Windstream 2006 Annual Report Download - page 20

The Windstream Board of Directors has delegated responsibility for administration of the 2006 Equity
Incentive Plan, including the authority to approve awards, to the Compensation Committee. The Compensation
Committee approved all equity-based compensation awards for 2006 at its first regularly scheduled meeting to
occur following the spin-off and merger, which occurred in August 2006. In 2007 and in future years, the
Compensation Committee intends to review and approve all equity compensation awards to directors and
executive officers at its first regularly scheduled meeting of each year, which is expected to occur each February.
In determining the number of shares of restricted stock or performance-based restricted stock to award to any
individual under the 2006 Equity Incentive Plan, the Compensation Committee divides the approved grant value
for such individual by the closing stock price of Windstream common stock on the date that the Compensation
Committee approves the award (rounded down to the nearest whole share). As a matter of policy, the Compensa-
tion Committee does not approve awards of equity compensation through the adoption of a unanimous written
consent in lieu of a meeting.
During 2006, the Compensation Committee approved the following categories of equity compensation
awards to executive officers:
• Annual Awards – Each officer receives a portion of his or her total direct annual compensation for a
given year in the form of long-term incentive compensation. During 2006, the Compensation
Committee approved an award of restricted stock, and in the case of Mr. Gardner, performance-
based restricted stock, as long-term incentive compensation for 2006. These awards vest ratably in
one-third (1/3) increments on August 1 of each year over a three year term.
• One-Time Awards – Each officer received a special one-time grant to recognize the extra efforts
required for the business separation and integration activities that occurred as part of the spin-off and
merger and to maintain consistency with market practice for comparable business transactions such
as initial public offerings and spin-offs. The one-time awards also were used to help bring total
compensation of the Windstream executive officers to the median level of total compensation of
officers in similar positions at comparable companies, given that the base salary and short-term
incentive components of compensation were below the median level for those elements. The
one-time awards provide for “cliff” vesting and vest in full in August 2009, except for performance-
based restricted stock granted to Mr. Gardner which vests ratably in one-third (1/3) increments on
August 1 of each year if Windstream also achieves the performance objective for such annual period.
• Forfeiture Awards – Each officer who held unvested stock options to acquire Alltel common stock
received an award in an amount designed to approximate the in-the-money value of such Alltel stock
options that were lapsed and forfeited by such officer as a result of the spin-off. These “forfeiture”
awards vest ratably in one-third (1/3) increments on August 1 of each year over a three year term.
During the vesting period, the executives have the rights of a stockholder to vote the restricted stock and to
receive any cash dividends paid with respect to the restricted shares.
In preparation during 2005 for the spin-off, management of Alltel and Spinco (now Windstream) obtained
a survey of executive compensation using market surveys and other data prepared by Watson Wyatt & Company,
who was chosen by Alltel management to assist in formulating the compensation strategy for Spinco. Watson
Wyatt & Company was selected in part because it was not the compensation consultant to the Alltel
Compensation Committee, and Alltel desired to have a different consultant to advise on Spinco compensation
matters to avoid any potential conflicts between the interests of Alltel and Spinco. Based on recommendations of
Alltel management, Spinco management, and Watson Wyatt & Company, the Alltel Compensation Committee
approved the overall dollar values of the foregoing awards in December 2005 in contemplation of the spin-off.
The approval also included specific amounts of the awards for each named executive officer position of
Windstream. Prior to the spin-off, the Windstream executive officers received no long-term or equity incentive
compensation awards from Alltel with respect to 2006. Following its appointment in June 2006, the Spinco and
Windstream Compensation Committees reviewed the proposed equity compensation awards at June and August
2006 meetings.
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