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 x

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

 

 

x  Definitive Proxy Statement

 

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LOWE’S COMPANIES, INC.

 

(Name of Registrant as Specified In Its Charter)

 

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

o  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 29, 2009 — the Notice of Annual Meeting of Shareholders, Proxy Statement and Annual Report are available at www.proxyvote.com.

April 13, 2009

 

TO LOWE’S SHAREHOLDERS:

 

It is my pleasure to invite you to our 2009 Annual Meeting to be held at the Ballantyne Resort, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina, on Friday, May 29, 2009 at 10:00 a.m., local time. Directions to the Ballantyne Resort are printed on the back of the Proxy Statement.

 

This year, we are pleased to be again using the U.S. Securities and Exchange Commission rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our shareholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of this Proxy Statement and our 2008 Annual Report. The Notice contains instructions on how to access those documents and vote online. The Notice also contains instructions on how each of those shareholders can receive a paper copy of our proxy materials, including this Proxy Statement, our 2008 Annual Report and a proxy card. All shareholders who do not receive a Notice of Internet Availability will receive a paper copy of the proxy materials by mail unless they have previously requested delivery of proxy materials electronically. Using this distribution process conserves natural resources and reduces the costs of printing and distributing our proxy materials.

 

We will broadcast the meeting live on the Internet. To access the webcast, visit Lowe’s website (www.Lowes.com/investor) where a link will be posted a few days before the meeting. A replay of the Annual Meeting will also be available beginning approximately three hours after the meeting concludes and will continue to be available for two weeks after the meeting.

 

Details regarding admission to the meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement. There are six items of business on this year’s agenda, each as described in the Proxy Statement. Your vote by proxy or in person at the meeting is important.

 

Yours cordially,

 

 

Robert A. Niblock

Chairman of the Board

and Chief Executive Officer

 

 

Notice of
Annual Meeting of Shareholders
of Lowe’s Companies, Inc.

 

 

 

 

By Order of the Board of Directors,

 

 

Gaither M. Keener, Jr.

Senior Vice President,

General Counsel, Secretary &

Chief Compliance Officer

Mooresville, North Carolina

April 13, 2009

 

Table of Contents

 

Lowe’s Companies, Inc.

 

Proxy Statement
for
Annual Meeting of Shareholders
May 29, 2009

 

 

This Proxy Statement is being furnished in connection with the solicitation by the Board of Directors (“Board of Directors” or “Board”) of Lowe’s Companies, Inc. (“Company” or “Lowe’s”) of proxies to be voted at the Annual Meeting of Shareholders to be held at the Ballantyne Resort located at 10000 Ballantyne Commons Parkway, Charlotte, North Carolina on Friday, May 29, 2009 at 10:00 a.m., local time.

 

In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of our proxy materials to each shareholder of record, we are now furnishing proxy materials to our shareholders on the Internet. If you received only a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request a copy. Instead, the Notice of Internet Availability of Proxy Materials will instruct you how you may access and review the proxy materials over the Internet. The Notice of Internet Availability of Proxy Materials will also instruct you as to how you may submit your proxy over the Internet. If you received only a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, however, you should follow the instructions for requesting those materials included in the Notice.

 

The Notice of Internet Availability of Proxy Materials is first being sent to shareholders on or about April 13, 2009. This Proxy Statement and the enclosed form of proxy relating to the 2009 Annual Meeting are also first being made available to shareholders on or about April 13, 2009.

 

Outstanding Shares

 

On March 27, 2009, there were 1,474,239,704 shares of Company common stock (“Common Stock”) outstanding and entitled to vote. Shareholders are entitled to one vote for each share held on all matters to come before the meeting.

 

Who May Vote

 

Only shareholders of record at the close of business on March 27, 2009 are entitled to notice of and to vote at the meeting or any postponement or adjournment thereof.

 

How To Vote

 

You may vote by proxy or in person at the meeting. If you received a paper copy of the proxy materials by mail, you may vote your shares by proxy by doing any one of the following: vote at the Internet site address listed on your proxy or voting instruction card; call the toll-free number listed on your proxy or voting instruction card; or mail your signed and dated proxy or voting instruction card to our tabulator in the self-addressed envelope provided. If you received only a Notice of Internet Availability of Proxy Materials by mail, you may vote your shares online by proxy at the Internet site address listed on your Notice. You may also request a paper copy of our proxy materials by visiting the Internet site address listed on your Notice, or by calling the toll-free number or sending an e-mail to the e-mail address listed on your Notice. Even if you plan to attend the meeting, we recommend that you vote by proxy prior to the meeting. You can always change your vote as described below.

 

How Proxies Work

 

The Board of Directors is asking for your proxy. By giving us your proxy, you authorize the proxyholders (members of Lowe’s management) to vote your shares at the meeting in the manner you direct. If you do not specify how you wish the proxyholders to vote your shares, they will vote your shares “FOR ALL” director nominees, “FOR” the proposal to amend the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan, “FOR” ratification of

the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm, “FOR” the proposal to amend Lowe’s Articles of Incorporation eliminating all remaining supermajority vote requirements and “AGAINST” each of the three shareholder proposals. The proxyholders also will vote your shares according to their discretion on any other matter properly brought before the meeting.

 

You may receive more than one Notice of Internet Availability of Proxy Materials, more than one e-mail (if you have elected electronic delivery of proxy materials) or more than one paper copy of the proxy materials, including multiple paper copies of this Proxy Statement and multiple proxy cards or voting instruction cards, depending on how you hold your shares. For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice, a separate e-mail or a separate voting instruction card for each brokerage account in which you hold your shares. If you are a shareholder of record and your shares are registered in more than one name, you may receive more than one Notice, more than one e-mail or more than one proxy card. To vote all of your shares by proxy, you must vote at the Internet site address listed on your proxy or voting instruction card, call the toll-free number listed on your proxy or voting instruction card, or sign, date and return each proxy card and voting instruction card that you receive; and vote over the Internet the shares represented by each Notice and e-mail that you receive (unless you have requested and received a proxy card or voting instruction card for the shares represented by one or more of those Notices or e-mails).

 

If for any reason any of the nominees for election as director becomes unavailable for election, discretionary authority may be exercised by the proxyholders to vote for substitutes proposed by the Board of Directors.

 

Abstentions and shares held of record by a broker or its nominee (“broker shares”) that are voted on any matter are included in determining the number of votes present or represented at the meeting. Broker shares that are not voted on any matter at the meeting are not included in determining whether a quorum is present.

 

Under New York Stock Exchange (“NYSE”) rules, the proposals to elect directors, ratify the appointment of the independent registered public accounting firm and approve the proposed amendments to the Articles of Incorporation are considered “discretionary” items. This means that brokerage firms may vote in their discretion on these matters on behalf of clients who have not furnished voting instructions. The proposal to approve the amendments to the Company’s 2006 Long Term Incentive Plan and the three shareholder proposals are “non-discretionary” matters, which means that brokerage firms may not use their discretion to vote on such matters without express voting instructions from their customers.

 

Quorum

 

In order to carry out the business of the meeting, we must have a quorum. This means that at least a majority of the outstanding shares eligible to vote must be represented at the meeting, either by proxy or in person. Shares owned by the Company are not voted and do not count for this purpose.

 

Revoking Your Proxy

 

The shares represented by a proxy will be voted as directed unless the proxy is revoked. Any proxy may be revoked before it is exercised by filing with the Secretary of the Company an instrument revoking the proxy or a proxy bearing a later date. A proxy is also revoked if the person who executed the proxy is present at the meeting and elects to vote in person.

 

Votes Needed

 

Election of Directors.  In uncontested elections, directors are elected by the affirmative vote of a majority of the outstanding shares of the Company’s voting securities voted at the meeting, including those shares for which votes are “withheld.” In the event that a director nominee fails to receive the required majority vote, the Board of Directors may decrease the number of directors, fill any vacancy, or take other appropriate action. If the number of nominees exceeds the number of directors to be elected, directors will be elected by a plurality of the votes cast by the holders of voting securities entitled to vote in the election.

 

Approval of Amendments to Articles of Incorporation.  Approval of the proposal to amend Lowe’s Articles of Incorporation to eliminate all remaining supermajority vote requirements requires the affirmative vote of a majority of the outstanding shares of the Company’s Common Stock.

 

Other Proposals.  Approval of the other proposals and any other matter properly brought before the meeting requires the favorable vote of a majority of the votes cast on the applicable matter at the meeting in person or by proxy. The proposal to approve amendments to the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan requires in addition that the total votes cast represent over 50% of the shares entitled to vote on the proposal.

 

Our Voting Recommendation

 

Our Board of Directors recommends that you vote:

 

 

Proxy cards that are timely signed, dated and returned but do not contain instructions on how you want to vote will be voted in accordance with our Board of Directors’ recommendations.

 

Voting Results

 

The preliminary voting results will be announced at the meeting. The final voting results will be published in our quarterly report on Form 10-Q for the second quarter of fiscal year 2009.

 

Attending In Person

 

Only shareholders as of the close of business on March 27, 2009, their properly designated proxies and guests of the Company may attend the Annual Meeting. You must present photo identification for admittance. If you are a shareholder of record or hold your shares through the Company’s 401(k) Plan, Employee Stock Purchase Plan or Direct Stock Purchase Program, your name will be verified against the list of shareholders of record or plan or purchase program participants on the record date prior to your admission to the Annual Meeting. If you are not a shareholder of record or a participant in one of the Company’s plans or purchase programs, but hold shares through a broker, trustee or nominee, you must provide proof of beneficial ownership on the record date, such as your most recent account statement prior to March 27, 2009 or other similar evidence of ownership. If you do not provide photo identification or comply with the other procedures outlined above, you will not be admitted to the Annual Meeting.

 

The meeting will begin promptly at 10:00 a.m., local time, and check-in will begin at 8:30 a.m., local time.

 

The Articles of Incorporation of the Company previously divided the Board into three classes, designated Class I, Class II and Class III, with one class standing for election each year for a three-year term. At our 2008 Annual Meeting of Shareholders, the Board of Directors recommended, and shareholders approved, amendments to the Company’s Articles of Incorporation to declassify the Board over a three-year period. Accordingly, current directors, including Class I directors elected to three-year terms at last year’s Annual Meeting, will continue to serve the remainder of their elected terms. Class II directors with terms expiring at this year’s Annual Meeting will be elected to two-year terms expiring at the 2011 Annual Meeting of Shareholders, and Class III directors with terms expiring at the 2010 Annual Meeting will be elected to one-year terms expiring at the 2011 Annual Meeting of Shareholders. Beginning with the 2011 Annual Meeting of Shareholders, and at each Annual Meeting thereafter, all directors will be elected annually.

The number of directors is currently fixed at 11. The four nominees standing for election as Class II directors at the 2009 Annual Meeting of Shareholders are: Peter C. Browning; Marshall O. Larsen; Stephen F. Page and O. Temple Sloan, Jr. If elected, each Class II nominee will serve until his term expires in 2011 or until a successor is duly elected and qualified.

 

All of the nominees are currently serving as directors. Unless authority to vote in the election of directors is withheld, it is the intention of the persons named as proxies to vote “FOR ALL” of the four nominees. If at the time of the meeting any of these nominees is unavailable for election as a director for any reason, which is not expected to occur, the proxyholders will vote for such substitute nominee or nominees, if any, as shall be designated by the Board of Directors.

 

Nominees for Election as Class II Directors — Term to Expire in 2011

 

 

Member of Audit Committee and Governance Committee.  Dean of the McColl Graduate School of Business at Queens University of Charlotte from March 2002 to May 2005. Non-Executive Chairman 2000-2006 and Lead Director since 2006, Nucor Corporation, a steel manufacturer. President and CEO of Sonoco Products Company, a manufacturer of industrial and consumer packaging products, 1998-2000. He also serves on the boards of directors of Acuity Brands, Inc.; EnPro Industries, Inc.; Nucor Corporation; and The Phoenix Companies, Inc.

 

 

Chairman of Compensation Committee and member of Executive Committee and Governance Committee. Chairman of Goodrich Corporation, a supplier of systems and services to the aerospace and defense industry, since October 2003, and President and Chief Executive Officer since February 2002 and April 2003, respectively. Chief Operating Officer of Goodrich Corporation from February 2002 to April 2003. Executive Vice President of Goodrich Corporation and President and Chief Operating Officer of Goodrich Aerospace division of Goodrich Corporation, 1995-2002. He also serves on the board of directors of Becton, Dickinson and Company.

 

 

Chairman of Audit Committee and member of Executive Committee and Governance Committee. Served as Vice Chairman and Chief Financial Officer of United Technologies Corporation, manufacturer of high-technology products and services to the building systems and aerospace industries, from 2002 until his retirement in 2004. President and Chief Executive Officer of Otis Elevator Company, a subsidiary of United Technologies Corporation, from 1997 to 2002. He also serves on the boards of directors of Liberty Mutual Holding Company, Inc. and PACCAR Inc.

 

 

 

Lead Director, Chairman of Governance Committee and member of Audit Committee and Executive Committee. Chairman of General Parts International, Inc., Raleigh, North Carolina, a distributor of automotive replacement parts. Until August 2008, he also served as Chief Executive Officer of General Parts International for a period of more than five years. He also serves on the boards of directors of Bank of America Corporation (Lead Director), Golden Corral and Highwoods Properties, Inc., where he serves as Chairman of the board.

 

Class III Directors — Term to Expire in 2010

 

 

Member of Audit Committee and Governance Committee. Non-Executive Chairman of the board of directors of Walgreen Co., the nation’s largest drugstore chain, from January 2007 until his retirement in July 2007. From January 2002 until July 2006, he served as Chief Executive Officer of Walgreen, at which time he stepped down from his executive duties with the company while remaining Chairman of the board, a position he had held since January 2003. From 1999 to January 2002, he served as President and Chief Operating Officer of Walgreen. He also serves on the board of directors of Office Depot, Inc.

 

 

Member of Compensation Committee and Governance Committee. Distinguished Professor of Marketing, M.B. Zale Chair in Retailing and Marketing Leadership, and Professor of Humanities in Medicine, Texas A&M University, since 1982. He also serves on the boards of directors of Darden Restaurants, Inc. and Genesco Inc.

 

 

Member of Compensation Committee and Governance Committee. Vice Chair of The Parthenon Group, an advisory firm focused on strategy consulting, since March 2009. President and Chief Executive Officer of Pepsi-Cola North America, the refreshment beverage unit of PepsiCo in the United States and Canada until November 2007, where she served as President since May 2002 and Chief Executive Officer since March 2005. In addition, Ms. Hudson served as Chief Executive Officer of the PepsiCo Foodservice Division from March 2005 to November 2007. She also serves on the board of directors of Allergan, Inc.

 

 

Chairman of Executive Committee. Chairman of the Board and Chief Executive Officer of Lowe’s Companies, Inc. since January 2005. President from March 2003 to December 2006. Executive Vice President and Chief Financial Officer, 2001-2003.

Class I Directors — Term to Expire in 2011

 

 

Member of Compensation Committee and Governance Committee. Vice Chairman Pharmaceuticals, GlaxoSmithKline plc, a pharmaceutical research and development company, acting as a special advisor to the Corporate Executive Team and attending its meetings in that capacity, since January 2003. Chief Operating Officer and President, Pharmaceutical Operations of GlaxoSmithKline plc, January 2001-January 2003. Chief Executive Officer of Glaxo Wellcome plc, 1997-2000. Chairman of Glaxo Wellcome Inc. (Glaxo Wellcome plc’s United States subsidiary), 1999-2000. He also serves on the boards of directors of Allergan, Inc.; Cree, Inc; Edwards Lifesciences Corporation; OSI Pharmaceuticals, Inc. (Chairman); and Valeant Pharmaceuticals International (Lead Director).

 

 

Member of Audit Committee and Governance Committee. Founder and Chairman of the RLJ Companies, which owns or holds interests in companies operating in professional sports (including the NBA Charlotte Bobcats), hospitality/restaurant, real estate, financial services, gaming and recording industries. Prior to forming the RLJ Companies, he was founder and chairman of Black Entertainment Television (“BET”), which was acquired in 2000 by Viacom Inc., a media-entertainment holding company. Mr. Johnson continued to serve as Chief Executive Officer of BET until 2005. He also serves on the boards of directors of KB Home and Strayer Education, Inc.

 

 

Member of Compensation Committee and Governance Committee. President, Lochridge & Company, Inc., a general management consulting firm, since 1986. He also serves on the boards of directors of Dover Corporation and PetSmart, Inc.

 

Corporate Governance Guidelines and Code of Business Conduct and Ethics

 

The Board of Directors has adopted Corporate Governance Guidelines setting forth guidelines and standards with respect to the role and composition of the Board, the functioning of the Board and its committees, the compensation of directors, succession planning and management development, the Board’s and its committees’ access to independent advisers and other matters. The Governance Committee of the Board of Directors regularly reviews and assesses corporate governance developments and recommends to the Board modifications to the Corporate Governance Guidelines as warranted. The Company has also adopted a Code of Business Conduct and Ethics (“Code”) for its directors, officers and employees. The Governance Guidelines and Code are posted on the Company’s website at www.Lowes.com/investor. Shareholders and other interested persons may obtain a written copy of the Governance Guidelines and Code by contacting Gaither M. Keener, Jr., Senior Vice President, General Counsel, Secretary and Chief Compliance Officer, at Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117.

 

Director Independence

 

Lowe’s Corporate Governance Guidelines provide that in accordance with long-standing policy, a majority of the members of the Company’s Board of Directors must qualify as independent directors. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with the Company. As permitted by NYSE rules, the Board has adopted Categorical Standards for

Determination of Director Independence (“Categorical Standards”) to assist the Board in making determinations of independence. A copy of these Categorical Standards is attached as Appendix A to this Proxy Statement.

 

The Governance Committee and the Board have evaluated the transactions, relationships or arrangements between each director (and his or her immediate family members and related interests) and the Company in each of the most recent three completed fiscal years. They include the following, all of which were entered into by the Company in the ordinary course of business:

 

 

In addition, with respect to Messrs. Johnson, Larsen, Ingram and Sloan, the Board considered the amount of the Company’s discretionary charitable contributions in each of the most recent three completed fiscal years to charitable organizations where each of them, or a member of their immediate family, serves as a director or trustee.

 

As a result of this evaluation, the Board has affirmatively determined, upon the recommendation of the Governance Committee, that currently each director, other than Robert Niblock, and all of the members of the Audit Committee, Compensation Committee, and Governance Committee, are “independent” within the Company’s Categorical Standards and the NYSE rules, and, in the case of Audit Committee members, the separate SEC requirement, which provides that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company other than their compensation as directors.

 

Compensation of Directors

 

Annual Retainer Fees.  Directors who are not employed by the Company are paid an annual retainer of $75,000, and non-employee directors who serve as a committee chairman receive an additional $15,000 annually, or $25,000 annually in the case of the Audit Committee Chairman, for serving in such position. The independent Lead Director receives an additional retainer of $25,000 per year. Directors who are employed by the Company receive no additional compensation for serving as directors. The annual retainer amount was last increased in 2002.

 

Stock Awards.  In May 2005, shareholders approved the Lowe’s Companies, Inc. Amended and Restated Directors’ Stock Option and Deferred Stock Unit Plan (“Directors’ Plan”), allowing the Board to elect to grant deferred stock units or options to purchase Common Stock at the first directors’ meeting following the Annual Meeting of Shareholders each year (“Award Date”) to non-employee directors. Beginning with the directors’ meeting following the Annual Meeting of Shareholders held May 27, 2005, it has been the Board’s policy to grant only deferred stock units. A deferred stock unit represents the right to receive one share of Lowe’s Common Stock. The annual grant of deferred stock units for each of the Company’s directors who is not employed by the Company is determined by taking the annual grant amount of $115,000 and dividing it by the closing price of a share of Lowe’s Common Stock as reported on the NYSE on the Award Date, which amount is then rounded up to the next 100 units. The deferred stock units receive dividend equivalent credits, in the form of additional units, for any cash

dividends subsequently paid with respect to Common Stock. All units credited to a director are fully vested and will be paid in the form of Common Stock after the termination of the director’s service.

 

The Directors’ Plan provides that no further grants of stock awards may be made thereunder after the 2008 Annual Meeting of Shareholders. The Board of Directors is recommending that shareholders approve at the 2009 Annual Meeting proposed amendments to the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan that would make the Company’s non-employee directors eligible to participate in that plan. See Proposal Two in this Proxy Statement on page 34. If the proposed amendments are approved, the Board of Directors will continue under that amended plan to grant deferred stock units following the Annual Meeting each year to non-employee directors. The annual grant will be determined as it has been previously determined under the Directors’ Plan, subject to change by the Board of Directors upon recommendation of the Executive Committee.

 

Deferral of Annual Retainer Fees.  In 1994, the Board adopted the Lowe’s Companies, Inc. Directors’ Deferred Compensation Plan. This plan allows each non-employee director to defer receipt of all, but not less than all, of the annual retainer and any committee chairman or Lead Director fees otherwise payable to the director in cash. Deferrals are credited to a bookkeeping account and account values are adjusted based on the investment measure selected by the director. One investment measure adjusts the account value based on the Wachovia Bank, N.A. prime rate plus 1%, adjusted each quarter. The other investment measure assumes that the deferrals are invested in Lowe’s Common Stock with reinvestment of all dividends. A director may allocate deferrals between the two investment measures in 25% multiples. Account balances may not be reallocated between the investment measures. Account balances are paid in cash in a single sum payment following the termination of a director’s service.

 

The following table summarizes the compensation paid to non-employee directors during fiscal year 2008:

 

Director Compensation Table
Fiscal Year 2008

 

 

 

 

 

 

 

 

Board Meetings, Committees of the Board and Independent Lead Director

 

Attendance at Board and Committee Meetings.  During fiscal year 2008, the Board of Directors held four meetings. All incumbent directors attended at least 75% of all meetings of the Board and the committees on which they served.

 

Independent Lead Director.  In August 2008, the Board of Directors amended the Company’s Corporate Governance Guidelines to provide for an independent Lead Director to be elected annually by the independent directors. At that time, Mr. Sloan was elected to serve as Lead Director for a one-year term. The Corporate Governance Guidelines provide that the Lead Director will:

 

 

The Lead Director also serves as the Chairperson of the Governance Committee of the Board of Directors, which functions as the Board’s nominating committee as well, and is comprised entirely of independent directors.

 

Executive Sessions of the Non-Management Directors.  The non-management directors, all of whom are independent, met in executive session at each of the four regularly scheduled Board meetings in fiscal year 2008. Mr. Sloan, Lead Director, presides over these executive sessions, and, in his absence, the non-management directors may select another non-management director present to preside.

 

Attendance at Annual Meetings of Shareholders.  Directors are expected to attend the Annual Meeting of Shareholders. Ten out of the Company’s eleven incumbent directors attended last year’s Annual Meeting of Shareholders.

Committees of the Board of Directors and their Charters.  The Board has four standing committees: the Audit Committee, the Compensation Committee, the Executive Committee and the Governance Committee. Each of these committees, other than the Executive Committee, acts pursuant to a written charter adopted by the Board of Directors. The Executive Committee operates in accordance with the Company’s Bylaws and Corporate Governance Guidelines. A copy of each written committee charter and the Corporate Governance Guidelines are available on our website at www.Lowes.com/investor. You may also obtain a copy of each written committee charter and the Corporate Governance Guidelines by contacting Gaither M. Keener, Jr., Senior Vice President, General Counsel, Secretary and Chief Compliance Officer, at Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117.

 

How to Communicate with the Board of Directors and Independent Directors.  Interested persons wishing to communicate with the Board of Directors may do so by sending a written communication addressed to the Board or to any member individually in care of Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117. Interested persons wishing to communicate with the independent directors as a group, may do so by sending a written communication addressed to O. Temple Sloan, Jr., as Lead Director, in care of Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117. Any communication addressed to a director that is received at Lowe’s principal executive offices will be delivered or forwarded to the individual director as soon as practicable. Lowe’s will forward all communications received from its shareholders or other interested persons that are addressed simply to the Board of Directors to the Lead Director or to the chairman of the committee of the Board of Directors whose purpose and function is most closely related to the subject matter of the communication.

 

 

The following table shows the beneficial ownership of Common Stock as of March 20, 2009, except as otherwise noted, by each director, each nominee for election as a director, the named executive officers listed in the Summary Compensation Table, each shareholder known by the Company to be the beneficial owner of more than 5% of the Common Stock, and the incumbent directors, director nominees and executive officers as a group. Except as otherwise indicated below, each of the persons named in the table has sole voting and investment power with respect to the securities beneficially owned by them as set forth opposite their name, subject to community property laws where applicable.

 

 

 

 

 

 

Based solely upon a review of Forms 3 and 4, and any amendments thereto, furnished to the Company pursuant to Rule 16a-3(e) of the Exchange Act during fiscal year 2008, and Forms 5, and any amendments thereto, furnished to the Company with respect to fiscal year 2008, and other written representations from certain reporting persons, the Company believes that all filing requirements under Section 16(a) applicable to its officers, directors and greater than 10% beneficial owners have been complied with during fiscal year 2008 and prior fiscal years.

 

 

Summary

 

The Compensation Committee of the Board of Directors is responsible for administering the Company’s executive compensation program. The Compensation Committee believes strongly in pay for performance. The correlation of pay and performance under the program is shown clearly in the disclosure tables that follow this Compensation Discussion and Analysis. The tables show how the annual incentive plan payments and the value of the equity awards to the Company’s executives have been adversely affected by the decrease in the Company’s sales and earnings in 2007 and 2008 caused by several external factors weighing on the home improvement industry.

 

The Compensation Committee continued to administer the executive compensation program in 2008 with the pay for performance philosophy firmly in mind and with careful consideration of the motivation, morale and retention of the Company’s talented employees. The Compensation Committee adopted incentive plans in 2008 that compensated senior management for superior performance in areas that would not only benefit the Company in the current difficult environment but also establish a firm basis for capitalizing on future growth when the industry recovers. The Compensation Committee believes the 2008 incentive plans achieved this goal.

 

Despite the external challenges, the Company performed better, on a relative basis, in 2008 than its primary competitors and many other retailers. Lowe’s gained market share and improved customer service and satisfaction. At the same time, store staffing levels and other payroll were reduced in line with the reduction in sales. In addition, the Company efficiently managed inventory levels and store opening and corporate overhead expenses.

 

The following highlights the significant changes in the executive compensation program in 2008:

 

 

The program, including these changes, is explained in this section of the Proxy Statement.

Compensation Philosophy and Objectives

 

The Compensation Committee believes that total compensation should support Lowe’s key strategic objectives by:

 

Role of the Compensation Committee

 

The executive compensation program administered by the Compensation Committee applies to all executive officers, including the executive officers named in the compensation disclosure tables that follow this section. There are currently five members of the Compensation Committee, all of whom are independent, non-employee directors. Members of the Compensation Committee are appointed by the Board of Directors and meet in person four times a year, telephonically as needed and also occasionally consider and take action by written consent. The Chairman of the Compensation Committee reports to the Board of Directors the Compensation Committee’s actions and recommendations.

 

The Compensation Committee has full discretionary power and authority to administer the executive compensation program. In carrying out its responsibilities, the Compensation Committee:

 

 

Role of the Independent Compensation Consultant

 

The Compensation Committee has engaged and regularly consults with an independent consultant for advice on executive compensation matters. For the fiscal year ended January 30, 2009, the Compensation Committee consulted with senior members of the compensation consulting practice of Hewitt Associates. Hewitt was engaged to (i) help ensure that the Compensation Committee’s actions are consistent with the Company’s business needs, pay philosophy, prevailing market practices and relevant legal and regulatory mandates, (ii) provide market data as background against which the Compensation Committee can consider executive management base salary, bonus, and long-term incentive awards each year, and (iii) consult with the Compensation Committee on how best to make compensation decisions with respect to executive management in a manner that is consistent with shareholders’ long-term interests.

 

Hewitt does not perform any consulting services directly for the Company with respect to compensation, benefit plan design or actuarial services. The Company has separately engaged Hewitt, however, to serve as the investment advisor to the Lowe’s 401(k) Plan.

Role of Company Management

 

The Compensation Committee is also supported in its work by the Company’s Human Resource Management executives and supporting personnel. The Company’s Senior Vice President of Human Resources works most closely with the Compensation Committee, both in providing information and analysis for review and in advising the Compensation Committee concerning compensation decisions (except as it relates specifically to her compensation). The Chairman and Chief Executive Officer provides input to the Senior Vice President of Human Resources and her staff to develop recommendations concerning executive officer compensation, with the exception of himself, and presents these recommendations to the Compensation Committee.

 

General Principles of the Company’s Executive Compensation Program

 

Competitive Pay for Performance.  The program is designed to establish a strong link between the creation of shareholder value and the compensation earned by the Company’s executive officers. The fundamental objectives of the program are to:

 

 

Desired Position Relative to the “Market.”  The program is intended to provide total annual compensation at market when the Company meets its financial performance goals. At the same time, the program seeks to provide above-average total annual compensation if the Company’s financial performance goals are exceeded, and below-average total annual compensation if the Company’s financial performance goals are not achieved.

 

At the beginning of each fiscal year, the Compensation Committee reviews survey information and a Hewitt-prepared analysis of executive compensation paid to executives of a comparable group of companies. The Compensation Committee uses the survey information and analysis to review the market and set total compensation targets under the Company’s executive compensation program for the fiscal year.

 

The Compensation Committee also reviews each year the members of the comparable company group to ensure the group consists of companies that satisfy the Compensation Committee’s guidelines and to make any changes in the group the Compensation Committee deems appropriate. The Compensation Committee believes the group’s members should be similar in size and complexity to the Company and represent companies with whom the Company competes for employees. The Compensation Committee, upon the recommendation of Hewitt, used the following guidelines to select the members of the comparable company group for the Committee’s 2008 fiscal year compensation decisions:

 

 

The companies in the comparable company group approved by the Compensation Committee were unchanged from 2007 and included 3M Company; American Standard Companies, Inc.; Best Buy Co., Inc.; CVS Corporation; Deere & Company; General Mills, Inc.; The Home Depot, Inc.; J.C. Penney Corporation, Inc.; Kimberly-Clark Corporation; Macy’s Inc. (formerly Federated Department Stores, Inc.); Masco Corporation; McDonald’s

Corporation; Sara Lee Corporation; Staples, Inc.; SUPERVALU, Inc.; Target Corporation; United Parcel Service, Inc.; Walgreen Co.; Wal-Mart Stores, Inc.; and Whirlpool Corporation. For the 2009 fiscal year, the Compensation Committee removed American Standard Companies, Inc. from the comparable company group because American Standard sold all of its businesses other than its air conditioning systems and services business in 2007 and was subsequently acquired by Ingersoll-Rand Company Limited in 2008.

 

Setting Total Annual Compensation Targets and Mix of Base and “At Risk” Compensation.  The Compensation Committee sets a total annual compensation target amount for each executive at the beginning of each fiscal year. As part of this process, the Compensation Committee uses as a guideline the 65^th percentile of the comparable company group to set each executive’s (i) base salary, (ii) threshold, target and maximum annual non-equity incentive compensation award and (iii) equity incentive plan award.

 

In selecting the 65^th percentile level, the Compensation Committee took into consideration that the median total revenue and the median market capitalization of the comparable company group were both less than the Company’s total revenue and market capitalization. The Compensation Committee believes the 65^th percentile is a better comparison of the size and complexity of the Company in comparison to the comparable company group. This percentile is also consistent with the financial performance of the Company compared to the 65^th percentile of performance of the comparable company group in several key areas, such as sales growth, growth in earnings per share, return on capital, return on equity and total shareholder return, over multiple measurement periods. The Compensation Committee also believes this approach is analogous to using size-adjusted data, but it eliminates the subjective judgments required to develop size-adjusted survey data.

 

The program provides for larger portions of an executive’s total compensation to vary based on the Company’s performance for higher levels of executives (i.e., the most senior executive officers have more of their total compensation at risk based on Company performance than do lower levels of executives). For example, 10% of the total annual compensation target amount for the Chairman and Chief Executive Officer is fixed and paid in the form of base salary and 90% of such total target compensation amount is at risk. For the President and Chief Operating Officer, 17% of the total annual compensation target amount is paid in the form of base salary and 83% of such amount is at risk.

 

When the Compensation Committee compared the mix of base and at risk pay provided to the Company’s executive vice presidents, the Compensation Committee determined that the base salaries of this group of executives were below the 65^th percentile of the comparable company group while their annual incentive awards were above the 65^th percentile. The Compensation Committee re-balanced the components of total compensation for the Company’s executive vice presidents to bring each of the components of their compensation closer to the 65^th percentile guideline levels by reducing their annual and long-term incentive award opportunities and increasing their base salaries. After the re-balancing, 20% of the total annual compensation target amount for executive vice presidents is paid in the form of base salary, and 80% of such amount is at risk based on the Company’s performance. Prior to the re-balancing, the compensation mix for executive vice presidents was 18% base salary and 82% at risk.

 

The following table shows the at risk elements of pay under the program following the re-balancing of the compensation mix for executive vice presidents:

 

 

Stock Ownership Guidelines.  The Compensation Committee strongly believes that executive officers should own appropriate amounts of the Company’s Common Stock to align their interests with those of the Company’s shareholders. The Company’s 401(k) Plan, employee stock purchase plan and equity incentive plans provide ample opportunity for executives to acquire such Common Stock.

The Compensation Committee also has adopted stock ownership and retention guidelines for all senior vice presidents and more senior officers of the Company. The ownership target under the current policy is ten times base salary for the Chairman and Chief Executive Officer. In 2008, the Compensation Committee amended the guidelines for the other senior officers of the Company. The ownership target for the President and Chief Operating Officer was increased from five times base salary to six times base salary. The Compensation Committee reduced the ownership target for executive vice presidents from five times base salary to four times base salary. The ownership target is two times base salary for all senior vice presidents.

 

The Compensation Committee reviews compliance with the guidelines annually at its March meeting. The Company determines the number of shares required to be held by each senior officer as of March 1 each year. The number of shares is determined by dividing the ownership requirement (expressed as a dollar amount) by the average closing price of Lowe’s stock for the preceding fiscal year. Shares are counted towards ownership as follows:

 

 

Senior officers may not sell the net shares resulting from a restricted stock vesting event or stock option exercise until the ownership requirement has been satisfied. All of the named executive officers were in compliance with the policy for fiscal year 2008.

 

Tax Deductibility of Compensation.  Section 162(m) of the Internal Revenue Code limits the amount of non-performance based compensation paid to the named executive officers (other than Mr. Hull, the Chief Financial Officer) that may be deducted by the Company for federal income tax purposes in any fiscal year to $1,000,000. Performance-based compensation that has been approved by the Company’s shareholders is not subject to the $1,000,000 deduction limit. All of the Company’s equity and non-equity incentive plans have been approved by the Company’s shareholders. Consequently, all awards under those plans, other than restricted stock awards that do not vest solely on the performance of the Company, should qualify as “performance-based” compensation that is fully deductible and not subject to the Internal Revenue Code Section 162(m) deduction limit. The Compensation Committee has not adopted a formal policy that requires all compensation paid to the named executive officers to be deductible. But whenever practical, the Compensation Committee structures compensation plans to make the compensation paid thereunder fully deductible.

 

Compensation Paid under the Executive Compensation Program in 2008

 

The program provides for payment of the following compensation elements:

 

Base Salary.  Base salaries for executive officers are established on the basis of the qualifications and experience of the executive, the nature of the job responsibilities and the base salaries for competitive positions in the market as described above. The Compensation Committee reviews and approves executive officers’ base salaries annually. Any action by the Compensation Committee with respect to the base salary of the Chairman and Chief Executive Officer is subject to final approval by the independent members of the Board of Directors. For the

fiscal year ended January 30, 2009, the Compensation Committee increased the base salaries of the named executive officers as follows:

 

 

At its meeting on February 5, 2009, the Compensation Committee froze the base salaries of the Chairman and Chief Executive Officer, the President and Chief Operating Officer, all executive vice presidents and all senior vice presidents for the fiscal year ending January 30, 2010.

 

Non-Equity Incentive Plan Compensation.  Executives earn non-equity incentive compensation under the program for each fiscal year based on the Company’s achievement of one or more financial performance measures established by the Compensation Committee. Due to the uncertainty of the environment in which the Company operated in 2008, the Compensation Committee adopted two six-month performance measurement periods with separate performance levels established at the beginning of each six-month period. The Compensation Committee included a store opening target, in addition to earnings before interest and taxes (“EBIT”), as a performance measure for each of the six-month periods. The Compensation Committee assigned a 25% weighting to the store opening goal and a 75% weighting to the Company’s EBIT goal.

 

The Compensation Committee believes EBIT is an effective performance measure for the annual incentive compensation plan because it rewards the profitability of existing stores and the development of new stores that contribute quickly to the Company’s earnings. The Compensation Committee added the store opening goal to focus the executives on opening stores, to better balance the store openings throughout the year and to continue a responsible expansion plan in order to pursue market share gains as less well capitalized competitors significantly reduced expansion plans.

 

The following tables show the threshold, target and maximum performance levels for EBIT and store openings established by the Compensation Committee for the two six-month performance measurement periods in 2008. The EBIT target performance level for both of the six-month performance periods was based on an operating plan that required aggressive management of inventory and store staffing without sacrificing customer satisfaction and reductions in general and administrative expenses. The Company’s actual performance during the two six-month performance periods is also shown in the following tables.

 

First Six-Month Period (February 2008 through July 2008) Performance Measures

 

Second Six-Month Period (August 2008 through January 2009) Performance Measures

 

 

Based on the performance measures established by the Compensation Committee and the Company’s actual performance, the named executives earned non-equity incentive awards for the two six-month performance periods in 2008 as follows:

 

 

Equity Incentive Plan Awards.  The Company’s equity incentive plans authorize awards of stock options, performance- and time-vested restricted stock, performance accelerated restricted stock (“PARS”), performance shares and stock appreciation rights. Although the Compensation Committee generally has the discretion to establish the terms of all awards, the equity incentive plans limit certain award terms. For example, the Compensation Committee may not extend the original term of a stock option or, except as provided by the plans’ anti-dilution provision, reduce its exercise price. In addition, the plans generally require the vesting period for stock awards to be at least three years, although a period as short as one year is permitted if based on the satisfaction of financial performance objectives prescribed by the Compensation Committee and stock options may not be re-priced without shareholder approval.

 

At its meeting in January or February each year, the Compensation Committee makes its annual equity incentive award decisions. Currently, all store managers and employees in more senior positions are eligible to receive an annual equity incentive award. The effective date for the annual equity awards is the March 1 following the Compensation Committee’s January or February meeting.

 

At the January or February meeting, the Compensation Committee considers and approves the following factors related to the awards:

 

 

In 2007, the Compensation Committee decided to change the vesting for the restricted stock portion of the awards to performance-vesting schedule under which the restricted stock will become vested only if the Company satisfies a performance objective set by the Compensation Committee. The performance objective selected by the Compensation Committee was the Company’s return on non-cash average assets (“RONCAA”). The March 1, 2008 restricted stock awards will also be subject to a performance-vesting schedule based on the Company’s RONCAA. The schedule includes a threshold and target RONCAA for the vesting of the performance-based restricted stock. The threshold average RONCAA must be achieved over the three fiscal year performance period that includes fiscal years 2008 through 2010 before any of the performance-vested restricted stock awarded on March 1, 2008 will become vested. If the threshold three-year average RONCAA level is achieved, 25% of the restricted stock will vest. If the target average RONCAA level is achieved, 100% of the restricted stock will vest.

 

RONCAA is computed on an annual basis by dividing the Company’s EBIT for the year by the average of the Company’s non-cash assets as of the beginning and end of the year. The return percentages for each year in the performance period are then averaged to yield a RONCAA for the three-year performance period. The Compensation Committee believes that RONCAA is an effective measure of Company and management performance as it measures the effective utilization of assets other than cash, cash equivalents and short-term investments and it focuses management on strategic growth over a three-year period, rather than immediate return.

 

Based on the Company’s performance during the 2007 and 2008 fiscal years, the Compensation Committee anticipates that 25% of the performance-based restricted stock granted on March 1, 2007 will become vested following the expiration of the three-year performance period for that grant in 2010 and 25% of the performance-based restricted stock granted on March 1, 2008 will become vested following the expiration of the three-year performance period for that grant in 2011.

 

 

Pursuant to authority delegated by the Compensation Committee, on August 1 of each year, the Chairman and Chief Executive Officer makes equity incentive awards to all employees who are hired or promoted into a store manager or more senior position after the preceding March 1 annual grant date and who are not Section 16 officers. The same number of shares for each position as were granted on the preceding March 1 are granted on the succeeding August 1 at the closing price of the Company’s Common Stock on August 1 (or the most recent prior business day in the event August 1 falls on a non-business day). The Chairman and Chief Executive Officer also has the authority to make special retention, assignment or hiring package grants to employees who are not Section 16 officers as of May 1, August 1 or November 1.

 

Any other equity incentive grants, such as special retention grants or hiring package grants to Section 16 officers are reviewed and approved by the Compensation Committee at a meeting held prior to the grant effective date.

 

Oversight of Executive Equity Ownership; Recoupment of Incentive Compensation

 

The Compensation Committee has always supported governance and compliance practices that are transparent and protect the interests of the Company’s shareholders. To strengthen the Company’s practices in these areas, the Company has adopted (i) controls over executive equity awards and ownership and (ii) a policy on the recoupment of incentive compensation in the event of significant restatement.

 

The Company’s controls over executive equity awards and ownership prohibit any executive from:

 

 

Trading in Lowe’s stock, including stock held in an account under the Lowe’s 401(k) Plan, by an executive and the executive’s immediate family members who reside with the executive or whose transactions are subject to the executive’s influence or control, is limited to open window trading periods designated by the Company’s General Counsel and Chief Compliance Officer. In addition, all transactions by an executive involving Company stock must be pre-cleared by the General Counsel and Chief Compliance Officer.

 

The recoupment policy requires the Board of Directors to review any incentive compensation that was provided to executive officers on the basis of the Company having met or exceeded specific performance targets during a performance period that is subject to a significant restatement of Company financial results. If (1) the incentive compensation would have been lower had it been based on the restated financial results and (2) the Board determines that an executive officer engaged in fraud or intentional misconduct that caused or substantially caused the need for the restatement, then the Board is required, to the extent practicable, to seek to recover for the benefit of the Company the portion of such compensation that would not have been earned had the incentive compensation been based on the financial results as restated.

 

Other Compensation

 

The Company’s executive officers participate in the Lowe’s 401(k) Plan and the other employee benefit plans sponsored by the Company on the same terms and conditions that apply to all other employees. The Company makes only nominal use of perquisites in compensating its executive officers. The Company provides limited supplemental long-term disability coverage for all senior vice presidents and more senior officers whose annual compensation (base salary and target bonus) exceeds $400,000, provided the executive has also enrolled in and paid the cost for coverage under the Company’s voluntary group long-term disability plan that is available to all employees. The Company’s total cost for providing such supplemental coverage to the 25 executives in this category is approximately $35,750. All senior vice presidents and more senior officers of the Company are required to use professional tax preparation, filing and planning services, and the Company reimburses the cost of such services up to a maximum of $5,000 per calendar year (grossed up for taxes). The tax gross up has been eliminated effective January 1, 2009. Such officers are also required to receive an annual physical examination, at the Company’s expense, subject to maximum amounts that are based on the officer’s age. In March 2007, the Compensation Committee approved a policy that permits the President and Chief Operating Officer to use Company-owned aircraft for up to 25 hours a year of personal travel. The Compensation Committee approved the policy to provide additional compensation to the President and Chief Operating Officer and to recognize his assumption and performance of additional duties and responsibilities. Finally, the independent members of the Board of Directors require the Chairman and Chief Executive Officer to utilize corporate aircraft for all business and personal travel for his safety, health and security, to enhance his effectiveness, to ensure immediate access to the Chairman and Chief Executive Officer for urgent matters and to maintain the confidentiality of the purpose of the travel. The Company does not provide any tax gross-up to the Chairman and Chief Executive Officer or the President and Chief Operating Officer for the taxable income imputed to them for their personal use of corporate aircraft.

Nonqualified Deferred Compensation Programs

 

The Company sponsors three nonqualified deferred compensation programs for senior management employees: the Benefit Restoration Plan, the Cash Deferral Plan and the Deferred Compensation Program.

 

The Company’s Benefit Restoration Plan provides qualifying executives with benefits equivalent to those received by all other employees under the Company’s 401(k) Plan. Qualifying executives are those whose contributions, annual additions and other benefits, as normally provided to all participants under the tax-qualified 401(k) Plan, would be curtailed by the effect of Internal Revenue Code limitations and restrictions.

 

The Cash Deferral Plan permits qualifying executives to voluntarily defer a portion of their base salary, non-equity incentive compensation and certain other bonuses on a tax-deferred basis. Qualifying executives are those employed by the Company in more senior positions. The Company does not make matching or any other contributions to the Cash Deferral Plan.

 

The Deferred Compensation Program is a part of all the Company’s equity incentive plans. Prior to 2005, the Deferred Compensation Program allowed executives at or above the vice president level to defer receipt of certain equity incentive plan compensation (vested restricted stock awards and performance accelerated restricted stock awards and gains on non-qualified stock options) and required the deferral of equity incentive plan compensation to the extent that such compensation would not be deductible by the Company for federal income tax purposes due to the limitation imposed by Internal Revenue Code Section 162(m) on the deductibility of compensation that is not performance-based. The Deferred Compensation Program was amended in 2005 to provide that the only deferrals permitted after 2004 are mandatory deferrals of equity incentive plan compensation that is not deductible under Internal Revenue Code Section 162(m). The Deferred Compensation Program was further amended in 2008 to eliminate the deferral provision for amounts that are not deductible under Section 162(m). Any shares representing stock incentives that are deferred under the Deferred Compensation Program are cancelled and tracked as “phantom” shares. During the deferral period, the participant’s account is credited with amounts equal to the dividends paid on actual shares.

 

All of the Company’s nonqualified deferred compensation programs are unfunded. Any deferred compensation payment obligations under the programs are at all times unsecured payment obligations of the Company.

 

The Company has previously entered into Management Continuity Agreements with each of the named executive officers and other senior officers of the Company. The Compensation Committee approved amended and restated Management Continuity Agreements in 2008 that comply with the requirements of Section 409A of the Internal Revenue Code. In connection with the amendment and restatement process, the Compensation Committee established (i) a policy on which executive and senior officers of the Company should be covered by a Management Continuity Agreement (resulting in a net decrease in the number of these agreements from 26 to 18) and (ii) a standard level of benefits to be provided under the agreements that complies with the Senior Executive Severance Policy adopted by the Board of Directors.

 

The agreements provide for certain benefits if the Company experiences a change-in-control followed by termination of the executive’s employment:

 

 

“Cause” means continued and willful failure to perform duties or conduct demonstrably and materially injurious to the Company or its affiliates.

 

All of the agreements with the named executives provide for three-year terms. On the first anniversary, and every anniversary thereafter, the term is extended automatically for an additional year unless the Company elects not to extend the term. All of the agreements automatically expire on the second anniversary of a change-in-control notwithstanding the length of the terms remaining on the date of the change-in-control.

If benefits are paid under an agreement, the executive will receive (i) a lump-sum severance payment equal to the present value of 2.99 times the executive’s annual base salary, non-equity incentive compensation and welfare insurance costs, and (ii) any other unpaid salary and benefits to which the executive is otherwise entitled. In addition, the executive will be compensated for any excise tax liability he may incur as a result of any benefits paid to the executive being classified as excess parachute payments under Section 280G of the Internal Revenue Code and for income and employment taxes attributable to such excise tax reimbursement.

 

All legal fees and expenses incurred by the executives in enforcing these agreements will be paid by the Company.

 

The following table shows the amounts that would have been payable to the named executive officers if a change in control of the Company had occurred on January 30, 2009 and the named executive officers’ employment was terminated by the Company’s successor without cause immediately thereafter:

 

 

 

 

Summary Compensation Table — This table shows the base salary, annual non-equity incentive compensation and all other compensation paid to the named executives. The table also shows the compensation expense the Company recognized for financial reporting purposes for the stock and option awards made to the named executives.

 

 

 

 

 

All amounts presented above, other than the amount for personal use of corporate aircraft, equal the actual cost to the Company of the particular benefit or perquisite provided. The amount presented for personal use of corporate aircraft is equal to the incremental cost to the Company of such use. Incremental cost includes fuel, landing and ramp fees and other variable costs directly attributable to the personal use. Incremental cost does not include an allocable share of the fixed costs associated with the Company’s ownership of the aircraft.

 

Grants of Plan-Based Awards — This table presents the potential annual non-equity incentive awards the named executives were eligible to earn in 2008, the number of shares of performance-based restricted stock awarded to the executives in 2008 that will become vested if the Company achieves the threshold or target performance level and the stock options awarded to the named executives in 2008.

 

 

 

Outstanding Equity Awards at Fiscal Year-End — This table presents information about unvested stock and option awards held by the named executives on January 30, 2009.