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The following is an excerpt from a 10-K SEC Filing, filed by HAWAIIAN TELCOM COMMUNICATIONS, INC. on 4/2/2007.
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HAWAIIAN TELCOM COMMUNICATIONS, INC. - 10-K - 20070402 - PART_III

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following table provides information regarding our executive officers and directors as of the date of this annual report:

Name

 

Age

 

Position(s)

Michael S. Ruley

 

47

 

Chief Executive Officer and Director

Michael T. Brown

 

47

 

Senior Vice President, Customer Contact Centers and Wholesale Markets

Michael J. McHale, Jr.

 

50

 

Senior Vice President and Chief Marketing Officer

Daniel P. O’Brien

 

52

 

Senior Vice President and Chief Financial Officer

Alan M. Oshima

 

60

 

Senior Vice President and General Counsel

Harvey A. Plummer

 

56

 

Senior Vice President, Operations and Engineering

David A. Torline

 

57

 

Senior Vice President and Chief Information Officer

Claire K.S. Cooper

 

58

 

Vice President, Human Resources

Patrick T. Hogan

 

39

 

Vice President, Finance and Controller

Ron Montgomery

 

54

 

Vice President and General Manager, Directories

Daniel F. Akerson

 

58

 

Chairman of the Board of Directors

James A. Attwood, Jr.

 

48

 

Director

Matthew P. Boyer

 

41

 

Director

Walter A. Dods, Jr.

 

65

 

Director

Stephen C. Gray

 

48

 

Director

William E. Kennard

 

50

 

Director

Raymond A. Ranelli

 

59

 

Director

 

Michael S. Ruley became our Chief Executive Officer in October 2004 and Director on May 2, 2005. Mr. Ruley has more than 20 years of experience in the telecommunications and technology sectors. He was formerly the President and Chief Executive Officer of NextiraOne, a privately held North American communications solutions provider with approximately $1 billion of sales, from 2003 to 2004. Prior to NextiraOne, Mr. Ruley held numerous management positions at XO Communications, Inc. from 1998 to 2003 culminating in his role as the President of Market Sales Operations where he was responsible for sales, sales operations, sales engineering and customer care. XO Communications filed a petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code in June 2002 and completed its restructuring and emerged from Chapter 11 in January 2003. Prior to XO Communications, he served in several senior capacities at Teleport Communications Group Inc. (now part of AT&T).

Michael T. Brown became our Vice President in charge of Sales Operations and Process Engineering in December 2004. Effective December 17, 2006, Mr. Brown was promoted to Senior Vice President, Customer Contact Centers and Wholesale Markets. Mr. Brown has extensive technology and telecommunications experience, which includes 16 years with various divisions of Lucent Technologies from 1986 to 2002 where he served, among

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other roles, as a Sales Vice President for Optical, Services and Software. He was also regional Vice President of Sales with Voxpath Networks, Inc. Prior to joining us, Mr. Brown was Vice President of Sales Operations with NextiraOne, LLC, a major reseller of Nortel and Cisco solutions, from 2003 to 2004 where he ran the daily sales operations of a 400-person North American sales team, managing services to top Fortune 500 companies.

Michael J. McHale, Jr. became our Senior Vice President and Chief Marketing Officer in September 2006.  In December 2006, his duties were expanded to include Business Sales, Customer Relations and Corporate Communications.  From 2002 to 2005, Mr. McHale was Chief Executive Officer of Telespectra, a business broadband service provider in the Southwest United States, and led a successful turnaround of the company.  Prior to that, he held senior executive positions including President and Chief Operating Officer of Telseon, a startup Metro Gigabit Ethernet provider; Chief Marketing Officer and President of National Services at XO-NextLink Communications; Vice President/General Manager and Regional Vice President at Teleport Communications; and Vice President of Marketing at MFS.  Earlier, Mr. McHale spent 14 years in various management, sales, technical and product management roles at IBM.

Daniel P. O’Brien became our Senior Vice President and Chief Financial Officer on May 9, 2005. Prior to joining us, Mr. O’Brien served as Executive Vice President and Chief Financial Officer of Global Crossing Limited from 2003 to 2005 where he led the Global Crossing financial team through intensive external audits and SEC filings and managed shareholder and creditor relations resulting in the company’s public listing with NASDAQ in 2004. From 2000 to 2003, Mr. O’Brien was the Executive Vice President and Chief Financial Officer of Genuity Corporation. Genuity, Inc. (a business unit of Genuity Corp.) filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in 2002, as part of a plan negotiated with its significant creditors. Genuity Inc.’s assets were acquired by Level 3 Communications in early 2003. Prior to Genuity, Mr. O’Brien spent 17 years in various roles at GTE Corporation. From May 1998 to June 2000, he was GTE’s Executive Vice President and Chief Financial Officer. In that capacity, Mr. O’Brien was centrally involved in the strategic evaluations and the integration and structuring activities leading to the merger of GTE and Bell Atlantic Corp., which formed Verizon. In March 2007, we announced Mr. O’Brien will be leaving us and will work to transition his duties to a successor Chief Financial Officer.

Alan M. Oshima became our Senior Vice President and General Counsel in February 2005. Mr. Oshima, a founding partner in the Honolulu law firm, Oshima Chun Fong & Chung, LLP, has extensive regulatory and legal experience in Hawaii and served as lead counsel in Hawaiian Telcom’s acquisition of Verizon’s Hawaii Business. He has been recognized as one of “America’s Best Lawyers” in the field of public utilities. In addition to his work in telecommunications, Mr. Oshima has served as the regulatory attorney for the Kauai Island Utility Cooperative, The Gas Company, various water and sewer companies and other utility-related businesses in Hawaii. Mr. Oshima received a degree in marketing from Northwestern University and his law degree from University of California, Hastings College of Law. He served as a Supply Corps Officer with the U.S. Navy in, among other places, Pearl Harbor and San Diego.

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Harvey A. Plummer became our Senior Vice President in charge of Operations and Engineering in December 2004. He has more than 35 years of planning, operations, public policy and strategy development experience in the domestic and international telecommunications and consulting industries. Prior to joining us, Mr. Plummer was Senior Vice President and Regional Managing Director for Southeast Asia with BearingPoint, based in Sydney, Australia, from 2002 to 2004. While at BearingPoint, he was responsible for managing the regional consulting businesses in Australia, New Zealand, Singapore, Malaysia and Thailand. From 1998 to 2000, he was Vice President for Technology Strategy and a corporate officer of MediaOne International, based in London, with responsibility for telecommunications, cable, Internet and wireless ventures in 14 countries throughout Europe, Asia and Russia. From 1983 to 1998, Mr. Plummer worked for U.S. West, Inc. and his 15-year tenure culminated with his appointment as a corporate officer and Vice President of Engineering, Construction and Procurement for a 14-state operation that served 16 million subscribers.

David A. Torline became our Senior Vice President and Chief Information Officer in September 2004. Prior to joining us, he served as an independent consultant working for Carlyle from January 2004 through September 2004. Prior to that, Mr. Torline held numerous executive management and IT positions throughout his 33-year career at Cincinnati Bell/Broadwing. From 1999 to 2003, he was the Chief Information Officer of Broadwing Inc., the parent corporation of Broadwing Communications and Cincinnati Bell. Mr. Torline also served as the CIO of Broadwing Communications, the national broadband network of Broadwing Inc. Prior to that position, Mr. Torline served as the senior Information Technology executive for Cincinnati Bell Telephone Co. from 1995 to 1999. In that capacity, he was responsible for the strategic direction of Cincinnati Bell’s systems and for the development and implementation of the many business critical platforms that Cincinnati Bell utilized to deliver the outstanding customer service for which it has received international recognition. From 1992 to 1994, Mr. Torline also served as President of Cincinnati Bell Supply, a former Cincinnati Bell Inc. subsidiary involved in desktop computer services and secondary telecommunications markets.

Claire K.S. Cooper became our Human Resources Vice President in December 2004. Ms. Cooper has more than 20 years of human resource experience with large companies, specializing in change management, leadership and organization development, collaborative strategic planning, and training and development. Prior to joining us, she served as a principal consultant with EMA, Inc., a nationwide consulting firm, for clients in Hawaii and on the mainland United States since 1999. Prior to that, she served as Vice President of Human Resources with Tesoro Hawaii Corporation, and Vice President and Manager of Organization Staff Planning and Development for First Hawaiian Bank. Ms. Cooper also served in various human resource roles for BHP Hawaii Inc., formerly Pacific Resources, Inc., where she was part of the global leadership team with counterparts in London, Houston and Melbourne, Australia.

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Patrick T. Hogan became our Vice President, Finance and Controller in July 2005. A CPA and an attorney with nearly 20 years of financial experience, Mr. Hogan has held public company positions as Principal Accounting Officer, VP - Capital Markets, Chief Financial Officer and Treasurer. Most recently from 2003 to 2005, he led a successful financial restructuring (via voluntary petition under Chapter 11 of the U.S. Bankruptcy Code) and public NASDAQ listing of RCN Corporation, serving as Executive Vice President and Chief Financial Officer of the bundled provider of voice, video and data services. Mr. Hogan served from 2001-2002 as Vice President and Chief Financial Officer of Alexander’s Inc. (an affiliate of Vornado Realty Trust), while also serving as Vice President—Finance and Capital Markets at Vornado from 2001-2003. His prior experience since 1996 has included oversight responsibility for SEC filings, audit and tax relationships, several public debt and equity transactions and investor relations.  Mr. Hogan gained his public accounting experience with Coopers & Lybrand (now PricewaterhouseCoopers).  Mr. Hogan recently announced he would be leaving the Company to accept a new position as senior vice president of a public telecommunications company.  He will be succeeded by Mr. Robert F. Reich, currently the Vice President, Controller and Treasurer of McLeodUSA, Inc., who will become our Vice President and Controller effective as of April 16, 2007.

Ron Montgomery became our Vice President and General Manager in charge of Directories in January 2005. He has extensive experience in the directory publishing industry. Prior to joining us, he served as President of Net-Linx Americas, Inc., a leading software developer and provider to the yellow page publishing industry, from 2003 to 2004. He also served as a group Vice President for Publishing, Printing and Distribution of Verizon Information Services Inc. from 1998 to 2002, where he was responsible for the production and distribution of 1300 titles and 130 million directories annually. He also served in various senior positions including Chief Operating Officer of Trend Offset Printing and its affiliate United Publishers, a California based yellow pages publisher, from 1991 to 1998.

Daniel F. Akerson became the Chairman of our Board of Directors on May 2, 2005. Mr. Akerson has been a Managing Director of Carlyle since 2003 and is Co-Head of the U.S. Buyout fund. He has extensive operating and management experience in telecommunications and technology. Prior to joining Carlyle, Mr. Akerson served as chairman and chief executive officer of three companies. From late 1999 until January 2003, Mr. Akerson served as Chairman and Chief Executive Officer of XO Communications, Inc. XO Communications filed a petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code in June 2002, and Mr. Akerson led the successful restructuring of the company and emergence from Chapter 11 in January 2003. At Nextel Communications, Inc., Mr. Akerson served as Chairman from 1996 to 2001 and Chief Executive Officer from 1996 to 1999 where he transitioned the company from a regional analog walkie/talkie provider into a unique, leading edge national digital wireless competitor. In 1993, he became General Partner of Forstmann Little & Company, during which time he served as Chairman and Chief Executive Officer of General Instrument Company from 1993 to 1995. While at General Instrument, he led a successful effort to develop and deploy the first digital video, satellite and cable systems domestically and internationally. From 1983 to 1993, Mr. Akerson served in several key roles at MCI Communications Corporation including Executive Vice President and Chief Financial Officer from 1987 to 1990 and President and Chief Operating Officer from 1992 to 1993. Mr. Akerson is a member of the Boards of Directors of the American Express Company, United Components, Inc. and Willcom, Inc. He also serves as a member of the Board of Directors of the U.S. Naval Academy Foundation.

94




James A. Attwood, Jr. became a Director in May 2004. Mr. Attwood has been a Managing Director of Carlyle and head of the Global Telecommunications and Media group since November 2000. Prior to joining Carlyle, he served as Executive Vice President—Strategy, Development and Planning for Verizon Communications, Inc. He served as Executive Vice President—Strategic Development and Planning at GTE Corporation prior to that. Mr. Attwood joined GTE Corporation in 1996 as Vice President— Corporate Planning and Development after more than ten years in the investment banking division of Goldman, Sachs & Co. Mr. Attwood is a member of the Boards of Directors of Willcom, Inc. and Insight Communications Company, Inc.

Matthew P. Boyer became a Director in May 2004. Mr. Boyer has been a Managing Director of Carlyle since 2005, and is focused on U.S. buyout transactions in the telecommunications sector with a particular focus on the wireline and wireless industries. He was integrally involved in the execution of Carlyle’s investment in Dex Media, Inc. and Hawaiian Telcom Communications, Inc. Prior to joining Carlyle, Mr. Boyer was Senior Vice President at Lehman Brothers and one of the founding members of the Lehman Brothers Communications Fund, an $800 million private equity fund focused on early stage investments in communications companies. Prior to that, he was an investment banker at Lehman Brothers in the Communications and Media Group where he focused on wireless and emerging wireline communications companies.

Walter A. Dods, Jr. became a Director on May 2, 2005. Mr. Dods has been the non-executive Chairman of the Board of BancWest Corporation, a $50 billion bank holding company based in Honolulu, Hawaii, since January 2005 and a director since 1983. BancWest, a wholly-owned subsidiary of BNP Paribas, is comprised of two major subsidiaries: First Hawaiian Bank and Bank of the West. He has also been the non-executive Chairman of the Board of First Hawaiian Bank since January 2005 and a director since 1979, as well as Vice Chairman of Bank of the West since 1998. Mr. Dods was Chairman of the Board and Chief Executive Officer of BancWest and First Hawaiian Bank from 1989 to 2004. From 1996 to 1997, Mr. Dods served as the National President of the American Bankers Association and was a member of the Federal Advisory Council of the Federal Reserve System, representing the 12th district of the Federal Reserve from 1999 to 2000. Mr. Dods also serves on the Boards of Directors of Alexander & Baldwin, Inc. (and its Matson Navigation subsidiary), First Insurance Company of Hawaii, Grace Pacific Corporation, Pacific Guardian Life Insurance Company, Maui Land & Pineapple Company, Inc. and Servco Pacific, Inc. Mr. Dods is a director of numerous community and civic organizations and serves as a Trustee of the Estate of Samuel Mills Damon.

Stephen C. Gray became a Director on November 7, 2006. Mr. Gray has been Executive Chairman of ImOn Communications, LLC, a full service cable, telecommunications and Internet service provider located in Cedar Rapids, Iowa, since October 2006.  He has also served as Executive Chairman of SecurityCoverage, a provider of fully automated computer security services for homes and small businesses, since October 2005.  From April 2002 until his retirement in December 2004, Mr. Gray served as president of McLeodUSA, which provides facilities-based integrated voice and data services in more than 490 US cities.  He oversaw

95




McLeodUSA’s primary business units consisting of its CLEC (competitive local exchange carrier), ILEC (incumbent local exchange carrier), Directory Publishing and Cable/Telephony divisions.  He also led development of the company’s overall strategy and its merger/acquisition efforts.  Mr. Gray had become one of the original founders of McLeodUSA in 1992, and initially served as its chief operating officer. Mr. Gray also previously served as Vice President of Business Services at MCI and Senior Vice President of National Accounts and Carrier Services for Telecom USA. Mr. Gray also serves on the Board of Directors of Insight Communications, Inc.

William E. Kennard became a Director on May 2, 2005. Mr. Kennard is a Managing Director of Carlyle. Since joining Carlyle in 2001, he has played key roles in the investments in Dex Media, Inc., Casema Holding, BV, Insight Communications Company, Inc. and Hawaiian Telcom Communications, Inc. Mr. Kennard also is a member of the Boards of Directors of The New York Times Company and Insight Communications, Inc. Prior to joining Carlyle, Mr. Kennard served as Chairman of the U.S. Federal Communications Commission from 1997 to 2001. Mr. Kennard served as the FCC’s general counsel from December 1993 to November 1997. Before serving in government, he was a partner and member of the Board of Directors of the law firm of Verner, Liipfert, Bernhard, McPherson and Hand.

Raymond A. Ranelli became a Director on May 2, 2005. Mr. Ranelli retired from PricewaterhouseCoopers in 2003 where he was a partner for over 25 years. Mr. Ranelli held several positions at PricewaterhouseCoopers including Vice Chairman and Global Leader of the Financial Advisory Services practice. Mr. Ranelli is also a director of AmeriPath, Inc., United Components Inc. and Centennial Communications Corp.

Committees of the Board of Directors

Our Board of Directors has an Audit Committee, Compensation Committee, Nominating and Governance Committee, and Executive Committee. The duties and responsibilities of the Audit Committee include recommending the appointment or termination of the engagement of independent accountants, otherwise overseeing the independent auditor relationship and reviewing significant accounting policies and controls. The duties and responsibilities of the Compensation Committee include reviewing and approving the compensation of officers and reviewing and making recommendations to the Board of Directors concerning the compensation of the independent directors. The duties and responsibilities of the Nominating and Governance Committee include making recommendations regarding individuals qualified to become directors, the structure and composition of the Board of Directors and committees of the Board, and corporate governance policies and practices. The purpose of the Executive Committee is to act for the Board of Directors in the event formal action is required between Board meetings. Affiliates of Carlyle control substantially all of the common stock of our parent, Hawaiian Telcom Holdco, Inc., and therefore have the power to control our affairs and policies. Carlyle also controls the election of our directors. Since November 7, 2006, half of the members of our Board of Directors are representatives of Carlyle.

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The Board of Directors has determined that the Audit Committee includes an “audit committee financial expert”, Raymond A. Ranelli, as that term is defined in SEC regulations. Mr. Ranelli also is “independent” under the NASDAQ independence standards. In addition, the Board of Directors believes that each of the other current members of the Audit Committee is fully qualified to address any issues that are likely to come before the Committee, including the evaluation of our financial statements and supervision of our independent auditors.

Procedures for Nominations by Security Holders

The Nominating and Governance Committee does not have a policy with regard to the consideration of any director candidates recommended by security holders, because our common stock is not publicly held.

Code of Business Conduct

We have adopted a Code of Business Conduct that sets forth legal, ethical and other obligations that apply to all of our officers and employees, as well as all parties who work on behalf of Hawaiian Telcom, including but not limited to consultants, in-house contractors, employees of subsidiaries and affiliates, and representatives. The Code of Business Conduct is posted in the “Investor Relations – Governance” section of our website at www.hawaiiantel.com. In the event that we make any amendment to, or grant any waiver of, a provision of the Code of Business Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, we intend to disclose such amendment or waiver.

Item 11. Executive Compensation

Compensation Discussion and Analysis

The primary objectives of the Compensation Committee with respect to executive compensation include: attracting and retaining the most talented executives; tying annual and long-term compensation to the achievement of specific meaningful performance objectives; and aligning the executives’ interests with creation of shareholder value.  To achieve these objectives, the Compensation Committee implements a total compensation program that ties a substantial portion of each executive’s overall compensation to key performance metrics. Our named executive officers’ compensation currently consists of the following components:

Base Salary.   Base salaries for our named executive officers are based on the scope of their responsibilities, taking into account competitive market compensation paid by comparable companies for similar positions. To assist with developing our named executive officer base salary ranges, in 2006 we engaged an independent consulting firm to conduct a market compensation study of 17 top executive positions (Vice President and higher) at telecommunications companies of comparable revenue size. For the top five executive positions, peer group data also was analyzed.  The peer group consisted of 14 telecommunications companies of comparable revenue size and other business characteristics. That study determined that our executive base salaries overall are

97




at the market median although there was variance by position and level. Base salary merit increases for named executive officers are considered each year and are based on the individual performance appraisals of the executives and on the amount of the merit increase pool budgeted by management for the year in question. The performance of the Chief Executive Officer is reviewed by the Compensation Committee. Merit increases were awarded in 2006 to the named executive officers.

Non-Union Bonus Plan.  The Non-Union Bonus Plan provides our executive officers and other key employees with the opportunity to obtain, in addition to their base salary, an annual cash bonus that is dependent upon achieving stated corporate and personal performance goals for the year in question.  For 2006, the corporate performance metrics consisted of EBITDA, revenue, and free cash flow. The performance-based bonus is calculated as a percentage of the employee’s base salary. For our named executive officers for 2006, the percentages of base salary used to determine the bonus ranged from 75% to 100%. In addition, corporate performance generally is a greater factor for executive officers than it is for non-executive employees.  For 2006, the bonuses for executive officers were based 80% on corporate performance and 20% on individual performance. Not all 2006 corporate performance metrics were met, and as a result the bonuses for 2006 for the named executive officers were between the threshold and target amounts indicated in the section entitled “Grants of Plan-Based Awards.” Solely at our discretion, additional performance-based compensation may be paid to our executive officers and other key employees. No such additional bonus was paid in 2006. The Compensation Committee approves the annual bonus awards for the Chief Executive Officer and other executive officers. Depending on the achievement of the predetermined targets, the annual bonus may be less than or greater than the target bonus. The Non-Union Bonus Plan is reviewed annually and its terms may be modified from time to time to reflect changes in the Company’s business strategies and focus.

Stock Option Plan.   The Stock Option Plan of Hawaiian Telcom Holdco, Inc. serves (1) to provide additional long term incentives to our named executive officers, other key employees, and the directors of Hawaiian Telcom Holdco, Inc. and its subsidiaries and (2) to obtain and retain executives, other key employees, and directors. As a privately-held company, we do not make annual grants of stock option. Instead, stock option grants generally are made at the commencement of service. The sizes of these option grants vary with the title and position, with higher-ranked executive officers receiving larger grants. Occasionally, an option is granted to an executive following a significant change in job responsibilities or in connection with special retention or performance objectives. One such grant was made in 2006 to a named executive officer in the amount indicated in the section entitled “Grants of Plan-Based Awards.” No other options were granted in 2006 to our named executive officers.

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Other Compensation.   Our named executive officers are eligible to participate in all of our standard employee benefits plans, such as 401(k), medical, dental, vision, group life, disability, and accidental death and dismemberment insurance plans.  In addition, named executive officers have supplemental plans that provide additional life, long-term disability, and accidental death and dismemberment insurance and additional medical benefits.  While we intend to continue to maintain our current benefits and perquisites for our named executive officers, we have discretion to revise, amend or add to them. We believe these benefits and perquisites are at competitive levels for comparable companies.

Summary Compensation Table

The following table sets forth information regarding compensation earned by our Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers (the “Named Executive Officers”) during 2006.

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Summary Compensation Table

Name and Principal
Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Stock
Awards
 ($)

 

Option
Awards
($)

 

Non-Equity
Incentive Plan
Compensation
($)

 

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(5)

 

All Other
Compensation
($)(6)

 

Total
($)

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

 

Michael S. Ruley
Chief Executive Officer and Director

 

2006

 

527,423

 

 

 

 

207,256(3)

 

2,584

 

406,425

 

1,143,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel P. O’Brien
Senior Vice President and Chief Financial Officer

 

2006

 

362,000

 

 

 

 

86,880(3)

 

8,909

 

293,807

 

751,596

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Linda D. Frank(1)
Former Senior Vice President, Sales

 

2006

 

230,615

 

 

 

 

174,225(4)

 

13,388

 

619,726

 

1,037,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David A. Torline
Senior Vice President and Chief Information Officer

 

2006

 

360,077

 

 

 

 

86,420(3)

 

8,453

 

164,142

 

619,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harvey A. Plummer
Senior Vice President, Operations and Engineering

 

2006

 

282,692

 

 

 

40,154(2)

 

50,880(3)

 

13,418

 

205,726

 

592,870

 

 


(1)  Ms. Frank left the Company effective December 31, 2006. 

(2)  Represents the dollar value recognized for financial statement reporting purposes for the fiscal year identified in column (b) in accordance with SFAS No. 123(R). The assumptions used in these calculations are set forth in Note 12 to the Company’s consolidated financial statements included in this annual report on Form 10-K.

(3) This amount represents a cash performance bonus earned for 2006 under the Company’s Non-Union Bonus Plan. 

(4) This amount represents a target bonus payout for 2006 pursuant to terms of severance provision in Ms. Frank’s employment agreement. 

(5) The amounts shown in this column represent the aggregate change in the actuarial present value of the Named Executive Officer’s accumulated benefit under the Hawaiian Telcom Management Pension Plan during 2006.  The Company does not offer any above market or preferential earnings on compensation that is deferred on a tax-qualified basis.

(6) “All Other Compensation” includes: (i) amounts contributed by the Company to its 401(k) plan (Mr. Ruley -$11,231, Mr. O’Brien -$11,033, Ms. Frank - $10,617, Mr. Torline -$11,103, and Mr. Plummer -$11,077), (ii) amounts of  premiums paid with respect to supplemental term life, accidental death and dismemberment, disability and health benefits for the benefit of the Named Executive Officer (Mr. Ruley -$33,021, Mr. O’Brien -$6,452, Ms. Frank -$5,082, Mr. Torline -$6,433 and Mr. Plummer-$5,624), (iii) amounts paid or accrued pursuant to employment agreements in connection with termination of employment  (Ms. Frank - $396,323), (iv) amounts reimbursed to the named executive officers for their estimated income tax liability by reason of the Company’s payments for relocation costs and housing allowances  (Mr. Ruley -$123,668, Mr. O’Brien -$92,911, Ms. Frank-$34,320, Mr. Torline -$55,776, and Mr. Plummer -$60,144) and the Company’s payments in connection with severance (Ms. Frank -$114,669), (v) costs relating to relocation to Hawaii (Mr. Ruley -$88,840, Mr. O’Brien -$102,607, and Mr. Plummer -$63,157), (vi) housing allowances  (Mr. Ruley - $125,004, Mr. O’Brien -$78,000, Ms. Frank - $48,000, Mr. Torline -$78,000 and Mr. Plummer -$59,250), (vii) amounts reimbursed for personal travel (Mr. Torline -$10,647), and (viii) reimbursement of out-of-pocket medical expenses.

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Employment Agreements

Each of Messrs. Ruley, O’Brien, Torline, Plummer and Ms. Frank had entered into an employment agreement with us.  As a result of Ms. Frank’s termination of employment effective December 31, 2006, her employment agreement has terminated.  Each agreement has a three-year term and will be extended automatically for successive one-year periods thereafter unless either party delivers notice within specified notice periods. Under the terms of the agreement, each executive is eligible to receive an annual bonus under the terms of our Non-Union Bonus Plan, pursuant to which the bonus will be tied to achieving certain levels of revenue, EBITDA and free cash-flow, with a target bonus payment of 100% of base salary for Messrs. Ruley, Torline and O’Brien and 75% of base salary for Mr. Plummer and Ms. Frank. In addition, Mr. Ruley received a bonus of $300,000 upon execution of his employment agreement and an additional bonus of $450,000 on the closing of the 2005 Acquisition, and Mr. Torline received a bonus of $175,000 upon closing of the 2005 Acquisition. Each executive is also entitled to participate in our stock option plan and will be granted options to purchase shares of stock pursuant to the terms of our stock option plan and stock option agreement. Each executive is entitled to participate in our employee benefit plans, programs and arrangements currently in effect and will be entitled to reimbursement for relocation expenses from the mainland United States to Hawaii. Additionally, each executive shall be entitled to a monthly housing allowance at a level determined appropriate by us subject to a stated maximum. Executives receiving such housing allowance are also entitled to an additional payment in an amount such that, after payment by each executive of all income taxes imposed on the housing allowance and the additional payment, the executive would retain an amount equal to the original housing allowance.

Each employment agreement provides that upon termination of an executive’s employment, he or she will be entitled to receive the sum of his or her unpaid annual base salary through the date of termination, and bonus if declared or earned but not yet paid, any unpaid expenses, any unpaid accrued vacation pay, and any amount arising from his participation in, or benefits under, any of our employee benefits plans, programs or arrangements.

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Grants of Plan-Based Awards

The following table summarizes pertinent information concerning plan-based awards granted to the Named Executive Officers during 2006:

Grants of Plan-Based Awards

 

 

 

 

 

 

 

 

All
Other
Stock 

 

 

 

 

 

Grant

 

 

 

 

 

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards

 

Estimated Future Payouts
Under Equity Incentive Plan
Awards

 

Awards:
Number
of
Shares
or Stock
or

 

All Other
Option
Awards:
Number of
Securities
Underlying

 

Exercise
or
Base
Price
of
Option

 

date
fair
value
of
stock
and

 

Name

 

Grant
Date

 

Threshold
($)

 

Target
($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

Units
(#)

 

Options
(#)

 

Awards
($/Sh)

 

Option
Awards

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

 

(k)

 

(l)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael S. Ruley
Chief Executive Officer and Director

 

N/A

 

100,716

 

537,150

 

644,580

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel P. O’Brien
Senior Vice President and Chief Financial Officer

 

N/A

 

67,875

 

362,000

 

434,400

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Linda D. Frank
Former Senior Vice President, Sales

 

N/A

 

32,667

 

174,225

 

209,070

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David A. Torline
Senior Vice President and Chief Information Officer

 

N/A

 

67,514

 

360,077

 

432,092

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harvey A. Plummer
Senior Vice President, Operations and Engineering

 

3/08/06

 

39,754

 

212,019

 

254,423

 

N/A

 

N/A

 

N/A

 

N/A

 

783

 

$

1,000

 

313,200

 

 

Exercisability of Options. Subject to the Named Executive Officer’s continued employment with the Company, 25% of the options granted generally will vest automatically in equal annual installments of 5% on each anniversary of the option holder’s hire and 75% will vest in full on the day immediately preceding the eighth anniversary of the grant date subject to earlier vesting if certain performance conditions are met. The performance condition component of the Plan provides that an installment equal to 5% (15% if all three targets are met) of the option will vest for each fiscal year, beginning with the year of grant and ending with the fourth year thereafter, for the following three targets, as defined in the Plan: Revenue, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and Free Cash-Flow.

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Expiration of Stock Options . The term of an option is set by the Compensation Committee of Hawaiian Telcom Holdco, Inc. (or the Board of Directors of Hawaiian Telcom Holdco, Inc. in the case of options granted to independent directors), provided the option term is not longer than ten years from the date of grant.

Corporate Event . Unless otherwise provided by the terms of outstanding awards, if a corporate event (as defined in the Stock Option Plan to include any unusual or nonrecurring transaction or event) occurs, then the Compensation Committee of Hawaiian Telcom Holdco, Inc. (or the Board of Directors of Hawaiian Telcom Holdco, Inc. in the case of options granted to independent directors) may take one or more of the following actions to prevent dilution or enlargement of benefits or potential benefits under the Stock Option Plan: (i) purchase outstanding options for an amount of cash, securities or property or replace outstanding options with other rights or property; (ii) terminate the award upon the occurrence of such event; (iii) provide that only for a specified period of time prior to the occurrence of such event, options will be exercisable, notwithstanding any other provision in the Stock Option Plan or option award agreement to the contrary; (iv) provide that each award will be assumed or substituted for an equivalent award by any successor or survivor corporation; or (v) make adjustments in the number and types of awards, the terms and conditions of awards and any performance criteria included in awards.

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the outstanding equity award holdings held by the Named Executive Officers at the end of 2006. There was no public trading market for the common stock of Hawaiian Telcom Holdco, Inc. as of December 31, 2006.

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Outstanding Equity Awards at Fiscal Year-End

 

 

Option Awards

 

Stock Awards

 

 

 

Number of
Securities
Underlying
Unexercised
Options

 

Number of
Securities
Underlying
Unexercised
Options

 

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned

 

Option
Exercise

 

Option

 

Number
of
Shares
or Units
of
Stock
That
Have
Not

 

Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not

 

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not

 

Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not

 

Name

 

(#)
Exercisable

 

(#)(2)
Unexercisable

 

Options
(#)

 

Price
($)

 

Expiration
Date

 

Vested
(#)

 

Vested
($)

 

Vested
(#)

 

Vested
($)

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

 

Michael S. Ruley
Chief Executive Officer
and Director

 

2,641

 

1,586

 

6,340

 

1,000

 

9/30/2014

 

N/A

 

N/A

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel P. O’Brien
Senior Vice President
and Chief Financial
Officer

 

1,095

 

1,096

 

3,288

 

1,000

 

5/01/2015

 

N/A

 

N/A

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Linda D. Frank (1)
Former Senior Vice
President, Sales

 

587

 

352

 

1,409

 

1,000

 

5/01/2015

 

N/A

 

N/A

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David A. Torline
Senior Vice President
and Chief Information
Officer

 

1,369

 

822

 

3,288

 

1,000

 

9/28/2014

 

N/A

 

N/A

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harvey A. Plummer
Senior Vice President,
Operations and
Engineering

 

587
0

 

352
196

 

1,409
587

 

1,000
1,000

 

5/01/2015
3/07/2016

 

N/A

 

N/A

 

N/A

 

N/A

 


(1)              All options held by Ms. Frank expired 30 days following her termination of employment effective December 31, 2006.

(2)              25% of each option is subject to time vesting (5% on each anniversary of the grant date), and the other 75% is performance-based and becomes exercisable when certain EBITDA, revenue, and free cash flow targets are met (up to 15% each year beginning with the year of grant). The grant dates for these options are: Mr. Ruley - 10/01/2004, Mr. O’Brien - 5/02/2005, Ms. Frank - 5/02/2005, Mr. Torline - 9/29/2004, and Mr. Plummer - 5/02/2005 (for the option expiring 5/01/2015) and 3/08/2006 (for the option expiring 3/07/2016).

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Option Exercises and Stock Vested

There were no exercises of stock options or vesting of stock by the Named Executive Officers during 2006.

Pension Benefits

Our Named Executive Officers are eligible to participate in the Hawaiian Telcom Management Pension Plan as described below. The following table contains information concerning pension benefits for the Named Executive Officers at the end of 2006.

Pension Benefits

Name

 

Plan Name

 

Number of
Years Credited
Service
(#)

 

Present
Value of
Accumulated
Benefit
($) (1)

 

Payments
During Last
 Fiscal Year
($)

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

Michael S. Ruley
Chief Executive Officer and Director

 

Hawaiian Telcom
Management Pension Plan

 

1.7

 

18,914

 

0

 

 

 

 

 

 

 

 

 

 

 

Daniel P. O’Brien
Senior Vice President and Chief Financial Officer

 

Hawaiian Telcom
Management Pension Plan

 

1.7

 

22,627

 

0

 

 

 

 

 

 

 

 

 

 

 

Linda D. Frank
Former Senior Vice President, Sales

 

Hawaiian Telcom
Management Pension Plan

 

1.7

 

22,504

 

0

 

 

 

 

 

 

 

 

 

 

 

David A. Torline
Senior Vice President and Chief Information Officer

 

Hawaiian Telcom
Management Pension Plan

 

1.7

 

22,634

 

0

 

 

 

 

 

 

 

 

 

 

 

Harvey A. Plummer
Senior Vice President, Operations and Engineering

 

Hawaiian Telcom
Management Pension Plan

 

1.7

 

22,534

 

0

 


(1)              The Hawaiian Telcom Management Pension Plan is a cash balance plan, therefore, no assumptions are used to determine the present value, and the amounts shown in this column are the total cash balances of the Named Executive Officers’ accounts under the Plan as of December 31, 2006.

The Hawaii Telcom Management Pension Plan is a noncontributory, tax-qualified pension plan for salaried employees that provides for distribution of benefits in a lump sum or an annuity, at the participant’s election. Pension benefits under this plan are calculated using a cash balance formula that provides for pay credits equal to four to seven percent (depending on age and service) of annual eligible pay up to the IRS limit on compensation ($225,000 in 2007).  The pay credits accrue to participants’ accounts on a monthly basis. e ligible pay includes base salary, certain sales commissions and bonuses, certain short term incentive pay, differentials, premiums, single sum merit payments, corporate profit sharing awards, and any back pay awards. The amounts do not give effect to social security offsets.

105




Additionally, monthly interest credits are made to the participant’s account balance based upon the prevailing market yields on certain U.S. Treasury obligations. In order to record these pay and interest credits, the plan administrator maintains a hypothetical account balance for each participant.

Effective April 1, 2007, the Hawaii Telcom Management Pension Plan will be “frozen”.  As a result, plan participants will not earn any additional contributions to their cash balance accounts and the plan will be closed to employees hired on or after April 1, 2007.  Participants will become 100% vested in their pension benefits accrued through April 1, 2007, and will continue to earn interest credits on account balances as long as such balances remain in the plan.

Nonqualified Deferred Compensation

None of the Named Executive Officers participate in or have account balances in a non-qualified defined contribution plan or other deferred compensation plans maintained by the Company.

Potential Payments on Termination or Change in Control

The employment agreement of each Named Executive Officer provides that upon termination of the executive’s employment, he or she will be entitled to receive the sum of his or her unpaid annual base salary through the date of termination, and bonus if declared or earned but not yet paid, any unpaid expenses, any unpaid accrued vacation pay, and any amount arising from his participation in, or benefits under, any of our employee benefits plans, programs or arrangements. The quantities stated below assume termination as of December 31, 2006.

Upon termination of Mr. Ruley’s employment either by us without cause or by him for good reason, he is entitled to a lump sum amount equal to $900,000 and, for the longer of the remainder of the term of employment or 12 months, continued coverage under all of our group health benefit plans in which he and any of his dependents were entitled to participate immediately prior to termination. The agreement also provides that upon termination of Mr. Ruley’s employment due to his death or disability, he or his estate shall be entitled to 12 months of his annual base salary ($537,150) and a pro rata portion of his annual bonus, to be determined in good faith by our Compensation Committee. Upon termination of his employment due to non-extension of the employment agreement by us, Mr. Ruley shall be entitled to six months of his annual base salary ($268,575) and a pro rata portion of his annual bonus, to be determined in good faith by our Compensation Committee.

Upon termination of Mr. Torline’s employment either by us without cause or by him for good reason, he is entitled to a lump sum amount equal to his stated annual base salary for 12 months ($363,100), a lump sum payment of the pro rata portion of his target level bonus with a minimum payment of $200,000 and, for the longer of the remainder of the term of employment or 12 months, continued coverage under all of our group health benefit plans in which he and any of his dependents were entitled to participate immediately prior to termination. The agreement also provides that upon termination of Mr. Torline’s employment

106




due to his death or disability, he or his estate shall be entitled to 12 months of his annual base salary ($363,100) and a pro rata portion of his annual bonus, to be determined in good faith by our Compensation Committee. Upon termination of his employment due to non-extension of the employment agreement by us, Mr. Torline shall be entitled to six months of his annual base salary ($181,550) and a pro rata portion of his annual bonus, to be determined in good faith by our Compensation Committee.

Upon termination of Mr. O’Brien’s employment either by us without cause or by him for good reason, he is entitled to an amount equal to his stated annual base salary for 12 months ($365,600), a pro-rated bonus for the year of termination (but not less than one-half of his target level bonus) and, for 12 months following termination, continued coverage under all of our group health benefit plans in which he and any of his dependents were entitled to participate immediately prior to termination. The agreement also provides that upon termination of his employment due to his death or disability, he or his estate shall be entitled to six months of his annual base salary ($182,800) and the pro rata portion of his annual bonus, to be determined in good faith by our Compensation Committee. Upon termination of his employment due to non-extension of the employment agreement by us, Mr. O’Brien shall be entitled to six months of his annual base salary ($182,800) and a pro rata portion of his annual bonus, to be determined in good faith by our Compensation Committee.

Upon termination of Mr. Plummer’s employment either by us without cause or by him for good reason, he is entitled to an amount equal to his stated annual base salary for six months ($150,000) and, for six months following termination, continued coverage under all of our group health benefit plans in which he and any of his dependents were entitled to participate immediately prior to termination. The agreement also provides that upon termination of Mr. Plummer’s employment due to his death or disability, he or his estate shall be entitled to six months of his annual base salary ($150,000) and the pro rata portion of his annual bonus, to be determined in good faith by our Compensation Committee.

Upon termination of Ms. Frank’s employment effective December 31, 2006, she received the amounts entitled to her under the terms of her employment agreement for termination without cause, including an amount equal to her stated annual base salary for nine months ($174,225), a lump sum payment of her target level bonus ($174,225), and, for nine months following termination, continued coverage under all of our group health benefit plans in which she and any of her dependents were entitled to participate immediately prior to termination.

Each executive is prohibited from competing with us during the term of his or her employment and for one year following the termination of his or her employment or the expiration of his term of employment, whichever is longer. Each employment agreement also places restrictions on the dissemination by the executives of proprietary information and establishes our exclusive property right in intellectual property directly related to our company which is discovered, invented or originated by the executives during his or her term of employment.

107




Director Compensation

Directors who are employed either by us or by Carlyle are not separately compensated for their service as directors. Independent directors receive an annual cash retainer of $50,000 and an additional $5,000 if also serving as Chairperson of a Committee. The independent directors also receive an attendance fee of $1,500 per Board meeting attended in person and, if longer than three hours, $1,000 per Board meeting attended telephonically. In addition, we granted non-qualified stock options to purchase shares of common stock of Hawaiian Telcom Holdco, Inc. to each independent director upon commencement of service pursuant to our stock option plan. The exercise price per share for these options is greater than or equal to the fair market value of the common stock of Hawaiian Telcom Holdco, Inc. on the grant date, and each option will expire 10 years from the date of grant, or earlier if the optionee ceases to be a director. Each option currently outstanding becomes exercisable in equal annual installments through 2010, beginning one year after the grant date.

The following table sets forth a summary of the compensation we paid to our directors during 2006.

Director Compensation

Name

 

Fees Earned
or Paid
in Cash
($)

 

Stock
Awards
($)

 

Option
Awards
($)

 

Non-Equity
Incentive
Plan
Compensation
($)

 

Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings

 

All
Other
Compensation
($)

 

Total
($)

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

Daniel F. Akerson

 

0

 

N/A

 

0

 

N/A

 

N/A

 

0

 

0

 

James A. Attwood, Jr.

 

0

 

N/A

 

0

 

N/A

 

N/A

 

0

 

0

 

Matthew P. Boyer

 

0

 

N/A

 

0

 

N/A

 

N/A

 

0

 

0

 

Walter A. Dods, Jr.

 

56,000

 

N/A

 

0

 

N/A

 

N/A

 

0

 

56,000

 

Stephen C. Gray

 

14,000

 

N/A

 

1,610(1)

 

N/A

 

N/A

 

0

 

14,000

 

William E. Kennard

 

0

 

N/A

 

0

 

N/A

 

N/A

 

0

 

0

 

Raymond A. Ranelli

 

61,000

 

N/A

 

0

 

N/A

 

N/A

 

0

 

61,000

 


(1)  Represents the dollar value recognized for financial statement reporting purposes for the fiscal year identified in column (b) in accordance with SFAS No. 123R. The assumptions used in this calculation are set forth in Note 12 to the Company’s consolidated financial statements included in this annual report on Form 10-K. The grant date fair value of the option is $62,800. The aggregate number of option shares outstanding at year-end is 157.

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Compensation Committee Interlocks and Insider Participation

The current members of our Compensation Committee members are Messrs. Kennard (Chairman), Attwood, Boyer, and Dods. None of the members of our Compensation Committee serves, or has served, as an officer or employee of the Company. None of our executive officers currently serves, or in the past year has served, as a member of the Board of Directors or Compensation Committee of any entity that has one or more executive officers who serve on our Board of Directors or Compensation Committee. Messrs. Kennard, Attwood, and Boyer are associated with Carlyle. Affiliates of Carlyle control a majority of the common stock of Hawaiian Telcom Holdco, Inc. and therefore have the power to control our affairs and policies. In addition, Carlyle and its affiliates entered into a management agreement with us relating to the provision of certain financial and strategic advisory services and consulting services. See Item 13, “Certain Relationships and Related Transactions, and Director Independence.”

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this annual report with management and, based on the review and these discussions, has recommended to the Board of Directors that the Compensation Discussion and Analysis disclosure be included in this annual report on Form 10-K.

William E. Kennard (Chairman)

James A. Attwood, Jr.

Matthew P. Boyer

Walter A. Dods, Jr.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

All of our common stock is held by Hawaiian Telcom Holdco, Inc. and its address is c/o The Carlyle Group, 520 Madison Avenue, 41 st  Floor, New York, NY 10022. The following table sets forth information with respect to the beneficial ownership of the common stock of Hawaiian Telcom Holdco, Inc., as of March 15, 2007, by:

·                   each person that is a beneficial owner of more than 5% of the common stock;

·                   each of our directors and Named Executive Officers; and

·                   all of our directors and executive officers as a group.

The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power, which includes the power to vote or direct the voting of a security, or investment power, which includes the power to dispose of or to direct the disposition of a security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed a beneficial owner of the

109




same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

Except as otherwise indicated in these footnotes, each of the beneficial owners listed has, to our knowledge, sole voting and investment power with respect to the indicated shares of common stock.

 

 

Beneficial Ownership of Holdings

 

Name of Beneficial Owner

 

Number of
Shares of
Common Stock

 

Percentage of
Outstanding
Common Stock

 

TCG Holdings, L.L.C.  (1)(2)

 

428,000

 

100

 

Michael S. Ruley  (3) (4)

 

2,641

 

*

 

David A. Torline  (3) (4)

 

1,369

 

*

 

Daniel P. O’Brien  (3) (4)

 

1,095

 

*

 

Harvey A. Plummer  (3) (4)

 

626

 

*

 

Linda D. Frank  (3) (4)

 

0

 

*

 

Daniel F. Akerson (5)

 

 

 

James A. Attwood, Jr.  (5)

 

 

 

Matthew P. Boyer  (5)

 

 

 

Walter A. Dods, Jr. (3) (6)

 

78

 

*

 

Stephen C. Gray (4)

 

0

 

0

 

William E. Kennard  (5)

 

 

 

Raymond A. Ranelli  (3) (4)

 

78

 

*

 

All executive officers and directors as a group (18 persons)  (3)

 

6,901

 

1.6

 


* Signifies less than 1%.

(1)                    Shares shown as beneficially owned by TCG Holdings, L.L.C. are held directly by Carlyle Partners III Hawaii, L.P., CP III Coinvestment, L.P. and Carlyle Hawaii Partners, L.P., which we collectively refer to as the Carlyle Funds. TC Group, L.L.C. exercises investment discretion and control over the shares indirectly held by each of the Carlyle Funds through its indirect subsidiary TC Group III, L.P., which is the sole general partner of each the Carlyle Funds. TCG Holdings, L.L.C. is the sole managing member of TC Group, L.L.C. TC Group L.L.C. is the sole managing member of TC Group III, L.L.C. TC Group III, L.L.C. is the sole general partner of TC Group III, L.P. TCG Holdings, L.L.C., a Delaware limited liability company, in the capacity as sole managing member of TC Group, L.L.C., exercises investment discretion and control of the shares beneficially owned by TC Group, L.L.C. TCG Holdings, L.L.C. is managed by a three-person managing board, and all board action relating to the voting or disposition of these shares requires approval of a majority of the board. The members of the managing board are William E. Conway, Jr., Daniel A. D’Aniello and David Rubenstein, all of whom disclaim beneficial ownership of these shares.

(2)                    Each of Carlyle Partners III Hawaii, L.P., CP III Coinvestment, L.P. and Carlyle Hawaii Partners, L.P. has an address c/o The Carlyle Group, 520 Madison Avenue, 41st Floor, New York, New York 10022.

(3)                    Represents shares of common stock that are issuable upon the exercise of options or will become vested within 60 days of March 15, 2007.

110




(4)                    The business address for Michael S. Ruley, David A. Torline, Daniel P. O’Brien, Harvey A. Plummer, Stephen C. Gray, and Raymond A. Ranelli is c/o General Counsel, Hawaiian Telcom Communications, Inc., 1177 Bishop Street, Honolulu, Hawaii 96813.

(5)                    The business address for each such person is c/o The Carlyle Group 520 Madison Avenue, 41st Floor, New York, New York 10022.

(6)                    The business address for such person is c/o First Hawaiian Bank, 999 Bishop Street, Suite 2828, Honolulu HI 96813.

Securities Authorized for Issuance Under Equity Compensation Plans

We do not have any compensation plans under which our equity securities are authorized for issuance.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The Company’s Code of Business Conduct requires employees to disclose any actual or perceived conflict of interest and any material transaction that could be expected to give rise to a conflict of interest, including a potential related party transaction. Any potential conflict of interest must be approved by the Chief Executive Officer, or if the conflict of interest involves a material amount, by the Board of Directors. Directors also are required, pursuant to the Code of Conduct for the Directors of the Company, to disclose any situation that involves, or may reasonably be expected to involve, a conflict of interest with the Company.  Such disclosure must be made promptly to the Chairman of the Nominating and Governance Committee.  In addition, the Charter of the Audit Committee requires the Audit Committee to review reports and disclosures of related party transactions.

Management Agreement

In connection with the 2005 Acquisition, we entered into a management consulting agreement with Carlyle for the provision of certain financial and strategic advisory services and consulting services. We have agreed to pay Carlyle an annual monitoring fee equal to $1.0 million commencing in 2005 and continuing until such time as the agreement is terminated. In addition, we paid Carlyle a one-time transaction fee for structuring the 2005 Acquisition and related transactions. The agreement also provides for reimbursement of fees and expenses paid by Carlyle for our account. In addition, under the terms of the agreement, Carlyle has the right to act, in return for additional fees, as our financial advisor or investment banker for any merger, acquisition, disposition, finance or the like if we decide we need to engage someone to fill such a role. We have agreed to indemnify Carlyle and its officers and representatives for losses relating to the services contemplated by the agreement and the engagement of affiliates of Carlyle pursuant to, and the performance by them of the services contemplated by, the agreement. The agreement shall continue until such time as Carlyle or one or more of its affiliates collectively control, in the aggregate, less than 10% of our equity interests, or such earlier time as we and Carlyle may mutually agree.

111




Management Rights Agreement

In connection with the 2005 Acquisition, the Company, Hawaiian Telcom Holdco, Inc., affiliates of Carlyle, and our two direct subsidiaries (Hawaiian Telcom, Inc. and Hawaiian Telcom Services Company, Inc.), entered into a management rights agreement. Among other things, the Company and Hawaiian Telcom Holdco, Inc. agreed to the following:

·                   to grant Carlyle the right to nominate one director to serve on the Board of Directors of Hawaiian Telcom Holdco, Inc.;

·                   to grant Carlyle the right to nominate one director to serve on the Board of Directors of each of Hawaiian Telcom, Inc. and Hawaiian Telcom Services Company, Inc.;

·                   to vote all of their beneficially owned voting securities in Hawaiian Telcom, Inc. and Hawaiian Telcom Services Company, Inc. to elect the director nominated by Carlyle to serve as a member of each of the Board of Directors of Hawaiian Telcom, Inc. and Hawaiian Telcom Services Company, Inc.; and

·                   to grant an irrevocable proxy to Carlyle to vote their voting securities in Hawaiian Telcom, Inc. and Hawaiian Telcom Services Company, Inc. to elect the director nominated by Carlyle to serve as a member of each of the Board of Directors of Hawaiian Telcom, Inc. and Hawaiian Telcom Services Company, Inc.

The term of the management rights agreement with respect to our two direct subsidiaries will terminate when Carlyle and its affiliates collectively no longer beneficially own any voting securities of such subsidiaries. The term of the management rights agreement with respect to Hawaiian Telcom Holdco, Inc. will terminate when Carlyle and its affiliates collectively no longer beneficially own any voting securities of Hawaiian Telcom Holdco, Inc.

The Board of Directors has determined that Messrs. Ranelli, Dods, and Gray are independent based on the NASDAQ rules.  In making such determination, the Board considered the Company’s banking relationship with First Hawaiian Bank, of which Mr. Dods is the non-executive Chairman of the Board.

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Item 14. Principal Accountant Fees and Services

Deloitte & Touche LLP serves as our independent registered public accounting firm. The following table presents fees for professional services rendered by Deloitte & Touche LLP for the audit of our annual financial statements for the years ended December 31, 2006 and December 31, 2005, and fees for other services rendered by Deloitte & Touche LLP during those periods.

 

 

(In Thousands)

 

 

 

2006

 

2005

 

Audit fees (1)

 

$

807

 

$

878

 

Audit-related fees (2)

 

339

 

859

 

Tax fees (3)

 

5

 

121

 

All other fees (4)

 

 

5,418

 

 

 

$

1,151

 

$

7,276

 

Total fees

 

 

 

 

 


(1)              Audit fees consisted principally of fees for the audit of the annual financial statements and reviews of the quarterly financial statements, including fees relating to the filing of our registration Statement on Form S-4.

(2)              Audit-related fees consisted principally of fees for other audits (i.e., publishing division, benefit plans and insurance subsidiary audits) not included under audit fees, and fees for acquisition due diligence.

(3)              Tax fees consisted principally of fees for tax compliance, tax advice and tax planning.

(4)              All other fees consisted principally of fees for human capital and other transition advisory services.

Engagement of the Independent Registered Public Accounting Firm and Pre-approval Policy

In accordance with its Charter, the Audit Committee has the sole authority and responsibility to appoint, compensate, oversee, and if necessary, replace the independent registered public accounting firm.  The Audit Committee also has the sole authority to approve all audit engagement fees and terms.  In addition, the Audit Committee must pre-approve all services provided to the Company by the Company’s independent registered public accounting firm.

Pursuant to Section 202 of the Sarbanes-Oxley Act of 2002, the Audit Committee pre-approved every engagement of the Company’s independent registered public accounting firm, Deloitte & Touche LLP, to perform audit or non-audit services on behalf of the Company or any of its subsidiaries since May 2005.

 

PART IV

Item 15. Exhibits and Financial Statement Schedule

(a) The following documents are being filed as part of this report.

1.                Consolidated Financial Statements. Financial statements and supplementary data required by this Item 15 are set forth at the pages indicated in Item 8 above.

2.                Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, are inapplicable or not material, or the information called for thereby is otherwise included in the financial statements and therefore has been omitted.

3.                Exhibits required by Item 601 of Regulation S-K.

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Exhibit No.

 

Description of Exhibit

 

 

 

2.1†

 

Amended and Restated Agreement of Merger among GTE Corporation, Verizon HoldCo LLC and Hawaiian Telcom Holdco, Inc. and Hawaiian Telcom Communications, Inc.’s, dated as of April 8, 2005 (incorporated by reference to Exhibit 2.1 on Hawaiian Telcom Communications, Inc. Form S-4, filed with the SEC on January 19, 2006, File No. 333-131152).

 

 

 

3.1†

 

Certificate of Incorporation of Hawaiian Telcom Communications, Inc. (f/k/a Paradise MergerSub, Inc.), filed May 19,2004 (incorporated by reference to Exhibit 3.1 on Hawaiian Telcom Communications, Inc.’s Form S-4, filed with the SEC on January 19, 2006, File No. 333-131152).

 

 

 

3.2†

 

Certificate of Amendment to Certificate of Incorporation of Hawaiian Telcom Communications, Inc. (f/k/a Paradise MergerSub, Inc.), filed October 27, 2004 (incorporated by reference to Exhibit 3.2 on Hawaiian Telcom Communications, Inc.’s Form S-4, filed with the SEC on January 19, 2006, File No. 333-131152).

 

 

 

3.3†

 

Certificate of Amendment to Certificate of Incorporation of Hawaiian Telcom Communications, Inc. (f/k/a Hawaiian Telcom MergerSub, Inc.), filed March 1, 2005 (incorporated by reference to Exhibit 3.3 on Hawaiian Telcom Communications, Inc.’s Form S-4, filed with the SEC on January 19, 2006, File No. 333-131152).

 

 

 

3.4†

 

Certificate of Correction to Certificate of Amendment to Certificate of Incorporation of Hawaiian Telcom Communications, Inc. (f/k/a Hawaiian Telcom MergerSub, Inc.) filed October 27 2004, filed April 15, 2005 (incorporated by reference to Exhibit 3.4 on Hawaiian Telcom Communications, Inc.’s Form S-4, filed with the SEC on January 19, 2006, File No. 333-131152).

 

 

 

3.5†

 

Bylaws of Hawaiian Telcom Communications, Inc. (f/k/a Paradise MergerSub, Inc.), adopted on May 19, 2004 (incorporated by reference to Exhibit 3.12 on Hawaiian Telcom Communications, Inc.’s Form S-4, filed with the SEC on January 19, 2006, File No. 333-131152).

 

 

 

3.6†

 

Certificate of Merger of Verizon HoldCo LLC into Hawaiian Telcom Communications, Inc., filed May 2, 2005 (incorporated by reference to Exhibit 3.5 on Hawaiian Telcom Communications, Inc.’s Form S-4, filed with the SEC on January 19, 2006, File No. 333-131152).

 

 

 

4.1†

 

Indenture with respect to the Senior Floating Rate Notes due 2013 and the 9.75% Senior Fixed Rate Notes due 2013 between Hawaiian Telcom Communications, Inc. and U.S. Bank National Association, as trustee, dated May 2, 2005 (incorporated by reference to Exhibit 4.1 on Hawaiian Telcom Communications, Inc.’s Form S-4, filed with the SEC on January 19, 2006, File No. 333-131152).

 

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