UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (Amendment No.     )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Section 240.14a-12

 

LIBBEY INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
ON MAY 16, 2008

 

 

 

Dear Fellow Libbey Stockholder:

 

We will hold our 2008 Annual Meeting of Libbey stockholders on Friday, May 16, 2008, at 2 p.m., Central Time, in the Parkside Room of The Drake Hotel, 140 East Walton Place, Chicago, Illinois 60611.

 

At the meeting, stockholders 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 31, 2008. 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.

 

We hope you will vote by marking, signing and returning your proxy or voting instruction card as soon as possible, whether or not you plan to attend the meeting.

 

Management sincerely appreciates your support.

 

Sincerely,

 

John F. Meier
Chairman of the Board of Directors and
Chief Executive Officer

 

By Order of the Board of Directors,

 

Susan Allene Kovach
Secretary

 

April 4, 2008

Toledo, Ohio

LIBBEY INC.

 

 

PROXY STATEMENT

 

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 stockholders. The members of the proxy committee are John F. Meier, Richard I. Reynolds and Susan Allene Kovach. They will vote your shares as you instruct.

 

We will hold the meeting in the Parkside Room of The Drake Hotel, 140 East Walton Place, Chicago, Illinois 60611, on May 16, 2008, at 2 p.m., Central 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 stockholders of this proxy statement and the enclosed proxy on or about April 4, 2008.

 

QUESTIONS AND ANSWERS

 

Who may vote?

 

You may vote if you were a holder of Libbey Inc. (“Libbey”) common stock at the close of business on March 31, 2008.

 

What may I vote on?

 

You may vote on the following proposals:

 

 

How does the Board recommend that I vote?

 

The Board recommends that you vote:

 

 

How do I vote?

 

You may vote by marking, signing and dating the enclosed proxy card or voting instruction card and returning it in the prepaid envelope. The proxy committee will vote your shares in accordance with your directions. If you return a proxy card but do not mark the boxes showing how you wish to vote, the proxy committee will vote your shares FOR each of the proposals, but only if you have signed and dated the card. Unsigned proxy cards will not be voted at all. If you are a stockholder of record (that is, if you are registered on our books), you also may vote in person by attending the meeting.

May I change my vote?

 

If you are a stockholder of record, you may, at any time before your shares are voted at the 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.

 

How many outstanding shares of Libbey common stock are there?

 

At the close of business on March 31, 2008, which is the record date for the meeting, there were 14,606,199 shares of our common stock outstanding. Each share of common stock is entitled to one vote.

 

How big a vote do the proposals need in order to be adopted?

 

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.

 

What constitutes a quorum?

 

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 the presence of a quorum, but as unvoted for purposes of determining the matter to which the abstention applies. 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 Retirement Savings 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.

 

What are broker non-votes?

 

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 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 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.

 

How will voting be conducted on other matters raised at the meeting?

 

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.

When must stockholder proposals be submitted for the 2008 annual meeting?

 

A stockholder desiring to submit a proposal for inclusion in our Proxy Statement for our Annual Meeting to be held in 2009 must deliver the proposal so that we receive it no later than December 4, 2008. Any proposal submitted outside the processes of Rule 14a-8 under the Exchange Act will be considered untimely if submitted after February 17, 2009. 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.

 

STOCK OWNERSHIP

 

Who are the largest owners of Libbey stock?

 

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, 2007.

 

 

 

 

 

How much Libbey stock do our directors and officers own?

 

Stock Ownership Guidelines

 

Since July 2004, we have required each of our outside directors, 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 are 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 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 has determined that the average closing price of Libbey common stock over 2007, $16.84, will be used to determine the number of shares that they are required to own as of December 31, 2012.

 

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 1, 2008, 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 31, 2008, 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. An asterisk indicates ownership of less than one percent of the outstanding stock.

 

 

 

 

 

 

 

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

 

 

In addition to outstanding shares of common stock that our Named Executives beneficially owned as of March 31, 2008, on February 16, 2007, May 23, 2007 and February 15, 2008 the Named Executives received the following grants of RSUs that have not yet vested:

 

 

 

 

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, 2007, 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.

 

LIBBEY CORPORATE GOVERNANCE

 

Who are the current members of Libbey’s Board of Directors?

 

Libbey’s Certificate of Incorporation and By-Laws provide that the Board of Directors is divided into three classes. The following table shows information with respect to the members of the Board of Directors on the date of this proxy statement:

 

Does Libbey have Corporate Governance Guidelines?

 

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).

 

What is the role of the Board’s committees?

 

Our Board of Directors currently has 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 ten times during 2007. On February 5, 2008, 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 New York Stock 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 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, (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, (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, and (d) providing oversight and administration for the company’s employee stock purchase plan in accordance with the provisions of the plan. In particular, the Compensation Committee has been charged with the following responsibilities:

 

 

The Compensation Committee met six times during 2007. On February 5, 2008, 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 New York Stock 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 Chief Executive Officer. 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 six times in 2007. On February 5, 2008, 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 New York Stock Exchange.

 

Who coordinates executive sessions of the Board’s non-management directors?

 

At each regularly scheduled meeting of the Board, the Board (excluding management directors) meets in executive session outside the presence of management. In order to provide continuity, the Board has designated Deborah G. Miller to chair and coordinate these executive sessions.

 

How does the Board select nominees for the Board?

 

New directors are selected 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 stockholder 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 stockholder deems appropriate. Candidates for director nominated by stockholders 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 seeks 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. 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.

 

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, 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.

 

How does the Board determine which directors are considered independent?

 

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.

 

As a result of this review, the Board has affirmatively determined that Carlos V. Duno, William A. Foley, Peter C. McC. Howell, Deborah G. Miller, Carol B. Moerdyk and Jean-René Gougelet 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 2007, see “Corporate Governance — Certain Relationships and Related Transactions — What transactions involved directors or other related parties?” below.

 

How often did the Board meet during fiscal 2007?

 

The Board of Directors met eight times during 2007. Five of these meetings were regularly scheduled meetings and three of them were special meetings. During 2007, Mr. Gougelet attended 75% or more of the aggregate number of meetings of the Board that he was eligible to attend after being appointed to the Board of Directors; he did not serve as a member of any Board committees in 2007.

 

Each other incumbent 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.

 

Certain Relationships and Related Transactions — What transactions involved directors or other related parties?

 

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. 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 2007 Stewart and Stewart received fees of approximately $35,927 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”), adopted by our Board in 2004, 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 stockholders.

 

How do stockholders and other interested parties communicate with the Board?

 

Stockholders 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.

 

Are Libbey’s Corporate Governance Guidelines, Code of Business Ethics and Conduct and Committee Charters available to stockholders?

 

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.

 

Are Libbey’s directors required to attend Libbey’s annual meeting of stockholders?

 

While our directors are not required to attend our annual meeting of stockholders, 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 stockholders. As a result, we anticipate that a substantial majority of our directors will be present at the annual meeting of stockholders to be held on May 16, 2008. In 2007, all members of the Board of Directors attended our annual meeting of stockholders.

 

AUDIT-RELATED MATTERS

 

Who are Libbey’s auditors?

 

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, 2008. Although ratification by the stockholders 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.

 

What fees has Libbey paid to its auditors for Fiscal 2007 and 2006?

 

Fees for services rendered by Ernst & Young LLP for the years ended December 31, 2007 and 2006 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.

 

Report of the Audit Committee

 

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 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, 2007, for filing with the Securities and Exchange Commission.

 

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

 

COMPENSATION-RELATED MATTERS

 

Compensation Discussion and Analysis

 

Executive Summary

 

Financial and Operational Highlights for 2007.  As described below under “What are the objectives of Libbey’s executive compensation program,” in 2006 the Compensation Committee of our Board of Directors overhauled our executive compensation program in order to ensure that it was adequately geared to promote successful execution of our complex strategy to extend our business platform further into international markets and to improve our cost-competitiveness.

The overhaul appears to be accomplishing the intended objectives. Libbey and its stockholders have benefited greatly as we have successfully extended our manufacturing platform into low-cost countries such as Portugal, Mexico and China, and have continued to reduce costs and increase efficiencies as we drive LEAN manufacturing principles across our company. In fact, in spite of a tepid U.S. economy during the last four months of 2007, we achieved the following results in 2007:

	o	The one-year total return to our stockholders was 29.1%, the second consecutive year in which our one-year total shareholder return exceeded 20%. In contrast, the annual return for the Russell 2000 Index, of which we are a component company, was −1.6%; the annual return for the S&P SmallCap 600 Index was -0.3%; the annual return for the S&P 600 Housewares & Specialties Index was 8.6%; and the annual total shareholder return for our peer group, as defined under “— How does Libbey determine the forms and amounts of executive compensation? below, on a composite basis, was 17.1%.2 In fact, our one-year total shareholder return was among the top one-third in our peer group.
	o	Our income from operations (which we refer to as “IFO”) was $66.1 million, an increase of $46.8 million, or 243.1%, over our reported IFO for our fiscal year ended December 31, 2006, and an increase of $28.3 million, or 74.9%, over 2006 adjusted IFO, excluding special charges, of $37.8 million.
	o	Our earnings before interest, taxes, depreciation and amortization, after minority interest (which we refer to as “EBITDA”) was $116.5 million, an increase of $62.9 million, or 117.6%, over our reported EBITDA for our fiscal year ended December 31, 2006, and an increase of $44.5 million, or 61.8%, over our 2006 adjusted EBITDA, excluding special charges, of $72 million.
	o	We increased free cash flow by $113.7 million, from $(97.2) million in 2006 to $16.5 million in 2007.
	o	We achieved record-setting sales in our North American Glass segment by taking significant additional market share in the retail channel of distribution, and achieved record-setting sales in our International segment.
	o	We improved our operating margin in 2007 to 8.1% from 2.8% in 2006.
	o	We began operations at our new, state-of-the-art glass tableware manufacturing facility in Langfang, China, near Beijing, in early 2007; we shipped our first customer order from that facility in March; and we achieved our first profitable month in December.
	o	We substantially completed “Project Tiger,” our project to rationalize capacity at our Crisa facility in Mexico and achieve annualized savings of $13-15 million.

 

 

In addition, in May 2007 we increased the depth of our senior management team by adding Jonathan S. Freeman to our team in the newly created role of Vice President, Global Supply Chain, and Gregory T. Geswein to our team as Vice President and Chief Financial Officer. Scott M. Sellick, who served as Chief Financial Officer from 2003 until Mr. Geswein joined us, moved into the new role of Chief Accounting Officer. These management additions and changes give us enhanced ability to address the operational and financial management challenges inherent in our broadened business platform.

 

 

¹ For more information with respect to our results of operations for 2007, including explanations as to how we define the non-GAAP financial measures referred to above and reconciliations of those non-GAAP financial measures to the most directly comparable U.S. GAAP measures, see “Management’s Discussion and Analysis — Reconciliation of Non-GAAP Financial Measures” in our Annual Report on Form 10-K filed on March 17, 2008, with the Securities and Exchange Commission.

² See “Total Shareholder Return” in our 2007 Annual Report to Shareholders.

2007 Executive Compensation Highlights.  In spite of Libbey’s strong performance in 2007, the total direct compensation that we paid each of our executive officers for performance in 2007 was less than each executive officer’s target total direct compensation for the year. The shortfall primarily is attributable to the rigorous scale that we used for determining the payouts under the corporate component of our Senior Management Incentive Plan (which we refer to as the “SMIP”). For purposes of determining the payouts under the corporate component, which represented 67% of each executive officer’s target SMIP payout, we compared our actual IFO to our budgeted IFO for 2007. Although we achieved almost 96% of our budgeted IFO of approximately $69.0 million, our rigorous payout scale resulted in payouts under the corporate component of only 60% of the targeted payouts for that component.

 

Payouts to our executive officers under the individual component (which represented 33% of each executive officer’s target payout) of our SMIP ranged from 93% of target to 150% of target. In recognition of achievements in 2007 that were not contemplated by the individual component of the SMIP but nevertheless played important roles in Libbey’s ability to achieve its record-setting financial results, its progress in executing its transformation and the significant increase in total shareholder return in 2007, the Compensation Committee of our Board of Directors exercised discretion to award cash bonuses to some of our executive officers. The largest cash bonus awarded to any of our executive officers was less than $29,000.

 

Each of our executive officers also participates in our long-term incentive program. Under that program, in February 2007 the Compensation Committee awarded RSUs and non-qualified stock options (which we refer to as “NQSOs”) to our executive officers. Because the Compensation Committee had decided in 2006 to delay until 2007 awards of RSUs and NQSOs in light of our challenging refinancing in June 2006 and concern regarding issuance of equity awards during so-called “quiet periods,” the Compensation Committee awarded two sets of RSUs and NQSOs in February 2007. The first set of RSUs and NQSOs, representing the delayed awards from 2006, vests over three years, with one-third the number of RSUs and NQSOs awarded vesting on each of the first, second and third anniversaries of the grant date. The second set of RSUs and NQSOs vests over four years, with one-quarter the number of RSUs and NQSOs awarded vesting on each of the first, second, third and fourth anniversaries of the grant date.

 

In addition, in February 2007 the Compensation Committee approved a new long-term performance plan (which we refer to as our “2007 LTIP”), with a single, three-year performance cycle beginning on January 1, 2007 and ending on December 31, 2009, and awarded to each of our executive officers performance shares that may be earned under the 2007 LTIP if we achieve at least 85% of cumulative, budgeted EBITDA over that three-year period.

 

Finally, in February 2008 the Compensation Committee determined that Libbey achieved 99.4% of our cumulative, budgeted EBITDA of approximately $157.2 million for the 18-month period ended December 31, 2007, resulting in a payout to our executive officers of 98% of the performance shares awarded to them under our July 2006 LTIP (as defined below under “— What compensation did Libbey’s executives receive for 2007”) for the performance cycle beginning July 1, 2006 and ending on December 31, 2007.

 

What are the objectives of Libbey’s executive compensation program?

 

In order to build shareholder value by ensuring Libbey’s long-term growth, in 2004 we modified our business strategy, opting to undertake a complicated, multi-year process to extend our manufacturing platform into low-cost countries and to reposition our cost structure. After completing a comprehensive review of our executive compensation program in 2005, the Compensation Committee overhauled our executive compensation program in 2006 to ensure that it is adequately geared to promote achievement of the contemplated transformation. Accordingly, our current executive compensation program is structured to achieve the following objectives:

 

2007 we expanded our senior management team by adding senior executives to our global supply chain and finance functions. Competition for talented executives with experience in these functional areas is keen, and we believe that our ability to offer competitive compensation to our new executives was an important factor in our successful recruiting of these executives.

 

 

In what forms does Libbey deliver compensation to its executives, and what purposes do the various forms of compensation serve?

 

We generally deliver compensation to our executives in the form of annual cash compensation; long-term, 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 in which we delivered compensation to our executives for performance in 2007, the characteristics of those forms of compensation, and the purposes or objectives that each form of compensation is designed to fulfill:

 

 

 

 

 

How does Libbey determine the forms and amounts of executive compensation?

 

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 to perform a comprehensive study in 2005 to determine whether our executive compensation program was competitive with our peers and, more importantly, whether it was adequately geared to accomplish our business objectives. Hewitt Associates had not previously provided services to Libbey or its management or directors, and since that time Hewitt Associates has provided only limited human resource consulting services in connection with the establishment of Libbey’s operations in China. All amounts incurred by Libbey in 2007 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.

 

In connection with Hewitt’s 2005 study, Hewitt compared the net total compensation (base, bonus and long-term incentives) payable to 10 of our executives to net total compensation for comparable executive positions at our peer group. Of the peer group utilized in connection with the 2005 Hewitt study, the following companies (all of which, at the time of the study, were public companies of similar size, as measured by revenues) continue to be public companies filing reports with the Securities and Exchange Commission disclosing their executive compensation programs and levels:

 

 

Based upon the results of the 2005 Hewitt study, the Compensation Committee determined that our executive compensation program was not adequately geared to accomplish our business objectives and was not competitive with our peers. Accordingly, in 2006 the Compensation Committee:

 

 

The Compensation Committee made these changes in order to accomplish the purposes and objectives of our executive compensation program described above under “— In what forms does Libbey deliver compensation to its executives, and what purposes do the various forms of compensation serve?”

 

We have not conducted any further benchmarking of our total direct compensation against that peer group, or against any other peer group, since 2005, although the Compensation Committee contemplates that it will review our executive compensation programs on a periodic basis and compare them to those of other similar companies to ensure that our executive compensation programs are competitive and adequately geared to achieve our business strategies as they evolve. For each year subsequent to 2005, we have obtained general survey information from Hewitt Associates and other executive compensation consulting firms to obtain insight as to the average annual merit increases provided by industrial companies to their employees. Using those average annual merit increases as a framework, our CEO makes recommendations to the Compensation Committee with respect to salary increases for all executive officers other than the CEO. The CEO’s recommendations are based upon his assessment of each executive officer’s experience, tenure,

individual performance in the prior year, including contributions to Libbey’s success, and, to a limited extent, competitive factors. Based upon the CEO’s input, the Compensation Committee assesses the performance and determines the compensation of the non-CEO executive officers.

 

With respect to our CEO’s base salary, our Board of Directors evaluates the performance of our CEO, and the Nominating and Governance Committee of our Board coordinates the evaluation process. The Compensation Committee then reviews that evaluation and, after obtaining input from our Board and the Committee’s consultant (Hewitt Associates), sets his compensation. The chairperson of the Compensation Committee then reviews the CEO’s evaluation with him and advises him as to his base salary for the ensuing year.

 

The Compensation Committee consults with Hewitt Associates when the Compensation Committee determines it to be appropriate, and a representative of Hewitt frequently attends meetings of the Compensation Committee. Our CEO, Vice President — Administration and 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.

 

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 Vice President, General Counsel provide information to the Compensation Committee with respect to compensation programs affecting all executive officers, our non-CEO executives play no role in determining their own compensation.

 

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’ compensation remains reasonable and for reviewing internal pay equity within the executive officer group.

 

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

 

program. The Compensation Committee also grants NQSOs to certain members of senior management who do not participate in our long-term incentive compensation program. Although the Compensation Committee typically authorizes these awards at its meeting in early February, before we announce financial results for the recently concluded fiscal year, the grants are not made until after we announce those financial results. The number of RSUs and performance shares awarded is a function of the closing price of our stock over a period of 60 consecutive trading days ending on the first business day after we announce those results, and the number of NQSOs awarded is a function of the Black Scholes value of the NQSOs on the grant date, which, as indicated above, is the first business day after we announce those results. The exercise price of the NQSOs is the closing price of our stock on the grant date.

 

 

 

Potential Impact of Misconduct on Compensation.  Our SMIP and long-term incentive plans are authorized under the 2006 Omnibus Incentive Plan of Libbey Inc. (which we refer to as our “Omnibus Plan”). Our stockholders approved the Omnibus Plan at our annual meeting of stockholders on May 4, 2006. Under 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. 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 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.

 

What compensation did Libbey’s executives receive for 2007?

 

Base Salaries.  As indicated in our proxy statement for our 2006 fiscal year, the Compensation Committee, at the end of 2006, granted salary increases to our Chief Executive Officer and Chief Operating Officer. These were the first salary increases for our CEO and COO since 2004 and reflected the significant

progress that Libbey made in 2006 in expanding its manufacturing platform into low-cost countries. As a result of these salary increases, the annual base salaries for our CEO and COO increased, effective January 1, 2007, from $558,000 to $615,000, and from $395,184 to $425,016, respectively. In March 2007, the Compensation Committee authorized salary increases for the remaining executive officers (other than Messrs. Geswein and Freeman, who joined in Libbey in May 2007). These salary increases became effective on May 1, 2007. The following table sets forth the annual base salaries, as of that date, for Messrs. Wilkes, Sellick and Ibele:

 

 

Because we recruited Messrs. Freeman (our Vice President, Global Supply Chain) and Geswein (our Vice President and Chief Financial Officer) from outside Libbey and they possess highly sought-after skill sets and experience, their annual base salaries primarily are a reflection of competitive base salaries being paid to the pools of candidates that we interviewed for those positions. We viewed Mr. Sellick’s transition from Chief Financial Officer to Chief Accounting Officer as a lateral transition and, because his base salary had been adjusted in March 2007, elected not to adjust it again in May 2007.

 

In February 2008, after our Board of Directors completed its evaluation of our CEO’s performance for 2007, the Compensation Committee authorized salary increases, effective January 1, 2008, for our CEO, CFO, COO and Vice President, Global Supply Chain. The following table sets forth the salaries of our CEO, CFO and COO effective January 1, 2008:

 

 

These increases reflect the Board’s assessment that Messrs. Meier and Reynolds led Libbey to an outstanding performance in 2007, as summarized under “Executive Summary” above.

 

On March 25, 2008, the Compensation Committee authorized salary increases, effective April 1, 2008, for our remaining executive officers. The following table sets forth the salaries of the remaining Named Executives effective April 1, 2008:

 

 

Annual Incentive Compensation.  As indicated under “— In what forms does Libbey deliver compensation to its executives, 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 2007: a corporate component, representing 67% of each executive’s target award; and an individual component, representing 33% of each executive’s target award. The corporate component is based upon achievement of a single, corporate-wide financial performance measure — IFO. We selected IFO as our corporate-wide performance measure for 2007 because it is a key measure of company profitability, and improving corporate-wide profitability is an important business objective of Libbey.

 

On February 4, 2008, the Compensation Committee reviewed our actual IFO results for 2007, compared them to budgeted IFO for 2007 and determined that we had achieved approximately 96% of budgeted IFO for 2007. Because of the rigorous scale that we applied to this component of the SMIP, however, the corporate

component generated a payout of only 60% of target. For further information with respect to the scale utilized in determining the amount of the payout, see the Grants of Plan-Based Awards Table below.

 

The remaining 33% of our executives’ annual incentive opportunity for 2007 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 sets forth examples of the individual goals of our Named Executives for 2007:

 

 

The undisclosed individual goals of the Named Executives are strategic in nature and required sustained effort over a period of many months.

 

Early in 2008, each of our executive officers other than our CEO provided to the CEO an assessment of his or her own performance against the individual goals established early in 2007. The CEO provided those self-assessments, together with his own assessment of the performance of the other executive officers during 2007, to the Compensation Committee. Based upon those assessments and the Committee’s own observations as to each executive officer’s performance during 2007 (and with respect to the CEO’s performance, the Board’s evaluation of the CEO), the Committee, at its meeting on February 4, 2007, determined the extent to which each executive officer had achieved his or her individual goals and the resulting payout to be made to the respective executive officers under the individual component of the SMIP.

With respect to Mr. Meier, the Committee determined that Libbey generated a one-year total shareholder return in 2007 of over 29%, outpacing the Russell 2000 Index, of which we are a component company, the S&P SmallCap 600 Index, the S&P 600 Housewares & Specialties Index and the composite of our peer group. The Committee also found that throughout 2007 Libbey’s availability under its asset-based loan facility significantly exceeded that anticipated in Libbey’s operating plan, with borrowings and unused availability under that facility at year end totaling $7.4 million and $89.7 million, respectively. The Committee concluded that these accomplishments, together with the achievement of Mr. Meier’s other individual goals, generated a score with respect to the individual component of Mr. Meier’s annual incentive of 150%. Individual component scores for the other Named Executives ranged from 93% to 135%. Consistent with these scores, certain of the undisclosed individual goals were not fully achieved, while others were achieved to such a degree that they were assigned an above-target score.

 

Based upon the payout earned with respect to the corporate component and the scores received with respect to the individual component, the Named Executives earned annual cash incentive compensation for 2007 in the amounts set forth in the column headed “Non-Equity Incentive Compensation” in the Summary Compensation Table for Fiscal 2007 below.

 

Discretionary Cash Awards.  Our CEO recommended that the Compensation Committee award discretionary cash bonuses to each of our executive officers other than the CEO for achievements in 2007 that were not contemplated by the individual component of the SMIP but nevertheless played important roles in Libbey’s ability to achieve its record-setting financial results, its progress in executing its transformation and the significant increase in total shareholder return in 2007 over the prior year. After discussion in executive session (without the CEO being present), the Committee concurred with the CEO’s recommendation and awarded the following bonuses to the Named Executives shown below:

 

The discretionary cash awards are set forth in the column labeled “Bonus” in the Summary Compensation Table below.

 

Long-Term Performance-Based Compensation.  The long-term performance-based compensation opportunity provided to our executive officers for performance during 2007 consists of the following components:

 

 

As discussed in detail in our proxy statement for our 2006 annual meeting of stockholders, the Compensation Committee elected to phase in the performance share component of our executives’ equity-based compensation opportunity. Accordingly, although the Committee originally contemplated that performance shares would represent 40% of each executive’s target long-term incentive award, the performance shares awarded under the July 2006 LTIP had a grant date fair value equal to only 20% of the respective participants’ target long-term incentive opportunity. The performance shares awarded under the July 2006 LTIP were further allocated among the three performance cycles contemplated by that plan. The Compensation Committee elected to increase the phase-in of the performance share component under the 2007 LTIP, awarding performance shares having a grant date fair value equal to 30% of the respective participants’ target long-term incentive opportunity. In each case, the number of performance shares awarded was determined by dividing the dollar value that the Compensation Committee sought to transfer by the average closing price of our common stock over a period of 60 consecutive trading days ending on February 16, 2007.

On February 4, 2008, the Compensation Committee determined that we had achieved 99.4% of cumulative, budgeted EBITDA for the period July 1, 2006 through December 31, 2007, and that, as a result, participants under the July 2006 LTIP had earned 98% of the target number of performance shares awarded to them for the period July 1, 2006 through December 31, 2007. As a result, in February 2008, we settled the earned performance shares by issuing the following number of common shares to the Named Executives with respect to the period July 1, 2006 through December 31, 2007:

 

 

 

 

Stock Options and RSUs.  The Compensation Committee 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 awards. Accordingly, a single grant of RSUs and NQSOs should have been made in 2006. In light of the Company’s challenging refinancing in mid-2006 and concerns raised in 2006 by corporate governance experts with respect to the timing of awards of stock options by other public companies (particularly with respect to the propriety of granting stock options during “quiet periods”), the Compensation Committee delayed making the 2006 grants until we released our financial results for our 2006 fiscal year. As a result, at its meeting on February 5, 2007, the Compensation Committee authorized the following two sets of grants of NQSOs and RSUs to our executives, including the Named Executives:

 

 

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 award) by the average closing price of our common stock over a period of 60 consecutive days ending on February 16, 2007. The number of NQSOs awarded was determined by dividing the dollar value that the Compensation Committee sought to transfer (20% of each executive’s target long-term incentive award) by the Black Scholes value of the options on February 16, 2007.

 

What is the Compensation Committee’s policy regarding deductibility of compensation?

 

Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, 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 million, unless the compensation is “performance-based.” It is the Compensation Committee’s policy that compensation paid to our named executive officers should, to the extent it exceeds $1 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?”

How are Libbey’s directors compensated?

 

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 stockholders, 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 stockholders by providing equity-based compensation in the form of RSUs or outright grants of 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.

 

From time to time we benchmark our non-employee director compensation against that payable to non-employee directors of the companies in our peer group, as disclosed under “— How does Libbey determine the forms and amounts of executive compensation?” above. We do not adhere to a rigid formula for purposes of determining the percentile at which our non-employee director compensation is comparable. However, we believe that the compensation that we pay to our non-employee directors is within the range of that payable by companies in our peer group.

 

Directors may elect, pursuant to the 2006 Deferred Compensation Plan for Outside Directors adopted effective January 1, 2006, and the Amended and Restated 2006 Deferred Compensation Plan for Outside Directors adopted effective October 17, 2006, to defer all or any part of the retainer and fees payable to them into either a subaccount that is deemed invested in our common stock or a subaccount that has a fixed rate of return equal to the average yield on 10-year treasuries (determined as of the last day of the calendar quarter in which interest is being computed). In addition, directors may elect, pursuant to the Amended and Restated 2006 Deferred Compensation Plan for Outside Directors, to defer receipt of the equity award referred to above. Amounts deferred 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.

 

In addition to the retainers, fees and equity awards listed above, the Company reimburses the 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.

Potential Payments Upon Termination or Change in Control

 

As discussed under “— In what forms does Libbey deliver compensation to its executives, 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. We do not have the unilateral ability to amend our employment and change in control agreements without the consent of the respective executive officers who are party to them. However, we continue to believe that it is in the best interests of our stockholders to provide our executive officers with income replacement upon the occurrence of any of the “triggers” described in the Employment Agreements and Change in Control Agreements tables below. Our 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 executive officers are party and the rationales for the respective benefits provided under those agreements. You should refer to the entire agreements, which we filed with the Securities and Exchange Commission when we entered into them, 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 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’s legal counsel, to be heard before the Board. We also must provide the executive 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 that are required by law at the time the payments are due.

Change in Control Agreements

 

 

 

 

 

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.

 

 

 

Other obligations.  If a change in control occurs, all outstanding NQSOs will vest immediately, regardless of whether the executive’s employment is terminated. In addition, if a termination occurs after a change in control and is not a result of any of the triggers described above, the executive is entitled to

receive base salary, when due, through the date of termination at the then current rate plus all other amounts and benefits to which the executive is entitled under any compensation plan or practice that we have in place at the time the payments are due.

 

Compensation Committee Interlocks and Insider Participation

 

William A. Foley, Deborah G. Miller and Carol B. Moerdyk served on our Compensation Committee during 2007, as did Gary L. Moreau until his resignation from the Board. None of Mr. Foley, Ms. Miller or Ms. Moerdyk has been an officer or employee of Libbey or its subsidiaries, and, prior to his resignation from the Board, Mr. Moreau had not been an officer or employee of Libbey or its subsidiaries.

 

Compensation Committee Report

 

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.

 

Carol B. Moerdyk, Chair
William A. Foley
Deborah G. Miller

 

Summary Compensation Table

 

The following narrative, tables and footnotes describe the “total compensation” earned during 2006 and 2007 by Messrs. Meier, Sellick, Reynolds, Wilkes and Ibele. Information for 2006 was not provided for Mr. Geswein, since he did not join Libbey until May 2007. We refer to Messrs. Meier, Geswein, Sellick, Reynolds, Wilkes and Ibele 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 either 2006 or 2007. The actual value realized by our Named Executives in 2007 from long-term incentives (NQSOs, RSUs and performance shares) is presented in the Option Exercises and Stock Vested Table below. Target annual and long-term incentive awards for 2007 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 2007.

 

Bonus.  Cash awards made, at the discretion of the Compensation Committee, in recognition of achievements in 2007 that were not contemplated by the individual component of the SMIP but nevertheless played important roles in Libbey’s ability to achieve its record-setting financial results, its progress in executing its transformation and the significant increase in total shareholder return in 2007 compared to the prior year. For further information regarding the bonuses we paid to our Named Executives for 2007 performance, see “Compensation Discussion and Analysis — What compensation did Libbey’s executives receive for 2007? — Discretionary Awards.”

 

Stock Awards.  The awards disclosed under the heading “Stock Awards” consist of common stock issued in settlement of performance shares earned during 2007 and 2006, respectively, and RSUs granted in February 2007. The dollar amounts for the awards represent the grant-date fair value-based compensation expense recognized in 2007 and 2006, respectively, under FAS 123R for each Named Executive, as reported in our audited financial statements contained in our Annual Report on Form 10-K. Details with respect to the awards granted in 2007 are included in the Grants of Plan-Based Awards Table below. The recognized compensation expense of the stock-based awards may vary from the actual value the respective Named Executives receive, because the actual value will depend upon the number of shares earned 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; however, a single award of 50,000 NQSOs was made in order to induce Mr. Geswein to join Libbey as our Vice President and Chief Financial Officer in May 2007. The dollar amounts for the awards represent the grant-date fair value-based compensation expense recognized in 2007 for each Named Executive, as reported in our audited financial statements contained in our Annual Report on Form 10-K. (No awards of NQSOs were made to the Named Executives in 2006.) The recognized compensation expense of the NQSOs may vary from the actual value the respective Named Executives receive, because the actual value will depend upon 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 amounts earned by the Named Executives in 2007 and 2006 under our SMIP. These awards were paid in February of 2008 and 2007, based upon our performance in 2007 and 2006, respectively. For more information with respect to the awards paid in February 2008 based upon 2007 performance, see “Compensation Analysis and Discussion — What compensation did Libbey’s executives receive for 2007?”

 

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 2007 and 2006 in the pension value provided under our Libbey Inc. Salaried Cash Balance Pension Plan (which we refer to as our “Salary Plan”). Because we do not guarantee any particular rate of return on deferred compensation under our Executive Savings Plan (which we refer to as our “ESP”), there are no earnings on nonqualified deferred compensation included in the amounts disclosed.

 

All Other Compensation.  For 2007, the amounts disclosed under the heading “All Other Compensation” include (a) the matching contributions that we make, on behalf of the Named Executives, to their respective accounts in our 401(k) savings plan for U.S. salaried employees; (b) the matching contributions that we make, on behalf of the Named Executives, pursuant to our ESP; (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) our incremental cost for ground transportation for trips from the Toledo, Ohio area to the Detroit/Wayne County Metropolitan airport for our executives while traveling on business and for our executives and their spouses while traveling together; (e) the annual premiums that we pay to provide executive long-term disability coverage for each of the Named Executives; (f) our cost of annual executive physical examinations and related services for the Named Executives; and (g) for Mr. Geswein, our cost to relocate Mr. Geswein, his family and their belongings to Toledo, Ohio from Dayton, Ohio, together with related tax “gross-ups” on that cost.

 

SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

Grants of Plan-Based Awards Table

 

During 2007, the Compensation Committee granted the following plan-based awards to our Named Executives:

 

 

 

Recipients of performance shares and RSUs are not entitled to dividends or voting rights with respect to the common shares underlying the performance shares or RSUs unless and until they are earned or vested. We do not engage in repricing of NQSOs.

 

Information with respect to each of these awards, including information with respect to the performance measures applicable to the cash awards under our SMIP and our performance shares, and vesting schedules with respect to RSUs and NQSOs, is set forth, on a grant-by-grant basis, in the table and footnotes below.

 

GRANTS OF PLAN-BASED AWARDS TABLE

 

 

 

 

Awards made under the SMIP are payable only in cash. The amount disclosed under the “Threshold” column is the threshold payout with respect to the 67% of target awards that is dependent upon achievement of a corporate-wide performance measure. There is no particular threshold payout with respect to the 33% of target awards that is dependent upon achievement by our Named Executives of their respective individual goals, except that no amounts will be paid with respect to the individual goals unless Libbey achieves a defined level under the corporate-wide performance measure — namely, at least 60% of budgeted IFO for 2007. The threshold, target and maximum payouts under the SMIP are calculated based upon anticipated full-year W-2 earnings, except that Mr. Geswein’s threshold, target and maximum payouts under the SMIP are calculated based upon anticipated W-2 earnings for the period beginning May 23, 2007, when he joined Libbey, through December 31, 2007. For 2007, the scale for payouts with respect to the corporate component was:

 

 

 

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Our Named Executives had the following types of equity awards outstanding at the end of the 2007 fiscal year:

 

 

The following table shows, for each of the Named Executives, (a) the number, exercise price and expiration date of NQSOs that, as of December 31, 2007, were vested but not yet exercised and of NQSOs that, as of December 31, 2007, were not vested; (b) the number and market value of RSUs that were not vested as of December 31, 2007; and (c) the number and market value of shares of common stock underlying performance shares that were awarded in 2006 and 2007 and that were not yet earned as of December 31, 2007: