UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.__ )

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Calgon Carbon Corporation

 

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Dear Fellow Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Calgon Carbon Corporation at 1:00 p.m., Eastern Time, on Thursday, April 22, 2010 at the principal executive office of the Company, 400 Calgon Carbon Drive, Pittsburgh, Pennsylvania 15205.

 

Information about the business of the meeting and the nominees for election as Directors is set forth in the notice of the meeting and the Proxy Statement, which are attached. This year you are asked to: (i) elect three Directors for the Class of 2013 and (ii) ratify the appointment of the independent registered public accounting firm for 2010.

 

It is important that your shares be represented at the meeting. Even if you plan to attend the meeting in person, we hope that you will send a proxy voting on the matters to be considered. Please sign, date and return your proxy in the enclosed envelope as promptly as possible.

 

Very truly yours,

 

John S. Stanik

President and
Chief Executive Officer

 

March 15, 2010

CALGON CARBON CORPORATION

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

The Annual Meeting of Stockholders of Calgon Carbon Corporation will be held at the principal executive office of the Company, 400 Calgon Carbon Drive, Pittsburgh, Pennsylvania 15205, on Thursday, April 22, 2010 at 1:00 p.m., Eastern Time, for the following purposes:

 

(1)  To elect three Directors for the Class of 2013 (Proposal 1);

 

 

Please refer to the accompanying Proxy Statement for a description of the matters to be considered at the meeting.

 

Holders of record of the Company’s Common Stock as of the close of business on March 11, 2010 are entitled to notice of and to vote at the meeting.

 

Please sign, date and return the enclosed proxy promptly in the envelope provided, which requires no United States postage.

 

Richard D. Rose

Vice President, General Counsel and Secretary

 

March 15, 2010

 

CALGON CARBON CORPORATION

 

PROXY STATEMENT

 

Table of Contents

 

CALGON CARBON CORPORATION

 

PROXY STATEMENT

 

Annual Meeting of Stockholders

 

April 22, 2010

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting
to be held on April 22, 2010

 

The 2010 Proxy Statement and the Annual Report to Stockholders for the year ended
December 31, 2009 are also available at www.proxydocs.com/ccc

 

The enclosed proxy is solicited on behalf of the Board of Directors (the “Board”) of Calgon Carbon Corporation (the “Company”) for use at the Annual Meeting of Stockholders to be held at 1:00 p.m., Eastern Time, on Thursday, April 22, 2010 at the principal executive office of the Company, 400 Calgon Carbon Drive, Pittsburgh, Pennsylvania 15205. The accompanying Notice of Annual Meeting of Stockholders sets forth the purposes of the meeting.

 

The enclosed proxy may be revoked at any time before its exercise by giving written notice of revocation to the Secretary of the Company. The shares represented by proxies in the form solicited by the Board will be voted at the meeting. If a choice is specified on the proxy with respect to a matter to be voted upon, the shares represented by the proxy will be voted in accordance with that specification. If no choice is specified, the shares will be voted as stated below in this Proxy Statement. If, however, you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may be treated as “broker non-votes.” Generally, broker non-votes occur when a broker is not permitted to vote on a particular matter without instructions from the beneficial owner and instructions have not been given. Brokers that have not received voting instructions from their clients cannot vote on their clients’ behalf on “non-routine” proposals, such as the election of Directors, although they may vote their clients’ shares on “routine” proposals such as the ratification of the independent registered public accounting firm. In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal.

 

It is expected that this Proxy Statement and the accompanying form of proxy will first be mailed to stockholders on or about March 15, 2010. The Company’s Annual Report to Stockholders for 2009 is enclosed with this Proxy Statement but does not form a part of the proxy soliciting material. The cost of soliciting proxies will be borne by the Company. Following the original mailing of the proxy soliciting material, regular employees of the Company may solicit proxies by mail, telephone, electronic means and personal interview. The Company may also hire a proxy solicitation firm or may request brokerage houses and other nominees or fiduciaries to forward copies of the proxy soliciting material and the 2009 Annual Report to beneficial owners of the stock held in their names, and the Company will reimburse them for reasonable out-of-pocket expenses incurred in doing so.

 

Holders of the Company’s Common Stock of record as of the close of business on March 11, 2010 are entitled to receive notice of and to vote at the meeting. At the record date, the Company had outstanding 56,159,186 shares of Common Stock, the holders of which are entitled to one vote per share. The Company does not have cumulative voting.

 

Management

 

The following table shows the number of shares of Common Stock beneficially owned as of March 1, 2010 by each Director of the Company and by John S. Stanik, Leroy M. Ball, C.H.S. (Kees) Majoor, Robert P. O’Brien, Dennis M. Sheedy and James A. Sullivan, the named executive officers of the Company in the Summary Compensation Table, and by all current Directors and executive officers of the Company as a group. The Company has stock ownership guidelines for its executive officers which are described under “Stock Ownership Policy” on page 20 of this Proxy Statement. Unless otherwise indicated in the footnotes to the table, each person named and all Directors and executive officers as a group have sole voting power and sole investment power with respect to the shares. As used herein, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, the security). A person is deemed to have “beneficial ownership” of any security that the person has the right to acquire within 60 days after the record date.

 

 

 

 

Other Beneficial Owners

 

Information as of December 31, 2009 with respect to the only persons not otherwise disclosed in the management table and known by the Company to be a beneficial owner of more than 5% of the Company’s Stock as of March 1, 2010 is as follows:

 

 

The foregoing information is taken from a Schedule 13G filed with the Securities and Exchange Commission (the “SEC”) on January 20, 2010 by Wells and its affiliates reflecting ownership as of December 31, 2009. The filing states that Wells has sole voting power with respect to 3,350,549 shares, sole dispositive power with respect to 3,921,206 and shared dispositive power with respect to 150 shares, with other amounts listed in its filing for its affiliates.

 

 

The foregoing information is taken from a Schedule 13G filed with the SEC on January 29, 2010 by BlackRock, Inc. and its subsidiaries reflecting ownership as of December 31, 2009. BlackRock, Inc. reports that it has sole voting and sole dispositive power with respect to all 4,258,546 shares.

 

 

Invesco PowerShares Capital Management
Invesco Aim Advisors, Inc.
Invesco National Trust Company

 

The foregoing information is taken from a Schedule 13G filed with the SEC on February 11, 2010 by Invesco and its affiliates reflecting ownership as of December 31, 2009. The filing states that Invesco PowerShares Capital Management has sole voting and sole dispositive power with respect to 2,969,797 shares; Invesco Aim Advisors, Inc. has sole voting and sole dispositive power with respect to 975,658 shares; and Invesco National Trust Company has sole voting power with respect to 10,000 shares.

 

The business of the Company is under general supervision of a Board of Directors (the “Board”) as provided by the laws of the State of Delaware, the Company’s state of incorporation. The Board has established committees to assist it, consisting of the Executive Committee, the Compensation Committee, the Audit Committee and the Governance Committee. A current copy of each committee’s charter is available to stockholders at the Company’s website at www.calgoncarbon.com.

 

Executive Committee. Following the Annual Meeting, the Executive Committee will consist of Messrs. Schofield (Chairman), Rupert and Cruickshank and Ms. Roberts. The Executive Committee meets during the intervals between meetings of the Board, when prompt action is needed and it is impossible or inconvenient to convene a full meeting of the Board, and may exercise limited powers granted by the Board in the management of the business and affairs of the Company.

 

Compensation Committee. Following the Annual Meeting, the Compensation Committee will consist of Messrs. Rupert (Chairman), Cruickshank, Schofield and Dearth. All members of the Compensation Committee are independent as defined by the New York Stock Exchange standards for director independence. The Compensation Committee’s overall responsibility is to determine and implement the Company’s general policies with respect to the compensation of its executive officers. The Compensation Committee determines the base salary payable to each executive officer, as well as the short-term cash incentive, if any, payable to each executive officer, and to certain key employees, pursuant to the Company’s short-term cash incentive plan or otherwise. The Compensation Committee’s other duties include reviewing annually the succession plan for each executive officer in conjunction with the Governance Committee; evaluating the post-service arrangements with the executive officers; approving the report on executive compensation for inclusion in the Company’s annual proxy statement; reviewing and discussing with management the Compensation Discussion & Analysis to be included in the Company’s annual proxy statement; the creation, amendment and termination of certain employee benefit plans; and making administrative amendments to any director plans. The Compensation Committee also administers the Company’s 2008 Equity Incentive Plan, has the authority to make long-term incentive awards thereunder and is responsible for evaluating whether the executives have met their applicable performance levels thereunder. Other matters related to the compensation of executive officers and key employees, such as the terms of employment contracts and certain employee benefits, are also reviewed by the Compensation Committee.

 

The Compensation Committee may delegate any of its responsibilities to a subcommittee comprised of one or more members of the Compensation Committee. In addition, the Compensation Committee may delegate to Company officers or a committee of employees any of its responsibilities with respect to non-equity based plans including, but not limited to, plans created pursuant to the Employee Retirement Income Security Act of 1974 and employment practices created consistent with the various state laws.

 

The Compensation Committee engages an outside compensation consultant, Towers Watson & Co. (“Towers Watson” or the “consultant”), to provide advice and recommendations on the amount and form of executive and director compensation. In addition to such services, during the Company’s last fiscal year, the Company also engaged Towers Watson to provide additional services, including, but not limited to, actuarial services, pension plan consulting services, union negotiation assistance and participation in meetings. The Compensation Committee approved such other services. The aggregate fees paid to Towers Watson for determining and recommending the amount and form of executive and director compensation during the last fiscal year was $160,524.39 and the aggregate fees paid to Towers Watson for the other services was $318,401.17.

 

Audit Committee. Following the Annual Meeting, the Audit Committee will consist of Ms. Roberts (Chairperson) and Messrs. Dearth, Lyons and Alexander. All members of the Audit Committee are independent, as defined by the New York Stock Exchange standards for director independence. Ms. Roberts and Mr. Lyons have been designated by the Board as the Audit Committee’s “financial experts,” as required by the Sarbanes-Oxley Act of 2002 and the SEC regulations thereunder. The Audit Committee operates under a charter, which is intended to comply with the requirements of the Sarbanes-Oxley Act of 2002 and the New York Stock Exchange corporate governance requirements.

The Audit Committee’s duties include:

 

The Audit Committee has such other duties and responsibilities as are set forth in its written charter. These other duties and responsibilities include reviewing annually the report of the independent registered public accounting firm; reviewing annually the scope of the independent registered public accounting firm’s audit; meeting periodically with the independent registered public accounting firm and management; reviewing the Company’s systems of internal accounting and financial controls, and disclosure controls and procedures, and determining whether they are functioning adequately and reliably; assessing the performance and scope of internal audit services; reviewing and discussing with management the audited annual and quarterly financial statements of the Company and the Company’s SEC filings; reviewing and discussing with management the form and content of the notes to the financial statements and Management’s Discussion and Analysis of the financial statements; receiving and reviewing reports from management regarding compliance with corporate policies dealing with business conduct; reviewing business expense reporting; reviewing the Company’s contingency plans in the event of a failure of its information technology systems; investigating and reporting to the Board as to any alleged breach of law or of the Company’s internal policies which is brought to its attention; reviewing the audit reports of the Company’s benefit plans; preparing the Audit Committee’s report for inclusion in the Company’s annual proxy statement; establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing and the confidentiality thereof; and discussing and reviewing risk assessment strategies. Each year the Audit Committee evaluates the performance of the independent registered public accounting firm and recommends to the Board the retention or, if appropriate, replacement of the independent registered public accounting firm. The Audit Committee also carries out other assignments given to it from time to time by the Board.

 

Governance Committee. Following the Annual Meeting, the Governance Committee will consist of Messrs. Cruickshank (Chairman), Lyons, Newlin and Alexander. All members of the Governance Committee are independent as determined under the New York Stock Exchange standards for director independence. The Governance Committee is responsible for the functioning of the Board and its committees, with the goal of causing the Board and its committees to satisfactorily address the major issues related to the performance and well-being of the Company. Among the duties of the Governance Committee is to review the size and composition of the Board and to make recommendations with respect to nominations for election or appointment of Directors. The Governance Committee has responsibility for reviewing, with the Board if appropriate, the Company’s executive management succession plan for positions within that structure. The Governance Committee also periodically reviews legislative and regulatory issues affecting the Company as well as public interest issues identified by management as likely to affect the Company.

 

The Governance Committee follows the guidelines of the Company and examines, among other things, the following qualifications and skills of director candidates—their business or professional experience, their integrity and judgment, their records of public service, their ability to devote sufficient time to the affairs of the Company, the diversity of backgrounds and experience they will bring to the Board, and the needs of the Company. The Governance Committee also believes that all nominees should be individuals of substantial accomplishment with demonstrated leadership capabilities. The Governance Committee does not have a formal policy with regard to the consideration of diversity in indentifying nominees for Director.

 

The Governance Committee will principally solicit suggestions from current Directors to identify potential candidates for Director, using the criteria described above. The Governance Committee may also employ the assistance of a search firm. The Governance Committee will consider nominees recommended by stockholders provided that stockholders submit the names of nominees and the other information required by Section 1.08 of the by-laws of the Company in writing to the Secretary of the Company. Such information should be received no earlier than November 15, 2010 and no later than January 14, 2011 with respect to nominations for election at the 2011 Annual Meeting of Stockholders.

 

During 2009, the Compensation Committee held five meetings and executed one written consent in lieu of a meeting, the Governance Committee held three meetings, the Audit Committee held eight meetings and the Executive Committee held one meeting and executed one written consent in lieu of a meeting. The Board held ten meetings

during 2009. All of the Company’s directors attended at least 75% of the aggregate of (1) the total number of meetings of the Board held during the period for which he or she has been a Director and (2) the total number of meetings held by all committees of the Board on which he or she served during the periods that he or she served as a Director.

 

Board’s Leadership Structure and Role in Risk Management

 

The Company’s principal executive officer serves as the Chairman of the Board. The Company believes that this leadership structure is appropriate due to the complexity and technical nature of the Company’s business. Mr. Stanik’s experience in leadership positions throughout the Company during his tenure, as well as his role in developing and executing the strategic plan, is critical to the Company’s future results. In addition to the Chairman of the Board, the Company has a lead independent director, Mr. Schofield (the “Lead Director”). Mr. Schofield’s varied career experience and his history on the Board gives him important insight into the complexity of the Company’s operations.

 

The Company has established a Risk Management Committee, which consists of members of middle and upper management and is responsible for identifying risks to the Company, developing a plan to address those risks and overseeing the implementation of such plan and the mediation of additional risks as they arise. The Audit Committee has oversight responsibility for the Risk Management Committee, which includes an annual assurance that there is an Enterprise Risk Management Plan and risk assessment, periodic review of the progress against the Enterprise Risk Management Plan and assurance that the Board is aware of the risk assessment results and conclusions about risk tolerance and mitigation. Each year in September, the full Board receives a report on the progress of the Enterprise Risk Management Plan.

 

Risk Management and Compensation

 

The Compensation Committee has reviewed the Company’s management of risk as it relates to the Company’s overall compensation philosophy. The Compensation Committee hired Towers Watson to aid in this review. The Compensation Committee believes, for the reasons noted below, that (1) the Company’s compensation program does not encourage excessive risk-taking and (2) the Company takes reasonable steps to mitigate any risks related to compensation.

 

 

The Board, acting pursuant to the by-laws of the Company, has determined that the number of Directors constituting the full Board shall be nine immediately following the Annual Meeting. The Board is to be divided into three classes of nearly equal size. One such class is elected every year at the Annual Meeting for a term of three years.

 

The Board has, upon recommendation of the Governance Committee, nominated Robert W. Cruickshank, Julie S. Roberts and J. Rich Alexander for re-election as Directors in the Class of 2013, and each of them has agreed to serve if elected. Mr. Alexander was appointed to the Board by the Board on August 4, 2009. The Company believes that when a new Director is appointed by the Board, that Director should stand for election at the next annual meeting. Mr. Alexander was recommended as a Director candidate by another non-management Director. Messrs. Cruickshank and Alexander and Ms. Roberts will hold office until the 2013 Annual Meeting of Stockholders, or until the Director’s prior death, disability, resignation or removal. Proxies are solicited in favor of these nominees and will be voted for them unless otherwise specified.

 

If any nominee becomes unable or unwilling to serve as a Director, it is intended that the proxies will be voted for the election of such other person, if any, as shall be designated by the Board.

 

Information concerning the nominees for Director and the other Directors who will continue in office after the meeting is set forth below, together with information concerning the Company’s executive officers who are not Directors.

 

 

Mr. Alexander was elected as a Director of the Company in August 2009. Mr. Alexander has served as Senior Vice President, Performance Coatings for PPG Industries, Inc., a global diversified manufacturer, since April 2005, where he is also responsible for Corporate Purchasing and Marketing. Prior thereto, he served as Vice President, Industrial Coatings for PPG Industries, Inc. The Company believes that Mr. Alexander’s qualifications to sit on the Board include his extensive global experience in the Asia Pacific region with a focus in China and his experience in global mergers and acquisitions. In addition, the Company values Mr. Alexander’s role as an executive officer of a manufacturing company in the chemical industry, which the Company believes is representative of the challenges

and desires of its customer base. Except as provided herein, during the last five years, Mr. Alexander has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Mr. Cruickshank has been a Director of the Company since November 1985. Mr. Cruickshank is a consultant providing financial advice to private clients. He is also a director of Hurco Companies, Inc., an industrial technology company. The Company believes that Mr. Cruickshank’s qualifications to sit on the Board include his financial expertise and experience as a director of several public companies. Mr. Cruickshank is an original member of the public company Board and, as such, is intimately familiar with the Company’s history as a public entity. Except as provided herein, during the last five years, Mr. Cruickshank has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Mr. Dearth has been a Director of the Company since November 2007. Mr. Dearth has been President and Chief Executive Officer of LANXESS Corporation, a chemicals manufacturer, since 2004. Prior thereto he was President and Chief Executive Officer of Bayer Chemicals Corp., a chemicals manufacturer. The Company believes that Mr. Dearth’s qualifications to sit on the Board include his twenty-plus years of experience in the chemical industry, which the Company believes is representative of the challenges and desires of its customer base. The Company believes that Mr. Dearth’s position at LANXESS Corporation, a European company, makes him a valuable link to European leadership, strategy and business conditions. Except as provided herein, during the last five years, Mr. Dearth has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Mr. Lyons has been Executive Vice President and Chief Financial Officer of CONSOL Energy Inc. (provider of coal and natural gas) since February 2001. Mr. Lyons has been a Director of the Company since 2008. He was also a director of CNX Gas Corporation (provider of natural gas) from October 2005 to January 2009. The Company believes that Mr. Lyons’ experience in the coal industry and his knowledge of natural gas resources and other commodities qualifies him to sit on the Board, given the importance of such primary raw materials to the Company’s production. Mr. Lyons’ financial acumen is also valuable to the Board. Except as provided herein, during the last five years, Mr. Lyons has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Mr. Newlin has been a Director of the Company since 2005. Mr. Newlin has served as the Chairman of Plextronics, Inc., a technology company, since 2009 and has been the Chairman of Newlin Investment Company LLC, an investment fund, since April 2007. Prior thereto he was the Executive Vice President and Chief Administrative Officer of Dick’s Sporting Goods, Inc., a retailer. Mr. Newlin is a director of Kennametal Inc., a tooling, engineered components and advanced materials supplier, and ArvinMeritor, Inc., an automotive industry supplier. The Company believes Mr. Newlin’s qualifications to sit on the Board include his extensive experiences in major corporate transactions, his deep executive leadership and management experience with public and private companies, his years of experience providing strategic advice to complex organizations as a counselor and member of numerous board of directors and his business and corporate legal acumen. Except as provided herein, during the last five years, Mr. Newlin has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Ms. Roberts has been a Director of the Company since July 2000. Ms. Roberts is currently the President of JS Roberts Consulting, LLC, which provides CFO services and financial consulting to public and private organizations on a project, part-time or temporary basis. She retired in February of this year from Marriott International, Inc., a hospitality company, where she served as Vice President Finance, Global Finance Transformation since March 2005. Prior thereto she was Chief Financial Officer of Marriott ExecuStay, a division of Marriott. The Company believes that Ms. Roberts is qualified to sit on the Board in light of her many years of experience as a financial executive of two major publically traded corporations, including several years as a CFO of a subsidiary of one of the companies, her many years of experience as an Audit Committee Member of two publically traded companies and experience as Audit Committee Chair and her Master of Business Administration. Except as provided herein, during the last five years, Ms. Roberts has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Mr. Rupert has been a Director of the Company since 2005. Mr. Rupert retired in July 2007 from his position as President and Chief Executive Officer and a director of RTI International Metals, Inc., a titanium manufacturer, which he had held since 1999. The Company believes that Mr. Rupert is qualified to serve on the Board due to his experience as the Chief Executive Officer of a company of similar size in the region. The Company believes that

Mr. Rupert’s familiarity with the challenges and realities of running a public company are extremely valuable to the Board. Except as provided herein, during the last five years, Mr. Rupert has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Mr. Schofield has been a Director of the Company since December 1995. From February 1996 to July 2000, Mr. Schofield was the Managing Partner of Base International, a provider of corporate protection and security. Prior thereto, Mr. Schofield was Chairman and Chief Executive Officer of USAir Group, a major air carrier. Mr. Schofield is also a director of Marathon Oil Corporation, an integrated oil and gas company, and United States Steel Corporation, a steel manufacturer (where he serves as the Presiding Director). The Company believes that Mr. Schofield is qualified to serve on the Board due to his experience on the board of directors of other large companies in the region (including service on numerous committees), as well as his role as Chairman and Chief Executive Officer of USAir Group. The Company values Mr. Schofield’s leading edge expertise, his familiarity with the complex nature of the Company’s business, his long history with the Board and his experience with mergers and acquisitions. Except as provided herein, during the last five years, Mr. Schofield has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Mr. Stanik has been Chairman and President and Chief Executive Officer of the Company since May 2007. Prior thereto, he was President and Chief Executive Officer of the Company. Mr. Stanik has been a Director of the Company since October 2003. The Company believes that Mr. Stanik is qualified to serve on the Board as a result of his engineering background and his almost nineteen year tenure with the Company. During such tenure, Mr. Stanik has served as plant manager of the Big Sandy plant and held a leadership role in each of the following: the equipment business, all manufacturing plants, research and development, global operations and the global carbon and service business. Except as provided herein, during the last five years, Mr. Stanik has not held any directorships required to be disclosed pursuant to the rules and regulations promulgated by the SEC.

 

Mr. Ball has been the Senior Vice President and Chief Financial Officer of the Company since January 2006. Prior thereto, Mr. Ball was Vice President and Chief Financial Officer of the Company.

 

Ms. Gerono has been the Vice President, Investor Relations, Communications and Human Resources of the Company since October 2002.

 

Mr. Majoor has been the Senior Vice President—Europe and Asia of the Company since October 2007. Prior thereto, he was Senior Vice President—Europe of the Company.

 

Mr. O’Brien has been the Senior Vice President—Americas of the Company since August 2005. Prior thereto, he was Senior Vice President of the Company responsible for Global Business Development and the Ultraviolet Light Technology Business Unit.

 

Mr. Rose was appointed as the Vice President, General Counsel and Secretary for the Company in September 2009. Mr. Rose was a shareholder with the law firm of Buchanan Ingersoll & Rooney, PC since 2000.

 

Mr. Sullivan has been the Vice President, UV and Corporate Business Development since July 2008. Prior thereto, he was the General Manager of the UV Technologies division of the Company.

 

Compensation Discussion and Analysis

 

Objectives of the Executive Compensation Program

 

The executive compensation program is designed to motivate executives and support the success of the Company which ultimately occurs through the actions of talented employees. The specific objectives of our compensation program are to:

 

 

The Company has designed the compensation program based on a set of core principles which we believe support our overall objectives:

 

 

Within the context of these objectives and principles, the Company has developed its compensation program for the Chief Executive Officer and other executive officers.

 

Overview of the Compensation Program and Decision-Making Process

 

Our Board has assigned the oversight of our executive compensation program to our Compensation Committee composed of four independent directors. The Compensation Committee reviews and makes decisions regarding the compensation program for the Chief Executive Officer and makes recommendations for the other executive officers after considering recommendations made by the Chief Executive Officer. The Compensation Committee also considers the impact of tax and accounting treatment for the different types of compensation it approves. The decisions made by the Compensation Committee with respect to the named executive officers for 2009 are reflected in the tables and related footnotes and narratives that begin on page 25.

 

In order to support the objectives outlined above, the Company has developed a compensation program that supports our pay for performance philosophy and that provides executives with a mixture of cash payments (base salary and short-term incentives) and stock-based awards (long-term incentives). Our stock-based compensation program consists of three different types of awards, each selected to address different objectives. We also provide executives with a retirement plan similar to that provided to all other employees and severance benefits for certain types of termination (including “change in control” situations) from the Company. The Company currently does not

provide any perquisites (e.g., automobile, financial counseling, etc.) to executives except for the Senior Vice President—Europe and Asia, where providing an executive with an automobile is a customary practice. The Company believes that the compensation elements taken as a whole are necessary to attract and retain the best executive talent in its industry.

 

The Compensation Committee believes that in order to successfully compete for talent, a fixed-cash salary is necessary to provide a base level of income that is not tied to Company performance. When developing the executive compensation program, the Compensation Committee considers both short- and long-term strategic goals of the Company, which it believes fall within the control of executive management. In order to align the interests of executives to the achievement of these goals, the Compensation Committee has developed performance-based incentive plans with payments contingent upon the achievement of these goals. Certain of the payments (short-term cash incentives) are designed to reward the achievement of annual goals, while equity grants (except for time-vesting restricted stock) are designed to reward the accomplishment of long-term goals directly associated with increasing stockholder value. The following table illustrates the allocation between actual fixed and variable compensation components in 2009:

 

 

Our performance-based incentives are designed to reward executives with compensation above the middle (or 50^th percentile) of the market when Company performance exceeds our expectations and the performance of our peer group. When performance falls below our expectations, the incentive plans are designed to pay below the middle (or 50^th percentile) of the market and could result in no payment to the executive if performance falls below a certain level. To illustrate the alignment of these plans and the performance of the Company, our performance share grants made in February 2007, measuring relative total stockholder return (stock price plus dividend) against our peers over the period 2007 through 2009, paid out at the maximum level in February 2010 based upon our total stockholder return of 131% over the three year performance period which ranked at the 97^th percentile of our peers. As a result, actual compensation to our executives was above the market 50^th percentile.

 

The Compensation Committee reviews the compensation practices among peer companies and broader general industry companies in order to ensure the appropriateness of the Company’s compensation program design and compensation levels. To assist in this process, the Compensation Committee employs a compensation consultant. Since September 2004, the Compensation Committee has employed Towers Watson & Co. (formerly Towers Perrin), a human resources consulting firm, which reports directly to the Compensation Committee and advises the Compensation Committee on compensation matters. The consultant participates in Compensation Committee meetings and is engaged to advise the Compensation Committee with respect to compensation trends and best practices, plan design and the reasonableness of individual compensation awards. Towers Watson, with the prior approval of the Compensation Committee, also provides advice on retirement and compensation matters to the Company’s senior management. Additionally, with regard to compensation for the executive officers other than the Chief Executive Officer, the Compensation Committee receives input from the Chief Executive Officer.

 

 

¹ Mr. Sheedy separated from employment with the Company in 2009. His information is omitted here. See page 23 for further information.

In making its recommendation to the Compensation Committee, the consultant employs a benchmarking process, an assessment tool that compares elements of the Company’s compensation programs with those of other companies that are believed to have similar characteristics. In general, the purpose of the benchmarking process is to:

 

 

The consultant also uses market compensation data from compensation surveys from Towers Watson and Mercer HR Consulting representing general industry companies. Periodically, the consultant performs a more specific analysis of proxy disclosures from peer companies in the filtration industry and other companies that the Company competes with for executive talent. The peer group has been developed based on a set of characteristics that include:

 

 

For 2009, the peer group consisted of the following 22 companies:

 

 

For 2010, the peer group will be changed to remove Flanders Corp because its shares have begun trading over the counter and Universal Stainless & Alloy because its revenue is significantly below that of the Company. Also Innophos Holdings Inc., AMCOL International Corp. and Brush Engineered Materials Inc. will be added for 2010.

 

In addition to the market data, the Compensation Committee considers other factors when making its decisions, such as an executive’s individual performance, experience in the position and the size of prior-year adjustments. The Compensation Committee does not consider amounts from prior performance-based compensation, such as prior bonus awards or realized or unrealized stock option gains, in its decisions to increase or decrease compensation in the current year. The Compensation Committee believes that this would not be in the best interest of retaining and motivating the executive.

 

The Compensation Committee also reviews a summary report or “tally sheet” which sets forth the current and two-year historical compensation provided to each executive. The tally sheet includes the total dollar value of annual compensation, including salary, short- and long-term incentive awards, annual increase in retirement accruals and other compensation and benefit amounts. The tally sheet also includes equity ownership levels (number of shares and value) and amounts payable upon various termination scenarios. The review of tally sheets, first introduced in 2006, has become an important aspect of the Compensation Committee’s decision-making process. The tally sheets allow the Compensation Committee to review each element of compensation for each executive and review how decisions as to each element may affect decisions regarding other elements and the total compensation for each executive.

 

The Company, with the help of the consultant, has developed a compensation structure that includes individual grades for executives, each with its own compensation opportunities. Each grade’s compensation opportunity has been developed using the compensation survey data, or periodically, such survey data in combination with the peer group proxy data. Each executive has been assigned to a grade, determined by comparing position-specific duties and responsibilities with the peer group and survey pay data. Each grade has a base salary range and a corresponding short- and long-term incentive that align with the market 50th percentile for that particular position.

Individual Performance Goals.  In connection with the determination of fixed-cash base salary increases and compensation under the performance-based short-term incentive plan, the Company sets individual performance goals and then measures a named executive officer’s performance against such goals. Goals are specific to the executive’s area of responsibility. As more fully described below, the level of achievement against such goals may have an impact on the Compensation Committee’s decisions regarding base salary and the “individual performance objectives” as it relates to bonus awards earned under our short-term incentive program. The performance goals for each named executive officer are as follows:

 

 

The individual goals are created by the appropriate executive in late December or early January of each year. Each of the executives other than the Chief Executive Officer discusses and refines the goals through meetings with the Chief Executive Officer. The Chief Executive Officer’s goals are set after consultation with the Compensation Committee. The goals are designed to help to achieve the Company’s short-term performance objectives and longer-term strategic objectives and Company profit planning goals.

 

Each individual’s actual performance relative to each of the individual goals is reviewed and discussed with the executive periodically during the year and evaluated on a subjective basis by the Chief Executive Officer (except that the Chief Executive Officer’s actual performance relative to each of his individual performance goals is evaluated by the Compensation Committee) at the end of the year using the following:

 

 

After a determination of whether goals are met, a weighted average of the percentages applicable to each goal is determined for each executive. For 2009, the applicable aggregate weighted average percentages for the named executive officers were as follows: Chief Executive Officer, 91.75%; Chief Financial Officer, 129.5%; Senior Vice President—Europe and Asia, 134%; Senior Vice President—Americas 99.33%; and Vice President, UV and Corporate Business Development, 89%. This information is then used as appropriate to develop salary recommendations and to determine awards under the individual performance portion of our performance-based, short-term cash incentive plan. The development of salary recommendations using this information is completely subjective. The role of the individual’s performance against goals is assigned a weight which is used to determine bonus payments as more completely described below.

 

Elements of Executive Compensation

 

Fixed-Cash Base Salary.  Through the base salary element of its compensation program, the Company seeks to attract and retain competent executives by providing a salary level for each executive that approximates the

midpoint (50^th percentile) of salaries of executives in comparable positions at other similarly sized companies. The consultant uses annual compensation surveys and peer group proxy statements on a periodic basis to determine the “competitive zone” for the base salary for each position. The Company defines the competitive zone as plus or minus 10% of the midpoint (or 50^th percentile) of the market for each position. The Company also establishes a budget for salary increases, subject to approval by the Compensation Committee. The budget is based on current business conditions as well as survey data of comparable companies provided by the consultant.

 

The Chief Executive Officer conducts an annual review of each executive officer. The review consists of a comparison of the executive’s performance versus the pre-determined goals as described above and an assessment of the executive’s adherence to the Company’s core values. The Chief Executive Officer rates the performance of each executive. The Chief Executive Officer makes recommendations to the Compensation Committee regarding each executive’s salary by considering the rating, the budget for salary increases and an understanding of the market-based competitive zone. The Compensation Committee uses the same methodology for the Chief Executive Officer.

 

At its February 2009 meeting, the Compensation Committee approved aggregate budgets for salary increases of 2.75% for U.S. salaried employees. The Compensation Committee also approved salary increases, effective February 1, 2009, for all named executive officers. These salary increases ranged from 0% to 4% and reflect a subjective determination of individual performance relative to the pre-determined goals described above and adherence to core values, as well as an evaluation of each named executive’s experience and salary relative to the midpoint of the market-based competitive zone. Following these salary increases in 2009 actual base salary levels for our named executive officers fell within the competitive range of between 90% and 110% of the market median as presented by Towers Watson except for Mr. Sullivan whose base salary was positioned 11% below the market median.

 

Performance-Based Short-Term Cash Incentive Compensation. Through the short-term incentive program, the Company seeks to align the interests of the executives with the annual financial and non-financial goals of the Company. In 2009, the Chief Executive Officer’s target was 70% of his base salary, the target for the Chief Financial Officer was 45% of his base salary, and the targets for the Senior Vice President—Americas, the Senior Vice President—Europe and Asia were 40% of base salary and the target for the Vice President, UV and Corporate Business Development was 35% of his base salary. Each named executive officer’s short-term cash incentive target was positioned at or within five percentage points of the market median except for the Chief Executive Officer, whose target incentive opportunity was 10% below the market median and the Senior Vice President—Europe and Asia, whose target incentive opportunity was 10% above the market median. Awards under the plan can range from 50% of target for threshold performance to 175% of target for maximum performance on the financial and individual performance metrics.

 

Actual awards paid for 2009 performance are included in the Summary Compensation Table on page 25 under the column Non-Equity Incentive Plan Compensation, while opportunities under this plan for 2010 at threshold, target and maximum are included in the Grants of Plan-Based Awards table on page 26 under the columns Estimated Future Payouts Under Non-Equity Incentive Plan Awards.

 

Short-term incentive awards for 2009 for the staff executives (Chief Executive Officer, Chief Financial Officer and Vice President—UV and Corporate Business Development) were approved by the Compensation Committee at its February 24, 2010 meeting for 2009 performance based on pre-determined goals and metrics. The weights assigned to these goals were as follows:

 

 

 

Similarly, 2009 short-term incentive awards for business unit executives (Senior Vice President—Americas and Senior Vice President—Europe and Asia) were approved by the Compensation Committee at its February 24, 2010 meeting. Awards were based on 2009 performance against Compensation Committee approved pre-determined metrics which were weighted as follows:

 

 

Corporate operating income was chosen as an indicator of profit produced directly as a result of our executives’ performance and as an indication of cash flow produced as a result of the operations of our business. We have chosen corporate return on invested capital to stress the importance of the efficient management of capital in our business. Operating income was given more weight than return on invested capital since the Committee believes that operating income most directly relates the executives’ performance to stockholder expectation.

 

In September 2009, the Compensation Committee decided, in consultation with Towers Watson, to change the weighting of the performance measures for 2010 and beyond. Specifically, for the staff executives (Chief Executive Officer, Chief Financial Officer, Vice President, General Counsel and Secretary and Vice President—UV and Corporate Business Development) the weighting will be:

 

 

For the business unit executives (Senior Vice President—Americas and Senior Vice President—Europe and Asia) the weighting will be:

 

 

The Compensation Committee made these changes to emphasize corporate or regional results thereby reducing the emphasis on individual goals. Also, return on invested capital has been given additional weight as the Company has announced several capital projects. The Committee believes that it is important to tie executive compensation to the return on these projects.

 

An executive may earn a short-term incentive award due to success in achieving individual goals, even though the Company’s performance falls below threshold on the corporate operating income and return on invested capital measures. A discussion of the named executive officers’ individual performance objectives or individual regional performance objectives for 2009 is set forth above under “Individual Performance Goals.” The Compensation Committee may use its discretion to determine the amount of any short-term incentive award and has done so in recent years. Specifically, the Compensation Committee may award short-term incentive compensation in amounts that deviate from the amounts determined after application of the weighted averaged formula. The plan is not administered to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) at the current time, although the Compensation Committee is aware of this rule and its potential benefits.

 

In 2009, the Company achieved corporate operating income of $53.4 million. This was 92.7% of the target amount of $57.6 million but exceeded the threshold amount of $43.2 million. Corporate return on invested capital for 2009 was

13.8% or 107.8% of the target of 12.8%. This performance resulted in a payout percentage of approximately 99% for the corporate performance metrics for each executive. Operating income and return on invested capital were below the targeted amounts in the Americas and above the targeted amounts for Europe and Asia. Individual performance achievement percentages in 2009 ranged from 89% to 134% as set forth above under “Individual Performance Goals.” Actual bonus awards paid for 2009 performance, as included in the Summary Compensation Table on page 25 under the column Non-Equity Incentive Plan Compensation, were determined by the weighting of corporate performance measures and individual goal performance as discussed above, except that for Mr. O’Brien, the Compensation Committee added approximately $26,500 to reflect the fact that while his region did not meet plan for 2009, it showed significant growth in revenue and profitability in a very difficult economic environment; and for Mr. Sullivan, the Compensation Committee added $10,000 to reflect the fact that he completed business development opportunities that were not in his stated goals and to recognize that his base salary is below the market median.

 

Long-Term Incentive Compensation. The Company’s long-term incentive compensation program seeks to align the executives’ interests with those of the Company’s stockholders by rewarding successes in stockholder returns in absolute terms and relative to peers. Additionally, the Compensation Committee desires to foster an ownership mentality among executives by providing stock-based incentives as a significant portion of compensation. In determining which type of stock vehicles to include in the program, the Compensation Committee chose to focus on the following:

 

 

In 2009, the Company’s long-term incentive program consisted of the following three equity components: restricted performance stock units, stock options and time-vesting restricted stock. The Compensation Committee believes that these components align with the goals of the long-term compensation program identified above.

 

Under the terms of the Company’s 2008 Equity Incentive Plan, the Compensation Committee determines which employees are eligible to receive equity awards, the value and number of shares granted, the rate and period of vesting, performance goals and other relevant terms.

 

As discussed earlier, the Company maintains a compensation structure that reflects market 50^th percentile compensation levels for each grade. Initial long-term incentive grant recommendations for each executive are aligned with the market 50^th percentile. In order to understand the full impact of making these grant decisions, the Compensation Committee also considers a number of other factors prior to making its decisions related to equity awards for the upcoming year. These factors include:

 

 

When determining the grant of options, restricted stock, or other equity awards to a particular individual (executive or non-executive), the Compensation Committee considers the individual’s level of responsibility, the relationship between successful individual effort and Company results, incentive compensation plans of other companies and other relevant factors.

 

Based on a review of the above information, the Compensation Committee may or may not use its discretion to modify the long-term incentive grant opportunity contained in the compensation structure for each grade and executive. In 2009, the Compensation Committee approved long-term incentive award values that, as stated previously, reflect the market 50^th percentile for each grade level and position and are allocated to the three long-term incentive vehicles as follows:

 

 

To determine the number of restricted performance stock units, stock options and/or time-vesting restricted stock to be issued, the dollar amount allocated to each long-term incentive vehicle is divided by the vehicle’s current Financial Accounting Standards Board, Accounting Standards Codification (“ASC”) Topic 718, “Compensation—Stock Compensation” (“ASC Topic 718”) per share fair value.

 

The Compensation Committee believes that the use of all three equity vehicles allows it to successfully meet its long-term objectives. In March 2009, the Compensation Committee granted equity awards to our named executive officers that reflected the market median data available at the time of grant. Survey data released in September 2009 showed a significant decrease in the market median long-term incentive opportunity for executives, thus positioning the value of our March 2009 grants above the market median for all named executive officers, except the Senior Vice President—Americas who was aligned with the median. This newer survey data reflecting the lower market median long-term incentive opportunity was used as the basis for long-term incentive awards made in February 2010.

 

Stock Options. The Compensation Committee selected stock options as a means of aligning executives’ compensation with the creation of value to stockholders. Stock options provide realizable value to executives only if the Company’s stock price increases after the options are granted. Each option has vesting provisions that require continued employment of the executive thereby promoting the retention of executives. Stock options vest in equal one-half increments over the two-year period following grant. The options are exercisable after they have vested until they expire, which is on the tenth anniversary following the grant date. The combination of the ten-year term and the two-year vesting provision supports the long-term intentions of the Compensation Committee. In 2009, the Compensation Committee determined that future stock option grants will be limited to non-qualified stock options as opposed to incentive stock options in order to maximize the tax deductibility of compensation for the Company.

 

The fair value of each option is calculated by the consultant as of the grant date and expensed over the vesting period in accordance with generally accepted accounting principles (ASC Topic 718). When the executive exercises the non-qualified stock options, the Company receives a tax deduction that corresponds to the amount of taxable income recognized by the executive.

 

Time-Vesting Restricted Stock. The Compensation Committee has selected restricted stock that vests based on the passage of time and continued employment as an element of the long-term incentive program. While this long-term incentive vehicle is not considered performance based, the Compensation Committee has selected restricted stock to build share ownership and promote retention of the executives by rewarding loyalty to and continued employment with the Company. Grants of restricted shares vest in equal increments over three years. The fair value of restricted shares is calculated on the date of grant and expensed over the vesting period of three years. When shares vest, the Company receives a tax deduction that corresponds to the amount of taxable income recognized by the executive.

 

Restricted Performance Stock Units.  The Compensation Committee has selected performance stock units as a means of encouraging and rewarding executives for delivering solid returns to our stockholders, above and beyond the return delivered by most of our peers. A target number of shares is identified at the beginning of a three-year performance period but not actually delivered to the executive until the shares are earned at the end of the performance period. The number of shares earned may vary from zero to 200% of target, based on the ranking of the Company’s total stockholder return relative to a peer group (listed on page 13). Interpolation is used to calculate awards between minimum, target and maximum levels.

 

The fair value of restricted performance stock units is calculated on the date of grant and expensed over the vesting period. When shares vest, the Company receives a tax deduction that corresponds to the amount of taxable income recognized by the executive.

 

For the period 2007-2009, the Company’s total stockholder return of 131% relative to its peer group ranked at the 97^th percentile which resulted in the maximum award of 200% of the target opportunity.

 

Stock Option and Other Equity Granting Procedures

 

The procedure for making equity grants to executive officers is as follows:

 

 

Stock Ownership Policy

 

In order to foster an equity ownership culture and further align the interests of management with the Company’s stockholders, the Compensation Committee has adopted stock ownership guidelines for executives. From the time they are appointed an executive of the Company or promoted to an executive position or, if the Compensation Committee changes the guidelines at any time to increase stock ownership requirements, from the time of such change, executives have a four-year period during which they are expected to accumulate the specified shares. For 2009, the guidelines were as follows:

 

 

The following forms of ownership apply toward the stock ownership level: shares purchased, vested and unvested restricted stock, shares retained following the exercise of stock options, shares earned following the achievement of performance goals, and shares accumulated through retirement plans. Unexercised stock options and unearned restricted performance stock units do not apply toward executive ownership levels. While no formal penalty exists for failure to achieve the ownership level within the four-year period, the Compensation Committee may use its discretion to reduce or eliminate an executive’s annual long-term incentive award in future periods or impose any other remedy it believes is appropriate.

Retirement Plan Summary

 

The Company maintains a defined benefit retirement plan for its U.S. salaried employees, which is otherwise known as the pension plan, and a defined contribution thrift/savings plan, which is otherwise known as the 401(k) plan. The purpose of both these plans is to provide post-retirement income and stability to executives and employees. It is the goal of the Compensation Committee and the Board that these plans be competitive with plans which would be available to executives of similar-sized companies. The Company does not provide a plan for highly compensated employees to restore benefits lost due to Internal Revenue Service (IRS) limits. A more complete description of these plans can be found under the pension plan disclosure which begins on page 29.

 

At the end of 2005, the Company offered its U.S. salaried employees the option to discontinue receiving new benefits under the pension plan and instead participate in an enhanced 401(k) plan which would provide for better matching contributions by the Company. Of the named executives, only Mr. Ball elected to participate in the enhanced 401(k) plan.

 

In 2006, the Company eliminated all accruals of future benefits under its defined benefit plan, effective January 1, 2007, and instead provides all U.S. salaried employees with enhanced matching contributions under the 401(k) plan.

 

Perquisites

 

The Company does not believe that perquisites are essential to attract and retain executives and, therefore, does not provide perquisites to executives who reside in the United States. The Company does, however, provide a company car to the Senior Vice President—Europe and Asia, which is a standard practice for executives in Western Europe. No Company executive other than the Senior Vice President—Europe and Asia receives perquisites in reportable amounts.

 

Severance Policy

 

The Company has employment agreements with executive officers that provide for, among other provisions, cash payments and benefits in the event of termination by the Company other than “for cause” by the executive. The Compensation Committee believes that these agreements are necessary to attract and retain executives. New employment agreements (the “Agreements”) for our named executives other than Mr. Majoor were put in place effective February 5, 2010. These Agreements provide for severance as follows:

 

Severance.  If an executive’s employment is terminated without Cause (as defined in the Agreements) or if an executive resigns with Good Reason (as defined in the Agreements), the Company is required to provide the executive any amounts of compensation earned through the termination date and eighteen (18) months of severance (twenty-four (24) months in the case of Mr. Stanik) of the executive’s then base salary and a lump sum payment (paid six months after termination) of one and a half (1.5) times (two (2) times in the case of Mr. Stanik) the current “target” amount of any cash bonus or short-term cash incentive plan in effect for the executive for the calendar year in which the termination of employment occurs (the current “target” amount of any cash bonus or short-term cash incentive plan in effect for the executive for the calendar year in which the termination of employment occurs being the “Bonus Amount”). Any of the executive’s applicable health and welfare benefits, including health, dental and life insurance benefits (but not including additional stock or option grants) that the executive was receiving prior to termination would continue and be maintained by the Company at the Company’s expense on a monthly basis for a period equal to the Severance Period (as defined in the Agreements) or until such time as the executive is employed by another employer and is provided health and welfare benefits at least equal in the aggregate to the health and welfare benefits provided at the time of termination by the Company.

 

Change of Control Severance.  In the event of a Covered Change of Control Termination (as defined in the Agreements), then instead of any other severance benefits payable to the executive, the executive would receive: (i) in a lump sum equal to the sum of: (A) two (2) years (three (3) years in the case of Mr. Stanik) of the executive’s then current base salary, (B) two (2) times (three (3) times in the case of Mr. Stanik) the Bonus Amount, and (C) the aggregate amount of contributions that would be credited to the executive under the Company’s 401(k) plan for the two (2) years (three (3) years in the case of Mr. Stanik) following the effective date of termination in connection with (a) the Company’s fixed contribution to the plan (currently 2%), (b) the Company’s performance-based contribution to the plan (currently between 0% and 4%), assuming that the applicable rate of performance-based contributions

during such period were to equal the average rate of performance-based contributions under the plan for the three years immediately prior to the effective date of termination, and (c) the Company’s matching contributions of employee contributions to the plan at the then current rate of matching contributions, assuming that the executive were to continue to participate in the plan and to make the maximum permissible contribution thereunder for the two (2) year (three (3) years in the case of Mr. Stanik) period; (ii) his or her normal health and welfare benefits (but not including additional stock or option grants) on a monthly basis during the two (2) year (three (3) years in the case of Mr. Stanik) period following the occurrence of a Change of Control (as defined in the Agreements), including health, dental and life insurance benefits the executive was receiving prior to the Change of Control (subject to any limits imposed under Section 409A of the Code), and (iii) all stock options and stock appreciation rights previously granted to the executive by the Company, and shall be fully vested in all restricted stock, stock units and similar stock-based or incentive awards (assuming “maximum” satisfaction of any applicable performance conditions) previously granted to the executive by the Company, regardless of any deferred vesting or deferred exercise provisions of such arrangements; provided, however, that the payment of restricted units shall not be accelerated except as provided in the award agreement with under which they were granted. The Change of Control severance payments are payable on the first day following the six (6) month anniversary of the date of the Covered Change of Control Termination (as defined in the Agreements).

 

Severance Payments (as defined in the Agreements) under the Agreements will not be “grossed up” for the effect of any excise taxes that might be due under Section 280G, 4999 or 409A of the Code.

 

Each of the Agreements requires the executives to comply with confidentiality, non-compete and non-solicitation covenants.

 

The Agreements for each of the named executive officers except for Mr. Sullivan replaced previous agreements. The significant changes were to:

 

 

The Compensation Committee decided to make these changes upon the review of data provided by Towers Watson so to better match current market conditions. Mr. Sullivan did not have an employment agreement previously.

 

Mr. Majoor’s employment agreement did not change in February 2010. His employment agreement was originally executed in December 2000 and has been amended in 2004 and 2008. His agreement, as amended, provides Change of Control Severance equivalent to that described above for the other named executive officers before the effect of the 2010 changes except that the gross-up applies to any United States or Belgian excise tax. His agreement also calls for notice prior to any termination of his employment without “serious reason” to be determined pursuant to a “Claeys formula” which is used by Belgian labor courts to determine severance compensation, provided the notice period may in no event be less than 18 months. In addition, Mr. Majoor’s employment agreement provides that, unless the Company waives the application of Mr. Majoor’s non-competition clause within fifteen days of termination of the agreement, he shall be paid an indemnity equivalent to one half of his gross remuneration for the last month of employment with the Company, multiplied by the number of months for which the clause is applicable.

 

Details of the agreements and a quantification of severance amounts payable under certain termination scenarios are included in the narrative which begins on page 31.

 

Adjustments or Recovery of Prior Compensation

 

In December 2009, the Board, upon the recommendation of the Compensation Committee, approved a recoupment policy. Pursuant to the policy, if the Board determines that an executive officer or other designated officer has been incompetent or negligent in the performance of his or her duties or has engaged in fraud or willful misconduct, in

each case in a manner that has caused or otherwise contributed to the need for a material restatement of the Company’s financial results, the Board will review all performance-based compensation awarded to or to be earned by the officer during the period affected by the restatement. If in the Board’s view, the performance-based compensation would have been lower if it had been based on the restated results, the Board and the Company will, to the extent permitted by applicable law, seek recoupment from the executive of any portion of such performance-based compensation as it deems appropriate.

 

Impact of Tax and Accounting Policy on Executive Compensation

 

If an executive officer’s compensation from the Company were to exceed $1.0 million in any taxable year, the excess over $1.0 million, with certain exceptions, would not be deductible by the Company, under Section 162(m) of the Code. The Compensation Committee is aware of this rule, and will take it into account through its annual review of the executive compensation program. One exception to the disallowance of such deductions under Section 162(m) involves compensation paid pursuant to stockholder-approved compensation plans that are performance-based. The Company’s 2008 Equity Incentive Plan contains provisions which are intended to cause grants of stock options and other performance-based awards under such plan to be eligible for this performance-based exception (so that compensation upon exercise of such stock options or the vesting of such performance-based awards should be deductible under the Code). Payments of cash compensation related to our base salary and short-term cash incentive programs and the value of shares that vest from grants of time-vesting restricted stock are not eligible for this performance-based exception.

 

The Compensation Committee is aware of the impact on the Company’s financial statements of providing stock-based compensation, which the Company accounts for under ASC Topic 718. The Compensation Committee is also aware of new restrictions that govern the use of nonqualified deferred compensation, Section 409A of the Code, and has modified the Company’s compensation arrangements to comply with this new regulation.

 

Separation of Employment by Mr. Sheedy

 

On September 2, 2009, Dennis M. Sheedy left the employ of the Company. Mr. Sheedy had been the Vice President, General Counsel and Secretary of the Company.

 

On October 14, 2009, the terms of a Separation Agreement and Release (the “SAR”) between the Company and Mr. Sheedy became effective. In general, the SAR contains certain customary terms and conditions entered into between a company and an executive in connection with termination of employment, such as releases, cooperation, return of documents and confidentiality provisions. In the SAR, the Company confirms the payment of certain amounts which were otherwise payable to Mr. Sheedy pursuant to the terms of his employment agreement, which are (i) $322,950 for base pay severance, (ii) $118,250 for cash incentive plan severance, (iii) $14,077 for unused vacation time, and (iv) amounts necessary to continue coverage under medical and dental plans for eighteen months. The Company also agreed to extend the time in which Mr. Sheedy could exercise certain already issued and vested stock options for 13,050 shares of Company stock, and to pay for life insurance coverage for Mr. Sheedy for a period of eighteen months. The Company agreed to the items not otherwise payable under his employment agreement to obtain the benefit of the release.

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on the Committee’s review of and the discussions with management with respect to the Compensation Discussion and Analysis, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

 

TIMOTHY G. RUPERT, CHAIRMAN

ROBERT W. CRUICKSHANK

SETH E. SCHOFIELD

RANDALL S. DEARTH

 

Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporate other Company filings, including this Proxy Statement, the foregoing Report of the Compensation Committee does not constitute soliciting material and shall not be incorporated by reference into any such filings.

Summary Compensation Table

 

The following table shows the compensation paid by the Company and its subsidiaries for the year ended December 31, 2009 to the Chief Executive Officer, the Chief Financial Officer, the former Vice President, Secretary and General Counsel and the next three most highly compensated executive officers as of December 31, 2009.

 

Summary Compensation Table

 

 

 

 

 

Grants of Plan-Based Awards Table

 

The following table sets forth certain information with respect to grants of plan-based equity awards to the named executive officers during 2009.

 

Grants of Plan-Based Awards

 

 

 

 

The following information relates to both the Summary Compensation Table and the Grants of Plan-Based Awards Table set forth above. The material terms related to the “non-equity incentive plan compensation” set forth in the Summary Compensation Table and the “estimated future payments under non-equity incentive plan awards” in the Grants of Plan-Based Awards Table are described in Compensation Discussion and Analysis under the heading “Performance-Based Short-Term Cash Incentive Compensation.”

 

The “stock awards” column in the Summary Compensation Table and the “all other stock awards” column of the Grants of Plan-Based Awards Table contain information with respect to the time-vesting restricted stock granted to named executive officers in 2007, 2008 and 2009, as applicable. Grants of time-vesting restricted stock vest in equal increments over three years. Dividends which are paid on Common Stock of the Company are paid on the time-vesting restricted stock, and held in escrow with the shares.

The “stock awards” column of the Summary Compensation Table and the “estimated future payouts under equity incentive plan awards” column of the Grants of Plan-Based Awards Table contain information with respect to the restricted performance stock units granted by the Company to the named executive officers in 2007, 2008 and 2009, as applicable. Restricted performance stock units vest as described in Compensation Discussion and Analysis, under the heading “Restricted Performance Stock Units.” These grants were made in units and not actual shares, and thus no dividends accrue on the units until the units vest and the shares are actually issued.

 

The “option awards” column of the Summary Compensation Table and the “all other option awards” column of the Grants of Plan-Based Awards Table contain information with respect to stock options that were granted to the named executive officers in 2007, 2008 and 2009, as applicable. Stock options vest in equal one-half increments over the two year period following the grant. Stock options expire ten years following the date of the grant. Options are granted at fair market value upon the date of the grant.

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth certain information with respect to outstanding equity awards to the named executive officers as of December 31, 2009.

 

Outstanding Equity Awards At Fiscal Year-End

 

 

 

 

 

Option Exercises and Stock Vested

 

The following table sets forth certain information with respect to stock options exercised by and stock awards vested for named executive officers during 2009.

 

Option Exercises And Stock Vested

 

 

 

(1)     The “Option Exercises and Stock Vested” table included in last year’s proxy statement omitted Mr. O’Brien’s acquisition of 30,866 shares of common stock upon the exercise of stock options, which had a realized value upon exercise of $401,275.

 

Pension Benefits

 

All persons, including named executive officers, who were salaried employees prior to July 1, 2005, and who are United States employees, are participants in the Calgon Carbon Corporation Retirement Plan for Salaried Employees (the “Pension Plan”), a defined benefit plan.

 

The Pension Plan provides for annual benefits following normal retirement at age sixty-five equal to 1.05% of the participant’s final average compensation (highest five consecutive years in the ten year period immediately preceding retirement or termination) multiplied by the participant’s credited service (up to thirty-five years); plus 0.50% of the excess, if any, of the participant’s final average compensation in excess of the participant’s covered compensation (as defined in IRS regulations) multiplied by the participant’s credited service (up to thirty-five years). In calculating Mr. O’Brien’s benefit under the Pension Plan, prior service with Merck & Co. is included in the calculation of the gross pension benefit. The pension benefit payable to Mr. O’Brien from the Pension Plan is his gross pension benefit under the Pension Plan including prior service with Merck & Co., less the benefit payable from the Merck & Co. pension plan.

 

For purposes of the Pension Plan, “compensation” includes base compensation, special awards, commissions, bonuses and incentive pay.

 

The Pension Plan provides for early retirement, provided that the participant has attained the age of fifty-five and has completed at least fifteen years of continuous participation under the Pension Plan. Early retirement benefits are

the retirement income that would be applicable at normal retirement, reduced by 0.25% for each month benefits begin prior to the participant’s attainment of age sixty-two. Messrs. Stanik and O’Brien are the only named executive officers currently eligible for early retirement under the Pension Plan. Individuals who terminate employment prior to age fifty-five, but have fifteen years of continuous participation upon termination, are eligible to receive benefits under the Pension Plan as early as age fifty-five, but the benefit payable is actuarially reduced from age sixty-five. The normal form of payment under the plan is a straight life annuity although a lump sum option is available at any time that the plan is not underfunded.

 

Effective January 1, 2006, active participants in the Pension Plan were permitted a one-time opportunity to elect whether future retirement benefits would continue to be earned under the Pension Plan, in which case a participant would continue to also receive a matching contribution of 25% of the first 4% of base pay contributed by the participant under the Company’s Thrift/Savings Plan, a 401(k) defined contribution plan, or instead to elect to cease future accrual of benefits in the Pension Plan and to participate under the new retirement savings program of the Company’s Thrift/Savings Plan. Participants in the new retirement savings program receive a Company match of 100% on the first 2% of total pay contributed by the participant, plus a fixed quarterly Company contribution (2% of total pay) and an annual discretionary Company contribution (from 0% to 4% of total pay based on performance of the Company). Fixed quarterly contributions and discretionary annual contributions made by the Company vest to participants after two years of service. Effective January 1, 2007, all remaining Pension Plan participants were required to convert to the new retirement savings program for future accrual of retirement benefits (and no further benefits will accrue to them under the Pension Plan).

 

Mr. Majoor is not a United States based employee and thus instead participates in the Group Insurance Rules for the Benefit of Salaried Employees of Chemviron Carbon in Belgium (the “Belgium Plan”), a defined benefit plan. The Belgium Plan provides for an annual benefit following normal retirement at age sixty-five equal to 0.5% of the participant’s pensionable salary (the average of the highest five consecutive years out of the ten year period immediately preceding retirement or termination) up to the average social security pension ceiling for each year of credited service (up to a maximum of forty years), plus 1.50% of the excess, if any, of the participant’s pensionable salary in excess of the social security pension ceiling for each year of credited service (up to a maximum of forty years).

 

For purposes of the Belgium Plan, “salary” is 13.85 multiplied by the January 1 monthly base salary. Additionally, pursuant to an agreement with the Company, Mr. Majoor will receive credit for an additional eight years of service in the calculation of his annual benefit, assuming retirement at age sixty-five. If he leaves prior to age sixty-five, the eight additional years of service is multiplied by a ratio equal to actual service with Chemviron Carbon at early retirement/termination divided by an assumed service with Chemviron Carbon at age sixty-five.

 

The Belgium Plan provides for early retirement at age sixty. Benefits payable upon early retirement are actuarially reduced from age sixty-five. The normal form of payment under the plan is a straight life annuity although a lump sum option is available. Mr. Majoor is required to contribute into the Belgium Plan an amount equal to 1.25% of his annual salary up to the social security pension ceiling plus 4% of annual salary in excess of the social security pension ceiling.

The following table shows years of credited service and present value of accumulated benefit as of December 31, 2009 payable by the Company, and payments made by the Company during the last fiscal year for each named executive officer.

 

Pension Benefits

 

 

 

 

(2)  The calculation of present value of accumulated benefit assumes the following:

 

 

 

Potential Payments Upon Termination or Change In Control

 

For 2009, the named executive officers of the Company other than Mr. Sullivan had employment agreements with the Company. The agreements provided for a base salary, participation in bonus and other compensation programs as determined by the Company, indemnification against liabilities arising out of their service in certain capacities, and executive risk liability insurance coverage. The agreements generally provided for continued employment of

the executives until terminated by the Company with or without cause or voluntary termination by the named executive officer with or without good reason.

 

The tables below reflect the amount of compensation which would be paid to each of the named executive officers of the Company in the event of termination of such executive’s employment, with the exception of Dennis Sheedy, as he is no longer employed by the Company. The tables show the amount of compensation payable to each named executive officer upon termination by the Company for “cause” (as defined in the applicable employment agreement), voluntary termination by the executive without “good reason” (as defined in the applicable employment agreement, and generally including constructive termination), death, disability, retirement, involuntary termination by the Company without cause or voluntary termination by the executive for good reason, and termination following a change in control. The amounts shown assume that such termination was effective as of December 31, 2009 and thus include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company.

 

Employment Agreement Terms - Stanik, Ball, O’Brien

 

The following paragraphs summarize the general terms of the employment agreements that were in place for Messrs. Stanik, Ball and O’Brien for 2009. Regardless of whether the termination of the named executive officer’s employment is by the Company for cause or without cause, by the named executive officer with or without good reason, or due to death or disability, the executive is generally entitled to receive amounts earned during the term of his employment, including (i) base salary, vacation and other cash entitlements accrued through the date of termination, to be paid to the executive in a lump sum of cash on the next regularly scheduled payroll date that is at least ten (10) days from the date of termination (to the extent theretofore unpaid); (ii) to the extent permitted by the applicable deferred compensation plan and any elections filed by the executive under such plan, the amount of any compensation previously deferred by the executive, paid in a lump sum of cash on the next regularly scheduled payroll date that is at least ten (10) days from the date of termination (to the extent theretofore unpaid); and (iii) amounts that are vested benefits or that the executive is otherwise entitled to receive under any plan, policy, practice or program of or any other contract or agreement with the Company at or subsequent to the date of termination, payable in accordance with such plan, policy, practice or program or contract or agreement. Collectively, these are referred to as “Accrued Obligations.”

 

In the case of a termination by the Company for cause, or a voluntary termination by the named executive officer without good reason, the executive would be entitled to no further compensation other than the Accrued Obligations.

 

If a named executive officer’s employment is terminated by reason of such executive’s death or disability (in accordance with the definition contained in the executive’s employment agreement), the executive, or in the event of death, the executive’s estate or beneficiaries, would be entitled to (i) the Accrued Obligations, (ii) an amount equal to six (6) months of base salary based upon the salary the executive earned at the time of his or her termination, and (iii) the Bonus Amount, as defined below, multiplied by a fraction, the numerator of which is the number of days in the calendar year until the date of death or determination of disability, and the denominator of which is 365, all of which is payable in a lump sum on the next regularly scheduled payroll date that is at least ten (10) days after the date of death or determination of disability. The “Bonus Amount” is the average of the last three annual cash bonuses paid by the Company to the named executive officer.

 

In the case of an executive retiring, the executive would receive his Accrued Obligations. With respect to time-based restricted stock, the executive would receive the number of restricted shares equal to the number of full months such executive was employed since the last vesting date of the restricted shares divided by the number of months from the last vesting date until the next vesting date. With respect to restricted performance stock units, the executive would be entitled to the same amount of shares as would be calculated in the case of the executive’s death.

 

For the named executive officers other than Messrs. Majoor and Sullivan, in the case of the termination of the employment of the executive by the Company without cause or the resignation by the executive with good reason, the executive will be entitled to (i) the Accrued Obligations and (ii) (A) the executive’s base salary, based upon the salary the executive earned at the time of his termination, payable for the Severance Period for said executive (where

Messrs. Ball and O’Brien’s Severance Period is eighteen (18) months and Mr. Stanik’s Severance Period is twenty-four (24) months), and (B) for Messrs. Ball and O’Brien, one and a half (1.5) times the Bonus Amount and, for Mr. Stanik, two (2) times the Bonus Amount, all of which is payable in a lump sum upon the date, which is the first day following the six (6) month anniversary of the date of termination. In addition, the executive’s applicable health and welfare benefits will be continued for a period equal to the Severance Period or, if shorter, until the executive is reemployed and provided at least equivalent benefits by his next employer. The executive will not receive any additional stock or option grants. With respect to all equity plans of the Company, no further vesting will occur.

 

Employment Agreement Terms of Termination - Majoor

 

Mr. Majoor’s employment agreement calls for notice prior to any termination of his employment without “serious reason” to be determined pursuant to a “Claeys formula” which is used by Belgian labor courts to determine severance compensation, if any, provided that the notice period may in no event be less than eighteen (18) months. Any stock options granted to Mr. Majoor pursuant to his employment agreement continue to be exercisable, provided that his termination is without cause. Additionally, provided that Mr. Majoor honors, and the Company does not waive, the non-compete provision of his employment contract, the Company shall pay him an indemnification amount equivalent to one-half of his gross remuneration for the last month of employment with the Company, multiplied by twenty-four (24) months.

 

Employment Agreement Terms of Termination - Sullivan

 

Mr. Sullivan was not a party to an employment agreement for 2009 but he did have a letter agreement, dated October 2, 2009, that provided certain change in control benefits to him.

 

Additional Benefits Upon Termination

 

In addition to the benefits discussed above, each named executive officer has certain entitlements with respect to the various forms of equity awards that such executive may have earned over the course of his employment.

 

If the employment of the named executive officer (who may not be a Disabled Participant, as defined in the 2008 Equity Incentive Plan) is voluntarily terminated with the consent of the Company, any then outstanding incentive stock option held by such executive shall be exercisable by the executive (but only to the extent exercisable by the executive immediately prior to the termination of employment) at any time prior to the expiration date of such incentive stock option or within three months after the date of termination of employment, whichever is the shorter period.

 

If the employment of the executive (who may not be a Disabled Participant, as defined in the 2008 Equity Incentive Plan) is voluntarily terminated with the consent of the Company, any then outstanding nonstatutory stock option or stock appreciation right held by such executive shall be exercisable by the executive (but only to the extent exercisable by the executive immediately prior to the termination of employment) at any time prior to the expiration date of such nonstatutory stock option or stock appreciation right or within one year after the date of termination of employment, whichever is the shorter period.

 

If the executive is a Disabled Participant (as defined in the 2008 Equity Incentive Plan) and his employment is voluntarily terminated with the consent of the Company, or the executive retires at normal retirement age under any retirement plan of the Corporation, any then-outstanding stock option or stock appreciation right held by such executive shall be exercisable in full (whether or not so exercisable by the executive immediately prior to the termination of employment) by the executive at any time prior to the expiration date of such stock option or stock appreciation right or within one year after the date of termination of employment, whichever is the shorter period.

 

If an executive’s employment is terminated by reason of the executive’s death, the executive’s estate will be permitted to exercise any outstanding stock options or stock appreciation rights held by such executive (whether or not exercisable on the date of death) at any time prior to the expiration date of such stock option or stock appreciation right or within one year after the date of death, whichever is the shorter period.

 

Generally, if the employment or engagement of an executive terminates for any reason other than voluntary termination with the consent of the Company, retirement under any retirement plan of the Company or death, all outstanding stock options and stock appreciation rights held by the executive at the time of such termination of

employment shall automatically terminate. Whether termination is a voluntary termination with the consent of the Company and whether retirement is at a normal age is determined as provided in the Company’s 2008 Equity Incentive Plan.

 

All restrictions on such executive’s time-based restricted stock will lapse and with respect to restricted performance stock units granted to executives in 2007, 2008 and 2009, if the performance conditions contained in the agreement granting such restricted performance stock units are met after such executive’s death, the executive’s estate would be entitled to receive a number of shares equal to the total share units granted under the agreement, multiplied by the number of full months such executive was employed from January 1 in the year of the grant until the death of the executive, divided by thirty-six.

 

In the case of disability of an executive in accordance with the definition contained in the executive’s employment agreement, in addition to the accrued obligations, the executive’s estate would be entitled to receive a number of shares related to restricted performance stock units using the same calculation as would be used in the case of the executive’s death. There would be no acceleration of vesting of stock options or time-based restricted stock in the case of disability.

 

Payments Upon Change of Control

 

If, after a Change of Control, as defined in the executive’s employment agreement, an executive’s employment is terminated by the Company (other than termination by the Company for cause or by reason of death or disability and subject to certain time limitations) or the executive terminates his employment in certain circumstances which constitute good reason (as defined in the employment agreements and subject to certain time limitations) the executive will be entitled to the following benefits. In lieu of the normal severance benefits described above, the executive will be entitled to a lump sum equal to: (i) two (2) years (three (3) years for the Chief Executive Officer) of the executive’s base salary; plus (ii) two (2) times (three (3) times for the Chief Executive Officer) the greater of (x) the then-current “target” amount of any cash bonus or short-term cash incentive plan in effect for the executive or (y) the average of the last three (3) annual cash bonuses paid by Company to the executive; and (iii) (except for Mr. Majoor) the matching contributions that would have been credited to the executive under the Company’s 401(k) plan for the two (2) years (three (3) years for the Chief Executive Officer) following the effective date of termination of the executive’s employment. If the executive terminates his employment other than for “good reason” during a period of ninety (90) days after the first anniversary of the Change of Control, the amounts as set forth above would instead be (x) eighteen (18) months (not two (2) years) of such base salary, (y) one and a half (1.5) times (not two (2) times) of such bonus and (z) eighteen (18) months (not two (2) years) of matching contributions under the 401(k) plan, except that in any event the amounts for the Chief Executive Officer would not change from those stated above. For any such period the executive will receive equivalent benefits as were provided prior to the Change of Control. After a Change of Control, the executive will also be entitled to exercise all stock options and stock appreciation rights and be fully vested in all restricted stock, stock units, and similar stock-based or incentive awards previously granted to the executive regardless of any deferred vesting or deferred exercise provisions of such arrangements.

 

Additional Termination Payments.

 

The Company will pay an additional amount sufficient on an after-tax basis to cover any excise taxes, interest and penalties imposed on severance payments by Section 4999 of the Code plus a gross-up payment to reimburse the executive for the tax imposed on the additional payment. In Mr. Majoor’s case, the “gross-up” will also apply to any Belgian excise tax imposed.

 

Material Conditions to Receipt of Payments or Benefits.

 

In order to receive the benefits described above, the named executive officers agree in the employment agreements to be bound by standard provisions concerning use of confidential information and non-compete provisions after termination of employment. In particular, the executive agrees that he will not compete with the Company during the period in which he is receiving severance or for a period of two (2) years after the termination of employment, whichever is longer. The named executive officers further agree that all confidential information, as specified in such officers’ respective employment agreements, shall be kept secret and shall not be disclosed or made available to anyone outside of the Company at any time, either during his employment with the Company, or subsequent to termination thereof for any reason.

On February 5, 2010, each of the named executive officers except Mr. Majoor signed new employment agreements to be effective for 2010 and beyond. Mr. Sullivan is also a party to a 2010 employment agreement. See page 22 for an outline of the significant changes between the agreements that were effective in 2009 and the 2010 agreements. The new employment agreements do not contain the excise tax and “gross-up” provisions that were contained in the agreements effective for 2009.

 

John Stanik

 

The following table shows the potential payments upon termination of employment prior to and after a Change of Control of the Company for John Stanik.