Joy Global Inc.
JOY GLOBAL INC (Form: DEF 14A, Received: 01/24/2007 16:56:31)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

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

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JOY GLOBAL INC.


      (Name of Registrant as Specified In Its Charter)


      (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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JOY GLOBAL INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notice of 2007

Annual Meeting of

Shareholders and

Proxy Statement

 

CONTENTS

 

 

 

 

 

NOTICE OF ANNUAL MEETING

 

 

 

 

 

 

 

 

 

PROXY STATEMENT

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

 

 

1

 

 

 

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

 

 

 

 

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

 

2

 

 

 

 

 

 

PROPOSAL #1: ELECTION OF DIRECTORS

 

 

4

 

 

 

 

 

 

PROPOSAL #2: 2007 STOCK INCENTIVE PLAN

 

 

6

 

 

 

 

 

 

PROPOSAL #3: INCREASE IN SHARES AUTHORIZED

 

 

13

 

 

 

 

 

 

BOARD OF DIRECTORS; AUDIT COMMITTEE FINANCIAL EXPERT

 

 

14

 

 

 

 

 

 

EXECUTIVE COMPENSATION

 

 

 

 

 

 

 

 

 

Summary Compensation Table

 

 

17

 

Human Resources and Nominating Committee Report on Executive

 

 

 

 

Compensation

 

 

19

 

Performance Graph

 

 

22

 

Option Grants

 

 

23

 

Option Exercises and Fiscal Year-End Values

 

 

24

 

Long-Term Incentive Compensation

 

 

25

 

Equity Compensation Plan Information

 

 

26

 

Pension Plan Table

 

 

27

 

Employment Contracts and Termination of Employment and

 

 

 

 

Change-In-Control Arrangements

 

 

28

 

Certain Business Relationships

 

 

28

 

 

 

 

 

 

AUDIT COMMITTEE REPORT

 

 

29

 

 

 

 

 

 

AUDITORS, AUDIT FEES AND AUDITOR INDEPENDENCE

 

 

30

 

 

 

 

 

 

OTHER INFORMATION

 

 

31

 

 

 

 

 

ANNEX A: JOY GLOBAL INC. 2007 STOCK INCENTIVE PLAN

 

 

 

33

 

JOY GLOBAL INC.

100 East Wisconsin Avenue, Suite 2780

Milwaukee, Wisconsin 53202

 

NOTICE OF ANNUAL MEETING

 

The annual meeting of shareholders of Joy Global Inc. will be held in the Tenant Conference Center, 100 East Wisconsin Avenue, Suite 1660, Milwaukee, Wisconsin, on Thursday, February 22, 2007 at 8:00 a.m. for the following purposes:

 

1.

To elect eight persons to the corporation's Board of Directors;

 

2.

To vote on a proposal to approve the Joy Global Inc. 2007 Stock Incentive Plan, a copy of which is attached as Annex A to the accompanying proxy statement;

 

3.

To vote on a proposal to approve an amendment to the corporation’s Amended and Restated Certificate of Incorporation increasing its authorized common stock from 150,000,000 to 500,000,000 shares; and

 

4.

To transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.

 

Shareholders of record at the close of business on January 9, 2007 are entitled to receive notice of and to vote at the annual meeting and any adjournment or postponement of the meeting. A list of shareholders entitled to vote will be available at the corporation's headquarters at least 10 days prior to the meeting and may be inspected during business hours by any shareholder for any purpose germane to the meeting.

 

Whether or not you plan to attend the meeting, we urge you to mark, date and sign the enclosed proxy card and return it promptly so that your shares will be voted at the meeting in accordance with your instructions.

 

 

By order of the Board of Directors,

 

 

 

OREN B. AZAR

 

Secretary

 

January 24, 2007

 

 

PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.

PROXY STATEMENT

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Joy Global Inc., a Delaware corporation, for use at the 2007 annual meeting of shareholders to be held in the Tenant Conference Center, 100 East Wisconsin Avenue, Suite 1660, Milwaukee, Wisconsin, on Thursday, February 22, 2007 at 8:00 a.m. and at any adjournment or postponement of the annual meeting. The proxy statement, proxy card and annual report are being mailed to shareholders on or about January 24, 2007.

 

Proxies

 

Properly signed and dated proxies received by the corporation's Secretary prior to or at the annual meeting will be voted as instructed on the proxies or, in the absence of such instruction: FOR the election to the Board of Directors of the persons nominated by the Board; FOR the proposal to approve the 2007 Stock Incentive Plan; FOR the proposal to increase the number of authorized shares of common stock; and in accordance with the best judgment of the persons named in the proxy on any other matters which may properly come before the meeting.

 

Any proxy may be revoked by the person executing it for any reason at any time before the polls close by filing with the corporation's Secretary a written revocation or duly executed form of proxy bearing a later date or by voting in person at the meeting. The Board of Directors has appointed an officer of American Stock Transfer & Trust Company, transfer agent for the corporation's common stock, $1.00 par value per share (the "Common Stock"), to act as an independent inspector at the annual meeting.

 

Record Date, Shares Outstanding and Voting

 

Shareholders of record of Common Stock at the close of business on January 9, 2007 (the "Record Date") are entitled to vote on all matters presented at the annual meeting. As of the Record Date, 112,827,917 shares of Common Stock were outstanding and entitled to vote at the annual meeting. Each such share is entitled to one vote.

 

A majority of the shares entitled to vote, represented in person or by proxy, constitutes a quorum. Under the corporation's bylaws, if a quorum is present, the election of directors is decided by plurality vote and the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter is required for the adoption of the proposals to approve the 2007 Stock Incentive Plan and approve the amendment to our Amended and Restated Certificate of Incorporation.

 

The independent inspector will count the votes. Abstentions are considered as shares represented and entitled to vote; therefore, abstentions are counted for purposes of the quorum determination, will have no effect on the election of directors, and will have the same effect as a vote against the proposal to approve the 2007 Stock Incentive Plan and the proposal to approve the amendment to our Restated Certificate of Incorporation. Broker or nominee "non-votes" on a matter are not considered as shares represented and entitled to vote on that matter, but do count toward the quorum requirement.

 

If less than a majority of the outstanding shares of Common Stock are represented at the meeting, a majority of the shares represented at the meeting may adjourn the meeting from time to time without further notice.

 

1

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table lists the beneficial ownership of Common Stock as of January 12, 2007 by any person known to the corporation to own beneficially more than 5% of its Common Stock, each of the executive officers named in the Summary Compensation Table, and the corporation's executive officers and directors as a group. Beneficial ownership of these shares consists of sole voting power and sole investment power except as noted below.

 

 

 

 

Name and Address of Beneficial Owner

Shares Owned (1)

Percent of Class

FMR Corp.

82 Devonshire Street

Boston, Massachusetts 02109

11,158,212 (2)

9.9 %

 

 

 

Neuberger Berman Inc.

605 Third Avenue

New York, New York 10158

8,701,387 (3)

7.7 %

 

 

 

John Nils Hanson

1,197,784 (4) (5)

1.1 %

 

 

 

Michael W. Sutherlin

147,672 (4)

*

 

 

 

Donald C. Roof

216,208 (4) (5)

*

 

 

 

Mark E. Readinger

129,157 (4) (5)

*

 

 

 

Dennis R. Winkleman

33,169 (4) (5)

*

 

 

 

All executive officers and directors as a group (12 persons)

 

1,811,690 (4) (6)

1.6 %

* Less than 1%

 

 

 

Notes:

 

(1)

The beneficial ownership information presented in this proxy statement is based on information furnished by the specified persons and is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as required for purposes of this proxy statement. Accordingly, it includes (A) shares of Common Stock that are issuable upon the exercise of stock options exercisable at or within 60 days after January 12, 2007 and (B) shares or deferred stock units to be received upon the vesting of restricted stock units within 60 days after January 12, 2007. Such information is not necessarily to be construed as an admission of beneficial ownership for other purposes.

 

(2)

Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on October 10, 2006 by FMR Corp. The Schedule 13G/A states that FMR Corp. has sole voting power over 3,856,922 of these shares and did not have shared voting power over any of the shares reflected above.

 

(3)

Based on information contained in a Schedule 13G/A filed with the Securities and Exchange Commission on February 17, 2006 by Neuberger Berman Inc. The Schedule 13G/A states that Neuberger Berman Inc. has sole voting power over 148,213 shares, shared voting power over 7,538,459 shares and shared investment power over all 8,701,387 shares reflected above.

 

2

Notes (continued):

 

(4)

Includes the following number of shares the respective executive officer has a right to acquire upon exercise of currently exercisable options: Mr. Hanson, 323,150; Mr. Sutherlin, 18,750; Mr. Roof, 46,725; Mr. Readinger, 39,875; and Mr. Winkleman, 10,500. Also includes the following number of shares the respective executive officer has a right to acquire upon settlement of deferred stock units credited to such executive officer in connection with performance shares earned through January 12, 2007: Mr. Hanson, 514,458; Mr. Sutherlin, 94,043; Mr. Roof, 155,337; and Mr. Readinger 70,045. These executive officers were credited with such deferred stock units as a result of the deferral of the distribution of shares of common stock in connection with performance share payouts in January 2005, 2006 and 2007. The deferral was done to preserve the corporation’s ability to claim an income tax deduction for the executive compensation associated with the performance shares. In addition, the amount shown includes the following number of shares to be distributed to the respective executive officer upon settlement of restricted stock units within 60 days after January 12, 2007 (or deferred stock units that are expected to be credited to such executive officer in lieu of such share distribution): Mr. Hanson, 13,283; Mr. Sutherlin, 4,146; Mr. Roof, 4,146; Mr. Readinger, 3,487; and Mr. Winkleman, 2,326. Such shares and deferred stock units relate to restricted stock units that vested on January 21, 2007. The amount shown does not include restricted stock units that will settle more than 60 days after January 12, 2007.

 

(5)

Includes the following number of shares the respective executive officer beneficially owns with his spouse: Mr. Hanson, 346,893; Mr. Roof, 10,000; Mr. Readinger, 15,750; and Mr. Winkleman, 20,343.

 

(6)

Includes 60,000 shares non-employee directors have a right to acquire upon exercise of currently exercisable stock options. Does not include 135,096 restricted stock units held by non-employee directors or 206,560 restricted stock units held by executive officers that will settle more than 60 days after January 12, 2007. See "Proposal #1: Election of Directors" for information regarding beneficial ownership of Common Stock by each director.

 

3

PROPOSAL #1: ELECTION OF DIRECTORS

The following table shows certain information (including principal occupation, recent business experience and beneficial ownership of the corporation's Common Stock as of January 12, 2007) for each of the individuals nominated by the Board of Directors for election at the 2007 annual meeting. Beneficial ownership of these shares consists of sole voting and investment power except as noted below. None of these individuals, other than Mr. Hanson, beneficially owns more than 1% of the outstanding Common Stock. All of the nominees are presently directors whose terms expire in 2007 and who are nominated to serve terms ending at the annual meeting in 2008. If for any unforeseen reason any of these nominees should not be available for election, the proxies will be voted for such person or persons as may be nominated by the Board of Directors. Each of the current members of the Board of Directors, other than Mr. Klappa and Mr. Sutherlin, was selected by the Creditors Committee in 2001 in connection with the corporation’s emergence from bankruptcy. James R. Klauser, who is currently a member of our Board of Directors, will not stand for reelection at the 2007 annual meeting.

 

 

 

 

 

 

Director

Since

Shares Owned (1)(2)

 

Steven L. Gerard

Chairman and Chief Executive Officer of CBIZ, Inc., a leading provider of integrated business services and products headquartered in Cleveland, Ohio, since 2000. Mr. Gerard is also a director of Lennar Corporation. He is 61.

2001

16,950

 

 

 

 

John Nils Hanson

Chairman of the corporation. Mr. Hanson was Chairman, President and Chief Executive Officer of the corporation from 2000 to 2006. He has been an officer of the corporation since 1995 and a director since 1996. Mr. Hanson is also a director of Arrow Electronics, Inc. He is 65.

1996

1,197,784 (3)

 

 

 

 

Ken C. Johnsen

Chief Executive Officer of Sweetwater Technologies. Lead director of Amerityre Corporation, where he served as President from 2006 to 2007. He was a member of the Cox Group from 2005 to 2006 and President and Chief Executive Officer of Geneva Steel Holdings Corp. from 2001 to 2005. He is 48.

2001

11,250 (4)

 

 

 

 

Gale E. Klappa

Chairman, President and Chief Executive Officer of Wisconsin Energy Corporation, a Milwaukee-based holding company with subsidiaries in utility and non-utility businesses. Prior to joining Wisconsin Energy in 2003, he was executive vice president, chief financial officer and treasurer of Southern Company in Atlanta. He is 56.

2006

-

 

 

 

 

Richard B. Loynd

Chairman of the Executive Committee and former Chairman of the Board and Chief Executive Officer of Furniture Brands International, Inc., the largest home furniture manufacturer in the United States. He is 79.

2001

23,500 (4)

 

4

 

 

 

 

 

 

 

Director

Since

Shares

Owned (1)(2)

 

P. Eric Siegert

Managing Director of Houlihan Lokey Howard & Zukin, an international investment banking firm. Mr. Siegert is also a director of Alabama River Group, Inc. He is 41.

2001

33,750 (4)

 

 

 

 

Michael W. Sutherlin

President and Chief Executive Officer and a director of the corporation since 2006. He was Executive Vice President of the corporation and President and Chief Operating Officer of Joy Mining Machinery from 2003 to 2006. He is also a director of Tesco Corporation. He is 60.

2006

147,672 (5)

 

 

 

 

James H. Tate

Independent consultant. From 2005 to 2006, he was Executive Vice President, Chief Administrative Officer and Chief Financial Officer of TIMCO Aviation Services, Inc. Mr. Tate was an independent consultant from 2004 to 2005 and Senior Vice President and Chief Financial Officer of Thermadyne Holdings Corporation from 1995 to 2004. He is 59.

2001

2,250

Notes:

 

(1)

The beneficial ownership information presented in this proxy statement is based on information furnished by the specified persons and is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as required for purposes of this proxy statement. Accordingly, it includes (A) shares of Common Stock that are issuable upon the exercise of stock options exercisable at or within 60 days after January 12, 2007 and (B) shares or deferred stock units to be received upon the vesting of restricted stock units within 60 days after January 12, 2007. Such information is not necessarily to be construed as an admission of beneficial ownership for other purposes.

 

(2)

Does not include 22,516 restricted stock units held by each non-employee director other than Mr. Klappa, 92,522 restricted stock units held by Mr. Hanson or 46,228 restricted stock units held by Mr. Sutherlin, that in each case will settle more than 60 days after January 12, 2007.

 

(3)

Includes 323,150 shares Mr. Hanson has a right to acquire upon exercise of currently exercisable stock options and 346,893 shares Mr. Hanson beneficially owns with his spouse. Also includes 514,458 shares Mr. Hanson has a right to acquire upon settlement of deferred stock units credited to him in connection with performance shares earned as of January 12, 2007.

 

(4)

Includes shares the director has a right to acquire upon the exercise of currently exercisable options.

 

(5)

Includes 18,750 shares Mr. Sutherlin has a right to acquire upon exercise of currently exercisable stock options. Also includes 94,043 shares Mr. Sutherlin has a right to acquire upon settlement of deferred stock units credited to him in connection with performance shares earned as of January 12, 2007.

 

 

5

PROPOSAL #2: 2007 STOCK INCENTIVE PLAN

 

Shareholders are being asked to approve the Joy Global Inc. 2007 Stock Incentive Plan (the “2007 Stock Incentive Plan”).

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF PROPOSAL #2 TO APPROVE THE 2007 STOCK INCENTIVE PLAN.

 

The 2007 Stock Incentive Plan replaces the Joy Global Inc. 2003 Stock Incentive Plan. If the 2007 Stock Incentive Plan is approved by our shareholders, no additional grants will be made under the 2003 Stock Incentive Plan. If the 2007 Stock Incentive Plan is not approved by our shareholders, it will not become effective.

 

Certain features of the 2007 Stock Incentive Plan are summarized below. This summary is qualified by reference to the full text of the 2007 Stock Incentive Plan attached as Annex A to this proxy statement.

 

The 2007 Stock Incentive Plan is intended to promote the long-term growth and profitability of the corporation and its subsidiaries by providing directors, officers and employees of, or individuals who have accepted an offer of employment with, the corporation and its subsidiaries with incentives to maximize shareholder value and otherwise contribute to the success of the corporation. Grants of incentive or non-qualified stock options, stock appreciation rights, performance awards, other equity-based awards, or any combination of the foregoing, may be made under the 2007 Stock Incentive Plan at the discretion of the Human Resources and Nominating Committee of the Board of Directors (the “Committee”). The 2007 Stock Incentive Plan is designed to have an indefinite term.

 

Persons Eligible for Grants . Directors, officers and employees of, and individuals who have accepted an offer of employment with, the corporation and its subsidiaries and affiliates are eligible to participate in the 2007 Stock Incentive Plan. Currently, there are approximately 9,000 persons eligible to participate in the 2007 Stock Incentive Plan. The Committee has not determined the amounts of awards under the 2007 Stock Incentive Plan that will be allocated to any eligible person.

 

Administration . The 2007 Stock Incentive Plan is administered by the Committee. The Committee is authorized to delegate certain administrative responsibilities (other than the power to grant awards to executive officers) to the Chief Executive Officer. The Committee is authorized to determine the eligible individuals to whom and the time or times at which awards will be granted, the number of shares subject to awards to be granted to any eligible individual, the duration of any award cycle, and any other terms and conditions of the grant, in addition to those contained in the 2007 Stock Incentive Plan. Each grant will be confirmed by and subject to the terms of an award agreement.

 

Shares Available for Awards . The 2007 Stock Incentive Plan provides that a maximum of 10,000,000 shares of Common Stock may be delivered to participants. The aggregate limit on the number of shares that may be delivered to participants under the 2007 Stock Incentive Plan will also be increased by certain forfeitures, terminations or expirations of awards under the 2007 Stock Incentive Plan or the corporation’s previous stock incentive plans; by stock repurchases which are made with the cash proceeds of stock option exercises; by the amount of any shares used to pay the exercise price of stock options; and by any shares not delivered to a participant upon exercise or settlement of an award (granted under the 2007 Stock Incentive Plan or a previous stock incentive plan) because such shares are used to satisfy a withholding tax obligation.

 

A maximum of 8,000,000 shares may be delivered as incentive stock options. A maximum of 6,000,000 shares may be delivered pursuant to awards other than stock options and stock appreciation rights. No

 

6

participant may be granted stock options or stock appreciation rights covering more than 8,000,000 shares in any consecutive 24-month period. No more than 2,000,000 shares may be subject to awards other than stock option or stock appreciation rights granted during a consecutive 24-month period to any participant. No participant may receive a performance award payment greater than $2,000,000 for each of the years in the applicable award cycle.

 

In the event of certain types of corporate transactions or restructurings, such as stock splits, mergers, consolidations, separations, spin-offs, reorganizations, liquidations, reorganizations, or other distributions of stock or property of the corporation, the Committee or the Board of Directors may make adjustments in the aggregate number and kind of shares reserved for issuance under the 2007 Stock Incentive Plan, in the maximum share limitations upon stock options, incentive stock options, stock appreciation rights and other awards to be granted to any individual, in the number, kind and option price or strike price of outstanding stock options and stock appreciation rights, in the number and kind of shares subject to other outstanding awards granted under the 2007 Stock Incentive Plan, and any other equitable substitutions or adjustments that Committee or the Board of Directors determine to be appropriate in their sole discretion.

 

Shares subject to an award under the 2007 Stock Incentive Plan may be either treasury shares or authorized but unissued shares.

 

Stock Options . Stock options may be granted alone or in addition to other awards. Stock options may be “incentive stock options” (within the meaning of Section 422 of the Internal Revenue Code) or nonqualified stock options, as designated by the Committee and specified in the option agreement setting forth the terms and provisions of the options.

 

(a)     Option Term . The term of each stock option will be fixed by the Committee but no stock option may be exercised more than 10 years after the date it is granted.

 

(b)     Option Price . The exercise price per share of Common Stock purchasable under a stock option will be determined by the Committee but, except in the case of stock options granted in lieu of foregone compensation, may not be less than the fair market value of the Common Stock on the date of grant. Options granted under the 2007 Stock Incentive Plan cannot be repriced without shareholder approval.

 

(c)     Exercise . Except as otherwise provided in the 2007 Stock Incentive Plan, stock options will be exercisable at the time or times and subject to the terms and conditions determined by the Committee and the Committee may at any time accelerate the exercisability of a stock option. A stock option may not become exercisable until one year after the grant date except in cases of death, disability, change of control or other limited instances. A participant exercising an option may pay the exercise price in cash or, if approved by the Committee, with previously acquired shares of Common Stock or a combination of cash and stock. The Committee, in its discretion, may allow the cashless exercise of options through the use of a broker-dealer, to the extent permitted by applicable law, or for payment of the exercise price by withholding from the shares issuable upon exercise a number of shares having a fair market value on the date of exercise equal to the aggregate exercise price.

 

The 2007 Stock Incentive Plan contains provisions, which apply unless otherwise determined by the Committee, regarding the vesting and post-termination exercisability of options held by optionees whose employment with the corporation terminates by reason of death, disability, retirement or otherwise.

 

The 2007 Stock Incentive Plan provides that the Committee may establish procedures permitting an optionee to elect to defer to a later time the receipt of shares issuable upon the exercise of a stock option and/or to receive cash at such later time in lieu of the deferred shares.

 

7

Stock Appreciation Rights . Stock appreciation rights may be granted separately or in tandem with all or part of any stock option granted under the 2007 Stock Incentive Plan. A stock appreciation right granted separately from any stock option under the 2007 Stock Incentive Plan is called a freestanding SAR. A stock appreciation right granted in tandem with a stock option under the 2007 Stock Incentive Plan is called a tandem SAR.

 

A tandem SAR will terminate and will no longer be exercisable upon the termination or exercise of the related stock option. A tandem SAR may be exercised by an optionee, at the time or times and to the extent the related stock option is exercisable, by surrendering the applicable portion of the related stock option in accordance with procedures established by the Committee. Upon exercise, a tandem SAR permits the optionee to receive cash, shares of Common Stock, or a combination of cash or stock, as determined by the Committee. The amount of cash or the value of the shares is equal to the excess of the fair market value of a share of Common Stock on the date of exercise over the per share exercise price of the related stock option, multiplied by the number of shares with respect to which the tandem SAR is exercised.

 

A freestanding SAR may have a term of up to ten years. Except in the case of freestanding SARs granted in lieu of compensation, the strike price cannot be lower than the fair market value of the stock on the grant date. The strike price cannot be repriced without shareholder approval.

 

The Committee can determine exercisability restrictions on freestanding SARs at the time of grant. Except in cases of death, disability, retirement, change of control, or other limited instances, freestanding SARs cannot be exercisable before the first anniversary of the grant date.

 

Upon exercise, a freestanding SAR permits the holder to receive cash, shares of Common Stock, or a combination of cash or stock, as determined by the Committee. The amount of cash or the value of the shares is equal to the excess of the fair market value of a share of Common Stock on the date of exercise over the strike price, multiplied by the number of shares with respect to which the freestanding SAR is exercised.

 

The 2007 Stock Incentive Plan contains provisions, which apply unless otherwise determined by the Committee, regarding the vesting and post-termination exercisability of freestanding SARs held by an individual whose employment with the corporation terminates by reason of death, disability, retirement or otherwise. The Committee may also establish procedures permitting the holder of a freestanding SAR to defer to a later time the receipt of shares issuable upon the exercise of a freestanding SAR and/or to receive cash at such later time in lieu of the deferred shares.

 

Performance Awards . Performance awards may be performance-based stock awards or performance-based cash awards. No performance award cycle may exceed five years in duration. Performance awards may be granted subject to the attainment of performance goals and the continued service of the participant. At the conclusion of the award cycle, the Committee shall evaluate the degree to which any applicable performance goals have been achieved and the performance amounts earned, and shall cause to be delivered the amount earned in either cash or shares, at the election of the Committee.

 

A Qualified Performance-Based Award is a grant of performance awards designated as such by the Committee at the time of grant based upon a determination that (1) the recipient is or may be a “covered employee” within the meaning of Section 162(m)(3) of the Internal Revenue Code in the year in which the corporation would expect to be able to claim a tax deduction with respect to such performance unit awards, and (2) the Committee wishes such grant to qualify for the exemption from the limitation on deductibility of compensation with respect to any covered employee imposed by Section 162(m) of the Internal Revenue Code.

 

8

 

The Committee shall specify the performance goals to which any Qualified Performance-Based Award shall be subject. These goals shall be based on the attainment of specified levels of one or more of the following measures: revenue growth; earnings before interest, taxes, depreciation, and amortization; earnings before interest and taxes; operating income; pre- or after- tax income; earnings per share; cash flow; cash flow per share; return on equity; return on invested capital; return on assets; economic value added (or an equivalent metric); share price performance; total shareholder return; improvement in or attainment of expense levels; improvement in or attainment of working capital levels. These goals may be established on a corporate-wide basis or with respect to one or more business units, divisions, or subsidiaries. Measurement of performance against goals may exclude impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of accounting changes, each as defined by generally accepted accounting principles and as identified in the financial statements, notes to the financial statements, or management’s discussion and analysis within the corporation’s annual report.

 

Other Stock-Based Awards . Restricted stock, restricted stock units, deferred stock units and other awards of Common Stock and other awards that are valued by reference to, or otherwise based upon Common Stock, including (without limitation) dividend equivalents and convertible debentures, may also be granted under the 2007 Stock Incentive Plan. Unless otherwise provided by the Committee, vesting of other stock-based awards may be no less than three years from the grant date except in cases of grants in lieu of compensation or grants to prospective employees.

 

Transferability of Awards . Awards are nontransferable other than by will or the laws of descent and distribution, provided that at the discretion of the Committee, nonqualified stock options and stock appreciation rights may be transferred as expressly permitted by the Committee, including pursuant to a transfer to members of the holder’s immediate family. The transfer may be made directly or indirectly or by means of a trust or partnership or otherwise. Stock options and stock appreciation rights may be exercised only by the initial holder, any such permitted transferee or a guardian, legal representative or beneficiary.

 

Change in Control . Unless provided otherwise by the Committee, in the event of a change in control (as defined in the 2007 Stock Incentive Plan), any option or stock appreciation right that is not then exercisable and vested will become fully exercisable and vested and performance awards will be deemed earned and payable in full in cash. The Committee may also make additional adjustments or settlements of outstanding awards as it deems appropriate and consistent with the Plan’s purposes. In addition, unless otherwise determined by the Committee, if a stock option or stock appreciation right holder is terminated without cause during the two-year period following a change in control, such holder may exercise the option or stock appreciation right until at least the first anniversary of such termination, unless the term of the option expires first. If the Committee so provides, in the event of a change in control, a holder of a nonqualified stock option or a freestanding stock appreciation right may have the right, for 60 days after the change in control, to surrender all or part of the stock option or stock appreciation right and receive cash for the excess of (A) the greater of (i) the fair market value of a share of Common Stock at the time of surrender or (ii) the highest trading price of a share of Common Stock during the 60-day period preceding the change in control (or, under some circumstances, the value of the consideration for each share of Common Stock paid in the change of control, if higher) over (B) the exercise price of the stock option or strike price of the stock appreciation right, whichever is applicable.

 

Effectiveness, Amendments and Termination . The 2007 Stock Incentive Plan shall be effective as of the time it is approved by a majority of the votes cast by the corporation’s shareholders with respect to its approval. The Board of Directors may at any time amend, alter, or discontinue the 2007 Stock Incentive Plan but may not impair the rights of a holder of outstanding awards without the holder’s consent except

 

9

for an amendment made to comply with applicable law, stock exchange rules or accounting rules. No amendment may be made without the approval of the corporation’s shareholders to the extent such approval is required by applicable law or stock exchange rules. The Committee may amend the terms of any outstanding stock option or other award but no such amendment may cause a Qualified Performance-Based Award to cease to qualify for the Section 162(m) exemption or impair the rights of any holder without the holder’s consent, except an amendment made to cause the 2007 Stock Incentive Plan or award to comply with applicable law, stock exchange rules or accounting rules. Except for adjustments upon certain corporate transactions, neither stock options nor stock appreciation rights may have their exercise price or strike price reduced or otherwise be repriced without shareholder approval.

 

In the event an award is granted to an individual who is employed outside the United States and who is not compensated from a payroll maintained in the United States, the Committee may, in its sole discretion, modify the provisions of the grant as they pertain to such individual to achieve the purposes of the 2007 Stock Incentive Plan.

 

Federal Income Tax Consequences . The following is a brief summary of the federal income tax rules relevant to participants in the 2007 Stock Incentive Plan, based upon the Internal Revenue Code as currently in effect. These rules are highly technical and subject to change in the future. The following summary relates only to the federal income tax treatment of the awards and the state, local and foreign tax consequences may be substantially different.

 

(a) Options . Stock options granted under the 2007 Stock Incentive Plan may be either nonqualified options or incentive options for federal income tax purposes.

 

(b) Nonqualified Options . Generally, the optionee does not recognize any taxable income at the time of grant of a nonqualified option. Provided the Common Stock is not subject to a substantial risk of forfeiture, upon the exercise of the nonqualified option the optionee will recognize ordinary income, equal to the excess of the fair market value of the Common Stock acquired on the date of exercise over the exercise price, and will be subject to wage and employment tax withholding. The corporation will generally be entitled to a deduction equal to such ordinary income.

 

The optionee will have a capital gain or loss upon the subsequent sale of the stock in an amount equal to the sale price less the fair market value of the Common Stock on the date of exercise. The capital gain or loss will be long- or short-term depending on whether the stock was held for more than one year after the exercise date. The corporation will not be entitled to a deduction for any capital gain realized. Capital losses on the sale of Common Stock acquired upon an option’s exercise may be used to offset capital gains.

 

(c) Incentive Stock Options . Generally, the optionee will not recognize any taxable income at the time of grant or exercise of an option that qualifies as an incentive option under Section 422 of the Internal Revenue Code. However, the excess of the stock’s fair market value at the time of exercise over the exercise price will be included in the optionee’s alternative minimum taxable income and thereby may cause the optionee to be subject to an alternative minimum tax. The optionee will recognize long-term capital gain or loss, measured by the difference between the stock sale price and the exercise price, when the shares are sold.

 

In order to qualify for the incentive option tax treatment described in the preceding paragraph, the optionee must be employed by the corporation continuously from the time of the option’s grant until three months before the option’s exercise and the optionee must not sell the shares until more than one year after the option’s exercise date and more than two years after its grant date. If the optionee does not satisfy these conditions, the optionee will recognize taxable ordinary income when the optionee sells the

 

10

shares in an amount equal to the difference between the option exercise price and the lesser of (i) the fair market value of the stock on the exercise date and (ii) the sale price. If the sale price exceeds the fair market value on the exercise date, the excess will be taxable to the optionee as long-term or short-term capital gain depending on whether the optionee held the stock for more than one year.

 

Notwithstanding the foregoing, incentive stock options shall not be treated as incentive stock options to the extent that the aggregate fair market value of stock (determined as of the date of grant) with respect to which the options are first exercisable during any calendar year exceeds $100,000. The corporation will not be entitled to any deduction by reason of the grant or exercise of the incentive option or the sale of stock received upon exercise after the required holding periods have been satisfied. If the optionee does not satisfy the required holding periods before selling the shares and consequently recognizes ordinary income, the corporation will be allowed a deduction corresponding to the optionee’s ordinary income.

 

(d) Transfer of Option to Family Member. The 2007 Stock Incentive Plan permits transfers of non-qualified options to participants’ children and immediate family members, although incentive options are not allowed to be transferred to family members other than by will or the laws of descent and distribution. The optionee will not recognize taxable income if the optionee transfers a non-qualified option to a member of the optionee’s family. However, when the transferee of the option exercises the option, the optionee will recognize ordinary income equal to the excess of the fair market value of the Common Stock acquired by the transferee of the option on the date of exercise over the exercise price, and will be subject to wage and employment tax withholding. The corporation will generally be entitled to a deduction equal to such ordinary income. The transferee of the option will have a capital gain or loss upon a subsequent sale of the stock in an amount equal to the sale price less the fair market value of the stock on the date the option was exercised. Any capital gain recognized by the transferee will be long-term capital gain if the transferee has held the stock for more than one year after the exercise date.

 

(e) Stock Appreciation Rights . The optionee will be subject to ordinary income tax, and wage and employment tax withholding, upon the exercise of an SAR. Upon the exercise of an SAR, the optionee will recognize ordinary income equal to the excess of the fair market value of the Common Stock on the exercise date over the strike price of the SAR. The corporation will generally be entitled to a corresponding deduction equal to the amount of ordinary income that the optionee recognizes. Upon the sale of Common Stock acquired upon exercise of an SAR, the optionee will recognize long- or short-term capital gain or loss, depending on whether the optionee has held the stock for more than one year from the date of exercise.

 

(f)      Performance Awards . The optionee will not recognize taxable income at the time performance awards are granted but the optionee will recognize ordinary income and be subject to wage and employment tax withholding upon the receipt of Common Stock or cash awards at the end of the applicable award cycle. The corporation will generally be entitled to claim a corresponding deduction.

 

(g)     Other Stock-Based Awards . The recipient of restricted stock, restricted stock units, deferred stock units or other stock-based awards will not recognize taxable income at the time of grant as long as the Common Stock associated with such awards is subject to a substantial risk of forfeiture but will recognize ordinary income and be subject to wage and employment tax withholding when the substantial risk of forfeiture expires or is removed, unless the shares or cash to be paid with respect to such award are deferred until a date subsequent to the vesting date. The corporation will generally be entitled to claim a corresponding deduction.

 

(h) Withholding Taxes . Because the amount of ordinary income the optionee recognizes with respect to the receipt or exercise of an award may be treated as compensation that is subject to applicable withholding of federal, state and local income taxes and Social Security taxes, the corporation may

 

11

require the optionee to pay the amount required to be withheld by the corporation before delivering to the individual any shares or other payment to be received under the 2007 Stock Incentive Plan. Arrangements for payment may include deducting the amount of any withholding or other tax due from other compensation, including salary or bonus, otherwise payable to the individual.

 

12

PROPOSAL #3: INCREASE IN SHARES AUTHORIZED

 

Shareholders are being asked to approve an amendment to the corporation’s Restated Certificate of Incorporation increasing its authorized common stock from 150,000,000 to 500,000,000 shares.

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF PROPOSAL #3 TO APPROVE THE AMENDMENT.

 

The Board of Directors has determined that it is advisable to increase the number of shares of Common Stock that the corporation is authorized to issue from 150,000,000 to 500,000,000, and has voted to recommend that the corporation’s shareholders adopt an amendment to our Amended and Restated Certificate of Incorporation effecting the proposed increase. The amendment proposes to delete the first paragraph of Article 4(a) of the Amended and Restated Certificate of Incorporation and replace it with the following:

 

(a)           The number of shares which the Corporation shall have the authority to issue, itemized by classes, par value of shares, shares without par value, and series, if any, within a class, is:

 

Class

Series (if any)

Number of Shares

Par Value Per Share

Preferred

To be issued in Series

5,000,000

$1.00

Common

None

500,000,000

$1.00

 

 

As of January 11, 2007, approximately 112.8 million shares of our Common Stock were issued and outstanding and approximately an additional 4.6 million shares were reserved for issuance in satisfaction of outstanding employee and director equity awards. Accordingly, approximately 32.6 million shares of our Common Stock are currently available for future issuance.

 

The Board of Directors believes it continues to be in the corporation’s best interest to have sufficient additional authorized but unissued shares of Common Stock available in order to provide flexibility for corporate action in the future. Management believes that the availability of additional authorized shares for issuance from time to time at the discretion of the Board of Directors in connection with stock splits or dividends, possible acquisitions of other companies, future financings, investment opportunities or for other corporate purposes is desirable in order to avoid repeated separate amendments to our Amended and Restated Certificate of Incorporation and the delay and expense of holding special meetings of shareholders to approve such amendments. Other than shares of Common Stock that we may issue pursuant to equity awards we have previously granted or may in the future grant under our 2003 Stock Incentive Plan or, if approved, the 2007 Stock Incentive Plan, we currently have no specific understandings, arrangements or agreements that would require us to issue new shares of Common Stock. Management believes, however, that the currently available unissued shares do not provide sufficient flexibility for corporate action in the future.

 

We will not solicit further authorization by vote of the shareholders for the issuance of the additional shares of Common Stock proposed to be authorized, except as required by law, regulatory authorities or rules of the Nasdaq Stock Market or any other stock exchange on which our shares may then be listed. The issuance of additional shares of Common Stock could have the effect of diluting earnings per share, book value per share and voting power. Our shareholders do not have any preemptive right to purchase or subscribe for any part of any new or additional issuance of our securities.

 

13

BOARD OF DIRECTORS; AUDIT COMMITTEE FINANCIAL EXPERT

 

Meetings

 

The Board of Directors held six meetings during fiscal 2006. Each of the directors attended at least 75% of the Board meetings held during the fiscal year (excluding Mr. Sutherlin and Mr. Klappa, who were elected to the Board after the end of the fiscal year). The Board of Directors has determined that all directors other than Mr. Hanson and Mr. Sutherlin are independent under Nasdaq listing standards.

 

All directors are expected to attend the annual meeting and all directors attended the 2006 annual meeting either in person or by means of conference telephone.

 

Communications

 

Shareholder communications intended for the Board of Directors or for particular directors (other than shareholder proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 and communications made in connection with such proposals) may be sent in care of the corporation's Secretary at Joy Global Inc., 100 East Wisconsin Avenue, Suite 2780, Milwaukee, Wisconsin 53202. The Secretary will forward all such communications to the Board of Directors or to particular directors as directed.

 

Compensation

 

Directors who are not officers or employees of the corporation receive an annual retainer fee of $50,000, as well as a fee of $1,500 for each Board and Board committee meeting attended. If he is not an officer or employee of the corporation, the Chairman of the Board receives an additional annual retainer of $100,000. The chairs of the Audit Committee and Human Resources and Nominating Committee receive additional annual retainer fees of $15,000 and $12,500, respectively.

 

In addition, as of the date of the annual meeting, each non-employee director receives a grant of restricted stock units awarded under the 2003 Stock Incentive Plan. The number of restricted stock units granted annually to each non-employee director is equal to $75,000 divided by the then current market price of the corporation's Common Stock. These restricted stock units become non-forfeitable one year after their grant and will be paid out one year after the director's duties on the Board terminate. Directors who are officers or employees of the corporation earn no additional remuneration for their services as directors.

 

In anticipation of his assumption of the role of non-executive chairman of the Board of Directors, on November 13, 2006, John N. Hanson received an additional grant of 25,000 restricted stock units under the Joy Global Inc. 2003 Stock Incentive Plan. One third of such grant becomes non-forfeitable on March 1 in each of 2008, 2009 and 2010, provided that Mr. Hanson remains the corporation’s non-executive chairman on the applicable vesting date, and will be paid out one year after Mr. Hanson's service as a director ends.

 

Although the corporation has no formal policy requiring that directors hold a minimum amount of the corporation’s Common Stock, the terms of the restricted stock units granted annually to non-employee directors effectively requires each such director to hold until one year after retirement from the Board an equity interest equal to 100% of the equity incentive compensation paid to such director.

 

14

Committees

 

The Board's standing committees consist of the Audit Committee, the Human Resources and Nominating Committee, and the Executive Committee. In addition, the Board may from time to time authorize additional ad hoc committees, including pricing committees with respect to financial transactions.

 

Audit Committee and Audit Committee Financial Expert

 

The Audit Committee is a separately designated committee of the Board, established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Current members of the Audit Committee are James H. Tate (Chair), Gale E. Klappa, P. Eric Siegert and James R. Klauser. The Board of Directors has determined that Mr. Tate is an audit committee financial expert, and is independent, within the meaning of the Securities and Exchange Commission rules. The Board of Directors has also determined that all members of the Audit Committee are independent under Rule 4200(a)(15) of Nasdaq's listing standards. The charter for the Committee is available on the corporation's website, www.joyglobal.com.

 

The Audit Committee has the sole authority to appoint and replace the independent auditor and is directly responsible for the compensation and oversight of the independent auditor. The Audit Committee met six times during fiscal 2006. The primary function of the Audit Committee is to oversee:

 

(1)

the integrity of the financial statements of the corporation;

 

(2)

the independent auditor's qualification and independence;

 

(3)

the performance of the corporation's internal audit function and the independent auditors; and

 

(4)

the compliance by the corporation with legal and regulatory requirements.

 

Human Resources and Nominating Committee

 

Current members of the Human Resources and Nominating Committee are Richard B. Loynd (Chair), Steven L. Gerard and Ken C. Johnsen. The Human Resources and Nominating Committee met four times during fiscal 2006. The Board of Directors has determined that all members of the Human Resources and Nominating Committee are independent under Rule 4200(a)(15) of Nasdaq's listing standards. The charter for the Committee is available on the corporation's website, www.joyglobal.com.

 

The primary functions of the Human Resources and Nominating Committee are to:

 

(1)

periodically review and approve the compensation programs for the corporation's key executives, including salary rates, incentive compensation plans, fringe benefits, non-cash perquisites and all other forms of compensation;

 

(2)

administer the corporation's stock option and stock-based compensation plans;

 

(3)

periodically review the executive staffing of the corporation and make recommendations to the Board as appropriate;

 

(4)

assess the performance of the Board and the performance of individual directors;

 

(5)

review and approve director compensation programs; and

 

(6)

review and present to the Board for its consideration recommendations for nominations to fill expiring terms, vacancies or additions to the Board.

 

The Human Resources and Nominating Committee will consider director candidates recommended by the corporation's shareholders. Recommendations should be directed to the Committee in care of the corporation's Secretary. Under the corporation's bylaws, shareholder nominations of directors must be received by the corporation at its principal executive offices, 100 East Wisconsin Avenue, Suite 2780,

 

15

Milwaukee, Wisconsin 53202, directed to the attention of the Secretary, not less than 90 days before the 2008 meeting and any such nominations must contain the information specified in the corporation's bylaws.

 

In fiscal 2004 the Human Resources and Nominating Committee and the Board of Directors adopted a list of qualifications that a director of the corporation should have. These characteristics include:

 

(1)

the education, breadth of experience, and current insights necessary to comprehend the strategic plans and goals of the corporation and provide oversight of management's accomplishment of those plans and goals;

 

(2)

a history of conducting his or her professional and personal affairs with the utmost integrity and observing the highest standards of values, character and ethics; and

 

(3)

a willingness to invest the time necessary to prepare for Board and committee meetings, to attend Board and committee meetings, to be present at annual shareholder meetings, and to be available for consultation with other directors and executive management.

 

The Committee also believes that it is desirable for all non-employee directors to be able to satisfy the criteria for independence established by the Securities and Exchange Commission and Nasdaq listing standards. However, with respect to Mr. Hanson, who retired as the corporation’s Chief Executive Officer in December 2006, the Committee has determined that it is for the time being in the corporation’s best interest for him to serve as a director and Chairman despite the fact that he is not able to satisfy such independence criteria.

 

The Human Resources and Nominating Committee and the Board of Directors have also developed procedures for identifying and evaluating persons recommended to be nominated for election as directors, including nominees recommended by shareholders. Under these procedures, the Committee will, among other things:

 

(1)

review the qualifications and performance of incumbent directors to determine whether the Committee recommends that they be nominated for a further term;

 

(2)

investigate and review the backgrounds and qualifications of candidates recommended by shareholders, management or other directors to determine their eligibility to be nominated to become directors under the corporation's list of qualifications for directors and Corporate Governance Principles;

 

(3)

consider the appropriateness of adding additional directors to the Board; and

 

(4)

interview candidates for nomination.

 

Executive Committee

 

Current members of the Executive Committee are Richard B. Loynd (Chair), John Nils Hanson, James R. Klauser and P. Eric Siegert. The primary functions of the Executive Committee are to consider proposals to:

 

(1)

modify the corporation's capital structure;

 

(2)

acquire or divest businesses;

 

(3)

make significant investments; or

 

(4)

enter into strategic alliances.

 

In addition, the Executive Committee may act upon a matter when it determines that prompt action is in the best interest of the corporation and it is not possible or necessary to call a meeting of the full Board. The Executive Committee did not meet during fiscal 2006.

 

16

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table shows compensation awarded to, earned by, or paid to the executive officers who were, at the end of fiscal 2006, the corporation's Chief Executive Officer and each of the four most highly compensated executive officers other than the Chief Executive Officer, for services rendered to the corporation and its subsidiaries during fiscal 2006, 2005 and 2004.

 

 

 

 

 

 

 

 

 

Name and

Principal Position

 

 

 

 

 

 

 

 

 

Year

 

 

Annual Compensation

 

 

Long-Term Compensation

 

 

 

 

 

 

 

All

Other

Compensation

 

 

 

 

 

 

Salary

 

 

 

 

 

 

 

Bonus

 

 

 

 

Other Annual Compen- sation

 

Awards

 

Payouts

 

 

Restricted

Stock

Awards

 

 

Shares Underlying

Options

 

 

 

 

LTIP Payouts

 

 

 

 

(1)

(2)

 

(3)

(4)

 

John Nils Hanson

Chairman (5)

 

2006

2005

2004

 

$782,400

$782,400

$777,400

 

$1,500,000

$1,351,840

$1,196,100

 

$135,417

$ 81,766

$ 82,286

 

$465,426

$429,908

$455,838

 

 

103,200

163,125

180,000

 

 

$2,364,826

$4,070,250

$4,703,568

 

 

$70,800

$70,650

$70,750

 

 

Michael W. Sutherlin

President and Chief Executive Officer (6)

 

 

2006

2005

2004

 

$503,077

$412,404

$398,154

 

 

$ 569,000

$ 501,164

$ 490,000

 

 

$100,947

-

-

 

 

$150,579

$132,881

$142,283

 

 

33,600

50,625

56,250

 

$ 738,170

$3,052,688

-

 

 

-

-

-

 

Donald C. Roof

Executive Vice President, Chief Financial Officer and Treasurer

 

 

2006

2005

2004

 

 

$420,000

$407,917

$395,250

 

 

 

$ 471,000

$ 492,125

$ 480,000

 

 

 

$11,973

$17,431

$13,161

 

 

 

$148,298

$132,881

$142,283

 

 

 

33,300

50,625

56,250

 

 

 

$ 738,170

$1,678,993

$2,351,784

 

 

 

$ 3,300

$ 3,150

$ 3,250

 

 

 

Mark E. Readinger

Executive Vice President; President and Chief Operating Officer of P&H Mining Equipment

 

 

2006

2005

2004

 

 

 

$365,000

$353,333

$355,000

 

 

 

$ 396,000

$ 428,000

$ 420,000

 

 

 

$18,897

$20,770

$19,917

 

 

 

$130,046

$113,339

$119,678

 

 

 

28,500

43,875

47,250

 

 

 

$ 620,885

$2,543,906

-

 

 

 

$ 3,300

$ 3,150

$ 5,738

 

 

 

Dennis R. Winkleman

Executive Vice President, Human Resources

 

 

2006

2005

2004

 

 

 

$273,167

$262,250

$251,850

 

 

 

$ 270,000

$ 266,688

$ 260,000

 

 

 

$15,743

$15,332

$16,184

 

 

 

$ 91,260

$ 85,982

$ 79,800

 

 

 

19,800

31,500

31,500

 

 

 

$ 413,910

$1,017,563

$1,175,892

 

 

 

$ 3,300

$ 3,150

$ 3,250

 

 

 

17

Notes:

 

(1)

The amounts reported in this category include amounts reimbursed during the fiscal year for the payment of taxes. For Mr. Hanson, they also include perquisites totaling $54,726 for fiscal 2006, including $20,415 of costs associated with a company car and $16,131 of spousal travel expenses incurred in connection with business-related travel. For Mr. Sutherlin, they also include perquisites totaling $66,512 for fiscal 2006, including $52,698 for country club membership.

 

(2)

Represents the dollar value, calculated based on the closing price on the date of award, of restricted stock units awarded to the named executive officers during the fiscal year. Each restricted stock unit entitles the holder to receive one share of Common Stock at the end of the applicable restricted period. For each grant of restricted stock units, the restricted period for one-third of the grant will end on each of the third, fourth and fifth anniversaries of the grant date. These restricted stock units are eligible to receive dividends (in the form of additional restricted stock units). At the end of fiscal 2006, the named executive officers held restricted stock units as follows:

 

Executive Officer

Number of RSUs at Year-End

Value of RSUs at Year-End

Mr. Hanson

80,478

$3,289,941

Mr. Sutherlin

25,218

$1,030,912

Mr. Roof

25,143

$1,027,846

Mr. Readinger

21,415

$ 875,445

Mr. Winkleman

15,044

$ 614,999

 

(3)

Represents the dollar value, calculated based on the closing trading price of the Common Stock on the last trading day of the applicable fiscal year, of performance shares earned for the multi-year award cycle completed at the end of such fiscal year. The distribution of certain of such shares was deferred and credited to the relevant executive officer in the form of deferred stock units in order to preserve the deductibility of the associated executive compensation expense under Section 162(m) of the Internal Revenue Code. All other performance shares earned for such cycle were settled by the distribution of shares of Common Stock, on a one-for-one basis (after withholding for required taxes).

 

(4)

Includes the following amounts for fiscal 2006: for Mr. Hanson, $67,500 for supplemental life insurance and $3,300 of company matching 401(k) contributions; and for each of Mr. Roof, Mr. Readinger and Mr. Winkleman, $3,300 of company matching 401(k) contributions.

 

(5)

Until December 26, 2006, Mr. Hanson was also President and Chief Executive Officer of the corporation.

 

(6)

Mr. Sutherlin became President and Chief Executive Officer on December 26, 2006. Prior to that date, he was Executive Vice President of the corporation and Chief Executive Officer of Joy Mining Machinery.

 

18

Human Resources and Nominating Committee Report on Executive Compensation

 

The Human Resources and Nominating Committee has presented the following report on executive compensation for inclusion in this proxy statement.

 

Compensation Philosophy

 

The members of the Human Resources and Nominating Committee believe that the corporation's senior executive officers, including the Chief Executive Officer, should be compensated on a basis competitive with other manufacturing companies of comparable size. This philosophy is based on the need to attract and retain experienced and talented executive officers. The objective is to provide a total compensation program that establishes base salaries in a competitive range, bonus opportunities that reward above-average performance with above-average pay, and stock-based incentive programs designed to achieve long-term corporate financial goals and build executive stock ownership. The Committee has established long-term ownership objectives for the Chief Executive Officer and the other executive officers equal to five times annual salary in the case of the Chief Executive Officer and two and one half times annual salary for the other executive officers. These objectives serve to align management and shareholder interests. At the end of fiscal 2006, all named executive officers exceeded the minimum ownership requirements.

 

Components of Executive Compensation

 

The corporation's executive compensation program for fiscal 2006 consisted of base salary, annual bonuses and awards of stock options, performance shares and restricted stock units.

 

Annual Cash Compensation

 

Salary . Base salaries for fiscal 2006 for Mr. Hanson and the other executive officers named in the Summary Compensation Table were established by the Human Resources and Nominating Committee early in the fiscal year using the compensation philosophy described above.

 

Bonus . The corporation has an annual bonus compensation plan that applies to senior executive officers and that was approved by shareholders at the 2002 annual meeting. The annual bonus compensation plan applies to Mr. Hanson and the other named executive officers who may be "covered employees" as defined in Section 162(m) of the Internal Revenue Code. The Committee has discretion under the annual bonus compensation plan to reduce or eliminate awards.

 

The bonus plan for fiscal 2006 for all other employees of the corporation was based on return on average working capital (ROAWC). Performance goals for fiscal 2006 were exceeded and the bonuses earned by the corporation's employees in fiscal 2006 were above target, but below the maximum levels specified in the plan.

 

Bonus targets for fiscal 2006 under the annual bonus compensation plan for senior executive officers were also met. The Committee exercised its discretion under the annual bonus compensation plan for senior executive officers and reduced bonus payments to Mr. Hanson and the other named executive officers for fiscal 2006 to the amounts those individuals would have earned had they participated in the ROAWC bonus plan for all other employees.

 

19

Long-term Incentive Compensation

 

Stock Options . The Committee believes that stock options are an important component of a sound compensation program for executive officers. Stock options were granted to 125 employees, including executive officers, in fiscal 2006. The Committee determined the number of stock options to grant to each executive officer after consultation with compensation advisors and based upon our philosophy of using stock-based incentive programs to align management and shareholder interests and build executive stock ownership.

 

Performance Shares . The Committee grants performance shares under the terms of the 2003 Stock Incentive Plan in order to provide executive officers and other senior management with long-term incentives to improve the quality of earnings. An initial grant of performance shares was made in fiscal 2001 and additional grants were made during each of fiscal 2003 through fiscal 2005. The performance measure for those grants was positive net cash flow over the three-year award cycle. Performance shares were granted to 28 executive officers and other senior managers in fiscal 2006. For the performance shares granted in fiscal 2006 to Mr. Hanson and the other named executive officers who may be "covered employees" as defined in Section 162(m) of the Internal Revenue Code, the performance measure is average return on equity over the three-year award cycle ending in fiscal 2008. However, the Committee has discretion under the 2003 Stock Incentive Plan to reduce or eliminate the payout on such awards. The Committee believes that the performance share award program serves as a powerful retention tool and motivates senior management to generate long-term returns for the corporation’s shareholders.

 

Restricted Stock Units . The Committee granted restricted stock units to officers and employees in each of fiscal 2004, fiscal 2005 and fiscal 2006. The Committee believes that restricted stock unit grants play an important role in retaining the corporation's senior management. Restricted stock units were granted to 17 executive officers and other senior managers in fiscal 2006. These restricted stock units vest in thirds on the third, fourth and fifth anniversaries of the grant date.

 

CEO Compensation For Fiscal 2006

 

Mr. Hanson's compensation for fiscal 2006 included base salary of $782,400 and a bonus of $1,500,000. In addition, during fiscal 2006 Mr. Hanson was granted 103,200 stock options, 15,300 performance shares and 15,300 restricted stock units.

 

The Committee considered a wide range of factors in determining Mr. Hanson's salary, targeted bonus and long-term incentive grants for fiscal 2006, including his individual performance, comparative compensation data for manufacturing companies of comparable size, and various measures of the corporation's performance, including ROAWC, cash flow, operating margins, incremental profitability and market position. Mr. Hanson's effective compensation for fiscal 2006 was also directly affected by the corporation's performance due to the design of the corporation's bonus and performance share programs.

 

Under the 2003 Stock Incentive Plan, the Committee has the power, at its discretion, to provide that stock options previously granted to Mr. Hanson will continue vesting after his retirement. The Committee has determined that it will not exercise such discretion, and accordingly, Mr. Hanson’s unvested stock options will terminate upon his retirement.

 

In November 2006 the Committee formally evaluated Mr. Hanson's performance against goals established for Mr. Hanson by the Committee at the beginning of the year.

 

20

Tax Considerations

 

The Committee intends to take the necessary steps to satisfy the conditions of Section 162(m) of the Internal Revenue Code in order to preserve the deductibility of executive compensation to the fullest extent possible consistent with the Committee's other compensation objectives and overall compensation philosophy.

 

Respectfully,

 

Richard B. Loynd (Chair)

Steven L. Gerard

Ken C. Johnsen

 

21

Performance Graph

 

The following graph shows the cumulative total shareholder return on $100 invested in the corporation's Common Stock over the five-year period ended October 28, 2006, the last day of fiscal 2006, as compared to the returns over the same period, in each case assuming reinvestment of cash dividends, of the Standard & Poor's 500 Stock Index and the Dow Jones U.S. Commercial Vehicles & Trucks Index (ticker symbol DJUSHR), an industry subsector index that includes the corporation. The Dow Jones U.S. Commercial Vehicles & Trucks Index was known as the Dow Jones U.S. Total Market Heavy Machinery Index until December 20, 2004.

 

$0

$100

$200

$300

$400

$500

$600

$0

$100

$200

$300

$400

$500

$600

Joy Global Inc.

DJUSHR

S&P 500

10/31/01

11/2/02

11/1/03

10/30/04

10/29/05

10/27/06

Joy Global Inc.

DJUSHR

S&P 500

100

61

110

196

397

544

100

114

167

178

192

256

100

86

103

112

121

142

22

Option Grants

 

The following table shows information about stock option grants during the last fiscal year to the five executive officers named in the Summary Compensation Table.

 

Option Grants in Last Fiscal Year (1)

 

Individual Grants

 

 

 

 

 

 

Name

 

Number of Securities Underlying Options Granted

 

Percent of Total Options Granted to Employees in Fiscal Year

 

 

 

Exercise Price per Share

 

 

 

 

 

Expiration Date (2)

 

 

 

 

Grant Date Present Value (3)

John Nils Hanson

103,200

14.56%

$30.39

November 14, 2015

$787,416

Michael W. Sutherlin

33,600

4.74%

$30.39

November 14, 2015

$256,368

Donald C. Roof

33,300

4.70%

$30.39

November 14, 2015

$254,079

Mark E. Readinger

28,500

4.02%

$30.39

November 14, 2015

$217,455

Dennis R. Winkleman

19,800

2.79%

$30.39

November 14, 2015

$151,074

 

Notes:

 

(1)

No stock appreciation rights (SARs) were granted in the last fiscal year.

 

(2)

One-third of the options become exercisable on each of the first, second and third anniversaries of November 14, 2005.

 

(3)

Grant date present values were determined using the Black-Scholes option pricing model. The actual value, if any, an executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. There is no assurance the value realized by an executive will be at or near the value estimated by the Black-Scholes model. The estimated values are based on assumed volatility of 33.5%, risk-free rate of return of 4.49%, dividend yield of 1.5% and three year expected life. No adjustments have been made for non-transferability or risk of forfeiture.

 

23

Option Exercises and Fiscal Year-End Values

 

The following table shows information with respect to options exercised in fiscal 2006 and options held at the end of such year by the five executive officers named in the Summary Compensation Table. The corporation has not granted stock appreciation rights (SARs) to any of its executive officers. The value of unexercised in-the-money options is determined by multiplying the number of unexercised options for each in-the-money grant by the difference between the option exercise price for that grant and the fiscal year-end closing price of $40.88 per share and then aggregating these amounts for all in-the-money grants for each executive officer.

 

Aggregated Option Exercises in Last Fiscal Year

and Fiscal Year-End Option Values

 

 

 

 

 

 

Name

 

 

Shares Acquired on

Exercise

 

 

 

Value

Realized

Number of Securities Underlying Unexercised Options at Fiscal Year End

Value of Unexercised

In-the-Money Options

at Fiscal Year End

 

Exercisable

Unexercisable

Exercisable

Unexercisable

John Nils Hanson

328,125

$14,197,313

174,375

271,950

$4,769,269

$5,383,106

Michael W. Sutherlin

125,625

$ 4,350,192

-

86,100

-

$1,690,877

Donald C. Roof

91,873

$ 3,064,410

-

85,800

-

$1,687,730

Mark E. Readinger

105,373

$ 3,680,881

-

73,500

-

$1,444,373

Dennis R. Winkleman

43,500

$ 1,738,170

-

51,300

-

$1,006,542

 

24

Long-Term Incentive Compensation

 

Performance share awards under the corporation's 2003 Stock Incentive Plan provide long-term incentive compensation opportunities to the corporation's executives. In fiscal 2006 the corporation granted performance shares to executives named in the Summary Compensation Table and to other executives of the corporation.

 

Executives awarded performance shares in fiscal 2006 earn shares of Common Stock if, at the end of the three-year award cycle, average return on equity exceeds a specified threshold amount. Each performance share represents the right to earn one share of Common Stock if the specified performance target is achieved. The number of shares of Common Stock earned at the end of the award cycle can range from 0% to 180% of the number of performance shares awarded. Performance shares earned will be settled in shares of Common Stock, cash or a combination of the two, at the discretion of the Human Resources and Nominating Committee.

 

The following table provides information regarding performance share awards to the named executive officers during fiscal 2006 under the 2003 Stock Incentive Plan.

 

Long-Term Incentive Plans – Awards In Last Fiscal Year

 

 

 

 

 

Number of Shares, Units or

 

 

Performance or Other Period Until Maturation

 

Estimated Future Payouts Under

Non-Stock Price-Based Plans

(Number of Shares)

Name

Rights

or Payout

Threshold

Target

Maximum

John Nils Hanson

15,300

 

10/30/05 – 10/31/08

 

7,650

 

15,300

 

27,540

 

Michael W. Sutherlin

4,950

 

10/30/05 – 10/31/08

2,475

 

4,950

 

8,910

 

Donald C. Roof

4,875

 

10/30/05 – 10/31/08

2,438

 

4,875

 

8,775

 

Mark E. Readinger

4,275

 

10/30/05 – 10/31/08

 

2,138

 

4,275

 

7,695

 

Dennis R. Winkleman

3,000

 

10/30/05 – 10/31/08

 

1,500

 

3,000

 

5,400

 

 

25

Equity Compensation Plan Information

 

The following table summarizes information about the corporation's equity compensation plans as of the end of fiscal 2006. The corporation has no securities to be issued or available for future issuance under equity compensation plans not approved by security holders. All outstanding awards relate to Common Stock

 

 

 

 

 

 

 

 

Plan category

 

 

 

(a)

Number of securities to be issued upon exercise of outstanding options, warrants and rights

 

 

 

(b)

Weighted-average exercise price of outstanding options, warrants and rights

(c)

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by security holders (1)

 

2,549,683

 

$18.10

 

5,372,113 (2)

 

 

Notes:

 

(1)

The corporation's 2001 Stock Incentive Plan was deemed approved by shareholders in connection with the approval of the corporation's plan of reorganization. The corporation's 2003 Stock Incentive Plan was approved by shareholders at the 2003 annual meeting. The maximum number of shares of Common Stock that may be delivered under the 2003 Stock Incentive Plan is determined on the basis of a formula equal to the sum of the following: (a) 5,625,000; (b) the number of shares of Common Stock that, as of the time the 2003 Stock Incentive Plan became effective on February 25, 2003 (the "Effective Time"), were not subject to outstanding awards and remained available for issuance under the 2001 Stock Incentive Plan; (c) the number of shares of Common Stock that are repurchased by the corporation with stock option exercise proceeds after the Effective Time; (d) the number of shares of Common Stock underlying any stock incentive award that is exercised or settled for cash, forfeited, or terminates, expires or lapses without being exercised after the Effective Time; (e) the number of shares of Common Stock delivered to the corporation by an optionee in satisfaction of the exercise price of any stock option after the Effective Time; and (f) the number of shares of Common Stock not delivered to a participant because such shares are used to satisfy an applicable tax withholding obligation after the Effective Time.

 

(2)

Includes 249,428 shares of Common Stock, which is the maximum number of shares that may be issued under performance share awards granted in fiscal 2005 and fiscal 2006; 888,249 shares of Common Stock deliverable under performance share awards granted in fiscal 2001, fiscal 2003 and fiscal 2004 (including shares deliverable upon settlement of deferred stock units resulting from the deferral of performance share payouts); and 362,888 shares of Common Stock that may be issued under outstanding restricted stock unit awards.

 

26

Pension Plan Table

 

The following table lists the estimated annual benefits payable upon retirement at normal retirement age for the years of service indicated under the corporation's defined benefit pension plan for U.S. employees (and excess benefit arrangements described below) at the indicated remuneration levels.

 

 

Years of Service

Remuneration

10

15

20

25

30

35

$ 400,000

$ 60,000

$ 90,000

$120,000

$150,000

$180,000

$210,000

600,000

90,000

135,000

180,000

225,000

270,000

315,000

800,000

120,000

180,000

240,000

300,000

360,000

420,000

1,000,000

150,000

225,000

300,000

375,000

450,000

525,000

1,200,000

180,000

270,000

360,000

450,000

540,000

630,000

1,400,000

210,000

315,000

420,000

525,000

630,000

735,000

1,600,000

240,000

360,000

480,000

600,000

720,000

840,000

1,800,000

270,000

405,000

540,000

675,000

810,000

945,000

2,000,000

300,000

450,000

600,000

750,000

900,000

1,050,000

2,200,000

330,000

495,000

660,000

825,000

990,000

1,155,000

 

Benefits are based both upon credited years of service with the corporation or its subsidiaries and the average salary and incentive compensation over the highest 60 consecutive calendar month period during the last 120 consecutive calendar months of service. The estimated benefits in the table do not reflect offsets under the plan of 1.25% per year of service (up to a maximum of 50%) of the estimated Social Security benefit. Remuneration covered by the plan includes the salary and bonus amounts reported in the Summary Compensation Table.

 

The years of service credited for each of the executive officers named in the Summary Compensation Table are: John Nils Hanson, 32 years; Michael W. Sutherlin, 4 years; Donald C. Roof, 6 years; Mark E. Readinger, 13 years; and Dennis R. Winkleman, 9 years. Under an arrangement approved by the Human Resources and Nominating Committee in 1999, Mr. Hanson is credited with three years of service for pension plan purposes for each year he is employed by the corporation after June 1999.

 

Estimated benefits under the retirement plan are subject to the provisions of the Internal Revenue Code that limit the annual benefits that may be paid from a tax qualified retirement plan. Amounts reflected in the table above in excess of such limitations will be paid from the general funds of the corporation under the terms of the corporation's Supplemental Retirement Plan.

 

Non-union employees, including executive officers, hired on or after May 1, 2005 will not be considered eligible employees under the corporation's defined benefit pension plan. Instead, these employees will participate in the Joy Global Retirement Savings Plan and the corporation will contribute a fixed amount to each such employee’s plan account equal to a percentage of eligible earnings based on years of service. Employee accounts become fully vested after three years of service.

 

27

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

 

The corporation entered into change-in-control employment agreements dated as of May 20, 2003 with each of the executive officers named in the Summary Compensation Table and certain other employees.

 

The agreements provide that, in the event of a "Change of Control" (as defined in the agreements), any outstanding and unvested stock options will be cashed out at a then current market price. The agreements provide further that in the event the executive's employment is terminated during the three-year period following a Change of Control, either by the executive for "Good Reason" or by the corporation without "Cause" (as such terms are defined in the agreements), the corporation will provide the executive with outplacement services and will provide medical, insurance and other welfare benefits to the executive for two years (three years in the case of the CEO), pay the executive accrued benefits including a pro rata bonus, and pay the executive a lump sum equal to two times (three times in the case of the CEO) the sum of the executive's base salary and annual bonus.

 

The approximate dollar amounts that would have been payable to the named executive officers under the provisions of these agreements if a Change of Control had occurred and the respective executive's employment was terminated as of the date of this proxy statement, either by the individual for "Good Reason" or by the corporation without "Cause," are: Mr. Hanson, $9.9 million; Mr. Sutherlin, $5.6 million; Mr. Roof, $2.8 million; Mr. Readinger, $2.5 million; and Mr. Winkleman, $1.8 million. The agreements provide that, in the event that any such payment would cause a named executive officer to incur an excise tax obligation, the corporation would not make a tax gross-up payment to such officer.

 

In the event of a "Change in Control" of the corporation as defined in the 2003 Stock Incentive Plan, the terms of the Performance Awards granted to each named executive officer provide for a lump sum cash payment equal to the greater of the value of the performance shares earned as of the date of the Change in Control or the value of the pro rata target number of performance shares through the date of the Change in Control. The approximate dollar amounts that would have been payable to the named executive officers under the provisions of the Performance Awards had a Change in Control occurred as of the date of this proxy statement are: Mr. Hanson, $3.3 million; Mr. Sutherlin, $2.4 million; Mr. Roof, $1.0 million; Mr. Readinger, $1.2 million; and Mr. Winkleman, $0.9 million.

 

Under the terms of the corporation's restricted stock unit awards, in the event of a "Change of Control," all restricted stock units granted by the corporation, whether or not vested, would be settled by payment of an amount in cash equal to the then current market price of a share of Common Stock. The approximate dollar amounts that would have been payable to the named executive officers under the provisions of the restricted stock unit awards had a Change of Control occurred as of the date of this proxy statement are: Mr. Hanson, $4.3 million; Mr. Sutherlin, $2.2 million; Mr. Roof, $1.0 million; Mr. Readinger, $1.0 million; and Mr. Winkleman, $0.7 million.

 

Certain Business Relationships

 

Pursuant to the corporation's bylaws, officers and directors of the corporation are indemnified by the corporation in the event claims are made against them arising out of their service as an officer or director. Other than these indemnification arrangements, there were no other relationships or related transactions during fiscal 2006 involving any director or executive officer (or any members of their immediate families) to which the corporation or any of its subsidiaries was a party which are required to be disclosed under the rules governing the preparation of proxy statements.

 

28

AUDIT COMMITTEE REPORT

 

The Audit Committee has presented the following report for inclusion in this proxy statement.

 

During fiscal 2006, the Audit Committee met with the independent auditor five times and met with management six times.

 

Management represented to the Committee that the corporation's financial statements were prepared in accordance with generally accepted accounting principles. The Committee has reviewed and discussed the financial statements with management and the independent auditor. The Committee discussed with the independent auditor matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees).

 

The corporation's independent auditor provided to the Committee the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and the Committee discussed with the independent auditor that firm's independence.

 

Based upon the Committee's discussions with management and the independent auditor and the Committee's review of the representations of management and the report of the independent auditor to the Committee, the Committee recommended that the Board of Directors include the audited financial statements in the corporation's Annual Report on Form 10-K for the fiscal year ended October 28, 2006 filed with the Securities and Exchange Commission.

 

Respectfully,

 

James H. Tate (Chair)

Gale E. Klappa

James R. Klauser

P. Eric Siegert

 

29

AUDITORS, AUDIT FEES AND AUDITOR INDEPENDENCE

Ernst & Young LLP served as the corporation's independent auditor for fiscal 2006. A representative of Ernst & Young is expected to be present at the 2007 annual meeting and will be given the opportunity to make a statement and answer questions that may be asked by shareholders. The Audit Committee expects to make its selection of independent auditor for fiscal 2007 during the first half of the year.

 

Audit Fees

 

Ernst & Young LLP billed the corporation a total of $2,418,905 in fees for professional services rendered for the audit of the corporation's annual financial statements for fiscal 2006, the audit of management’s assessment of the corporation’s internal control over financial reporting, and the reviews of the financial statements included in the corporation's quarterly reports on Form 10-Q for fiscal 2006. These fees are for services that are normally provided by Ernst & Young in connection with statutory and regulatory filings or engagements including the annual consolidated audit, foreign statutory audits, consents and accounting consultation for matters that were addressed during the audit work. Fees billed in this category for fiscal 2005 totaled $2,682,631.

 

Audit-Related Fees

 

Ernst & Young LLP billed the corporation a total of $18,966 in fees for audit-related services in fiscal 2006. These fees are for assurance and related services provided by Ernst & Young that are reasonably related to the performance of the audit including internal control consultation, employee benefit plan audits, accounting consultations not specifically linked to audit work and fees for access to electronic accounting research. Fees billed in this category for fiscal 2005 totaled $84,162.

 

Tax Fees

 

Ernst & Young LLP billed the corporation a total of $555,532 in tax fees in fiscal 2006. These fees are for tax consultation and tax planning provided by Ernst & Young that are related to various federal, state and international issues and entity restructuring. Fees billed in this category for fiscal 2005 totaled $310,579.

 

All Other Fees

 

Ernst & Young LLP did not bill the corporation for fees in the "All Other Fees" category in either fiscal 2006 or fiscal 2005.

 

Audit Committee Pre-approval Policies and Procedures

 

The Audit Committee has established a policy to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such services does not impair the auditor's independence. Based on information presented to the Audit Committee by Ernst & Young and the corporation's management, the Audit Committee has pre-approved defined audit, audit-related, tax and other services for fiscal 2007 up to specified cost levels. Any proposed services exceeding pre-approved cost levels require specific pre-approval by the Audit Committee. The policy requires the independent auditor to provide detailed back-up documentation regarding the specific services to be provided. The policy also prohibits the independent auditor from providing services that are prohibited under the Sarbanes-Oxley Act of 2002.

 

30

Although Rule 2-01(c)(7)(i)(C) of Regulation S-X permits the Audit Committee to waive its pre-approval requirement under certain circumstances, the Audit Committee did not rely on that rule in approving any of the fees reported under the headings Audit-Related Fees, Tax Fees and All Other Fees.

 

OTHER INFORMATION

 

Additional Matters

 

The Board of Directors is not aware of any other matters that will be presented for action at the 2007 annual meeting. Should any additional matters properly come before the meeting, the persons named in the enclosed proxy will vote on those matters in accordance with their best judgment.

 

Submission of Shareholder Proposals

 

Shareholder proposals for the 2008 annual meeting must be received no later than September 27, 2007 at the corporation's principal executive offices, 100 East Wisconsin Avenue, Suite 2780, Milwaukee, Wisconsin, 53202, directed to the attention of the Secretary, in order to be considered for inclusion in next year's annual meeting proxy materials under Securities and Exchange Commission rules. Under the corporation's bylaws, written notice of shareholder proposals for the 2008 annual meeting which are not intended to be considered for inclusion in next year's annual meeting proxy materials (shareholder proposals submitted outside the processes of Rule 14a-8 under the Securities Exchange Act of 1934) must be received by the corporation at such offices, directed to the attention of the Secretary, not less than 75 nor more than 105 days before the first anniversary of this year's meeting and must contain the information specified in the corporation's bylaws.

 

Cost of Proxy Solicitation

 

The corporation will pay the cost of preparing, printing and mailing proxy materials as well as the cost of soliciting proxies on behalf of the Board. In addition to using mail services, officers and other employees of the corporation, without additional remuneration, may solicit proxies in person and by telephone, e-mail or facsimile transmission. The corporation may retain a professional proxy solicitation firm, and pay such firm its customary fee, to solicit proxies from direct holders and from banks, brokers and other nominees having shares registered in their names that are beneficially owned by others.

 

Annual Report on Form 10-K

 

A copy (without exhibits) of the corporation's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended October 28, 2006 is being provided with this proxy statement. The corporation will provide an additional copy of such Annual Report to any shareholder, without charge, upon written request of such shareholder. Such requests should be addressed to the attention of "Shareholder Relations" at Joy Global Inc., 100 East Wisconsin Avenue, Suite 2780, Milwaukee, Wisconsin 53202.

 

31

Section 16(a) Beneficial Ownership Reporting Compliance

 

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the corporation during the last fiscal year and Forms 5 and amendments thereto furnished to the corporation with respect to the last fiscal year or written representations that no reports were required, the corporation is not aware that any director, officer or beneficial owner of more than 10% of the corporation's Common Stock failed to report on a timely basis transactions required to be reported during the last fiscal year by Section 16(a) of the Securities Exchange Act of 1934.

 

By order of the Board of Directors.

 

OREN B. AZAR

Secretary

 

January 24, 2007

 

32

 

 

ANNEX A: JOY GLOBAL INC. 2007 STOCK INCENTIVE PLAN

Section 1. Purpose; Definitions

The purpose of the Plan is to give the Company a competitive advantage in attracting, retaining and motivating officers, employees, and/or directors and to provide the Company and its Subsidiaries and Affiliates with a stock plan providing incentives directly linked to the profitability of the Company’s businesses and increases in Company shareholder value.

For purposes of the Plan, the following terms are defined as set forth below:

(a)             “Affiliate” means a corporation or other entity controlled by, controlling or under common control with the Company.

(b)             “Award” means a Stock Option, Stock Appreciation Right, Performance Award or other stock-based award.

(c)             “Award Cycle” means a period of consecutive fiscal years or portions thereof designated by the Committee over which Performance Awards are to be earned. No Award Cycle shall exceed five years in duration.

(d)

“Board” means the Board of Directors of the Company.

(e)             “Cause” means, unless otherwise provided by the Committee, (i) “Cause” as defined in any Individual Agreement to which the participant is a party, or (ii) if there is no such Individual Agreement or if it does not define Cause: (A) conviction of the participant for committing a felony under federal law or the law of the state in which such action occurred, (B) dishonesty in the course of fulfilling the participant’s employment duties, (C) willful and deliberate failure on the part of the participant to perform his or her employment duties in any material respect, or (D) prior to a Change in Control, such other events as shall be determined by the Committee. The Committee shall, unless otherwise provided in an Individual Agreement with the participant, have the sole discretion to determine whether “Cause” exists, and its determination shall be final.

(f)             “Change in Control” and “Change in Control Price” have the meanings set forth in Sections 9(b) and 9(c), respectively.

(g)             “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.

(h)

“Commission” means the Securities and Exchange Commission or any successor agency.

(i)

“Committee” means the Committee referred to in Section 2.

(j)

“Common Stock” means common stock, par value $1.00 per share, of the Company.

(k)

“Company” means Joy Global Inc., a Delaware corporation.

(l)              “Covered Employee” means a participant designated prior to the grant of Performance Awards by the Committee who is or may be a “covered employee” within the meaning of Section 162(m)(3) of the Code in the year in which Performance Awards are expected to be taxable to such participant.

 

33

 


(m)           “Disability” means, unless otherwise provided by the Committee, (i) “Disability” as defined in any Individual Agreement to which the participant is a party, or (ii) if there is no such Individual Agreement or it does not define “Disability”, permanent and total disability as determined under the Company’s Long-Term Disability Plan applicable to the participant.

(n)              “Early Retirement” means retirement from active employment with the Company, a Subsidiary or Affiliate pursuant to the early retirement provisions of the applicable pension plan of such employer.

(o)             “Eligible Individuals” means directors, officers, and employees of the Company or any of its Subsidiaries or Affiliates, and prospective employees who have accepted offers of employment from the Company or its Subsidiaries or Affiliates.

(p)             “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.

(q)             “Fair Market Value” means, except as otherwise provided by the Committee, as of any given date, the average of the highest and lowest per-share sales prices for a share of Common Stock during normal business hours on the Nasdaq Stock Market or such other national securities market or exchange as may at the time be the principal market for the Common Stock, or if the shares were not traded on such national securities market or exchange on such date, then on the next preceding date on which such shares of Common Stock were traded, all as reported by such source as the Committee may select.

(r)             “Incentive Stock Option” means any Stock Option designated as, and qualified as, an “incentive stock option” within the meaning of Section 422 of the Code.

(s)             “Individual Agreement” means an employment or similar agreement between a participant and the Company or one of its Subsidiaries or Affiliates.

(t)

“Nonqualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

(u)              “Normal Retirement” means retirement from active employment with the Company, a Subsidiary or Affiliate at or after age 65.

(v)             “Outside Director” means a director who qualifies as an “independent director” within the meaning of Rule 4200 of the National Association of Securities Dealers, as an “outside director” within the meaning of Section 162(m) of the Code, and as a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act.

(w)

“Performance Awards” means Awards granted under Section 7.

(x)             “Performance Goals” means the performance goals established by the Committee in connection with the grant of Performance Awards. In the case of Qualified Performance-Based Awards, (i) such goals shall be based on the attainment of specified levels of one or more of the following measures: revenue growth; earnings before interest, taxes, depreciation, and amortization; earnings before interest and taxes; operating income; pre- or after-tax income; earnings per share; cash flow; cash flow per share; return on equity; return on invested capital; return on assets; economic value added (or an equivalent metric); share price performance; total shareholder return; improvement in or attainment of expense levels; improvement in or attainment of working capital levels, and (ii) such Performance Goals shall be set by the Committee within the time period prescribed by Section 162(m) of the Code and related regulations. Performance Goals may be established on a corporate-wide basis or with respect to one or more business units, divisions, or subsidiaries. Measurement of performance against goals may exclude

 

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impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of accounting changes, each as defined by generally accepted accounting principles and as identified in the financial statements, notes to the financial statements, or management’s discussion and analysis within the Company’s annual report on Form 10-K.

(y)             “Plan” means the Joy Global Inc. 2003 Stock Incentive Plan, as set forth herein and as hereinafter amended from time to time.

(z)             “Qualified Performance-Based Award” means a Performance Award designated as such by the Committee at the time of grant, based upon a determination that (i) the recipient is or may be a “covered employee” within the meaning of Section 162(m)(3) of the Code in the year in which the Company would expect to be able to claim a tax deduction with respect to such Performance Award and (ii) the Committee wishes such Performance Award to qualify for the Section 162(m) Exemption.

(aa)

“Retirement” means Normal or Early Retirement.

(bb)          “Rule 16b-3” means Rule 16b-3, as promulgated by the Commission under Section 16(b) of the Exchange Act, as amended from time to time.

(cc)           “Section 162(m) Exemption” means the exemption from the limitation on deductibility imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code.

(dd)

“Stock Appreciation Right” means an Award granted under Section 6.

(ee)

“Stock Option” means an Award granted under Section 5.

(ff)            “Stock Option Proceeds” means, with respect to a Stock Option, the sum of (i) the exercise price paid in cash, if any, to purchase shares of Common Stock under such Stock Option, plus (ii) in the case of Nonqualified Stock Options and in the case of Incentive Stock Options pursuant to which the exercise of the Incentive Stock Option or the sale of the underlying shares received upon exercise of the Incentive Stock Option results in a “disqualifying disposition” triggering a deduction for the Company pursuant to Section 421(b) of the Code, the value of all federal, state, and local tax deductions to which the Company is entitled with respect to the exercise of such Stock Option.

(gg)          “Subsidiary” means any corporation, partnership, joint venture or other entity during any period in which at least a 50% voting or profits interest is owned, directly or indirectly, by the Company or any successor to the Company.

(hh)            “Termination of Employment” means the termination of the participant’s employment with, or performance of services for, the Company and any of its Subsidiaries or Affiliates. A participant employed by, or performing services for, a Subsidiary or an Affiliate shall also be deemed to incur a Termination of Employment if the Subsidiary or Affiliate ceases to be such a Subsidiary or an Affiliate, as the case may be, and the participant does not immediately thereafter become an employee of, or service-provider for, the Company or another Subsidiary or Affiliate. Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Company and its Subsidiaries and Affiliates shall not be considered Terminations of Employment.

In addition, certain other terms used herein have definitions given to them in the first place in which they are used.

 

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SECTION 2.

Administration

The Plan shall be administered by the Human Resources and Nominating Committee or such other committee of the Board as the Board may from time to time designate (the “Committee”), which shall be composed solely of Outside Directors numbering no fewer than two (2), shall be appointed by and serve at the pleasure of the Board.

The Committee shall have plenary authority to grant Awards pursuant to the terms of the Plan to Eligible Individuals.

Among other things, the Committee shall have the authority, subject to the terms of the Plan to:

(a)

select the Eligible Individuals to whom Awards may from time to time be granted;

(b)             determine whether and to what extent Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Performance Awards, and other stock-based Awards pursuant to Section 8, or any combination thereof, are to be granted hereunder;

(c)             determine the number of shares of Common Stock to be covered by each Award granted hereunder;

(d)             determine the terms and conditions of any Award granted hereunder (including, but not limited to, the option price (subject to Section 5(b)), any vesting condition, restriction or limitation (which may be related to the performance of the participant, the Company or any Subsidiary or Affiliate) and any vesting acceleration regarding any Award and the shares of Common Stock relating thereto, based on such factors as the Committee shall determine;

(e)             modify, amend or adjust the terms and conditions of any Award, at any time or from time to time, including but not limited to Performance Goals; provided, however, that the Committee may not adjust upwards the amount payable with respect to a Qualified Performance-Based Award or waive or alter the Performance Goals associated therewith;

(f)             determine to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award shall be deferred; and

(g)             determine under what circumstances an Award may be settled in cash or Common Stock under Sections 6(b)(ii), 6(c)(iv), and 7(b)(iv).

The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto) and to otherwise supervise the administration of the Plan.

The Committee may act only by a majority of its members then in office. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may (i) delegate administrative responsibilities with respect to the Plan, and (ii) delegate all or any portion of its responsibilities to grant Awards to the Chief Executive Officer of the Company (the “CEO”); provided, however , that no delegation may be made by the Committee that would cause Awards or other transactions under the Plan to cease to be exempt from Section 16(b) of the Exchange Act or cause an Award designated as a Qualified Performance-Based Award not to qualify for, or to cease to qualify for, the Section 162(m) Exemption; and provided, further , that the Committee may not delegate to the CEO

 

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the authority to grant Awards to executive officers of the Company. Any allocation or delegation may be revoked by the Committee at any time.

Any determination made by the Committee with respect to any Award shall be made in the sole discretion of the Committee at the time of the grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.

Any authority granted to the Committee may also be exercised by the full Board, except to the extent that the grant or exercise of such authority would cause any Award or transaction to become subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the Exchange Act or cause an Award designated as a Qualified Performance-Based Award not to qualify for, or to cease to qualify for, the Section 162(m) Exemption. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control.

SECTION 3.

Common Stock Subject to Plan

(a)             Aggregate Limit. The maximum number of shares of Common Stock that may be delivered to participants and their beneficiaries under the Plan shall be the sum (such sum, the “Aggregate Limit”) of (x) 10,000,000, (y) the number of shares of Common Stock that “become available for distribution” pursuant to Sections 3(a)(i), 3(a)(ii), and 3(a)(iii), and (z) the amount of any shares of Common Stock that are repurchased by the Company with Stock Option Proceeds (determined under generally accepted accounting principles) in respect of the exercise of a Stock Option; provided, however , that the number of shares of Common Stock contributed to the Aggregate Limit pursuant to Section 3(a)(z) in respect of a use of Stock Option Proceeds for repurchase shall not be greater than (A) the amount of such Stock Option Proceeds divided by (B) the Fair Market Value on the date of exercise of the applicable Stock Option. Shares subject to an Award under the Plan may be authorized and unissued shares or may be treasury shares. No future awards shall be granted under the Joy Global Inc. 2001 Stock Incentive Plan (the “2001 Plan”) or the Joy Global Inc. 2003 Stock Incentive Plan (the “2003 Plan”) following the Effective Time of this Plan.

 

(i)

If, after the Effective Time, any Award (or any award granted under the 2001 Plan or the 2003 Plan that is outstanding as of the Effective Time) is forfeited, or if any Stock Option or Stock Appreciation Right (including any Stock Option or Stock Appreciation Right granted under the 2001 Plan or the 2003 Plan) terminates, expires or lapses without being exercised, or if any Award is settled in cash or otherwise paid out in cash, shares of Common Stock subject to such Awards shall thereafter become available for distribution in connection with Awards under the Plan.

 

(ii)

If the option price of any Stock Option (or any stock option granted under the 2001 Plan or the 2003 Plan that is outstanding as of the Effective Time) is satisfied by delivering shares of Common Stock to the Company (by either actual delivery or by attestation), only the number of shares of Common Stock delivered to the optionee net of the shares of Common Stock delivered to the Company or attested to shall be deemed delivered for purposes of determining the maximum numbers of shares of Common Stock available for delivery under the Plan.

 

(iii)

To the extent any shares of Common Stock subject to an Award are not delivered to a participant upon exercise or settlement of such Award because such shares are used to satisfy an applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Common Stock available for delivery

 

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under the Plan. To the extent any shares of Common Stock subject to an award granted under the 2001 Plan or the 2003 Plan that are outstanding as of the Effective Time are not delivered to a participant upon exercise or settlement of such award because such shares are used to satisfy an applicable tax withholding obligation, the number of shares not delivered shall thereafter become available for distribution in connection with Awards under the Plan.

 

(iv)

For the avoidance of doubt, delivery of shares of Common Stock subject to awards granted in substitution of awards granted by a business or entity that is acquired by, or whose assets are acquired by, the Company shall not be deemed a delivery for purposes of determining the maximum number of shares of Common Stock available for delivery under the Plan.

 

(v)

Neither (A) shares of Common Stock that are available for delivery pursuant to Section 3(a)(y) nor (B) shares of Common Stock that are available for delivery pursuant to Section 3(a)(i) because of the forfeiture, termination, expiration or lapse of an Award granted under the 2001 Plan or the 2003 Plan, may be used for any Awards other than Stock Options, Stock Appreciation Rights or Performance Awards.

(b)             Other Limits. The maximum number of shares of Common Stock that may be delivered pursuant to Stock Options intended to be Incentive Stock Options shall be 8,000,000 shares. The maximum number of shares of Common Stock that may be delivered pursuant to Awards other than Stock Options and Stock Appreciation Rights shall be 6,000,000 shares. No participant may be granted during any consecutive 24-month period Stock Options and Stock Appreciation Rights covering in excess of an aggregate of 8,000,000 shares of Common Stock. No more than 2,000,000 shares of Common Stock may be subject to Awards other than Stock Options or Stock Appreciation Rights granted during any consecutive 24-month period to any participant. No participant shall receive a Performance Award settlement pursuant to Section 7(b)(iv), the value of which exceeds the product of (x) the number of fiscal years composing the duration of the applicable Award Cycle (with partial fiscal years expressed as a fraction, the numerator of which is the number of days in such fiscal year that elapsed during the Award Cycle, and the denominator of which is 365, multiplied by (y) $2,000,000.

(c)             Adjustment Provision. In the event of any change in corporate capitalization (including, but not limited to, a change in the number of shares of Common Stock outstanding), such as a stock split or a corporate transaction, any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee or Board may make such substitution or adjustments in the aggregate number and kind of shares reserved for issuance under the Plan, in the maximum limitations upon Stock Options, Incentive Stock Options, Stock Appreciation Rights and other Awards to be granted to any participant, in the number, kind and option price or Strike Price of shares subject to outstanding Stock Options and Stock Appreciation Rights, in the number and kind of shares subject to other outstanding Awards granted under the Plan and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion; provided, however, that the number of shares subject to any Award shall always be a whole number. Such adjusted option price shall also be used to determine the amount payable by the Company upon the exercise of any Tandem Stock Appreciation Right.

SECTION 4.

Eligibility

Awards may be granted under the Plan to Eligible Individuals.

 

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SECTION 5.

Stock Options

Stock Options may be granted alone or in addition to other Awards granted under the Plan and may be of two types: Incentive Stock Options and Nonqualified Stock Options. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve.

The Committee shall have the authority to grant any Eligible Individual Incentive Stock Options, Nonqualified Stock Options or both types of Stock Options (in each case with or without Tandem Stock Appreciation Rights); provided, however, that grants hereunder are subject to the limits set forth in Section 3(b); and, provided, further , that Incentive Stock Options may be granted only to employees of the Company and its subsidiaries or parent corporation (within the meaning of Section 424(f) of the Code). To the extent that any Stock Option is not designated as an Incentive Stock Option or even if so designated does not qualify as an Incentive Stock Option on or subsequent to its grant date, it shall constitute a Nonqualified Stock Option.

Stock Options shall be evidenced by option agreements, the terms and provisions of which may differ. An option agreement shall indicate on its face whether it is intended to be an agreement for an Incentive Stock Option or a Nonqualified Stock Option. The grant of a Stock Option shall occur on the date the Committee by resolution selects an Eligible Individual to receive a grant of a Stock Option, determines the number of shares of Common Stock to be subject to such Stock Option and specifies the terms and provisions of such Stock Option. The Company shall notify an Eligible Individual of any grant of a Stock Option, and a written option agreement or agreements shall be duly executed and delivered by the Company to the participant. Such agreement or agreements shall become effective upon execution by the Company and the participant.

Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions as the Committee shall deem desirable:

(a)             Option Term . The Committee shall determine the stated term of each Stock Option granted under this Plan. Except as specifically stated in the Plan, no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted.

(b)             Option Price . The Committee shall determine the option price per share of Common Stock subject to Stock Options granted under this Plan. The option price per share of Common Stock subject to a Stock Option shall not be less than the Fair Market Value of the Common Stock subject to such Stock Option on the date of grant, except with respect to Stock Options granted in lieu of foregone compensation. Except for adjustments pursuant to Section 3(c), in no event may any Stock Option granted under this Plan be amended to decrease the option price thereof, cancelled in conjunction with the grant of any new Stock Option with a lower option price, or otherwise be subject to any action that would be treated, for accounting purposes, as a “repricing” of such Stock Option, unless such amendment, cancellation, or action is approved by a vote of the Company’s stockholders.

(c)             Exercisability . Except as otherwise provided herein, Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee, and the Committee may at any time accelerate the exercisability of any Stock Option; provided, however , that except as may be provided in Sections 5(f), 5(g), 5(h) and 9(a)(i), and except as determined otherwise by the Committee in limited instances, no Stock Option shall be exercisable prior to the first anniversary of the date of grant. If the Committee provides that any Stock Option is exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine.

 

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(d)             Method of Exercise . Subject to the provisions of this Section 5, Stock Options may be exercised, in whole or in part, at any time during their stated term by giving written notice of exercise to the Company specifying the number of shares of Common Stock subject to the Stock Option to be purchased.

Such notice shall be accompanied by payment in full of the purchase price by certified or bank check or such other instrument as the Company may accept. If approved by the Committee, payment, in full or in part, may also be made in the form of unrestricted Common Stock (by delivery of such shares or by attestation) already owned by the optionee of the same class as the Common Stock subject to the Stock Option (based on the Fair Market Value of the Common Stock on the date the Stock Option is exercised); provided, however, that in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares of Common Stock of the same class as the Common Stock subject to the Stock Option may be authorized only at the time the Stock Option is granted. In addition, if approved by the Committee, payment in full or in part may also be made by instructing the Committee to withhold a number of such shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price of such Stock Option.

To the extent permitted by applicable law, if approved by the Committee, payment in full or in part may also be made by delivering a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the purchase price, and, if requested by the Company, the amount of any federal, state, local or foreign withholding taxes. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms.

No shares of Common Stock shall be delivered until full payment therefor has been made. Except as otherwise provided in Section 5(l) below, an optionee shall have all of the rights of a stockholder of the Company holding the class or series of Common Stock that is subject to such Stock Option (including, if applicable, the right to vote the shares and the right to receive dividends), when the optionee has given written notice of exercise, has paid in full for such shares and, if requested by the Company, has given the representation described in Section 12(a).

(e)             Nontransferability of Stock Options . No Stock Option shall be transferable by the optionee other than (i) by will or by the laws of descent and distribution; or (ii) in the case of a Nonqualified Stock Option, as otherwise expressly permitted by the Committee including, if so permitted, pursuant to a transfer to such optionee’s children or family member, whether directly or indirectly or by means of a trust or partnership or otherwise. For purposes of this Plan, unless otherwise determined by the Committee, “family member” shall have the meaning given to such term in General Instructions A.1(a)(5) to Form S-8 under the Securities Act of 1933 as amended, and any successor thereto. All Stock Options shall be exercisable, subject to the terms of this Plan, only by the optionee, the guardian or legal representative of the optionee, or any person to whom such option is transferred pursuant to this paragraph, it being understood that the term “holder” and “optionee” include such guardian, legal representative and other transferee; provided, however , that the term “Termination of Employment” shall continue to refer to the Termination of Employment of the original optionee.

(f)             Termination by Reason of Death . Unless otherwise determined by the Committee, if an optionee incurs a Termination of Employment by reason of death, any Stock Option held by such optionee shall vest in full and shall remain exercisable (i) in the case of a Nonqualified Stock Option, until the first anniversary of such Termination of Employment (notwithstanding any earlier expiration of the stated term of such Nonqualified Stock Option) and (ii) in the case of an Incentive Stock Option, until the earlier of (A) the first anniversary of such Termination of Employment, or (B) the expiration of the stated term of such Incentive Stock Option.

 

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(g)             Termination by Reason of Disability . Unless otherwise determined by the Committee, if an optionee incurs a Termination of Employment by reason of Disability, any Stock Option held by such optionee shall vest in full and remain exercisable until (i) in the case of a Nonqualified Stock Option, the first anniversary of such Termination of Employment (notwithstanding any earlier expiration of the stated term of such Nonqualified Stock Option) and (ii) in the case of an Incentive Stock Option, the earlier of (A) the first anniversary of such Termination of Employment or (B) the expiration of the stated term of such Stock Option; provided, however, that if the optionee dies within such period, notwithstanding the expiration of such period, any unexercised Stock Option, may thereafter be exercised (x) in the case of a Nonqualified Stock Option, for a period of one year from the date of death (notwithstanding any earlier expiration of the stated term of such Nonqualified Stock Option) and (y) in the case of an Incentive Stock Option, until the earlier of (A) the first anniversary of the date of death or (B) the expiration of the stated term of such Incentive Stock Option. In the event of Termination of Employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Nonqualified Stock Option.

(h)             Termination by Reason of Retirement . Unless otherwise determined by the Committee, if an optionee incurs a Termination of Employment by reason of Retirement, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of such Termination of Employment, or on such accelerated basis as the Committee may determine, until the earlier of (i) the third anniversary of such Termination of Employment or (ii) the expiration of the stated term of such Stock Option; provided, however, that if the optionee dies within such period, any unexercised Stock Option may to the extent exercisable on the date of death thereafter be exercised (x) in the case of a Nonqualified Stock Option, until the later of (A) the first anniversary of the date of death (notwithstanding any earlier expiration of the stated term of such Nonqualified Stock Option) or (B) the third anniversary of the Termination of Employment by reason of Retirement and (y) in the case of an Incentive Stock Option, until the earlier of (A) the later of (1) the first anniversary of the date of death or (2) the third anniversary of the Termination of Employment by reason of Retirement or (B) the expiration of the stated term of such Incentive Stock Option. In the event of Termination of Employment by reason of Retirement, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Nonqualified Stock Option.

(i)              Other Termination . Unless otherwise determined by the Committee: (i) if an optionee incurs a Termination of Employment for Cause, all Stock Options held by such optionee shall thereupon immediately terminate; (ii) if an optionee incurs a Termination of Employment due to a termination by the Company for any reason other than death, Disability, Retirement or for Cause, any Stock Option held by such optionee, may, to the extent it was exercisable at the time of Termination of Employment, be exercised until the earlier of (A) 90 days from the date of such Termination of Employment, or (B) the expiration of the stated term of the Stock Option; or (iii) if an optionee incurs a Termination of Employment due to a voluntary termination by the optionee, any Stock Option held by such optionee, may, to the extent it was exercisable at the time of Termination of Employment, be exercised until the earlier of (A) 30 days from the date of such Termination of Employment, or (B) the expiration of the stated term of the Stock Option; provided, however, that if the optionee dies within either of the exercise periods established by Sections 5(i)(ii) or 5(i)(iii), any unexercised Stock Option held by such optionee shall, continue to be exercisable to the extent to which it was exercisable at the time of death until (x) in the case of Nonqualified Stock Options, the first anniversary of the date of death (notwithstanding any earlier expiration of the stated term of such Nonqualified Stock Option) or (y) in the case of Incentive Stock Options, the earlier of (A) the first anniversary of the date of death, or (B) the expiration of the stated term of such Stock Option.

 

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(j)              Change in Control Termination. Unless otherwise determined by the Committee, notwithstanding any other provision of this Plan to the contrary, in the event an optionee incurs a Termination of Employment other than for Cause during the 24-month period following a Change in Control, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of such Termination of Employment until the earlier of (i) the later of (A) the first anniversary of such date of Termination of Employment, or (B) such other date as may be provided in the Plan for such Termination of Employment, or as the Committee may provide in the option agreement, or (ii) the expiration of the stated term of such Stock Option; provided, however, that if the optionee dies within such period, notwithstanding the expiration of such period, any unexercised Stock Option may to the extent exercisable on the date of death thereafter be exercised (x) in the case of a Nonqualified Stock Option, until the later of (i) the end of such exercise period or (ii) the first anniversary of the date of death (notwithstanding any earlier expiration of the stated term of such Nonqualified Stock Option), or (y) in the case of an Incentive Stock Option, until the earlier of (i) the later of (A) the end of such exercise period or (B) the first anniversary of the date of death or, (ii) the expiration of the stated term of such Incentive Stock Option. If an Incentive Stock Option is exercised after the expiration of the post-termination exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Nonqualified Stock Option.

(k)             Change in Control Cash-Out. Notwithstanding any other provision of the Plan, during the 60-day period from and after a Change in Control (the “Exercise Period”), if the Committee shall determine at the time of grant or thereafter, an optionee shall have the right, whether or not the Stock Option is fully exercisable and in lieu of the payment of the option price for the shares of Common Stock being purchased under the Stock Option and by giving notice to the Company, to elect (within the Exercise Period) to surrender all or part of the Stock Option to the Company and to receive cash, within 30 days of such election, in an amount equal to (i) the amount by which the Change in Control Price on the date of such election shall exceed the exercise price per share of Common Stock under the Stock Option, multiplied by (ii) the number of shares of Common Stock granted under the Stock Option as to which the right granted under this Section 5(k) shall have been exercised.

(l)              Deferral of Option Shares . The Committee may from time to time establish procedures pursuant to which an optionee may elect to defer, until a time or times later than the exercise of a Stock Option, receipt of all or a portion of the shares of Common Stock subject to such Stock Option and/or to receive cash at such later time or times in lieu of such deferred shares, all on such terms and conditions as the Committee shall determine. If any such deferrals are permitted, then notwithstanding Section 5(d) above, an optionee who elects such deferral shall not have any rights as a stockholder with respect to such deferred shares unless and until shares are actually delivered to the optionee with respect thereto, except to the extent otherwise determined by the Committee.

SECTION 6.

Stock Appreciation Rights

(a)             Grant and Exercise . Stock Appreciation Rights may be granted alone (“Freestanding Stock Appreciation Rights”) or in conjunction with all or part of any Stock Option granted under the Plan (“Tandem Stock Appreciation Rights”).

(b)             Terms and Conditions of Tandem Stock Appreciation Rights . Tandem Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined by the Committee, including the following:

 

(i)

Relationship to Related Stock Option. A Stock Appreciation Right issued in conjunction with a Nonqualified Stock Option may be granted either at or after the time of grant of such Stock Option. A Stock Appreciation Right issued in conjunction with an Incentive Stock Option may be granted

 

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only at the time of grant of such Stock Option. Tandem Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate are exercisable in accordance with the provisions of Section 5.

 

(ii)

Settlement . Upon the exercise of a Tandem Stock Appreciation Right, a participant shall be entitled to receive an amount in cash, shares of Common Stock or a combination of cash and shares, in value equal to (A) the excess of the Fair Market Value of one share of Common Stock over the option price per share specified in the related Stock Option, multiplied by (B) the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment. The Committee may from time to time establish procedures pursuant to which a participant may elect to further defer receipt of cash or shares in settlement of Tandem Stock Appreciation Rights for a specified period or until a specified event, all on such terms and conditions as the Committee shall determine.

 

(iii)

Nontransferability. Tandem Stock Appreciation Rights shall be transferable only to permitted transferees of the underlying Stock Option in accordance with Section 5(e).

 

(iv)

Plan Limits . Upon the exercise of a Tandem Stock Appreciation Right for shares of Common Stock, the Stock Option or part thereof to which such Tandem Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3(a) on the number of shares of Common Stock to be issued under the Plan, but only to the extent of the number of shares covered by the Tandem Stock Appreciation Right at the time of exercise based on the value of the Tandem Stock Appreciation Right at such time.

 

(v)

Method of Exercise. A Tandem Stock Appreciation Right may be exercised by an optionee by surrendering the applicable portion of the related Stock Option in accordance with procedures established by the Committee. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed by Section 6(b)(ii). Stock Options which have been so surrendered shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised. Any Tandem Stock Appreciation Right shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option.

(c)             Terms and Conditions of Freestanding Stock Appreciation Rights . Freestanding Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined by the Committee, including the following:

 

(i)

Term . The Committee shall determine the stated term of each Freestanding Stock Appreciation Right granted under this Plan. Except as specifically provided in this Plan, no Freestanding Stock Appreciation Right shall be exercisable more than 10 years after the date of grant.

 

(ii)

Strike Price . Unless provided otherwise by the Committee, the strike price (the “Strike Price”) per share of Common Stock subject to a Freestanding Stock Appreciation Right shall be the Fair Market Value of the Common Stock on the date of grant, except with respect to Freestanding Stock Appreciation Rights granted in lieu of foregone compensation. Except for adjustments pursuant to Section 3(c), in no event may any Stock Appreciation Right granted under this Plan be amended to decrease the Strike Price thereof, cancelled in conjunction with the grant of any new Stock Appreciation Right with a lower Strike Price, or otherwise be subject to any action that would be treated, for accounting purposes, as a “repricing” of such Stock Appreciation Right, unless such amendment, cancellation or action is approved by a vote of the Company’s stockholders.

 

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(iii)

Exercisability . Except as otherwise provided herein, Freestanding Share Appreciation Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee, and the Committee may at any time accelerate the exercisability of any Share Appreciation Right; provided, however , that subject to Sections 6(c)(vi), 6(c)(vii), 6(c)(viii), and 9(a)(i), under no circumstances shall any Freestanding Share Appreciation Right be exercisable prior to the first anniversary of the date of grant. If the Committee provides that any Share Appreciation Right is exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine.

 

(iv)

Settlement. Upon the exercise of a Freestanding Stock Appreciation Right, a participant shall be entitled to receive an amount in cash, shares of Common Stock or a combination of cash and shares, in value equal to (A) the excess of the Fair Market Value of one share of Common Stock over the applicable Strike Price, multiplied by (B) the number of shares in respect of which the Freestanding Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment.

 

(v)

Nontransferability . No Freestanding Stock Appreciation Right shall be transferable by a participant other than by will or by the laws of descent and distribution or as otherwise expressly permitted by the Committee, including, if so permitted, pursuant to a transfer to such participant’s children or family members, whether directly or indirectly or by means of a trust or partnership or otherwise. For purposes of this Plan, unless otherwise determined by the Committee, “family member” shall have the meaning given to such term in General Instructions A.1(a)(5) to Form S-8 under the Securities Act of 1933 as amended, and any successor thereto. All Freestanding Stock Appreciation Rights shall be exercisable, subject to the terms of this Plan, only by the participant, the guardian or legal representative of the participant, or any person to whom such Freestanding Stock Appreciation Right is transferred pursuant to this paragraph, it being understood that the terms “holder” and “participant” include such guardian, legal representative and other transferee; provided, however , that the term “Termination of Employment” shall continue to refer to the Termination of Employment of the original participant.

 

(vi)

Termination by Reason of Death . Unless otherwise determined by the Committee, if a participant incurs a Termination of Employment by reason of death, any Freestanding Share Appreciation Rights held by such participant shall vest in full and may thereafter be exercised for a period of one year from the date of such Termination of Employment (notwithstanding any earlier expiration of the stated term of such Freestanding Stock Appreciation Right).

 

(vii)

Termination by Reason of Disability . Unless otherwise determined by the Committee, if a participant incurs a Termination of Employment by reason of Disability, any Freestanding Stock Appreciation Right held by such participant shall vest in full and may thereafter be exercised by the participant until the first anniversary of such Termination of Employment (notwithstanding any earlier expiration of the stated term of such Freestanding Stock Appreciation Right); provided, however, that if the participant dies within such period, any unexercised Freestanding Stock Appreciation Right, notwithstanding the expiration of such period, may thereafter be exercised for a period of one year from the date of death (notwithstanding any earlier expiration of the stated term of such Freestanding Stock Appreciation Right).

 

(viii)

Termination by Reason of Retirement . Unless otherwise determined by the Committee, if a participant incurs a Termination of Employment by reason of Retirement, any Freestanding Stock Appreciation Right held by such participant may thereafter be exercised by the participant, to the extent it was exercisable at the time of such Termination of Employment, or on such accelerated

 

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basis as the Committee may determine, until the earlier of (A) the third anniversary of such Termination of Employment or (B) the expiration of the stated term of such Freestanding Stock Appreciation Right; provided, however, that if the participant dies within such period, any unexercised Freestanding Stock Appreciation Right, may to the extent exercisable on the date of death thereafter be exercised until the later of (x) the first anniversary of the date of death (notwithstanding any earlier expiration of the stated term of such Freestanding Stock Appreciation Right) or (y) the earlier of (1) the third anniversary of such Termination of Employment or (2) the expiration of the stated term of such Freestanding Stock Appreciation Right.

 

(ix)

Other Termination . Unless otherwise determined by the Committee: (A) if a participant incurs a Termination of Employment for Cause, all Freestanding Stock Appreciation Rights held by such participant shall thereupon immediately terminate; (B) if a participant incurs a Termination of Employment due to a termination by the Company for any reason other than death, Disability, Retirement or for Cause, any Freestanding Stock Appreciation Right held by such participant, may, to the extent it was exercisable at the time of Termination of Employment, be exercised until the earlier of (1) 90 days from the date of such Termination of Employment or (2) the expiration of such Freestanding Stock Appreciation Right’s stated term; or (C) if a participant incurs a Termination of Employment due to a voluntary termination by the participant, any Freestanding Stock Appreciation Right held by such participant, may, to the extent it was exercisable at the time of Termination of Employment, be exercised until the earlier of (1) 30 days from the date of such Termination of Employment, or (2) the expiration of such Freestanding Stock Appreciation Right’s stated term; provided, however, that if the participant dies within the 90-day period or 30-day period established by Sections 6(c)(ix)(B) and 6(c)(ix)(C), respectively, any unexercised Freestanding Stock Appreciation Right held by such participant shall, notwithstanding the expiration of such period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of one year from the date of death (notwithstanding any earlier expiration of the stated term of such Freestanding Stock Appreciation Right).

 

(x)

Change in Control Termination. Unless otherwise determined by the Committee, notwithstanding any other provision of this Plan to the contrary, in the event a participant incurs a Termination of Employment other than for Cause during the 24-month period following a Change in Control, any Freestanding Stock Appreciation Right held by such participant may thereafter be exercised by the participant, to the extent it was exercisable at the time of such Termination of Employment, until the earlier of (A) the later of (1) the first anniversary of such date of Termination of Employment, or (2) such other date as may be provided in the Plan for such Termination of Employment or as the Committee may provide in the applicable Freestanding Stock Appreciation Right agreement, or (B) the expiration of the stated term of such Freestanding Stock Appreciation Right; provided, however, that if the participant dies within such period, any unexercised Freestanding Stock Appreciation Right, notwithstanding the expiration of such period, may to the extent exercisable on the date of death thereafter be exercised until the later of (x) the end of such exercise period or (y) the first anniversary of the date of death (notwithstanding any earlier expiration of the stated term of such Freestanding Stock Appreciation Right).

 

(xi)

Change in Control Cash-Out. Notwithstanding any other provision of the Plan, during the 60-day period from and after a Change in Control (the “Exercise Period”), if the Committee shall determine at the time of grant or thereafter, a holder of a Freestanding Stock Appreciation Right shall have the right, whether or not such Stock Appreciation Right is fully exercisable, to surrender all or part of such Stock Appreciation Right to the Company and to receive cash, within 30 days of such election, in an amount equal to (A) the amount by which the Change in Control Price per share of Common Stock on the date of such election shall exceed the Strike Price under such Stock Appreciation Right, multiplied by (B) the number of shares of Common Stock subject to the Stock

 

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Appreciation Right as to which the right granted under this Section 6(c)(xi) shall have been exercised.

 

(xii)

Deferral . The Committee may from time to time establish procedures pursuant to which a participant may elect to further defer receipt of cash or shares in settlement of Freestanding Stock Appreciation Rights for a specified period or until a specified event, subject in each case to the Committee’s approval and to such terms as are determined by the Committee.

SECTION 7.

Performance Awards

(a)             Administration . Performance Awards may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Eligible Individuals to whom and the time or times at which Performance Awards shall be awarded, the number of Performance Shares and/or Performance Units to be awarded to any Eligible Individual, the duration of the Award Cycle, and any other terms and conditions of the Award, in addition to those contained in Section 7(b). The Committee shall also determine whether each Performance Award shall be denominated as (i) a performance-based stock Award (a “Performance Share”), or (ii) a performance-based cash Award (a “Performance Unit”).

(b)             Terms and Conditions . Performance Awards shall be subject to the following terms and conditions:

 

(i)

Performance-Based Awards. The Committee may, prior to or at the time of the grant, designate Performance Awards as Qualified Performance-Based Awards, in which event it shall condition the settlement thereof upon the attainment of Performance Goals. If the Committee does not designate Performance Awards as Qualified Performance-Based Awards, it may also condition the settlement thereof upon the attainment of Performance Goals. Regardless of whether Performance Awards are Qualified Performance-Based Awards, the Committee may also condition the settlement thereof upon the continued service of the participant. The provisions of such Awards (including without limitation any applicable Performance Goals) need not be the same with respect to each participant. Subject to the provisions of the Plan and the Performance Award Agreement referred to in Section 7(b)(v), Performance Awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Award Cycle.

 

(ii)

Forfeiture Upon Termination . Except to the extent otherwise provided in the applicable Performance Award Agreement or Section 7(b)(iii) or 9(a)(ii), upon a participant’s Termination of Employment for any reason during the Award Cycle or before any applicable Performance Goals are satisfied, all rights to receive cash or stock in settlement of the Performance Awards shall be forfeited by the participant; provided, however , that the Committee shall have the discretion to waive, in whole or in part, any or all remaining payment limitations (other than, in the case of Performance Awards that are Qualified Performance-Based Awards, satisfaction of the applicable Performance Goals unless the participant’s employment is terminated by reason of death or Disability) with respect to any or all of such participant’s Performance Shares and/or Performance Units.

 

(iii)

Deferral. The Committee may from time to time establish procedures pursuant to which a participant may elect to further defer receipt of cash or shares in settlement of Performance Awards for a specified period or until a specified event, subject in each case to the Committee’s approval and to such terms as are determined by the Committee. Subject to any exceptions adopted by the Committee, such election must generally be made prior to commencement of the Award Cycle for the Performance Awards in question.

 

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(iv)

Settlement. At the expiration of the Award Cycle, the Committee shall evaluate the Company’s performance in light of any Performance Goals for such Performance Award, and shall determine the number of Performance Shares or Performance Units, as applicable, granted to the participant which have been earned, and the Committee shall then cause to be delivered (A) if the Performance Awards are Performance Shares, (1) a number of shares of Common Stock equal to the number of Performance Shares determined by the Committee to have been earned, or (2) cash equal to the product of (x) the Fair Market Value as of the date of settlement multiplied by (y) such number of Performance Shares determined to have been earned, as the Committee shall elect (subject to any deferral pursuant to Section 7(b)(iii)), or (B) if the Performance Awards are Performance Units, (1) cash equal to the amount earned under the Performance Units (the “Cash Payment”), or (2) a number of shares of Common Stock equal to (x) the Cash Payment divided by (y) the Fair Market Value as of the date of settlement (with any resulting fractional shares distributed in the form of cash), as the Committee shall elect (subject to any deferral pursuant to Section 7(b)(iii)).

 

(v)

Each Award shall be confirmed by, and be subject to, the terms of a Performance Award Agreement.

SECTION 8.

Other Stock-Based Awards

Other Awards of Common Stock and other Awards that are valued in whole or in part by reference to, or are otherwise based upon, Common Stock, including, without limitation, restricted stock, restricted stock units, deferred stock units, and dividend equivalents, may be granted either alone or in conjunction with other Awards granted under the Plan. Unless provided otherwise by the Committee, awards of restricted stock, restricted stock units, or deferred stock units shall vest over no less than a three-year period; provided, however, that such three-year vesting limitation shall not apply to grants in lieu of foregone compensation or to grants to prospective employees.

SECTION 9.

Change in Control Provisions

(a)             Impact of Event . Notwithstanding any other provision of the Plan to the contrary, unless provided otherwise by the Committee, in the event of a Change in Control:

 

(i)

Any Stock Options and Stock Appreciation Rights outstanding as of the date such Change in Control is determined to have occurred, and which are not then exercisable and vested, shall immediately become fully exercisable and vested to the full extent of the original grant.

 

(ii)

All Performance Awards shall be considered to be earned and payable in full at the target Performance Goal level, and any deferral or other restriction shall lapse and such Performance Awards shall be settled in cash as promptly as is practicable.

 

(iii)

The Committee may also make additional adjustments and/or settlements of outstanding Awards as it deems appropriate and consistent with the Plan’s purposes.

(b)             Definition of Change in Control . For purposes of the Plan, a “Change in Control” shall mean the happening of any of the following events:

 

(i)

The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (A) the then-outstanding shares of Common Stock (the “Outstanding Company Common Stock”) or (B) the combined voting

 

47

 


power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided , however , that, for purposes of this Section 9(b)(i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate or (4) any acquisition by any corporation pursuant to a transaction that complies with Sections 9(b)(iii)(A), 9(b)(iii)(B) and 9(b)(iii)(C); or

 

(ii)

Any time at which individuals who, as of the Effective Time, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided , however , that any individual becoming a director subsequent to the Effective Time whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

 

(iii)

Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 40% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

 

(iv)

Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(c)             Change in Control Price . For purposes of the Plan, “Change in Control Price” means the higher of (i) the highest reported sales price, regular way, of a share of Common Stock in any transaction reported on the Nasdaq Stock Market (or such other national securities market or exchange as may at the time be the principal market for the Common Stock) during the 60-day period prior to and including the date of a Change in Control or (ii) if the Change in Control is the result of a tender or exchange offer or a

 

48

 


Corporate Transaction, the highest price per share of Common Stock paid in such tender or exchange offer or Corporate Transaction; provided, however, that in the case of Incentive Stock Options and Tandem Stock Appreciation Rights relating to Incentive Stock Options, the Change in Control Price shall be in all cases the Fair Market Value of the Common Stock on the date such Incentive Stock Option or Tandem Stock Appreciation Right is exercised. To the extent that the consideration paid in any such transaction described above consists all or in part of securities or other noncash consideration, the value of such securities or other noncash consideration shall be determined in the sole discretion of the Board.

SECTION 10.

Amendment and Termination

The Board may amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of an optionee under a Stock Option or a recipient of a Stock Appreciation Right, Performance Award or other stock-based Award theretofore granted without the optionee’s or recipient’s consent, except such an amendment made to comply with applicable law, stock exchange rules or accounting rules. In addition, no such amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by applicable law or stock exchange rules.

The Committee may amend the terms of any Stock Option or other Award theretofore granted, prospectively or retroactively, but no such amendment shall cause a Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption or impair the rights of any holder without the holder’s consent except such an amendment made to cause the Plan or Award to comply with applicable law, stock exchange rules or accounting rules.

Subject to the above provisions, the Board shall have authority to amend the Plan to take into account changes in law and tax and accounting rules as well as other developments, and to grant Awards that qualify for beneficial treatment under such rules without stockholder approval.

SECTION 11.

Unfunded Status of Plan

It is presently intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments; provided, however, that unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.

SECTION 12.

General Provisions

(a)             Representation. The Committee may require each person purchasing or receiving shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to the distribution thereof. The certificates for such shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer. Notwithstanding any other provision of the Plan or agreements made pursuant thereto, the Company shall not be required to issue or deliver any certificate or certificates for shares of Common Stock under the Plan prior to fulfillment of all of the following conditions: (i) listing or approval for listing upon notice of issuance, of such shares on Nasdaq or such other securities exchange as may at the time be the principal market for the Common Stock; (ii) any registration or other qualification of such shares of the Company under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification which the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and (iii) obtaining any other consent, approval, or permit from any state or federal governmental agency

 

49

 


which the Committee shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable.

(b)             No Limit on Other Arrangements. Nothing contained in the Plan shall prevent the Company or any Subsidiary or Affiliate from adopting other or additional compensation arrangements for its employees.

(c)             No Contract of Employment. The Plan shall not constitute a contract of employment, and adoption of the Plan shall not confer upon any employee any right to continued employment, nor shall it interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the employment of any employee at any time.

(d)             Tax Withholding. No later than the date as of which an amount first becomes includible in the gross income of the participant for federal income tax purposes with respect to any Award under the Plan, the participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Company, withholding obligations may be settled with Common Stock, including Common Stock that is part of the Award that gives rise to the withholding requirement; provided, however , that if the Company is at the time of withholding subject to APB 25, not more than the legally required minimum withholding may be settled with Common Stock that is otherwise payable with respect to such Award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the participant. The Committee may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Common Stock.

(e)             Death Beneficiary. The Committee shall establish such procedures as it deems appropriate for a participant to designate a beneficiary to whom any amounts payable in the event of the participant’s death are to be paid or by whom any rights of the participant, after the participant’s death, may be exercised.

(f)             Subsidiary Employees. In the case of a grant of an Award to any employee of a Subsidiary of the Company, the Company may, if the Committee so directs, issue or transfer the shares of Common Stock, if any, covered by the Award to the Subsidiary, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Subsidiary will transfer the shares of Common Stock to the employee in accordance with the terms of the Award specified by the Committee pursuant to the provisions of the Plan. All shares of Common Stock underlying Awards that are forfeited or canceled revert to the Company.

(g)             Governing Law. The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws.

(h)             Nontransferability. Except as otherwise provided in Section 5(e), 6(b)(iii), or 6(c)(v), or by the Committee, Awards under the Plan are not transferable except by will or by laws of descent and distribution.

(i)              Foreign Law and Foreign Employees . The Committee may grant Awards to Eligible Employees who are foreign nationals, who are located outside the United States, or who are otherwise subject to (or could cause the Company to be subject to) legal or regulatory provisions of countries or jurisdictions outside the United States, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the

 

50

 


purposes of the Plan, and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, or subplans as may be necessary or advisable to comply with such legal or regulatory provisions.

SECTION 13.

Effective Time of Plan

The Plan shall be effective as of the time (the “Effective Time”) it is approved by a majority of the votes cast by the Company's stockholders with respect to the Plan's approval.

 

 

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