UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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LIBBEY INC.

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LIBBEY INC.
P.O. BOX 10060
300 MADISON AVENUE
TOLEDO, OHIO 43699-0060

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 6, 2010

 

 

 

Dear Fellow Libbey Shareholder:

 

We will hold our 2010 Annual Meeting of Libbey shareholders on Thursday, May 6, 2010, at 2 p.m., Eastern Time, at the Libbey Corporate Showroom located at 335 North St. Clair Street, Toledo, Ohio.

 

At the meeting, shareholders will:

 

 

You are entitled to vote at the meeting if you were an owner of record of Libbey Inc. common stock at the close of business on March 19, 2010. If your ownership is through a broker or other intermediary, you will need to have proof of your stockholdings in order to be admitted to the meeting. A recent account statement, letter or proxy from your broker or other intermediary will suffice.

 

Whether or not you plan to attend the meeting, we hope you will vote as soon as possible in accordance with the instructions contained under “Questions and Answers — How do I vote?” in the enclosed proxy statement.

 

Management sincerely appreciates your support.

 

Sincerely,

 

John F. Meier

Chairman of the Board of Directors and

Chief Executive Officer

 

Susan Allene Kovach

Secretary

 

March 30, 2010

Toledo, Ohio

 

TABLE OF CONTENTS

 

LIBBEY INC.

 

 

PROXY STATEMENT

 

Important Notice Regarding the Availability of Proxy Materials

 

We have sent you this proxy statement because our Board of Directors is asking you to give your proxy (that is, the authority to vote your shares) to our proxy committee so that they may vote your shares on your behalf at our annual meeting of shareholders. The members of the proxy committee are John F. Meier and Susan Allene Kovach. They will vote your shares as you instruct.

 

We will hold the meeting in the Libbey Corporate Showroom located at 335 North St. Clair Street, Toledo, Ohio. The meeting will be held on May 6, 2010, at 2 p.m., Eastern Time. This proxy statement contains information about the matters being voted on and other information that may be helpful to you.

 

We began the mailing to shareholders of this proxy statement and the enclosed proxy on or about March 30, 2010.

 

You may vote if you were a holder of Libbey Inc. (“Libbey”) common stock at the close of business on March 19, 2010.

 

You may vote on the following proposals:

 

 

The Board recommends that you vote:

 

 

Registered Shareholders

 

If you are a registered shareholder, you may vote in any of the following ways:

 

 

Shares held jointly by two or more registered shareholders may be voted by any joint owner unless we receive written notice from another joint owner denying the authority of the first joint owner to vote those shares.

 

Shares Held in Street Name

 

If you hold your shares in street name — in other words, you hold your shares through a broker or other nominee, you will receive from your broker a notice regarding availability of proxy materials that will tell you how to access our proxy materials and provide voting instructions to your broker over the internet. It also will tell you how to request a paper or e-mail copy of our proxy materials. If you hold your shares in street name and do not provide voting instructions to your broker, your shares will not be voted on any proposals on which your broker does not have discretionary authority to vote, including the election of directors and the approval of the Amended and Restated Libbey Inc. 2006 Omnibus Incentive Plan.

 

Shares Held Through 401(k) Plan

 

If you participate in the Libbey Retirement Savings Plan, which we refer to as our 401(k) plan, and if you have investments in the Libbey Inc. stock fund and have an email address and internet access provided by Libbey for business purposes, you will receive an email message at your Libbey-provided email address containing instructions that you must follow in order for shares attributable to your account to be voted. If you participate in our 401(k) plan, have investments in the Libbey Inc. stock fund and do not have an email address and internet access provided by Libbey for business purposes, you will receive instructions from the trustee of the 401(k) plan that you must follow in order for shares attributable to your account to be voted.

 

If you are a shareholder of record, you may, at any time before your shares are voted at the annual meeting, change your vote or revoke your proxy by:

 

 

If you hold your shares in street name through a broker or other nominee, you should contact your broker or nominee to determine how to change your vote or revoke your proxy.

 

At the close of business on March 19, 2010, there were 16,162,306 shares of Libbey common stock outstanding. Each share of common stock is entitled to one vote.

 

As long as a quorum is present either in person or by proxy at the Annual Meeting, each proposal must receive the votes of the holders of a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting.

 

Under our By-laws, the holders of a majority of the total shares issued and outstanding, whether present in person or represented by proxy, will constitute a quorum, permitting business to be transacted at the meeting.

 

How will votes be counted?

 

Votes cast in person or by proxy will be tabulated by the inspector of elections appointed for the meeting and will determine whether a quorum is present. Abstentions will be counted as shares that are present and entitled to vote for purposes of determining whether a quorum is present. For purposes of determining whether the shareholders have approved a matter, abstentions are not treated as votes cast affirmatively or negatively, and therefore will have no effect on the outcome of Proposal 1, Proposal 2 or Proposal 3. Broker non-votes will not be considered as present and entitled to vote with respect to that matter. The common stock outstanding on the record date held by the trustee under Libbey’s 401(k) plan will be voted by the trustee in accordance with written instructions from participants in that plan or, as to those shares for which no instructions are received, in a uniform manner as a single block in accordance with the instructions received with respect to the majority of shares of the plan for which instructions were received.

 

If you hold your shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to vote your shares with respect to certain matters, including the election of directors and the approval of the Amended and Restated Libbey Inc. 2006 Omnibus Incentive Plan, unless you give your broker or nominee specific instructions as to how to vote. For example, unless brokers have received voting instructions from their customers, brokers may not vote their customers’ shares with respect to the election of directors, approval of equity compensation plans or other non-routine matters. Non-voted shares on non-routine matters are called broker non-votes. They will not be counted in determining the number of shares necessary for approval but will be counted in determining whether there is a quorum.

 

The proxy committee will vote on other matters that properly come before the meeting in accordance with the Board’s recommendation or, if no recommendation is given, in the discretion of the proxy committee.

 

A shareholder desiring to submit a proposal for inclusion in our proxy statement for our Annual Meeting to be held in 2011 must deliver the proposal so that we receive it no later than December 8, 2010. Any proposal submitted outside the processes of Rule 14a-8 under the Exchange Act will be considered untimely if submitted after February 22, 2011. We request that all such proposals be addressed to Susan Allene Kovach, Vice President, General Counsel and Secretary, Libbey Inc., 300 Madison Avenue, P.O. Box 10060, Toledo, Ohio 43699-0060.

 

The following table shows information with respect to the persons we know to be the beneficial owners of more than five percent of our common stock as of December 31, 2009.

 

 

 

 

Stock Ownership Guidelines

 

Each of our outside directors is required, prior to the expiration of his or her second full term, to own at least 4,000 shares of Libbey common stock. Compliance with this guideline may be achieved through direct ownership of shares of our common stock, through deferral of director compensation into an account, the value of which is based upon the value of our common stock plus dividends (as described under “Compensation-Related Matters — Compensation Discussion and Analysis — How are Libbey’s directors compensated?” below), or through a combination of these means.

 

In October 2007, we established guidelines pursuant to which our executive officers also are required to achieve ownership of meaningful amounts of equity in Libbey. Specifically, each executive officer is required to achieve ownership of a specified number of shares of Libbey common stock equal to a multiple of his or her

base salary in effect on January 1, 2008 or, if later, the date on which the executive officer becomes subject to the guidelines. For individuals who were executive officers as of January 1, 2008, the applicable deadline for compliance with the guidelines is December 31, 2012. For individuals who become executive officers after January 1, 2008, the applicable deadline is the fifth anniversary of the date on which they become executive officers.

 

The applicable multiples for the executive officers are as follows:

 

 

 

 

We generally determine the number of shares of stock that each executive officer is required to own by the applicable deadline as follows. First, we multiply the applicable executive officer’s annual base salary on January 1, 2008 (or the date on which he or she becomes subject to the guidelines, if later) by the appropriate multiple from the above table. We then divide the product by the average closing price of Libbey common stock over a period of time to be determined by the Nominating and Governance Committee of Libbey’s Board of Directors. For those individuals who were executive officers as of January 1, 2008, the Nominating and Governance Committee determined that the average closing price of Libbey common stock over 2007, $16.84, would be used to determine the number of shares that they are required to own as of December 31, 2012.

 

In light of the significant volatility in our stock price during the one-year period prior to July 1, 2009, when Mr. Roberto Rubio joined us as Vice President, Managing Director, Libbey Mexico, the Nominating and Governance Committee considered a number of different methodologies for determining the number of shares that Mr. Rubio should be required to own by the fifth anniversary of his date of hire. Ultimately, the Nominating and Governance Committee based its decision as to Mr. Rubio’s equity ownership guideline on internal equity factors, comparing his annualized base salary to the annualized base salary of the other executive officers and positioning his guideline so that it exceeds that of the other Vice Presidents, whose guidelines were determined using a 2X multiple of base salary but have annualized base salaries that are lower than Mr. Rubio’s. Mr. Rubio’s guideline is lower than the guidelines of our CEO and Executive Vice President, whose respective guidelines were determined based upon higher multiples of base salary.

 

The following forms of equity, which we refer to as Qualifying Shares, will be counted in determining whether an executive officer has achieved the guideline applicable to him or her:

 

 

 

 

 

As of March 19, 2010, the number of Qualifying Shares held by the executive officers whom we refer to as the named executives (as set forth under “Compensation-Related Matters — Summary Compensation Table” below) was as follows:

 

 

 

 

The Nominating and Governance Committee, which is responsible for monitoring compliance with the guidelines, has authority to address extenuating circumstances that prevent an executive officer from complying with the guidelines by the deadline applicable to him or her. In addition, the Nominating and Governance Committee has authority to work out transition plans for executive officers nearing retirement.

Beneficial Ownership Table

 

The following table shows, as of March 19, 2010, the number of shares of our common stock and percentage of all issued and outstanding shares of our common stock that are beneficially owned (unless otherwise indicated) by our directors, the named executives and our directors and executive officers as a group. Our address is the address of each director and executive officer set forth below. The shares owned by the executive officers set forth below include the shares held in their accounts in the Libbey Inc. Retirement Savings Plan, which we refer to as our 401(k) plan. An asterisk indicates ownership of less than one percent of the outstanding stock.

 

 

 

 

		Number of
		Deferred or
Name of Director		Phantom Shares
C. Duno			12,802
W. Foley			11,778
J. R. Gougelet			1,638
P. Howell			10,778
D. Miller			2,191
C. Moerdyk			18,453
J. Orr			0
T. Stewart			59,674
All non-employee directors as a group			117,314

 

For more information regarding our deferred compensation plans for non-management directors, see “Compensation Discussion and Analysis — How are Libbey’s directors compensated?” below.

 

 

		Number of
		Shares of
Named Executive		Deferred Stock
G. Geswein			5,707
J. Meier			61,508
R. Reynolds			0
R. Rubio			0
K. Wilkes			34,003
All executive officers as a group			127,922

 

 

		Number of
		Outstanding Stock
		Options Exercisable
Named Executive		Within 60 Days
G. Geswein			61,625
J. Meier			231,120
R. Reynolds			157,623
R. Rubio			0
K. Wilkes			120,261
All executive officers as a group			868,755

 

 

In addition to outstanding shares of common stock that our named executives beneficially owned as of March 19, 2010, the named executives have received the following grants of RSUs that have not yet vested:

 

		No. of
Named Executive		Unvested RSUs(1)
G. Geswein			18,894
J. Meier			65,679
R. Reynolds			33,149
R. Rubio			15,656
K. Wilkes			0
All executive officers as a group			196,813

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Based solely on our review of filings with the Securities and Exchange Commission and written representations that no other reports were required to be filed by the relevant persons, we believe that, during the fiscal year ended December 31, 2009, all officers, directors and greater-than-ten-percent beneficial owners complied with the filing requirements applicable to them pursuant to Section 16 of the Exchange Act on a timely basis except that each of Gregory T. Geswein, Jonathan S. Freeman and Timothy T. Paige failed to timely file one report relative to one transaction. All of the required reports have been subsequently filed.

 

Our Board of Directors is divided into three classes of directors. Each year, one class of directors stands for election at our annual meeting of shareholders. It is important to us that our directors and candidates for our Board not only meet the “Requisite Qualifications for Board Candidates” described under “How does our Board select nominees for the Board?” below, but also possess experience, qualifications or skills in the substantive areas that impact our business. The biographies below highlight the individual attributes of each director that enhance the Board’s collective knowledge and experience.

 

 

As noted above, our Board currently includes eight non-employee directors and two employee directors. Of our eight non-employee directors, seven have been determined to be independent. For more information with respect to how the Board determines which directors are considered independent, see “How does our

Board determine which directors are considered independent?” below. Mr. Meier, our CEO, has served as Chairman of the Board since 1993, when we became a publicly-held company.

 

We are well-served by the Board leadership structure described above. By unifying the Chairman and CEO roles in Mr. Meier, we demonstrate to our employees, suppliers, customers and other stakeholders that we are under strong leadership, with a single person who has extensive institutional and industry knowledge setting the tone and having primary responsibility for managing our operations.

 

Although Mr. Meier serves as both Chairman and CEO, a number of factors about our directors and the way our Board operates promote independent oversight of management, including our Chairman and CEO:

 

 

Our Board of Directors has adopted Corporate Governance Guidelines that govern the Board of Directors. Our Corporate Governance Guidelines, as well as the charters for each of the Audit, Compensation and Nominating and Governance committees, are available on our website (www.libbey.com).

 

Our Board of Directors currently has three standing committees: an Audit Committee; a Compensation Committee; and a Nominating and Governance Committee.

 

Audit Committee.  The Board of Directors adopted an Audit Committee Charter in 2000 and periodically reviews and, when indicated in light of current best practices, updates the Audit Committee Charter. Most recently, the Board of Directors adopted a new Audit Committee Charter at the Board’s meeting held on February 5, 2008. The current Audit Committee Charter is available on Libbey’s website (www.libbey.com).

 

The functions of the Audit Committee are described under “Audit-Related Matters; Report of the Audit Committee” below. The Audit Committee met eight times during 2009. On February 9, 2010, the Board selected the members of the Audit Committee for the coming year, as shown above. The Board has determined that all members of the Audit Committee are independent, within the meaning of SEC regulations and the listing standards of the NYSE Amex exchange. The Board has further determined that each of Messrs. Duno and Howell and Ms. Moerdyk is qualified as an audit committee financial expert, as defined in SEC regulations, and that each of Messrs. Duno, Gougelet and Howell and Ms. Moerdyk is financially sophisticated and literate and has accounting and related financial management expertise, as those qualifications are interpreted by the Board in its business judgment.

 

Compensation Committee.  The Compensation Committee is responsible for (a) discharging the Board’s responsibilities relating to executive compensation, including by considering the potential impact of our executive compensation program on our risk profile, (b) producing an annual report on executive compensation for inclusion in the proxy statement or annual report on Form 10-K as required by the SEC, and

(c) approving grants of stock options and other awards under the company’s equity participation plans and providing oversight and administration of these plans in accordance with the provisions of the plans. In particular, the Compensation Committee has been charged with the following responsibilities:

 

 

The Compensation Committee met 10 times during 2009. On February 9, 2010, the Board selected the members of the Compensation Committee for the coming year, as shown above. The Board has determined that all members of the Compensation Committee are independent, within the meaning of the listing standards of the NYSE Amex exchange, and that all members of the Compensation Committee are “outside directors,” within the meaning of 26 CFR § 1.162-27.

 

Nominating and Governance Committee.  Pursuant to the charter of the Nominating and Governance Committee, the Committee is responsible for developing and implementing policies and practices relating to corporate governance, including reviewing and monitoring implementation of our Corporate Governance Guidelines. In addition, the Committee is responsible for establishing a selection process for new directors to meet the needs of the Board, for evaluating and recommending candidates for Board membership, for assessing the performance of the Board and reviewing that assessment with the Board and for establishing objective criteria to evaluate the performance of the CEO. The Committee also is responsible for reporting to the Board trends in director compensation practices and the competitiveness of the Company’s director compensation practices.

 

The Nominating and Governance Committee met seven times in 2009. On February 9, 2010, the Board selected the members of the Nominating and Governance Committee for the coming year, as shown above. The Board has determined that all of the members of the Committee are independent, within the meaning of the listing standards of the NYSE Amex exchange.

 

In addition, as indicated above under “How is our Board leadership structured?”, during 2009 the Board appointed an ad hoc special committee of independent directors to oversee our recapitalization efforts. The special committee, which met 30 times during 2009, was disbanded late in 2009.

 

Our management is responsible for day-to-day risk management and our Board, through the Audit Committee, is responsible for oversight of management’s risk management processes. We have implemented an enterprise-wide risk management program. Our Director, Enterprise Risk Management, has primary responsibility for this program and reports to our Vice President, Chief Financial Officer. We also have an Enterprise Risk Management Steering Committee consisting of members of senior management from across our operations.

 

Through our enterprise risk management program, we identify, evaluate and address actual and potential risks that may impact our business and our financial results. Our Director, Enterprise Risk Management

reports routinely to the Audit Committee with respect to the status of our program and particular risk strategies, and we apprise our Board of particular risk management matters in connection with its general oversight of our business.

 

Our Board selects new directors following review and evaluation by the Nominating and Governance Committee, which also proposes and reviews the criteria for membership at least biannually and the selection process. The Nominating and Governance Committee solicits input from all Board members and makes its recommendation to the Board. An invitation to join the board is extended by the Chairman of the Board on behalf of the Board. A shareholder who wishes to recommend a prospective nominee for the Board may notify our Corporate Secretary or any member of the Nominating and Governance Committee in writing, including such supporting material as the shareholder deems appropriate. Candidates for director nominated by shareholders will be given the same consideration as candidates nominated by other sources.

 

The Board in its Corporate Governance Guidelines has determined that Board members must satisfy the following standards and qualifications:

 

Requisite Characteristics for Board Candidates

 

 

In addition, the Board’s Corporate Governance Guidelines set forth the Board’s intention to seek directors who are strategic thinkers, understand complex capital structures and the operational constraints that they create, are members of the boards of directors of other public companies and have experience and expertise in corporate governance, marketing expertise and/or experience in the consumer products industry. Consistent with the Board’s Corporate Governance Guidelines, the Board also seeks directors who, as compared to then-existing members of the Board, are diverse with respect to geography, employment, age, race or gender. Reflecting this desire to foster a diverse Board, two of our directors are women and one director is Hispanic. In addition, one director is French and brings us his deep knowledge of the European glass tableware industry, and another director is British and, through his wide travels around the world, brings us his perspective as to the international business environment, particularly in China.

 

Finally, the Board considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees.

 

The Nominating and Governance Committee employed the services of a third-party search firm to identify and recruit Ms. Moerdyk to the Board in 1998 and Mr. Orr to the Board in 2008, and, under its charter, the Nominating and Governance Committee continues to have the authority to employ the services of a third-party search firm in fulfilling its duties to select nominees to the Board.

 

Pursuant to the Corporate Governance Guidelines approved by the Board, the Board has made a determination as to the independence of each of the members of the Board. In making this determination, the Board has considered the existence or absence of any transactions or relationships between each director or any member of his or her immediate family and Libbey and its subsidiaries and affiliates, including those reported under “Certain Relationships and Related Transactions — What transactions involved directors or other related parties?” below. The Board also examined the existence or absence of any transactions or relationships between directors or their affiliates and members of Libbey’s senior management or their affiliates.

 

As provided in the Guidelines, the purpose of this review was to determine whether there is any relationship that is inconsistent with a determination that a director is independent of Libbey or its management. Specifically, the Guidelines preclude a determination by the Board that a director is independent if the director does not meet the independence requirements set forth in the listing standards of the New York Stock Exchange, which are substantially the same as the independence requirements set forth in the listing standards of the NYSE Amex exchange, on which our common stock currently is listed.

 

As a result of this review, the Board has affirmatively determined that Carlos V. Duno, William A. Foley, Jean-René Gougelet, Peter C. McC. Howell, Deborah G. Miller, Carol B. Moerdyk and John C. Orr are independent of Libbey and its management under the standards set forth in the Corporate Governance Guidelines. Messrs. Meier and Reynolds are considered inside directors because of their employment as senior executives of Libbey. Mr. Stewart is considered a non-independent director because in the past three years Stewart and Stewart, the law firm of which Mr. Stewart is managing partner, has provided legal services to Libbey in connection with international trade matters and is expected to continue to do so. For more information with respect to the compensation paid to Mr. Stewart’s law firm for services provided to Libbey in 2009, see “Corporate Governance — Certain Relationships and Related Transactions — What transactions involved directors or other related parties?” below.

 

The Board of Directors met 14 times during 2009. Six of these meetings were regularly scheduled meetings and eight of them were special meetings (three of which were attended only by non-employee directors). During 2009, each member of the Board of Directors attended 75% or more of the aggregate number of meetings of the Board and at least 75% of the aggregate number of meetings of the committees of the Board that he or she was eligible to attend. In addition to the regularly scheduled and special meetings referred to above, and in light of the turbulent economy and related concerns about our business and capital structure, management held, at the Board’s request, informal telephonic status updates generally on a weekly basis between February and October of 2009. Attendance by individual members of the Board of Directors at these informal telephonic status updates was voluntary.

 

We desire to maintain a Board of Directors in which a substantial majority of our directors are independent, as defined in our Corporate Governance Guidelines. Those Guidelines preclude a determination by the Board that a director is independent if the director does not meet the independence requirements set forth in the listing standards of the New York Stock Exchange, which are substantially the same as the independence requirements set forth in the listing standards of the NYSE Amex exchange, on which our common stock currently is listed. We generally prohibit related-party transactions involving directors. Our Board makes a single exception to that policy in order to enable us to obtain legal services with respect to international trade matters from the law firm of Stewart and Stewart, of which Mr. Stewart is managing partner. During 2009 Stewart and Stewart received fees of approximately $8,721 from us for legal services in connection with various international trade matters. We anticipate that we will continue to utilize the legal services of Stewart and Stewart in the future in connection with international trade matters. In that

connection, because our Board believes that Libbey’s General Counsel is best suited to select legal counsel for Libbey, the Board does not require that we seek the approval of the Board, or of any committee of the Board, in connection with our engagement of Stewart and Stewart. However, the Board has determined that, as a result of our engagement of Stewart and Stewart with respect to international trade matters, Mr. Stewart is not independent of Libbey.

 

In addition, our Code of Business Ethics and Conduct, which we refer to as our Code of Ethics, requires that all of Libbey’s directors, officers and other employees avoid conflicts of interest. Related-party transactions that are of the nature and magnitude that they must be disclosed pursuant to Item 404(b) of Regulation S-K would be considered transactions that could give rise to a conflict of interest, and therefore are covered by our Code of Ethics. Our Code of Ethics requires that any conflicts of interest be reported to our Legal Department, and that the written concurrence of our General Counsel is required to waive any conflict of interest. In addition, our Code of Ethics requires that waivers of our Code of Ethics with respect to executive officers or directors may be granted only by the Board of Directors and only if the noncompliance with our Code of Ethics is or would be immaterial or if the Board of Directors otherwise determines that extraordinary circumstances exist and that the waiver is in the best interests of our shareholders.

 

Shareholders and other parties interested in communicating directly with the non-management directors as a group may do so by writing to Non-Management Directors, c/o Corporate Secretary, Libbey Inc., 300 Madison Avenue, P.O. Box 10060, Toledo, Ohio 43699-0060. The Nominating and Governance Committee has approved a process for handling letters that we receive and that are addressed to the non-management members of the Board. Under that process, the Corporate Secretary is responsible for reviewing all such correspondence and regularly forwarding to the non-management members of the Board a summary of all correspondence and copies of all correspondence that, in the opinion of the Corporate Secretary, deals with the function of the Board or committees thereof or that the Corporate Secretary otherwise determines requires the attention of the Board. Directors may, at any time, review a log of all correspondence that we receive and that are addressed to the Non-Management Directors or other members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are brought immediately to the attention of our internal auditors and Audit Committee and are handled in accordance with procedures established by the Audit Committee with respect to such matters.

 

Our Corporate Governance Guidelines and Code of Business Ethics and Conduct (which applies to all of our employees, officers and directors), as well as the Charters for each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee, are available on our website (www.libbey.com). They also are available in print, upon request, to any holder of our common stock. Requests should be directed to Corporate Secretary, Libbey Inc., 300 Madison Avenue, P.O. Box 10060, Toledo, Ohio 43699-0060.

 

While our directors are not required to attend our annual meeting of shareholders, we typically schedule a meeting of the Board of Directors to take place at the same location and on the same day as the annual meeting of shareholders. As a result, we anticipate that a substantial majority of our directors will be present at the annual meeting of shareholders to be held on May 6, 2010. In 2009, all members of the Board of Directors attended our annual meeting of shareholders.

 

Upon the recommendation of the Audit Committee, the Board of Directors has appointed Ernst & Young LLP as Libbey’s independent auditors for the fiscal year ending December 31, 2010. Although ratification by the shareholders is not required by law, the Board of Directors believes that you should be given the opportunity to express your views on the subject. See “Proposal 2 — Ratification of Auditors” below.

 

A representative of Ernst & Young LLP is expected to attend the Annual Meeting and will have an opportunity to make a statement if the representative so desires. The representative will be available to respond to appropriate questions.

 

Fees for services rendered by Ernst & Young LLP for the years ended December 31, 2009 and 2008 are as follows:

 

 

 

 

All audit-related, tax and other services were pre-approved by the Audit Committee, which concluded that the provision of these services by Ernst & Young LLP was compatible with the maintenance of that firm’s independence in the conduct of its audit functions. The Audit Committee’s policy regarding auditor independence requires pre-approval by the Audit Committee of audit, audit-related and tax services on an annual basis. The policy requires that engagements that the auditors or management anticipates will exceed pre-established thresholds must be separately approved. The policy also provides that the Committee will authorize one of its members to pre-approve certain services. The Committee has appointed Carlos V. Duno, Chair of the Committee, to pre-approve these services.

 

The following Report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other filing by Libbey under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Libbey specifically incorporates this Report by reference therein.

 

The Audit Committee oversees the integrity of our financial statements on behalf of the Board of Directors; the adequacy of our systems of internal controls; our compliance with legal and regulatory requirements; the qualifications and independence of our independent auditors; and the performance of our independent auditors and of our internal audit function.

 

In fulfilling its oversight responsibilities, the Audit Committee has direct responsibility for, among other things:

 

 

 

The Audit Committee reviews and discusses with management and the independent auditors all annual and quarterly financial statements prior to their issuance. The Audit Committee’s discussions with management and the independent auditors include a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

 

The Audit Committee met both with management and with the independent auditors who are responsible for auditing the financial statements prepared by management and expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States. The Audit Committee also met with each of the independent auditors and the internal auditors without management being present. The Audit Committee discussed with the independent auditors and management the results of the independent auditors’ examinations; their judgments as to the quality, not just the acceptability, of our accounting principles; the adequacy and effectiveness of our accounting and financial internal controls; the reasonableness of significant judgments; the clarity of disclosures in the financial statements; and such other matters as are required to be communicated to the Audit Committee under generally accepted auditing standards, including Accounting Standards Board Statement on Auditing Standards No. 61, Communication with Audit Committees. In addition, the Audit Committee discussed with the independent auditors the auditor’s independence from management and Libbey, including the matters in the written disclosures required by the Independence Standards Board, Standard No. 1, Independence Discussions with Audit Committees.

 

Taking all of these reviews and discussions into account, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2009, for filing with the Securities and Exchange Commission.

 

Carlos V. Duno, Chair
Jean-René Gougelet
Peter C. McC. Howell
Carol B. Moerdyk

 

Financial and Operational Highlights for 2009.  As 2009 began, we faced weakened economies in all of our key markets around the world and, compared to the fourth quarter of 2007, a steep drop-off in our core U.S. foodservice sales, as many of our foodservice customers dramatically reduced inventories in the fourth quarter of 2008. We were highly leveraged, with debt that included a $150.0 million asset-based loan facility, which we refer to as our ABL facility, $306.0 million of floating rate senior secured notes, which we refer to as our senior notes, and $148.9 million principal amount of senior subordinated secured payment-in-kind notes, which we refer to as our PIK notes. Through June 1, 2009, interest on the PIK notes was payable through

issuance of additional PIK notes and, as a result, the principal amount of the PIK notes had increased to $160.9 million at June 30, 2009. In addition, a semi-annual cash interest payment of $12.9 million was due on the PIK notes on December 1, 2009.

 

The combination of these factors raised concerns as to our ability to generate sufficient cash to meet our business needs and service our debt and, together with the global credit crisis, created concern about our ability to refinance our debt before the December 1, 2009 due date for the $12.9 million cash interest payment on the PIK notes. Reflecting these uncertainties, our stock price started the year at $1.25 and dropped as low as $0.47 when our stock was de-listed by the New York Stock Exchange in April 2009.

 

Led by our executive officers, our 6,850 employees gave their maximum effort to address the challenges facing us. After setting an ambitious goal to generate $18.0 million of free cash flow in 2009, compared to a use of cash in 2008 of $46.6 million, through aggressive cost-cutting and inventory control measures we beat that goal by $67.4 million — an improvement of $132.0 million in free cash flow compared to 2008. In addition, in spite of a 7.6% reduction in our net sales, which declined from $810.2 million in 2008 to $748.6 million in 2009, we increased our adjusted EBITDA from $85.2 million in 2008 to $90.1 million in 2009 — a $4.9 million increase.

 

In addition, in October 2009, we exchanged the PIK notes for a combination of new PIK notes and equity, in the process eliminating the $12.9 million cash interest payment that was due on December 1, 2009. In recognition of our improved liquidity and capital structure, our stock price rebounded to close out 2009 at $7.65, a 512% increase over our closing stock price at the end of 2008. The improvement in our financial results, stock price and capital structure positioned us for listing on the NYSE Amex exchange at the beginning of this year, followed shortly after that by the successful refinancing of our ABL facility, senior notes and new PIK notes in early February 2010.

 

2009 Executive Compensation Highlights.  As a result of the significant deterioration in our stock price during the second half of 2008 as the global economic recession began to impact our business, we paid no annual incentive compensation to our executives for 2008 performance. In addition, in October 2008 we froze the salaries of our U.S. salaried employees, and, as the recession continued to negatively impact our business in early 2009, we cut the salaries of our U.S. salaried employees and suspended our matching contribution to our 401(k) plan in February 2009. The salaries of our U.S. executive officers were reduced by 7.5%, while the salaries of our other U.S. salaried employees were reduced by 5%. Further, in reaction to our low stock price and the limited number of shares available for awards under our 2006 Omnibus Incentive Plan, we modified our long-term incentive program, which we refer to as our LTIP, by, among other things, changing the methodology for determining the number of NQSOs and RSUs awarded to our executives in 2009. This change in methodology resulted in a substantial decline in the long-term compensation opportunity available to our executive officers for 2009. As a result of the collective impact of these measures, our executive officers experienced a reduction in their total direct compensation opportunity¹ for 2009 of between 18% and 36%.

 

At the same time, we recognized that it was critical that we keep our executives motivated during 2009, and to keep their interests aligned with our shareholders, in order to ensure that we would have adequate liquidity to meet our business needs and pay interest on our high levels of debt, including the $12.9 million cash interest payment due under our PIK notes on December 1, 2009. In light of our relatively near-term debt maturities in late 2010 and mid-2011, we also believed that it was important to position Libbey to refinance that debt as soon as the capital markets stabilized. Accordingly, we designed our incentive plans for 2009, including our senior management incentive plan, which we refer to as our 2009 SMIP, and the performance component of our long-term incentive plan for 2009, which we refer to as our 2009 LTIP, to reward our executive officers based upon our free cash flow generation during 2009, but we conditioned payment of

 

 

¹ Total direct compensation includes salary, annual cash incentives and bonus compensation, and long-term incentive compensation. The total direct compensation opportunity contemplates payment of incentive compensation (annual and long-term) at target, although the opportunity for payouts in excess of target exists under the relevant plans.

incentive compensation on achievement of adjusted earnings before interest, taxes, depreciation and amortization, which we refer to as adjusted EBITDA. For further information as to how we calculate adjusted EBITDA, see “What compensation did Libbey’s executives receive for 2009?” below. In addition, we conditioned our obligation to pay the cash component of our 2009 LTIP to all executive officers other than Mr. Meier and Mr. Reynolds (both of whom are retirement-eligible) upon the executive officer’s continuous employment with Libbey through December 31, 2011. We imposed that condition in order to further our talent retention objective, as described below under “What are the objectives of Libbey’s executive compensation program?”.

 

As indicated above under “Financial and Operational Highlights for 2009,” we set a record for free cash flow generation in 2009, and our adjusted EBITDA for 2009 was 102.7% of our budgeted EBITDA for the year. As a result, the Compensation Committee, at its February 8, 2010 meeting, authorized the following awards under our 2009 SMIP to our named executives:

 

 

In addition, the Compensation Committee determined that, for the 2007-2009 performance cycle under our long-term incentive plan for 2007, which we refer to as our 2007 LTIP, 67.8% of the target number of performance shares awarded in 2007 had been earned, since we achieved cumulative adjusted EBITDA over the performance cycle equal to 90.4% of the sum of adjusted EBITDA budgeted for each year during the performance cycle.

 

For more information with respect to these awards, see “What compensation did Libbey’s executives receive for 2009?” below.

 

Our executive compensation program for 2009 was structured to achieve the following objectives:

 

 

In 2009 we delivered compensation opportunities to our executives in the form of annual cash compensation; long-term cash and equity-based incentives; fringe benefits and limited perquisites; and income protection under certain limited circumstances. Although our most senior executives have the highest compensation opportunities, they also have a higher percentage of their compensation opportunities “at risk” than our more junior executives.

 

The following table sets forth the respective forms of compensation for which our executive officers were eligible for 2009, the characteristics of those forms of compensation, and the purposes or objectives that each form of compensation is designed to fulfill:

 

 

 

 

		Target SMIP Opportunity as a
		Percentage of Actual Base Salary
Named Executive		(%)
G. Geswein			60	%
J. Meier			90	%
R. Reynolds			75	%
R. Rubio			55	%
K. Wilkes			55	%

 

 

		Target LTIP Opportunity as a
		Percentage of Base Salary
Named Executive		(%)
G. Geswein			100	%
J. Meier			180	%
R. Reynolds			140	%
R. Rubio			80	%
K. Wilkes			100	%

 

For the reasons described below under “What compensation did Libbey’s executives receive for 2009 — Stock Options and RSUs,” the Compensation Committee elected to change the methodology used for determining the number of NQSOs and RSUs to be awarded to the executives in 2009. As a result of this change, the effective long-term incentive opportunity provided to our named executives in 2009 represented only the following percentages of their base salary:

 

		Effective Target LTIP Opportunity as a
		Percentage of Base Salary
Named Executive		(%)
G. Geswein			48.6	%
J. Meier			87.5	%
R. Reynolds			68.0	%
R. Rubio			42.4	%
K. Wilkes			48.6	%

 

Development and Implementation of the Executive Compensation Program.  The Compensation Committee of our Board of Directors is responsible for overseeing the design, development and implementation of our executive compensation program. In discharging that responsibility, the Compensation Committee engaged Hewitt Associates as its independent executive compensation consultant for 2009. All amounts that we incurred in 2009 for services provided by Hewitt Associates were attributable to services provided by Hewitt Associates to the Compensation Committee in connection with its executive compensation decisions.

 

The Compensation Committee consults with Hewitt when the Compensation Committee determines it to be appropriate, and a representative of Hewitt frequently attends meetings of the Compensation Committee. Our CEO, our Vice President — Administration and our Vice President, General Counsel attend meetings of, and provide information to, the Compensation Committee and its consultant to assist them in their compensation determinations. In addition, management may request that the Compensation Committee convene a meeting, and management may communicate with the Compensation Committee’s consultant in order to provide the consultant with information or understand the views of, or request input from, the consultant as to compensation proposals being submitted by management to the Committee. However, the Compensation Committee meets in executive session, without any member of management being present, to discuss and make its final compensation decisions.

 

Our non-CEO executives play no direct role in determining their own compensation, except to the extent they provide the CEO with an assessment of their own performance against their individual performance objectives and to the extent that the Vice President — Administration and the Vice President, General Counsel provide information to the Compensation Committee with respect to compensation programs affecting all executive officers.

 

With respect to our SMIP and our long-term incentive plans, the Compensation Committee sets the performance goals based upon input from our CEO with respect to those goals, including suggested individual performance objectives and metrics under the SMIP. In setting our corporate performance

objectives and measures, the Committee seeks input from Hewitt. The Committee also seeks input from our Board in setting our CEO’s individual performance objectives and metrics.

 

In determining awards to be made for current and future performance periods, the Compensation Committee considers internal pay equity within the executive officer group, but does not consider the impact of, or wealth accumulated as a result of, equity awards made during prior years.

 

In connection with the preparation of our proxy statement each year, the Committee reviews “tally sheets” that summarize, for each of our executive officers, the compensation paid and equity grants awarded during the prior year, as well as the amounts that would have been payable to each executive officer if the executive officer’s employment had been terminated under a variety of scenarios as of December 31 of the prior year. The Committee uses these “tally sheets,” which provide substantially the same information as is provided in the tables included in this proxy statement, primarily for purposes of ensuring that our executives’ estimated compensation is consistent with the Committee’s intent in adopting the program and for reviewing internal pay equity within the executive officer group.

 

Process for Setting 2009 Executive Compensation.  In late 2008, the Compensation Committee determined that a more in-depth review of the Committee’s executive compensation program should be completed. Accordingly, the Committee engaged Hewitt to review the compensation of several of the Company’s executives. After performing a regression analysis utilizing manufacturing companies with revenues less than $5 billion in Hewitt’s Regression Analysis System, Hewitt concluded that the 2008 base salaries of the executives studied generally were competitive, although some were below market and others were above market. The names of the companies in the Regression Analysis System were not disclosed to the Committee or the Company and were not material to the Committee’s decisions. Hewitt also concluded that most executives’ long-term incentive compensation target opportunities were below market. As a result, while salaries for all of our executive officers were frozen in October 2008 and subsequently reduced by 7.5% in February 2009, the Committee determined in February 2009 that the long-term incentive target opportunities of certain executive officers should be increased. The Committee’s determination was based upon the Hewitt analysis and recommendations by the CEO as to internal pay equity. The adjusted target opportunities were effective with awards made under the 2009 LTIP. The Compensation Committee subsequently established Mr. Rubio’s target long-term incentive opportunity at 80% of annualized base salary when he joined us in July 2009. This target long-term incentive opportunity was determined to be appropriate given the scope of his responsibilities as Vice President, General Manager, Libbey Mexico. After Mr. Rubio was named Vice President, General Manager, International Operations and was added to our payroll in the U.S. effective January 1, 2010, the Compensation Committee increased Mr. Rubio’s 2010 target long-term incentive opportunity to 100% of annualized base salary, the same target long-term incentive opportunity applicable to Mr. Wilkes, our previous Vice President, General Manager, International Operations.

 

Our Equity Grant Practices.  Since 2006, grants of equity awards have been made under the following circumstances:

 

 

 

 

 

Potential Impact of Misconduct on Compensation.  Our SMIP and long-term incentive plans are authorized under our 2006 Omnibus Incentive Plan. Our shareholders approved our 2006 Omnibus Incentive Plan at our annual meeting of shareholders on May 4, 2006. As Proposal 2 below indicates, we are seeking your approval of the Amended and Restated Libbey Inc. 2006 Omnibus Incentive Plan, which we refer to as the Amended Omnibus Plan. Under the 2006 Omnibus Incentive Plan and the Amended Omnibus Plan, which we refer to collectively as the Omnibus Plan, if:

 

 

then the executive is required to reimburse us the amount of any payment in settlement of an award made under the Omnibus Plan and earned or accrued during the 12-month period following the first public issuance or filing with the SEC of the financial document embodying the financial reporting requirement in question.

 

Share Ownership Guidelines.  In 2004 we implemented share ownership guidelines for our non-employee directors. In October 2007, we established guidelines pursuant to which our executive officers also

are required to achieve ownership of meaningful amounts of equity in Libbey. For further information regarding our stock ownership guidelines for non-employee directors and executive officers, see “Stock Ownership — How much Libbey stock do our directors and officers own? — Stock Ownership Guidelines” above.

 

Base Salaries.  As discussed earlier, effective February 16, 2009, we reduced the salaries of our executive officers other than Mr. Rubio (who was not employed by us on that date) by 7.5%. As a result of our extremely successful efforts in reducing costs and completing our debt exchange, as discussed above under “Executive Summary — Financial and Operational Highlights for 2009,” we significantly improved our liquidity and financial flexibility throughout 2009. As a result, we rescinded the salary reductions for pay periods beginning December 1, 2009.

 

Annual Incentive Compensation.  As indicated under “In what forms did Libbey deliver compensation to its executives for 2009, and what purposes do the various forms of compensation serve?” above, the SMIP, which is our annual incentive plan for senior management, included two components in 2009: a corporate component, representing 70% of each executive officer’s target opportunity; and an individual component, representing 30% of each executive officer’s target opportunity. For 2009, the amount of annual incentive compensation earned under the corporate component was dependent upon the extent to which we achieved budgeted free cash flow of $18.0 million for 2009. We calculate free cash flow as follows:

 

 

 

 

For financial reporting purposes, we define free cash flow as net cash provided by (used in) operating activities, less capital expenditures, adjusted for proceeds of asset sales and other. Our consolidated financial statements filed on Form 10-K with the SEC on March 15, 2010, provide the following reconciliation of net cash provided by (used in) operating activities to free cash flow:

 

 

The calculation that we use in order to determine free cash flow for incentive compensation purposes yields the same result as the reconciliation of net cash provided by (used in) operating activities to free cash flow described above.

 

We selected free cash flow as our corporate-wide performance measure for 2009 because the generation of cash to fund our operations and to service our debt was paramount as we faced the effects of the global economic recession on our sales and profitability and the global credit crisis on our ability to refinance the PIK notes before we were obligated to make a $12.9 million cash interest payment on the PIK notes on December 1, 2009. In order to mitigate the potential that this emphasis on free cash flow in the short term might jeopardize our future over the long-term, we determined that no annual incentive should be paid out

under the corporate component unless we also achieved EBITDA equal to at least $65.0 million, or approximately 75% of our budgeted EBITDA, for 2009. EBITDA is calculated as follows:

 

 

In light of our announcement in December 2008 that we would be closing our Syracuse China manufacturing facility located in Syracuse, New York and our glassware distribution center located in Mira Loma, California in 2009, we determined that, for purposes of determining the extent to which we achieved budgeted EBITDA for 2009, special charges in accordance with generally accepted accounting principles should be excluded both from budgeted and actual EBITDA. Special charges recognized during the year are detailed in Notes 7 and 9 to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed on March 15, 2010. We refer to EBITDA, adjusted for these special charges, as adjusted EBITDA.

 

The remaining 30% of our executives’ annual incentive opportunity for 2009 was based upon achievement of a series of other goals developed early in the year and tailored specifically for the respective executive officers. Although disclosure of certain of the individual goals of our executives may result in competitive harm, the following table provides examples of the individual goals of our named executives for 2009:

 

 

On February 8, 2010, the Compensation Committee met and reviewed our performance and the performance of our executive officers during 2009. The Committee reviewed our actual free cash flow and adjusted EBITDA for 2009, and compared them to our budgeted free cash flow and budgeted EBITDA for the year. The results of the Committee’s determination with respect to the corporate component of our 2009 SMIP are set forth in the table below:

 

 

The Committee also received input from our CEO as to the performance by our other executive officers relative to their individual objectives. In addition, prior to the meeting, the Committee reviewed the performance evaluation completed by our non-employee directors with respect to our CEO’s performance in 2009, including his performance with respect to his individual objectives. After meeting in executive session with the Committee’s independent compensation consultant, the Committee determined that the respective named executives had earned the payout percentages indicated in the table below with respect to their individual objectives:

 

 

In determining whether to exercise negative discretion to reduce the amount to be paid to our executive officers, the Compensation Committee considered a number of factors, including:

 

 

 

Taking all of these factors into account, the Compensation Committee determined that it was not appropriate to exercise negative discretion, with the result that each of the named executives earned the following annual incentive compensation for 2009:

 

 

Discretionary Cash Awards.  In light of the fact that maximum payouts were earned under the corporate component of our 2009 SMIP and maximum or above-target payouts were earned by the majority of our named executives under the individual component of our 2009 SMIP, the Committee determined that discretionary cash awards to our named executives were not warranted.

 

Long-Term Performance-Based Compensation.  The long-term performance-based compensation opportunity provided to our executive officers for performance during 2009 consisted of the following components:

 

 

For purposes of determining the extent to which performance shares are earned under our 2007 LTIP and our 2008 LTIP, EBITDA is calculated and adjusted as described under the heading “— Annual Incentive Compensation” above. However, for purposes of determining the extent to which performance shares are earned, EBITDA also may be adjusted to take into account the impact of any acquisition or disposition with respect to which EBITDA for the business that is acquired or sold, as the case may be, exceeds, $5.0 million.

 

 

On February 8, 2010, the Compensation Committee determined that our cumulative adjusted EBITDA for the period January 1, 2007 through December 31, 2009 was $291.8 million, or 90.4% of the sum of EBITDA budgeted for each year during that period. Accordingly, the Committee determined that participants under the 2007 LTIP had earned 67.8% of the target number of performance shares awarded to them for the period January 1, 2007 through December 31, 2009. As a result, in February 2010, we settled the earned performance shares by issuing the following number of common shares to the named executives:

 

 

 

 

For the same reasons that the Compensation Committee awarded a 200% payout under the corporate component of the 2009 SMIP, the Compensation Committee awarded a 200% payout under the cash component of the 2009 LTIP. As a result, each of the named executives is entitled to a payout in the following amounts under the cash component of the 2009 LTIP:

 

 

However, the payouts under the cash component of the 2009 LTIP will not be made until early in 2012 and, in order to collect the amount earned, the named executives generally must remain continuously employed by Libbey through December 31, 2011. With respect to Mr. Meier and Mr. Reynolds, we will be obligated to pay the amount earned upon their respective retirements, even if they retire prior to January 1, 2012.

 

Stock Options and RSUs.  When the Compensation Committee adopted our equity-based 2006 LTIP, it contemplated that, for each three-year period covered by an LTIP, executives would be entitled to grants of NQSOs and RSUs equal to a total of 60% of their respective target LTIP opportunities. However, in reaction to our low stock price and the limited number of shares available for awards under our 2006 Omnibus Incentive Plan, in 2009 we modified our LTIP by, among other things, changing the methodology for determining the number of NQSOs and RSUs awarded to our executives in 2009.

 

In 2009, the number of RSUs awarded was determined by dividing the dollar value that the Compensation Committee sought to transfer (40% of each executive’s target long-term incentive opportunity) by the average month-end closing price of our common stock over the 12-month period beginning February 2008

and ending January 2009. The number of NQSOs awarded, which have an exercise price equal to the closing price of our common stock on February 12, 2009, and vest ratably over four years, was determined by dividing the dollar value that the Compensation Committee sought to transfer (20% of each executive’s target long-term incentive opportunity) by the average month-end Black Scholes value of the options over the same 12-month period. According to the Compensation Committee’s independent consultant, this change in methodology for determining the number of RSUs and NQSOs awarded to our executives under the 2009 LTIP reduced the economic value to our named executives of the NQSOs and RSUs granted to them in 2009 by 88% and 83%, respectively.

 

Pursuant to Section 162(m) of the Internal Revenue Code, publicly-held corporations are prohibited from deducting compensation paid to certain executive officers, as of the end of the fiscal year, in excess of $1.0 million, unless the compensation is “performance-based.” It is the Compensation Committee’s policy that compensation paid to our named executives should, to the extent it exceeds $1.0 million in any year, qualify under Section 162(m) as “performance-based,” provided that compliance with Section 162(m) is consistent with our overall corporate tax planning strategies and our executive compensation objectives, as set forth in “What are the objectives of Libbey’s executive compensation program?” above.

 

Our management directors do not receive additional compensation for service on the Board of Directors. We pay the following forms and amounts of compensation to our non-management directors:

 

 

 

 

Because we recognize that our non-employee directors are required to devote a significant amount of time to their duties as directors, and because we believe that our non-employee directors bring significant value to our shareholders, we seek to provide our non-employee directors with market-competitive compensation. We also seek to align the interests of our non-employee directors with those of our shareholders by providing equity-based compensation in the form of RSUs or outright grants of common stock and by requiring that our non-employee directors achieve and maintain a meaningful amount of equity in Libbey. For more information with respect to our stock ownership guidelines for non-employee directors, see “Stock

Ownership — How much Libbey stock do our directors and officers own? — Stock Ownership Guidelines” above.

 

Directors may elect, pursuant to the Director DCP, to defer cash and/or equity compensation into any of 13 measurement funds. The Director DCP, as well as the predecessor deferred compensation plans under which non-employee directors were eligible to participate, are unfunded plans, and the Company does not guarantee an above-market return on amounts deferred under any of these plans. Amounts deferred under the Director DCP, as well as under a predecessor plan, are, at the election of the applicable director, payable either in a lump sum or in installments over a period of time selected by the director. Amounts deferred under our first deferred compensation plan for outside directors are payable in a lump sum upon retirement from our Board or, if earlier, upon death of the director.

 

In addition to paying the retainers, fees and equity awards listed above, we reimburse our non-management directors for their travel expenses incurred in attending meetings of the Board or its committees, as well as for fees and expenses incurred in attending director education seminars and conferences. The directors do not receive any other personal benefits.

 

As discussed under “In what forms did Libbey deliver compensation to its executives in 2009, and what purposes do the various forms of compensation serve?” above, we have employment agreements with our executive officers and change in control agreements with our executive officers and certain other key members of senior management. We first implemented employment agreements for our executive officers in 1993, when Libbey separated from its former parent, Owens-Illinois, Inc. and became a public company, and we first implemented our change in control agreements in 1998, when hostile takeovers were not uncommon. In late 2008, we amended and restated our employment and change in control agreements to incorporate a number of changes, including the following:

 

 

 

The employment and change in control agreements reflect the continued belief of our Compensation Committee and Board that it is in the best interests of our shareholders to provide our executive officers with income replacement upon the occurrence of any of the “triggers” described in the employment and change in control agreements. That belief is based upon the following:

 

 

Following are tables containing summaries of the material terms of the employment and change in control agreements to which our named executives are party and the rationale for the respective benefits provided under those agreements. You should refer to the entire agreements, the forms of which are attached as exhibits to our Forms 10-K filed with the Securities and Exchange Commission on March 16, 2009 (as to our named executives other than Mr. Rubio) and March 15, 2010 (as to Mr. Rubio), for a complete description of their terms.

Employment Agreements —

 

 

 

 

 

We cannot terminate an executive officer for cause unless and until we deliver to the executive officer a copy of a resolution, duly adopted by the affirmative vote of not less than 3/4 of the entire membership of our Board at a meeting of our Board, finding that, in the Board’s good faith opinion, the executive officer committed any of the conduct described in the definition of “cause” and specifying, in reasonable detail, the particulars of that conduct. We must provide the executive officer with reasonable notice of the meeting of the Board and the opportunity, together with the executive officer’s legal counsel, to be heard before the Board. We also must provide the executive officer with reasonable opportunity to correct the conduct that he or she is alleged to have committed.

 

 

 

 

 

 

In order to terminate his employment for “good reason,” the named executive must assert the basis for terminating his employment for “good reason” by providing written notice to the Board within 90 days of the date the named executive knew or should have known of the event that is the basis for terminating for good reason.

 

Other obligations.  If we terminate the named executive’s employment with cause, or if the named executive resigns or retires other than at our request or for good reason, we nevertheless are obligated to pay or provide to the named executive base salary, when due, through the date of termination at the then current rate, plus all other amounts and benefits to which the named executive is entitled under any pension plan, retirement savings plan, equity participation plan, stock purchase plan, medical benefits and other benefits that we customarily provide or are required by law to provide at the time the payments are due.

 

 

 

 

 

 

A person typically is considered to be the “beneficial owner” of securities if the person has or shares the voting power associated with those securities.

 

 

 

 

 

 

 

In connection with Mr. Wilkes’ resignation, the Compensation Committee decided to augment the benefits that we were obligated to provide to Mr. Wilkes pursuant to his employment agreement. In particular, the Compensation Committee agreed to enhance Mr. Wilkes’ payout in the following respects:

 

 

The incremental cost to us of these enhancements was approximately $155,000. However, the Compensation Committee believed that it was appropriate to provide these enhancements to Mr. Wilkes in light of his significant contributions to the Company during his 16 years of service, including his tireless work on our behalf to expand our business internationally. The Committee also acknowledged that, in spite of the fact that Mr. Wilkes’s efforts throughout 2009 had contributed to our record-setting free cash flow for the year, he would forfeit his right to receive a payout of the $276,653 earned under the cash component of the 2009 LTIP because he would not satisfy the vesting condition to that payout.

 

William A. Foley, Deborah G. Miller, Carol B. Moerdyk and John C. Orr served on our Compensation Committee during 2009. None of Mr. Foley, Ms. Miller, Ms. Moerdyk or Mr. Orr has been an officer or employee of Libbey or its subsidiaries.

 

The Compensation Committee has reviewed and discussed with Libbey’s management the Compensation Discussion and Analysis set forth in this proxy statement. Taking all of these reviews and discussions into account, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 

Carol B. Moerdyk, Chair

William A. Foley

Deborah G. Miller

John C. Orr

 

The following narrative, tables and footnotes describe the “total compensation” earned during 2009, 2008 and 2007 by Messrs. Geswein, Meier, Reynolds, Rubio and Wilkes. Information for 2008 and 2007 was not provided for Mr. Rubio, since he did not join Libbey until July 2009. We refer to Messrs. Geswein, Meier, Reynolds, Rubio and Wilkes as our named executives.

 

The total compensation presented below does not reflect the actual compensation received by, or the target compensation of, the named executives in 2009, 2008 or 2007. The actual value realized by our named executives in 2009 from long-term incentives (NQSOs, RSUs and performance shares) is presented in the Option Exercises and Stock Vested in Fiscal 2009 Table below. Target annual and long-term incentive awards for 2009 are presented in the Grants of Plan-Based Awards Table below.

 

The individual components of the total compensation calculation reflected in the Summary Compensation Table are as follows:

 

Salary.  Base salary earned during 2009, 2008 and 2007.

 

Bonus.  Cash awards made, at the discretion of the Compensation Committee, in recognition of achievements that were not contemplated by the individual component of the SMIP but nevertheless played important roles in Libbey’s ability to achieve its results for the year in question. No bonuses were paid to our named executives for 2009 or 2008 performance.

 

Stock Awards.  The awards disclosed under the heading “Stock Awards” consist of performance shares and RSUs awarded during each of 2009, 2008 and 2007, respectively. Details with respect to the awards are included in the Grants of Plan-Based Awards Table below. The dollar amounts for the awards represent the respective grant date fair values of these awards under FASB ASC Topic 718 for each named executive. The actual values received by the respective named executives will depend upon the number of shares earned, the number of RSUs that actually vest and the price of our common stock when shares of our common stock are issued in settlement of the performance shares or RSUs, as applicable.

 

Option Awards.  The awards disclosed under the heading “Option Awards” generally represent annual grants of NQSOs. As to Mr. Geswein, the amounts for 2007 include an award of 50,000 NQSOs made in order to induce Mr. Geswein to join Libbey as our Vice President and Chief Financial Officer in May 2007. As to Mr. Rubio, the amounts disclosed for 2009 include an award of 25,000 NQSOs made in order to induce Mr. Rubio to join Libbey as our Vice President, General Manager, Libbey Mexico, in July 2009. The dollar amounts for the awards represent the grant date fair values of these awards under FASB ASC Topic 718 for each named executive. The actual values received by the respective named executives will depend upon the number of NQSOs that actually vest, the number of shares with respect to which NQSOs are exercised and the price of our common stock on the date on which the NQSOs are exercised.

 

Non-Equity Incentive Compensation.  The awards disclosed under the heading “Non-Equity Incentive Compensation” consist of (a) amounts earned by the named executives in 2009, 2008 and 2007 under our SMIP and (b) amounts earned by the named executives under the cash component of our 2009 LTIP. There were no awards paid for 2008 performance. The awards under our SMIP for 2009 and 2007 performance were paid in February of 2010 and 2008, respectively. The awards under the cash component of our 2009 LTIP will not be paid until early 2012. In order to collect the awards earned under the cash component of our 2009 LTIP, named executives must remain continuously employed by us through December 31, 2011. However, we are obligated to pay the awards earned under the cash component of our 2009 LTIP to Messrs. Meier and Reynolds upon their respective retirements, even if they retire before January 1, 2012.

 

Change in Pension Value and Nonqualified Deferred Compensation Earnings.  The amounts disclosed under the heading “Change in Pension Value and Nonqualified Deferred Compensation Earnings” represent the actuarial increase, if any, during each of 2009, 2008 and 2007 in the pension value provided under our Libbey Inc. Salaried Cash Balance Pension Plan, which we refer to as our Salary Plan, and our Supplemental Retirement Benefit Plan, which we refer to as our SERP. With respect to Messrs. Meier and Reynolds, the amounts do not reflect the decline in actuarial value of their pension benefits under our Salary Plan and SERP during 2009.

Because we do not guarantee any particular rate of return on deferred compensation under our Executive Savings Plan or Executive Deferred Compensation Plan, which we refer to as our ESP and EDCP, respectively, there are no earnings on nonqualified deferred compensation included in the amounts disclosed.

 

All Other Compensation.  The amounts disclosed under the heading “All Other Compensation” include: (a) annual company matching contributions under our 401(k) savings plan (a broad-based plan open to all U.S. salaried employees); (b) annual company matching contributions under our ESP or EDCP, as the case may be; (c) the cost that we paid for tax return preparation and financial planning for the respective named executives, together with tax “gross-ups” on that cost; (d) for our U.S.-based named executives, our incremental cost for ground transportation for personal and business trips from the Toledo, Ohio area to the Detroit/Wayne County Metropolitan airport, and, for Mr. Rubio, who was employed by our Mexican subsidiary and based in Monterrey, Mexico, the cost that our Mexican subsidiary incurred for a driver to provide secure ground transportation to Mr. Rubio while traveling in the Monterrey, Mexico vicinity, which has an elevated risk of kidnap for ransom; (e) the annual premiums that we pay to provide executive long-term disability coverage for each of the named executives other than Mr. Rubio; (f) our cost of annual executive physical examinations for the named executives; and (g) for Mr. Geswein, our cost incurred in 2007 to relocate him, his family and belongings to Toledo, Ohio, and related tax “gross-ups” on that cost. For Mr. Rubio, the amounts disclosed under the heading “All Other Compensation” also include the following: (a) contributions made on Mr. Rubio’s behalf to Instituto Mexicano Del Seguro Social (Mexico’s equivalent to the U.S. Social Security Administration); (b) amounts paid on Mr. Rubio’s behalf for supplemental medical insurance provided by our Mexican subsidiary; and (c) the amount payable by our Mexican subsidiary to Mr. Rubio’s previous employer as partial reimbursement for severance payable to Mr. Rubio in connection with his resignation and decision to accept our offer of employment. For Mr. Wilkes, the amounts disclosed under the heading “All Other Compensation” also include the Company’s expense associated with all compensation payable to Mr. Wilkes in connection with his December 31, 2009 resignation for good reason. For further information with respect to those amounts, see the “Potential Payments Upon Termination Under Employment Agreements” table below.

 

SUMMARY COMPENSATION TABLE

 

 

 

 

 

		Grant Date Fair Value
		of Performance Shares
		at Maximum Payout
Named Executive		($)
G. Geswein			233,396
J. Meier			592,384
R. Reynolds			313,856
R. Rubio			5,299
K. Wilkes			161,894

 

Although we currently do not expect that performance shares awarded during 2008 for the 2008-2010 performance cycle will be earned at a maximum payout, if they were, the grant date fair values, in accordance with FASB ASC Topic 718, with respect to those performance shares would be:

 

		Grant Date Fair Value
		of Performance Shares
		at Maximum Payout
Named Executive		($)
G. Geswein			216,374
J. Meier			829,084
R. Reynolds			411,104
R. Rubio			22,075
K. Wilkes(a)			142,091

 

 

 

 

						Tax Return				Tax
						Preparation				Gross-Up on Tax								Executive				Annual
		EDCP				and Financial				Return/								Long-Term				Executive				Supplemental
		Matching				Planning				Financial				Ground				Disability				Physical				Medical
		Contributions				Fees				Planning Fees				Transportation				Coverage				Examination				Insurance				Total
Name		($)				($)				($)				($)(a)				($)				($)				($)				($)
G. Geswein			0				0				0				242				3,868				0				0				4,110
J. Meier			2,013				700				332				192				4,254				0				0				7,491
R. Reynolds			1,302				605				287				0				4,265				0				0				6,459
R. Rubio			0				0				0				4,174				0				0				781				4,955
K. Wilkes			1,009				1,479				703				0				3,325				2,310				0				8,826