Link To 2011 Annual Report

Table of Contents

 

LOGO

March 30, 2012

Dear Shareholder:

I am pleased to invite you to attend the annual meeting of shareholders of Leggett & Platt, Incorporated to be held on Thursday, May 10, 2012, at 10:00 a.m. Central Time, at the Company’s Wright Conference Center. Directions are included on the back cover of this Proxy Statement.

The Proxy Statement contains four proposals from our Board of Directors: (i) the election of twelve directors, (ii) the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2012, (iii) the approval of the amendment and restatement of the Company’s Flexible Stock Plan, and (iv) an advisory vote to approve named executive officer compensation. The Board encourages you to vote FOR each of these proposals.

The Proxy Statement also contains a shareholder proposal seeking to add sexual orientation and gender identity to the Company’s written non-discrimination policy. For reasons explained in the Proxy Statement, the Board encourages you to vote AGAINST this proposal.

Your vote is important. Whether or not you plan to attend the meeting, please vote as soon as possible. You may vote your shares online at www.eproxy.com/leg or by returning the enclosed proxy or voting instruction card. Specific instructions for these voting alternatives are contained on the proxy or voting instruction card.

I appreciate your continued interest in Leggett & Platt.

Sincerely,

LEGGETT & PLATT, INCORPORATED

 

LOGO

Richard T. Fisher

Board Chair

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Leggett & Platt, Incorporated

No. 1 Leggett Road

Carthage, Missouri 64836

 

 

NOTICE OF 2012 ANNUAL MEETING OF SHAREHOLDERS

The annual meeting of shareholders of Leggett & Platt, Incorporated (the “Company”) will be held at the Company’s Wright Conference Center, No. 1 Leggett Road, Carthage, Missouri 64836, on Thursday, May 10, 2012, at 10:00 a.m. Central Time:

 

  1. To elect twelve directors;

 

  2. To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2012;

 

  3. To approve the amendment and restatement of the Company’s Flexible Stock Plan;

 

  4. To provide an advisory vote to approve named executive officer compensation;

 

  5. If presented at the meeting, to vote on a shareholder proposal requesting the addition of sexual orientation and gender identity to the Company’s written non-discrimination policy; and

 

  6. To transact such other business as may properly come before the meeting or any postponement or adjournment thereof.

You are entitled to vote only if you were a Leggett & Platt shareholder at the close of business on March 5, 2012.

An Annual Report to Shareholders outlining the Company’s operations during 2011 accompanies this Notice of Annual Meeting and Proxy Statement.

By Order of the Board of Directors,

 

LOGO

John G. Moore

Secretary

Carthage, Missouri

March 30, 2012

 

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to Be Held on May 10, 2012

The enclosed proxy materials and access to the proxy voting site are also available to you on the Internet.

You are encouraged to review all of the information contained in the proxy materials before voting.

The Company’s Proxy Statement and Annual Report to Shareholders are available at:

www.leggett.com/proxy/2012/default.asp

The Company’s proxy voting site can be found at:

www.eproxy.com/leg

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Leggett & Platt, Incorporated

 

 

PROXY STATEMENT

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     Page  

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

     1   

CORPORATE GOVERNANCE AND BOARD MATTERS

     4   

Corporate Governance

     4   

Director Independence

     5   

Independent Board Chair and Board Leadership Structure

     5   

Communication with the Board

     5   

Board and Committee Composition and Meetings

     5   

Board’s Oversight of Risk Management

     6   

Compensation Committee Interlocks and Insider Participation

     7   

Consideration of Director Nominees and Diversity

     7   

Transactions with Related Persons

     9   

Director Compensation

     9   

PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING

     12   

PROPOSAL 1—Election of Directors

     12   

PROPOSAL 2—Ratification of Selection of Independent Registered Public Accounting Firm

     18   

Audit and Non-Audit Fees

     18   

Pre-Approval Procedures for Audit and Non-Audit Services

     19   

Audit Committee Report

     19   

PROPOSAL 3—Approval of the Amendment and Restatement of the Company’s Flexible Stock Plan

     20   

PROPOSAL 4—Advisory Vote to Approve Named Executive Officer Compensation

     28   

PROPOSAL 5—Shareholder Proposal Requesting the Addition of Sexual Orientation and Gender Identity to the Company’s Written Non-Discrimination Policy

     28   

Discretionary Vote on Other Matters

     29   

EXECUTIVE COMPENSATION AND RELATED MATTERS

     30   

Compensation Discussion & Analysis

     30   

Compensation Committee Report

     42   

Summary Compensation Table

     42   

Grants of Plan-Based Awards in 2011

     45   

Outstanding Equity Awards at 2011 Fiscal Year End

     46   

Option Exercises and Stock Vested in 2011

     48   

Pension Benefits in 2011

     49   

Non-Qualified Deferred Compensation in 2011

     50   

Potential Payments Upon Termination or Change in Control

     51   

SECURITY OWNERSHIP

     57   

Security Ownership of Directors and Executive Officers

     57   

Security Ownership of Certain Beneficial Owners

     58   

Section 16(a) Beneficial Ownership Reporting Compliance

     58   

EQUITY COMPENSATION PLAN INFORMATION

     59   

APPENDIX A: FLEXIBLE STOCK PLAN

     A-1   

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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS

AND THE ANNUAL MEETING

Why did I receive these materials?

The Board of Directors (the “Board”) of Leggett & Platt, Incorporated (the “Company” or “Leggett”) is providing these materials to you in connection with its solicitation of proxies for the Company’s annual meeting of shareholders on May 10, 2012. These materials were sent to shareholders on March 30, 2012. As a Leggett shareholder, you are entitled and encouraged to vote on the proposals presented in these proxy materials. We invite you to attend the annual meeting, but you do not have to attend to be able to vote.

Where can I obtain financial information about Leggett?

Our Annual Report to Shareholders, including our Form 10-K with financial statements for 2011, is enclosed in the same mailing with this proxy statement. The Company’s Proxy Statement and Annual Report to Shareholders (including Form 10-K) are also available at www.leggett.com/proxy/2012/default.asp. Information on our website does not constitute part of this proxy statement.

What business will be voted on at the annual meeting?

Shareholders will vote on the following proposals at the annual meeting:

   

Election of twelve directors.

   

Ratification of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for 2012.

   

Approval of the amendment and restatement of the Company’s Flexible Stock Plan.

   

Advisory vote to approve named executive officer compensation.

   

A shareholder proposal requesting the addition of sexual orientation and gender identity to the Company’s written non-discrimination policy, if presented at the meeting.

   

Any other business that is properly brought before the meeting.

The Board recommends that you vote FOR each of the director nominees, the ratification of PwC, the amendment of the Flexible Stock Plan, and the executive compensation package, and that you vote AGAINST the shareholder proposal. If you return a signed proxy card without marking one or more proposals, your proxy will be voted in accordance with the Board’s recommendations.

What shares can I vote?

The only class of outstanding voting securities is the Company’s $.01 par value common stock. Each share of common stock issued and outstanding at the close of business on March 5, 2012 (the “Record Date”) is entitled to one vote on each matter submitted to a vote at the annual meeting. On the Record Date, we had 140,044,260 shares of common stock issued and outstanding.

You may vote all shares of Leggett common stock you owned on the Record Date. This includes shares held directly in your name as the shareholder of record and shares held for you as the beneficial owner through a broker, trustee or other nominee, sometimes referred to as shares held in “street name.”

Shareholder of Record—If your shares are registered directly in your name with our transfer agent, Wells Fargo, you are the shareholder of record, and these proxy materials were sent to you directly. As the shareholder of record, you have the right to grant your proxy vote directly or to vote in person at the annual meeting. We have enclosed a proxy card for you to use.

 

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Beneficial Owner—If you hold shares in a brokerage account or through some other nominee, you are the beneficial owner of the shares held in street name, and these proxy materials were forwarded to you from the broker, trustee or nominee, together with a voting instruction card. As the beneficial owner, you have the right to direct your broker, trustee, or nominee how to vote your shares by proxy. Although you are invited to attend the annual meeting, you may not vote these shares in person unless you obtain a legal proxy from the broker, trustee, or nominee.

How do I submit my vote?

You may vote your shares (i) online at www.eproxy.com/leg, (ii) by signing and returning the proxy or voting instruction card, or (iii) in person at the meeting. If you vote by Internet, you do not need to return your proxy or voting instruction card, but you will need to have it in hand when you access the voting website. Specific voting instructions are found on the proxy card or voting instruction card included with this proxy statement.

Can I change my vote?

Shareholder of Record—If you are a shareholder of record, you may change your vote or revoke your proxy any time before the annual meeting by (i) submitting a valid, later-dated proxy, (ii) submitting a valid, subsequent vote online, (iii) notifying the Company’s Secretary that you have revoked your proxy, or (iv) completing a written ballot at the annual meeting.

Beneficial Owner—If you hold shares as the beneficial owner, you may change your vote (i) by submitting new voting instructions to your broker, trustee, or nominee or (ii) by voting in person at the annual meeting if you have obtained a legal proxy from your broker, trustee, or nominee.

How many votes are needed to conduct business at the annual meeting?

A majority of the outstanding shares of common stock entitled to vote must be present at the annual meeting, or represented by proxy, in order to meet the quorum requirement to transact business. Both abstentions and broker non-votes (described below) are counted in determining a quorum. If a quorum is not present, the annual meeting will be adjourned for no more than 90 days to reach a quorum.

What vote is required to elect a director?

A director nominee must receive the affirmative vote of a majority of those shares present (either in person or by proxy) and entitled to vote.

As required by our Corporate Governance Guidelines, each nominee has submitted a contingent resignation to the Nominating & Corporate Governance Committee (the “N&CG Committee”) in order to be nominated for election as a director. If a nominee fails to receive a majority of the votes cast in the director election, the N&CG Committee will make a recommendation to the Board of Directors whether to accept or reject the director’s resignation and whether any other action should be taken. If a director’s resignation is not accepted, that director will continue to serve until the Company’s next annual meeting and his or her successor is duly elected and qualified. If the Board accepts the director’s resignation, it may, in its sole discretion, either fill the resulting vacancy or decrease the size of the Board to eliminate the vacancy.

What vote is required to approve the other proposals?

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote is required for ratification of the appointment of PwC as Leggett’s independent registered public accounting firm and for the shareholder proposal. For the approval of the amendment and restatement of the Company’s Flexible Stock Plan, NYSE rules require an additional level of shareholder approval—a majority of the votes cast must be in favor of the proposal and the total number of votes cast must be more than 50% of all shares entitled to vote on the proposal. Since the vote on named executive officer compensation is an advisory vote, the Board will give due consideration to the outcome; however, that proposal is not approved as such.

 

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What is the effect of an “abstention” vote on the election of directors and other proposals?

A share voted “abstain” with respect to any proposal is considered present and entitled to vote with respect to that proposal. For the proposals requiring a majority vote in order to pass, an abstention will have the effect of a vote against the proposal.

What is the effect of a “broker non-vote?”

If you are the beneficial owner of shares held through a broker or other nominee and do not vote your shares or provide voting instructions, your broker may vote for you on “routine” proposals but not on “non-routine” proposals. Therefore, if you do not vote on the non-routine proposals or provide voting instructions, your broker will not be allowed to vote your shares—this will result in a broker non-vote. Broker non-votes are not counted as shares present and entitled to vote, so they will not affect the outcome of the vote. All proposals on the agenda are non-routine, other than the ratification of PwC as the Company’s auditor.

Who pays the cost of soliciting votes at the annual meeting?

Leggett is making this solicitation and will pay the full cost of preparing, printing, assembling, and mailing these proxy materials. Upon request, we will also reimburse brokers and other nominees for forwarding proxy and solicitation materials to shareholders. If you choose to access proxy materials or vote online, you are responsible for any Internet access charges you may incur.

We have hired Georgeson Inc. to assist in the solicitation of proxies by mail, telephone, in person, or otherwise. Georgeson’s fees are expected to be $10,500 plus expenses. If necessary to assure sufficient representation at the meeting, Company employees, at no additional compensation, may request the return of proxies.

Where can I find the voting results of the annual meeting?

We will announce preliminary voting results at the annual meeting and plan to issue a press release immediately after the meeting. Within four business days after the annual meeting, we will file a Form 8-K reporting the vote count.

What should I do if I receive more than one set of proxy materials?

You may receive multiple sets of proxy materials if you hold shares in more than one brokerage account or if you are a shareholder of record and have shares registered in more than one name. Please vote the shares on each proxy card or voting instruction card you receive.

We have adopted “householding” which allows us, unless a shareholder withholds consent, to send one proxy statement and annual report to multiple shareholders sharing the same address. Each shareholder at a given address will receive a separate proxy card. If you currently receive multiple sets of proxy materials and wish to have your accounts householded, or if you no longer want to participate in householding and wish to revoke your consent, call Wells Fargo Shareowner Services at 877-602-7615 or send written instructions to Wells Fargo Shareowner Services, Attn: Leggett & Platt, Incorporated, P.O. Box 64854, St. Paul, MN 55164-0854. You will need to provide Leggett’s company number (203) and your 10-digit Wells Fargo account number which is printed at the top of your proxy card.

Many brokerage firms practice householding as well. If you have a householding request for your brokerage account, please contact your broker.

How may I obtain another set of proxy materials?

If you received only one set of proxy materials for multiple shareholders of record and would like us to send you another set this year, please call 800-888-4569 or write to Leggett & Platt, Incorporated, Attn: Investor Relations, No. 1

 

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Leggett Road, Carthage, MO 64836. You can also access a complete set of proxy materials (the Notice of Meeting, Proxy Statement, and Annual Report to Shareholders including Form 10-K) online at www.leggett.com/proxy/2012/default.asp. To ensure that you receive multiple copies in the future, please contact your broker or Wells Fargo at the number or address in the preceding answer to withhold your consent for householding.

What is the deadline to propose actions for next year’s annual meeting or to nominate a director?

Shareholders may propose actions for consideration at future annual meetings either by presenting them for inclusion in the Company’s proxy statement or by soliciting votes independent of our proxy statement. To be properly brought before the meeting, all shareholder actions must comply with our bylaws, as well as SEC requirements under Regulation 14A. Leggett’s bylaws are posted on our website at www.leggett-search.com/governance. Notices specified for the types of shareholder actions set forth below must be addressed to Leggett & Platt, Incorporated, Attn: Corporate Secretary, No. 1 Leggett Road, Carthage, MO 64836.

Shareholder Proposal Included in Proxy Statement—If you intend to present a proposal at the 2013 annual meeting, the SEC requires that the Corporate Secretary receive the proposal at the address given above by November 30, 2012 for possible inclusion in the proxy statement. We will decide whether to include a proposal in the proxy statement in accordance with SEC rules governing the solicitation of proxies.

Shareholder Proposal Not Included in Proxy Statement—If you intend to present a proposal at the 2013 annual meeting by soliciting votes independent of the Company’s proxy statement, Section 1.2 of our bylaws requires that the Company receive timely notice of the proposal—no earlier than January 10, 2013 and no later than February 9, 2013. This notice must include a description of the proposed business, your name and address, the number of shares you hold, any of your material interests in the proposal, and other matters specified in the bylaws. The nature of the business also must be appropriate for shareholder action under applicable law. The bylaw requirements also apply in determining whether notice is timely under SEC rules relating to the exercise of discretionary voting authority.

Director Nominee Included in Proxy Statement—If you wish to recommend a director candidate to the N&CG Committee for possible inclusion in the proxy statement, please see the requirements described under Consideration of Director Nominees and Diversity on page 7.

Director Nominee Not Included in Proxy Statement—If you intend to nominate a director candidate for election outside of the Company’s nomination process, our bylaws require that the Company receive timely notice of the nomination—no earlier than January 10, 2013 and no later than February 9, 2013. This notice must include the information specified in Section 2.2 of the bylaws, including your name and address, the number of shares you hold, and the name, address and occupation of each proposed nominee.

 

CORPORATE GOVERNANCE AND BOARD MATTERS

Corporate Governance

Leggett has a long-standing commitment to sound corporate governance principles and practices. The Board has adopted Corporate Governance Guidelines that establish the roles and responsibilities of the Board and Company management. The Board has also adopted a Code of Business Conduct and Ethics applicable to all Company employees, officers and directors, as well as a separate Financial Code of Ethics applicable to the Company’s CEO, CFO, principal accounting officer and corporate controller. These documents are posted on our website at www.leggett-search.com/governance.

 

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Director Independence

The Board reviews director independence annually and upon learning of any change in circumstances during the year that may affect a director’s independence. The Company has adopted director independence standards (the “Independence Standards”) that satisfy the NYSE listing standards. The Independence Standards are posted on our website at www.leggett-search.com/governance. A director who meets all the Independence Standards will be presumed to be independent.

While the Independence Standards help the Board to determine director independence, they are not the exclusive measure for doing so. The Board also reviews the relevant facts and circumstances of any material relationships between the Company and its directors during the independence assessment. Based on its review, the Board has determined that all of its non-management directors are independent (the director biographies accompanying Proposal 1 “Election of Directors” identify our independent and management directors).

All Audit Committee members meet the higher independence standard for audit committee service under NYSE and SEC rules and are financially literate, as defined by NYSE rules. All six members—Robert Brunner, Richard Fisher, Ray Griffith, Joseph McClanathan, Judy Odom, and Phoebe Wood—meet the SEC’s definition of an “audit committee financial expert.” None of the members serves on the audit committee of more than three public companies.

Independent Board Chair and Board Leadership Structure

Richard Fisher, a non-management director of the Company, was elected by the Board of Directors in 2008 to serve as the independent Board Chair. The Company has split the positions of Board Chair and Chief Executive Officer since 2006, when David Haffner was appointed Leggett’s CEO. During Mr. Haffner’s tenure as CEO, the Board has chosen as its Board Chair directors with a long view of Leggett’s evolution—Mr. Fisher has been a director since 1972 and his predecessor, Felix E. Wright, had been on the Board since 1977. The Board evaluates annually the responsibilities of the independent Board Chair and whether the separation of the chairmanship and CEO continues to best serve the Board and our shareholders. The Board does not have a fixed policy with respect to the separation of the Board Chair and the CEO and maintains the flexibility to make this determination on a case-by-case basis in a manner it deems in the Company’s best interests.

In accordance with our Corporate Governance Guidelines, non-management directors regularly hold executive sessions without management present. At least one executive session per year is attended by only independent, non-management directors (typically, these executive sessions take place at each regularly scheduled quarterly Board meeting). Mr.  Fisher presides over these meetings of the non-management directors.

Communication with the Board

Shareholders and all other interested parties may e-mail Mr. Fisher at boardchair@leggett.com. They can also write to Leggett & Platt Board Chair, P.O. Box 637, Carthage, MO 64836. The Corporate Secretary’s office reviews this correspondence and periodically sends Mr. Fisher all communications except items unrelated to Board functions (for example, advertisements and junk mail). In his discretion, Mr. Fisher may forward communications to the full Board or to any of the other independent directors for further consideration.

Board and Committee Composition and Meetings

The Board held five meetings in 2011, and its committees met the number of times listed in the table below. All directors attended at least 75% of the Board meetings and their respective committee meetings. Directors are expected to attend the Company’s annual meeting of shareholders, and all of them attended the 2011 annual meeting.

The Board has a standing Audit Committee, Compensation Committee, Nominating & Corporate Governance Committee, and Executive Committee. Except for the Executive Committee (comprised of Richard Fisher—Chair, David Haffner and Maurice Purnell), each committee consists entirely of independent directors and operates under a

 

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written charter adopted by the Board. The Audit, Compensation and Nominating & Corporate Governance Committee charters are posted on our website at www.leggett-search.com/governance.

 

Audit Committee

 

Judy C. Odom (Chair)

Robert E. Brunner

Richard T. Fisher

Ray A. Griffith

Joseph W. McClanathan

Phoebe A. Wood

 

Meetings in 2011: 6

  

The Audit Committee assists the Board in the oversight of:

•     Independent registered public accounting firm’s qualifications, independence, appointment, compensation, retention, and performance.

•     Internal controls over financial reporting.

•     Guidelines and policies to govern risk assessment and management.

•     Performance of the Company’s internal audit function.

•     Integrity of the financial statements and external financial reporting.

•     Legal and regulatory compliance.

•     Complaints and investigations of any questionable accounting, internal control, or auditing matters.

Compensation Committee

 

R. Ted Enloe, III (Chair)

Robert E. Brunner

Richard T. Fisher

Joseph W. McClanathan

Judy C. Odom

Phoebe A. Wood

 

Meetings in 2011: 6

  

The Compensation Committee assists the Board in the oversight and administration of:

•     Corporate goals and objectives regarding CEO compensation and evaluation of the CEO’s performance in light of those goals and objectives.

•     Non-CEO executive officer compensation.

•     Cash and equity compensation for directors.

•     Incentive compensation and equity-based plans that are subject to Board approval.

•     Grants of awards under bonus, option or other incentive plans required to comply with applicable tax laws.

•     Employment agreements and severance benefit agreements with the CEO and executive officers, as applicable.

•     Related person transactions of a compensatory nature.

Nominating & Corporate

Governance Committee

 

Maurice E. Purnell, Jr. (Chair)

Ralph W. Clark

Richard T. Fisher

Joseph W. McClanathan

Judy C. Odom

 

Meetings in 2011: 2

  

The N&CG Committee assists the Board in the oversight of:

•     Corporate governance principles, policies and procedures.

•     Identifying qualified candidates for Board membership and recommending director nominees.

•     Director independence and related person transactions.

Board’s Oversight of Risk Management

The Audit Committee is responsible for oversight of our guidelines and policies to assess and manage risk. The Company’s CEO and other senior management are responsible for assessing and managing various risk exposures on a day-to-day basis. In 2003, we established the Enterprise Risk Management Committee (the “ERM Committee”) which is currently comprised of 13 executives and chaired by our CFO. The ERM Committee adopted guidelines by which the Company identifies, assesses, monitors and reports financial and non-financial risks material to the Company. The ERM Committee meets regularly throughout the year and provides an annual report to senior management and the Audit Committee of (i) the likelihood and significance of risks, (ii) the policies and guidelines regarding risk assessment and management, (iii) management’s steps to monitor and control risks, and (iv) an evaluation of the process. The Audit Committee reviews and discusses the report with management and the independent auditor.

 

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An overall review of risk is inherent in the Board’s consideration of the Company’s strategies and other matters. In furtherance of this review, our CFO updates other senior managers and the entire Board every quarter on notable activities of the ERM Committee.

The Compensation Committee’s oversight of executive officer compensation, including the assessment of compensation risk for executive officers, is detailed in the Compensation Discussion & Analysis section on page 30. The Committee also assesses our compensation structure for employees generally and has concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. The following factors contributed to this determination:

   

We use a common annual incentive plan across all business units.

   

We use a combination of short-term and long-term incentive rewards that are tied to different measures of performance.

   

Our annual incentive plan and our omnibus equity plan contain clawback provisions that enable the Committee to recoup incentive payments.

   

Our employees below key management levels have a small percentage of their total pay in variable compensation.

   

We promote an employee ownership culture to better align employees with shareholders, with approximately 3,200 employees contributing their own funds to purchase Company stock under various stock purchase plans.

Compensation Committee Interlocks and Insider Participation

No Compensation Committee member had an interlocking relationship as described in Item 407(e)(4) of Regulation S-K.

Consideration of Director Nominees and Diversity

The Nominating & Corporate Governance Committee is responsible for identifying and evaluating qualified candidates for election to the Board of Directors. Following its evaluation, the N&CG Committee recommends to the full Board a slate of director candidates for inclusion in the Company’s proxy statement and proxy card. This procedure is posted on the Company’s website at www.leggett-search.com/governance.

In the case of incumbent directors, the N&CG Committee reviews each director’s overall service during his or her current term, including the number of meetings attended, level of participation, quality of performance, and any transactions between the director and the Company. The Company’s Bylaws and Corporate Governance Guidelines set the director retirement age at 72; however, the Board Chair, CEO or President may request a waiver for any director. At the request of Leggett’s CEO, the N&CG Committee recommended, and the full Board granted, retirement age waivers for Mr. Enloe, Mr. Fisher and Mr. Purnell so they may stand for re-election at the 2012 annual meeting.

In the case of new director candidates, the N&CG Committee first determines whether the nominee must be independent under NYSE rules, then identifies any special needs of the Board. The N&CG Committee will consider individuals recommended by Board members, Company management, shareholders and, if it deems appropriate, a professional search firm.

The Board of Directors may also consider candidates to fill a vacancy in the Board outside of the annual shareholder meeting process. The N&CG Committee will use the same criteria as are used to evaluate a director nominee to be elected by shareholders. In the event of a vacancy to be filled by the Board, the N&CG Committee will recommend one or more candidates for election and proxies will not be solicited.

The N&CG Committee seeks to identify and recruit the best available candidates. Qualified candidates will be considered without regard to race, color, religion, sex, ancestry, national origin or disability. The N&CG Committee believes director candidates should have the following minimum qualifications:

   

Character and integrity.

   

A commitment to the long-term growth and profitability of the Company.

 

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A willingness and ability to make a sufficient time commitment to the affairs of the Company in order to effectively perform the duties of a director, including regular attendance at Board and committee meetings.

   

Significant business or public experience relevant and beneficial to the Board and the Company.

In addition to the minimum qualifications described above, the N&CG Committee may also consider the following factors in evaluating candidates for recommendation to the Board:

   

Present and anticipated needs of the Board for particular experience or expertise and whether the candidate would satisfy those needs.

   

Requirement for the Board to have a majority of independent directors and whether the candidate would be considered independent.

   

Whether the candidate would be considered an “audit committee financial expert” or “financially literate” as described in NYSE listing standards, SEC rules and the Audit Committee charter.

   

Accomplishments of each candidate in his or her field.

   

Outstanding professional and personal reputation.

   

Relevant experience, including experience at the strategy/policy setting level, high level managerial experience in a complex organization, industry experience, and familiarity with the products and processes used by the Company.

   

Ability to exercise sound business judgment.

   

Breadth of knowledge about issues affecting the Company.

   

Ability and willingness to contribute special competencies to Board activities.

   

A willingness to assume broad fiduciary responsibility.

   

Fit with the Company’s culture.

Following the N&CG Committee’s initial review of a candidate’s qualifications, one or more N&CG Committee members will interview the candidate. The N&CG Committee may arrange subsequent interviews with the Board Chair and/or members of the Company’s management. The N&CG Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, for candidates recommended by a shareholder.

Shareholders who wish to recommend candidates for the N&CG Committee’s consideration must submit a written recommendation to the Secretary of the Company at No. 1 Leggett Road, Carthage, MO 64836. Recommendations must be sent by certified or registered mail and received by December 15th for the N&CG Committee’s consideration for the following year’s annual meeting of shareholders. Recommendations must include the following:

   

Shareholder’s name, number of shares owned, length of period held, and proof of ownership.

   

Candidate’s name, address, phone number and age.

   

A resume describing, at a minimum, the candidate’s educational background, occupation, employment history, and material outside commitments (memberships on other boards and committees, charitable foundations, etc.).

   

A supporting statement which describes the shareholder’s and candidate’s reasons for nomination to the Board of Directors and documents the candidate’s ability to satisfy the director qualifications described above.

   

The candidate’s consent to a background investigation.

   

The candidate’s written consent to stand for election if nominated by the Board and to serve if elected by the shareholders.

   

Any other information that will assist the N&CG Committee in evaluating the candidate in accordance with this procedure.

The Corporate Secretary will promptly forward these materials to the N&CG Committee Chair and the Board Chair. The N&CG Committee may contact recommended candidates to request additional information necessary for its evaluation or for disclosure under applicable SEC rules.

Separate procedures apply if a shareholder wishes to nominate a director candidate for election at a meeting of shareholders. Those procedures, contained in our bylaws, are discussed in the Question and Answer section on page 4.

 

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Although the N&CG Committee does not have a formal policy concerning its consideration of diversity in identifying director nominees, as the foregoing description of the N&CG Committee’s procedure for identifying and evaluating director candidates shows, the N&CG Committee develops the Board’s diversity by seeking candidates with business and public experience relevant to the Board’s current and anticipated needs as well as Leggett’s businesses. The N&CG Committee seeks to identify and recruit the best available candidates, without regard to race, color, religion, sex, ancestry, national origin or disability.

Transactions with Related Persons

According to the Corporate Governance Guidelines, the N&CG Committee reviews and approves or ratifies transactions in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest. If the transaction with related person concerns compensation, the review of the transaction falls to the Compensation Committee.

The Company’s executive officers and directors are expected to notify the Company’s Corporate Secretary of any current or proposed transaction that may be a related person transaction. The Corporate Secretary will determine if it is a related person transaction and, if so, will include it for consideration at the next meeting of the appropriate Committee. Approval should be obtained in advance of a related person transaction whenever practicable. If it becomes necessary to approve a related person transaction between meetings, the Chair of the appropriate Committee is authorized to act on behalf of the Committee. The Chair will provide a report on the matter to the full Committee at its next meeting.

The full policy for reviewing transactions with related persons, including categories of pre-approved transactions, is found in our Corporate Governance Guidelines (available on Leggett’s website at http://www.leggett-search.com/governance/corporate-governance-guidelines.asp).

Each of the following transactions was approved in accordance with our Corporate Governance Guidelines.

   

We buy shares of our common stock from our employees from time to time. In 2011 and early 2012, we purchased shares from eight of our officers: 125,142 shares from David Haffner for a total of $3,299,970; 17,782 shares from Karl Glassman for $467,464; 40,000 shares from Matthew Flanigan for $978,355; 12,000 shares from Jack Crusa for $299,470; 16,000 shares from Joseph Downes for $420,615; 72,068 shares from Paul Hauser for $1,599,164; 5,000 shares from Dennis Park for $118,125; and 8,169 shares from John Moore for $185,016. All employees, including executive officers, pay a $25 administrative fee for each transaction. If the Company agrees to purchase stock before noon, the purchase price is the closing stock price on the prior business day; if the agreement is made after noon, the purchase price is the closing stock price on the day of purchase.

   

The Company employs certain relatives of its directors and executive officers, but only one had total compensation in excess of the $120,000 related person transaction threshold: Bren Flanigan, Director of Business Development – Industrial Materials, the brother of CFO Matt Flanigan, was hired in May 2011 and has an annual salary of $136,500 with a 25% annual incentive target.

Director Compensation

Our non-employee directors receive an annual retainer, consisting of a mix of cash and restricted stock as set forth below. Our employee directors (Mr. Haffner, Mr. Glassman and Mr. Flanigan) do not receive additional compensation for their Board service. Directors may elect to receive restricted stock units (“RSUs”) instead of restricted stock.

 

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Electing RSUs enables directors to defer receipt of the shares for 2 to 10 years while accruing dividend equivalents at a 20% discount to market price over the deferral period. The restricted stock and RSUs vest one year after the grant date.

 

Item

   Amount  

Cash Compensation

  

Director Retainer (Non-Employee)

     $50,000   

Audit Committee Retainer

  

Chair

     18,000   

Member

     8,000   

Compensation Committee Retainer

  

Chair

     15,000   

Member

     6,000   

N&CG Committee Retainer

  

Chair

     10,000   

Member

     5,000   

Equity Compensation—Restricted Stock or RSUs

  

Independent Chair Retainer (including director retainer)

     290,000   

Director Retainer

     125,000   

The Compensation Committee reviews director compensation every year and recommends any changes to the full Board for consideration at its May meeting. The Committee considers national survey data and trends but does not target director compensation to any specific percentage of the median. In light of these considerations, the Compensation Committee recommended, and the Board approved, increasing the directors’ equity retainer by $15,000 and the independent chair’s equity retainer by $15,000. No change was made to the cash retainers for directors, committee members or the committee chairs. In addition, the stock ownership requirement for outside directors was increased from 3X to 4X their annual cash retainer.

Our non-employee directors’ 2011 compensation is set forth in the following table. Directors may elect to defer their cash compensation into a cash deferral arrangement, stock options or stock units under the Company’s Deferred Compensation Program, described on page 38. We also pay for all travel expenses the directors incur to attend Board meetings.

Director Compensation in 2011

 

Director

   Fees Earned
or Paid  in
Cash

(1)
     Stock
Awards
(2)
     Non-Qualified
Deferred
Compensation
Earnings (3)
     All Other
Compensation
(4)
     Total  

Robert E. Brunner

     $64,000         $125,000            $5,076         $194,076   

Ralph W. Clark

     55,000         125,000         $4,241         15,973         200,214   

R. Ted Enloe, III

     65,000         125,000         4,998         21,381         216,379   

Richard T. Fisher

     69,000         290,000         440         18,484         377,924   

Ray A. Griffith

     58,000         125,000         988         20,897         204,885   

Joseph W. McClanathan

     69,000         125,000            5,076         199,076   

Judy C. Odom

     79,000         125,000         1,369         12,859         218,228   

Maurice E. Purnell, Jr.

     60,000         125,000         2,057         13,306         200,363   

Phoebe A. Wood

     64,000         125,000         5,870         38,623         233,493   

(1) These amounts include cash compensation deferred into stock units under our Deferred Compensation Program. Mr. Fisher deferred 20% of his cash compensation ($13,800); Mr. Griffith deferred 100% ($58,000); Ms. Odom deferred 25% ($19,750); and Ms. Wood deferred 100% ($64,000).

 

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(2) These amounts reflect the grant date fair value of the annual restricted stock or RSU awards, which was $125,000 for each director except Mr. Fisher, who received a restricted stock award of $290,000 for his service as the Board Chair. For a description of the assumptions used in calculating the grant date fair value, see Note L of the Company’s Annual Report on Form 10-K for the year ending December 31, 2011.

 

(3) These amounts include above-market interest accrued on cash deferrals and the 20% discount on dividends paid on stock units acquired under our Deferred Compensation Program and RSUs.

 

(4) Items in excess of $10,000 that are included in the total reported in this column consist of (i) dividends paid on the annual restricted stock or RSU awards and dividends paid on stock units acquired under our Deferred Compensation Program: Mr. Clark—$15,973, Mr. Enloe—$19,990, Mr. Fisher—$13,643, Mr. Purnell—$13,306, and Ms. Wood—$22,623; and (ii) the premium on stock units purchased with deferred cash compensation: Mr. Griffith—$14,500 and Ms. Wood—$16,000.

Seven of our non-employee directors held outstanding stock options as of December 31, 2011 as described in the following table. Options that were granted in lieu of cash compensation under our Deferred Compensation Program are listed separately in the “DC Options” column.

 

Director

   Options      DC
Options
     Total  

Ralph W. Clark

     9,128         4,338         13,466   

R. Ted Enloe, III

     19,825         21,168         40,993   

Richard T. Fisher

     8,025            8,025   

Joseph W. McClanathan

     1,454            1,454   

Judy C. Odom

     6,007         5,076         11,083   

Maurice E. Purnell, Jr.

     24,376            24,376   

Phoebe A. Wood

     976            976   

The non-employee directors held unvested stock or stock units as of December 31, 2011 as set forth below. These restricted stock shares and RSUs will vest on May 11, 2012.

 

Director

   Restricted
Stock
     Restricted
Stock
Units
 

Robert E. Brunner

     4,786      

Ralph W. Clark

        4,933   

R. Ted Enloe, III

        4,933   

Richard T. Fisher

     11,103      

Ray A. Griffith

        4,933   

Joseph W. McClanathan

     4,786      

Judy C. Odom

        4,933   

Maurice E. Purnell, Jr.

     4,786      

Phoebe A. Wood

        4,933   

 

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PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING

1

PROPOSAL ONE:    Election of Directors

At the annual meeting, 12 directors are nominated to hold office until the next annual meeting of shareholders or until their successors are elected and qualified. All the director nominees have been previously elected by our shareholders. If any nominee named below is unable to serve as a director (an event the Board does not anticipate), the proxy will be voted for a substitute nominee, if any, designated by the Board. Our employment agreements with Mr. Haffner and Mr. Glassman provide that they may terminate their agreements if not re-elected as directors (see page 51 for a description of the agreements).

In recommending the slate of director nominees, our Board has chosen individuals of character and integrity, with a commitment to the long-term growth and profitability of the Company. Each of the nominees brings significant business or public experience relevant and beneficial to the Board and the Company, as well as a work ethic and disposition that foster the collegiality necessary for the Board and its committees to function efficiently and best represent the interests of our shareholders.

 

   

LOGO

 

Robert E. Brunner

Independent Director since 2009

 

Committees:

Audit

Compensation

 

Age:  54

  

Professional Experience:

 

Mr. Brunner was the Executive Vice President of Illinois Tool Works (ITW), a diversified manufacturer of advanced industrial technology, from 2006 until his retirement was announced in 2011. He previously served ITW as President—Global Auto beginning in 2005 and President—North American Auto from 2003.

 

Education:

 

Mr. Brunner holds a degree in finance from the University of Illinois and an MBA from Baldwin-Wallace College.

 

Public Company Boards:

 

Mr. Brunner currently serves as a director of NN, Inc., a global manufacturer of precision bearings and plastic, rubber and metal components.

 

Director Qualifications:

 

Mr. Brunner’s experience and leadership with ITW, a diversified manufacturer with a global footprint, provides valuable insight to our Board on operational and international issues.

LOGO

 

Ralph W. Clark

Independent Director since 2000

 

Committees:

Nominating & Corporate Governance

 

Age:  71

  

Professional Experience:

 

Mr. Clark has held various executive positions at International Business Machines Corporation (IBM) from 1988 until 1994, including Division President—General and Public Sector. He also served as Chairman of Frontec AMT Inc., a software company, from 1994 until his retirement in 1998 when the company was sold.

 

Education:

 

Mr. Clark holds a master’s degree in economics from the University of Missouri.

 

Director Qualifications:

 

Through Mr. Clark’s career with IBM and Frontec and his current board service with privately-held companies, he has valuable experience in general management, marketing, information technology, finance and strategic planning.

 

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LOGO

R. Ted Enloe, III

Independent Director since 1969

 

Committees:

Compensation, Chair

 

Age:  73

  

Professional Experience:

 

Mr. Enloe has been Managing General Partner of Balquita Partners, Ltd., a family securities and real estate investment partnership, since 1996. Previously, he served as President and Chief Executive Officer of Optisoft, Inc., a manufacturer of intelligent traffic systems, from 2003 to 2005. His former positions include Vice Chairman of the Board and member of the Office of the Chief Executive for Compaq Computer Corporation and President of Lomas Financial Corporation and Liberte Investors.

 

Education:

 

Mr. Enloe holds a degree in petroleum engineering from Louisiana Polytechnic University and a law degree from Southern Methodist University.

 

Public Company Boards:

 

Mr. Enloe currently serves as a director of Silicon Laboratories Inc., a designer of mixed-signal integrated circuits, and Live Nation, Inc., a venue operator, promoter and producer of live entertainment events.

 

Director Qualifications:

 

Mr. Enloe’s professional background and experience, previously held senior-executive level positions, financial expertise and service on other company boards, qualifies him to serve as a member of our Board of Directors. Further, his wide-ranging experience combined with his intimate knowledge of the Company from over 40 years on the Board provides an exceptional mix of familiarity and objectivity.

LOGO

Richard T. Fisher

Independent Director since 1972

 

Committees:

Audit

Compensation

Executive, Chair

Nominating & Corporate Governance

 

Age:  73

  

Professional Experience:

 

Mr. Fisher has been Senior Managing Director of Oppenheimer & Co., an investment banking firm, since 2002. He served as Managing Director of CIBC World Markets Corp., an investment banking firm, from 1990 to 2002.

 

Education:

 

Mr. Fisher holds a degree in economics from the Wharton School of the University of Pennsylvania.

 

Director Qualifications:

 

Mr. Fisher’s career in investment banking provides the Board with a unique perspective on the Company’s strategic initiatives, financial outlook and investor markets. His valuable business skills and long-term perspective of the Company bolster his leadership as the Company’s independent Board Chair. He has served as the independent Board Chair since 2008.

 

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LOGO

Matthew C. Flanigan

Management Director since 2010

 

Committees:

None

 

Age:  50

  

Professional Experience:

 

Mr. Flanigan was appointed Senior Vice President—Chief Financial Officer of the Company in 2005. He previously served the Company as Vice President—Chief Financial Officer from 2003 to 2005, President of the Office Furniture Components Group from 1999 to 2003, and in various capacities since 1997.

 

Education:

 

Mr. Flanigan holds a degree in finance and business administration from the University of Missouri.

 

Public Company Boards:

 

Mr. Flanigan serves as a director of Jack Henry Associates, Inc., a provider of core information processing solutions for financial institutions.

 

Director Qualifications:

 

As the Company’s CFO, Mr. Flanigan adds valuable knowledge of the Company’s finance, risk and compliance functions to the Board. In addition, his prior experience as one of the Company’s group presidents provides valuable operations insight.

LOGO

Karl G. Glassman

Management Director since 2002

 

Committees:

None

 

Age:  53

  

Professional Experience:

 

Mr. Glassman was appointed Chief Operating Officer of the Company in 2006 and Executive Vice President in 2002. He previously served the Company as President of the Residential Furnishings Segment from 1999 to 2006, Senior Vice President from 1999 to 2002, President of Bedding Components from 1996 to 1998, and in various capacities since 1982.

 

Education:

 

Mr. Glassman holds a degree in business management and finance from California State University—Long Beach.

 

Director Qualifications:

 

With over two decades experience leading the Company’s largest segment and serving as its Chief Operating Officer, Mr. Glassman provides in-depth operational knowledge to the Board and is a key interface between the Board’s oversight and strategic planning and its implementation at all levels of the Company around the world. Mr. Glassman also serves on the Board of Directors of the National Association of Manufacturers.

 

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LOGO

Ray A. Griffith

Independent Director since 2010

 

Committees:

Audit

 

Age:  58

  

Professional Experience:

 

Mr. Griffith has been the President and Chief Executive Officer of Ace Hardware Corporation, the largest hardware cooperative in the United States, since 2005. He was previously the Executive Vice President and Chief Operating Officer of Ace from 2004 to 2005, the Executive Vice President—Retail from 2000 to 2004, and served Ace in various capacities since 1994.

 

Education:

 

Mr. Griffith holds a degree in marketing and finance from Southern Illinois University.

 

Director Qualifications:

 

As CEO of Ace, Mr. Griffith has significant leadership and operations experience, while adding valuable retailing, consumer marketing, sourcing and distribution knowledge to the Board.

LOGO

David S. Haffner

Management Director since 1995

 

Committees:

Executive

 

Age:  59

  

Professional Experience:

 

Mr. Haffner was appointed Chief Executive Officer of the Company in 2006 and has served as President of the Company since 2002. He previously served as the Company’s Chief Operating Officer from 1999 to 2006, Executive Vice President from 1995 to 2002, and in various capacities since 1983.

 

Education:

 

Mr. Haffner holds a degree in engineering from the University of Missouri and an MBA from the University of Wisconsin—Oshkosh.

 

Public Company Boards:

 

Mr. Haffner serves as a director of Bemis Company, Inc., a manufacturer of flexible packaging and pressure sensitive materials.

 

Director Qualifications:

 

As the Company’s CEO, Mr. Haffner provides comprehensive insight to the Board across the spectrum from strategic planning to implementation to execution and reporting, as well as its relationships with investors, the finance community and other key stakeholders.

 

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LOGO

Joseph W. McClanathan

Independent Director since 2005

 

Committees:

Audit

Compensation

Nominating & Corporate Governance

 

Age:  59

  

Professional Experience:

 

Mr. McClanathan served as President and Chief Executive Officer of the Energizer Household Products Division of Energizer Holdings, Inc., a manufacturer of portable power solutions, from 2007 through his pending retirement in May 2012. Previously, he served Energizer as President and Chief Executive Officer of the Energizer Battery Division from 2004 to 2007, as President—North America from 2002 to 2004, and as Vice President–North America from 2000 to 2002.

 

Education:

 

Mr. McClanathan holds a degree in management from Arizona State University.

 

Director Qualifications:

 

Through his leadership experience at Energizer and as a director of the Retail Industry Leaders Association, Mr. McClanathan offers an exceptional perspective to the Board on manufacturing operations, marketing and development of international capabilities.

LOGO

Judy C. Odom

Independent Director since 2002

 

Committees:

Audit, Chair

Compensation

Nominating & Corporate Governance

 

Age:  59

  

Professional Experience:

 

Until her retirement in 2002, Ms. Odom was Chief Executive Officer and Chairman of the Board at Software Spectrum, Inc., a global business to business software services company, which she co-founded in 1983. Prior to founding Software Spectrum, she was a partner with the international accounting firm, Grant Thornton.

 

Education:

 

Ms. Odom is a licensed Certified Public Accountant and holds a degree in business administration from Texas Tech University.

 

Public Company Boards:

 

Ms. Odom is a director of Harte-Hanks, a direct marketing service company.

 

Director Qualifications:

 

Ms. Odom’s director experience with several companies offers a broad leadership perspective on strategic and operating issues. Her experience co-founding Software Spectrum and growing it to a global Fortune 1000 enterprise before selling it to another public company provides the insight of a long-serving CEO with international operating experience.

 

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LOGO

Maurice E. Purnell, Jr.

Independent Director since 1988

 

Committees:

Executive

Nominating & Corporate Governance, Chair

 

Age:  72

  

Professional Experience:

 

Mr. Purnell was Of Counsel to the law firm of Locke Lord Bissell & Liddell LLP, or its predecessor firm, from 2002 until his retirement in 2010. Previously, he had been a partner of that firm since 1972.

 

Education:

 

Mr. Purnell holds a degree in history from Washington & Lee University, an MBA from the Wharton School of the University of Pennsylvania and a law degree from Southern Methodist University.

 

Director Qualifications:

 

With over 40 years of experience in securities law, financing and acquisitions in his corporate law practice, Mr. Purnell is well suited to advise the Board on business and compliance matters and chair our Nominating & Corporate Governance Committee.

LOGO

Phoebe A. Wood

Independent Director since 2005

 

Committees:

Audit

Compensation

 

Age:  58

  

Professional Experience:

 

Ms. Wood has been a principal in CompaniesWood, a consulting firm specializing in early stage investments, since her 2008 retirement as Vice Chairman and Chief Financial Officer of Brown-Forman Corporation, a diversified consumer products manufacturer, where she served since 2001. Ms. Wood previously held various positions at Atlantic Richfield Company, an oil and gas company, from 1976 to 2000.

 

Education:

 

Ms. Wood holds a degree in psychology from Smith College and an MBA from UCLA.

 

Public Company Boards:

 

Ms. Wood is a director of Invesco, Ltd., an independent global investment manager, and Coca-Cola Enterprises, Inc., a major bottler and distributor of Coca-Cola products.

 

Director Qualifications:

 

From her career in business and various directorships, Ms. Wood provides the Board with a wealth of understanding of the strategic, financial and accounting issues the Board faces in its oversight role.

 

The Board recommends that you vote FOR the election of each of the director nominees.

 

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2

PROPOSAL TWO:    Ratification of Selection of Independent Registered Public Accounting Firm

The Audit Committee has selected PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012. PwC (or its predecessor firm) has been our independent registered public accounting firm since 1991.

We are asking our shareholders to ratify the Audit Committee’s selection of PwC as our independent registered public accounting firm. Although ratification is not required by the Company’s bylaws or otherwise, the Board is submitting the selection of PwC to our shareholders for ratification as a matter of good corporate practice. If our shareholders fail to ratify the selection, it will be considered a direction to the Audit Committee to consider a different firm. Even if this selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change is in the best interest of the Company and our shareholders.

PwC representatives are expected to be present at the annual meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate shareholder questions.

 

The Board recommends that you vote FOR  the ratification of PwC as independent registered public accounting  firm.

Audit and Non-Audit Fees

The fees billed or expected to be billed by PwC for professional services rendered in fiscal years 2011 and 2010 are shown below.

 

Type of Service

   2011      2010  

Audit Fees (1)

     $1,615,898         $1,651,875   

Audit-Related Fees (2)

     0         97   

Tax Fees (3)

     574,114         391,035   

All Other Fees (4)

     0         613   
  

 

 

    

 

 

 

Total

     $2,190,012         $2,043,620   

(1) Includes: rendering an opinion on the Company’s consolidated financial statements and the effectiveness of internal control over financial reporting; quarterly reviews of our financial statements; statutory audits as required; comfort and debt covenant letters; and services in connection with securities regulatory filings.

 

(2) Includes: consulting on accounting and financial reporting issues; limited procedures reports related to agreements or arbitrations; continuing professional education; audits of employee benefit plans and subsidiaries; and due diligence and audit procedures related to acquisitions and joint ventures.

 

(3) Includes: preparation and review of tax returns and tax filings; tax consulting and advice related to compliance with tax laws; tax planning strategies; and tax due diligence related to acquisitions and joint ventures. Of the tax fees listed above in 2011, $198,047 relate to compliance services and $376,067 relate to consulting and planning services.

 

(4) Includes: use of an internet-based accounting research tool provided by PwC.

The Audit Committee has determined that the provision of these approved non-audit services by PwC is compatible with maintaining PwC’s independence.

 

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Pre-Approval Procedures for Audit and Non-Audit Services

The Audit Committee is responsible for the appointment and compensation of the Company’s independent registered public accounting firm. To fulfill this responsibility, the Audit Committee has established a procedure for pre-approving the services performed by the Company’s auditors. All services provided by PwC in 2011 were approved in accordance with the adopted procedures. There were no services provided or fees paid in 2011 for which the pre-approval requirement was waived.

The procedure provides standing pre-approval for:

   

Audit Services—rendering an opinion on the Company’s financial statements and the effectiveness of internal control over financial reporting; quarterly reviews of the Company’s financial statements; statutory audits as required; comfort and debt covenant letters; and services in connection with regulatory filings.

   

Audit-Related Services—consultation on new or proposed transactions, statutory requirements, or accounting principles; reports related to contracts, agreements, arbitration, or government filings; continuing professional education; audits of employee benefit plans and subsidiaries; and due diligence and audits related to acquisitions and joint ventures.

   

Tax Services—preparation and review of Company and related entity income, sales, payroll, property, and other tax returns and tax filings and permissible tax audit assistance; preparation or review of expatriate and similar employee tax returns and tax filings; tax consulting and advice related to compliance with applicable tax laws; tax planning strategies and implementation; and tax due diligence related to acquisitions and joint ventures.

Any other audit, audit-related, or tax services provided by the Company’s auditors require specific Audit Committee pre-approval. The Audit Committee must also specifically approve in advance all permissible non-audit internal control related services to be performed by the Company’s auditors. Management provides quarterly reports to the Audit Committee concerning any fees paid to the auditors for their services.

Audit Committee Report

The Audit Committee is composed of six non-management directors who are independent as required by SEC and NYSE rules. The Audit Committee operates under a written charter adopted by the Board which is posted on the Company’s website at www.leggett-search.com/governance.

Management is responsible for the Company’s financial statements and financial reporting process, including the system of internal controls. PwC, our independent registered public accounting firm is responsible for expressing an opinion on the conformity of the audited consolidated financial statements with generally accepted accounting principles. The Audit Committee is responsible for monitoring, overseeing and evaluating these processes, providing recommendations to the Board regarding the independence of and risk assessment procedures used by our independent registered public accounting firm, selecting and retaining our independent registered public accounting firm, and overseeing compliance with various laws and regulations.

At its meetings, the Audit Committee reviewed and discussed the Company’s audited financial statements with management and PwC. The Audit Committee also discussed with PwC all items required by AICPA Professional Auditing Standards—Section 380—The Auditor’s Communication with Those Charged with Governance.

The Audit Committee received the written disclosures and letter from PwC required by applicable requirements of the Public Company Accounting Oversight Board regarding PwC’s communications with the Audit Committee concerning independence and has discussed PwC’s independence with them.

The Audit Committee has relied on management’s representation that the financial statements have been prepared in conformity with generally accepted accounting principles and on the opinion of PwC included in their report on the Company’s financial statements.

 

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Based on the review and discussions with management and PwC referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s 2011 Annual Report on Form 10-K.

Judy C. Odom (Chair)

Robert E. Brunner

Richard T. Fisher

Ray A. Griffith

Joseph W. McClanathan

Phoebe A. Wood

3

PROPOSAL THREE:    Approval of the Amendment and Restatement of the Flexible Stock Plan

We are asking shareholders to approve the amended and restated Flexible Stock Plan (the “Plan”), last approved by our shareholders in 2010 (the “2010 Plan”). The Plan provides for the award of stock based benefits to attract and retain valuable employees, directors and other key individuals, align the interests of participants with shareholders, and reward outstanding performance. At its meeting on February 23, 2012, the Board of Directors recommended the approval of the amended and restated Plan (the “2012 Restatement”).

As of March 5, 2012, there were 17,128,295 shares potentially issuable under previously granted options and other awards and 1,764,803 shares remained available under the 2010 Plan. If shareholders approve the 2012 Restatement, the current 1.8 million shares available for grant will increase by 10.7 million shares for a total of approximately 12.5 million shares available for grant under the Plan.

The 2012 Restatement changes the way awards granted under the Plan are charged against the number of available shares. Under the 2012 Restatement, each option or stock appreciation right (“SAR”) will count as one share against the shares available under the Plan, but each share granted for any other awards will count as three shares against the Plan. This fungible plan design, in which the shares under the Plan can be used for all types of awards, provides our Compensation Committee flexibility to design equity compensation plans and grant awards that motivate our employees and build shareholder value.

Shareholder approval of the 2012 Restatement will constitute approval of the material terms of the Plan, including the performance criteria contained in the Plan, to enable the Company to satisfy Section 162(m) of the Internal Revenue Code (the “Code”). This allows amounts paid under the Plan to our executive officers to be tax deductible. If our shareholders fail to approve the 2012 Restatement, the 2010 Plan will continue as in effect prior to its amendment and restatement.

While we have tax-qualified stock purchase plans for employees generally, the Flexible Stock Plan is our only vehicle for granting non-qualified equity benefits. The Plan’s flexible design permits equity awards to be tailored to the needs of the Company and to comply with changing tax and regulatory environments.

How We Use Stock Compensation

We have encouraged and promoted employee stock ownership at all levels of the Company for many years. In 2011, more than 3,200 employees purchased Leggett stock through payroll contributions or deferrals of cash compensation. The Board’s Compensation Committee has weighted our executives’ compensation heavily toward performance-based Leggett equity, and those programs are administered through the Plan.

Performance Stock Units. Leggett’s long-term strategic plan emphasizes the Company’s Total Shareholder Return (“TSR”) performance versus peer companies. For the past five years, we have granted performance stock unit awards (“PSUs”) as a primary component of our senior executives’ compensation to drive and reward those results. The PSUs vest at the end of a 3-year performance period based on Leggett’s TSR relative to a peer group of about 320 companies.

 

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Stock Options. We grant non-qualified stock options (“NQSOs”) annually to a broad group of employees. These options are granted with an exercise price equal to the closing price of the Company’s common stock on the grant date. Options vest and become exercisable in three annual installments beginning 18 months after the grant date and have a 10-year term. As of March 5, 2012, the closing price of the Company’s common stock was $22.68.

In 2011, we offered two option choice programs to the recipients of these broad-based grants (excluding our Section 16 officers and other employees receiving PSUs). One group of employees could choose between the option grant and a cash payment equal to approximately one-half of the Black-Scholes value of the options. Another group of employees, generally in higher-level positions, were offered a choice between stock options or restricted stock units (“RSUs”), on a ratio of one RSU for every four options foregone. These time-based RSUs vest in one-third increments at 12, 24 and 36 months after the grant date.

Deferred Compensation. Leggett had nearly 100 managers eligible for the Deferred Compensation Program in 2011, and they collectively deferred approximately $4.6 million of their cash compensation into stock units. Stock units and reinvested dividends are acquired at a 20% discount to the market price of Company stock.

Retirement. We also use shares from the Plan for our executives’ primary retirement plan, the Executive Stock Unit Program (the “ESU Program”). Executives contribute up to 10% of their cash compensation above a certain threshold into diversified investments in their accounts, which are held until they retire or terminate employment. The Company matches 50% of the executives’ contributions in stock units at a 15% discount to the market price of Company stock, with the potential for an additional 50% match if the Company meets certain performance targets.

Directors. Our non-employee directors receive a portion of their annual compensation in restricted stock. On the date of the annual meeting of shareholders, each non-employee director receives restricted stock with a grant date value of $125,000 (except the Board Chair, whose award value is $290,000). The restricted stock vests one year after the grant date. Directors may also participate in the Deferred Compensation Program described above.

Burn Rate and Overhang

We believe we have been judicious in our use of stock previously authorized by shareholders under the Plan, and we are committed to closely monitoring share usage. Two common measures of a stock plan’s cost are known as “burn rate” and “overhang.”

Burn rate refers to how fast a company uses the supply of shares authorized for issuance under its stock plan. Over the last three years, we have maintained an average burn rate of 1.34% per year. We calculate burn rate as (i) options granted during each year, minus forfeited or terminated options, plus (ii) full value awards vested during each year, as a percentage of the weighted average common shares outstanding.

Burn Rate

 

Year

   Options
(1)
     Full
Value Awards

(2)
     Total
Awards
Granted
     Weighted
Average Shares
Outstanding
     Burn
Rate
 

2011

     776,660         1,649,365         2,426,025         145,412,069         1.67

2010

     779,270         956,243         1,735,513         151,225,065         1.15

2009

     431,296         1,355,872         1,787,168         159,331,228         1.12
              

 

 

 

3-year average

  

     1.31

(1) Options granted during the year, minus forfeited or terminated options.

 

(2) Full value awards include stock units under the Deferred Compensation Program and ESU Program, restricted stock, RSUs, and PSUs vested during the year.

 

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Overhang measures the degree to which our shareholders’ ownership may be diluted by stock based compensation awarded under the Plan. Overhang is calculated by dividing the current stock awards outstanding by the current common shares outstanding.

Overhang

 

     11,714,025      Options Outstanding:
    

Weighted Average Exercise Price: $20.69

    

Weighted Average Term: 5.5 years

     5,414,270      Full-Value Awards Outstanding (2,643,288 held in the ESU Program)
  

 

 

   
     17,128,295      Total Awards Outstanding

Divided by

     140,044,260      Common Shares Outstanding
  

 

 

   
     12.2   Overhang as of March 5, 2012

Several factors influence our overhang percentage:

   

Because the ESU Program is a retirement program, stock units continue to accrue in employee accounts until the employee retires or terminates employment. We recognize that the long-term design of this plan increases our overhang (ESU holdings make up 49% of our outstanding full value shares), but we believe this program serves shareholders well by tying an important element of key employees’ compensation to the Company’s stock.

   

The unvested shares for the PSU awards are reserved at the maximum 175% payout percentage (the 2009-2011 PSUs vested at 74%), and their 3-year vesting schedule means the past three annual grants count against our overhang. PSUs are a primary component of our senior executives’ compensation, and their TSR performance-based payout is intended to align the interests of our executives and our shareholders.

   

We have been actively repurchasing shares of our common stock. We repurchased 10 million shares in 2011, and have reduced our total shares outstanding by 22% in the last five years. Because share repurchases reduce the denominator in the overhang calculation, they increase our overhang percentage.

We are strongly committed to a culture of employee stock ownership. Accordingly, we believe the approval of the 2012 Restatement is critical to our ability to attract, retain and reward the caliber of employees necessary to achieve superior performance.

Description of the Plan

The following description of the Plan is qualified in its entirety by the full 2012 Restatement, attached as Appendix A. If approved by the Company’s shareholders, the 2012 Restatement will become effective as of May 10, 2012 (the “Effective Date”) and will continue in effect until the tenth anniversary of the Effective Date.

The Plan provides for awards to eligible participants in the form of stock options, stock appreciation rights (“SARs”), restricted stock, stock units, performance awards, other stock based awards and other awards (collectively, “Awards”).

Awards may be granted to (i) employees, (ii) non-employee directors, and (iii) individuals or entities providing services to the Company. The number of awards that may be granted to a participant under the Plan is in the discretion of the committee that administers the Plan (the “Committee”) and therefore cannot be determined in advance. See the Grants of Plan Based Awards in 2011 disclosure at page 45 for information regarding equity-based awards granted to our

 

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named executive officers. The following table shows the number of options received by our named executive officers and other groups under the 2010 Plan through March 5, 2012:

 

Name, Title

   Total Options
Granted
 

David S. Haffner, President and Chief Executive Officer

     267,100   

Karl G. Glassman, Executive Vice President and Chief Operating Officer

     200,350   

Matthew C. Flanigan, Senior Vice President—Chief Financial Officer

     97,550   

Paul R. Hauser, Senior Vice President, President—Residential Furnishings Segment

     40,225   

Joseph D. Downes, Jr., Senior Vice President, President—Industrial Materials Segment

     74,750   

All executive officers, as a group

     997,950   

All non-employee directors, as a group

     0   

Employees (excluding executive officers), as a group

     868,561   

Awards settled in cash do not reduce the number of shares available for grant. If an award expires or is terminated, canceled or forfeited, the shares covered by those awards will again be available for issuance under the Plan. The following shares will not become available for issuance under the Plan:

   

Shares tendered by participants as full or partial payment to the Company upon exercise of options granted under the Plan;

   

Shares reserved for issuance upon the grant of SARs, to the extent the number of reserved shares exceeds the number of shares actually issued upon exercise of the SARs; and

   

Shares withheld by, or otherwise remitted to, the Company to satisfy a participant’s tax withholding obligations upon the exercise of options or SARs granted under the Plan .

Under the 2012 Restatement’s fungible share feature, all shares available under the Plan after the Effective Date may be granted as any type of award. Each option or SAR awarded will count as one share against the shares available under the Plan, but each share granted under all other awards will count as three shares against the Plan. Up to one hundred percent of the shares available under the Plan may be granted as incentive stock options (“ISOs”).

The Plan includes a cap on awards to a participant during any year: 1,000,000 options or SARs, 1,000,000 full value awards, and $4,000,000 in awards that are not denominated in shares or determined by reference to a number of shares, to the extent they are granted with the intent that they qualify as performance-based compensation under Code Section 162(m).

Outstanding awards, as well as the number of shares reserved under the Plan and the maximum number of shares issuable to participants will be appropriately adjusted to reflect any stock split or similar change to the Company’s capital stock.

The Committee administering the Plan consists of at least two directors who are “non-employee directors” as defined in Rule 16b-3 of the 1934 Securities Exchange Act (the “Exchange Act”) and who are “outside directors” as defined in Code Section 162(m). Members of the Committee are appointed by the Board. The Committee has full authority and discretion to (i) select participants, (ii) determine the type, size, and conditions applicable to awards, (iii) determine to what extent awards may be settled in cash, shares, or other property, (iv) determine to what extent amounts payable from an award under the Plan may be deferred, either automatically or at the election of the participant, (v) interpret and administer the Plan and any agreement, and (vi) establish rules, appoint agents, and take any other action

 

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necessary or desirable for the administration of the Plan. The Committee may delegate all or any part of its authority under the Plan, except for grants to individuals who are subject to Section 16 of the Exchange Act or who are “covered employees” as defined by Code Section 162(m)(3).

The Board has the sole right and power to amend or terminate the Plan at any time, except that it may not amend the Plan, without approval of Company shareholders, in a manner that would cause ISOs to fail to qualify as such or in a manner which would violate applicable law. The amendment or termination of the Plan will not adversely affect a participant’s right to any outstanding awards.

In the event of a change in control of the Company (as defined in the Plan), the Committee may provide such protection as it deems necessary to maintain participants’ rights. The Committee may, among other things, (i) accelerate any time periods relating to the exercise or realization of awards, (ii) purchase an award, upon the participant’s request, for the amount which could have been attained upon the exercise or realization of the award had it been currently exercisable or payable, (iii) adjust outstanding awards as it deems appropriate to reflect such transaction, and (iv) cause outstanding awards to be assumed or substituted by the surviving corporation.

Description of Awards

Stock Options. A stock option is the right to acquire shares of common stock at a fixed exercise price for a fixed period of time not to exceed ten years. The option price per share cannot be less than the fair market value of the Company’s common stock on the grant date. Options cannot be exercised until they are vested, typically in three annual installments beginning 18 months after grant. All option terms and conditions will be determined by the Committee.

The Committee may grant options intended to qualify as ISOs pursuant to Section 422 of the Code, as well as NQSOs under the Plan. We currently do not grant ISOs and do not have any outstanding ISOs.

Stock Appreciation Rights. This gives a participant the right to receive, for each SAR exercised, an amount equal to the excess of the fair market value of a share of common stock on the date the SAR is exercised and the fair market value of a share on the date the SAR was granted. SARs may have terms up to ten years, may be settled in cash or in stock, as determined by the Committee, and are subject to the terms and conditions of the award document. We currently do not grant SARs.

Restricted Stock. These are awards of common stock, the grant, vesting, issuance, or retention of which is subject to certain conditions expressed in the award document. Shares of restricted stock have full voting rights and accrue dividends during the restriction period, unless otherwise determined by the Committee. The Committee will determine the price, if any, at which restricted stock is sold or awarded.

Stock Units. These represent the right to receive the value of a number of shares of common stock, the grant, vesting, issuance, or retention of which is subject to certain conditions expressed in the award document. Stock units may be settled in cash or in stock, as determined by the Committee. Stock units represent an unfunded and unsecured obligation of the Company. Stock units have no voting rights, but may accrue dividend equivalents, as determined by the Committee. The Committee will determine the price, if any, at which stock units are sold or awarded to participants.

Performance Awards. A performance award entitles a Participant to receive a specified number of shares of common stock (or cash equal to the fair market value of such shares) at the end of a performance period, as specified in the award document. The ultimate number of shares distributed depends upon the extent to which pre-established performance objectives are met during the applicable performance period.

Other Stock Based Awards. The Committee may grant other stock based awards which may include, without limitation, the grant of shares of common stock and the grant of securities convertible into shares of common stock.

Other Awards. The Committee may provide types of awards under the Plan in addition to those specifically listed, if the Committee believes that such awards would further the purposes for which the Plan was established.

 

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Award Conditions and Administration

Awards are typically evidenced by an agreement describing the award’s terms and conditions. An agreement may include: description of the type of award; the award’s duration; if an option, the exercise price, the exercise period and the person or persons who may exercise the option; the effect of the participant’s death or termination of employment on the award; the award’s conditions, vesting or performance criteria; when, if, and how it may be forfeited, converted into another award, modified, exchanged for another award, or replaced; and the restrictions on any shares purchased or granted under the Plan.

The Committee may require the satisfaction of certain performance criteria as a condition to the grant or vesting of any award.

In the case of awards of restricted stock, performance awards and stock units, performance criteria may be applied to the Company, an affiliate, a subsidiary, division, business unit or individual, or any combination thereof, and may be measured in absolute levels or relative to another company or companies, a peer group, an index, or Company performance in a previous period. Performance may be measured annually or cumulatively over a longer period of time.

The types of performance criteria that may be used include:

   

Cash flow measures: cash flow, free cash flow, net cash flow, operating cash flow

   

Earnings measures: earnings, earnings per share, earnings per share growth, EBIT, EBITDA, gross margin, increase in total revenues, operating earnings, revenue, retained earnings

   

Non-financial measures: business trends, capacity utilization, compliance and safety, gains, leadership, market capitalization, market share, operating efficiency, product development, project progress or completion, quality

   

Operational measures: budget achievement, costs, net income, operating income or net operating income, ratio of operating earnings to capital spending, working capital

   

Profitability measures: economic profit, economic value added, financial return ratios, net margin, net profits, profit returns and margins, operating profits, return on assets or net assets, return on capital employed, return on invested capital, return on equity

   

Stock price measures: share price performance, total shareholder return

Performance may be evaluated including or excluding the effect of extraordinary, unusual or non-recurring items; gains or losses on the disposition of a business; effects of changes in tax or accounting regulations; effects of mergers or acquisitions; and asset write-downs.

The Committee may allow the exercise price of an option or payment price of an award to be paid in cash, with shares owned by the participant, or a combination of both. Options also may be exercised in a broker-assisted cashless exercise or other cashless exercise, as permitted by the Committee.

The Company may withhold from option exercises or other awards any amount necessary to satisfy tax withholding requirements arising from the option exercise or award. The Committee or the Company may, at any time, require a participant pay the amount necessary to comply with withholding requirements in cash.

An award may be granted in tandem with another award, except that only SARs may be granted in tandem with an ISO.

Subject to the requirements of Code Section 409A, and upon the terms established by the Committee, participants may defer receipt of awards, interest may be paid on cash deferrals, and dividends or dividend equivalents may be paid or credited on deferrals denominated in shares.

 

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Modifications to Awards

Any award may be converted, modified, forfeited or cancelled, in whole or in part, by the Committee to the extent permitted in the Plan or applicable agreement or with the participant’s consent.

The Committee may permit a participant to surrender an award in exchange for a new award; however, the Committee may not cancel an outstanding option or SAR that is underwater in exchange for cash or for the purpose of reissuing the option to the participant at a lower exercise price or granting a replacement award of a different type without shareholder approval. Unless following a change in the Company’s capital stock, the exercise price of an option or SAR may not be reduced without shareholder approval.

If an award is subject to Code Section 409A, an award may be modified, replaced or terminated in the discretion of the Committee to the extent necessary to comply with such provision. In addition, in the event that a participant is determined to be a specified employee under Section 409A, any payment upon separation from service will be made or begin, as applicable, on the first day of the first month which is more than six months following the date of separation from service.

The Committee may, in its discretion, cancel all or any portion of an award if the recipient (i) violates any confidentiality, non-solicitation or non-compete obligations or terms in his or her employment agreement, confidentiality agreement, separation agreement, and/or any other similar agreement, or (ii) during the period of employment of service, established a relationship with a competitor of the Company or engaged in activity that was in conflict with or adverse to the interests of the Company, including fraud or conduct contributing to any financial restatement.

Clawbacks

The Committee may require an award recipient to forfeit any or all of the income or other benefit received on the vesting, exercise, or payment of an award (i) if, in its sole discretion, the Committee determines that the recipient violated the Plan’s non-compete or conflict of interest provisions, or (ii) to the extent required or permitted under any written policy of the Company dealing with recoupment of compensation, and to the extent permitted by applicable law.

Federal Income Tax Consequences

The following is a summary of the general federal income tax consequences of awards granted under the Plan to U.S. taxpayers. Tax consequences for any particular individual or transaction may be different.

Non-Qualified Stock Options and Stock Appreciation Rights. A recipient recognizes no taxable income upon the grant of NQSOs or SARs. Upon exercise of either, they will recognize taxable ordinary income equal to the difference between the fair market value of Company stock on the exercise date and the exercise price. Any additional gain or loss recognized upon the subsequent sale or exchange of the stock will be taxed as a short-term or long-term capital gain or loss, as the case may be.

Incentive Stock Options. A recipient recognizes no taxable income upon the grant or exercise of an ISO (except for purposes of the Alternative Minimum Tax, in which case income recognition is the same as for NQSOs). If a recipient exercises an option and sells the shares more than two years after the grant date and more than one year after the exercise date, they will recognize a long-term capital gain or loss equal to the difference between the sale price and the exercise price. If a recipient exercises an option and sells the shares before the end of the 2-year or 1-year holding periods, they will generally recognize: (1) taxable ordinary income equal to the difference between (i) the fair market value of the shares at exercise (or at sale, if less) and (ii) the exercise price of the option, plus (2) if the sale price exceeds the sum of the exercise price and the amount of the ordinary income recognized as a result of the sale, capital gain equal to such difference.

 

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Restricted Stock, Stock Units and Performance Awards. A recipient of restricted stock, stock units, performance awards or other awards that are subject to forfeiture prior to vesting generally will recognize no taxable income at the time of grant. As to restricted stock, when the restrictions have lapsed or the performance criteria have been met (upon vesting), the recipient will recognize taxable ordinary income equal to the difference between the fair market value of the Company’s stock on the vesting date minus the amount paid, if any, for the shares; however, the recipient may elect to be taxed based on the fair market value of the award at the time of grant. As to stock units or performance awards, when vested shares are issued, the recipient will recognize taxable ordinary income equal to the difference between the fair market value of the Company’s stock on the issuance date minus the amount paid, if any, for the shares, or, if the units or awards are settled in cash, equal to the cash paid.

Deferred Compensation. Participants may defer receipt of certain compensation by electing a future distribution date under the terms of an award or program under the Plan. Generally, such deferred compensation becomes taxable when the amounts are distributed. Code Section 409A significantly restricts the ability to defer taxation of compensation, including the deferral of income related to awards granted under the Plan. Any deferral of compensation under the Plan or the terms of an award that does not meet the requirements of Section 409A may cause the recipient to be subject to additional taxation and penalties.

Change in Control. If there is an acceleration of the vesting or payment of benefits or an acceleration of the exercisability of options upon a change in control of the Company, all or a portion of the accelerated benefits may constitute “excess parachute payments” under Section 280G of the Code. The recipient of an excess parachute payment incurs an excise tax of 20% of the amount of the payment in excess of their average annual compensation over the five calendar years preceding the year of the change in control. The Company is not entitled to a deduction for excess parachute payments.

Tax Effect to the Company. The Company will generally receive a tax deduction equal to the taxable ordinary income recognized by a participant from an award granted under the Plan. The Company’s deduction will be taken in the year the recipient recognizes taxable income.

Special rules limit the deductibility of certain compensation paid to the executive officers named in the Summary Compensation Table on page 42. Section 162(m) of the Code does not allow a deduction for compensation taxable to these executives to the extent such compensation exceeds $1 million, unless certain conditions are met. Compensation arising from the exercise of stock options or SARs granted at fair market value is not subject to the $1 million limit. In addition, certain other awards may qualify as performance-based compensation that is exempt from this deduction limit.

Vote Required to Approve Amendment

The adoption of this proposal requires the affirmative vote of (i) a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting and (ii) a majority of the votes cast on this proposal, provided that the total number of votes cast exceeds 50% of all shares entitled to vote on the proposal.

 

The Board recommends that you vote FOR approval of the amendment and restatement of the Flexible Stock Plan.

 

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4

PROPOSAL FOUR:    Advisory Vote to Approve Named Executive Officer Compensation

Leggett’s shareholders have the opportunity at the annual meeting to vote on an advisory resolution on our executive compensation package, commonly known as “Say-on-Pay,” to approve the compensation of Leggett’s named executive officers, as described in the “Executive Compensation” section beginning on page 30.

Because your vote is advisory, it will not be binding upon the Board; however, the Compensation Committee and the Board has considered and will continue to consider the outcome of the vote when making decisions for future executive compensation arrangements. At our annual meeting of shareholders held on May 12, 2011, 92.5% of the shareholders who voted on the Say-on-Pay proposal approved the compensation of our named executive officers.

Our Compensation Committee is committed to creating an executive compensation program that enables us to attract and retain a superior management team that has targeted incentives to build long-term value for our shareholders. The Company’s compensation package utilizes a mixture of cash and equity awards to align executive compensation with our annual and long-term performance. These programs reflect the Committee’s philosophy that executive compensation should provide greater rewards for superior performance, as well as accountability for underperformance. At the same time, we believe our programs do not encourage excessive risk-taking by management. The Board believes that our philosophy and practices have resulted in executive compensation decisions that are appropriate and that have benefited the Company over time.

For these reasons, the Board requests our shareholders approve the compensation paid to the Company’s named executive officers as described in this proxy statement pursuant to SEC disclosure rules, including the Compensation Discussion and Analysis, the executive compensation tables and the related footnotes and narrative accompanying the tables.

 

The Board recommends that you vote FOR the Company’s executive compensation package.

5

PROPOSAL FIVE:    Shareholder Proposal Requesting the Addition of Sexual Orientation and Gender Identity to the Company’s Written Non-Discrimination Policy

The Office of the Comptroller of New York City, as custodian and a trustee of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund and the New York City Fire Department Pension Fund, and as custodian of the New York City Board of Education Retirement System, has notified us of its intent to present the following proposal for consideration at the annual meeting. The addresses and number of shares held by such shareholders are available from the Company upon request to its Secretary.

The proposed resolution and supporting shareholder statement are followed by a statement of opposition and a recommendation from the Company’s Board. The Company accepts no responsibility for the proposed shareholder resolution and supporting statement.

Proposed Shareholder Resolution and Statement

Whereas: Leggett & Platt, Inc. does not explicitly prohibit discrimination based on sexual orientation and gender identity in its written employment policy;

Over 88% of the Fortune 500 companies have adopted written nondiscrimination policies prohibiting harassment and discrimination on the basis of sexual orientation, as have more than 98% of Fortune 100 companies, according to the Human Rights Campaign; over 30% now prohibit discrimination based on gender identity;

We believe that corporations that prohibit discrimination on the basis of sexual orientation and gender identity have a competitive advantage in recruiting and retaining employees from the widest talent pool;

 

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According to a June, 2008 survey by Harris Interactive and Witeck-Combs, 65% of gay and lesbian workers in the United States reported facing some form of job discrimination related to sexual orientation; an earlier survey found that almost one out of every 10 gay or lesbian adults also reported that they had been fired or dismissed unfairly from a previous job, or pressured to quit a job because of their sexual orientation;

Twenty states, the District of Columbia and more than 160 cities and counties, have laws prohibiting employment discrimination based on sexual orientation; 12 states and the District of Columbia have laws prohibiting employment discrimination based on sexual orientation and gender identity;

Minneapolis, San Francisco, Seattle and Los Angeles have adopted legislation restricting business with companies that do not guarantee equal treatment for gay and lesbian employees;

Our company has operations in, and makes sales to institutions in states and cities that prohibit discrimination on the basis of sexual orientation;

National public opinion polls consistently find more than three quarters of the American people support equal rights in the workplace for gay men, lesbians and bisexuals; for example, in a Gallup poll conducted in May, 2007, 89% of respondents favored equal opportunity in employment for gays and lesbians;

Resolved: The Shareholders request that Leggett & Platt, Inc. amend its written equal employment opportunity policy to explicitly prohibit discrimination based on sexual orientation and gender identity or expression and to substantially implement the policy.

Supporting Statement: Employment discrimination on the basis of sexual orientation and gender identity diminishes employee morale and productivity. Because state and local laws are inconsistent with respect to employment discrimination, our company would benefit from a consistent, corporate wide policy to enhance efforts to prevent discrimination, resolve complaints internally, and ensure a respectful and supportive atmosphere for all employees. Leggett & Platt, Inc. will enhance its competitive edge by joining the growing ranks of companies guaranteeing equal opportunity for all employees.

Company’s Statement in Opposition:

We believe the proposed resolution is unnecessary because Leggett is already an equal opportunity employer with a firm and long-standing commitment to preventing discrimination in the workplace. Leggett’s existing anti-discrimination policy states, “We are committed to equal opportunity, and strive to maintain a workplace free of discrimination based on any factors other than the skills and abilities of our applicants and employees. These principles of equal opportunity should be applied in all aspects of employment including: recruiting, hiring, promotion, training, compensation, termination and disciplinary action.”

We are committed to the highest ethical standards, which include assuring equal employment and promotional opportunities free of discrimination on any basis other than merit and performance-related qualifications. Our policies reflect our high standards, and we implement these policies in our business operations through ongoing training.

Leggett’s shareholders defeated similar proposals at the Company’s last six annual meetings. We believe this consistent rejection by shareholders sends a clear message to our Board that Leggett should oppose this unnecessary addition to our nondiscrimination policy.

 

The Board of Directors recommends that you vote AGAINST this shareholder proposal.

Discretionary Vote on Other Matters

We are not aware of any business to be acted upon at the annual meeting other than the four items described in this proxy statement. Your signed proxy, however, will entitle the persons named as proxy holders to vote in their discretion if another matter is properly presented at the meeting. If one of the director nominees is not available as a candidate for director, the proxy holders will vote your proxy for such other candidate as the Board may nominate.

 

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EXECUTIVE COMPENSATION AND RELATED MATTERS

Compensation Discussion & Analysis

Our Compensation Committee, consisting of six independent directors, is committed to creating and overseeing an executive compensation program that enables us to attract and retain a superior management team that has targeted incentives to build long-term value for our shareholders. To meet these objectives, the Committee has implemented a compensation package that:

   

Emphasizes performance-based equity over cash compensation.

   

Sets incentive compensation targets that drive performance and shareholder value.

   

Balances rewards between short-term and long-term performance to ensure sustained excellence.

   

Retains executive talent by remaining competitive with market norms reflected in compensation survey data.

   

Motivates our executive officers to take appropriate business risks.

This Compensation Discussion and Analysis describes our executive compensation program and the decisions affecting the compensation of our Named Executive Officers (the “NEOs”):

 

David S. Haffner

   Chief Executive Officer and President (CEO)

Karl G. Glassman

   Chief Operating Officer and Executive Vice President (COO)

Matthew C. Flanigan

   Chief Financial Officer and Senior Vice President (CFO)

Paul R. Hauser

   Senior Vice President, President—Residential Furnishings Segment

Joseph D. Downes, Jr.

   Senior Vice President, President—Industrial Materials Segment

Executive Summary

The largest component of our executive compensation package, performance stock units (“PSUs”), is dependent upon our Total Shareholder Return (“TSR”)1 relative to peer companies2 over rolling 3-year periods. 2011 was the fourth consecutive year Leggett stock provided a better return to investors (6% TSR) than the S&P 500 Index (2%). Our executives’ annual incentive payouts were mixed, based on their two financial metrics: our $363 million cash flow greatly surpassed the 2011 target but our 25% return on capital employed fell short of the 28% target.

This section provides an overview of the Committee’s key actions in 2011, the size and structure of our NEOs’ total direct compensation for the year, and the Committee’s pay practices and compensation risk management. Additional details regarding the NEOs’ pay packages, the Committee’s annual review of the NEOs’ compensation, and our equity pay practices are covered in the sections that follow.

Setting 2011 Performance Goals and Compensation Levels. The 2011 performance goals for our NEOs reflected the Committee’s expectation that the Company’s performance would improve during the year:

   

Increased annual incentive performance targets for our CEO, COO and CFO for Return on Capital Employed (“ROCE”) and Cash Flow.

   

Added free cash flow targets for our Segment Presidents’ annual incentive (replacing budget earnings) to drive results that will fund our dividends, capital expenditures and other needs.

   

Maintained the focus on strong TSR over the long-term by making the PSU payouts conditional on achieving this goal.

   

Raised NEO base salaries by a range of 2.5 to 4%, in line with the Company’s merit budget for salaried personnel and to reflect performance.

(1) TSR = (Change in Stock Price + Dividends Received) ÷ Beginning Stock Price; assumes dividends are reinvested.
(2) The peer group for our performance stock units (PSUs) consists of those companies in the industrial, materials and consumer discretionary sectors of the S&P 500 and S&P Midcap 400 (about 320 companies).

 

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Total Direct Compensation. As a result of the Company’s performance against the changes described above, the Committee approved the following compensation for the NEOs in 2011:

 

     Cash      Equity         

Name, Title

   Base
Salary
     Annual
Incentive
     PSUs      Options      Total Direct
Compensation
 

David S. Haffner, CEO

     $960,000         $742,176         $3,156,557         $667,366         $5,526,099   

Karl G. Glassman, COO

     720,000         464,400         1,377,857         500,678         3,062,935   

Mathew C. Flanigan, CFO

     420,000         262,899         755,948         244,122         1,682,969   

Paul R. Hauser, SVP

     340,000         128,520         531,704         198,080         1,198,304   

Joseph D. Downes, Jr., SVP

     320,000         156,960         582,524         188,108         1,247,592   

This table is not a substitute for the Summary Compensation Table required by the SEC (see page 42), but we believe it provides a relevant picture of the Committee’s actions. Annual incentive amounts report the award actually earned, based on 2011 performance against the targets established by the Committee. Amounts reported for PSUs and stock options are valued at the grant date fair value of the award, although the ultimate value received by the NEOs could be significantly lower or higher depending upon the Company’s performance.

Structuring the Mix of Compensation. The Committee uses its discretion to determine the appropriate percentage of variable to fixed compensation, as well as the split between cash and equity compensation. The variable elements are at risk—the ultimate payment and value of the compensation depends on actual performance or service conditions and could result in no payout if those conditions are not met. The following table shows the key attributes of the compensation programs we use to drive performance and build long-term shareholder value:

 

Compensation Type

  

Fixed/Variable

   Cash/Equity    Term    Basis for Payment
Base Salary    Fixed    Cash    1 year    Individual responsibilities, performance
and experience
Annual Incentive    Variable    Cash    1 year    Return on capital employed, cash flow,
earnings, individual performance goals
Performance Stock Units    Variable    Combination    3 years    TSR relative to peer group
Stock Options    Variable    Equity    3-10 years    Stock price appreciation

 

LOGO    LOGO    LOGO

Generally, the NEOs’ 2011 annual incentive payouts were lower than 2010, representing 14% of their 2011 compensation. This reduction in cash compensation resulted in a heavier weighting toward the performance-based equity components.

 

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Sound Pay Practices. Shaping the NEOs’ 2011 compensation package were the Company’s existing compensation practices, including:

   

Strong emphasis on equity-based compensation to align executive and shareholder interests.

   

Internal pay relationships that reflect our executives’ differences in responsibilities, contributions and market conditions.

   

Stock ownership requirements at five times, three times or two times base salary, depending upon the executive’s title and responsibilities.

   

Use of tally sheets to gauge the total compensation package and potential severance payouts, as well as wealth accumulation analysis to monitor long-term alignment with shareholders.

   

Comparing base salary and total compensation to market survey data for benchmarking.

   

Regular analysis of the full compensation program and its components to ensure they do not create an incentive for excessive risk-taking.

   

Clawback policies to recover cash and equity-based incentive compensation if the executive engages in activities adverse to the interests of the Company, including fraud or conduct contributing to any financial restatement.

   

Double-trigger vesting of all incentive awards (other than stock options) following a change-in-control.

   

No re-pricing or cash buyouts of options or equity awards without shareholder approval.

   

Minimal perquisite compensation, none of which is subject to tax gross-ups.

Additional Investment in Leggett Stock. In addition to having pay packages that are heavily weighted to Leggett equity, for many years our NEOs have voluntarily deferred substantial portions of their cash compensation into Company stock through the Executive Stock Unit Program (the “ESU Program”) and the Deferred Compensation Program. Through participation in these programs, in particular the ESU Program in which company equity is held until the executive leaves the Company, our NEOs are further invested in the long-term success of the Company.

Managing Compensation Risk. The Committee annually reviews whether our executive compensation policies and practices (as well as those that apply to our employees generally) create risks that are reasonably likely to have a material adverse effect on the Company.

We believe that our compensation programs align our employees’ incentives for risk taking with the long-term best interests of our shareholders. We mitigate risk by allocating compensation across multiple components and weighting the variable elements more heavily than fixed pay. This structure reduces the incentive to take excessive risk because it:

   

Rewards achievement on a balanced array of performance measures, minimizing undue focus on any single target.

   

Stresses long-term performance, discouraging short-term actions that might endanger long-term value.

   

Combines absolute and relative performance measures.

Additional safeguards, such as stock ownership guidelines, caps on incentive payouts and clawback policies, further balance risk and reward.

Impact of 2011 Say-on-Pay Vote. At our annual meeting of shareholders held on May 12, 2011, 92.5% of the shareholders who voted on the Say-on-Pay proposal approved the compensation of our NEOs. The Committee believes that this shareholder vote strongly endorses the Company’s compensation philosophy and programs. The Committee took this support into account as one of many factors it considered in connection with the discharge of its responsibilities (as described in this Compensation Discussion and Analysis) in exercising its judgment in establishing and overseeing our executive compensation arrangements throughout the year.

Our Compensation Components and Programs

Base Salary. Base salary is the only fixed portion of our NEOs’ compensation package. Salary levels are intended to reflect specific responsibilities, performance, and experience, while taking into account market compensation levels for comparable positions. Although base salary makes up less than one-fourth of our NEOs’ total direct compensation, it’s

 

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the foundation for the total package, since the variable compensation components are set as percentages or multiples of base salary:

 

Name

   Base
Salary
     Annual Incentive:
Target Percentage
of Base Salary
    PSU Awards:
Multiple of
Base Salary (1)
     Option Awards:
Multiple of
Base Salary (1)
 

David S. Haffner

     $960,000         90     2.75X         3.0X   

Karl G. Glassman

     720,000         75     1.6X         3.0X   

Matthew C. Flanigan

     420,000         65     1.5X         2.5X   

Paul R. Hauser

     340,000         50     1.3X         2.5X   

Joseph D. Downes, Jr.

     320,000         50     1.5X         2.5X   

(1) The methods for valuing and calculating the PSU and option awards are described in the Equity Awards section on page 36.

The Committee reviews and determines the NEOs’ base salaries (along with the rest of their compensation package) during the annual review, which is discussed on page 39.

Annual Incentive. Our NEOs earn their annual incentive, a cash bonus paid under our Key Officers Incentive Plan (the “Incentive Plan”), based on achieving certain performance targets for the year.

Our executive officers are divided into two groups under the Incentive Plan depending upon their areas of responsibility: (i) corporate participants (Mr. Haffner, Mr. Glassman, and Mr. Flanigan), whose performance criteria and payouts are based on the Company’s overall results and (ii) profit center participants (Mr. Hauser and Mr. Downes) whose performance targets are set for the operating locations under their control. The NEOs also have individual performance goals (“IPGs”) as part of their annual incentive.

Each executive officer has a target incentive amount—the amount received if he achieved exactly 100% of all performance goals. The target incentive amount is the officer’s base salary multiplied by his target incentive percentage. At the end of the year, the target incentive amount is multiplied by the payout percentages for the various performance metrics (each with its own weighting) to determine the annual incentive payout. The annual incentive payout is calculated as follows and more fully described below:

 

LOGO

 

 

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Performance Metrics. For the 2011 annual incentive, the Committee selected two performance metrics for corporate participants and two for profit center participants, in addition to the IPGs:

 

Performance Measures

   Relative Weight  

Return on Capital Employed (1)

     60

Cash Flow (2)

     20

Individual Performance Goals

     20

(1) Return on Capital Employed (ROCE) = Earnings Before Interest and Taxes (EBIT) ÷ quarterly average of Net Plant Property and Equipment (PP&E) and Working Capital (excluding cash and current maturities of long-term debt)

 

(2) Corporate participants (Haffner, Glassman and Flanigan): Cash Flow = Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) – Capital Expenditures +/- Change in Working Capital (excluding cash and current maturities of long-term debt)

 

     Profit center participants (Hauser and Downes): Free Cash Flow = EBITDA (adjusted for currency effects) – Capital Expenditures +/- Change in Working Capital (excluding cash, current maturities of long-term debt, and balance sheet items not directly related to on-going activities) +/- Gain or Loss from Non-Cash Impairments

The Committee chose ROCE as the primary incentive target to improve earnings and maximize returns on key assets while reducing inventory, increasing production and managing working capital. In addition, studies have shown a high correlation between return on capital metrics and TSR, a key feature of the Company’s strategic plan. The annual incentive is also based upon cash flow/free cash flow, which is critical to fund the Company’s dividend, capital expenditures and ongoing operations. Profit center participants are also subject to an adjustment ranging from a potential 5% increase for exceptional safety performance to a 20% deduction for their operations’ failure to achieve safety, audit and environmental standards.

Individual Performance Goals. In addition to the financial metrics described above, the annual incentive includes IPGs that are tailored to each executive’s responsibilities and aligned with the Company’s strategic goals.

The executive officers proposed goals for their respective operations, which were reviewed by Mr. Haffner. The Committee then evaluated the proposals and worked with Mr. Haffner to develop his IPGs. The 2011 IPGs covered the following areas of responsibility:

 

Name

  

Individual Performance Goals

David S. Haffner    Strategic planning, new product development, continued margin enhancement, talent management and succession planning
Karl G. Glassman    Succession planning, continued margin enhancement, increased on-site reviews of operations, remediation of internal audit findings
Matthew C. Flanigan    Credit facility renewal, working capital management, cash repatriation, improved internal controls
Paul R. Hauser    Development of growth opportunities, facility consolidations, and improved internal controls
Joseph D. Downes, Jr.    Development of growth opportunities, utilization and efficiency initiatives

The Committee evaluated the executives’ achievement of the 2011 IPGs at its February 2012 meeting, using the 1 to 5 performance scale detailed in the tables below. The IPGs’ subjective nature causes them not to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code. The Committee believes the relatively small cost to the Company of any lost tax deduction under 162(m) is outweighed by the strategic and long-term impact of this portion of the annual incentive. Mr. Haffner and Mr. Glassman were the only executive officers with any non-deductible incentive compensation in 2011.

 

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Targets and Payout Schedules. Upon selecting the metrics and IPGs, the Committee established performance achievement targets and payout schedules. In setting the payout schedules, the Committee evaluated various payout scenarios before selecting one that strikes an appropriate balance between accountability to shareholders and motivation for participants. The payouts for each portion of the annual incentive are capped at 150%. The NEOs’ receipt of their annual incentive ultimately depends upon how well they perform against the targets.

 

2011 Corporate Payout Schedule

ROCE

    

 

  Cash Flow
(millions)
     Individual Performance Goals
(1-5 scale)

Achievement

   Payout     

 

  Achievement     Payout      Achievement    Payout

<24%

     0%           <$281         0%       1 – Did not achieve goal    0%

  24%

     50%           281         50%       2 – Partially achieved goal    50%
      25%(1)      63.8%           296         75%       3 – Substantially achieved goal    75%

  26%

     75%           311         100%       4 – Fully achieved goal    100%

  28%

     100%           326         125%       5 – Significantly exceeded goal    up to 150%

  30%

     125%           341         150%         

  32%

     150%             363  (1)       150%         

 

2011 Profit Center Payout Schedule

Free Cash Flow & ROCE

(Relative to Target)

     Individual Performance Goals
(1-5 scale)

Achievement (2)

   Payout      Achievement    Payout

<80%

     0%       1 – Did not achieve goal    0%

  80%

     60%       2 – Partially achieved goal    50%

  90%

     80%       3 – Substantially achieved goal    75%

100%

     100%       4 – Fully achieved goal    100%

110%

     120%       5 – Significantly exceeded goal    up to150%

120%

     140%         

125%

     150%         

(1) Actual ROCE and Cash Flow achievement as calculated for corporate participants.

 

(2) As a profit center participant, Mr. Hauser’s target for a 100% payout on the free cash flow for his segment was $169 million ($146 million actual in 2011), and the target for a 100% payout on ROCE achievement was 27.4% (23.2% actual). Mr. Downes’ free cash flow target was $39 million ($34 million actual), and his ROCE target was 23.7% (23.4% actual).

 

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The following table provides the details of the 2011 annual incentive payouts for our NEOs:

 

Name

   Target Incentive Amount         Weighted Payout Percentage         Annual Incentive Payout  

David S. Haffner

     $864,000    x    85.9%    =      $742,176   
  

 

 

     

 

     
     Salary       x    Target %       Metric    Payout %    x    Weight      
     $960,000       90%       ROCE    63.8%    60%      
            Cash Flow    150.0%    20%      
            IPGs    88.0%    20%      

Karl G. Glassman

     $540,000    x    86.0%    =      464,400   
  

 

 

     

 

     
     Salary       x    Target %       Metric    Payout %    x    Weight      
     $720,000       75%       ROCE    63.8%    60%      
            Cash Flow    150.0%    20%      
            IPGs    88.8%    20%      

Matthew C. Flanigan

     $273,000    x    96.3%    =      262,899   
  

 

 

     

 

     
     Salary       x    Target %       Metric    Payout %    x    Weight      
     $420,000       65%       ROCE    63.8%    60%      
            Cash Flow    150.0%    20%      
            IPGs    140.0%    20%      

Paul R. Hauser

     $170,000    x    75.6%    =      128,520   
  

 

 

     

 

     
     Salary       x    Target %       Metric    Payout %    x    Weight      
     $340,000       50%       ROCE    69.0%    60%      
            FCF    73.0%    20%      
            IPGs    98.0%    20%      
            0% Compliance Adjustment      

Joseph D. Downes, Jr.

     $160,000    x    98.1%    =      156,960   
  

 

 

     

 

     
     Salary       x    Target %       Metric    Payout %    x    Weight      
     $320,000       50%       ROCE    97.0%    60%      
            FCF    76.0%    20%      
            IPGs    127.5%    20%      
            -1% Compliance Adjustment      

Equity Awards. Each year, we grant performance stock units (“PSUs”) to our senior managers and stock options to a broad group of employees. The PSUs and stock options tie our executive officers’ pay to the Company’s performance and shareholder returns. The payouts from these equity grants reflect our philosophy that executive compensation should provide greater rewards for superior performance, as well as accountability for underperformance. The application of our PSU and stock option multiples of salary resulted a target long-term incentive opportunity weighted 83% on PSUs and 17% on stock options for Mr. Haffner and an average of 74% PSUs and 26% stock options for the remaining NEOs.

Performance Stock Units. Leggett’s long-term strategic plan emphasizes the Company’s Total Shareholder Return (“TSR”) performance versus peer companies, and the Committee uses PSUs to drive and reward those results. Beginning in 2008, the Committee granted annual awards to a small group of senior management, including the NEOs.

 

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The number of PSUs granted to each executive is determined by multiplying his base salary by the PSU award multiple (see table on page 33), and dividing this amount by the grant date fair value of the Company’s stock. The PSU award multiples are set by the Committee with the intent to place our long-term incentive compensation near the market median.

The PSUs have a three-year performance period, and the payout is based on Leggett’s three-year TSR relative to the TSR of a peer group. This peer group consists of all the companies in the Industrial, Materials and Consumer discretionary sectors of the S&P 500 and S&P Midcap 400 (about 320 companies). Although Leggett is a member of the S&P 500, our market capitalization is significantly below that group’s median, so the Committee included the S&P Midcap 400 in the peer group as well. In addition, nearly all of our business units fall into the industry sectors represented in the peer group. At the end of the three-year performance period, a percentage of each officer’s PSU base award is payable depending on Leggett’s TSR rank relative to that of the peer group.

PSU Payout Schedule

(based on Peer Group TSR)

 

Performance Level

   Percentile Rank    Payout %

Threshold

   25th    25%

Target

   50th    75%

Maximum

   >75th    175%

The PSU awards granted in January 2009 vested on December 31, 2011. Leggett’s TSR for that three-year period was in the 49th percentile of the peer group, resulting in a payout of 74% of the base award. Our TSR ranks in the 49th percentile for the 2010 PSU awards with one year remaining in the performance period, and our TSR for the 2011 PSU awards ranks in the 62nd percentile with two years remaining. The 2009 PSU awards were paid out entirely in shares of Company stock; the 2010 and 2011 awards will be paid out 35% in cash and 65% in Company stock.

Stock Options. The annual grant of stock options is one of our longer-running compensation practices. The Committee has used options to align shareholder and executive wealth, since an option’s value is contingent on and directly proportional to increases in the Company’s stock price over an extended vesting period and option term.

Our options have a 10-year term and vest in three annual installments beginning 18 months after the grant date. Options tend to have a longer performance horizon, which complements the shorter horizons of our other variable compensation components (annual incentive—one year; PSUs—three years).

The number of options granted to each executive is determined based on the grant date fair value as a multiple of base salary (3X for our CEO and COO; 2.5X for the other NEOs). The option multiple for each executive position has remained constant for several years and reflects the levels of management responsibility.

Restricted Stock Units. In connection with the employment agreements the Company entered into with Mr. Haffner, Mr. Glassman and Mr. Flanigan in 2009, each was awarded restricted stock units (“RSUs”) that vested 25% on the date of their agreements and 25% on each of the next three anniversaries. The Committee used these stand-alone awards to retain these key executives during a crucial period in the execution of our strategic plan and in response to competitive conditions. These are the only outstanding time-vested RSUs the Company has granted to the NEOs; all other restricted stock is performance based.

Other Compensation Programs. The NEOs have voluntarily deferred substantial portions of their cash compensation into Company equity through the ESU Program and the Deferred Compensation Program for many years, building an additional long-term stake in the Company. The Company also provides a 401(k) and non-qualified excess plan in which some of our executives choose to participate.

Executive Stock Unit Program. All our NEOs have significant holdings in the ESU Program, our primary executive retirement plan. These accounts are held until the executives terminate employment.

 

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The ESU Program is a non-qualified retirement program that allows executives to make pre-tax deferrals of up to 10% of their compensation into diversified investments. We match 50% of the executive’s contribution in Company stock units and may match up to an additional 50% if the Company meets annual ROCE targets linked to the Incentive Plan. The Company adds a 17.6% premium to the diversified investments acquired with executive contributions and to Leggett stock units acquired with Company matching funds. Matching contributions vest once employees have participated in the ESU Program for five years. Leggett stock units held in the ESU Program accrue dividends, which are acquired at a 17.6% premium.

Deferred Compensation Program. The Deferred Compensation Program allows key managers to defer salary, incentive awards and other cash compensation in exchange for any combination of the following:

   

Stock units with dividend equivalents, acquired at a 20% discount to the fair market value of our common stock on the dates the compensation otherwise would have been paid or the dividends reinvested.

   

At-market stock options with the underlying shares of common stock having an initial market value five times the amount of compensation forgone, with an exercise price equal to the closing market price of our common stock on the last business day of the prior year.

   

Cash deferrals with an interest rate intended to be slightly higher than otherwise available for comparable investments.

Participants who elect a cash or stock unit deferral may elect to receive distributions in a lump sum or in annual installments. Distribution payouts must begin no more than 10 years from the effective date of the deferral and all amounts subject to the deferral must be distributed within 10 years of the first distribution payout. Participants who elect at-market stock options, which have a 10 year term, may exercise them approximately 15 months after the start of the year in which the deferral was made.

Retirement K and Excess Plan. The Company’s defined benefit Retirement Plan was frozen in 2006 (see description on page 49). Employees who had previously participated in the Retirement Plan were offered a replacement benefit: a tax-qualified defined contribution Section 401(k) Plan (the “Retirement K”). The Retirement K includes an age-weighted Company matching contribution designed to replicate the benefits lost by the Retirement Plan freeze.

Many of our officers cannot fully participate in the Retirement K due to limitations imposed by the Internal Revenue Code or the Employee Retirement Income Security Act, or resulting from their participation in the Deferred Compensation Program. Consequently, we maintain a non-qualified Retirement K Excess Plan which permits affected executives to receive the full matching benefit they would otherwise have been entitled to under the Retirement K. Amounts earned in the Retirement K Excess Plan are paid out in cash no later than March 15 of the following year and are eligible for the Deferred Compensation Program.

Perquisites and Personal Benefits. The Committee believes perquisites should not be a significant part of our executive compensation program. In 2011, perquisites were less than 1% of each NEO’s total compensation. Accordingly, we believe these benefits are appropriate when viewed in the overall context of our executive compensation program.

How Compensation Decisions Are Made

The Committee uses its informed judgment to determine the type and appropriate mix of compensation elements; to select performance measures, target levels and payout schedules for incentive compensation; and to determine the level of salary and incentive awards for each executive officer. The Committee has the authority to engage its own external compensation consultant as needed and engaged Meridian Compensation Partners LLC in December 2011 as its independent consultant beginning in 2012 (no consultant was used in 2011). The Committee may delegate its duties and responsibilities to one or more Committee members or Company officers, as it deems appropriate, but may not delegate authority to non-members for any action involving executive officers. The Committee reports its actions to the Board at each Board meeting; the full Board must review and approve certain actions, including employment and severance benefit agreements and amendments to stock plans.

 

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John Moore, Senior Vice President — Chief Legal & Human Resources Officer, provides compensation data, research and analysis that the Committee may request. In addition to Mr. Moore, the Committee invites Mr. Haffner, our CEO, to attend Committee meetings; however, the Committee meets in executive session without management present to discuss Mr. Haffner’s performance and set his compensation.

Mr. Haffner recommends to the Committee compensation levels for the other executive officers, including salary increases, annual incentive targets and equity award values, based on his assessment of each executive’s performance and level of responsibility. The Committee generally accepts Mr. Haffner’s recommendations but makes adjustments that it deems appropriate.

The Annual Review and Use of Compensation Data

The Committee performs the executive compensation annual review in March of each year. During the annual review, the Committee evaluates the four primary elements of the annual compensation package for executive officers: base salary, annual incentive, PSUs and stock option awards. Based on this review, the Committee approves any base salary increases and sets the annual incentive target percentage for each executive officer. As discussed above, increases to base salary affect all four elements of the compensation package, because the variable compensation elements (annual incentive, PSUs and stock options) are each set as a multiple of base salary. Equity award sizes are reviewed again in November, prior to the grant of PSUs and stock options on the first business day of each year.

Prior to the annual review, the Committee reviews the total compensation package for the preceding year as described in the proxy statement. This review includes secondary compensation elements, such as voluntary equity plans and retirement plans, as well as potential payments upon termination or change in control. Decisions about secondary and post-termination compensation elements are made at various times throughout the year as the plans or agreements giving rise to the compensation are reviewed.

In connection with the 2011 annual review, the Committee evaluated the following data presented by Mr. Moore to consider each executive’s compensation package in the context of past decisions, internal pay relationships and the external market:

   

Compensation data from three surveys published by national consulting firms (described more fully below).

   

Current annual compensation for each executive officer.

   

The potential value of each executive officer’s compensation package under three Company performance scenarios (threshold, target and outstanding performance).

   

The cash-to-equity ratio and fixed-to-variable pay ratio of each executive officer’s compensation package.

   

Compliance with our stock ownership requirements.

   

A summary of each executive’s accumulated wealth from outstanding equity awards, including a sensitivity analysis of the impact of changes in our stock price.

We have not compared our compensation to that of a specific peer group of companies, given the complexity of our markets and the diversity of our product lines. Instead, for external market data, we used survey data disclosing 2010 compensation published by Towers Watson (“Survey Report of Top Management Compensation—United States, General Industry” and “U.S. Compensation Data Bank—General Industry”) and Hewitt (“TCM Total Compensation by Industry—Executive, United States”) (collectively, the “2011 Survey Data”). The use of multiple surveys enables us to develop a more balanced picture of the compensation market.

 

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We sought the largest sample size possible from each survey, given that the validity of data increases with sample size. The Committee uses data from a broad base of companies that most closely match the NEOs’ job descriptions. The industry groups and sample sizes of the three surveys with respect to the NEO positions were as follows:

 

    

Towers Watson—Top Management

  

Towers Watson—CDB

  

Hewitt

Survey Group   

Manufacturing only,

All revenue levels

  

All industries,

$3-6 billion in revenue

  

Manufacturing only,

$3.7 billion median revenue

    

Companies in Survey Group, by Position

CEO

   412    104    36

COO

   158    34    N/A

CFO

   453    105    37

SVP, Segment Head

   53    700*    100*
     

*   Business units across all revenue levels

  

* Business units with $1.7 billion

   median revenue

The Committee uses compensation surveys to get a general sense of the competitive market. The 2011 Survey Data generally showed our executive officers’ compensation was in line with the Committee’s philosophy of paying somewhat below market median for base salaries with the potential to move above the median with outstanding results under variable compensation programs (annual incentive, PSUs and stock options). Although the Committee views survey data as a useful guide, it gives significant weight to (i) the mix of fixed to variable pay, (ii) the ratio of cash to equity compensation, (iii) internal pay equity, and (iv) individual responsibilities and merit when establishing base salaries, annual incentive percentages, and PSU and stock option award multiples. While the Committee monitors these pay relationships, it does not target any specific pay ratios.

In addition to the 2011 Survey Data, the Committee also considers the Company’s merit increase budget for all salaried U.S. employees in determining salary increases for executive officers. The 2011 merit increase budget of 2.5% was based on the Consumer Price Index, other national economic data and our own business climate. Mr. Haffner, Mr. Glassman and Mr. Flanigan have the option to terminate their respective employment agreements without further obligation to the Company if they do not receive a salary increase for any year, unless the failure to receive an increase was due to a company-wide salary freeze.

In connection with the 2011 annual review, the Committee took the following actions:

   

Raised NEO base salaries by a range of 2.5 to 4%, in line with the Company’s merit budget for salaried personnel and to reflect performance.

   

Established the award formula for the Incentive Plan’s corporate and profit center participants, upon determining that the payout range (threshold, target and maximum) was consistent with the Company’s full-year sales and earnings projections.

   

Approved the executive officers’ 2011 IPGs, stressing specific and measurable targets that lead to improvements with long-term returns.

Equity Grant Practices

The Committee discusses potential equity awards at length at its November meeting, and then approves the final PSU and option grants during a telephone meeting on the first business day of the year. The exercise price of the options is equal to the closing market price of the Company’s common stock on the option grant date. The Company does not grant equity awards when in possession of material inside information.

Performance of Past Equity Awards. The Committee monitors the value of past equity awards to gain an overall assessment of how current compensation decisions fit with past practices and to determine the executive’s accumulated

 

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variable compensation. However, the Committee does not increase current-year equity awards, or any other aspect of the NEOs’ compensation, to adjust for the below-expected performance of past equity awards.

Clawback Provisions. All equity awards are subject to a clawback provision included in our Flexible Stock Plan which allows the Committee to recover all income or other benefits received on the vesting, exercise, or payment of any award if the employee violates any confidentiality, non-solicitation or non-compete obligations or engages in activity adverse to the interests of the Company, including fraud or conduct contributing to any financial restatement.

Executive Stock Ownership Guidelines. The Committee believes executive officers should have a meaningful ownership stake in the Company to align their interests with those of shareholders. We expect executive officers to attain the following levels of stock ownership within five years of appointment and to maintain those levels throughout their employment.

 

CEO

    5X base salary   

COO, CFO

    3X base salary   

All other Executive Officers

    2X base salary   

Shares of the Company’s stock owned outright, stock units and the net shares acquirable upon the exercise of deferred compensation stock options count toward satisfying the ownership totals. A decline in the stock price can cause an executive officer who previously met the threshold to fall below it temporarily. An executive officer who has not met the ownership requirement, or falls below it due to a stock price decline, must hold any net shares acquired upon the exercise of stock options or vesting of PSUs or RSUs until he meets the ownership threshold. As of December 31, 2011, all of our NEOs were in compliance with their stock ownership requirements, having holdings well in excess of these threshold levels.

Employment and Change in Control Agreements

On the Committee’s recommendation, the Board entered into employment agreements with Mr. Haffner, Mr. Glassman and Mr. Flanigan in May 2009. These employment agreements expire on the date of our annual shareholder meeting in 2013. The material terms and conditions of these employment agreements are described on page 51.

The Company also has severance benefit agreements with Mr. Haffner and Mr. Glassman, but does not offer severance benefits to any other NEOs. These agreements have been in place for several years and have no stated expiration date. They are designed to protect both the executive officers’ and the Company’s interests in the event of a change in control of the Company. The material terms and conditions of these agreements and the Company’s potential financial obligations arising from these agreements are described on page 52.

The benefits provided under the severance benefit agreements do not impact the Committee’s decisions regarding other elements of the executive officers’ compensation. Because these agreements provide contingent compensation, not regular compensation, they are evaluated separately in view of their intended purpose.

Tax Considerations

Section 162(m) of the Internal Revenue Code generally disallows an income tax deduction to public companies for compensation over $1 million paid to certain executive officers. Our policy is to take reasonable and practical steps to minimize compensation that exceeds the $1 million cap, but in some circumstances the best form of compensation for the intended purpose may be one that is not tax-deductible under Section 162(m), such as the inclusion of IPGs in the annual incentive program.

In 2011, the Company paid amounts that were not deductible for federal income tax purposes and exceeded the $1 million threshold. The non-deductible compensation resulted from payouts of previously deferred compensation, the vesting of service-based RSUs, and the IPG portion of the annual incentive.

 

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion & Analysis with management and, based on that review and discussion, the Committee has recommended to the Board of Directors that the Compensation Discussion & Analysis be included in this proxy statement.

R. Ted Enloe, III (Chair)

Robert E. Brunner

Richard T. Fisher

Joseph W. McClanathan

Judy C. Odom

Phoebe A. Wood

Summary Compensation Table

The following table reports the total 2011 compensation of our Chief Executive Officer, Chief Financial Officer, and our three other most highly compensated executive officers as of December 31, 2011. Collectively, we refer to these five executives as the “Named Executive Officers” or “NEOs.”

Compensation reported in the table below includes amounts earned in various retirement and deferred compensation programs. The pension, retirement and deferred compensation programs are described on pages 49 and 38, respectively. Familiarity with these programs will aid your understanding of the amounts reported in the Summary Compensation Table.

 

Name and Principal Position

  Year     Salary
(1)
    Stock
Awards
(2)
    Option
Awards
(3)
    Non-Equity
Incentive Plan
Compensation
(1)
    Change in
Pension Value;
Nonqualified
Deferred
Compensation
Earnings
(4)
    All Other
Compensation
(1)(5)
    Total  

David S. Haffner, President & Chief Executive
Officer

   
 
 
2011
2010
2009
  
  
  
   
 
 
$951,346
917,308
934,616
  
  
(6) 
   
 
 
$3,156,557
2,826,252
4,394,446
  
  
  
   
 
 
$667,366
605,517
383,937
  
  
  
   
 
 
$742,176
1,100,081
1,019,995
  
  
  
   
 
 
$75,816
77,667
46,306
  
  
  
   
 
 
$389,495
394,251
515,089
  
  
  
   
 
 
$5,982,756
5,921,076
7,294,389
  
  
  

Karl G. Glassman,

Executive Vice President &
Chief Operating Officer

   

 

 

2011

2010

2009

  

  

  

   

 

 

713,538

688,077

700,962

  

  

(6) 

   

 

 

1,377,857

1,233,054

2,557,611

  

  

  

   

 

 

500,678

454,138

287,953

  

  

  

   

 

 

464,400

688,194

685,125

  

  

  

   

 

 

61,565

54,857

31,319

  

  

  

   

 

 

238,620

246,751

284,727

  

  

  

   

 

 

3,356,658

3,365,071

4,547,697

  

  

  

               
               

Matthew C. Flanigan,

Senior Vice President—
Chief Financial Officer

   
 
 
2011
2010
2009
  
  
  
   
 
 
416,539
402,692
410,192
  
  
(6) 
   
 
 
755,948
676,368
1,617,979
  
  
  
   
 
 
244,122
221,462
140,409
  
  
  
   
 
 
262,899
348,806
339,702
  
  
  
   
 
 
29,336
27,654
21,977
  
  
  
   
 
 
207,340
233,256
202,919
  
  
  
   
 
 
1,916,184
1,910,238
2,733,178
  
  
  

Paul R. Hauser,
Senior Vice President, President—
Residential Furnishings Segment

   
 
 
2011
2010
2009
  
  
  
   
 
 
337,369
326,754
332,931
  
  
(6) 
   
 
 
531,704
439,200
380,998
  
  
  
   
 
 
198,080
179,736
113,988
  
  
  
   
 
 
128,520
183,688
192,119
  
  
  
   
 
 
45,194
43,094
26,414
  
  
  
   
 
 
117,533
92,717
90,431
  
  
  
   
 
 
1,358,400
1,265,189
1,136,881
  
  
  

Joseph D. Downes, Jr.,
Senior Vice President, President—
Industrial Materials Segment

   
 
 
2011
2010
2009
  
  
  
   
 
 
318,177
307,415
303,023
  
  
(6) 
   
 
 
582,524
499,590
453,100
  
  
  
   
 
 
188,108
163,563
103,732
  
  
  
   
 
 
156,960
135,920
155,821
  
  
  
   
 
 
8,501
9,327
7,509
  
  
  
   
 
 
66,212
64,353
78,197
  
  
  
   
 
 
1,320,482
1,180,168
1,101,382
  
  
  

(1)

Amounts reported in these columns include cash compensation (base salary, non-equity incentive plan compensation, and certain other cash items) that was deferred into the ESU Program (to acquire Company stock units in 2009 and 2010, and diversified investments starting in 2011) and/or the Deferred Compensation Program

 

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  (to acquire, at the NEO’s election, an interest-bearing cash deferral, Leggett stock options or Leggett stock units), as follows:

 

                          Deferred Compensation Program Alternatives  

Name

   Year      Total Cash
Compensation
Deferred
     ESU
($)
     Cash Deferral
($)
     Stock Options
(#)
   Stock Units
(#)
 

David S. Haffner

    
 
 
2011
2010
2009
  
  
  
    
 
 
$466,636
399,066
1,053,198
  
  
  
    
 
 
$166,636
199,066
192,732
  
  
  
          
 
 
16,726
10,903
62,432
  
  
  

Karl G. Glassman

    
 
 
2011
2010
2009
  
  
  
    
 
 
215,111
184,954
435,880
  
  
  
    
 
 
115,111
134,954
135,880
  
  
  
          
 
 
5,521
2,946
23,623
  
  
  

Matthew C. Flanigan

    
 
 
2011
2010
2009
  
  
  
    
 
 
420,493
504,229
436,108
  
  
  
    
 
 
65,240
72,477
72,261
  
  
  
          
 
 
19,752
23,964
24,503
  
  
  

Paul R. Hauser

    
 
 
2011
2010
2009
  
  
  
    
 
 
162,659
154,526
149,854
  
  
  
    
 
 
43,890
48,372
49,854
  
  
  
    
 
$106,154
100,000
  
  
       
6,561
  

Joseph D. Downes, Jr.

    
 
 
2011
2010
2009
  
  
  
    
 
 
144,815
106,661
93,156
  
  
  
    
 
 
44,815
41,661
43,156
  
  
  
    

 

100,000

65,000

  

  

        3,937   

See the Grants of Plan-Based Awards Table on page 45 for further information on Leggett equity awards received in lieu of cash compensation in 2011.

 

(2) Amounts reported in this column reflect the grant date fair value of PSU awards and the RSU awards, as detailed in the table below. For a description of the assumptions used in calculating the grant date fair value, see Note L of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The potential maximum fair value of the PSU awards on the grant date is also included in the table below.

 

Name

   Year      PSU Awards:
Grant Date
Fair Value
     PSU Awards:
Potential
Maximum
Value at
Grant Date
     RSU Awards:
Grant Date
Fair Value
 

David S. Haffner

    
 
 
2011
2010
2009
  
  
  
    
 
 
$3,156,557
2,826,252
2,487,716
  
  
  
    
 
 
$5,523,975
4,945,941
4,353,503
  
  
  
     $1,906,730   

Karl G. Glassman

    
 
 
2011
2010
2009
  
  
  
    
 
 
1,377,857
1,233,054
1,059,466
  
  
  
    
 
 
2,411,250
2,157,845
1,854,066
  
  
  
     1,498,145   

Matthew C. Flanigan

    
 
 
2011
2010
2009
  
  
  
    
 
 
755,948
676,368
596,516
  
  
  
    
 
 
1,322,908
1,183,644
1,043,903
  
  
  
     1,021,463   

Paul R. Hauser

    
 
 
2011
2010
2009
  
  
  
    
 
 
531,704
439,200
380,998
  
  
  
    
 
 
930,482
768,600
666,747
  
  
  
  

Joseph D. Downes, Jr.

    
 
 
2011
2010
2009
  
  
  
    
 
 
582,524
499,590
453,100
  
  
  
    
 
 
1,019,417
874,283
792,925
  
  
  
  

 

(3) Amounts reported in this column represent the grant date fair value of the stock options calculated using the Black-Scholes option valuation model. For a description of the assumptions used in calculating the grant date fair value of these options, see Note L of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

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(4) Amounts reported in this column are set forth below.

 

Name

   Change in
Pension
Value
(a)
     ESU Program
(b)
     Deferred
Stock
Units
(c)
     Total  

David S. Haffner

     $32,624         $18,090         $25,102         $75,816   

Karl G. Glassman

     37,357         15,713         8,495         61,565   

Matthew C. Flanigan

     15,603         6,083         7,650         29,336   

Paul R. Hauser

     37,908         6,722         564         45,194   

Joseph D. Downes, Jr.

        6,208         2,293         8,501   

 

  (a) Change in the present value of the NEO’s accumulated benefits under the defined benefit Retirement Plan, as described on page 49.

 

  (b) 17.6% premium applied to dividend equivalents acquired on stock units held in the ESU Program, as described on page 37.

 

  (c) 20% discount on dividend equivalents acquired on stock units held in the Deferred Compensation Program, as described on page 38.

 

(5) Amounts reported in this column are set forth below:

 

Name

   ESU
Program
(a)
     Deferred
Stock
Units
(b)
     Retirement K
Matching
Contributions
(c)
     Retirement K
Excess
Payments
(c)
     Life and
Disability
Insurance
Benefits
     Perquisites
(d)
   Total  

David S. Haffner

     $246,348         $75,000         $9,900         $51,051         $7,196            $389,495   

Karl G. Glassman

     168,781         25,000         9,900         32,512         2,427            238,620   

Matthew C. Flanigan

     93,259         88,813         9,900         14,558         810            207,340   

Paul R. Hauser

     62,584         29,692         13,200         9,162         2,895            117,533   

Joseph D. Downes, Jr.

     59,354                  6,858            66,212   

 

  (a) This amount represents the Company’s matching contributions under the ESU Program and the 17.6% premium applied to diversified investments acquired with employee contributions and Leggett stock units acquired with Company matching contributions.

 

  (b) This amount represents the 20% discount on stock units acquired with employee contributions to the Deferred Compensation Program.

 

  (c) The Retirement K and Retirement K Excess Plan are described on page 38.

 

  (d) None of the NEOs received perquisites or other personal benefits with a value of $10,000 or more in 2011. Perquisites for our executives officers in 2011 included: use of a Company car; executive physicals; and financial, legal, and tax planning services provided by in-house professionals. For disclosure purposes, perquisites are valued at our aggregate incremental cost.

 

(6) The 2009 NEO base salaries are reported as higher than the 2010 salaries (despite an increase in base salary in 2010) because there were 27 bi-weekly pay periods in 2009 instead of the customary 26 (as in 2010).

 

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Grants of Plan-Based Awards in 2011

The following table sets forth, for the year ended December 31, 2011, information concerning each grant of an award made to the NEOs in 2011 under any plan.

 

    Grant
Date
    Award
Type
(1)
    Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards (2)
    Estimated Future Payouts
Under Equity Incentive
Plan Awards (3)
    All
Other
Stock
Awards:
Shares
of Stock
or Units
(#)(4)
    All Other
Option
Awards:
Securities
Underlying
Options
(#)(5)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
(6)
    Grant
Date Fair
Value of
Stock
and
Option
Awards
($)
 

Name

      Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

David S. Haffner

    3/25/11        AI        $432,000        $864,000        $1,296,000                 
    1/03/11        ASO                      135,525        $23.14        $667,366   
    1/03/11        PSU              31,056        93,169        217,394              3,156,557   

Awards Received in Lieu of Cash Compensation

  

     
    —          DSU                    16,726            375,000   

Karl G. Glassman

    3/25/11        AI        270,000        540,000        810,000                 
    1/03/11        ASO                      101,675        23.14        500,678   
    1/03/11        PSU              13,556        40,669        94,894              1,377,857   

Awards Received in Lieu of Cash Compensation

  

     
    —          DSU                    5,521            125,000   

Matthew C. Flanigan

    3/25/11        AI        136,500        273,000        409,500                 
    1/03/11        ASO                      49,575        23.14        244,122   
    1/03/11        PSU              7,438        22,313        52,063              755,948   

Awards Received in Lieu of Cash Compensation

  

     
    —          DSU                    19,752            444,066   

Paul R. Hauser

    3/25/11        AI        102,000        170,000        255,000                 
    1/03/11        ASO                      40,225        23.14        198,080   
    1/03/11        PSU              5,231        15,694        36,619              531,704   

Awards Received in Lieu of Cash Compensation

  

     
    —          DSU                    6,561            148,461   

Joseph D. Downes, Jr.

    3/25/11        AI        96,000        160,000        240,000                 
    1/03/11        ASO                      38,200        23.14        188,108   
    1/03/11        PSU              5,731        17,194        40,119              582,524   

(1) Award Type:

AI = Annual Incentive

ASO = Annual Stock Options

PSU = Performance Stock Units

DSU = Deferred Stock Units

 

(2) The performance metrics, payout schedules and other details of the NEOs’ annual incentive are described on page 33.

 

(3) PSU awards vest at the end of a three-year performance period based on our TSR as measured relative to a peer group. The PSU awards are described on page 36.

 

(4) DSU amounts (from the Deferred Compensation Program described on page 38) reported in this column represent stock units acquired in lieu of cash compensation. Stock units are purchased on a bi-weekly basis or as compensation otherwise is earned, so there is no grant date for these awards. DSUs are acquired at a 20% discount to the market price of our common stock on the acquisition date. We recognize a compensation expense for this discount, which is reported in the All Other Compensation column of the Summary Compensation Table.

 

(5) Stock options (described on page 37) are granted on the first business day of the year, have a 10-year term, and vest in three annual increments beginning 18 months after grant.

 

(6) The exercise price is the closing market price of the Company’s common stock on the grant date.

 

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Outstanding Equity Awards at 2011 Fiscal Year-End

The following table reports the outstanding stock options, performance stock units, and restricted stock units held by each NEO as of December 31, 2011. The outstanding awards are separated into two categories:

   

General Awards: the annual PSU and stock option awards that comprise the equity component of our compensation package, as well as the one-time RSU awards to Mr. Haffner, Mr. Glassman and Mr. Flanigan in 2009 in connection with their employment agreements.

   

Deferred Compensation Options: options that were granted in lieu of cash compensation under our Deferred Compensation Program, as described on page 38.

 

    Options Awards     Stock Awards  
          Securities Underlying
Unexercised Options:
                Unvested Stock
Units
    Equity Incentive Plan Awards—
Unearned Shares, Units or
Other Unvested Rights
 
Name  

Grant
Date

(1)

   

Exercisable

(#)

   

Unexercisable

(#)

   

Exercise

Price ($)

   

Expiration

Date

   

Number

of Units

(#) (2)

   

Market

Value

($) (3)

   

Performance

Period

(4)

   

Number

of Units

(#) (5)

   

Market or

Payout Value

($) (3)

 

David S. Haffner

                                                                               

General Awards

  

                   
      1/16/2002        56,000          $22.30        1/15/2012        35,000        806,400        2010-2012        96,525        2,223,936   
      1/22/2003        63,000          21.01        1/21/2013            2011-2013        217,394        5,008,758   
      1/13/2004        70,000          21.35        1/12/2014               
      2/9/2005        70,000          28.02        2/8/2015               
      1/3/2006        93,400          22.96        1/4/2016               
      5/10/2006        87,177          26.67        5/9/2016               
      1/3/2007        98,475          23.61        1/4/2017               
      1/2/2008        143,275          16.96        1/2/2018               
      1/2/2009        114,800        57,400        15.68        1/2/2019               
      1/4/2010        46,800        93,600        20.51        1/3/2020               
      1/3/2011          135,525        23.14        1/2/2021               

Subtotal

  

    842,927        286,525                        35,000        806,400                313,919        7,232,694   

Deferred Compensation Options

  

                 
      12/21/2004        224,100          27.09        12/20/2014               
      12/30/2005        266,290          22.96        12/29/2015               

Subtotal

  

    490,390                                                                   

Total

            1,333,317        286,525                        35,000        806,400                313,919        7,232,694   

Karl G. Glassman

                                                                               

General Awards

                     
      1/22/2003        47,250          21.01        1/21/2013        27,500        633,600        2010-2012        42,113        970,284   
      1/13/2004        52,500          21.35        1/12/2014            2011-2013        94,894        2,186,358   
      2/9/2005        52,500          28.02        2/8/2015               
      1/3/2006        74,725          22.96        1/4/2016               
      1/3/2007        78,775          23.61        1/4/2017               
      1/2/2008        114,625          16.96        1/2/2018               
      1/2/2009        86,100        43,050        15.68        1/2/2019               
      1/4/2010        35,100        70,200        20.51        1/3/2020               
      1/3/2011          101,675        23.14        1/2/2021               

Subtotal

  

    541,575        214,925                        27,500        633,600                137,007        3,156,642   

Deferred Compensation Options

  

                 
      12/21/2004        66,663          27.09        12/20/2014               
      12/30/2005        81,664          22.96        12/29/2015               
      12/31/2007        92,913          17.44        12/30/2017               

Subtotal

  

    241,240                                                                   

Total

            782,815        214,925                        27,500        633,600                137,007        3,156,642   

 

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Matthew C. Flanigan

                                                                               

General Awards

                     
      3/11/2003        18,000          17.61        3/10/2013        18,750        $432,000        2010-2012        23,100        532,224   
      1/13/2004        30,000          21.35        1/12/2014            2011-2013        52,063        1,199,532   
      2/9/2005        21,900          28.02        2/8/2015               
      1/3/2006        29,900          22.96        1/4/2016               
      1/3/2007        31,775          23.61        1/4/2017               
      1/2/2008        48,125          16.96        1/2/2018               
      1/2/2009        41,983        20,992        15.68        1/2/2019               
      1/4/2010        17,116        34,234        20.51        1/3/2020               
      1/3/2011          49,575        23.14        1/2/2021               

Subtotal

  

    238,799        104,801                        18,750        $432,000                75,163        1,731,756   

Deferred Compensation Options

  

                 
      12/21/2004        31,721          27.09        12/20/2014               
      12/30/2005        86,634          22.96        12/29/2015               

Subtotal

  

    118,355                                                                   

Total

            357,154        104,801                        18,750        $432,000                75,163        1,731,756   

Paul R. Hauser

                                                                               

General Awards

                     
      3/11/2003        11,334          17.61        3/10/2013            2010-2012        15,000        345,600   
      1/13/2004        18,000          21.35        1/12/2014            2011-2013        36,619        843,702   
      2/9/2005        20,000          28.02        2/8/2015               
      1/3/2006        25,575          22.96        1/4/2016               
      1/3/2007        31,775          23.61        1/4/2017               
      1/2/2008        15,300          16.96        1/2/2018               
      1/2/2009        34,083        17,042        15.68        1/2/2019               
      1/4/2010        13,891        27,784        20.51        1/3/2020               
      1/3/2011          40,225        23.14        1/3/2021               

Subtotal

  

    169,958        85,051                                                51,619        1,189,302   

Deferred Compensation Options

  

                   
      12/21/2004        5,539          27.09        12/20/2014               

Subtotal

  

    5,539                                                                   

Total

      175,497        85,051                  51,619        1,189,302   

Joseph D. Downes, Jr.

  

                                                                       

General Awards

                     
      1/13/2004        18,000          21.35        1/12/2014            2010-2012        17,063        393,132   
      2/9/2005        20,200          28.02        2/8/2015            2011-2013        40,119        924,342   
      1/3/2006        25,550          22.96        1/4/2016               
      1/3/2007        26,475          23.61        1/4/2017               
      1/2/2008        39,800          16.96        1/2/2018               
      1/2/2009        31,016        15,509        15.68        1/2/2019               
      1/4/2010        12,641        25,284        20.51        1/3/2020               
      1/3/2011          38,200        23.14        1/2/2021               

Subtotal

  

    173,682        78,993                                                57,182        1,317,474   

Deferred Compensation Options

  

                 
      12/21/2004        6,460          27.09        12/20/2014               

Subtotal

  

    6,460                                                                   

Total

            180,142        78,993                                                57,182        1,317,474   

 

(1) General Awards—options were granted subject to our standard vesting terms, become exercisable in one-third increments at 18 months, 30 months and 42 months following the grant date, and have a 10-year term.

 

   Deferred Compensation Options—options became exercisable on March 15, approximately 15 months following the grant date, and have a 10-year term.

 

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(2) Awards reported in this column are the unvested portion of the RSU awards granted in 2009 in connection with the employment agreements described on page 51.

 

(3) Values shown in this column were calculated at a per share value of $23.04, the closing market price of our common stock on December 31, 2011.

 

(4) PSU awards are granted on the first business day of the year and have a three-year performance period (awards with a 2011-2013 performance period were granted on January 3, 2011 and vest on December 31, 2013).

 

(5) These amounts reflect the target payout level of shares for the 2010-2012 PSUs (75% of the base award due to Leggett’s TSR ranking in the 49th percentile versus the peer group as of December 31, 2011) and the maximum payout level for the 2011 PSUs (175% of the base award due to our TSR ranking in the 62nd percentile). Actual payouts will be based on our relative TSR on the vesting date, based on our performance for the three-year period. The PSUs are described at page 36.

Option Exercises and Stock Vested in 2011

The following table reports the number of stock options exercised and stock awards vested in 2011 and the value realized by the NEOs upon exercise or vesting of such awards. The stock award amounts represent the vesting of 25% of the RSUs granted in connection with the employment agreements described on page 51, and the payout of the 2009 PSUs at the end of the performance period on December 31, 2011 described on page 37.

 

     Options Awards      Stock Awards (1)  

Name

   Shares Acquired
on Exercise
(#)
     Value Realized
on Exercise
($)
     Shares Acquired
on Vesting
(#)
     Value
Realized on
Vesting

($) (2)
 

David S. Haffner

           151,178         $3,590,932   

Karl G. Glassman

     40,000         $159,600         76,978         1,858,264   

Matthew C. Flanigan

     12,000         47,880         46,608         1,131,589   

Paul R. Hauser

     5,000         19,000         17,793         409,946   

Joseph D. Downes, Jr.

     27,000         197,187         21,160         487,526   

(1) Amounts reported in these columns consist of vested RSU and PSU awards, allocated as follows:

 

     RSU      PSU  

Name

   Shares
Acquired on
Vesting
(#)
     Value
Realized on
Vesting
($)
     Shares
Acquired on
Vesting
(#)
     Value
Realized on
Vesting
($)
 

David S. Haffner

     35,000         $914,200         116,178         $2,676,732   

Karl G. Glassman

     27,500         718,300         49,478         1,139,964   

Matthew C. Flanigan

     18,750         489,750         27,858         641,839   

Paul R. Hauser

           17,793         409,946   

Joseph D. Downes, Jr.

           21,160         487,526   

 

(2) Amounts in this column are calculated based upon the closing price of the Company’s stock on the vesting date; however, as the PSUs and RSUs are distributed to the NEOs as shares of Company stock upon vesting, the NEOs may continue to hold the shares or sell them in accordance with our insider trading procedures.

 

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Pension Benefits in 2011

We had a voluntary, tax-qualified, defined benefit pension plan (the “Retirement Plan”), which was frozen December 31, 2006. Benefits accrued under the Retirement Plan were fixed as of that date, and the Retirement Plan was closed to new participants. In 2007, employees who had previously participated in the Retirement Plan were offered a replacement benefit package consisting of the Retirement K and the Retirement K Excess Program discussed at page 38. Although participants no longer accrue additional benefit under the Retirement Plan, the present value of the benefit may increase or decrease each year based on the assumptions used to calculate the benefit for financial reporting purposes.

The Retirement Plan required a contribution from participating employees of 2% of base salary. Normal monthly retirement benefits are the sum of 1% of the employee’s average monthly salary for each year of participation in the Retirement Plan. Benefits are calculated based on actual years of participation in the Retirement Plan, and benefits become payable when a participant reaches age 65 (normal retirement age). Mr. Haffner and Mr. Hauser are eligible for early retirement benefits under the Retirement Plan (minimum age 55 and at least 15 years of service), under which they would receive a monthly benefit reduced by 1/180th for the first 60 months and a monthly benefit reduced by 1/360th for any additional months before reaching normal retirement age.

The following table lists the present value of accumulated benefits payable to the NEOs under the Retirement Plan:

 

Name

   Number of
Years Credited
Service
(#)
     Present Value of
Accumulated
Benefit
($)
     Payments
During Last
Fiscal Year
($)

David S. Haffner

     28         $226,239      

Karl G. Glassman

     30         206,879      

Matthew C. Flanigan

     15         78,266      

Paul R. Hauser

     32         277,406      

Joseph D. Downes, Jr.

        

To calculate the present value of the accumulated Retirement Plan benefit, we took the annual accrued benefit through December 31, 2011 that would be payable at normal retirement age, assuming no future contributions. We converted that amount to a lump sum using an annuity factor from the RP2000 mortality table, and discounted that amount back to December 31, 2011 using a 4.25% discount rate. The discount rate, measurement date and mortality assumptions are the same as those used for financial reporting purposes.

 

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Non-Qualified Deferred Compensation in 2011

The following table provides the aggregate 2011 contributions, earnings, withdrawals, and ending balances for each Named Executive Officer’s deferred compensation accounts. The year-end balances are based on a $23.04 closing market price of our common stock on December 31, 2011.

 

Name

     Deferral
Type or

Program
(1)
       Executive
Contributions
in 2011
(2)
       Company
Contributions
in 2011
(2)
       Aggregate
Earnings

in 2011
(3)
       Aggregate
Withdrawals/
Distributions
       Aggregate
Balance at
12/31/11
(4)
 

David S. Haffner

       ESU           166,636           246,348           22,331                2,583,212   
       DSU           300,000           75,000           156,206           1,542,675           2,255,524   
       EDSP                    121,280           164,542           2,058,601   
         

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

            466,636           321,348           299,817           1,707,217           6,897,337   

Karl G. Glassman

       ESU           115,111           168,781           47,612                2,184,659   
       DSU          100,000           25,000           53,212                833,541   
       EDSP                    17,447                300,695   
         

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

            215,111           193,781           118,271                3,318,895   

Matthew C. Flanigan

       ESU           65,240           93,259           4,527                882,728   
       DSU          355,253           88,813           76,090           594,098           1,039,841   
         

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

            420,493           182,072           80,617           594,098           1,922,569   

Paul R. Hauser

       ESU           43,890           62,584           21,905                914,378   
       DCC                     4,058           107,387           112,045   
       DSU           118,769           29,692           5,584                154,045   
         

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

            162,659           92,276           31,547           107,387           1,180,468   

Joseph D. Downes, Jr.

       ESU           44,815           59,354           24,706                852,822   
       DCC           100,000                5,149           62,076           171,991   
       DSU                     13,893                201,208   
         

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

            144,815           59,354           43,748           62,076           1,226,021   

(1) Deferral Type or Program:

ESU = Executive Stock Unit Program (see description at page 37).

DCC = Deferred Compensation Program—Cash Deferral (see description at page 38).

DSU = Deferred Compensation Program—Stock Units (see description at page 38).

EDSP = Executive Deferred Stock Program. This is a frozen program under which executives deferred the gain from their stock option exercises from 1 to 15 years. Upon deferral, the participant was credited with stock units representing the option shares deferred, and the units accumulate dividend equivalents during the deferral period.

 

(2) Amounts reported in these columns are also included in the totals reported in the Summary Compensation Table.

 

(3) Aggregate earnings include interest, dividends and the appreciation (or depreciation) of the investments in which the accounts are held. The following amounts, representing preferential earnings on interest and dividends paid in 2011 on ESU Program and Deferred Compensation Program accounts, are reported in the Change in Pension Value and Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table: Haffner—$43,192; Glassman—$24,208; Flanigan—$13,732; Hauser—$7,286; and Downes—$8,501.

 

(4) Of the balances reported in this column (which are net of distributions from prior years’ deferrals), the following aggregate amounts were included in the totals reported in the Summary Compensation Table in 2009, 2010 and 2011: Haffner—$3,091,030; Glassman—$1,503,344; Flanigan—$1,953,561; Hauser—$706,963; and Downes—$556,556.

 

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Potential Payments upon Termination or Change in Control

This section describes the payments and benefits that may be received by our NEOs upon termination of employment, in excess of the amounts generally paid to our salaried employees upon termination of employment. We have employment agreements with Mr. Haffner, Mr. Glassman and Mr. Flanigan which provide for specific payments and benefits upon certain termination events. Mr. Haffner and Mr. Glassman also have severance benefit agreements which become effective upon a change in control of the Company. A termination of employment for an NEO not addressed under these agreements would be treated in the same manner as that of any salaried employee.

Employment Agreements. The employment agreements with Mr. Haffner, Mr. Glassman and Mr. Flanigan expire on the date of our annual meeting of shareholders in 2013. In the event their employment terminates prior to the expiration of the employment agreement, the obligations of the Company and the executive are as set forth in the following table:

 

Termination Following Total Disability
Trigger    Company Obligations    Executive Obligations
Executive’s employment may be terminated following a continuous 14-month period in which he is unable to materially perform the required services   

•     During the non-compete period, continuation of health insurance to executive and his dependents

  

•     Maintain confidentiality of Company information and trade secrets

•     Non-compete period through the end of the agreement’s term, or if later, for two years following termination

Executive’s Option to Terminate
Trigger    Company Obligations    Executive Obligations

Voluntary and effective within 60 days of written notice to the Company not later than six months after one of the following events:

•     Executive does not receive a salary increase in any year, unless due to Company-wide salary freeze

•     Mr. Haffner only: Executive is not elected to continue as Chief Executive Officer, a director of the Company and a member of the Board’s executive committee

•     Mr. Glassman only: Executive is not elected to continue as a director of the Company

•     Company is merged out of existence, sold or dissolved

•     Working control of Company is lost in a proxy contest or other tender offer

  

•     Pro-rated annual incentive award for the year of termination

•     During the non-compete period, continuation of health insurance to executive and his dependents

  

•     Maintain confidentiality of Company information and trade secrets

•     Non-compete period through the end of the agreement’s term, or if later, for two years following termination

 

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Termination by Company for Cause
Trigger    Company Obligations    Executive Obligations

The Company may terminate the executive following:

•     Conviction of a felony crime

•     Willful breach of the Code of Conduct or Financial Code of Ethics that causes material injury to the Company

•     Willful act of fraud, misappropriation or dishonesty that causes material injury to the Company or results in material enrichment of the executive at the Company’s expense

•     Willful violation of specific written directions of the Board or CEO, as applicable, following notice of such violation

•     Continuing, repeated, willful failure to substantially perform duties after written notice from the Board

  

•     Pro-rated annual incentive award for the year of termination

•  &n