Windstream 2006 Annual Report Download - page 16

MANAGEMENT COMPENSATION
Compensation Discussion and Analysis
Background of Alltel Spin-off and Valor Merger. On July 17, 2006, Valor, Alltel and Spinco, then a
wholly-owned subsidiary of Alltel, consummated the spin-off of Spinco and the merger of Spinco with and into
Valor. Commencing June 1, 2006 in contemplation of the spin-off and merger, each of Anthony J. deNicola,
Chair, Dennis E. Foster and William A. Montgomery were appointed to serve on the Compensation Committee
of the Board of Directors of Spinco. At the effective time of the merger, except for Mr. Anthony J. deNicola,
each member of the Board of Directors of Valor resigned from the Board of Directors of Valor and its
committees, and the Board of Directors of Spinco became the Board of Directors of Windstream. In addition, the
members of the Compensation Committee of Spinco became the members of the Compensation Committee of
Windstream. Prior to July 17, 2006, Anthony J. deNicola, Chair, Norman W. Alpert, and Sanjay Swani served on
the Compensation Committee of Valor. The following discussion reflects the compensation philosophy of the
Windstream Compensation Committee and does not address the historical compensation philosophy that Valor
used to derive the compensation for Valor executive officers prior to July 17, 2006.
Effective December 12, 2006, in connection with the entry into an agreement by Windstream with entities
affiliated with Welsh, Carson, Anderson & Stowe (WCAS), a private equity investment firm for which
Mr. deNicola serves as a general partner, pursuant to which Windstream has agreed to split off its directory
publishing business, the Windstream Board of Directors appointed Samuel E. Beall, III to replace Mr. deNicola
as a member of the Compensation Committee of Windstream and designated William A. Montgomery to replace
Mr. deNicola as Chair of the Compensation Committee. On December 14, 2006, Mr. deNicola resigned from the
Board of Directors of Windstream to avoid potential conflicts between the interests of WCAS and Windstream as
a result of the pending split-off transaction.
Alltel Employee Benefits Agreement. As part of the spin-off and merger, the compensation program for
the executive officers of Spinco was initially determined pursuant to the terms and conditions of an Employee
Benefits Agreement between Alltel and Spinco. In accordance with the Employee Benefits Agreement, Spinco
adopted benefit plans that were substantially similar to the benefit plans maintained by Alltel, including a
pension plan, qualified retirement plans, health and welfare benefit plans, and non-qualified deferred
compensation plans. Furthermore, the Compensation Committee of the Board of Directors of Alltel in December
2005 reviewed and approved the compensation for 2006 for the executive officers of Windstream who were
employed with Alltel at that time, including Mr. Gardner, the President and Chief Executive Officer of Spinco,
Mr. Frantz, the Chairman of Spinco, and Mr. Whittington, Executive Vice President and Chief Financial Officer
of Spinco.
The Employee Benefits Agreement provided for the method of payout to Spinco executive officers of
amounts under Alltel’s long-term performance incentive plan which provided for pro-rated cash compensation
based on achievement of performance measures by Alltel for the period from 2004-2006 and based on target
performance for the period from 2005-2007. The Employee Benefits Agreement also specified that awards of
restricted shares of Alltel common stock held by Spinco executive officers became fully vested on July 17, 2006,
and stock options to purchase Alltel common stock held by Spinco executive officers that were vested on July 17,
2006 would continue to be exercisable for a period of 90 days following the spin-off. As for stock options held
by Spinco executive officers that were not vested on July 17, 2006, the Employee Benefits Agreement provided
that such options be cancelled as of July 17, 2006 and that such optionholders would receive grants of restricted
shares of Windstream common stock in amounts equal to the in-the-money value of the unvested options at the
time of the spin-off. On August 2, 2006, the Spinco Compensation Committee approved these grants of restricted
stock, which are referred to herein as “forfeiture grants.” All amounts received by Spinco executive officers
during 2006 under Alltel’s long-term performance incentive plan and equity incentive plans reflect compensation
that was awarded by the Alltel Compensation Committee in periods prior to 2006, and no Spinco executive
officer received an award from Alltel with respect to 2006 under Alltel’s long-term performance incentive plan
or its equity incentive plans.
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