UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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ROYAL GOLD, INC.

(Name of Registrant as Specified in Its Charter)

 

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

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ROYAL GOLD, INC.
1660 Wynkoop Street, Suite 1000
Denver, Colorado 80202
303/573-1660
303/595-9385 (Fax)
info@royalgold.com (E-mail)
www.royalgold.com (Web site)

 

NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS

 

To Be Held November 5, 2008

 

* * * *

 

To the Stockholders of ROYAL GOLD, INC.:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of Royal Gold, Inc. will be held at 9:30 a.m., on Wednesday, November 5, 2008, at the Oxford Hotel, Sage Room, 1600 Seventeenth Street, Denver, Colorado, USA, to:

 

 

All stockholders are cordially invited to attend the meeting; however, only stockholders of record as of the close of business on September 16, 2008, are entitled to vote at the meeting and any postponements or adjournments thereof. It is important that your shares are represented and voted at the Annual Meeting. For that reason, whether or not you expect to attend in person, please vote your shares by telephone or by Internet. If this proxy statement was mailed to you, you may also vote by marking, signing and returning the proxy card in the enclosed envelope. If you do attend the Annual Meeting, you may withdraw your proxy should you wish to vote in person.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Karen P. Gross

Vice President & Corporate Secretary

 

September 23, 2008

ROYAL GOLD, INC.
1660 Wynkoop Street, Suite 1000
Denver, Colorado 80202
303/573-1660
303/595-9385 (Fax)
info@royalgold.com (E-mail)
www.royalgold.com (Web site)

 

PROXY STATEMENT

 

2008 ANNUAL MEETING OF STOCKHOLDERS

 

General Information

 

This Proxy Statement is furnished to holders of Royal Gold, Inc. (the “Company”) common stock, in connection with the solicitation of proxies on behalf of the Board of Directors of the Company, to be voted at the Annual Meeting of Stockholders of the Company (the “Annual Meeting”) to be held on Wednesday, November 5, 2008, at 9:30 a.m. 

 

This year we are taking advantage of the new Securities and Exchange Commission, or the SEC, rules that allow companies to furnish proxy materials to stockholders via the Internet. If you received a Notice of Internet Availability of Proxy Materials, or Notice, by mail, you will not receive a printed copy of the proxy materials, unless you specifically request one. The Notice instructs you on how to access and review the proxy statement and annual report as well as how to submit your proxy over the Internet. The Notice will also identify the date, time and location of the annual meeting; the matters to be acted upon at the meeting and the Board of Directors’ recommendation with regard to each matter; a toll-free number, e-mail address and a website where stockholders can request a paper or e-mail copy of the proxy statement, our annual report and a form of proxy relating to the annual meeting; information on how to access the form of proxy; and information on how to obtain directions to attend the meeting and vote in person.

 

We plan to mail the Notice to stockholders on or about September 23, 2008. A printed copy of this proxy statement and form of proxy card will be mailed to beneficial stockholders that hold greater than 1,000 shares of our common stock and to all shareholders of record. We expect that mailing to begin on or about September 23, 2008.

 

Stockholders Entitled to Vote

 

All voting rights are vested exclusively in the holders of the Company’s common stock, par value per share $0.01 (“common stock”). Only stockholders of record of the common stock at the close of business on September 16, 2008 (the “record date”), are entitled to vote at the Annual Meeting and at any and all postponements and adjournments thereof. As of the record date, there were 33,926,495 shares of common stock outstanding and entitled to vote.

 

Voting Your Shares

 

Each share of common stock that you own entitles you to one vote. Your proxy card shows the number of shares of common stock that you own.

 

If this proxy statement was mailed to you, you may vote your shares by signing and returning the enclosed proxy card. You may also vote by telephone or by the Internet by following the telephone or Internet voting instructions that are included with your proxy card. If you received a Notice, you may vote your shares by telephone or by the Internet by following the telephone or Internet voting instructions that are included with the Notice. If you vote by telephone or the Internet, you do not need to return your proxy card. If you vote by proxy, the “proxy holders” (each or any of the individuals named on the proxy) will vote your shares as you instruct on the proxy. If you sign and return the proxy, but do not give instructions on how to vote your shares, your shares will be voted (1) “FOR” the election of directors as described herein under “Proposal 1 — Election of Directors,” (2) “FOR” the approval of amendments to the Company’s 2004 Omnibus Long-Term Incentive Plan to increase the number of shares of common stock reserved for issuance thereunder from 900,000 to 1,300,000 and to comply with the requirements of Section 409A as described herein under “Proposal 2 —

Approval of Amendments to the Company’s 2004 Omnibus Long-Term Incentive Plan,” and (3) “FOR” ratification of the appointment of the Company’s independent registered public accountants described herein under “Proposal 3 — Ratification of Appointment of Independent Registered Public Accountants.”

 

You may attend the Annual Meeting and vote in person. You will be given a ballot when you arrive. However, if your stock is held in the name of your broker, bank or another nominee, you must get a signed proxy from the broker, bank or other nominee giving you the right to vote your shares. This will be the only way we can be sure that the broker, bank or other nominee has not already voted your shares on your behalf.

 

Revocation of Proxy or Voting Instruction Form

 

You may revoke your proxy at any time before the proxy is voted at the Annual Meeting. This can be done by either submitting another properly completed proxy card with a later date, sending a written notice of revocation to the Corporate Secretary of the Company with a later date or by attending the Annual Meeting and voting in person. You should be aware that simply attending the Annual Meeting will not automatically revoke your previously submitted proxy; rather you must notify a Company representative at the Annual Meeting of your desire to revoke your proxy and vote in person. Written notice revoking a proxy should be sent to the Corporate Secretary, Royal Gold, Inc., 1660 Wynkoop Street, Suite 1000, Denver, Colorado 80202.

 

Quorum and Votes Required to Approve Proposals

 

A majority of the outstanding shares of the Company’s common stock entitled to vote, represented in person or by proxy, will constitute a quorum at a meeting of the stockholders. Abstentions and “broker non-votes” will be counted as being present in person for purposes of determining whether there is a quorum.

 

With respect to Proposal 1, the election of a director will require an affirmative vote of the majority of the votes cast with respect to that director at a meeting at which a quorum is present. With respect to Proposals 2 and 3, the affirmative vote of a majority of the shares that are represented and entitled to vote at a meeting at which a quorum is present shall be the act of the stockholders. For Proposal 1, a “WITHHOLD” vote will have the effect of an “AGAINST” vote with respect to the director for whom the vote is “WITHHOLD.” Abstentions will have the same effect as a vote “AGAINST” Proposals 2 and 3. If a stockholder does not give a proxy to his or her broker with instructions as to how to vote the shares, the broker has authority under New York Stock Exchange rules to vote those shares for or against “routine” matters, such as the election of directors and the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm. If a broker votes shares that are unvoted by its customers for or against a “routine” proposal, those shares will be counted for the purpose of determining the outcome of such “routine” proposal. If a broker chooses to leave these shares unvoted, the shares will have no effect on Proposal 1 and the same effect as a vote “AGAINST” Proposal 3. A broker does not have authority to vote on Proposal 2. If you do not give your broker instruction on how to vote the shares with respect to Proposal 2, those shares will not be counted for the purpose of determining the outcome of Proposal 2.

 

Cumulative voting is not permitted for the election of directors. Under Delaware law, holders of common stock are not entitled to appraisal or dissenters’ rights with respect to the matters to be considered at the Annual Meeting.

 

Tabulation of Votes

 

Votes at the Annual Meeting will be tabulated and certified by Broadridge Financial Solutions, Inc.

 

Solicitation Costs

 

In addition to solicitation of proxies by mail or by electronic data transfers, the Company’s directors, officers or employees, without additional compensation, may make solicitations by telephone, facsimile, or personal interview. The Company has retained Laurel Hill Advisory Group to aid in the solicitation of brokers, banks, intermediaries and other institutional holders in the United States and Canada for a fee of $8,000, plus reimbursement for out-of-pocket expenses. All costs of the solicitation of proxies will be borne by the Company. The Company will also reimburse the banks and brokers for their reasonable out-of-pocket expenses in forwarding proxy materials to beneficial owners of shares of common stock.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

 

The following table shows the beneficial ownership, as of September 16, 2008, of the Company’s common stock by each director, the Company’s principal executive officer, principal financial officer and the three most highly compensated executive officers in fiscal year 2008 (each a “named executive officer”), persons known to the Company to be the beneficial owner of more than 5% of the issued and outstanding shares of common stock, and by all of the Company’s directors and executive officers as a group.

 

 

 

 

PROPOSAL 1.

 

ELECTION OF CLASS III DIRECTORS

 

The Company’s Board of Directors consists of three classes of directors, with each class of directors serving for a three-year term ending in a successive year. The Company’s current Class I Directors are Messrs. Dempsey, Goth and Jensen; the Class II Directors are Messrs. Hayes, Marcus and Stuckert; and the Class III Directors are Messrs. Haase, Howell and Worth. Edwin W. Peiker, Jr. served as a Class III director until his retirement from the Board of Directors effective July 25, 2007.

 

If the proxy is properly completed and received in time for the Annual Meeting, and if the proxy does not indicate otherwise, the represented shares will be voted FOR M. Craig Haase, S. Oden Howell, Jr., and Donald Worth as Class III Directors of the Company. If any of the nominees for election as a Class III Director should refuse or be unable to serve (an event that is not anticipated), the proxy will be voted for a substitute nominee who is designated by the Board of Directors. Each Class III Director elected shall serve until the 2011 Annual Meeting, or until his successor is elected and qualified.

 

The Company’s Amended and Restated Bylaws (“bylaws”) require that each director be elected by the majority of votes cast at a meeting at which a quorum is present with respect to such director in uncontested elections (the number of shares voted “for” a director nominee must exceed 50% of the votes cast with respect to that director). In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors would be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. This year’s election is expected to be an uncontested election, and the majority vote standard will apply. If a nominee who is serving as a director is not elected at the annual meeting, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” Under the Company’s bylaws, each director nominee who is serving as a director that is not elected shall offer to tender his or her resignation to the Board of Directors. In that situation, the Compensation, Nominating and Corporate Governance Committee would make a recommendation to the Board of Directors on whether to accept or reject the resignation, or whether to take other action. The Board of Directors will act on the Compensation, Nominating and Corporate Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. The director who tenders his or her resignation will not participate in the Board of Directors’ decision. If a nominee who was not already serving as a director fails to receive a majority of votes cast at the annual meeting, Delaware law provides that the nominee does not serve on the Board as a “holdover director.” All of the Class III director nominees are currently serving on the Board of Directors.

 

Information concerning the nominees for election as directors is set forth below under “Directors and Officers.”

 

Vote Required for Approval.   Each director must receive a majority of votes cast with respect to that director at a meeting at which a quorum is present in order to be elected (the number of shares voted “for” a director nominee must exceed 50% of the votes cast with respect to that director).

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”

EACH OF THE DIRECTOR NOMINEES.

 

DIRECTORS AND OFFICERS

 

The following is information regarding the directors and executive officers of the Company related to their names, position with the Company, periods of service and experience. The persons who are nominated for election as directors at the Annual Meeting are indicated with an asterisk.

 

 

MEETINGS AND COMMITTEES OF THE BOARD

 

During the fiscal year ended June 30, 2008 (“fiscal year 2008”), the Board of Directors held four regular meetings, each of which included executive sessions of the independent directors, and fifteen special meetings. Each director attended, in person or by telephone, at least 75% of the aggregate number of meetings of the Board of Directors and of the Committee(s) of the Board of Directors on which he served. It is the Company’s policy that each director attends each Annual Meeting. All directors attended last year’s Annual Meeting.

 

Independence of Directors

 

The Board of Directors has determined that each director, except for Messrs. Dempsey and Jensen, who are officers of the Company, is “independent” under the NASDAQ listing standards. The Board of Directors has determined that the directors designated as “independent” have no relationship with the Company that would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director.

 

Lead Director

 

The Board of Directors has elected a lead, independent director who presides over executive sessions of the independent directors scheduled at each regular meeting of the Board of Directors. This lead director position is a rotating position on a yearly basis. The lead director chairs the executive sessions of the independent directors and serves as liaison between the Executive Chairman and the President and Chief Executive Officer, and the other independent directors. Mr. S. Oden Howell, Jr. currently serves as lead director.

 

Audit Committee

 

The Board of Directors has a standing Audit Committee. The Audit Committee consists of James W. Stuckert, as Chairman, John W. Goth, and Donald Worth. All members of the Audit Committee are independent under the NASDAQ listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended. The Audit Committee held six meetings during the fiscal year. The Audit Committee Charter is available on the Company’s web site at www.royalgold.com.

 

The Audit Committee assists the Board of Directors in its oversight of the integrity of the Company’s financial statements and compliance with legal and regulatory requirements and corporate policies and controls. The Audit Committee has the sole authority to retain and terminate the Company’s independent registered public accountants, review reports of the independent registered public accountants,

approve all auditing services and related fees and the terms of any agreements, and to pre-approve any non-audit services to be rendered by the Company’s independent registered public accountants. The Audit Committee monitors the effectiveness of the audit process and the Company’s financial reporting, reviews the adequacy of financial and operating controls and evaluates the effectiveness of the Committee. The Audit Committee is responsible for confirming the independence and objectivity of the independent registered public accountants. The Audit Committee reviews and approves all transactions between the Company and parties related to the Company. The Audit Committee discusses and reviews any transaction between the Company and parties related to the Company and reports to the full Board of Directors whether it has approved the transaction. The Audit Committee is also responsible for preparation of the annual report of the Audit Committee for public disclosure in the Company’s proxy statement. The Board of Directors has determined that James Stuckert is an “audit committee financial expert” as that term is defined in Item 407(d) of Regulation S-K. As an “audit committee financial expert,” Mr. Stuckert satisfies the NASDAQ financial literacy and sophistication requirements.

 

Compensation, Nominating and Corporate Governance Committee

 

The Board of Directors has a standing Compensation, Nominating and Corporate Governance Committee. During fiscal year 2008, the Compensation, Nominating and Corporate Governance Committee consisted of John W. Goth, as Chairman, James W. Stuckert and Mr. S. Oden Howell. Mr. Peiker retired from the Board of Directors effective July 25, 2007, simultaneously resigning his position on the Compensation, Nominating and Corporate Governance Committee. On August 23, 2007, Mr. S. Oden Howell was elected by the Board of Directors to serve on the Compensation, Nominating and Corporate Governance Committee. All members of the Compensation, Nominating and Corporate Governance Committee are considered independent directors under the NASDAQ listing standards. The Committee held five meetings during the fiscal year. The Compensation, Nominating and Corporate Governance Committee Charter is available on the Company’s web site at www.royalgold.com.

 

The Compensation, Nominating and Corporate Governance Committee oversees the Company’s compensation policies, plans and programs and reviews and recommends the compensation to be paid to executive officers and directors.

 

The Compensation, Nominating and Corporate Governance Committee also administers and implements the Company’s incentive compensation and equity-based plans. The Compensation, Nominating and Corporate Governance Committee is also responsible for overseeing the preparation of the Compensation Discussion and Analysis and preparing the report on executive compensation for public disclosure in the Company’s proxy statement.

 

The Compensation, Nominating and Corporate Governance Committee may form subcommittees and delegate to its subcommittees such power and authority as it deems necessary or advisable. The Compensation, Nominating and Corporate Governance Committee has no current intention to delegate any of its authority with respect to determining executive officer compensation to any subcommittee. The Compensation, Nominating and Corporate Governance Committee does not delegate its responsibilities with respect to executive compensation to any executive officer of the Company.

 

In addition to compensation matters, the Compensation, Nominating and Corporate Governance Committee also identifies or reviews individuals proposed to become members of the Board of Directors and recommends director nominees. In selecting director nominees, the Compensation, Nominating and Corporate Governance Committee assesses the nominee’s independence, as well as considers his or her experience, areas of expertise, including experience in the mining industry, diversity, perspective, broad business judgment and leadership, all in the context of an assessment of the perceived needs of the Board of Directors at that time. Further, the Compensation, Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders using the same criteria outlined above, provided such written recommendations are submitted to the Corporate Secretary of the Company in accordance with the advance notice and other provisions of the Company’s bylaws.

 

The Compensation, Nominating and Corporate Governance Committee also advises the Board of Directors on various corporate governance principles. The Compensation, Nominating and Corporate

Governance Committee reviews the content and compliance with the Company’s Board of Directors’ Governance Guidelines annually.

 

All recommendations from the Compensation, Nominating and Corporate Governance Committee are submitted to the Board of Directors for approval.

 

Compensation Committee Interlocks and Insider Participation

 

During fiscal year 2008, all of the members of the Compensation, Nominating and Corporate Governance Committee were non-employee directors. No interlocking relationship existed between our board of directors or our Compensation, Nominating and Corporate Governance Committee and the board of directors or compensation committee of any other company during fiscal year 2008.

 

Communication with Directors

 

Any stockholder who desires to contact the Company’s Board of Directors may do so by writing to the Corporate Secretary, Royal Gold, Inc., 1660 Wynkoop Street, Suite 1000, Denver, Colorado 80202. Any such communication should state the number of shares beneficially owned by the stockholder making the communication. The Corporate Secretary will forward any such communication to the Chairman of the Compensation, Nominating and Corporate Governance Committee, and will forward such communication to other members of the Board of Directors, as appropriate, provided that such communication addresses a legitimate business issue. Any communication relating to accounting, auditing or fraud will be forwarded to the Chairman of the Audit Committee.

 

Code of Business Ethics and Conduct

 

The Company has adopted a Code of Business Ethics and Conduct applicable to all of its directors, officers and employees, including the Chief Executive Officer, the Chief Financial Officer, and other persons performing financial reporting functions. The Code is reviewed on a yearly basis. The Code is available through the Company’s web site at www.royalgold.com. The Code is designed to deter wrongdoing and promote (a) honest and ethical conduct; (b) full, fair, accurate, timely and understandable disclosures; (c) compliance with laws, rules and regulations; (d) prompt internal reporting of Code violations; and (e) accountability for adherence to the Code. The Company will post on its web site any amendments to the Code.

 

Governance Guidelines

 

In August 2007, the Board of Directors, upon recommendation from the Compensation, Nominating and Corporate Governance Committee, adopted Board of Directors’ Governance Guidelines to assist the Board of Directors in the discharge of its duties and to serve the interests of the Company and its stockholders. The Directors’ Governance Guidelines are available on the Company’s website at www.royalgold.com.

 

Certain Relationships and Related Transactions

 

In November 2005, the Company entered into a strategic exploration alliance with Taranis Resources, Inc. (“Taranis Resources”), a Colorado-based resource company listed on the Toronto Stock Exchange, to pursue exploration opportunities in Finland. As of June 30, 2008, the Company has provided $506,404 in funding for a 2.0% net smelter return royalty and future royalty earn-in rights. In January 2006 and in support of the strategic exploration alliance, Mr. Dempsey, Executive Chairman of the Company, became a director of Taranis Resources. As a director of Taranis Resources, Mr. Dempsey is awarded stock options under Taranis Resources’ stock option plan. In January 2006, Mr. Dempsey was awarded 100,000 incentive stock options, exercisable for a period of four and one-half years from the date of grant, at a price of Cdn$0.35 per share.

 

In July 2006, the Company entered into an agreement with Mr. Dempsey under which any director fees, consulting fees and other remuneration (whether in cash, securities or otherwise) paid to Mr. Dempsey by Taranis Resources will be remitted to the Company (the “Agreement”). Pursuant to the Agreement, the Company may require Mr. Dempsey to exercise the stock options granted to him by Taranis Resources at any time or from time to time during the exercise period and under the terms of the Taranis Resources stock option agreement. If the Company requires Mr. Dempsey to exercise the stock options, it will pay Mr. Dempsey the

amount necessary to exercise the stock options. The securities gained upon exercise will be transferred to the Company. The Company will reimburse Mr. Dempsey for incurred tax liability, if any.

 

The Company currently beneficially owns 1,137,500 shares, or 5.94%, of Taranis Resources’ common stock, including 100,000 stock options awarded to Mr. Dempsey that the Company has the right to acquire.

 

DIRECTORS’ COMPENSATION

 

Royal Gold’s compensation for non-employee directors is designed to link rewards to business results and stockholder returns. The Company does not have a retirement plan for non-employee directors. Executive officers who are also directors are not paid additional compensation for their services on the Board.

 

The Compensation, Nominating and Corporate Governance Committee, or the Committee, is responsible for evaluating and recommending to the independent members of the Board of Directors the compensation for non-employee directors. The independent members of the Board of Directors make final compensation decisions. In August 2006, the Committee engaged Frederick W. Cook & Associates to evaluate Royal Gold’s compensation package for non-employee directors. The study reviewed annual cash retainers, fees for attending board and committee meetings, fees for committee membership, and an annualized present value of equity compensation and found that compensation for non-employee directors was competitive with the benchmark peer group but some slight improvements should be considered.

 

Based on the August 2006 study and the increased business demands of the Company, the Board of Directors modified the non-employee directors’ compensation in August 2007 to increase the annual retainer for board and committee membership and meeting fees. The Board of Directors also determined to cease awarding stock options to non-employee directors, but to increase annual grants of restricted stock from 1,250 shares to 2,500 shares. A new policy was also implemented to require non-employee directors to own a minimum of 10,000 shares of the Company’s common stock. There is no time frame in which the directors must meet these ownership targets. Messrs. Goth, Howell, Marcus, Stuckert and Worth have met the ownership target.

 

Cash Compensation

 

For fiscal year 2008, each non-employee director of the Company received an annual fee of $20,000 for service as a director and an additional $1,000 for each Board of Directors’ meeting attended, either in person or via telephone. The Chairman of the Audit Committee received an annual fee of $6,000 and the Chairman of the Compensation, Nominating and Corporate Governance Committee received an annual fee of $4,000 for their service as chairman of their respective committees. Each member of the Audit Committee and Compensation, Nominating and Corporate Governance Committee received $750 for each meeting attended, either in person or via telephone. Mr. Peiker received a one-time bonus of $35,000 in connection with his retirement from the Board of Directors in July 2007. The Board of Directors determined the one-time bonus was appropriate as recognition of Mr. Peiker’s long standing service to the Company, including over ten years of service as an executive of the Company and twenty years of service on the Company’s Board of Directors.

 

Equity Compensation

 

On November 7, 2007, each non-employee director was granted 2,500 shares of restricted stock. Half of the shares of restricted stock vested immediately upon grant and the remaining half of the shares of restricted stock will vest on the first anniversary of the grant date. Non-employee directors were not awarded stock options in fiscal year 2008.

 

Expenses

 

Non-employee directors are reimbursed for all out-of-pocket expenses incurred in connection with the business and affairs of the Company.

Fiscal Year 2008 Directors Compensation

 

The following table provides information regarding the compensation of the Company’s non-employee directors in fiscal year 2008. Amounts shown for each director vary due to service on committees or as committee chairs for all or a portion of the year. The annual retainer for fiscal year 2008 is paid in cash on a quarterly basis.

 

 

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership to the Securities and Exchange Commission. Officers, directors and greater than 10% stockholders are required by the regulations of the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of copies of such reports received and written representations from certain persons that no other reports were required for those persons, the Company believes that all filing requirements applicable to its officers, directors and greater than 10% stockholders were met for fiscal year 2008, and all transactions are reflected in this Proxy Statement.

 

EXECUTIVE COMPENSATION

 

Compensation, Nominating and Corporate Governance Committee Report

 

The information contained in the following Compensation, Nominating and Corporate Governance Committee Report shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into a future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates this Report by reference therein.

 

The Compensation, Nominating and Corporate Governance Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on such review and discussion, the Compensation, Nominating and Corporate Governance Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

This Report has been submitted by the following members of the Compensation, Nominating and Corporate Governance Committee of the Board of Directors:

 

John W. Goth, Chairman
S. Oden Howell, Jr.
James W. Stuckert

 

Compensation Discussion and Analysis

 

Overview

 

The Compensation, Nominating and Corporate Governance Committee (the “Committee”) is responsible for, among other things, setting and administering the policies that govern the compensation for the executive officers of the Company. The Committee evaluates the performance of management and recommends to the full Board of Directors the compensation level for all officers and key employees. The Committee also administers the Company’s 2004 Omnibus Long-Term Incentive Plan and recommends levels of equity awards such as stock options, restricted stock and performance stock awards to executive officers and key employees to the full Board of Directors. The Committee is composed entirely of “independent outside directors,” as defined under Section 162(m) of the Internal Revenue Code, and each member is independent under the applicable rules of the NASDAQ. Final compensation decisions are made by the independent members of the Board of Directors based on the recommendations of the Committee.

 

Compensation Philosophy and Objectives

 

Royal Gold’s general compensation philosophy is focused on paying a competitive salary and providing attractive long-term incentives to reward growth and to link management interests with stockholder interests. The Committee believes that bonus and long-term incentives are critical to the sustainability and continuity of the Company’s business and that such incentives support executive retention and avoid short-term windfalls.

The Committee specifically believes that the compensation philosophy and programs of Royal Gold should:

 

 

Royal Gold employs sixteen employees and places primary importance on the talent of those employees to manage and grow the Company. Based on the small number of employees, Royal Gold’s executives are required to be multi-disciplined, self-reliant, and highly experienced. The Committee feels the loss of Royal Gold’s executive talent would be a significant threat for the Company, requiring the Company to target total direct compensation in the upper quartile of its peer group companies in the United States and Canada engaged in either the mining or exploration of precious metals or in the acquisition or management of interests in mining operations. In determining specific compensation amounts for executives, the Committee considers such factors as (1) experience; (2) individual performance; (3) tenure; (4) role in achieving corporate objectives; and (5) compensation compared to the Company’s other officers and to the Company’s peer group.

 

Role of Management

 

Corporate goals and objectives are established by the Committee with recommendations by the President and Chief Executive Officer and reviewed annually with the Board of Directors. Each executive officer completes annually a self-assessment of his or her individual performance and contributions to the Company’s corporate goals and objectives, which is reviewed with Royal Gold’s President and Chief Executive Officer. Based on such annual reviews and the Company’s compensation objectives, the President and Chief Executive Officer recommends annual bonus awards and long-term incentive awards to the Committee. The Committee considers the President and Chief Executive Officer’s recommendations in making annual bonus and long-term incentive award recommendations to the Board of Directors. The Committee conducts an annual review of the President and Chief Executive Officer’s performance and all recommendations relating to the President and Chief Executive Officer’s compensation are made by the Committee independent from members of management.

 

Role of Compensation Consultants and Evaluation of Compensation Package

 

The Committee has sought and received advice from independent compensation and benefits consultants as necessary or useful to conduct a review of the Company’s compensation position. The Committee’s goals in utilizing compensation and benefits consultants is to maintain total direct compensation near the 75th percentile and base salary above the 50th percentile. The Committee also reviews cost of living increases as a separate factor in salary increases, and utilizes the U.S. Department of Labor, Bureau of Labor Statistics Consumer Price Index to determine the level salaries should be increased to reflect cost of living increases.

 

In August 2006, the Committee engaged Frederic W. Cook to conduct an extensive study of the Company’s compensation package, including comparing the compensation package to Royal Gold’s benchmark peer group of companies in the U.S. and Canada engaged in either the mining or exploration of precious metals or in the acquisition and management of interests in mining operations. The benchmark peer group consisted of 15 companies: Barrick Gold, Newmont Mining, Goldcorp, Freeport McMoran Copper and Gold, Glamis Gold, Agnico-Eagle Mines, Kinross Gold, Meridian Gold, Yamana Gold, IAMGOLD, Pan American Silver, Coeur d’Alene Mines, Golden Star Resources, Vista Gold and International Royalty Corporation.

The study reviewed the Company’s base salaries, annual bonuses, benefits, non-cash compensation, and long-term incentives in comparison with the benchmark group and provided a review of the competitiveness, fairness, and effectiveness of each component of compensation and an evaluation of individual total compensation. The study found that the salaries of the named executive officers were in the 16th percentile of the benchmark group, salaries plus bonuses were at the 26th percentile, long-term incentives averaged in the 63rd percentile, and total direct compensation (salary, bonus, and long-term incentives) were in the 54th percentile.

 

The Committee felt the evaluation by Frederick W. Cook was based on a peer group of companies that, based on market capitalization, was not entirely appropriate for Royal Gold’s executive compensation evaluation purposes. Nonetheless, based on the evaluation, the Committee concluded that it was necessary to increase the cash compensation for management in fiscal year 2008 to reinforce the key objectives of attracting and retaining key executives at what was a very competitive time in the mining industry. The Committee approved and recommended base salary increases for the named executive officers of 6.2% on average for fiscal year 2008, which included a 3.5% adjustment for cost of living increases. Based on this, the Committee recommended, and the independent directors of the Board of Directors approved, an increase in base salary of $6,500, $21,000, $15,000, $15,000 and $12,500 for Messrs. Dempsey, Jensen, Wenger, Ms. Gross and Mr. Heissenbuttel, respectively, for fiscal year 2008.

 

In July 2007, the Committee engaged Frederick W. Cook again to conduct a study of the Company’s compensation package as modified by the salary increases. Frederick W. Cook was asked to use a benchmark peer group of companies in the U.S. and Canada engaged in either the mining or exploration of precious metals or in the acquisition and management of interests in mining operations that excluded the largest market capitalized companies. In response to the Committee’s request, Frederick W. Cook used a smaller benchmark peer group consisting of 10 companies: Agnico-Eagle Mines, Meridian Gold, Yamana Gold, IAMGOLD, Silver Wheaton, Pan American Silver, Coeur d’Alene Mines, Golden Star Resources, Hecla Mining and International Royalty Corporation.

 

The results of the July 2007 study showed that executive officer salaries were in the 32nd percentile, salaries plus bonuses were in the 45th percentile, long-term incentives were near the 83rd percentile, and total direct compensation (salary, bonus, and long-term incentives) was in the 69th percentile of the benchmark peer group.

 

The Committee concluded that executive compensation packages for the Company’s executive officers were approaching an appropriate mix of competitive salary and bonus incentives as well as long-term incentives to motivate executives to achieve positive businesses results and increase shareholder value and that the July 2007 study should be used to determine appropriate long-term incentive awards for fiscal 2008, as discussed further below, and total compensation for fiscal 2009. The Committee also felt that methodical adjustments be made over the next few years, instead of a lump sum catch-up, for those individuals whose salaries fall below the 50th percentile.

 

Subsequent Evaluations

 

The Committee used the July 2007 study to review and provide guidance for certain executive compensation changes for upcoming fiscal year 2009. In order to develop compensation changes consistent with the Company’s geographical market, the Committee also consulted with the Mountain States Employers Council, or the MSEC, and utilized the U.S. Department of Labor, Bureau of Labor Statistics Consumer Price Index to determine whether salary increases should be made to reflect cost of living increases.

 

The MSEC’s 2007 survey for calendar 2008 compensation trends indicated projections for average exempt salary increases specific to the mining industry of 4.8% while mining executive and other officer salaries were projected to increase 7.3%. The U.S. Department of Labor, Bureau of Labor Statistics Consumer Price Index stated that consumer prices for all goods nationwide have increased 4.0% from March 2007 compared to March 2008.

 

Based on the 2007 study, the Committee concluded that the Company’s overall compensation package is well positioned at the 70% level, but that some salary adjustments should be made in order to reflect salary increases expected for mining executives and officers in the Company’s geographic region and cost of living increases.

The Committee approved and recommended to the Board of Directors base salary increases of 7.4% on average, including a 4.0% adjustment for cost of living increases, for fiscal year 2009. Based on this, the Committee recommended, and the independent members of the Board of Directors approved, an increase in base salary of $7,500, $33,500, $12,000, $12,000 and $19,500 for Messrs. Dempsey, Jensen, Wenger, Ms. Gross and Mr. Heissenbuttel, respectively, for the fiscal year ending June 30, 2009.

 

Components of Executive Compensation

 

Royal Gold’s compensation program consists of base pay, annual cash bonuses, long-term incentives and benefits. The Company believes perquisites for executives should be extremely limited in scope and value and, therefore, generally does not provide perquisites or other special benefits to executive officers that are not available to all employees. The Committee attempts to pay competitively in the aggregate as well as deliver an appropriate balance between fixed compensation (base salary, bonuses and benefits) versus variable compensation (long-term incentives). Consistent with the Company’s philosophy of attracting and retaining its executive talent, the Committee emphasizes long-term incentives over fixed compensation as components of the executive compensation package. The relative portions of fixed compensation and long-term incentives varies for each named executive officer, but generally is intended to provide a significant portion of the executives’ compensation through long-term incentives.

 

Employment Agreements

 

Royal Gold had previously entered into employment agreements with Messrs. Dempsey and Wenger and Ms. Gross. Each employment agreement was for a one year employment term that automatically extended without further action by the employee for successive one year periods unless the Company delivered a written notice of involuntary termination with 90 days prior notice. Each of the employment agreements provided for post-termination benefits of one year of severance in the event of a voluntary termination by the executive for “good reason” after a “change of control” of Royal Gold and six months severance in the event of death or “disability.” Until September 14, 2008, the Company had not entered into an employment agreement with Mr. Jensen, the Company’s President and Chief Executive Officer or Mr. Heissenbuttel, Vice President of Corporate Development.

 

In May 2008, the Committee, as part of its ongoing review of the Company’s executive compensation package, determined that to remain competitive with its peer companies, the Company should offer and enter into an employment agreement with Mr. Jensen, providing, among other things, severance benefits. The Committee retained Frederick W. Cook to conduct a review of a wide range of employment agreements and to provide advice on developing an employment agreement and severance benefits to be offered to Mr. Jensen. The Committee and Frederick W. Cook also reviewed the then-existing employment agreements with Mr. Dempsey, Mr. Wenger and Ms. Gross to determine if modifications were necessary to provide competitive compensation and severance benefits within the industry.

 

Based on its review, the Committee approved and recommended to the Board of Directors employment agreements to be offered to the named executive officers that provided for severance benefits to Mr. Jensen and Mr. Heissenbuttel, neither of whom had previously entered into employment agreements, and increased severance benefits to Mr. Dempsey, Mr. Wenger and Ms. Gross over those provided under each of their then-existing employment agreements. The independent members of the Board of Directors approved the new employment agreements, and each of Messrs. Dempsey, Jensen, Wenger, and Ms. Gross accepted and entered into the employment agreements offered by the Company on September 15, 2008. Mr. Heissenbuttel did not enter into an employment agreement.

 

Pursuant to Mr. Jensen’s employment agreement, Mr. Jensen will receive severance compensation upon an involuntary termination of employment without “Cause,” a voluntary termination of employment for “Good Reason,” or if the Company elects not to renew the employment term during the four-year renewal period of the employment agreement for a period of one year. If such termination or non-renewal is within two years after a “change of control,” Mr. Jensen will be entitled to two and one-half times his then base salary, two and one-half times his average annual cash incentive bonus for the prior three fiscal years and continued employee benefits for twelve months.

Pursuant to the employment agreements with Mr. Dempsey, Mr. Wenger and Ms. Gross, each such executive will receive severance compensation upon an involuntary termination of his or her employment without “Cause,” a voluntary termination of his or her employment for “Good Reason,” or if the Company elects not to renew his or her employment term during the four-year renewal period of his or her employment agreement for a period of one year. If such termination or non-renewal is within two years after a “change of control,” the executive will be entitled to one and one-half times his or her then base salary, one and one-half times his or her average annual cash incentive bonus for the prior three fiscal years and continued employee benefits for twelve months.

 

The employment agreements, and benefits payable thereunder, with each of Messrs. Jensen, Dempsey and Wenger and Ms. Gross are described in further detail in the section titled “Potential Payments Upon Termination or Change-in-Control” on page 29.

 

Base Salary

 

Base salary is the fixed cash amount paid to an officer on a fiscal year cycle. Increases in cost of living are considered and will be added to the base salary levels at the prevailing rate, if appropriate. Actual salaries vary by individual and are based on sustained performance toward achievement of the Company’s goals and objectives, experience and current salary. The Committee believes that salaries should be adjusted as necessary in order to maintain competitiveness within the mining industry. Due to the Company’s emphasis on long-term incentives, individual salaries are intended to be around the 50th percentile of the Company’s benchmark peer group for each position, including the position of the President and Chief Executive Officer. Based on the August 2006 study, the Committee determined that base salary compensation, which was in the 16th percentile of the benchmark peer group used in that study, was adequate for fiscal year 2007 as a component of total compensation, which was in the 63rd percentile of the benchmark peer group, but required adjustment for fiscal year 2008. After such adjustments were made, the Committee determined that the base salary compensation, which was in the 32nd percentile based on the peer group used in the July 2007 study, and the total direct compensation, which was at the 70th percentile, obtained a position within the range of the benchmark peer group that would be competitive to retain executives but further adjustment to cash compensation would be considered in the future. Base salary figures for each of the named executive officers are shown in the Summary Compensation Table. In the latter part of fiscal year 2008, the Committee again reviewed base salaries and determined that changes were necessary for fiscal year 2009 as described above. The independent members of the Board of Directors approved salaries for fiscal year 2009 for each of Messrs. Dempsey, Jensen, Wenger, Heissenbuttel and Ms. Gross in the amount of $194,000, $374,500, $182,000, $182,000, and $182,000, respectively.

 

Annual Cash Bonuses

 

Annual cash bonus awards are discretionary and are based on individual and corporate performance, returns to shareholders, the Company’s ability to pay, and general practices in the mining industry. Bonuses are designed to balance rewards for exceptional performance, personal contributions, and to tie accountability with actual performance. Annual bonuses are recommended to the Committee by the Company’s President and Chief Executive Officer based on annual reviews of each executive officer’s performance and contribution to the Company’s corporate goals and objectives. The Company does not utilize a formula to determine the amount of bonus awards or the amount of bonus awards as a percentage of base salary, but instead looks to qualitative considerations in evaluating each executive. The Committee reviews the recommendations and the individual performance of each executive officer and recommends bonus awards to the independent members of the Board of Directors in November following the end of the prior fiscal year. Bonuses are paid at the beginning of the next calendar year. At this time, the amount of annual cash bonuses for fiscal year 2008 for each of the named executive officers is not determinable but, in fiscal year 2007, annual cash bonus awards for the named executive officers ranged from 53% to 63% of base salary.

 

Long-Term Incentives

 

The Company’s 2004 Omnibus Long-Term Incentive Plan (“LTIP”) permits the award of various types of stock-based incentives. Grants are typically in the form of incentive and non-qualified stock options,

shares of restricted stock and performance stock awards that vest based on the achievement of performance objectives. The LTIP is designed to balance short-term performance with the need for sustainable results, to align the interests of management with stockholders, and to provide each executive officer with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. The LTIP compensation is intended to drive future performance of employees by potentially delivering a significant portion of each executive officer’s total compensation at a future date. The amount of each incentive award is driven by the Company’s interest in retaining the individual as an employee, an individual’s relative level in the Company, and his or her ability to impact corporate goals. With respect to equity awards made in fiscal year 2008, the Committee looked to the individual’s contribution across six elements to determine the amount and form of equity awards: (1) the Company’s financial growth, (2) cost containment, (3) financial strength, (4) protection of assets, (5) governance, and (6) marketing. The amount and form of equity awards were determined based on each named executive officer’s contributions to each of these six elements.

 

The amount and form of equity awards for each named executive officer are determined by the Committee based on recommendations by the President and Chief Executive Officer and recommended by the Committee to the independent members of the Board of Directors in November and awards are granted at that time. The Company does not utilize predetermined levels of LTIP awards as a percentage of base salary, but instead evaluates each executive’s contribution to the six elements stated above, or other elements that the Committee may utilize to evaluate executives in the future. Members of Royal Gold’s management do not have authority to make off-cycle or ad-hoc equity grants. In the event of a new hire grant, concurrence is obtained prior to any grant being made either through approval at a regularly scheduled Board of Directors meeting or by unanimous written consent.

 

Stock Options

 

The Company grants stock options as part of its LTIP. Stock options are considered long-term awards that are intended to drive shareholder value and align management with shareholders with regard to share price appreciation. Stock options are granted once a year as recommended by the Committee to the independent members of the Board of Directors in November. The exercise price of options is based on the closing price of the Company’s common stock on the NASDAQ Global Select Market on the date of grant. Options have 10 year terms. For all of the named executive officers, other than Mr. Dempsey and Ms. Gross, stock options vest in equal annual increments over three years. Stock options granted to Mr. Dempsey and Ms. Gross vest one year from the grant date. The Committee recommended and the independent members of the Board of Directors approved a shorter vesting schedule for Mr. Dempsey and Ms. Gross to reward their long standing service with the Company that has continued for more than 20 years and because both Mr. Dempsey and Ms. Gross have exceeded the stock ownership levels determined for each of them pursuant to the Company’s stock ownership program described below.

 

Restricted Stock

 

The Company’s LTIP also allows for the issuance of restricted stock awards. Restricted stock awards are focused on retention and long-term commitment of executives. Restricted stock awards are granted to officers and certain other employees. Shares of restricted stock are granted once a year as recommended by the Committee to the independent members of the Board of Directors in November. Shares of restricted stock are considered issued and outstanding with respect to which executives may vote and may receive dividends paid in the ordinary course to other Royal Gold stockholders. Dividends are calculated at the same rate as paid to other stockholders. Royal Gold has paid a cash dividend on its common stock for each fiscal year beginning in fiscal year 2000. Royal Gold currently plans to pay a dividend on a calendar year basis, subject to the discretion of the Board of Directors.

 

Restricted stock awards vest in equal one-third increments beginning on the fourth anniversary of the restricted stock grant date, with full vesting six years from the date of grant. The Committee has determined that delaying the vesting of restricted stock awards until the fourth anniversary of the grant date improves the retention value of the awards.

Performance Awards

 

The Company also grants performance awards under the LTIP. Performance awards, which are also referred to as performance shares or performance stock awards in this Proxy Statement, are intended to provide significant incentive to obtain long-term, non-dilutive growth performance. The portion of each executive officer’s total compensation in the form of performance shares varies for each officer. In awarding performance shares to any executive officer, the Committee considers the executive officer’s responsibilities with the Company and the executive officer’s ability to influence or meet the performance objectives. Performance shares can only be earned if either one of two defined multi-year performance goals are met within five years of the date of grant. If the performance goals are not earned by the end of the five year period, the performance shares will be forfeited. Performance shares granted may vest upon meeting one of two defined performance goals: (1) growth of free cash flow per share on a trailing twelve month basis; and (2) growth of royalty ounces in reserve per share on an annual basis. The Committee believes that free cash flow per share is an important indicator of the Company’s financial health and growth. The Company defines free cash flow, a non-GAAP financial measure, as operating income plus depreciation, depletion and amortization, non-cash charges and impairment of mining assets, if any, less minority interest in income of consolidated subsidiary. The Committee strives to establish performance goals that are challenging to meet and would provide significant stockholder value, if achieved. Performance shares may vest in 25% increments upon meeting 25%, 50%, 75% and 100% of performance goals. Performance shares will vest upon the Committee’s determination that such 25% increment of the performance goals has been met.

 

Performance shares are not considered issued and outstanding shares with respect to which executives may vote or receive dividends. Performance shares are settled with shares of the Company’s common stock when they vest.

 

As of June 30, 2008, 50% of the performance targets set for the performance shares awarded in fiscal year 2007 were met and, as a result, 50% of the performance shares vested and were settled with common stock. As of August 19, 2008, an additional 25% of the performance targets set for the performance shares awarded in fiscal year 2007 were met and, as a result, an additional 25% of the performance shares awarded in fiscal year 2007 will vest and be settled with common stock. As of the record date, none of the performance shares awarded in fiscal year 2008 have vested. Solely for purposes of SFAS 123R recognition of compensation expense, as of June 30, 2008, management determined that it is probable that 25% of the performance shares granted in fiscal year 2008 will vest. However, performance shares will not vest until performance objectives are actually met as determined by the Committee.

 

Benefit Programs

 

Benefit programs for the executive officers are generally common in design and purpose to those for the broad-base of employees in the United States. The Company also maintains a Simplified Employee Pension Plan, known as a Salary Reduction/Simplified Employee Pension Plan (“SARSEP Plan”) in which all employees are eligible to participate. This plan was chosen because of regulatory compliance simplicity, avoidance of significant administrative expense, availability of substantial tax-advantaged investment opportunities, and relative freedom from significant vesting or other limitations. The SARSEP Plan allows employees to reduce their pre-tax salary and to put this money into a tax deferred investment plan. This is a voluntary plan. Individuals may make contributions of up to the lesser of (i) 25% of their aggregate annual salary and bonus, or (ii) $15,500, or if the employee is over age 50, $20,500, for calendar 2008. The Company will match 100% of the individual’s contribution, up to 7% of an individual’s annual salary and bonus. Those that do not participate in the SARSEP Plan will receive a 3% employer contribution in accordance with the Plan. Employer contributions are immediately 100% vested. Total employee and employer contributions may not exceed the smaller of $46,000 for calendar 2008 or 25% of aggregate annual salary and bonus for any individual.

 

Perquisites

 

The Company believes perquisites for executives should be extremely limited in scope and value and, therefore, generally does not provide perquisites or other special benefits to executive officers that are not available to all employees.

Executive Stock Ownership

 

Royal Gold has adopted a stock ownership program to encourage its executive officers to achieve and maintain a minimum investment in the Company’s common stock at levels set by the Committee. The program provides incentives for these officers to focus on improving long-term shareholder value and linking the interest of management and stockholders. Royal Gold’s executive stock ownership program requires all of the Company’s executive officers to own a number of shares that is a multiple of base salary. Unexercised stock options, shares of restricted stock and unearned performance shares are not considered owned for purposes of the program. The multiple for the President and Chief Executive Officer is four times base salary, and the multiple for all other executive officers is two times base salary. There is no time frame in which the executive officers must meet ownership targets. The program requires each executive officer to hold an aggregate of fifty percent (50%) of the shares of stock acquired pursuant to any option grant, restricted stock grant, or performance share grant until such executive officer reaches his or her ownership target. This holding requirement is determined after liquidation of shares of stock required for tax withholdings. Mr. Dempsey and Ms. Gross have exceeded their stock ownership targets.

 

Post-Termination Compensation

 

The Company does not provide pension or other retirement benefits apart from the SARSEP plan described above. The Company provides certain post-termination benefits pursuant to the terms of employment agreements and the LTIP, described below under the section titled “Potential Payments Upon Termination or Change-in-Control” on page 29. In connection with the Committee’s review of employment agreements and severance benefits described above, the Committee reviewed the change of control benefits provided to its executives under the LTIP. The Committee determined that in order to provide competitive post-termination benefits, executives should receive acceleration of equity incentive awards in addition to the additional severance benefits offered in the new employment agreements. The Committee recommended, and the independent members of the Board of Directors approved, Award Modification Agreements for each of Messrs. Dempsey, Jensen and Wenger and Ms. Gross modifying the terms of stock option, restricted stock and performance stock awards granted to them under the LTIP prior to the effective date of the Award Modification Agreement. The Award Modification Agreements provide accelerated vesting upon certain post-termination circumstances, including in connection with a change of control. Terms of the Award Modification Agreements are described further in the section titled “Potential Payments Upon Termination or Change-in-Control” on page 29. Messrs. Dempsey, Jensen and Wenger and Ms. Gross each entered into an Award Modification Agreement on September 15, 2008.

 

2008 SUMMARY COMPENSATION TABLE

 

The following table provides information regarding the compensation of the Company’s named executive officers for fiscal years 2008 and 2007.

 

 

 

 

 

 

GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2008

 

This table provides information regarding incentive awards and other stock-based awards granted during fiscal year 2008 to the named executive officers.

 

 

 

 

2008 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

 

This table provides information about the outstanding stock options, shares of restricted stock and performance stock awards for each of the named executive officers as of June 30, 2008.

 

 

 

 

FISCAL YEAR 2008 OPTION EXERCISES AND STOCK VESTED

 

This table provides information on option exercise and the vesting of shares of restricted stock or performance stock awards for each of the named executive officers during fiscal year 2008.

 

 

 

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL

 

Employment Agreements

 

Each of the employment agreements with Messrs. Dempsey, Jensen and Wenger and Ms. Gross provide post-termination benefits and benefits upon a change of control. Pursuant to Mr. Jensen’s employment agreement, Mr. Jensen will continue to serve as the Company’s President and Chief Executive Officer and the Company’s Board of Directors will continue to nominate Mr. Jensen for re-election as director. The employment agreement has a one-year term, which will automatically renew for four consecutive one-year periods unless either the Company or Mr. Jensen timely elects for non-renewal. Pursuant to the employment agreement, Mr. Jensen will receive severance compensation upon an involuntary termination of employment without “Cause,” a voluntary termination of employment for “Good Reason,” or if the Company elects not to renew the employment term during the four-year renewal period. If such termination or non-renewal does not occur within two years after a “change of control,” then Mr. Jensen will be entitled to one times his then base salary. If such termination or non-renewal occurs within two years after a “Change of Control,” then Mr. Jensen will be entitled to two and one-half times his then base salary, two and one-half times his average annual cash incentive bonus for the prior three fiscal years and continued employee benefits for twelve months. The employment agreement restricts Mr. Jensen from competing against the Company or soliciting the Company’s employees, customers or business relationships for a period of twelve months following termination of his employment with the Company.

 

Pursuant to individual employment agreements, Mr. Dempsey, Mr. Wenger and Ms. Gross will continue to serve as the Company’s Executive Chairman, Chief Financial Officer and Treasurer, and Vice President and Corporate Secretary, respectively. Each employment agreement has a one-year term, which will automatically renew for four consecutive one-year periods unless either the Company or the executive timely elects for non-renewal. Pursuant to each employment agreement, the executive will

receive severance compensation upon an involuntary termination of employment without “Cause,” a voluntary termination of employment for “Good Reason,” or if the Company elects not to renew the employment term during the four-year renewal period. If such termination or non-renewal does not occur within two years after a “Change of Control,” then the executive will be entitled to one times his or her then base salary. If such termination or non-renewal occurs within two years after a “Change of Control,” the executive will be entitled to one and one-half times his or her then base salary, one and one-half times his or her average annual cash incentive bonus for the prior three fiscal years and continued employee benefits for twelve months. The employment agreement restricts each executive from competing against the Company or soliciting the Company’s employees, customers or business relationships for a period of twelve months following termination of his or her employment with the Company.

 

Under the employment agreement with Messrs. Dempsey, Jensen and Wenger, and Ms. Gross, “Cause” is defined as (i) guilty verdict of fraud, theft, embezzlement or misappropriation against the Company; (ii) guilty verdict of a felony or any other crime involving moral turpitude; (iii) compromise of Company proprietary and confidential information or gross or willful misconduct that causes substantial and material harm to the Company, or (iv) material uncured breach of the employment agreement. “Good Reason” is defined as the timely noticed and uncured occurrence of any of the following circumstances: (i) any material adverse change in the executive’s title or responsibilities with the Company; (ii) any material reduction in the executive’s base salary; (iii) receipt of notice of relocation of more than fifty miles from the job-site immediately prior to the effective date of the employment agreement, or (iv) if a Change of Control has occurred, failure to provide for the executive’s participation in compensation plans that are not less than those provided by the Company to similarly situated executive officers and those provided for under any plans in which the executive was participating immediately prior to the date on which a Change of Control occurs. “Change of Control” means any of the following: (i) the dissolution or liquidation of the Company or a merger, consolidation, or reorganization of the Company in which the Company is not the surviving entity; (ii) a sale of substantially all of the assets of the Company to another person or entity; (iii) any transaction which results in any person or entity (other than persons who are stockholders or affiliates immediately prior to the transaction) owning fifty percent (50%) or more of the combined voting power of all classes of stock of the Company, or (iv) during any period of two consecutive years, a change in the majority membership on the Board of Directors members, except as approved by the majority of directors then still in office.

 

2004 Omnibus Long-Term Incentive Plan

 

The Company’s restricted stock agreement, performance share agreement, and stock option agreement, for both incentive stock options and non-qualified stock options, under the LTIP provide that in the event of an “Involuntary Termination” within one year in connection with a “Corporate Transaction,” all outstanding shares of restricted stock, performance shares and stock options will be immediately vested. “Corporate Transaction” means (i) the dissolution or liquidation of the Company or a merger, consolidation, or reorganization of the Company in which the Company is not the surviving entity, (ii) a sale of substantially all of the assets of the Company, or (iii) any transaction which results in change in the majority voting power in the Company. “Involuntary Termination” means involuntary discharge for reasons other than “Cause” or voluntary resignation from the Company following (i) a material adverse change in the executive’s title or responsibilities with the Company, (ii) a material reduction in the executive’s base salary, or (iii) relocation of more than 50 miles. The Company’s restricted stock agreement under the LTIP also provides that all unvested shares of restricted stock will become immediately vested upon a termination, other than for “Cause”, after 15 years of service.

 

Pursuant to the Award Modification Agreement entered into with Messrs. Dempsey, Jensen and Wenger and Ms. Gross, each executive will be entitled to accelerated vesting of stock options, shares of restricted stock and performance stock awards that were granted prior to the effective date of the Award Modification Agreements upon an involuntary termination of employment without “Cause,” a voluntary termination of employment for “Good Reason,” or if the Company elects not to renew the employment term during the four year renewal period under the employment agreement with each Grantee. If such termination or non-renewal does not occur within two years after a “Change of Control,” then upon such termination or non-renewal (i) all stock options will become immediately exercisable, (ii) a pro-rated portion of each grant of shares of restricted stock will vest based on the period of employment from the date of grant to

the date of termination or non-renewal, and (iii) all or a portion of the performance stock awards will fully vest based on the number of performance stock awards to which the executive would have been entitled, taking into account the Company’s performance through the last day of the fiscal quarter in which the termination or non-renewal takes place determined in accordance with the Company’s practices with respect to performance stock awards. If such termination or non-renewal occurs within two years after a “change of control,” then upon such termination or non-renewal all stock options will become immediately exercisable and all shares of restricted stock and performance stock awards will fully vest. “Cause,” “Good Reason,” and “Change of Control” are as defined under the executive’s employment agreement and are described further above under the section titled “Employment Agreements” immediately above.

 

Other Employee Benefits

 

The Company provides life insurance benefits of $150,000 to all of its employees. The Company also provides long-term disability coverage to all of its employees that provides for 60% of monthly salary protection up to $7,000 a month until age 65. Each of the named executive officers shown below would be entitled to these amounts upon termination for death or disability.

 

The table below shows for each of our named executive officers the estimated payments and benefits that would be provided as a result of termination or a change-in-control of the Company. Calculations for this table assume that the triggering event took place on June 30, 2008, the last business day of our 2008 fiscal year, except as noted. Salary and bonus calculations for Messrs. Dempsey, Jensen and Wenger and Ms. Gross are based on employment agreements entered into on September 15, 2008. Calculations for amounts shown for awards under the Company’s LTIP are based on the closing price of the Company’s common stock on NASDAQ Global Select Market on June 30, 2008, which was $31.36 and, for Messrs. Dempsey, Jensen Wenger and Ms. Gross, other than as noted, based on acceleration benefits provided under Award Modification Agreements entered into on September 15, 2008.

 

 

 

 

Equity Compensation Plan Information

 

The following table sets forth information concerning shares of common stock that are authorized and available for issuance under the Company’s equity compensation plans as of June 30, 2008.