Chart Industries, INc. DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
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CHART INDUSTRIES, 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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TABLE OF CONTENTS
CHART
INDUSTRIES, INC.
One Infinity Corporate Centre Drive, Suite 300
Garfield Heights, Ohio
44125-5370
April 23,
2007
To the Stockholders of Chart Industries, Inc.:
This years Annual Meeting of Stockholders of Chart
Industries, Inc. will be held at 9:30 a.m., Eastern Time,
on Wednesday, May 23, 2007 at the NASDAQ MarketSite, 4
Times Square,
2nd Floor,
43rd Street &
Broadway, New York, New York (Annual Meeting). We
will be reporting on Chart Industries, Inc.s activities
and you will have an opportunity to ask questions about our
operations.
We hope that you are planning to attend the Annual Meeting
personally and we look forward to seeing you. Whether or not
you expect to attend in person, the return of the enclosed proxy
card as soon as possible or the submission of a proxy by
telephone or the Internet by following the instructions included
on the proxy card would be greatly appreciated and will ensure
that your shares will be represented at the Annual Meeting. If
you do attend the Annual Meeting, you may, of course, withdraw
your proxy should you wish to vote in person.
On behalf of the Board of Directors and management of Chart
Industries, Inc., I would like to thank you for your continued
support and confidence.
Sincerely yours,
Chairman, Chief Executive Officer and President
CHART
INDUSTRIES, INC.
One Infinity Corporate Centre Drive, Suite 300
Garfield Heights, Ohio
44125-5370
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD MAY 23,
2007
To the Stockholders of Chart Industries, Inc.:
The Annual Meeting of Stockholders of Chart Industries, Inc.
(the Company) will be held at 9:30 a.m.,
Eastern Time, on Wednesday, May 23, 2007 at the NASDAQ
MarketSite, 4 Times Square,
2nd Floor,
43rd Street & Broadway, New York, New York
(Annual Meeting), for the following purposes:
1. To elect six Directors for a term of one year; and
2. To transact any other business as may properly come
before the Annual Meeting.
Only holders of the Companys Common Stock of record as of
the close of business on Friday, March 30, 2007 are
entitled to vote at the Annual Meeting. It is important that
your shares be represented at the Annual Meeting. For that
reason, we ask that you promptly sign, date and mail the
enclosed proxy card in the return envelope provided or submit a
proxy by telephone or the Internet by following the instructions
on the proxy card. Stockholders who attend the Annual Meeting
may revoke their proxy and vote in person.
By Order of the Board of Directors,
Chairman, Chief Executive Officer and President
YOUR VOTE IS IMPORTANT
WE URGE YOU TO COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE OR SUBMIT A PROXY BY
TELEPHONE OR THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE
PROXY CARD. YOUR PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE
TIME IT IS VOTED AT THE 2007 ANNUAL MEETING.
CHART
INDUSTRIES, INC.
One Infinity Corporate Centre
Drive, Suite 300
Garfield Heights, Ohio
44125-5370
PROXY
STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
Mailed on or about April 23, 2007
Why am I
receiving these materials?
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Chart
Industries, Inc. for use at the Annual Meeting of Stockholders
on May 23, 2007 at 9:30 a.m., Eastern Time, and
any adjournments or postponements thereof. The time, place and
purposes of the Annual Meeting are stated in the Notice of
Annual Meeting of Stockholders accompanying this proxy statement.
Who is
paying for this proxy solicitation?
The expense of soliciting proxies, including the cost of
preparing, assembling and mailing the notice, proxy statement
and proxy, will be borne by us. We may pay persons holding our
common stock, par value $0.01 per share (Common
Stock), for others their expenses for sending proxy
materials to their principals. In addition to solicitation of
proxies by mail, our Directors, officers and employees, without
additional compensation, may solicit proxies by telephone,
electronically via
e-mail and
personal interview. We also may retain a third party to aid in
the solicitation of proxies.
What
voting rights do I have as a Stockholder?
On each matter to be voted on, you have one vote for each
outstanding share of Common Stock you own as of March 30,
2007, the record date for the meeting. Only stockholders of
record at the close of business on March 30, 2007 are
entitled to receive notice of and to vote at the Annual Meeting.
On this record date, there were 25,588,835 shares of Common
Stock outstanding and entitled to vote. Stockholders do not have
the right to vote cumulatively in the election of Directors.
How do I
vote?
If you are a stockholder of record, you can vote (i) in
person at the Annual Meeting; or (ii) you can vote by
signing and mailing in your proxy card in the enclosed envelope;
or (iii) by submitting a proxy by telephone by calling
1-800-690-6903 or via the Internet at www.proxyvote.com. Proxies
submitted via the telephone or Internet must be received by
11:59 p.m. Eastern Time on May 22, 2007. More detailed
instructions are included on the proxy card. In order to submit
a proxy via the telephone or Internet, you must have the
enclosed proxy card available and follow the instructions on the
proxy card.
If you are a stockholder of record, the proxy holders will vote
your shares based on your directions. If you sign and return
your proxy card, but do not properly direct how your shares of
Common Stock should be voted, the proxy holders will vote
FOR the election of the six nominees listed
in this proxy statement and will use their discretion on any
other proposals and other matters that may be brought before the
Annual Meeting.
If you hold shares of Common Stock through a broker or nominee,
you may vote in person at the Annual Meeting only if you
have obtained a signed proxy from your broker or nominee giving
you the right to vote your shares.
Can I
revoke or change my vote after I submit a proxy?
Yes. You can revoke your proxy or change your vote at any time
before the proxy is exercised at the Annual Meeting. This can be
done by either submitting another properly completed proxy card
with a later date, sending a written notice to our Secretary (we
must receive your new proxy card before the Annual Meeting
begins), or you may attend the Annual Meeting and vote 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 Chart representative at the Annual
Meeting of your desire to revoke your proxy and vote in person.
What vote
is required to approve the election of the six Directors for a
one-year term ending at the Annual Meeting in 2008?
The nominees receiving the greatest number of votes will be
elected. A proxy card marked Withheld with respect
to the election of one or more Directors will not be voted with
respect to the Director or Directors indicated. Abstentions and
broker non-votes will have no effect on the election of
Directors.
What
constitutes a quorum?
A quorum of stockholders will be present at the Annual Meeting
if at least a majority of the aggregate voting power of Common
Stock outstanding on the record date is represented, in person
or by proxy, at the Annual Meeting. With 25,588,835 shares
outstanding as of the close of business on the record date,
stockholders representing at least 12,794,418 shares will
be required to establish a quorum. Abstentions and broker
non-votes will be counted towards the quorum requirement.
Can
Stockholders make proposals for the 2007 Annual
Meeting?
From time to time, stockholders present proposals that may be
proper subjects for inclusion in the proxy statement and for
consideration at an Annual Meeting. To be included in the proxy
statement for the 2007 Annual Meeting, the Company must have
received proposals no later than March 1, 2007.
Pursuant to the Companys By-Laws, stockholders may present
proposals that are proper subjects for consideration at an
Annual Meeting. The Companys By-Laws require all
stockholders who intend to make proposals at an annual
stockholders meeting to submit their proposals to the Company by
specific dates in order to be eligible for consideration at an
Annual Meeting. See Corporate Governance and Related
Matters and Stockholder Proposals for 2008 Annual
Meeting for a detailed discussion of this By-Laws
provision. To be eligible for consideration at the 2007 Annual
Meeting, proposals that were not submitted by the deadline for
inclusion in the proxy statement must have been received by the
Company no later than February 22, 2007.
2
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table and accompanying footnotes show information
regarding the beneficial ownership of our Common Stock as of
March 30, 2007 by:
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each person who is known by us to own beneficially more than 5%
of our Common Stock;
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each member of our Board of Directors and each of our named
executive officers; and
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all members of our Board of Directors and our executive officers
as a group.
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The table below is based on 25,588,835 shares of Common
Stock outstanding as of March 30, 2007. The table below
does not give effect to the expected change in the ownership
percentages in the event that First Reserve Corporation
(First Reserve) or its affiliates and certain
management members sell their shares in a public offering for
which a Registration Statement (the Potential Public
Offering) has been filed with the Securities and Exchange
Commission (SEC). First Reserve, Mr. Thomas and
Mr. Biehl may sell up to 12,376,214, 120,000 and
20,000 shares, respectively, included in the table below if
the Potential Public Offering is completed.
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Shares Beneficially Owned(1)
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Percent of
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Name of Beneficial Holder
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Number
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Common Stock
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First Reserve Fund X, L.P(2)
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12,376,214
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48.4
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%
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Capital Research and Management
Company(3)
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2,266,400
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8.9
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%
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Samuel F. Thomas(4)
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498,304
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1.9
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%
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Michael F. Biehl(5)
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42,845
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*
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Matthew J. Klaben(6)
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9,471
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*
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James H. Hoppel, Jr.(7)
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7,875
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*
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Kenneth W. Moore(8)(9)
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*
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Timothy H. Day(8)(10)
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*
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Steven W. Krablin(11)
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*
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Michael W. Press(12)
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2,000
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*
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Richard E. Goodrich(13)
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2,000
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*
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All Directors and officers as a
group (9 persons)
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562,495
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2.2
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%
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In accordance with SEC rules, each beneficial owners
holdings have been calculated assuming full exercise of
outstanding options covering Common Stock, if any, exercisable
by such owner within 60 days after March 30, 2007, but
no exercise of outstanding options covering Common Stock held by
any other person. |
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48.4% of our Common Stock is owned by FR X Chart Holdings LLC,
or Chart Holdings, which in turn is 100% owned and managed by
First Reserve Fund X, L.P., or Fund X. First Reserve
GP X, L.P., or GP X, is the general partner of Fund X.
First Reserve GP X, Inc., or GP X, Inc., is the general partner
of GP X. First Reserve Corporation, or First Reserve, is the
advisor to Fund X. (In this footnote we refer to
Fund X, GP X and GPX, Inc. collectively as, the
Fund Entities.) The officers of GP X Inc. are
William E. Macaulay, John A. Hill, Alan G. Schwartz, Cathleen M.
Ellsworth, J.W.G. (Will) Honeybourne, Alex T. Krueger, Mark A.
McComiskey, Kenneth W. Moore, Thomas J. Sikorski, Jennifer C.
Zarrilli, Timothy H. Day, Joseph Robert Edwards, J. Hardy
Murchison, Glenn J. Payne, Kristin A. Custar, Rahman P.
DArgenio, Brian K. Lee, Bingfeng Leng, Timothy K.
OKeefe, Jeffrey K. Quake, Daniel S. Rice, Anne E. Gold,
Valeria A. Thomason, Damien T.J. Harris, Francesco
Giuliani, Neil J. Hartley, Joshua R. Weiner, Avik Dey, Dod E.
Wales, Joel C. Lambert and Matthew S. Raben who are all
employees of First Reserve. Decisions with respect to voting and
investments are made by the Investment Committee of First
Reserve, made up of a subset of these officers that includes the
officers named above except for Ms. Thomason and
Mr. Harris. With respect to investments held by these
entities, decisions with respect to operations oversight are
made by the subset of these officers that work most closely on a
given investment, which includes Messrs. Macaulay, Moore
and Day in the case of Chart Industries, Inc. The shares consist
of 12,376,214 shares directly owned by Chart Holdings. In
addition, there are 5,332 aggregate shares of Common Stock
underlying the 2,666 restricted stock units of the Company |
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issued to each of Messrs. Day and Moore under the 2005
Stock Incentive Plan which will vest on July 25, 2007.
These shares have not been included in the table above. The
Fund Entities (but not Chart Holdings) are entitled to a
portion of the profits from the sale of such restricted stock
units and any underlying shares of Common Stock, and may
therefore be deemed to share beneficial ownership over such
securities. The address of FR X Chart Holdings LLC, Fund X,
GP X, GP X, Inc. and First Reserve Corporation is c/o First
Reserve Corporation, One Lafayette Place, Greenwich, Connecticut
06830. |
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According to a Schedule 13G filed with the SEC on
February 12, 2007, Capital Research and Management Company,
as of December 29, 2006, has sole voting power and sole
dispositive voting power over 2,266,400 shares. Capital
Research and Management Company is located at 333 South Hope
Street, Los Angeles, California 90071. |
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Shares beneficially owned by Mr. Thomas include
134,998 shares that were transferred to a trust of which
Mr. Thomas is the grantor and the current beneficiary and
47,478 shares which he has the right to acquire within
60 days of March 30, 2007 through the exercise of
stock options. |
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Shares beneficially owned by Mr. Biehl include
14,243 shares which he has the right to acquire within
60 days of March 30, 2007 through the exercise of
stock options. |
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Shares beneficially owned by Mr. Klaben include
6,971 shares which he has the right to acquire within
60 days of March 30, 2007 through the exercise of
stock options. |
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Shares beneficially owned by Mr. Hoppel include
5,375 shares which he has the right to acquire within
60 days of March 30, 2007 through the exercise of
stock options. |
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Mr. Moore is a Managing Director of First Reserve
Corporation and GP X, Inc. Mr. Day is a Director of First
Reserve Corporation and GP X, Inc. Mr. Moore and
Mr. Day each disclaim beneficial ownership of any shares of
the issuers equity securities owned by such entities or
their affiliates (including First Reserve Fund X, L.P.). |
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Shares beneficially owned by Mr. Moore consist of 2,666
restricted stock units, which will vest on July 25, 2007.
These shares have not been included in the table above. See
footnote 2. |
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Shares beneficially owned by Mr. Day consist of 2,666
restricted stock units, which will vest on July 25, 2007.
These shares have not been included in the table above. See
footnote 2. |
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Shares beneficially owned by Mr. Krablin consist of 2,666
restricted stock units, which will vest on July 25, 2007.
These shares have not been included in the table above. |
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Shares beneficially owned by Mr. Press also include 2,658
restricted stock units, which will vest on August 15, 2007.
These shares have not been included in the table above. |
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Shares beneficially owned by Mr. Goodrich also include
2,658 restricted stock units, which will vest on August 15,
2007. These shares have not been included in the table above. |
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Less than 1% |
4
ELECTION
OF DIRECTORS
The Board of Directors consists of six Directors with each term
expiring at the Annual Meeting. There is currently one vacancy
on the Board of Directors. The Board may fill this vacancy at
such time as an appropriate director candidate is identified
according to the process and criteria described under the
caption Corporate Governance and Related Matters
below. Such candidate would also satisfy the
independence requirements under the listing
standards of the Nasdaq Global Market (NASDAQ).
As discussed under the caption Corporate Governance and
Related Matters below, by July 25, 2007, as generally
required by NASDAQ rules, a majority of our Board of Directors
is expected consist of independent Directors. Accordingly, we
are presently undertaking a review of a variety of options that
will allow us to satisfy this independence requirement,
including, but not limited to: (i) filling any vacancies on
our Board of Directors with one or more independent Directors;
(ii) appointing additional independent Directors to our
Board of Directors; and (iii) potentially having one of
more of our non-independent Directors resign before expiration
of their tenure. While all of our nominee Directors have
indicated a willingness to serve as a Director of our Company,
they have also indicated that they would resign from such office
if the Board determines that such resignation is required in
connection with the Companys satisfaction of the NASDAQ
independent director requirement. Currently, First Reserve has a
right to designate three Director nominees based upon First
Reserves current ownership of our outstanding Common
Stock, as described in more detail under the caption
Certain Related Party Transactions below. If the
Potential Public Offering is consummated and First Reserve no
longer owns the requisite shares of Common Stock of our Company
in order to designate Director nominees, then the Board may
consider this event with respect to its efforts to satisfy the
NASDAQ independence requirements.
Each of the nominees has indicated his willingness to serve, if
elected, but if any of the nominees should be unable or
unwilling to serve, the Board may either reduce its size, or
designate or not designate a substitute nominee. If the Board
designates a substitute nominee, proxies that would have been
cast for the original nominee will be cast for the substitute
nominee unless instructions are given to the contrary.
The table below sets forth the names, age as of March 30,
2007, and existing positions with the Company of each nominee:
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Name
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Age
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Position
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Samuel F. Thomas
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55
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Chairman of the Board of
Directors, Chief Executive Officer, and President
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Kenneth W. Moore
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37
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Director
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Timothy H. Day
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36
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Director
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Steven W. Krablin
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56
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Director
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Michael W. Press
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60
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Director
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Richard E. Goodrich
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63
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Director
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The following sets forth biographical information for our
nominees.
Samuel F. Thomas was elected Chairman of our Board of
Directors on March 27, 2007 and has served as our Chief
Executive Officer and President and as a member of our Board of
Directors since October 2003. Prior to joining our Company,
Mr. Thomas was Executive Vice President of Global
Consumables at ESAB Holdings Ltd., a provider of welding
consumables and equipment. In addition to his most recent
position at ESAB, Mr. Thomas was responsible for ESAB N.
America during his employment at ESAB Holdings Ltd. Prior to
joining ESAB in February 1999, Mr. Thomas was Vice
President of Friction Products for Federal Mogul, Inc. Prior to
its acquisition by Federal Mogul in 1998, Mr. Thomas was
employed by T&N plc from 1976 to 1998, where he served from
1991 as chief executive of several global operating divisions,
including industrial sealing, camshafts and friction products.
Kenneth W. Moore has been a member of our Board of
Directors since October 17, 2005. Mr. Moore is a
Managing Director of First Reserve Corporation and joined that
firm in January 2004. Prior to joining First Reserve
Corporation, Mr. Moore was a Vice President at Morgan
Stanley, an investment bank, from 2000 until 2004. Prior to
5
joining Morgan Stanley, Mr. Moore was an Associate at Chase
Securities from 1998 until 2000. Mr. Moore also serves as a
director of Dresser-Rand Group, Inc.
Timothy H. Day has been a member of our Board of
Directors since October 17, 2005. Mr. Day is a
Director of First Reserve Corporation, which he joined in
November 2000. Before joining First Reserve Corporation,
Mr. Day was employed at WorldOil.com where he was a Vice
President in charge of Operations. Prior to that time,
Mr. Day spent three years with SCF Partners, a private
equity investment group and three years with CS First Boston and
Salomon Brothers.
Steven W. Krablin became a Director on July 25,
2006. From January 1996 until April 2005,
Mr. Krablin served as the Senior Vice President and Chief
Financial Officer of National Oilwell Varco Inc. or its
predecessors, a major manufacturer and distributor of oil and
gas drilling equipment and related services for land and
offshore drilling rigs. Prior to 1996, Mr. Krablin served
as Senior Vice President and Chief Financial Officer of Enterra
Corporation until its merger with Weatherford International.
Mr. Krablin also serves as a director of Penn Virginia
Corporation and Hornbeck Offshore Services, Inc.
Michael W. Press became a Director on August 15,
2006 and has been designated as our Lead Independent Director.
Mr. Press has been self-employed since 2001. Prior to that,
he spent 27 years in the energy industry in senior
management and executive positions. From 1997 to 2001,
Mr. Press was Chief Executive Officer of KBC Advanced
Technologies plc, an international petroleum consulting firm.
Mr. Press also serves as a director of Petrofac Ltd. and
T-3 Energy Services, Inc.
Richard E. Goodrich became a Director on August 15,
2006. Mr. Goodrich is a retired Executive Vice President
and Chief Financial Officer of Chicago Bridge & Iron
Company N.V. (CB&I), an engineering, procurement
and construction company that provides services to customers in
the chemicals and energy industries. Prior to retiring,
Mr. Goodrich served as Executive Vice President and Chief
Financial Officer of CB&I from 2001 to 2005, and until June
2006, as acting Chief Financial Officer. Mr. Goodrich also
serves as a director of Gundle/SLT Environmental, Inc.
The Board of Directors unanimously recommends that you
vote FOR the election of the six candidates for
Director.
CORPORATE
GOVERNANCE AND RELATED MATTERS
Director
Independence
Our Board of Directors currently consists of six Directors and
has one vacancy. Each of Messrs. Goodrich, Krablin and
Press is independent under the listing standards of NASDAQ. The
listing standards of the NASDAQ generally require that a
majority of an issuers Board of Directors must consist of
independent directors, but provide for a phase-in period of one
year from the date of listing. In accordance with this phase-in
rule and
Rule 10A-3
under the Securities Exchange Act of 1934, as amended
(Exchange Act), we intend to have a Board of
Directors consisting of a majority of independent directors
within one year of our initial public offering.
6
Board and
Committee Meetings
The Board of Directors held four regular meetings and three
executive sessions at which only the non-management Directors
attended during the fiscal year ended December 31, 2006.
Each Director attended at least 75% of the aggregate of
(1) the total number of meetings of the Board of Directors
held during the period he served as a Director and (2) the
total number of meetings held by committees of the Board on
which he served. Board members are expected to attend
Charts Annual Meeting of Stockholders. We did not hold an
Annual Meeting of Stockholders in 2006. The non-management
Directors meet in executive sessions after the end of each of
the regularly scheduled Board meetings, which are presided over
by the Lead Independent Director who is identified in the table
below. The Board has the three committees: Nominations and
Corporate Governance Committee; Audit Committee; and
Compensation Committee. Committee membership is described in the
following table:
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Nominations and
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Corporate
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Compensation
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Governance
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Audit Committee
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Committee
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Committee
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Samuel F. Thomas
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Timothy H. Day
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Member
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Member
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Richard E. Goodrich
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Member
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Member, Chairperson
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Steven W. Krablin
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Member,
Chairperson,
Financial Expert
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Member
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Kenneth W. Moore
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Member
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Michael W. Press
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Member
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Member,
Chairperson, Lead Independent Director
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Nominations
and Corporate Governance Committee.
The Companys Nominations and Corporate Governance
Committee consists of three members: Steven W. Krablin, Kenneth
W. Moore and Michael W. Press. Mr. Press serves as the
chairman of the Nominations and Corporate Governance Committee.
The Nominations and Corporate Governance Committee met one time
during fiscal year 2006. The Nominations and Corporate
Governance Committee is governed by the Nominations and
Corporate Governance Committee Charter which was adopted by the
Board of Directors, a copy of which is available at
www.chart-ind.com by clicking on the link for Investor
Relations. You also can obtain a printed copy of this document,
free of charge, by writing to: Secretary, c/o Chart
Industries, Inc., One Infinity Corporate Centre Drive,
Suite 300, Garfield Heights, Ohio, 44125.
The Nominations and Corporate Governance Committee is
responsible for (1) developing, recommending and reviewing
the adequacy of the corporate governance principles applicable
to us, (2) consulting with our Audit Committee and the
Board of Directors regarding the adoption of codes of conduct
applicable to all employees and Directors when required by the
rules of NASDAQ and adopting procedures for monitoring and
enforcing compliance with such code of conduct,
(3) reviewing our compliance with state and federal laws
and regulations and with the NASDAQ corporate governance listing
requirements, (4) making recommendations to the Board of
Directors regarding the size and composition of the Board of
Directors, (5) establishing criteria for the selection of
new Directors to serve on the Board of Directors and reviewing
the appropriate skills and characteristics required of
Directors, (6) identifying, screening and recommending
nominees to be proposed by us for election as Directors at the
Annual Meeting of Stockholders, or to fill vacancies,
(7) considering and reviewing the qualifications of any
nominations of Director candidates validly made by stockholders,
(8) reviewing the committee structure of the Board of
Directors and recommending Directors to serve as members of each
committee, (9) overseeing the annual evaluation of
management, the Board of Directors, its members and committees
and (10) establishing criteria for and leading the annual
performance self-evaluation of the Board of Directors and each
committee.
Prospective Director nominees are identified through contacts of
the members of the Board of Directors or members of senior
management, through searches conducted by professional search
firms, or through recommendations of potential candidates by
stockholders, employees or others. Once a prospective Director
nominee has been identified, the Nominations and Corporate
Governance Committee makes an initial determination through
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information provided to the Nominations and Corporate Governance
Committee and information supplemented by the Nominations and
Corporate Governance Committee through its own inquiries. The
Nominations and Corporate Governance Committee will evaluate
Director nominees, including nominees that are submitted to the
Company by a stockholder. In selecting new Directors of the
Company, consideration is given to each individual
Directors personal qualities and abilities, the collective
Board members skills and aptitudes for conducting
oversight of the Company and its management, and duties imposed
by law, regulation and the Companys contractual
obligations. Important factors include:
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Each Director must, as determined by the Board, be qualified to
perform duties of a Director in accordance with the Delaware
General Corporation Law as evidenced by the Directors
experience, accomplishments, skills and integrity;
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Directors must be persons possessing the highest personal values
and integrity;
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Directors must be able to perform their duties in the best
interests of the Company and its stockholders, without conflicts
of interest;
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The Company will comply fully with all legal and regulatory
requirements concerning the independence and composition of the
Audit, Nominations and Corporate Governance, Compensation and
any other committees of the Board, subject to any exemptions
provided by the Listing Standards of the NASDAQ;
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Collectively, Board members will bring to the Company a broad
range of complementary skills (such as an understanding of
finance, manufacturing, industry, energy markets, marketing,
public company governance and international background),
educational and professional expertise, industry and regulatory
knowledge, and diversity of perspectives to build a capable,
responsive, and effective Board; and
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Directors will have experience in policy-making levels of
business and must have an aptitude for evaluating business
matters and making practical and mature judgments.
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In addition, Directors must have time available to devote to
Board activities and the ability to work collegially. In
determining whether to recommend a Director for re-election, the
Nominations and Corporate Governance Committee also considers
the Directors past attendance at meetings and
participation in and contribution to the activities of the Board
of Directors. At all times, at least one member of the Board
must meet the definition of financial expert as such
term is defined in Item 401(h) of
Regulation S-K
and serve on the Companys Audit Committee.
Pursuant to the terms of its stockholder agreement with us, for
so long as First Reserve continues to hold (1) less than
50% but at least 25% of our outstanding Common Stock, it has the
right to designate three Director nominees, (2) less than
25% but more than 10% of our outstanding Common Stock, it has
the right to designate two Director nominees, and (3) 10%
of our outstanding Common Stock, it has the right to designate
one Director nominee. Once First Reserve holds less than 10% of
our outstanding Common Stock, it will have no right to designate
Directors pursuant to the stockholders agreement. First Reserve
has designated Messrs. Day and Moore to serve as Directors
on our Board, and our Nominating Committee has recommended the
re-election of Messrs. Day and Moore to our stockholders in
accordance with First Reserves Director designation rights.
The Nominations and Corporate Governance Committee will consider
potential candidates recommended by stockholders, current
Directors, Company officers, employees and others. The
Nominations and Corporate Governance Committee will use the
above enumerated factors to consider potential candidates
regardless of the source of the recommendation. Stockholder
recommendations for Director nominations may be submitted to the
Company pursuant to the requirements described under the caption
Stockholders Communications with the Board below.
Stockholder recommendations for Director nominations will be
forwarded to the Nominations and Corporate Governance Committee
for consideration, provided such recommendations are accompanied
by sufficient information to permit the Nominations and
Corporate Governance Committee to evaluate the qualifications
and experience of the nominees. Recommendations should include,
at a minimum, the following:
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the name, age, business address and residence address of the
proposed nominee;
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the principal occupation or employment of the proposed nominee;
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the number of shares of Common Stock of the Company which are
beneficially owned by such candidate;
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a description of all arrangements or understandings between the
stockholder(s) making such nomination and each candidate and any
other person or persons (naming such person or persons) pursuant
to which nominations are to be made by the stockholder;
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detailed biographical data and qualifications and information
regarding any relationships between the candidate and the
Company within the past three years;
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any other information relating to the proposed nominee that
would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of
proxies for election of Directors pursuant to Section 14 of
the Exchange Act and the rules and regulations promulgated
thereunder;
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any other information the stockholder believes is relevant
concerning the proposed nominee;
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a written consent of the proposed nominee(s) to being named as a
nominee and to serve as a Director if elected;
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the name and record address of the stockholder who is submitting
the notice;
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the number of shares of Common Stock which are owned of record
or beneficially by the stockholder who is submitting the notice
and the date such shares were acquired by the stockholder and if
such person is not a stockholder of record or if such shares are
owned by an entity, reasonable evidence of such persons
ownership of such shares or such persons authority to act
on behalf of such entity; and
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a representation that the stockholder intends to appear in
person or by proxy at the Annual Meeting to nominate the
proposed nominee named in the notice.
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Our By-Laws provide that stockholders seeking to nominate
candidates for election as Directors or to bring business before
an annual meeting of stockholders must provide timely notice of
their proposal in writing to the corporate secretary.
Generally, to be timely, a stockholders notice must be
received at our principal executive offices not less than 90
calendar days nor more than 120 calendar days prior to the first
anniversary of the date on which we first mailed our proxy
materials for the preceding years annual meeting or at
such other time as specified in our By-Laws. Our By-Laws also
specify requirements as to the form and content of a
stockholders notice. You also can obtain a printed copy of
our By-Laws, free of charge, by writing to: Secretary,
c/o Chart Industries, Inc., One Infinity Corporate Centre
Drive, Suite 300, Garfield Heights, Ohio, 44125.
Audit
Committee.
Our Audit Committee consists of Richard E. Goodrich, Timothy H.
Day and Steven W. Krablin. Mr. Krablin serves as the Audit
Committee chairman. The Audit Committee met six times during
fiscal year 2006. The Audit Committee is governed by the Audit
Committee Charter which was adopted by the Board of Directors, a
copy of which is available at www.chart-ind.com by clicking on
the link for Investor Relations. You also can obtain a printed
copy of this document, free of charge, by writing to: Secretary,
c/o Chart Industries, Inc., One Infinity Corporate Centre
Drive, Suite 300, Garfield Heights, Ohio, 44125.
The Audit Committees responsibilities include
(1) appointing, retaining, compensating, evaluating and
terminating our independent auditors and approving in advance
any audit or non-audit engagement or relationship between us and
such auditor, (2) approving the overall scope of the audit,
(3) assisting the Board in monitoring the integrity of our
financial statements, the independent accountants
qualifications and independence, the performance of the
independent accountants and our internal audit function and our
compliance with legal and regulatory requirements,
(4) annually reviewing an independent auditors report
describing the auditing firms internal quality-control
procedures and any material issues raised by the most recent
internal quality-control review, or peer review, of the auditing
firm, (5) discussing the annual audited financial and
quarterly statements with management and the independent
auditors, (6) discussing earnings press releases, as well
as financial information and earnings guidance provided to
analysts and rating agencies, (7) discussing policies with
respect to risk assessment and risk management, (8) meeting
separately, periodically, with management, internal auditors and
the independent auditor, (9) reviewing with the independent
auditor any audit problems or difficulties and managements
response,
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(10) setting clear hiring policies for employees or former
employees of the independent auditors, (11) annually
reviewing the adequacy of the Audit Committees written
charter, (12) reviewing with management any legal matters
that may have a material impact on us and our financial
statements and (13) reporting regularly to the full Board
of Directors.
We expect that our Audit Committee will be comprised of three
independent Directors within the transition periods specified in
Rule 10A-3
under the Exchange Act. Mr. Day does not satisfy the
current independence standards of NASDAQ and
Section 10(A)(m)(3) of the Exchange Act. Our Board has
determined that each of Mr. Krablin and Mr. Goodrich
of the Audit Committee satisfies the current independence
standards of NASDAQ and Section 10A(m)(3) of the Exchange
Act, and our Board has determined that the duties of
Mr. Krablin on the audit committees of two or more other
public companies do not impair his ability to serve effectively
on our Audit Committee. Our Board of Directors has determined
that each of Mr. Krablin and Mr. Goodrich qualifies as
an Audit Committee financial expert as such term is
defined in Item 401(h) of
Regulation S-K
and satisfies the NASDAQ accounting and financial management
expertise requirements.
Compensation
Committee.
Our Compensation Committee consists of Timothy H. Day, Richard
E. Goodrich and Michael W. Press. Mr. Goodrich serves as
the Compensation Committee chairman. The Compensation Committee
met one time during fiscal year 2006. The Compensation Committee
is governed by the Compensation Committee Charter which was
adopted by the Board of Directors, a copy of which is available
at www.chart-ind.com by clicking on the link for Investor
Relations. You also can obtain a printed copy of this document,
free of charge, by writing to: Secretary, c/o Chart
Industries, Inc., One Infinity Corporate Centre Drive,
Suite 300, Garfield Heights, Ohio, 44125.
The Compensation Committee is responsible for (1) reviewing
key employee compensation policies, plans and programs,
(2) reviewing and approving the compensation of our chief
executive officer and other executive officers,
(3) developing and recommending to the Board of Directors
compensation for Board members, (4) reviewing and approving
employment contracts and other similar arrangements between us
and our executive officers, (5) reviewing and consulting
with the chief executive officer on the selection of officers
and evaluation of executive performance and other related
matters, (6) administration of stock plans and other
incentive compensation plans, (7) overseeing compliance
with any applicable compensation reporting requirements of the
SEC, (8) approving the appointment and removal of trustees
and investment managers for pension fund assets,
(9) retaining consultants to advise the committee on
executive compensation practices and policies and
(10) handling such other matters that are specifically
delegated to the Compensation Committee by the Board of
Directors from time to time. See Compensation Committee
Report and Compensation Discussion and
Analysis below for additional information on the committee
and its activities.
Code of
Ethical Business Conduct and Officer Code of Ethics
The Board of Directors has adopted our Code of Ethical Business
Conduct and also our Officer Code of Ethics which are both
available at www.chart-ind.com by clicking on the link for
Investor Relations. You also can obtain a printed copy of this
document, free of charge, by writing to: Secretary,
c/o Chart Industries, Inc., One Infinity Corporate Centre
Drive, Suite 300, Garfield Heights, Ohio, 44125.
Stockholder
Communications with the Board
Stockholders may communicate their concerns directly to the
entire Board or specifically to non-management Directors of the
Board. Such communications may be confidential or anonymous, if
so designated, and may be submitted in writing to the following
address: Secretary, c/o Chart Industries, Inc., One
Infinity Corporate Centre Drive, Suite 300, Garfield
Heights, Ohio, 44125. The status of all outstanding concerns
addressed to the entire Board or only to non-management
Directors will be reported to the Chairman of the Board or the
Lead Independent Director, respectively, on a quarterly basis.
Mr. Press has been designated as the Lead Independent
Director.
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COMPENSATION
COMMITTEE REPORT
Report of
the Compensation Committee on Executive Compensation
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with the Companys management. Based on that review and
discussion, the Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in the
Companys Annual Report on
Form 10-K
and in the Companys definitive proxy statement prepared in
connection with its 2007 Annual Meeting of Stockholders.
Compensation Committee
Richard E. Goodrich, Chairman
Timothy H. Day
Michael W. Press
The above Report of the Compensation Committee does not
constitute soliciting material and should not be deemed filed
with the Commission or subject to Regulation 14A or 14C
(other than as provided in Item 407 of
Regulation S-K)
or to the liabilities of Section 18 of the Exchange Act,
except to the extent that the Company specifically requests that
the information in this Report be treated as soliciting material
or specifically incorporates it by reference into a document
filed under the Securities Act of 1933, as amended (the
Securities Act), or the Exchange Act. If this Report
is incorporated by reference into the Companys Annual
Report on
Form 10-K,
such disclosure will be furnished in such Annual Report on
Form 10-K
and will not be deemed incorporated by reference into any filing
under the Securities Act or the Exchange Act as a result of
furnishing the disclosure in this manner.
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Discussion and Analysis
The primary objectives of the Compensation Committee of our
Board of Directors with respect to the determination and
administration of our Companys executive compensation
programs historically have been to:
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create and enhance stockholder value by attracting and retaining
key executive talent;
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align our executive officers incentives with stockholder
value creation by tying compensation to the achievement of
measurable operational and strategic objectives; and
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award compensation at levels commensurate with each executive
officers performance, experience and responsibilities.
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Historically, our committees guiding philosophy with
respect to executive officer compensation has emphasized
performance-based compensation. Accordingly, our committee
historically has provided for significant cash incentive
compensation awards and the vesting of a portion of stock option
grants based upon financial and stock performance, including, in
the case of pre-initial public offering stock option grants, the
return on investment that First Reserve realizes when and if it
disposes of its remaining ownership interest in us. To achieve
its objectives, our Compensation Committee historically has
maintained compensation plans that tie a substantial portion of
overall compensation for our named executive officers to our
financial performance and the price of our Common Stock.
Historically, our executive compensation program has been
intended to provide base salaries below the median of executives
at companies considered to be peers, with a total potential
compensation package (including performance-based compensation)
above median among such historical peers if maximum performance
levels were achieved. Companies that may have been considered
peers or potential peers for compensation purposes before our
initial public offering, however, may not be the same companies
that our Compensation Committee selects as peers for
compensation purposes in the future.
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Since October 2005, we have been controlled by our largest
stockholder, First Reserve. With the exception of 2007 targets
under the Chart Industries, Inc. Incentive Compensation Plan and
2007 base salary levels, described below, all compensation
arrangements currently in place were put in place prior to our
initial public offering, which was completed on July 31,
2006, and were not modified, except for those modifications
necessary to reflect our Companys public company status,
in connection with the initial public offering. Although our
Board of Directors and Compensation Committee were responsible
for the implementation and administration of all of our current
benefit and compensation plans before our initial public
offering, all compensation decisions relating to the Chief
Executive Officer and the other executive officers named in the
2006 Summary Compensation Table below were subject to the review
of First Reserve directly or through its representatives.
Moreover, the Board of Directors under which our executive
compensation plans were adopted before our initial public
offering was comprised of Mr. Ben A. Guill (a former
Director), Mr. Day, Mr. Moore and Mr. Thomas. The
Compensation Committee of the Board of Directors was comprised
of Mr. Guill, Mr. Day and Mr. Moore, all of whom
are affiliated with First Reserve.
As part of and subsequent to our initial public offering, we
have appointed three additional independent directors to our
Board of Directors and have altered the membership of our
Compensation Committee so that a majority of the members are
independent directors. Currently, the Compensation Committee is
comprised of Mr. Goodrich (Chairperson), Mr. Press and
Mr. Day. Our Compensation Committee presently is
undertaking a review of our entire executive compensation
program for our executive officers, with the assistance of
Mercer Human Resource Consulting, an independent outside
compensation consulting firm, engaged by the committee. This
review includes a study to determine the companies that should
be considered as peer group companies for executive compensation
purposes, as well as a review of our compensation objectives and
philosophy, and the individual components of our total
compensation package for executive officers. This review is
ongoing at the present time. Accordingly, except as otherwise
indicated, this Compensation Discussion and Analysis reflects a
discussion of our historical compensation objectives and
philosophy, as well as the historical elements of our total
executive officer compensation package.
At the time of the acquisition of our Company by First Reserve
in October 2005 (the Acquisition), while we were a
private company, we entered into new employment agreements with
Mr. Thomas and Mr. Biehl, and the Compensation
Committee implemented new executive compensation programs,
substantially as they are today. We subsequently entered into
employment agreements with Mr. Klaben and Mr. Hoppel
in March and May of 2006, respectively, while we were a private
company before our initial public offering. The terms of all
four employment agreements were negotiated by or with the input
of representatives of First Reserve based upon prevailing market
conditions for private equity investments and factors specific
to the circumstances of our Company and our executive officers.
Our Chief Executive Officer periodically evaluates the
performance of all other senior executives, and our Board and
Compensation Committee periodically evaluate the Chief Executive
Officers and other executive officers performance,
in each case based on quantitative and qualitative performance
criteria. These evaluations take place informally as well as
formally in the setting of Board and Compensation Committee
meetings, and are considered by the committee in making
individual compensation determinations.
Elements
of Compensation
Executive
compensation consists of the following primary
components:
Base Salary. Base salaries are reviewed
annually, and adjusted from time to time to reflect performance,
experience, responsibilities and market conditions. Salary
review is conducted by the Compensation Committee before or
during the early part of the fiscal year for which the base
salary will become effective. The Compensation Committee is
responsible for setting the base salary of the Chief Executive
Officer, and historically has taken into account his individual
responsibilities, performance and experience, and the
competitive market compensation paid by other companies of
similar size in a similar industry. The current base salary for
the CEO, which is $450,000 for 2007, an increase from $400,000
for 2006, was determined after a survey of certain potential
peer group companies and based on the experience of the members
of the Compensation Committee, taking into account his
individual responsibilities, performance and experience relative
to those of chief executive officers at companies similarly
situated to the Company. Increases in base salary with respect
to the executive officers, other than the Chief
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Executive Officer, are recommended to the Compensation Committee
by the Chief Executive Officer. In making this recommendation,
the CEO considers each executive officers individual
responsibilities, performance and experience, and competitive
market compensation paid by similarly situated companies in
similar geographic markets. However, any increase in base salary
is granted at the sole discretion of the Compensation Committee.
The current base salaries for the executive officers other than
the Chief Executive Officer and President are $245,000 for the
Executive Vice President, Chief Financial Officer and Treasurer
for 2007 (an increase from $235,000 for 2006), $200,000 for the
Vice President, General Counsel and Secretary for 2007 (an
increase from $193,000 for 2006) and $170,000 for the Chief
Accounting Officer, Controller and Assistant Treasurer (an
increase from $154,000 for 2006).
Annual and Other Cash Incentive Awards. In
addition to their base salary, executive officers are eligible
to earn an annual cash incentive bonus. Under the 2006 Chart
Executive Incentive Compensation Plan (the 2006 Bonus
Plan), adopted by the Board of Directors and approved by
our stockholders on March 1, 2006 and July 18, 2006,
respectively, executive officers were eligible to earn a cash
incentive bonus for 2006 if performance exceeded threshold
amounts in an amount up to a pre-determined percentage, ranging
from 90% to 165% of the executive officers base salary
(with higher ranked officers being compensated at a higher
percentage of base salary), at maximum performance levels. The
Compensation Committee established performance targets under the
2006 Bonus Plan for the 2006 fiscal year. The material targets
included working capital and EBITDA targets. When these targets
were set in early 2006, they were set at levels that were
believed to represent significant performance that would involve
some difficulty at the threshold levels, increased difficulty at
the 100% target levels, and significant difficulty at the
maximum target levels, in each case relative to historical
trends and future expectations at the time the levels were set.
Management believes that EBITDA is a typical performance measure
among private equity portfolio companies, and that EBITDA and
working capital also reflect key performance measures used to
track the Companys value, operational performance and cash
flow externally and internally. The 2006 Bonus Plan provides
that if actual performance falls below the minimum threshold for
a performance objective, the executive officer will receive no
payment based on that objective, and provides for payment
determination on a straight-line basis for performance between
the minimum performance threshold and 100% target and between
100% target and maximum target level. Following the end of the
fiscal year, the Compensation Committee determines
(i) whether and to what extent any of the established
performance objectives have been satisfied, and (ii) for
each executive officer employed as of the last day of the fiscal
year, the actual bonus to which such executive officer shall be
entitled. The committee has determined that our financial
performance for our 2006 fiscal year has exceeded the maximum
target levels for each executive officer performance measure
under the 2006 Bonus Plan. Accordingly, we paid the following
cash payments under the 2006 Bonus Plan to our executive
officers on March 15, 2007: Chief Executive Officer and
President, $660,000; Executive Vice President, Chief Financial
Officer and Treasurer, $352,500; Vice President, General Counsel
and Secretary, $202,650; and Chief Accounting Officer,
Controller and Assistant Treasurer, $138,600.
In addition to any incentive awards granted under the 2006 Bonus
Plan, Mr. Klaben received a signing bonus, in the amount of
$25,000, as an inducement related to his joining our Company in
March 2006.
In March 2006, Messrs. Thomas, Biehl and Hoppel received
annual bonus incentive compensation, pursuant to the terms of
the Chart Industries, Inc. 2005 Incentive Compensation Plan, in
the amount of $600,000, $319,800 and $106,500, respectively.
Mr. Klaben did not receive a cash incentive bonus under
this plan, as he was not our employee during our 2005 fiscal
year. The target amounts, performance measures (which included
earnings before interest, taxes, depreciation, amortization and
restructuring charges (EBITDAR), but not working capital) and
thresholds set under our 2005 Incentive Compensation Plan, which
was adopted before we were acquired by First Reserve in October
2005, were different than those under our 2006 Bonus Plan,
reflecting anticipated performance of the Company and
performance measure priorities in early 2005 as set by our
Compensation Committee and Board of Directors in the period
prior to the Acquisition.
Beginning with our 2007 fiscal year and going forward, annual
cash bonuses, if any, will be awarded under the Chart
Industries, Inc. Incentive Compensation Plan (the
Incentive Compensation Plan), which was adopted by
the Board of Directors and approved by our stockholders on July
17 and July 18, 2006, respectively. The Incentive
Compensation Plan provides the Compensation Committee with
greater flexibility to establish performance criteria and
performance periods for which cash incentive compensation will
be awarded. Under the Incentive
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Compensation Plan, a performance period may be for a fiscal year
or a multi-year cycle, as determined by the Compensation
Committee, and the performance objectives upon the attainment of
which target incentive bonuses will be awarded may be based on
one or more of certain performance criteria which may relate to
us, one or more of our subsidiaries, our divisions or units, or
any combination of the foregoing, and may be applied on an
absolute basis
and/or be
relative to one or more peer group companies or indices, or any
combination thereof, all as the committee shall determine. The
Compensation Committee may appropriately adjust any performance
evaluation under a performance objective or objectives to
reflect or exclude certain extraordinary events that may occur
during the performance period. If there is a change in control,
as defined in the Incentive Compensation Plan, the Compensation
Committee will determine promptly, in its discretion, whether
and to what extent the performance criteria have been met or
will be deemed to have been met for the year in which the change
in control occurs and for any completed performance period for
which a determination under the plan has not been made. If the
committee determines the criteria have been met, participants
will receive their bonuses as soon as practicable, but in no
event more than 30 days after the determination.
Pursuant to the terms of the Incentive Compensation Plan, no
executive officer or other participant may receive a bonus, with
respect to any fiscal year, in excess of $5.0 million. The
committee has absolute discretion to reduce or eliminate the
amount otherwise payable under the Incentive Compensation Plan
and to establish rules or procedures which limit the amount
payable to a participant to an amount that is less than the
amount otherwise approved as that participants target
incentive bonus.
Our Compensation Committee has set annual incentive compensation
targets and performance measures for our 2007 fiscal year under
the Incentive Compensation Plan. Under these targets, our
executive officers are eligible to earn a cash incentive bonus
for our 2007 fiscal year if performance exceeds threshold
amounts in an amount up to a pre-determined percentage, ranging
from 97.5% to 165% of the executive officers base salary
(with higher ranked officers being compensated at a higher
percentage of base salary), at maximum performance levels. The
performance measures established under the Incentive
Compensation Plan for the 2007 fiscal year for executive
officers are operating income, net income and working capital.
The committee selected these measures for 2007 in an effort to
more closely align executive officer cash bonus measures to
measures that are believed to be meaningful indications of our
performance for our public stockholders. These performance
measures were set at levels that were believed to represent,
when they were set in early 2007, significant performance that
would involve some difficulty at the threshold levels, increased
difficulty at the 100% target levels, and significant difficulty
at the maximum levels, in each case relative to historical
trends and future expectations at the time the levels were set.
Following the end of the 2007 fiscal year, the Compensation
Committee will determine (i) whether and to what extent any
of the established performance objectives have been satisfied
for 2007, and (ii) for each executive officer employed as
of the last day of 2007, the actual bonus to which such
executive officer will be entitled for 2007. Executive officers
will be entitled to the following cash payments under the
Incentive Compensation Plan for 2007, based on a percentage of
2007 base salary, if Company performance meets the minimum
performance threshold for each performance measure, meets the
100% target for each performance measure, or meets or exceeds
the maximum target level for each performance measure for 2007,
respectively: Chief Executive Officer and President, $0,
$495,000 and $742,500, respectively; Executive Vice President,
Chief Financial Officer and Treasurer, $0, $245,000 and
$367,500, respectively; Vice President, General Counsel and
Secretary, $0, $140,000 and $210,000, respectively; and Chief
Accounting Officer, Controller and Assistant Treasurer, $0,
$110,500 and $165,750, respectively. If actual performance falls
below the minimum performance threshold for a performance
measure, the executive officer will receive no payment based on
that measure, and for performance levels between the minimum
performance threshold and 100% target, and between 100% target
and the maximum target level, payments are determined based on a
straight-line relationship. Once bonus amounts have been
determined, those bonuses, if any, are required to be paid to
executive officers by March 15, 2008.
Payments made under the 2006 Bonus Plan and the Incentive
Compensation Plan are intended to be exempt from the deduction
limitations of Section 162(m) of the Internal Revenue Code
under transition reliance period rules applicable to
compensation paid pursuant to a plan that existed before we
became publicly held and that was disclosed in our initial
public offering prospectus.
Consistent with our historical compensation philosophy, the
annual incentive performance bonus historically has been a
significant portion of total compensation. The purpose of both
the 2006 Bonus Plan and the Incentive
14
Compensation Plan is to attract, retain, motivate and reward
participants by providing them with the opportunity to earn
competitive compensation directly linked to our performance. The
plans were designed to provide our executive officers with
incentive compensation based upon the achievement of
pre-established performance goals. The performance criteria are
tied to Company, rather than individual performance. This
approach historically has been taken by our Company in light of
our historical emphasis on performance-based compensation tied
to Company financial and stock performance, rather than
qualitative individual performance assessments.
Equity Compensation. All of our executive
officers have received equity compensation under one or both of
our 2004 Stock Option and Incentive Plan or our Amended and
Restated 2005 Stock Incentive Plan. We have not adopted stock
ownership guidelines, and, therefore, our stock incentive plans
have provided the principal method for our executive officers to
acquire equity interests in our Company.
Amended
and Restated 2005 Stock Incentive Plan
The Amended and Restated Chart Industries, Inc. 2005 Stock
Incentive Plan (the 2005 Stock Incentive Plan) was
initially adopted effective November 23, 2005, in
connection with the Acquisition. The plan, as amended and
restated, was adopted by the Board of Directors and approved by
our stockholders in connection with our initial public offering.
The 2005 Stock Incentive Plan was amended and restated at that
time to reflect the fact that our public company status made
certain provisions under the original plan no longer applicable.
The 2005 Stock Incentive Plan provides for the grant of
non-qualified stock options, stock appreciation rights,
restricted stock, restricted stock units, and other stock-based
grants, including shares of our Common Stock sold to our
non-employee Directors, executive officers, other key employees
and consultants. The 2005 Stock Incentive Plan is administered
by our Board of Directors, which may delegate its duties and
powers in whole or in part to any committee thereof. The Board
has delegated administration of the 2005 Stock Incentive Plan to
the Compensation Committee.
Despite the flexibility afforded under the 2005 Stock Incentive
Plan to award a variety of equity-based awards, the Compensation
Committee has awarded to the executive officers only stock
options to date. The Compensation Committee may in the future,
as part of its evaluation of overall executive compensation
arrangements, make grants of other kinds of equity compensation
awards to our executive officers or other employees. To date,
the Compensation Committee has granted to our executive officers
under the 2005 Stock Incentive Plan certain options as
non-qualified stock options, which have been granted as follows:
approximately 35% vest and become exercisable over the passage
of time, which we refer to as time options, assuming
the holder thereof continues to be employed by us, and the
remaining portion vests and becomes exercisable based upon the
achievement of certain performance targets, which we refer to as
performance options. Time options generally become
exercisable by the holder of the option in installments of 20%
on each of the first five anniversaries of the grant date. The
performance based stock options vest based upon the return on
investment that First Reserve realizes if and when it liquidates
its ownership interest in us. Performance options generally
become exercisable based upon the Fund X Net
Return, which is the amount received by First Reserve in
cash (and/or in-kind based upon the fair market value of
securities or other property received by First Reserve) in
respect of its investment in us divided by the amount of the
investment by First Reserve in us, which we refer to as the
Fund X Investment.
In our 2006 fiscal year, we awarded options covering a total of
108,555 shares of Common Stock, at an exercise price of
$12.16 per share, to executive officers, under the 2005
Stock Incentive Plan. Mr. Klaben was awarded an option
covering 99,592 shares of Common Stock, in connection with
the commencement of his employment as Vice President,
General Counsel and Secretary of the Company on March 29,
2006 as a result of negotiations between us and Mr. Klaben
to induce Mr. Klaben to accept employment with us, and
Mr. Hoppel was awarded an option covering 8,963 shares
of Common Stock, in recognition of Mr. Hoppels
appointment as our Chief Accounting Officer, in connection with
grants to a number of employees, on April 27, 2006. Each of
the options granted on March 29 and April 27, 2006 have
similar terms, which are as follows: they have a
10-year term
unless they are earlier terminated and approximately 35% are
time options, and the remaining portion are
performance options, each as described above.
With respect to the non-qualified stock options granted under
the 2005 Stock Incentive Plan, we will be entitled to a tax
deduction in the year in which the non-qualified stock option is
exercised in an amount equal to the amount
15
by which the fair market value of the shares underlying the
non-qualified stock options on the date of exercise exceeds the
exercise price of the option. For a description of the
compensation expense we incurred in 2006 related to stock
options held by executive officers, and related valuation
assumptions under, see note (1) to 2006 Summary
Compensation Table.
The 2005 Stock Incentive Plan is intended to aid us in
recruiting and retaining key employees, Directors and
consultants of outstanding ability and to motivate such
employees, Directors or consultants to exert their best efforts
on behalf of us and our affiliates by providing incentives
through the granting of awards. Our Compensation Committee
historically has taken the view that providing our executive
officers with a proprietary interest in our success further
aligns the incentives of our executive officers with those of
our stockholders. The allocation of option awards between time
vesting and performance vesting allows us to satisfy both
components of our compensation philosophy which focuses on
retaining top executive talent and aligning the incentives of
our executive officers with our stockholders. The fact that the
vesting of 65% of the stock options that have been granted to
our executive officers are tied directly to the return on
investment which is realized by First Reserve is consistent with
the fact that the grants were made during a time when the
Company was under the control of a private equity investor.
However, this is not inconsistent with our overall executive
compensation philosophy, as an increase in stock value which
benefits a significant stockholder should benefit all
stockholders.
In connection with the completion of our initial public
offering, we made a 9.95928-for-one adjustment with respect to
the number of shares underlying options outstanding under our
2005 Stock Incentive Plan at the time of our initial public
offering and a corresponding adjustment to the exercise prices
of such options. These options included the options under the
2005 Stock Incentive Plan held by executive officers. The
9.95928-for-one adjustment with respect to the number of shares
underlying options outstanding at the time of our initial public
offering reflected both the 4.6263-for-one stock split on our
shares of Common Stock outstanding before the consummation of
the initial public offering, plus additional adjustments to both
the exercise price and the number of shares underlying the
options in order also to take into account, consistent with
applicable tax standards and in accordance with the terms of the
2005 Stock Incentive Plan, the decrease in value of our
pre-initial public offering Common Stock which resulted from the
payment of the dividends received by our stockholders existing
immediately prior to the initial public offering. Other than
through these adjustments to their options, option holders would
not have participated in the stock split or the dividends. In
accordance with SFAS 123(R), Share Based
Payments, we concluded that this cumulative
9.95928-for-one adjustment to the shares underlying options
resulted in no additional stock-based compensation expense
because our 2005 Stock Incentive Plan includes an anti-dilution
modification provision that applies to share splits and
extraordinary cash dividends, such as those that took place in
connection with our initial public offering, and this
modification represents an adjustment to keep the option holders
in the same economic position as they were in before our initial
public offering with respect to their options.
2004
Stock Option and Incentive Plan
The Chart Industries, Inc. 2004 Stock Option and Incentive Plan
(the 2004 Stock Plan), was adopted effective
February 12, 2004 and approved by our stockholders on
July 18, 2006. The 2004 Plan permits the grant of
nonqualified stock options to our and our affiliates
employees. Prior to the consummation of our initial public
offering, all options that were outstanding under the 2004 Stock
Plan were fully vested and exercised, and no options remain
outstanding under the 2004 Stock Plan. We have not made any
additional grants under the 2004 Stock Plan since the completion
of our initial public offering, and we do not intend to make any
grants under the 2004 Stock Plan going forward. For a
description of stock options under our 2004 Stock Option Plan
exercised in 2006 by executive officers, consisting of options
held by Messrs. Thomas and Biehl, see 2006 Stock
Option Exercises and Stock Vested Table. Those employees
who exercised their options outstanding under the 2004 Stock
Plan in 2006 before our initial public offering, including
Messrs. Thomas and Biehl, became holders of our Common
Stock before our initial public offering and, accordingly,
participated ratably in the cash dividend paid to our
stockholders existing immediately prior to the initial public
offering from the net proceeds of the initial public offering,
and participated ratably in the stock dividend we distributed to
the same pre-initial public offering stockholders on
August 25, 2006 as part of the initial public offering,
which we distributed after our initial public offering
underwriters did not exercise their over-allotment option.
Messrs. Thomas and Biehl received $5,866,697
16
and $328,493, respectively, as stockholders in the cash dividend
and 73,181 and 4,097 shares of our Common Stock,
respectively, as stockholders in the stock dividend. See
Management Equity below.
Deferred Compensation. The terms of our
Amended and Restated Voluntary Deferred Income Plan are
described below under 2006 Nonqualified
Deferred Compensation Table. Participation in this plan is
entirely voluntary, and we presently do not offer any matching
monies or contributions. We offered this plan to our executive
officers to defer their compensation to subsequent years to help
with their personal tax planning. Of the executive officers,
only Mr. Thomas elected to participate in this plan in
2006, and he deferred part of his bonus payable for our 2005
fiscal year in 2006 under this plan.
Other Benefits. Executive officers are
eligible to participate in all of our employee benefit plans,
including our 401(k) Plan, health, life and disability
insurance, retirement, deferred compensation and fringe
benefits, as well as any equity compensation plans, as in effect
from time to time, on the same basis as those benefits are
generally made available to other senior executives of the
Company.
Additionally, all of our executive officers receive automobile
allowances. In accordance with our performance-based
compensation philosophy, we intend to continue to maintain
modest executive benefits and perquisites for officers; however,
the Compensation Committee in its discretion may revise, amend
or add to the officers executive benefits and perquisites
if it deems it advisable.
Option
Grant Policies
For stock options granted under the 2005 Stock Incentive Plan,
the exercise price per share is equal to the fair market value
on the applicable date of grant. In March 2006 we hired an
independent valuation firm to determine the fair market value of
our Common Stock as of March 31, 2006. All stock options
granted to our employees, including our executive officers,
during our 2006 fiscal year and prior to our initial public
offering were granted at fair market value, on the grant date in
accordance with the valuation determined by our independent,
outside valuation firm. The value of these options is reflected
in our consolidated financial statements, based upon the
applicable accounting guidance, using a fair market value
formulation derived from the price at which we initially
proposed to offer our stock to the public in our initial public
offering, which was significantly higher than the price at which
we actually offered our stock to the public. Equity grants in
the form of restricted stock units made to our non-employee
Directors, as discussed below under Director
Compensation were granted and reflected in our
consolidated financial statements, based upon the applicable
accounting guidance, at fair market value, as determined by the
market price per share of a share of our Common Stock on the
date of grant. Other than with respect to regular annual grants
of restricted stock units made to our non-employee Directors as
described below, we do not have any program, plan or policy
which requires us to grant equity compensation on specified
dates; however, we have not made any equity grants in connection
with the release or withholding of material non-public
information.
Change
in Control Payments
None of the executive officers respective employment
agreements provide for change in control payments; however
accelerated vesting of outstanding time options will occur upon
a change in control (as defined in the 2005 Stock Incentive
Plan) pursuant to the terms of the 2005 Stock Incentive Plan.
Immediately prior to a change in control of us, the
exercisability of the time options will automatically accelerate
with respect to 100% of the shares of our Common Stock subject
to the time options. In addition, subject to the holder of the
options continued employment, in the event First Reserve
sells 100% of its interest in us to a third party prior to
October 17, 2008 and, as a result of such sale, the
Fund X Net Return is less than 2.50 times the Fund X
Investment, but an internal rate of return of greater than 30%
is realized, the performance options will accelerate with
respect to 45% of the shares of our Common Stock subject to the
performance option.
Immediately upon any change in control (as defined in our
Amended and Restated Voluntary Deferred Income Plan)
Mr. Thomas interest in all amounts credited to his
account under the plan shall fully and immediately vest and
become nonforfeitable. There currently are no Company
contributions credited to Mr. Thomas account or any
other employees account under this plan. In addition, our
executive officers may receive payments under our Incentive
Compensation Plan following a change in control (as defined in
the Incentive Compensation Plan) if the
17
Compensation Committee determines the performance criteria have
been met, as described above under Elements of
Compensation Annual and Other Cash Incentive
Awards.
For more information on change in control and severance
benefits, see Other Potential Post-Employment
Payments below.
Anticipated
Changes in Executive Compensation
Our executive compensation programs will continue in their
current form until such time as the Compensation Committee
determines in its discretion that revisions to our current plans
or replacement plans are advisable. As discussed above, our
Compensation Committee presently is undertaking a review of our
entire executive compensation program for our executive
officers, with the assistance of an independent outside
compensation consulting firm engaged by the committee. This
review and determinations of our Compensation Committee may
result in changes in our compensation arrangements and analysis
in the future, including the peers against which our committee
measures executive compensation, changes in equity or other
long-term incentives, and other changes as the committee may
determine.
As mentioned above, following our initial public offering, the
membership of the Compensation Committee was altered to include
two independent directors. By July 25, 2007, in accordance
with NASDAQ rules, our Compensation Committee will be required
to consist solely of independent directors.
EXECUTIVE
AND DIRECTOR COMPENSATION
2006
SUMMARY COMPENSATION TABLE
The following table and related notes and discussion summarize
compensation earned for our 2006 fiscal year by our four
executive officers who served as executive officers during and
at the end of 2006, who we refer to as our named executive
officers, presented in accordance with SEC rules.
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Non-Equity
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Option
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Incentive Plan
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All Other
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Name and Principal Position
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Year
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Salary ($)
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Bonus ($)
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Awards ($)(1)
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Compensation(2)
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Compensation ($)(3)
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Total ($)
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Samuel F. Thomas
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2006
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$
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400,000
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$
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384,618
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$
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660,000
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$
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30,404
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$
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1,475,022
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(Chairman, Chief Executive Officer
and President)
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Michael F. Biehl
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2006
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$
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235,000
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$
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115,385
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$
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352,500
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$
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33,089
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$
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735,974
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(Executive Vice President, Chief
Financial Officer and Treasurer)
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Matthew J. Klaben
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2006
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$
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146,977
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$
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25,000
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(5)
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$
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169,021
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$
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202,650
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$
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10,818
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$
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554,466
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(Vice President, General Counsel
and Secretary)(4)
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James H. Hoppel, Jr.
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2006
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$
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153,000
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$
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52,178
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$
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138,600
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$
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36,993
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$
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380,771
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(Chief Accounting Officer,
Controller and Assistant Treasurer)
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(1) |
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The option awards and the dollar values included in the option
awards column are set forth in the table below. These awards
were all granted pursuant to the 2005 Stock Incentive Plan and
include awards granted in and prior to 2006. The dollar values
shown in the table above are the aggregate dollar amounts
recognized for financial statement reporting purposes for the
fiscal year ended December 31, 2006, in accordance with
SFAS 123(R), Share-Based Payment, and SEC rules
for executive compensation disclosure. The following assumptions
were used in calculating the amounts listed: |
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The fair value of the options granted on November 23, 2005
was estimated using the Black-Scholes option pricing model with
the following weighted average assumptions: risk-free interest
rate of 4.80 percent; dividend yields of 0.0 percent;
volatility factors of the expected market price of the
Companys Common Stock of 47.0 percent and a weighted
average expected life of 7.5 years for the options. |
18
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The fair value of the options granted on March 29, 2006 was
estimated using the Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest rate
of 5.0 percent; dividend yields of 0.0 percent;
volatility factors of the expected market price of the
Companys Common Stock of 47.0 percent and a weighted
average expected life of 7.5 years for the options. |
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The fair value of the options granted on April 27, 2006 was
estimated using the Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest rate
of 5.3 percent; dividend yields of 0.0 percent;
volatility factors of the expected market price of the
Companys Common Stock of 47.0 percent and a weighted
average expected life of 7.5 years for the options. |
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Volatility was calculated using an average of the Predecessor
Companys historical closing stock price on the OTCBB from
October 2, 2003 to October 14, 2005. |
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Performance Options(x)
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Time Options(y)
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Number of
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Compensation
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Number of
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Compensation
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Grant Date
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Options
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Expense ($)(z)
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Grant Date
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Options
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Expenses ($)(z)
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Samuel F. Thomas
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11/23/2005
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$
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435,215
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$
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11/23/2005
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$
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237,388
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$
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384,618
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Michael F. Biehl
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11/23/2005
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$
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130,563
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$
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11/23/2005
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$
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71,216
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$
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115,385
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Matthew J. Klaben
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3/29/2006
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$
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64,735
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$
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3/29/2006
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$
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34,857
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$
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169,021
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James H. Hoppel, Jr.
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11/23/2005
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$
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43,525
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$
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11/23/2005
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$
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23,738
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$
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38,462
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4/27/2006
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$
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5,826
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$
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4/27/2006
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$
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3,137
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$
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13,716
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(x) |
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Performance option grants are described below under Equity
and Incentive Plan Awards Amended and Restated Chart
Industries, Inc. 2005 Stock Incentive Plan and generally
become exercisable based on the Fund X Net
Return which is based on the amount received by First
Reserve in respect of its investment in us, as described below
under Equity and Incentive Plan Awards Amended
and Restated Chart Industries, Inc. 2005 Stock Incentive
Plan. None of the performance options have vested and we
have not been able to predict when or if the Fund X Net
Return will reach a minimum threshold amount or other events
will occur that will result in any performance option grants
ever becoming exercisable. Accordingly, under applicable
accounting rules, we did not recognize any expense with respect
to these options for 2006. We may record additional stock-based
compensation expense in future periods related to the
performance options granted under the 2005 Stock Incentive Plan
to the named executive officers, if it becomes probable that any
of the future performance criteria will be achieved. For
example, we have filed a Registration Statement with the SEC
relating to a possible sale by First Reserve of the shares it
holds in us in the Potential Public Offering. Upon completion of
that offering, as a result of the vesting of the performance
based options based on First Reserve achieving a specified
investment return, we would incur a pre-tax and after-tax,
non-cash stock-based compensation expense in the period in which
the offering is consummated. The amount of the expense relating
to the performance options cannot be estimated at this time, but
could be up to $7.7 million if 100% of the performance
options vest. |
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(y) |
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Time option grants are described below under Equity and
Incentive Plan Awards Amended and Restated Chart
Industries, Inc. 2005 Stock Incentive Plan and become
exercisable annually and ratably over five years after the grant
date as described below under Equity and Incentive Plan
Awards Amended and Restated Chart Industries, Inc.
2005 Stock Incentive Plan.. |
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(z) |
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Aggregate dollar amounts recognized as stock-based compensation
expense for financial statement reporting purposes under
SFAS 123(R)for fiscal 2006. |
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(2) |
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Reflects amounts of incentive compensation earned under our 2006
Bonus Plan. Our Compensation Committee has determined that our
financial performance for 2006 has exceeded the maximum target
levels for each named executive officer performance measure
under the 2006 Bonus Plan. We paid the 2006 Bonus Plan cash
payments to our named executive officers on March 15, 2007. |
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(3) |
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All Other Compensation includes the following payments made on
behalf of our executive officers. All amounts are calculated
based on the aggregate incremental actual cost, in dollars, to
us of the benefit listed. |
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Perquisites and
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Company
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Other Personal
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Contributions to
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Year
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Benefits ($)(x)
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401(k) Plan ($)(y)
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Total ($)
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Samuel F. Thomas
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2006
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$
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12,000
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$
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18,404
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$
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30,404
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Michael F. Biehl
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2006
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$
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12,000
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$
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21,089
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$
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33,089
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Matthew J. Klaben
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2006
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$
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7,200
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$
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3,618
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$
|
10,818
|
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James H. Hoppel, Jr.
|
|
|
2006
|
|
|
$
|
16,867
|
|
|
$
|
20,126
|
|
|
$
|
36,993
|
|
|
|
|
(x) |
|
In 2006, each of the named executive officers received an
automobile allowance. In addition to his automobile allowance in
the amount of $9,600, Mr. Hoppel received a travel
allowance in the amount of $7,267 in connection with his efforts
related to our initial public offering. |
|
(y) |
|
Includes 401(k) plan matching contributions made by us and
401(k) plan profit sharing. Company contributions under our
401(k) plan for 2006 are subject to adjustment downward based on
nondiscrimination testing in the first quarter of 2007. |
|
|
|
(4) |
|
Mr. Klaben joined our Company on March 29, 2006. |
|
(5) |
|
Mr. Klaben received a $25,000 signing bonus in connection
with commencement of his employment with us in March of 2006. |
2006
GRANTS OF PLAN-BASED AWARDS TABLE
The following table and related notes and discussion summarize
grants of equity and non-equity incentive compensation awards to
our named executive officers for our 2006 fiscal year, presented
in accordance with SEC rules.
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All Other
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Option
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Awards:
|
|
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Exercise or
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|
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Grant
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|
|
|
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Estimated Future Payouts Under
|
|
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Estimated Future Payouts Under
|
|
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Number of
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|
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Base Price
|
|
|
Date Fair
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|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards
|
|
|
Equity Incentive Plan Awards
|
|
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Securities
|
|
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of Option
|
|
|
Value of
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Threshold
|
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Target
|
|
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Maximum
|
|
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Threshold
|
|
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Target
|
|
|
Maximum
|
|
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Underlying
|
|
|
Awards
|
|
|
Option
|
|
Name
|
|
Grant Date
|
|
|
Approval Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
Options (#)
|
|
|
($/Sh)(3)
|
|
|
Awards
|
|
|
Samuel F. Thomas
|
|
|
|
(1)
|
|
|
|
|
|
$
|
|
|
|
$
|
440,000
|
|
|
$
|
660,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael F. Biehl
|
|
|
|
(1)
|
|
|
|
|
|
$
|
|
|
|
$
|
235,000
|
|
|
$
|
352,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Matthew J. Klaben
|
|
|
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(1)
|
|
|
|
|
|
$
|
|
|
|
$
|
135,100
|
|
|
$
|
202,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/2006
|
(2)
|
|
|
3/22/2006
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,857
|
|
|
$
|
12.16
|
(3)
|
|
$
|
487,709
|
|
|
|
|
3/29/2006
|
(4)
|
|
|
3/22/2006
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,889
|
(4)
|
|
$
|
|
|
|
$
|
64,735
|
(4)
|
|
|
|
|
|
$
|
12.16
|
(3)
|
|
$
|
|
|
James H. Hoppel, Jr.
|
|
|
|
(1)
|
|
|
|
|
|
$
|
|
|
|
$
|
92,400
|
|
|
$
|
138,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2006
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,137
|
|
|
$
|
12.16
|
(3)
|
|
$
|
44,036
|
|
|
|
|
4/27/2006
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,340
|
(4)
|
|
$
|
|
|
|
$
|
5,826
|
(4)
|
|
|
|
|
|
$
|
12.16
|
(3)
|
|
$
|
|
|
|
|
|
(1) |
|
Granted pursuant to the Chart Industries, Inc. 2006 Bonus Plan,
described in Equity and Incentive Plan Awards
2006 Chart Executive Incentive Compensation Plan below. |
|
(2) |
|
Time options granted pursuant to the 2005 Stock Incentive Plan,
described in Equity and Incentive Plan Awards
Amended and Restated Chart Industries, Inc. 2005 Stock Incentive
Plan below. |
|
(3) |
|
In March 2006, we hired an independent valuation firm to
determine the fair market value of our Common Stock as of
March 31, 2006. All stock options granted to our employees,
including our executive officers, during fiscal 2006 and prior
to our initial public offering were granted at fair market value
on the grant date in accordance with the valuation determined by
our independent, outside valuation firm. The value of these
options is reflected in our consolidated financial statements,
based upon the applicable accounting guidance, using a fair
market value formulation derived from the price at which we
initially proposed to offer our stock to the public in our
initial public offering, which was significantly higher than the
price at which we actually offered our stock to the public. |
|
(4) |
|
Performance options granted pursuant to the 2005 Stock Incentive
Plan, as described in Equity and Incentive Plan
Awards Amended and Restated Chart Industries, Inc.
2005 Stock Incentive Plan below. The performance options
become exercisable based upon the Fund X Net
Return, which is the amount received by First |
20
|
|
|
|
|
Reserve in cash (and/or in kind based upon the fair market value
of securities or other property received by First Reserve) in
respect of its investment in us divided by the amount of the
investment by First Reserve in us, which we refer to as the
Fund X Investment. In the event the Fund X Net Return
is less than 2.25 times the Fund X Investment, the
performance options will be cancelled. If the Fund X Net
Return is 2.25 times the Fund X Investment, then 23% of the
performance options will vest, which we have presented in the
table above as the threshold amount. Subject to the
holder of the options continued employment, in the event
First Reserve sells 100% of its interest in us to a third party
prior to October 17, 2008 and, as a result of such sale,
the Fund X Net Return is less than 2.50 times the
Fund X Investment, but an internal rate of return of
greater than 30% is realized by First Reserve, the performance
options granted prior to completion of our initial public
offering will vest with respect to 45% of the shares of our
Common Stock subject to the performance options. In the event
the Fund X Net Return is 4.00 times the Fund X Net
Investment or greater, the performance options granted prior to
completion of our initial public offering will vest with respect
to 100% of the shares of our Common Stock subject to performance
options which we have presented in the table above as the
maximum amount. No target amount is
presented for the performance options, as the vesting of the
performance options is based entirely on the Fund X Net
Return and there is no target for that measure. |
Discussion
of Summary Compensation Table and Grants of Plan-Based Awards
Table
We are party to an employment agreement with each of our named
executive officers. Each employment agreement sets forth the
terms of that officers employment, including among other
things, salary, bonus, certain non-equity incentive plan
benefits and other compensation. Certain material terms of each
executive officers employment agreement are described
below. For more terms, including post-termination and
restrictive covenants, see Other Potential Post-Employment
Payments Restrictive Covenants that Apply During and
After Termination of Employment.
In 2006, we granted time options and performance options to each
of Mr. Klaben and Mr. Hoppel. The material terms of
the grants and the 2005 Stock Incentive Plan under which they
were granted are described below. See Equity and Incentive
Plan Awards Amended and Restated Chart Industries,
Inc. 2005 Stock Incentive Plan.
Samuel
F. Thomas
On November 23, 2005, we entered into an employment
agreement with Samuel F. Thomas, pursuant to which
Mr. Thomas serves as our Chairman, Chief Executive Officer
and President for a three year rolling term. Under the
agreement, Mr. Thomas is entitled to an annual base salary
of $450,000 for 2007 payable in regular installments in
accordance with our usual payroll practices. Mr. Thomas is
also eligible to earn an annual bonus award, for each full year
during the term of his employment agreement, of up to 150% of
his annual bonus target, which target for calendar year 2006 was
$440,000 and for calendar year 2007 is $495,000 under our
Incentive Compensation Plan and may be increased in the sole
discretion of our Board of Directors, based upon the achievement
of annual performance targets established by our Board.
Mr. Thomas is also generally entitled to participate in our
employee benefit plans on the same basis as those benefits are
generally made available to our other senior executives. Under
the employment agreement, Mr. Thomas is entitled to receive
an automobile allowance in the amount of $1,000 per month.
Michael
F. Biehl
On December 1, 2005, we entered into an employment
agreement with Michael F. Biehl, pursuant to which
Mr. Biehl serves as our Executive Vice President, Chief
Financial Officer and Treasurer for a two year rolling term.
Under the agreement, Mr. Biehl is entitled to an annual
base salary of $245,000 for 2007 payable in regular installments
in accordance with our usual payroll practices. Mr. Biehl
is also eligible to earn an annual bonus award, for each full
year during the term of his employment agreement, of up to 150%
of his annual base salary, based upon the achievement of annual
performance targets established by our Board under our Incentive
Compensation Plan. Mr. Biehl is also generally entitled to
participate in our employee benefit plans on the same basis as
those benefits are generally made available to our other senior
executives. Under the employment agreement, Mr. Biehl is
entitled to receive an automobile allowance in the amount of
$1,000 per month.
21
Matthew
J. Klaben
On March 29, 2006, we entered into an employment agreement
with Matthew J. Klaben, pursuant to which Mr. Klaben serves
as our Vice President and General Counsel for a rolling one year
term. Under the agreement, Mr. Klaben is entitled to an
annual base salary of $200,000 for 2007, payable in regular
installments in accordance with our usual payroll practices.
Mr. Klaben received a one-time $25,000 signing bonus in
2006, and is eligible to earn an annual bonus award, for each
full year during the term of his employment agreement, of up to
105% of his annual base salary, based upon the achievement of
annual performance targets established by our Board under our
Incentive Compensation Plan. Mr. Klaben is also generally
entitled to participate in our employee benefit plans on the
same basis as those benefits are generally made available to our
other senior executives. Under the employment agreement,
Mr. Klaben is entitled to receive an automobile allowance
in the amount of $800 per month.
James
H. Hoppel, Jr.
On May 5, 2006, we entered into an employment agreement
with James H. Hoppel, Jr. pursuant to which Mr. Hoppel
serves as our Chief Accounting Officer, Controller and Assistant
Treasurer for a one year rolling term. Under the agreement,
Mr. Hoppel is entitled to an annual base salary of $170,000
for 2007, payable in regular installments in accordance with our
usual payroll practices. Mr. Hoppel is also eligible to
earn an annual bonus award for the 2007 fiscal year and
subsequent years during the term of his employment agreement, of
up to 97.5% of his annual base salary, based upon the
achievement of annual performance targets established by our
Board under our Incentive Compensation Plan. Mr. Hoppel is
also generally entitled to participate in our employee benefit
plans on the same terms as those benefits are generally made
available to our other senior executives. Under the employment
agreement, Mr. Hoppel is entitled to receive an automobile
allowance in the amount of $800 per month.
Our Compensation Committee has determined that our financial
performance for 2006 has exceeded the maximum target levels for
each named executive officer performance measure under our 2006
Bonus Plan. Accordingly, we paid the following cash incentive
bonuses to our named executive officers under the 2006 Bonus
Plan on March 15, 2007: Mr. Thomas, $660,000,
Mr. Biehl, $352,500; Mr. Klaben, $202,650; and
Mr. Hoppel, $138,600. Based on these amounts, each
executive officers salary paid for 2006 and incentive
bonus under the 2006 Bonus Plan accounts for the following
percentage of his total 2006 compensation, respectively, based
on the total amount shown in the 2006 Summary Compensation
Table: Mr. Thomas, 27% and 45%; Mr. Biehl, 32% and
48%; Mr. Klaben, 27% and 37%; and Mr. Hoppel, 40% and
36%.
Equity
and Incentive Plan Awards
2006
Chart Executive Incentive Compensation Plan
Cash bonuses payable to the executive officers are payable
pursuant to and in accordance with the 2006 Bonus Plan. We
adopted the 2006 Bonus Plan effective March 1, 2006. The
2006 Bonus Plan was approved by our stockholders on
July 18, 2006. The material performance targets under the
2006 Bonus Plan, as established by the Compensation Committee of
the Board, include working capital and EBITDA targets.
Management believes that EBITDA is a typical performance measure
among private equity portfolio companies, and EBITDA and working
capital also reflect key performance measures used to track our
Companys value, operational performance and cash flow
externally and internally. If our performance relative to the
2006 Bonus Plans targets exceeds threshold amounts,
participants may earn a bonus of up to a pre-determined
percentage of the participants base salary, ranging from
90% to 165% of the participants base salary at maximum
performance levels. Actual performance below the minimum
performance threshold for a performance objective will result in
no payment based on that objective. Our Compensation Committee
has determined that our financial performance for 2006 has
exceeded the maximum target levels for each named executive
officer performance measure under the 2006 Bonus Plan. We paid
the cash payments to our named executive officers set forth in
the 2006 Summary Compensation Table under the caption
Non-Equity Incentive Plan Compensation.
22
Amended
and Restated Chart Industries, Inc. 2005 Stock Incentive
Plan
We initially adopted the 2005 Stock Incentive Plan effective
November 23, 2005. We adopted the amended and restated 2005
Stock Incentive Plan on July 17, 2006 and the 2005 Stock
Incentive Plan was approved by our stockholders on July 18,
2006.
The 2005 Stock Incentive Plan provides for the grant of
(1) options that are not incentive stock options,
(2) stock appreciation rights, which we refer to as SARs,
(3) restricted stock, (4) restricted stock units, and
(5) other stock-based grants, including the shares of our
Common Stock sold to our non-employee Directors, executive
officers, other key employees and consultants. As of
March 20, 2007, there were 3,421,030 shares of Common
Stock reserved for issuance under the 2005 Stock Incentive Plan.
The 2005 Stock Incentive Plan is administered by our Board of
Directors, which has delegated its duties and powers in whole or
in part to our Compensation Committee. The committee has the
full power and authority to establish the terms and conditions
of any award consistent with the provisions of the 2005 Stock
Incentive Plan and to waive any such terms and conditions at any
time. The committee also has the authority to grant awards under
the 2005 Stock Incentive Plan. The committee is authorized to
interpret the 2005 Stock Incentive Plan, to establish, amend and
rescind any rules and regulations relating to the 2005 Stock
Incentive Plan and to make any other determinations that it
deems necessary or desirable for the administration of the 2005
Stock Incentive Plan. The committee is authorized to correct any
defect or supply any omission or reconcile any inconsistency in
the 2005 Stock Incentive Plan in the manner and to the extent
the committee deems necessary or desirable.
The exercise price per share for options is equal to the fair
market value on the applicable date of grant, subject to any
adjustments to outstanding options permitted in connection with
significant transactions, such as our initial public offering.
An option holder may exercise an option by written notice and
payment of the exercise price (1) in cash, (2) to the
extent permitted by the Board, by the surrender of a number of
shares of Common Stock already owned by the option holder for at
least six months (or such other period as established from time
to time by the Board to avoid adverse accounting treatment
applying generally accepted accounting principles), (3) in
a combination of cash and shares of Common Stock (as qualified
by clause (2)), (4) through the delivery of
irrevocable instructions to a broker to sell shares obtained
upon the exercise of the option and deliver to us an amount
equal to the exercise price for the shares of Common Stock being
purchased or (5) through such cashless exercise procedures
as the Board may permit. Option holders who are subject to the
withholding of federal and state income tax as a result of
exercising an option may satisfy the income tax withholding
obligation through the withholding of a portion of the shares of
Common Stock to be received upon exercise of the option.
Prior to completion of our initial public offering, we granted
under the 2005 Stock Incentive Plan options to acquire an
aggregate of 2,441,190 shares of Common Stock as
non-qualified stock options. In fiscal year 2006,
Mr. Klaben was awarded an option to purchase
99,592 shares of our Common Stock, consisting of time
options to purchase 34,857 shares of our Common Stock and
performance options to purchase 64,735 shares of our Common
Stock in connection with the commencement of his employment as
Vice President, General Counsel and Secretary of the Company on
March 29, 2006, and Mr. Hoppel was awarded an option
to purchase 8,963 shares of our Common Stock, consisting of
time options to purchase 3,137 shares of our Common Stock
and performance options to purchase 5,826 shares of our
Common Stock, in connection with grants to a number of employees
prior to our initial public offering to incentivize their future
service to us, on April 27, 2006. Each of the options
granted prior to the initial public offering, including those
granted on March 29 and April 27, 2006, have similar terms,
which are as follows: approximately 35% vest and become
exercisable over the passage of time, which we refer to as
time options, assuming the holder thereof continues
to be employed by us, and the remaining portion vests and
becomes exercisable based upon the achievement of certain
performance targets, which we refer to as performance
options. The time options become exercisable by the holder
of the option in installments of 20% on each of the first five
anniversaries of the grant date. The performance options become
exercisable based upon the Fund X Net Return. Each of the
options granted on March 29 and April 27, 2006, as listed
in the table above, have a
10-year term
unless they are earlier terminated. See Compensation
Discussion and Analysis Amended and Restated 2005
Stock Incentive Plan.
Immediately prior to a change in control of us (as defined in
the 2005 Stock Incentive Plan), the exercisability of the time
options granted prior to completion of our initial public
offering will automatically accelerate with
23
respect to 100% of the shares of our Common Stock subject to the
unvested time options. In addition, subject to the holder of the
options continued employment, in the event First Reserve
sells 100% of its interest in us to a third party prior to
October 17, 2008 and, as a result of such sale, the
Fund X Net Return is less than 2.50 times the Fund X
Investment, but an internal rate of return of greater than 30%
is realized by First Reserve, the performance options granted
prior to completion of our initial public offering will vest
with respect to 45% of the shares of our Common Stock subject to
the performance option. As of the date of this proxy statement,
we have not made additional stock option grants to employees
since completion of our initial public offering. We have,
however, made grants of restricted stock units to non-employee
Directors, as described below. See Director
Compensation.
2006
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
The following table and related notes and discussion present
information about equity awards held by our named executive
officers at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Number of Securities
|
|
Equity Incentive Plan
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Awards: Number of
|
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Securities Underlying
|
|
Option
|
|
Option
|
|
|
Options (#)
|
|
Options (#)
|
|
Unexercised Unearned
|
|
Exercise
|
|
Expiration
|
Name
|
|
Exercisable
|
|
Unexercisable(1)
|
|
Options (#)
|
|
Price ($)
|
|
Date
|
|
Samuel F. Thomas
|
|
|
|
|
|
|
|
|
|
|
100,099
|
(3)
|
|
$
|
6.50
|
|
|
|
11/23/2015
|
|
|
|
|
47,478
|
|
|
|
189,910
|
(2)
|
|
|
|
|
|
$
|
6.50
|
|
|
|
11/23/2015
|
|
Michael F. Biehl
|
|
|
|
|
|
|
|
|
|
|
30,029
|
(3)
|
|
$
|
6.50
|
|
|
|
11/23/2015
|
|
|
|
|
14,243
|
|
|
|
56,973
|
(2)
|
|
|
|
|
|
$
|
6.50
|
|
|
|
11/23/2015
|
|
Matthew J. Klaben
|
|
|
|
|
|
|
|
|
|
|
14,889
|
(3)(7)
|
|
$
|
12.16
|
|
|
|
3/29/2016
|
|
|
|
|
|
|
|
|
34,857
|
(4)(6)
|
|
|
|
|
|
$
|
12.16
|
|
|
|
3/29/2016
|
|
James H. Hoppel, Jr.
|
|
|
|
|
|
|
|
|
|
|
10,011
|
(3)
|
|
$
|
6.50
|
|
|
|
11/23/2015
|
|
|
|
|
4,748
|
|
|
|
18,990
|
(2)
|
|
|
|
|
|
$
|
6.50
|
|
|
|
11/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
1,340
|
(3)(7)
|
|
$
|
12.16
|
|
|
|
4/27/2016
|
|
|
|
|
|
|
|
|
3,137
|
(5)(6)
|
|
|
|
|
|
$
|
12.16
|
|
|
|
4/27/2016
|
|
|
|
|
(1) |
|
The securities underlying unexercised options which are
unexercisable are also included in the aggregate dollar amount
recognized for financial statement reporting purposes, in
accordance with SFAS 123(R) and SEC rules for executive
compensation disclosure, in the Option Awards column
of the 2006 Summary Compensation Table. |
|
(2) |
|
These securities underlying unexercised options represent time
options granted under the 2005 Stock Incentive Plan on
November 23, 2005, which will vest ratably on each of
November 23, 2007, 2008, 2009 and 2010. |
|
(3) |
|
These securities underlying unexercised options represent
performance options granted under the 2005 Stock Incentive Plan.
The performance options become exercisable based upon the
Fund X Net Return, which is the amount received
by First Reserve in cash (and/or in-kind based upon the fair
market value of securities or other property received by First
Reserve) in respect of its investment in us divided by the
amount of the investment by First Reserve in us, which we refer
to as the Fund X Investment. The performance options are
reported in the table above based on our achieving threshold
performance levels, or a Fund X Net Return of 2.25 times
the Fund X Investment, at which level 23% of the
performance options would vest. At a Fund X Net Return
below that level, no performance options would become
exercisable, except that, subject to the holder of the
options continued employment, in the event First Reserve
sells 100% of its interest in us to a third party prior to
October 17, 2008 and, as a result of such sale, the
Fund X Net Return is less than 2.50 times the Fund X
Investment, but an internal rate of return of greater than 30%
is realized by First Reserve, the performance options granted
prior to completion of our initial public offering will vest
with respect to 45% of the shares of our Common Stock subject to
the performance option. This measure has not been used for
purposes of presenting the table above, as it was not possible
on December 31, 2006 to estimate when First Reserve may
sell 100% of its investment in us. See Equity and
Incentive Plan Awards Amended and Restated Chart |
24
|
|
|
|
|
Industries, Inc. 2005 Stock Incentive Plan for more
information about these options and the 2005 Stock Incentive
Plan. |
|
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(4) |
|
These securities underlying unexercised options represent time
options granted under the 2005 Stock Incentive Plan, which will
vest ratably on each of March 29, 2007, 2008, 2009, 2010
and 2011. |
|
(5) |
|
These securities underlying unexercised options represent time
options granted under the 2005 Stock Incentive Plan, which will
vest ratably on each of April 27, 2007, 2008, 2009, 2010
and 2011. |
|
(6) |
|
These stock options are also included in the All Other
Option Awards column of the 2006 Grants of Plan-Based
Awards Table. |
|
(7) |
|
These stock options are also included in the Estimated
Future Payouts Under Equity Incentive Plan Awards column
of the 2006 Grants of Plan-Based Awards Table. |
2006
OPTION EXERCISES AND STOCK VESTED TABLE
The following table and related notes and discussion present
information about the number of shares issued upon option
exercises, and the value realized on exercise, by our named
executive officers in 2006.
|
|
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|
|
Option Awards
|
|
|
Number of Shares
|
|
Value Realized on
|
Name
|
|
Acquired on Exercise (#)
|
|
Exercise ($)
|
|
Samuel F. Thomas
|
|
|
437,645
|
(1)(2)
|
|
$
|
9,924,381
|
(3)
|
Michael F. Biehl
|
|
|
24,505
|
(1)(2)
|
|
$
|
555,708
|
(3)
|
|
|
|
(1) |
|
These stock options, which were granted under our 2004 Stock
Plan, were exercised on May 19, 2006, prior to our initial
public offering. The options became exercisable on multiple
dates, on or before October 17, 2005. |
|
(2) |
|
The number of shares acquired on exercise has been adjusted to
give effect to a 4.6263-for-one stock split of our Common Stock
that occurred on July 20, 2006. |
|
(3) |
|
In March 2006, we hired an independent valuation firm to
determine the fair market value of our Common Stock as of
March 31, 2006. The value realized upon exercise is based
on the difference between that fair market value, as determined
by the independent valuation firm (which we consider to be the
fair market value of our stock on May 19, 2006), and the
pre-initial public offering exercise price of the options. The
fair market value of our stock on May 19, 2006, the date of
option exercise, before our initial public offering, is not
comparable to the fair market value of our stock after our
initial public offering as a result of the significant changes
to our equity capital structure that took place immediately
before and as part of our initial public offering. The value
realized upon exercise has not been adjusted to reflect the
income taxes and other costs paid or owed by Messrs. Thomas
and Biehl upon exercise of the options, which were substantial
and all of which have been borne personally by
Messrs. Thomas and Biehl. |
2006
NONQUALIFIED DEFERRED COMPENSATION TABLE
The following table and related notes and discussion present
information about the amount of compensation deferred, and the
earnings accrued thereon, by our named executive officers in
2006.
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|
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|
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|
|
|
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|
Executive
|
|
Registrant
|
|
Aggregate
|
|
Aggregate
|
|
Aggregate
|
|
|
Contributions
|
|
Contributions
|
|
Earnings in
|
|
Withdrawals/
|
|
Balance at Last
|
|
|
in Last FY
|
|
in Last FY
|
|
Last FY
|
|
Distributions
|
|
FYE
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Samuel F. Thomas
|
|
$
|
99,600
|
(1)
|
|
$
|
|
|
|
$
|
10,354
|
|
|
$
|
|
|
|
$
|
109,954
|
|
|
|
|
(1) |
|
The amount of executive contributions listed in the table was
included in the aggregate amount of bonus earned by
Mr. Thomas in the bonus column of our 2005 Summary
Compensation Table. |
Pursuant to the Companys Amended and Restated Chart
Industries, Inc. Voluntary Deferred Income Plan (the
Deferred Income Plan), eligible employees are
entitled to elect to defer up to 100% of their compensation,
consisting of total salary, bonuses and commissions payable in a
calendar year. Regardless of the circumstances
25
under which a participants relationship with the Company
terminates, all deferrals made pursuant to the plan will be
fully vested. Contributions made by the Company, and any gains
or losses on such contributions, vest as follows: 33% upon
completion of one year of participation; 67% upon completion of
two years of participation; and 100% upon completion of three
years of participation in the plan. Elections are made by
participants in the taxable year immediately prior to the
taxable year to which the deferral pertains, and are effective
as of the first day of such taxable year. The Deferred Income
Plan is unfunded and all benefits under the plan are payable
solely from the general assets of the Company.
Benefits under the Deferred Income Plan are payable upon the
participants reaching his or her normal or early
retirement date or termination of employment. Payments are made
either in a lump sum, or in equal annual installments for a
period of years, as designated by the participant at the time of
deferral. Payments may be accelerated under the Deferred Income
Plan in the event that (1) a participants interest
upon termination does not exceed $10,000; (2) a plan
interest is awarded to a former spouse of a participant under
court order; (3) a change in control (as
defined under the operation of the Deferred Income Plan) occurs;
(4) a participant has an unforeseeable emergency;
(5) a participant becomes disabled; or (6) death
occurs prior or subsequent to commencement or completion of
payment of benefits, respectively. In no event may a participant
receive more than one distribution as a result of an
unforeseeable emergency in any calendar year. A participant may
also elect to receive an in-service distribution at the time of
completing an election of deferral, and such payment is payable
in a lump sum on the in-service withdrawal date. For information
regarding post-termination payments under the plan, see
Other Potential Post-Employment Payments.
Participants in the Deferred Income Plan may direct the
investment of their balance held within the plan among a number
of alternative investment fund options, and earnings and losses
on participants investments are determined based on the
individual performance of the underlying investment options. A
participant may regularly change their investment allocation
within the plan. A rabbi trust has been established under the
plan to hold assets separate from our other assets for the
purpose of paying future participant benefit obligations. Assets
held in the rabbi trust are available to our general creditors
in the event of our insolvency.
Notwithstanding anything in the Deferred Income Plan to the
contrary, the Deferred Income Plan is administered in accordance
with the requirements of, or to meet the requirements for
exemption from, Section 409A of the Internal Revenue Code.
OTHER
POTENTIAL POST-EMPLOYMENT PAYMENTS
The table below reflects the amount of compensation payable to
each of the named executive officers of our Company in the event
of termination of the executives employment. The amount of
compensation payable to each named executive officer upon
termination by us without Cause (as defined below) or
resignation by the executive with Good Reason (as defined
below), termination by us with Cause or resignation by the
executive without Good Reason, in the event of Disability (as
defined below) or death and termination following a Change in
Control (as defined below) are set forth below. All of the
compensation arrangements described below were put in place
prior to our initial public offering, which occurred on
July 25, 2006. Although our Board of Directors and
Compensation Committee were responsible for the implementation
of all of the payment arrangements described below, the terms of
all of the post-employment payment arrangements were subject to
the review of First Reserve directly or through its
representatives on our Board of Directors.
The amounts shown assume that such termination was effective as
of December 29, 2006, the last business day of 2006, and
thus include amounts earned through such time and are estimates
of the amounts which would be paid out to the executives upon
their termination. The actual amounts to be paid out can only be
determined at the time of an executives separation from
our Company.
Payments
made upon Involuntary Termination for Cause or
Resignation without Good Reason
Salary, Bonus and Benefits. Pursuant to the
terms of each named executive officers employment
agreement, in the event that a named executive officer is
terminated by us for Cause or resigns for Good
Reason, he will be entitled to receive his base salary,
annual bonus and benefits, including accrued but unpaid
vacation, that are earned
26
but unpaid as of the date of termination in a lump sum. Under
the terms of each employment agreement, Cause is
defined as the executives willful failure to perform
duties, commission of, or plea of guilty or no contest to a
felony or crime involving moral turpitude, willful malfeasance
or misconduct which is demonstrably injurious to us or our
subsidiaries, material breach of the material terms of the
agreement, commission of an act of gross negligence, corporate
waste, disloyalty or unfaithfulness to us which adversely
affects our business or that of our subsidiaries or affiliates,
or any other act or course of conduct which will demonstrably
have a material adverse effect on us or a subsidiary or an
affiliates business. Under the terms of each employment
agreement, Good Reason is defined as any of the
following events occurring without the executives consent:
a substantial diminution in the executives position or
duties, material adverse change in reporting lines or assignment
of duties materially inconsistent with his position, or any
reduction in base salary or material reduction in employee
benefits not affecting all other senior executives.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the named executive
officers, in the event that a named executive officer is
terminated by us for Cause or resigns without Good Reason, the
unvested portion of all time options and all performance options
will be cancelled.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that
Mr. Thomas employment is terminated due to
(1) conviction of certain crimes enumerated in the Deferred
Income Plan; or (2) any breach of the duty of loyalty to
us, any acts of omission in the performance of his Company
duties not in good faith or which involve intentional misconduct
or a knowing violation of law, or any transaction in the
performance of his Company duties from which he derived an
improper personal benefit (Cause Under Deferred Income
Plan), Mr. Thomas will not be entitled to receive any
benefits or payments under the terms of the plan, other than his
deferrals, which would be paid in a lump sum.
Payments
made upon Involuntary Termination Without Cause or Resignation
for Good Reason
Salary, Bonus and Benefits. Pursuant to the
terms of each named executive officers employment
agreement, in the event that a named executive officer is
terminated by us without Cause or resigns for Good Reason, he
will be entitled to receive his base salary, annual bonus and
benefits, including accrued but unpaid vacation, that are earned
but unpaid as of the date of termination and, subject to the
execution and delivery of a release of claims against us and
compliance with the restrictive covenants described below
under Restrictive Covenants that Apply During
and After Termination of Employment, (1) the greater
of the executives current base salary or highest base
salary paid within the employment term, payable in installments
as follows: Mr. Thomas, for three years; Mr. Biehl,
for two years; Mr. Klaben and Mr. Hoppel, for one
year; and (2) continued coverage under our group health
plans on the same basis as active employees as follows:
Mr. Thomas, for three years; Mr. Biehl, for two years;
Mr. Klaben and Mr. Hoppel, for one year. To the extent
that continued coverage is not permissible under the terms of
such plans beyond eighteen months, we may instead pay an amount
equal to the premium subsidy we would have otherwise paid on the
executive officers behalf for such coverage.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the named executive
officers, in the event that a named executive officer is
terminated by us without Cause or resigns for Good Reason,
including retirement at age 60, provided the executive has
completed ten years of service with us (Retirement),
any unvested time options will be cancelled by us without
consideration. No named executive officer was eligible for
Retirement on December 29, 2006, and accordingly, the table
below does not present any option benefits associated with
Retirement. With respect to performance options, we will
determine whether and to what extent the performance options
would have vested as of the date of such termination, based upon
the Fund X Net Return net of all expenses, taxes incurred
by us or one of our subsidiaries, and payment of management
options and based upon the fair market value of us, as
determined in good faith by the Board, in its sole discretion,
assuming a hypothetical liquidation of us or the sale of us to a
third party, subject to certain appraisal rights. Any portion of
the performance options that we, or an independent investment
banker, as applicable, determines would have vested, will be
deemed vested, and the remainder of the unvested options will be
forfeited.
27
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that
Mr. Thomas employment is terminated by us without
Cause Under Deferred Income Plan or by resignation for Good
Reason, Mr. Thomas will be entitled to receive an amount
equal to his vested account, payable as a lump sum. The payment
will be made on or about the first day of the third month
following termination.
Payments
made upon Termination by Reason of Death or Disability
Salary, Bonus and Benefits. Pursuant to the
terms of each named executive officers employment
agreement, in the event that a named executive officer is
terminated by reason of death or becomes physically or mentally
incapacitated and therefore unable to for a period of six
consecutive months or an aggregate of nine months in any
twenty-four consecutive month period to perform his duties
(Disability) he will be entitled to receive his base
salary, annual bonus and benefits, including accrued but unpaid
vacation, that are earned but unpaid as of the date of
termination and, a pro rata portion of the annual bonus, if any,
that the executive would have been entitled to receive for the
year in which the termination occurs, based on our actual
results for the year and the percentage of the fiscal year that
has elapsed through the date of the executives termination
of employment.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the executive
officers, in the event that a named executive officer is
terminated due to death or Disability, any time options that
would have vested in the calendar year in which such termination
occurs, will become fully vested. With respect to performance
options, we will determine whether and to what extent the
performance option would have vested as of the date of such
termination, based upon the Fund X Net Return net of all
expenses, taxes incurred by us or one of our subsidiaries, and
payment of management options and based upon the fair market
value of us, as determined in good faith by the Board, in its
sole discretion, assuming a hypothetical liquidation of us or
the sale of us to a third party, subject to certain appraisal
rights. Any portion of the performance option that we, or an
independent investment banker, as applicable, determines would
have vested, will be deemed vested, and the remainder of the
unvested options will be forfeited.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that
Mr. Thomas employment is terminated due to Disability
(as defined in the Deferred Income Plan), the benefit payable to
him under the Deferred Income Plan will vest, as of the date of
the disability determination. In the event that
Mr. Thomas employment is terminated due to death, we
will distribute Mr. Thomas account as soon as
practicable following the date of death. In the event that
either death or Disability occurs prior to commencement of the
payment of benefits, payments will be made as a lump sum. In the
event that Mr. Thomas employment is terminated due to
death following the commencement of the payment of benefits, but
prior to the completion of all such benefits, we will continue
to make installment payments over the remainder of the period,
as though he had survived.
Payments
made upon Expiration of Employment Term
Salary, Bonus and Benefits. Pursuant to the
terms of each named executive officers employment
agreement, in the event that the employment of a named executive
officer is terminated upon expiration of the employment term
without renewal, he will be entitled to receive his base salary,
annual bonus and benefits, including accrued but unpaid
vacation, that are earned but unpaid as of the date of
termination. No named executive officers employment
agreement could have terminated on December 29, 2006 as a
result of the rolling term of the agreement, since we could not
have provided the required notice one, two or three years before
expiration under the terms of the applicable agreement.
Accordingly, no benefits are shown in the table below related to
expiration of the employment agreement term on December 29,
2006.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the executive
officers, in the event that the employment of a named executive
officer is terminated upon expiration of the employment term
without renewal, the unvested portion of all time options and
all performance options will be cancelled by us without
consideration.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that
Mr. Thomas employment is terminated upon expiration
of the employment term without renewal, Mr. Thomas will
28
be entitled to receive an amount equal to his vested account,
payable as a lump sum. The payment will be made on or about the
first day of the seventh month following termination.
Payments
made upon Change in Control
Salary, Bonus and Benefits. The named
executive officers employment agreements do not address
termination of employment upon a change in control. Accordingly,
any benefits or payments in such a case would be determined by
the nature of the termination of employment, such as resignation
without Good Reason, resignation with Good Reason, termination
by us for Cause, termination by us without Cause, or otherwise.
Treatment of Nonqualified Stock Options. Under
the terms of the stock option agreement under which the
non-qualified stock options were awarded to the named executive
officers, in the event of the occurrence of any of the following
events: (1) the sale or disposition, in one or a series of
related transactions, of all or substantially all, of our assets
to any person or group, other than First Reserve Fund X,
L.P., its affiliates and certain other persons, as specified in
the 2005 Stock Incentive Plan; (2) any person or group,
other than First Reserve Fund X, L.P., it affiliates and
certain other persons, as specified in the 2005 Stock Incentive
Plan, is or becomes the beneficial owner of more than 50% of the
total voting power of the our total stock, including by way of
merger, consolidation, tender or exchange offer or otherwise; or
(3) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board
(together with any new Directors whose election by such Board or
whose nomination for election by our stockholders was approved
by a vote of a majority of our Directors, then still in office,
who were either Directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the
Board then in office (each, a Change in Control),
the time options will immediately become fully vested and
exercisable.
Treatment of Deferred Compensation. Under the
terms of the Deferred Income Plan, in the event that (1) a
person other than our employee stock ownership trust, becomes
the beneficial owner, directly or indirectly, of our outstanding
Common Stock having 51% or more of the total number of votes
which may be cast for Directors; or (2) during any period
of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors (together with
any new Directors whose election by such Board or whose
nomination for election by the our stockholders was approved by
a vote of two-thirds of the our Directors, then still in office,
who were either Directors at the beginning of such period) cease
for any reason to constitute a majority of the Board, then in
office, Mr. Thomas interest in all amounts credited
to his account under the plan will fully and immediately vest
and become nonforfeitable.
Restrictive
Covenants that Apply During and After Termination of
Employment
Each of Messrs. Thomas, Biehl, Klaben and Hoppel is also
subject under the terms of his employment agreement to a
customary covenant not to disclose confidential information
during the term of his employment and at all times thereafter
and to customary covenants not to compete and not to solicit
employees or customers during the employment term and for
(a) three years following termination of employment for any
reason, in the case of Mr. Thomas, (b) two years
following termination of employment for any reason, in the case
of Mr. Biehl, and (c) one year following termination
of employment for any reason, in the case of Messrs. Klaben
and Hoppel.
29
Assuming that the employment of each named executive officer was
terminated under each of the following circumstances on
December 29, 2006, the last business day of 2006, and based
on the terms of the applicable agreements and plans described
above, payments made and benefits provided would have the
following estimated values:
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|
|
|
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|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
Termination for
|
|
|
without
|
|
|
|
|
|
|
|
|
|
Cause/
|
|
|
Cause/
|
|
|
|
|
|
|
|
|
|
Resignation
|
|
|
Resignation
|
|
|
|
|
|
|
|
|
|
by Executive
|
|
|
by Executive
|
|
|
|
|
|
|
|
|
|
without Good
|
|
|
for Good
|
|
|
Disability/
|
|
|
Change in
|
|
|
|
Reason
|
|
|
Reason
|
|
|
Death
|
|
|
Control(7)
|
|
|
Base Salary(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel F. Thomas
|
|
$
|
|
|
|
$
|
1,200,000
|
|
|
$
|
|
|
|
$
|
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
470,000
|
|
|
$
|
|
|
|
$
|
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
193,000
|
|
|
$
|
|
|
|
$
|
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
154,000
|
|
|
$
|
|
|
|
$
|
|
|
Annual Bonus(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel F. Thomas
|
|
$
|
|
|
|
$
|
|
|
|
$
|
656,384
|
|
|
$
|
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
|
|
|
$
|
350,568
|
|
|
$
|
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
|
|
|
$
|
201,540
|
|
|
$
|
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
137,841
|
|
|
$
|
|
|
Health and Welfare Benefits(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel F. Thomas
|
|
$
|
|
|
|
$
|
40,373
|
|
|
$
|
|
|
|
$
|
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
24,805
|
|
|
$
|
|
|
|
$
|
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
11,829
|
|
|
$
|
|
|
|
$
|
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
11,829
|
|
|
$
|
|
|
|
$
|
|
|
Accelerated vesting of time
options(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel F. Thomas
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,844,030
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
553,206
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
141,171
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
197,101
|
|
Accelerated vesting of performance
options(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel F. Thomas
|
|
$
|
|
|
|
$
|
1,901,672
|
|
|
$
|
1,901,672
|
|
|
$
|
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
570,495
|
|
|
$
|
570,495
|
|
|
$
|
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
117,980
|
|
|
$
|
117,980
|
|
|
$
|
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
200,800
|
|
|
$
|
200,800
|
|
|
$
|
|
|
Deferred Compensation(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel F. Thomas
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel F. Thomas
|
|
$
|
|
|
|
$
|
3,142,045
|
|
|
$
|
2,558,056
|
|
|
$
|
1,844,030
|
|
Michael F. Biehl
|
|
$
|
|
|
|
$
|
1,065,300
|
|
|
$
|
921,063
|
|
|
$
|
553,206
|
|
Matthew J. Klaben
|
|
$
|
|
|
|
$
|
322,809
|
|
|
$
|
319,520
|
|
|
$
|
141,171
|
|
James H. Hoppel, Jr.
|
|
$
|
|
|
|
$
|
366,629
|
|
|
$
|
338,641
|
|
|
$
|
197,101
|
|
|
|
|
(1) |
|
The base salary levels of the executive officers under their
employment agreements at December 31, 2006 were as follows:
Mr. Thomas, $400,000; Mr. Biehl, $235,000;
Mr. Klaben, $193,000; and Mr. Hoppel, $154,000. These
2006 amounts were used in calculating the hypothetical payment
shown. The base salary levels of the executive officers have
been adjusted, effective January 1, 2007, as follows:
Mr. Thomas, $450,000; Mr. Biehl, $245,000;
Mr. Klaben, $200,000; and Mr. Hoppel, $170,000. The
amounts in the table do not include accrued |
30
|
|
|
|
|
but unused vacation, since the policy governing vacation for the
executive officers mandates the forfeiture of all accrued
vacation for the current year not used by the end of the year,
and each scenario assumed termination of employment with no
business days remaining in the year. |
|
(2) |
|
Our 2006 Bonus Plan, under which incentive bonuses would be paid
for 2006, generally requires a participant to be employed on the
last day of the fiscal year in order to receive a bonus. Since
each executive officer is assumed to be terminated before the
end of the year in the table above, no bonus amounts are shown
for the year in question unless otherwise required under the
terms of the executive officers employment agreement. The
bonus amounts payable upon termination due to death or
disability as set forth above assumes realization of our maximum
performance goals under the 2006 Bonus Plan, as set forth under
the Estimated Future Payouts Under Non-Equity Incentive
Plan Awards portion of the 2006 Grants of Plan-Base Awards
Table above and in the 2006 Summary Compensation Table above,
and have been prorated based on the number of days in the year
through December 29 relative to a full
365-day year. |
|
(3) |
|
Heath and welfare benefits consist of health care and dental.
These benefits after termination of employment for 2007 have
been calculated based on actual cost to us for 2007. Health and
welfare benefits for 2008, in the case of Messrs. Thomas
and Biehl, and 2009, in the case of Mr. Thomas, have been
calculated on the basis of actual cost for 2007 plus an assumed
10% annual increase in medical benefits cost and an assumed 3%
annual increase in dental benefit cost. |
|
(4) |
|
The value of the time options that vest upon a Change in Control
represents the difference between the aggregate market value of
the shares underlying the unvested portion of these options on
December 29, 2006, at $16.21 per share, the closing
price of our Common Stock on that day, and the aggregate
exercise price of the options. The calculation for each named
executive officer is as follows: Mr. Thomas,
189,910 shares, at a market price of $16.21 per share,
for an aggregate market value of $3,078,448, minus $1,234,418,
the aggregate exercise price for the shares; Mr. Biehl,
56,973 shares, at a market price of $16.21 per share,
for an aggregate market value of $923,529, minus $370,323, the
aggregate exercise price for the shares; Mr. Klaben,
34,857 shares, at a market price of $16.21 per share,
for an aggregate market value of $565,032, minus $423,861, the
aggregate exercise price for the shares; and Mr. Hoppel,
22,127 shares, at a market price of $16.21 per share,
for an aggregate market value of $358,685, minus $161,584, the
aggregate exercise price for the shares. |
|
(5) |
|
The performance options that were granted under the 2005 Stock
Incentive Plan could partially vest under the option agreements
as of the date of termination of employment as a result of
involuntary termination without Cause, resignation for Good
Reason, or termination due to Disability or death based upon
calculation of a hypothetical Fund X Net Return at the date
of termination, net of certain deductions. The Fund X Net
Return is calculated assuming a hypothetical liquidation of us
or a sale of us to a third party implying a fair market value at
such date, net of expenses, taxes incurred by us and payment of
management options. The Fund X Net Return net of the
applicable deductions was calculated, solely for purposes of the
presentation above, and based on actual vesting examples upon
termination of employment of optionees during 2007, to reach the
45% performance option vesting threshold under our option
agreements at December 29, 2006 using a fair market value
based on a stock price of $16.21 per share, which
represented the closing price of our Common Stock on
December 29, 2006, and the amounts initially invested in us
by First Reserve and the cash returned to First Reserve before
December 29, 2006 and cash expected to be returned to First
Reserve in respect of its initial investment in us in the
hypothetical transaction, less estimated expenses, taxes and
payment of management options based on a hypothetical sale of us
in a change in control transaction. Actual amounts may have
resulted in different payouts than those shown in the table
above. Therefore, 45% of the performance options were assumed to
vest at the termination date based on the foregoing. Because of
the uncertainty in calculating the components of the applicable
formula, actual vesting may have been higher or lower than this
amount, had an actual calculation been performed in connection
with an actual employment termination on December 29, 2006.
The calculation of the value shown in the table for each named
executive officer is as follows: Mr. Thomas,
195,847 shares, at a market price of $16.21 per share,
for an aggregate market value of $3,174,678, minus $1,273,006,
the aggregate exercise price for the shares; Mr. Biehl,
58,753 shares, at a market price of $16.21 per share,
for an aggregate market value of $952,392, minus $381,897, the
aggregate exercise price for the shares; Mr. Klaben,
29,131 shares, at a market price of $16.21 per share,
for an aggregate market value of $472,209, minus $354,229, the
aggregate exercise price for the shares; and Mr. Hoppel, |
31
|
|
|
|
|
22,208 shares, at a market price of $16.21 per share,
for an aggregate market value of $359,991, minus $159,191, the
aggregate exercise price for the shares. We do not believe any
named executive officer would have had the right at
December 29, 2006 to terminate his employment under the
circumstances described above. |
|
(6) |
|
No benefit is shown for deferred compensation because there are
no contributions by us or any above-market returns on any
participant moneys in the Deferred Income Plan for any named
executive officer. All balances in the Deferred Income Plan
represent solely the named executive officers
contributions or market earnings on those contributions. For
more information, see 2006 Nonqualified
Deferred Compensation Table. |
|
(7) |
|
Assumes termination of employment results from resignation
without Good Reason. If resignation were for Good Reason, or if
termination resulted from involuntary termination without Cause,
see the applicable column in the table for the salary
continuation, acceleration of performance options, or other
applicable benefits that could apply in such case. |
2006
DIRECTOR COMPENSATION TABLE
The following table and related notes and discussion summarize
compensation paid to our non-employee Directors for our 2006
fiscal year, presented in accordance with SEC rules.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)(1)
|
|
|
($)
|
|
|
Timothy H. Day
|
|
$
|
24,000
|
|
|
$
|
40,000
|
|
|
$
|
64,000
|
|
Richard E. Goodrich
|
|
$
|
28,500
|
|
|
$
|
40,000
|
|
|
$
|
68,500
|
|
Ben A. Guill
|
|
$
|
22,000
|
|
|
$
|
40,000
|
|
|
$
|
62,000
|
|
Steven W. Krablin
|
|
$
|
30,500
|
|
|
$
|
40,000
|
|
|
$
|
70,500
|
|
Kenneth W. Moore
|
|
$
|
22,000
|
|
|
$
|
40,000
|
|
|
$
|
62,000
|
|
Michael W. Press
|
|
$
|
26,000
|
|
|
$
|
40,000
|
|
|
$
|
66,000
|
|
|
|
|
(1) |
|
As of December 31, 2006, the Directors held restricted
stock units in the following amounts: Timothy H. Day, 2,666
restricted stock units; Ben A. Guill (a former director), 2,666
restricted stock units; Richard E. Goodrich, 2,658 restricted
stock units; Steven W. Krablin, 2,666 restricted stock units;
Kenneth W. Moore, 2,666 restricted stock units; and Michael W.
Press, 2,658 restricted stock units. The grant date fair value
of each restricted stock unit grant reported in this column,
calculated in accordance with SFAS 123R, is $40,000. The
2,666 unvested restricted stock units received by Mr. Guill
were forfeited to us as a result of Mr. Guills
March 19, 2007 resignation from our Board of Directors. |
Director
Compensation
Directors who are also employees do not receive any additional
compensation for services performed as a member of our Board of
Directors or any committees thereof. We pay our non-employee
Directors an annual retainer of $32,000, payable in equal
quarterly installments, and grant annually to each non-employee
Director restricted stock units covering a number of shares of
Common Stock with a fair market value of $40,000 on the date of
grant under the 2005 Stock Incentive Plan. The restricted stock
units fully vest on the first anniversary of the date of grant
or earlier, in the event of a change in control (as defined in
the 2005 Stock Incentive Plan) or the Director ceasing to serve
on the board due to death or disability (as defined in the 2005
Stock Incentive Plan). The restricted stock units are expected
to be settled in shares of our Common Stock, the receipt of
which may be deferred by each Director for a period ranging from
the first anniversary of the restricted stock unit vesting date
to the tenth anniversary of the restricted stock unit vesting
date, or, if elected, earlier upon separation of service from
the Board or a change in control, in both cases, to the extent
permitted under Section 409A of the Internal Revenue Code.
Messrs. Guill, Day, Krablin and Moore each received 2,666
restricted stock units in our 2006 fiscal year at the time of
our initial public offering, and each of Messrs. Press and
Goodrich received 2,658 restricted stock units in connection
with their appointment to our Board of Directors in our 2006
fiscal year. The 2,666 unvested restricted stock units received
by Mr. Guill were forfeited to us as a result of
Mr. Guills March 19, 2007 resignation from our
Board of Directors.
32
In addition to the compensation described above, the chairperson
of our audit committee receives an additional $8,000 annual
retainer, and the chairpersons of our other Board committees
receive an additional $4,000 annual retainer, in each case in
equal quarterly installments. Additionally, we pay our
non-employee Directors a fee of $2,000 for Board meetings
attended in person (up to six meetings and $1,000 per
meeting thereafter) and a fee of $1,000 for Board meetings
attended telephonically. In connection with meetings of the
committees of our Board of Directors, we pay our non-employee
Directors who attend committee meetings in person a fee of
$1,000 per meeting and a fee of $500 per meeting for
committee meetings attended telephonically. In addition,
Directors must accumulate investments of at least $100,000 in
our Common Stock during their first 24 months on our Board.
Shares of our Common Stock issued upon settlement of restricted
stock units will count towards the $100,000 requirement.
Management
Equity
In connection with the Acquisition, the Compensation Committee
elected to adjust, in accordance with the terms of our 2004
Stock Plan and the agreement and plan of merger, a portion of
certain then-outstanding stock options held by certain executive
officers or members of senior management to represent options to
acquire shares of our Common Stock after the Acquisition. All
other then-outstanding stock options were cashed out pursuant to
the merger agreement. All such rollover options were exercised
in the second quarter of 2006 for $3.50 per share. All
shares of Common Stock acquired upon the exercise of such
rollover options are now subject to the terms of the management
stockholders agreements. See Certain Related Party
Transactions.
Compensation
Committee Interlocks and Insider Participation
Since August 15, 2006, our Compensation Committee has
consisted of Richard E. Goodrich, Timothy H. Day and Michael W.
Press. During 2006, Ben A. Guill (a former Director) and Kenneth
W. Moore also served as members of our Compensation Committee.
None of Messrs. Goodrich, Day, Press, Guill or Moore is a
present or past employee or officer of ours or any of our
subsidiaries. Messrs. Day and Moore are employees of First
Reserve, a related party with which we have engaged in certain
transactions described in Certain Related Party
Transactions. None of our executive officers has served on
the Board or Compensation Committee (or other committee serving
an equivalent function) of any other entity, one of whose
executive officers served on our Board or Compensation Committee.
33
AUDIT
COMMITTEE REPORT
The primary function of the Audit Committee is to assist the
Board of Directors in fulfilling its oversight of the integrity
of the Companys financial statements, the Companys
compliance with legal and regulatory requirements, the
independent auditors qualifications and independence, and
the performance of the Companys internal audit function
and independent auditor.
In fulfilling its oversight responsibilities, the Audit
Committee has reviewed and discussed the audited financial
statements contained in the 2006 Annual Report on SEC
Form 10-K
with the Companys management and Ernst & Young
LLP, the independent auditor for fiscal 2006.
The Audit Committee has discussed with Ernst & Young
LLP the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit
Committees, as amended. In addition, the Audit Committee has
discussed with Ernst & Young LLP the auditors
independence from the Company and its management, including the
matters in the written disclosures and letter from
Ernst & Young LLP required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit
Committees, which the Company has received.
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to the Board (and the Board has
approved) that the audited financial statements be included in
the Companys Annual Report on SEC
Form 10-K
for the fiscal year ended December 31, 2006, for filing
with the Securities and Exchange Commission.
The Audit Committee has determined that the rendering of the
non-audit services by Ernst & Young LLP was compatible
with maintaining the auditors independence.
Submitted by the Audit Committee of the Board of Directors as of
March 13, 2007.
Steven W. Krablin, Chairman
Richard E. Goodrich
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The Audit Committee has reviewed the audit fees of the
independent auditors. For work performed in regard to fiscal
year 2006, the Company paid Ernst & Young LLP the
following fees for services, as categorized:
|
|
|
|
|
|
|
Fiscal Year 2006
|
|
|
Audit fees(1)
|
|
$
|
1,157,741
|
|
Audit-related fees(2)
|
|
$
|
|
|
Tax fees(3)
|
|
$
|
193,502
|
|
All other fees(4)
|
|
$
|
6,000
|
|
Total fees
|
|
$
|
1,357,243
|
|
|
|
|
(1) |
|
Includes fees for audit services principally relating to the
annual audit, quarterly reviews and registration statements. |
|
(2) |
|
Assurance and related services that are reasonably related to
the performance of the audit or review of the financial
statement and not reported under audit fees. |
|
(3) |
|
Tax compliance, tax advice and tax planning. |
|
(4) |
|
All other services not reported under (1) through (3). |
Our Board has a policy to assure the independence of its
independent registered public accounting firm. Prior to each
fiscal year, the Audit Committee receives a written report from
Ernst & Young LLP describing the elements expected to
be performed in the course of its audit of the Companys
financial statements for the coming year. All audit related
services, tax services and other services were pre-approved for
2006 by the Audit Committee, which
34
concluded that the provision of such services by
Ernst & Young LLP was compatible with the maintenance
of that firms independence in the conduct of its auditing
functions. The Audit Committee has selected Ernst &
Young LLP to audit our 2007 financial statements.
EQUITY
COMPENSATION PLAN INFORMATION
The following table provides information as of December 31,
2006 about our Common Stock that may be issued upon the exercise
of options, warrants and rights granted under all of our
existing equity compensation plans, including our Amended and
Restated 2005 Stock Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Number of Securities
|
|
|
|
Remaining Available for
|
|
|
to be Issued
|
|
Weighted-Average
|
|
Future Issuance Under
|
|
|
Upon Exercise of
|
|
Exercise Price of
|
|
Equity Compensation Plans
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
(Excluding Securities
|
Plan Category
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
Reflected in Column (a))
|
|
|
(a)
|
|
(b)(2)
|
|
(c)
|
|
Equity compensation plans approved
by security holders(1)
|
|
|
2,457,170
|
|
|
$
|
7.12
|
|
|
|
963,860
|
|
Equity compensation plans not
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,457,170
|
|
|
$
|
7.12
|
|
|
|
963,860
|
|
|
|
|
(1) |
|
The amount includes: (i) 2,441,190 shares issuable
upon the exercise of outstanding stock options; and
(ii) 15,980 shares subject to restricted stock units
granted in 2006 in connection under our 2005 Stock Incentive
Plan. |
|
(2) |
|
The weighted average exercise price of outstanding options,
warrants and rights does not take into account restricted stock
unit awards since these awards do not have an exercise price. |
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the
Companys officers and Directors and persons who own 10% or
more of a registered class of the Companys equity
securities to file reports of ownership and changes in ownership
on Forms 3, 4 and 5 with the SEC. Officers, Directors and
10% or greater stockholders are required by SEC regulations to
furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Companys review of the copies of such
forms it has received, the Company believes that all of its
officers and Directors complied with all filing requirements
applicable to them with respect to transactions during the
fiscal year ended December 31, 2006, except that each of
Samuel F. Thomas and Michael F. Biehl reported on a Form 5
a transaction which occurred prior to the Companys initial
public offering and was inadvertently omitted from the reporting
persons Form 4 filed on August 29, 2006.
CERTAIN
RELATED PARTY TRANSACTIONS
Management
Stockholders Agreements
In connection with our initial public offering, consummated on
July 31, 2006, we entered into amended and restated
management stockholders agreements, effective as of
April 1, 2006, with certain members of our management,
including Messrs. Thomas, Biehl, Klaben and Hoppel, which
we refer to as the management stockholders, and FR X Chart
Holdings LLC.
Tag-Along Rights. If FR X Chart Holdings LLC
wishes to transfer shares of Common Stock other than pursuant to
a registered offering, a transfer pursuant to Rule 144
under the Securities Act, a transfer with the approval of the
members of the Board not affiliated with FR X Chart Holdings LLC
or a transfer by FR X Chart
35
Holdings LLC to any of its affiliates or partners or our
employees, then each management stockholder shall have the right
to tag-along and participate, on a pro rata basis, in such
transfer of Common Stock. The tag-along rights will terminate
upon the date that FR X Chart Holdings LLC and its affiliates
cease to be the beneficial owner (as defined in
Rule 13d-3
of the Exchange Act) of at least 30% of our outstanding Common
Stock. These rights may terminate if First Reserve ceases to own
the requisite percentage of our outstanding Common Stock if the
Potential Public Offering (described above) is consummated.
Piggyback Registration
Rights. Pursuant to and subject to the terms of
the amended and restated management stockholders
agreements, each management stockholder will have the
opportunity to include in registered sales of our Common Stock
(other than an initial public offering or relating to any
employee benefit plan or corporate merger, acquisition or
reorganization) and any shelf registration statement filed by us
with respect to our common stock, all or any part of the
registrable securities (as such term is defined in
the amended and restated management stockholders
agreements) then held by such management stockholder. We will
pay all of the expenses associated with an offering of such
shares. Underwriting discounts will be shared proportionately.
Stockholders
Agreement
In connection with our initial public offering, we and First
Reserve or one of its affiliates entered into a stockholders
agreement pursuant to which First Reserve or its affiliates has
the right to request us to register the sale of securities held
by First Reserve, on their behalf and may require us to make
available shelf registration statements permitting sales of
securities into the market from time to time over an extended
period. In addition, First Reserve has the ability to exercise
certain piggyback registration rights in connection with
registered offerings initiated by us.
In addition, pursuant to the terms of the stockholders
agreement, for so long as First Reserve continues to hold
(1) less than 50% but at least 25% of our outstanding
Common Stock, it shall have the right to designate three
Director nominees, (2) less than 25% but more than 10% of
our outstanding Common Stock, it will have the right to
designate two Director nominees, and (3) 10% of our
outstanding Common Stock, it will have the right to designate
one Director nominee. Once First Reserve holds less than 10% of
our outstanding Common Stock, it will have no right to designate
Directors pursuant to the stockholders agreement. Accordingly,
this right may terminate if First Reserve ceases to own at least
10% of our outstanding common stock if the Potential Public
Offering is consummated. We have agreed that neither First
Reserve nor any Director, officer or employee of First Reserve
who may serve as officer, Director
and/or
employee of ours will be liable to us (i) by reason of any
business decision or transaction undertaken by First Reserve
which may be adverse to our interests, (ii) by reason of
any activity undertaken by First Reserve or by any other person
in which First Reserve may have an investment or other financial
interest which is in competition with us or (iii) without
limiting the effect of Section 144 of the Delaware General
Corporation Law, by reason of any transaction with First
Reserve, or any transaction in which First Reserve will have a
financial interest, unless the party seeking to assert such
liability proves, by clear and convincing evidence, that such
transaction was not fair to us at the time it was authorized by
the Board of Directors or a committee thereof.
Warrant
to Purchase our Shares
On November 23, 2005, we issued a warrant to FR X Chart
Holdings LLC to purchase up to 2,651,012 shares of our
Common Stock at a per share purchase price of $14.00 (subject to
adjustment per the terms of the warrant). The warrant was
exercised on a cash basis in May 2006 and we issued
2,651,012 shares to FR X Chart Holdings LLC under the
warrant.
Legal
Fees
On April 1, 2006, Matthew J. Klaben became our Vice
President, General Counsel and Secretary. Prior to joining us in
March 2006, Mr. Klaben was a partner with the law firm of
Calfee, Halter & Griswold LLP. During the three months
ended March 31, 2006, we paid $41,765 in legal fees and
expenses to the law firm of Calfee, Halter & Griswold
LLP for legal services rendered.
36
Related
Party Transaction Policies and Procedures
On March 27, 2007, our Board of Directors adopted written
Related Party Transaction Policies and Procedures (the
Policy), which provides that it is the policy of the
Company not to enter into any Related Party
Transaction (as such term is defined in the Policy) with
one of our executive officers, Directors or Director nominees,
or stockholders known to beneficially own over 5% of a class of
our voting securities or their related persons, unless either
(i) the Audit Committee approves the transaction in
accordance with the guidelines set forth in the Policy or
(ii) the transaction is approved by a majority of the
Companys disinterested Directors. Such Related Party
Transactions shall be disclosed in the Companys SEC
filings as and to the extent required by applicable SEC rules
and regulations.
STOCKHOLDER
PROPOSALS FOR 2008 ANNUAL MEETING
From time to time, stockholders present proposals that may be
proper subjects for inclusion in the proxy statement and for
consideration at an Annual Meeting. To be included in the proxy
for the 2008 Annual Meeting, the Company must receive proposals
no later than December 25, 2007. Proposals for inclusion in
the proxy statement must comply with the Exchange Act including
Rule 14a-8,
as well as with our By-Laws.
Pursuant to the Companys By-Laws, stockholders may present
proposals that are proper subjects for consideration at an
annual meeting of stockholders. Our By-Laws require all
stockholders who intend to make proposals at an annual
stockholders meeting to submit their proposals to the Company
not less than 90 calendar days nor more than the 120 calendar
days prior to the first anniversary of the date on which we
first mailed our proxy materials for the preceding years
annual meeting. To be eligible for consideration at the 2008
Annual Meeting, proposals that have not been submitted by the
deadline for inclusion in the proxy statement must be received
by the Company between December 25, 2007 and
January 24, 2008. In the event the date of the 2008 Annual
Meeting is changed by more than 30 calendar days from the first
anniversary of the 2007 Annual Meeting, stockholder notice must
be received not earlier than 120 days prior to the 2008
Annual Meeting and not later than the later of the
90th calendar day prior to the 2008 Annual Meeting or the
close of business on the 10th calendar day following the
date on which the public announcement of such meeting is first
made. These provisions are intended to allow all stockholders to
have an opportunity to consider business expected to be raised
at the meeting.
OTHER
MATTERS TO COME BEFORE THE ANNUAL MEETING
The Board is not aware of any other business to be presented for
a vote of the stockholders at the Annual Meeting. If any other
matters are properly presented for a vote, the people named as
proxies will have discretionary authority, to the extent
permitted by law, to vote on such matters according to their
best judgment.
The chairman of the Annual Meeting may refuse to allow
presentation of a proposal or nominee for the Board if the
proposal or nominee was not properly submitted.
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It is important that your shares be represented at the meeting,
regardless of the number of shares that you hold. YOU,
THEREFORE, ARE URGED TO EXECUTE PROMPTLY AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENVELOPE THAT HAS BEEN ENCLOSED
FOR YOUR CONVENIENCE OR SUBMIT A PROXY BY TELEPHONE OR THE
INTERNET BY FOLLOWING THE INSTRUCTIONS INCLUDED ON THE PROXY
CARD. Stockholders who are present at the meeting may revoke
their proxies and vote in person or, if they prefer, may abstain
from voting in person and allow their proxies to be voted.
Samuel F. Thomas
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Chairman, Chief
Executive Officer
and President
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Garfield Heights, Ohio
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CHART INDUSTRIES, INC.
ATTN: CORPORATE SECRETARY
ONE INFINITY CORPORATE CENTRE DRIVE
SUITE 300
GARFIELD HEIGHTS, OH 44125
VOTE
BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting
date. Have your proxy card in hand when you
access the web site and follow the instructions
to obtain your records and to create an
electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE
STOCKHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred
by Chart Industries, Inc. in mailing proxy
materials, you can consent to receiving all
future proxy statements, proxy cards and annual
reports electronically via e-mail or the
Internet. To sign up for electronic delivery,
please follow the instructions above to vote
using the Internet and, when prompted, indicate
that you agree to receive or access stockholder
communications electronically in future years.
VOTE
BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern
Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you
call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return
it in the postage-paid envelope we have
provided or return it to Chart Industries,
Inc., c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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CHIND1
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
CHART INDUSTRIES, INC.
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(1) |
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Election of the following nominees to serve on
the Board of Directors of the Company:
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For
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Withheld
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For
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Withheld |
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1a. Samuel F. Thomas
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1e. Kenneth W. Moore
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1b. Timothy H. Day
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1f. Michael W. Press
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1c. Richard E. Goodrich
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In their discretion to
act on any other matters that may
properly come before the meeting. |
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1d. Steven W. Krablin
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NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give full title as
such. |
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Please indicate if you plan to attend this meeting
in person. |
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Yes
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No |
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Signature
[PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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YOUR VOTE IS IMPORTANT
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Regardless of whether you plan to attend the Annual Meeting of
Stockholders, you can be sure your shares of Common Stock are
represented at the meeting by promptly returning your proxy in the
enclosed envelope.
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(Continued from reverse side)
ê Please fold and detach card at perforation before mailing. ê
CHART INDUSTRIES, INC.
PROXY FOR COMMON STOCK
Proxy Solicited on Behalf of the Board of Directors of
the Company for the Annual Meeting of Stockholders on May 23, 2007.
The undersigned hereby (i) appoints Michael F. Biehl and Matthew J. Klaben, and each of them, his
true and lawful agents and proxy holders with full power of substitution in each to appear and vote
all of the Common Stock of Chart Industries, Inc. that the undersigned will be entitled to vote at
the Annual Meeting of Stockholders of Chart Industries, Inc. to be held at NASDAQ MarketSite, 4
Times Square, 2nd Floor, 43rd Street & Broadway, New York, New York on May 23, 2007, and at any
adjournments or postponements thereof, hereby revoking any and all proxies heretofore given, and
(ii) authorizes and directs said proxies to vote all of the Common Stock of the Company represented
by this proxy as indicated on the reverse side.
The shares of Common Stock represented by this proxy will be voted as indicated in the spaces on
the reverse. To the extent that no directions are given for the election of the six nominees to
serve on the Board of Directors of the Company, the shares of Common Stock represented by this
proxy will be voted FOR the election of the six nominees to serve on the Board of Directors of
Chart Industries, Inc. (Company). The shares of Common Stock represented by this proxy will be
voted in the discretion of the proxy holders on all other matters properly brought before the
Annual Meeting and any adjournments or postponements thereof.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE. The
proxy holders cannot vote your shares of Common Stock unless you sign and return this card.
Please date, sign and return promptly in the accompanying envelope.