UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A

SCHEDULE 14A INFORMATION

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THE ST. JOE COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held May 13, 2008

 

The 2008 Annual Meeting of Shareholders of The St. Joe Company will be held in the Riverfront Conference Room at 245 Riverside Avenue, Jacksonville, Florida 32202, on Tuesday, May 13, 2008, at 10:00 a.m., eastern time.

 

Shareholders will vote on the following matters:

 

 

Shareholders of record as of the close of business on March 20, 2008, are entitled to vote at the meeting. Your vote is important. If you are unable to attend the annual meeting, we urge you to cast your vote, as instructed in the Notice of Internet Availability of Proxy Materials, over the internet or by telephone as promptly as possible. You may also request a paper proxy card to submit your vote by mail, if you prefer.

 

Even if you have voted over the internet, by telephone or by returning a completed proxy card, you may still attend the meeting and vote in person. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a legally valid proxy issued in your name from that record holder.

 

By Order of the Board of Directors,

 

Christine M. Marx

General Counsel and Corporate Secretary

Dated: March 28, 2008

 

Table of Contents

 

The St. Joe Company
245 Riverside Avenue, Suite 500
Jacksonville, Florida 32202

 

PROXY STATEMENT

 

 

This proxy statement contains information about the 2008 Annual Meeting of Shareholders of The St. Joe Company.

 

The meeting will be held on Tuesday, May 13, 2008, beginning at 10:00 a.m., eastern time, in the Riverfront Conference Room at 245 Riverside Avenue, Jacksonville, Florida 32202.

 

This proxy statement is first being made available to our shareholders on or about March 28, 2008, in connection with the solicitation of proxies by the Board of Directors for the meeting.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 13, 2008: Our Proxy Statement and 2007 Annual Report are available at www.proxyvote.com.           

 

 

 

 

You are entitled to vote at the annual meeting if our records show that you held shares of common stock of the Company as of March 20, 2008. At the close of business on March 20, 2008, a total of 92,462,413 shares of common stock of the Company were outstanding and entitled to vote. Each share of common stock has one vote. Your Notice of Internet Availability of Proxy Materials (“Notice”) shows the number of shares you are entitled to vote. Your individual vote is confidential and will not be disclosed to third parties except as required by law.

 

 

A proxy is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document may also be called a proxy or a proxy card. Two of our officers, Wm. Britton Greene and Christine M. Marx, will serve as the proxies for the annual meeting. This means that when you submit a proxy card, these two officers will vote your shares on your behalf.

 

 

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered the “shareholder of record” for those shares. We are mailing a Notice to you directly.

 

If your shares are held in a brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in “street name,” and the Notice will be forwarded to you by your broker or nominee. The broker or nominee is considered, with

respect to those shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker how to vote. Beneficial owners that received a Notice by mail from the shareholder of record should follow the instructions included in the Notice to view the proxy statement and transmit voting instructions.

 

 

Our shareholders will be voting on the following matters:

 

 

We are not aware of any other matters to be presented at the meeting except for those described in this proxy statement. If any other matters are properly presented at the meeting, the appointed proxies will use their own judgment to determine how to vote your shares. If the meeting is continued or postponed, your common stock may be voted by the proxies at the new meeting as well, unless you revoke your proxy instructions.

 

 

In accordance with rules and regulations recently adopted by the Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of our proxy materials to each shareholder of record, we may now furnish proxy materials via the internet. All shareholders of record will receive a Notice Regarding the Availability of Proxy Materials. The Notice will be mailed on or about March 28, 2008.

 

On the date of mailing of the Notice, shareholders will be able to access all of the proxy materials on www.proxyvote.com, the web site referred to in the Notice. The proxy materials will be available free of charge. The Notice will instruct you as to how you may access and review all of the important information contained in the proxy materials (including our 2007 Annual Report) over the internet. The Notice also instructs you as to how you may submit your proxy over the internet. If you received a Notice and would like to receive printed copies of the proxy materials, you should follow the instructions in the Notice for requesting such materials.

 

Beneficial owners that request a printed copy of the proxy materials also may receive a voting instruction form and voting instructions from their broker or nominee. Those beneficial owners may mail the voting instruction form, or may vote by telephone or over the internet as instructed by their broker or nominee in the voting form.

 

 

Shareholders of record may vote using any of the methods described below. If your shares are held in the name of a broker, bank or other nominee, your nominee will provide you with voting instructions.

 

By Internet or Telephone.  Our internet and telephone voting procedures for shareholders of record are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions are properly recorded.

You may access the internet voting site at www.proxyvote.com to complete an electronic proxy card. Please have your Notice in hand when you go online. You will receive instructional screen prompts to guide you through the voting process. You also will have the ability to confirm your voting selections before your vote is recorded.

 

You can vote by calling toll free 1-800-690-6903 within the U.S., Canada and Puerto Rico. Please have your Notice in hand when you call. You will receive voice prompts to guide you through the process, and an opportunity to confirm your voting selections before your vote is recorded.

 

Internet and telephone voting facilities for shareholders of record will be available 24 hours a day until 11:59 p.m., eastern time, on May 12, 2008.

 

The availability of internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank or other nominee. You should follow the voting instructions in the materials that you receive from your nominee.

 

By Mail.  If you request a paper copy of the proxy materials, you should mark, date and sign the proxy card and return it in the postage-paid envelope provided. If you want to vote in accordance with the Board’s recommendations, all you have to do is sign, date and return the proxy card. The named proxies will vote unmarked proxy cards per the Board’s recommendations.

 

If you are a shareholder of record and the prepaid envelope is missing, please mail your completed proxy card to The St. Joe Company, c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717.

 

In Person at the Annual Meeting.  All shareholders may vote in person at the annual meeting. Voting your proxy by internet, telephone or mail does not limit your right to vote at the annual meeting. You also may be represented by another person at the annual meeting by executing a legally valid proxy designating that person to vote on your behalf.

 

If you are a beneficial owner of shares, you must obtain a legally valid proxy from your broker, bank or other nominee and present it to the inspector of elections with your ballot to be able to vote at the annual meeting. A legally valid proxy is an authorization from your broker, bank or other nominee to vote the shares held in the nominee’s name that satisfies Florida and SEC requirements for proxies.

 

 

Yes. If you are a shareholder of record, you can change your proxy vote or revoke your proxy at any time before the annual meeting by:

 

 

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker or other nominee. You may also vote in person at the annual meeting if you obtain a legally valid proxy from the shareholder of record as described in the answer to the previous question.

Your personal attendance at the annual meeting does not revoke your proxy. Your last vote, prior to or at the annual meeting, is the vote that will be counted.

 

 

Proxies and voting directions that are signed and returned but do not contain voting instructions will be voted:

 

 

 

In order for us to conduct our annual meeting, a majority of the shares outstanding and entitled to vote as of March 20, 2008 must be present in person or by proxy. This is referred to as a quorum. Your shares are counted as present at the annual meeting if you attend the annual meeting and vote in person or if you properly return a proxy by internet, telephone or mail. We will count abstentions and broker non-votes (as defined below) for purposes of determining a quorum.

 

 

If you are a shareholder of record, your shares will not be voted unless you provide a proxy or vote in person at the annual meeting. If you hold shares through an account with a bank, broker or other nominee and you do not provide voting instructions on a voting direction card, your shares may still be voted on certain matters.

 

Brokerage firms have authority under New York Stock Exchange (“NYSE”) rules to vote shares on routine matters for which their customers do not provide voting instructions at least 10 days before the meeting. The election of directors and the ratification of KPMG LLP as our independent registered public accounting firm for the 2008 fiscal year are considered routine matters. If a proposal is not routine and the brokerage firm does not receive voting instructions from the beneficial owner, the brokerage firm cannot vote the shares on that proposal. Shares that a broker is not authorized to vote are known as “broker non-votes.” We do not count abstentions and broker non-votes as votes for or against any proposal. Broker non-votes, however, count for quorum purposes.

 

 

For Proposal 1, directors must be elected by a plurality of the votes cast at the meeting. Votes withheld for any director will not be counted.

 

Proposal 2, ratification of KPMG LLP as the Company’s independent registered public accounting firm for the 2008 fiscal year, requires an affirmative vote of the majority of the votes cast at the annual meeting.

 

A representative of Broadridge Financial Solutions, Inc. will tabulate the votes and act as inspector of elections for the annual meeting.

 

 

We will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, our employees may solicit proxies personally and by telephone. No employee will receive any additional or special compensation for doing this. We will, upon request, reimburse brokers, banks and other nominees for their reasonable expenses in sending proxy materials to their principals and obtaining their proxies.

 

 

If you and other residents at your mailing address are beneficial owners of shares held in street name, your broker or bank may have given you notice that each household will receive only one annual report and proxy statement or Notice, as applicable, for each company in which you hold stock through that broker or bank. This practice is known as “householding.” Unless you responded that you do not wish to participate in householding, you will be deemed to have consented to participating, and only one copy of our Notice will be sent to that address.

 

If you wish to receive your own Notice for this year or for future years, or if you share an address with another shareholder and would like to receive only one Notice, please contact our Corporate Secretary at The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202 (904-301-4200), being sure to supply the names of all shareholders at the same address, the name of the bank or brokerage firm, and the account number(s). The revocation of a consent to householding will be effective 30 days after the revocation notice is received.

 

 

If you would like a paper copy of our proxy statement, proxy card and 2007 Annual Report (which includes our 2007 Form 10-K), we will provide them without charge, upon request, to any holder of record or beneficial owner of common stock entitled to vote at the annual meeting. Requests for paper copies should be made by telephone or over the internet according to the instructions provided in the Notice.

 

 

Yes. Although the information contained on our website is not part of this proxy statement, you will find information about the Company, including our Board, charters of Board committees, excerpts from our Amended and Restated Articles of Incorporation and Bylaws, Code of Conduct and Governance Principles and Policies at www.joe.com/web/corporate. Our filings with the SEC, including our 2007 Annual Report on Form 10-K and this proxy statement, and information about insider transactions is available on our website at www.joe.com/web/corporate/investorrelations/filings.aspx.

 

Shareholders may obtain, without charge, hard copies of any of the above documents by writing to: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, attn: Investor Relations.

 

Ten directors are to be elected at the annual meeting to serve on our Board of Directors. Each director elected shall hold office until the next annual meeting and the election of a successor. All of the nominees are current directors of the Company, except for Wm. Britton Greene, who is a new director nominee this year. Each has agreed to be named in this proxy statement and to serve if elected. William H. Walton, III, one of our current directors, has chosen not to stand for re-election due to personal time constraints.

 

 

The Board recommends the shareholders vote FOR election of each of the director nominees listed above to serve until the next annual meeting and the election of a successor.

 

The Audit Committee has appointed the firm of KPMG LLP, an independent registered public accounting firm, to audit our consolidated financial statements for the 2008 fiscal year and has directed that such appointment be submitted to our shareholders for ratification at the annual meeting. If the shareholders do not ratify the appointment of KPMG LLP as our independent registered public accounting firm, the Audit Committee will reconsider the appointment.

 

KPMG LLP has served as our independent accountants since 1990. A representative of KPMG LLP will be present at the meeting to answer pertinent shareholder questions and will be given an opportunity to make a statement. For more information regarding KPMG’s 2007 engagement, see “Independent Registered Public Accounting Firm Information” on page 17.

 

The Board recommends the shareholders vote FOR ratification of KPMG LLP as our independent registered public accounting firm for the 2008 fiscal year.

 

The Board of Directors does not know of any other business to be presented at the meeting. If, however, any other matters come before the meeting, it is the intention of the proxies to vote your shares in accordance with their own judgment in such matters.

 

Our Board of Directors has adopted corporate governance principles and policies to provide, along with the charters of the Board committees, a framework for the governance and management of the Company in accordance with high ethical standards and in recognition of its responsibilities to various constituencies. These principles are intended to reflect the Board’s long-standing commitment to the ethical conduct of our business in compliance with the letter and the spirit of applicable laws, regulations and accounting principles. Recognizing that corporate governance is subject to on-going and energetic debate, the Board reviews these principles and other aspects of the Company’s governance at least once a year.

 

Our corporate governance principles address the role of the Board, the composition of the Board, Board leadership, the functioning of the Board, the committees of the Board, management succession, ethics and conflicts of interest. These principles specifically provide that two-thirds of the members of the Board must be outside directors who meet the independence criteria established by the NYSE and that no more than one member of the Board will be an employee of the Company unless the Board, in its discretion, determines that an additional employee-director would facilitate the Company’s succession plan.

 

The top priority of our Board of Directors is the ethical management of the Company for profitable, long-term growth for the benefit of our shareholders. To that end, the Board has adopted corporate governance policies to align management and shareholder interests. Some of the more noteworthy of these corporate governance policies include:

 

 

Our Board of Directors has adopted a Code of Conduct applicable to all directors, officers and employees. Its purpose is to promote our commitment to the Company’s standards for ethical business practices. The Code of Conduct provides that it is our policy that our business be conducted in accordance with the highest legal and ethical standards. Our reputation for integrity is one of our most valuable assets, and each employee and member of the Board is expected to contribute to the care and preservation of that asset. Our Code of Conduct addresses a number of issues, including conflicts of interest, corporate opportunities, protection of company assets, confidentiality, insider trading, accounting matters, record keeping, working with governments, antitrust, legal compliance and fair dealing. Under our corporate governance principles, no waiver of any ethics policy is permitted for directors and executive officers. Our directors review the Code of Conduct annually to ensure that it appropriately addresses the business practices of the Company.

 

Our corporate governance principles and policies and our Code of Conduct are available on our website at www.joe.com/web/corporate/governance. We intend to post on our website information regarding any amendment to the Code of Conduct or any waiver granted under the Code of Conduct covered by Item 5.05 of Form 8-K. Please note that the information on our website is not incorporated by reference in this proxy statement.

 

Copies of our corporate governance principles and policies and our Code of Conduct are also available upon request by contacting us at the following address: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, Attn: Corporate Secretary.

 

The Board met eight times in 2007. Each member of the Board attended at least 75% of the meetings of the Board and committees on which he or she served in 2007, except for Mr. Frampton. Non-management directors meet in executive session without management at each regularly scheduled Board meeting. Currently, the Chair of the Governance and Nominating Committee, Mr. Durden, presides as lead director during such sessions. After his retirement from the position of Chief Executive Officer on May 13, 2008, Mr. Rummell will preside over such sessions. Mr. Durden will continue to preside as lead director over meetings of the independent directors. Board members are expected to attend our annual meetings. At our 2007 annual meeting, all members of the Board were present.

 

The Board annually determines the independence of directors based on a review by the directors and the recommendation of the Governance and Nominating Committee. The Governance and Nominating Committee considers director independence when making its recommendations regarding director nominees. No director is considered independent unless the Board has determined that he or she has no material relationship with the Company, either directly or as a partner, shareholder, or officer of an organization that has a material relationship with the Company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others.

To evaluate the materiality of any director relationship with the Company, the Board applies the categorical independence standards found in the NYSE listing guidelines. The NYSE guidelines state that a director will not be deemed independent in any of the following circumstances:

 

 

In addition to the NYSE standards for director independence, the Board has adopted an additional categorical standard for director independence. The Board has determined that transactions with the Company involving a director or candidate for director or an entity with whom the director or candidate is affiliated that are conducted on an arm’s-length basis in the ordinary course of business will not be deemed to affect a director’s independence. This categorical standard for independence may be found in our Governance Principles on our website at www.joe.com/web/corporate/governance/principles.html.

Members of the Audit Committee, Compensation Committee and Governance and Nominating Committee must also meet all applicable independence tests of the NYSE, the SEC and the Internal Revenue Service.

 

In January 2008, all directors completed questionnaires which asked them about their relationships with the Company (and those of their immediate family members) and other potential conflicts of interest. The responses to these questionnaires did not reveal any transaction or relationship between the directors and the Company requiring board consideration in connection with the determination of director independence.

 

Based on the review and recommendations of the Governance and Nominating Committee, the Board determined that all of the nominees, other than Mr. Rummell and Mr. Greene, are independent as required by the NYSE in that they have no material relationships with the Company, either directly or indirectly. The Board also determined that all the members of the Audit, Compensation and Governance and Nominating Committees also meet the applicable independence tests. With 80% independence, our Board will exceed the required number of independent directors set forth in our corporate governance principles (two-thirds) and the rules of the NYSE (majority).

 

The Board has the following four standing committees: Governance and Nominating Committee, Audit Committee, Compensation Committee and Finance Committee. The current membership of each Committee was established as of March 1, 2008. Each committee is further described below.

 

The Board of Directors has adopted a written charter for each committee. These charters are available on our website at www.joe.com/web/corporate/governance/charters.html. Please note that the information on our website is not incorporated by reference in this proxy statement. Copies of our Board committee charters are also available upon request by contacting us at the following address: The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, Attn: Corporate Secretary.

 

The current members of the Governance and Nominating Committee are Messrs. Durden (Chair), Ainslie, Herbert and Walton. Each member is independent as required by the NYSE. The Governance and Nominating Committee met five times in 2007. The primary functions of the Governance and Nominating Committee are to:

 

 

In fulfilling its duty to recommend nominees for election as directors, the committee seeks a diverse group of candidates (in the broadest sense, including with respect to age, gender, ethnic background and national origin) who combine a broad spectrum of backgrounds, experience, skills and expertise and who would make a significant contribution to the

Board, the Company and its shareholders. The committee considers, among other things, the following criteria:

 

 

The Governance and Nominating Committee has generally identified director candidates through the business relationships, experience and networking of our directors and executive officers. The Committee has not used professional search firms. When a potential candidate is identified, the Committee evaluates the candidate’s qualifications through candidate interviews and background checks.

 

The Governance and Nominating Committee would consider qualified candidates for director suggested by our shareholders and would evaluate such candidates according to the same criteria used for other director nominees. Shareholders can suggest qualified candidates for director by writing to The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, FL 32202, attn: Corporate Secretary. Submissions that meet the criteria outlined above, on our website and in the committee charter will be forwarded to the Chair of the Governance and Nominating Committee for further review and consideration.

 

The current members of the Audit Committee are Mr. Fanning (Chair), Dr. Herbert, Ms. Kesler and Mr. Lord. Each of the committee members is independent as required by the NYSE. The Audit Committee met 12 times in 2007. The primary functions of the Audit Committee are to:

 

 

 

The Board has determined that:

 

 

See the “Audit Committee Report” on page 16 for more information on the responsibilities of the Audit Committee.

 

The current members of the Compensation Committee are Mr. Ainslie (Chair), Mr. Durden, Mr. Frampton, Ms. Kesler and Mr. Revell. Each member is independent as required by the NYSE. The Compensation Committee met eight times in 2007. The functions of the Compensation Committee are to review and approve compensation and benefits for the Company’s executive officers, and to supervise the administration of all employee benefit plans.

 

See the “Compensation Discussion and Analysis” on page 20, the “Compensation Committee Report” on page 29 and “Compensation Committee Interlocks and Insider Participation” on page 29 for more information regarding the Compensation Committee.

 

The members of the Finance Committee are Messrs. Lord (Chair), Fanning, Frampton, Herbert, Revell and Walton. The Finance Committee met four times in 2007. The functions of the Finance Committee are to:

 

 

Any shareholder or other interested party who desires to contact any member of the Board of Directors (including our Chairman, Mr. Rummell; our lead director, Mr. Durden; or the non-management directors as a group) may do so in one of the following three ways:

 

 

Communications relating to relevant business matters are distributed by the Corporate Secretary to the members of the Board as appropriate depending on the facts and

circumstances outlined in the communication received. For example, any complaints regarding accounting, internal accounting controls and auditing matters would be forwarded by the Corporate Secretary to the Chair of the Audit Committee for review.

 

The role of the Audit Committee is to provide independent and objective oversight of the Company’s accounting functions and internal controls and to monitor the objectivity of the Company’s financial statements.

 

In the performance of its oversight function, the committee has reviewed and discussed the audited financial statements with management and our independent registered public accounting firm, KPMG LLP. The committee has also discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as currently in effect, issued by the American Institute of Certified Public Accountants. The committee has received the written disclosures and the letter from KPMG LLP required by Independent Standards Board No. 1, Independence Discussions with Audit Committees, as currently in effect, and has discussed with KPMG LLP its independence.

 

Finally, the committee also has received confirmation from management with respect to non-audit services provided by KPMG LLP to the Company and has considered whether the provision of non-audit services by KPMG LLP to the Company is consistent with maintaining KPMG LLP’s independence.

 

All members of the Audit Committee are financially literate under applicable NYSE rules, and Walter L. Revell (a member of the Committee as of the date of this report) and Thomas A. Fanning are audit committee financial experts as defined by the rules of the SEC. As described in the Audit Committee Charter, the committee’s responsibility is one of oversight. Members of the committee rely on the information provided to them and on the representations made by management, internal auditors and the independent auditors.

 

Based on the review and discussions described in this report, and subject to the limitations on the role and responsibilities of the committee referred to above and in the Audit Committee Charter, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC.

 

Approved and submitted by the Audit Committee on February 22, 2008*:

 

Walter L. Revell, Chair

Thomas A. Fanning

Harry H. Frampton, III

Delores M. Kesler

 

*The Audit Committee consisted of the directors listed above through February 29, 2008. The current members of the Audit Committee described on page 14 began serving on March 1, 2008.

 

The Audit Committee is responsible for approving every engagement of KPMG LLP to perform audit or permitted non-audit services on behalf of the Company or any of its

subsidiaries before KPMG LLP is engaged to provide those services, subject to the de minimis exceptions permitted by the rules of the SEC.

 

In accordance with Audit Committee policy and legal requirements, all services to be provided by our independent registered public accounting firm, including audit services, audit-related services, tax services and any other services, are required to be pre-approved by the Audit Committee prior to engagement. In most cases, pre-approval is provided by the full Audit Committee for a particular defined task or scope of work and is subject to a specific budget. For unexpected matters, the Chair of the Audit Committee has been delegated authority to pre-approve additional services, subject to certain dollar limitations, and the Audit Committee is then informed of each such service.

 

The following table sets forth fees billed to the Company by KPMG LLP in or for the fiscal years 2007 and 2006. The aggregate fees included in the Audit Fees category are fees billed for the fiscal years, and the aggregate fees included in each of the other categories are fees billed in the fiscal years. All fees described in the table below were approved by the Audit Committee in accordance with the Company’s pre-approval policy.

 

 

 

 

KPMG LLP also serves as independent auditors for The St. Joe Community Foundation (the “Community Foundation”). The Community Foundation paid KPMG LLP audit fees in the amount of $11,000 during 2007 and $10,000 during 2006. The Community Foundation also paid KPMG LLP fees for tax services in the amount of $3,150 in 2007 and $3,000 in 2006.

 

KPMG LLP also serves as independent auditors for three joint ventures in which the Company is a partner. These joint ventures paid KPMG LLP audit fees in the amount of $60,000 in 2007 and $54,750 in 2006; and tax fees of $5,550 in 2007 and $5,250 in 2006.

 

Related Person Transactions Policy and Procedures.  The Board has adopted a policy prohibiting transactions involving the Company and its employees, officers and directors (“related persons”), with certain exceptions. The policy is part of the Company’s Code of

Conduct. The policy states that related persons may not have any direct or indirect material interest in any transaction, arrangement or relationship in which the Company, or a competitor of the Company, is a participant. Indirect interests include those through (1) an immediate family member; (2) any person acting on the related person’s behalf; or (3) any entity in which the related person or any of his or her immediate family members are an employee, officer, partner or principal or with which a related person or his or her immediate family members have a significant business relationship.

 

The Company’s policy prohibiting related person transactions does not apply to interests in transactions arising from (1) arms-length purchases or sales of goods, real property or services; (2) a related person’s position as a director of another corporation or organization that is a party to the transaction; (3) the direct or indirect ownership of less than a 5% equity interest in a public company which is a party to the transaction; and (4) Company benefit policies and programs.

 

Executive officers must disclose to the compliance officer any proposed related person transaction. The compliance officer will then report such proposed transaction to the Board. For related person transactions involving a director, the director must notify the Chairman of the Governance and Nominating Committee and the compliance officer, who will then bring the matter before the full Board. The Board will resolve any conflict of interest question involving an executive officer or director without compromising the Company’s interests. During its review, the Board will consider the nature of the related person’s interest in the transaction; the material terms of the transaction; whether or not the transaction would qualify for an exception to the policy; and any other matters the Board deems appropriate. Any director or executive officer involved in the transaction would be recused from all discussions and decisions about the transaction.

 

The Company’s legal staff is primarily responsible for the development and implementation of processes and controls to monitor and obtain information with respect to related person transactions. Although shareholders are not subject to the Company’s Code of Conduct, the Company does apply the policy against related person transactions to shareholders owning five percent or more of the Company’s outstanding common stock.

 

Reportable Transactions.  During January 2008, William S. McCalmont, our Chief Financial Officer, sold to the Company a home site in our WaterColor resort community for $500,000. He had originally purchased the home site from the Company in 2004, prior to his employment, for $725,000. At the same time as the sale of the home site to the Company, Mr. McCalmont also purchased from the Company a completed home in WaterColor for $1,850,000. We believe that the purchase and sale transactions were conducted on an arm’s-length basis for prices at fair market value. Therefore, according to our policy, the transactions were not subject to the prohibition against related-person transactions, and Board review was not required.

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors, executive officers and beneficial owners of more than 10% of the Company’s common stock to file reports with the SEC reporting ownership of and transactions in common stock and to furnish copies of the reports to the Company. We believe all such reports were timely filed during 2007 except for the late reporting on Form 4 of one late transaction involving the surrender of shares to pay taxes in connection with the vesting of restricted stock for each of Mr. Greene (133 shares), Mr. Corr (103 shares) , Mr. McCalmont (1,356 shares), Mr. Regan (155 shares) and Ms. Marx (165 shares).

 

You may submit proposals on matters appropriate for shareholder action for the 2009 Annual Meeting of Shareholders. These proposals must be made in accordance with the rules of the SEC and our Bylaws. A proposal for the 2009 annual meeting must be received by our Corporate Secretary at The St. Joe Company, 245 Riverside Avenue, Suite 500, Jacksonville, Florida 32202 as follows:

 

1. Pursuant to our Bylaws, a shareholder proposal or a director nomination must be received no sooner than October 29, 2008 and no later than November 28, 2008, to be eligible to be presented from the floor for vote at the meeting (but not included in our 2009 proxy statement), or

 

2. Pursuant to the rules of the SEC, the proposal must be received by November 28, 2008, to be eligible for inclusion in our 2009 proxy statement.

 

Peter S. Rummell, 62, has served as Chairman and Chief Executive Officer since joining us in 1997. Mr. Rummell will retire from his position as Chief Executive Officer on May 13, 2008. He will continue, however, as Chairman of the Board. Prior to joining us, Mr. Rummell was employed by The Walt Disney Company from 1985 to 1996. His most recent position with Disney was as Chairman of Walt Disney Imagineering, the division responsible for Disney’s worldwide creative design, real estate and research and development activities. Mr. Rummell also served as President of Disney Development Company, the community development arm of Walt Disney, from 1992 to 1994 and as President of the Arvida Resort Communities Division during 1985. From 1983 until 1985, Mr. Rummell was Vice Chairman of the Rockefeller Center Management Corporation in New York City. Mr. Rummell is a director of AvalonBay Communities, Inc., a real estate investment trust specializing in multifamily communities. Mr. Rummell is a trustee of the Urban Land Institute and the Real Estate Round Table.

 

Wm. Britton Greene, 53, will become our Chief Executive Officer on May 13, 2008. Mr. Greene has served as President since October 2007 and as Chief Operating Officer since August 2006. He joined us in January 1998 as Vice President of West Florida residential and resort operations and was appointed President of West Florida in 2000, President of St. Joe Towns & Resorts in February 2004 and President of St. Joe Commercial in March 2006. Prior to joining us, Mr. Greene was president of Markborough Florida, a real estate development firm, from 1992 to 1997. Mr. Greene also held management positions with a commercial mortgage company and an asset management services firm. Mr. Greene is a current member and past president of the Board of Trustees of The St. Joe Community Foundation.

 

Christopher T. Corr, 44, has served as Executive Vice President since October 2007 and as Chief Strategy Officer since August 2006. He previously served as Senior Vice President — Strategic Planning since May 2004. He joined us in June 1998 as Vice President of Public Affairs. From 1992 to 1998, Mr. Corr was a senior manager with The Walt Disney Company. Mr. Corr served Disney Development Company and Walt Disney Imagineering in various positions, including as a developer of the town of Celebration, a 5,000-acre master planned community near Orlando. Mr. Corr has also served in a number of positions in state government, including as a member of the Florida House of Representatives from 1990 to

1992, the Florida Constitution Revision Commission from 1996 to 1998, Governor Bush’s Growth Management Commission from 2000 to 2001, the Board of Directors of Enterprise Florida, Inc. from 2003 to 2007 and the Florida Century Commission from 2005 to 2007.

 

William S. McCalmont, 52, has served as our Chief Financial Officer since May 2007. Prior to joining the Company, Mr. McCalmont served as Executive Vice President and Chief Financial Officer of Ace Cash Express, Inc. from August 2003 to January 2007 and as a member of a real estate consulting group from 2001 to 2003. Prior to that time, Mr. McCalmont had senior management experience at several companies including Harrah’s Entertainment, Inc., La Quinta Inns, Inc. and Embassy Suites, Inc. Mr. McCalmont is a director of LaSalle Hotel Properties, a real estate investment trust.

 

Christine M. Marx, 56, joined us as General Counsel and Corporate Secretary in March 2003. Prior to joining us, Ms. Marx was a partner in the law firm of Duane Morris LLP concentrating in securities and corporate law. From 1985 to 2000 she was a partner in the law firm of Edwards & Angell LLP.

 

The executive officers described above, along with Michael N. Regan, our former Chief Financial Officer who retired from the Company on September 30, 2007, are included in the “Summary Compensation Table” on page 30 and are sometimes referred to herein as our “named executives.”

 

This Compensation Discussion and Analysis (“CD&A”) contains a discussion of our compensation policies and practices and the material elements of compensation awarded to the named executives for 2007.

 

As a real estate development company, our mission is to create a family of places in Northwest Florida that inspire people and make the region an even better place to live, work and play. During 2007, our business continued to experience the adverse effects of the severe downturn in the residential real estate markets in Florida and across the nation. We also continued to implement a corporate reorganization and downsizing. In this difficult and challenging environment, it is critical that we continue to attract, motivate and retain highly talented individuals who are committed to our mission and who are capable of leading the Company to realize this mission, which will help create long-term value for our shareholders. Our compensation program is a key element in driving behavior toward this goal. For this reason, our compensation program must:

 

 

To accomplish these objectives, the Company has implemented a compensation program for its executive officers consisting of base salaries, annual performance-based cash bonuses, equity awards and comprehensive fringe benefits. Each element of total compensation is linked to a compensation objective:

 

 

The Compensation Committee (the “Committee”) is charged with establishing, reviewing and approving the compensation of the Company’s executive officers. The Committee’s primary processes for overseeing executive compensation include:

 

 

As part of our analysis in determining executive officer compensation, we look to compensation practices at other companies that could be considered part of a “peer group” for the Company. We last undertook a formal peer group analysis in connection with establishing compensation levels for 2006. At that time, we directed Towers Perrin to recommend a peer group of companies within a market capitalization range of $1.5 to $5.0 billion (the “Market

Cap Peer Group”). Towers Perrin assembled this data from its internal database of information collected through its annual surveys and proxy statement analyses. Approximately 150 companies were included in the Market Cap Peer Group. The names of the companies included in the Market Cap Peer Group are listed on Appendix A to this Proxy Statement.

 

As part of our analysis, we compared the total compensation package for each executive officer with similar positions at other companies within the Market Cap Peer Group — a practice known as “benchmarking.” The purpose of the benchmarking process is to ascertain whether or not our compensation practices are in line with other similarly situated companies. During the benchmarking process, we used the following guidelines for setting what we believed to be competitive compensation targets:

 

 

When structuring the compensation levels of the named executives as compared to each other, we consider various factors, including the following:

 

 

For example, as CEO, Mr. Rummell’s 2007 total compensation is significantly higher than the other named executives. See the “Summary Compensation Table” on page 30. Mr. Rummell was originally recruited over ten years ago to assume the role of CEO during the Company’s critically important transition from a paper company to a real estate development company. The Company made the decision at that time to offer Mr. Rummell a competitive compensation package in order to procure a talented, well-respected real estate development professional. Further, as CEO, Mr. Rummell manages the other named executives, holds the highest level of operational and organizational responsibility within Company management and is exposed to personal legal liability (for example, signing quarterly financial statement certifications). Finally, during Mr. Rummell’s tenure as CEO, the Company has delivered tremendous value to its shareholders, which further justifies his higher compensation.

As President and COO, Mr. Greene’s 2007 compensation was also significantly higher than the other named executives. This difference reflects Mr. Greene’s critically important operational responsibilities and his assumption of additional responsibilities in connection with the Company’s management succession plan (the Company has announced Mr. Greene’s promotion to CEO effective as of May 13, 2008). The other named executives were hired into roles with less operational responsibility, or were promoted from more junior positions within the Company to assume greater responsibility over time.

 

We last analyzed the base salaries of our executive officers in 2006, when we determined that the base salaries were within 10% of the 50th percentile for corresponding position benchmarks within the Market Cap Peer Group described above. In February 2007, the Committee approved a modest, cost-of-living base salary increase of 3.5% for each of the named executives, except Messrs. Regan and McCalmont, which was no higher than the increase awarded to other employees. Mr. Regan did not receive a base salary increase due to his planned retirement during 2007. Mr. McCalmont commenced employment on May 10, 2007, and his base salary was in-line with our benchmark objective for the CFO position. The 2007 base salaries of our named executives were as follows:

 

 

We believe that a base salary of approximately 33% to 50% of an executive officer’s target total compensation (base salary + target bonus + target equity award) reflects an appropriate mix of fixed compensation and performance-based compensation. We believe having a significant, or even a majority, of an executive’s total compensation linked to the performance of the Company serves to more effectively align executives’ and shareholders’ interests. For 2007, the proportion of base salary to target total compensation for our named executives ranged from 33% (for Mr. Greene) to 50% (for Mr. Rummell). Mr. Rummell’s base salary is a larger proportion of target compensation than the other named executives because he does not receive an annual equity award. He has not received any additional equity grants since his large grant of restricted stock awarded in 2003 in connection with the execution of his five-year employment agreement.

 

In order to promote the short-term performance of the Company, a significant proportion of each named executive’s annual compensation is linked to the Company’s achievement of

specific performance measures. Making such compensation “at risk” provides significant motivation for increasing individual and Company performance. The Committee has adopted an annual incentive plan that is designed to reward short term performance by linking cash bonus awards with the achievement of annual Company performance goals.

 

Mechanics of the Plan.  In early 2007, the Committee assigned each named executive, other than Mr. Regan, a designated target award calculated as a percentage of the named executive’s base salary. The bonus target awards were determined in accordance with the Market Cap Peer Group position benchmarks and the internal pay equity factors, as described above. For 2007, the target awards expressed as a percentage of base salary were as follows: Rummell, 100%; Greene, 75%, Corr, 60%, McCalmont, 65% and Marx, 60%. In light of Mr. Regan’s planned retirement in 2007, he did not participate in the annual incentive plan.

 

At the conclusion of the annual performance period, the actual bonus is calculated by adjusting the target award up or down based on the level of achievement of Company performance goals. The plan is designed such that for each percentage variation from the applicable performance objective, the amount of the projected award is increased or decreased, as applicable, at twice the rate. For example, goals achieved by 50% or less will result in a 0% projected award, and goals that are exceeded by 50% or more will result in a 200% projected award. The maximum possible payout under the plan is 200% of the target award.

 

2007 Performance Goals.  Consistent with prior years, we decided to use an earnings per share target as the Company performance objective for 2007. We believed that an earnings per share target would motivate our executive officers to focus on both generating revenues and increasing operating efficiencies. In December 2006, the Committee set our 2007 earnings per share goal at $0.64. Our actual earnings per share for 2007 was $0.53. Because our actual performance fell short of the target, the named executives were paid only 42% of their target bonuses for 2007. See “Grants of Plan-Based Awards in 2007” on page 35 for the actual awards under the annual incentive plan.

 

Our long-term incentive program is designed to align executive and shareholder interests and encourage long-term executive performance and retention. The Company maintains several substantially identical stock incentive plans that are administered by the Committee. Each of these plans has been approved by our shareholders. In 2007, long-term incentives were delivered exclusively in the form of restricted stock and stock option awards.

 

Equity Grant Practices.  Our practice has been to make at least one equity award each year to our named executives (other than Mr. Rummell) as part of their total annual compensation. These awards are based on an established percentage of their base salaries. For 2007, the equity target award percentages for the named executives were determined by reference to the Market Cap Peer Group position benchmarks and the internal pay equity factors, as described above. The Committee also considers the recommendations of management, including our CEO and President and COO, and its compensation consultant when making equity awards.

 

Awards of both restricted stock and stock options are initially denominated in dollars, which amounts are then converted to shares or options based on grant date valuations. Actual restricted shares granted are determined by dividing the approved dollar value of the award by the closing share price on the date of grant. The number of options granted is determined by dividing the approved grant value by the value of the options on the date of grant using the Black-Scholes valuation methodology.

Annual equity awards are made in February at the regular quarterly meeting of the Committee. In 2007, the Committee made equity awards at two additional special meetings, described below. The Committee’s quarterly meetings are scheduled in September of the prior year. Committee meetings are scheduled without regard to anticipated earnings announcements or the release of other material, non-public information.

 

Generally, the date the Committee takes action with respect to an award is the same date as the grant date for the awards. In 2007, there were two exceptions to this general practice when the grant date was contingent on a future event. In one instance, the grant date for Mr. McCalmont’s initial equity awards was established as his future hire date. In the second instance, equity awards were made contingent upon the subsequent approval of a strategic plan by the Board. We do not backdate stock options.

 

Types of Awards.  Long-term incentives were awarded in 2007 in the form of shares of restricted stock and stock options with time-based vesting. Restricted stock with time-based vesting is an effective retention tool because it delivers value when the restrictions lapse even if the share price has decreased from the date of grant. Restricted stock grants also deliver value more efficiently than stock options, which benefits existing shareholders. In other words, granting restricted shares requires the issuance of fewer shares than granting options in order to deliver the same level of value to participants.

 

Further, since the Company’s real estate business is part of a volatile and cyclical industry, we believe time-vested restricted stock is an important vehicle for securing leadership continuity. Because there are no performance-based requirements for time-vested restricted stock (other than continued employment), this type of award helps moderate the potential retention risks associated with economic cycles, like the current severe downturn in the real estate industry, when our executives may be most vulnerable to competitive offers. For example, the trading price of our common stock in 2007 was at times lower than the exercise prices of our named executives’ outstanding stock options. At those times, the stock options had no value to our named executives, and their retention value was effectively lost.

 

Although the value of stock options can be unpredictable, we include stock options as an important element of our long-term incentive program. Because stock options only have value to the extent the price of our stock appreciates after the date of grant, stock options provide a strong incentive for improving Company performance. Although less effective than stock options, restricted stock also serves to motivate performance as its value increases as stock price increases. Awarding a mix of equity awards, which balance both retention and performance objectives, encourages continued accountability of executives for stock price appreciation, aligns the financial interests of executives with shareholders, and provides stability of incentive payouts during down business cycles.

 

2007 Equity Grants.  The Committee granted annual equity awards to the named executives in February 2007. These awards consisted of both restricted stock and stock options, each weighted at 50% of the total award, with time-based vesting. This equal mix was an effort to balance the Committee’s objectives of executive retention and providing an incentive for performance. The target award percentages for the named executives (determined as described above) were as follows: Mr. Greene, 125%; Mr. Corr, 100%; and Ms. Marx, 75%.

 

Effective in May, the Committee made significant grants of restricted stock and stock options to Mr. McCalmont in connection with his commencement of employment with the Company as Chief Financial Officer. Such grants were deemed to be appropriate by the Committee in order to attract and retain a Chief Financial Officer with the level of experience

of Mr. McCalmont. In determining the size of the award, the Committee considered the critical importance of the role of Chief Financial Officer in helping the Company navigate its current turbulent operating environment. Another consideration in determining the size of the award was the Committee’s desire to “match” Mr. McCalmont’s pledge to purchase for his own account 4,500 shares of Company common stock.

 

In October, we announced a significant restructuring in our business, which would involve reducing the number of employees by more than 80%. Because of the challenges and uncertainty surrounding such dramatic change, the Committee decided to make additional awards of restricted stock to certain members of management, including Mr. McCalmont and Ms. Marx, as an incentive for these executives to remain with the Company. In order to create a strong retention incentive, these awards were calculated at twice the value of the named executives’ target annual equity awards. Time-based vesting conditions were used for these awards in order to provide perceived certainty to the value of the awards to the recipients. Due to the Company’s difficult operating environment, stock options would not have provided the same level of perceived value. Mr. Greene and Mr. Corr did not participate in the October equity grants as they had received large grants of restricted stock with time-based vesting conditions in September 2006 in connection with the Company’s succession planning.

 

In October, Mr. McCalmont also received an additional grant of restricted stock, with 50% of the award immediately vesting. This grant was intended to provide an additional retention incentive for Mr. McCalmont, as the value of his previous equity awards had decreased substantially within a short period after his hire date, and the Committee found it unreasonable to hold him accountable for this decline in value. The award was also in recognition of Mr. McCalmont’s important role in the Company’s reorganization and near-term financial challenges.

 

Mr. Rummell did not receive any equity grants in 2007. When he entered into his employment agreement with the Company in 2003, he was awarded 303,951 shares of restricted stock (with the final 101,317 shares scheduled to vest on August 18, 2008). Mr. Rummell will retire from his position as Chief Executive Officer on May 13, 2008. He will not receive any additional equity awards prior to the expiration of his employment agreement on August 18, 2008. Due to Mr. Regan’s planned retirement from the Company in September 2007, he also did not receive any equity awards in 2007.

 

See “Grants of Plan-Based Awards in 2007” on page 35 for more information about our equity grants to the named executives in 2007.

 

Policies Regarding Equity Ownership.  In order to promote the alignment of the financial interests of our senior management and directors with our shareholders, the Committee adopted a Stock Ownership Policy in May 2007. The policy requires senior management, including the named executives, to own a minimum amount of Company stock (either a minimum number of shares or a minimum value of owned shares) ranging from 5,000 shares (or $275,000) to 100,000 shares (or $5.5 million). For directors, the minimum amount of Company stock required to be owned under the policy is 5,000 shares (or $275,000). The executives subject to the policy have five years from the date of adoption to reach the minimum ownership thresholds. The thresholds for those age 55 or older will be reduced by 10% per year up to 50% because the Committee thought it reasonable to allow for a certain amount of investment diversification as the executives approach retirement age in light of the volatility of stock prices in the real estate industry.

 

In addition to the Company’s Stock Ownership Policy, Mr. Rummell agreed in his employment agreement not to sell or transfer any of the restricted stock granted pursuant to

his employment agreement, except for the number of shares necessary to pay taxes arising upon the lapse of restrictions on the restricted stock, until the earlier of the termination of his employment by the Company, an unfriendly change of control, one year after a friendly change of control or August 18, 2008.

 

We do not reprice stock options to account for decreases in our share price after the date of grant. We prohibit short sales on our stock, and the purchase or sale of options, puts, calls or other derivative securities that are directly linked to our stock, by named executives. Certain members of management, including the named executives, are required to receive permission from our legal department prior to conducting transactions in Company securities. We have quarterly “blackout” periods, and unscheduled blackout periods from time-to-time, during which no trading is permitted by these persons.

 

The Company provides retirement benefits to the named executives through a cash balance defined benefit pension plan (the “Pension Plan”), a 401(k) retirement plan, a non-qualified supplemental executive retirement plan (“SERP”) and a non-qualified deferred capital accumulation plan (“DCAP”). The terms of these plans and the benefits accrued to the named executives under the plans are described under “Pension Benefits in 2007” on page 39 and “Nonqualified Deferred Compensation in 2007” on page 41. We believe that these retirement benefits are important tools for retaining and rewarding executive officers’ service to the Company by providing meaningful retirement savings through tax-favorable plans. Although we have no target percentage for retirement plans to contribute to total compensation, we do consider retirement benefits when setting an executive officer’s total compensation.

 

We provide our named executives with other benefits, reflected in the All Other Compensation column in the “Summary Compensation Table” on page 30, that we believe are reasonable, competitive and consistent with our overall executive compensation program. The costs of these benefits constitute only a small percentage of each named executive’s total compensation, and include, among other things, personal airplane use for Mr. Rummell (for up to 60 hours of flight time), financial planning expenses, relocation costs, premiums paid on life insurance policies and the cost of an annual physical.

 

Rummell Employment Agreement.  In August 2003, we entered into an employment agreement with Mr. Rummell that expires on August 18, 2008. Mr. Rummell will retire from his position as Chief Executive Officer on May 13, 2008, and his employment agreement will not be renewed after its expiration in August 2008.

 

The agreement provides for a base salary for Mr. Rummell of at least $766,782 and eligibility for performance-based bonuses under our annual incentive plan, with a target award equal to 100% of his base salary. The employment agreement also provides for substantial payments to Mr. Rummell in connection with the termination of his employment, whether before or after a change in control, which payments are described under “Potential Payments Upon Termination or Change in Control — Rummell Employment Agreement” on page 43.

Employment Agreements of Messrs. Greene, Corr, McCalmont and Ms. Marx.  Each of Mr. Greene, Mr. Corr, Mr. McCalmont and Ms. Marx have employment agreements with the Company, the primary purpose of which is to provide compensation to the executive in the event of termination without cause. The termination benefits under the employment agreements were standardized in 2006 to provide a “1.5 multiple” (1.5 times the sum of the executive’s base salary plus target bonus) for termination events occurring prior to a change in control (except for Mr. Greene, who was granted a 2.0 multiple in connection with his recently announced promotion to CEO). The agreements provide for a “2.0 multiple” for termination events occurring after a change in control. The agreements have “double triggers” in that a change in control alone will not require payments, unless a termination event occurs as well.

 

These employment agreements promote two objectives beneficial to the Company. First, they provide our named executives with the financial security needed to allow them to fully focus on their operational responsibilities. The Company is facing a very challenging operating environment and is implementing a corporate reorganization and downsizing, both of which require full management attention. Secondly, we believe that the benefits provided by the employment agreements are in-line with current compensation practices of other public companies that could be competitors for our executive talent. Without these employment agreements, we could have difficulty retaining our named executives.

 

The potential payments under the employment agreements in connection with specific termination events, whether before or after a change in control, are described under “Potential Payments Upon Termination or Change in Control — Employment Agreements of Messrs. Greene, Corr, McCalmont and Ms. Marx” on page 45.

 

Other than termination benefits, the employment agreements provide that the named executives are entitled to receive at least the base salary in effect for the executive on the date of the employment agreement, together with guaranteed participation in the Company’s annual bonus plan and other incentive, retirement and savings plans. The agreements also provide for an annual physical and up to $10,000 per year for financial planning expenses. The employment agreements have no termination date.

 

Regan Employment Agreement.  In January 2007, the Company entered into an amendment to Mr. Regan’s employment agreement. The amendment provided for Mr. Regan’s continued employment until his retirement on September 30, 2007. Mr. Regan served as Chief Financial Officer until May 10, 2007. The amendment was needed in order to provide for additional compensation to Mr. Regan in consideration of the deferral of his retirement date at the Company’s request, and the additional responsibilities he assumed when he was appointed Chief Financial Officer in November 2006. The amendment provided for:

 

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on its review and discussions with management, the committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2008 proxy statement. This report is provided by the following independent directors, who comprise the committee:

 

Michael L. Ainslie, Chair

Hugh M. Durden

Harry H. Frampton, III

Delores M. Kesler

Walter L. Revell

 

The Compensation Committee consists of independent members of the Board of Directors. No member of the Committee is or was during 2007 an executive officer of another company on whose board or its comparable committee one of the Company’s executive officers serves.

 

The table below summarizes the total compensation paid or awarded to each of the named executives for the years ended December 31, 2007 and 2006.

 

 

 

Salary (Column (c))

 

A discussion of the 2007 base salaries of the named executives is set forth under “Base Salaries” in the CD&A on page 23. The discussion under “Internal Pay Equity” in the CD&A on page 22 provides information regarding the varying salary levels of the named executives. The amount shown for Mr. McCalmont includes the salary earned by him from May 10, 2007, his date of hire, through December 31, 2007. His annual base salary rate was $350,000. The

2007 amount shown for Mr. Regan includes the salary earned by him through September 30, 2007, his retirement date. His annual base salary rate was $298,200.

 

Bonus (Column (d))

 

Mr. Regan was guaranteed a bonus for 2007 in the amount shown as part of an amendment to his employment agreement entered into in connection with his retirement in 2007. Mr. Regan’s employment agreement is discussed in the CD&A under “Employment Agreements — Regan Employment Agreement” on page 28.

 

Stock Awards and Option Awards (Columns (e) and (f))

 

For a discussion of our long-term incentive program and our 2007 equity grants, refer to “Long-Term Incentive Program” in the CD&A on page 24.

 

The amounts shown reflect the dollar amounts recognized for financial statement reporting purposes for 2007 for restricted stock and stock options granted in 2007 and 2006, as well as prior years, in accordance with SFAS 123R, excluding any contingency for forfeitures. The assumptions used in the calculation of these amounts for 2007 are described in note 2 of the Company’s financial statements in our Form 10-K for the year ended December 31, 2007, as filed with the SEC on February 25, 2008. As these amounts reflect the Company’s accounting expense for these awards, they may not correspond to the actual value that will be recognized by the named executives.

 

The amounts are difficult to compare between the named executives for 2007 and also from year to year. This is mainly because the numbers represent the accounting expense for portions of awards from prior years. For example, Mr. Rummell received no stock or option awards in 2007 or 2006, but large stock award amounts are shown for him in the table. These amounts reflect the expense recognized in 2007 and 2006 in connection with an equity grant awarded to Mr. Rummell in 2003 in connection with his execution of a five-year employment agreement. To see the value of awards made to the named executives in 2007, refer to “Grants of Plan-Based Awards in 2007” on page 35. To see the value actually received by the named executives in 2007 from equity awards, refer to “Option Exercises and Stock Vested in 2007” on page 38.

 

Mr. Regan forfeited 11,090 shares of restricted stock in connection with his retirement on September 30, 2007. The negative amount shown under “Stock Awards” includes a 2007 credit of $389,505 for expense recognized in prior years for restricted stock awards. Mr. Regan did not forfeit any stock options in connection with his retirement.

 

Non-Equity Incentive Plan Compensation (Column (g))

 

The amounts reported in the Non-Equity Incentive Plan Compensation column reflect the amounts earned by the named executives under our annual incentive plan in 2007. The material provisions of that plan are described in the CD&A under “Annual Performance-Based Bonuses” on page 23. These amounts are the actual amounts earned by each named executive under the awards described under “Grants of Plan-Based Awards in 2007” on page 35. Payments under the annual incentive plan were based on the Company’s performance during 2007 as described in the CD&A under “Annual Performance-Based Bonuses — 2007 Performance Goals” on page 24.

Change in Pension Value and Nonqualified Deferred Compensation Earnings (Column (h))

 

The amounts reported in this column represent the sum of (1) the change in present values of the pension plan benefits for each named executive and (2) the above-market interest earned on each named executive’s account in the DCAP. The following table summarizes the amounts attributable to each category for the named executives:

 

 

We pay 7% interest on participants’ accounts in the DCAP. The amounts shown above reflect the portion of the interest payment that is attributable to above-market interest rates. Above-market rates are defined by the SEC as those rates that exceed 120% of the applicable federal long-term rate (5.89% for 2007 and 4.57% for 2006). The total interest payment to the DCAP for each named executive is shown under “Nonqualified Deferred Compensation in 2007” on page 41.

 

The changes in pension values shown reflect the changes in the present value of pension benefits from one year end to the next. Factors affecting the changes in present values include the impact of the value of benefits earned in the current year, the growth in the value of benefits earned in prior years due to the passage of time and the impact of changes in assumptions. This present value calculation is based on actuarial assumptions and discounting and is not a direct reflection of the change in each participant’s actual account balance in the pension plan during the year.

 

The assumptions used to calculate the change in present values include a discount rate of 6.21% at December 31, 2007, 5.76% at December 31, 2006 and 5.56% at December 31, 2005; future interest crediting rate of 4.75% at December 31, 2007, 4.75% at December 31, 2006 and 4.50% at December 31, 2005; lump sum form of payment; and a normal retirement age of 65. Turnover, disability, future salary increases, pre-retirement mortality and increases in IRC 401(a)(17) compensation limits were ignored for calculation purposes.

 

Refer to “Pension Benefits in 2007” on page 39 for more information about the pension benefits available to the named executives.

All Other Compensation (Column (i))

 

The following table describes each component of the amounts shown in the All Other Compensation column for 2007.

 

Restricted Stock Dividends.  Dividends are paid with respect to each share of restricted stock held by the named executives in the same amounts as paid with respect to each share of our common stock. The amounts shown reflect dividends paid to the named executives on their shares of restricted stock in connection with three quarterly dividends we declared in 2007. In the fourth quarter of 2007, however, we discontinued our quarterly dividends. Dividends payable with respect to restricted stock are not factored into the grant date fair value of restricted stock awards required to be reported in the Grants of Plan-Based Awards in 2007 table below.

 

Company Contributions to SERP, 401(k) and DCAP.  We make annual contributions to each named executive’s account maintained in connection with the SERP, DCAP and 401(k) plan. A discussion of these retirement plans is found in the CD&A under “Retirement Plans” on page 27. More information regarding the SERP and DCAP is found under “Nonqualified Deferred Compensation in 2007” on page 41. With respect to the Company contributions to the 401(k) plan and the DCAP, the Company contributed $6,750 to each named executive’s account in the 401(k) plan, and any amount in excess of $6,750 for a named executive reflects contributions to the DCAP.

 

Airplane Use.  Consistent with prior years, during 2007, we provided Mr. Rummell with the use of a corporate airplane for personal purposes for up to 60 hours of flight time. We purchase these hours of flight time through our participation in a fractional ownership program. Mr. Rummell reimburses a portion of the costs associated with his personal airplane use in accordance with the methodology set forth in Treasury Regulations for federal income tax purposes. The amounts shown in the table above represent the difference between the Company’s actual cost for the airplane use and the amounts reimbursed by Mr. Rummell.

 

Financial Planning Expenses.  The employment agreement for each named executive provides up to $10,000 annually for financial planning expenses. We believe that this benefit helps each named executive to optimize the value received from all of the compensation elements offered by the Company.

 

Term Life Insurance Premiums.  This column reports taxable payments made to the named executives to cover term life insurance premiums for policies providing coverage equal to their base salaries.

 

Annual Physical Exam.  Each named executive’s employment agreement provides that he or she may obtain an annual physical exam at the Company’s expense.

Other Benefits.  The amount shown for Mr. Rummell includes the monthly costs of computer service for his residences. The amount shown for Mr. McCalmont includes expenses in the amount of $180,509 reimbursed pursuant to the terms of his employment offer in connection with his relocation to Jacksonville and consulting fees in the amount of $17,400 paid to Mr. McCalmont in 2007 prior to his commencement of employment on May 10, 2007. The amount shown for Mr. Regan includes a bonus in the amount of

$800,000 paid to him in connection with his retirement and a cash payment for his accrued vacation time in the amount of $23,759. Refer to “Employment Agreements — Regan Employment Agreement” in the CD&A on page 28 for more information about Mr. Regan’s retirement package. The named executives may have received additional incidental perquisites not subject to SEC reporting.

 

The following table provides information about equity and non-equity awards granted to the named executives in 2007. The Company’s equity awards during 2007 consisted of restricted stock and stock options subject to time-based vesting. The Company did not grant any equity awards with varying, incentive-based payout amounts, and the columns related to such awards have been omitted from the table.

 

 

 

Estimated Future Payouts Under Non-Equity Incentive Plan Awards

 

These columns show the potential value of the 2007 payouts for each named executive under the Company’s annual incentive plan if the target or maximum goals had been achieved in 2007. The performance goals and salary multiples for determining the payouts are described in the CD&A under “Annual Performance-Based Bonuses” on page 23. These amounts represent cash payouts that were possible under the Company’s annual incentive plan. The potential payouts were performance-based and completely at risk. The actual payouts under the annual incentive plan for 2007 is found in the “Summary Compensation Table” on page 30.

Stock Awards and Option Awards

 

For a description of the equity grants to the named executives in 2007, refer to the discussion in the CD&A under the heading “Long-Term Incentive Program — 2007 Equity Grants” on page 25.

 

For the February 12, 2007 restricted stock grants to Mr. Greene, Mr. Corr and Ms. Marx, and the May 10, 2007 restricted stock grant to Mr. McCalmont, 50% of the restricted shares will vest three years from the grant date, and the remaining 50% will vest four years from the grant date. For the October 5, 2007 restricted stock grant to Ms. Marx, 25% of the restricted shares will vest annually beginning on the first anniversary of the grant date. For the October 5, 2007 restricted stock grant to Mr. McCalmont, 5,124 shares vested immediately, 10,249 shares vest on the first anniversary of the grant date, and the remaining 15,374 shares vest in equal installments on the second, third and fourth anniversaries of the grant date.

 

During the restricted period, each share of restricted stock entitles the named executive to receive any dividends that we may declare with respect to our common stock. In the fourth quarter of 2007, however, we discontinued our quarterly dividends.

 

For the February 12, 2007 stock option grants to Mr. Greene, Mr. Corr and Ms. Marx, one-third of the stock options will vest annually beginning one year from the grant date.

 

Grant Date Fair Value of Stock and Option Awards

 

This column shows the full grant date fair value of the restricted stock and stock options under SFAS 123R granted to the named executives in 2007. Generally, the full grant date fair value is the amount that we would expense in our financial statements over the award’s vesting schedule. For restricted stock, the fair value is calculated using the closing price of our common stock on the grant date. For stock options, the fair value is calculated using the Black-Scholes value on the grant date. The fair values shown for restricted stock awards and stock option awards are accounted for in accordance with SFAS 123R, excluding any contingency for forfeitures. For additional information regarding the valuation assumptions, refer to note 2 of the Company’s financial statements in our Form 10-K for the year ended December 31, 2007, as filed with the SEC on February 25, 2008.

 

The amounts shown reflect our accounting expense, and do not necessarily correspond to the actual value that will be recognized by the named executives from the awards. Whether, and to what extent, a named executive realizes value will depend on our stock price at the time of vesting for restricted stock, and at the time of exercise for stock options.

 

The following table provides information on the holdings of restricted stock and stock options by the named executives at December 31, 2007. Each equity grant is shown separately for each named executive. The vesting schedule for each grant is shown in the footnotes to the table. No named executive had any unearned equity awards outstanding as of December 31, 2007, and the columns related to such awards have been omitted from the table.