Windstream 2013 Annual Report Download - page 72

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Windstream maintains an equity-based compensation program for executive officers that is designed to
provide long-term incentives, to better align the interests of executives with stockholders, and to provide a retention
incentive. For the reasons outlined below, we believe this proposal would conflict with and potentially undermine
these objectives of our equity-based compensation program.
We believe the following design features of our equity compensation program adequately address the concerns
raised by the proponent and render adoption of the proposal unnecessary:
• As stated in the proposal, all awards to senior executives have a double-trigger vesting provision, which
means vesting does not occur unless both (1) the change-in-control transaction is consummated and (2)
the executive’s employment is terminated following the transaction. Additionally, the first trigger is tied
to consummation (and not signing or stockholder approval) of a change-in-control transaction;
• No awards vest unless the executive’s position is eliminated in a qualified manner (i.e., termination by the
company without cause, or resignation by the executive for good reason);
• No awards contain a window period provision that vest the award if the executive resigns within a
specified time period following closing of a change-in-control transaction; and
• Our change-in-control agreements with executive officers limit the amount of all change-in-control
severance benefits (including the value of any unvested equity awards) so that they do not exceed the
applicable limit under 280G of the Internal Revenue Code, and no executives are eligible for gross-up or
reimbursement of any excise taxes.
Windstream believes that it is appropriate for equity-based compensation to vest under this qualified
double-trigger framework because, in most change-in-control transactions, senior executive positions of the target
company are eliminated as duplicative following the closing of the transaction. As a result of these alternative
scenarios, if compensation programs are not properly designed, the risk of loss of a substantial portion of executive
compensation can discourage management from pursuing the best alternatives for creating long-term value
for stockholders, including a potential change-of-control transaction, while encouraging pursuit of alternatives
more likely to result in longer term employment of the executive team. Due to this potential conflict, we believe
that well-designed change-in-control arrangements are an important measure to align management’s interests
with stockholders. The conflict is potentially greater at Windstream due to the substantial amount of merger and
acquisition activity that occurs in our sector, as well as Windstream’s practice of allocating a substantial percentage
of each executive’s annual total direct compensation to equity compensation.
One unintended consequence of adopting the proposal would be to undermine the retention incentive of equity
awards, as management would face the prospect of forfeiture of all or a substantial portion of their equity awards in
the event of a change-in-control. The need for this retention incentive is heightened during the pendency of a change-
in-control, as a target company needs a motivated executive team to continue to operate the business during the
period between signing and closing. The need for this retention incentive is especially great in Windstream’s industry
due to the significant time periods that can elapse before obtaining regulatory approvals for a transaction. We note
that none of the companies cited by the proponent as adopting its proposal is a company operating in Windstream’s
sector, and adoption of this policy could disadvantage Windstream within its sector.
If Windstream were to pursue a change-in-control transaction, the Board of Directors would choose such
alternative in the belief that it was the best path for creating long-term value for Windstream stockholders. Under
those circumstances, the Board does not believe it is appropriate, or in the best interest of our stockholders for the
reasons discussed above, for senior management to forfeit their unvested equity awards that represent a significant
portion of their total annual compensation.
For these reasons, Windstream believes that this proposal is unnecessary and undesirable and could have
adverse consequences for stockholders.
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
“AGAINST” PROPOSAL NO. 8.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED “AGAINST”
PROPOSAL NO. 8 UNLESS STOCKHOLDERS SPECIFY A CONTRARY VOTE.