UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

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

EXCHANGE ACT OF 1934 (Amendment No.     )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

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

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Section 240.14a-12

 

LIBBEY INC.

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

ON MAY 3, 2007

 

 

Dear Fellow Libbey Stockholder:

 

We will hold our 2007 Annual Meeting of Libbey stockholders on Thursday, May 3, 2007, at 2 p.m., Eastern Time, in the 8^th Floor Conference Center of the Toledo Edison Building, 300 Madison Avenue, Toledo, Ohio.

 

At the meeting, stockholders will:

 

 

 

You are entitled to vote at the meeting if you were an owner of record of Libbey Inc. common stock at the close of business on March 9, 2007. If your ownership is through a broker or other intermediary, you will need to have proof of your stockholdings in order to be admitted to the meeting. A recent account statement, letter or proxy from your broker or other intermediary will suffice.

 

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

 

Management sincerely appreciates your support.

 

Sincerely,

 

John F. Meier

Chairman of the Board of Directors and

Chief Executive Officer

 

By Order of the Board of Directors,

 

Susan Allene Kovach

Secretary

 

April 2, 2007

Toledo, Ohio

 

LIBBEY INC.

 

 

PROXY STATEMENT

 

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

 

We will hold the meeting in the 8^th Floor Conference Center of the Toledo Edison Building, 300 Madison Avenue, Toledo, Ohio, on May 3, 2007, at 2 p.m., Eastern Time. This proxy statement contains information about the matters being voted on and other information that may be helpful to you.

 

We began the mailing to stockholders of this proxy statement and the enclosed proxy on or about April 2, 2007.

 

QUESTIONS AND ANSWERS

 

Who may vote?

 

You may vote if you were a holder of Libbey Inc. (“Libbey”) common stock at the close of business on March 9, 2007.

 

What may I vote on?

 

You may vote on the following proposals:

 

 

How does the Board recommend that I vote?

 

The Board recommends that you vote:

 

 

How do I vote?

 

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

 

May I change my vote?

 

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

 

 

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

 

How many outstanding shares of Libbey common stock are there?

 

At the close of business on March 9, 2007, which is the record date for the meeting, there were 14,384,631 shares of our common stock outstanding. Each share of common stock is entitled to one vote.

 

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

 

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

 

What constitutes a quorum?

 

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

 

How will votes be counted?

 

Votes cast in person or by proxy will be tabulated by the inspector of elections appointed for the meeting and will determine whether a quorum is present. Abstentions will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum, but as unvoted for purposes of determining the matter to which the abstention applies. Broker non-votes will not be considered as present and entitled to vote with respect to that matter. The common stock outstanding on the record date held by the trustee under Libbey’s Retirement Savings Plan and Supplemental Executive Retirement Plan will be voted by the trustee in accordance with written instructions from participants in these plans 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 each plan for which instructions were received.

 

What are broker non-votes?

 

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

 

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

 

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

 

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

 

A stockholder desiring to submit a proposal for inclusion in our Proxy Statement for our Annual Meeting to be held in 2008 must deliver the proposal so that we receive it no later than December 3, 2007. Any proposal submitted outside the processes of Rule 14a-8 under the Exchange Act will be considered untimely if submitted after February 16, 2008. We request that all such proposals be addressed to Susan Allene Kovach, Vice President, General Counsel and Secretary, Libbey Inc., 300 Madison Avenue, P.O. Box 10060, Toledo, Ohio 43699-0060.

 

STOCK OWNERSHIP

 

Who are the largest owners of Libbey stock?

 

The following table shows information with respect to the persons we know to be the beneficial owners of more than five percent of our common stock as of December 31, 2006.

 

 

 

 

 

How much Libbey stock do our directors and officers own?

 

In July 2004, our Board, in recognition of its belief that the financial interests of directors should be aligned with those of our stockholders, adopted guidelines pursuant to which each director of the Company is required, prior to the expiration of his or her second full term, to own at least 4,000 shares of Libbey common stock. Compliance with this guideline may be achieved through direct ownership of shares of our common stock, through deferral of director compensation into an account, the value of which is based upon the value of our common stock plus dividends (as described under “Compensation-Related Matters — Compensation Discussion and Analysis — How are Libbey’s directors compensated?” below), or through a combination of these means. For those directors who already have served two full terms, or whose second terms are nearing completion, and who, as of the date on which the guidelines were adopted, had not achieved the requisite stock ownership, the Nominating and Governance Committee of the Board has discretion to establish transition plans.

 

The following table shows, as of March 9, 2007, the number of shares of our common stock and percentage of all issued and outstanding shares of our common stock that are beneficially owned (unless otherwise indicated) by our directors, the executive officers whom we refer to as “Named Executives” (as set forth under “Compensation-Related Matters — Summary Compensation Table” below) and our directors and executive officers as a group. Our address is the address of each director and executive officer set forth below. The shares owned by the executive officers set forth below include the shares held in their accounts in the Libbey Inc. Retirement Savings Plan. An asterisk indicates ownership of less than one percent of the outstanding stock.

 

 

 

 

 

 

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

 

 

 

In addition to outstanding shares of common stock that our Named Executives beneficially owned as of March 9, 2007, the Named Executives received the following grants of restricted stock units (RSUs) on February 16, 2007:

 

 

 

 

 

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, 2006, all officers, directors and greater-than-ten-percent beneficial owners complied with the filing requirements applicable to them pursuant to Section 16 of the Exchange Act.

 

LIBBEY CORPORATE GOVERNANCE

 

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

 

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

 

 

Effective at the conclusion of the 2007 Annual Meeting of Libbey stockholders, Mr. Moreau will become chair of the Audit Committee, Ms. Moerdyk will become chair of the Compensation Committee and Mr. Foley will become chair of the Nominating and Governance Committee.

 

Does Libbey have Corporate Governance Guidelines?

 

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

 

What is the role of the Board’s committees?

 

Our Board of Directors currently has an Audit Committee, a Compensation Committee and a Nominating and Governance Committee.

 

Audit Committee.  The Board of Directors adopted an Audit Committee Charter in 2000 and updated the Audit Committee Charter in 2004. The Audit Committee Charter is available on Libbey’s website (www.libbey.com).

 

The functions of the Audit Committee are described under “Audit-Related Matters; Report of the Audit Committee” below. The Audit Committee met 10 times during 2006. On February 6, 2007, the Board selected the members of the Audit Committee for the coming year, as shown above. The Board has determined that all members of the Audit Committee are independent, within the meaning of SEC regulations, the listing standards of the New York Stock Exchange and our Corporate Governance Guidelines. The Board has further determined that each of the members of the Audit Committee is qualified as an audit committee financial expert, as defined in SEC regulations, is financially literate and has accounting and related financial management expertise.

 

Compensation Committee.  The Compensation Committee is responsible for (a) discharging the Board’s responsibilities relating to executive compensation, (b) producing an annual report on executive compensation for inclusion in the proxy statement or annual report on Form 10-K as required by the SEC, (c) approving grants of stock options and other awards under the company’s equity participation plans and providing oversight and administration of these plans in accordance with the provisions of the plans, and (d) providing oversight and administration for the company’s employee stock purchase plan in accordance with the provisions of the plan. In particular, the Compensation Committee has been charged with the following responsibilities:

 

 

 

The Compensation Committee met 12 times during 2006. On February 6, 2007, the Board selected the members of the Compensation Committee for the coming year, as shown above. The Board has determined that all members of the Compensation Committee are independent, within the meaning of the listing standards of the New York Stock Exchange and our Corporate Governance Guidelines.

 

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

 

The Nominating and Governance Committee met four times in 2006. On February 6, 2007, the Board selected the members of the Nominating and Governance Committee for the coming year, as shown above. The Board has determined that all of the members of the Committee are independent, within the meaning of the listing standards of the New York Stock Exchange and our Corporate Governance Guidelines.

 

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

 

At each regularly scheduled meeting of the Board, the Board (excluding management directors) meets in executive session outside the presence of management. In order to provide continuity, the Board has designated Gary L. Moreau to chair and coordinate these executive sessions. Upon the conclusion of the annual meeting of stockholders on May 3, 2007, Carlos V. Duno will assume responsibility for chairing and coordinating these executive sessions, as Mr. Moreau will be assuming the chairmanship of the Audit Committee.

 

How does the Board select nominees for the Board?

 

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

 

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

 

 

 

In addition, the Board seeks directors who are strategic thinkers, understand complex capital structures and the operational constraints that they create, are members of the boards of directors of other public companies and have experience and expertise in corporate governance, marketing expertise and/or experience in the consumer products industry. The Board also seeks directors who, as compared to then-existing members of the Board, are diverse with respect to geography, employment, age, race or gender.

 

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

 

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

 

How does the Board determine which directors are considered independent?

 

In 2004 the Board adopted its Corporate Governance Guidelines, which, among other things, combine the Board’s previously adopted Mission Statement and Libbey Inc. Guidelines for its Board of Directors. The Board intends that the Corporate Governance Guidelines meet or exceed the listing standards adopted by the New York Stock Exchange.

 

Pursuant to the Corporate Governance Guidelines, 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 there is any business relationship between Libbey and the particular director or an organization of which the particular director is a shareholder, partner or officer, irrespective as to how de minimis the relationship may be, or if the director otherwise does not meet the independence requirements set forth in the listing standards of the New York Stock Exchange.

 

As a result of this review, the Board has affirmatively determined that Carlos V. Duno, William A. Foley, Peter C. McC. Howell, Deborah G. Miller, Carol B. Moerdyk and Gary L. Moreau are independent of Libbey and its management under the standards set forth in the Corporate Governance Guidelines. Messrs. Meier and Reynolds are considered inside directors because of their employment as senior executives of Libbey. Mr. Stewart is considered a non-independent director because in the past three years Stewart and Stewart, the law firm of which Mr. Stewart is managing partner, has provided legal services to Libbey in connection with international trade matters and is expected to continue to do so.

 

How often did the Board meet during fiscal 2006?

 

The Board of Directors met 13 times during 2006. Five of these meetings were regularly scheduled meetings and eight of them were special meetings. During 2006, each incumbent member of the Board of Directors attended 75% or more of the aggregate number of meetings of the Board, and each incumbent member of the Board of Directors attended at least 75% of the aggregate number of meetings of the committees of the Board that he or she was eligible to attend.

 

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

 

We desire to maintain a Board of Directors in which a substantial majority of our directors are independent, as defined in our Corporate Governance Guidelines. Those Guidelines preclude a determination by the Board that a director is independent if there is any business relationship between Libbey and the particular director or an organization of which the particular director is a shareholder, partner or officer, irrespective as to how de minimis the relationship may be, or if the director otherwise does not meet the independence requirements set forth in the listing standards of the New York Stock Exchange. Accordingly, 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 2006 Stewart and Stewart received fees of approximately $10,106 from us for legal services in connection with various international trade matters. We anticipate that we will continue to utilize the legal services of Stewart and Stewart in the future in connection with international trade matters. In that connection, because our Board believes that Libbey’s General Counsel is best suited to select legal counsel for Libbey, the Board does not require that we seek the approval of the Board, or of any committee of the Board, in connection with our engagement of Stewart and Stewart. However, the Board has determined that, as a result of our engagement of Stewart and Stewart with respect to international trade matters, Mr. Stewart is not independent of Libbey.

 

In addition, our Code of Business Ethics and Conduct (which we refer to as our “Code of Ethics”), adopted by our Board in 2004, requires that all of Libbey’s directors, officers and other employees avoid conflicts of interest. Related-party transactions that are of the nature and magnitude that they must be disclosed pursuant to Item 404(b) of Regulation S-K would be considered transactions that could give rise to a conflict of interest, and therefore are covered by our Code of Ethics. Our Code of Ethics requires that any conflicts of interest be reported to our Legal Department, and that the written concurrence of our General Counsel is required to waive any conflict of interest. In addition, our Code of Ethics requires that waivers of our Code of Ethics with respect to executive officers or directors may be granted only by the Board of Directors and only if the noncompliance with our Code of Ethics is or would be immaterial or if the Board of Directors otherwise determines that extraordinary circumstances exist and that the waiver is in the best interests of our stockholders.

 

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

 

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

 

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

 

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

 

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

 

While our directors are not required to attend our annual meeting of stockholders, we typically schedule a meeting of the Board of Directors to take place at the same location and on the same day as the annual meeting of stockholders. As a result, we anticipate that a substantial majority of our directors will be present at the annual meeting of stockholders to be held on May 3, 2007. In 2006, all members of the Board of Directors attended our annual meeting of stockholders.

 

AUDIT-RELATED MATTERS

 

Who are Libbey’s auditors?

 

Upon the recommendation of the Audit Committee, the Board of Directors has appointed Ernst & Young LLP as Libbey’s independent auditors for the fiscal year ending December 31, 2007. Although ratification by the stockholders is not required by law, the Board of Directors believes that you should be given the opportunity to express your views on the subject. See “Proposal 2 — Ratification of Auditors” below.

 

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

 

What fees has Libbey paid to its auditors for Fiscal 2006 and 2005?

 

Fees for services rendered by Ernst & Young LLP for the years ended December 31, 2006 and 2005 are as follows:

 

 

 

 

 

 

All audit-related, tax and other services were pre-approved by the Audit Committee, which concluded that the provision of these services by Ernst & Young LLP was compatible with the maintenance of that firm’s independence in the conduct of its audit functions. The Audit Committee’s policy regarding auditor independence requires pre-approval by the Audit Committee of audit, audit-related and tax services on

an annual basis. The policy requires that engagements that the auditors or management anticipates will exceed pre-established thresholds must be separately approved. The policy also provides that the Committee will authorize one of its members to pre-approve certain services. The Committee has appointed Carol B. Moerdyk, Chair of the Committee, to pre-approve these services. Upon the conclusion of the annual meeting of stockholders on May 3, 2007, Gary L. Moreau will assume the chairmanship of the Audit Committee and will be responsible for pre-approving 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 Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

 

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

 

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

 

 

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

 

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

 

Taking all of these reviews and discussions into account, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2006, for filing with the Securities and Exchange Commission.

 

Carol B. Moerdyk, Chair

Carlos V. Duno

Peter C. McC. Howell

Gary L. Moreau

 

COMPENSATION-RELATED MATTERS

 

Compensation Discussion and Analysis

 

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

 

In 2004, in response to increased competition and declining financial performance, we modified our business strategy significantly, opting to undertake a lengthy and complex process to reposition our cost structure and extend our manufacturing platform into low-cost countries. From 2004 through 2006 we refined this strategy and took significant action to implement it. This strategy encompassed, among other things:

 

 

 

 

We recognized the significant risks entailed in executing this complex strategy. Nevertheless, we believed then, and we continue to believe, that successful execution of this strategy is critical to the transformation of Libbey that is required to ensure long-term growth.

 

Concurrent with our adoption of this strategy, the Compensation Committee of our Board of Directors undertook a comprehensive review of our executive compensation program to determine whether it is adequately geared to promote successful execution of this complex and risky strategy. The Committee selected Hewitt Associates to perform a comprehensive study (which we refer to as the “Hewitt study”) of our executive compensation program, with the following objectives in mind:

 

 

 

What are the elements of Libbey’s executive compensation program, and how do they achieve these objectives?

 

The elements of our executive compensation program are:

 

 

Base Salary.  The base salary component of our program is designed primarily to attract and retain our talented executives and, to a lesser extent, to motivate their performance.

 

Performance-Based Compensation.  Historically our performance-based compensation component has consisted of the potential for annual cash incentive awards and long-term incentive awards payable in cash. Based upon the Hewitt study, the Compensation Committee determined that our performance-based compensation component provided inadequate financial incentives to achieve our motivational objective. In addition, the Compensation Committee determined that the performance-based compensation component should include an equity-based element in order to promote our alignment objective. Accordingly, beginning in 2006, the Compensation Committee instituted an incentive compensation program utilizing two types of awards:

 

 

Annual Cash Incentive Awards.  Under our SMIP, each executive is eligible for an annual cash incentive award in an amount up to a target percentage of the executive’s base salary. The annual cash incentive award payments are made from a pool that is funded based upon achievement of specified financial and non-financial performance measures determined early in the year.

 

Forty percent (40%) of our executive officers’ target SMIP awards (we refer to this 40% as the “corporate component”) is based upon achievement of a single, corporate-wide financial performance measure — income from operations (which we refer to as “IFO”). For further information with respect to the corporate component, the range of amounts for which each of the Named Executives was eligible under that component in 2006 and the scale used to determine the amount of annual cash incentive payable with respect to that component in 2006, see “Grants of Plan-Based Awards Table” below.

 

The remaining 60% of our executive officers’ target SMIP awards is based upon achievement of a series of other goals developed early in the year and tailored specifically for the respective executive officers. Examples of these other goals include quantifiable improvement in financial indicators of our success such as net sales and profit margin, implementation of specified compliance and corporate governance initiatives, achievement of specified transactions (such as our refinancing) and similar goals.

 

For further information with respect to the amount of annual incentive compensation earned by each of the Named Executives for 2006, see “What compensation did Libbey’s executives receive for 2006?” and “Summary Compensation Table” below.

 

Performance Share Awards.  Under the LTIP, each executive is eligible for an award of performance shares, stock options and RSUs having an aggregate grant date fair value, determined in accordance with FAS 123R, equal to a target percentage of the executive’s base salary. The following table sets forth the target percentages for each of our Named Executives:

 

 

When the LTIP is fully implemented, 40% of each executive’s target LTIP award will consist of performance shares, with the balance consisting of RSUs (40%) and stock options (20%). The number of performance shares to be awarded is determined by dividing the grant date fair value (which in turn is the portion of the LTIP target award that is represented by performance shares) by the average closing price of our common stock over a period of 60 consecutive trading days ending on the date of grant. The performance shares will vest only if and to the extent that we achieve a corporate-wide performance measure over a particular period of time (which we refer to as a “performance cycle”).

 

For further information with respect to the performance share component, the range of shares of common stock for which each of the Named Executives was eligible under that component and the scale used to determine the number of shares of common stock earned with respect to that component in 2006, see “Grants of Plan-Based Awards Table” below. For further information with respect to the performance shares earned during 2006, see “What compensation did Libbey’s executives receive for 2006?” and “Summary Compensation Table” below.

 

Stock Options and RSUs.  As suggested above, we contemplate that 60% of our respective executives’ target LTIP awards will consist of non-qualified stock options and RSUs. Because both the RSUs and the stock options vest over a period of time, and, as a result, are dependent upon the respective executives’ continued employment, they are designed to promote the talent attraction and retention objective discussed above. These forms of equity-based compensation also promote the motivational objective and the alignment objective because the value of these forms of compensation to our executives depends upon the impact of our operational and financial performance on the value of our common stock. For further information with respect to stock options and RSU awards with respect to 2006, see “What compensation did Libbey’s executives receive for 2006?” below.

 

Other Compensation.  In addition to providing base salary, performance-based compensation, stock options and RSUs to our executives, we provide our executives with the following forms of compensation:

 

 

 

We believe that these benefits are reasonable and competitive, and they promote our talent attraction and retention objectives as well as our reasonableness objective.

 

Employment and Change in Control Agreements.  We have employment agreements with each of our executive officers and change in control agreements with our executive officers and other key members of senior management. We believe that these agreements represent an important tool in promoting our talent attraction and retention objectives, particularly in light of our recent financial challenges. For further information with respect to our employment and change in control agreements, see “Potential Payments Upon Termination or Change in Control” below.

 

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

 

Development of the Executive Compensation Program.  The Compensation Committee of our Board of Directors is responsible for overseeing the design, development and implementation of our executive compensation program. In discharging that responsibility, the Compensation Committee engaged Hewitt Associates to perform a comprehensive study to determine whether our executive compensation program was competitive with our peers and, more importantly, whether it was adequately geared to accomplish our objectives. In connection with that study, Hewitt compared the net total compensation (base, bonus and long-term incentives) payable to 10 of our executives to net total compensation for comparable executive positions at our peer group. Consistent with our reasonableness objective, the Hewitt study focused upon compensation opportunities at the 50th percentile of the peer group, reflecting our belief that Libbey’s executive compensation opportunities should be competitive with those at the 50th percentile of its peer group. Our peer group, which Hewitt suggested and the Compensation Committee approved, comprises the following industrial companies, which, at the time of the study (2005), were public companies of similar size, as measured by revenues.

 

 

Based in part upon the results of the Hewitt study, the Compensation Committee determined that, although only minor adjustments to the base salary levels of our executives were necessary in order to bring the base salaries of our executives to competitive levels, our executive compensation program as a whole was not adequately designed to promote the talent attraction and retention, motivational and alignment objectives critical to our business strategy. Specifically:

 

 

Accordingly, with the assistance of Hewitt, the Compensation Committee developed a new executive compensation program and began to implement that program in 2006.

 

In developing the new program, the Compensation Committee sought to implement a mix of compensation opportunities that would enable us to achieve each of the objectives discussed under “What are the objectives of Libbey’s executive compensation program?” above. The elements of the program are described in “What are the elements of Libbey’s executive compensation program, and how do they achieve these objectives?” above. The Compensation Committee also sought to preserve, to the maximum extent possible

(consistent with our overall executive compensation objectives), the tax deductibility of the compensation that we pay to our CEO and four other most highly compensated executive officers. As a result, our annual cash incentive compensation and the performance share component of our LTIP compensation are designed to satisfy the requirements of “qualifying performance-based compensation” under Section 162(m) of the Internal Revenue Code.

 

Implementation of the Executive Compensation Program.  The Compensation Committee sets the performance goals with respect to our executive officers’ performance-based compensation, based upon input from our CEO with respect to those goals, including suggested individual performance objectives and metrics. The Compensation Committee also seeks input from our Board in setting our CEO’s individual performance objectives and metrics.

 

Our Board of Directors evaluates the performance of our CEO. The Compensation Committee is responsible for reviewing that evaluation with our CEO and setting his compensation. The Compensation Committee, based upon input and recommendations from our CEO, assesses the performance and determines the compensation of our other executive officers. The Compensation Committee consults with its compensation consultant, Hewitt Associates, when the Compensation Committee determines it to be appropriate, and a representative of Hewitt frequently attends meetings of the Compensation Committee. Our CEO, Vice President — Administration and General Counsel provide information to the Compensation Committee and its consultant to assist them in their compensation determinations.

 

Aside from discussing their individual performance objectives with the CEO (including their assessment of their own performance against those objectives), our non-CEO executives play no role in determining their own compensation.

 

Our Equity Grant Practices.  Historically, our grants of equity-based compensation to executives have consisted of grants of non-qualified stock options. Typically, the Compensation Committee has awarded stock options in two circumstances:

 

 

In light of concerns raised in 2006 by corporate governance experts with respect to the timing of awards of stock options by other public companies (particularly with respect to the propriety of granting stock options during “quiet periods”), the Compensation Committee made the decision to discontinue its practice of awarding options in early December of each year and instead to award grants of stock options and RSUs in February of each year, after we have released financial results for the recently-concluded fiscal year.

 

In addition, commencing with our 2007 fiscal year, the Compensation Committee has delegated authority to the Chairman of the Board to make limited grants of non-qualified stock options and restricted stock 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:

 

 

Potential Impact of Misconduct on Compensation.  Our SMIP and LTIPs are authorized under the 2006 Omnibus Incentive Plan of Libbey Inc. (which we refer to as our “Omnibus Plan”). Our stockholders

approved the Omnibus Plan at our annual meeting of stockholders on May 4, 2006. Under the Omnibus Plan, if:

 

 

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

 

Share Ownership Guidelines.  Although we have share ownership guidelines for our non-management directors, we have not implemented share ownership guidelines for our executives, because we believe that the beneficial ownership of a significant number of shares of our securities by our officers is sufficient to appropriately align their interests with those of our other stockholders. Through December 31, 2006, we made matching contributions to our 401(k) savings plan in the form of our common stock. In addition, our officers routinely have acquired shares of our common stock through our Employee Stock Purchase Plan, pursuant to which all employees may purchase stock at a discount, and Mr. Meier has purchased over 11,000 shares of our common stock on the open market in the last 18 months, with his most recent purchase occurring on March 5, 2007. For further information regarding our Named Executives’ beneficial ownership of our common stock, see “How much Libbey stock do our directors and officers own?” above.

 

What compensation did Libbey’s executives receive for 2006?

 

Base Salaries.  As previously indicated, the Compensation Committee determined during 2005 that relatively modest increases in the base salaries of our executives should be made in order to bring base salaries to a competitive level. In light of our financial challenges in 2005, however, we declined to implement those salary increases in 2005. During the course of 2006, we increased the base salaries of all our executives, other than our CEO and COO, to bring them into line with competitive, 2006 base salaries. Although the Compensation Committee declined to increase the base salaries of our CEO and COO during 2006, the Compensation Committee determined that, in light of the significant progress made during 2006 with respect to achievement of our strategic initiatives, the base salaries of our CEO and COO would be increased prospectively, effective January 1, 2007, to $615,000 and $425,000 per year, respectively.

 

Annual Incentive Compensation under SMIP.  Beginning with the SMIP for 2006, the Compensation Committee increased the target SMIP awards for which our executives are eligible. The following table sets forth the target percentages for each of our Named Executives.

 

 

Corporate Component.  As indicated under “What are the elements of Libbey’s executive compensation program, and how do they achieve these objectives?” above, the corporate component of our SMIP (representing 40% of each executive’s target award) is based upon achievement of a single, corporate-wide financial performance measure — IFO. When the Compensation Committee approved the SMIP for 2006, the Compensation Committee determined that achievement of that measure would be determined by reference to budgeted IFO, as set forth in the budget that we submitted to our Board in February 2006. That

budget did not take into account the financial impact on Libbey of our June 2006 acquisition of Crisa because we had not reached agreement to acquire Crisa when we submitted that budget to our Board. As a result, the budget did not take into account that we would be required to consolidate Crisa’s financial results beginning on June 16, 2006. The budget also did not take into account the refinancing that we consummated on June 16, 2006. Accordingly, after we consummated the acquisition and refinancing, we submitted to our Board a revised budget that incorporates, as of June 16, 2006, the financial impact of consolidating Crisa’s financial results and of our refinancing.

 

Desiring to hold our executives accountable for achievement of the revised budget, the Compensation Committee determined, on September 27, 2006, that awards made under the SMIP for 2006 would be subject to achievement of a specified percentage of budgeted IFO, excluding special charges, and that the relevant budget for measuring achievement of the performance measure would be the revised budget submitted to the Board of Directors on July 25, 2006. Notably, by determining that the revised budget would be the relevant budget for measuring achievement of the performance measure under the SMIP, the Compensation Committee effectively increased the targeted performance that must be achieved in order for the participants in the SMIP for 2006 to be eligible for a payout under the plan.

 

On February 5, 2007, the Compensation Committee reviewed our actual IFO results for 2006, compared them to budgeted IFO for 2006 (in each case excluding special charges in accordance with generally accepted accounting principles) and determined that we had achieved approximately 111% of budgeted IFO for 2006, resulting in a payout of approximately 180% of target with respect to the corporate component of the SMIP. For further information with respect to the scale utilized in determining the amount of the payout, see “Grants of Plan-Based Awards Table” below.

 

Individual Component.  The remaining 60% of our SMIP for 2006 was based upon achievement of a series of other goals developed early in the year and tailored specifically for the respective executive officers. Examples of these other goals include:

 

 

Because the Company’s June 2006 refinancing fell short of the debt structure parameters identified in one of Mr. Meier’s goals, the Compensation Committee determined that Mr. Meier had achieved a score of only 90% with respect to his individual performance goals. Our CEO and the Compensation Committee reviewed and discussed the CEO’s assessment of the other executive officers’ performance with respect to their individual goals, and exercised positive or negative discretion, as the case may be, in light of other developments and achievements throughout the course of 2006. As a result of this review, scores of between 87% and 100% were assigned to the other executive officers.

 

Based upon the payout earned with respect to the corporate component and the scores received with respect to the individual component, the Named Executives earned annual cash incentive compensation for 2006 in the amounts set forth in the column headed “Non-Equity Incentive Compensation” in the “Summary Compensation Table for Fiscal 2006” below.

 

Long-Term Performance-Based Compensation.  On March 31, 2006, the Compensation Committee approved an LTIP (which we refer to as the “January 2006 LTIP”), pursuant to which performance shares could

be earned based upon achievement of a single, corporate-wide performance measure over a defined performance cycle. Although the Compensation Committee contemplated that, when our re-designed LTIP program was fully implemented, the program would provide for a single, three-year performance cycle, the Compensation Committee elected to phase in the performance share component so that executives would be eligible for payouts of common stock at the end of each year beginning with the 2006 fiscal year. Accordingly, the January 2006 LTIP provided for three performance cycles:

 

 

 

 

The Compensation Committee made this decision in light of its decision to suspend the LTIP in early 2005, just as we were beginning to implement the business strategy discussed under “What are the objectives of Libbey’s executive compensation program?” above.

 

Pursuant to the January 2006 LTIP, the Compensation Committee awarded performance shares to our executives, including the Named Executives, and determined that vesting of the performance shares would be subject to achievement of a specified percentage of cumulative budgeted earnings before interest, income taxes, depreciation and amortization (which we refer to as “EBITDA”) over each performance cycle listed above.

 

In addition, because our LTIPs prior to 2006 did not contain a performance share component, and because the shares of equity available for grant under the Amended and Restated 1999 Equity Participation Plan of Libbey Inc. (since replaced by the Omnibus Plan) were limited, the Compensation Committee elected to phase in, over a three-year period, the portion of each participant’s target LTIP award represented by performance shares, with performance shares having a grant date fair value equal to only 16% of the respective participants’ target LTIP awards being awarded under the January 2006 LTIP.

 

The relevant performance measure under the January 2006 LTIP was EBITDA, and achievement of this performance measure was to be determined with reference to the budget for 2006 that we submitted to our Board in February 2006. Because that budget did not take into account that we would be required to consolidate Crisa’s financial results beginning on June 16, 2006, and because our Compensation Committee desired to hold our executives accountable for our performance in accordance with the revised budget that we submitted to our Board in July 2006, the Compensation Committee, at its September 27, 2006 meeting, took the following actions, among others:

 

 

 

 

 

 

 

 

Again, by determining that the revised budget would be the relevant budget for measuring achievement of the performance goal under the July 2006 LTIP, the Compensation Committee effectively increased the targeted performance that must be achieved in order for the participants in the July 2006 LTIP to be eligible for payouts under that plan.

 

On February 5, 2007, the Compensation Committee determined that we had achieved 93.2% of budgeted EBITDA for the period July 1 through December 31, 2006, and that, as a result, participants under the July 2006 LTIP had earned 77.3% of the target number of performance shares awarded to them for the period July 1 through December 31, 2006. As a result, in February 2007, we issued the following number of common shares to the Named Executives with respect to the period July 1 through December 31, 2006:

 

 

Stock Options and RSUs.  The Compensation Committee contemplated that, for each three-year period covered by an LTIP, executives would be entitled to grants of non-qualified stock options and RSUs equal to a total of 60% of their respective target LTIP awards. Accordingly, a single grant of RSUs and stock options should have accompanied the grant of performance shares under either the January 2006 LTIP or the July 2006 LTIP. In light of the Company’s challenging refinancing in mid-year, the Compensation Committee delayed making the grants for the period covered by the 2006 LTIPs. And in light of concerns raised in 2006 by corporate governance experts with respect to the timing of awards of stock options by other public companies (particularly with respect to the propriety of granting stock options during “quiet periods”), at its meeting in December 2006, the Compensation Committee elected to further defer these grants until we released our financial results for our 2006 fiscal year. Then, at its meeting on February 5, 2007, the Compensation Committee authorized the following two sets of grants of stock options and RSUs to our executives, including the Named Executives:

 

 

The number of stock options and RSUs awarded was determined by dividing the dollar value that the Compensation Committee sought to transfer (20% and 40%, respectively, of each executive’s target LTIP award), by the average closing price of our common stock over a period of 60 consecutive days ending on February 16, 2007.

 

How are Libbey’s directors compensated?

 

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

 

 

 

 

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

 

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

 

Potential Payments Upon Termination or Change in Control

 

As discussed under “What are the elements of Libbey’s executive compensation program, and how do they achieve these objectives?” above, we have employment agreements with our executive officers and change in control agreements with our executive officers and certain other key members of senior management. Following is a summary of the material terms of these agreements. You should refer to the entire agreements, which we filed with the Securities and Exchange Commission when we entered into them, for a complete description of their terms.

Employment Agreements.

 

Triggers.  Under the employment agreements, each of our executive officers (or, in the case of the first “trigger” described below, the personal representative of the applicable executive officer) is entitled to certain payments and other benefits if his or her employment is terminated as a result of any of the following events (each of which we refer to as a “trigger”):

 

 

 

 

“Cause” means any of:

 

 

 

 

 

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

 

“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:

 

 

 

 

 

 

 

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.

 

Benefits.  We are obligated to pay or provide the following benefits, at the times indicated, if a Named Executive’s employment is terminated in accordance with any of the triggers discussed above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conditions to receipt of benefits.

 

 

 

 

 

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

 

Change in Control Agreements.

 

Triggers.  Under our change in control agreements, each of our Named Executives and other executives covered by such agreements is entitled to certain payments and other benefits if his or her employment is terminated as a result of any of the following triggers:

 

 

 

 

Under the change in control agreements, “good reason” means the occurrence, after a change in control, of any of the following circumstances unless, in most cases, we fully correct the circumstances (if they are capable of correction) prior to the date of termination specified in the notice of termination that the executive provides to us:

 

 

 

 

 

 

 

 

 

 

Benefits.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conditions to receipt of benefits.  Our obligation to pay the benefits described above is subject to the respective Named Executives’ signing and delivering to us a 12-month non-compete agreement, a three-year confidentiality agreement and a three-year non-solicitation agreement.

 

Other obligations.  If a termination occurs after a change in control and is not a result of any of the triggers described above, the Named Executive is entitled to receive base salary, when due, through the date of termination at the then current rate plus all other amounts and benefits to which the Named Executive is entitled under any compensation plan or practice that we have in place at the time the payments are due.

 

Compensation Committee Interlocks and Insider Participation

 

William A. Foley, Deborah G. Miller, Carol B. Moerdyk and Gary L. Moreau served on our Compensation Committee during 2006. None of the Compensation Committee members 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 recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

William A. Foley, Chair

Deborah G. Miller

Carol B. Moerdyk

Gary L. Moreau

 

Summary Compensation Table

 

The following table shows the annual and long-term compensation that our Named Executives earned during the fiscal year ended December 31, 2006. Our Named Executives include our Chief Executive Officer, our Chief Financial Officer and the three most highly compensated executive officers other than the CEO and CFO in 2006:

 

SUMMARY COMPENSATION TABLE FOR FISCAL 2006

 

 

 

 

 

 

 

We do not guaranty any particular rate of return on deferred compensation under our ESP. Rather, the rate of return depends upon the performance of the fund in which the participant’s ESP account is deemed invested. Accordingly, we do not believe earnings on nonqualified deferred compensation are above market. For more information with respect to the ESP, see “Nonqualified Deferred Compensation” below.

 

 

 

Grants of Plan-Based Awards Table

 

The following table shows, with respect to each of the Named Executives, the range of payouts under (a) our SMIP for 2006, and (b) our January 2006 LTIP and July 2006 LTIP.

 

GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2006

 

 

 

 

 

 

Outstanding Equity Awards at Fiscal Year End

 

The following table shows, for each of the Named Executives, (a) the number, exercise price and expiration date of stock options that are vested but have not yet been exercised and stock options that have not yet vested and (b) the number and market value of performance shares that were awarded in 2006 and were not yet earned as of December 31, 2006:

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END