
|
13,889
|
5,556
|
200,000
|
|||||||||
|
Mr.
O’Brien
|
13,889
|
5,556
|
200,000
|
|||||||||
|
Mr.
DiDomenico
|
13,899
|
5,556
|
200,000
|
|||||||||
The board
determined these awards by first determining a targeted aggregate value, as set
forth above, using its collective experience and business judgment after also
considering the competitive review data provided by Watson
Wyatt. These values do not represent what the fair value of these
awards actually were at the time of grant, which is calculated pursuant to SFAS
123R. Each named executive officer then received 50% of his award in the form of
stock options and 50% of the award in the form of performance-based restricted
stock units in accordance with a formula approved by our pre-IPO board. For
stock options, the actual number of stock options granted to each executive was
determined by dividing 50% of the value above (for example, for Mr. Young,
$450,000) by 40% of the IPO price per share. Forty percent was determined to
approximate the value of the award based on the Black Scholes option-pricing
model. While this formula determines the number of options that were subject to
the executive’s option grant, in each case the exercise price for the stock
option equals 100% of the IPO price. For restricted stock, the actual number of
shares of restricted stock granted to each executive was determined by dividing
50% of the value above (for example, for Mr. Young, $450,000) by the IPO price
per share.
To
reinforce retention objectives, the options vest in equal installments over a
three year period, based on continued service. The performance-based restricted
stock units will be earned, if at all, based on our adjusted earnings per share
over a three-year period. The board chose adjusted earnings per share as the
performance metric due to its belief that earnings per share growth represents a
strong indicator of growth in shareholder value, particularly as a newly-public
company. In addition, any performance shares earned upon conclusion of the
three-year performance period will be subject to 50% vesting on the 4th
anniversary of the grant date and 50% on the 5th
anniversary of the grant date, to further reinforce our retention
emphasis.
16
Additional information concerning these
awards are included in the “Stock Awards” and “Option Awards” columns of the
Summary Compensation Table and the Grants of Plan Based Awards Table
below.
Annual
Incentive Plan
On December 11, 2008, upon the
recommendation of the Compensation Committee, our Board approved the
Colfax Corporation Annual Incentive Plan subject to the approval of the
Company’s stockholders. It was approved in order to enhance our
ability to attract and retain highly qualified officers and key employees, to
motivate these individuals to serve the Company, and to allow us to obtain the
benefit of a federal income tax deduction for certain performance-based
compensation we pay to our executive officers. Further details regarding the new
annual incentive plan can be found under “Proposal 3” in this Proxy Statement.
If approved by the stockholders, this new plan will become effective at that
time and will remain in effect until terminated by the Board.
Changes
to Our Compensation Program That Occurred in Connection With Our Initial Public
Offering
In
connection with our IPO in May 2008, our pre-IPO board of directors adopted a
number of changes to our executive compensation program, as described
below.
Adoption of 2008 Omnibus Incentive
Plan. On April 21, 2008, our board of directors and
stockholders at that time approved adoption of the Colfax Corporation 2008
Omnibus Incentive Plan. Equity awards made in 2008 were made pursuant
to this new incentive plan. Our board of directors adopted the new
incentive plan because it believed that the new plan more appropriately
facilitates the implementation of the long-term elements of our compensation
programs as a public company. Prior to our IPO, we had not adopted any
comprehensive equity or cash award plans. We believe such a plan is
necessary for us to compensate our executives and associates as a public
company. This is due, in part, to the limitations of Section 162(m) of the
Internal Revenue Code, as discussed below under “Effect of Accounting and Tax
Treatment on Compensation Decisions.” The plan was approved by our pre-IPO board
with a view to providing the Compensation Committee with maximum flexibility for
equity-based awards when it structures an executive compensation program that
provides a wide range of potential incentive awards to our named executive
officers and associates on a going-forward basis, and to preserve to the maximum
extent possible our deductibility of performance-based compensation pursuant to
Section 162(m).
For
example, pursuant to the plan, the Compensation Committee has the discretion to
determine the portion of each named executive officer’s total compensation that
will consist of awards under the plan, the mix of short-term and long-term
incentives represented by the awards, the forms of the equity awards, and the
service-based requirements or performance goals that the officer will have to
satisfy to receive the awards.
Execution of Employment
Agreements. In anticipation of our IPO, in April 2008 we
entered into employment agreements with all of our executive officers, including
our named executive officers. The employment agreements are substantially the
same, other than the modification of each officer’s title (which remained the
same as set forth in the Summary Compensation Table below), base salary amounts
and annual incentive plan participation. The material terms of the employment
agreements are summarized under “Narrative Disclosure to Summary Compensation
Table and Grants of Plan-Based Awards Table” below.
The form
of the employment agreements was the result of discussions between our board and
our Chief Executive Officer. We decided to enter into these employment
agreements at that time, in anticipation of the IPO, in order to keep our senior
management team intact due to the fact that this team was instrumental in our
ability to consummate the IPO and we believe they are well-suited to continue to
manage and grow the company in the future. We also desired to provide these
executives with some certainty of employment and benefits at the time of a
significant transition of our company.
With
respect to the benefits payable to each executive upon a change in control of
Colfax, the benefits are only paid upon a “double trigger,” meaning a change in
control event must occur and the executive must either be terminated without
cause by Colfax (or its successor) or the executive must resign for good reason.
In entering into these arrangements, we wanted to have the continued dedication
of these executive officers, notwithstanding the possibility of a change in
control, and to retain such officer in our employ after any such transaction. We
believe that, should the possibility of a change in control arise, Colfax should
be able to receive and rely upon our officers’ advice as to the best interests
of the Company and without the concern that such officer might be distracted by
the personal uncertainties and risks created by a potential change in control.
In the event, however, that such officer is actually terminated within a certain
period of time following the change in control, which such termination may be
out of their control (i.e., by the successor company or management), we believe
that the officers should be compensated for their efforts in positioning Colfax
for the acquisition event.
17
On
December 15, 2008 we entered into amendments of these agreements we believed
appropriate to reflect guidance on the application of Section 162(m) of the
Internal Revenue Code. These amendments take effect on January 1,
2010 and require that any bonus payment paid in conjunction with the termination
of a named executive officer will be based upon the performance of the Company
as stipulated in the Company’s annual incentive plan.
Retirement
Benefits
Through
the Colfax Corporation Excess Benefit Plan, we provide our executive officers,
including our named executive officers, with the opportunity to defer a
percentage of their compensation without regard to the compensation limits
imposed by the Internal Revenue Code for our 401(k) plan. We established the
Excess Benefit Plan to allow our senior-level executives to contribute toward
retirement on a tax-effective basis in a manner that is consistent with other
Colfax employees who are not limited by the Internal Revenue Code
limits.
In
addition, our named executive officers are participants in the Retirement Plan
for Salaried U.S. Employees of Imo Industries, Inc. and Affiliates, a plan that
was acquired by us in connection with our acquisition of Imo Industries in
August 1997 and was subsequently frozen to new participants and benefit accruals
in January 1999.
For
additional details concerning the Excess Benefit Plan and Retirement Plan for
Salaried U.S. Employees, please see the Non-Qualified Deferred Compensation
Table and the Pension Benefits Table and accompanying narrative disclosure
below.
Effect
of Accounting and Tax Treatment on Compensation Decisions
Section 162(m)
of the Internal Revenue Code imposes a limit on the amount of compensation that
we may deduct in any one year with respect to certain “covered employees,”
unless certain specific and detailed criteria are satisfied. Performance-based
compensation, as defined in the Internal Revenue Code, is fully deductible if
the programs are approved by stockholders and meet other requirements. We
believe that future grants of awards under our 2008 Omnibus Incentive Plan will
qualify as performance-based for purposes of satisfying the conditions of
Section 162(m), thus permitting us to receive a federal income tax
deduction in connection with such awards. We are proposing the Colfax
Corporation Annual Incentive Plan for approval now to insure that any bonuses
awarded pursuant to it will qualify as “performance-based’ for the purposes of
Section 162(m). However, as part of our current compensation
objectives, we seek to maintain flexibility in compensating our executives, as
discussed above and, as a result, the board has not adopted a policy requiring
that all compensation be deductible. Our Compensation Committee assesses the
impact of Section 162(m) on our compensation practices and determines what
further action, if any, is appropriate.
18
COMPENSATION
COMMITTEE REPORT
The Compensation Committee participated
in the preparation of the Compensation Discussion and Analysis, reviewing
successive drafts and discussing the drafts with management. Based on its review
and discussions with management, the Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in the
Company’s 2009 Proxy Statement and in the Company’s Annual Report on Form 10-K
for 2008 by reference to the Proxy Statement.
Compensation
Committee of the Board of Directors
Clay
Kiefaber, Compensation Committee Chair
Rhonda L.
Jordan
Rajiv
Vinnakota
19
EXECUTIVE
COMPENSATION
Summary Compensation
Table
|
Name and Principal
Position
|
Year
|
Salary
($)
|
Stock
Awards
($)(1)
|
Option
Awards
($)(2)
|
Non-Equity
Incentive Plan Compensation ($)(3) |
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(4)
|
All Other
Compensation
($)(5)
|
Total
($)
|
||||||||||||||||||||||
|
John
A. Young
|
2008
|
560,950 | 1,406,867 | 78,382 | 5,328,173 | 484 | 431,809 | 7,806,665 | ||||||||||||||||||||||
|
President
and Chief
|
2007
|
375,000 | — | — | 326,250 | 736 | 59,307 | 761,293 | ||||||||||||||||||||||
|
Executive
Officer
|
||||||||||||||||||||||||||||||
|
G.
Scott Faison
|
2008
|
278,500 | 692,032 | 23,950 | 2,597,942 | 426 | 215,069 | 3,807,919 | ||||||||||||||||||||||
|
Senior
Vice President,
|
2007
|
214,000 | — | — | 121,552 | 590 | 33,158 | 369,300 | ||||||||||||||||||||||
|
Finance
and Chief
|
||||||||||||||||||||||||||||||
|
Financial
Officer
|
||||||||||||||||||||||||||||||
|
William
E. Roller
|
2008
|
244,250 | 1,073,530 | 17,418 | 2,975,868 | — | 278,201 | 4,589,267 | ||||||||||||||||||||||
|
Senior
Vice President,
|
||||||||||||||||||||||||||||||
|
General
Manager—Americas
|
||||||||||||||||||||||||||||||
|
Thomas
M. O’Brien
|
2008
|
265,380 | 821,962 | 17,418 | 2,264,633 | 54,840 | 208,270 | 3,632,503 | ||||||||||||||||||||||
|
Senior
Vice President,
|
2007
|
247,000 | — | — | 140,296 | 22,213 | 37,169 | 446,678 | ||||||||||||||||||||||
|
General
Counsel and Secretary
|
||||||||||||||||||||||||||||||
|
Mario
E. DiDomenico
|
2008
|
206,800 | 1,427,014 | 17,418 | 3,284,186 | (4,761) |
|
301,048 | 5,231,705 | |||||||||||||||||||||
|
Senior
Vice President,
|
||||||||||||||||||||||||||||||
|
General
Manager—
|
||||||||||||||||||||||||||||||
|
Engineered
Solutions
|
||||||||||||||||||||||||||||||
|
(1)
|
Amounts
represent the dollar amount recognized for financial statement reporting
purpose for each named executive officer for awards of common stock made
pursuant to our 2001 Employee Appreciation Rights Plan (the “2001 Plan”)
and for awards of performance-based restricted stock units made pursuant
to our 2008 Omnibus Incentive Plan (disregarding any estimate of
forfeitures relating to service based vesting conditions). The assumptions
used in these determinations are set forth in Note 13 to our Consolidated
Financial Statements in our 2008 Annual Report on Form
10-K. For a discussion of the 2001 Plan, see “Long-Term
Incentives— 2001 and 2006 Long-Term Cash Incentive Plans” in the
Compensation Discussion and Analysis above. For a discussion of
the 2008 Omnibus Incentive Plan, see “2008 Omnibus Incentive Plan” in the
Compensation Discussion and Analysis
above.
|
|
(2)
|
Amounts
represent the dollar amount recognized for financial statement reporting
purpose for each named executive officer, disregarding any estimate of
forfeitures relating to service-based vesting conditions. The assumptions
used in these determinations are set forth in Note 13 to our Consolidated
Financial Statements in our 2008 Annual Report on Form
10-K.
|
|
(3)
|
Amounts
represent the payouts pursuant to our 2008 Management Incentive Bonus Plan
(and, for 2007, our 2007 Management Incentive Bonus Plan) and cash payouts
pursuant to the 2001 Plan and our 2006 Executive Stock Rights Plan (the
“2006 Plan”) that were paid upon the consummation of our
IPO.
|
|
|
The
cash amounts paid to each named executive officer for 2008 under these
incentive plans are as follows:
|
|
Named Executive Officer
|
Bonus
|
2001 Plan
|
2006 Plan
|
|||||||||
|
Mr. Young
|
$ | 436,849 | $ | 1,348,180 | $ | 3,543,144 | ||||||
|
Mr. Faison
|
$ | 152,280 | $ | 674,090 | $ | 1,771,572 | ||||||
|
Mr. Roller
|
$ | 143,819 | $ | 1,060,477 | $ | 1,771,572 | ||||||
|
Mr. O’Brien
|
$ | 127,046 | $ | 808,908 | $ | 1,328,679 | ||||||
|
Mr.
DiDomenico
|
$ | 98,644 | $ | 1,413,970 | $ | 1,771,572 | ||||||
|
|
For
a discussion of the 2001 Plan and 2006 Plan, see “Long-Term
Incentives— 2001 and 2006 Long-Term Cash Incentive Plans” in the
Compensation Discussion and Analysis
above.
|
20
|
|
For
a discussion of the performance metrics on which the 2008 Management
Incentive Bonus Plan was based, including the weighting for each
performance metric and the actual percentage achievement of the financial
performance targets, see the Compensation Discussion and Analysis above.
To determine the actual bonus paid to each named executive officer, the
actual financial performance was multiplied by each named executive
officer’s 2008 target bonus and the corresponding weighting for the
measure. For fiscal 2008, each named executive officer’s target bonus,
expressed as a percentage of base salary, was as
follows:
|
|
·
|
Mr.
Young:
|
75
|
%
|
|
·
|
Mr.
Faison:
|
50
|
%
|
|
·
|
Mr.
Roller:
|
45
|
%
|
|
·
|
Mr.
O’Brien:
|
45
|
%
|
|
·
|
Mr.
DiDomenico:
|
45
|
%
|
|
(4)
|
Amounts
represent solely the aggregate change in the actuarial present value of
the named executive officer’s accumulated benefit under the respective
pension benefit plan from the pension plan measurement date used for
financial statement reporting purposes in fiscal 2007 as compared to
fiscal 2008.
|
|
(5)
|
Amounts
set forth in this column for 2008 consist of the
following:
|
|
Name
|
Supplemental
Long-Term
Disability
Premiums
($)
|
Company
Car
($)(1)
|
Company
401(k)/Deferred
Compensation
Plan Match and
Contribution
($)(2)
|
2008
Acquisition
Bonus Plan
($)(3)
|
||||||||||||
|
Mr.
Young
|
1,808 | 4,550 | 425,451 | — | ||||||||||||
|
Mr.
Faison
|
2,270 | 3,500 | 209,299 | — | ||||||||||||
|
Mr.
Roller
|
2,089 | 4,154 | 257,417 | 14,541 | ||||||||||||
|
Mr.
O’Brien
|
3,429 | 3,500 | 201,341 | — | ||||||||||||
|
Mr.
DiDomenico
|
3,428 | 5,000 | 292,620 | — | ||||||||||||
|
(1)
|
For
each named executive officer other than Mr. DiDomenico, the amount listed
above represents a cash car allowance provided to each officer that
terminated at the time of our IPO. Mr. DiDomenico did not
receive this cash car allowance; however, a company car (a 2004 Volvo
Wagon) is provided to him for business use due to the requirements of his
position. Mr. DiDomenico also is permitted to use the car for
incidental personal use. For Mr. DiDomenico, the amount
reflected in this column represents the aggregate incremental cost to the
Company associated with the company car during 2008 as calculated by (i)
his estimated incidental personal use mileage divided by his total company
car mileage in 2008 (the “personal use ratio”) multiplied by the
depreciation recognized by the Company associated with the company car
during 2008 plus (ii) the personal use ratio multiplied by the estimated
gas and maintenance expense associated with the company car during
2008.
|
|
(2)
|
For
each named executive officer, amounts represent the aggregate company
match and company contribution made by Colfax during 2008 to such
officer’s 401(k) plan account and Excess Benefit Plan (nonqualified
deferred compensation) account. See the Nonqualified Deferred Compensation
Table and accompanying narrative below for additional information on the
Excess Benefit Plan.
|
|
(3)
|
Amount
represents a payment made pursuant to the Company’s 2008 Acquisition Bonus
Plan between certain employees, including Mr. Roller, and the
Company. The 2008 Acquisition Bonus Plan incentivizes
employees in assisting the Company to successfully integrate
acquired businesses into the Company and to accomplish the Company’s
financial, operational and cultural goals for the acquired
businesses.
|
21
Grants
of Plan-Based Awards
The
following table sets forth information with respect to grants of plan-based
awards to our named executive officers during 2008:
|
Estimated
Possible Payouts
Under
Non-Equity Incentive
Plan Awards (1)
|
Estimated
Future Payouts
Under
Equity Incentive
Plan Awards (2)
|
All
Other
Stock
Awards:
Number
of
|
All
Other
Option
Awards:
|
Exercise
|
Grant
Date
Fair
Value
|
|||||||||||||||||||||||||||||||||||||||||
|
Name
|
Award
Type
|
Grant
Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
Shares
of
Stock
or
Units
(#)(3)
|
Number
of
Securities
Underlying
Options
(#)(4)
|
or
Base
Price
of
Option
Awards
($/Sh)
|
of
Stock
and
Option
Awards
($)(5)
|
||||||||||||||||||||||||||||||||||
|
John
A. Young
|
Bonus
Plan
|
—
|
172,301
|
424,125
|
895,964
|
|||||||||||||||||||||||||||||||||||||||||
|
Performance
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
Units
|
5/7/2008
|
— | 25,000 | — | 450,000 | |||||||||||||||||||||||||||||||||||||||||
|
Stock
Options
|
5/7/2008
|
62,500 | 18.00 | 360,625 | ||||||||||||||||||||||||||||||||||||||||||
|
2001
Plan
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Common
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
|
5/7/2008
|
74,899 | 1,348,182 | |||||||||||||||||||||||||||||||||||||||||||
|
G.
Scott Faison
|
Bonus
Plan
|
—
|
57,281 | 141,000 | 297,863 | |||||||||||||||||||||||||||||||||||||||||
|
Performance
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
Units
|
5/7/2008
|
— | 7,639 | — | 137,502 | |||||||||||||||||||||||||||||||||||||||||
|
Stock
Options
|
5/7/2008
|
19,097 | 18.00 | 110,190 | ||||||||||||||||||||||||||||||||||||||||||
|
2001
Plan
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Common
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
|
5/7/2008
|
37,450 | 674,100 | |||||||||||||||||||||||||||||||||||||||||||
|
William E.
Roller
|
Bonus
Plan
|
—
|
45,292 | 111,488 | 235,517 | |||||||||||||||||||||||||||||||||||||||||
|
Performance
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
Units
|
5/7/2008
|
—
|
5,556
|
—
|
100,008
|
|||||||||||||||||||||||||||||||||||||||||
|
Stock
Options
|
5/7/2008
|
13,889
|
18.00
|
80,140
|
||||||||||||||||||||||||||||||||||||||||||
|
2001
Plan
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Common
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
|
5/7/2008
|
58,916
|
1,060,488
|
|||||||||||||||||||||||||||||||||||||||||||
|
Thomas
M. O’Brien
|
Bonus
Plan
|
—
|
49,155
|
120,996
|
255,604
|
|||||||||||||||||||||||||||||||||||||||||
|
Performance
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
Units
|
5/7/2008
|
—
|
5,556
|
—
|
100,008 | |||||||||||||||||||||||||||||||||||||||||
|
Stock
Options
|
5/7/2008
|
13,889
|
18.00
|
80,140 | ||||||||||||||||||||||||||||||||||||||||||
|
2001
Plan
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Common
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
|
5/7/2008
|
44,940 | 808,920 | |||||||||||||||||||||||||||||||||||||||||||
|
Mario
E. DiDomenico
|
Bonus
Plan
|
—
|
37,806
|
93,060
|
196,589
|
|||||||||||||||||||||||||||||||||||||||||
|
Performance
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Restricted
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
Units
|
5/7/2008
|
— |
5,556
|
— | 100,008 | |||||||||||||||||||||||||||||||||||||||||
|
Stock
Options
|
5/7/2008
|
13,889
|
18.00
|
80,140 | ||||||||||||||||||||||||||||||||||||||||||
|
2001
Plan
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Common
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
|
5/7/2008
|
78,554 | 1,413,972 | |||||||||||||||||||||||||||||||||||||||||||
|
(1)
|
Amounts
represent the possible payouts under our 2008 Management Incentive Bonus
Plan. For a discussion of the performance metrics and actual results and
payouts under the plan for fiscal 2008, see the Compensation Discussion
and Analysis and the “Non-Equity Incentive Plan Compensation” column of
the Summary Compensation Table above,
respectively.
|
|
(2)
|
Amounts
represent potential shares issued under performance share
awards. The performance-based restricted stock units vest at
the end of three years provided that certain performance metrics are met
and are subject to an additional two-year service based vesting period at
the conclusion of that three-year performance period. For
further discussion of these awards, see “Long-Term Incentives— 2008
Omnibus Incentive Plan” in the Compensation Discussion and
Analysis.
|
|
(3)
|
Amounts
represent shares of common stock awarded pursuant to the 2001 Plan that
will be delivered over the next three years, beginning on the first
anniversary of the grant date. See “Long-Term Incentives— 2001
and 2006 Long-Term Cash Incentive Plans” in the Compensation Discussion
and Analysis above.
|
|
(4)
|
Amounts
represent stock option awards that vest ratably over three years,
beginning on the first anniversary of the grant date, based on continued
service.
|
22
|
(5)
|
The
amounts shown in this column represent the full grant date fair market
value of the common stock awarded pursuant to the 2001 Plan,
performance-based restricted stock units and option awards, as computed in
accordance with SFAS 123R. The amount shown in this column will likely
vary from the amount actually realized by any named executive officer
based on a number of factors, including the number of shares that
ultimately vest, the satisfaction or failure to meet any performance
criteria, the timing of any exercise or sale of shares, and the price of
the Company’s common stock. The assumptions used in these
determinations are set forth in Note 13 to our Consolidated Financial
Statements in our 2008 Annual Report on Form 10-K. The value for stock
options is calculated using the Black-Scholes option pricing model. The
value for restricted stock and performance-based restricted stock units is
calculated by multiplying the number of shares granted by the closing
price per share of our common stock on the grant
date.
|
23
Outstanding
Equity Awards at Fiscal Year-End
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||||||||||||||
| Name |
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date(1)
|
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)(2)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)(3)
|
||||||||||||||||||||||||
|
John
A. Young
|
0 | 62,500 | — | 18.00 |
05/13/15
|
— | — | 25,000 | 259,750 | ||||||||||||||||||||||||
|
G.
Scott Faison
|
0 | 19,097 | — | 18.00 |
05/13/15
|
— | — | 7,639 | 79,369 | ||||||||||||||||||||||||
|
William
E. Roller
|
0 | 13,889 | — | 18.00 |
05/13/15
|
— | — | 5,556 | 57,727 | ||||||||||||||||||||||||
|
Thomas
M. O’Brien
|
0 | 13,889 | — | 18.00 |
05/13/15
|
— | — | 5,556 | 57,727 | ||||||||||||||||||||||||
|
Mario
E. DiDomenico
|
0 | 13,889 | — | 18.00 |
05/13/15
|
— | — | 5,556 | 57,727 | ||||||||||||||||||||||||
|
(1)
|
The
stock option awards vest in three equal annual installments beginning on
May 7, 2009 and expire on May 13,
2015.
|
|
(2)
|
Amounts
represent potential shares issued under performance share
awards. The performance-based restricted stock units vest on
May 7, 2011, provided that certain performance metrics are met and are
subject to an additional two-year service based vesting period at the
conclusion of that three-year performance
period.
|
|
(3)
|
The
amounts shown in this column represent the market value of the
performance-based restricted stock units based on the Company’s common
stock price on December 31, 2008, which was $10.39 per share, multiplied
by the number of units, respectively, for each unvested performance stock
award.
|
Employment
Agreements
As
discussed in the Compensation Discussion and Analysis above, we entered into an
employment agreement with each of our executive officers, including our named
executive officers. The employment agreements are substantially the same, other
than each officer’s title (which is as set forth in the Summary Compensation
Table above), base salary amounts and annual incentive plan participation. The
material terms of each officer’s employment agreement are set forth
below.
The
initial term of each employment agreement ended December 31, 2009, with
automatic two-year term extensions thereafter, unless the board of directors or
the executive provides written notice to terminate the automatic extension
provision. The agreements were amended and the board of directors
agreed to extend the initial term to December 31, 2010. In addition, in the
event we undergo a “change in control” (as described below) during any two-year
term of the employment agreement, the agreements will be automatically extended
to the second anniversary of the change in control event.
Effective
January 1, 2009, the base salaries of each of Messrs. Faison, Roller,
DiDomenico, and O’Brien increased to $290,460, $255,183, $213,004 and $276,946,
respectively. Each officer’s base salary may not be reduced below the amount
previously in effect without the written agreement of the executive. In
addition, each of Messrs. Young, Faison, Roller, DiDomenico and O’Brien is
entitled to participate in our annual cash incentive program in a target amount
equal to 75%, 50%, 45%, 45% and 45%, respectively, of his base salary then in
effect.
Additional
information on certain benefits provided in the employment agreements in certain
terminations or in connection with a change of control are discussed below under
“Potential Payments Upon Termination or Change in Control.”
24
Pension
Benefits
Each of
our named executive officers, except for Mr. Roller, participated in the
Retirement Plan for Salaried U.S. Employees of Imo Industries, Inc. and
Affiliates (the “Imo Plan”). The Imo Plan was acquired by us in connection with
our acquisition of Imo Industries in August 1997 and was subsequently frozen to
new participants and benefit accruals in January 1999. At such time, active
employees participating in the Imo Plan received a benefit enhancement equal to
20% of their respective “base” benefits, or, with respect to Mr. DiDomenico, the
“Average Monthly Compensation” benefits as of January 31, 1999 (both of the
“base” and “Average Monthly Compensation” benefits as discussed
below). Mr. DiDomenico participated in the Imo Plan as a result of
his prior participation in the Retirement Plan for Salaried Employees of Warren
Pumps Inc. (the “Warren Pumps Plan”). Mr. DiDomenico accrued monthly
pension benefits under the Warren Pumps Plan as described below until the merger
of the Warren Pumps Plan into the Imo Plan, which occurred prior to the freeze
on benefit accruals in January 1999. As a result of the merger of the Warren
Pumps Plan into the Imo Plan, Mr. DiDomenico became a participant in the Imo
Plan. Our board of directors determined to cease participation in the Imo Plan
because it was determined that our enhanced defined contribution plan, or 401(k)
plan, was more aligned with the company’s strategy.
In order
to participate in the Imo Plan, the participating named executive officers were
required to be at least 21 years of age or have one year of service with Imo
Industries (or its affiliates). Normal retirement age under the plan is age 65.
Pursuant to the Imo Plan, each officer’s accrued monthly pension benefit is
based on the sum of the “base” and “excess” compensation for each year of
service under the Imo Plan, as follows:
|
Base
|
Excess
|
|
|
1.15%
of Final Average Salary
|
0.65%
of Final Average Salary above the Covered Compensation
Limit
|
“Final
Average Salary” is defined under the Imo Plan to mean the average of the highest
five consecutive salaries over the prior 10 year period, with “salary” to
be comprised of base salary, bonuses and any overtime pay, subject to annual
limitations imposed by Section 401(a)(17) of the Internal Revenue Code. The
Covered Compensation Limit is determined by the IRS based on an average
of Social Security taxable wage bases for certain years. For 1999 (the
year in which the Imo Plan was frozen) and prior years, the Covered Compensation
limit was $72,600 or less.
There is
no provision in Imo Plan for early retirement with unreduced benefits. The Imo
Plan does provide for early retirement with reduced benefits subject to the
executive’s attainment of age 55 and completion of ten years of service. Only
Mr. O’Brien is eligible for early retirement under the Imo Plan. His early
retirement benefits, if he were to elect to retire early, are to be calculated
based on the “rule of 75” formula within the Imo Plan. Pursuant to this formula,
participants with age plus years of service totaling at least 75 may retire
early with the reduction in benefits split equally between the “base” and
“excess” portions of the benefit formula. Thus, for each full year below age 65,
there would be a reduction in the “base” benefit of 3% and the “excess” benefit
would be reduced based on the applicable early retirement factor. The “early
retirement factor,” which is a specific percentage based on the age at which a
participant starts to receive benefit payments, reduces the monthly benefit to
account for the additional years during which the participant will receive
payments.
The
normal form of benefits payment pursuant to the Imo Plan is a single life
annuity (or, if married, an actuarially equivalent 50% joint and survivor
annuity, which entitles the surviving spouse to continue receiving 50% of the
monthly benefit after the participant’s death). The Imo Plan also provides for
the participating named executive officer to select a single life annuity, a 66
2 /
3 %, 75% or 100% joint and
survivor annuity, a 5-, 10-, or 15-year period certain and life annuity (which
provides reduced monthly payments for the participant’s life with a guarantee of
at least 5, 10 or 15 years of payments, as applicable), or a Social Security
adjustment annuity with respect to certain early retirement benefits (which
provides increased monthly benefit payments before the participant’s Social
Security benefits begin and reduced payments thereafter). No lump sum option is
available unless the total value of the accumulated benefit is less than
$5,000.
25
As noted
above, Mr. DiDomenico also accrued benefits under the Warren Pumps Plan prior to
its merger into the Imo Plan. Normal retirement age under the Warren
Pumps Plan is age 65. Mr. DiDomenico’s accrued monthly pension benefit pursuant
to the Warren Pumps Plan is based on the sum of the “Average Monthly
Compensation” and “Monthly Compensation” for each year of service under the
Warren Pumps Plan, as follows:
|
Average Monthly
Compensation
|
Monthly Compensation
|
|
|
1.59%
of the first $1,450 of Average Monthly Compensation plus 2% of Average
Monthly Compensation in excess of $1,450 times service prior to January 1,
1992.
|
1.59%
of the first $1,450 of Monthly Compensation plus 2% of Monthly
Compensation in excess of $1,450 times service on or after January 1,
1992.
|
“Average
Monthly Compensation” is defined under the Warren Pumps Plan as the lesser of
the average of the participant's monthly compensation for the last five
consecutive plan years prior to January 1, 1992.
“Monthly
Compensation” is defined under the Warren Pumps Plan as the amount of the
participant's monthly base compensation as of each January 1.
Early
retirement with reduced benefits is available for a Warren Pumps Plan
participant at age 55 with five years of service. The standard
reduction is 6% per year from age 65 to age 60, and 4.8% per year prior to age
60. If age plus service is at least 75, and the Warren Pumps Plan
participant has at least 20 years of service, the early retirement reduction
factor is 3% per year from age 65 to age 60, and 5% per year prior to age
60.
The
normal form of benefit for the Warren Pumps Plan is a 5 year period certain and
life annuity (or if married an actuarially equivalent 50% joint and survivor
annuity, which entitles the surviving spouse to continue receiving 50% of the
monthly benefit after the participant’s death). The Warren Pumps Plan
benefit may also be elected as a single life annuity, a 75% or 100% joint and
survivor annuity, a 10 year period certain and life annuity or a 90-55% spouse
option which provides 90% of the benefit to the participant for life, with a 55%
continuation to his surviving spouse.
|
Name
|
Plan
Name(1)
|
Number
of
Years
Credited
Service
(#)(2)
|
Accumulated
Benefit
($)(3)
|
Payments
During
Last
Fiscal
Year
($)
|
||||||||||
|
John
A. Young
|
Retirement Plan for
Salaried U.S. Employees of IMO Industries, Inc. and
Affiliates
|
1.083 | 8,064 | — | ||||||||||
|
G. Scott Faison
|
Retirement
Plan for Salaried U.S. Employees of IMO Industries, Inc. and
Affiliates
|
1.25 | 7,050 | — | ||||||||||
|
Thomas M. O’Brien
|
Retirement
Plan for Salaried U.S. Employees of IMO Industries, Inc. and
Affiliates
|
13.75 | 309,335 | — | ||||||||||
|
Mario
E. DiDomenico
|
Retirement
Plan for Salaried U.S. Employees of IMO Industries, Inc. and
Affiliates
|
10.00 | 91,405 | — | ||||||||||
|
(1)
|
The
Retirement Plan for Salaried U.S. Employees of Imo Industries, Inc. and
Affiliates was frozen to new participants or benefit accruals in January
1999.
|
|
(2)
|
Represents
the number of years of credited service for each applicable named
executive officer under the applicable plan, computed as of the same
pension plan measurement date used for financial statement reporting
purposes with respect to our 2008 financial statements. The number of
years of credited service represents each officer’s actual years of
credited service.
|
|
(3)
|
Amounts
represent the actuarial present value of each named executive officer’s
accumulated benefit under the applicable plan, computed as of the date
used for financial statement reporting purposes with respect to our 2008
financial statements and assuming the normal retirement age as set forth
in the plan, or age 65. For a discussion of the assumptions used to
determine the accumulated present value, see Note 11 to our Consolidated
Financial Statements in our 2008 Annual Report on Form
10-K.
|
26
Nonqualified
Deferred Compensation
In 2005,
we established the Colfax Corporation Excess Benefit Plan (the “Excess Benefit
Plan”) to provide certain senior-level employees, including each of the named
executive officers, with an opportunity to defer a stated percentage of their
base compensation or their annual bonus compensation without regard to the
compensation limits imposed by the Internal Revenue Code for our 401(k) plan. We
established the Excess Benefit Plan to allow our senior-level executives to
contribute toward retirement on a tax-effective basis in a manner that is
consistent with other Colfax employees who are not limited by the Internal
Revenue Code limits. The plan is “unfunded,” meaning there is no asset
segregated for the exclusive benefit of the named executive
officers.
The
Excess Benefit Plan allows the named executive officers to defer up to 50% of
their base salaries and up to 50% of their bonus compensation. These deferral
limits are the same as that of other employees who participate in our qualified
401(k) plan. In addition, we match up to 3% of all excess deferrals by the named
executive officers and provide a 3% company contribution, each of which are the
same percentage match and contribution, respectively, as provided under the
401(k) plan. Each of the participating named executive officers is fully vested
in his deferral account, including company match contributions.
Deferrals
under the Excess Benefit Plan may be invested in 13 different equity and fixed
income reference investment funds which are selected periodically by the plan
trustee to best match the funds offered in the qualified 401(k) plan. Each
participating named executive officer can allocate his deferrals among these
fund investment options and may change his election at any time by making a
change of election with the plan administrator. Colfax invests its match and
contribution amounts in the same investment options in the same amounts and
allocations as the reference funds selected by the officer.
Simultaneously
with the officer’s election to participate in the Excess Benefit Plan, the
executive must elect the time of payment of his account balance upon termination
of service. Because each of the named executive officers are likely “key
employees” for purposes of Section 409A of the Internal Revenue Code, the
executive is generally permitted to choose either (i) the last day of the
month in which the six-month anniversary of termination occurs, or (ii) the
later of January 31 of any of the five calendar years following the year of
termination and the last day of the month in which the six-month anniversary of
termination occurs. If no election is made, the benefit will be paid in a lump
sum on the last day of the month which occurs six months after the executive’s
termination date.
In
addition, at the time of electing his timing of payment, the executive must also
elect the form of payment of his account balance. The executive may select a
lump sum payment or annual installments over a period of two to ten years. If no
form of payment election is made, the form of payment will be a lump sum. The
named executive officer may elect to change his timing or form of payment,
provided, generally, that (i) the election may not take effect until 12
months after the election, (ii) the election may not be made less than 12
months prior to the date of the first scheduled payment under the current
election and (iii) the first payment with respect to the subsequent
election is deferred for a period of not less than five years from the date such
payment would otherwise have been made.
Upon
death or disability, the executive (or his beneficiary) is to be paid a lump sum
payment equal to the executive’s account balance within 60 days after the year
of death or the last day of the month in which the six-month anniversary of the
executive’s disability occurs, respectively.
27
Notwithstanding
the above, in the event the executive’s account balance at the time of his
termination is less than $10,000, payment of the account balance upon
termination will be made in a lump sum on or before the later of
(i) December 31 of the calendar year of termination, or (ii) the
date 2.5 months after the executive’s termination from service.
|
Name
|
Executive
Contributions
in
Last FY
($)(1)
|
Registrant
Contributions
in
Last FY
($)(2)
|
Aggregate
Earnings
(Loss)
in
Last FY
($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance
at
Last
FYE
($)(3)
|
|||||||||||||||
|
John A. Young
|
409,951 | 411,651 | (233,200) | — | 679,022 | |||||||||||||||
|
G. Scott Faison
|
193,799 | 195,499 | (105,272) | — | 302,382 | |||||||||||||||
|
William
E. Roller
|
241,917 | 243,617 | (139,020) | — | 358,960 | |||||||||||||||
|
Thomas M. O’Brien
|
180,841 | 187,541 | (114,841) | — | 271,236 | |||||||||||||||
|
Mario
E. DiDomenico
|
264,712 | 278,820 | (103,951) | — | 439,581 | |||||||||||||||
|
(1)
|
With
respect to each applicable named executive officer, amounts represent
deferred salary, deferred bonus and deferred award amounts granted
pursuant to the 2001 Plan and 2006 Plan that are reported in the Summary
Compensation Table above.
|
|
(2)
|
All
amounts reported in this column for each applicable named executive
officer are reported in the “All Other Compensation” column of the Summary
Compensation Table above.
|
|
(3)
|
With
respect to each applicable named applicable executive officer’s aggregate
balance, the following amounts are reported in the Summary Compensation
Table above: $411,651, Mr. Young; $195,499, Mr. Faison;
$243,617, Mr. Roller; $187,541, Mr. O’Brien, and $278,820, Mr.
DiDomenico.
|
Potential
Payments Upon Termination or Change in Control
Employment
Agreements. Pursuant to the terms of the employment agreements
(see “Execution of Employment Agreements” in the Compensation
Discussion and Analysis above) with our named executive officers, in the event
the employment of any of our named executive officers is terminated by us
without “cause” or the executive resigns for “good reason” (each as described
below), each executive is entitled to the following severance payments or
benefits:
|
|
·
|
a
lump sum payment equal to one times the executive’s base salary in effect
and his target annual incentive compensation for the year of termination
(or, if greater, the average of the two highest actual annual incentive
payments made to the executive during the last three
years);
|
|
|
·
|
a
lump sum payment equal to the executive’s pro rata annual incentive
compensation for the year of termination in accordance with the
performance criteria for the annual bonus plan;
and
|
|
|
·
|
continuation
of health care coverage for the executive and his family for one year
after termination.
|
In the
event the executive terminates employment without “cause” or for “good reason”
within three months prior to a “change in control event” (as described below),
or two years after a “change in control”, each executive is entitled to the
following severance payments or benefits:
|
|
·
|
a
lump sum payment equal to two times the executive’s base salary in effect
and his target annual incentive compensation for the year of termination
(or, if greater, the average of the two highest actual incentive payments
made to the executive during the last three
years);
|
|
|
·
|
continuation
of health care coverage for the executive and his family for two years
after termination; and
|
|
|
·
|
all
equity awards will immediately vest, with any performance objectives
applicable to performance-based equity awards deemed to have been met at
the greater of (i) the target level at the date of termination, and (ii)
actual performance at the date of
termination.
|
28
In each
case described above, the executive’s right to the severance payments and
benefits is conditioned on the executive’s execution of a waiver and release
agreement in favor of Colfax. In addition, each employment agreement contains
standard confidentiality covenants, non-disparagement covenants, non-competition
covenants (for a period of one year following a termination of employment or, if
the termination of employment occurs three months prior to a change in control
event or two years after a change in control, two years) and non-solicitation
covenants (for a period of two years following a termination of employment or,
if the termination of employment occurs three months prior to a change in
control event or two years after a change in control, three years).
In the
event that any payment or benefit to the executives pursuant to the employment
agreements or otherwise constitute excess parachute payments under Section 280G
of the Internal Revenue Code such that they would trigger the excise tax
provisions of the Internal Revenue Code, such payments are to be reduced so that
the excise tax provisions are not triggered, but only upon determination by the
executive that the after-tax value of the termination benefits calculated with
the restriction described above exceed the value of those calculated without
such restriction.
Each
agreement further provides that, in the event it is determined that the willful
actions of the executive have resulted in a material misstatement or omission in
any report or statement filed by Colfax with the Securities and Exchange
Commission, or material fraud against Colfax, Colfax is entitled to recover all
or any portion of any award or payment made to the executive.
For
purposes of the employment agreements, the following terms generally have the
following meanings:
|
|
·
|
“cause” means conviction of a felony or
a crime involving moral turpitude, willful commission of any act of theft,
fraud, embezzlement or misappropriation against Colfax or its subsidiaries
or willful and continued failure of the executive to substantially perform
his duties;
|
|
|
·
|
“change
in control”
means:
|
|
|
·
|
a
transaction or series of transactions pursuant to which any person
acquires beneficial ownership of more than 50% of the voting power of the
common stock of Colfax then
outstanding;
|
|
|
·
|
during any two-year consecutive
period, individuals who at the beginning of the period constitute the
board of directors (together with any new directors approved by at least
two-thirds of the directors at the beginning of the period or subsequently
approved) cease to constitute a majority of the board of directors of
Colfax;
|
|
|
·
|
a
merger, sale of all or substantially all of the assets of Colfax or
certain acquisitions of the assets or stock by Colfax of another entity in
which there is a change in control of Colfax;
and
|
|
|
·
|
a liquidation or dissolution of
Colfax;
|
|
|
·
|
“change
in control event”
means the earlier to occur of a “change in control” or the execution of an
agreement by Colfax providing for a change in control;
and
|
|
|
·
|
“ good
reason”
means:
|
|
|
·
|
the
assignment of duties to the executive which are materially inconsistent
with his position with Colfax;
|
|
|
·
|
a
reduction in the executive’s base salary, or the setting or payment of the
executive’s target annual incentive compensation, in each case in an
amount materially less than as required under the employment
agreement;
|
|
|
·
|
the
requirement for the executive to relocate his principal place of business
at least 35 miles from his current place of
business;
|
|
|
·
|
Colfax’s
failure to obtain agreement from any successor to fully assume its
obligations to the executive under the terms of the agreement;
and
|
29
|
|
·
|
any other failure by Colfax to
perform its material obligations under, or breach of Colfax of any
material provision of, the employment
agreement.
|
Equity Awards. The vesting of
outstanding equity awards, other than performance awards, accelerates in
full upon the death or total and permanent disability of the
grantee or upon a “corporate transaction” (as defined below). The
vesting of the outstanding performance-based restricted stock
units accelerates in full upon the death or total and permanent
disability of the grantee only if and when the performance criteria for
such award are achieved as of the end of the performance period, or
immediately if the performance period has already ended and the performance
criteria have been achieved. The outstanding performance-based
restricted stock units will terminate and cease to vest upon a “corporate
transaction,” unless prior to the corporate transaction the performance period
has already ended and the performance criteria have been achieved, in which case
the vesting for the award will accelerate in full. While these
benefits are available to all of our equity plan participants equally, pursuant
to SEC requirements, we have included these acceleration benefits in the table
below. In addition, in the event of termination of service other than
for death, disability or cause, any stock option awards will remain exercisable
to the extent vested for ninety days after termination of service.
A
“corporate transaction” under any outstanding equity awards is generally defined
as:
|
|
·
|
the
dissolution or liquidation of the Company or a merger, consolidation, or
reorganization of the Company with one or more other entities in which we
are not the surviving entity;
|
|
|
·
|
a
sale of substantially all of our assets to another person or entity;
or
|
|
|
·
|
any
transaction which results in any person or entity, other than persons who
are stockholders or affiliates immediately prior to the transaction,
owning 50% or more of the combined voting power of all classes of our
stock.
|
Accelerated
vesting upon a “corporate transaction” will not occur to the extent that
provision is made in writing in connection with the corporate transaction for
the assumption or continuation of the outstanding awards, or for the
substitution of such outstanding awards for similar awards relating to the stock
of the successor entity, or a parent or subsidiary of the successor entity, with
appropriate adjustments to the number of shares of stock that would be delivered
and the exercise price, grant price or purchase price relating to any such
award. If an award is assumed or substituted in connection with a corporate
transaction and the holder is terminated without cause within a year following a
change in control, the award will fully vest and may be exercised in full, to
the extent applicable, beginning on the date of such termination and for the
one-year period immediately following such termination or for such longer period
as the compensation committee shall determine.
30
Estimate of Payments. The
tables that follow provide information related to compensation payable to each
named executive officer assuming termination of such executive’s employment on
December 31, 2008, or assuming a change of control or corporate transaction
with corresponding qualifying termination occurred on December 31, 2008. Amounts
also assume the price of our common stock was $10.39, the closing price on
December 31, 2008.
|
Executive
|
John
A. Young
|
G.
Scott Faison
|
William
E. Roller
|
Thomas
M. O’Brien
|
Mario
E. DiDomenico
|
|||||||||||||||
|
Employment
Agreement Benefits:
|
||||||||||||||||||||
|
Without
“cause“ or “good reason“
|
||||||||||||||||||||
|
Lump
Sum Payment
|
$ | 989,625 | $ | 423,000 | $ | 359,238 | $ | 389,876 | $ | 299,860 | ||||||||||
|
Pro
Rata Incentive Compensation
|
$ | 424,125 | $ | 141,000 | $ | 111,488 | $ | 120,996 | $ | 93,060 | ||||||||||
|
Health
Care
|
$ | 14,340 | $ | 11,280 | $ | 14,340 | $ | 16,584 | $ | 14,340 | ||||||||||
|
Upon
a “change of control”
|
||||||||||||||||||||
|
Lump
Sum Payment
|
$ | 1,979,250 | $ | 846,000 | $ | 718,475 | $ | 779,752 | $ | 599,720 | ||||||||||
|
Pro
Rata Incentive Compensation
|
$ |
424,125
|
$
|
141,000
|
$
|
111,488
|
$
|
120,996
|
$
|
93,060 | ||||||||||
|
Health
Care
|
$ | 28,680 | $ | 22,560 | $ | 28,680 | $ | 33,168 | $ | 28,680 | ||||||||||
|
Equity
Awards(1):
|
||||||||||||||||||||
|
Accelerated
Stock Options
|
— | — | — | — | — | |||||||||||||||
|
Accelerated
PRSUs
|
$ | 259,750 | $ | 79,369 | $ | 57,727 | $ | 57,727 | $ | 57,727 | ||||||||||
|
Excess Benefit
Plan(2)
|
$ | 679,022 | $ | 302,383 | $ | 358,960 | $ | 271,236 | $ | 439,581 | ||||||||||
|
Disability
Benefits(3)
|
$ | 150,000 | $ | 150,000 | $ | 150,000 | $ | 150,000 | $ | 150,000 | ||||||||||
|
(1)
|
Upon
death, total and permanent disability and, in certain circumstances, a
“corporate transaction” as defined above. See “Equity Awards” above for
more details on the vesting of our outstanding equity
awards.
|
|
(2)
|
Amounts
represent the aggregate balance of the named executive officer’s Excess
Benefit Plan account as of December 31, 2008. For more details
on our Excess Benefit Plan, see “Nonqualified Deferred Compensation”
above.
|
|
(3)
|
Amounts
represent the aggregate estimated annual benefit that would be paid
pursuant to our Group Long-Term Disability Plan (which is available to all
of our employees) and our Supplemental Long-Term Disability Plan in the
event a named executive officer becomes disabled and is
terminated. The estimated annual benefit for each named
executive officer under the General Disability Plan is $60,000 and the
estimated annual benefit for each named executive officer under the
Supplemental Long-Term Disability Plan is
$90,000.
|
31
EQUITY
COMPENSATION PLAN INFORMATION
The
following table summarizes the Company’s equity compensation plan information as
of December 31, 2008. All equity compensation plans have been approved by
Company shareholders.
|
Plan
Category
|
Number
of
securities
to
be
issued upon
exercise
of
outstanding
options
(a)
|
Weighted-
average
exercise
price
of
outstanding
options
(b)
|
Number
of
securities
remaining
available
for
future
issuance
under
equity
compensation
plans
(excluding
securities
reflected
in
column (a))
(c)
|
|||||||||
|
Equity
compensation plans approved by Company shareholders
|
514,991 | $ | 17.93 | 3,754,166 | ||||||||
|
Equity
compensation plans not approved by Company shareholders
|
— | — | — | |||||||||
32
BENEFICIAL
OWNERSHIP OF OUR COMMON STOCK
The
following table sets forth certain information as of March 27, 2009 (unless
otherwise specified), with respect to the beneficial ownership of our common
stock by each person who is known to own beneficially more than 5% of the
outstanding shares of common stock, each person currently serving as a director,
each nominee for director, each named executive officer (as listed below), and
all directors and executive officers as a group:
|
Beneficial
Owner
|
Amount
and Nature Of
Beneficial
Ownership
|
Percent
of Class
|
||||||
|
5%
Holders
|
||||||||
|
Keeley
Asset Management Corp.
|
3,383,280(1) |
|
7.8%(1) | |||||
|
401
South LaSalle Street
|
||||||||
|
Chicago,
IL 60605
|
||||||||
|
Keeley
Small Cap Value Fund
|
2,450,000(1) |
|
5.7% (1) | |||||
|
401
South LaSalle Street
|
||||||||
|
Chicago,
IL 60605
|
||||||||
|
Steven
M. Rales
|
9,145,610(2) |
|
21.2% | |||||
|
2099
Pennsylvania Avenue N.W., 12th
Floor
|
||||||||
|
Washington,
D.C. 20006
|
||||||||
|
5%
Holder and Director
|
||||||||
|
Mitchell
P. Rales
|
9,145,610(3) |
|
21.2% | |||||
|
2099
Pennsylvania Avenue N.W., 12th
Floor
|
||||||||
|
Washington,
D.C. 20006
|
||||||||
|
Directors
|
||||||||
|
Patrick
W. Allender
|
202,078(4)(5) |
|
* | |||||
|
C.
Scott Brannan
|
1,852(5) |
|
* | |||||
|
Joseph
O. Bunting III
|
192,656(5) |
|
* | |||||
|
Thomas
S. Gayner
|
1,852(5) |
|
* | |||||
|
Rhonda
L. Jordan
|
— | * | ||||||
|
Clay
Kiefaber
|
20,602(5) |
|
* | |||||
|
Rajiv
Vinnakota
|
1,852(5) |
|
* | |||||
|
Named
Executive Officer and Director
|
||||||||
|
John
A. Young
|
436,932(6) |
|
1.0% | |||||
|
Named
Executive Officers
|
||||||||
|
G.
Scott Faison
|
57,366(6) |
|
* | |||||
|
Thomas
M. O’Brien
|
57,270(6) |
|
* | |||||
|
William
E. Roller
|
63,546(6) |
|
* | |||||
|
Mario
E. DiDomenico
|
94,184(6) |
|
* | |||||
|
All
of our directors and executive officers as a group (17
persons)
|
10,392,230(5)(6) |
|
24.0% | |||||
*
Represents beneficial ownership of less than 1%
|
(1)
|
Beneficial
ownership amount and nature of ownership as reported on Schedule 13G filed
with the SEC on February 13, 2009 on the behalf of Keeley Asset Management
Corp. and Keeley Funds, Inc. Keeley Small Cap Value Fund is a series of
Keeley Funds, Inc. Keeley Asset Management Corp. and Keeley Small Cap
Value Fund share beneficial ownership over the 2,450,000 shares reported
as beneficially owned by Keeley Small Cap Value Fund and these shares are
included in the amounts shown as beneficially owned by both
entities.
|
|
(2)
|
The
total number of shares of common stock beneficially owned by Steven M.
Rales is 9,145,610. 9,126,222 shares are held directly by Steven M. Rales
and 19,388 are held by Capital Yield Corporation, of which Mitchell P.
Rales and Steven M. Rales are the sole
stockholders.
|
|
(3)
|
The
total number of shares of common stock beneficially owned by Mitchell P.
Rales is 9,145,610. 9,126,222 shares are held directly by Mitchell P.
Rales and 19,388 are held by Capital Yield Corporation, of which Mitchell
P. Rales and Steven M. Rales are the sole
stockholders.
|
33
|
(4)
|
Includes
199,259 shares owned by the John W. Allender Trust, of which Patrick
Allender is trustee. Mr. Allender disclaims beneficial
ownership of all shares held by the John W. Allender Trust except to the
extent of his pecuniary interest
therein.
|
|
(5)
|
Beneficial
ownership by non-employee directors (other than Mitchell P. Rales)
includes 1,852 restricted stock units that vest within 60 days of March
27, 2009 and will be delivered upon the termination of service on the
Board.
|
|
(6)
|
Beneficial
ownership by named executive officers includes shares that such
individuals have the right to acquire upon the exercise of options that
will vest within 60 days of March 27, 2009. The number of
shares included in the table as beneficially owned which are subject to
such options is as follows: Mr. Young— 20,834; Mr. Faison— 6,366; each
other executive officer— 4,630.
|
34
PROPOSAL
2
RATIFICATION
OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
We are
asking our stockholders to ratify the Audit Committee’s selection of Ernst &
Young LLP as our independent registered public accounting firm for the fiscal
year ending December 31, 2009. Although stockholder ratification is not
required, the appointment of Ernst & Young LLP is being submitted for
ratification as a matter of good corporate practice with a view towards
soliciting stockholders’ opinions which the Audit Committee will take into
consideration in future deliberations. If the selection is not ratified, the
Audit Committee will consider whether it is appropriate to select another
registered public accounting firm. Even if the selection is ratified, the Audit
Committee in its discretion may select a different registered public accounting
firm at any time during the year if it determines that such a change would be in
the best interests of the Company and our stockholders.
Representatives
for Ernst & Young LLP will be present at the Annual Meeting with the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
Independent
Registered Public Accountant Fees and Services
The
following table sets forth the aggregate fees for audit services rendered by
Ernst & Young LLP for the Company for the fiscal years ended December 31,
2008 and 2007:
|
Fee
Category
|
2008
|
2007
|
||||||
|
Audit
Fees
|
$ | 1,537,700 | $ | 3,359,900 | ||||
|
Audit-Related
Fees
|
— | — | ||||||
|
Tax
Fees
|
$ | 327,600 | $ | 260,300 | ||||
|
All
Other Fees
|
— | — | ||||||
|
Total
|
$ | 1,865,300 | $ | 3,620,200 | ||||
Audit Fees. This category of
the table above includes fees for the fiscal years ended December 31, 2008 and
2007 that were for professional services rendered (including reimbursement for
out-of-pocket expenses) for the audits of our consolidated financial statements,
for the review of documents filed with the Securities and Exchange Commission
(the “SEC”), including approximately $2.1 million for the registration statement
relating to our initial public offering in May 2008, for reviews of our
unaudited quarterly financial statements, and for statutory audits.
Audit-Related Fees. This
category of the table above includes the fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our financial statements and are not reported under “Audit
Fees.”
Tax Fees. This category of
the table above includes of fees billed for tax compliance, tax advice and tax
planning.
All Other Fees. This category
of the table above includes fees billed for products and services other than
those described above under Audit Fees, Audit-Related Fees and Tax
Fees.
The Audit
Committee has considered whether the services rendered by the independent
registered public accounting firm with respect to the fees described above are
compatible with maintaining their independence and has concluded that such
services do not impair their independence.
35
Audit
Committee’s Pre-Approval Policies and Procedures
Pursuant
to its charter, the Audit Committee must pre-approve all auditing services,
internal control related services and non-audit services provided to the Company
by the independent registered public accounting firm and all fees payable by the
Company to the independent registered public accounting firm for such
services. The Audit Committee has adopted a pre-approval policy to
ensure compliance with the NYSE’s Listing Standards and the applicable SEC rules
and regulations relating to auditor independence. The Audit Committee reviews
with Ernst & Young LLP and management the plan and scope of Ernst &
Young LLP’s proposed annual financial audit and quarterly reviews, including the
procedures to be utilized and Ernst & Young LLP’s compensation. The Audit
Committee also pre-approves all auditing services, internal control related
services and permitted non-audit services (including the fees and terms thereof)
to be performed for us by Ernst & Young LLP. The Audit Committee may
delegate pre-approval authority to one or more members of the Audit Committee
consistent with the pre-approval policy, provided that the decisions of such
Audit Committee member or members must be presented to the full audit committee
at its next scheduled meeting. Pre-approval of permitted non-audit services can
only be approved by the full Audit Committee.
The
Board unanimously recommends that stockholders vote “FOR” the ratification of
the appointment of Ernst & Young LLP as the Company’s independent registered
public accounting firm for 2009.
36
AUDIT
COMMITTEE REPORT
The Audit
Committee consists of C. Scott Brannan, Patrick Allender and Thomas Gayner. The
Audit Committee operates pursuant to a written charter adopted by the Board of
Directors.
The Audit
Committee has reviewed and discussed the Company’s audited financial statements
for the fiscal year ended December 31, 2008 with management and with the
Company’s independent registered public accountants. The Audit Committee
discussed with the independent registered public accountants the matters
required to be discussed by the Statement on Auditing Standards No. 61, as
amended (AICPA, Professional
Standards, Vol. 1, AU section 380), as adopted by the Public Company
Accounting Oversight Board in Rule 3200T. The Audit Committee has received the
written disclosures and the letter from the independent registered public
accountants confirming their independence, as required by applicable
requirements of Public Company Accounting Oversight Board regarding the
independent accountant’s communications with the Audit Committee concerning
independence, and has discussed with the independent accountant the independent
accountant’s independence. On the basis of the reviews and discussions
referenced above, the Audit Committee recommended to the Board of Directors that
the audited financial statements for the fiscal year ended December 31, 2008 be
included in the Company’s Form 10-K for filing with the Securities and Exchange
Commission.
Audit
Committee of the Board of Directors
C. Scott
Brannan, Audit Committee Chair
Patrick
Allender
Thomas
Gayner
37
PROPOSAL
3
APPROVAL
OF THE COLFAX CORPORATION ANNUAL INCENTIVE PLAN
On
December 11, 2008, upon the recommendation of the Compensation Committee, the
Board approved the Colfax Corporation Annual Incentive Plan (the “Plan”) subject
to the approval of the Company’s stockholders. If
approved by the stockholders, the Plan will become effective at that time and
will remain in effect until terminated by the Board. Below is a summary of the
Board’s reasons for adopting the Plan and seeking stockholder approval thereof,
and of the Plan itself. The following is qualified in its entirety by the full
text of the Plan, which is attached to this Proxy Statement as Appendix A and is
incorporated by reference into this proposal.
Reasons
for Seeking Stockholder Approval of the Plan
In order
to allow us to obtain the benefit of a federal income tax deduction for certain
performance-based compensation we pay to our executive officers, we are seeking
stockholder approval of the Plan. The Company ties a portion of its executive
officers’ compensation to the achievement of performance goals using an annual
incentive plan under which executive officers earn incentive compensation that
varies based on performance relative to goals set by the Compensation Committee
(for the purposes of this proposal, an “award”). Under the Internal Revenue Code
of 1986, as amended (the “Code”), Section 162(m) of the Code provides that the
Company cannot deduct taxable compensation in excess of $1,000,000 that it pays
to an individual who, as of the last day of the relevant tax year, is a “covered
employee” unless such compensation meets the Code’s definition of “qualified
performance-based compensation.” Currently, in accordance with Internal Revenue
Service Notice 2007-49, the term “covered employee” consists of the Company’s
principal executive officer or any of its other three highest paid officers,
except that if the principal financial officer is one of those other three
highest paid officers, then this limitation applies to the other three highest
paid officers (the IRS may at a later date determine to expand this definition).
Annual incentive compensation cannot be qualified performance-based compensation
unless it is paid under a written plan approved by the Company’s
stockholders.
Purpose
of the Plan
The Plan
is intended to enhance the Company’s ability to attract and retain highly
qualified officers and key employees and to motivate these individuals to serve
the Company. Also, as discussed above, any payments made under the Plan are
intended to be treated as “qualified performance-based compensation” for the
purposes of Section 162(m) of the Code.
Summary
of the Plan
Administration. The
Compensation Committee will administer the Plan and it has the full authority to
make awards under the Plan.
Eligibility. Participation in
the Plan will be limited to our executive officers who are selected for
participation by the Compensation Committee. The nine persons that are currently
serving as our executive officers will be eligible to participate in the
Plan.
Performance Period and Timing for
Performance Goals. The Compensation Committee has the discretion to
determine the period of time during which performance goals must be met in order
to determine the amount of payment or vesting earned under any Plan
award. Performance goals will be established no later than 90 days
after the beginning of any performance period applicable to an award, or at any
other date that is required or permitted for “performance-based compensation”
under Section 162(m).
Performance Goals and
Targets. The performance goals for awards consist of one or more business
criteria with the targeted levels of performance specified by the Compensation
Committee. Any performance goal or a combination thereof can be used to measure
the performance of the Company or any of its business units. A performance goal
may also be measured against comparable companies, a published stock index, or a
stock market index in relation to share price, all under the discretion of the
Compensation Committee. The specific goal or goals shall relate to one or more
of the following metrics:
38
|
|
·
|
net
earnings or net income;
|
|
|
·
|
operating
earnings;
|
|
|
·
|
pretax
earnings;
|
|
|
·
|
earnings
per share;
|
|
|
·
|
share
price, including growth measures and total stockholder
return;
|
|
|
·
|
earnings
before interest and taxes;
|
|
|
·
|
earnings
before interest, taxes, depreciation and/or
amortization;
|
|
|
·
|
sales
or revenue growth, whether in general, by type of product or service, or
by type of customer;
|
|
|
·
|
gross
or operating margins;
|
|
|
·
|
return
measures, including return on assets, capital, investment, equity, sales
or revenue;
|
|
|
·
|
cash
flow, including operating cash flow, free cash flow, cash flow return on
equity and cash flow return on
investment;
|
|
|
·
|
productivity
ratios;
|
|
|
·
|
expense
targets;
|
|
|
·
|
market
share;
|
|
|
·
|
financial
ratios as provided in credit agreements of the Company and its
subsidiaries;
|
|
|
·
|
working
capital targets;
|
|
|
·
|
completion
of acquisitions of business or
companies;
|
|
|
·
|
completion
of divestitures and asset sales;
and
|
|
|
·
|
any
combination of any of the foregoing business
criteria.
|
Settlement of Awards. Plan
awards may be made in cash, the Company’s common stock, or other property at the
discretion of the Compensation Committee. Awards made in common stock will be
drawn solely from the shares available for distribution under the Company’s 2008
Omnibus Incentive Plan.
Limit on Awards Under the
Plan. The maximum amount paid to any participant in any fiscal year
cannot exceed $3 million.
Evaluation of Performance and
Determination of Awards. Payment of an award is subject to certification
by the Compensation Committee that the applicable performance goals have been
met. Further, the Compensation Committee may adjust an award downward, either
based on a formula or on a discretionary basis, but cannot adjust upward from
the level of performance achieved. The Compensation Committee may allow that an
award can include or exclude certain events (such as changes in tax laws and
other extraordinary nonrecurring items) that may have an undesired effect on the
achievement of goals set for that award.
Nonexclusively. The Plan is
not the exclusive means by which we can provide our executive officers with
incentives, although discretionary bonuses and incentives under plans that have
not been approved by our stockholders may not be tax deductible for certain of
our executive officers under Section 162(m).
Amendments. The Board may amend,
suspend or terminate the Plan at any time; provided that, except for technical
amendments to comply with the deferred compensation rules under Section 409A of
the Code, no such amendment, suspension or termination shall, without the
consent of a participant, adversely affect any right of the participant under
the participant’s outstanding awards. Further, no amendment can alter the
business criteria on which performance goals are based, increase the maximum
amount for an award, or materially modify the requirements regarding eligibly
for the Plan without prior stockholder approval.
39
Federal
Income Tax Consequences to Individuals under the Plan
Under
present federal income tax laws, participants will realize ordinary income in
the year they receive a cash pay out under an award. We will be entitled to
deduct a corresponding amount, provided that the Plan and the award satisfy the
requirements of Section 162(m). It is our intention that the Plan be
construed and administered in a manner that maximizes the tax deductibility
of compensation under Section 162(m).
New
Plan Benefits
The
following table indicates the amount of the maximum annual incentive
compensation payable for 2009 to each of the named executive officers and all
current executive officers as a group if the performance goals set under the
Plan are attained. Neither any non-executive officer employees nor the
non-executive directors participate in the Plan.
|
Name
and Position
|
Dollar
Value
($)(1)
|
Number
of
Units(2)
|
||||||
|
John
A. Young
President
and Chief Executive Officer
|
$ | 882,180 | — | |||||
|
G.
Scott Faison
Senior
Vice President, Finance and Chief Financial Officer
|
$ | 302,078 | — | |||||
|
William
E. Roller
Senior
Vice President, General Manager—Americas
|
$ | 244,593 | — | |||||
|
Thomas
M. O’Brien
Senior
Vice President, General Counsel and Secretary
|
$ | 259,221 | — | |||||
|
Mario
E. DiDomenico
Senior
Vice President, General Manager—Engineered Solutions
|
$ | 204,164 | — | |||||
|
All
current executive officers as a group, including the named executive
officers listed above (9 persons)
|
$ | 2,800,515 | — | |||||
|
(1)
|
Amounts
represent the maximum dollar value of the annual incentive compensation
payable for 2009 if the Compensation Committee elected to grant plan
awards entirely in cash.
|
|
(2)
|
Because
the award is denominated in dollars and the Compensation Committee has not
yet elected to make awards in units, no units are
shown. However, if the Compensation Committee elected to pay
plan awards entirely in shares of the Company’s common stock, restricted
stock or restricted stock units, using the closing price of the Company’s
common stock on December 31, 2008, which was $10.39 per share, the number
of units that would be subject to the awards are 84,907, 29,074, 23,541,
24,949, 19,650, and 269,539, for Messrs. Young, Faison, Roller, O’Brien
and DiDomenico and all current executive officers as a group,
respectively.
|
The Board of Directors of the Company
unanimously recommends that stockholders vote “FOR” approval of the Company’s
Annual Incentive Plan.
40
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act
requires our directors, executive officers and 10% stockholders to file reports
of ownership and changes in ownership of our equity securities. To our
knowledge, based upon the reports filed and written representations regarding
reports required during the fiscal year ended December 31, 2008, no
executive officer or any director of the Company failed to file reports required
by Section 16(a) on a timely basis.
GENERAL
MATTERS
Stockholder
Proposals and Nominations
Requirements for Stockholder
Proposals to be Considered for Inclusion in our Proxy
Materials. To be considered for inclusion in next year’s proxy
statement, stockholder proposals must be received by our Corporate Secretary at
our principal executive offices no later than the close of business on December
10, 2009.
Requirements for Stockholder
Proposals to be Brought Before an Annual Meeting. Our Bylaws provide
that, for stockholder nominations to the Board or other proposals to be
considered at an annual meeting, the stockholder must have given timely notice
thereof in writing to the Secretary of the Company at Colfax Corporation, 200
American Metro Blvd., Suite 111, Hamilton Township, New Jersey 08619, Attn:
Corporate Secretary. To be timely for the 2010 annual meeting, the stockholder’s
notice must be delivered to or mailed and received by not less than 90 days nor
more than 120 days before the anniversary date of the preceding annual meeting,
except that if the annual meeting is set for a date that is more than 30 days
before or more than 70 days after such anniversary, the nomination must be
received not earlier than the close of business on the 120th day
prior to the annual meeting date and not later than the close of business on the
later of the 90th day
prior to such annual meeting or the tenth day following the day when the Company
makes a public announcement of the annual meeting date. Such notice must provide
the information required by our Section 2.2 of our Bylaws with respect to each
matter other than stockholder nominations the stockholder proposes to bring
before the 2010 annual meeting. Notice of stockholder nominations
must provide the information required by Section 3.3 of our Bylaws.
Additional
Information
A copy of
the Company’s Annual Report to Stockholders for the fiscal year ended December
31, 2008 has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report is not incorporated into this Proxy Statement and is not considered
proxy-soliciting material.
The Company filed its Annual Report
on Form 10-K with the SEC on March 6, 2009. The Company will mail without
charge, upon written request, a copy of its Annual Report on Form 10-K for
the fiscal year ended
December 31, 2008, excluding exhibits. Exhibits, if requested, will be
furnished upon the payment of a fee determined by the Company, such fee to be
limited to the Company’s reasonable expenses in furnishing
the requested exhibit or exhibits. Please send a written request to Investor Relations, Colfax
Corporation, 8730 Stony Point Parkway, Suite 150, Richmond, VA 23235, or access
these materials on the Company’s website at www.colfaxcorp.com on the Investors
page.
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Other
Matters
As of the
date of this Proxy Statement, the Board does not intend to present any matters
other than those described herein at the Annual Meeting and is unaware of any
matters to be presented by other parties. If other matters are properly brought
before the meeting for action by the stockholders, proxies returned to us in the
enclosed form will be voted in accordance with the recommendation of the Board
or, in the absence of such a recommendation, in accordance with the judgment of
the proxy holder.
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By
Order of the Board of Directors
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Thomas
M. O’Brien
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Secretary
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APPENDIX
A
COLFAX
CORPORATION
ANNUAL
INCENTIVE PLAN
Subject to approval of the Plan by
shareholders, Colfax Corporation, a Delaware corporation (the “Company”) hereby
adopts the terms of its Annual Incentive Plan (the “Plan”), as
follows:
1. PURPOSE
The Plan is intended to enhance the
Company’s and its Affiliates’ (as defined herein) ability to attract and retain
highly qualified officers and key employees, and to motivate such persons to
serve the Company and its Affiliates. Remuneration payable under the Plan is
intended to constitute “qualified performance-based compensation” for purposes
of Section 162(m) of the Internal Revenue Code of 1986, as amended and Section
1.162-27 of the Treasury Regulations thereunder and the Plan shall be construed
consistently with this purpose.
2. DEFINITIONS
For purposes of interpreting the Plan
and related documents the following definitions shall apply:
2.1 “Affiliate” means, with respect
to the Company, any company or other trade or business that is controlled by the
Company within the meaning of Rule 405 of Regulation C under the Securities Act,
including, without limitation, any Subsidiary.
2.2 “
Annual Incentive Award”
means a bonus payable subject to attainment of performance goals over a
Performance Period of up to one year (the Company’s fiscal year, unless
otherwise specified by the Committee).
2.3 “Board” means the Board of
Directors of the Company.
2.4 “Cause” means, as determined by
the Board and unless otherwise provided in an applicable agreement with the
Company: (i) gross negligence or willful misconduct in connection with the
performance of duties; (ii) conviction of a criminal offense (other than minor
traffic offenses); or (iii) material breach of any term of any employment,
consulting or other services, confidentiality, intellectual property or
non-competition agreements, if any, between the Participant and the Company or
any Affiliate of the Company.
2.5 “Code” means the Internal
Revenue Code of 1986, as now in effect or as hereafter amended.
2.6 “Committee” means the
Compensation Committee of the Board, which shall be comprised of not less than
three directors of Colfax, each of whom shall qualify in all respects as an
“outside director” for purpose of Code Section 162(m) and Section 1.162-27(e)(3)
of the Regulations.
2.7 “Company” means Colfax
Corporation.
2.8 “Participant” means, with
respect to a Performance Period, each eligible office or key employee designated
by the Committee to receive an annual bonus payment contingent of achievement of
specified performance goals.
2.9 “Performance Measures” means
measures as described in Section 5.1.4 on which the performance goals are based
and which are approved by the Company’s shareholders pursuant to this Plan in
order to qualify Annual Incentive Awards as performance-based compensation under
Section 162(m).
2.10 “Performance Period” means the
period of time during which the performance goals must be met in order to
determine the degree of payout and/or vesting with respect to an Annual
Incentive Award.
2.11 “Plan” means this Colfax
Corporation Annual Incentive Plan.
2.12 “Stock” means the common stock,
per value $0.001 per share of the Company; provided, however, that to the extent
an annual bonus payment made pursuant to this Plan is paid in Stock, the number
of shares of Stock so delivered shall be drawn solely from Stock available for
awards under the Colfax Corporation 2008 Omnibus Incentive
Plan.
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2.13 “Subsidiary” means any
subsidiary corporation of the Company within the meaning of Section 424(f) of
the Code.
3. ADMINISTRATION
OF THE PLAN
3.1. Committee.
The Plan shall be administered by the
Committee. The Committee shall have the authority to establish and
administer the performance goal and to certify the attainment of the performance
goals as described in Section 5.2 below. The Committee shall have the
full power and authority to construe, interpret and administer the Plan and
shall have the exclusive right to make awards under the Plan and to exercise
negative discretion pursuant to Section 5.1.3 below. The Committee
may take action at a meeting or by written consent in accordance with the
Company’s bylaws. The performance goals may be ratified by the
Board.
In administering the Plan, the
Committee may at its option employ compensation consultants, accountants and
counsel and other persons to assist or render advice to the Committee, all at
the expense of the Company. Any determinations made by the Committee
in connection with the Plan shall be final and binding on the Company, its
Affiliates, Subsidiaries and their respective stockholders and each Participant
in the Plan.
3.2. Deferral
Arrangement.
The Board may permit or require the
deferral of any award payment into a deferred compensation arrangement, subject
to such rules and procedures as it may establish, which may include provisions
for the payment or crediting of interest or earnings. Any such
deferrals shall be made in a manner that complies with Code Section
409A.
4. ELIGIBILITY
Eligibility under this Plan is limited
to eligible executives designated by the Committee, in its
discretion. Upon such designation for a Performance Period, the
executive shall become a “Participant” under the Plan.
5. ANNUAL
INCENTIVE AWARDS
5.1. Granting
Annual Incentive Awards.
The Committee may grant an Annual
Incentive Award to each Participant. In doing so, the Committee shall
establish the performance goals applicable to determination of each such
Participant’s Annual Incentive Award. The maximum Annual Incentive
Award payable to a Participant under this Plan for a fiscal year shall be
$3,000,000.
5.1.1. Performance
Goals Generally.
The performance goals for Annual
Incentive Awards shall consist of one or more business criteria and a targeted
level or levels of performance with respect to each of such criteria, as
specified by the Committee consistent with this Section
5.1. Performance goals shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations thereunder including the
requirement that the level or levels of performance targeted by the Committee
result in the achievement of performance goals being “substantially
uncertain.” The Committee may determine that such Awards shall be
granted and/or settled upon achievement of any one performance goal or that two
or more of the performance goals must be achieved as a condition to grant and/or
settlement of such Annual Incentive Awards. Performance goals may
differ for Annual Incentive Awards granted to any one Participant or to
different Participants.
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5.1.2. Timing
For Establishing Performance Goals.
Performance goals shall be established
not later than 90 days after the beginning of any Performance Period applicable
to the Annual Incentive Awards, or at such other date as may be required or
permitted for “performance-based compensation” under Code Section
162(m).
5.1.3. Settlement
of Awards; Other Terms.
Settlement of Annual Incentive Awards
shall be in cash, Stock or other property, in the discretion of the
Committee. The Committee may, in its discretion, reduce the amount of
a settlement otherwise to be made in connection with an Annual Incentive
Award. The Committee shall specify the circumstances in which Annual
Incentive Awards shall be paid or forfeited in the event of termination of
service by the Participant prior to the end of a Performance Period or
settlement of awards.
5.1.4. Performance
Measures.
The performance goals established by
the Committee shall be based on one or more of the following Performance
Measures:
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(a)
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net
earnings or net income;
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(b)
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operating
earnings;
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(c)
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pretax
earnings;
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(d)
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earnings
per share;
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(e)
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share
price, including growth measures and total stockholder
return;
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(f)
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earnings
before interest and taxes;
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(g)
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earnings
before interest, taxes, depreciation and/or
amortization;
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(h)
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sales
or revenue growth, whether in general, by type of product or service, or
by type of customer;
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(i)
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gross
or operating margins;
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(j)
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return
measures, including return on assets, capital, investment, equity, sales
or revenue;
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(k)
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cash
flow, including operating cash flow, free cash flow, cash flow return on
equity and cash flow return on
investment;
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(l)
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productivity
ratios;
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(m)
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expense
targets;
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(n)
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market
share;
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(o)
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financial
ratios as provided in credit agreements of the Company and its
subsidiaries;
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(p)
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working
capital targets;
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(q)
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completion
of acquisitions of business or
companies;
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(r)
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completion
of divestitures and asset sales;
and
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(s)
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any
combination of any of the foregoing business
criteria.
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Any Performance Measure(s) may be used
to measure the performance of the Company, Subsidiary, and/or Affiliate as a
whole or any business unit of the Company, Subsidiary, and/or Affiliate or any
combination thereof, as the Committee may deem appropriate, or any of the above
Performance Measures as compared to the performance of a group of comparator
companies, or published or special index that the Committee, in its sole
discretion, deems appropriate, or the Company may select Performance Measure (e)
above as compared to various stock market indices.
5.1.5. Evaluation
of Performance.
The Committee may provide with respect
to Annual Incentive Awards that any evaluation of performance may include or
exclude any of the following events that occur during a Performance Period: (a)
asset write-downs; (b) litigation or claim judgments or settlements; (c) the
effect of changes in tax laws, accounting principles, or other laws or
provisions affecting reported results; (d) any reorganization and restructuring
programs; (e) extraordinary nonrecurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management’s discussion and analysis
of financial condition and results of operations appearing in the Company’s
annual report to shareholders for the applicable year; (f) acquisitions or
divestitures; and (g) foreign exchange gains and losses.
5.1.6. Adjustment
of Performance-Based Compensation.
The Committee shall retain the
discretion to adjust any Awards downward, either on a formula or discretionary
basis, or any combination as the Committee determines. Annual
Incentive Awards may not be adjusted upward from the level of performance
achieved.
5.1.7. Board Discretion.
In the event that applicable tax and/or
securities laws change to permit Board discretion to alter the governing
Performance Measures without obtaining shareholder approval of such changes, the
Board shall have sole discretion to make such changes without obtaining
shareholder approval provided the exercise of such discretion does not violate
Code Section 409A. In addition, in the event that the Committee determines that
it is advisable to grant Awards that shall not qualify as performance-based
compensation under Section 162(m), the Committee may make such grants without
satisfying the requirements of Code Section 162(m) and grant and/or settlement
on Performance Measures other than those set forth in Section
5.1.4.
5.2. Determination
of Annual Incentive Award.
Payment of a Participant’s Annual
Incentive Award, if any, is subject to certification by the Committee that the
performance goals have been satisfied to a particular extent and any other
material terms and conditions for the earning and payment of the Annual
Incentive Award have been satisfied. The amount of payment shall be
further subject to the Committee’s right, in its sole discretion, to reduce the
Annual Incentive Award amount as so determined. The Committee’s
determination is final and binding and the Participant shall have no right to
receive the amount by which the Annual Incentive Award potential was reduced
from the amount designated as payable upon achievement of the performance goals
at a particular level. In no event shall an Annual Incentive Award be
paid to a Participant unless and until the Plan has been approved by the
Company’s stockholders in the manner and to the extent required by Section
162(m).
6. GENERAL
PROVISIONS
6.1. Disclaimer
of Rights.
No provision in the Plan or in any
Annual Incentive Award shall be construed to confer upon any individual the
right to remain in the employ or service of the Company or any Affiliate, or to
interfere in any way with any contractual or other right or authority of the
Company either to increase or decrease the compensation or other payments to any
individual at any time, or to terminate any employment or other relationship
between any individual and the Company. The obligation of the Company
to pay any benefits pursuant to this Plan shall be interpreted as a contractual
obligation to pay only those amounts described herein, in the manner and under
the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
Participant under the terms of the Plan.
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6.2. Nonexclusivity
of the Plan.
Neither the adoption of the Plan nor
the submission of the Plan to the stockholders of the Company for approval shall
be construed as creating any limitations upon the right and authority of the
Board to adopt such other incentive compensation arrangements (which
arrangements may be applicable either generally to a class or classes of
individuals or specifically to a particular individual or particular
individuals) as the Board in its discretion determines desirable.
6.3. Withholding
Taxes.
The Company or an Affiliate, as the
case may be, shall have the right to deduct from payments of any kind otherwise
due to a Participant any federal, state, or local taxes of any kind required by
law to be withheld with respect to the vesting of or other lapse of restrictions
applicable to an Award or upon the issuance of any shares of Stock, if any,
pursuant to an award.
6.4. Captions.
The use of captions in this Plan or any
Award Agreement is for the convenience of reference only and shall not affect
the meaning of any provision of the Plan or such Award Agreement.
6.5. Other
Provisions.
Each Award granted under the Plan may
contain such other terms and conditions not inconsistent with the Plan as may be
determined by the Board, in its sole discretion.
6.6. Number
and Gender.
With respect to words used in this
Plan, the singular form shall include the plural form, the masculine gender
shall include the feminine gender, etc., as the context requires.
6.7. Severability.
If any provision of the Plan or any
Award Agreement shall be determined to be illegal or unenforceable by any court
of law in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
6.8. Governing
Law.
The validity and construction of this
Plan and the instruments evidencing the Awards hereunder shall be governed by
the laws of the State of Delaware, other than any conflicts or choice of law
rule or principle that might otherwise refer construction or interpretation of
this Plan and the instruments evidencing the Awards granted hereunder to the
substantive laws of any other jurisdiction.
6.9. Section
409A of the Code.
The Board intends to comply with
Section 409A of the Code (“Section 409A”), or an exemption to Section 409A, with
regard to awards hereunder that constitute or otherwise would constitute
nonqualified deferred compensation within the meaning of Section
409A. To the extent that the Board determines that a Participant
would be subject to the additional 20% tax imposed on certain nonqualified
deferred compensation plans pursuant to Section 409A as a result of any
provision of any Award granted under this Plan, such provision shall be deemed
amended to the minimum extent necessary to avoid application of such additional
tax. The nature of any such amendment shall be determined by the
Board.
6.10 Amendment
and Termination.
The Board shall have the right to
amend, modify, suspend or terminate the Plan from time to time, but no such
amendment, modification, suspension or termination shall, without prior approval
of the Company’s stockholders, alter the business criteria on which the
performance goals are based, increase the dollar maximum for an annual bonus
under Section 5.1 or materially modify the requirements regarding eligibility
for participation in the Plan, nor shall any such amendment, modification or
termination impair, without the consent of the Participant affected, any Annual
Incentive Award payment that has been certified and approved by the Committee
prior to the effective date of the amendment, modification, suspension or
termination.
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