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Kulicke & Soffa
1005 Virginia Drive, Fort Washington, PA 19034
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
February 13, 2007
THE ANNUAL MEETING OF SHAREHOLDERS OF KULICKE AND SOFFA INDUSTRIES, INC. (the Company) will be held on Tuesday, February 13, 2007, at 4:30 p.m. at the Doubletree Hotel, 640 W. Germantown Pike, Plymouth Meeting, Pennsylvania, for the following purposes:
| 1. | Election of Messrs. C. Scott Kulicke and Barry Waite as directors; |
| 2. | Approval of the 2007 Equity Plan for Non-Employee Directors; |
| 3. | Ratification of the appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for the fiscal year ending September 29, 2007; and |
| 4. | Transaction of such other business as may properly come before the annual meeting. |
The board of directors has fixed the close of business on December 15, 2006 as the record date for the determination of holders of common shares entitled to notice of and to vote at the annual meeting.
All shareholders are cordially invited to attend the annual meeting, but whether or not you expect to attend the annual meeting in person, please sign and date the enclosed proxy and return it promptly in order that your stock may be voted, unless you are voting by internet or telephone. If you attend the annual meeting, you may (but do not have to) revoke your proxy and vote in person.
|
By Order of the Board of Directors SUSAN WATERS Secretary |
January 3, 2007
COMPENSATION OF EXECUTIVE OFFICERS
Compensation Discussion & Analysis
Overview
The management development and compensation committee (the Committee) of the board of directors seeks to achieve the following goals with the Companys executive compensation programs: to attract, motivate and retain key executives and to reward executives for value creation. The Committee seeks to foster a performance-oriented environment by tying a significant portion of each executives cash and equity compensation to the achievement of performance targets that are important to the Company and its shareholders.
The Companys executive compensation program has three elements: base salary, a cash bonus plan called the Officer Incentive Compensation Plan, which was adopted in August 2005 (the OIC Plan), and equity incentives in the form of both performance-based stock awards granted under the 2006 Equity Plan and stock options granted under the Companys 1998 Key Employee Stock Option Plan.
Cash incentive bonus payments and performance-based stock awards are both calculated primarily by the Companys return on invested capital (ROIC) over the applicable performance measurement periods. The Company calculates ROIC as follows: operating income from continuing operations divided by adjusted net invested capital. Net invested capital is defined as total assets minus current liabilities. Total assets are adjusted for discontinued operations assets held for sale, and also exclude cash in excess of $75 million. The Committee believes that ROIC is the most useful measure of managements effectiveness in creating value for the shareholders of the Company.
The Company measures ROIC quarterly and pays quarterly bonus payments under the OIC Plan if the Company has positive net income for the quarter. The bonus pool is funded by the Companys ROIC performance compared to objectives set by the Committee. The Committee sets ROIC objectives under the OIC Plan relative to a benchmark that is established after evaluating the highest ROIC achieved in the Companys industry. In fiscal 2006, officers earned OIC Plan payments for every fiscal quarter.
The Company did not award executive officers any equity incentive awards in fiscal 2006 because the Committee determined that the awards made in fiscal 2005 were sufficient for fiscal 2005 and fiscal 2006. On October 2, 2006, the Company awarded executive officers equity incentives in the form of both performance-based stock awards and stock options. The majority of the awards to officers were in the form of performance-based stock awards. The performance-based stock awards entitle officers to receive common shares in 2009, but only if certain ROIC and revenue growth targets are achieved over the three-year performance period.
Target Total Cash Compensation
Target total cash compensation for each executive is established primarily based on peer group data. The Committee included companies in the peer group that the Committee believes are competitors to the Company for executive talent. The Committee engaged Aon Consulting for advice in determining the peer group and compilation of the compensation data for the peer group companies.
Base Salary and Cash Incentive
Total cash compensation is divided into a base salary portion and a cash incentive portion. Base salary is established based on peer group data and is adjusted based on individual performance and experience. The Committee targets total cash compensation at the median for peer group companies, adjusted upward or downward by up to 20%, based on individual performance and experience. Generally, the higher the level of responsibility of the executive within the Company, the greater the portion of that executives target total cash compensation that consists of the cash incentive component. The Committee believes that the higher the executives level of responsibility within the Company, the greater the percentage of the executives compensation that should be tied to the Companys performance. Target cash incentive ranges from approximately 33% to 50% of targeted total cash compensation (50% to 100% of base salary) for the executive officers.
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Under the OIC Plan, each quarter, a cash award pool is funded if performance levels relative to ROIC targets set by the Committee before the beginning of the quarter are reached. The Committee sets ROIC targets relative to a benchmark that is established after evaluating the highest ROIC achieved in the Companys industry. In addition, no awards are payable from the pool unless the Company has positive net income for the quarter. Payments are allocated from the pool based on Company, business unit and individual objectives. Executive officers earned cash incentive payments under the OIC Plan for each of the four quarters of fiscal 2006. For fiscal 2006, based upon the Companys net income, performance relative to the ROIC targets, and Company business unit and individual objectives approved by the Committee, the Companys named executive officers, excluding the Chief Executive Officer, earned an aggregate of $836,373. The Chief Executive officer earned an aggregate of $561,429 in OIC Plan payments for fiscal 2006.
Equity Incentive
The Companys executive officers are eligible to receive performance-based stock and stock options granted under the Companys equity incentive plans. If executive officers receive equity incentive grants, they are awarded annually at the first regularly scheduled meeting of the Committee in the fiscal year, which is usually held in the first week of October. Newly hired executive officers may receive sign-on grants on the first business day of the calendar month following their hire dates, if approved by the Committee. In addition, the Committee may, in its discretion, issue additional equity incentive awards to executive officers if the Committee determines the awards are necessary for retention. A copy of the equity grant Statement of Practices adopted by the Committee is available on the Companys website at www.kns.com.
The Company did not grant any equity incentive awards to executive officers in its fiscal year ended September 30, 2006. On October 2, 2006, the Company granted performance-based stock awards and stock options to executive officers. The majority of those equity incentive awards to executive officers were performance-based stock awards. The performance-based stock awards entitle the executive officers to receive common shares of the Company on the three-year anniversary of the grant date if ROIC and revenue growth targets set by the Committee on the date of grant are met. The Committee sets these ROIC objectives relative to the Companys cost of capital. The Committee sets revenue targets relative to the actual revenue growth during the performance period of peer companies included in the performance graph in the Companys 2006 Annual Report to Shareholders. Executive officers will not receive the majority of shares underlying the performance-based share awards unless the Companys ROIC exceeds its cost of capital and revenue growth exceeds the median revenue growth at the peer companies. The purpose of these grants is to align management and shareholder interests as measured by ROIC, revenue growth and the stock markets assessment of the Companys performance. The number of equity awards granted to each participant is determined primarily based on median award values for executives in the compensation peer group determined by the Committee as discussed above in Target Total Cash Compensation. The extent of existing options or stock ownership is not generally considered in granting equity awards, except that the Company sometimes grants an initial round of equity awards to newly recruited executives to provide them with some stake in the Companys success from the commencement of their employment.
Executive officers are required to return cash and equity incentive awards if the relevant performance targets upon which the awards are based are ever restated or otherwise adjusted in a manner that would reduce the size of an award.
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Other Compensation
The amounts shown in the Summary Compensation Table under the heading Other Compensation represent the value of Company matching contributions to the executive officers 401(k) accounts and the taxable value of certain life insurance benefits. Executive officers did not receive any other perquisites or other personal benefits or property.
Chief Executive Officer Compensation
The Committee uses the same factors in determining the compensation of the Chief Executive Officer as it does for the other participants in the OIC Plan. The Chief Executive Officers base salary for Fiscal 2006 was $528,782. The Chief Executive Officer received a cash incentive payment for fiscal 2006 under OIC Plan totaling $561,429.
The Committee is mindful of the potential impact upon the Company of Section 162(m) of the Internal Revenue Code (the Code), which prohibits public companies from deducting certain executive remuneration in excess of $1,000,000. While reserving the right of the Company to offer such compensation arrangements as may from time to time be necessary to attract and retain top-quality management, the Committee intends generally to structure such arrangements, where feasible, so as to minimize or eliminate the impact of the limitations of Section 162(m) of the Code.
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|
Name and Principal |
Fiscal Year |
Salary ($) | Bonus ($)1 |
Stock Awards ($) |
Option ($) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value3 and Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation4 ($) |
Total ($) | |||||||||
|
C. Scott Kulicke, Chairman of the Board and Chief Executive Officer |
2006 | 528,782 | 310,912 | 561,429 | 14,364 | 14,564 | 1,430,051 | |||||||||||
|
Maurice E. Carson, Vice President and Chief Financial Officer |
2006 | 289,231 | 35,000 | 260,949 | 230,736 | 7,977 | 823,893 | |||||||||||
|
Jagdish (Jack) G. Belani, Senior Vice President of Package Materials and Corporate Marketing |
2006 | 298,385 | 149,991 | 209,457 | 9,395 | 667,228 | ||||||||||||
|
Bruce Griffing, Vice President, Engineering |
2006 | 240,769 | 114,039 | 127,215 | 10,040 | 492,063 | ||||||||||||
|
Oded Lendner, Vice President, Package Test5 |
2006 | 258,187 | 247,135 | 278,481 | 66,903 | 160,689 | 1,011,395 | |||||||||||
|
Charles Salmons, Senior Vice President, Acquisition Integration |
2006 | 318,192 | 196,885 | 202,062 | 2,673 | 15,980 | 735,792 |
| 1 | The Management Development and Compensation Committee awarded Mr. Carson and Mr. Lendner cash bonus payments for their roles in successfully divesting the Companys test business. |
| 2 | There were no stock option awards to named executive officers in fiscal 2006. The amounts included in the Option Awards column are the amounts of compensation cost recognized by the Company in fiscal 2006 related to stock option awards in prior fiscal years, as described in Statement of Financial Accounting Standards No. 123R. For a discussion of valuation assumptions, see Note 8 to the Companys 2006 Consolidated Financial Statements included in the Companys annual report on Form 10-K for the year ended September 30, 2006. |
| 3 | Amounts are change in pension value. There were no non-qualified deferred compensation earnings. The Company has no deferred compensation plans. |
| 4 | Consists of the value of 401(k) matching contributions and the taxable value of life insurance benefits. Executive officers do not receive any other prerequisites, personal benefits or property. |
| 5 | Mr. Lendner was an officer of the Company until April 1, 2006. The $160,689 included in the All Other Compensation column for Mr. Lendner includes a severance payment of $141,692 and $18,997 attributable to 401(k) matching contributions and the taxable value of life insurance benefits. |
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FISCAL 2006
No awards were made in fiscal 2006 under the Companys non-equity incentive compensation plan (the Officer Incentive Compensation Plan) that will result in future pay-outs. Awards are paid at the end of each fiscal quarter based on performance metrics for the quarter, as described above in the Compensation Discussion & Analysis. The named executive officers received the following amounts for fiscal 2006 at the end of the first, second, third and fourth fiscal quarters, respectively: Mr. Kulicke: $235,240, $134,159, $105,355, $86,675; Mr. Carson: $88,740, $92,507, $47,301, $37,188; Mr. Belani: $85,989, $48,486, $40,409, $34,572; Mr. Griffing: $48,935, $32,183, $25,309, $20,788; Mr. Lendner: $31,155, $35,748; none, none; and Mr. Salmons: $89,238, $36,551, $43,044, $33,229. The amounts reported are the actual cash awards paid for each quarter of fiscal 2006. The total amounts of these awards for fiscal 2006 are reported above in the Summary Compensation Table in the column entitled Non-Equity Incentive Plan Compensation.
No equity incentive plan awards or other stock or option awards were made in fiscal 2006 to executive officers.
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OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR-END1
| Option Awards | |||||||||||
|
Name |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Number of Securities Underlying Unexercised Options Unexercisable (#) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
||||||
|
C. Scott Kulicke |
69,800 | $ | 18.41 | 10/14/2007 | |||||||
| 150,600 | $ | 6.72 | 9/18/2008 | ||||||||
| 95,400 | $ | 12.94 | 9/28/2009 | ||||||||
| 110,600 | $ | 14.38 | 10/19/2010 | ||||||||
| 111,500 | $ | 16.12 | 11/20/2011 | ||||||||
| 60,750 | 20,250 | $ | 2.95 | 10/3/2012 | |||||||
| 38,000 | 38,000 | $ | 12.05 | 10/7/2013 | |||||||
| 58,450 | 116,550 | $ | 7.14 | 10/29/2014 | |||||||
|
Maurice E. Carson |
75,000 | 25,000 | $ | 12.23 | 9/15/2013 | ||||||
| 41,750 | 83,250 | $ | 7.14 | 10/29/2014 | |||||||
|
Jagdish (Jack) G. Belani |
30,000 | $ | 11.16 | 5/21/2009 | |||||||
| 31,200 | $ | 12.94 | 9/28/2009 | ||||||||
| 35,200 | $ | 14.38 | 10/19/2010 | ||||||||
| 43,000 | $ | 16.12 | 11/20/2011 | ||||||||
| 23,250 | 7,750 | $ | 2.95 | 10/3/2012 | |||||||
| 20,500 | 20,500 | $ | 12.05 | 10/7/2013 | |||||||
| 25,050 | 49,950 | $ | 7.14 | 10/29/2014 | |||||||
| 1,668 | 3,332 | $ | 8.51 | 12/13/2014 | |||||||
|
Charles Salmons |
9,840 | $ | 18.41 | 10/14/2007 | |||||||
| 30,880 | $ | 6.72 | 9/18/2008 | ||||||||
| 27,800 | $ | 12.94 | 9/28/2009 | ||||||||
| 41,600 | $ | 14.38 | 10/19/2010 | ||||||||
| 42,000 | $ | 16.12 | 11/20/2011 | ||||||||
| 23,250 | 7,750 | $ | 2.95 | 10/3/2012 | |||||||
| 20,500 | 20,500 | $ | 12.05 | 10/7/2013 | |||||||
| 41,750 | 83,250 | $ | 7.14 | 10/29/2014 | |||||||
|
Bruce Griffing |
5,000 | 15,000 | $ | 6.03 | 10/1/2014 | ||||||
| 28,390 | 56,610 | $ | 7.14 | 10/29/2014 | |||||||
|
Oded Lender |
$ | ||||||||||
| 1 | There were no outstanding stock awards at the end of fiscal 2006. |
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OPTION EXERCISES AND STOCK VESTED DURING FISCAL 2006
| Option Awards | Stock Awards | |||||||
|
Name |
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) |
||||
|
C. Scott Kulicke |
126,000 | 347,760 | ||||||
|
Maurice E. Carson |
||||||||
|
Jagdish (Jack) G. Belani |
||||||||
|
Bruce Griffing |
||||||||
|
Oded Lendner |
141,240 | 195,599 | ||||||
|
Charles Salmons |
12,720 | 42,311 | ||||||
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FISCAL 2006
|
Name |
Plan Name |
Number of Years Credited Service (#) |
Present Value of Accumulated Benefit ($) |
Payments During Last Fiscal Year ($) |
||||
| C. Scott Kulicke, Chairman of the Board and Chief Executive Officer | Kulicke and Soffa Industries, Inc. Defined Non-Contributory Retirement Income Plan | 23.25 | 374,006 | |||||
| Maurice E. Carson, Vice President and Chief Financial Officer | ||||||||
| Jagdish (Jack) Belani, Senior Vice President, Package Materials and Corporate Marketing | ||||||||
|
Bruce Griffing, Vice President, Engineering |
||||||||
| Oded Lendner, Senior Vice President, Package Test | ||||||||
| Charles Salmons, Senior Vice President, Acquisition Integration | Kulicke and Soffa Industries, Inc. Defined Non-Contributory Retirement Income Plan | 18.25 | 103,638 |
Pension Plan
The Company has a non-contributory defined benefit pension plan covering substantially all of its U.S. employees who were employed on September 30, 1995. Effective December 31, 1995, benefit accruals under the Companys pension plan were frozen. Retirement benefits under this pension plan are determined under a formula based on length of service and average compensation in the three consecutive calendar years during the ten year period ended December 31, 1995, producing the highest average compensation (subject to certain Internal Revenue Code limits). Compensation for accruals earned before October 1, 1994 includes all salary or wages which are reportable to the Internal Revenue Service on Form W-2; compensation for accruals after October 1, 1994 include only base salary or wages, commissions, incentive pay, overtime pay and short-term disability pay. Unreduced benefits are available upon retirement at age 65 with reduced early retirement benefits available beginning after age 55. The Number of Years of Credited Service includes service with the Company through December 31, 2005, the plan freeze date. Total years of service for Mr. Kulicke are 34 years, and for Mr. Salmons, 29 years. The Present Value of Accumulated Benefit is determined as of September 30, 2006 using the following assumptions: discount rate of 5.75%; the RP-2000 Combined Healthy Life Mortality Table for males, with mortality improvements projected to 2005 using Scale AA; and retirement at the plans normal retirement age of 65 with a monthly retirement benefit payable in the form of a single life annuity.
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Employment Contracts, Termination of Employment and Change in Control Arrangements
The Company has Termination of Employment Agreements with its executive officers which provide that in the event of certain changes in control not approved by at least two-thirds of the incumbent board of directors, as further described in the agreements, the officer who is a party to such agreement and whose employment terminates, other than voluntarily or for cause, within 18 months after such change in control, will be entitled to termination pay equal to the lesser of a specified number of months target total cash compensation (base salary plus incentives) for the year in which the change in control occurs or $10 less than the amount which would subject the officer to excise tax with respect to such payment under Section 4999 of the Code or would make payment thereof non-deductible by the Company under Section 280G of the Code. Such agreements are all currently scheduled to expire on December 31, 2008, unless extended. The named executive officers Termination of Employment Agreements provide for payment of the following number of months target total cash compensation: Mr. Kulicke, 30 months, and Messrs. Belani, Carson, Griffing, and Salmons, 18 months. If the named executive officers had been terminated on September 30, 2006 under circumstances triggering severance payments under the Termination of Employment Agreements, the maximum severance payments would have been: Mr. Kulicke, $2,643,907; Mr. Belani, $742,500; Mr. Carson, $787,500; Mr. Griffing, $562,500; and Mr. Salmons, $779,625. Severance payments under the Termination of Employment Agreement are in lieu of any other rights to severance pay that the officer may have at the time a change of control occurs.
On March 31, 2006, the Company entered into a Severance Agreement and General Release with Oded Lendner, Senior Vice President, Package Test. Mr. Lendners employment terminated on March 31, 2006. Subject to the terms and conditions of the agreement, the Company agreed to pay Mr. Lendner (i) severance payments equal to 1.5 times his current annual base salary of $307,000 and (ii) an incentive bonus of $247,135, which was calculated based on the consideration received by the Company for the sale of the Companys test business. In addition, Mr. Lendners options to purchase 81,530 shares of the Companys common stock that were not vested and exercisable prior to March 31, 2006, became vested and exercisable on April 8, 2006. Mr. Lendner was permitted three months from the termination of his employment to exercise outstanding stock options. Options not exercised during the three-month period were forfeited. Mr. Ledner exercised 141,240 options prior to the expiration date, and options to acquire 125,180 shares of common stock of the Company were forfeited. Mr. Lendners severance agreement also included a mutual general release and an agreement by Mr. Lendner not to compete with the Company until March of 2007.
Under the Companys 2001 Employee Stock Option Plan (2001 Plan), the 1998 Employee Stock Option Plan (1998 Plan) and the 1994 Employee Stock Option Plan (1994 Plan), in the event of a change in control of the Company (as defined in those plans), all outstanding options become fully vested and exercisable. Under the Companys 1997 Director Plan, if the Company is a party to any merger in which it is not the surviving entity, or any consolidation or dissolution, all outstanding options will terminate and the optionee will receive, in cash, from the Company an amount equal to the fair market value of the common shares subject to his or her outstanding options less the amount which would be required to exercise such options. Under the Companys 1988 Plan and 1988 Non-Qualified Stock Option Plan for Non-Officer Directors (the 1988 Director Plan), if the Company is a party to any merger in which it is not the surviving entity, or any consolidation or dissolution, all outstanding options will terminate and the optionee will receive, in cash, from the Company an amount equal to the fair market value of the common shares subject to then exercisable options less the amount which would be required to exercise such options. Under the Companys 2006 Equity Plan, all outstanding options, performance stock and share unit awards become fully vested upon a change of control. Upon vesting, the Management Development and Compensation Committee of the Board will cause the delivery of the shares attributable to the performance stock and shall cause the payment of the share unit awards.
Officer Severance Pay
The Companys Officer Severance Pay policy provides for severance payments and benefits to executive officers and certain other officers of the Company whose employment is terminated by the Company without Cause or by reason of disability and to any officer who voluntarily terminates his or her employment for Good Reason. For purposes of this policy, Cause means (i) theft or embezzlement, (ii) indictment for a felony, (iii) material breach of the Companys Code of Ethics, Code of Business Conduct or any written agreement between the Company and the officer, (iv) any act of dishonesty or misconduct (whether in connection with responsibilities as an officer or otherwise) that either substantially impairs the Companys business, goodwill or reputation or substantially compromises the officers ability to represent the Company with employees, customers, investors, or the public, or (v) failure to perform assigned lawful duties in a satisfactory manner after the notice and cure periods provided in the policy. Good Reason means, without the officers consent, (i) any substantial diminution in the position or authority of the officer which is inconsistent with the officers then current position or authority, (ii) reduction of the officers base salary (other than a percentage reduction applicable to all other officers) or exclusion of the
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officer from compensation or benefit plans made available to other officers in his or her salary grade, (iii) any requirement by the Company that the officer relocate his or her primary office or location to any office or location more than 30 more miles away from the officers then current primary residence (except in connection with termination of expatriate assignments), (iv) termination of the Officer Severance Pay policy, (v) amendment or modification of such policy that materially and adversely affects the officers rights thereunder, or (vi) failure by any successor to the Company to expressly adopt such policy. The severance payments and benefits under the policy are as follows:
| An amount equal to six months of base salary as of the last day of such officers employment, less certain deductions. However, if the officer enters into a general release in favor of the Company, the Company will instead pay an amount equal to 18 months base salary. |
| Severance payments will be paid as salary continuation payable on such officers regularly scheduled pay dates during the period beginning on the last day of such officers employment and ending on March 1 of the calendar year following such termination date. On March 1, any unpaid balance of the severance payments would be paid to the officer in a lump sum amount. |
| Continuation of participation in medical, prescription drug, dental, and vision benefit programs for 6 months after the last day of the officers employment (or for an aggregate of 18 months if the officer had delivered the general release). Participation would be at the same rate of premium payment by the officer applicable to current employees. |
| Continuation of eligibility to participate in Company life insurance program to a maximum of six months after the last day of the officers employment, subject to the agreement of the life insurance provider. |
| Vesting of stock options stops on the last day of the officers employment and the former officer has three months after such date to exercise vested stock options, unless different terms apply under the applicable stock option plan(s). Any entitlement to performance share awards would be determined in accordance with the terms of the applicable plan. |
| An officer would be eligible for a quarterly cash incentive award for a fiscal quarter (if awards are granted) under the Companys OIC Plan only if the officers last day of employment is on or after the last day of such fiscal quarter. |
Under the Policy, the Company will not pay any severance payment or benefit of any kind to an officer terminated by the Company in connection with a divestiture of a business of the Company if the officer receives an offer of employment from the purchaser (or an affiliate of the purchaser) which includes target annual cash compensation of at least 90% of his or her targeted annual cash compensation at the Company on the last day of employment. For purposes of this calculation, the Company target annual cash compensation does not include any special bonus or other amount payable or paid to officer in connection with the disposition of the of the divested business, if any. The Committee may pay additional severance to an executive officer if the Committee determines that an additional payment is in the Companys best interests.
If named executive officers had been terminated on September 30, 2006, the maximum severance amounts due to them under the Policy would have been: Mr. Kulicke, $793,173; Mr. Belani, $450,000; Mr. Carson $450,000; Mr. Griffing, $375,000; and Mr. Salmons, $472,500.
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|
Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($)(1) |
Non-Equity Incentive Plan Compensation ($) |
Change in
Value and |
All Other Compensation ($) |
Total ($) | ||||||||
|
Brian R. Bachman |
47,333 | 39,217 | (2) | 86,550 | |||||||||||
|
John A. OSteen |
40,667 | 47,080 | (3) | 87,747 | |||||||||||
|
Garrett E. Pierce |
42,000 | 12,076 | (4) | 54,076 | |||||||||||
|
MacDonell Roehm, Jr. |
59,000 | 47,080 | (5) | 106,080 | |||||||||||
|
Barry Waite |
44,000 | 43,361 | (6) | 87,361 | |||||||||||
|
C. William Zadel |
48,000 | 47,080 | (7) | 95,080 |
| (1) | The amounts included in the Option Awards column are the amounts of compensation cost recognized by the Company in fiscal 2006 related to stock option awards in fiscal 2006 and prior years, as described in Statement of Financial Accounting Standards No. 123R. For a discussion of valuation assumptions, see Note 8 to the Companys 2006 Consolidated Financial Statements included in the Companys annual report on Form 10-K for the year ended September 30, 2006. |
| (2) | The grant date fair value, pursuant to FAS 123R, of the stock option award issued to Mr. Bachman in fiscal 2006 was $53,734. As of September 30, 2006, Mr. Bachman had 30,000 options outstanding, of which 7,500 were exercisable. |
| (3) | The grant date fair value, pursuant to FAS 123R, of the stock option award issued to Mr. OSteen in fiscal 2006 was $53,734. As of September 30, 2006, Mr. OSteen had 88,000 options outstanding, of which 63,000 were exercisable. |
| (4) | The grant date fair value, pursuant to FAS 123R, of the stock option award issued to Mr. Pierce in fiscal 2006 was $92,761. As of September 30, 2006, Mr. Pierce had 20,000 options outstanding, of which 0 were exercisable. |
| (5) | The grant date fair value, pursuant to FAS 123R, of the stock option award issued to Mr. Roehm in fiscal 2006 was $53,734. As of September 30, 2006, Mr. Roehm had 100,000 options outstanding, of which 75,000 were exercisable. |
| (6) | The grant date fair value, pursuant to FAS 123R, of the stock option award issued to Mr. Waite in fiscal 2006 was $53,734. As of September 30, 2006, Mr. Waite had 40,000 options outstanding, of which 15,000 were exercisable. |
| (7) | The grant date fair value, pursuant to FAS 123R, of the stock option award issued to Mr. Zadel in fiscal 2006 was $53,734. As of September 30, 2006, Mr. Zadel had 88,000 options outstanding, of which 63,000 were exercisable. |
Director Compensation
During fiscal 2006, directors who were not officers of the Company received a quarterly retainer of $5,000, plus $2,000 for each meeting of the board attended in person and $1,000 for each telephone meeting of the board attended. Committee Chairmen were paid an additional annual retainer of $5,000, and committee members were paid $1,000 for each committee meeting. Mr. Roehm received an additional annual retainer of $5,000 for serving as lead independent director. Directors are paid $1,000 for each executive session not held on the date of a board meeting. Directors received options to acquire 10,000 common shares upon joining the board of directors, with an exercise price equal to the fair market value on the grant date.
Each member of the board who is not also an officer or employee of the Company is eligible to participate in the Companys 1997 Director Plan. Options to purchase 10,000 common shares are automatically granted each year under the 1997 Director Plan to each eligible director on the last trading day of February. The exercise price of all such options is equal to 100% of the fair market value of the Companys common shares on the date of grant. Options granted under the 1997 Director Plan become exercisable in 25% annual increments commencing on the first anniversary of the date they were granted. If the 2007 Equity Plan for Non-employee Directors described above in this proxy statement is approved by the shareholders of the Company, no further stock option grants will be made to directors under the 1997 Director Plan. In lieu of stock option grants, under the 2007 Equity Plan for Non-Employee Directors, directors would receive grants of common shares of the Company and be subject to the stock ownership guidelines described above in this proxy statement.
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CORPORATE GOVERNANCE
Board Matters
The board of directors has determined that directors Brian R. Bachman, John A. OSteen, Garrett E. Pierce, MacDonell Roehm, Jr., Barry Waite and C. William Zadel are independent as defined by applicable listing standards of the Marketplace Rules of the NASDAQ Global Market and the Securities and Exchange Commission (SEC) rules. In fiscal 2006, the board of directors met nine times, and met four times in executive session.
Each director attended all of the board and applicable committee meetings in fiscal 2006. Directors are expected to attend the annual meeting of shareholders. All of the directors attended the 2006 annual meeting of shareholders.
Committees of the Board of Directors
The board of directors has a standing audit committee, management development and compensation committee, and nominating and governance committee.
Audit Committee
During fiscal 2006, Messrs. MacDonell Roehm, Jr., Chairman, Philip V. Gerdine, Garrett E. Pierce and Barry Waite were members of the audit committee. Mr. Gerdine retired from the board effective December 31, 2005. The board elected Mr. Pierce to replace Mr. Gerdine on the audit committee effective January 1, 2006. The audit committee met 12 times during fiscal 2006. The board has determined that all audit committee members are independent (as defined in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Global Market and Rule 10A-3(b)(1) under the Exchange Act). The board had also determined that Mr. Gerdine was independent (as defined in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Global Market and Rule 10A-3(b)(1) under the Exchange Act). In addition, the board has determined that MacDonell Roehm, Jr., Garrett E. Pierce and Barry Waite qualify, and Philip V. Gerdine qualified, as audit committee financial experts as defined by the SEC in Item 401(h) of Regulation S-K. The audit committee, among other things, appoints the Companys independent registered public accountants to serve the following fiscal year, oversees their independence and meets with them to review the scope and results of the audit, considers comments made by the independent registered public accountants with respect to accounting procedures and internal controls and the consideration given thereto by the Companys management, and reviews internal accounting procedures and controls with the Companys financial management. The full responsibilities of the audit committee are set forth in its charter, a copy of which is posted on the Companys website at www.kns.com.
Management Development and Compensation Committee
During fiscal 2006, Messrs. Brian R. Bachman, Chairman, John A. OSteen and C. William Zadel were members of the management development and compensation committee, all of whom are independent directors (as defined in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Global Market and Rule 10A-3(b)(1) under the Exchange Act). The management development and compensation committee met seven times during fiscal 2006. The principal duties of the management development and compensation committee are to evaluate and approve compensation arrangements for the executive officers and senior managers of the Company, to administer the Companys equity compensation plans, and oversee senior management succession and overall management development. The full responsibilities of the management development and compensation committee are set forth in its charter, a copy of which is posted on the Companys website at www.kns.com.
Nominating and Governance Committee
During fiscal 2006, the nominating and governance committee was comprised of Messrs. C. William Zadel, Chairman, Brian R. Bachman and MacDonell Roehm, Jr., all of whom are independent directors (as defined in R