DEF 14A 1 a5949458.htm BE AEROSPACE, INC. DEF 14A a5949458.htm
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
 

 
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BE Aerospace, 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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BE AEROSPACE, INC.
1400 CORPORATE CENTER WAY
WELLINGTON, FLORIDA 33414
 
 


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS


 
TO BE HELD JULY 30, 2009
 
 
Notice is hereby given that the Annual Meeting of Stockholders of BE Aerospace, Inc. will be held in the Conference Center, 36th Floor, Ropes & Gray LLP, One International Place, Boston, Massachusetts at 10:30 a.m. on Thursday, July 30, 2009 for the following purposes:
 
1.
To elect three Class III Directors;
   
2.
Ratification of appointment of Independent Registered Public Accounting Firm;
   
3.
To consider and act upon a proposal to amend the 2005 Long-Term Incentive Plan;
   
4.
To consider and act upon a stockholder proposal; and
   
5.
To transact any other business that may properly come before the meeting, or any adjournment thereof.
 
 
Stockholders of record at the close of business on June 1, 2009 are entitled to notice of and to vote at the meeting.
 
Whether or not you plan to attend the meeting in person, please sign and date the enclosed proxy and return it promptly in the enclosed envelope.
 
 
By Order of the Board of Directors,
 
EDMUND J. MORIARTY
 
Secretary
Wellington, Florida
 
June 15, 2009
 

 

 
TABLE OF CONTENTS
 
   
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        Company Performance
   
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            Retirement Compensation
   
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            Other Compensation
   
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Annex A - BE Aerospace, Inc. 2005 Long-Term Incentive Plan     A-1  
 
i

 
BE AEROSPACE, INC.

 ANNUAL MEETING OF STOCKHOLDERS
JULY 30, 2009

 PROXY STATEMENT

 
 
THIS PROXY STATEMENT AND THE ENCLOSED PROXY ARE BEING MAILED TO STOCKHOLDERS ON OR ABOUT JUNE 15, 2009.
 
The enclosed form of proxy is solicited on behalf of BE Aerospace, Inc. (the “Company”) to be voted at the 2009 Annual Meeting of Stockholders to be held in the Conference Center, 36th Floor, Ropes & Gray LLP, One International Place, Boston, Massachusetts at 10:30 a.m. on Thursday, July 30, 2009, or at any adjournment thereof.
 
If you are a stockholder of record, you may vote in person at the annual meeting, vote by proxy using the enclosed proxy card, vote by proxy over the telephone, or vote by proxy on the Internet. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person even if you have already voted by proxy.
 
·
To vote in person, come to the annual meeting and we will give you a ballot when you arrive.
   
·
To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the annual meeting, we will vote your shares as you direct.
   
·
To vote over the telephone, dial toll-free 1-800-652-VOTE (1-800-652-8683) using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by 1:00 a.m. Central Time, on July 30, 2009 to be counted.
   
·
To vote on the Internet, go to http://www.investorvote.com to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by 1:00 a.m. Central Time, on July 30, 2009 to be counted.
 
A proxy may be revoked by a stockholder at any time before it is voted (i) by returning to the Company another properly signed proxy bearing a later date; (ii) by delivering a written revocation to the Secretary of the Company; or (iii) by attending the meeting and voting the shares represented by the proxy in person. Shares represented by the enclosed form of proxy properly executed and returned or submitted over the telephone or on the Internet, and not revoked, will be voted at the meeting by the persons named as proxies, Thomas P. McCaffrey and Edmund J. Moriarty.
 
The expense of soliciting proxies will be borne by the Company. In addition to the solicitation of proxies by mail, the Company may use the services of its officers and other employees to solicit proxies personally and by mail, telephone and telegram from brokerage houses and other stockholders. Officers and other employees of the Company will receive no compensation in addition to their regular salaries for soliciting proxies. The Company has retained Georgeson Shareholder Communications, Inc. to assist in solicitation of proxies for a fee of $7,000 plus expenses. The Company will reimburse brokers and other persons for their reasonable charges and expenses in forwarding soliciting materials to the beneficial owners of the common stock.
 
In the absence of contrary instructions, the persons named as proxies will vote in accordance with the intentions stated below. The holders of record of shares of the Company’s common stock, $0.01 par value, at the close of business on May 30, 2009 are entitled to receive notice of and to vote at the meeting. As of April 21, 2009 the Company had 101,032,567 shares of common stock issued and outstanding.  Each share of common stock is entitled to one vote on each matter to come before the meeting.
 
Consistent with Delaware state law and the Company’s by-laws, a majority of the votes entitled to be cast on a particular matter, present in person or represented by proxy, constitutes a quorum as to such matter. Votes cast by proxy or in person at the meeting will be counted by the person appointed by the Company to act as inspector of election for the meeting. The three nominees for election as directors at the meeting who receive the greatest number of votes properly cast for the election of directors, Proposal No. 1, shall be elected directors.  The affirmative vote of a majority of the votes in attendance at the meeting (at which a quorum is present), present in person or represented by proxy, that are properly cast, is necessary to approve the actions described in Proposals No. 2, No. 3 and No. 4.
 
1

 
The inspector of election will count the total number of votes cast “for” approval of Proposals No. 2, No. 3 and No. 4 for purposes of determining whether sufficient affirmative votes have been cast. The inspector of election will count shares (i) represented by proxies that withhold authority to vote either for the nominees for election as a director or for Proposals No. 2, No. 3 and No. 4; or (ii) that reflect abstentions and “broker non-votes” as shares that are present and entitled to vote on the matter for purposes of determining the presence of a quorum, but abstentions and broker non-votes will not have any effect on the outcome of voting on the election of directors or Proposals No. 2, No. 3 and No. 4. “Broker non-votes” are shares represented at the meeting held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or persons entitled to vote; and (ii) the broker or nominee does not have the discretionary voting power on a particular matter.
 
The Annual Report to Stockholders for the Company’s fiscal year ended December 31, 2008 accompanies this proxy statement.
 
2

 
 
ELECTION OF DIRECTORS
 
The persons named in the enclosed proxy intend to vote each share as to which a proxy has been properly executed and returned or submitted over the telephone or on the Internet and not revoked in favor of the election as directors of the three nominees named below, each of whom is now a director of the Company, unless authority to vote for the election of any or all of such nominees is withheld by marking the proxy to that effect.
 
Pursuant to the Company’s Restated Certificate of Incorporation, the Board of Directors is divided into three classes, each as nearly equal in number as possible, so that each director (in certain circumstances after a transitional period) will serve for three years, with one class of directors being elected each year.
 
The nominees are Messrs. Charles L. Chadwell, Richard G. Hamermesh and Amin J. Khoury, three of our directors currently designated as Class III Directors, whose terms expire at the meeting, and until their respective successors are elected and shall qualify to serve. The enclosed proxy cannot be voted for a greater number of persons than three.
 
If elected, Messrs. Charles L. Chadwell, Richard G. Hamermesh and Amin J. Khoury will serve as Class III Directors for a term of three years, expiring at the 2012 Annual Meeting of Stockholders, and until their respective successors are elected and shall qualify to serve.
 
The Company expects that Messrs. Charles L. Chadwell, Richard G. Hamermesh and Amin J. Khoury will be able to serve, but if they are unable to serve, the proxies reserve discretion to vote, or refrain from voting, for a substitute nominee or nominees or to fix the number of directors at a lesser number.
 
Set forth below is the business experience of, and certain other information regarding, the three director nominees and the other current directors of the Company.
 
 
Name, Age, Business Experience and Current Directorships
 
Director
Since
     
CHARLES L. CHADWELL, 68
 
2007
Charles L. Chadwell has been a Director since January 2007. Until his retirement in 2002, he was the Vice President and General Manager of Commercial Engine Operations for GE Aircraft Engines. After joining General Electric in 1965, he held a variety of management positions, including:  Program Manager, CF6-80C program; Plant Manager, GE Aircraft Engines’ Wilmington, North Carolina plant; General Manager, GE Aircraft Engines Sourcing Operations; General Manager, Production Operations, GE Aircraft Engines’ Lynn, Massachusetts plant; Vice President, GE Aircraft Engines Human Resources; and Vice President and General Manager, Production and Procurement, GE Aircraft Engines. Mr. Chadwell currently serves on the Boards of Directors of Spirit AeroSystems Holdings Inc. and Parkway Products Inc. and serves as Chairman of the Board of PaR Systems.
   
 
RICHARD G. HAMERMESH, 61
 
1987
Richard G. Hamermesh has been a Director since July 1987.  Dr. Hamermesh has been a Professor of Management Practice at Harvard Business School since July 1, 2002. From 1987 to 2001, he was a co-founder and a Managing Partner of The Center for Executive Development, an executive education and development consulting firm. From 1976 to 1987, Dr. Hamermesh was a member of the faculty of Harvard Business School. He is also an active investor and entrepreneur, having participated as a principal, director and investor in the founding and early stages of more than 15 organizations.
   

AMIN J. KHOURY, 70
 
1987
Amin J. Khoury has been the Chairman of the Board of Directors since July 1987 when he co-founded the Company. Effective December 31, 2005, with the retirement of Mr. Robert J. Khoury, his brother, Mr. Amin J. Khoury was appointed Chief Executive Officer. Mr. Amin J. Khoury also served as the Company’s Chief Executive Officer from September, 1987 until April 1, 1996. Since 1986, Mr. Khoury has been a director of Synthes, Inc., the world’s leading manufacturer and marketer of orthopedic trauma implants and a leading global manufacturer and marketer of cranial maxillofacial and spine implants. Mr. Khoury has a Professional Director Certification, earned through an extended series of director education programs sponsored by the Corporate Directors Group, an accredited organization of RiskMetrics Group.
   
 
3

 

Name, Age, Business Experience and Current Directorships
 
Director
Since
 
Term
Expires
 
           
JIM C. COWART, 57
 
1989
 
2010
 
Jim C. Cowart has been a Director since November 1989. Since September 2005, Mr. Cowart has been a Director of EAG Limited, a privately held company, a predecessor of which was a company listed on the London Stock Exchange, which is a provider of microanalytic laboratory services, including surface analysis and materials characterization. Since September 2004, Mr. Cowart has been Chairman and Chief Executive Officer of Auriga Medical Products GmbH, a distributor of medical devices. He is a Principal of Cowart & Co. LLC and private capital firms that provide strategic planning, competitive analysis, financial relations and other services. From August 1999 to May 2001, he was Chairman of QualPro Corporation, an aerospace components manufacturing company. From January 1993 to November 1997, he was the Chairman and CEO of Aurora Electronics Inc. Previously, Mr. Cowart was a founding general partner of Capital Resource Partners, a private investment capital manager, and he held various positions in investment banking and venture capital with Lehman Brothers, Shearson Venture Capital and Kidder, Peabody & Co.  Mr. Cowart has a Professional Director Certification, earned through an extended series of director education programs sponsored by the Corporate Directors Group, an accredited organization of RiskMetrics Group.
         
           
ARTHUR E. WEGNER, 71
 
2007
 
2010
 
Arthur E. Wegner has been a Director since January 2007. Mr. Wegner retired in 2000 as Executive Vice President of Raytheon Company and Chairman of Raytheon Aircraft. He joined Raytheon Company in July 1993 as a Senior Vice President and was appointed Chairman and CEO of Raytheon’s Beech Aircraft Corporation. In September 1994, he was appointed Chairman and CEO of Raytheon Aircraft, which was formed by the merger of Raytheon subsidiaries Beech Aircraft and Raytheon Corporate Jets. He became Chairman of Raytheon Aircraft in 2000. He was elected an Executive Vice President of Raytheon Company in March 1995. Mr. Wegner came to Raytheon Company after 20 years with United Technologies Corporation (UTC), where he was Executive Vice President and President of UTC’s Aerospace and Defense Sector. Prior to that he was President of UTC’s Pratt and Whitney Division. Mr. Wegner is a past Chairman of the Board of Directors of the General Aviation Manufacturers Association and the Aerospace Industries Association.
         
           
ROBERT J. KHOURY, 67
 
1987
 
2011
 
Robert J. Khoury has been a Director since July 1987, when he co-founded the Company. On December 31, 2005, Mr. Khoury retired from service as the Company’s President and Chief Executive Officer, a position he held since August 2000. From April 1996 through August 2000, he served as Vice Chairman of the Company. Mr. Khoury is the brother of Amin J. Khoury.
         
           
JONATHAN M. SCHOFIELD, 68
 
2001
 
2011
 
Jonathan M. Schofield has been a Director since April 2001. From December 1992 through February 2000, Mr. Schofield served as Chairman of the Board of Directors and CEO of Airbus North America Holdings, a subsidiary of Airbus Industrie, a manufacturer of large civil aircraft, and served as Chairman from February 2000 until his retirement in March 2001. From 1989 until he joined Airbus, Mr. Schofield was President of United Technologies International Corporation. Mr. Schofield is currently a member of the board of directors of Aero Sat, Inc., Nordam Group, and TurboCombustor Technology, Inc. and is a trustee of LIFT Trust.
         
 
4

 
 
The Board of Directors held six meetings during 2008.  All of the current directors attended all of the meetings, except for Mr. Robert J. Khoury, who missed one meeting.  The Board of Directors currently has three standing committees: the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee.  Each current director attended all of the meetings of the committees of the Board of Directors on which they served during 2008.  We do not have a specific policy for director attendance at the Annual Meetings of Stockholders, but we encourage all directors to use reasonable efforts to attend our annual meeting.  All members of our Board of Directors attended the 2008 Annual Meeting of Stockholders.  The Board of Directors has determined that Messrs. Chadwell, Cowart, Hamermesh, Schofield and Wegner are independent under NASDAQ rules.
 
The Audit Committee is currently composed of Messrs. Cowart, Hamermesh and Wegner, with Mr. Cowart acting as Chairman. The Audit Committee held four meetings during 2008.  The Audit Committee is responsible for: (i) the appointment, compensation and oversight of our independent auditors; (ii) overseeing the quality and integrity of our financial statements and related disclosures; (iii) our compliance with legal and regulatory requirements; (iv) assessing our independent auditors’ qualifications, independence and performance; and (v) monitoring the performance of our internal audit and control functions.  All members of the Audit Committee are independent under NASDAQ and SEC rules.  The Audit Committee operates under a written charter adopted by and approved by our Board of Directors.
 
The Nominating and Corporate Governance Committee is currently composed of Messrs. Chadwell, Cowart, Hamermesh, Schofield and Wegner.  The Nominating and Corporate Governance Committee held one meeting during 2008. The Nominating and Corporate Governance Committee is responsible for, among other things, assisting the Board of Directors by actively identifying individuals qualified to become Board members and recommending to the Board the director nominees for election at the next Annual Meeting of Stockholders and making recommendations with respect to corporate governance matters. All of the members of the Nominating and Corporate Governance Committee are independent as defined by current NASDAQ rules. The Nominating and Corporate Governance Committee operates under a written charter adopted and approved by our Board of Directors.  All of the members of the Nomination and Corporate Governance Committee support the nominations of Messrs. Chadwell, Hamermesh and Khoury.
 
The Compensation Committee is currently composed of Messrs. Chadwell and Schofield.  The Compensation Committee held three meetings and acted pursuant to a unanimous written consent on two other occasions during 2008. The Compensation Committee provides recommendations to the Board of Directors regarding compensation matters and administers the Company’s incentive and compensation plans. All of the members of the Compensation Committee are independent as defined by NASDAQ rules. The Compensation Committee operates under a written charter adopted and approved by our Board of Directors.
 
The Compensation Committee is not authorized to delegate any of its authority described herein to any other persons (other than a subcommittee). Our CEO, COO and CFO attended portions of some or all of the Compensation Committee meetings during 2008 at the invitation of the Compensation Committee. Management input was taken into consideration in assessing the performance and pay levels of our key management employees as well as the establishment of bonus measures and targets.  Our Vice President-Law & General Counsel and our Vice President-Human Resources also attended selected meetings during 2008 to provide the Compensation Committee with information to consider in respect to various areas in which they have expertise. Our Vice President-Law & General Counsel also serves as secretary to the Compensation Committee. On no occasion were any of our named executive officers involved in any discussion specifically relating to their own compensation, other than our CEO, who discussed both his performance and his compensation directly with our Compensation Committee.
 
To gain a perspective on external pay levels, emerging practices and regulatory changes, our Compensation Committee engages an outside executive compensation consultant to provide benchmark and survey information and advise the Compensation Committee as it conducts its review of our compensation process.  The Compensation Committee selected Mercer Human Resource Consulting (Mercer), as its consultant for 2008 and tasked them with gathering market competitive data, reviewing compensation plan design alternatives and instructing the Compensation Committee on compensation trends and best practices. As a result, Mercer periodically participated in Compensation Committee meetings, and they also provided the Compensation Committee with specialized advice to consider in establishing and evaluating our compensation practices. No member of management has engaged Mercer to advise them on executive compensation matters.  Further, Mercer has not been engaged to advise the Company or its management on any other matters.  Mercer reports directly to the Compensation Committee. Greater detail regarding our compensation process is set forth below in our Compensation Discussion and Analysis.
 
5

 
Copies of the charters for the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are available at www.beaerospace.com in the Investor Relations section.
 
 
To facilitate the ability of stockholders to communicate with our Board of Directors, we have established an electronic mailing address and a physical mailing address to which communications may be sent: directors@beaerospace.com, or The Board of Directors, c/o The Corporate Secretary, BE Aerospace, Inc., 1400 Corporate Center Way, Wellington, Florida 33414.
 
Our Corporate Secretary reviews all correspondence addressed to the Board of Directors and regularly presents to the Board of Directors a summary of all such correspondence and forwards to the Board of Directors or individual directors, as the case may be, copies of all correspondence that, in the opinion of the Corporate Secretary, deals with the functions of the Board of Directors or committees thereof or that he otherwise determines requires their attention. Examples of communications that would be logged, but not automatically forwarded, include solicitations for products and services or items of a personal nature not relevant to us or our stockholders. Directors may at any time review the log of all correspondence received by our Company that is addressed to members of the Board of Directors and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are brought to the attention of the Audit Committee, other than potential ethical or conflict of interest situations, which are directed to the Nominating and Corporate Governance Committee.
 
 
As provided in its charter, the Nominating and Corporate Governance Committee identifies and recommends to the Board nominees for election and reelection to the Board and will consider nominations submitted by stockholders. The Committee evaluates candidates proposed by stockholders using the same criteria as for other candidates.
 
The Nominating and Corporate Governance Committee seeks to create a Board of Directors that is strong in its collective diversity of skills and experience with respect to finance, leadership, business operations and industry knowledge. The Nominating and Corporate Governance Committee reviews with the Board of Directors, on an annual basis, the current composition of the Board of Directors in light of characteristics of independence, skills, experience, competency and availability of service to the Company of its members and of the Company’s anticipated needs.  In connection with its most recent annual review, the Nominating and Corporate Governance Committee recommended the nomination of Messrs. Charles L. Chadwell, Richard G. Hamermesh and Amin J. Khoury, three of our directors currently designated as Class III directors, whose terms expire at the meeting, to serve as Class III Directors for a term of three years, expiring at the 2012 Annual Meeting of Stockholders. If Messrs. Charles L. Chadwell, Richard G. Hamermesh and Amin J. Khoury are re-elected, the Nominating and Corporate Governance Committee believes that the Board of Directors will have an excellent board of directors of a suitable size with the appropriate diversity of skills and experience with respect to finance, leadership, business operations and industry knowledge. When the Nominating and Corporate Governance Committee reviews a potential new candidate, the Committee looks specifically at the candidate’s qualifications in light of the size of the Board of Directors and the needs of the Board of Directors at a given point in time.
 
Generally, in nominating director candidates, the Nominating and Corporate Governance Committee strives to nominate directors that exhibit high standards of ethics, integrity, commitment and accountability. In addition, all nominations attempt to ensure that the Board of Directors shall encompass a range of talent, skills and expertise sufficient to provide sound guidance with respect to our operations and activities.
 
Under our Nominating and Corporate Governance Committee charter, directors must inform the Chairman of the Board and the Chair of the Nominating and Corporate Governance Committee in advance of accepting an invitation to serve on another public company board. In addition, no director may sit on the Board of Directors, or beneficially own more than 1% of the outstanding equity securities of any of our competitors in our principal lines of business. We also discourage our directors from serving on the board of directors of more than three public companies.
 
6

 
To recommend a nominee, a stockholder shall give notice to our Corporate Secretary at our registered address in Wellington, Florida. This notice should include the candidate’s brief biographical description, a statement of the qualifications of the candidate, taking into account the qualification requirements set forth above, and the candidate’s signed consent to be named in the proxy statement and to serve as a director if elected. The notice must be given not later than the earlier of (i) 50 days before the first anniversary of the last Annual Meeting of Stockholders or (ii) if less than 60 days’ notice of the date of the Annual Meeting of Stockholders at which directors are to be elected is given, ten days after such notice. Once we receive the recommendation, we will deliver a questionnaire to the candidate that requests additional information about the candidate’s independence, qualifications and other information that would assist the Nominating and Corporate Governance Committee in evaluating the candidate, as well as certain information that must be disclosed about the candidate in our proxy statement, if nominated. Candidates must complete and return the questionnaire within the time frame provided to be considered for nomination by the Nominating and Corporate Governance Committee.
 
The Nominating and Corporate Governance Committee has not received any nominations for director from stockholders for the 2009 Annual Meeting of Stockholders.
 
 
No person who is or has been an officer or other employee of the Company served as a member of the Company’s Compensation Committee. No executive officer of the Company served as a member of the Compensation Committee on the board (or as a director) of any company where an executive officer of such company is a member of the Compensation Committee or a director of the Company. No member of the Compensation Committee was a party to any transaction required to be disclosed as a related person transaction.
 
 
Directors who are employees of the Company receive no additional compensation for serving on the Company’s Board of Directors. Directors who are not employees of the Company currently receive an annual retainer of $80,000. In addition, the chairs of our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee also receive additional annual retainers of $10,000, $10,000 and $5,000, respectively. $50,000 of the $80,000 annual board retainer is paid in cash and the remaining $30,000 of the annual board retainer is paid in deferred shares of our common stock. Up to 100% of the directors’ cash and/or stock retainers may be deferred pursuant to our Non-Employee Directors Deferred Stock Plan (Directors Plan), as amended. The deferred cash compensation or shares of common stock are held in an account under the Directors Plan until the termination of the director’s service and are paid in a lump-sum or in up to         five annual installments, as elected by the director. The directors are fully vested in the deferred shares at all times but have no rights as stockholders until distribution.  In the event of a change of control (as defined in the plan), the share accounts under the plan will be distributed to the directors in an immediate lump sum.
 
In addition, each non-employee director receives $2,000 in cash for each committee meeting attended.
 
Non-employee directors also receive an annual grant of restricted stock with a fair market value of $40,000. The grants are made pursuant to our 2005 Long-Term Incentive Plan and vest on each of the first, second, third and fourth anniversaries of the date of grant, provided the director remains in continuous service through the applicable vesting period.
 
We reimburse our non-employee directors for reasonable business and travel expenses incurred in connection with their service on the Board of Directors. In addition, non-employee directors are eligible to participate in our health and business travel accident insurance program. We do not provide our directors with any other perquisites or special benefits for their service on our Board.
 
Director compensation is determined by the Compensation Committee and approved by the entire Board of Directors. In 2007, we engaged an independent third-party consultant to review our non-employee directors’ compensation program to ensure that our program is competitive with current market practices and trends, consistent with the principles of good governance and aligned with the interests of our shareholders. We used the same compensation comparison group for both our executive officers’ market pay analysis and our non-employee directors’ review, as described below in our Compensation Discussion and Analysis. The 2007 review indicated that our current non-employee directors’ total compensation was in line with that of our peer group.
 
Consulting Arrangement with Robert J. Khoury.  Effective January 1, 2006, upon his retirement as our President and Chief Executive Officer, Mr. Khoury entered into a consulting agreement with us pursuant to which he agreed to provide certain specified services to us during a six-year consulting period, including sales and marketing services, assistance in developing and implementing key customer strategies, advice and consultation regarding operational matters of the Company and maintenance of key customer relationships through periodic customer visits.  In consideration for the consulting services, Mr. Khoury receives a consulting fee of $263,300 per calendar year.  He is also entitled to an office, secretarial support and air travel in accordance with past practices under our travel policy.  The consulting agreement may not be amended, modified or terminated without the prior written consent of both parties.  If Mr. Khoury ceases to provide the consulting services as a result of his death or disability, he or his estate will be entitled to a lump-sum payment equal to the consulting fees payable through the remainder of the consulting period.  As a member of the Board, Mr. Khoury is also entitled to receive all compensation paid to our non-employee directors.
 
7

 
The following table summarizes the compensation paid to our non-employee directors in 2008.
 
 
Name
 
Fees Earned or
Paid in
Cash
($)(1)
 
Stock
Awards
($)
(2)
 
All Other
Compensation
($)
 
Total
      ($)
(a)
 
     (b)
 
     (c)
 
(g)
 
  (h)
Charles L. Chadwell
   
    45,250
 
 
    60,066
 
 
    105,316
Jim C. Cowart
   
    47,500
   
    87,791
 
 
    135,291
Richard G. Hamermesh
   
    41,250
   
    82,831
 
 
    124,081
Robert J. Khoury
   
    50,000
   
    75,248
 
372,700
(3)
    497,948
Jonathan M. Schofield
   
    81,000
   
    57,801
 
 
    138,801
Arthur E. Wegner
   
    60,000
   
    47,567
 
 
    107,567
   
 

  (1)
Includes all cash retainers and meeting fees paid to our non-employee directors as described above.
 
  (2)
The amounts reported in the “Stock Awards” column reflect the dollar amount, without reduction for risk of forfeiture, recognized for financial reporting purposes for the fiscal year ended December 31, 2008 of awards of restricted stock and shares of our common stock, calculated in accordance with the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123R “Share-Based Payment” (SFAS 123R) and includes expenses attributable to equity awards granted during and before 2008.  Assumptions made in the calculation of these amounts are included in Note 11 to our audited financial statements for the fiscal year ended December 31, 2008 included in our annual report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2009.  During 2008, each of our non-employee directors received (i) an aggregate of 1,144 shares of restricted stock which had a fair market value on the date of grant of $40,000, and (ii) an aggregate of 1,946 deferred shares of our common stock with a fair market value on the date of grant of $30,000.  In addition, as further discussed above, up to 100% of any cash retainers may be paid in deferred shares of our common stock, and this column reflects these additional shares.  The amount of compensation expense reported for each director varies based on the date each individual joined the board.
 
  (3)
The amount reported for Mr. Robert J. Khoury for 2008 includes payments under a consulting agreement he entered into upon his retirement of $263,300; personal use of the Company aircraft of $105,330; and executive medical coverage of $4,070.  The aggregate incremental cost for the use of the Company aircraft for personal travel is calculated by multiplying the hourly variable cost rate for the aircraft by the hours used. The hourly variable cost rate includes costs such as fuel, oil, parking/landing fees, crew expenses and catering. The terms of our executive medical plan are set forth below in our Compensation Discussion and Analysis.
 
As of December 31, 2008, the aggregate number of outstanding deferred shares and restricted stock awards held by each non-employee director was as follows:
 
Name
 
Deferred
Shares
(#)
   
Stock
Awards
(#)
 
Charles L. Chadwell
    3,502       2,089  
Jim C. Cowart
    3,891       2,886  
Richard G. Hamermesh
    3,104       2,886  
Robert J. Khoury
    3,991       2,885  
Jonathan M. Schofield
    1,946       2,886  
Arthur E. Wegner
    2,691       2,089  
 
8

 
The Audit Committee is responsible for the appointment, compensation and oversight of our independent auditors, overseeing the quality and integrity of our financial statements and related disclosures, our compliance with legal and regulatory requirements, assessing our independent auditors’ qualifications, independence and performance, and monitoring the performance of our internal audit and control functions. The committee is currently composed of three directors: Messrs. Cowart, Hamermesh and Wegner, and operates under a written charter adopted and approved by the Board of Directors, which is available on our website at www.beaerospace.com in the Investor Relations section. Mr. Cowart currently chairs the Audit Committee.
 
Our Audit Committee is a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  All three current directors serving on the Audit Committee are independent committee members as defined by NASDAQ and SEC rules. Our Board of Directors has determined that Mr. Cowart is an “audit committee financial expert” in accordance with SEC rules.
 
 
Management is responsible for the financial reporting process, including the system of internal control, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.  The Company’s independent auditors are responsible for auditing those financial statements.  The Audit Committee’s responsibility is to monitor and review these processes.  We rely, without independent verification, on the information provided to us and on the representations made by management and the independent auditors.
 
We have reviewed and discussed the audited consolidated financial statements for 2008 with management and Deloitte & Touche LLP, the Company’s independent registered public accounting firm.
 
The Audit Committee discussed and reviewed with Deloitte & Touche LLP all communications required by generally accepted auditing standards, including, among other things,  the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”) Standard AU 380, “Communication with Audit Committees,” and Statement on Auditing Standards No. 114, “The Auditor’s Communication with Those Charged with Governance,” and discussed and reviewed the results of  Deloitte & Touche LLP’s audit of the Company’s consolidated financial statements. The Audit Committee also discussed the results of internal audit examinations.
 
The Company’s independent auditors also provided to us the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and we discussed with the independent auditors their independence from the Company.  When considering Deloitte & Touche LLP’s independence, we considered whether their provision of services to the Company beyond those rendered in connection with their audit and review of the Company’s consolidated financial statements was consistent with maintaining their independence.  We also reviewed, among other things, the amount of fees paid to Deloitte & Touche LLP for audit and non-audit services.
 
Based on our review and these meetings, discussions and reports, and subject to the limitations on our role and responsibilities referred to above and in the Audit Committee Charter, we have recommended to the Board of Directors that the Company’s audited consolidated financial statements for 2008 be included in the Company’s Annual Report on Form 10-K.
 
With respect to the above matters, the Audit Committee submits this report.
 
 
Audit Committee:
 
Jim C. Cowart
 
Richard G. Hamermesh
 
Arthur E. Wegner
 
9

 
 
The following table and notes thereto set forth certain information with respect to the beneficial ownership of the Company’s common stock as of April 21, 2009, except as otherwise noted, by (i) each person who is known to us to beneficially own more than 5% of the outstanding shares of common stock of the Company; (ii) each of the Company’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and the three other most highly paid executive officers in 2008; (iii) each of the Company’s directors; and (iv) all of the Company’s executive officers and directors as a group. Except as otherwise indicated, each of the stockholders named below has sole voting and investment power with respect to the shares of common stock beneficially owned:
 
 
Common Stock
Beneficially Owned
 
Number of Shares
(1)
 
Percent of
Outstanding
Shares
Honeywell International Inc.
101 Columbia Road,
Morristown, NJ  07962
6,000,000
(2)
 
6.06%
Rainier Investment Management, Inc.
601 Union Street, Suite 2801
Seattle, WA 98101
5,407,725
(3)
   
5.45%
 
Amin J. Khoury+*
722,023
(4)
   
**
 
Thomas P. McCaffrey+
251,205
(5)
   
   **
 
Jim C. Cowart*
188,188
(6)
   
  **
 
Michael B. Baughan+
169,252
(7)
   
  **
 
Jonathan M. Schofield*
99,418
(8)
   
  **
 
Richard G. Hamermesh*
29,532
(9)
   
  **
 
Werner Lieberherr+
100,700
     
  **
 
Wayne Exton+
75,316
     
  **
 
Robert A. Marchetti+
111,550
(10)
   
  **
 
Robert J. Khoury*
30,534
(11)
   
  **
 
Arthur E. Wegner*
17,442
(12)
   
  **
 
Charles L. Chadwell*
15,808
(13)
       
All Directors and Executive Officers as a group (14 Persons)
1,880,157
     
2%
 
   
   
 

  +
Named executive officer
 
  *
Director of the Company
 
  **
Less than 1 percent
 
  (1)
The number of shares of our common stock deemed outstanding includes: (i)  101,032,567 shares of common stock outstanding as of April 21, 2009 and (ii) 2,000 shares of common stock subject to outstanding stock options which are currently exercisable by the named individual or group.
 
  (2)
Based on information in the Schedule 13G, as of July 28, 2008, filed on August 4, 2008 by Honeywell International Inc., reported sole voting and dispositive power over 750,741 shares and shared voting and dispositive power over 6,000,000 shares. The Company has not attempted to independently verify any of the foregoing information, which is based solely upon the information contained in the Schedule 13G.  The percent of outstanding shares set forth above is based on the number of our shares outstanding as of that date.
 
  (3)
Based on information in the Schedule 13G, as of December 31, 2008, filed on February 13, 2009 by Rainier Investment Management Inc., reported sole voting power over 5,151,550 shares and sole dispositive power over 5,407,725 shares. The Company has not attempted to independently verify any of the foregoing information, which is based solely upon the information contained in the Schedule 13G.  The percent of outstanding shares set forth above is based on the number of our shares outstanding as of that date.
 
  (4)
Includes 6,250 shares indirectly owned.
 
  (5)
Includes 7,611 shares owned pursuant to the Company’s 401(k) Plan and 4,000 shares indirectly owned.
 
  (6)
Includes 5,674 shares owned pursuant to the Company’s Non-Employee Directors Deferred Stock Plan.
 
  (7)
Includes 108 shares owned pursuant to the Company’s 401(k) Plan.
 
10

 
  (8)
 Includes 2,837 shares owned pursuant to the Company’s Non-Employee Directors Deferred Stock Plan.
 
  (9)
 Includes 4,459 shares owned pursuant to the Company’s Non-Employee Directors Deferred Stock Plan and 2,000 shares indirectly owned.
 
  (10)
 Includes 312 shares owned pursuant to the Company’s 401(k) Plan and 312 shares indirectly owned.
 
  (11)
 Includes 2,837 shares owned pursuant to the Company’s Non-Employee Directors Deferred Stock Plan and 5,000 shares indirectly owned.
 
  (12)
 Includes 2,837 shares owned pursuant to the Company’s Non-Employee Directors Deferred Stock Plan.
 
  (13)
 Includes 4,020 shares owned pursuant to the Company’s Non-Employee Directors Deferred Stock Plan.
 
 
 
The following Compensation Discussion and Analysis addresses the objectives and elements of our executive compensation program, how our Compensation Committee uses external information to assist their oversight of our executive compensation and how we measure individual and Company performance.
 
The objectives of our 2008 executive compensation program were as follows:
 
·
Provide a total compensation opportunity that is competitive with the market for executive talent, thereby enabling us to attract, retain and motivate our executives;
   
·
Ensure a strong relationship between pay and performance, including rewards for results that meet or exceed performance targets, and consequences for results that are below performance targets; and
   
·
Align executive and shareholder interests through the provision of long-term incentives that link executive compensation to strategic and intrinsic value creation.
 
 
Our named executive officers include our six most highly compensated executives during 2008, consisting of:
 
·
Amin J. Khoury, Chairman and Chief Executive Officer;
 
 
·
Michael B. Baughan, President and Chief Operating Officer;
   
·
Thomas P. McCaffrey, Senior Vice President and Chief Financial Officer;
   
·
Werner Lieberherr, Vice President and General Manager—Commercial Aircraft Products Segment;
   
·
Robert Marchetti, Vice President and General Manager—Consumables Management Segment; and
   
·
Wayne Exton, Vice President and General Manager—Business Jet Segment.
 
 
Company Performance. Through the provision of short-term and long-term incentives, our 2008 executive compensation program was designed to reward: (i) the achievement of short-term financial goals measuring revenue, operating margins, cash flow and bookings and (ii) the execution of our long-term strategic goals and objectives.  We believe that revenue growth, operating margin expansion, cash flow growth and bookings expansion were the key short-term drivers of intrinsic value during 2008.  We believe that short-term fluctuations in stock price do not necessarily reflect the underlying strength or future prospects of the Company, and accordingly, we do not emphasize year-to-year changes in stock price in our evaluation of corporate performance.  And although our share price performed poorly in 2008, on February 25, 2008 the Wall Street Journal reported that over the one -, three - and five-year periods ending December 31, 2007, BE Aerospace, Inc. was the best performing public aerospace stock.  On a longer term basis we believe shareholder value is created through the successful execution of a sound business strategy.
 
Our business strategy is to maintain a global market leadership position and best serve our customers by:
 
·
Offering the broadest and most innovative products and services in the industry;
·
Offering a broad range of engineering services, including design, integration, installation and certification services and aircraft reconfiguration;
·
Pursuing the highest level of quality in every facet of our operations, from the factory floor to customer support;
 
11

 
·
Aggressively pursuing continuous improvement initiatives in all facets of our businesses, and in particular our manufacturing operations, to reduce cycle time, lower cost, improve quality and expand our margins; and
·
Pursuing a superior worldwide marketing and product support approach focused by airline and general aviation airframe manufacturers and encompassing our entire product line.
 
Our Compensation Committee performs annual reviews of our performance and the contributions of our named executive officers to ensure that our executive compensation program rewards the achievement of our financial objectives and the execution of our business strategy. We believe our executive compensation program is reasonable and provides appropriate incentives to our executives to achieve our corporate objectives without encouraging them to take excessive risks for short-term gains in their business decisions.
 
Individual Performance. In addition to overall Company performance, our compensation program rewards individual performance toward the attainment of our goals and objectives. In setting the targeted pay levels of the named executive officers, a variety of factors are considered, including: competencies, skills, prior experience, scope of responsibility and accountability within the organization.
 
On an annual basis, each named executive officer’s attainment of goals and demonstration of defined leadership competencies is assessed by our Chairman and Chief Executive Officer through our leadership performance and development assessment process. Each year, our CEO recommends to the Compensation Committee (i) proposed base salary increases and (ii) proposed cash incentive awards for each of our named executive officers for the preceding year.  The Compensation Committee performs a similar assessment of our CEO and approves his base salary and incentive compensation.
 
Any adjustments to base salaries for all of our employees are generally made as of July 1 of each year. We award long-term equity incentives on November 15 of each year and we award annual cash incentives (bonuses)  in the first quarter of the following year, thereby providing an ongoing discussion regarding performance and compensation throughout the year.
 
 
At the beginning of each year the Compensation Committee determines the targeted range of compensation levels which may be earned by each named executive officer. For 2008, aggregate compensation amounts for named executive officers (depending on their title and position) were established in the following forms and percentages: base salary (approximately 24% - 39% of total targeted compensation); annual cash incentives (approximately 23% - 32% of total targeted compensation); and long-term equity incentives (approximately 28% - 53% of total targeted compensation).  Long-term equity incentives in 2008 consisted of restricted stock awards which generally vest ratably over a four-year period.  Twenty-five percent of the shares of restricted stock granted in 2008 are subject to achieving performance metrics established at the time of grant.
 
The aggregate total targeted maximum incentive compensation, expressed as a percentage of annual base salary, for each named executive officer (depending on title and position) was as follows for 2008: performance-based cash incentives (100% - 120%) and long-term equity incentives (125% - 280%).
 
Base Salary. We provide each of our named executive officers with a competitive fixed annual base salary. The base salaries for our named executive officers are reviewed annually by the Compensation Committee, taking into account the results achieved by the executive, the executive’s future potential, scope of responsibilities and experience, and competitive salary practices.  We believe that it is important to pay a base salary that is consistent with similarly sized industry peers with similar continuous performance characteristics.  In 2008, base salary increases, exclusive of increases associated with promotions and changes in responsibilities for our named executive officers, were approximately 4% of their 2007 base salaries, except for Messrs. Marchetti and Exton, who received increases of approximately 27% and 22%, respectively to reflect their expanded scope of responsibilities, their exemplary performance and to more properly align their base compensation with peer group data.  As more fully described under the heading “External Benchmarking” below, these increases generally positioned our named executive officers’ base salary levels between the 50th and 75th percentile of the base salaries of executives in comparable positions as reflected in peer company and general industry compensation survey data.
 
Annual Cash Incentives. In 2008 our named executive officers were eligible to receive annual cash incentives (bonuses) pursuant to our Management Incentive Plan, or MIP, based on the attainment of both Company and individual performance goals. We believe that directly linking a significant portion of our named executive officers’ cash compensation to an individual segment or aggregate corporate performance (as applicable) is an important factor in achieving our corporate objectives.
 
12

 
In January 2008 the Compensation Committee approved the financial metrics against which cash incentives are awarded and established an annual cash incentive opportunity for each named executive officer under the MIP.  The MIP is based upon the achievement of two components: performance objectives (weighted at 80%) and individual strategic initiatives (weighted at 20%).  The 2008 financial performance metrics and weighting with respect to each goal were as follows:
 
·
30%—operating earnings;
   
·
30%—operating cash flow (generally defined as earnings before interest, taxes, depreciation and amortization and non-cash compensation  (EBITDA), plus or minus changes in working capital (and other current and non-current assets and liabilities), less capital expenditures);
   
·
20%—operating margin; and
   
·
20%—bookings.
 
These financial performance metrics are evaluated on an annual basis to ensure we measure what we believe are the most relevant business measures of total business performance. The performance goals are established as part of our annual financial planning process and are the measure against which all MIP participants’ performance is measured. We do not disclose the specific corporate or business segment targets since they contain competitively sensitive information and the specific targets are not material to an understanding of incentive compensation awards to the named executive officers. However, we believe each of the targets is appropriate and obtainable.
 
A targeted level of performance was established for each financial metric set forth above.
 
The aggregate total amount of MIP funds available to be awarded is determined on a site, segment and corporate level based on the achievement of the goals approved by our Compensation Committee. The amounts deemed to be earned by a site, segment or our Company overall are then awarded to each participant, including our named executive officers, with each participant’s award allocated on the basis of their actual individual performance for the year. MIP awards are based on both the financial performance of their segment or our Company, as applicable, and an individual’s relative contribution to the success of their segment or our Company, as applicable, during the year. Some awards are equal to 100% of the maximum amount that may be awarded and others are closer to 50% of the maximum award.  The average award for all of our MIP participants was approximately 69% of the potential maximum awards over the past three years.
 
With respect to the financial performance metrics (which govern 80% of the incentive payments) (the “financial performance metrics”), in general, no payment will be made under the MIP with respect to a particular performance objective unless the Company or the participant’s business unit exceeds 80% of the applicable performance target.  Incentive payments for performance between 80% and 90% of the target cannot exceed 10% of the targeted payment.  If the Company or a named executive officer’s business unit achieved 100% or more of the target performance and the named executive officer’s individual performance is at a superior level, the named executive officer will be eligible to receive up to an additional 10% or 20% of his or her base salary (depending on their title and position), resulting in a maximum bonus of up to 100% - 120% of their base salary, depending on their title and position.
 
The Compensation Committee approves adjustments to performance goals to recognize corporate or segment contributions, particularly in situations where such contributions may have been in conflict with the shorter term financial metrics measured by our MIP.  The Compensation Committee also uses their judgment to exclude the impact of non-recurring gains, charges or unusual items as facts and circumstances dictate.
 
Under the MIP, the actual cash incentive payments made to each participant (other than our CEO) are determined by our Compensation Committee based on our CEO’s assessment of each participant’s contribution toward the attainment of specific Company-wide or segment specific goals, as appropriate, individual goals and the demonstration of defined leadership competencies. Following the review of the CEO’s recommendations, the Compensation Committee approves the final MIP awards, which may be higher or lower than the amount determined as a result of the attainment of the financial goals described above. The Compensation Committee performs a similar performance assessment of our CEO and approves his MIP award based on this assessment.
 
13

 
Attainment of 2008 Performance Measures. 2008 was an exceptionally good year for the Company. It was a year in which we generated record sales and operating earnings of $2.1 billion and $354 million, respectively, before a pre-tax impairment charge related to goodwill, completed a transformational acquisition, generated a record backlog of $2.9 billion and further buoyed our long-term outlook by accelerating the growth of our unbooked supplier furnished equipment (SFE) backlog to approximately $2.3 billion.  Our unbooked SFE backlog refers to programs awarded to the Company directly by aircraft manufacturers.  These programs position the Company as exclusive supplier of systems and products for new commercial and business jet aircraft platforms.  Simply put, 2008 was our best year since the Company was founded in 1987 due to record sales, record operating earnings, record backlog, an important transformational acquisition and extraordinary success with our SFE programs.  Unfortunately the worst annual stock market performance and the onset of the deepest recession since the 1930’s caused a dramatic reduction in our share price and resulted in a pre-tax  non-cash impairment charge related to goodwill and intangible assets of approximately $390 million.

The global recession has continued to worsen, capital markets remain dysfunctional and consumer spending is very weak.  All of these factors are negatively impacting global air traffic, and demand for new commercial aircraft and business jets.  While the current outlook is not positive, the actions we have taken over the past year, provide us with a high level of confidence that we will be able to successfully navigate our way through the current downturn, and emerge as a rapidly growing, stronger company.

Importantly, during 2008 we successfully completed the strategic acquisition of Honeywell’s Consumables Solutions (HCS) distribution business, substantially improving the long-term quality and stability of our revenues and earnings.  As a result of the combination of our aerospace consumables business with the acquired Honeywell aerospace consumables business, we have become the world’s leading distributor of  aerospace fasteners and consumables, supplying virtually all major airlines, aerospace OEMs and MROs as well as the military marketplace, and we are a vital distributor for every major fastener manufacturer in the world.  As a result of the combination of the HCS business with our own leading global distribution business, on a proforma basis approximately 50% of our consolidated operating earnings in 2008 were generated by our consumables management business and commerical aircraft segment spares, and approximately 50% of our business mix is now derived from consumables.

In addition, we have expanded our strategic focus on OEM direct, or SFE, for new aircraft platforms to further support our future revenue outlook.  This is a new, important component of our revenue base that in the past has not been a significant portion of our business mix.  These OEM direct, or SFE, awards will result in increased content of the Company products on numerous new aircraft platforms.

Today our backlog is well diversified from both a geographic and a customer perspective.  Our backlog as of December 31, 2008 was $2.9 billion, and including unbooked SFE awards of $2.3 billion, was in excess of $5 billion.

From an operational point of view we remain intensely focused on reducing costs in every aspect of our business, from back office expenses to sourcing materials with low cost providers around the globe.  This includes an aggressive resizing of the business that began in the second half of 2008, supply chain management initiatives which are expected to continue to yield significant savings, and operational excellence and lean programs focused on improving quality and customer satisfaction, while at the same time, lowering costs.

We very successfully refinanced our balance sheet, providing the Company with excellent liquidity and a very solid capital structure.  Our liquidity is enhanced by our undrawn $350 million revolving credit facility and the fact that the Company has no debt maturities until 2014.

Despite the freezing of global credit markets, the dramatic decline in the price of global equities and the rapid onset of the global recession, our financial results for 2008 were very strong.  In fact, all of our financial metrics were substantially improved as compared to any prior year.  Excluding the non-cash pre-tax impairment charge related to goodwill, of approximately $390 million our 2008 revenues, operating earnings, EBITDA, net earnings, earnings per share (EPS), bookings and backlog (including SFE programs) were all records for any year in the Company’s history.

The foregoing financial discussion is exclusive of the pre-tax impairment charge related to goodwill of approximately $390 million.
 
14

 
We generated record revenues of $2.1 billion during 2008.  This was 26% higher than our 2007 revenues.  We generated $354 million of operating earnings in 2008, which also was a record and represented an increase of 43% as compared with 2007.  The 43% increase in operating earnings was driven primarily by the 26% increase in revenues and a 210 basis point expansion in operating margin.  Our 2008 operating margin of 16.8% reflects a 60 basis point increase in operating margin at the consumables management segment, a 100 basis point margin expansion at the commercial aircraft segment and a 340 basis point margin expansion at the business jet segment.

Record net earnings for 2008 of $201 million, or $2.12 per diluted share, increased 36% and 28%, respectively as compared with 2007.  Net earnings for 2008 include $10 million of acquisition, integration and transition costs, $2 million of severance costs and debt prepayment costs of $4 million.  Net earnings and net earnings per diluted share, adjusted to exclude the above mentioned costs, were $211 million and $2.22 per diluted share, respectively.

During 2008, we also had outstanding marketing success.  We generated $2.2 billion of bookings and ended the year with a backlog of $2.9 billion, up approximately 32% as compared to our 2007 year-end backlog. Our strategic focus on OEM direct, or SFE, for new aircraft platforms was particularly successful during 2008.  This new, significant component of our business is expected to substantially increase revenue content per aircraft on a number of major new aircraft platforms.
 
Most noteworthy, during the third quarter we announced our largest award ever, a $1 billion award for the A350 XWB for our next generation galley systems.  This award taken together with other awards such as the Company’s award to equip the A350 XWB with our patented passenger oxygen system, our oxygen/PSU award for the B787 and our new LED cabin lighting systems award for the next generation Boeing 737, provide excellent long-term platforms for revenue stability over the coming years for the commercial aircraft segment.
 
The longer-term revenue outlook within the business jet segment is expected to be fortified by the introduction of several new business jet aircraft types. We have been selected to deliver major new programs for a number of these new aircraft types.  During the year we launched our new technologically advanced vacuum waste water management systems business securing launch awards from Bombardier Learjet, Dassault and Embraer.
 
Our unusually strong position on these new commercial and business jet aircraft platforms bodes well for our future.  While the value of our long-term OEM direct, or SFE, awards currently totals over $2.3 billion, only a very small portion has been included in our backlog.
 
We were among the first of the aerospace companies to address the downturn.  We began early to execute on our plans to re-size our business based on the expected reduced demand.  By the end of 2008 we had reduced our headcount by approximately 12%.  These actions coupled with an aggressive cost reduction effort in every facet of the business are expected to continue to help mitigate the impact of lower demand for our products.
 
Our corporate supply chain initiatives generated approximately $35 million in lower direct material costs during 2008.
 
Our operational excellence and lean programs continued to drive lower cost and margin expansion by improving operating methods and processes.  This is borne out by recent successes at a number of our plants.  For example, at our principal seating facility in Kilkeel, Northern Ireland our employees’ productivity increased approximately 32%; at our Lenexa, KS facility, where we manufacture beverage makers and oxygen products, productivity for one of our key product lines increased by approximately 38%; and at our Nieuwegein plant in the Netherlands, productivity increased by approximately 20%.  These are just a few of the examples of what has been driving margin expansion for our Company.
 
We are well on our way toward integrating the HCS acquisition into our business.  In fact, we now expect that the integration will be completed approximately one year ahead of schedule and we continue to expect to achieve our aggressive synergies target. We will have completed the investments in inventories to bring HCS to our stocking distributor model during the first quarter of 2009. Notably, many former HCS customers are now very pleased with our upgraded service quality.
15

 
The following is a summary of our financial performance during 2008 (exclusive of the pre-tax impairment charge related to goodwill and intangible assets of approximately $390 million) against the measures set by the Compensation Committee under the MIP:
 
·
Operating earnings of approximately $354 million increased by 43.2% as compared to 2007, and was above our 2008 target;
   
·
Operating cash flow of approximately $159 million increased by approximately $140 million as compared to 2007 as a result of the 25.8% increase in revenues and despite a $260 million increase in inventories associated with the product line expansion at our consumables management segment and to support our record backlog.  Operating cash flow was approximately equal to our 2008 target, as adjusted for the HCS acquisition and substantially higher than targeted revenue and backlog;
   
·
Operating margin of 16.8% increased by 210 basis points as compared to 2007 and was above our 2008 target; and
   
·
Bookings of $2.2 billion increased by approximately 5% as compared to 2007, and was above our 2008 target.
 
On February 4, 2009, the Compensation Committee concluded that in the aggregate, we exceeded our 2008 MIP performance targets. Considering these results, achievement of our strategic objectives as well as certain qualitative factors which the Compensation Committee considers an important part of its assessment (such as expanding our market shares, demonstrating market share leadership, advances in new product development and strengthening our balance sheet), and taking into account each named executive officer’s individual performance against their goals, and the success of their respective segments or our Company, as applicable, the Compensation Committee determined an aggregate cash incentive award for our named executive officers equal to approximately 100% of the total aggregate targeted annual cash incentive opportunity. The Compensation Committee approved 2008 annual cash incentive payments, expressed as a percentage of base salary to Messrs. Baughan, McCaffrey, Lieberherr, Marchetti and Exton, all of which were at targeted levels, were approximately 100%, 100%, 80%, 80%, and 80%, respectively.
 
The Compensation Committee believes our CEO had an exceptionally successful year as evidenced by our very strong financial performance; his leadership in the development, communication and execution of our strategy; and his role in the strategic acquisition of HCS (which allowed us to alter our business mix such that approximately one-half of our business is related primarily to consumables and spares demand) and the strengthening of our balance sheet (through financings which increased our liquidity by providing an undrawn $350 million revolving line of credit and created a capital structure with low cost debt and no maturities of long-term debt until 2014).  As a result, the Compensation Committee awarded our CEO cash incentive compensation equal to approximately 100% of his base salary.
 
The actual amount of cash incentive awards paid to each named executive officer is shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table that follows this Compensation Discussion and Analysis.
 
2008 Long-Term Equity Incentives.  Approximately 27% - 56% of the total compensation opportunity provided to our named executive officers in 2008 was equity-based, excluding the one-time grant to Mr. Marchetti described below. This emphasis on equity-based compensation reflects our view that there should be a close alignment between long-term shareholder value creation and named executive officer compensation.
 
We believe the use of long-term equity incentive awards accomplishes important objectives of our executive compensation program by linking shareholder value creation to long-term incentives. The level of benefit received by our named executive officers is dependent, to a large degree, on the successful execution of our strategy and delivering significant, sustained growth.
 
2008 Restricted Stock Grants. On November 4, 2008, the Compensation Committee approved grants of restricted stock and restricted stock units effective as of November 15, 2008.  This process is consistent with our policy of having the dollar value of annual grants of restricted stock to our employees reviewed and approved by our Compensation Committee at a meeting in the third or fourth quarter and having the grants made effective as of November 15 of each year (or if November 15 is not a business day, the first business day thereafter).  The number of shares of restricted stock granted is equal to the dollar value approved by our Compensation Committee divided by the closing price of our common stock on the next trading day following the date of grant.  All grants of restricted stock are made pursuant to our 2005 Long-Term Incentive Plan.  Grants were made to approximately 300 of our managers, including each of our named executive officers, pursuant to our 2005 Long-Term Incentive Plan.  The Compensation Committee anticipates that these awards will serve as a long-term incentive to the employees.
 
16

 
The amount of the awards ranged from approximately 125% - 280% of each named executive officer’s base salary, except for Mr. Marchetti, who received 93,428 shares including 75,000 restricted shares as part of a special one-time award. In determining the amounts of the equity compensation awarded to our named executive officers, the Compensation Committee considered a variety of factors, including individual performance, competencies, skills, prior experiences, scope of responsibility and accountability within the organization and in the case of Mr. Marchetti, the special one-time award described in the following paragraphs.
 
The actual number of shares granted to each named executive officer was determined by dividing the dollar value of each award by the closing price of our common stock on the date of grant. The number of shares of stock granted and the SFAS 123R grant date fair value is shown in our Grants of Plan-Based Awards Table following this Compensation Discussion and Analysis. Seventy-five percent of the annual award to each named executive officer is subject to time-based vesting and 25% of the annual award is subject to performance-based vesting.  The time-based award vests ratably over a period of four years. The vesting of the performance-based award is subject to the Company achieving the annual operating earnings targets established by the Compensation Committee in each 12-month period ending on September 30th over a four-year period from the date of grant.  Each year, 25% of the award will vest if 90% or more of the applicable performance target is attained and no vesting will occur if less than 81% if the applicable target is attained.  For attainment between 81% and 90% of the applicable performance target, between 10% and 25% of the award will vest (as determined on the basis of linear interpolation).
 
In August 2008, the Compensation Committee approved  a special one-time restricted stock award to certain key members of our Consumables Management segment management team that are responsible for the integration of the HCS acquisition, including Mr. Marchetti.  Terms of these awards generally provide for four year vesting with 25% of the award subject to attainment of pre-established operating earnings targets.  75% of Mr. Marchetti’s 75,000 share award will vest on December 31, 2010, the expected date of his retirement; the remaining shares are subject to attainment of a pre-established operating earnings target for the period from the HCS acquisition date (August 1, 2008) through September 30, 2010.
 
 Severance and Change of Control Benefits. We have entered into employment agreements with each of our named executive officers, which are described below in detail under the heading “Employment, Severance and Change of Control Agreements.”  Our employment agreements with our named executive officers contain change of control provisions that provide benefits in the event that the executive is terminated in connection with a change of control of our Company.  These change of control provisions generally provide for continuation of the executives’ base salary for the remaining term of their respective employment agreements and a severance payment ranging from one to three years of base salary.  
 
We also provide each of our named executive officers with severance benefits if their employment is terminated for any reason other than cause or, in some instances, due to their resignation for good reason (as each term is defined in the applicable agreements).  In such cases, the employment agreements require that we pay the executive his salary for the remaining term of the applicable employment agreement and provide a severance payment ranging from one to two times the executive’s base salary.  Our severance and change of control benefits were determined on the basis of market practices in order to provide a competitive overall compensation package to our named executive officers.  On December 31, 2008, we amended our employment agreement with Mr. Marchetti, the terms of which are described in detail under the heading “Employment, Severance and Change of Control Agreements.” This new agreement was entered following the acquisition of HCS and to secure Mr. Marchetti’s assistance during the integration of the two businesses through December 2010, the expected date of his retirement. In 2008, we modified the employment agreements with each of our named executive officers to comply with Section 409A of the Internal Revenue Code.
 
Retirement Compensation. We have agreed with Mr. Khoury to make an annual retirement contribution equal to 1.5 times his base salary to a grantor trust established on his behalf. We fund this amount, less applicable personal income taxes, into a grantor trust on a quarterly basis in arrears.
 
In the event of a change in base salary, Mr. Khoury is entitled to supplemental contributions equal to the difference between  prior retirement contribution payments and the amounts that would have been paid had such payments been made based on the most recent base salary.
 
17

 
We have agreed with Mr. Baughan to make an annual retirement contribution of 50% of his average annual salary for the preceding three-year period to a rabbi trust established on his behalf. The retirement contributions will vest in full on April 26, 2012. Vesting of the accrued retirement contributions will accelerate upon the termination of Mr. Baughan’s employment due to his death, disability or by us without cause (as defined in his employment agreement). We fund this amount, less applicable personal income taxes, into this rabbi trust on a quarterly basis in arrears.
 
We also have agreed with Mr. McCaffrey to make an annual retirement contribution of 50% of his average annual salary for the preceding three-year period to a grantor trust established on his behalf. We fund this amount, less applicable personal income taxes, into this grantor trust on a quarterly basis in arrears.
 
Other than participation in our qualified 401(k) Plan under the same terms as all other employees, we do not offer retirement benefits to any of our other named executive officers.
 
A detailed description of the retirement benefits for our CEO, COO and CFO is set forth below under the heading “Employment, Severance and Change of Control Agreements.”
 
Other Compensation. In addition to the benefits that are generally available to all of our employees, we provide some or all of our named executive officers with the following additional benefits and perquisites:
 
·
Under the Medical Care Reimbursement Plan for Executives, we generally reimburse each of our named executive officers for medical care expenses that are not otherwise reimbursed by any plan or arrangement up to a maximum benefit of 10% of their base salary per year.
   
·
We reimburse each of our named executive officers for reasonable costs of financial and estate planning.
   
·
We provide certain named executive officers with a monthly automobile allowance, as described below under the heading “Employment, Severance and Change of Control Agreements.”
   
·
Under our travel policy, we provide use of a Company-owned aircraft to our CEO and limited use to our former CEO to ensure their personal security. As set forth in the “All Other Compensation” column of the Director Compensation Table above and the Summary Compensation Table below, our CEO and former CEO are taxed on the incremental cost relating to their personal use of the aircraft.
 
         To the extent applicable, these amounts are included in the Summary Compensation Table as part of the “All Other Compensation” column.
 
 
We benchmark targeted pay levels for essentially every position throughout our organization through the use of one or more compensation advisory services. Our Compensation Committee also engages an independent compensation consultant to assist our Compensation Committee to oversee our executive compensation program. Market data provides a reference and framework for decisions about the base salary, targeted annual cash incentives and the appropriate level of long-term incentives to be provided to each named executive officer. However, due to variability and the inexact science of matching and pricing executive jobs, we believe that market data should be interpreted within the context of other important factors and should not solely be used to dictate a specific pay level for an executive. As a result, in setting the target pay level of our named executive officers, market data is reviewed along with a variety of other factors, including individual performance, competencies, skills, future potential, prior experience, scope of responsibility and accountability within the organization.
 
Mercer Human Resources Consulting has reviewed both the individual components and aggregate composition of our compensation packages for our named executive officers and has advised our Compensation Committee that for each of our named executive officers:  (i) the targeted total cash compensation (including base salary and targeted annual cash incentives) is near the 75th percentile; (ii) the targeted total direct compensation (including base salary, annual cash and long-term incentives) is somewhat below the median; and (iii) total actual direct compensation (including base salary, annual cash and long-term incentives) plus retirement contributions, as applicable, is somewhat below the median of the peer group described below. Mercer also studied our CY 2007 financial performance (the most current data then available) and that of our peer group, measuring revenue growth, operating income growth, EBITDA growth, EPS growth, total shareholder return and return on average equity and determined that we were positioned above the 91st percentile of our peer group.
 
18

 
Compensation Comparison Group. The compensation comparison group we used in 2008 was comprised of the following 11 companies in the aerospace and defense industries:
 
·
Goodrich Corporation
   
·
Precision Castparts Corporation
   
·
Teleflex Inc.
   
·  
Crane Co. 
   
·
Teledyne Technologies, Inc.
   
·
Moog Inc.
   
·
Hexcel Corporation
   
·
Curtiss-Wright Corporation
   
·
Esterline Technologies Corporation
   
·
AAR Corp.
   
·
Triumph Group Inc.
 
In consultation with the Compensation Committee, these companies were selected for our peer group on the basis that (i) as compared to our Company, they were within a reasonable range for revenue size and equity market capitalization; (ii) they had executive positions comparable to those at our Company which required a similar set of management skills and experience; and (iii) they were representative of organizations that compete with us for business and executive talent. The median 2007 revenues and equity market capitalization of our peer group were $1.5 billion and $2.3 billion, respectively; our revenues for the year ended December 31, 2007 were $1.7 billion and, as of December 31, 2007, our equity market capitalization was $4.9 billion.
 
Benchmarking Objectives. We believe our executives should possess above-average competencies, skills and prior experience, and display above-average leadership skills as they discharge their responsibilities.  Our objective is to establish total targeted compensation (defined as base salary, targeted annual cash incentive, long-term incentives, and, where applicable, retirement contributions) for our named executive officers near the 75th percentile of our peer group. We believe the weighting of each component of our compensation program is appropriate given the historically cyclical nature of our industry, which has resulted and may result in several-year periods during which substantially lower cash incentives are awarded.
 
Benchmarking Process. Each year, the Compensation Committee directs senior management to engage an independent third-party consulting organization to advise the Compensation Committee as it conducts its review of our compensation program and our financial performance versus our peer group. Compensation and other financial data for the peer group are compiled from publicly available information as well as from the consultant’s proprietary database for similar sized industrial companies. Because the information is based on publicly available data, the comparisons are always against the data for the immediately preceding year (i.e., the 2008 study was based on data included in the 2007 annual reports and 2007 proxy statements of our peer group).
 
Several components of pay were analyzed by our independent consultant including: actual and targeted base salary; cash incentives; total cash compensation (i.e., base salary plus cash incentives); actual and targeted long-term incentives; total direct compensation (i.e., total cash plus long-term incentives); and, to the extent applicable, total direct compensation plus retirement contributions. The Compensation Committee’s review of our financial performance versus our peer group focused on revenue growth, operating earnings growth, EBITDA, as well as total shareholder return and return on average equity.
 
The Compensation Committee’s review led them to conclude that when compared to our peer group, our financial performance as compared to the key financial metrics described above approximated the 91st percentile of our peer group. The 2008 total direct compensation (including, where applicable, retirement contributions) for our named executive officers and the 2008 total actual cash compensation for our named executive officers approximated the median of our peer group.
 
19

 
 
We have not established specific stock ownership guidelines for our executive officers or directors. As of April 21, 2009, the market value of Company stock owned by our named executive officers as a multiple of each of their base salaries ranged from approximately one and one-half times to five times base salary.  Historically, our executive officers have held ownership positions in our stock at levels we deemed to be appropriate and accordingly we have not adopted formal ownership guidelines.  The details of share ownership for each named executive officer are set forth above under the heading “Security Ownership of Certain Beneficial Owners and Management.”
 
 
To the extent that it is practicable and consistent with our executive compensation philosophy, we intend to comply with Section 162(m) of the Internal Revenue Code,  which limits the deductibility of certain compensation payments to our executive officers in excess of $1 million. If compliance with Section 162(m) conflicts with the compensation philosophy or is determined not to be in the best interest of stockholders, the Compensation Committee will abide by its compensation philosophy.
 
To the extent that any compensation paid to our named executive officers constitutes a deferral of compensation within the meaning of Section 409A of the Internal Revenue Code, the Compensation Committee intends to cause the award to comply with the requirements of Section 409A and to avoid the imposition of penalty taxes and interest upon the participant receiving the award.
 
The Compensation Committee also takes accounting considerations, including the impact of SFAS 123(R) into account in structuring compensation programs and determining the form and amount of compensation awarded.
 
 
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis for the year ended December 31, 2008 with management. Based on the review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
 
 
Respectfully submitted,
 
The Compensation Committee
 
Charles L. Chadwell
 
Jonathan M. Schofield

 
20

 
 
The following table sets forth information concerning the total compensation paid to each of our named executive officers in 2008, 2007 and 2006:
 
Name and Principal Position
 
Year
 
Salary ($)
   
Stock
Awards
($)(2)
     
Non-Equity
Incentive
Plan
Compensation
($)(1)(3)
   
All Other Compensation ($)
     
Total ($)
 
(a)
 
(b)
 
(c)
   
(e)
     
(g)
   
(i)
     
(j)
 
Amin J. Khoury
 
2008
  $ 1,019,580     $ 3,282,485  
(4)
  $ 1,050,000     $ 3,134,125  
(5)
  $ 8,486,190  
Chairman and Chief Executive
 
2007
    1,001,200       2,905,634  
(4)
    1,001,200       4,656,784  
(5)
    9,564,818  
Officer
 
2006
    904,000       1,019,504  
(4)
    994,400       2,648,301  
(5)
    5,566,205  
                                                 
Michael B. Baughan
 
2008
    523,462       378,773         535,000       278,532  
(6)
    1,715,767  
President and Chief Operating
 
2007
    514,000       236,173         400,000       112,087  
(6)
    1,262,260  
Officer
 
2006
    440,000       26,593         330,000       23,723  
(6)
    820,316  
                                                 
Thomas P. McCaffrey
 
2008
    480,270       979,831  
(4)
    490,500       460,761  
(7)
    2,411,362  
Senior Vice President and Chief
 
2007
    471,500       874,456  
(4)
    430,000       420,957  
(7)
    2,196,913  
Financial Officer
 
2006
    430,000       285,300  
(4)
    430,000       391,706  
(7)
    1,537,006  
                                                 
Wayne Exton
 
2008
    298,928       206,474         270,000       25,889  
(8)
    801,291  
Vice President and General
 
2007
    275,000       133,636         175,000       31,599  
(8)
    615,235  
Manager—Business Jet Segment
 
2006
    265,036       14,198         110,000       70,105  
(8)
    459,339  
                                                 
Werner Lieberherr
 
2008
    407,390       350,895         335,000       27,122  
(9)
    1,120,407  
Vice President and General
 
2007
    400,000       181,919         250,000       22,714  
(9)
    854,633  
Manager – Commercial Aircraft
 
2006
    178,291       56,032         140,000       44,546  
(9)
    418,869  
Products Group
                                               
                                                 
Robert A. Marchetti
 
2008
    362,156       606,607         335,000       23,160  
(10)
    1,326,923  
Vice President and General
 
2007
    327,500       235,370         327,500       28,819  
(10)
    919,189  
Manager—Consumables Management Segment
 
2006
    291,497       27,196         300,000       28,097  
(10)
    646,790  
 

(1)
All annual cash bonuses paid to our named executive officers are reflected in the “Non-Equity Incentive Plan Compensation” column of this table.
   
(2)
The amounts reported in the “Stock Awards” column reflect the dollar amount, without reduction for risk of forfeiture, recognized for financial reporting purposes for the fiscal years ended December 31, 2008, 2007 and 2006 of awards of restricted stock, calculated in accordance with the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123R “Share-Based Payment,” or SFAS 123R.  The amount set forth may include expenses attributable to restricted stock awards granted during and before 2008, 2007 or 2006.  Assumptions made in the calculation of these amounts are included in Note 11 to our audited financial statements for the fiscal years ended December 31, 2008, 2007 and 2006 included in our annual report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2009.
   
(3)
The amounts shown represent the annual cash incentive payments received by our named executive officers under our MIP. These cash awards were earned in 2008, 2007 and 2006 and were paid on March 13, 2009, March 7, 2008 and March 6, 2007, respectively.  The MIP is described in detail above in our “Compensation Discussion and Analysis.”
   
(4)
In order to assist in the retention of and to further incentivize our CEO and CFO, and in lieu of the change of control benefits which were eliminated from their contracts with us, on July 31, 2006, we granted our CEO an award of 387,900 shares of restricted stock, and we granted our CFO 104,200 shares of restricted stock.  The expenses included in the “Stock Awards” column with respect to these special awards for 2008, 2007 and 2006 were  $2,304,116, $2,398,635 and $964,870, respectively, for Mr. Khoury and $619,232, $644,641 and $259,312, respectively, for Mr. McCaffrey.
   
(5)
With respect to Mr. Khoury, the amount reported for 2008, 2007 and 2006 as “All Other Compensation” includes $1,561,500,  $1,501,800 and $1,356,000, respectively, for our  annual retirement contributions to his grantor trust; $1,203,950, $2,794,500 and $828,750, respectively, for  supplemental contributions to his grantor trust; $215,303, $180,785 and $284,376, respectively, representing the aggregate incremental cost to us for his personal use of the Company aircraft; $99,595, $125,983 and $126,185, respectively, for estate planning; $9,200, $9,000 and $7,500, respectively for Company contributions to our 401(k) Plan; $3,364, $3,116 and $5,113, respectively, representing payments under our executive medical plan; and $41,213, $41,590 and $40,738 relating to an automobile and insurance provided by the Company. The aggregate incremental cost for the use of the Company aircraft for personal travel is calculated by multiplying the hourly variable cost rate for the aircraft by the hours used. The hourly variable cost rate includes costs such as fuel, oil, parking/landing fees, crew expenses and catering.
   
(6)
With respect to Mr. Baughan, the amount reported for 2008, 2007 and 2006 as “All Other Compensation” includes $249,075, $83,576 and $0, respectively, for our annual retirement contributions to his grantor trust, $9,200, $9,000 and $7,500, respectively for contributions to the Company’s 401(k) Plan; $3,626, $2,880 and $3,115, respectively, representing payments under executive medical coverage; and an additional amount relating to an automobile allowance and estate planning.
   
(7)
With respect to Mr. McCaffrey, the amount reported for 2008, 2007 and 2006 as “All Other Compensation” includes $381,243, $341,967 and $355,278, respectively, for our annual retirement contributions to his grantor trust; $9,200, $9,000 and $7,500, respectively, for contributions to the Company’s 401(k) Plan; $47,150, $53,251 and $11,289, respectively, representing payments under our executive medical plan; and an additional amount relating to an automobile allowance and estate planning.
   
(8)
With respect to Mr. Exton, the amount reported for 2008, 2007 and 2006 as “All Other Compensation” includes $0, $9,399 and $55,474, respectively, for reimbursement of relocation expenses; $9,200, $9,000 and $6,000, respectively, for contributions to the Company’s 401(k) Plan; $3,489, $0 and $0, respectively, representing payments under our executive medical plan, and an additional amount relating to an automobile allowance.
   
(9)
With respect to Mr. Lieberherr, the amount reported for 2008, 2007 and 2006 as “All Other Compensation” includes $0, $0 and $32,747, respectively, for reimbursement of relocation expenses; $9,200, $9,000 and $1,539, respectively, for contributions to the Company’s 401(k) Plan; $4,722, $514 and $3,660, respectively, representing payments under our executive medical plan and for payment of COBRA benefits owed to his prior employer, and an additional amount relating to an automobile allowance.
   
(10)
With respect to Mr. Marchetti, the amount reported for 2008, 2007 and 2006 as “All Other Compensation” includes $9,200, $9,000 and $7,500, respectively, for contributions to the Company’s 401(k) Plan;  $760, $6,619 and $7,489, respectively, representing payments under our executive medical plan; and an additional amount relating to an automobile allowance.
 
21

 
 
The following table sets forth information concerning incentive awards made to our named executive officers in 2008.  Awards consisted of restricted stock and cash incentive awards under our MIP as described in detail in our Compensation Discussion and Analysis.
 
   
Estimated Future Payouts Under Non-Equity
Incentive Plan (MIP or bonus) Awards(1)
 
All Other Stock
Awards: Number of
 
Grant Date Fair
Value of Stock
Name
 
Grant
Date
 
Threshold
($)(2)
Target ($)
 
Maximum ($)
 
Shares of Stock or
Units (#)(3)(5)
 
and Option
Awards ($)(4)
(a)
 
(b)
 
(c)
(d)
 
(e)
 
(i)
 
(l)
Amin J. Khoury
 
1/1/08
   
$—
 
$1,050,000
  $
1,260,000
     
    $
 
   
11/17/08
   
  —
 
   
     
358,109
     
2,915,007
 
                                       
Michael B. Baughan
 
1/1/08
   
  —
 
535,000
   
642,000
     
     
 
   
11/17/08
   
  —
 
   
     
121,622
     
990,003
 
                                       
Thomas P. McCaffrey
 
1/1/08
   
  —
 
490,500
   
588,600
     
     
 
   
11/17/08
   
  —
 
   
     
111,426
     
907,008
 
                                       
Werner Lieberherr
 
1/1/08
   
  —
 
332,800
   
416,000
     
     
 
   
11/17/08
   
  —
 
   
     
63,883
     
520,008
 
                                       
Robert A. Marchetti
 
1/1/08
   
  —
 
332,000
   
415,000
     
     
 
   
8/5/2008
   
  —
 
   
     
75,000
(6)
   
1,931,250
 
   
11/17/08
   
  —
 
   
     
18,428
     
150,004
 
                                       
Wayne Exton
 
1/1/08
   
  —
 
268,000
   
335,000
     
     
 
   
11/17/08
   
  —
 
   
     
51,598
     
420,008
 
   
   
 

(1)
The amounts shown represent the range of annual cash incentive opportunities for each named executive officer under our 2008 MIP. The MIP is described in detail above in our Compensation Discussion and Analysis.
   
(2)
Since the amount of Non-Equity Incentive Plan awards are determined on the basis of a named executive officer’s contributions to the success of a segment or the Company, as applicable, no specific threshold can be determined.
   
(3)
The restricted stock awards made on November 15, 2008 were approved by our Compensation Committee at its meeting on November 4, 2008.  This process is consistent with our policy of having the dollar value of annual grants of restricted stock to our employees reviewed and approved by our Compensation Committee at a meeting in the third or fourth quarter and having the grants made effective as of November 15 of each year (or if November 15 is not a business day, the first business day thereafter).  The number of shares of restricted stock granted is equal to the dollar value approved by our Compensation Committee divided by the closing price of our common stock on the date of grant.  All grants of restricted stock are made pursuant to our 2005 Long-Term Incentive Plan.
   
(4)
The amounts shown represent the SFAS 123R fair value determined as of the date of grant. For more information about our adoption of SFAS 123R and how we value stock-based awards (including assumptions made in such valuation), refer to Note 11 to our audited financial statements for the fiscal year ended December 31, 2008 included in our annual report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2009.
   
(5)
75% of the 2008 annual award is subject to time-based vesting and 25% of the 2008 annual award is subject to performance-based vesting.  The time-based award vests ratably over four years provided the executive is employed or, as to Mr. Khoury, is providing consulting services on the applicable vesting date.  The vesting of the performance-based award is subject to the Company achieving the annual operating earnings target established by the Compensation Committee in the 12-month period ending September 30 each year, and vests over a four-year period subject to the following conditions: (i) if the Company achieves 100% of its performance target in an applicable year, 25% of the total performance-based award will vest in the applicable year; (ii) if the Company achieves 90% of its performance target in an applicable year, 10% of the total performance-based award will vest in the applicable year; (iii) if the Company achieves between 90% and 100% of its performance target in an applicable year, between 10% and 25% of the total performance-based award will vest in the applicable year; and (iv) if the Company achieves less than 90% of its performance target in an applicable year, the executive forfeits the portion of the award that would have vested in the applicable year.
   
(6)
Mr. Marchetti was granted 75,000 shares of restricted stock in connection with his efforts related to the acquisition and integration of the HCS business. 75% of this award is subject to time-based vesting and 25% is subject to performance-based vesting.  The time-based portion of the award vests on December 31, 2010. The vesting of the performance-based award is subject to the consumables management segment achieving an operating earnings target established by the Compensation Committee over the period from July 1, 2008 through December 31, 2010, the expected date of his retirement.
 
 
22

 
 
The following table provides information concerning outstanding equity awards held by each named executive officer as of December 31, 2008, which include unvested shares of restricted stock.
 
 
Stock Awards
 
Name
   
Grant Date
   
Number of
Shares or Units
of Stock That
Have Not Vested
(#) (1) (2)
 
Market Value of
Shares or Units
of Stock That
Have Not Vested
($)(3)
 
(a)
   
(b)
   
(c)
 
(d)
 
Amin J. Khoury
     
11/17/2008
       
358,109
     
$2,753,858
   
       
11/15/2007
       
30,685
     
235,968
   
       
11/15/2006
       
33,494
     
257,569
   
       
7/31/2006
       
193,938
     
1,491,383
   
                               
Michael B. Baughan
     
11/17/2008
       
121,622
     
935,273
   
       
11/15/2007
       
9,020
     
69,364
   
       
11/15/2006
       
16,302
     
125,362
   
                               
Thomas P. McCaffrey
     
11/17/2008
       
111,426
     
856,866
   
       
11/15/2007
       
8,271
     
63,604
   
       
11/15/2006
       
15,932
     
122,517
   
       
7/31/2006
       
52,120
     
400,803
   
                               
Wayne Exton
     
11/17/2008
       
51,598
     
396,789
   
       
11/15/2007
       
4,814
     
37,020
   
       
11/15/2006
       
9,262
     
71,225
   
                               
Werner Lieberherr
     
11/17/2008
       
63,883
     
491,260
   
       
11/15/2007
       
12,255
     
94,241
   
       
11/15/2006
       
4,075
     
31,337
   
       
7/5/2006
        9,170       70,517    
                               
Robert A. Marchetti
     
11/17/2008
       
18,428
     
141,711
   
       
8/5/2008
       
75,000
(4)     
576,750
   
       
11/15/2007
       
5,733
     
44,087
   
                               
 

(1)
Commencing in 2008, 75%  of the annual restricted stock award is subject to time-based vesting and 25% of the annual restricted stock award is subject to performance-based vesting.  The time-based award vests ratably over four years provided the executive is employed or, as to Mr. Khoury, is providing consulting services on the applicable vesting date.  The vesting of the performance-based award is subject to the Company achieving the annual operating earnings target established by the Compensation Committee in the 12-month period ending September 30th each year, and vests over a four-year period subject to the following conditions: (i) if the Company achieves 100% of its performance target in an applicable year, 25% of the total performance-based award will vest in the applicable year; (ii) if the Company achieves between 90% of its performance target in an applicable year, 10% of the total performance-based award will vest in the applicable year; (iii) if the Company achieves between 90% and 100% of its performance target in an applicable year, between 10% and 25% of the total performance-based award will vest in the applicable year; and (iv) if the Company achieves less than 90% of its performance target in an applicable year, the executive forfeits the portion of the award that would have vested in the applicable year.
   
(2)
With respect to awards granted prior to 2008, 25% of the shares  will vest on each of the first, second,  third and fourth anniversaries of the date of grant provided that the executive is employed on the applicable vesting date.
   
(3)
The market value of unvested shares is based on the closing share price of $7.69, which was the closing price of our common stock as quoted on the NASDAQ National Market on December 31, 2008.
   
(4)
Mr. Marchetti was granted 75,000 shares of restricted stock in connection with his efforts related to the acquisition and integration of the HCS business.  75% of this award is subject to time-based vesting and 25% is subject to performance-based vesting.  The time-based portion of the award vests on December 31, 2010.  The vesting of the performance-based award is subject to the consumables management segment achieving an operating earnings target established by the Compensation Committee over the period from July 1, 2008 through December 31, 2010, the expected date of his retirement.
 
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The following table provides information concerning vesting of stock awards held by each named executive officer during 2008.  No options were outstanding in 2008.
 
   
Option Awards
 
Stock Awards
 
Name
 
Number of
Shares
Acquired
on Exercise
 
Value Realized
on Exercise
 
Number of
Shares
Acquired
on Vesting
 
Value Realized
on Vesting
 
(a)
 
(b)(#)
 
(c)($)
 
(d)(#)(1)
 
(e)($)(2)
 
Amin J. Khoury
   
     
$           —
     
123,946
     
$2,712,375
   
                                   
Michael B. Baughan
   
     
     
11,158
     
88,292
   
                                   
Thomas P. McCaffrey
   
     
     
36,785
     
756,450
   
                                   
Wayne Exton
   
     
     
6,236
     
49,345
   
                                   
Werner Lieberherr
   
     
     
10,708
     
148,816
   
                                   
Robert A. Marchetti
   
     
     
10,248
     
81,091
   
 
(1)
Represents the shares of restricted stock that vested during 2008.
   
(2)
Represents the number of shares of restricted stock that vested during 2008 multiplied by the closing price of our common stock on NASDAQ on the applicable vesting date.
 
 
All of our employees, including our named executive officers, participate in our qualified 401(k) defined contribution plan.  Pursuant to this plan, we match 100% of the first 3% and 50% of the next 2% of employee contributions up to $9,000. We do not provide any nonqualified deferred compensation benefits to any of our employees.
 
 
We have entered into employment agreements with each of our named executive officers as described below.
 
Amin J. Khoury. Mr. Khoury is party to an employment agreement with us, amended and restated as of December 31, 2008, pursuant to which he serves as our Chairman and Chief Executive Officer, or CEO. The agreement has a rolling three-year term so that the term of the agreement extends through three years from any date as of which the term is being determined unless terminated earlier.  The agreement provides that our CEO will receive a base salary of $1,041,000 per year (as of July 1, 2008), subject to cost of living and other increases as determined from time to time by our Board of Directors. Our CEO is also entitled to participate in our MIP and to receive an annual cash incentive as determined by the Compensation Committee. During the period from January 1, 2008 through June 30, 2008, our CEO’s annual base salary was $1,001,200.  On July 1, 2008 his base salary was adjusted to $1,041,000.  Our CEO received a bonus of $1,050,000 for 2008. Our CEO is also eligible to participate in all benefit plans (other than retirement plans) generally available to our executives and we provide him with an automobile and automobile insurance at a cost of approximately $40,000 per year.
 
General Provisions
 
Our agreement with our CEO provides that we will make an annual retirement contribution to a grantor trust established for his benefit in an amount equal to 1.5 times his annual base salary. In the event of a change in base salary, our CEO is entitled to supplement contributions equal to the difference between all prior retirement contribution payments and the amounts that would have been paid had such payments been made based on the most recent base salary.  These contributions are taxed currently to our CEO and reported in the “All Other Compensation” column of the Summary Compensation Table above.  We fund these contributions, less applicable personal income taxes, into this grantor trust on a quarterly basis in arrears.  Previously taxed contributions held in the trust will be distributed in a lump sum to our CEO or his beneficiary, as the case may be, as a result of a change of control or any termination of his employment, or as otherwise provided pursuant to the terms of his grantor trust.  Our CEO’s employment agreement provides that he and his spouse will receive medical, dental and health benefits (including benefits under our executive medical reimbursement plan) for the remainder of their lives notwithstanding a termination of his employment for any reason.
 
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If our CEO’s employment is terminated for any reason other than by him without good reason, he will be eligible to receive any accrued but unpaid bonus for the prior fiscal year.
 
Pursuant to the agreement, if our CEO’s employment with us terminates for any reason other than death, incapacity or his resignation without good reason, we will enter into a consulting arrangement with him under which he has agreed to provide strategic planning, financial planning, merger and acquisition advice and consultation to us, as well as periodic advice and consultation regarding key staffing and recruitment issues and such other services as we may mutually agree upon.  The consulting arrangement will extend for a period of five years following our CEO’s termination of employment.  During the duration of his consulting agreement, our CEO will be entitled to a consulting fee equal to 15% of his salary in effect on the day of his termination of employment and will also be entitled to an office, an assistant, travel benefits under our travel policy described above in our Compensation Discussion and Analysis, automobile benefits and reimbursement for reasonable out-of-pocket business expenses.  Unvested restricted stock awards will continue to vest in accordance with the award agreement for so long as our CEO is providing consulting services under this agreement.  During the five-year term, the consulting arrangement may not be amended or terminated without the prior written consent of us and our CEO.  In the event of our CEO’s death or disability during the consulting period, he will receive a lump-sum payment equal to the fees for the then remaining term of the consulting period.
 
In the event that any payments or other benefits made to our CEO are subject to excise tax as an “excess parachute payment” under the Internal Revenue Code, he will receive an excise tax gross-up payment.  Similarly, the agreement provides him with a tax gross-up payment with respect to tax obligations under Section 409A of the Internal Revenue Code.  Incidental costs and expenses incurred in respect of certain accounting tasks and procedures associated with these tax matters will also be paid by us.
 
During the term of his employment agreement and consulting agreement (if applicable) and for a period of two years thereafter, our CEO may not compete with us or solicit our employees.  In addition, our CEO is subject to a confidentiality provision that lasts indefinitely.
 
Specific Termination and Change of Control Provisions
 
In addition to the benefits described above, our CEO will be entitled to receive the following benefits and payments upon the occurrence of the following specified events:
 
Voluntary Termination. If our CEO terminates his employment with us at any time and for any reason, he is entitled to a lump-sum severance payment amount equal to one times his annual base salary.
 
Involuntary Termination. If our CEO’s employment with us is terminated by us for any reason other than death, incapacity or in connection with the closing of a Change of Control transaction, he is entitled to a lump-sum payment equal to the salary he would have received had he remained employed through the remainder of the then-existing term, the distribution of the funds in his grantor trust (including a final contribution determined as if he remained employed for three years following the termination of his employment), accelerated vesting of all outstanding equity awards, with stock options remaining exercisable for the remainder of their applicable terms, and a lump-sum severance amount equal to one times his annual base salary.
 
Change of Control. If a change of control occurs, our CEO will be entitled to the immediate vesting of all equity awards with any stock options remaining exercisable for the remainder of their applicable terms.  In addition, if his employment terminates contemporaneously with a Change of Control transaction, our CEO will be entitled to a lump-sum severance amount equal to one times his annual base salary.  If our CEO’s employment is not terminated contemporaneously with a Change of Control transaction, his employment agreement will remain in effect and upon a subsequent termination of employment he will be entitled to the payments and benefits set forth in his employment agreement as described above.  However, if our CEO’s employment is terminated by him for good reason following a change of control, he will receive a lump sum amount equal to the sum of the annual base salary he would have received had he remained employed through the third anniversary of the termination date, the entire unpaid balance of his retirement compensation with contributions made as if he had remained employed through the third anniversary of the termination date, and a severance payment of one times his base salary in effect for that year.  In the event of a dispute regarding the benefits payable to our CEO upon a change of control, we will pay or reimburse him for all related legal expenses.  In the event the Company determines it likely that a change of control will occur, it will establish a grantor trust to secure any potential obligations to the CEO associated with the change of control.  
 
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Death. In the event of our CEO’s death, his designee will receive an amount equal to the salary that would have been due to him if he remained employed through the third anniversary of his death.  In addition, our CEO’s designee will be entitled to the immediate vesting of all equity awards with any stock options remaining exercisable for the remainder of their applicable terms.
 
Incapacity. In the event of our CEO’s termination of employment due to his incapacity, he will receive an amount equal to two times the annual base salary that he would have received had he remained employed through the third anniversary of his termination of employment, payable in a lump sum.  In addition, our CEO will be entitled to the immediate vesting of all equity awards with any stock options remaining exercisable for the remainder of their applicable terms.
 
Michael B. Baughan. Mr. Michael B. Baughan, our President and Chief Operating Officer, or COO, is party to an employment agreement with us that was amended and restated as of December 31, 2008.  The agreement has a rolling three-year term so that the term extends through three years from any date as of which the term is being determined unless terminated earlier.  Under the terms of the agreement, our COO receives an annual salary of $534,500 per year (as of July 1, 2008), subject to cost of living increases and adjustment from time to time by our Board of Directors, and he may receive an annual incentive bonus under our MIP at the discretion of the Compensation Committee, which may not (except under special circumstances at the discretion of the Board of Directors) exceed 120% of his then current salary.  Our COO is also entitled to an automobile allowance of $1,100 per month and may participate in all benefit plans, programs and arrangements generally made available to our executives.  During the period from January 1, 2007 through June 30, 2007, our COO’s annual base salary was $514,000.  Our COO’s base salary was adjusted to $534,500 on July 1, 2008, and he received a bonus of $535,000 for fiscal year 2008.
 
General Provisions
 
Our agreement with our COO provides that we will make an annual retirement contribution to an account, which may be funded by a rabbi trust established for his benefit in an amount equal to 50% of his average annual salary for the preceding three-year period.  The retirement contributions will vest in full in April 2012 provided that our COO remains employed through this date.  Vesting of the accrued retirement contributions will accelerate upon the termination of our COO’s employment due to his death, incapacity, by us without cause or upon a change of control.  We fund these contributions into a rabbi trust on a quarterly basis in arrears.  Vested funds held in the trust will be distributed in a lump sum to our COO or his beneficiary, as the case may be, as a result of a change of control (as defined under Section 409A of the Internal Revenue Code) or any other termination of his employment, as otherwise provided pursuant to the terms of the rabbi trust.  Upon vesting, the Company is required to establish an irrevocable retirement trust into which contributions will be made.
 
In the event our COO’s employment is terminated for any reason other than his voluntary termination without good reason or a termination by the Company for cause, he will be entitled to any accrued but unpaid bonus for the prior year and any amounts in his retirement account.
 
In the event that any payments or other benefits made to our COO are subject to excise tax as an “excess parachute payment” under the Internal Revenue Code, our COO will receive an excise tax gross-up payment.  Similarly, the agreement provides our COO with a tax gross-up payment with respect to tax obligations under Section 409A of the Internal Revenue Code.  Incidental costs and expenses incurred in respect of certain accounting tasks and procedures associated with these tax matters will be paid by us.
 
On April 27, 2007, we entered into a death benefit agreement with our COO that provides for the payment of a $1.5 million death benefit to his named beneficiary upon his death during or after his employment.  We have fully funded this death benefit with a single payment whole life insurance policy.
 
Our COO is also party to the Company’s standard proprietary information and confidentiality agreement.
 
Specific Termination and Change of Control Provisions
 
In addition to the benefits described above, our COO will be entitled to receive the following benefits and payments upon the occurrence of the following specified events:
 
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Involuntary Termination. In the event our COO’s employment is terminated by us without cause (as defined in the employment agreement), he will receive a lump-sum severance amount equal to the salary he would have received had he remained employed through the remainder of his then-existing term.  He will also be entitled to the immediate vesting of his accrued retirement benefits as described above.  In addition, all outstanding equity awards will immediately vest with any stock options remaining exercisable for the remainder of their applicable terms.  Our COO and his eligible dependents will also be eligible to receive medical, dental and health benefits for two years following the termination.
 
Change of Control. If a change of control occurs (as defined under Section 409A of the Internal Revenue Code), our COO will be entitled to the immediate vesting of all equity awards with any stock options remaining exercisable for the remainder of their applicable term.  In addition, if, in connection with the change of control his employment is terminated by us without cause, our COO will be entitled to a lump-sum amount equal to three times his salary, accelerated vesting of his accrued retirement benefits as described above and two year’s continuation of his and his dependents’ medical, dental and health benefits to the extent permitted under Section 409A of the Internal Revenue Code.  The Company will establish a grantor trust for any change of control payments if it determines that a change of control is likely to occur.
 
Death. In the event of our COO’s termination due to his death, his designee will receive a lump-sum payment equal to the salary that would have been due to him had he remained employed through the third anniversary of his death.  Our COO’s designee will also receive accelerated vesting of his accrued retirement benefits as described above and accelerated vesting of all outstanding equity awards with any stock options remaining exercisable for the remainder of their applicable terms.  In addition, our COO’s eligible dependents will receive two year’s continuation of his medical, dental and health benefits to the extent permitted under Section 409A of the Internal Revenue Code.
 
Incapacity. In the event of our COO’s termination due to his incapacity, he will receive the salary and automobile allowance that he would have received had he remained employed through the third anniversary of his termination.  In addition, our COO and his eligible dependants will be entitled to receive, for two years following his termination due to his incapacity, continuation of medical, dental and health benefits to the extent permitted under Section 409A of the Internal Revenue Code.  As a result of such a termination, our COO will also be entitled to accelerated vesting of his accrued retirement benefits as described above and accelerated vesting of all outstanding equity awards with any stock options remaining exercisable for the remainder of their applicable terms.
 
Voluntary Resignation; Termination for Cause. If, at any time, our COO resigns his employment with us or his employment is terminated by us for cause he will not be entitled to any further compensation or benefits other than as set forth in any applicable plans, programs and arrangements.  He will also forfeit any unvested amounts in his retirement account.
 
Thomas P. McCaffrey. Mr. Thomas P. McCaffrey is party to an employment agreement with us, amended and restated as of December 31, 2008 pursuant to which he serves as our Senior Vice President and Chief Financial Officer, or CFO.  The agreement has a rolling three-year term so that the term extends through three years from any date as of which the term is being determined unless terminated earlier.  The agreement provides that our CFO will receive a base salary of $490,500 per year (as of July 1, 2008), subject to cost of living and other increases as determined from time to time by our Board of Directors.  Our CFO is also entitled to participate in our MIP and to receive a discretionary annual cash incentive.  Our CFO is also eligible to participate in all benefit plans (other than retirement plans) available to our executives and to receive an automobile allowance of $1,100 per month.  During the period from January 1, 2008 through June 30, 2008, our CFO’s annual base salary was $471,500.  Our CFO’s base salary was adjusted to $490,500 on July 1, 2008 and he received a bonus of $490,500 for fiscal year 2008.
 
General Provisions
 
Our agreement with our CFO provides that we will make an annual retirement contribution to a grantor trust established for his benefit in an amount equal to one-half of his average annual salary for the preceding three-year period.  These contributions are taxed currently to our CFO and reported in the “All Other Compensation” column of the Summary Compensation Table above.  We fund these contributions, less applicable personal income taxes, into this grantor trust on a quarterly basis in arrears.  Previously taxed and undistributed funds held in the trust will be distributed in a lump sum to the executive or his beneficiary, as the case may be, as a result of a change of control (as defined in his employment agreement) or any other termination of his employment, or as otherwise provided pursuant to the terms of his grantor trust.
 
27

 
In the event our CFO terminates employment for any reason other than a termination for cause, he will be entitled to any accrued but unpaid bonus for the prior year and any amounts in his retirement account.
 
In the event that any payments or other benefits made to him are subject to excise tax as an “excess parachute payment” under the Internal Revenue Code, our CFO will receive an excise tax gross-up payment.  Similarly, the agreement provides him with a tax gross-up payment with respect to tax obligations under Section 409A of the Internal Revenue Code.  Incidental costs and expenses incurred in respect of certain accounting tasks and procedures associated with these tax matters will be paid by us.
 
During 2005, we entered into a death benefit agreement with our CFO that provides for the payment of a $1 million death benefit to his named beneficiary upon his death during or after his employment.  We have fully funded this death benefit with a single payment whole life insurance policy.
 
Our CFO is also party to the Company’s standard proprietary information and confidentiality agreement.
 
Specific Termination and Change of Control Provisions
 
In addition to the benefits described above, our CFO will be entitled to receive the following benefits and payments upon the occurrence of the following specified events:
 
Involuntary Termination; Resignation with Good Reason.  In the event our CFO’s employment is terminated by us without cause or by our CFO for good reason (as each term is defined in the employment agreement), other than contemporaneously with a change of control transaction, he will receive a lump-sum severance amount equal to two times his annual salary, plus the salary he would have received had he remained employed through the then existing term of the agreement.  He will also receive distribution of funds in his retirement trust (including a final contribution determined as if he continued employment for three years following the termination).  As a result of such a termination, he will also be entitled to the immediate vesting of all equity awards with any stock options remaining exercisable for the remainder of their applicable terms.
 
Change of Control. If a change of control occurs, our CFO will be entitled to the immediate vesting of all equity awards with any stock options remaining exercisable for the remainder of their applicable term.  In addition, if, contemporaneously with a change of control transaction, our CFO’s employment is terminated for any reason, our CFO will be entitled to a lump-sum amount equal to two times his annual base salary.  If our CFO’s employment is not terminated contemporaneously with a change of control transaction, his employment agreement will remain in effect and upon a subsequent termination of employment he will be entitled to the payments and benefits set forth in the agreement.  In the event of a dispute regarding the benefits payable to our CFO upon a change of control, we will pay or reimburse him for all related legal expenses.
 
Death. In the event of our CFO’s termination due to his death, his designee will receive a lump-sum payment equal to the salary that would have been due to him had he remained employed through the third anniversary of his death.  Our CFO’s eligible dependants will also be entitled to receive, for two years following his death, continuation of medical, dental and health benefits to the extent permitted under Section 409A of the Internal Revenue Code.  In addition, our CFO will be entitled to the immediate vesting of all equity awards with any stock options remaining exercisable for the remainder of their applicable terms.
 
Incapacity. In the event of our CFO’s termination due to his incapacity, he will receive the salary and automobile allowance that he would have received had he remained employed through the third anniversary of his termination of employment, payable in a lump sum.  In addition, our CFO will be entitled to the immediate vesting of all equity awards with any stock options remaining exercisable for the remainder of their applicable terms.  Our CFO and his eligible dependants will also be entitled to receive, for two years following his termination due to his incapacity, continuation of medical, dental and health benefits to the extent permitted under Section 409A of the Internal Revenue Code.
 
Retirement; Resignation Without Good Reason. If our CFO retires or resigns without good reason at any time, he is entitled to a lump-sum severance payment equal to one times his annual base salary.
 
Termination for Cause. If, at any time, our CFO is terminated by us for cause, he will not be entitled to any further compensation and benefits other than as set forth in any applicable plans, programs or arrangements.
 
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Wayne Exton.  Mr. Exton is party to an employment agreement amended and restated as of December 9, 2008, that is automatically renewed for additional one-year terms unless either we or Mr. Exton gives the other party at least 30 days’ written notice prior to the then-applicable expiration date.  Under the terms of his employment agreement Mr. Exton receives an annual salary of $335,000 per year subject to adjustment from time to time.  He is also eligible to receive a discretionary incentive bonus under our MIP.  Mr. Exton is entitled to an automobile allowance of $1,100 per month and may participate in all benefits plans, programs and arrangements generally made available to our executive officers.  During the period from January 1, 2008 through June 30, 2008, Mr. Exton’s annual base salary was $275,000.  Mr. Exton’s base salary was adjusted to $335,000 on August 1, 2008 and he received a bonus of $270,000 for fiscal 2008.
 
Upon his death, Mr. Exton is entitled to a lump-sum amount equal to the salary that he would have received had he remained employed through the remainder of the then-applicable term.  In the event of the termination of Mr. Exton’s employment due to his incapacity, Mr. Exton is entitled to a lump-sum amount equal to the salary that he would have received had he remained employed through the remainder of the then-applicable term of the agreement as well as the continuation of benefits through the agreement termination date, subject to mitigation from alternative employment.  In addition, pursuant to the terms of the applicable equity award agreements, upon a termination of his employment due to death or disability, Mr. Exton will be entitled to the immediate vesting of all outstanding shares of restricted stock.
 
In the event that we terminate Mr. Exton’s employment without cause, he will be entitled to continue to receive medical and dental benefits, for the remainder of the then-applicable employment term, subject to mitigation from alternative employment and a lump-sum payment equal to the sum of his base salary for one year and his base salary for the then-remaining term of the agreement.
 
Following a change of control, if Mr. Exton resigns for good reason or we terminate his employment without cause, he will be entitled to receive a lump-sum payment equal to one times his base salary and continuation of his base salary for the then-remaining term of the agreement.  He will also be entitled to continue to receive medical and dental benefits during the remainder of his employment term, or, if earlier, until he becomes eligible to participate in the plans of a subsequent employer.  In addition, pursuant to the terms of the applicable equity award agreements, Mr. Exton will be entitled to the immediate vesting of all outstanding shares of restricted stock.
 
If Mr. Exton is terminated by us for cause or resigns for any reason other than good reason upon change of control, he will not be entitled to any further compensation and benefits other than as set forth in any applicable plans, programs or arrangements.
 
Mr. Exton is also party to the Company’s standard proprietary information and confidentiality agreement.
 
Werner Lieberherr.  Mr. Lieberherr is party to an employment agreement amended and restated as of December 9, 2008, that is automatically renewed for additional one-year terms unless either we or Mr. Lieberherr gives the other party at least 90 days’ written notice prior to the then-applicable expiration date.  Under the terms of his employment agreement, Mr. Lieberherr receives an annual salary of $416,000 per year (as of July 1, 2008), subject to adjustment from time to time.  He is also eligible to receive an annual discretionary incentive bonus under our MIP.  Mr. Lieberherr is entitled to an automobile allowance of $1,100 per month and may participate in all benefits plans, programs and arrangements generally made available to our executive officers.  During the period from January 1, 2008 through June 30, 2008, Mr. Lieberherr’s annual base salary was $400,000.  Mr. Lieberherr’s base salary was adjusted to $416,000 on July 1, 2008 and he received a bonus of $335,000 for fiscal year 2008.
 
Upon his death, Mr. Lieberherr’s designee is entitled to an amount equal to the salary that he would have received had he remained employed through the remainder of the then-applicable term.  In the event of the termination of Mr. Lieberherr’s employment due to his incapacity, he will receive a lump-sum payment representing his base salary and automotive allowance for the then-remaining term of the agreement, as well as the continuation of benefits through the agreement termination date, subject to mitigation from alternative employment.  In addition, pursuant to the terms of the applicable equity award agreements, upon a termination of his employment due to death or disability, Mr. Lieberherr will be entitled to the immediate vesting of all outstanding shares of restricted stock or other equity awards.
 
In the event that we terminate Mr. Lieberherr’s employment without cause, he will be entitled to continue to receive medical and dental benefits for the remainder of the then-applicable employment term, subject to mitigation from alternative employment and a lump-sum payment equal to the sum of his base salary for one year and his base salary for the then-remaining term of the agreement.
 
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In the event that following a change of control, Mr. Lieberherr resigns for good reason or we terminate his employment without cause, he will be entitled to receive a lump-sum payment equal to one times his base salary and continuation of his base salary, in addition to medical and dental benefits for the then-remaining term of the agreement, subject to mitigation from alternative employment.  Upon a change of control, Mr. Lieberherr will be entitled to the immediate vesting of all outstanding shares of restricted stock or other equity awards.
 
Mr. Lieberherr is also party to the Company’s standard proprietary information and confidentiality agreement.
 
Robert A. Marchetti.  Mr. Marchetti is party to an employment agreement dated December 30, 2008 effective for a two-year period ending December 31, 2010.  Under the terms of his employment agreement, Mr. Marchetti receives an annual salary of $415,000 per year (as of August 1, 2008), subject to adjustment from time to time.  Mr. Marchetti is eligible to receive a discretionary annual incentive bonus of up to 100% of his salary under our MIP.  Mr. Marchetti is also entitled to an automobile allowance of $1,100 per month and may participate in all benefits plans, programs and arrangements generally made available to our executive officers.  During the period from January 1, 2008 through June 30, 2008, Mr. Marchetti’s annual base salary was $327,500.  Mr. Marchetti’s base salary was adjusted to $415,000 on August 1, 2008 and he received a bonus of $335,000 for fiscal 2008.
 
In accordance with the employment agreement, if Mr. Marchetti remains employed through the expiration date of the agreement, he will be entitled to a lump-sum payment of $415,000 (“Service Payment”).  If Mr. Marchetti is terminated without cause prior to the expiration of the agreement, he will be entitled to the full Service Payment.  Additionally, upon the expiration of the employment term on December 31, 2010, the Company will engage Mr. Marchetti to provide consulting services for a period of two years for a monthly consulting fee of $21,067.  If Mr. Marchetti incurs a separation from service for any reason prior to December 31, 2010, the Company will not be obligated to engage him to provide the consulting services.
 
Upon his death, Mr. Marchetti’s designee is entitled to a lump-sum amount equal to the salary that he would have received had he remained employed through the remainder of the then-applicable term.  In the event of the termination of Mr. Marachetti’s employment due to his incapacity, Mr. Marchetti is entitled to a lump-sum amount equal to the salary that he would have received had he remained employed through the remainder of the then-applicable term of the agreement as well as the continuation of benefits through December 12, 2012, subject to mitigation from alternative employment.  Upon a termination of his employment due to death or disability, Mr. Marchetti will be entitled to the immediate vesting of all outstanding shares of restricted stock or other equity awards.
 
Following a change of control, if Mr. Marchetti resigns for good reason or we terminate his employment without cause, he will be entitled to receive a lump-sum payment equal to one times his base salary, continuation of his base salary for the then-remaining term of the agreement, and his target incentive bonus for the year in which the termination occurs. Mr. Marchetti will also be entitled to a continuation of benefits through December 31, 2012, subject to mitigation from alternative employment.  In addition, pursuant to the terms of the applicable equity award agreements, upon a change of control, Mr. Marchetti will be entitled to the immediate vesting of all outstanding shares of restricted stock.
 
If, at any time, Mr. Marchetti is terminated by us for cause or resigns for any reason other than good reason upon a change of control, he will not be entitled to any further compensation and benefits other than described above or as set forth in any applicable plans, programs or arrangements.
 
Mr. Marchetti is also party to the Company’s standard proprietary information and confidentiality agreement.
 
 
The tables that follow summarize the potential compensation that would have been payable to each of our named executive officers as a result of a termination of the named executive officer’s employment or a change of control.  The tables generally assume that the named executive officer’s employment terminated on December 31, 2008 and, if applicable, that the change of control occurred on December 31, 2008.  In addition, for purposes of the calculations, we assume that the fair market value of our common stock was $7.69, which was the closing price of our common stock as quoted on the NASDAQ National Market on December 31, 2008.
 
The tables below do not include the value of any vested and non-forfeitable payments or other benefits that the named executive officers would have been entitled to receive on December 31, 2008, regardless of whether a termination event occurred on such date (e.g., benefits the executive would have received even if he voluntarily resigned on the assumed date of the change of control), including the following:
 
 
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·
Defined Contribution Plans.Each of the named executive officer’s account balances under the 401(k) Plan, including any Company contributions, were fully vested as of December 31, 2008.
   
·
Vested Equity Awards.Once vested, restricted stock awards are not forfeitable.  The number and fair market value of all shares of restricted stock that were vested as of December 31, 2008 are set forth above in the Outstanding Equity Awards at Fiscal Year End Table.
   
·
Life Insurance.Each of the named executive officers is entitled to receive Company paid group term life insurance of one times his or her base salary. This plan is applicable to all of our employees on a nondiscriminatory basis.
   
·
Death Benefit Agreements.We have entered into death benefit agreements with each of Messrs. Khoury, Baughan and McCaffrey pursuant to which their designated beneficiary will receive a death benefit of $3,000,000, $1,500,000 and $1,000,000, respectively, upon their death at any time during employment or following the termination of their employment.  We have funded these amounts with a single payment whole life insurance policy.
   
·
Executive Medical Benefits.Pursuant to his employment agreement, Mr. Khoury and his spouse are entitled to receive medical benefits for the remainder of their lives regardless of the reason for termination of employment.
   
·
Consulting Arrangements.
   
 
Pursuant to his employment agreement, Mr. Khoury has agreed to provide consulting services to us for a period of five years following his termination of employment for any reason except his resignation without good reason or his incapacity. In consideration of these consulting services, we have agreed to pay Mr. Khoury certain fees and benefits, including continued vesting of all outstanding equity awards as detailed above under the heading Employment, Severance and Change of Control Agreements.
   
 
Pursuant to his employment agreement, Mr. Marchetti has agreed to provide consulting services to us for two years commencing on December 31, 2010 (the expiration of his term of employment) for a monthly consulting fee of $27,067. If Mr. Marchetti incurs a separation from service for any reason prior to December 31,2010, he will not be retained as a consultant.
   
·
Retirement Compensation.    Pursuant to their employment agreements, Messrs. Khoury, Baughan and McCaffrey are entitled to receive benefits as discussed in detail in our Compensation Discussion and Analysis. As Messrs. Khoury and McCaffrey are fully vested in these benefits, these amounts are not included in the tables below. Mr. Baughan vests in his benefits on April 1, 2012. However, vesting will accelerate upon a termination of his employment due to his death, incapacity, by us without cause or upon a change in control. As a result, these amounts are included in the table below.
 
 
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The amounts shown in the tables below represent summary estimates of the payments to be made upon each specified termination event as if the event occurred on December 31, 2008 and do not reflect any actual payments to be received by the named executive officers:
 
Amin J. Khoury
 
                           
Change of Control
 
                           
Contempraneous
             
                           
Involuntary
   
Contemporaneous
       
Compensation
 
Voluntary
               
Involuntary
   
Termination/
   
Resignation With
   
Remain
 
Element
 
Resignation
   
Incapacity
   
Death
   
Termination
   
Resignation
   
Good Reason
   
Employed
 
Lump-sum of Salary for Contract Term/Severance Payment
  $ 1,041,000     $ 6,246,000     $ 3,123,000<