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Original Source: FD (FAIR DISCLOSURE) WIRE
DICK NOTEBAERT, CHAIRMAN AND CEO, QWEST COMMUNICATIONS INTERNATIONAL, INC.: Okay I'm Dick Notebaert, Chairman and Chief Executive Officer and it's great to greet everybody again this year, and I'm glad you all are here. I think I saw most of you on the way in and so thank you for being here. This is our Qwest 2007 Annual Meeting and this is the fifth time I've had the opportunity to talk to you and give you a yearly update on your company.
And I've really enjoyed the past meetings but I want you to know I think today's gathering promises to be on the most gratifying. And you're probably some of you sitting out there saying why would he say gratifying? It's because over the last year we have reached some very significant milestones in our company. And the milestones really have been able to give all of us an optimistic view of where we're going and what's in our future. And I think as shareowners it's also probably gratifying for you because each and everyone of you are advocates for this enterprise and this company.
There have been a lot of people over the last few years and last year that worked extremely hard to achieve what many experts said was impossible. Those hard workers certainly included our Board of Directors and the company's senior management team, as well as all my other associates in the company. So as I did last year I'd like to introduce both of the two groups I just mentioned, senior management, and our directors. These are men and women who are wholeheartedly committed to this company.
But before I do, I'd like to just make a couple of comments about the achievements that we've had over time because it's been a real privilege for me to be here. These folks have moved this company from red to black on our income statement. They defied the experts dire predictions by making our company a profitable enterprise. They've taken a proactive approach in rewarding shareholders, equity holders with a $2 billion buyback, which by the way is running ahead of schedule as we've said on our analyst call.
This Board is also overseeing Qwest's reputational comeback, which has positively influenced everything we do especially the communities in which we operate. And I think it had a lot to do with our recent winning of the Federal government's $20 billion networks universal contract, which for many people it was a surprise that we did what we did and we qualified for that opportunity.
I could stand up here and mention many more things but let me just end with one more. This Board has made decisions and has launched initiatives that have resulted in a total return to shareowners of 48% last year and an additional 20% as of this morning so far this year. Both metrics exceed the returns of AT&T and Verizon, as well as exceeding the S&P 500.
So let me now introduce your Board of Directors. I would ask each of them to stand as I say their name and I would ask that we all wait until I've introduced the last one, member of the Board, for our applause. First of all Linda Alvarado, Charles Biggs, Dane Brooksher, Peter Hellman, David Hoover, Pat Martin, Caroline "Caz" Matthews, Wayne Murdy, Frank Popoff, Jim Unruh and Tony Welters. Welcome.
I also wanted to mention one thing about one of our members of our Board of Directors. Linda Alvarado last week received a very high honor. She received an Honorary Doctorate in Business Leadership from Ducaine University and Linda congratulations. There are no secrets.
Now let me ask Qwest's very talented senior management team to stand as a group, and we'd like to applaud you all. So, please stand. These men and women breathe Qwest. They are talented. They are committed,
and I have known them over the years, I've never worked with a better bunch of folks who really have thrown their hearts and their minds into the performance of this company. And I know that as we go through the next year we will have the opportunity next year to recognize significant accomplishments again.
Now let me now move -- what we're going to do we're going to go into the business portion of the meeting, and then I'll make some remarks about the performance of the company and then we're going to have lots of time for Q&A and for people to talk, so that's going to be the agenda for today. So let me start the meeting the 2007 Annual Meeting of the Stockholders of Qwest Communications International will now begin.
First, we will hear the Secretary's report from our General Counsel Rich Baer. Qwest's corporate secretary will also serve as the secretary for this meeting. Rich?
RICH BAER, EVP, GENERAL COUNSEL AND SECRETARY, QWEST COMMUNICATIONS INTERNATIONAL, INC.: Thank you, Dick. I present proof by affidavit that notice of this meeting has been duly given, and that a Proxy Statement has been mailed out to every holder of record of Qwest stock as of March 26, 2007. In addition I report that the Inspector of Election [Chris Hummel] with Broadridge Financial has signed his oath of office, and filed a certificate with me stating that a quorum of the holders of the outstanding vote stock of Qwest is present in person or is represented today by proxy. Thank you.
DICK NOTEBAERT: Thank you, Rich. Before my update on the progress and the discussion period I would like to get right to the business portion as I've already said. There are seven items to cover today, three proposed by management and four proposed by Qwest stockholders.
We will first present the management proposals which are the nomination of directors, the ratification of independent auditors, and the approval of amended and restated equity incentive plan. Each of the four stockholder proposals will then be presented by the proponent or a representative of the proponent.
During this time voting will take place. After the final proposal is presented we'll have Rich give us the preliminary results. Now before we begin with the proposals, and I want to remind everyone that if you have already voted by telephone or the Internet or by mailing in your proxy card, the Proxy Committee will vote your shares as you directed.
If you didn't have a ballot or didn't get a chance to vote and you wish to vote, please raise your hand and we will bring one to you. I see no hands going up. Okay. Once you have voted - since [there aren't any] I'll skip that part of it. I would like to remind everyone that there are rules of conduct for this meeting which can be found on the reverse side of your agenda, and as we begin the presentations of the stockholder proposals I will recognize the person or persons presenting each proposal. We will now begin with the management proposals.
The first item of business is the election of directors. Qwest Board of Directors currently consists of 12 directors. The Board has nominated Linda Alvarado, Charles Biggs, Dane Brooksher, Peter Hellman, David Hoover, Pat Martin, Caroline Matthews, Wayne Murdy, Frank Popoff, Jim Unruh, Tony Welters, and myself to serve as Directors until the 2008 Annual Meeting.
Under our bylaws director nominations must be made in advance and must comply with the requirements of the bylaws. No other nominations have been properly submitted, and therefore I declare the director nominations closed. The second item of business is management's proposal to ratify the appointment of KPMG LLP as our independent auditor for 2007. Our Board of Directors recommend that you vote for this proposal.
The third item of business is management's proposal to approve the amended and restated equity incentive plan. Our Board of Directors recommends you vote for this proposal. Item Number four is a stockholder proposal requesting that our Board of Directors establish a policy whereby at least 75% of future equity compensation awarded to senior executives be performance based and the related performance metrics be disclosed to stockholders.
This proposal was submitted by [Phil Graham], [Earl Pawls] and [William Eckhardt] and is set forth in the Proxy Statement. Those folks are here I know, because I said hi to you. So if you'd like to present.
WILLIAM ECKHARDT, SHAREHOLDER: Good morning, Mr. Chairman and Board of Directors and fellow shareholders. I am William Eckhardt co-sponsor of Proposition 4, along with Phillip Graham and Earl Pawls. This proposal ask the Board to adopt a policy, whereby at least 75% of future equity-based compensation, stock options and restricted stock, which is awarded to senior executives be truly performance based with the performance criteria disclosed to shareholders.
And as long-term shareholders we support performance-based equity grants that paid off only when senior executives out-perform market and/or industry peer groups. In recent years Qwest has awarded unnecessarily large grants of standard stock options that yield windfalls for executives who are merely lucky enough to hold them during a rising market.
Qwest executives receive about half of their equity-based compensation in the form of restricted stock and half in standard options. Warren Buffett has supported indexed options observing that standard stock options are really a royalty on passage of time. Until 2005 CEO Richard Notebaert received all of his long-term equity compensation in standard stock option grants, 11 million in three years.
In 2006, the Board tied a performance vesting feature to an even larger grant of options and restricted shares awarded to retain Notebaert and Shaffer. We believe that performance-based restrictions should apply to all future equity grants for all senior executives. Institutional Shareholder Services, a leading provider of proxy analysis supports this shareholder proposal because they feel the stock option target wasn't very rigorous if the company met the requirement in just nine months after the awards were granted, and further they feel that once they met this requirement it triggered a double payout since the requirement was applied to both stock options and restricted stocks.
This month the Corporation Library, a leading independent source for governance and executive compensation analysis released a study ranking Qwest among the 12 worst US corporations in terms of the huge gap between the executive compensation and shareholder performance. The Corporate Library singled out Qwest as a pay-for-failure company along with 11 other companies plagued by pay scandals and including Home Depot, Pfizer, Verizon and Wal-Mart.
Notebaert has received $44.5 million in compensation over the past two years alone. Of course we recognize that Qwest stock price performance has improved during Notebaert's leadership. But as the Corporate Library pointed out, the only stock grant option with a performance condition, last year's massive stock retention award to Notebaert and Shaffer, was triggered by a mere $1.35 increase in the stock price.
Recently at Verizon, half of their shareholders supported a proposal giving investors an advisory vote on executive pay. It may be the first company where the say-on-pay effort has passed. In the UK and Australia every public company is required to conduct an annual say-on-pay advisory vote. And as shareholders we don't particularly wish to limit compensation of top executives, but we do expect it to be reasonable and paid only when it has been earned by meeting specified targets.
Last year our proposals plea was, "If you didn't earn it, you must return it." This year our plea is, "If you didn't earn it, you shouldn't get it." We ask everyone to support Proposition 4. Thank you.
DICK NOTEBAERT: Thank you. I would like to point out the Board of Directors that you vote against this proposal for reasons stated in the Proxy Statement. We now move to Item Number 5 which is a stockholder proposal requesting our Board of Directors establish a policy, whereby stockholders have the opportunity at each Annual Meeting to vote on an advisory resolution proposed by management to ratify certain compensation of our named executive officers.
This proposal was submitted by [ASME] Employees Pension Plan and is set forth in the Proxy Statement. And I see that our -- you've change clothes, and we have a representative here to make the proposal. Please go ahead.
SCOTT ADAMS, REPRESENTATIVE, ASME EMPLOYEES PENSION PLAN: Fellow stockholders and members of the Board thank you for the opportunity to speak. My name is [Scott Adams] and I'm representing the ASME Employees Pension Plan. I hereby move stockholder Proposal 5 asking our company to give shareholders a say-on-pay in the form an advisory vote to ratify the compensation of named executive officers. The stockholder vote would not override compensation decisions, but would allow shareholders to weigh in on whether they believe the executive compensation is warranted.
Investor votes on pay reports are a growing governance trend in other markets, Britain, the Netherlands, Australia and Sweden have each adopted measures allowing shareholders to vote on …