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

x

Filed by a Party other than the Registrant

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Preliminary Proxy Statement

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

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §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):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

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(2)

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(3)

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

(1)

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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 17, 2012

Dear Fellow Libbey Shareholder:

We will hold our 2012 Annual Meeting of Libbey shareholders on Thursday, May 17, 2012, at 2 p.m., Eastern Daylight Savings Time, at the Libbey Corporate Showroom located at 335 North St. Clair Street, Toledo, Ohio.

At the meeting, shareholders will:

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elect three directors, each for a term of three years;

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vote, on an advisory and non-binding basis, to approve the pay of our named executives;

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vote to ratify the appointment of Ernst & Young LLP as Libbey’s independent auditors for our fiscal year ending December 31, 2012; and

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transact such other business as properly may come before the meeting.

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, 2012. 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.

By Order of the Board of Directors,

Susan A. Kovach
Vice President, General Counsel and Secretary

April 5, 2012
Toledo, Ohio

 

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TABLE OF CONTENTS

 

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LIBBEY INC.

PROXY STATEMENT

Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders to Be Held on May 17, 2012.

Pursuant to rules promulgated by the Securities and Exchange Commission, or the SEC, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a notice of annual meeting, proxy card and 2011 Annual Report to Shareholders, and by notifying you of the availability of our proxy materials on the Internet. The notice of annual meeting, proxy statement and 2011 Annual Report to Shareholders are available at https://www.proxyvote.com. In accordance with the SEC’s rules, the materials on the site are searchable, readable and printable, and the site does not have “cookies” that enable us to identify visitors.

You may vote FOR this resolution, you may vote AGAINST this resolution, or you may abstain.

•

Proposal 3:  Ratification of the appointment of Ernst & Young LLP as Libbey’s independent auditors for the 2012 fiscal year.

You may vote FOR ratification of the appointment or AGAINST ratification of the appointment, or you may abstain.

How does the Board recommend that I vote?

The Board recommends that you vote:

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Proposal 1:  FOR each of Carol B. Moerdyk, John C. Orr and Stephanie A. Streeter to serve as Class I directors;

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Proposal 2:  FOR the resolution approving the pay of our named executives, as disclosed in this proxy statement; and

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Proposal 3:  FOR ratifying the appointment of Ernst & Young LLP as Libbey’s independent auditors for the 2012 fiscal year.

How do I vote?

Registered Shareholders

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

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Vote by telephone:  Call on a touch-tone telephone, toll-free 1-800-690-6903, 24 hours a day, seven days a week, until 11:59 p.m., eastern time, on May 16, 2012. Make sure you have your proxy card available, and follow the simple instructions provided.

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Vote over the internet:  Go to www.proxyvote.com, 24 hours a day, seven days a week, until 11:59 p.m., eastern time, on May 16, 2012. Make sure you have your proxy card available and follow the simple instructions provided.

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Vote by mail:  Mark, date and sign the enclosed proxy card and return it in the enclosed, postage-paid envelope. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity.

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Vote in person at the annual meeting:  Bring the enclosed proxy card or other proof of identification and request a ballot at the meeting.

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 Proposals 1 and 2.

 

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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 e-mail address provided by Libbey for business purposes, you will receive an e-mail message at your Libbey-provided e-mail address containing instructions that you must follow in order for shares in 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 e-mail address 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 in your account to be voted.

May I change my vote?

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:

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sending us a proxy card dated later than your last vote;

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notifying the Secretary of Libbey in writing; or

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voting at the meeting.

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 19, 2012, there were 20,519,801 shares of Libbey 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?

Provided that a quorum is present either in person or by proxy at the Annual Meeting, Proposals 1 through 3 must receive the required votes set forth below:

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.

 

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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 “for,” “against” or “withheld,” and therefore will have no effect on the outcome of any of Proposals 1 – 3. Additionally, broker non-votes will not be considered as present and entitled to vote with respect to any of Proposals 1 and 2. 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.

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, including Proposals 1 and 2, unless you give your broker or nominee specific instructions as to how to vote. 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 shareholder proposals be submitted for the 2013 Annual Meeting?

A shareholder desiring to submit a proposal for inclusion in our Proxy Statement for our Annual Meeting to be held in 2013 must deliver the proposal so that we receive it no later than November 30, 2012. Any proposal submitted outside the processes of Rule 14a-8 under the Exchange Act will be considered untimely if submitted after February 14, 2013. 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.

PROPOSAL 1 — ELECTION OF DIRECTORS

Each year our shareholders are asked to elect the members of a class for a term of 3 years. Currently, the term of office for members of Class I of the Board of Directors will expire on the date of the Annual Meeting in 2012. Mr. Jean-René Gougelet, a member of Class I of the Board of Directors, has indicated that he will not stand for reelection at the Annual Meeting in 2012. His decision is not a result of any disagreement on any matter relating to Libbey’s operations, policies or practices.

Because Mr. Gougelet’s decision not to stand for reelection would leave our Board with a class (Class I) consisting of 2 directors, a class (Class II) consisting of 4 directors, and a class (Class III) consisting of 3 directors, John C. Orr has consented to being nominated for election at the 2012 Annual Meeting of shareholders, along with Carol B. Moerdyk and Stephanie A. Streeter. Accordingly, the Board of Directors has fixed the number of directors to be elected at the 2012 Annual Meeting at 3 and has nominated Ms. Moerdyk, Mr. Orr and Ms. Streeter for election to Class I. Those persons who are elected directors at the 2012 Annual Meeting will hold office until their terms expire on the date of the 2015 Annual Meeting or until the election and qualification of their successors. The terms of office of the members of Class II and Class III of the Board of Directors will expire on the date of the Annual Meeting in 2013 and 2014, respectively. Information regarding Ms. Moerdyk, Mr. Orr and Ms. Streeter is set forth below under “Libbey Corporate Governance — Who are the members of our Board of Directors?”

 

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So far as the Board has been advised, only the 3 persons named above as nominees will be nominated for election as directors at the Annual Meeting. Shares represented by proxies in the accompanying form will be voted for the election of these 3 nominees unless authority to vote for any or all of these nominees is withheld. The nominees have consented to being named in this proxy statement and to serve if elected. If any of them should become unavailable prior to the Annual Meeting, the proxy will be voted for a substitute nominee or nominees designated by the Board of Directors or the number of directors may be reduced accordingly. The Board, however, expects each of the nominees to be available. As long as a quorum is present, directors shall be elected by a majority of the votes of the shares present in person or represented by proxy at the meeting. A shareholder entitled to vote for the election of directors may withhold authority to vote for any or all of the nominees.

The Board of Directors recommends a vote FOR each of Ms. Moerdyk, Mr. Orr and Ms. Streeter.

PROPOSAL 2 — ADVISORY SAY-ON-PAY VOTE

We are providing shareholders the opportunity to vote on a non-binding, advisory resolution to approve the pay of our named executives, as disclosed below under “Compensation-Related Matters — Compensation Discussion and Analysis” and the related tables and narrative disclosures. For convenience, this vote is referred to in this proxy statement as the “say-on-pay vote.”

Specifically, our say-on-pay vote gives shareholders the opportunity to cast a non-binding, advisory vote with respect to the following resolution:

RESOLVED, that the shareholders of the Company approve, on an advisory and non-binding basis, the compensation of the Company’s named executives, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, in this proxy statement.

Our executive pay program, which is discussed in detail below under “Compensation-Related Matters — Compensation Discussion and Analysis” and related tables and narrative, embodies a pay-for-performance philosophy that is designed to:

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Support our business strategy, thereby driving our long-term financial and operational performance;

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Align the interests of our shareholders and executives through “at-risk” compensation tied to our short- and long-term financial and operational objectives; and

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Attract and retain highly-talented and experienced senior executives who are critical to the implementation of our strategic plan and our future success.

The 2011 program, which we believe provides an appropriate balance among base salary and short- and long-term compensation target opportunities, incorporated the following features:

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In April 2011, base salary increases ranging from 2.4% to 3.6%, compared to base salaries for 2010;

 

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Annual incentive opportunities under our 2011 Senior Management Incentive Plan, which we refer to as our 2011 SMIP, based on corporate-wide performance and individual objectives designed to support the goals highlighted below1:

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A modest $25,000 discretionary bonus for Ms. Streeter, as described more fully under “Compensation-Related Matters — Compensation Discussion and Analysis — Executive Summary — 2011 Executive Compensation Highlights” and “Compensation-Related Matters — Compensation Discussion and Analysis — What pay did Libbey’s executives receive for 2011?”;

1

Adjusted EBITDA and free cash flow are non-GAAP measures. For reconciliations of Adjusted EBITDA to net income and free cash flow to net cash provided by operating activities, see Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-K filed with the Securities and Exchange Commission on March 14, 2012.

 

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Long-term incentive opportunities based on achieving corporate EBITDA objectives over a 3-year period; and

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Equity awards (non-qualified stock options, which we refer to as NQSOs, and restricted stock units, which we refer to as RSUs), with 4-year vesting, designed to (a) encourage our executive officers to remain with us in order to realize the value of the awards and (b) further align the interests of our executive officers with those of our shareholders generally.

In addition, during 2011 our Board recruited our new CEO, Ms. Streeter, and negotiated a pay package with her. The package provides for a base salary that is approximately $49,900 per year lower than that payable to our former CEO, Mr. Meier, who retired at the end of July 2011. It also provides for annual and long-term incentive compensation target percentages equal to those provided Mr. Meier, as well as a guaranteed minimum 2011 SMIP award ($315,000) equal to a target award prorated for her 6 months as a Libbey employee. Included in Ms. Streeter’s pay opportunity for 2011 were initial grants of NQSOs and RSUs that have an aggregate grant date fair value of approximately $702,000 and that vest over a 4-year period, and prorated target awards under our long-term incentive plans for 2010 and 2011, which we refer to as our 2010 LTIP and 2011 LTIP, respectively.

Ms. Streeter’s new employment agreement provides for substantially lower severance benefits in the event of termination of employment compared to Mr. Meier’s old employment agreement. In addition, Ms. Streeter’s employment agreement does not provide for an excise tax “gross-up” if Ms. Streeter’s employment is terminated by Libbey without cause or by her for good reason in connection with a change in control.

In September 2011, our Board notified our other executives who were party to employment agreements and/or change in control agreements that the agreements would be terminated at the end of 2011. At the same time, the Board presented the executives with new agreements. Most significantly, the new agreements provide for lower severance payments and eliminate excise tax gross-ups relating to severance provided in connection with employment terminations occurring in connection with changes in control.

Finally, our executive pay program incorporates stock ownership guidelines for executive officers, and our incentive compensation awards are subject to a clawback under certain circumstances.

Because your vote is advisory, it will not be binding on Libbey, our Compensation Committee or our Board of Directors. However, we value the opinions of our shareholders, and our Compensation Committee and Board will carefully consider the outcome of this vote.

The Board of Directors recommends a vote FOR the approval, on an advisory basis, of the resolution.

PROPOSAL 3 — RATIFICATION OF AUDITORS

The Audit Committee has appointed Ernst & Young LLP to serve as our independent auditors for our 2012 fiscal year. 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. Unless otherwise directed, proxies in the accompanying form will be voted for ratification.

The Board of Directors recommends a vote FOR this proposal.

 

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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 5% of our common stock as of December 31, 2011.

(1)

Amendment No. 8 to Schedule 13G filed with the SEC on behalf of Zesiger Capital Group LLC (“Zesiger”), an investment advisor, indicates that, as of December 31, 2011, Zesiger was the beneficial owner of 1,639,585 common shares, with sole dispositive power as to all such common shares and sole voting power as to 1,241,600 common shares. The schedule further states that all securities reported in the schedule are held in discretionary accounts that Zesiger manages, and that no single client of Zesiger owns more than 5% of the class.

(2)

Schedule 13G filed with the SEC on behalf of Robeco Investment Management, Inc. (“RIM”), an investment advisor, indicates that, as of December 31, 2011, RIM was the beneficial owner of 1,099,060 common shares, with sole dispositive power as to all such shares and sole voting power with respect to 837,560 common shares. The schedule further states that all securities are held for the discretionary account of certain clients, and that, to the best knowledge of RIM, no person has the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of shares representing more than 5% of the class.

(3)

Schedule 13G filed with the SEC on behalf of T. Rowe Price Associates, Inc. (“Price Associates”), an investment advisor, indicates that, as of December 31, 2011, Price Associates was the beneficial owner of 1,073,300 common shares, with sole dispositive power as to all such shares and sole voting power as to 71,800 common shares. The schedule further states that the ultimate power to direct the receipt of dividends paid with respect to, and the proceeds from the sale of, the securities is vested in the individual and institutional clients served by Price Associates as investment advisor.

How much Libbey stock do our directors and officers own?

Stock Ownership Guidelines

Non-Employee Director Stock Ownership Guidelines.  Effective May 6, 2010, our Board of Directors adopted new stock ownership guidelines applicable to non-employee directors. For individuals who were non-employee directors as of May 6, 2010, the deadline for compliance is May 6, 2015. For an individual who subsequently becomes a non-employee director, the deadline will be the fifth anniversary of the date on which he or she becomes a non-employee director. We refer to the deadline as the Compliance Deadline.

 

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Under the new guidelines, a non-employee director must, on or before the applicable Compliance Deadline, own Libbey common stock and/or its equivalents, as described below, in an amount at least equal to 4 times the amount of the annual cash retainer payable to the director for service on the Board of Directors (excluding the cash retainer or fees payable for service on any committee of the Board). We refer to this amount as the Ownership Threshold.

The following forms of equity, which we refer to as Libbey Shares, will be counted in determining whether a non-employee director has achieved the Ownership Threshold applicable to him or her:

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Shares of Libbey common stock held by the non-employee director; and

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“Phantom stock” into which deferred compensation is deemed invested under any deferred compensation plan for non-employee directors.

If a non-employee director achieves the Ownership Threshold on any date prior to his or her Compliance Deadline, that director generally will be deemed to continue to comply with the Ownership Threshold even if the value of his or her Libbey Shares subsequently declines as a result of a decline in the closing price of Libbey common stock. If, after achieving the Ownership Threshold, the non-employee director sells or otherwise disposes of Libbey Shares and after the sale or disposition fails to hold at least the minimum number of Libbey Shares that he or she was required to hold when he or she first achieved the Ownership Threshold, then the director’s holdings of Libbey Shares will be re-valued based on the then-current market price of Libbey common stock, and the director will be required to achieve the Ownership Threshold based on his or her re-valued holdings.

As of March 19, 2012, all of our non-employee directors comply with these stock ownership guidelines.

Executive Stock Ownership Guidelines.  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 respective dates on which they become executive officers.

The applicable multiples for the executive officers are as follows:

(1)

No individuals currently occupy the positions of President or group or divisional president. Mr. Reynolds currently is Libbey’s only Executive Vice President.

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 became 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.

 

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In light of the significant volatility in our stock price during the 1-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 several 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 2× 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.

After Ms. Streeter joined us in July 2011, the Nominating and Governance Committee considered the methodology for determining the number of shares that Ms. Streeter would be required to own by the fifth anniversary of her date of hire. Ultimately, the Committee chose to determine the number of shares she must own by multiplying her annual base salary on the date of hire ($700,000) by 5, and dividing the product by $14.47, the average closing price of Libbey common stock over the 1-year period ending June 30, 2011.

The following forms of equity, which we refer to as Qualifying Shares, will be counted in determining whether executive officers have achieved their respective stock ownership guidelines:

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Shares of Libbey common stock held by the officer, his or her spouse and/or his or her minor children (as long as they are minors), if:

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The shares are not subject to forfeiture under the terms of any award of those shares or the terms of any plan pursuant to which those shares are purchased and/or held; and

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The shares are not pledged to secure any indebtedness;

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Awards, pursuant to any plan approved by the Compensation Committee of the Board of Directors, of restricted shares, RSUs or shares issued in settlement of performance shares, but only if and to the extent the vesting requirements (whether continued service to Libbey or achievement of performance targets) associated with the shares already have been satisfied;

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Shares of Libbey common stock that are held for the benefit of the executive officer or his or her spouse or minor children in a 401(k) savings account, in any individual retirement account or in any trust or other estate planning vehicle;

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“Phantom stock” into which any restricted shares, RSUs or shares issued in settlement of performance shares are deferred pursuant to any plan approved by the Compensation Committee of the Board of Directors; and

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Vested, “in-the-money” stock options, but only to the extent they do not exceed 50% of the shares required by the guideline applicable to the particular executive officer.

As of March 19, 2012, the named executives who continued to be employed by Libbey as of that date held the following Qualifying Shares:

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.

 

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Beneficial Ownership Table

The following table shows, as of March 19, 2012, 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 (including Mr. Gougelet, who will not be standing for reelection at our 2012 Annual Meeting of shareholders), the named executives (including those who were no longer employed by Libbey at that date) and our directors and executive officers as a group. Our address, as set forth on the Notice of Annual Meeting of Shareholders, 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 our 401(k) plan. An asterisk indicates ownership of less than one percent of the outstanding stock.

(1)

Includes the following number of shares of our common stock that are deferred under our 2009 Director Deferred Compensation Plan, which we refer to as our Director DCP, and that are payable as shares of our common stock:

 

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Does not include the following number of shares of phantom stock that are held by non-management directors pursuant to our previous deferred compensation plans for outside directors and that are payable in cash:

For more information regarding our deferred compensation plans for non-management directors, see “Compensation-Related Matters — Non-Management Directors’ Compensation in 2011” below.

(2)

Does not include shares of our common stock that have vested but are deferred under our Executive Deferred Compensation Plan, which we refer to as our EDCP. As of March 19, 2012, each of Messrs. Geswein, Ibele, Reynolds, Rubio and Sellick, and all executive officers as a group, had the following number of shares of our common stock that are vested but deferred under our EDCP:

(3)

Includes the following number of NQSOs that have been granted to our named executives and all executive officers as a group and that currently are exercisable or will be exercisable on or before June 5, 2012:

 

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(4)

Based on last known information as of date of separation from service. For Mr. Geswein, that date was October 31, 2011; for Mr. Meier, that date was July 31, 2011; and for Mr. Sellick, that date was February 29, 2012.

(5)

Includes 750 shares held by family members of Mr. Howell. Mr. Howell disclaims any beneficial interest in these shares.

(6)

Based on last known information as of date on which Mr. Meier retired, includes 8,406 shares held by family members of Mr. Meier, who disclaims any beneficial interest in these shares.

In addition to outstanding shares of common stock that our named executives beneficially owned as of March 19, 2012, the named executives and all executive officers as a group have received the following grants of RSUs that have not yet vested:

(1)

Of these amounts, a total of 16,639 RSUs with 4-year vesting were granted to all executive officers on February 12, 2009; a total of 7,828 RSUs with 4-year vesting were granted to Mr. Rubio on July 1, 2009; a total of 45,061 RSUs with 4-year vesting were awarded to all executive officers on February 8, 2010 (but were not granted until May 6, 2010, after our shareholders approved our Amended and Restated 2006 Omnibus Incentive Plan, which we refer to as our Omnibus Plan); a total of 41,606 RSUs with 4-year vesting were awarded to all executive officers on February 10, 2011; a total of 22,761 RSUs with 4-year vesting were awarded to Ms. Streeter on July 29, 2011; and a total of 103,144 RSUs with 4-year vesting were awarded to all executive officers on February 17, 2012. One share of our common stock will be issued for each vested RSU. Dividends do not accrue on RSUs until they vest. For further information, see “Compensation-Related Matters — Compensation Discussion and Analysis — In what forms does Libbey deliver pay to its executives, and what purposes do the various forms of pay serve?” and the Outstanding Equity Awards at Fiscal Year-End table below.

 

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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, 2011, all officers, directors and greater-than-10% beneficial owners complied, on a timely basis, with the filing requirements applicable to them pursuant to Section 16 of the Exchange Act.

LIBBEY CORPORATE GOVERNANCE

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

Our Board of Directors is divided into 3 classes of directors. Each year, 1 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, for each director who will continue to serve after the 2012 Annual Meeting of shareholders, the individual attributes that enhance the Board’s collective knowledge and experience.

 

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How is our Board leadership structured?

Our Board currently includes 8 non-employee directors and 2 employee directors. However, Mr. Gougelet, who currently serves as a non-employee director, has decided not to stand for reelection at the 2012 Annual Meeting of shareholders. As a result, our Board has decided to reduce its size to 9, 2 of whom (Ms. Streeter and Mr. Reynolds) are employees. Of the remaining 7 non-employee directors, 6 have been determined to be independent. For more information with respect to how the Board determines which directors are considered to be independent, see “How does the Board determine which directors are considered independent?” below.

In connection with our CEO succession in 2011, our Board reevaluated its leadership structure. In light of developments in corporate governance practices, and in order to ease the transition of Ms. Streeter as she becomes familiar with our business, industry and customers, the Board elected to separate the roles of the chairman and the chief executive officer when Ms. Streeter succeeded John F. Meier as Chief Executive Officer upon his retirement. Accordingly, our Board appointed Mr. Foley as Chairman upon Mr. Meier’s retirement.

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).

 

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What is the role of the Board’s committees?

Our Board of Directors currently has the following standing committees:

(1)

Excludes Jean-René Gougelet, who will not stand for reelection at the 2012 Annual Meeting of shareholders.

(2)

Determined by the Board to be qualified as an audit committee financial expert, as defined in SEC regulations.

(3)

Determined by the Board to be financially sophisticated and literate and to have accounting and related financial management expertise, as those qualifications are interpreted by the Board in its business judgment.

The Board has determined that all members of each of its standing committees are independent, within the meaning of SEC regulations and the listing standards of the NYSE Amex exchange. The Board also has determined that all members of the Compensation Committee are “outside directors,” within the meaning of 26 CFR § 1.162-27.

 

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In addition, in connection with the announcement in February 2011 that John F. Meier intended to retire by the end of 2011, the Board appointed an ad hoc succession committee to evaluate, and make recommendations to the Board regarding, candidates to succeed Mr. Meier and to address related succession issues. Members of the ad hoc succession planning committee, which has now disbanded, were William A. Foley (Chair), Carlos V. Duno, Peter C. McC. Howell, Deborah G. Miller, Carol B. Moerdyk and John C. Orr, each of whom was determined by the Board in 2011 to be independent.

How does our Board oversee risk?

Our management is responsible for day-to-day risk management and our Board, through the Audit Committee and the Board’s other committees, is responsible for oversight of management’s risk management processes. We have implemented an enterprise-wide risk management program. Our Vice President and Treasurer has primary responsibility for this program and reports to our Executive 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. We report 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.

How does our Board select nominees for the Board?

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

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the highest professional and personal ethics and values, consistent with longstanding Libbey values and standards

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broad experience at the policy-making level in business, government, education, technology or public interest

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commitment to enhancing shareholder value

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devotion of sufficient time to carry out the duties of Board membership and to provide insight and practical wisdom based upon experience

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expertise in areas that add strategic value to the Board and/or knowledge of business in foreign locations strategic to our then-current or potential future operations. For example, current or recent experience as a chief executive officer of a public company; expertise in logistics and advanced supply chain management; experience as an executive with a large multinational company or as an expatriate executive in the Far East, Europe or Latin America; management experience in the foodservice industry; or management or board experience in a highly leveraged environment.

 

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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, 2 of our non-management directors are women and 1 non-management director is Hispanic. In addition, 1 non-management 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 Board’s 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.

How does our 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, 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, 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. Ms. Streeter and Mr. 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 3 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 2011, see “Corporate Governance — Certain Relationships and Related Transactions — What transactions involved directors or other related parties?” below.

How often did our Board meet during fiscal 2011?

During 2011, the Board of Directors held 7 meetings, 5 of which were regularly scheduled meetings and 2 of which were special meetings. During 2011, 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.

 

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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. 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 2011, Stewart and Stewart received fees of approximately $7,530 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.

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

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.

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

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 shareholders?

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 17, 2012. In 2011, all members of the Board of Directors attended our Annual Meeting of shareholders.

 

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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, 2012. 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 3 — Ratification of Auditors” above.

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 2011 and 2010?

Fees for services rendered by Ernst & Young LLP for the years ended December 31, 2011 and 2010 are as follows:

(1)

Audit Fees include fees associated with the annual audit of our internal controls, the annual audit of financial statements, the reviews of our quarterly reports on Form 10-Q and annual report on Form 10-K and statutory audit procedures.

(2)

Audit-related fees include fees for audits of our employee benefit plans.

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.

 

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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:

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confirming the independence of our independent auditors;

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appointing, compensating and retaining our independent auditors;

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reviewing the scope of the audit services to be provided by our independent auditors, including the adequacy of staffing and compensation;

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approving non-audit services;

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overseeing management’s relationship with our independent auditors;

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overseeing management’s implementation and maintenance of effective systems of internal and disclosure controls;

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reviewing our internal audit program; and

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together with the Board’s other standing committees, overseeing our enterprise risk management program.

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 auditors’ 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, 2011, for filing with the Securities and Exchange Commission.

Carlos V. Duno, Chair
Jean-René Gougelet²
Peter C. McC. Howell
Carol B. Moerdyk

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Not standing for reelection in 2012; determined to be independent in 2011.

 

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COMPENSATION-RELATED MATTERS

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides information regarding our 2011 executive pay program, particularly as it relates to the following individuals, who are our “named executives”:

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John F. Meier, our Chairman and Chief Executive Officer who retired on July 31, 2011

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Stephanie A. Streeter, our Co-CEO beginning July 1, 2011 and our Chief Executive Officer effective August 1, 2011

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Richard I. Reynolds, our Executive Vice President and Chief Financial Officer

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Gregory T. Geswein, our Vice President, Strategic Planning and Business Development who resigned for good reason effective October 31, 2011

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Daniel P. Ibele, our Vice President, Global Sales and Marketing

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Roberto B. Rubio, our Vice President, Global Manufacturing and Engineering

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Scott M. Sellick, our Vice President, Chief Accounting Officer who resigned for good reason on February 29, 2012

Executive Summary

Financial and Operational Highlights for 2011.  Although our results for 2011 were mixed, we made progress on a number of fronts throughout 2011:

On the negative side:

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Our 2011 adjusted EBITDA (calculated as described on Attachment A) of $113.1 million represented a $1.9 million decline compared to 2010. However, excluding EBITDA related to Traex, the assets of which we sold in April 2011, from both 2011 and 2010 results, adjusted EBITDA was $112.3 million in 2011, compared to $112.1 million in 2010.

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Our free cash flow (calculated as net cash provided by operating activities minus capital expenditures plus net proceeds from the sale of the assets of Traex and certain other assets and further adjusted for the payment of interest on the payment-in-kind note that we paid off in 2010) of $31.6 million represented a $17.3 million decline compared to 2011, although we utilized $41.2 million of cash in 2011 to prepay a portion of our senior secured notes and pay related call premiums and we received an additional $5.5 million in cash in connection with the exercise of outstanding warrants to purchase shares of our common stock.

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Our stock price finished 2011 at $12.74, down from $15.47 at the end of 2010, a decline of 17.65%. In comparison, the Russell 2000 declined by 4.18%.

However, on the positive side:

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Our net sales increased by 2.2%, despite the $11.3 million decline in sales of Traex® products resulting from our sale of substantially all of the assets of Traex. Net sales growth was particularly strong in China, where we achieved a 49.3% increase in net sales in 2011, excluding the impact of currency.

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Excluding special items of $2.2 million of expense in 2011 and $53.0 million of income in 2010, our net income and diluted earnings per share of $25.8 million and $1.24 in 2011 represented substantial increases over 2010 net income and diluted earnings per share of $17.1 million and $0.86, respectively.

 

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We saw continued improvement in our balance sheet, as we reduced gross debt by $52.5 million in 2011 and achieved a ratio of debt net of cash3 to adjusted EBITDA of 3.0 times. In addition, as a percentage of trailing 12-month net sales, our working capital (which we define as net inventory plus net accounts receivable less accounts payable) was the lowest in our history, at 21.4%.

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After delaying some furnace and equipment rebuilds in 2009 and 2010 in order to conserve cash to withstand the severe recession, to position Libbey to refinance in 2010 and to prepay $40 million of senior secured notes in early 2011, we returned to historical capital expenditure levels in 2011, and successfully tackled the highest number of furnace rebuilds in a single fiscal year in our history.

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We refocused on developing our people, implementing a new performance management system and rolling out new training initiatives across the organization.

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We executed a smooth transition as John F. Meier, our long-time Chairman and CEO, retired on July 31, 2011, and on August 1, 2011, Stephanie A. Streeter succeeded him as CEO and William A. Foley, a long-time independent director, assumed the role of non-executive Chairman.

2011 Executive Compensation Highlights.  At our Annual Meeting of shareholders last year, our say-on-pay proposal garnered the support of over 91% of the shares voted. Our Compensation Committee interpreted the results of the vote as an affirmation of our executive compensation program. Although the Committee largely retained the same structure for our 2011 executive pay program, the Committee did make some noteworthy changes to the program, including:

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As indicated in our proxy statement last year, beginning in 2011 we discontinued the practice of providing tax gross-ups on the financial and tax planning and executive physical examination perquisites that we provide to executive officers.

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In connection with our CEO succession at the end of July 2011:

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In recognition of Mr. Meier’s 18 years of service as CEO and more than 41 years of service with Libbey and its former parent Owens-Illinois, Inc., our Board, based on the recommendation of the Compensation Committee and its independent consultant and legal counsel:

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accelerated vesting of all of Mr. Meier’s NQSOs that were unvested as of the day immediately preceding his retirement date, and determined that the NQSOs would be exercisable until the first to occur of (a) the third anniversary of Mr. Meier’s retirement date or (b) the date on which the NQSOs otherwise expire under the terms of the option agreements governing them;

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accelerated vesting of all RSUs that were awarded to Mr. Meier between January 1, 2008 and December 31, 2010, and accelerated vesting of  1/3 of the RSUs that were awarded to Mr. Meier in 2011, with the remaining  2/3 being forfeited; and

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agreed that the Company would provide Mr. Meier with limited administrative assistance to facilitate the transfer of his personal files from Company-owned computer servers and devices.

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In connection with the hiring of Ms. Streeter to succeed Mr. Meier as Chief Executive Officer, our Board entered into an employment agreement with Ms. Streeter that, based on the recommendation of the Compensation Committee and its independent consultant and legal counsel:

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provided for an annual base salary of $700,000, a reduction from the annual base salary payable to Mr. Meier prior to his retirement and annual and long-term incentive compensation target percentages equal to those provided to Mr. Meier;

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Debt net of cash is calculated by adding the aggregate principal balances of long-term debt, long-term debt due within 1 year and notes payable, and then subtracting cash and cash equivalents.

 

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provided for a guaranteed minimum 2011 SMIP award of $315,000, which equaled a target award prorated for her 6 months as a Libbey employee;

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provided for participation in the cash components of the 2010 LTIP and 2011 LTIP, with target awards for the 2010 – 2012 performance cycle and 2011 – 2013 performance cycle prorated for her 6 months in 2011 as a Libbey employee;

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granted to Ms. Streeter RSUs and NQSOs that had an aggregate grant date fair value of approximately $702,000 and that vest over a period of 4 years;

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provided for the use of lower multiples (compared to Mr. Meier’s old employment agreement and change in control agreement) of annual base salary and incentive compensation to determine the cash severance payable upon separation from service; and

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eliminated any obligation by Libbey to provide excise tax gross-ups on severance payable in connection with a change in control.

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In September 2011, our Board notified all other executives who were party to employment agreements or change in control agreements that the agreements would not be renewed for 2012 and would be replaced, effective January 1, 2012, by new employment agreements that, among other things, provide for reduced potential payments on separation (including separation in connection with a change in control) and eliminate tax gross-ups in connection with change-in-control related payments. For the named executives who are party to the new employment agreements and who were employed by us on December 31, 2011 (namely, Messrs. Ibele, Rubio and Sellick), the impact of the new employment agreements on the amounts payable by us in the event of termination of employment, based on the assumptions set forth under “Potential Payments upon Termination or Change in Control,” is significant:

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On February 6, 2012, the Compensation Committee made awards under our 2011 SMIP for performance during 2011 and awarded Ms. Streeter a discretionary bonus in the amount of $25,000 in light of our Board’s collective assessment of Ms. Streeter’s efforts in quickly scaling the learning curve, implementing a more complete approach to talent management especially within the senior management ranks, aggressively initiating a thorough strategic planning process, initiating a different approach to the annual operating plan and successfully orchestrating a new collective bargaining agreement with respect to the hourly workers at our Shreveport, Louisiana manufacturing and distribution facilities.

For more information with respect to these awards, see “What pay did Libbey’s executives receive for 2011?” below.

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

Our 2011 executive pay program was structured to achieve the following objectives:

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Talent Attraction and Retention Objective.  In light of Mr. Meier’s announcement in February 2011 that he would retire by the end of 2011, it was critical that our executive pay program for 2011 be geared to attracting a new CEO and retaining our non-CEO executives in order to ensure a smooth transition.

 

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Motivational Objective.  We have a complex business, with operations in 5 countries on 3 continents and sales to more than 100 countries around the globe. Although we reduced our debt by $52.5 million in 2011, we continue to have more debt than we would like to have. In addition, geopolitical and economic uncertainties around the world continued to challenge our markets in 2011. We structured our 2011 executive pay program to provide adequate financial incentives to keep our executives motivated to meet these challenges.

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Alignment Objective.   We structured the pay program to align the interests of our executives with those of our shareholders generally, ensuring that, if our shareholders profited, our executives also would profit. In addition, beginning with our Board’s hiring of Ms. Streeter as Chief Executive Officer, our Compensation Committee replaced our executive employment and change in control agreements with agreements that align more closely to contemporary governance practices.

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Reasonableness Objective.   We designed our pay program to balance the need to provide sufficient financial incentives to achieve the 3 objectives described above with the need to ensure that executive pay is reasonable and appropriate.

In what forms did Libbey deliver pay to its executives in 2011, and what purposes do the various forms of pay serve?

Balanced Program with Significant Pay At Risk.  For 2011, the pay opportunities of our CEOs and our other named executives were designed to provide a balance of stable and competitive pay in the form of base salary, fringe benefits and perquisites; equity compensation (NQSOs and RSUs) that aligns our executives’ interests with those of shareholders generally and also serves as a retention tool; and annual and long-term incentive awards that are designed to motivate our executives to drive our financial and operational performance. The charts set forth below show the balance of these pay elements and reflect the large portion of our named executives’ pay opportunity that is performance-based:

 

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The following table sets forth the respective forms of pay for which our executive officers were eligible in 2011, the characteristics of those forms of pay, and the purposes or objectives that each form of pay is designed to fulfill:

 

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(1)

The following table sets forth the target percentage of actual base salary for each of the named executives in 2011:

 

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(2)

In 2011, each executive officer’s long-term incentive opportunity comprised a cash-based performance component and an award of NQSOs and RSUs. The long-term incentive opportunity is intended to have an aggregate economic value equal to a target percentage of the executive’s base salary. The following table sets forth the target percentage for each of the named executives in 2011:

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

Development and Implementation of the Executive Pay Program.  The Compensation Committee of our Board of Directors is responsible for overseeing the design, development and implementation of our executive pay program. In discharging that responsibility, the Compensation Committee engaged Compensation Advisory Partners LLC, which we refer to as CAP, as its independent executive compensation consultant for 2011. All amounts that we incurred in 2011 for services provided by CAP were attributable to services provided by them to the Compensation Committee in connection with its executive pay decisions.

The Compensation Committee consults with CAP when determined to be appropriate by the Compensation Committee. A representative of CAP attended the February 2011 and February 2012 meetings at which the Compensation Committee made decisions regarding our executive pay for 2011. Our CEO, our Vice President, Human Resources and our Vice President, General Counsel and Secretary attend meetings of, and provide information to, the Compensation Committee and its consultant to assist them in their pay 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 pay 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 pay decisions.

Our non-CEO executives play no direct role in determining their own pay, 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, Human Resources and the Vice President, General Counsel and Secretary provide information to the Compensation Committee with respect to pay 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 its independent consultant. 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, since those awards represent pay for services rendered during prior-year periods.

 

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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 pay 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 2011 Executive Pay.  Generally the structure of our 2011 executive pay program remained the same as our 2010 executive pay program in that the components of pay, and the weight accorded each component, remained the same. However, some notable changes were implemented in 2011:

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Effective January 1, 2011, we eliminated tax gross-ups on the financial and tax planning perquisite as well as on the executive physical examination perquisite.

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In connection with the retirement of Mr. Meier, our Board of Directors elected to recognize Mr. Meier’s more than 41 years of dedication and contributions to Libbey by:

•

accelerating the vesting of all NQSOs that remained unvested as of the day immediately preceding his retirement date, with the period for exercising these NQSOs terminating on the first to occur of July 31, 2014 or the expiration dates specified in the award agreements pertaining to the options;

•

accelerating the vesting of RSUs that were awarded between January 1, 2008 and December 31, 2010 and  1/3 of the RSUs that were awarded to Mr. Meier in 2011, with the remaining  2/3 of these RSUs being forfeited; and

•

agreeing to provide Mr. Meier, for a period of 6 months from his retirement date, with limited administrative assistance to facilitate the transfer of his personal files from Company-owned computer servers and devices.

Mr. Meier did not participate in any deliberations or decisions relating to these matters, nor was he present when these matters were deliberated or decided. In connection with the decisions relating to these matters, the Compensation Committee obtained and provided to the Board (excluding Mr. Meier) the views of CAP and independent legal counsel retained by the Board in connection with the CEO succession.

•

In connection with the hiring of Ms. Streeter to succeed Mr. Meier as Chief Executive Officer, our Board of Directors implemented a new form of employment agreement, which is described in more detail under “Potential Payments Upon Termination or Change in Control” below. In approving the new form of employment agreement, the Board chose to bring the terms of that agreement more into line with contemporary market and governance practices by, for example, eliminating excise tax gross-ups and reducing the multiple of base salary and incentive compensation payable in connection with qualifying separations from service. The financial and other terms of the agreement were developed by the Compensation Committee and the chair of the ad hoc succession planning committee of the Board, with input from CAP and independent legal counsel retained by the Board in connection with the CEO succession.

•

In September of 2011, the Company gave written notice of non-renewal as to each employment agreement and each change in control agreement to which executive officers (other than Ms. Streeter) were party, as well as with respect to each change in control agreement to which certain

 

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other members of management were party. Concurrently, the Company offered new employment agreements, in substantially the same form as Ms. Streeter’s agreement (but with reduced multiples of base salary and incentive compensation) to the executive officers. These new agreements were executed as of October 31, 2011, became effective on January 1, 2012 and are described in more detail under “Potential Payments Upon Termination or Change in Control” below.

With respect to base salary increases that were implemented in April 2011, the decisions were made by the Compensation Committee at its February 2011 meeting after receiving input from Mr. Meier and CAP. In February 2012, the Compensation Committee, with input from our Ms. Streeter and CAP, reviewed our 2011 performance and made the awards under our 2011 SMIP described above under “Executive Summary — 2011 Executive Compensation Highlights.”

Our Equity Grant Practices.  Grants of equity awards have been made under the following circumstances:

•

In February of each year, the Compensation Committee typically makes awards of RSUs and NQSOs to our executive officers and other key executives under our long-term incentive compensation program. In February 2011, the Compensation Committee authorized these awards at its meeting, before we announced financial results for the recently concluded fiscal year. However, the number of RSUs awarded was a function of the average closing price of our common stock over a period of 60 consecutive trading days ending on the grant date, and the number of NQSOs granted was a function of the Black-Scholes value of the NQSOs on grant date. In each case, the grant date was the first business day after we released our fiscal 2010 financial results.

•

The Compensation Committee has delegated authority to the Chairman of the Board to make limited grants of NQSOs, restricted stock and RSUs to senior managers and other employees who are not executive officers. The Chairman’s authority to make these grants is subject to the following limitations and conditions:

•

The Compensation Committee has limited the total number of shares that may be granted as NQSOs, restricted stock or RSUs, as the case may be;

•

The exercise price of any NQSOs that the Chairman awards cannot be less than the closing price of our common stock on the date of grant;

•

Grants of NQSOs may not be made during “quiet periods”; and

•

The Chairman must report periodically to the Compensation Committee with respect to the awards that he has made pursuant to this delegation of authority.

Potential Impact of Misconduct on Compensation.  Our SMIP and long-term incentive plans are authorized under our Omnibus Plan. The Omnibus Plan contains a “clawback” provision that obligates an executive to reimburse us under certain circumstances. Specifically, reimbursement is required if:

•

we are required, as a result of misconduct, to prepare an accounting restatement due to our material noncompliance with any financial reporting requirement under the securities laws; and

•

the executive knowingly engaged, or was grossly negligent in engaging, in the misconduct, or knowingly failed, or was grossly negligent in failing, to prevent the misconduct or is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002.

The amount to be reimbursed is 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.  We obligate our non-employee directors and our executive officers 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.

 

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What pay did Libbey’s executives receive for 2011?

Base Salaries.  In February 2011, the Compensation Committee approved the following salary increases, which were effective April 1, 2011, for the named executives (other than Ms. Streeter, who did not join us until July 1, 2011):

When the Board hired Ms. Streeter to succeed Mr. Meier, the Board established Ms. Streeter’s annual base salary in an amount equal to $700,000 —  approximately $49,900 less than Mr. Meier’s annual base salary for 2011 — since Ms. Streeter is new to our industry.

Annual Incentive Compensation.  Our 2011 SMIP included two components: a corporate component and an individual component. We employed 2 performance metrics in connection with the corporate component of the plan: (1) the ratio of actual adjusted EBITDA to budgeted EBITDA and (2) the ratio of actual free cash flow to budgeted free cash flow. Reconciliations of adjusted EBITDA and EBITDA to net income and of free cash flow to adjusted EBITDA are set forth on Attachment B. We selected adjusted EBITDA and free cash flow as our corporate-wide performance measures for 2011 because we wanted to achieve a balance between our continuing need to generate cash to fund our operations and reduce our debt and our need to generate EBITDA to increase our stock price and ensure that, when we refinance our debt in the coming years, we are able to do so on as favorable terms as possible.

 

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As a result, each executive officer’s annual incentive opportunity for 2011 was divided as follows:

 

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On February 6, 2012, the Committee met and reviewed our performance and the performance of our executive officers during 2011. The Committee reviewed our actual free cash flow and adjusted EBITDA for 2011, and compared them to our budgeted free cash flow and budgeted EBITDA (adjusted for special items) for the year. The Committee also considered the impact of a number of items on free cash flow and EBITDA. After receipt of input from CAP and discussion, the Committee opted to adjust free cash flow and adjusted EBITDA (as reported in Management’s Discussion and Analysis in our Form 10-K filed with the Securities and Exchange Commission on March 14, 2012) as follows:

After taking into account the adjustments described above, the Committee determined that we had achieved 82.5% of budgeted free cash flow and 94.5% of budgeted EBITDA for 2011. The Committee then applied the guidelines described in footnote 2 to the Grants of Plan-Based Awards Table and determined that the portion of the corporate component attributable to the free cash flow performance measure should pay out at 50% of target and that the portion of the corporate component attributable to the EBITDA performance measure should pay out at 100% of target, for a combined payout under the corporate component of 79% of target.

 

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With respect to the individual component applicable to our named executives in 2011, the Compensation Committee approved individual objectives for each of them early in the year or, in the case of Ms. Streeter, shortly after she joined Libbey. Although disclosure of certain of the individual objectives of our executives may result in competitive harm, the following table provides examples of the individual objectives, and corresponding scores, of our named executives (other than Mr. Geswein, with respect to whom we were obligated, pursuant to Mr. Geswein’s employment agreement, to pay a prorated target award) for 2011:

The Committee received input from Mr. Meier regarding the other named executives’ performance, as of June 30, 2011, with respect to their individual objectives. The Committee also received input from Ms. Streeter regarding the other named executives’ performance, as of December 31, 2011, with respect 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 Mr. Meier’s performance and Ms. Streeter’s performance in 2011, including their performance relative to their respective individual objectives. After meeting in executive session with CAP, the Committee determined that the respective named executives had achieved the scores earned in the table above.

 

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The Committee determined, however, that, except for Mr. Meier and Mr. Geswein (whose employment agreement entitled him to a prorated target payout under the 2011 SMIP), payouts under the individual component of our 2011 SMIP would be adjusted downward by 15%, reflecting funding of the individual component in accordance with a “governor” that took into account the extent to which we achieved budgeted EBITDA. Accordingly, the Committee determined that the following payouts would be made under the individual component to our named executives:

(1)

Pursuant to Mr. Geswein’s employment agreement, we paid Mr. Geswein an award under the 2011 SMIP in an amount equal to a prorated target award, without reduction as a result of the individual component funding pool governor.

As a result, each of the named executives earned the following total annual incentive compensation for 2011:

Because the amount earned by Ms. Streeter was less than the guaranteed minimum incentive of $315,000 required under her employment agreement, the amount payable to Ms. Streeter under the 2011 SMIP was increased to $315,000.

Discretionary bonus.  In February 2012, the Committee, after consultation with the other non-management members of the Board, determined to award Ms. Streeter a discretionary bonus in the amount of $25,000 in light of their collective assessment of Ms. Streeter’s efforts in quickly scaling the learning curve, implementing a more complete approach to talent management especially within the senior management ranks, aggressively initiating a thorough strategic planning process, initiating a different approach to the annual operating plan and successfully orchestrating a new collective bargaining agreement with respect to the hourly workers at our Shreveport, Louisiana manufacturing and distribution facilities.

 

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Long-Term Performance-Based Compensation.  The long-term performance-based compensation opportunity provided to our executive officers for performance during 2011 consisted of the following components:

•

A performance component under our 2010 LTIP that provides for cash awards if and to the extent we achieve, over a 3-year performance cycle beginning January 1, 2010 and ending December 31, 2012, cumulative EBITDA (adjusted as described below) equal to the sum of EBITDA budgeted for each of the 3 years during the performance cycle.

•

A performance component under our 2011 LTIP that provides for cash awards if and to the extent we achieve, over a 3-year performance cycle beginning January 1, 2011 and ending December 31, 2013, cumulative EBITDA (adjusted as described below) equal to the sum of EBITDA budgeted for each of the 3 years during the performance cycle.

For purposes of determining the extent to which the cash award is earned, EBITDA is calculated and adjusted as described under the heading “— Annual Incentive Compensation” above and may be further 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. For the 2011 fiscal year included in the 2010 – 2012 and 2011 – 2013 performance cycles, EBITDA will be adjusted by the items identified under the Adjustments to EBITDA table on page 39 above, except that neither the gain on sale of assets of Traex nor the pre-sale EBITDA related to Traex will be subtracted.

Stock Options and RSUs.  In February 2011 the Compensation Committee awarded to our executive officers (other than Ms. Streeter) NQSOs and RSUs (each subject to 4-year vesting) having an economic value at the time of award equal to 20% and 40%, respectively, of our executive officers’ respective target long-term incentive opportunity. In July 2011, when Ms. Streeter joined Libbey, the Board awarded to her NQSOs and RSUs subject to 4-year vesting and having an economic value at the time of award equal to 20% and 40%, respectively, of her long-term incentive opportunity. The aggregate economic value of the NQSOs and RSUs awarded to Ms. Streeter in July 2011 was approximately $702,000.

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

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 pay objectives, as set forth in “What are the objectives of Libbey’s executive pay program?”

Potential Payments Upon Termination or Change in Control

In September 2011, we gave written notice of non-renewal as to the employment agreements (which we refer to as the “Original Employment Agreements”) and change in control agreements (which we refer to as the “Original CIC Agreements”) to which executive officers (other than Ms. Streeter) were party, as well as with respect to the change in control agreements to which certain other members of management were party. Concurrently, the Company offered new employment agreements (which we refer to as the “New Agreements”), in substantially the same form as Ms. Streeter’s agreement (but with reduced multiples of base salary and incentive compensation) to the affected executive officers. The New Agreements, which were executed as of October 31, 2011 and became effective on January 1, 2012, reduced severance benefits payable at termination and eliminated excise tax gross-ups in connection with change-in-control benefits. The Committee’s objective in reducing the severance benefits payable on termination and eliminating excise tax gross-ups in connection with change-in-control benefits was to reflect contemporary governance practices and balance shareholder and executive interests.

 

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Following are tables containing summaries of the material terms of the Original Employment Agreements, the Original CIC Agreements, Ms. Streeter’s employment agreement and the New Agreements. You should refer to the entire agreements for a complete description of the terms of these agreements. The forms of the Original Employment Agreements and Original CIC Agreements are attached as exhibits to our Forms 10-K filed with the Securities and Exchange Commission for our 2008 fiscal year (as to our named executives other than Mr. Rubio and Ms. Streeter) and for our 2009 fiscal year (as to Mr. Rubio). The form of Ms. Streeter’s employment agreement is attached as an exhibit to our Form 10-Q for the quarter ended June 30, 2011, and the forms of the New Agreements are attached as exhibits to our Form 8-K filed with the Securities and Exchange Commission on November 3, 2011.

Original Employment Agreements — 

 

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44

 

 

(1)

We are obligated to provide the benefits described in the Original Employment Agreements if an executive officer’s employment is terminated upon or as a result of the occurrence of any of the events or circumstances described in this column.

(2)

Cause means any of:

•

the executive officer’s willful and continued failure (other than as a result of incapacity due to physical or mental illness or after the executive officer issues a notice of termination for good reason) to substantially perform his or her duties after our Board delivers to the executive officer a written demand for substantial performance that specifically identifies the manner in which the Board believes that the executive officer has not substantially performed his or her duties;

•

the executive officer’s willful and continued failure (other than as a result of incapacity due to physical or mental illness or after the executive officer issues a notice of termination for good reason) to substantially follow and comply with the specific and lawful directives of our Board, as reasonably determined by our Board, after our Board delivers to the executive officer a written demand for substantial performance that specifically identifies the manner in which our Board believes that the executive officer has not substantially followed or complied with the directives of the Board;

•

the executive officer’s willful commission of an act of fraud or dishonesty that results in material economic or financial injury to Libbey; or

•

the executive officer’s willful engagement in illegal conduct or gross misconduct that is materially and demonstrably injurious to Libbey.

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 ¾ 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.

(3)

Good reason means any of the following, unless we have corrected the circumstances fully (if they are capable of correction) prior to the date of termination:

•

With respect to Mr. Meier only:

•

He ceases to be our CEO reporting to the Board, or he fails to be elected as a member of the Board.

•

There is a change in the reporting or responsibilities of any other executive officer that has not been approved by Mr. Meier.

 

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•

With respect to each of our named executives other than Mr. Meier and Ms. Streeter, the named executive ceases to be an executive officer reporting to another executive officer.

•

With respect to each of our named executives, including Mr. Meier but excluding Ms. Streeter:

•

His base salary is reduced by a greater percentage than the reduction applicable to any other executive officer.

•

There is a reduction in the annual incentive compensation opportunity or equity compensation opportunity established for the position held by the named executive, and the reduction is not applied in the same or similar manner to all other executive officers.

•

An executive benefit provided to the named executive is reduced or eliminated and the reduction or elimination is not applicable to all other executive officers in the same or similar manner.

•

We materially breach the employment agreement and do not remedy our breach within 30 days after we receive written notice of breach from the named executive.

•

We exercise our right not to extend the term of the agreement beyond the then current term, unless we exercise that right with respect to the employment agreements of specified other executive officers.

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.

 

46

 

 

Original CIC Agreements — 

 

47

 

 

 

48

 

 

(1)

The benefits set forth in this column are payable upon the occurrence of the corresponding “triggers” identified in the “Triggers” column.

 

49

 

 

(2)

Change in control generally means any of the following events:

•

A person (other than Libbey, any trustee or other fiduciary holding securities under one of Libbey’s employee benefit plans, or any corporation owned, directly or indirectly, by Libbey’s shareholders in substantially the same proportions as their ownership of Libbey’s common stock) becomes the “beneficial owner,” directly or indirectly, of Libbey securities representing 30% or more of the combined voting power of our then-outstanding securities;

•

The consummation of a merger or consolidation pursuant to which Libbey is merged or consolidated with any other corporation (or other entity), unless the voting securities of Libbey outstanding immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of securities of the surviving entity outstanding immediately after the merger or consolidation;

•

The consummation of a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of our assets; or

•

During any period of 2 consecutive years (not including any period prior to the execution of the change in control agreement), Continuing Directors (as defined below) cease for any reason to constitute at least a majority of the Board. Continuing Directors means (i) individuals who were members of the Board at the beginning of the 2-year period referred to above and (ii) any individuals elected to the Board, after the beginning of the 2-year period referred to above, by a vote of at least  2/3 of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously approved in accordance with this provision. However, an individual who is elected to the Board after the beginning of the 2-year period referred to above will not be considered to be a Continuing Director if the individual was designated by a person who has entered into an agreement with us to effect a transaction that otherwise meets the definition of a change in control.

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.

(3)

Cause has the same meaning as it has under the 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 ¾ 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.

(4)

Potential change in control means:

•

We enter into an agreement, the consummation of which would result in a change in control;

•

A person (which may include Libbey) publicly announces an intention to take or consider taking actions that, if consummated, would result in a change in control;

•

Our Board adopts a resolution to the effect that, for purposes of the change in control agreements, a potential change in control has occurred; or

•

A person (other than Zesiger Capital Group, which currently holds approximately 8.1% of our common stock) who is or becomes the beneficial owner of 10% or more of the voting power of our common stock increases its beneficial ownership by 5% or more, or Zesiger Capital increases its beneficial ownership to 25% or more of our common stock.

 

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(5)

Good reason means any of the following, unless we have corrected the circumstances fully (if they are capable of correction) prior to the date of termination:

•

We assign to the executive duties that are inconsistent with the executive’s position immediately prior to the change in control, or we significantly and adversely alter the nature or status of the executive’s responsibilities or the conditions of the executive’s employment from those in effect immediately prior to the change in control (including if we cease to be a publicly-held corporation), or we take any other action that results in the material diminution of the executive’s position, authority, duties or responsibilities;

•

We reduce the executive’s annual base salary as in effect on the date of the executive’s change in control agreement and as increased from time to time thereafter;

•

We relocate the offices at which the executive principally is employed immediately prior to the date of the change in control (which we refer to as the executive’s principal location) to a location more than 30 miles from that location, or we require the executive, without his or her written consent, to be based anywhere other than his or her principal location, except for required travel on business to an extent substantially consistent with the executive’s present business travel obligations;

•

We fail to pay to the executive any portion of his or her current compensation or to pay to him or her any portion of an installment of deferred compensation under any deferred compensation program within 7 business days of the date on which the compensation is due;

•

We fail to continue in effect any material pay or benefit plan or practice in which the executive participates immediately prior to the change in control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to the plan, or we fail to continue the executive’s participation in the plan (or in the substitute or alternative plan) on a basis that is not materially less favorable, both in terms of the amount of benefits provided and the level of the executive’s participation relative to other participants, as existed at the time of the change in control;

•

We fail to continue to provide the executive with benefits substantially similar in the aggregate to those enjoyed by the executive under any of our life insurance, medical, health and accident, disability, pension, retirement or other benefit plans or practices in which the executive and his or her eligible family members were participating at the time of the change in control, or we take any action that would directly or indirectly materially reduce any of those benefits, or we fail to provide the executive with the number of paid vacation days to which the executive is entitled on the basis of years of service with us in accordance with our normal vacation policy in effect at the time of the change in control or, if more favorable to the executive, on the basis of the executive’s initial employment with the Company;

•

We fail to obtain a satisfactory agreement from any successor to assume and agree to perform our obligations under the executive’s change in control agreement; or

•

We purport to terminate the executive’s employment without complying with our obligations with respect to providing notice of termination.

(6)

No gross-up is required if the “present value” of the “parachute payments” payable to the executive or his estate does not exceed 1.10 multiplied by 3 times the executive’s “base amount.” The terms “present value,” “parachute payments” and “base amount” are defined in Section 280G of the Internal Revenue Code.

 

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Ms. Streeter’s Employment Agreement and the New Agreements — 

 

52

 

 

 

53

 

 

 

54

 

 

(1)

The benefits set forth in this column are payable upon the occurrence of the corresponding “triggers” identified in the “Triggers” column.

(2)

Includes base salary through date of termination, earned but unpaid vacation pay as of the date of termination, any amounts to which the executive is entitled under any retirement savings plan, equity participation plan, medical benefit plan or employment policy and any incentive compensation earned but not yet paid for a performance period ended prior to the date of termination.

(3)

Cause means (1) the executive willfully and continuously fails to substantially perform his or her duties; (2) the executive willfully and continuously fails to substantially follow and comply with directives of the Board; (3) the executive commits an act of fraud or dishonesty that results in a material adverse effect to us or commits an act in material violation of our Code of Business Ethics and Conduct; or (4) the executive willfully engages in illegal conduct or gross misconduct that is materially and demonstrably injurious to us. In addition, Ms. Streeter’s employment agreement provides that, if either (i) we do not notify

 

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her that we wish to renegotiate the terms of her continued employment as Chief Executive Officer, or (ii) we and Ms. Streeter are unable to agree to the terms of continued employment, she notifies us that she is willing to extend the term of her agreement by an additional year, and we fail to accept her offer, and the last day of the then-current term of the agreement is prior to her sixty-fifth birthday, then she will be treated as having been terminated by us without Cause.

(4)

Good reason means (1) we materially diminish the executive’s authority, duties or responsibilities, including, in the case of Ms. Streeter, we remove her from the CEO position and/or we cause her to cease reporting directly to the Board and in the case of the Company’s general counsel, we cause the executive to cease reporting directly to the CEO; (2) we reduce the executive’s base salary and, in the case of all executives other than Ms. Streeter, we do not apply the reduction in the same or similar manner to specified other executive officers; (3) we reduce the executive’s incentive compensation opportunity by a percentage greater than that applicable to the other executive officers; (4) we reduce or eliminate an executive benefit or an employee benefit and we do not apply the reduction to all other officers in the same or similar manner; (5) in the case of Ms. Streeter, she fails to be elected as a member of the Board; (6) we materially breach the agreement and fail to remedy the breach within 60 days (30 days in the case of Ms. Streeter) after our receipt from the executive of written notice of breach; and (7) in the case of all executive officers other than Ms. Streeter, we exercise our right not to renew the agreement unless we concurrently exercise our right not to renew the agreements of specified other executive officers.

(5)

Change in control generally means any of the following events:

•

A person (other than Libbey, any trustee or other fiduciary holding securities under one of our employee benefit plans, or any corporation owned, directly or indirectly, by our shareholders in substantially the same proportions as their ownership of our common stock) becomes the “beneficial owner,” directly or indirectly, of our securities representing 30% or more of the combined voting power of our then-outstanding securities;

•

The consummation of a merger or consolidation pursuant to which we are merged or consolidated with any other corporation (or other entity), unless our voting securities outstanding immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of securities of the surviving entity outstanding immediately after the merger or consolidation;

•

A plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of our assets is consummated; or

•

During any period of 2 consecutive years (not including any period prior to the execution of the agreement), Continuing Directors (as defined below) cease for any reason to constitute at least a majority of our Board. Continuing Directors means (i) individuals who were members of the Board at the beginning of the 2-year period referred to above and (ii) any individuals elected to the Board, after the beginning of the 2-year period referred to above, by a vote of at least  2/3 of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously approved in accordance with this provision. However, an individual who is elected to the Board after the beginning of the 2-year period referred to above will not be considered to be a Continuing Director if the individual was designated by a person who has entered into an agreement with us to effect a transaction that otherwise meets the definition of a change in control.

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.

 

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Compensation Committee Interlocks and Insider Participation

Carlos V. Duno, William A. Foley, Deborah G. Miller, Carol B. Moerdyk and John C. Orr served on our Compensation Committee during 2011; however, Mr. Foley resigned from the Committee when he was appointed Chairman of the Board. None of Mr. Duno, Mr. Foley, Ms. Miller, Ms. Moerdyk or Mr. Orr has 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 approved the inclusion of the Compensation Discussion and Analysis in this proxy statement and has approved the incorporation by reference of the Compensation Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Carol B. Moerdyk, Chair
Carlos V. Duno
Deborah G. Miller
John C. Orr

 

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Summary Compensation Table

The following narrative, tables and footnotes describe the “total compensation” earned during 2011, 2010 and 2009 by Messrs. Geswein, Ibele, Meier, Reynolds and Rubio and earned during 2011 by Mr. Sellick and by Ms. Streeter, who did not join Libbey until July 2011.

The total compensation presented below does not reflect the actual pay received by, or the target pay of, the named executives in 2011, 2010 or 2009. The actual value realized by our named executives in 2011 from long-term incentives (NQSOs and RSUs) is presented in the Option Exercises and Stock Vested Table below. Target annual and long-term incentive awards for 2011 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 2011, 2010 and 2009.

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. As to Ms. Streeter, also includes the guaranteed minimum annual incentive award for 2011, since that amount exceeded the incentive actually earned for the year.

Stock Awards.  The awards disclosed under the heading “Stock Awards” consist of performance shares, if any, and RSUs awarded during each of 2011, 2010 and 2009, 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 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. 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 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 2011, 2010 and 2009 under our SMIP and (b) for 2009, amounts earned by the named executives (other than Ms. Streeter) under the cash component of our 2009 LTIP. The awards under our SMIP were paid in February of 2012, 2011 and 2010, respectively. The awards under the cash component of our 2009 LTIP were paid in early 2012 except to Mr. Geswein, who did not meet the requirement that he remain continuously employed by us through December 31, 2011.

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 2011, 2010 and 2009 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 Mr. Meier, the amounts do not reflect the decline in actuarial value of his pension benefits under our Salary Plan and SERP during 2009 and under our Salary Plan during 2011, and with respect Mr. Reynolds, the amounts do not reflect the decline in actuarial value of his 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.

 

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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 for 2010 and 2009; (d) 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 based in Monterrey, Mexico until August 2011, the cost 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; (f) for Mr. Rubio in 2011, the cost of an executive physical examination; (g) in 2011 and 2010, the cost of airline club memberships; (h) for Ms. Streeter in 2011, reimbursement equal to 50% of the legal expenses she incurred in negotiating her employment agreement; and (i) as to Mr. Rubio and Ms. Streeter, the cost of relocation assistance in 2011, including, in Ms. Streeter’s case, loss-on-sale protection, and tax gross-ups on relocation assistance other than Ms. Streeter’s loss-on-sale protection. In addition, because Mr. Rubio was employed by our Mexican subsidiary during 2009, the amounts under this heading for Mr. Rubio in 2009 include (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 the 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. Geswein, the amounts under this heading also include our expense associated with the compensation payable to him in connection with his October 31, 2011 resignation for good reason.

SUMMARY COMPENSATION TABLE

 

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(1)

Mr. Rubio joined our Mexican subsidiary on July 1, 2009 and was transferred to the U.S. payroll on January 1, 2010. For 2009, the amount for Mr. Rubio represents base salary paid to Mr. Rubio from July 1 through December 31, 2009, as well as other fixed components of pay that our Mexican subsidiary was required under Mexican law to pay to Mr. Rubio. These amounts were paid to Mr. Rubio in Mexican pesos, and the amount included in this column is translated to U.S. currency using the interbank exchange rate in effect at the time of payment to Mr. Rubio.

(2)

As to Ms. Streeter for 2011, represents the sum of (a) her minimum guaranteed incentive in the amount of $315,000 and (b) a discretionary award in the amount of $25,000.

(3)

Represents the grant date fair value, in accordance with FASB ASC Topic 718, with respect to RSUs granted in 2011, 2010 and 2009, respectively. For more information, see Footnote 12, “Employee Stock Benefit Plans,” to the financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2012.

(4)

Represents the grant date fair value, in accordance with FASB ASC Topic 718, with respect to NQSOs granted in 2011, 2010 and 2009, respectively, including a sign-on award made to Mr. Rubio in 2009. For more information, see Footnote 12, “Employee Stock Benefit Plans,” to the financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2012.

(5)

Represents the sum of (a) annual cash incentive compensation paid in February 2012, 2011 and 2010 for performance during 2011, 2010 and 2009, respectively; and (b) for 2009, cash incentive compensation payable under the performance component of our 2009 LTIP for the performance cycle beginning January 1, 2009 and ending December 31, 2009. The cash incentive compensation payable under the 2009 performance component of our 2009 LTIP was subject to the requirement that, except with respect to Mr. Meier and Mr. Reynolds, the executive remain continuously employed by us through December 31, 2011. We paid this cash award to the named executives (other than Mr. Geswein, who resigned on October 31, 2011, and Ms. Streeter, who did not join us until July 1, 2011) earlier this year.

(6)

Represents the sum (but not less than $0) of the change in pension value under our Salary Plan and our SERP. We do not guarantee any particular rate of return on deferred compensation under our ESP or EDCP. The rate of return depends upon the performance of the fund in which the participant’s ESP or EDCP account is deemed invested. Accordingly, the amounts included in this column do not include earnings on nonqualified deferred compensation. We had no other nonqualified plans pursuant to which our executives were entitled to defer compensation earned prior to January 1, 2009. Mr. Geswein, Mr. Rubio and Ms. Streeter are not eligible to participate in our Salary Plan or our SERP.

(7)

Includes the following: (a) annual company matching contributions to our 401(k) savings plan (a broad-based plan open to all U.S. salaried employees); (b) annual company matching contributions to our EDCP; (c) the cost that we paid for tax return preparation and financial planning for the respective

 

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named executives, together with tax gross-ups on that cost for 2010 and 2009; (d) 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 until he relocated to Toledo in August 2011, the cost 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; (f) for Messrs. Ibele, Meier and Rubio in 2010 and for Mr. Ibele in 2011, airline club memberships; (g) for Mr. Rubio in 2011, the cost of an executive physical examination; (h) for Ms. Streeter in 2011, reimbursement equal to 50% of the legal expenses she incurred in negotiating her employment agreement; and (i) for Mr. Rubio and Ms. Streeter in 2011, relocation assistance, including, for Ms. Streeter, loss-on-sale protection, and tax gross-ups on relocation assistance other than Ms. Streeter’s loss-on-sale protection. For 2009, includes for Mr. Rubio 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. Geswein, the amounts under this heading (a) include our expense associated with the compensation payable to him in connection with his October 31, 2011 resignation for good reason and (b) exclude the value at December 31, 2011 of RSUs and NQSOs as to which vesting was accelerated, because the cumulative grant date fair values have been included under the columns “Stock Awards” and “Option Awards” in this table and in the Summary Compensation Tables included in our proxy statements filed in 2008 through 2011.

The following table provides additional detail with respect to the perquisites that we provided to our named executives in 2011:

(a)

Includes (i) for personal trips, the entire cost that we incurred for such transportation and (ii) for business trips, the amount in excess of the amount to which the respective named executives would have been entitled as reimbursement for mileage and parking under our travel policy applicable to all employees. For Mr. Rubio prior to August 2011, includes the allocable cost incurred for the driver who provides the transportation in Monterrey, Mexico, since the driver transports customers and suppliers and other employees during the remainder of his time. The allocable cost incurred for the driver was determined by calculating an hourly rate (by dividing the driver’s integrated compensation by the total number of hours worked during the year), and multiplying that rate by the number of hours of transportation services provided to Mr. Rubio.

(8)

Mr. Meier retired on July 31, 2011.

(9)

Ms. Streeter joined us on July 1, 2011 as Co-CEO and was named Chief Executive Officer effective August 1, 2011.

 

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Grants of Plan-Based Awards Table

During 2011, the Compensation Committee granted to our named executives RSUs and NQSOs under our Omnibus Plan and 2011 LTIP. Recipients of RSUs are not entitled to dividends or voting rights with respect to the common shares underlying the RSUs unless and until they are earned or vested. We do not engage in repricing of NQSOs, nor have we repurchased underwater NQSOs. On February 6, 2012, the Compensation Committee approved the payment of cash awards under our 2011 SMIP.

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 2011 LTIP, and vesting schedules with respect to RSUs and NQSOs, is set forth, on a grant-by-grant basis, in the table and footnotes that follow.

GRANTS OF PLAN-BASED AWARDS TABLE

(1)

For Non-Equity Incentive Plan Awards, the Award Date and the Grant Date for awards made under the 2011 SMIP to all named executives other than Ms. Streeter are the date on which the Compensation Committee approved the 2011 SMIP. The Award Date and the Grant Date for awards made under the