def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES
EXCHANGE ACT OF 1934 (Amendment
No. )
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
o Preliminary
Proxy Statement
o Confidential,
for Use of the SEC Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to §240.14a-12
LORILLARD, INC.
(Name of Registrant as Specified In
Its Charter)
N/A
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(4)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange
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Act
Rule 0-11
(Set forth the amount on which the filing fee is calculated and
state how it
was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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o
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Fee paid previously with preliminary materials.
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o
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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April 6, 2011
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders for 2011 (the Annual Meeting) of
Lorillard, Inc. (the Company), which will be held at
the O.Henry Hotel, 624 Green Valley Road, Greensboro, North
Carolina 27408, on May 19, 2011 at 10:00 a.m., eastern
daylight time.
At the Annual Meeting, shareholders will be asked to elect the
three nominees named in the attached proxy statement to hold
office as Class III Directors until the Annual Meeting of
Shareholders for 2014, to hold a non-binding, advisory vote on
the Companys executive compensation, to hold a
non-binding, advisory vote on the frequency of future advisory
votes on the Companys executive compensation, to ratify
the selection of Deloitte & Touche LLP as the
Companys independent registered public accounting firm for
the fiscal year ending December 31, 2011, to consider two
shareholder proposals, if properly presented at the Annual
Meeting, and to transact such other business as may properly
come before the meeting. The accompanying Notice of Annual
Meeting and Proxy Statement describe in more detail the business
to be conducted at the Annual Meeting and provide other
information concerning the Company of which you should be aware
when you vote your shares. Also enclosed is a copy of the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2010.
Admission to the Annual Meeting will be by ticket only. If you
are a registered shareholder planning to attend the meeting,
please check the appropriate box on the proxy card and retain
the bottom portion of the card as your admission ticket. If your
shares are held through an intermediary, such as a bank or
broker, please follow the instructions under the About the
Annual Meeting of Shareholders section of the Proxy
Statement to obtain a ticket.
Your participation in the Companys Annual Meeting is
important, regardless of the number of shares you own. In order
to ensure that your shares are represented at the Annual
Meeting, whether you plan to attend or not, please vote in
accordance with the enclosed instructions. As a shareholder of
record, you can vote your shares by telephone, electronically
via the Internet or by submitting the enclosed proxy card. If
you vote using the proxy card, you must sign, date and mail the
proxy card in the enclosed envelope. If you decide to attend the
Annual Meeting and wish to modify your vote, you may revoke your
proxy and vote in person at the meeting.
The Board of Directors appreciates your time and attention in
reviewing the accompanying Proxy Statement. Thank you for your
interest in Lorillard, Inc. We look forward to seeing you at the
meeting.
Sincerely,
Murray S. Kessler
Chairman, President and CEO
LORILLARD,
INC.
714 Green Valley Road
Greensboro, North Carolina 27408
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS FOR 2011
To Be Held on May 19, 2011
To Our Shareholders:
The Annual Meeting of Shareholders of Lorillard, Inc. (the
Company) for 2011 will be held at the O.Henry Hotel,
624 Green Valley Road, Greensboro, North Carolina 27408, on
May 19, 2011 at 10:00 a.m., eastern daylight time (the
Annual Meeting), to consider and vote upon the
following matters:
1. To elect the three nominees named in the attached proxy
statement to hold office as Class III Directors until the
Annual Meeting of Shareholders for 2014, and until their
successors are duly elected and qualified;
2. To hold a non-binding, advisory vote on the
Companys executive compensation;
3. To hold a non-binding, advisory vote on the frequency of
future advisory votes on the Companys executive
compensation;
4. To ratify the selection of Deloitte & Touche
LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31,
2011;
5. To consider a shareholder proposal on a majority vote
standard for director elections, if properly presented at the
Annual Meeting;
6. To consider a shareholder proposal on reporting
political contributions and expenditures, if properly presented
at the Annual Meeting; and
7. To transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement
thereof.
The Board of Directors has fixed the close of business on
March 29, 2011 as the record date for the Annual Meeting.
Only shareholders of record as of the record date are entitled
to notice of, and to vote at, the Annual Meeting and any
adjournment or postponement thereof.
By Order of the Board of Directors
Ronald S. Milstein
Senior Vice President, Legal and External Affairs,
General Counsel and Secretary
April 6, 2011
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS FOR 2011 TO BE
HELD ON MAY 19, 2011. THE PROXY STATEMENT FOR THE ANNUAL MEETING
AND THE COMPANYS ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010, BOTH OF WHICH ARE PROVIDED
HEREWITH, ARE ALSO AVAILABLE AT
http://investors.lorillard.com/phoenix.zhtml?
c=134955&p=irol-proxy.
PLEASE VOTE YOUR SHARES IN ACCORDANCE WITH THE INSTRUCTIONS
PROVIDED IN THE PROXY STATEMENT. IF VOTING USING THE ENCLOSED
PROXY CARD, PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE
PROXY IN THE ADDRESSED REPLY ENVELOPE WHICH IS FURNISHED FOR
YOUR CONVENIENCE. THE ENVELOPE NEEDS NO POSTAGE IF MAILED WITHIN
THE UNITED STATES.
TABLE OF
CONTENTS
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57
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57
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A-1
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LORILLARD,
INC.
714 Green Valley Road
Greensboro, North Carolina 27408
PROXY
STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS FOR 2011
TO BE HELD ON MAY 19, 2011
ABOUT THE
ANNUAL MEETING OF SHAREHOLDERS
Who is
soliciting my vote?
The Board of Directors of Lorillard, Inc., a Delaware
corporation (we, our, us,
Lorillard or the Company), is soliciting
your vote at our Annual Meeting of Shareholders for 2011, and
any adjournment or postponement thereof (the Annual
Meeting), to be held on the date at the time and place,
and for the purposes set forth in the accompanying notice. This
Proxy Statement and Appendix A, the accompanying notice of
annual meeting, the enclosed proxy card and our Annual Report on
Form 10-K
for the year ended December 31, 2010 (the 2010 Annual
Report) filed with the Securities and Exchange Commission
(SEC) on February 18, 2011 are being mailed to
shareholders on or about April 6, 2011.
What is
the purpose of the Annual Meeting?
At the Annual Meeting, shareholders will act on the matters
outlined in the accompanying notice. The only matters scheduled
to be acted upon at the Annual Meeting are (1) the election
of the three nominees named in this Proxy Statement to hold
office as Class III Directors (see page 7 of this
Proxy Statement), (2) a non-binding, advisory vote on the
Companys executive compensation (see page 14 of this
Proxy Statement), (3) a non-binding, advisory vote on the
frequency of future advisory votes on the Companys
executive compensation (see page 16 of this Proxy
Statement), (4) the ratification of the selection of
Deloitte & Touche LLP as our independent registered
public accounting firm for the fiscal year ending
December 31, 2011 (see page 51 of this Proxy
Statement), (5) two shareholder proposals, if properly
presented at the Annual Meeting (see pages 54 and 55 of
this Proxy Statement) and to transact such other business as may
properly come before the Annual Meeting or any adjournment or
postponement thereof.
Who can
attend the Annual Meeting?
Only shareholders of record as of March 29, 2011 (the
Record Date), or their duly appointed proxies, may
attend the Annual Meeting. Registration and seating for the
Annual Meeting on May 19, 2011 will begin at
9:00 a.m. Shareholders will be asked to present valid
picture identification, such as a drivers license or
passport. Cameras, recording devices and other electronic
devices will not be permitted at the Annual Meeting.
Please note that if you hold your shares in street
name (that is, through a broker or other nominee), you
must bring either a copy of the voting instruction card provided
by your broker or nominee or a copy of a brokerage statement
reflecting your stock ownership as of the record date and check
in at the registration desk at the Annual Meeting.
A list of shareholders entitled to vote at the Annual Meeting
will be available for examination by any shareholder for any
purpose germane to the Annual Meeting beginning ten days prior
to the Annual Meeting during ordinary business hours at 714
Green Valley Road, Greensboro, North Carolina 27408, the
Companys principal place of business, and ending on the
date of the Annual Meeting.
Do I need
a ticket to attend the Annual Meeting?
Yes. Attendance at the Annual Meeting will be limited to
shareholders as of the Record Date, their authorized
representatives and our guests. Admission will be by ticket
only. For registered shareholders, the bottom portion of the
proxy card enclosed with the Proxy Statement is the Annual
Meeting ticket. If you are a beneficial owner and hold your
shares in street name, or through an intermediary,
such as a bank or broker, you should request tickets in writing
from Lorillard, Inc., Attention: Investor Relations, 714 Green
Valley Road, Greensboro, North Carolina 27408, and include proof
of ownership, such as a bank or brokerage firm account statement
or letter from the broker,
trustee, bank or nominee holding your stock, confirming your
beneficial ownership. Shareholders who do not obtain tickets in
advance may obtain them on the Annual Meeting date at the
registration desk upon verifying their stock ownership as of the
Record Date. In accordance with our security procedures, all
persons attending the Annual Meeting must present a picture
identification along with their admission ticket or proof of
beneficial ownership in order to gain admission. Admission to
the Annual Meeting will be expedited if tickets are obtained in
advance. Tickets may be issued to others at our discretion.
How many
votes do I have?
You will have one vote for every share of our common stock,
$0.01 par value, (Common Stock) you owned on
the Record Date.
What is a
broker non-vote?
Generally, a broker non-vote occurs when shares held by a bank
or broker for a beneficial owner are not voted with respect to a
particular proposal because (i) the bank or broker has not
received voting instructions from the beneficial owner and
(ii) the bank or broker lacks discretionary voting power to
vote such shares on a particular matter. Under the New York
Stock Exchange (the NYSE) regulations, a bank or
broker does not have discretionary voting power with respect to
non-routine matters. The NYSE rules classify the
Proposal Nos. 1, 2, 3, 5, and 6 in the Proxy Statement as
non-routine matters which prevents banks and brokers from voting
the shares of beneficial owners who do not provide voting
instructions. As a result, banks and brokers do not have
discretionary authority to vote the shares of beneficial owners
for Proposal Nos. 1, 2, 3, 5 and 6. Banks and brokers do
have discretionary authority to vote for
Proposal No. 4.
How many
votes can be cast by all shareholders?
143,713,505 votes may be cast at the Annual Meeting,
representing one vote for each share of our Common Stock that
was outstanding on the Record Date. There is no cumulative
voting, and the holders of our Common Stock vote together as a
single class.
How many
votes must be present to hold the Annual Meeting?
A majority of the outstanding shares of our Common Stock
entitled to vote at the Annual Meeting must be present, in
person or by proxy, to constitute a quorum at the Annual
Meeting. Abstentions and broker non-votes will be counted as
present in determining the existence of a quorum.
How many
votes are required to elect directors and adopt any other
proposals?
Proposal No. 1 the election of
directors is determined by the affirmative vote of a
plurality of the shares of our Common Stock present at the
Annual Meeting, in person or by proxy, and entitled to vote on
the proposal. Similarly on Proposal No. 3, we will
deem the recommendation of shareholders about the frequency of
future advisory votes on the Companys executive
compensation to be the frequency option that receives the
affirmative vote of a plurality of the shares of our Common
Stock present at the Annual Meeting, in person or by proxy, and
entitled to vote on the proposal. Under applicable Delaware law,
in determining whether such nominees or the proposal have
received the requisite number of affirmative votes, abstentions
will have no effect on the outcome of the vote. With respect to
the election of directors, votes may be cast for all
nominees, withheld from all nominees, or
withheld specifically from identified nominees. With
respect to the approval of the nonbinding, advisory vote on the
frequency of future advisory votes on the Companys
executive compensation, votes may be cast for one,
two or three years, or a shareholder may
abstain from voting on such proposal. Pursuant to NYSE
regulations, brokers do not have discretionary voting power on
either of these proposals.
Proposal Nos. 2, 4, 5 and 6 approval of the
nonbinding, advisory vote on the Companys executive
compensation, the ratification of the selection of our
independent registered public accounting firm and two
shareholder proposals and generally all other
matters that may come before the Annual Meeting require the
affirmative vote of a majority of the shares of our Common Stock
present, in person or by proxy, and entitled to vote on the
specific proposal at the Annual Meeting. Votes may be cast
for or against such proposals, or a
2
shareholder may abstain from voting on such proposals.
Abstentions will have the same effect as a negative vote on
these proposals. Pursuant to NYSE regulations, brokers do not
have discretionary voting power with respect to any of these
proposals, except the ratification of the selection of our
independent registered public accounting firm.
How do I
vote?
You can vote in person or by valid proxy received by telephone,
via the Internet or by mail. If voting by mail, you must:
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indicate your instructions on the proxy;
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date and sign the proxy;
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mail the proxy promptly in the enclosed envelope; and
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allow sufficient time for the proxy to be received before the
date of the Annual Meeting.
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Alternatively, in lieu of returning signed proxy cards, our
shareholders of record can vote their shares by telephone or via
the Internet. If you are a registered shareholder (that is, if
you hold your stock in certificate form), you may vote by
telephone or electronically through the Internet by following
the instructions included with your proxy card. The deadline for
voting by telephone or electronically through the Internet is
11:59 p.m., eastern daylight time, on May 18, 2011. If
your shares are held in street name such as in a
stock brokerage account or by a bank or other nominee, please
check your proxy card or contact your broker or nominee to
determine whether you will be able to vote by telephone or
electronically through the Internet.
Can I
change my vote?
Yes. A proxy may be revoked at any time prior to the voting at
the Annual Meeting by submitting a later dated proxy (including
a proxy by telephone or electronically through the Internet), by
giving timely written notice of such revocation to our Corporate
Secretary or by attending the Annual Meeting and voting in
person. However, if you hold shares in street name,
you may not vote these shares in person at the Annual Meeting
unless you bring with you a legal proxy from the shareholder of
record.
What if I
do not vote for some of the matters listed on my proxy
card?
Shares of our Common Stock represented by proxies received by us
(whether through the return of the enclosed proxy card, by
telephone or through the Internet), where the shareholder has
specified his or her choice with respect to the proposals
described in this Proxy Statement, including the election of
directors and ratification of the selection of the independent
registered public accounting firm, will be voted in accordance
with the specification(s) so made.
If you are a shareholder of record and you do not vote your
proxy, no votes will be cast on your behalf on any of the
proposals at the Annual Meeting. If your proxy is properly
executed but does not contain voting instructions, or if you
vote by telephone or via the Internet without indicating how you
want to vote, your shares will be voted as follows:
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Boards Voting
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Proposal
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Description
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Recommendation
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1
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Election of three Class III Directors
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FOR
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2
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Non-binding, advisory vote on the Companys executive
compensation
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FOR
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3
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Non-binding, advisory vote on the frequency of future advisory
votes on the Companys executive compensation
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ONE YEAR
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4
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Ratification of the selection of Deloitte & Touche LLP
as the Companys independent registered public accounting
firm
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FOR
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5
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Shareholder proposal on a majority vote standard for director
elections
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NO POSITION
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6
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Shareholder proposal on political contributions and expenditures
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AGAINST
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3
If you are a shareholder through a bank or broker, see
What is a broker non-vote? above for more
information on how shares may be voted in the absence of
submitted voting instructions.
Could
other matters be decided at the Annual Meeting?
The Board of Directors does not intend to bring any matter
before the Annual Meeting other than those set forth above, and
the Board is not aware of any matters that anyone else proposes
to present for action at the Annual Meeting. However, if any
other matters properly come before the Annual Meeting, the
persons named in the enclosed proxy, or their duly constituted
substitutes acting at the Annual Meeting, will be authorized to
vote or otherwise act thereon in accordance with their judgment
on such matters.
Who will
pay for the cost of this proxy solicitation?
We will pay the cost of soliciting proxies. Our directors,
officers and employees may solicit proxies on behalf of the
Company in person or by telephone, facsimile or other electronic
means. We have engaged Georgeson Shareholder Communications Inc.
to assist us in the distribution and solicitation of proxies for
a fee of $14,000 plus expenses. In accordance with the
regulations of the SEC and the NYSE, we also reimburse brokerage
firms and other custodians, nominees and fiduciaries for their
expenses incurred in sending proxies and proxy materials to
beneficial owners of our Common Stock as of the Record Date.
Has the
Company adopted the new
e-proxy
rules for the delivery of the proxy materials?
No. We are delivering the proxy materials, including the 2010
Annual Report, the Proxy Statement and other materials, to all
shareholders. We will evaluate whether to adopt the notice and
access option under the
e-proxy
rules for delivery of proxy materials for future annual meetings.
How can I
access the Companys proxy materials and 2010 Annual Report
electronically?
Copies of the 2010 Annual Report, the Proxy Statement and other
materials filed by the Company with the SEC are available
without charge to shareholders on our corporate website at
www.lorillard.com or upon written request to Lorillard, Inc.,
Attention: Corporate Secretary, 714 Green Valley Road,
Greensboro, North Carolina 27408. You can elect to receive
future annual reports and proxy statements electronically by
following the instructions provided if you vote via the Internet
or by telephone.
What
financial information is accompanying the Proxy
Statement?
Accompanying the Proxy Statement is the 2010 Annual Report. The
2010 Annual Report includes our audited consolidated financial
statements as of December 31, 2010 and 2009 and for the
years ended December 31, 2010, 2009 and 2008. Based on the
inherent uncertainties of our business, the historical financial
information included in the 2010 Annual Report and selected
financial data may not be indicative of what our results of
operations and financial position will be in the future.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS
PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE OF THIS PROXY STATEMENT.
4
BOARD OF
DIRECTORS
Our Board of Directors currently consists of eight members. Our
charter divides our Board of Directors into three classes of
Directors having staggered terms, with one class being elected
each year for a new three-year term and until their successors
are elected and qualified. The term for Class I Directors
expires at the annual meeting of our shareholders for 2012, the
term for Class II Directors expires at the annual meeting
of our shareholders for 2013 and the term for Class III
Directors expires at the annual meeting of our shareholders for
2011. The following table sets forth certain information with
respect to the members of our Board of Directors:
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Term Expires
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at Annual
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Meeting Held
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Name
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Age
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Position(s)
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for the Year
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Murray S. Kessler
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51
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Chairman of the Board, President and Chief Executive Officer
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2011
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Robert C. Almon
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59
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Director
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2012
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Dianne Neal Blixt
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51
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Director
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2011
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Virgis W. Colbert
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71
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Director
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2013
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David E.R. Dangoor
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61
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Director
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2011
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Kit D. Dietz
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54
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Director
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2012
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Richard W. Roedel
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61
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Director
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2013
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Nigel Travis
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61
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Director
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2012
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Below are biographies for each of the director nominees and
continuing directors which contain information regarding the
individuals service as a director of the Company, business
experience, director positions held currently or at any time in
the past five years, information regarding involvement in
certain legal or administrative proceedings, if applicable, and
the experiences, qualifications, attributes or skills that
caused the Board to determine that such individual should serve
as a director of the Company. The process undertaken by the
Nominating and Corporate Governance Committee in recommending
qualified director candidates to the Board is described below
under Corporate Governance Nomination Process
and Qualifications for Director Nominees (see page 11
of this Proxy Statement).
Murray S. Kessler joined Lorillard in September 2010 as
Director, President and Chief Executive Officer, and assumed the
role of Chairman of the Board on January 1, 2011. Prior to
joining Lorillard, Mr. Kessler was Vice Chair of Altria
Group, Inc. and President and Chief Executive Officer of UST
LLC, a wholly owned subsidiary. Mr. Kessler held this
position from January 2009 through June 2009, the six months
following the acquisition of UST, Inc. (UST) by
Altria. Prior to 2009, Mr. Kessler had served as Chairman
of the Board of UST, the principal businesses of which included
U.S. Smokeless Tobacco Company (USSTC) and Ste.
Michelle Wine Estates, since January 2008 and President and
Chief Executive Officer of UST since January 2007. He was
President and Chief Operating Officer from November 2005 to
December 2006 and was President of USSTC from April 2000 through
October 2005. Prior to joining UST, Mr. Kessler had over
18 years of consumer packaged goods experience with
companies, including Campbell Soup and Clorox. As a result of
these and other professional experiences, Mr. Kessler has
particular knowledge of and extensive experience in the
leadership, operations, strategic planning, finance, sales and
marketing of a major company in the tobacco industry, senior
management of regulated consumer package goods companies as well
as public company board and committee practices.
Robert C. Almon became a Director of Lorillard on
November 4, 2008. Mr. Almon became Executive Vice
President and Chief Financial Officer of Pace University in New
York on May 12, 2010. From 1998 until 2007, Mr. Almon
was a principal of Ernst & Young LLP where he
established and served as National Director of the Center for
Strategic Transactions, a strategy consulting practice focused
on enhancing shareholder value, and subsequently he served on
Ernst & Youngs Partner Advisory Council. Prior
to 1998, Mr. Almon was a Managing Director in Corporate
Finance at Salomon Brothers (now Citigroup) and previously at
Lehman Brothers. Before becoming an investment banker he held
strategic and treasury positions with General Motors Corporation
and General Motors Acceptance Corporation (now Ally Financial).
Since May 2009, Mr. Almon has served as the independent
trustee of GMAC Common Equity Trust I (Trust)
with absolute discretion to manage approximately
5
10% of the common equity interests of GMAC held by the Trust for
the benefit of General Motors Company as sole beneficiary. As a
result of these and other professional experiences,
Mr. Almon has particular knowledge of and extensive
experience in strategic consulting, capital structure, finance
and risk management.
Dianne Neal Blixt became a Director of Lorillard, Inc. on
January 5, 2011. Ms. Blixt served as Executive Vice
President and Chief Financial Officer of Reynolds American Inc.
(RAI) from July 2004 until her retirement in
December 2007. Prior to that, she had served as Executive Vice
President and Chief Financial Officer of R.J. Reynolds Tobacco
Holdings, Inc. (RJR) from July 2003 to June 2004.
Ms. Blixt had been with RAI and its subsidiaries since
1988. Ms. Blixt served on the board of directors of
LandAmerica Financial Group, Inc. from 2006 to 2009 and
Metavante Technologies, Inc. from 2007 to 2009. She is also a
board member for the Reynolda House Museum of American Art, the
UNC Greensboro Bryan School MBA program, and Summit School. As a
result of these and other professional experiences,
Ms. Blixt has particular knowledge and extensive experience
in finance, accounting, risk management and strategic planning
in the tobacco industry.
Virgis W. Colbert became a Director of Lorillard on
July 8, 2008. Mr. Colbert served in a variety of key
leadership positions with Miller Brewing Company since 1979,
including Executive Vice President of Worldwide Operations from
1997 to 2005 and Senior Vice President of Operations from 1993
to 1997. He continues to serve as a Senior Advisor to
MillerCoors LLC. Mr. Colbert serves on the Board of
Directors of Bank of America Corp., Sara Lee Corporation,
Stanley Black & Decker and The Manitowoc Company, Inc.
Mr. Colbert also served on the Board of Directors of
Merrill Lynch & Co., Inc. from 2006 to 2008. He is
Chairman Emeritus of the Board for the Thurgood Marshall
Scholarship Fund, former Chairman of the Board of Trustees for
Fisk University, and a member of Omega Psi Phi Fraternity and
the Boule. He is a life member of the National Association
for the Advancement of Colored People. As a result of these and
other professional experiences, Mr. Colbert has particular
knowledge of and extensive experience in public company board
and committee practices and in the management and oversight of a
regulated consumer business, including operations, logistics and
strategic planning.
David E.R. Dangoor became a Director of Lorillard on
July 8, 2008. Mr. Dangoor has been President of
Innoventive Partners LLC, a firm providing consulting services
in the fields of marketing strategy and public relations since
2003, and has served as a Managing Partner of the consulting
firm Cato Dangoor & Associates, London, since 2002.
Mr. Dangoor retired from Philip Morris in 2002 following
more than 27 years in senior executive positions, which
included Head of Marketing, Philip Morris Germany; President,
Philip Morris Canada; Senior Vice President of Marketing, Philip
Morris USA, and Executive Vice President, Philip Morris
International. Mr. Dangoor serves as a director of Lifetime
Brands, Inc. and ICP Solar Technologies, Inc.; Chairman of the
Board of Directors of BioGaia AB; and a member of the Advisory
Board of the Denihan Hospitality Group. As a result of these and
other professional experiences, Mr. Dangoor has particular
knowledge and extensive experience in marketing, finance and
strategic planning in the tobacco industry.
Kit D. Dietz became a Director of Lorillard on
June 10, 2008. Mr. Dietz is the principal of Dietz
Consulting LLC, a consulting firm founded in 2004 to provide
consulting services for the convenience industry in the United
States and Canada. In 2003, Mr. Dietz was a Senior Vice
President with Willard Bishop Consulting LTD, which provides
consulting services to companies in the food industry, including
consumer packaged goods companies. In addition, Mr. Dietz
has served on the Board of Directors of the American Wholesale
Marketers Association, an international trade organization
working on behalf of convenience distributors in the United
States, and was the Chairman of its Industry Education
Committee. Mr. Dietz continues to provide consulting
services to the American Wholesale Marketers Association
and leading consumer packaged goods manufacturers to enhance
their market strategies and efficiencies in the convenience
channel. As a result of these and other professional
experiences, Mr. Dietz has particular knowledge of and
extensive experience with supply chain and strategic consulting
in the tobacco industry and its distribution channels.
Richard W. Roedel became a Director of Lorillard on
June 10, 2008 and was elected Lead Independent Director on
February 25, 2010. Mr. Roedel is currently a director
and chairman of the audit committee for Sealy Corporation and
Brightpoint, Inc. He is also a director and audit committee
member for IHS, Inc., Six Flags Entertainment Corporation and
Luna Innovations Incorporated as well as the non-executive
chairman of Luna. From 1985 through 2000, Mr. Roedel was
employed by the accounting firm BDO Seidman LLP, the United
States member firm of BDO International, as an Audit Partner,
being promoted in 1990 to Managing Partner in Chicago, and then
to Managing
6
Partner in New York in 1994, and finally in 1999 to Chairman and
Chief Executive. Mr. Roedel joined the Board of Directors
of Take-Two Interactive Software, Inc., a publisher of video
games, in November 2002 and served in various capacities with
that company through June 2005 including Chairman and Chief
Executive Officer. Mr. Roedel is a director and chairman of
the audit committee of Broadview Network Holdings, Inc., a
private company, and a director of the Association of Audit
Committee Members, Inc., a non-profit association of audit
committee members dedicated to strengthening the audit committee
by developing best practices. Mr. Roedel is a certified
public accountant. As a result of these and other professional
experiences, Mr. Roedel has particular knowledge of and
extensive experience in finance, accounting and risk management
and in public company board and committee practices.
Nigel Travis became a Director of Lorillard on
July 8, 2008. Mr. Travis is the Chief Executive
Officer of Dunkin Brands, Inc., a position he has held since
January 2009. Mr. Travis had been President and Chief
Executive Officer of Papa Johns International, the
worlds third largest pizza company since 2005, where he
was responsible for running the companys operations across
20 countries. Prior to this he was President and Chief Operating
Officer of Blockbuster Inc. where he worked for ten years. He
has also worked at Burger King Corporation as Managing Director
of Europe, Middle East and Africa and held positions at Grand
Metropolitan, Esso Petroleum, Kraft Foods and Rolls Royce.
Mr. Travis served as a director for The Bombay Company from
2000 to 2008 and Papa Johns International, Inc. from 2005 to
2008. As a result of these and other professional experiences,
Mr. Travis has particular knowledge of and extensive
experience in senior management of manufacturing and consumer
product businesses, including extensive leadership, human
resources, operations and strategic planning experience.
Independence
of the Board of Directors
Under the rules of the NYSE, our Board of Directors is required
to affirmatively determine which directors are independent and
to disclose such determination in the 2010 Annual Report and in
the proxy statement for each annual meeting of shareholders
going forward. On February 17, 2011, our Board of Directors
reviewed each directors relationships with us in
conjunction with our Independence Standards for Directors (the
Independence Standards) and Section 303A of the
NYSEs Listed Company Manual (the NYSE Listing
Standards). A copy of our Independence Standards is
attached to this Proxy Statement as Appendix A and is
available on our corporate website at www.lorillard.com under
the heading Investor Relations Corporate
Governance. A copy of our Independence Standards is also
available to shareholders upon request, addressed to the
Corporate Secretary at 714 Green Valley Road, Greensboro, North
Carolina 27408. At the meeting, the Board, upon the
recommendation of the Nominating and Corporate Governance
Committee, affirmatively determined that all non-executive
directors Ms. Blixt and Messrs. Almon,
Colbert, Dangoor, Dietz, Roedel and Travis meet the
categorical standards under the Independence Standards and are
independent directors under the NYSE Listing Standards.
In the course of its determination of the independence of each
non-executive director, the Board of Directors considered the
service of Ms. Blixt and her husband on the board of
directors of Technology Concepts & Design, Inc.
(TCDI), a litigation support technology company,
which provides services to the Company. Ms. Blixt resigned
as a director of TCDI in 2010. In 2010, the Company paid
$1.75 million in fees to TCDI. Based on her prior position
and her husbands position as a director of TCDI, our Board
considered Ms. Blixts relationship with TCDI and
determined that it was not a material relationship for the
purpose of determining her independence.
The Board determined that Mr. Kessler, who serves as an
executive officer of the Company, is not an independent
director. Accordingly, seven of the eight members of our Board
of Directors are independent in compliance with our Corporate
Governance Guidelines, which require a majority of independent
directors.
PROPOSAL NO. 1
ELECTION OF CLASS III DIRECTORS
The Board of Directors has nominated Ms. Dianne Neal Blixt
and Messrs. Murray S. Kessler and David E.R. Dangoor to be
elected at the Annual Meeting to serve as Class III
Directors for a three-year term ending at the annual meeting of
shareholders for 2014 and until their successors are duly
elected and qualified. Each of the nominees are currently
incumbent directors of the Company. The terms of the remaining
Class I Directors and Class II Directors expire at the
annual meeting of shareholders for 2012 and 2013, respectively.
7
Each nominee has consented to being named in this Proxy
Statement and to serve if elected. If, prior to the Annual
Meeting, any nominee should become unavailable to serve, the
shares of our Common Stock represented by a properly executed
and returned proxy (whether through the return of the enclosed
proxy card, by telephone or electronically through the Internet)
will be voted for such other person as shall be designated by
the Board of Directors, unless the Board of Directors determines
to reduce the number of directors in accordance with our amended
and restated certificate of incorporation and amended and
restated by-laws.
Vote
Required
Directors shall be elected by the affirmative vote of a
plurality of the shares of our Common Stock cast at the Annual
Meeting, in person or by proxy, and entitled to vote in the
election of directors, provided that a quorum is present.
Pursuant to applicable Delaware law, in determining whether such
nominees have received the requisite number of affirmative
votes, abstentions will have no effect on the outcome of the
vote. Pursuant to NYSE regulations, brokers do not have
discretionary voting power on this proposal, and broker
non-votes will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF EACH NOMINEE AS A
CLASS III DIRECTOR. UNLESS MARKED TO THE CONTRARY, SIGNED
PROXIES RECEIVED BY THE COMPANY WILL BE VOTED
FOR THE ELECTION OF THE THREE NOMINEES LISTED
ABOVE.
COMMITTEES
OF THE BOARD
The Board of Directors has a standing Audit Committee,
Compensation Committee and Nominating and Corporate Governance
Committee consisting of directors who have been affirmatively
determined to be independent as defined in our
Independence Standards, the NYSE Listing Standards and
applicable SEC regulations. Each of these committees operates
pursuant to a written charter approved by the Board of Directors
and available on our corporate website at www.lorillard.com
under the heading Investor Relations Corporate
Governance. A copy of each committee charter is also
available to shareholders upon request, addressed to the
Corporate Secretary at 714 Green Valley Road, Greensboro, North
Carolina 27408.
Audit
Committee
The Audit Committee assists our Board of Directors in the
oversight of the integrity of our financial statements, our
compliance with legal and regulatory requirements, the
qualifications and independence of our independent registered
public accounting firm and the performance of our internal audit
staff and our independent registered public accounting firm. In
addition, the Audit Committee is responsible for oversight of
our system of internal control over financial reporting and our
enterprise risk management and has sole authority and
responsibility to select, determine the compensation of,
evaluate and, when appropriate, replace our independent
registered public accounting firm. The Audit Committee is a
separately-designated standing audit committee established in
accordance with the Securities Exchange Act of 1934, as amended
(the Exchange Act).
The Audit Committee is comprised of Messrs. Roedel (Chair),
Almon and Dangoor and Ms. Blixt. Each member of the Audit
Committee is required to have the ability to read and understand
fundamental financial statements. The Audit Committee is also
required to have at least one member that qualifies as an
audit committee financial expert as defined by the
SEC regulations. Our Board of Directors has determined that
Ms. Blixt and Messrs. Almon and Roedel qualify as
audit committee financial experts, and that
Mr. Roedels simultaneous service on the audit
committees of five public companies, in addition to us, does not
impair his ability to effectively serve on our Audit Committee.
Each member of the Audit Committee is an independent director.
During 2010, the Audit Committee met nine times.
Compensation
Committee
The Compensation Committee is responsible for annually reviewing
and approving the corporate goals and objectives relevant to the
compensation of the Chief Executive Officer and evaluating his
or her performance in light
8
of these goals; determining the compensation of our executive
officers and other appropriate officers; reviewing and reporting
to the Board of Directors on compensation of directors and board
committee chairs; and administering our incentive and
equity-based compensation plans. See Executive
Compensation for additional information regarding the
process for the determination and consideration of executive
compensation, including the involvement of management and
compensation consultants. The Compensation Committee is
comprised of Messrs. Colbert (Chair), Almon, Dietz and
Travis. Each member of the Compensation Committee is an
independent director. During 2010, the Compensation Committee
met five times.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible
for identifying, evaluating and recommending nominees for our
Board of Directors for each annual meeting (see Nomination
Process and Qualifications for Director Nominees below);
evaluating the composition, organization and governance of our
Board of Directors and its committees and developing and
recommending corporate governance principles and policies
applicable to us. The Committee is comprised of
Messrs. Dietz (Chair), Colbert, Dangoor and Roedel. Each
member of the Nominating and Corporate Governance Committee is
an independent director. During 2010, the Nominating and
Corporate Governance Committee met five times.
BOARD AND
SHAREHOLDER MEETINGS
During 2010, our Board of Directors held eight meetings and
acted by unanimous written consent on two occasions. In
addition, the standing committees of the Board of Directors held
an aggregate of 19 meetings in that period. In 2010, all
incumbent directors attended at least 75% of the aggregate
number of meetings of the Board of Directors and Committees of
the Board of Directors on which they served. All directors are
expected to attend each regularly scheduled Board of Directors
meeting as well as each annual meeting of our shareholders
(subject to limited exceptions). All of our directors attended
the Companys Annual Meeting of Shareholders for 2010.
DIRECTOR
COMPENSATION
The Compensation Committee is responsible for reviewing and
recommending to the Board of Directors the compensation of our
non-executive directors. Members of our Board of Directors who
are also our officers or employees do not receive compensation
for serving as a director (other than travel-related expenses
for Board meetings held outside of our corporate offices). The
following table sets forth the annual retainer and stipend
compensation for non-executive directors:
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Compensation
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Annual Non-Executive Director Cash Retainer
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$
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100,000
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Annual Non-Executive Director Equity Retainer
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100,000
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Lead Independent Director Stipend
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20,000
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Audit Committee Chair Stipend
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20,000
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Compensation Committee Chair Stipend
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15,000
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Nominating and Corporate Governance Committee Chair Stipend
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10,000
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The annual non-executive director cash retainer set forth in the
table above is paid in $25,000 installments in the first week of
each calendar quarter. The Lead Independent Director and Audit,
Compensation and Nominating and Corporate Governance Committees
chair cash stipends are paid in full with the first quarterly
installment of the annual non-executive director cash retainer
for the calendar year. The annual non-executive director equity
retainer is granted in the form of restricted stock annually
during the first quarter of each calendar year. The number of
shares of restricted stock is determined by dividing the amount
of the annual non-executive director equity retainer by the
closing price of our Common Stock on the date of grant (rounding
up to the nearest whole share). The restricted stock vests in
full on the first anniversary of the date of grant if the
director continues to serve as a director through such date (or
on the earlier of the death or disability of such director).
Directors may use the Companys fractionally owned aircraft
for travel to and from Board meetings and are reimbursed for
other travel-related expenses for Board and committee meetings.
The Board has also adopted a reimbursement policy for director
attendance at third-party director education programs (up to
$7,500 per year). We do not maintain a pension plan,
9
incentive plan or deferred compensation arrangements for
non-executive directors. Non-executive directors did not receive
any other compensation for 2010.
Director
Compensation Table
The following table sets forth the compensation paid to or
earned by each non-executive director for 2010:
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Fees
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Earned or
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Stock
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Non-Executive Director
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Paid in Cash(2)
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Awards(3)
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Total
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Robert C. Almon
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$
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100,000
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$
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100,033
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$
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200,033
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Dianne Neal Blixt(1)
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Virgis W. Colbert
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115,000
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100,033
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215,033
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David E.R. Dangoor
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100,000
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100,033
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200,033
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Kit D. Dietz
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110,000
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100,033
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210,033
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Richard W. Roedel
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140,000
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100,033
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240,033
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Nigel Travis
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100,000
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100,033
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200,033
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(1) |
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Ms. Blixt joined the Board of Directors on January 5,
2011 and received no compensation for 2010. |
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(2) |
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The fees include four quarterly retainer payments of $25,000 to
each non-executive director in 2010. In addition,
Messrs. Roedel, Colbert and Dietz received $40,000, $15,000
and $10,000, respectively, representing the annual committee
chair stipends for their respective service as Lead Independent
Director and chair of the Audit Committee, chair of the
Compensation Committee and chair of the Nominating and Corporate
Governance Committee during 2010. |
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(3) |
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The amount shown reflects the grant date fair value of the
restricted stock awarded to be expensed for each non-executive
director in 2010, calculated under FASB ASC Topic 718 using the
closing price for our Common Stock on the date of grant. Each
director received an annual non-executive director equity
retainer award of 1,342 shares of restricted stock on
February 25, 2010. The closing price of our Common Stock
was $74.54 on February 25, 2010. Each restricted stock
grant vests in full on the first anniversary of the date of
grant if the director continues to serve as a director on such
date (or on the earlier of the death or disability of such
director). Non-executive directors received payment of dividends
on unvested restricted stock awarded for each dividend declared
for all shareholders. |
CORPORATE
GOVERNANCE
Executive
Sessions of Independent Directors
Executive sessions of independent directors without management
present are held regularly by the Board of Directors. In 2010,
the independent directors met in executive session without
management five times. The Board of Directors elected
Mr. Roedel to serve as Lead Independent Director and as
such, he presided over the executive sessions of the independent
directors in 2010.
Corporate
Governance Guidelines
The Board of Directors has adopted Corporate Governance
Guidelines to assist the Board of Directors in monitoring the
effectiveness of policy and decision making, both at the Board
of Directors and management levels with a view to enhancing
shareholder value over the long term. The Corporate Governance
Guidelines outline, among other things, the following:
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the composition of the Board of Directors, including director
qualification standards;
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the responsibilities of the Board of Directors, including access
to management and independent advisors;
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the process for interested parties to communicate with the Board
of Directors;
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the conduct of Board of Directors and committee meetings;
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10
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succession planning for our Chief Executive Officer; and
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the process for evaluating the performance of and compensation
for the Board of Directors and the Chief Executive Officer.
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Our Corporate Governance Guidelines are available on our
corporate website at www.lorillard.com under the heading
Investor Relations Corporate Governance.
A copy of our Corporate Governance Guidelines is also available
to shareholders upon request, addressed to the Corporate
Secretary at 714 Green Valley Road, Greensboro, North Carolina
27408.
Code of
Business Conduct and Ethics
We are committed to maintaining high standards for honest and
ethical conduct in all of our business dealings and complying
with applicable laws, rules and regulations. In furtherance of
this commitment, our Board of Directors promotes ethical
behavior and has adopted a Code of Business Conduct and Ethics
(the Code of Conduct) that is applicable to all of
our employees, including our Directors and officers. The Code of
Conduct provides, among other things:
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guidelines with respect to ethical handling of possible
conflicts of interest, corporate opportunities and protection of
corporate assets;
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standards for dealing with customers, suppliers, employees and
competitors;
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a requirement to comply with all applicable laws, rules and
regulations, including but not limited to insider trading
prohibitions;
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standards for promoting full, fair, accurate, timely and
understandable disclosure in periodic reports required to be
filed by us;
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reporting procedures promoting prompt internal communication of
any suspected violations of the Code of Conduct to the
appropriate person or persons; and
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disciplinary measures for violations of the Code of Conduct.
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The Code of Conduct is available on our corporate website at
www.lorillard.com under the heading Investor
Relations Corporate Governance. We will post
any amendments to the Code of Conduct, or waivers of the
provisions thereof, to our corporate website under the heading
Investor Relations Corporate Governance.
A copy of the Code of Conduct is also available to shareholders
upon request, addressed to the Corporate Secretary at 714 Green
Valley Road, Greensboro, North Carolina 27408.
Nomination
Process and Qualifications for Director Nominees
The Board of Directors has established certain procedures and
criteria for the selection of nominees for election as a member
of our Board of Directors. Pursuant to its charter, the
Nominating and Corporate Governance Committee is responsible for
screening candidates, for developing and recommending to the
Board criteria for nominees and for recommending to the Board a
slate of nominees for election to the Board at the annual
meeting of shareholders. In recommending candidates, the
committee may consider criteria it deems appropriate, including
judgment, skill, diversity, experience with businesses and other
organizations, the interplay of the candidates experience
with the experience of the other directors and the extent to
which the candidate would be a desirable addition to the Board
of Directors. The Company does not have a formal policy with
regard to diversity although the Board and the Nominating and
Corporate Governance Committee believe that it is essential that
members of the Board represent a diversity of backgrounds,
experience and viewpoints. In considering a candidate for
nomination to the Board, the Nominating and Corporate Governance
Committee considers the sum of his or her qualifications in the
context of the foregoing criteria.
Our amended and restated by-laws provide the procedure for
shareholders to make director nominations either at any annual
meeting of shareholders or at any special meeting of
shareholders called for the purpose of electing directors. A
shareholder who is both a shareholder of record on the date of
notice as provided for in our amended and restated by-laws and
on the record date for the determination of shareholders
entitled to vote at such meeting and
11
gives timely notice can nominate persons for election to our
Board of Directors either at an annual meeting of shareholders
or at any special meeting of shareholders called for the purpose
of electing directors. The Nominating and Corporate Governance
Committee considers all nominee candidates in its screening
process. To be timely, the notice must be delivered to or mailed
and received by the Corporate Secretary at 714 Green Valley
Road, Greensboro, North Carolina 27408:
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in the case of an annual meeting of shareholders, not less than
90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting of
shareholders; provided, however, that in the event that the
annual meeting is called for a date that is not within
30 days before or after such anniversary date, notice by
the shareholder must be so delivered not later than the close of
business on the tenth day following the day on which such notice
of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever
first occurs, and
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in the case of a special meeting of shareholders called for the
purpose of electing directors, not later than the close of
business on the tenth day following the day on which notice of
the date of the special meeting was mailed or public disclosure
of the date of the special meeting was made, whichever first
occurs.
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To be in proper written form, the shareholders notice to
our Corporate Secretary must set forth (a) as to each
person whom the shareholder proposes to nominate for election as
a director, (i) the name, age, business address and
residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class or
series and number of shares of capital stock of the Company
which are owned beneficially or of record by the person and
(iv) any other information relating to the person that
would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of
proxies for election of directors pursuant to Section 14 of
the Exchange Act and the rules and regulations promulgated
thereunder; and (b) as to the shareholder giving the notice:
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the name and record address of the shareholder;
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the class or series and number of shares of our capital stock
which are owned beneficially or of record by the shareholder;
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a description of all arrangements or understandings between the
shareholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the
nomination(s) are to be made by the shareholder;
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a representation that the shareholder intends to appear in
person or by proxy at the meeting to nominate the person(s)
named in its notice; and
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any other information relating to the shareholder that would be
required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated
thereunder.
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In addition, the notice must be accompanied by a written consent
of each proposed nominee to be named as a nominee and to serve
as a director if elected.
Communication
with Non-Executive Directors
In accordance with our Corporate Governance Guidelines,
interested parties, including shareholders, may communicate with
the Board of Directors, the non-executive directors as a group,
the Lead Independent Director or any individual director by
forwarding such communication to the attention of the Corporate
Secretary at 714 Green Valley Road, Greensboro, North Carolina
27408. The Corporate Secretary shall forward all interested
party communications to the appropriate members of the Board.
Board
Leadership Structure
The Board believes that independent oversight of management is
an important component of an effective board of directors. The
Board has determined that the most effective Board leadership
structure for the Company at the present time is for the Chief
Executive Officer to serve as Chairman of the Board.
Mr. Kessler has served as the Chairman and Chief Executive
Officer of UST Inc. prior to joining the Company on
September 13, 2010, and was
12
appointed the Companys Chairman of the Board on
January 1, 2011. He is the director most familiar with both
the tobacco industry and the Companys strategic
priorities. The Board believes that Mr. Kessler is best
situated to serve as Chairman of the Board given his background
and experience and the combined role promotes clear
accountability, effective decision making and efficient
communication and execution of corporate strategy. The Board
retains the authority to modify this structure to best address
the Companys unique circumstances and the best interests
of our shareholders, as necessary and appropriate.
The Board believes that its existing corporate governance
policies and practices provide independent oversight and
accountability of management. The Companys Corporate
Governance Guidelines and Committee charters provide for a
number of processes and practices, including the appointment of
a Lead Independent Director, executive sessions of the
independent directors without management at each regular Board
meeting; a supermajority of independent directors exceeding the
NYSE Listing Standards; and an Audit Committee, Compensation
Committee and Nominating and Corporate Governance Committee
comprised exclusively of independent directors.
Lead
Independent Director
The independent directors of the Board elected Mr. Roedel
to serve as Lead Independent Director in February 2010. The Lead
Independent Director serves as the liaison between the Chairman
of the Board of Directors and the independent directors;
presides over all executive sessions of the independent
directors; in the absence of the Chairman, serves as chairman at
the meetings of the Board of Directors; establishes the agenda
for the executive sessions of the independent directors; with
the Chairman of the Board of Directors and the Corporate
Secretary, establishes the agenda for regular Board meetings;
coordinates with the committee chairs regarding committee agenda
and information requirements; presides over any portions of
meetings of the Board of Directors at which (i) the
evaluation or compensation of the Chief Executive Officer is
presented or discussed or (ii) the performance of the Board
of Directors is presented or discussed; coordinates the
activities of the other independent directors; and performs such
other duties as may be established or delegated by the Chairman
of the Board of Directors.
Boards
Role in Risk Oversight
The Board of Directors as a whole and through its Committees
oversees the Companys risk management. The Company has an
enterprise risk management program through which material
enterprise risks are identified and prioritized by management
and presented to the Board
and/or one
of its Committees. The enterprise risk management program is
reviewed by both the Audit Committee and Board of Directors on
an annual basis. In addition, members of senior management
regularly report to the Board on areas of material risk to the
Company. The Board regularly reviews information regarding the
Companys strategy, finances, operations, legal and
regulatory developments, research and development, liquidity and
competitive environment as well as the risks associated
therewith. The Audit Committee oversees the management of risks
related to financial reporting and monitors the annual internal
audit risk assessment, which identifies and prioritizes risks
related to the Companys internal controls in order to
develop internal audit plans for future fiscal years. The
Nominating and Corporate Governance Committee oversees the
management of risks associated with the independence of the
Board of Directors and potential conflicts of interest. The
Compensation Committee oversees the management of risks relating
to the Companys compensation plans and arrangements,
including those for its Named Executive Officers. In February
2011, the Compensation Committee, with the assistance of the
Committees Compensation Consultant (as defined below),
reviewed the Companys compensation policies and practices
for all employees, including the Named Executive Officers, and
does not believe that the Companys compensation programs
create risks that would be reasonably likely to have a material
adverse effect on the Company. Each Committee provides periodic
reports to the Board of Directors regarding their areas of
responsibility and oversight.
Succession
Planning
In November 2009, the Board of Directors announced that it would
be implementing a succession review process in anticipation of
the retirement of Mr. Orlowsky as Chairman, President and
Chief Executive Officer upon the December 31, 2010
expiration of his employment agreement. In order to ensure an
orderly succession planning process and to evaluate all relevant
options, the Board formed a search committee in 2009. Following
the completion of its search process, on August 12, 2010,
the Board of Directors announced the election of
Mr. Kessler
13
as President and Chief Executive Officer, effective
September 13, 2010, and Chairman of the Board, effective
January 1, 2011, to succeed Mr. Orlowsky upon his
retirement on December 31, 2010.
EXECUTIVE
OFFICERS
Our executive officers are set forth in the table below. All
executive officers are appointed by and serve at the pleasure of
the Board of Directors. Messrs. Kessler, Taylor, Spell,
Milstein and Hennighausen together are referred to as the
Named Executive Officers.
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Name
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Age
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Position(s)
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Murray S. Kessler
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51
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Chairman, President and Chief Executive Officer
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David H. Taylor
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55
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Executive Vice President, Finance and Planning and Chief
Financial Officer
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Charles E. Hennighausen
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56
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Executive Vice President, Production Operations
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Randy B. Spell
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59
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Executive Vice President, Marketing and Sales
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Ronald S. Milstein
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54
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Senior Vice President, Legal and External Affairs, General
Counsel and Secretary
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David H. Taylor is the Executive Vice President, Finance
and Planning and Chief Financial Officer of Lorillard.
Mr. Taylor joined Lorillard in January 2008. Prior to
joining Lorillard, Mr. Taylor was a Senior Managing
Director with FTI Palladium Partners, a firm specializing in
providing interim management services. In that capacity, he
served as Interim Chief Financial Officer of Eddie Bauer
Holdings, Inc. from January 2006 to November 2007.
Randy B. Spell is the Executive Vice President, Marketing
and Sales of Lorillard and has served in the same position with
Lorillard since 1999. Previously, Mr. Spell served as
Senior Vice President, Sales for four years and prior to that,
as Vice President, Sales for one year. Mr. Spell has been
with Lorillard since 1977.
Charles E. Hennighausen is the Executive Vice President,
Production Operations of Lorillard. Mr. Hennighausen has
served in this position since he joined Lorillard in 2002.
Ronald S. Milstein is the Senior Vice President, Legal
and External Affairs, General Counsel and Secretary of Lorillard
and has served in the same executive positions with Lorillard
since 2005. Previously, Mr. Milstein served as Vice
President, General Counsel, and Secretary for seven years.
Mr. Milstein has been with Lorillard since 1996.
PROPOSAL NO. 2
ADVISORY VOTE ON THE COMPANYS EXECUTIVE
COMPENSATION
We recognize the interest the Companys shareholders have
in the Companys executive compensation policies and
practices. In recognition of that interest and in accordance
with the requirements of the Securities and Exchange Commission
(SEC) rules and the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (the Dodd-Frank
Act), this proposal, commonly known as a say on
pay proposal, provides the Companys shareholders
with the opportunity to cast an advisory vote on the
compensation of the Companys Named Executive Officers, as
disclosed pursuant to the SECs compensation disclosure
rules, including the discussion of the Companys
compensation program and philosophy and the compensation tables
of this Proxy Statement.
As described in more detail below on page 17 under the
heading Executive Compensation Compensation
Discussion and Analysis, the Company has adopted an
executive compensation program that reflects the Companys
philosophy that executive compensation should be structured so
as to align each executives interests with the interests
of our shareholders. Provided below are a few highlights of our
performance and enhancements to our executive compensation
policies and practices in 2010.
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In 2010, the Company reported record results for net sales,
total domestic retail market share, Newport domestic retail
market share, net income and earnings per diluted share,
significantly outperforming our industry peers as well as
exceeding our internal objectives for the year. Pursuant to our
pay for performance philosophy, the incentive compensation
payouts awarded by the Compensation Committee to the Named
Executive Officers reflect this record-setting performance.
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14
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The Board of Directors and Compensation Committee took a number
of actions in 2010 and 2011 to enhance the Companys
executive governance and compensation policies and practices,
including the following:
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Prohibited change in control tax gross up provisions in all new
severance agreements and did not include such a provision in the
severance agreement for our new Chief Executive Officer;
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Adopted a clawback policy applicable to all participants in our
incentive compensation plans, including the Named Executive
Officers;
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Adopted stock ownership guidelines for our directors and senior
executives, including the Named Executive Officers;
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Eliminated employment agreements with executive officers,
including the Chief Executive Officer; and
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Prohibited all hedging activities in the Companys Common
Stock for all senior executives, including the Named Executive
Officers.
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The following graph compares the cumulative total shareholder
return on our Common Stock from June 10, 2008, the date
when our Common Stock commenced trading on a when
issued basis following our separation from Loews
Corporation (the Separation), to December 31,
2010 with the comparable cumulative return of (i) the
S&P 500 Index and (ii) the S&P Tobacco Index. The
graph assumes $100 was invested on June 10, 2008 in our
Common Stock and in each of the indices and assumes that all
cash dividends are reinvested. The table below the graph shows
the dollar value of those investments as of the dates in the
graph. Our cumulative shareholder return since the Separation
has generally equaled or exceeded that of the S&P 500
Tobacco Index and the S&P 500 Index. The comparisons in the
graph are required by the SEC and are not intended to forecast
or be indicative of future performance of our Common Stock.
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6/10/08
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6/30/08
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9/30/08
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12/31/08
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3/31/09
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6/30/09
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9/30/09
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12/31/09
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3/31/10
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6/30/10
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9/30/10
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12/31/10
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Lorillard Common Stock
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$
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100.00
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$
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90.25
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$
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94.01
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$75.59
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$
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84.12
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$
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93.59
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$
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104.03
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$
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113.75
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$
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108.11
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$
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104.84
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$
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118.70
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$
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122.96
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S&P 500 Index
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100.00
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94.23
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85.86
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66.49
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58.73
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67.67
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77.82
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82.09
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86.09
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75.87
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84.01
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92.58
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S&P 500 Tobacco Index
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100.00
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97.77
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96.78
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83.79
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75.09
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86.48
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95.97
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99.21
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104.87
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95.97
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115.40
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120.09
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The performance graph and related information above shall not be
deemed soliciting material or to be
filed with the SEC, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Exchange Act, except
to the extent that we specifically incorporate it by reference
into such filing.
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The shareholder vote on this proposal is not intended to address
any specific element of compensation, but rather the overall
compensation of our Named Executive Officers. Pursuant to the
Dodd-Frank Act, this vote is advisory and will not be binding on
the Company. However, the Board of Directors and the
Compensation Committee will review and consider the voting
results when evaluating future compensation decisions relating
to our Named Executive Officers.
15
We request that shareholders approve, on an advisory basis, the
compensation of our Named Executive Officers, as disclosed in
the Proxy Statement, including the Compensation Discussion and
Analysis, related compensation tables and disclosures, pursuant
to the compensation disclosure requirements of the SEC.
Vote
Required
The affirmative vote of a majority of the shares of our Common
Stock cast at the Annual Meeting, in person or by proxy, and
entitled to be voted on this proposal at the Annual Meeting is
required for advisory approval of the proposal, provided that a
quorum is present. Pursuant to applicable Delaware law, in
determining whether the proposal has received the requisite
number of affirmative votes, abstentions will have the same
effect as negative votes. Pursuant to NYSE regulations, brokers
do not have discretionary voting power with respect to this
proposal, and broker non-votes will have no effect on the
outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE APPROVAL OF THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
UNLESS MARKED TO THE CONTRARY, SIGNED PROXIES RECEIVED BY THE
COMPANY WILL BE VOTED FOR THE PROPOSAL.
PROPOSAL NO. 3
ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON THE
COMPANYS EXECUTIVE COMPENSATION
In accordance with SEC regulations and the Dodd-Frank Act, we
are providing shareholders with the opportunity to cast an
advisory vote on whether the Company should hold a shareholder
advisory vote on the Companys executive compensation, as
included in Proposal No. 2 of this Proxy Statement,
every one, two or three years. We are required to include this
non-binding, advisory vote in our proxy statement no less
frequently than once every six years.
Our Board of Directors has determined that an annual advisory
vote on executive compensation would allow our shareholders to
provide timely, direct input on the Companys executive
compensation philosophy, policies, practices and actions as
disclosed in the proxy statement each year. We recognize that
shareholders may have different views as to the appropriate
frequency of the advisory vote on executive compensation and
look forward to hearing from shareholders as to their
preferences. Pursuant to the Dodd-Frank Act, this vote is
advisory and will not be binding on the Company. However, the
Board of Directors and the Compensation Committee will review
and consider the voting results when evaluating the frequency of
future advisory votes on executive compensation.
At the Annual Meeting, you may cast your vote on your preferred
voting frequency of the advisory vote on the Companys
executive compensation, as disclosed pursuant to the SECs
compensation disclosure rules, including the discussion of the
Companys compensation program and philosophy and the
compensation tables of the proxy statement, by selecting the
option of one year, two years, three years or abstain from
voting when you vote on this Proposal No. 3.
Shareholders will not be voting to approve or disapprove the
Boards frequency recommendation.
Vote
Required
The affirmative vote of a plurality of the shares of our Common
Stock cast at the Annual Meeting, in person or by proxy, and
entitled to be voted on this proposal at the Annual Meeting is
required for advisory approval of the proposal, provided that a
quorum is present. Pursuant to applicable Delaware law, in
determining whether such nominees have received the requisite
number of affirmative votes, abstentions will have no effect on
the outcome of the vote. Pursuant to NYSE regulations, brokers
do not have discretionary voting power with respect to this
proposal, and broker non-votes will have no effect on the
outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ONE
YEAR OPTION FOR THE FREQUENCY OF FUTURE ADVISORY VOTES
ON THE COMPANYS EXECUTIVE COMPENSATION. UNLESS MARKED TO
THE CONTRARY, SIGNED PROXIES RECEIVED BY THE COMPANY WILL BE
VOTED FOR THE ONE YEAR OPTION.
16
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Executive
Summary
We manage our business with the objective of creating long-term
value for our shareholders. In designing and evaluating our
compensation programs for our Named Executive Officers, the
Compensation Committee considered the performance of the Company
and each officer in light of the current economic conditions and
the performance of the Companys primary competitors. In
2010, the Company successfully executed its strategy of
profitably growing Newport market share resulting in reported
record results for net sales, total domestic retail market
share, Newport domestic retail market share, net income and
earnings per diluted share for 2010.
Key Performance Highlights for 2010:
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Annual net sales reached a record $5.932 billion, a 13.4%
increase compared to 2009.
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Annual domestic wholesale shipments increased 5.3% over 2009, a
difference of 9.1% compared to a 3.8% industry decline.
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Total Lorillard domestic retail market share in 2010 reached a
record 12.9%, a 1.1 percentage point increase over 2009.
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Total Newport domestic retail market share in 2010 reached a
record 10.95%, a 0.65 percentage point increase over 2009.
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Annual net income exceeded $1 billion for first time in the
Companys history.
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Annual earnings per diluted share reached a record $6.78, a
17.7% increase compared to 2009.
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$1.361 billion was returned to shareholders in 2010 in the
form of share repurchases and dividends.
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In 2010, the Compensation Committee also undertook a review of
the Companys compensation programs and implemented certain
changes, including evolutionary changes to the design of our
annual incentive and long-term incentive plans, in order to
increase the link between pay and performance while maintaining
a degree of consistency in our compensation programs.
Key Executive Compensation Decisions:
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In 2010, the Compensation Committee established specific
performance metrics adjusted operating income and
Newport market share for the 2010 annual incentive
plan which linked directly to the Companys strategy of
profitably growing Newport market share. The Compensation
Committee determined that (i) the Company achieved 107.6%
of its adjusted operating income target, delivering an
incremental $218 million above target, and 106.5% of its
Newport market share target, and (ii) these results
exceeded the maximum payout targets under the plan resulting in
payout at the maximum level.
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There were no increases in base salary, target annual incentive
payouts or target long-term incentive awards for any of the
Named Executive Officers for 2010 or 2011.
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Following an evaluation of the Companys pay practices, the
Compensation Committee reduced the target total direct
compensation positioning for the Named Executive Officers to the
50th percentile (median) from the 75th percentile of the market
practice for the Peer Group (as described under
Benchmarking below), which is more in line with the
Companys actual practices.
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The Compensation Committee adopted stock ownership guidelines
for senior executive officers and directors, including the Named
Executive Officers.
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The Compensation Committee eliminated employment agreements with
the Named Executive Officers in 2011, including the Chief
Executive Officer.
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17
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The Board of Directors adopted a clawback policy for all
participants in the Companys incentive compensation plans,
including the Named Executive Officers, permitting the recovery
of incentive compensation paid in the event of a material
financial restatement or gross misconduct.
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The Board completed the succession process for
Mr. Orlowsky, the Companys retiring Chairman,
President and Chief Executive Officer, and recruited and
negotiated the compensation package for Mr. Kessler to join
the Company and succeed Mr. Orlowsky.
Mr. Kesslers compensation package does not include an
employment agreement, provides for a larger proportion of his
total compensation in the form of equity and does not provide
for change in control tax gross up provision in his severance
agreement.
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The Compensation Committee has undertaken to eliminate change in
control tax gross up provisions in all new severance agreements.
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The Company adopted a policy prohibiting hedging of our Common
Stock by senior executive officers, including the Named
Executive Officers.
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The Company has not provided the Named Executive Officers with
additional years of credited service under the Companys
pension and retirement benefit plans for 2011.
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The Compensation Committee also changed the long-term incentive
plan for stock awards for 2012 in order to provide a stronger
link between performance and compensation. These changes include
the use of forward-looking performance targets for the
performance-based restricted stock awards and the elimination of
stock options for stock awards to the Named Executive Officers.
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Named
Executive Officers
The following are the Named Executive Officers discussed in this
Compensation Discussion and Analysis:
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Murray S. Kessler
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Chairman, President and Chief Executive Officer
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David H. Taylor
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Executive Vice President, Finance and Planning and Chief
Financial Officer
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Charles E. Hennighausen
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Executive Vice President, Production Operations
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Randy B. Spell
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Executive Vice President, Marketing and Sales
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Ronald S. Milstein
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Senior Vice President, Legal and External Affairs, General
Counsel and Secretary
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Martin L. Orlowsky
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Former Chairman, President and Chief Executive Officer
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Mr. Kessler joined the Company on September 13, 2010
as President and Chief Executive Officer to succeed
Mr. Orlowsky, who retired on December 31, 2010 after
20 years of service with the Company. See Succession
Planning above and Chief Executive Officer
Compensation below for additional information.
Compensation
Committee Oversight of Executive Compensation
The Compensation Committee of the Board of Directors is
comprised of four independent, non-executive
directors Messrs. Colbert (Chair), Almon, Dietz
and Travis and is responsible for overseeing our
executive compensation policies, including evaluating and
approving the compensation of the Named Executive Officers as
listed in the Summary Compensation Table below. The Board of
Directors has adopted a Compensation Committee Charter that sets
forth the purpose, composition, authority and responsibilities
of the Compensation Committee. The Compensation Committee
reviews and determines the base salary, annual and long-term
incentive awards, equity awards and other compensation for each
Named Executive Officer, including our Chief Executive Officer,
and reviews our executive compensation policies, including risks
relating to our compensation plans and arrangements. The
Compensation Committee reviews the Companys compensation
policies and practices for all employees, including the Named
Executive Officers, with regard to whether any such programs
create risks that would be reasonably likely to have a material
adverse effect on the Company. See Boards Role in
Risk Oversight above for additional information. The
Compensation Committee also has the authority to engage and
retain executive compensation consultants to assist with such
evaluations.
18
Executive
Compensation Consultants
The Compensation Committee retained Towers Watson, a nationally
recognized executive compensation consulting firm, (Towers
Watson or, as to the consultants advising the Committee,
the Committees Compensation Consultant) to
assist with the evaluation of our executive compensation
program. The Committees Compensation Consultant analyzed
and provided comparative executive compensation data and
compensation program proposals to assist in evaluating and
setting the compensation of the Named Executive Officers and the
overall structure of our executive compensation policies. Towers
Watson also provided certain benefit plan services to the
Company during 2010. The Compensation Committee reviewed the
nature of the services provided and the fees paid and does not
believe that these other services impaired the Committees
Compensation Consultants ability to provide the
Compensation Committee with an independent perspective on
executive compensation. See Executive Compensation
Consultant Fees and Services below for additional
information regarding services provided by and fees paid to
Towers Watson in 2010.
In 2009, the Compensation Committee and management agreed to the
engagement of an executive compensation consultant to assist
management with compensation plan design proposals in order to
permit the Committees Compensation Consultant to advise
the Compensation Committee exclusively. Management engaged
Mercer (US) Inc. (Mercer), a nationally recognized
executive compensation consulting firm, from 2009 until April
2010 and then engaged Pearl Meyer & Partners, LLC
(Pearl Meyer and together with Mercer,
Managements Consultant) for the remainder of
2010 to provide management with advice regarding benchmarking of
executive compensation programs, annual incentive and long-term
incentive compensation programs, plan design updates, stock
ownership guidelines and clawback policies.
Role
of Management in Executive Compensation Decisions
Generally, our Chief Executive Officer makes recommendations to
the Compensation Committee relating to the compensation of the
other Named Executive Officers. In addition, our Chief Executive
Officer and Senior Vice President of Human Resources provide
input and make proposals regarding the design, operation,
objectives and values of the various components of compensation
in order to provide appropriate performance and retention
incentives for key employees. These proposals may be initiated
by the Chief Executive Officer or upon the request of the
Compensation Committee and may reflect the advice and counsel of
the Committees Compensation Consultant or
Managements Consultant.
Benchmarking
Our executive compensation program uses competitive peer group
and survey information to assist in determining base salary,
annual incentive compensation and stock-based award guidelines.
The Compensation Committee considered this information on market
practices, which was compiled by the Committees
Compensation Consultant, along with factors such as internal
equity, individual performance, promotion potential and
retention risk in determining total direct compensation for our
Named Executive Officers. The Committee periodically benchmarks
our executive compensation against the compensation paid to
executives at a group of peer companies consisting of 20 food,
beverage and tobacco companies (the Peer Group) and
considers survey data for the food, beverage and tobacco
industry (the Survey Data) to obtain a general
understanding of current compensation practices. The companies
comprising the Peer Group are listed below.
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Altria Group, Inc.
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H.J. Heinz Company
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Brown Forman Corp.
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Hormel Foods Corp.
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Campbell Soup Company
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J.M. Smuckers Co.
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Chiquita Brands International, Inc.
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Kellogg Company
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The
Coca-Cola
Company
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Kraft Foods, Inc.
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ConAgra Foods, Inc.
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Molson Coors Brewing Co.
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Constellation Brands, Inc.
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PepsiCo, Inc.
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Dean Foods Co.
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Reynolds American, Inc.
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General Mills, Inc.
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Sara Lee Corp
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The Hershey Company
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Universal Corp.
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19
The Compensation Committee periodically evaluates the
appropriateness of the size and composition of the Peer Group
with the assistance of the Committees Compensation
Consultant. The Committees Compensation Consultant
provided executive pay practices information for the Peer Group
and Survey Data in order to assist in the compensation
evaluation. The Compensation Committee considered the base
salary, annual incentive awards and stock-based awards and
actual and target total compensation levels for the Peer Group
for comparison with those of our Named Executive Officers, in
addition to internal equity, individual performance, promotion
potential, retention risk and other factors. See Executive
Compensation Policies and Objectives below for additional
information on the use of the Peer Group and Survey Data.
Tally
Sheets
In addition to considering compensation levels for the Peer
Group and Survey Data, the Compensation Committee also considers
information contained in total compensation tally sheets for
each Named Executive Officer. The tally sheets summarize each
component of compensation, including base salary, target annual
incentive plan payout, vested and unvested long-term incentive
plan awards, retirement benefits, health and welfare benefits,
perquisites and potential payments in the event of termination
of employment under various scenarios. The Compensation
Committee uses the tally sheets to evaluate accumulated equity
value and total compensation opportunities for each Named
Executive Officer.
Executive
Compensation Policies and Objectives
The objectives of our executive compensation program are to
attract and retain highly qualified senior executive officers
and provide motivation to ensure a high level of performance in
order to maximize shareholder return. To meet these objectives,
we established a compensation program for senior executive
officers that combines base salary, cash incentives, stock-based
awards and benefits. In establishing our executive compensation
program, the Compensation Committee considered a number of
factors, including:
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the Companys business, financial and operational
strategies and goals;
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the executive compensation programs and market practices of
large, non-durable consumer goods companies;
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Peer Group and Survey Data of executive compensation practices
and levels and other materials;
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recommendations of external compensation and benefits
consultants; and
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our historical compensation practices.
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Our executive compensation program is designed to align
executive compensation within the framework of the
Companys strategic objectives and is intended to motivate
and reward executives, including the Named Executive Officers,
to achieve Company and individual performance objectives, which
are established to further the Companys short-term and
long-term financial and operating goals. The Compensation
Committee is responsible for reviewing and approving the
compensation for our Named Executive Officers and incentive
equity awards for all eligible employees. The Compensation
Committee does not rely upon a fixed formula or specific
numerical criteria in determining each Named Executive
Officers total compensation or the allocation of
compensation among the various components of compensation
described below. Generally, our executive compensation program
provides for increased annual incentive plan and incentive
equity awards as a percentage of total compensation for our
executives as they are promoted to roles of increasing
responsibilities. This places more of their compensation at risk
and subject to the achievement of our short-term and long-term
financial and operating goals. The Compensation Committee
exercises its business judgment in determining total
compensation based upon the following criteria:
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our long-term strategic objectives, financial and other
performance criteria and individual performance goals;
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the competitive compensation levels for executive officers at
companies in similar businesses
and/or of
similar size;
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20
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the overall economic environment and industry conditions;
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unique circumstances impacting the industry, the Company and our
executive officers; and
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the advice of the Committees Compensation Consultant.
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Based upon its analysis of these criteria, the Compensation
Committee determines each component of executive
compensation base salary, annual incentive awards
and stock-based awards for the Named Executive
Officers, taking into consideration internal equity, individual
performance, promotion potential, retention risk and other
factors. Given the negative public opinion regarding the tobacco
industry and consequent difficulty in attracting qualified and
talented executives, in order to attract and retain talented
executives we historically have established a target total
direct compensation at the 75th percentile of market practice
for our Peer Group. However, upon a review our actual
compensation practices in this regard and the total direct
compensation of our Named Executive Officers relative to the
Peer Group, in recent years our compensation practices for our
Named Executive Officers generally reflected the median of
market practice for our Peer Group. Therefore, the Compensation
Committee determined that it was in the best interests of the
Company and its shareholders to revise this policy to target
total direct compensation for the Named Executive Officers at
the 50th percentile (median) of market practice for our Peer
Group. This target may be adjusted based upon the specific
responsibilities, experience and performance of each Named
Executive Officer as well as other factors in the Compensation
Committees discretion.
Components
of Executive Compensation
The principal components of compensation for our Named Executive
Officers in the last fiscal year were:
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Pay Element
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Purpose
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Description
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Link to Performance
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Base salary
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To attract and retain leadership talent and to provide a
competitive basis of compensation that recognizes the
executives skills, experience and responsibilities in the
position.
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Fixed, non-variable portion of cash compensation.
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Base salary levels are based on a number of factors and are
significantly influenced by each individuals sustained
performance over time, including through promotion to higher
positions.
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Annual incentive awards
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To provide executives with a clear financial incentive to
achieve critical short-term operational and financial objectives
linked to shareholder wealth.
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Annual cash payout based on internal measures of company
performance and individual performance over the fiscal year.
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80% of the incentive plans total payout opportunity is
based on internal measures of the Companys annual
performance, specifically earnings (adjusted operating income)
and Newport market share for 2010; achievement of individual
objectives and overall individual performance determine 20% of
the incentive opportunity.
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Stock-based incentive awards
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To align significant portions of executive compensation to the
Companys long-term performance as measured by stock price
growth and total shareholder return and to promote the retention
of executive talent.
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Annual grants of stock options and restricted stock awards.
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The value of all equity awards are predicated on the
Companys stock price and settled in stock. Except in the
case of certain terminations of employment, vesting occurs over
a three year period, providing executives with a direct,
long-term link to stock price.
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21
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Pay Element
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Purpose
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Description
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Link to Performance
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Retirement, severance and other benefits
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To provide executives with an appropriate financial safeguard
against individual circumstances or events and to meet
competitive market practices with regard to such benefits.
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Health and welfare benefits, a defined benefit retirement plan,
life insurance and other benefits generally provided to all
salaried employees; executives also participate in a
non-qualified benefit equalization plan and severance programs.
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Since these benefits are generally made available to all
employees, there is no specific performance component.
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Base Salary. We pay base salaries in order to
attract and retain leadership talent and to provide a
competitive basis of compensation that recognizes the
executives skills and experience relative to his or her
responsibilities in the position. In 2010, the Peer Group and
Survey Data were used to evaluate base salary ranges for all
salaried employees, including the Named Executive Officers.
Individual base pay may deviate from the range midpoint due to
specific individual factors applicable to each executive, such
as seniority, individual performance, experience level, scope of
responsibility, or a unique combination of functional
responsibilities.
2010 Salary Adjustments. Upon the
recommendation of management, the Committee made no adjustments
to the base salaries of the Named Executive Officers for 2010.
2011 Salary Adjustments. In November 2010, the
Compensation Committee reviewed the base salaries for each of
the Named Executive Officers and once again made no adjustments
to the base salaries of the Named Executive Officers for 2011.
Annual Incentive Awards. Our annual
incentive plan (AIP) ensures that a significant
portion of each Named Executive Officers annual
compensation is at risk and dependent upon our overall
performance and individual performance criteria intended to
align the executives interests with those of shareholders.
The Compensation Committee is responsible for administering all
annual incentive plans pursuant to the terms of the 2008
Incentive Compensation Plan (the 2008 Plan), which
was approved by our shareholders in May 2009. The 2008 Plan
provides for cash-based performance awards intended to qualify
as performance based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended, (the
Code), subject to certain adjustments for
extraordinary items in the discretion of the Compensation
Committee. Individual payouts may not exceed $10,000,000 in any
plan year pursuant to the terms of the 2008 Plan.
2010 Annual Incentive Plan. In 2010,
the Compensation Committee, in consultation with the
Committees Compensation Consultant, reviewed and
considered the performance targets and terms of the annual
incentive plan for 2010 (the 2010 AIP). The 2010 AIP
was developed by management in consultation with Mercer pursuant
to the parameters discussed with the Compensation Committee and
the Committees Compensation Consultant. The Compensation
Committee adopted the 2010 AIP with the following performance
metrics and weighting:
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Payout Below
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Payout at
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Payout at
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Payout at
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2010 AIP Performance Metrics
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Weight
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Threshold
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Threshold
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Target
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Maximum
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Adjusted operating income
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40
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%
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0
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%
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50
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%
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100
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%
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200
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%
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Newport market share
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40
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%
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0
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%
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50
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%
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100
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%
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200
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%
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Individual performance metrics(1)
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20
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%
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0
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%
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0
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%
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100
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%
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100
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%
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Total payout as % of target
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0
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%
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40
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%
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100
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%
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180
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%
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(1) |
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The Committee had full discretion to reduce the individual
component based on its determination of each Named Executive
Officers performance. |
Adjusted operating income excludes from the Companys
reported operating income state settlement agreement payments,
tobacco grower payments and FDA user fees, each of which is
subject to factors outside of the Companys control. The
2010 AIP provides a payout range of 0 to 1.8 times the target
payout with performance metric weighting of 40% for each Company
performance with potential payout of 0 to 2.0 times the target
payout (based on a range of 95% to 105% of the adjusted
operating income target and 95% to 105% of the Newport market
share target) and 20%
22
for individual performance with potential payout of 0 to 1.0
times the target payout. In order to ensure the deductibility of
compensation under Section 162(m) of the Code, the
Compensation Committee established 2010 AIP funding equal to
0.75% of our net income for 2010 for each Named Executive
Officer, subject to the negative discretion of the Compensation
Committee based on, among other things, the Company performance
metrics and the individual performance metrics for 2010. The
actual payments to the Named Executive Officers were
significantly below this maximum payout figure, and all payments
were fully deductible under Section 162(m) of the Code.
In February 2010, the Compensation Committee reviewed the 2010
AIP payout targets for each Named Executive Officer and
determined that no adjustments should be made from those target
amounts set in the 2009 AIP. The Compensation Committee approved
the 2010 AIP and established the adjusted operating income and
Newport market share targets for 2010 and individual targets for
each Named Executive Officer, which are specific to their area
of responsibility and aligned with the Companys short-term
and long-term strategies. In February 2011, the Compensation
Committee evaluated the Companys performance, including
adjusted operating income and Newport market share for 2010, and
individual Named Executive Officer performance for 2010 for
purposes of determining incentive payouts for the 2010 AIP. The
following table sets forth the Company performance targets under
the 2010 AIP relative to the Companys actual performance
for 2010.
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Actual
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2010
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as % of
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Payout
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2010 AIP Performance Metrics
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Weight
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Threshold
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Target
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Maximum
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Performance
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Target
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Multiple
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(Dollars in Millions)
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(95%)
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(105%)
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Adjusted operating income(1)
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40
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%
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$
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2,722
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$
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2,865
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$
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3,008
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$
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3,083
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107.6
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%
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2.0
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Newport market share
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40
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%
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9.77
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10.28
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10.79
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10.95
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106.5
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%
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2.0
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(1) |
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Adjusted operating income is the Companys reported
operating income for 2010 ($1,725 million), excluding state
settlement agreement payments ($1,212 million), tobacco
grower payments ($111 million) and FDA user fees
($35 million). |
In reviewing the Companys performance for 2010, the
Compensation Committee noted that the Company set new record
highs for net sales, net income, total domestic retail market
share, Newport domestic retail market share and diluted earnings
per share, resulting in performance that exceeded the maximum
payout levels for both the adjusted operating income metric and
the Newport market share metric. The Committee made no
discretionary adjustments for extraordinary items in determining
the achievement of the 2010 AIP performance targets. In
addition, the Committee considered the Companys reported
operating income for 2010, which was more than 110% of the
adjusted operating income target with state settlement payments,
tobacco grower payments and FDA user fees included. The
Committee determined that both the Companys adjusted
operating income and Newport retail market share for 2010
exceeded the maximum level for each metric as set forth in the
table above, resulting in payout multiples of 2.0 times the
payout target (the maximum payout level for performance equal to
or greater than 105% of each target) for each Named Executive
Officer under the 2010 AIP.
In evaluating the individual performance factors established for
each Named Executive Officer, other than Messrs. Kessler
and Orlowsky, for 2010, the Compensation Committee considered
the recommendations of the Chief Executive Officer and evaluated
each Named Executive Officers performance relative to his
or her individual performance factors as described below.
Mr. Taylors individual performance factors related to
the ongoing execution of capital structure strategy through
completion of debt issuance, implementation of a new share
repurchase program as well as strengthening the financial
reorganization, including the recruitment of a new chief
accounting officer. Mr. Spells individual performance
factors related to new product development initiatives and
certain marketing and promotional support program testing and
analysis. Mr. Milsteins individual performance
factors related to addressing the legal issues related to the
FDA process for the review of the use of menthol in cigarettes,
FDA regulatory compliance and the Dodd-Frank Act.
Mr. Hennighausens individual performance factors
related to FDA regulatory compliance and good manufacturing
practices, inventory management and shipping efficiencies and
enhancements to the Companys production capabilities. The
Compensation Committee determined that each of the Named
Executive Officers achieved 100% of their individual performance
factors for 2010, resulting in a payout multiple of 1.0 times
the payout target for each Named Executive Officer.
23
The incentive compensation for Messrs. Kessler and Orlowsky
under the 2010 AIP was based on the Companys performance
metrics, subject to the Compensation Committees negative
discretion based on other performance factors. The Compensation
Committee evaluated each Chief Executive Officers
performance, with the assistance of the Committees
Compensation Consultant, and determined that both had performed
exceptionally well not only in delivering the Companys
financial performance in 2010, but also effectively
transitioning the chief executive officer role during the fourth
quarter 2010.
Based on these factors, the Compensation Committee determined
that the aggregate payout multiple for the 2010 AIP was 1.8
times the target payout level for each Named Executive Officer,
based on achievement of the Company performance metrics at 2.0
times target (representing 80% of the target payout) and the
individual performance factors for 2010 at 1.0 times target
(representing 20% of the target payout). In 2010, the
Companys actual adjusted operating income exceeded the
adjusted operating income target under the 2010 AIP by
$218 million, which exceeded the maximum payout targets
under the 2010 AIP and resulted in incremental incentive
payments above target to the Named Executive Officers totaling
$4.3 million, or 2.0% of such incremental adjusted
operating income. The target payouts for 2010 were unchanged
from the 2009 levels for each Named Executive Officer, except
Mr. Kessler, who joined the Company in 2010. The
Compensation Committee awarded 2010 AIP payouts equal to 1.8
times the payout target for each Named Executive Officer. The
target payout and actual payouts under the 2010 AIP for the
Named Executive Officers are set forth below, and actual payouts
are included in the Non-Equity Incentive
Compensation column in the Summary Compensation Table.
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2010 AIP
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2010 AIP
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Name
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Title
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Target Payout
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Actual Payout
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Murray S. Kessler(1)
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Chairman, President and Chief Executive Officer
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$
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553,846
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$
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996,923
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David H. Taylor
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Executive Vice President, Finance and Planning and Chief
Financial Officer
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800,000
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|
1,440,000
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Randy B. Spell
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Executive Vice President, Marketing and Sales
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550,000
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|
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|
990,000
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|
Ronald S. Milstein
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Senior Vice President, Legal and External Affairs, General
Counsel and Secretary
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550,000
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990,000
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|
Charles E. Hennighausen
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Executive Vice President, Production Operations
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450,000
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|
810,000
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Martin L. Orlowsky
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Former Chairman, President and Chief Executive Officer
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2,500,000
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4,500,000
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(1) |
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Mr. Kessler joined the Company on September 13, 2010,
and his annual target payout of $1,800,000 was pro rated for
2010. |
2011 Annual Incentive Plan. In 2011, the
Compensation Committee, in consultation with the
Committees Compensation Consultant, reviewed and
considered the performance targets and terms of the annual
incentive plan for 2011 (the 2011 AIP). The design
of the 2011 AIP is consistent with that of the 2010 AIP with the
addition of the potential for the Named Executive Officers to
exceed the individual performance factors and receive up to 1.2
times the payout target on individual performance. As in 2010,
the 2011 AIP was designed to provide annual incentive
compensation that qualified as performance based compensation
pursuant to Section 162(m) of the Code.
The Compensation Committee adopted the 2011 AIP with the
following performance metrics and weighting:
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|
Payout Below
|
|
Payout at
|
|
Payout at
|
|
Payout at
|
2011 AIP Performance Metrics
|
|
Weight
|
|
Threshold
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Adjusted operating income
|
|
|
40
|
%
|
|
|
0
|
%
|
|
|
50
|
%
|
|
|
100
|
%
|
|
|
200
|
%
|
Newport market share
|
|
|
40
|
%
|
|
|
0
|
%
|
|
|
50
|
%
|
|
|
100
|
%
|
|
|
200
|
%
|
Individual performance metrics(1)
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|
20
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
100
|
%
|
|
|
120
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%
|
Total payout as % of target
|
|
|
|
|
|
|
0
|
%
|
|
|
40
|
%
|
|
|
100
|
%
|
|
|
184
|
%
|
|
|
|
(1) |
|
The Committee has full discretion to reduce the individual
component based on its determination of each Named Executive
Officers performance. |
24
Consistent with the 2010 AIP, adjusted operating income excludes
from the Companys reported operating income state
settlement agreement payments, tobacco grower payments and FDA
user fees, each of which is subject to factors outside of the
Companys control. The 2011 AIP provides a payout range of
0 to 1.84 times the target payout with performance metric
weighting of 40% for each Company performance metric with
potential payout of 0 to 2.0 times the target payout (based on a
range of 95% to 105% of the adjusted operating income target and
the Newport market share targets) and 20% for individual
performance with potential payout of 0 to 1.2 times the target
payout. The Compensation Committee established 2011 AIP funding
equal to 0.75% of our net income for 2011 for each Named
Executive Officer, subject to the negative discretion of the
Compensation Committee based on, among other things, the Company
performance metrics and the individual performance metrics for
2011.
In February 2011, the Compensation Committee reviewed the 2011
AIP payout targets for each of the Named Executive Officers and
determined that, based upon consideration of Peer Group
compensation data, no adjustments should be made from the 2010
AIP payout targets. The Compensation Committee approved the 2011
AIP and established the adjusted operating income and Newport
market share targets for 2011 and individual targets for each
Named Executive Officer, which are specific to their area of
responsibility and support the Companys short-term and
long-term business strategies. These targets have been set
consistent with the Companys stated goal of delivering
double digit shareholder return, as measured by earnings per
share and dividend yield. The 2010 AIP target payout levels for
the Named Executive Officers are unchanged from 2010 and are set
forth below.
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|
|
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2011 AIP
|
|
Name
|
|
Title
|
|
Target Payout
|
|
|
Murray S. Kessler
|
|
Chairman, President and Chief Executive Officer
|
|
$
|
1,800,000
|
|
David H. Taylor
|
|
Executive Vice President, Finance and Planning and Chief
Financial Officer
|
|
|
800,000
|
|
Randy B. Spell
|
|
Executive Vice President, Marketing and Sales
|
|
|
550,000
|
|
Ronald S. Milstein
|
|
Senior Vice President, Legal and External Affairs, General
Counsel and Secretary
|
|
|
550,000
|
|
Charles E. Hennighausen
|
|
Executive Vice President, Production Operations
|
|
|
450,000
|
|
Long-Term Incentive Awards. The third
principal element of our compensation program for Named
Executive Officers is stock options and restricted stock awards
which recognize performance over multi-year periods, provide a
direct link between executive pay and the Companys stock
price and total shareholder return performance and encourage the
Named Executive Officers to retain and align their interests
with those of our shareholders. In 2008, we adopted the 2008
Plan, which was approved by shareholders on May 21, 2009
and is administered by our Compensation Committee. The 2008 Plan
permits the issuance of stock options, SARs, restricted stock
and other awards of our Common Stock to our directors, employees
and executive officers, including the Named Executive Officers.
Each stock option or SAR grant made pursuant to the 2008 Plan
has an exercise price equal to the closing price of our Common
Stock on the date of grant.
Stock Award Process. The Compensation
Committee approves and grants annual equity awards to eligible
executives, including the Named Executive Officers, at its first
regular meeting of the year following the release of the
Companys earnings for the prior year. The number of shares
subject to each grant, including stock options and restricted
stock in 2010, is determined based on the closing price of our
Common Stock on the annual equity award date and estimated value
of an option to purchase one share of our Common Stock using the
Black-Scholes option pricing model. Generally, stock option
awards are granted in four equal installments on a quarterly
basis on the annual award date in the first quarter,
June 30, September 30 and December 31 of the grant year
with the exercise price for each installment set on the
quarterly grant date. The Compensation Committee determined that
this approach is fair and reasonable to the executives and to
the Company and its shareholders as it ensures that the exercise
price of the grants is averaged over the year of the award,
thereby minimizing the impact (positive or negative) that any
particular event might have on the exercise price for stock
options, compared with granting all stock options on a single
day during the award year.
2010 Stock Awards. In consultation with the
Committees Compensation Consultant and management, the
Compensation Committee reviewed the type, structure, terms and
timing of stock awards to be made to eligible employees,
including the Named Executive Officers, in 2010. Based on this
review, the Compensation Committee
25
revised the type and mix of stock awards to the Named Executive
Officers for 2010 (the 2010 Stock Award). In
February 2010, the Compensation Committee, upon consultation
with the Committees Compensation Consultant, determined
that the 2010 Stock Awards to the Named Executive Officers would
be allocated equally in stock options, performance based
restricted stock and service based restricted stock. The
Compensation Committee determined that it was appropriate to use
stock options rather than SARs given the Companys
available shares under the 2008 Plan and expected usage. The
stock option awards, consistent with the Companys practice
with SAR awards, were granted in four equal quarterly
installments with an exercise price equal to the closing price
of our Common Stock on the annual award date, and June 30,
September 30 and December 31, 2010. The stock option awards
vest in one-quarter annual increments beginning on the first
anniversary of the annual award date (February 24, 2010).
The stock option awards will expire on the tenth anniversary of
the annual award date, subject to earlier termination in the
event of, among other things, termination of employment. The
Compensation Committee determined that performance based
restricted stock awards would be awarded in 2010 based on the
Companys adjusted operating income and Newport market
share performance in 2009. In this way, the Named Executive
Officers are rewarded collectively for the Companys
performance while still providing a retention incentive given
that the performance based restricted stock awards, like the
time-vested restricted stock awards, will vest on the third
anniversary of the annual award date, subject to the executive
officers continued employment with the Company. The
Compensation Committee determined that this change improved the
structure of the 2010 Stock Awards by enhancing the performance
incentive and retaining the retention incentives for the Named
Executive Officers.
In February 2010, upon consultation with the Committees
Compensation Consultant, the Compensation Committee determined
that the targeted dollar value of the 2010 Stock Awards (as
estimated by the Compensation Committee) would remain at the
2009 levels with the opportunity to increase the total value
based on the Companys 2009 performance for the performance
based restricted stock awards.
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2010 Stock
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Award
|
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Name
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Title
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Target Value
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Murray S. Kessler(1)
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Chairman, President and Chief Executive Officer
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$
|
1,538,462
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David H. Taylor
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Executive Vice President, Finance and Planning and Chief
Financial Officer
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|
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1,000,000
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Randy B. Spell
|
|
Executive Vice President, Marketing and Sales
|
|
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750,000
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Ronald S. Milstein
|
|
Senior Vice President, Legal and External Affairs, General
Counsel and Secretary
|
|
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750,000
|
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Charles E. Hennighausen
|
|
Executive Vice President, Production Operations
|
|
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650,000
|
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Martin L. Orlowsky
|
|
Former Chairman, President and Chief Executive Officer
|
|
|
4,000,000
|
|
|
|
|
(1) |
|
Mr. Kessler joined the Company on September 13, 2010.
His 2010 Stock Award was made on that date and the dollar value
was pro rated based on his target annual award value of
$5 million. |
The Company considers R. J. Reynolds Tobacco Company
(Reynolds), a subsidiary of Reynolds American Inc.,
and Philip Morris USA Inc. (Philip Morris), a
subsidiary of Altria Group, Inc., as its primary competitors.
The Compensation Committee concluded that the Company
significantly outperformed its primary competitors in 2009 on
the three key incentive metrics used for the 2009 AIP as shown
in the table below.
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|
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Newports Retail Market
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|
2009 Domestic Wholesale
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Domestic Wholesale Unit
|
Share in the Menthol Segment
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|
Market Share Change
|
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Shipments Rate of Change for 2009
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2009
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35.05 share
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Lorillard:
|
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0.55 share point growth
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Lorillard:
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3.9% decline
|
2008
|
|
34.55 share
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|
Philip Morris:
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1.96 share point decline
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Philip Morris:
|
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12.2% decline
|
Change:
|
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+0.50 share point
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Reynolds:
|
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0.05 share point decline
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Reynolds:
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8.7% decline
|
In addition, the Compensation Committee also considered the
achievement of the performance metrics under the 2010 AIP
design, including adjusted operating income and Newport market
share for 2009, as a further guideline in determining the level
of increase for the performance based restricted stock awards.
Applying the 2010 AIP formula to the Companys 2009
results, the Committee determined that the Companys
adjusted operating
26
income and Newport retail market share for 2009 exceeded the
Companys approved 2009 budget and Newport retail market
share targets, respectively, resulting in a payout of 170% of
target. Based on the Companys adjusted operating income
and Newport market share performance in 2009, the Compensation
Committee increased the performance based restricted stock award
to the Named Executive Officers and other participants by a
multiple of 1.7 times the target payout. The following table
sets forth the 2010 Stock Awards for each Named Executive
Officer awarded on February 24, 2010.
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2010
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Performance
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2010 Service
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2010
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|
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Based
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|
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Based
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|
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|
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Stock
|
|
|
Restricted
|
|
|
Restricted
|
|
Name
|
|
Title
|
|
Options
|
|
|
Stock(1)
|
|
|
Stock
|
|
|
David H. Taylor
|
|
Executive Vice President, Finance and Planning and Chief
Financial Officer
|
|
|
27,855
|
|
|
|
7,482
|
|
|
|
4,401
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|
Randy B. Spell
|
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Executive Vice President, Marketing and Sales
|
|
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20,891
|
|
|
|
5,611
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|
|
|
3,301
|
|
Ronald S. Milstein
|
|
Senior Vice President, Legal and External Affairs, General
Counsel and Secretary
|
|
|
20,891
|
|
|
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5,611
|
|
|
|
3,301
|
|
Charles E. Hennighausen
|
|
Executive Vice President, Production Operations
|
|
|
18,105
|
|
|
|
4,863
|
|
|
|
2,861
|
|
Martin L. Orlowsky
|
|
Former Chairman, President and Chief Executive Officer
|
|
|
111,418
|
|
|
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29,927
|
|
|
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17,604
|
|
|
|
|
(1) |
|
These performance based restricted shares were awarded at 1.7
times the target value based on the Companys performance
in 2009 as discussed above. |
Upon his employment with the Company on September 13, 2010,
the Compensation Committee awarded Mr. Kessler 45,676 stock
options and 12,606 shares of restricted stock, the value of
which was based on a total target value of $5,000,000 pro rated
for the remainder of 2010. Consistent with the Companys
practice, all of the restricted stock was awarded on
September 13, 2010 and the stock options were awarded on
September 13, 2010 and granted in four equal installments
on a quarterly basis with the exercise price for each
installment set on the quarterly grant dates of
September 13, 2010, December 31, 2010, March 31,
2011 and June 30, 2011. See the Grants of Plan-Based
Awards for 2010 for more information regarding the awards
made to the Named Executive Officers in 2010.
2011 Stock Awards. In February 2011, the
Compensation Committee, upon consultation with the
Committees Compensation Consultant, determined that the
2011 Stock Awards to the Named Executive Officers would be
consistent with the structure established for the 2010 Stock
Awards. Based upon a review of Peer Group compensation data, the
Committee concluded that no changes should be made to the target
values (as estimated by the Compensation Committee) for the
Named Executive Officers from the 2010 Stock Award levels.
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|
|
2011 Stock
|
|
|
|
|
|
Award
|
|
Name
|
|
Title
|
|
Target Value
|
|
|
Murray S. Kessler
|
|
Chairman, President and Chief Executive Officer
|
|
$
|
5,000,000
|
|
David H. Taylor
|
|
Executive Vice President, Finance and Planning and Chief
Financial Officer
|
|
|
1,000,000
|
|
Randy B. Spell
|
|
Executive Vice President, Marketing and Sales
|
|
|
750,000
|
|
Ronald S. Milstein
|
|
Senior Vice President, Legal and External Affairs, General
Counsel and Secretary
|
|
|
750,000
|
|
Charles E. Hennighausen
|
|
Executive Vice President, Production Operations
|
|
|
650,000
|
|
The 2011 Stock Awards were allocated equally in stock options,
performance based restricted stock and service based restricted
stock. The stock option awards will be granted in four equal
quarterly installments with an exercise price equal to the
closing price of our Common Stock on the annual award date and
June 30, September 30
27
and December 31, 2011. The stock option awards vest in four
equal annual installments beginning on the first anniversary of
the annual award date (February 17, 2011), subject to
earlier termination in the event of, among other things,
termination of employment. The stock option awards will expire
on the tenth anniversary of the annual award date. The
Compensation Committee determined that performance based
restricted stock awards would be awarded in 2011 based on the
Companys adjusted operating income and Newport market
share performance in 2010. The 2011 performance based restricted
stock awards provide a payout range of 0 to 2.0 times the target
payout value with a 50% weighting for each Company performance
metric (based on a range of 95% to 105% of the adjusted
operating income target and the Newport market share targets).
Upon consultation with the Committees Compensation
Consultant, the Compensation Committee evaluated the
Companys performance in 2010 relative to Companys
adjusted operating income and Newport market share performance
metrics and determined that each performance metric was exceeded
at the maximum level. See 2010 AIP above for
additional information regarding the Companys 2010
performance metrics. Based on this evaluation, the Compensation
Committee increased the performance based restricted stock
awards to the Named Executive Officers to 2.0 times the targeted
payout value. The following table sets forth the 2011 Stock
Awards for each Named Executive Officer.
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2011
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
2011 Service
|
|
|
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|
|
2011
|
|
|
Based
|
|
|
Based
|
|
|
|
|
|
Stock
|
|
|
Restricted
|
|
|
Restricted
|
|
Name
|
|
Title
|
|
Options
|
|
|
Stock(1)
|
|
|
Stock
|
|
|
Murray S. Kessler
|
|
Chairman, President and Chief Executive Officer
|
|
|
178,314
|
|
|
|
42,093
|
|
|
|
25,458
|
|
David H. Taylor
|
|
Executive Vice President, Finance and Planning and Chief
Financial Officer
|
|
|
35,663
|
|
|
|
8,419
|
|
|
|
4,209
|
|
Randy B. Spell
|
|
Executive Vice President, Marketing and Sales
|
|
|
26,747
|
|
|
|
6,314
|
|
|
|
3,157
|
|
Ronald S. Milstein
|
|
Senior Vice President, Legal and External Affairs, General
Counsel and Secretary
|
|
|
26,747
|
|
|
|
6,314
|
|
|
|
3,157
|
|
Charles E. Hennighausen
|
|
Executive Vice President, Production Operations
|
|
|
23,181
|
|
|
|
5,472
|
|
|
|
2,736
|
|
|
|
|
(1) |
|
These performance based restricted shares were awarded at 2.0
times the target payout level based on the Companys
performance in 2010 as discussed above. |
2012 Stock Awards. The Compensation Committee
continues to evaluate the type, structure, terms and timing of
stock awards to the Named Executive Officers and other plan
participants under the 2008 Plan and make evolutionary changes
and improvements to ensure the appropriate alignment of the
executives interests with those of our shareholders. In
2011, the Compensation Committee determined that 2012 long-term
incentive awards will be adjusted to eliminate the award of
performance based restricted stock and stock options, and these
awards will be replaced by performance-vesting shares, which
will be earned upon the achievement of a pre-established
performance goal, subject to additional time-based vesting. The
Compensation Committee is also considering other possible
changes to improve the link between pay and performance.
Other Benefits. We provide other benefits,
such as medical, dental, life, disability and related coverage,
to the Named Executive Officers that are substantially the same
as those provided to all of our salaried employees. In addition
to the qualified and non-qualified retirement benefit plans
described below, we offer an employees savings plan under
Section 401(k) of the Code in which each Named Executive
Officer, except Mr. Kessler, participated during 2010.
These benefit programs are designed to be competitive with those
of other large corporations in order to attract and retain
qualified executives. The Named Executive Officers other than
the Chief Executive Officer participate in the Senior Executive
Severance Plan and have entered into Change in Control
Agreements and participate in a severance plan as further
described below. Following Mr. Orlowskys retirement,
we do not maintain employment agreements with any of our Named
Executive Officers.
28
Chief
Executive Officer Compensation
In 2010, we concluded the succession process for our Chief
Executive Officer. Mr. Orlowsky, who served as our Chief
Executive Officer and President since 1999, announced in
November 2009 his intention to retire on December 31, 2010.
Following the completion of a search process, the Board of
Directors announced the election of Mr. Kessler as
President and Chief Executive Officer, effective
September 13, 2010 (Employment Date), and
Chairman of the Board, effective January 1, 2011.
Mr. Orlowsky resigned as President and Chief Executive
Officer on September 13, 2010 and served as Chairman of the
Board until his retirement on December 31, 2010.
Mr. Kesslers
Compensation
We entered into an offer letter (the Offer Letter)
with Mr. Kessler on August 12, 2010, which provided
for an annual base salary of $1,200,000, a target annual
incentive plan payout of $1,800,000 subject to pre-established
performance goals (pro rated for 2010), annual long-term
incentive opportunity of $5,000,000 consisting of one-third
stock option awards to be granted in four equal quarterly
installments beginning on or about his Employment Date and
two-thirds restricted stock awards to be granted on about his
Employment Date (pro rated for 2010), a signing bonus of
$1,000,000 to be paid within 30 days of his Employment Date
and generally subject to repayment on a pro rata basis if
Mr. Kesslers employment is terminated prior to the
second anniversary of the Employment Date, participation in the
senior executive severance plan, reimbursement for relocation
expenses in accordance with the Companys broad-based
relocation policy, and reimbursement for legal fees incurred in
connection with the negotiation of the terms of his employment.
Mr. Kessler is also subject to certain restrictive
covenants, including non-compete and non-solicitation covenants
for three years following his termination from employment and a
confidentiality covenant, as well as the Companys stock
ownership guidelines and clawback policy.
Pursuant to the terms of the Offer Letter, Mr. Kessler also
entered into a change in control severance agreement
(Severance Agreement) providing for a three times
severance multiple and an indemnification agreement with the
Company upon the same terms as those previously entered into
with the Companys other senior executive officers;
provided however that, the excise tax gross up provision of the
change in control severance agreements entered into with other
Named Executive Officers was replaced with a better of
net-after-tax or cutback provision which requires that the
payments contingent upon a change in control be reduced to less
than three times Mr. Kesslers base amount
(as defined by the applicable provisions of the Internal Revenue
Code of 1986, as amended) if such reduction would place him in a
better after-tax financial position than if all such payments
were made and applicable taxes, including excise taxes, paid.
Compared with Mr. Orlowskys Employment Agreement,
Mr. Kesslers compensation package provides for:
|
|
|
|
|
a lower target cash compensation level,
|
|
|
|
greater focus on stock-based long-term incentives,
|
|
|
|
no additional years of service under the Companys
retirement plans, and
|
|
|
|
no employment agreement
|
Mr. Orlowskys
Compensation
We entered into a consulting agreement (Consulting
Agreement) with Mr. Orlowsky on August 12, 2010,
which provides for a two-year consulting period following his
retirement during which Mr. Orlowsky will provide
consulting services to the Company and be paid a consulting fee
of $500,000 per year. During the term of the Consulting
Agreement, Mr. Orlowsky is subject to the same restrictive
covenants provided under his Amended and Restated Employment
Agreement, dated December 19, 2008 (the Employment
Agreement), including confidentiality, non-solicitation
and non-competition covenants. The Consulting Agreement amended
Mr. Orlowskys Employment Agreement as to the
positions he would hold with the Company for the remainder of
2010 and binds Mr. Orlowsky to provisions of the
Companys clawback policy.
The Consulting Agreement also provided as additional
consideration the continued vesting of Mr. Orlowskys
unvested stock appreciation rights, stock options and restricted
stock awards through the applicable vesting dates pursuant to
the terms provided in the original award certificates as well as
the accelerated vesting of any unvested
29
restricted stock awards on December 31, 2012. If
Mr. Orlowsky fails to comply with the confidentiality,
non-solicitation and non-competition covenants and certain other
provisions in the agreement, all outstanding unvested equity
awards held by Mr. Orlowsky will be forfeited. In deciding
to modify Mr. Orlowskys unvested stock awards, the
Compensation Committee considered Mr. Orlowskys
service to the Company, including as its Chairman, President and
Chief Executive Officer for more than 11 years, the
Companys exceptional performance over his tenure as chief
executive officer, including achieving record results for net
sales, total domestic retail market share, Newport domestic
retail market share, net income and earnings per diluted share
in 2010; the incremental fair value cost that would be expensed
by the Company as a result of the modifications to his unvested
equity awards; and the value of the extension of the restrictive
covenants. The Compensation Committee determined that it was in
the best interests of the Company and its shareholders to modify
Mr. Orlowskys unvested equity awards pursuant to the
terms of the Consulting Agreement. See Grants of
Plan-based Awards in 2010 and Potential Payments
upon Termination of Employment or Change in Control below
for additional information.
In 2010, the Employment Agreement provided that
Mr. Orlowsky would receive an annual base salary of
$1,200,000, have a target annual cash bonus target of
$2,500,000, subject to the achievement of performance goals
established by the Compensation Committee pursuant to the 2008
Plan, and participate in our annual stock equity award program
at an expected award value (as estimated by the Compensation
Committee) of not less than $4,000,000. The Employment Agreement
also specifies that Mr. Orlowsky will receive other
employee benefits no less favorable than those offered generally
to our other executives. The Employment Agreement expired on
December 31, 2010.
Pursuant to the terms of the Employment Agreement, upon his
retirement on December 31, 2010, Mr. Orlowsky received
a supplemental retirement benefit equal to the benefit that
would have been paid to him under the Pension Plan and Benefit
Equalization Plan (each discussed in Retirement
Benefits below) calculated as if he was credited with
additional years of service equal to 30 years minus
Mr. Orlowskys credited service under the Pension
Plan, and based upon an annual base salary equal to $2,200,000
(which was his base salary prior to an amendment to his
Employment Agreement in February 2008). The Company has not
typically provided its Named Executive Officers with additional
years of credited service under its retirement plans, and the
additional years of service were negotiated in a 2005 amendment
to the Employment Agreement as a retention incentive and
generally required that he remain employed with the Company
through December 31, 2009 for the enhanced benefit to be
earned. This supplemental retirement benefit was payable in a
lump sum upon Mr. Orlowskys retirement. See
Potential Payments upon Termination
Mr. Orlowskys Retirement Benefits below for
additional information regarding Mr. Orlowskys
retirement payments. See Change in Control and Other
Severance Arrangements Change in Control Severance
Agreements below for additional information.
The Employment Agreement provided that if
Mr. Orlowskys employment was terminated for a reason
other than for cause or death, the Company would continue to pay
his base salary and annual cash incentive payments for the
remainder of the employment term. The Employment Agreement
further provided that if Mr. Orlowsky died during the term
of the agreement, in addition to the proceeds of any life
insurance or other employee benefits to which his widow may be
entitled, we would pay to Mr. Orlowskys widow, if she
survived, his base salary in effect at the time of his death for
a period of six months after his death. Upon his retirement,
Mr. Orlowsky is subject to non-solicitation and
non-competition provisions for a period of three years, which
have been extended pursuant to the Consulting Agreement, and he
is also subject to confidentiality provisions in perpetuity.
Stock
Ownership Guidelines
In 2010, the Board of Directors, upon the recommendation of the
Compensation Committee, adopted and approved stock ownership
guidelines, which set ownership targets expressed as a number of
shares that approximate three times the annual cash retainer for
non-executive directors, three times the base salary for the
Chief Executive Officer and one times the average base salary
for the other executive officers. Stock owned outright, stock
held in Company benefit plans and restricted stock subject to
service based vesting will be included in determining compliance
with the stock ownership guidelines. Directors and executive
officers generally are expected to comply with the stock
ownership guidelines within five years of becoming subject to
the guidelines. The Board (or the Compensation Committee on
behalf of the Board) will review the stock ownership guidelines
and individual
30
compliance therewith on a regular basis. As of March 29,
2011, all of our Named Executive Officers were in compliance
with the stock ownership guidelines.
Clawback
Policy
In 2010, the Board of Directors, upon the recommendation of the
Compensation Committee, adopted a clawback policy that allows
the Company to recover incentive compensation paid to the
Companys senior executive officers, including the Named
Executive Officers, and other participants in the Companys
incentive plans in the event of (i) an accounting
restatement of the Companys financial statements due to
material noncompliance with any financial reporting requirements
or (ii) the gross misconduct of a senior executive officer.
The Board of Directors will require reimbursement of the excess
paid to a current or former senior executive officer, including
the Named Executive Officers, under any annual incentive plan or
long-term incentive plan compensation during the three-year
period preceding an accounting restatement or discovery of
individual gross misconduct. In addition, the Board, in its
discretion, may, among other things, reduce current or future
compensation, modify or cancel grants of stock options,
restricted shares or other long-term incentive awards granted
during the three years prior to the restatement or take any
other action determined by the Board to be in the best interests
of the Company and its stockholders.
In the event the Board determines that a senior executive
officer engaged in gross misconduct, then the Board, in its
discretion, may take such action as it deems necessary or
appropriate under the circumstances, including among other
things, termination of employment, reducing current or future
compensation, requiring repayment of some or all of any annual
incentive paid to any senior executive officer, requiring
repayment of some or all of any value realized by any covered
employee from the vesting
and/or
exercise of any long-term incentive awards, modifying or
canceling grants of stock options, restricted shares or other
long-term incentive awards granted, or take any other action
determined by the Board to be in the best interests of the
Company and its stockholders. Gross misconduct may include
violation of the Companys Code of Business Conduct and
Ethics, violation of other Company policies, or any act or
failure to act (whether due to intentional conduct or error)
that has caused or could reasonably be expected to cause
financial or reputational harm to the Company.
The Dodd-Frank Act requires companies to adopt a policy
requiring the recovery of incentive compensation paid to certain
executives as a result of an accounting restatement due to
material noncompliance with any financial reporting requirement.
The final rules relating to this provision of the Dodd-Frank Act
have not been adopted. The Compensation Committee will review
our existing policy and make any necessary amendments once the
final rules are adopted.
Hedging
Policy
All senior executive officers, including the Named Executive
Officers, are subject to a policy prohibiting the hedging of our
Common Stock in order to protect against speculative trading by
our senior executive officers.
Retirement
Benefits
We provide retirement benefits to our executive officers through
a combination of a tax qualified, non-contributory defined
benefit plan (the Pension Plan), in which
substantially all of our salaried employees participate, and a
non-qualified Benefit Equalization Plan. We believe that it is
appropriate to provide these retirement benefits in order to
attract and retain qualified executives. The Pension Plan is
designed to replace approximately one-third of a
participants base salary compensation after accumulating
30 years of service and having reached age 55.
Participants in the Pension Plan are also eligible for normal
retirement at age 65 with 5 or more years of credited
service, unreduced early retirement benefits at age 60 with
ten or more years of credited service, and reduced early
retirement benefits at age 55 with 5 or more years of
service. Reduced early retirement benefits are determined by
reducing the normal retirement benefit by approximately 5% for
each year prior to age 65.
The Pension Plan is subject to the normal annual earnings limits
established by the Internal Revenue Service (IRS).
For this reason, the Company provides additional retirement
benefits under the non-qualified Benefit Equalization Plan to
certain executives, including the Named Executive Officers, that
meet certain earnings
31
requirements in excess of the annual earnings limits. The
Benefit Equalization Plan provides for an additional accrual and
payment of benefits, which are not available under our Pension
Plan as a result of the IRS limits. Employees become eligible to
participate in the Benefit Equalization Plan and the Pension
Plan after completion of one year of service.
The Pension Plan is a defined benefit plan in which the benefit
is calculated using the employees highest average annual
base salary during any period of five consecutive years of the
ten years immediately preceding retirement. This earnings figure
is multiplied by a flat percentage defined for specific years of
service and by total length of credited service to obtain the
annual benefit payable under the plan. Payment from this plan is
in the form of an annuity. Retirees can choose a single life
annuity, a ten-year period certain annuity, or they can select
one of four joint and survivor options. Plan participants are
vested in the plan after five years of service.
The benefit calculation for the Benefit Equalization Plan is the
same as the Pension Plan calculation using the salary amounts in
excess of the specific IRS limits for each of the years of the
executives credited service. A limited number of
participants in the Benefit Equalization Plan, including
Messrs. Orlowsky, Spell and Milstein, have an executive
split-dollar life insurance policy, provided under our Executive
Insurance Plan, that provides a funding mechanism for benefits
provided under the Benefit Equalization Plan. Participation in
the Executive Insurance Plan was limited to participating
executives who were vested as of January 1, 2003, but the
amounts of the policies are not frozen. The terms of payment
from the Benefit Equalization Plan had been similar to the
Pension Plan until January 2008, when the Benefit Equalization
Plan was modified to comply with new regulations issued pursuant
to Section 409A of the Code by limiting the payout to lump
sums only. See the All Other Compensation column in
the Summary Compensation Table below for more information.
Although the Company has not typically provided its Named
Executive Officers with additional years of credited service
under its retirement plans, additional years of service were
awarded to Mr. Orlowsky as part of an amendment to his
Employment Agreement in 2005 and may be awarded pursuant to
severance agreements under certain termination events following
a change in control. Following Mr. Orlowskys
retirement, none of the Named Executive Officers are entitled to
additional years of credited service, except in the event of a
qualifying termination relating to a change in control event.
See Chief Executive Officer Compensation above for
more information.
Change
in Control and Other Severance Arrangements
Severance Plan. Our Senior Executive Severance
Pay Plan (the Severance Plan) provides for continued
compensation and benefits to selected senior executives,
including the Named Executive Officers (excluding
Mr. Orlowsky), whose employment is terminated without
Cause or who terminate for Good Reason,
as defined in the Severance Plan. Upon a qualified termination
of employment, the participating Named Executive Officer will be
entitled to a payment equal to two times his or her base salary
to be paid in equal bi-monthly installments over a period of
36 months following the executives termination. The
Named Executive Officers will also be entitled to a payment
equal to the unpaid portion of his or her annual incentive plan
bonus (calculated as if the executive met all performance
targets). The plan also provides for (i) a payment equal to
the cost of COBRA continuation coverage under our health plans
plus 35% for a period of three years following such termination
of employment, and (ii) up to 24 months of
outplacement services. In order to receive these benefits, the
Named Executive Officer must (i) execute a release
agreement satisfactory to us, (ii) return any financial
advances and property, and (iii) reconcile his or her
expense account and any other amounts due to the Company.
Pursuant to the Severance Plan, Cause means a
termination by the Company for (i) any malfeasance in
office or other similar violation of duties and responsibilities
by the executive; (ii) violation of express instructions or
any specific Company policy which materially affects the
business of the Company; or (iii) any unlawful act which
harms the reputation of the Company or otherwise causes
significant injury to the Company. Good Reason means
(i) the assignment of an executive to duties inconsistent
in any respect with his or her position (including status,
offices, titles and reporting requirements), authority, duties
or responsibilities, or any other action by the Company which
results in a material diminution in such position, authority,
duties or responsibilities; or (ii) a failure by the
Company to comply with the following provisions: (a) not to
reduce the executives base salary, (b) not to amend,
modify or terminate the Severance Plan in a manner not permitted
by its terms, or (c) not to permit the executive to
participate in all incentive, bonus, savings and retirement
benefit plans, practices, policies and programs applicable
32
generally to other peer executives of the Company. For purposes
of Good Reason, in each case isolated and inadvertent actions
not taken in bad faith and which are remedied by the Company
promptly after receipt of written notice thereof shall be
excluded. The Severance Plan may not be amended, modified or
terminated or participants removed from the plan prior to
September 13, 2013, and any amendments after such date may
not affect the plan benefits with respect to any executive who
has terminated his or her employment with us.
Change in Control Arrangements. We believe
that change in control severance agreements are appropriate to
allow executives to focus on the Companys interests in a
change of control situation without distractions relating to
their employment. In 2008, we entered into change in control
related severance agreements (the Severance
Agreements) with a group of 43 executives, including
Messrs. Taylor, Spell, Milstein, Hennighausen and Orlowsky.
The initial term of the Severance Agreements expired on
December 31, 2010, but automatically renewed for successive
one year term commencing on January 1, 2011. The term of
the Severance Agreements will automatically renew for successive
a one year terms, unless notice of nonrenewal has been provided
by either party to the Severance Agreement. The Severance
Agreements are automatically extended for twenty-four months
following a Change in Control. A Change in Control
is deemed to occur if: (i) any person becomes the owner of
30% or more of our voting securities; (ii) the majority of
the membership of the Board changes without approval of
two-thirds of the directors who either were directors on the
date of the related Severance Agreement, or whose election was
previously so approved; (iii) there is a merger or
consolidation with another company following which the members
of the Board do not constitute a majority of the members of the
board of the surviving entity; or (iv) there is a sale or
disposition of all or substantially all of our assets or our
stockholders approve a plan of complete liquidation.
We entered into a Severance Agreement with Mr. Kessler on
October 11, 2010, which provides for substantially the same
benefit as provided to the other Named Executive Officers,
except that there is no tax gross up provision for excess
parachute payments consistent with the Companys
policy. Mr. Kesslers Severance Agreement includes a
better of net-after-tax or cutback provision which
generally provides for a reduction in excess parachute
payments to less than three times his base
amount pursuant to Section 280G of the Internal
Revenue Code, if such reduction would place him in a better
after-tax financial position than if the full severance amount,
including applicable taxes, was paid. See also Chief
Executive Officer Compensation above for additional
information regarding Mr. Kesslers Severance
Agreement.
Benefits under the Severance Agreements are subject to a
double trigger requiring both a change in control
and a qualified termination event. As such, payments are made
only upon termination of the executives employment by us
other than for Cause or by the executive for
Good Reason within two years following (or in
connection with) a Change in Control. Cause includes
the willful and continued failure by the executive to
substantially perform his or her duties (other than any such
failure resulting from the executives incapacity due to
physical or mental illness) not cured within 30 days after
a written demand for substantial performance is delivered to the
executive by the Board or the willful engagement by the
executive in conduct which is demonstrably and materially
injurious to the Company or its subsidiaries, monetarily or
otherwise. Good Reason includes the assignment of
duties inconsistent with the executives status or a
substantial adverse alteration in the nature or status of the
executives responsibilities, relocation of the principal
place of employment to a location that increases the one-way
commute by more than 25 miles, reduction in base salary or
failure to continue comparable compensation and benefit plans.
The benefits provided pursuant to the Severance Agreements are
based upon the executives position and responsibilities
and severance payments range from one and a half to three times
base salary and target annual incentive. The Severance
Agreements for the Named Executive Officers provide for the
following benefits upon their termination of employment in a
manner entitling them to benefits:
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three times the sum of (i) the individuals base
salary in effect immediately prior to termination of employment
(or, if higher, immediately prior to the first occurrence of an
event or circumstance constituting Good Reason), and
(ii) the target annual incentive for the individual;
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continued life, dental, accident and health insurance benefits
for three years;
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a pro rata incentive compensation for the year in which
employment terminates;
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33
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except in the case of Mr. Orlowsky with respect to our
pension plans, payment equal to incremental benefits and
contributions the executive would have earned under our pension
and defined contribution plans assuming the executive continued
employment for an additional three years;
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outplacement services not to exceed $25,000; and
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except for Mr. Kessler, a
gross-up
payment equal to the amount necessary to reimburse the executive
for the effect of any federal excise tax levied on excess
parachute payments, except that the gross up payment will
not be paid, and the severance payments otherwise payable to the
executive will be reduced, unless payment of the gross up
payment would increase the after-tax benefit to the executive by
more than 10%.
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In addition, all outstanding unvested stock awards granted to
each Named Executive Officer generally will become fully and
immediately vested and exercisable upon the occurrence of a
change in control transaction (as defined in the 2008 Plan). See
Potential Payments upon Termination of Employment or
Change in Control below for additional information
regarding payments in the event of a change in control or other
termination of employment for each Named Executive Officer.
Indemnification
Agreements
We have entered into separate indemnification agreements with
each of our directors and executive officers, including our
Named Executive Officers. Each indemnification agreement
provides, among other things, for indemnification to the fullest
extent permitted by law and our certificate of incorporation and
bylaws against (i) any and all expenses and liabilities,
including judgments, fines, penalties, interest and amounts paid
in settlement of any claim with our approval and counsel fees
and disbursements, (ii) any liability pursuant to a loan
guarantee, or otherwise, for any of our indebtedness, and
(iii) any liabilities incurred as a result of acting on
behalf of the Company (as a fiduciary or otherwise) in
connection with an employee benefit plan. The indemnification
agreements will provide for the advancement or payment of
expenses to the indemnitee and for reimbursement to the Company
if it is found that such indemnitee is not entitled to such
indemnification under applicable law and our certificate of
incorporation and bylaws. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
directors, officers or persons controlling the Company pursuant
to the foregoing provisions, in the opinion of the SEC, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Deductibility
of Executive Compensation
In accordance with Section 162(m) of the Code, the
deductibility for federal corporate income tax purposes of
compensation paid to certain of our individual executive
officers in excess of $1 million in any year may be
restricted. The Compensation Committee considered the impact of
Section 162(m) in establishing the structure, performance
targets and timing of the 2010 AIP as well as the proportion of
cash compensation attributable to base salary and performance
based compensation. Although the Compensation Committee plans to
evaluate and limit the impact of Section 162(m), it
believes that the tax deduction is only one of several relevant
considerations in setting compensation. Accordingly, where it is
deemed necessary and in the best interests of the Company to
attract and retain the best possible executive talent to compete
successfully and to motivate such executives to achieve the
goals inherent in our business strategy, the Compensation
Committee may approve compensation to executive officers which
exceeds the limits of deductibility. In this regard, certain
portions of compensation paid to the Named Executive Officers
may not be deductible for federal income tax purposes under
Section 162(m) of the Code.
34
Compensation
Committee Report
The Compensation Committee reviewed and discussed the
Compensation Discussion and Analysis with management and, based
on such review, recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in the
Companys Proxy Statement and Annual Report on
Form 10-K
for the year ended December 31, 2010.
Compensation Committee of the Board of Directors
Virgis W. Colbert (Chair)
Robert C. Almon
Kit D. Dietz
Nigel Travis
Compensation
Committee Interlocks and Insider Participation
The Compensation Committee is comprised entirely of
outside directors within the meaning of the
regulations under Section 162(m) of the Code,
non-employee directors under SEC
Rule 16b-3,
and independent directors as affirmatively
determined by the Board of Directors pursuant to the NYSE
Listing Standards. The members of the Compensation Committee are
the individuals named as signatories to the report immediately
preceding this paragraph. None of the members of the
Compensation Committee are our former officers or employees.
Executive
Compensation Consultant Fees and Services
Pursuant to the Committee Charter, the Compensation Committee
has the sole authority over the appointment, compensation and
oversight of the Committees Compensation Consultant. The
Compensation Committee retained Towers Watson as the
Committees Compensation Consultant in 2010 to assist the
Committee with its responsibilities related to the
Companys executive and director compensation programs. The
Committees Compensation Consultants fees for
executive compensation consulting to the Committee in 2010 were
$232,586. The executive compensation services provided included
assisting with the development of the employment and retirement
terms for Messrs. Kessler and Orlowsky, respectively, with
regard to the Chief Executive Officer succession process,
developing new share ownership requirements for management,
providing market benchmark information, supporting the design of
incentive compensation plans and providing regulatory and
governance guidance applicable to the Committee.
In 2010, Towers Watson was also retained by the Company to
provide services unrelated to executive compensation, including
services with respect to the Companys health and welfare
plans and various other matters. The fees paid to Towers Watson
for these services in 2010 were $1,100,945. The Compensation
Committee did not review or approve the other services provided
by Towers Watson to the Company, which were approved by
management in the ordinary course of business. The Compensation
Committee reviewed the nature of the services provided and the
fees paid to Towers Watson for such services. The
Committees Compensation Consultant does not participate in
the planning, completion or solicitation of these health and
welfare plan services. In addition, the Committees
Compensation Consultants compensation is not tied to
Towers Watson providing such non-executive compensation services
to the Company. The Compensation Committee does not believe that
these other services impaired the Committees Compensation
Consultants ability to provide the Compensation Committee
with an independent perspective on executive compensation.
35
Summary
Compensation Table
The information below sets forth the compensation of our Named
Executive Officers, including the Chief Executive Officer, Chief
Financial Officer and the three other most highly compensated
executive officers for the year ended December 31, 2010, as
well as our former Chief Executive Officer, who retired in 2010.
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Change in
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Pension
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Non-Equity
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Value and
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Stock
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Incentive
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Non-
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Option/
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Plan
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qualified
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All Other
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Stock
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SAR
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Compen-
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Compen-
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Compen-
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Name and Principal Position(s)
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Year
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Salary(1)
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Bonus(2)
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Awards(3)
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Awards(4)
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sation(5)
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sation(6)
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sation(7)
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Total
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Murray S. Kessler(8)
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2010
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$
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369,595
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$
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1,000,000
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$
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1,025,624
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$
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138,008
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$
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996,923
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$
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$
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190,017
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$
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3,720,167
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Chairman, President and Chief
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Executive Officer
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David H. Taylor
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2010
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866,603
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900,018
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207,193
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1,440,000
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97,230
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18,311
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3,529,355
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Executive Vice President, Finance
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2009
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872,219
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400,060
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753,887
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1,248,000
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143,825
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33,883
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3,451,874
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and Planning and Chief Financial Officer
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2008
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793,846
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450,000
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309,344
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260,000
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100,466
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1,913,656
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Randy B. Spell
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2010
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664,079
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674,995
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155,394
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990,000
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326,863
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362,236
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3,173,567
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Executive Vice President,
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2009
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663,837
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300,060
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565,416
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858,000
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380,971
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299,321
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3,067,605
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Marketing and Sales
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2008
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617,053
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147,355
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223,415
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206,000
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190,949
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290,126
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1,674,898
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Ronald S. Milstein
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2010
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639,331
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674,995
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155,394
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990,000
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192,478
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116,556
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2,768,754
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Senior Vice President, Legal and
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2009
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639,298
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300,060
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565,416
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858,000
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193,970
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129,125
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2,685,869
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External Affairs, General Counsel
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2008
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590,006
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158,165
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223,415
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206,000
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104,922
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72,776
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1,355,284
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and Secretary
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Charles E. Hennighausen
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2010
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631,433
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585,016
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134,669
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810,000
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149,351
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9,800
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2,320,269
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Executive Vice President,
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2009
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631,277
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260,060
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490,027
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702,000
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130,268
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22,444
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2,236,076
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Production Operations
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2008
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582,654
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152,175
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223,415
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198,000
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79,443
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9,200
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1,244,887
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Martin L. Orlowsky(9)
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2010
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1,204,615
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9,185,150
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3,245,727
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4,500,000
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947,408
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684,811
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19,767,711
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Former Chairman, President and Chief
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2009
|
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1,212,308
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1,600,058
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3,015,528
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3,900,000
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632,681
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109,401
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10,469,976
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Executive Officer
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2008
|
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2,198,462
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10,750,000
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687,432
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950,000
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665,736
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757,937
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16,009,567
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(1) |
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Base salaries are paid bi-weekly and included one additional day
of salary paid in 2010 as a result of the pay period ending
dates for the year. See Base Salary above for more
information. |
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(2) |
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For 2010, Mr. Kessler received a $1,000,000 signing bonus
when he joined the Company on September 13, 2010. For 2008,
these amounts represent payment of the annual incentive payout
under bonus programs prior to the Separation in June 2008. These
bonus programs were not established pursuant to the 2008 Plan
and did not qualify as performance based compensation pursuant
to Section 162(m) of the Code. |
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(3) |
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These amounts represent the aggregate grant date fair value
recognized for financial statement reporting purposes in
accordance with FASB ASC Topic 718 (exclusive of the effect of
estimated forfeitures for service based vesting) associated with
the restricted stock awarded as part of the 2010 Stock Award
made pursuant to the 2008 Plan. These amounts do not reflect the
actual value that may be realized by the Named Executive
Officers. See Note 14 of our Consolidated Financial
Statements included in the 2010 Annual Report for more
information regarding the assumptions used in the calculation of
these amounts. |
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(4) |
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These amounts represent the aggregate grant date fair value
recognized for financial statement reporting purposes in
accordance with FASB ASC Topic 718 (exclusive of the effect of
estimated forfeitures for service based vesting) associated with
the stock options awarded as part of the 2010 Stock Award made
pursuant to the 2008 Plan. These amounts do not reflect the
actual value that may be realized by the Named Executive
Officers. See Note 14 of our Consolidated Financial
Statements included in the 2010 Annual Report for more
information regarding the assumptions used in the calculation of
these amounts. |
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(5) |
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These amounts represent the 2010 AIP payment to each Named
Executive Officer. As described in 2010 Annual Incentive
Plan above, in February 2011, the Compensation Committee
determined that the performance metrics for the 2010 AIP had
been exceeded and awarded the amounts listed in the above table
to the Named Executive Officers. |
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(6) |
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These amounts represent the actuarial increase in the present
value of each Named Executive Officers retirement benefits
and Mr. Orlowskys supplemental retirement agreement
as of December 31, 2010 over the value of those benefits as
of December 31, 2009, all as determined using the same
interest rate and other assumptions as those used in our
financial statements. Mr. Kessler will become a participant
in the Pension Plan |
36
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and Benefit Equalization Plan as of September 13, 2011, and
is not vested in either plan as of December 31, 2010. See
Retirement Benefits above for additional information
regarding the retirement benefits accrued for each of the Named
Executive Officers and Note 13 to our Consolidated
Financial Statements included in the 2010 Annual Report for more
information regarding the assumptions used in the calculations
of these amounts. |
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(7) |
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These amounts include premiums for a split-dollar life insurance
policy for Messrs. Spell, Milstein and Orlowsky in the
amount of $347,013, $101,700 and $663,245, respectively. The
insurance program has been closed to new participants, and
Messrs. Kessler, Taylor and Hennighausen are not
participants. See Retirement Benefits above for
additional information. The amounts shown also include annual
cash received pursuant to a company-wide medical and welfare
plan and not used to purchase medical and other welfare benefits
for Messrs. Kessler, Taylor, Spell, Milstein and Orlowsky
in the amounts of $1,253, $8,834, $5,423, $5,135 and $11,766,
respectively. These amounts include $9,800 for
Messrs. Spell, Hennighausen and Orlowsky, $9,721 for
Mr. Milstein and $9,477 for Mr. Taylor representing
the Companys matching contribution to the Lorillard
Tobacco Company Employees Savings Plan. In addition, the amount
for Mr. Kessler includes $2,322 representing the aggregate
incremental cost to the Company of one flight on the
Companys fractionally owned aircraft that was determined
to have constituted personal use. In the case of personal use of
fractionally owned Company aircraft, the aggregate incremental
cost includes the variable costs of operating the aircraft, such
as occupied hourly charge, fuel surcharge, federal excise tax,
landing, hangar and other airport fees, repositioning charges,
specialized catering fees, customs/immigration fees, ground
transportation fees, passenger fees and any flight-specific
insurance costs, and excludes fixed costs, such as monthly
management fees, non-flight-specific insurance costs, purchase
costs and depreciation. In addition, the amount includes $50,480
in legal fees paid on Mr. Kesslers behalf pursuant to
the terms of Mr. Kesslers Offer Letter (discussed in
Chief Executive Officer Compensation above). In
addition, Mr. Kessler received a payment of $135,962 under
the Companys broad-based relocation program, $35,962 of
which was a tax gross up pursuant to the provisions of the
relocation program. |
|
(8) |
|
Mr. Kessler joined the Company as President and Chief
Executive Officer on September 13, 2010 and was appointed
Chairman of the Board on January 1, 2011. |
|
(9) |
|
Mr. Orlowsky retired as Chairman of the Board on
December 31, 2010. Pursuant to the terms of his Consulting
Agreement, the vesting schedules for any outstanding unvested
stock awards were modified on August 13, 2010 to extend or
accelerate the vesting periods of such awards. See Chief
Executive Officer Compensation above for additional
information. The aggregate grant date fair value for these
equity awards represents the fair value as a result of the award
modification as determined in accordance with FASB ASC Topic 718
as further discussed below. The available SEC guidance requires
that the fair value for the amendments to the outstanding equity
awards in August 2010 ($8,002,133) be reported in addition to
the fair value of the original awards of restricted stock and
stock options granted in February 2010 ($4,428,744). The SEC
guidance indicates that this disclosure best represents the two
compensation decisions made during 2010, the granting of the
original equity awards and the amendment of the outstanding
equity awards. As a result, the aggregate grant date fair value
of the original and modified stock awards reflected in this
table is significantly greater than the amount to be expensed in
our financial statements for these awards ($5,757,191). |
37
Grants of
Plan-Based Awards for 2010
The following table sets forth the grants of plan-based awards
for 2010, including non-equity incentive plan awards under the
2010 AIP and the 2010 Stock Awards. All awards were made
pursuant to the 2008 Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option/SAR
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards;
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards;
|
|
Number of
|
|
Exercise of
|
|
|
|
of Stock
|
|
|
|
|
|
|
Estimated
|
|
Number of
|
|
Securities
|
|
Base Price
|
|
Closing
|
|
and Stock
|
|
|
|
|
|
|
Future Payouts Under Non-
|
|
Shares of
|
|
Underlying
|
|
of Stock
|
|
Market
|
|
Option/
|
|
|
Grant
|
|
Approval
|
|
Equity Incentive Plan Awards(1)
|
|
Stock or
|
|
Stock Option/
|
|
Options/
|
|
Price on
|
|
SAR
|
Name/Grant Type
|
|
Date
|
|
Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units(2)
|
|
SARs(3)
|
|
SAR Awards(4)
|
|
Grant Date
|
|
Awards(5)
|
|
Murray S. Kessler(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 AIP
|
|
|
9/13/2010
|
|
|
|
8/11/2010
|
|
|
$
|
276,923
|
|
|
$
|
553,846
|
|
|
$
|
996,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest. Stock
|
|
|
9/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,606
|
|
|
|
|
|
|
|
|
|
|
$
|
81.36
|
|
|
$
|
1,025,624
|
|
Stock Option
|
|
|
9/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,419
|
|
|
$
|
81.36
|
|
|
|
81.36
|
|
|
|
72,072
|
|
Stock Option
|
|
|
12/31/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,419
|
|
|
|
82.06
|
|
|
|
82.06
|
|
|
|
65,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Taylor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 AIP
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
400,000
|
|
|
|
800,000
|
|
|
|
1,440,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest. Stock
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,883
|
|
|
|
|
|
|
|
|
|
|
|
75.74
|
|
|
|
900,018
|
|
Stock Option
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,966
|
|
|
|
75.74
|
|
|
|
75.74
|
|
|
|
59,207
|
|
Stock Option
|
|
|
6/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,963
|
|
|
|
71.98
|
|
|
|
71.98
|
|
|
|
65,833
|
|
Stock Option
|
|
|
9/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,963
|
|
|
|
80.31
|
|
|
|
80.31
|
|
|
|
41,947
|
|
Stock Option
|
|
|
12/31/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,963
|
|
|
|
82.06
|
|
|
|
82.06
|
|
|
|
40,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randy B. Spell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 AIP
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
275,000
|
|
|
|
550,000
|
|
|
|
990,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest. Stock
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,912
|
|
|
|
|
|
|
|
|
|
|
|
75.74
|
|
|
|
674,995
|
|
Stock Option
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,225
|
|
|
|
75.74
|
|
|
|
75.74
|
|
|
|
44,410
|
|
Stock Option
|
|
|
6/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,222
|
|
|
|
71.98
|
|
|
|
71.98
|
|
|
|
49,373
|
|
Stock Option
|
|
|
9/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,222
|
|
|
|
80.31
|
|
|
|
80.31
|
|
|
|
31,458
|
|
Stock Option
|
|
|
12/31/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,222
|
|
|
|
82.06
|
|
|
|
82.06
|
|
|
|
30,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald S. Milstein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 AIP
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
275,000
|
|
|
|
550,000
|
|
|
|
990,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest. Stock
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,912
|
|
|
|
|
|
|
|
|
|
|
|
75.74
|
|
|
|
674,995
|
|
Stock Option
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,225
|
|
|
|
75.74
|
|
|
|
75.74
|
|
|
|
44,410
|
|
Stock Option
|
|
|
6/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,222
|
|
|
|
71.98
|
|
|
|
71.98
|
|
|
|
49,373
|
|
Stock Option
|
|
|
9/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,222
|
|
|
|
80.31
|
|
|
|
80.31
|
|
|
|
31,458
|
|
Stock Option
|
|
|
12/31/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,222
|
|
|
|
82.06
|
|
|
|
82.06
|
|
|
|
30,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles E. Hennighausen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 AIP
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
225,000
|
|
|
|
450,000
|
|
|
|
810,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest. Stock
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,724
|
|
|
|
|
|
|
|
|
|
|
|
75.74
|
|
|
|
585,016
|
|
Stock Option
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,527
|
|
|
|
75.74
|
|
|
|
75.74
|
|
|
|
38,477
|
|
Stock Option
|
|
|
6/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,526
|
|
|
|
71.98
|
|
|
|
71.98
|
|
|
|
42,792
|
|
Stock Option
|
|
|
9/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,526
|
|
|
|
80.31
|
|
|
|
80.31
|
|
|
|
27,266
|
|
Stock Option
|
|
|
12/31/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,526
|
|
|
|
82.06
|
|
|
|
82.06
|
|
|
|
26,134
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option/SAR
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards;
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards;
|
|
Number of
|
|
Exercise of
|
|
|
|
of Stock
|
|
|
|
|
|
|
Estimated
|
|
Number of
|
|
Securities
|
|
Base Price
|
|
Closing
|
|
and Stock
|
|
|
|
|
|
|
Future Payouts Under Non-
|
|
Shares of
|
|
Underlying
|
|
of Stock
|
|
Market
|
|
Option/
|
|
|
Grant
|
|
Approval
|
|
Equity Incentive Plan Awards(1)
|
|
Stock or
|
|
Stock Option/
|
|
Options/
|
|
Price on
|
|
SAR
|
Name/Grant Type
|
|
Date
|
|
Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units(2)
|
|
SARs(3)
|
|
SAR Awards(4)
|
|
Grant Date
|
|
Awards(5)
|
|
Martin L. Orlowsky(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 AIP
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
1,250,000
|
|
|
|
2,500,000
|
|
|
|
4,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest. Stock
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,531
|
|
|
|
|
|
|
|
|
|
|
|
75.74
|
|
|
|
3,599,998
|
|
Stock Option
|
|
|
2/24/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,856
|
|
|
|
75.74
|
|
|
|
75.74
|
|
|
|
236,760
|
|
Stock Option
|
|
|
6/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,854
|
|
|
|
71.98
|
|
|
|
71.98
|
|
|
|
263,353
|
|
Rest.
Stock-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,531
|
|
|
|
|
|
|
|
|
|
|
|
75.30
|
|
|
|
3,579,084
|
|
Rest.
Stock-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,641
|
|
|
|
|
|
|
|
|
|
|
|
75.30
|
|
|
|
2,006,068
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
64.86
|
|
|
|
75.30
|
|
|
|
23,958
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
75.20
|
|
|
|
75.30
|
|
|
|
17,123
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
77.79
|
|
|
|
75.30
|
|
|
|
15,744
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
80.78
|
|
|
|
75.30
|
|
|
|
28,586
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
84.30
|
|
|
|
75.30
|
|
|
|
25,520
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
73.75
|
|
|
|
75.30
|
|
|
|
35,895
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
68.72
|
|
|
|
75.30
|
|
|
|
42,267
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
71.15
|
|
|
|
75.30
|
|
|
|
58,586
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,960
|
|
|
|
60.06
|
|
|
|
75.30
|
|
|
|
570,723
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,959
|
|
|
|
67.77
|
|
|
|
75.30
|
|
|
|
444,371
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,960
|
|
|
|
74.30
|
|
|
|
75.30
|
|
|
|
359,439
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,959
|
|
|
|
80.23
|
|
|
|
75.30
|
|
|
|
395,502
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,856
|
|
|
|
75.74
|
|
|
|
75.30
|
|
|
|
187,475
|
|
Stock
Option-Amend.
|
|
|
8/13/2010
|
|
|
|
8/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,854
|
|
|
|
71.98
|
|
|
|
75.30
|
|
|
|
211,793
|
|
Stock Option.
|
|
|
9/30/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,854
|
|
|
|
80.31
|
|
|
|
80.31
|
|
|
|
167,798
|
|
Stock Option.
|
|
|
12/31/2010
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,854
|
|
|
|
82.06
|
|
|
|
82.06
|
|
|
|
160,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts represent the target payout amounts under the 2010
AIP under the terms approved by the Compensation Committee on
February 24, 2010. The payout of the 2010 AIP was based on
achievement of the Companys performance targets for
adjusted operating income and Newport market share and
individual performance achievements for each Named Executive
Officer. The threshold and maximum payout under the 2010 AIP for
each Named Executive Officer were equal 0.5 and 1.8 times the
target payout level, respectively. In February 2011, the
Compensation Committee reviewed the achievement of the
Companys performance targets as well as the individual
performance of each Named Executive Officer for purposes of
exercising its negative discretion and determined that the
Companys performance targets were exceeded and that
payouts be made at the maximum payout level of 1.8 times target
pursuant to the terms of the 2010 AIP. See 2010 Annual
Incentive Plan above for more information. |
|
(2) |
|
This column represents the amount of restricted stock awarded to
each Named Executive Officer pursuant to the 2010 Stock Award on
February 24, 2010. |
|
(3) |
|
This column represents the number of stock options awarded to
the Named Executive Officers pursuant to the 2010 Stock Award on
February 24, 2010. The stock options were granted in four
equal installments during 2010 in accordance with the
Companys practice. |
|
(4) |
|
The exercise price for the stock options awarded to the Named
Executive Officers equals the closing price on the grant date.
In the case of the amendments to Mr. Orlowskys stock
option awards on August 13, 2010, the exercise prices were
not modified and equal the closing prices on the original grant
dates. |
|
(5) |
|
The grant date value is calculated in accordance with the
provision of FASB ASC Topic 718 using the Black-Scholes option
valuation methodology. See Note 14 to our Consolidated
Financial Statements in the 2010 Annual Report for more
information regarding the assumptions used in the calculation of
these amounts. |
|
(6) |
|
Mr. Kessler joined the Company on September 13, 2010
and his 2010 AIP award was made effective on that date and pro
rated for the remainder of 2010. |
|
(7) |
|
The grants on August 13, 2010 reflect equity awards that
were previously granted and were modified to extend or
accelerate the vesting periods of such awards pursuant to the
terms of the Consulting Agreement with Mr. Orlowsky. The
aggregate grant date fair value for these equity awards
represents the fair value as a result of |
39
|
|
|
|
|
the award modification as determined in accordance with FASB ASC
Topic 718 as further discussed below. The available SEC guidance
requires that the fair value for the amendments to the
outstanding equity awards in August 2010 ($8,002,133) be
reported in addition to the fair value of the original awards of
restricted stock and stock options granted in February 2010
($4,428,744). The SEC guidance indicates that this disclosure
best represents the two compensation decisions made during 2010,
the granting of the original equity awards and the amendment of
the outstanding equity awards. As a result, the aggregate grant
date fair value of the original and modified stock awards
reflected in this table is significantly greater than the amount
to be expensed in our financial statements for these awards
($5,757,191). |
Outstanding
Equity Awards at Fiscal Year-End for 2010
The following tables set forth outstanding stock options, SARs
and restricted stock granted to each Named Executive Officer
under the 2008 Plan as of December 31, 2010. Each stock
option and SAR award granted to the Named Executive Officers and
reported below vests and becomes exercisable in four equal
annual installments beginning on the first anniversary of the
grant date of the first stock option or SAR award of the year in
which the award was made. Each stock option and SAR award
expires no later than the tenth anniversary of the date of
grant. Under Option Awards, all awards listed with
expiration dates prior to 2016 or 2020 represent stock options,
and awards with expiration dates in 2017, 2018 and 2019
represent SARs. Restricted stock awards vest on the third
anniversary of the grant date, subject to the executive
officers continued employment with the Company. See
Stock-Based Awards above for more information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Awards(1)
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Number
|
|
Market
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
of Shares
|
|
Value of
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
Stock
|
|
of Stock
|
|
Shares
|
|
|
|
|
Stock
|
|
Stock
|
|
Stock
|
|
Option/SAR
|
|
That
|
|
That Have
|
|
|
|
|
Option/SARs
|
|
Options/ SARs
|
|
Option/SAR
|
|
Expiration
|
|
Have Not
|
|
Not
|
Name
|
|
Grant Date
|
|
Exercisable
|
|
Unexercisable
|
|
Exercise Price
|
|
Date
|
|
Vested
|
|
Vested(2)
|
|
Murray S. Kessler
|
|
|
9/13/2010
|
|
|
|
|
|
|
|
11,419
|
|
|
$
|
81.36
|
|
|
|
9/13/2020
|
|
|
|
12,606
|
|
|
$
|
1,034,448
|
|
|
|
|
12/31/2010
|
|
|
|
|
|
|
|
11,419
|
|
|
|
82.06
|
|
|
|
9/13/2020
|
|
|
|
|
|
|
|
|
|
David H. Taylor
|
|
|
1/8/2008
|
|
|
|
2,250
|
|
|
|
2,250
|
|
|
|
84.30
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2008
|
|
|
|
2,250
|
|
|
|
2,250
|
|
|
|
73.75
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
7/30/2008
|
|
|
|
2,250
|
|
|
|
2,250
|
|
|
|
68.72
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2008
|
|
|
|
2,250
|
|
|
|
2,250
|
|
|
|
71.15
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2009
|
|
|
|
4,247
|
|
|
|
12,743
|
|
|
|
60.06
|
|
|
|
3/12/2019
|
|
|
|
6,661
|
|
|
|
546,602
|
|
|
|
|
6/30/2009
|
|
|
|
4,247
|
|
|
|
12,743
|
|
|
|
67.77
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2009
|
|
|
|
4,247
|
|
|
|
12,743
|
|
|
|
74.30
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009
|
|
|
|
4,247
|
|
|
|
12,743
|
|
|
|
80.23
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
6,966
|
|
|
|
75.74
|
|
|
|
2/24/2020
|
|
|
|
11,883
|
|
|
|
975,119
|
|
|
|
|
6/30/2010
|
|
|
|
|
|
|
|
6,963
|
|
|
|
71.98
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2010
|
|
|
|
|
|
|
|
6,963
|
|
|
|
80.31
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2010
|
|
|
|
|
|
|
|
6,963
|
|
|
|
82.06
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Awards(1)
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Number
|
|
Market
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
of Shares
|
|
Value of
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
Stock
|
|
of Stock
|
|
Shares
|
|
|
|
|
Stock
|
|
Stock
|
|
Stock
|
|
Option/SAR
|
|
That
|
|
That Have
|
|
|
|
|
Option/SARs
|
|
Options/ SARs
|
|
Option/SAR
|
|
Expiration
|
|
Have Not
|
|
Not
|
Name
|
|
Grant Date
|
|
Exercisable
|
|
Unexercisable
|
|
Exercise Price
|
|
Date
|
|
Vested
|
|
Vested(2)
|
|
Ronald S. Milstein
|
|
|
1/9/2007
|
|
|
|
2,031
|
|
|
|
813
|
|
|
|
64.86
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
3/30/2007
|
|
|
|
2,031
|
|
|
|
813
|
|
|
|
75.20
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
6/29/2007
|
|
|
|
2,031
|
|
|
|
813
|
|
|
|
77.79
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/28/2007
|
|
|
|
2,031
|
|
|
|
813
|
|
|
|
80.78
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
1/8/2008
|
|
|
|
1,625
|
|
|
|
1,625
|
|
|
|
84.30
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2008
|
|
|
|
1,625
|
|
|
|
1,625
|
|
|
|
73.75
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
7/30/2008
|
|
|
|
1,624
|
|
|
|
1,626
|
|
|
|
68.72
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2008
|
|
|
|
1,624
|
|
|
|
1,626
|
|
|
|
71.15
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2009
|
|
|
|
|
|
|
|
9,558
|
|
|
|
60.06
|
|
|
|
3/12/2019
|
|
|
|
4,996
|
|
|
|
409,972
|
|
|
|
|
6/30/2009
|
|
|
|
3,185
|
|
|
|
9,557
|
|
|
|
67.77
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2009
|
|
|
|
3,185
|
|
|
|
9,558
|
|
|
|
74.30
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009
|
|
|
|
3,185
|
|
|
|
9,557
|
|
|
|
80.23
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
5,225
|
|
|
|
75.74
|
|
|
|
2/24/2020
|
|
|
|
8,912
|
|
|
|
731,319
|
|
|
|
|
6/30/2010
|
|
|
|
|
|
|
|
5,222
|
|
|
|
71.98
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2010
|
|
|
|
|
|
|
|
5,222
|
|
|
|
80.31
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2010
|
|
|
|
|
|
|
|
5,222
|
|
|
|
82.06
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randy B. Spell
|
|
|
1/16/2004
|
|
|
|
813
|
|
|
|
|
|
|
$
|
25.49
|
|
|
|
1/16/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2004
|
|
|
|
813
|
|
|
|
|
|
|
|
26.79
|
|
|
|
1/16/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2004
|
|
|
|
813
|
|
|
|
|
|
|
|
24.53
|
|
|
|
1/16/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2004
|
|
|
|
813
|
|
|
|
|
|
|
|
23.90
|
|
|
|
1/16/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
1/20/2005
|
|
|
|
1,625
|
|
|
|
|
|
|
|
32.09
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2005
|
|
|
|
1,625
|
|
|
|
|
|
|
|
32.63
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2005
|
|
|
|
1,625
|
|
|
|
|
|
|
|
32.86
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2005
|
|
|
|
1,625
|
|
|
|
|
|
|
|
39.25
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
1/31/2006
|
|
|
|
3,250
|
|
|
|
|
|
|
|
46.25
|
|
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2006
|
|
|
|
3,250
|
|
|
|
|
|
|
|
47.86
|
|
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2006
|
|
|
|
3,250
|
|
|
|
|
|
|
|
51.64
|
|
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2006
|
|
|
|
3,250
|
|
|
|
|
|
|
|
55.35
|
|
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
1/9/2007
|
|
|
|
2,437
|
|
|
|
813
|
|
|
|
64.86
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
3/30/2007
|
|
|
|
2,437
|
|
|
|
813
|
|
|
|
75.20
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
6/29/2007
|
|
|
|
2,437
|
|
|
|
813
|
|
|
|
77.79
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/28/2007
|
|
|
|
2,437
|
|
|
|
813
|
|
|
|
80.78
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
1/8/2008
|
|
|
|
1,625
|
|
|
|
1,625
|
|
|
|
84.30
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2008
|
|
|
|
1,625
|
|
|
|
1,625
|
|
|
|
73.75
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
7/30/2008
|
|
|
|
1,624
|
|
|
|
1,626
|
|
|
|
68.72
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2008
|
|
|
|
1,624
|
|
|
|
1,626
|
|
|
|
71.15
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2009
|
|
|
|
3,185
|
|
|
|
9,558
|
|
|
|
60.06
|
|
|
|
3/12/2019
|
|
|
|
4,996
|
|
|
$
|
409,972
|
|
|
|
|
6/30/2009
|
|
|
|
3,185
|
|
|
|
9,557
|
|
|
|
67.77
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2009
|
|
|
|
3,185
|
|
|
|
9,558
|
|
|
|
74.30
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009
|
|
|
|
3,185
|
|
|
|
9,557
|
|
|
|
80.23
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
5,225
|
|
|
|
75.74
|
|
|
|
2/24/2020
|
|
|
|
8,912
|
|
|
|
731,319
|
|
|
|
|
6/30/2010
|
|
|
|
|
|
|
|
5,222
|
|
|
|
71.98
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2010
|
|
|
|
|
|
|
|
5,222
|
|
|
|
80.31
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2010
|
|
|
|
|
|
|
|
5,222
|
|
|
|
82.06
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Awards(1)
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Number
|
|
Market
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
of Shares
|
|
Value of
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
Stock
|
|
of Stock
|
|
Shares
|
|
|
|
|
Stock
|
|
Stock
|
|
Stock
|
|
Option/SAR
|
|
That
|
|
That Have
|
|
|
|
|
Option/SARs
|
|
Options/ SARs
|
|
Option/SAR
|
|
Expiration
|
|
Have Not
|
|
Not
|
Name
|
|
Grant Date
|
|
Exercisable
|
|
Unexercisable
|
|
Exercise Price
|
|
Date
|
|
Vested
|
|
Vested(2)
|
|
Charles E. Hennighausen
|
|
|
1/20/2005
|
|
|
|
813
|
|
|
|
|
|
|
$
|
32.09
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2005
|
|
|
|
813
|
|
|
|
|
|
|
|
32.63
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2005
|
|
|
|
813
|
|
|
|
|
|
|
|
32.86
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2005
|
|
|
|
813
|
|
|
|
|
|
|
|
39.25
|
|
|
|
1/20/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
1/31/2006
|
|
|
|
1,625
|
|
|
|
|
|
|
|
46.25
|
|
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2006
|
|
|
|
1,625
|
|
|
|
|
|
|
|
47.86
|
|
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2006
|
|
|
|
3,250
|
|
|
|
|
|
|
|
51.64
|
|
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2006
|
|
|
|
3,250
|
|
|
|
|
|
|
|
55.35
|
|
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
1/9/2007
|
|
|
|
2,437
|
|
|
|
813
|
|
|
|
64.86
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
3/30/2007
|
|
|
|
2,437
|
|
|
|
813
|
|
|
|
75.20
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
6/29/2007
|
|
|
|
2,437
|
|
|
|
813
|
|
|
|
77.79
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/28/2007
|
|
|
|
2,437
|
|
|
|
813
|
|
|
|
80.78
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
1/8/2008
|
|
|
|
1,625
|
|
|
|
1,625
|
|
|
|
84.30
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2008
|
|
|
|
1,625
|
|
|
|
1,625
|
|
|
|
73.75
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
7/30/2008
|
|
|
|
1,624
|
|
|
|
1,626
|
|
|
|
68.72
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2008
|
|
|
|
1,624
|
|
|
|
1,626
|
|
|
|
71.15
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2009
|
|
|
|
2,761
|
|
|
|
8,283
|
|
|
|
60.06
|
|
|
|
3/12/2019
|
|
|
|
4,330
|
|
|
$
|
355,320
|
|
|
|
|
6/30/2009
|
|
|
|
2,760
|
|
|
|
8,284
|
|
|
|
67.77
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2009
|
|
|
|
2,761
|
|
|
|
8,283
|
|
|
|
74.30
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009
|
|
|
|
2,760
|
|
|
|
8,284
|
|
|
|
80.23
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
4,527
|
|
|
|
75.74
|
|
|
|
2/24/2020
|
|
|
|
7,724
|
|
|
|
633,831
|
|
|
|
|
6/30/2010
|
|
|
|
|
|
|
|
4,526
|
|
|
|
71.98
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2010
|
|
|
|
|
|
|
|
4,526
|
|
|
|
80.31
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2010
|
|
|
|
|
|
|
|
4,526
|
|
|
|
82.06
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
Martin L. Orlowsky
|
|
|
1/9/2007
|
|
|
|
|
|
|
|
2,500
|
|
|
|
64.86
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
3/30/2007
|
|
|
|
|
|
|
|
2,500
|
|
|
|
75.20
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
6/29/2007
|
|
|
|
|
|
|
|
2,500
|
|
|
|
77.79
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
9/28/2007
|
|
|
|
7,500
|
|
|
|
2,500
|
|
|
|
80.78
|
|
|
|
1/9/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
1/8/2008
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
84.30
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2008
|
|
|
|
|
|
|
|
5,000
|
|
|
|
73.75
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
7/30/2008
|
|
|
|
|
|
|
|
5,000
|
|
|
|
68.72
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2008
|
|
|
|
|
|
|
|
5,000
|
|
|
|
71.15
|
|
|
|
1/8/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
3/12/2009
|
|
|
|
|
|
|
|
50,970
|
|
|
|
60.06
|
|
|
|
3/12/2019
|
|
|
|
26,641
|
|
|
|
2,186,160
|
|
|
|
|
6/30/2009
|
|
|
|
|
|
|
|
50,970
|
|
|
|
67.77
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2009
|
|
|
|
|
|
|
|
50,970
|
|
|
|
74.30
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009
|
|
|
|
16,989
|
|
|
|
50,970
|
|
|
|
80.23
|
|
|
|
3/12/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
2/24/2010
|
|
|
|
|
|
|
|
27,856
|
|
|
|
75.74
|
|
|
|
2/24/2020
|
|
|
|
47,531
|
|
|
|
3,900,394
|
|
|
|
|
6/30/2010
|
|
|
|
|
|
|
|
27,854
|
|
|
|
71.98
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/2010
|
|
|
|
|
|
|
|
27,854
|
|
|
|
80.31
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2010
|
|
|
|
|
|
|
|
27,854
|
|
|
|
82.06
|
|
|
|
2/24/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As part of the Separation, in 2008 we converted all outstanding
stock options or SARs awarded under the Carolina Group Stock
Plan (administered by Loews compensation committee) on a
one-for-one
basis into stock options or SARs exercisable in our Common Stock
under the 2008 Plan with the same terms and conditions as the
then existing awards. |
|
(2) |
|
Calculated using the closing price of our Common Stock on
December 31, 2010 ($82.06). |
42
Option
Exercises and Stock Vested for 2010
The following table sets forth information regarding the stock
options exercised for each Named Executive Officer, including
the number and realized value of shares acquired in aggregate
upon exercise of stock options and SARs during 2010 based on the
closing price of shares on the exercise date. No restricted
shares awarded to the Named Executive Officers vested in 2010.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Value
|
|
|
|
Shares Acquired
|
|
|
Realized
|
|
Name
|
|
on Exercise
|
|
|
on Exercise(1)
|
|
|
Martin L. Orlowsky
|
|
|
98,469
|
|
|
$
|
1,744,311
|
|
David H. Taylor
|
|
|
|
|
|
|
|
|
Randy B. Spell
|
|
|
|
|
|
|
|
|
Ronald S. Milstein
|
|
|
11,313
|
|
|
|
371,807
|
|
Charles E. Hennighausen
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For purposes of this table, the value realized on exercise
reflects the difference between the market price of our Common
Stock realized by the Named Executive Officer at the time of
exercise and the exercise price of the SARs or stock options. |
Pension
Benefits for 2010
The following table sets forth information relating to the
retirement benefits for the Named Executive Officers as of
December 31, 2010 under the Pension Plan and the Benefit
Equalization Plan, including the supplemental retirement benefit
for Mr. Orlowsky provided by his Employment Agreement. No
payments were made from these benefit plans or arrangements to
the Named Executive Officers during 2010. Mr. Orlowsky
retired from the Company, effective December 31, 2010, and
will receive retirement benefits beginning in 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value of
|
|
|
|
|
Number of Years
|
|
Accumulated Plan
|
Name
|
|
Plan Name
|
|
Credited Service
|
|
Benefit(4)
|
|
Murray S. Kessler
|
|
Pension Plan(1)
|
|
|
0.3
|
|
|
$
|
|
|
|
|
Benefit Equalization Plan(2)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
David H. Taylor
|
|
Pension Plan(1)
|
|
|
3.0
|
|
|
|
65,255
|
|
|
|
Benefit Equalization Plan(2)
|
|
|
3.0
|
|
|
|
175,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
241,055
|
|
Randy B. Spell
|
|
Pension Plan(1)
|
|
|
33.9
|
|
|
|
1,201,847
|
|
|
|
Benefit Equalization Plan(2)
|
|
|
33.9
|
|
|
|
2,283,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
3,485,743
|
|
Ronald S. Milstein
|
|
Pension Plan(1)
|
|
|
14.5
|
|
|
|
220,262
|
|
|
|
Benefit Equalization Plan(2)
|
|
|
14.5
|
|
|
|
652,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
872,712
|
|
Charles E. Hennighausen
|
|
Pension Plan(1)
|
|
|
8.2
|
|
|
|
219,221
|
|
|
|
Benefit Equalization Plan(2)
|
|
|
8.2
|
|
|
|
392,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
611,524
|
|
Martin L. Orlowsky
|
|
Pension Plan(1)
|
|
|
20.2
|
|
|
|
525,992
|
|
|
|
Benefit Equalization Plan(2)
|
|
|
20.2
|
|
|
|
4,605,774
|
|
|
|
Supplemental Retirement Benefit(3)
|
|
|
9.8
|
|
|
|
3,935,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
9,067,351
|
|
43
|
|
|
(1) |
|
These amounts represent the calculated pension value provided by
the qualified retirement plan as of December 31, 2010. The
calculation is based on the average of five highest annual years
of base salary (subject to IRS limits) over the last ten years
of service multiplied by the number of years of credited service
multiplied by 1.2% (1.6% for credited service prior to
January 1, 1982). |
|
(2) |
|
These amounts represent the calculated non-qualified retirement
benefit value provided by the Benefit Equalization Plan. The
benefit calculation for the Benefit Equalization Plan is the
same as the Pension Plan calculation using the salary amounts in
excess of the specific IRS limits for each of the years of the
executives credited service. |
|
(3) |
|
This amount represents a supplemental retirement benefit for
Mr. Orlowsky provided pursuant to his Employment Agreement
payable in a lump sum in accordance with the terms of the
Benefit Equalization Plan based on additional credited service
of 9.8 years to provide for 30 years of total credited
service. See Chief Executive Officer Compensation
above for more information. |
|
(4) |
|
The values included in this column have been calculated as of
December 31, 2010 assuming the earliest retirement date on
which each Named Executive Officer will receive unreduced
retirement benefits under the Pension Plan and Benefit
Equalization Plan (and in the case of Mr. Orlowsky, the
supplemental retirement benefit pursuant to his Employment
Agreement); a discount rate of 5.75%; 4.25% interest rate for
lump sum calculations, except 5.75% for Messrs. Kessler and
Taylor and 3.80% for Mr. Orlowsky; and no pre-retirement
death, disability or termination. |
For purposes of these calculations, the present values of the
accumulated plan benefits are determined as of the earliest date
on which the Named Executive Officers would receive unreduced
retirement benefits under the respective plans. Pursuant to the
terms of the Pension Plan and Benefit Equalization Plan as of
December 31, 2010, Mr. Orlowsky was eligible for
normal retirement benefits; Mr. Spell was eligible for
unreduced early retirement benefits; and Messrs. Kessler,
Taylor, Milstein and Hennighausen were not eligible for
retirement benefits.
Benefits under the Pension Plan and Benefit Equalization Plan
vest when a participant has five years of credited service.
Participants in the Pension Plan and the Benefit Equalization
Plan are eligible for normal retirement at age 65 with 5 or
more years of credited service, unreduced early retirement
benefits at age 55 with 30 or more years of credited
service and at age 60 with ten or more years of credited
service, and reduced early retirement benefits at age 55
with 5 or more years of service. Reduced early retirement
benefits are determined by reducing the normal retirement
benefit by approximately 5% for each year prior to age 65.
Upon retirement, participants in the Pension Plan may elect a
single life annuity, a joint and survivor annuity, or a
10-year
certain annuity and participants in the Benefit Equalization
Plan receive a lump sum payment. See Retirement
Benefits above for additional information regarding our
retirement plans.
Potential
Payments upon Termination of Employment or Change in
Control
The following table sets forth the estimated payments and
benefits that would be provided to each Named Executive Officer
who was employed by us on December 31, 2010 (except
Mr. Orlowsky who retired in 2010), pursuant to the terms of
any contract, agreement, plan or arrangement that provides for
such payments and benefits following, or in connection with, a
termination of the Named Executive Officers employment,
including by involuntary termination not for cause, involuntary
termination for cause, retirement, death or disability or in
connection with a Change in Control (as defined in the
applicable severance plan or agreement) with or without a
termination of the Named Executive Officer. For purposes of
calculating the amounts in the table, we have assumed that the
Change in Control event
and/or
termination took place in that sequence on December 31,
2010 (the last business day of our most recently completed
fiscal year) using the closing price of our Common Stock on such
date ($82.06 per share) for purposes of calculating the value of
any stock awards in accordance with the rules and regulations
under the Exchange Act. The Involuntary Termination not
for Cause column includes termination by the Named
Executive Officer for Good Reason, as such term is defined under
the applicable severance plan or Severance Agreement. The
Change in Control with Termination column provides
for payments as a result of a qualified termination pursuant to
the Severance Agreements. The amounts shown in the table include
estimates of what would have been paid to the Named Executive
Officers upon the occurrence of the specified event. The actual
44
amounts that would be paid to the Named Executive Officers can
only be determined at the time of such an event. See the
discussion that follows the table for additional information
regarding the estimated payments and benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Involuntary
|
|
|
Control
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
Name and
|
|
Voluntary
|
|
|
Termination
|
|
|
Termination
|
|
|
without
|
|
|
Control with
|
|
|
|
|
|
|
|
|
|
|
Description of Potential Payments
|
|
Termination
|
|
|
not for Cause
|
|
|
for Cause
|
|
|
Termination
|
|
|
Termination
|
|
|
Death
|
|
|
Disability
|
|
|
Retirement
|
|
|
Murray S. Kessler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
|
|
|
$
|
2,400,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,000,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Accelerated Stock Vesting/AIP Payout
|
|
|
|
|
|
|
1,800,000
|
|
|
|
|
|
|
|
2,842,442
|
|
|
|
2,842,442
|
|
|
|
2,834,448
|
|
|
|
2,834,448
|
|
|
|
|
|
Enhanced Retirement Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Benefits
|
|
|
|
|
|
|
81,959
|
|
|
|
|
|
|
|
|
|
|
|
81,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280G Tax Gross Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
4,306,959
|
|
|
|
|
|
|
|
2,842,442
|
|
|
|
11,978,801
|
|
|
|
2,834,448
|
|
|
|
2,834,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Taylor Severance
|
|
|
|
|
|
|
1,738,818
|
|
|
|
|
|
|
|
|
|
|
|
5,008,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Stock Vesting/AIP Payout
|
|
|
|
|
|
|
800,000
|
|
|
|
|
|
|
|
3,106,027
|
|
|
|
3,106,027
|
|
|
|
2,321,721
|
|
|
|
2,321,721
|
|
|
|
|
|
Enhanced Retirement Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Benefits
|
|
|
|
|
|
|
73,288
|
|
|
|
|
|
|
|
|
|
|
|
73,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280G Tax Gross Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,125,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
2,637,106
|
|
|
|
|
|
|
|
3,106,027
|
|
|
|
11,682,904
|
|
|
|
2,321,721
|
|
|
|
2,321,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randy B. Spell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
1,323,070
|
|
|
|
|
|
|
|
|
|
|
|
3,634,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Stock Vesting/AIP Payout
|
|
|
|
|
|
|
550,000
|
|
|
|
|
|
|
|
2,301,601
|
|
|
|
2,301,601
|
|
|
|
1,691,291
|
|
|
|
1,691,291
|
|
|
|
550,000
|
|
Enhanced Retirement Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Benefits
|
|
|
|
|
|
|
81,080
|
|
|
|
|
|
|
|
|
|
|
|
81,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280G Tax Gross Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,981,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,979,150
|
|
|
|
|
|
|
|
2,301,601
|
|
|
|
8,053,221
|
|
|
|
1,691,291
|
|
|
|
1,691,291
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald S. Milstein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
1,273,762
|
|
|
|
|
|
|
|
|
|
|
|
3,560,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Stock Vesting/AIP Payout
|
|
|
|
|
|
|
550,000
|
|
|
|
|
|
|
|
2,301,601
|
|
|
|
2,301,601
|
|
|
|
1,691,291
|
|
|
|
1,691,291
|
|
|
|
|
|
Enhanced Retirement Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Benefits
|
|
|
|
|
|
|
81,959
|
|
|
|
|
|
|
|
|
|
|
|
81,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280G Tax Gross Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,318,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,930,721
|
|
|
|
|
|
|
|
2,301,601
|
|
|
|
8,587,125
|
|
|
|
1,691,291
|
|
|
|
1,691,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles E. Hennighausen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
1,258,028
|
|
|
|
|
|
|
|
|
|
|
|
3,237,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Stock Vesting/AIP Payout
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
|
|
1,978,352
|
|
|
|
1,978,352
|
|
|
|
1,439,151
|
|
|
|
1,439,151
|
|
|
|
|
|
Enhanced Retirement Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Benefits
|
|
|
|
|
|
|
81,959
|
|
|
|
|
|
|
|
|
|
|
|
81,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280G Tax Gross Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,003,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,814,987
|
|
|
|
|
|
|
|
1,978,352
|
|
|
|
7,682,538
|
|
|
|
1,439,151
|
|
|
|
1,439,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance. The Named Executive Officers,
except Mr. Orlowsky, are eligible for post-termination
severance payments pursuant to (i) the Severance Plan for a
termination not for cause or a termination for good reason, as
defined in the Severance Plan, and not in connection with a
Change in Control event and (ii) the Severance Agreements
for a termination not for Cause or a termination for Good
Reason, as defined in the Severance Agreements, and in
connection with a Change in Control event. In the event of a
Change in Control, the Severance Agreements provide for the
payment of the 2010 AIP. However, since this amount would
already have been accelerated as a result of the Change in
Control event pursuant to the 2008 Plan, this amount is included
under Accelerated Stock Vesting/AIP Payout. See
Change in Control and Other Severance Arrangements
above for more information regarding the payments and benefits
payable under the Severance Plan and Severance Agreements.
45
Accelerated Stock Vesting and AIP Payout. All
of the stock awards made to our Named Executive Officers have
been granted under the 2008 Plan and are subject to the vesting
and other terms set forth in the award certificates and the 2008
Plan. Pursuant to the terms of the 2008 Plan, in the event of a
Change in Control (as defined in the 2008 Plan), the
Compensation Committee has the discretion to determine the
treatment of all outstanding stock awards, unless the award
certificate provides otherwise. If the Committee does not
exercise its discretion, any stock option award or SAR award
carrying a right to exercise that was not previously vested and
exercisable becomes fully vested and exercisable, and any
restrictions, deferral limitations, payment conditions and
forfeiture conditions for restricted stock and other stock
awards lapse and such awards are deemed fully vested. Any
performance conditions imposed with respect to such awards are
deemed to be fully achieved. In addition, pursuant to the terms
of the award certificates, restricted stock awards vest
immediately upon the death or disability of the recipient. For
purposes of calculating the amounts in the table, we have
assumed that any outstanding unvested restricted stock, stock
option and SAR awards would vest as of December 31, 2010
using the closing price of our Common Stock ($82.06) on such
date.
The 2010 AIP for our Named Executive Officers was in effect as
of December 31, 2010 and was established in accordance with
the terms of the 2008 Plan. As discussed above with regard to
stock awards, in the event of a Change in Control, the
performance conditions imposed with respect to such awards are
deemed to be fully achieved and the target payout amount is
payable to the Named Executive Officers. In the event of the
death, disability or retirement after age 62 of a Named
Executive Officer, the performance conditions under the 2010 AIP
are deemed to be fully achieved and the target payout amount,
pro rated according to the time the Named Executive Officer
participated during the 2010 measurement period, is payable to
the Named Executive Officer or his or her estate. In the event
of the retirement prior to age 62 of a Named Executive
Officer, the performance conditions under the 2010 AIP are
deemed to be fully achieved and 50% of the target payout amount,
pro rated according to the time the Named Executive Officer
participated in the 2010 AIP, is payable to the Named Executive
Officer. The amounts for the 2010 AIP included in the table
reflect the target incentive payout level which would have been
the value used in the event of a termination as of
December 31, 2010. See 2010 Annual Incentive
Plan above for additional information.
Enhanced Retirement Benefit. We have included
any enhanced retirement benefits provided for under the
Severance Agreements in this column. For a Change in Control
related termination event only, these amounts include three
years of additional age and credited service under the Pension
Plan and Benefit Equalization Plan as well as three years of
additional matching contributions by the Company under the
Lorillard Tobacco Company Employees Savings Plan, a defined
contribution plan (the 401(k) Plan). The total
amount of the Companys matching contributions under the
401(k) Plan were calculated using the 2011 compensation limit
since the IRS limits for 2012 and 2013 are not available. We
have not included amounts which the Named Executive Officers
would be eligible to receive now or in the future pursuant to
the Pension Plan and Benefit Equalization Plan in this table as
these amounts are set forth in the Pension Benefits for
2010 table above. Mr. Spell was eligible for
unreduced retirement under the Pension Plan and Benefit
Equalization Plan as of December 31, 2010.
Messrs. Kessler, Taylor, Milstein and Hennighausen were not
eligible for retirement under the Pension Plan and Benefit
Equalization Plan as of December 31, 2010. See
Retirement Benefits above for more information.
Healthcare Benefits. Pursuant to the terms of
the Severance Plan and Severance Agreement, the Named Executive
Officers are entitled to healthcare benefits for a period of
three years following the specified event of termination not for
cause or following a Change in Control. The amounts shown in the
table represent the value of three years of COBRA continuation
healthcare coverage, including a tax gross up of $28,686 for
Messrs. Kessler, Milstein and Hennighausen, $28,378 for
Mr. Spell and $25,651 for Mr. Taylor. See Change
in Control and Other Severance Arrangements above for more
information regarding the payments and benefits payable under
the Severance Plan and Severance Agreements.
Outplacement Services. Pursuant to the terms
of the Severance Agreements, the Named Executive Officers are
generally entitled to $25,000 in outplacement services following
a termination not for cause or in connection with a Change in
Control event. Pursuant to the terms of the Severance Plan, the
Named Executive Officers are entitled to outplacement services
for 24 months, which, for purposes of this table, we have
determined to be valued at $25,000 consistent with the benefit
paid under the Severance Agreements. See Change in Control
and Other
46
Severance Arrangements above for more information
regarding the payments and benefits payable under the Severance
Plan and Severance Agreements.
280G Tax Gross Up. Pursuant to the terms of
the Severance Agreements, the Named Executive Officers, other
than Mr. Kessler, are entitled to a
gross-up
payment equal to the amount necessary to reimburse the executive
for the effect of any federal excise tax levied on excess
parachute payments, except that the gross up payment will
not be paid, and the severance payments otherwise payable to the
executive will be reduced, unless payment of the gross up
payment would increase the after-tax benefit to the executive by
more than 10%. See Change in Control and Other Severance
Arrangements above for more information regarding the
payments and benefits payable under the Severance Plan and
Severance Agreements.
Mr. Kesslers Severance Agreement includes a
better of net-after-tax or cutback provision which
generally provides for a reduction in excess parachute
payments to less than three times his base
amount pursuant to Section 280G of the Code, if such
reduction would place him in a better after-tax financial
position than if the full severance amount, including applicable
taxes, was paid. See Chief Executive Officer
Compensation above for additional information.
Mr. Orlowskys Retirement
Benefits. As discussed previously,
Mr. Orlowsky retired from the Company on December 31,
2010 after 20 years of service, including eleven years as
President and Chief Executive Officer. Pursuant to the SEC
disclosure requirements, we are providing a summary of the
actual payments made to Mr. Orlowsky as part of his
retirement from the Company. In addition to the retirement
benefits set forth in the Pension Benefits for 2010
table above, Mr. Orlowsky also received certain
enhancements to his retirement benefits. In order to ensure a
smooth transition process and have Mr. Orlowsky available
to the Company after his retirement, the Company entered into a
Consulting Agreement with Mr. Orlowsky to provide
consulting services to the Company and the Board of Directors
for a two-year period ending on December 31, 2012. In
consideration of these services, Mr. Orlowsky will be paid
$500,000 per year beginning in 2011 and any outstanding unvested
equity awards will continue to vest pursuant to their terms and
all unvested restricted stock on December 31, 2012 will
vest as of such date. As a result, on August 13, 2010 the
Company modified the equity awards that were previously granted
to extend or accelerate the vesting periods of such awards
pursuant to the terms of the Consulting Agreement. Accordingly,
the fair value for these amendments to the outstanding equity
awards on August 13, 2010 ($8,002,133) are reported in
addition to the fair value of the restricted stock and stock
option awards as granted in 2010 ($4,428,744). The SEC guidance
indicates that this disclosure best represents the two
compensation decisions made during 2010, the granting of the
original equity awards and the amendment of outstanding equity
awards. As a result, the aggregate grant date fair values of the
original and modified stock awards are significantly greater
than the amount to be expensed in our financial statements for
these awards ($5,757,191). See Grants of Plan-Based Awards
in 2010 and Chief Executive Officer
Compensation above for additional information. If
Mr. Orlowsky fails to comply with the confidentiality,
non-solicitation and non-competition covenants and certain other
provisions in the agreement, all outstanding unvested equity
awards held by Mr. Orlowsky will be forfeited.
47
EQUITY
COMPENSATION PLAN INFORMATION
The table below reflects the number of securities issued and the
number of securities remaining which were available for issuance
under the 2008 Incentive Compensation Plan as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Securities to be
|
|
|
|
|
|
Under Equity
|
|
|
|
Issued Upon
|
|
|
Weighted-Average
|
|
|
Compensation Plans
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
(Excluding
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Securities
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Reflected
|
|
Plan Category
|
|
and Rights(2)
|
|
|
and Rights(3)
|
|
|
in Column(a))
|
|
|
Equity compensation plans approved by security
holders(1)
|
|
|
1,728,796
|
|
|
$
|
69.56
|
|
|
|
1,767,101
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,728,796
|
|
|
$
|
69.56
|
|
|
|
1,767,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 2008 Incentive Compensation Plan was approved by our
shareholders at the annual meeting of shareholders on
May 21, 2009. |
|
(2) |
|
Includes 325,861 stock option awards, 1,150,252 SAR awards and
252,683 shares of restricted stock, subject to certain
vesting requirements which may or may not be met. |
|
(3) |
|
Because there is no exercise price associated with the
restricted stock, the shares of restricted stock described in
Note 2 above are not included in the weighted-average
exercise price calculation. |
48
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our
outstanding Common Stock, as of March 29, 2011, by those
persons who are known to us to be beneficial owners of 5% or
more of our Common Stock, by each of our directors and Named
Executive Officers and by our directors and executive officers
as a group.
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Percent of
|
|
|
Beneficially
|
|
Common Stock
|
Name
|
|
Owned(1)
|
|
Outstanding(2)
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
BlackRock Inc.(3)
|
|
|
15,550,302
|
|
|
|
10.8
|
%
|
40 East
52nd
Street
|
|
|
|
|
|
|
|
|
New York, NY 10022
|
|
|
|
|
|
|
|
|
Capital Research Global Investor(4)
|
|
|
12,538,600
|
|
|
|
8.7
|
%
|
333 South Hope Street
|
|
|
|
|
|
|
|
|
Los Angeles, CA 90071
|
|
|
|
|
|
|
|
|
Columbia Management Investment Advisers, LLC(5)
|
|
|
11,251,321
|
|
|
|
7.8
|
%
|
100 Federal Street
|
|
|
|
|
|
|
|
|
Boston, MA 02110
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
Murray S. Kessler(6)
|
|
|
92,657
|
|
|
|
*
|
|
David H. Taylor(7)
|
|
|
85,613
|
|
|
|
*
|
|
Randy B. Spell(8)
|
|
|
101,082
|
|
|
|
*
|
|
Ronald S. Milstein(9)
|
|
|
72,830
|
|
|
|
*
|
|
Charles E. Hennighausen(10)
|
|
|
82,620
|
|
|
|
*
|
|
Robert C. Almon(11)
|
|
|
4,643
|
|
|
|
*
|
|
Dianne Neal Blixt(12)
|
|
|
1,576
|
|
|
|
*
|
|
Virgis W. Colbert(13)
|
|
|
4,954
|
|
|
|
*
|
|
David E.R. Dangoor(14)
|
|
|
7,454
|
|
|
|
*
|
|
Kit D. Dietz(13)
|
|
|
4,954
|
|
|
|
*
|
|
Richard W. Roedel(15)
|
|
|
4,954
|
|
|
|
*
|
|
Nigel Travis(16)
|
|
|
5,084
|
|
|
|
*
|
|
All Directors and Executive Officers as a Group (12 persons)
|
|
|
468,421
|
|
|
|
*
|
|
|
|
|
* |
|
Represents less than one percent. |
|
(1) |
|
Based upon information furnished to us by the respective
shareholders or contained in filings made with the SEC. For
purposes of this table, if a person has or shares voting or
investment power with respect to any of our Common Stock, then
such Common Stock is considered beneficially owned by that
person under the SEC rules. Shares of our Common Stock
beneficially owned include direct and indirect ownership of
shares, restricted stock and stock options and stock
appreciation rights which are vested or are expected to vest
within 60 days of March 29, 2011. Unless otherwise
indicated in the table, the address of all listed shareholders
is
c/o Lorillard,
Inc., 714 Green Valley Road, Greensboro, North Carolina 27408. |
|
(2) |
|
Based upon 143,713,505 shares of our Common Stock
outstanding as of March 29, 2011. Shares which vest or are
expected to vest within 60 days of March 29, 2011 are
deemed outstanding for the purpose of computing the percentage
ownership for the named shareholder, director and executive
officer. |
|
(3) |
|
Reflects beneficial ownership of shares of our Common Stock as
reported in a Schedule 13G/A filed with the SEC by
BlackRock Inc. on behalf of itself and its affiliates on
January 10, 2011. |
|
(4) |
|
Reflects beneficial ownership of shares of our Common Stock as
reported in a Schedule 13G filed with the SEC by Capital
Research Global Investor, a division of Capital Research and
Management Company, on behalf of itself and its affiliates on
February 11, 2011. |
|
(5) |
|
Reflects beneficial ownership of shares of our Common Stock as
reported in a Schedule 13G filed with the SEC jointly by
Columbia Management Investment Advisers, LLC and its parent
company, Ameriprise Financial, Inc., on behalf of itself and its
affiliates on February 11, 2011. |
49
|
|
|
(6) |
|
Represents 12,500 shares of our Common Stock directly held
by Mr. Kessler and 80,157 shares of restricted stock. |
|
(7) |
|
Represents 31,172 shares of restricted stock held by
Mr. Taylor and exercisable options and/or stock
appreciation rights to purchase 54,441 shares of our Common
Stock. |
|
(8) |
|
Represents 1,500 shares of our Common Stock directly held
by Mr. Spell, 23,379 shares of restricted stock and
exercisable options and/or stock appreciation rights to purchase
76,203 shares of our Common Stock. |
|
(9) |
|
Represents 809 shares of our Common Stock directly held by
Mr. Milstein, 23,379 shares of restricted stock and
exercisable options and/or stock appreciation rights to purchase
48,642 shares of our Common Stock. |
|
(10) |
|
Represents 20,262 shares of restricted stock held by
Mr. Hennighausen and exercisable options and/or stock
appreciation rights to purchase 62,358 shares of our Common
Stock. |
|
(11) |
|
Represents 3,424 shares of our Common Stock directly held
and 1,219 shares of restricted stock. |
|
(12) |
|
Represents 342 shares held by Ms. Blixts spouse
and 1,234 shares of restricted stock. |
|
(13) |
|
Represents 3,735 shares of our Common Stock directly held
and 1,219 shares of restricted stock. |
|
(14) |
|
Represents 3,735 shares of our Common Stock directly held, 2,500
shares held by Mr. Dangoor in an IRA and 1,219 shares of
restricted stock. |
|
(15) |
|
Represents 1,342 shares of our Common Stock directly held,
2,393 shares held by Mr. Roedels spouse and
1,219 shares of restricted stock. |
|
(16) |
|
Represents 3,865 shares of our Common Stock directly held
and 1,219 shares of restricted stock. |
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive
officers and directors, and persons who own more than ten
percent of a registered class of our equity securities, to file
reports of ownership and changes in ownership on Forms 3, 4
and 5 with the SEC and the NYSE. Executive officers, directors
and greater than ten percent beneficial owners are required to
furnish us with copies of all Forms 3, 4 and 5 they file.
Based on our review of the copies of such forms we have received
and written representations from such reporting persons, we
believe that all of our executive officers and directors
complied with all filing requirements applicable to them with
respect to transactions during 2010, except for one Form 4
for Mr. Orlowsky filed on November 1, 2010, which was
filed one day late due to an administrative error.
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review
and Approval of Related Person Transactions
We have a written policy regarding related person transactions
which requires that any transaction, regardless of the size or
amount involved, involving the Company or any of its
subsidiaries in which a related person had or will
have a direct or indirect material interest must be reviewed and
approved or ratified by the Audit Committee. Directors and
executive officers are required to submit all related person
transactions to our General Counsel for review and reporting to
the Audit Committee. A related person is any
director, nominee for director, executive officer, holder of 5%
or more of any class of our outstanding voting securities and
any immediate family member of such person who shares the same
household. In addition to our written policy, our legal staff is
responsible for the development and implementation of other
processes and controls, including regular director and officer
questionnaires, to obtain information from the directors and
executive officers with respect to related person transactions.
Based on the facts and circumstances identified through the
written policy and these information gathering processes, the
Audit Committee determines whether the Company or a related
person has a direct or indirect material interest in any
transactions identified. During 2010, there were no reportable
related person transactions.
50
PROPOSAL NO. 4
RATIFICATION OF THE SELECTION OF THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Deloitte & Touche
LLP as our independent registered public accounting firm for the
fiscal year ending December 31, 2011. Deloitte &
Touche LLP has served as our independent registered public
accounting firm since prior to the Separation. The submission of
this matter for approval by shareholders is not legally
required; however, the Board of Directors believes that such
submission provides shareholders an opportunity to provide
feedback on an important issue of corporate governance. If
shareholders do not approve the selection of
Deloitte & Touche LLP, the selection of such firm as
our independent registered public accounting firm will be
reconsidered. In the event that Deloitte & Touche LLP
is unable to serve as independent registered public accounting
firm for the fiscal year ending December 31, 2011 for any
reason, the Audit Committee will appoint another independent
registered public accounting firm. Representatives of
Deloitte & Touche LLP will be present at the Annual
Meeting, will be given an opportunity to make a statement if
they desire to do so and will be available to respond to
appropriate shareholder questions regarding the Company.
Vote
Required
Approval of the ratification of selection of our independent
registered public accounting firm requires the affirmative vote
of a majority of the shares of our Common Stock cast at the
Annual Meeting, in person or by proxy, and entitled to vote,
provided that a quorum is present. Pursuant to applicable
Delaware law, in determining whether the proposal has received
the requisite number of affirmative votes, abstentions will have
the same effect as negative votes. Pursuant to NYSE regulations,
brokers have discretionary voting power with respect to this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE RATIFICATION OF THE SELECTION OF THE
COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
UNLESS MARKED TO THE CONTRARY, SIGNED PROXIES RECEIVED BY THE
COMPANY WILL BE VOTED FOR THE RATIFICATION OF
THE SELECTION OF DELOITTE & TOUCHE LLP AS THE
COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
51
REPORT OF
THE AUDIT COMMITTEE
The purpose of the Audit Committee is to assist the Board of
Directors in its oversight of (i) the integrity of the
Companys financial statements, (ii) the
Companys compliance with legal and regulatory
requirements, (iii) the qualifications and independence of
the Companys independent registered public accounting firm
(the Independent Auditor) and (iv) the
performance of the Companys internal audit function and
Independent Auditor. The Audit Committee operates pursuant to a
written charter. Management is responsible for the financial
reporting process, including the preparation of the financial
statements and system of internal control over financial
reporting. The Companys Independent Auditor is responsible
for auditing the financial statements in accordance with
generally accepted auditing standards, issuing an opinion as to
whether the Companys financial statements are, in all
material respects, presented fairly in conformity with generally
accepted accounting principles, and performing an assessment of
the Companys internal control over financial reporting.
The Audit Committee has met and held discussions with management
and the Independent Auditor regarding the fair and complete
presentation of the Companys results, the assessment of
the Companys internal control over financial reporting and
significant accounting policies applied by the Company in its
financial statements. Management represented to the Audit
Committee that the Companys financial statements were
prepared in accordance with accounting principles generally
accepted in the United States, and the Committee has reviewed
and discussed the audited financial statements with management
and the Independent Auditor. The Audit Committee met with the
Independent Auditor, with and without management present, to
discuss the results of its evaluation of the Companys
internal control over financial reporting and the overall
quality of the Companys financial reporting.
The Audit Committee also discussed with the Independent Auditor
those matters required by Statement of Auditing Standards
No. 61, Communications with Audit Committees,
as amended. In addition, the Audit Committee discussed with the
Independent Auditor its independence from the Company and
management, and the Audit Committee has received and reviewed
the written disclosures and letter from the Independent Auditor
as required by the applicable standards and rules of the Public
Company Accounting Oversight Board for independent auditor
communications with audit committees concerning independence.
Based upon the reviews and discussions referred to above, the
Audit Committee recommended to the Board of Directors, and the
Board approved, the inclusion of the audited financial
statements in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2010 for filing with the
SEC.
Audit Committee
Richard W. Roedel (Chair)
Robert C. Almon
David E.R. Dangoor
Dianne Neal Blixt
52
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Our Audit Committee is responsible for pre-approving all audit
services and permitted non-audit services, including the fees
and terms thereof, to be performed for us and our subsidiaries
by our Independent Auditor. The Audit Committee has adopted a
pre-approval policy and implemented procedures which provide
that all engagements of our Independent Auditor are reviewed and
pre-approved by the Audit Committee, subject to the de
minimis exception for non-audit services described in
Section 10A(i)(1)(B) of the Exchange Act which our Audit
Committee approves prior to the completion of the audit. The
pre-approval policy also delegates pre-approval authority to the
Chairman of the Audit Committee between meetings of the Audit
Committee, and any such approvals are reviewed and ratified by
the Audit Committee at its next scheduled meeting.
For the years ended December 31, 2010 and 2009,
professional services were performed for us by
Deloitte & Touche LLP, our Independent Auditor. Audit
and audit-related fees aggregated approximately $1,656,000 and
$1,681,000 for the years ended December 31, 2010 and 2009,
respectively. Set forth below are the fees billed to us by
Deloitte & Touche LLP, the member firms of Deloitte
Touche Tohmatsu and their respective affiliates. All fees and
services incurred were approved in accordance with the Audit
Committees pre-approval policy.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
Fees by Type
|
|
2010
|
|
|
2009
|
|
|
|
(In 000s)
|
|
|
Audit fees
|
|
|
1,205
|
|
|
|
1,251
|
|
Audit-related fees
|
|
|
451
|
|
|
|
430
|
|
Tax fees
|
|
|
453
|
|
|
|
737
|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,109
|
|
|
|
2,418
|
|
|
|
|
|
|
|
|
|
|
Audit Fees. The aggregate fees billed for
professional services rendered by the Independent Auditor were
approximately $1,205,000 and $1,251,000 for the years ended
December 31, 2010 and 2009, respectively, and primarily
related to the annual audits of the consolidated financial
statements included in our Annual Reports on
Form 10-K
and our internal control over financial reporting, as required
by Section 404 of the Sarbanes-Oxley Act of 2002 as well as
reviews of the consolidated financial statements included in our
Quarterly Reports on
Form 10-Q.
Audit-Related Fees. Audit-related fees billed
during the year ended December 31, 2010 and 2009 were
approximately $451,000 and $430,000, respectively, and primarily
related to consents, comfort letters, accounting due diligence,
the statutory audit of a subsidiary and benefit plan audits.
Tax Fees. The aggregate fees billed for tax
services during the year ended December 31, 2010 and 2009
were approximately $453,000 and $737,000, respectively. These
fees related to tax compliance, tax advice and tax planning for
the years ended December 31, 2010 and 2009.
All Other Fees. There were no fees billed for
all other services during the years ended December 31, 2010
and 2009.
53
PROPOSAL NO. 5
SHAREHOLDER PROPOSAL ON A MAJORITY VOTE STANDARD FOR DIRECTOR
ELECTIONS
The United Brotherhood of Carpenters Pension Fund, (the
Fund) located at 101 Constitution Avenue, N.W.,
Washington, D.C. 20001, has advised us that it plans to
introduce the following resolution. The Fund is the beneficial
holder of 2,326 shares of our common stock.
Resolved: That the shareholders of Lorillard,
Inc. (Company) hereby request that the Board of
Directors initiate the appropriate process to amend the
Companys corporate governance documents (certificate of
incorporation or bylaws) to provide that director nominees shall
be elected by the affirmative vote of the majority of votes cast
at an annual meeting of shareholders, with a plurality vote
standard retained for contested director elections, that is,
when the number of director nominees exceeds the number of board
seats.
Supporting Statement: Lorillards Board
of Directors should establish a majority vote standard in
director elections in order to provide shareholders a meaningful
role in these important elections. The proposed majority vote
standard requires that a director nominee receive a majority of
the votes cast in an election in order to be formally elected.
The standard is particularly well-suited for the vast majority
of director elections in which only board nominated candidates
are on the ballot. Under the current plurality standard, a board
nominee can be elected with as little as a single affirmative
vote, even if a substantial majority of the votes cast are
withheld from the nominee. We believe that a
majority vote standard in board elections establishes a
challenging vote standard for board nominees, enhances board
accountability, and improves the performance of boards and
individual directors.
Over the past five years, a significant majority of companies in
the S&P 500 Index has adopted a majority vote standard in
company bylaws, articles of incorporation, or charter. These
companies have also adopted a director resignation policy that
establishes a board-centric post-election process to determine
the status of any director nominee that is not elected. This
dramatic move to a majority vote standard is in direct response
to strong shareholder demand for a meaningful role in director
elections.
The Lorillard Board of Directors has not acted to establish a
majority vote standard, retaining its plurality vote standard,
despite the fact that many of its self-identified peer companies
including Altria Group, Brown-Forman Corporation, The
Coca-Cola
Company, ConAgra Foods, Dean Foods, General Mills and Sara Lee
Corporation have adopted majority voting. The Board should take
this critical first step in establishing a meaningful majority
vote standard. With a majority vote standard in place, the Board
can then act to adopt a director resignation policy to address
the status of unelected directors. A majority vote standard
combined with a post-election director resignation policy would
establish a meaningful right for shareholders to elect directors
at Lorillard, while reserving for the Board an important
post-election role in determining the continued status of an
unelected director. We urge the Board to join the mainstream
major U.S. companies and establish a majority vote standard.
Companys
Response:
The Board of Directors has determined not to make a voting
recommendation on this proposal for the following reasons:
The Board of Directors has considered the shareholder proposal
set forth above relating to a majority vote for director
elections, and at this time has determined neither to oppose or
support the proposal and to make no voting recommendation to
shareholders. If passed, the proposal, which is advisory in
nature, would request that the Board of Directors initiate a
process to provide for a majority vote for uncontested elections
of directors. The Board recognizes that this has been a
controversial matter for other companies and believes there are
valid arguments for and against adopting a majority vote
standard for director elections. This proposal will provide
shareholders with an opportunity to express their views on this
topic.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS IS NEITHER
SUPPORTING NOR OPPOSING THIS PROPOSAL AND MAKES NO VOTING
RECOMMENDATION.
54
PROPOSAL NO. 6
SHAREHOLDER PROPOSAL ON REPORTING POLITICAL CONTRIBUTIONS AND
EXPENDITURES
The Comptroller of the State of New York, The Honorable Thomas
P. DiNapoli, located at 1633 Third Avenue- 31st Floor, New
York, New York, 10017, in his capacity as the sole trustee of
the New York State Common Retirement Fund (the Fund)
and the administrative head of the New York State and Local
Employees Retirement System and the New York State Police
and Fire Retirement System, has advised us that the Fund plans
to introduce the following resolution. The Fund is the
beneficial holder of 519, 689 shares of our common stock.
Resolved, that the shareholders of Lorillard Inc. hereby
request that the Company provide a report, updated
semi-annually, disclosing the Companys:
1. Policies and procedures for political contributions and
expenditures (both direct and indirect) made with corporate
funds.
2. Monetary and non-monetary contributions and expenditures
(direct and indirect) used to participate in or intervene in any
political campaign on behalf of (or in opposition to) any
candidate for public office, and used in any attempt to
influence the general public, or segments thereof, with respect
to elections or referendums. The report shall include the
following:
(a) An accounting through an itemized report that includes
the identity of the recipient as well as the amount paid to each
recipient of the Companys funds that are used for
political contributions or expenditures as described
above; and
(b) The title of the person or persons in the Company who
participated in making the decisions to make the political
contribution or expenditure.
The report shall be presented to the board of directors
audit committee or other relevant oversight committee and posted
on the companys website to reduce costs to shareholders.
Stockholder
Supporting Statement
As long-term shareholders of Lorillard Inc., we support
transparency and accountability in corporate spending on
political activities. These activities include direct and
indirect political contributions to candidates, political
parties, political organizations or ballot referendums;
independent expenditures; or electioneering communications on
behalf of a federal, state or local candidate.
Disclosure is consistent with public policy, in the best
interest of the company and its shareholders, and critical for
compliance with federal ethics laws. Moreover, the majority in
the Supreme Courts Citizens United decision
recognized the importance of political spending disclosure for
shareholders when it said [D]isclosure permits citizens
and shareholders to react to the speech of corporate entities in
a proper way. This transparency enables the electorate to
make informed decisions and give proper weight to different
speakers and messages. Gaps in transparency and
accountability may expose the company to reputational and
business risks that could threaten long-term shareholder value.
Lorillard Inc. contributed at least $967,290 in corporate funds
since the 2002 election cycle.
(CQ:http://moneyline.cq.com/pml/home.do
and National Institute on Money in State Politics:
http://www.followthemoney.org/index.phtml.)
However, relying on publicly available data does not provide a
complete picture of the Companys political expenditures.
For example, the Companys payments to trade associations
used for political activities are undisclosed and unknown. In
many cases, even management does not know how trade associations
use their companys money politically. The proposal asks
the Company to disclose all of its political contributions,
including payments to trade associations and other tax exempt
organizations. This would bring our Company in line with a
growing number of leading companies, including Hewlett-Packard,
Aetna and American Electric Power that support political
disclosure and accountability and present this information on
their websites.
The Companys Board and its shareholders need complete
disclosure to be able to fully evaluate the political use of
corporate assets. Thus, we urge your support for this critical
governance reform.
55
Companys
Response:
The Board of Directors unanimously recommends that
shareholders vote AGAINST this proposal for
the following reasons:
Our Board of Directors has considered this proposal and, while
it supports the transparency and accountability objectives,
believes that adopting the proposal is unnecessary and would not
be in the best interests of the Company or its shareholders.
Our business is subject to extensive regulation at all levels of
government. We seek to be an effective participant in the public
policy decision making process by making prudent political
contributions and expenditures when they advance the
Companys business objectives. The Company complies with
all applicable laws and regulations pertaining to political
campaign contributions, at the federal, state and local levels,
including those requiring specific disclosures. These extensive
legal and regulatory disclosures provide ample transparency and
public access to information regarding the scope of the
Companys political involvement. Current law limits the
amounts that can be contributed, restricts the organizations or
entities that can receive corporate funding and establishes a
clear system of accountability that is already in place. In
fact, political contributions or donations made by the Company
are required to be disclosed under federal, state and local
campaign finance law, and under the Internal Revenue Code. As a
result, information on the Companys political
contributions is readily available to shareholders and
interested parties through public sources. Proponents of the
proposal have demonstrated that this information is already
easily obtained by citing figures on previous political
contributions made by the Company.
In many cases, corporations, including Lorillard, are prohibited
from making political contributions. However, the campaign
finance law in every state or municipality that permits
corporate political contributions requires disclosure of those
contributions by the recipient, the contributor, or both. To the
extent corporate contributions to candidates or political
parties are permitted by certain states, these states also
require that such contributions be disclosed either by the
recipient or by the donor. As this information is publicly
available, data on political campaign contributions or
expenditures by the Company may be obtained without the Company
preparing an additional report.
The Internal Revenue Code also imposes public disclosure
requirements regarding contributions and donations to political
organizations. Any such organization that anticipates receiving
contributions of $25,000 or more in a taxable year and does not
file disclosure reports with the Federal Election Commission or
a state or local election commission must register with the
Internal Revenue Service (IRS) and file periodic
reports disclosing its contributions and expenditures. These
reports are publicly available on the IRS website. The Company
complies fully with the IRS disclosure and reporting
requirements.
Interested parties may obtain the disclosure reports described
above from the United States federal government and from the
states. Disclosure reports filed with the United States federal
government may be found on the websites of the Federal Election
Commission (www.fec.gov) and the IRS (www.irs.gov). Disclosure
reports filed with state governments may be obtained from the
websites of those state governments. The National Conference of
State Legislatures
(http://www.ncsl.org/programs/ethics/comprehensive_list.htm)
provides hyperlinks to the pertinent state websites.
The Company undertakes a regular internal review and approval
process for political contributions and expenditures to ensure
donations are made in the best interests of our business and our
shareholders. Management provides the Board of Directors with a
report at least annually on all political contributions and
expenditures that have been made by the Company.
Further, we believe that disclosure of dues paid to trade
associations and similar organizations that may make political
campaign contributions or expenditures may risk misrepresenting
our political activities. Trade associations operate
independently and we do not necessarily agree with all of the
positions taken by trade associations. However, we may join
trade associations and similar organizations for non-political
reasons intended to further our commercial interests, educate
our employees or further our ability to serve customers. In
addition, the Company cannot report the extent to which any
political campaign contributions or expenditures by such
organizations might be proportionately attributable to our
membership dues, and any effort to do so would be a costly
diversion of managements attention from the Companys
business.
56
We believe that the Companys current policies and
practices with regard to political contributions and
expenditures, together with applicable federal and state
reporting requirements, appropriately balance the Companys
interests in participating in the political process and the
public interest in disclosure. Adopting a policy as set forth in
the proposal would result in an unnecessary and unproductive use
of Company resources. In addition, adoption of the proposed
policy would require disclosure of proprietary information on a
unilateral basis and could place the Company at a competitive
disadvantage by revealing its legislative strategies and
priorities. The Board is satisfied that the Company has in place
a system of accountability and that Company assets are used for
political objectives that are in the best long-term interest of
the Company and its shareholders.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THIS PROPOSAL REGARDING
REPORTING POLITICAL CONTRIBUTIONS AND EXPENDITURES.
SHAREHOLDER
PROPOSALS FOR ANNUAL MEETING OF SHAREHOLDERS FOR
2012
Proposals from shareholders are given careful consideration by
us in accordance with
Rule 14a-8
of the Exchange Act
(Rule 14a-8).
We provide shareholders with the opportunity, under certain
circumstances and consistent with our amended and restated
by-laws and the rules of the Securities and Exchange Commission,
to participate in the governance of the Company by submitting
shareholder proposals or director nominations that they believe
merit consideration at the annual meeting of shareholders for
2012. To enable management to analyze and respond to proposals
or director nominations that shareholders wish to have included
in the Proxy Statement and proxy card for that annual meeting,
any such proposal or director nomination must be received by us
in writing no later than December 7, 2011 consistent with
Rule 14a-8.
Any shareholder proposal or director nomination for the annual
meeting of shareholders for 2012 that is not intended for
inclusion in the Proxy Statement and proxy card will be
considered untimely if it is received by us earlier
than January 19, 2012 or after February 20, 2012. An
untimely proposal may not be brought before or considered at our
annual meeting of shareholders for 2012. Any shareholder
proposal or director nomination submitted must also be made in
compliance with our amended and restated by-laws. For more
information regarding our by-law procedures for director
nominations, please refer to Corporate
Governance Nomination Process and Qualifications for
Director Nominees.
Proxies solicited by the Board of Directors for the annual
meeting of shareholders for 2012 may confer discretionary
authority to vote on any untimely shareholder proposals or
director nominations without express direction from shareholders
giving such proxies. All shareholder proposals and director
nominations must be addressed to the attention of the Corporate
Secretary at 714 Green Valley Road, Greensboro, North Carolina
27408. The Chairman of the annual meeting of shareholders may
refuse to acknowledge the introduction of any shareholder
proposal or director nomination not made in compliance with the
foregoing procedures.
OTHER
BUSINESS
As of April 6, 2011, our Board of Directors is not aware of
any other business to come before the meeting. However, if any
additional matters are presented at the meeting, it is the
intention of the persons named in the accompanying proxy to vote
in accordance with their judgment on those matters.
By Order of the Board of Directors
Ronald S. Milstein
Senior Vice President, Legal and External Affairs,
General Counsel and Secretary
57
Appendix A
LORILLARD,
INC.
INDEPENDENCE STANDARDS FOR DIRECTORS
The Board of Directors has adopted Corporate Governance
Guidelines that contain director qualifications. No director
will be considered independent unless the Board
affirmatively determines that the director has no material
relationship with Lorillard, Inc. or any of its subsidiaries
(together, the Company), either directly or as a
partner, shareholder or officer of an organization that has a
relationship with the Company. When making independence
determinations, the Board will consider all relevant facts and
circumstances, as well as all applicable legal and regulatory
requirements, including NYSE corporate governance requirements
and the rules and regulations of any other regulatory or
self-regulatory body with jurisdiction over the Company.
Notwithstanding the foregoing, none of the following
relationships shall automatically disqualify any director or
nominee from being considered independent:
(a) More than three years ago, (i) the director was
employed by the Company, or (ii) an immediate family member
of the director was employed by the Company as an executive
officer;
(b) (i) During any twelve-month period during the
preceding three years, the director has received, or has an
immediate family member who has received, less than $120,000 in
direct compensation from the Company; or (ii) during any
twelve-month period during the preceding three years the
director has received, or has an immediate family member who has
received, director and committee fees and pension or other forms
of deferred compensation for prior service (provided such
compensation is not contingent in any way on continued service);
or (iii) more than three years ago, the director has
received, or has an immediate family member who has received,
any such compensation (including amounts over $120,000 per year);
(c) The director or an immediate family member of the
director is or was employed within the past three years as an
executive officer of another organization for which any of the
Companys present executive officers at the same time
serves or served on that organizations board of directors
(or similar body) or any committee thereof, except that the
foregoing shall not apply to service by such executive officer
on such organizations compensation committee; or
(d) (i) The director is or was an employee, executive
officer, partner (other than a limited partner) or significant
equity holder of another organization that made payments to, or
received payments from, the Company for property or services in
an amount which, in any single fiscal year, is less than the
greater of $1.0 million or 2% of such other
organizations consolidated gross revenues, or (ii) an
immediate family member of the director is or was an executive
officer of another company that made payments to, or received
payments from, the Company for property or services in an amount
which, in any single fiscal year, is less than the greater of
$1.0 million or 2% of such other companys
consolidated gross revenues.
In addition to these guidelines, members of certain committees
of the Board, such as the Audit Committee, are subject to
heightened standards of independence under various rules and
regulations.
For purposes of these guidelines: (1) compensation received
by an immediate family member of a director for service as a
non-executive employee of the Company shall not be considered in
determining independence under (b), above; (2) in applying
the test under (d), above, both the payments and the
consolidated gross revenues to be measured shall be those
reported in the last completed fiscal year and the look-back
provisions shall apply solely to the financial relationship
between the Company and the director or immediate family
members current employer and not to former employment of
the director or immediate family member; (3) an
immediate family member includes a persons
spouse, parents, children, siblings, mothers and
fathers-in-law,
sons and
daughters-in-law,
brothers and
sisters-in-law,
and anyone (other than domestic employees) who shares such
persons home, but in applying any lookback provisions, the
Company will not consider individuals who are no longer
immediate family members as a result of legal separation or
divorce or those who have died or become incapacitated;
(4) a significant equity holder of an organization will
normally be considered a shareholder, limited partner or member
owning 10% or more of the voting or equity interests in that
organization; and (5) a directors service as a
non-employee Chairman of the Board of Directors of the Company
shall not be deemed employment by the Company under
(a) above.
A-1
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
We encourage you to take advantage of Internet or telephone voting.
Both are available 24 hours a day, 7 days a week.
Internet and telephone voting is available through 11:59 p.m. eastern daylight time on May 18, 2011.
INTERNET
http://www.proxyvoting.com/lo
Use the Internet to vote your proxy.
Have your proxy card in hand when you
access the web site.
OR
TELEPHONE
1-866-540-5760
Use any touch-tone telephone to vote
your proxy. Have your proxy card in
hand when you call.
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card
and return it in the enclosed postage-paid envelope.
Your Internet or telephone vote authorizes the
named proxies to vote your shares in the same
manner as if you marked, signed and returned your
proxy card.
WO#
96707
6
FOLD AND DETACH HERE
6
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. YOUR SHARES WILL BE VOTED AS
SPECIFIED IN THIS CARD. IF A SIGNED CARD IS RECEIVED WITH NO
SPECIFICATION MADE, THIS PROXY WILL BE VOTED (1) FOR PROPOSAL NOS., 1, 2 AND 4; (2) EVERY 1
YEAR ON PROPOSAL NO. 3; (3) ABSTAIN ON PROPOSAL NO. 5; AND (4)
AGAINST PROPOSAL NO. 6
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Please mark your votes as
indicated in this example
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x |
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For |
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Withhold Authority |
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The Board of Directors recommends you |
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all nominees |
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to vote for all |
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vote FOR the following proposals: |
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listed |
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nominees |
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*EXCEPTIONS |
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1. To elect the three nominees
named below to hold office
as Class III Directors:
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o
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o
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01 Dianne Neal Blixt
02 David E. R. Dangoor
03 Murray S. Kessler
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the
Exceptions box and write that nominees name in the space provided below.)
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FOR |
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AGAINST |
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ABSTAIN |
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2. |
To approve the advisory vote on the Companys
executive compensation.
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The Board of Directors recommends you vote for every 1 YEAR on the following proposal:
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1 year |
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2 years |
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3 years |
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Abstain |
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3.
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To approve holding future advisory votes on the
Companys executive compensation every one, two or
three
years.
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o
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o
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o
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o |
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The Board of Directors recommends you vote FOR the following proposal: |
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FOR
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AGAINST
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ABSTAIN |
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4.
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To ratify the selection of Deloitte & Touche LLP as the
Companys independent registered public accounting firm for
the fiscal year ending December 31, 2011.
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o
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The Board of Directors makes no recommendation as to the following proposal: |
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FOR
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AGAINST
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ABSTAIN |
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5.
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To approve the shareholder proposal on a majority vote
standard for director elections.
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o
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o
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o |
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The Board of Directors recommends you vote AGAINST the following proposal: |
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FOR
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AGAINST
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ABSTAIN |
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6.
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To approve the shareholder proposal on reporting political
contributions and expenditures.
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o
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In their discretion, the proxy holders
are authorized to vote upon such other
business as may properly come before the
annual meeting or any adjournments or
postponements thereof. |
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Please indicate if you plan to attend this meeting.
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Yes
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o
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No
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o |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
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Mark Here for
Address Change
or Comments
SEE REVERSE
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Please date this proxy and sign your name exactly as it appears on this form. Where there is
more than one owner, each should sign. When signing as an attorney, administrator, executor,
guardian, or trustee, please add your title as such. If executed by a corporation, the proxy should
be signed by a duly authorized officer. If a partnership, please sign in partnership name by an
authorized person.
LORILLARD, INC.
THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT.
ADMISSION TICKET
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Lorillard, Inc.
Annual Meeting of Shareholders for 2011
May 19, 2011
10:00 a.m.
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O.Henry Hotel
624 Green Valley Road
Greensboro, NC 27408
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Choose MLinkSM for fast, easy and secure 24/7 online access to your future
proxy materials, investment plan statements, tax documents and more. Simply log on to
Investor ServiceDirect® at www.bnymellon.com/shareowner/equityaccess where
step-by-step instructions will prompt you through enrollment.
Important notice regarding the Internet availability of proxy materials for the Annual Meeting of
shareholders. The Proxy Statement and the 2010 Annual Report to Shareholders are available at:
http://investors.lorillard.com/phoenix.zhtml?c=134955&p=irol-proxy
6 FOLD AND DETACH HERE 6
LORILLARD, INC.
This proxy is solicited on behalf of the Board of Directors of Lorillard, Inc.
for the Annual
Meeting of Shareholders for 2011 on May 19, 2011.
The undersigned hereby (1) acknowledges receipt of the Notice of Annual Meeting of
Shareholders for 2011 of Lorillard, Inc. (Lorillard or the Company) and the accompanying Proxy
Statement to be held on May 19, 2011 starting at 10:00 a.m., eastern daylight time, at the O.Henry
Hotel, 624 Green Valley Road, Greensboro, North Carolina 27408, and (2) appoints David H. Taylor
and Ronald S. Milstein, and each of them, attorney, agent and proxy of the undersigned, with full
power of substitution to vote all shares of common stock of Lorillard that the undersigned would be
entitled to cast if personally present at the annual meeting and at any adjournment(s) or
postponement(s) thereof, and with discretionary authority as to any other matters that may properly
come before the annual meeting, all in accordance with, and as described in, the accompanying
Notice of Annual Meeting of Shareholders for 2011.
The Board of Directors makes the following recommendation: (1) a vote FOR the proposal to elect
the three nominees named in the attached Proxy Statement to hold office as Class III Directors
until the Annual Meeting of Shareholders for 2014, and until their successors are duly elected and
qualified; (2) a vote FOR the approval of the non-binding, advisory vote on the Companys
executive compensation; (3) a vote for 1 YEAR for the frequency of future advisory votes on the
Companys executive compensation; (4) a vote FOR the proposal to ratify the selection of Deloitte
& Touche LLP as the Companys independent registered public accounting firm for the fiscal year
ending December 31, 2011; (5) no recommendation on the shareholder proposal on a majority vote
standard for director elections; and (6) a vote AGAINST the shareholder proposal on reporting
political contributions and expenditures.
The undersigned hereby revokes any proxy heretofore given to vote or act with respect to the common
stock of Lorillard and hereby ratifies and confirms all that the proxies, their substitutes, or any
of them may lawfully do by virtue hereof. If one or more of the proxies named shall
be present in person or by substitute at the meeting or at any adjournment(s) or postponement(s)
thereof, the proxies so present and voting, either in person or by substitute, shall exercise all
of the powers hereby given. Please date, sign exactly as your name appears on the form and promptly
mail this proxy in the enclosed envelope. No postage is required.
Address Change/Comments
(Mark the corresponding box on the
reverse side)
BNY MELLON SHAREOWNER SERVICES
P.O. BOX 3550
SOUTH HACKENSACK, NJ 07606-9250
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WO# 96707 |
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(Continued and to be marked, dated and signed, on the other side)
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