SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by Registrant x
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Under Rule 14a-12

GARDNER DENVER, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
x No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

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o Fee paid previously with preliminary materials.

o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

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March 14, 2007

 

TO OUR STOCKHOLDERS:

 

You are cordially invited to attend the 2007 Annual Meeting of Stockholders on Tuesday, May 1, 2007 at 1:30 p.m., at the Quincy Country Club, 2410 State Street, Quincy, Illinois.

 

The attached Notice and Proxy Statement describe the business of the meeting. After the transaction of formal business, a question and answer period will follow.

 

We look forward to a significant vote of the Common Stock, either in person or by proxy. We are again offering three convenient ways to vote your proxy. If you are a stockholder of record, you may use the toll-free telephone number on the proxy card to vote your shares or you may vote your shares via the Internet by following the simple instructions on the proxy card. If you prefer to vote your shares by mail, simply complete, date, sign and return your proxy card in the enclosed stamped and addressed envelope. Regardless of your method of voting, you may revoke your proxy and vote in person if you decide to attend the Annual Meeting.

 

We are again offering you the opportunity to access future stockholder communications (e.g., annual reports, proxy statements, related proxy materials) over the Internet instead of receiving such communications in print. Participation is completely voluntary. If you give your consent, in the future, when our material is available over the Internet, the package you receive containing your proxy voting card will contain the Internet location where the material is available (www.gardnerdenver.com). There is no cost to you for this service other than any charges you may incur from your Internet provider, telephone and/or cable company. Once you give your consent, it will remain in effect until revoked, which you may do at any time by writing to us or our transfer agent, National City Bank. In addition, you may also request paper copies of any such communications at any time by writing to us or our transfer agent.

 

Your support is appreciated, and we hope that you will be able to join us at the May 1st meeting.

 

Cordially,

 

 

Ross J. Centanni

Chairman, President and

Chief Executive Officer

GARDNER DENVER, INC.
1800 Gardner Expressway
Quincy, Illinois 62305

 

NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS

 

The 2007 Annual Meeting of Stockholders of Gardner Denver, Inc. (the “Company”) will be held at the Quincy Country Club, 2410 State Street, Quincy, Illinois on Tuesday, May 1, 2007 at 1:30 p.m., for the following purposes:

 

1. To elect four directors to serve for a three-year term each;

 

2. To amend and restate the Long-Term Incentive Plan; and

 

3. To transact such other business as may properly come before the meeting.

 

Stockholders of record at the close of business on March 2, 2007 are entitled to notice of, and to vote at, the meeting and any adjournments thereof. Stockholders of record may vote their proxy by completing the enclosed proxy card, calling the toll-free number indicated on the proxy card, or accessing the Internet website specified in the instructions included on the proxy card. A stockholder may revoke a proxy at any time before it is voted at the meeting by following the procedures described in the attached Proxy Statement.

 

FOR THE BOARD OF DIRECTORS

 

 

Tracy D. Pagliara

Vice President, Administration,

General Counsel and Secretary

 

Quincy, Illinois

March 14, 2007

 

RETURN OF PROXIES REQUESTED

GARDNER DENVER, INC.
1800 Gardner Expressway
Quincy, Illinois 62305

 

PROXY STATEMENT

 

GENERAL INFORMATION

 

The accompanying proxy is solicited by the Board of Directors of Gardner Denver, Inc. (the “Company” or “Gardner Denver”) and will be voted in accordance with the instructions given (either in a signed proxy card or voted through the toll-free telephone or Internet procedures described below) and not revoked. A stockholder may revoke a proxy at any time before it is voted by (1) giving notice to the Company in writing, (2) submitting another proxy that is properly signed and later dated, or (3) voting in person at the meeting. Attendance at the meeting will not in and of itself revoke a proxy.

 

This Proxy Statement and the enclosed proxy card are first being mailed to stockholders on or about March 21, 2007. The record date for determining the stockholders entitled to vote at the meeting was the close of business on March 2, 2007 (the “Record Date”). On that date, the outstanding voting securities of the Company were 52,841,387 shares of Common Stock, par value $0.01 (“Common Stock”). All share figures and prices referenced in this proxy statement have been adjusted to reflect the 2-for-1 stock split (in the form of a 100% stock dividend) that occurred on June 1, 2006. Each share of Common Stock is entitled to one vote. A majority of the outstanding shares of Common Stock is required to establish a quorum. Abstentions and “broker non-votes” (as described below) will be considered present at the meeting for purposes of determining a quorum with respect to items brought before the meeting.

 

Brokers holding shares for beneficial owners must vote these shares according to specific instructions received from the owner. If specific instructions are not received, brokers may vote these shares in their discretion on certain routine matters, such as the election of directors. However, the New York Stock Exchange rules preclude brokers from exercising their voting discretion on certain proposals. In these cases, if they have not received specific instructions from the beneficial owner, brokers may not vote on the proposals, resulting in what is known as a “broker non-vote.”

 

The affirmative vote of a majority of the outstanding shares of Common Stock having voting power present at the meeting, in person or by proxy and voting thereon, is required to elect each of the nominees as a director of the Company (Item 1 on the proxy card). For these purposes, abstentions and “broker non-votes” will not be counted as voting for or against the proposal to which it relates.

 

The affirmative vote of a majority of the outstanding shares of Common Stock having voting power present at the meeting, in person or by proxy and voting thereon, is required to approve the amended and restated Long-Term Incentive Plan (Item 2 on the proxy card). In addition, pursuant to New York Stock Exchange rules, the total votes cast on each such proposal must equal or exceed 50% of all shares entitled to vote on the proposals. Shares represented by proxies that are marked “abstain” with respect to these matters will be treated as votes and will have the same effect as a vote “against” the matters. Broker non-votes will not be considered as votes cast with respect to these matters and so will have no effect on the outcome, unless they result in a failure to obtain total votes cast of more than 50% of the shares entitled to vote.

 

The Company is not aware of any matter that will be presented to the meeting for action on the part of the stockholders other than that stated in the notice. If any other matter is properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote the shares to which the proxy relates in accordance with their best judgment.

 

Stockholders of record may vote using the toll-free number listed on the proxy card or via the Internet or they may complete, sign, date and mail the enclosed proxy card in the postage-paid envelope provided. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities. The procedures allow stockholders to give their voting instructions and confirm that their instructions have been properly recorded. Specific instructions to be followed by any stockholder of record interested in voting by telephone or the Internet are set forth on the enclosed proxy card.

 

Stockholders may vote by telephone or through the Internet 24 hours a day, 7 days a week. Telephone or Internet votes must be received by 11:59 p.m. Eastern Time on April 30, 2007 for all shares of Common Stock other than shares held in the Gardner Denver, Inc. Retirement Savings Plan (the “Savings Plan”) and the related Gardner Denver, Inc. Supplemental Excess Defined Contribution Plan (the “Excess Contribution Plan”).

 

Shares of Common Stock held in the Savings Plan and Excess Contribution Plan will be voted by JPMorgan Chase Bank, N. A. (“JPMorgan”), as trustee of these plans. In the case of participants in these plans, the enclosed proxy card reflects the number of equivalent shares credited to your account. Voting instructions to JPMorgan regarding your shares in the Savings Plan and Excess Contribution Plan must be received by 11:59 a.m. Eastern Time on April 26, 2007. Such voting instructions can be made in the same manner as other shares of Common Stock are voted by proxy (i.e., by returning the proxy card by mail or voting by telephone or through the Internet as described above). A vote by telephone or through the Internet authorizes JPMorgan and the proxies named on the enclosed proxy card to vote your shares in the same manner as if you marked, signed and returned your proxy card. Therefore, if you vote by telephone or Internet, there is no need to return the proxy card.

 

After April 26, 2007, all shares of Common Stock held in the Savings Plan and Excess Contribution Plan for which voting instructions have not been received, and all shares not yet allocated to participants’ accounts, will be voted by JPMorgan, as trustee, as directed by the Company, in the same proportion (for or against) as the shares for which instructions are received from participants in these plans. If you fail to return a proxy properly signed or fail to cast your votes by telephone or via the Internet by April 26, 2007, the equivalent shares of Common Stock credited to your Savings Plan and Excess Contribution Plan accounts will be voted by JPMorgan, as trustee, as directed by the Company, in the same proportion as the shares for which instructions were received from other participants in these plans.

 

The cost of soliciting proxies will be paid by the Company. The Company will, upon request, reimburse brokerage houses, custodians, nominees and others for their out-of-pocket and reasonable clerical expenses incurred in connection with such solicitation. For the purpose of obtaining broad representation at the meeting, Georgeson Inc. has been retained by the Company to assist in the solicitation of proxies at an anticipated cost of approximately $10,000 plus reimbursement of reasonable expenses. Officers and employees of the Company, without being additionally compensated, may also make requests for the return of proxies by letter, telephone or other means or in person.

 

If you are a registered holder of shares, you have the option to access future stockholder communications (e.g., annual reports, proxy statements and related proxy materials) over the Internet instead of receiving those documents in print. Participation is completely voluntary. If you give your consent to receive such material electronically, in the future, when our material is available over the Internet, the package you receive containing your proxy voting card will contain the Internet location where such stockholder communications are available (www.gardnerdenver.com). The material will be presented in PDF format. There is no cost to you for this service other than any charges you may incur from your Internet provider, telephone and/or cable company. Once you give your consent, it will remain in effect until you inform the Company otherwise. You may revoke your consent at any time and/or request paper copies of any of these stockholder communications by writing the Company’s transfer agent, National City Bank, Shareholder Services Operations, Locator 5352, P.O. Box 92301, Cleveland, Ohio 44101-4301, or by writing the Company. Information on our website does not constitute a part of this proxy statement.

 

To give your consent to receive such material electronically, follow the prompts when you vote by telephone or over the Internet or check the appropriate box located at the bottom of your proxy card when you vote by mail.

 

PROPOSAL I — ELECTION OF DIRECTORS

 

The authorized number of directors of the Company is presently fixed at nine. The directors are divided into three classes, with one class having four members due to the interim appointment of one director and the anticipated retirement of one director during the term, one class having three members and one class having two members. Directors in each class are elected for three-year terms so that the term of office of one class of directors expires at each annual meeting.

 

For election as directors at the Annual Meeting of Stockholders to be held on May 1, 2007, the Board of Directors has approved the nominations of Frank J. Hansen, Thomas M. McKenna, Diane K. Schumacher and Charles L. Szews, who are currently directors, to serve for three-year terms expiring in 2010. The Board of Directors believes that the election of these nominees will be in the best interests of the stockholders and, accordingly, recommends a vote FOR election of these nominees, which is Item 1 on the proxy card.  Proxies received in response to the Board’s solicitation will be voted FOR election of these nominees for director if no specific instructions are included for Item 1, except for shares held in the Savings Plan and Excess Contribution Plan which shall be voted as set forth in the accompanying proxy. See also “General Information”.

 

If any one of the nominees becomes unavailable or unwilling for good reason to stand for election, the accompanying proxy will be voted for the election of such person, if any, as shall be recommended by the Board of Directors, or will be voted in favor of holding a vacancy to be filled by the directors. The Company has no reason to believe that any nominee will be unavailable or unwilling to stand for election.

 

The following information is provided regarding the nominees for election as a director and each of the other directors who will continue in office after the meeting.

 

NOMINEES FOR ELECTION

 

For Terms Expiring at the 2010 Annual Meeting of Stockholders

 

 

DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING

 

Terms Expiring at the 2008 Annual Meeting of Stockholders

 

 

Terms Expiring at the 2009 Annual Meeting of Stockholders

 

 

BOARD OF DIRECTOR RESPONSIBILITIES, COMPENSATION AND RELATIONSHIPS

 

The Company’s Board of Directors (the “Board”) held five meetings during 2006. Pursuant to our Corporate Governance Policy, each director is expected to attend the Company’s annual meeting. Each director attended the Company’s annual stockholder meeting and at least 75% of the Board meetings and meetings of Committees of which he or she was a member, with the following exception: Mr. Szews, who was not appointed until November 2006, did not attend any meetings in 2006 as no meetings were held after his appointment.

 

Director Independence

 

The Board has adopted categorical standards of independence for its members, a copy of which is attached hereto as Appendix A (“Director Independence Standards”). In accordance with New York Stock Exchange (or

“NYSE”) and Securities and Exchange Commission (or “SEC”) rules and guidelines, the Board assesses the independence of its members from time to time. As part of this assessment, the following steps are taken:

 

 

 

The Board has reviewed the commercial and other relationships between the Company and its present directors (including all of the nominees presently standing for election) and members of the directors’ immediate family. The Board has also reviewed the commercial and other relationships between the Company and any entity of which a director or an immediate family member of a director serves as an executive officer, general partner or significant equity holder. After taking into account all relevant facts and circumstances, the Board determined that there were no material relationships, whether industrial, banking, consulting, legal, accounting, charitable or familial, which would impair the independence of any of the directors or nominees, other than Mr. Centanni, as noted below. In making this determination, the Board considered that in the ordinary course of business, transactions may occur between the Company and companies at which one of the directors or his or her family members are or have been an officer. In each case, the amount of transactions with these companies in each of the last three years was determined to be immaterial and did not approach the thresholds set forth in the Director Independence Standards. In particular, the Board considered a business relationship in the ordinary course of business for freight management services between the Company and Meridian, IQ, an affiliate of YRC Worldwide, Inc., or Meridian. The Board determined that the Company’s relationship with Meridian was a customary relationship that was carried on in the ordinary course of business on an arms-length basis and that such relationship did not impact Mr. Barger’s independent status under the NYSE corporate governance standards or otherwise interfere with his ability to exercise independence as a director or Audit Committee member. The Board also considered charitable contributions to not-for-profit organizations of which one of the directors or his or her family members are or have been affiliated, none of which approached the levels set forth in the Director Independence Standards.

 

On the basis of this assessment and the standards for independence adopted by the NYSE and SEC, the Board determined that all of its members (including all of the nominees presently standing for election), other than Mr. Centanni, the Company’s Chairman, President and Chief Executive Officer, are independent. Mr. Centanni is not independent because he is an employee of the Company.

 

Board of Directors Committees

 

The Board has three standing committees composed exclusively of independent nonemployee directors: a standing Audit and Finance Committee, a standing Management Development and Compensation Committee and a standing Nominating and Corporate Governance Committee. The Board has adopted written charters for each of the Audit and Finance Committee, the Management Development and Compensation Committee and the Nominating and Corporate Governance Committee, copies of which are available on the Company’s website at www.gardnerdenver.com. Copies of

each such charter are also available in print to any stockholder upon request in writing to our Corporate Secretary at 1800 Gardner Expressway, Quincy, Illinois 62305 or by telephone to 217-222-5400. Information on our website does not constitute a part of this proxy statement.

 

The Audit and Finance Committee. The Audit and Finance Committee (the “Audit Committee”), currently composed of Donald G. Barger, Jr., Chairperson, Raymond R. Hipp, Thomas M. McKenna, David D. Petratis and Charles L. Szews, held nine meetings during 2006, including five telephonic meetings prior to the release of earnings and regulatory filings. The Board has determined that all members of the Audit Committee are independent, pursuant to NYSE listing standards and SEC guidelines. The Board has also determined that Donald G. Barger, Jr. and Charles L. Szews are both Audit Committee Financial Experts, as that term is defined in SEC rules. The Board adopted an amended written charter for the Audit Committee, effective July 24, 2006, a copy of which is attached to this Proxy Statement as Appendix B and is available on our website at www.gardnerdenver.com. Information on our website does not constitute a part of this proxy statement.

 

The purpose of the Audit Committee is to assist the Board (with particular emphasis on the tone at the top of the Company) in fulfilling its oversight responsibilities with respect to:

 

 

The specific functions of the Audit Committee include, among other things:

 

 

 

The Audit Committee has authority to retain outside financial and legal advisors to assist it in meeting any of the above obligations, as necessary and appropriate, and to ensure that we provide appropriate funding to pay the fees and expenses of our independent auditors and the Audit Committee’s other outside advisors.

 

The Management Development and Compensation Committee. The Management Development and Compensation Committee (the “Compensation Committee”), currently composed of Richard L. Thompson, Chairperson, Frank J. Hansen, Thomas M. McKenna and Diane K. Schumacher, held three meetings during 2006. The Board has determined that all members of the Compensation Committee are independent, pursuant to NYSE listing standards and SEC guidelines. The Board adopted a written charter for the Compensation Committee, which is available on our website at www.gardnerdenver.com. Information on our website does not constitute a part of this proxy statement.

 

The purpose of the Compensation Committee is to assist the Board in discharging its responsibilities relating to executive selection, retention and compensation and succession planning. The specific functions of the Compensation Committee include, among other things:

 

 

 

 

 

The Compensation Committee has authority to retain executive compensation consulting firms and other consultants, including outside financial and legal advisors, to assist it in meeting any of the above obligations, as necessary and appropriate, and to ensure that we provide appropriate funding to pay the fees and expenses of such advisors.

 

The Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee (the “Nominating Committee”), currently composed of Diane K. Schumacher, Chairperson, Frank J. Hansen and Richard L. Thompson, held two meetings during 2006. The Board has determined that all members of the Nominating Committee are independent, pursuant to New York Stock Exchange listing standards and SEC guidelines. The Board adopted a written charter for the Nominating Committee, which is available on our website at www.gardnerdenver.com. Information on our website does not constitute a part of this proxy statement.

 

The purpose of the Nominating Committee is to make recommendations to the Board on director nominees, Board practices and corporate governance practices and principles. The specific functions of the Nominating Committee include, among other things:

 

 

The Nominating Committee has authority to retain independent third-party search firms and outside financial and legal advisors to assist it in meeting any of the above obligations, as necessary and appropriate, and to ensure that we provide appropriate funding to pay the fees and expenses of such advisors. At the Nominating Committee’s direction, we retained Crist Associates (“Crist”), an independent third-party search firm, to assist us in the search process for a new Board member with financial expertise. Crist specializes in the placement of board and executive level employees for financial positions. From the search conducted by Crist, Mr. Szews was presented as a candidate to the Nominating Committee and after reviewing his qualifications, the Nominating Committee decided to pursue Mr. Szews as a candidate. Mr. Szews was then interviewed by each member of the Nominating Committee and at the November meeting, the Nominating Committee recommended that Mr. Szews be appointed to the Board. The Board subsequently appointed Mr. Szews to the Board.

 

The Nominating Committee must review with the Board, on at least an annual basis, the requisite qualifications, independence, skills and characteristics of Board candidates, members and the Board as a whole. When assessing potential new directors, the Nominating Committee considers individuals from various and diverse backgrounds. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, the Nominating Committee believes that candidates generally should, at a minimum, meet the following criteria:

 

 

The Nominating Committee will consider such candidates if a vacancy arises or if the Board decides to expand its membership, and at such other times as the Nominating Committee deems necessary or appropriate. The Nominating Committee will consider stockholder recommendations for candidates for the Board, provided such candidates meet the minimum criteria stated above. Any stockholder wishing to submit a candidate for consideration should send the following information to the Corporate Secretary, Gardner Denver, Inc., 1800 Gardner Expressway, Quincy, Illinois 62305:

 

 

Our Corporate Secretary will promptly forward such materials to the Chairperson of the Nominating Committee and to our Chairman of the Board. The same criteria applies with respect to the Nominating

Committee’s evaluation of all candidates for membership to the Board, including candidates recommended by stockholders. However, separate procedures will apply, as provided in the Bylaws, if a stockholder wishes to submit at an annual meeting a director candidate who is not approved by the Nominating Committee or the Board.

 

Compensation of Directors

 

The Company’s nonemployee directors each received an annual retainer of $28,000. Additionally, nonemployee directors received meeting attendance fees of $1,250 per meeting for Board meetings and $1,000 per meeting for committee meetings. Members of the Audit Committee received a $500 attendance fee for each quarterly earnings teleconference call meeting. Beginning May 2006, the Lead Nonemployee Director and the Chair of the Audit Committee each received an additional annual retainer of $7,500, and the Chairs of the Compensation Committee and the Nominating Committee received an additional annual retainer of $5,000. Directors are also reimbursed for reasonable expenses incurred in connection with attending Board and committee meetings.

 

Our Phantom Stock Plan for Outside Directors, which is an unfunded plan, has been established to more closely align the interests of the nonemployee directors and our stockholders by increasing each nonemployee director’s proprietary interest in our Company in the form of “phantom stock units.”

 

Under the Phantom Stock Plan, we credit the equivalent of $7,000 annually, in equal quarterly amounts, to the phantom stock unit account of each nonemployee director. Phantom stock units are credited in equal quarterly amounts divided by the average closing price per share of our common stock during the 30 trading days immediately preceding (but not including) the last business day of such fiscal quarter as reported on the composite tape of the NYSE. Each nonemployee director may also elect to defer all or some portion of his or her annual director’s fees under the Phantom Stock Plan and have such amount credited on a quarterly basis as phantom stock units, based on the average closing price per share of our common stock during the 30 trading days immediately preceding (but not including) the last business day of such fiscal quarter as reported on the composite tape of the NYSE. If we were to pay dividends, dividend equivalents would be credited to each nonemployee director’s account on the dividend record date.

 

The fair market value of a director’s account will be distributed as a cash payment to the director, or his or her beneficiary, on the first day of the month following the month in which the director ceases to be a director for any reason. Alternatively, a director may elect to have the fair market value of his or her account distributed in twelve or fewer equal monthly installments, or in a single payment on a predetermined date within one year after he or she ceases to be a director, but without interest on the deferred payments. The fair market value of a director’s account is determined by reference to the average closing price per share for our common stock during the 30 trading days immediately preceding the date the director ceases to be a director. The following table summarizes the number of phantom stock units credited to each nonemployee director as of March 2, 2007.

 

 

 

 

Pursuant to the Gardner Denver, Inc. Long-Term Incentive Plan (the “Incentive Plan”), for 2006, the Board granted each nonemployee director an option to purchase 9,000 shares of our common stock, on the day following the 2006 Annual Stockholders Meeting, which have since been adjusted to reflect the 2-for-1 stock split (in the form of a 100% stock dividend) that occurred on June 1, 2006. The exercise price of these options is the fair market value of our common stock on the date of grant, which is determined by the average of the high and low market prices for our common stock on the date of grant. Nonemployee director stock options become exercisable on the first anniversary of the date of grant and terminate upon the expiration of five years from such date. If a person ceases to be a nonemployee director by virtue of disability or retirement, after having completed at least one three-year term, outstanding options generally remain exercisable for a period of five years but not later than the expiration date of the options. If a person ceases to be a nonemployee director by virtue of death or dies during the five-year exercise period after disability or retirement described above, outstanding options generally remain exercisable for a period of one year but not later than the expiration date of the options. If a nonemployee director’s service terminates for any other reason, options not then exercisable are canceled and options that are exercisable may be exercised at any time within ninety days after such termination but not later than the expiration date of the options. Additionally, upon the occurrence of a change of control, as defined in the plan, these options will be canceled in exchange for a cash payment equal to the appreciation in value of the options over the exercise price as set forth in the plan. For a further description of the change in control provision under the Incentive Plan, please see the “Potential Payments Upon Termination or Change in Control” discussion on page 34.

 

DIRECTOR COMPENSATION TABLE

 

The following table presents compensation earned by each nonemployee member of our Board of Directors for 2006.

 

 

 

 

Stockholder Communication with Directors

 

The Board has adopted the following procedures for stockholders to send communications to the Board, individual directors and/or Committee chairs.

 

Stockholders and other interested persons seeking to communicate with the Board or any individual director should submit their written comments to our Corporate Secretary, Gardner Denver, Inc., 1800 Gardner Expressway, Quincy, Illinois 62305. Such persons who prefer to communicate by e-mail should send their comments to CorporateSecretary@gardnerdenver.com. Our Corporate Secretary will then forward all such communications (excluding routine advertisements and business solicitations) to each member of the Board, or the applicable individual director(s) and/or Committee Chair(s). Subject to the following paragraph, our Chairman of the Board will receive copies of all stockholder communications, including those addressed to individual directors and/or Committee Chairs, unless such communications address allegations of misconduct or mismanagement on the part of the Chairman. In such event, our Corporate Secretary will first consult with and receive the approval of the Audit Committee Chair before disclosing or otherwise discussing the communication with our Chairman of the Board.

 

If a stockholder communication is addressed exclusively to our non-management directors, our Corporate Secretary will first consult with and receive the approval of the Chairperson of the Nominating Committee before disclosing or otherwise discussing the communication with directors who are members of management.

 

We reserve the right to screen materials sent to our directors for potential security risks and/or harassment purposes.

 

Stockholders also have an opportunity to communicate with the Board of Directors at our annual meeting of stockholders. Pursuant to our Corporate Governance Policy, each director is expected to attend the Annual Meeting in person and be available to address questions or concerns raised by stockholders, subject to occasional excused absences due to illness or unavoidable conflicts.

 

CORPORATE GOVERNANCE

 

Corporate Governance Policy

 

The Board has adopted a policy regarding Corporate Governance, which is available on our website at www.gardnerdenver.com. Information contained on our website does not constitute a part of this Proxy Statement. A copy of such policy is available in print to any stockholder upon request in writing to the Corporate Secretary at 1800 Gardner Expressway, Quincy, Illinois 62305 or by telephone to 217-222-5400. The objective of this policy is to ensure that the Board maintains its independence, objectivity and effectiveness in fulfilling its responsibilities to our stockholders. The policy establishes the criteria and requirements for:

 

 

The policy provides that the majority of the Board should be independent based on the independence standards of the NYSE, with varied and complementary backgrounds, and interlocking directorships are prohibited. Directors may serve on the boards of directors of no more than four for-profit organizations, including our Company, and members of the Audit Committee may serve on the audit committees of no more than three for-profit organizations, including our Company. The policy specifies that a nonemployee director will retire at the next regular meeting of the Board following the date he or she attains 70 years of age, and that, at any one time, no less than 50% of the number of nonemployee directors shall be actively employed.

 

Lead Nonemployee Director

 

On November 12, 2002, the Board appointed Mr. Frank Hansen to serve as our Lead Nonemployee Director. In this capacity, Mr. Hansen fulfills the duties of the Chairman of the Board at Board meetings as president pro tem when the Chairman is unavailable, and leads the discussion of independent nonemployee directors during executive sessions of the independent nonemployee directors.

 

Code of Ethics

 

We have adopted a Code of Ethics and Business Conduct Policy, which is available on our website at www.gardnerdenver.com, that applies to all members of the Board and all executive officers and employees of the Company. Information on our website does not constitute a part of this proxy statement. In addition, under the charter of the Company’s Audit Committee, the Chief Executive Officer and Chief Financial Officer, among others, are required to certify annually their adherence to a Code of Ethics, which is attached to the Audit and Finance Committee Charter available on our website. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to or waivers of the Code of Ethics and Business Conduct Policy and/or the Code of Ethics mandated by the Audit Committee by posting such information on its website at www.gardnerdenver.com. A copy of the Code of Ethics and Business Conduct Policy and the Audit Committee Charter are available in print to any stockholder upon request in writing to the Corporate Secretary at 1800 Gardner Expressway, Quincy, Illinois 62305 or by telephone to 217-222-5400.

 

SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS

 

The following table sets forth information, as of March 2, 2007, with respect to the beneficial ownership of our common stock by (a) each director, (b) our Chief Executive Officer, (c) each of our other “named executive officers” and (d) all directors and named executive officers as a group.

 

 

 

 

 

Beneficial Ownership

 

There is no person or group known by us to be the beneficial owner of more than 5% of our outstanding common stock as of March 2, 2007.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities of our Company. Our insiders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file, including Forms 3, 4 and 5. As a practical matter, we assist our directors and executive officers by monitoring transactions and completing and filing Section 16(a) forms on their behalf. We believe that all reports required to be filed by insiders during the fiscal year ended December 31, 2006 were filed in a timely manner and were accurate in all material respects except that due to administrative errors, Richard C. Steber, while considered a Section 16 insider, did not timely file one Form 4 reporting the disposition of 4,000 shares.

 

COMPENSATION DISCUSSION & ANALYSIS

 

An Overview of our Executive Compensation Philosophy and Program

 

The quality of our senior executives is instrumental to our overall performance and the creation and retention of long-term stockholder value. To attract, retain and motivate high quality executives, we have developed an executive compensation program that strives to provide competitive pay, reward achievement of financial and strategic objectives and align the interests of our executives with those of our stockholders. We compensate our executive officers based on the scope of their responsibilities, the achievement of specific annual objectives and our annual and longer term performance. To achieve these goals, we use a combination of compensation elements, including base salary, annual bonuses, and long-term incentives in the form of stock option grants, restricted stock grants and long-term cash bonuses, all of which are discussed in further detail below.

 

Annually, our Compensation Committee reviews and establishes the compensation and benefits of our executives, including base salaries, annual bonus opportunities and awards under the Incentive Plan. At the Compensation Committee’s direction, we hired Hewitt Associates LLC or Hewitt, an independent executive compensation consultant, to evaluate and make recommendations to the Compensation Committee regarding our executive and Board of Director compensation philosophy and practices for 2006. Hewitt reviewed our executive officers’ annual compensation and long-term incentives, for competitiveness with other publicly held industrial manufacturing companies with median annual revenues of $1.6 billion, which we refer to as our custom peer group, and a general industry group.

 

For 2006 compensation analysis, Hewitt used two different general industry groups. For benchmarking purposes (comparing our compensation levels to market), Hewitt used a general industry group comprised of approximately 200 companies in their TCM database, exclusive of retail, financial and utility companies, with median revenues of $1.8 billion. Hewitt recommended this general industry group for benchmarking purposes because there tends to be a strong correlation between size of company and their executive compensation package. The general industry group used for the compensation philosophy analysis consisted of approximately 467 companies in Hewitt’s TCM database, exclusive of retail, financial and utilities, with annual revenues less than $5 billion. Hewitt recommended this broader general industry group because it was a more robust sample for gathering data regarding compensation philosophies.

 

We believe both the custom peer group and general industry group to be generally comparable to our Company, based on size, revenues and industry. Information from proxy data and national surveys was used to calculate competitive market data, to benchmark the compensation practices our Company and to develop compensation

projections and recommendations for each of our executive officers for 2006. The Compensation Committee found the Hewitt review to be instructive in terms of evaluating our current compensation program and making future executive compensation decisions, subject to potential adjustments: (a) to recognize individual performance; and (b) to bring certain executives closer to benchmark levels with respect to certain or all components of their compensation package.

 

Our executive compensation philosophy serves as a blueprint for the total compensation design and targeted opportunity value to be provided to our executives. The Compensation Committee periodically reviews the compensation philosophy to ensure that it is aligned with our business strategies and objectives. The Compensation Committee had extensive discussions regarding the following matters before making a final evaluation of our existing compensation program philosophy:

 

 

In light of the findings of the Hewitt review and our aggressive growth strategy and historical performance in relation to such strategy, the Compensation Committee elected to retain its existing executive compensation program philosophy for 2006. Our compensation philosophy in 2006 was that (a) the target annual cash compensation (base salary and annual bonus) of our executive officers be based on the 60th percentile of the competitive market; and (b) the total compensation opportunity for such officers be based on the 70th percentile of the competitive market.

 

In evaluating the performance of our executive officers, the Compensation Committee considered our overall performance and each individual’s performance and contribution to our overall performance. Annually, the Compensation Committee establishes performance goals and maximum bonus opportunities for executive officers. At the first Compensation Committee meeting after the fiscal year end, the Compensation Committee reviews the achievement of each performance goal for the previous year and determines the bonus awards for each executive.

 

The Compensation Committee also had private discussions with our Chief Executive Officer concerning the other executive officers’ performance and the strengths and weaknesses of executive management and other key members of management. The Compensation Committee takes into account Mr. Centanni’s assessment of the other executive officers’ performance in determining performance goals and the total compensation package offered to each executive officer.

 

The Compensation Committee also determined our Chief Executive Officer’s base salary, annual bonus and long-term incentive awards for 2006 in the manner described above. In addition, the Compensation Committee also considered Mr. Centanni’s individual performance for purposes of the annual bonus. Individual goals agreed upon between the Compensation Committee and Mr. Centanni included: completing various rationalization projects in accordance with the plans presented to the Board; improve the profitability of under-performing businesses; achieve a 1% reduction in net landed material costs; and achieve a 10% improvement in the corporate safety incident rate. The Compensation Committee exercised its discretion, in light of these factors, and in view of compensation objectives, to determine the overall compensation for Mr. Centanni rather than assign weights or apply any formula to these factors.

 

The Compensation Committee has reviewed all components of the compensation for our Chief Executive Officer and the other named executive officers, including annual cash compensation and bonuses, long-term cash

and equity incentive compensation, perquisites and other compensation, as well as payouts under various severance or change of control scenarios and considered such in making its compensation decisions.

 

Benchmarking

 

Using the Hewitt report, the Compensation Committee reviewed the compensation practices at competitive companies to evaluate our executive compensation philosophy and compensation programs and awards. Hewitt conducted an external market study of compensation levels for seven senior executive management employees including our named executive officers. The study covered the value and distribution of the following components of compensation: (i) base salary; (ii) annual bonus or short-term incentives (actual and target); and (iii) long-term incentives.

 

The Compensation Committee compared the compensation levels for our executive officers against the compensation levels at the companies in our custom peer group and general industry group. Hewitt provided the Compensation Committee with information regarding the compensation levels and programs at the 50th, 60th and 70th percentiles for our custom peer group and general industry group. Hewitt advised the Compensation Committee that it was important in analyzing their results to note that a number of different internal/organizational and external factors determine appropriate levels of compensation. Such adjustment factors include time in position, experience, individual performance, organization ranking/hierarchy, desired pay mix, business impact, internal equity and relative values, affordability, future potential, retention and attraction concerns, and tax, accounting and securities law concerns. In addition, certain of our executive job responsibilities are broader than traditional market reference points. As a result of combining responsibilities, these roles may warrant additional compensation.

 

The comparator group consisted of a custom peer group and general industry group. The custom peer group consisted of 22 companies with median annual revenues of $1.6 billion. The general industry group was provided as a result of a desire to confirm the appropriateness of the custom peer group and to provide a comparison on a general industry basis. Specifically, the general industry group is comprised of 200 companies in Hewitt’s TCM database, exclusive of retail, financial and utilities, with revenues less than $5 billion. The median revenues of this group were $1.8 billion. The custom peer group is listed below.

 

 

 

 

Revised Compensation Philosophy for 2007

 

At the Compensation Committee’s direction, we also retained Hewitt to perform a review of our executive officer compensation philosophy and Board of Director compensation for 2007, including annual compensation and long-term incentives. This report analyzes compensation paid with respect to services performed in 2006 and provides benchmarks for the Compensation Committee to use in determining executive compensation for 2007. In light of the findings of the Hewitt review and our aggressive growth strategy and historical performance in relation to such strategy, the Compensation Committee elected to modify its existing executive compensation program philosophy. Our new compensation philosophy for 2007, as approved at the November 15, 2006 meeting, is that

(a) the target annual cash compensation (base salary and annual bonus) of our executive officers be based on the 50^th percentile of the competitive market (as opposed to the 60^th percentile in 2006); and (b) the total compensation opportunity for such officers be based on the 60^th percentile of the competitive market (as opposed to 70^th percentile in 2006).

 

Components of Executive Officer Compensation

 

We maintain a compensation plan for our executive officers consisting of:

 

 

The total compensation package for 2006 was comprised of twenty seven percent (27%) base salary, seventeen percent (17%) target annual cash bonus and fifty-six percent (56%) long-term incentives. The breakdown in the composition of the total compensation package illustrates our emphasis on long-term growth and profitability. In addition, our executive officers are also eligible to receive benefits under our various retirement savings plans, standard employee benefit plans and perquisites.

 

Annual Cash Compensation

 

The following is a summary of the components of our executive annual cash compensation.

 

Base Salary. In February 2006, the Compensation Committee established a base salary target for each executive officer at approximately the 60th percentile of market levels based on competitive market data. The goal in establishing the base salaries was to position our company for future growth, to increase our compensation program’s competitiveness and to enhance our ability to attract and to retain executives. The Compensation Committee took into account market competitiveness as reported in the Hewitt report, and the individual’s responsibilities, experience, actual performance and impact on the business when setting each executive officer’s actual base salary.

 

Annual Cash Incentive Compensation. An annual cash bonus opportunity is awarded by the Compensation Committee pursuant to our executive Annual Bonus Plan. The Annual Bonus Plan furthers our goal of linking executive compensation to our performance and stockholders’ interests as a whole.

 

Pursuant to the Annual Bonus Plan, the Compensation Committee is required to establish, no later than 90 days after the beginning of each year, performance goals for such year based upon one or more of the following performance measures: return on equity, assets, capital or investment; pre-tax or after-tax profit levels expressed in absolute dollars or earnings per share; and operating cash flow or cash flow from operating activities. Performance goals may be identical for all participants or may be different to reflect more appropriate measures of individual performance. Performance goals must include a threshold level below which no award will be payable and a maximum award opportunity for each participant.

 

The Compensation Committee is authorized to adjust the method of calculating attainment of performance goals in recognition of:

 

 

In addition, notwithstanding the attainment of the performance goals, annual incentive awards for participants may be denied or adjusted by the Compensation Committee, in its sole judgment, based on its assessment of the participant’s performance. However, no upward adjustment may be made to an award for a participant if our ability to deduct that participant’s compensation would be limited by Section 162(m) of the Internal Revenue Code.

 

In February 2006, the Compensation Committee established the performance goals and maximum bonus opportunities for the Annual Bonus Plan participants for 2006. Except for the Division Vice President and General Managers, the performance goals were based on a weighted average of net income (weighted at 60%) and the level of operating cash flow (weighted at 40%) generated by the Company in 2006. For Division Vice President and General Managers, the measures were based on a weighted average of the respective Division’s earnings before taxes (weighted at 60%) and net income and operating cash flow of the Company (weighted at 24% and 16%, respectively). The target bonus percentage range was 40-100% of participant base salaries for 2006, and can be doubled to a maximum range of 200% for maximum performance. Bonus payments increase as performance levels increase. The maximum bonus payment is 200% of the target bonus opportunity.

 

As noted above, except for the Division Vice President and General Managers, the measures of corporate performance were based on net income and the level of cash flow generated by the Company in 2006. Net income was included in the benchmark to reflect the effect of management’s performance on stockholder return. Operating cash flow was utilized in the benchmark due to the continued importance of cash flow in providing funds to pursue our growth strategies. Operating cash flow was defined as our net cash flow provided by operating activities, excluding any cash activity related to acquisitions completed in 2006. Division performance for each Vice President and General Manager was assessed based on the respective Division’s earnings before taxes.

 

Considering the 2006 performance goals under the Annual Bonus Plan, we had to generate net income of $103.9 million and $115.0 million of operating cash flow in 2006 for the maximum payout for these objectives; no payout for the net income objective would result if net income were less than $76.8 million and no payout for the cash flow objective would result if cash flow were less than $85.0 million. Our 2006 actual net income was $132.9 million and our operating cash flow was $167.0 million which was substantially larger than the maximum level performance goals. In February 2007, the Compensation Committee evaluated and determined the degree to which the Annual Bonus Plan criteria for 2006 had been met, as well as the performance of individual Annual Bonus Plan participants. Based on this analysis, the Compensation Committee awarded cash bonus payments on average at approximately the maximum levels. The actual bonus payments for each of the named executive officers are shown on the Summary Compensation Table on page 25.

 

Change in Control. The Annual Bonus Plan contains a change in control provision that deems all outstanding bonus awards to be earned at the maximum performance goal level and requires us to make payment to each named executive officer after the effective date of the change in control. For a further description of the potential benefits in case of a change in control, please see the “Potential Payments Upon Termination or Change in Control” discussion on page 34.

 

Long-Term Incentives

 

Under our Incentive Plan, designated employees are eligible from time to time to receive awards in the form of stock options, stock appreciation rights, restricted stock grants, performance shares or long-term cash bonuses, as determined by the Compensation Committee. Historically, awards granted pursuant to the Incentive Plan are granted in February of each year. The purpose of these awards is to promote our long-term financial interests by encouraging employees to acquire an ownership position in our Company and to provide incentives for specific employee performance. In selecting the recipients and size of the awards, the Compensation Committee considers each recipient’s opportunity for significant contribution to our future growth and profitability, without regard to his or her existing stock ownership. In 2006, the Compensation Committee granted long-term incentive awards with an economic value opportunity between the median and the 75th percentile of the competitive market.

 

Equity Incentives. The Compensation Committee decided in February 2006, due to changes in accounting and tax rules regarding stock options, as well as market trends regarding the use of other types of incentive awards, including restricted stock, that it would be in our best interest to award both stock options and restricted stock to our executive officers. The combination of stock options and restricted stock is intended to create a better balance

between risk and reward than stock options alone. In 2006, the executives’ long-term incentive awards were comprised of 25% stock options and 25% of restricted stock, compared to 50% in stock options in previous years. The Compensation Committee believes this composition change in equity incentives further strengthens retention, reinforces incentives for performance, and encourages an ownership position in our Company. The specific number of stock options and restricted stock granted to an executive is determined by the Compensation Committee, with the advice and counsel of Mr. Centanni and Hewitt, based upon the individual’s level of responsibility and a subjective judgment by the Compensation Committee of the executive’s contribution to the financial performance of our Company.

 

Options are granted at the average of the high and low market prices for the common stock on the date of grant and have value only if the market price of the underlying common stock appreciates. We chose the average of the high and low market price as our option valuation method because we believed it was a better reflection of our common stock’s value on the date of grant compared to other valuation methods available at the time. In 2006, the Compensation Committee granted options with seven-year terms. Furthermore, since options become exercisable in cumulative increments of one-third each year over a three-year period, the Compensation Committee believes options provide an appropriate long-term incentive for those receiving grants, as well as stability in the work force.

 

The restricted stock granted in 2006 to the named executive officers will vest in three (3) years from the date of grant provided the executive is still an employee on such date, and has been continuously employed by us since the award was granted. The restricted stock awardees are entitled to all dividends and vote the shares of restricted stock while subject to the forfeiture restrictions. Furthermore, since restricted stock does not vest until the completion of the three-year vesting period, the Compensation Committee believes restricted stock provides an appropriate long-term incentive for those receiving grants, as well as stability in the work force.

 

Long-Term Bonuses. As noted above, under the Incentive Plan, the Compensation Committee may also grant long-term cash bonus awards to the Chairman, Chief Executive Officer, President, any Executive Vice President, any Senior Vice President, any senior officer reporting directly to the Chief Executive Officer and any other Vice President or senior executive or officer designated by the Chief Executive Officer. Eligibility to receive a long-term cash bonus is tied to the achievement of certain company performance targets over a pre-determined performance period. In 2006, long-term bonuses made up 50% of the executive’s long-term incentive opportunity.

 

The Compensation Committee is responsible for (i) determining the duration of each performance period; (ii) selecting which of our executive officers will be eligible to receive a long-term cash bonus for the performance period; (iii) selecting the business criteria to be applicable to the performance period from among those authorized; (iv) establishing our performance targets relative to the business criteria selected; (v) setting a base salary factor for each executive officer eligible to receive a long-term cash bonus for the performance period; and (vi) at the end of the performance period, determining the extent to which the performance targets have been achieved and the long-term cash bonuses payable to each eligible executive officer. Our performance targets may be based on any one, or a combination, of the business criteria available for performance share awards, as described above. Concurrently with the selection of performance targets, the Compensation Committee must establish an objective formula or standard for calculating the maximum long-term cash bonus payable to each participating executive officer. All long-term cash bonuses are to be denominated in cash or restricted stock awards, as determined by the Compensation Committee and subject to the remaining provisions of the Incentive Plan. Except as otherwise determined by the Compensation Committee, in its discretion, each executive selected by the Compensation Committee as eligible to receive a long-term cash bonus with respect to a particular performance period must continue to be employed by us on the last day of such performance period to continue to be eligible to receive the long-term cash bonus.

 

In February 2006, the Compensation Committee granted a long-term cash bonus award opportunity to certain executives, including all named executive officers. The long-term cash bonus percentage for the 2006 awards is tied to the compound growth rate of earnings before taxes (EBT) for our industrial businesses which specifically excludes petroleum products during the period January 1, 2006 through December 31, 2008. The utilization of threshold (50%), target (100%) or maximum (200%) percentages will depend upon the achievement of certain compound growth rates of EBT during this period, subject to adjustment as provided under the Incentive Plan. These percentages will be applied to participants’ base salaries multiplied by a base salary factor at the end of 2008 to determine the long-term cash bonus for the period, if any. The Compensation Committee retains discretion over the actual long-term cash

bonus payouts and attempts to ensure that the payouts are paid at a level commensurate with performance against objectives. The Compensation Committee determined these percentages based on the Hewitt review benchmarks which approximate 50% of each participant’s total long-term incentive. In particular, the minimum, target and maximum levels are set so that the relative difficulty of achieving the target level is consistent from year to year. Since we began granting long-term cash bonus award opportunities in 2001, we have achieved performance in excess of the maximum performance level three times and did not achieve targets for bonus payouts one year.

 

In February 2007, the Compensation Committee evaluated and determined the degree to which the criteria for long-term cash bonus award opportunities granted in 2004 to certain executives under the Incentive Plan (the “2004 L-T Bonus Opportunity Plan”) had been met. The criteria for bonus payouts under the 2004 L-T Bonus Opportunity Plan was tied to the compound growth rate of EBT for our industrial businesses (i.e., excluding petroleum products) during the period January 1, 2004 through December 31, 2006. The utilization of the threshold, target or maximum percentages depends upon the achievement of certain levels of compound growth rate of EBT during this period, subject to adjustment as provided under the Incentive Plan. Based on its analysis of our achievement of the relevant criteria, the Compensation Committee awarded bonus payments in February 2007 to participating executives under the 2004 L-T Bonus Opportunity Plan on average at approximately the maximum levels. The actual long-term cash bonus payments for each of the named executive officers are shown on the Summary Compensation Table on page 25.

 

Change in Control. The Incentive Plan contains a change in control provision that modifies the terms of awards granted under the plan. For a further description of the potential benefits in case of a change in control, please see the “Potential Payments Upon Termination or Change in Control” discussion on page 34.

 

Retirement Plans

 

We also provide our employees, including our named executive officers, with various retirement savings plans. Our retirement savings plans are designed to assist our employees, including our named executive officers in planning for retirement and securing appropriate levels of income during retirement. The purpose of our retirement and insurance plans is to attract and retain quality executives as these types of benefit plans are typically offered by our competitors.

 

Pension Plan. We maintain a Pension Plan and previously maintained a Supplemental Excess Defined Benefit Plan for the benefit of certain employees as defined in the Pension Plan. We also maintain certain other pension plans that our named executive officers are not eligible to participate in.

 

Effective November 1, 2006, we implemented certain revisions to the Pension Plan. Future service credits under the Pension Plan ceased effective October 31, 2006. Benefits under the Pension Plan will not be less than the amount of each participant’s accrued and vested benefits as of such date. If a participant is not fully vested in his or her accrued benefit under the Pension Plan, the participant will continue to earn time toward vesting based on continued service.

 

The Compensation Committee determined that the changes in the retirement benefits would provide advantages for both our company and our employees. The change enabled us to reduce our long-term unfunded liabilities and gain better control over our retirement expense/cash flow volatility. The changes also provide greater benefits to our employees because they retain the same cash benefit they had with the Pension Plan while gaining control over investment decisions and with the potential of obtaining greater investment growth opportunities.

 

We also maintained the Excess Defined Benefit Plan. The Excess Defined Benefit Plan was a nonqualified plan providing certain employees, including our named executive officers, Pension Plan benefits that could not be paid from a qualified, defined benefit plan due to provisions of the Internal Revenue Code. The Excess Defined Benefit Plan provided our named executive officers with a credit of 12% of annual compensation in excess of the IRS annual compensation limit of $220,000. This plan provided executives with a similar level of benefits afforded to all other employees who are not subject to the limitations imposed by the IRS on our tax qualified Pension Plan plus an additional 4% on compensation in excess of the IRS annual compensation limit that can be considered for benefits for a qualified plan. Effective November 1, 2006, the Excess Defined Benefit Plan was merged into the Excess Defined Contribution Plan, also a Rabbi Trust. Effective with the merger, the company contribution is made to the Excess Defined Contribution Plan.

 

Retirement Savings Plan. The Retirement Savings Plan is a tax-qualified retirement savings plan. All full or part-time U.S. employees, including the named executive officers, are eligible to participate in the Retirement Savings Plan. Employees may contribute from 1% to 100% of compensation tax deferred to the plan. We match the first 3% of employee contributions $1 for each $1 and the second 3% of employee contributions $.50 for each $1. The company match is contributed in the form of our common stock. Participants may transfer out of our common stock to one of twenty investment funds at any time. Beginning November 1, 2006, employees at certain eligible locations also receive a non-elective company contribution equal to the former Pension Plan credits. All employee and company matching contributions are fully vested immediately and the non-elective company contribution becomes fully vested after 3 years of employment. All named executive officers are fully vested in the non-elective company contribution portion of the Retirement Savings Plan.

 

Supplemental Excess Defined Contribution Plan. In addition to the Retirement Savings Plan, employees receiving a base pay of $110,000 or higher, including our named executive officers, are eligible to participate in the Supplemental Excess Defined Contribution Plan. This plan provides executives with a similar level of benefits afforded to all other employees who are not subject to the limitations imposed by the IRS on our tax qualified 401(k) plan. All employee and company matching contributions are fully vested immediately and the non-elective company contribution becomes fully vested after 3 years of employment. All named executive officers are fully vested in the non-elective company contribution portion of the Supplemental Excess Defined Contribution Plan.

 

Other Benefits

 

Standard Employee Benefits. In addition to the Incentive Plan, the Savings Plan and the Excess Contribution Plan, we also provide other benefit plans for employees and executive officers. All of our employees, including our named executive officers, are eligible to receive health, dental, disability and life insurance coverage. Additionally, all employees are entitled to vacation, sick leave and other paid holidays. Our commitment to provide employees with the benefits summarized above recognizes our belief that the health and well-being of our employees is directly related to our overall success.

 

Perquisites. We provide very few perquisites to our executive officers. The Compensation Committee believes the perquisites provided are consistent with our overall executive compensation program and assist our executives in managing their long-term financial viability which ultimately benefits our Company.

 

These perquisites include:

 

 

Security Ownership Requirements

 

We maintain stock ownership requirements for our nonemployee directors, executive officers and other key employees. Under these requirements, each nonemployee director is expected to maintain an equity interest in our Company equal to three times his or her annual cash compensation, including compensation for Board and Committee meeting attendance, but not including stock options or amounts contributed on behalf of such director to our Phantom Stock Plan. These requirements also require that our CEO maintain an equity interest equal to five times his annual base salary and each executive officer, corporate vice president and each general manager maintain an equity interest in our Company equal to three times his or her annual base salary. These ownership requirements are to be achieved by the fifth anniversary of each individual’s appointment as a director or executive officer, as appropriate. Common stock held directly by the director or executive officer or their respective immediate family

members, and indirectly for the benefit of the director or executive officer in an IRA account, family trust, the Savings Plan and/or the related Excess Contribution Plan, are considered in determining compliance with these requirements. Failure to meet these requirements within the allotted time will be taken into consideration when evaluating the individual’s commitment to a continuing relationship with our Company. All directors and named executive officers are in compliance with our security ownership requirements.

 

Stock Repurchase Program for Executive Officers

 

We have granted stock options under the Incentive Plan to promote our long-term interests, and executive officers have exercised a portion of such stock options in accordance with the Incentive Plan and applicable stock option agreements. The cumulative increase in the market price of our common stock since the grant of some of these stock options resulted in the imposition of significant alternative minimum taxes on these employees. Therefore, we have established a Stock Repurchase Program for our executive officers, to provide a means for them to sell our common stock and obtain sufficient funds to meet tax obligations which arise from the exercise or vesting of incentive stock options, restricted stock or performance shares. The program was created to mitigate any potential disruption to an orderly trading market in our common stock, which could result if the executives’ trades were effected through securities brokers. The sales price under this program is the average of the high and low sales prices of our common stock on the composite tape of the NYSE on the date of the repurchase. The determination to sell shares under this program is final and must be submitted either on the day of the sale or no later than prior to the initiation of trading the following day. The following chart provides a description of the number of share repurchases under the Stock Repurchase Program from January 1, 2006 through March 2, 2007:

 

Repurchases under Stock Repurchase Plan since January 1, 2006

 

 

Change in Control Agreements

 

We are party to Change in Control Agreements or CIC Agreements with each of our named executive officers. To receive benefits under the CIC Agreement, two events must occur: (a) a change in control and (b) termination of the executive officer’s employment other than for cause. This two prong requirement allows us and our executive officers to concentrate on our goals and the potential change in control without incurring any costs unless a named executive officer is terminated. The CIC Agreements also prohibit the executive officer from disclosing confidential information and from soliciting our employees, customers or clients.

 

In 2005, the Compensation Committee reviewed the terms and conditions of the CIC Agreements and determined that it was in the best interest of the stockholders to maintain this agreement in light of our named executive officers’ knowledge and experience and the need for management continuity during a potential change in control. The Compensation Committee believes our CIC Agreements encourage each of our executive officers to continue to carry out their officer’s duties in the event of a possible change in control of our company.

 

For a further description of the potential benefits in case of a change in control, please see the “Potential Payments Upon Termination or Change in Control” discussion on page 34.

 

Other

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), limits the deductibility by public corporations of non-performance based compensation paid to specified executive officers. The Compensation Committee endeavors to maximize deductibility of compensation by qualifying certain compensation as performance-based under Section 162(m) to the extent practicable while maintaining competitive compensation. However, the Compensation Committee does not strictly limit executive compensation to that which is deductible under Section 162(m) of the Code and has not adopted a policy requiring all compensation to be deductible. The Compensation Committee believes that adopting such a policy would limit its ability to maintain flexibility in compensating named executive officers.

 

All compensation for 2006 paid to our executive officers, including the compensation element of shares received under our Incentive Plan, qualified for deduction under the Code, except the restricted stock shares granted to Mr. Centanni. While we currently believe the restricted stock granted to other named executive officers will be deductible upon vesting, we cannot be certain of this since the deductibility depends upon the executive’s compensation in the year of vesting and the value of the shares on the vesting date.

 

EXECUTIVE MANAGEMENT COMPENSATION

 

SUMMARY COMPENSATION TABLE

 

The following table presents compensation paid to or earned by each of our named executive officers for the fiscal year ended December 31, 2006. Our company has not entered into any employment agreements, except the change in control agreements discussed previously and under the “Potential Payments Upon Termination or Change in Control” discussion on page 34, with any of our named executive officers.

 

 

 

 

 

ALL OTHER COMPENSATION TABLE

 

 

GRANTS OF PLAN-BASED AWARDS

 

This following table presents grants of plan-based awards during the fiscal year ended on December 31, 2006. The estimated future payouts under non-equity incentive plan awards are the long-term cash bonus award opportunity granted in 2006. While the actual award will be based on the ending base salaries of our named executive officers for 2008, the estimates provided in this table are calculated using the named executive officers’ current salaries as of December 31, 2006. All share figures and prices referenced in this proxy statement have been adjusted to reflect the 2-for-1 stock split (in the form of a 100% stock dividend) that occurred on June 1, 2006. Each share of common stock is entitled to one vote.

 

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table presents information regarding outstanding stock option and restricted stock awards as of December 31, 2006. All share figures and prices referenced in this proxy statement have been adjusted to reflect the 2-for-1 stock split (in the form of a 100% stock dividend) that occurred on June 1, 2006. Each share of common stock is entitled to one vote.

 

 

 

 

 

OPTION EXERCISES AND STOCK VESTED

 

The following table presents the amounts each named executive officer received upon exercise of options and the value realized upon the vesting of restricted stock awards. The value realized on the exercise of options and vesting of restricted stock does not account for the personal tax liability incurred by our named executive officers. All share figures and prices referenced in this proxy statement have been adjusted to reflect the 2-for-1 stock split (in the form of a 100% stock dividend) that occurred on June 1, 2006. Each share of our common stock is entitled to one vote.