USEC Inc.
Two Democracy Center
6903 Rockledge Drive
Bethesda, Maryland 20817

March 17, 2011

 

Dear Shareholder:

 

You are cordially invited to attend our annual meeting of shareholders to be held on Thursday, April 28, 2011, at 10:00 a.m., Eastern Time, at the Marriott Bethesda North Hotel and Conference Center, 5701 Marinelli Road, North Bethesda, Maryland 20852.

 

At the meeting, you will be asked to vote on each of the five proposals set forth in the Notice of Annual Meeting of Shareholders, which describes the formal business to be conducted at the annual meeting and follows this letter.

 

Your vote is important no matter how many shares you own. We encourage you to vote your shares today. You may vote by completing and returning the enclosed proxy card in the postage-paid envelope provided or by using telephone or Internet voting systems. If you do attend the meeting and desire to vote in person, you may do so even though you have previously submitted your proxy.

 

We appreciate your continued confidence in the Company and look forward to seeing you at the annual meeting.

Sincerely,

 

 

USEC Inc.
Two Democracy Center
6903 Rockledge Drive

Bethesda, Maryland 20817

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held April 28, 2011

 

The Annual Meeting of Shareholders of USEC Inc. will be held on Thursday, April 28, 2011, at 10:00 a.m., Eastern Time, at the Marriott Bethesda North Hotel and Conference Center, 5701 Marinelli Road, North Bethesda, Maryland 20852, for the following purpose:

 

1. To elect the eleven director nominees for a term of one year;

 

2. To hold an advisory vote on executive compensation;

 

3. To hold an advisory vote on the frequency of holding an advisory vote on executive compensation;

 

4. To approve an amendment to the USEC Inc. 2009 Equity Incentive Plan;

 

5. To ratify the appointment of PricewaterhouseCoopers LLP as USEC’s independent auditors for 2011; and

 

6. To transact such other business as may properly come before the meeting or any adjournments thereof.

 

We are enclosing a copy of the Company’s Annual Report for the year ended December 31, 2010 with this Notice and Proxy Statement.

 

The record date for determining shareholders entitled to notice of, and to vote at, the meeting was the close of business on March 4, 2011. Please complete and return the enclosed proxy card in the postage-paid envelope provided at your earliest convenience, or use telephone or Internet voting systems to vote your shares.

 

By Order of the Board of Directors,

 

Peter B. Saba
Senior Vice President, General Counsel and Secretary

 

Bethesda, Maryland

March 17, 2011

 

2011 PROXY STATEMENT

 

 

TABLE OF CONTENTS

 

USEC Inc.
Two Democracy Center
6903 Rockledge Drive
Bethesda, Maryland 20817

 

Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to Be Held on April 28, 2011

 

This proxy statement and our Annual Report for
the year ended December 31, 2010 are available at http://bnymellon.mobular.net/bnymellon/USU.

 

PROXY STATEMENT

 

We are providing these proxy materials in connection with the solicitation by the Board of Directors of USEC Inc. of proxies to be voted at USEC Inc.’s (“USEC,” the “Company,” “we,” “us,” or “our”) 2011 Annual Meeting of Shareholders. The meeting will be held at the Marriott Bethesda North Hotel and Conference Center, 5701 Marinelli Road, North Bethesda, Maryland, on April 28, 2011, beginning at 10:00 a.m., Eastern Time. The proxies also may be voted at any adjournments or postponements of the meeting.

 

This Proxy Statement, proxy card and our Annual Report for the year ended December 31, 2010 are being mailed starting on approximately March 18, 2011.

 

What matters will be voted on at the Annual Meeting?

 

The following matters will be voted on at the Annual Meeting:

 

 

How does the board of directors recommend that I vote?

 

The board of directors recommends that you vote:

 

 

Who may vote at the meeting?

 

Holders of USEC Inc. common stock at the close of business on the record date of March 4, 2011 may vote at the meeting. You are entitled to one vote for each share of common stock you held on the record date, including shares:

 

 

How many shares must be present to hold the meeting?

 

A majority of USEC’s outstanding shares of common stock as of the record date, March 4, 2011, must be present at the meeting in order to hold the meeting and conduct business. This is called a quorum. On the record date, there were 122,067,721 shares of USEC common stock outstanding, each entitled to one vote. Your shares are counted as present at the meeting if you are present and vote in person at the meeting or have properly submitted a proxy card or voting instructions prior to the meeting.

 

What is the effect of a broker non-vote?

 

Banks, brokers, or nominees who hold shares for a beneficial owner have the discretion to vote on routine proposals when they have not received voting instructions from the beneficial owner at least ten days prior to the annual meeting. A “broker non-vote” occurs when a bank, broker or nominee holding shares for a beneficial owner does not vote on a particular matter because it has not received voting instructions from the beneficial owner and does not have discretionary voting power for that particular matter. Broker non-votes will be counted for purposes of calculating whether a quorum is present at the annual meeting but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal. Thus, a broker non-vote will not impact our ability to obtain a quorum and will not otherwise affect the outcome of the vote on a proposal that requires a plurality of the votes cast (Proposals 1 and 3) or the approval of a majority of the votes present in person or represented by proxy and entitled to vote (Proposals 2, 4 and 5).

 

What is the required vote for each proposal?

 

How do I vote my shares?

 

You may vote using any of the following methods:

 

Shareholders of Record

 

 

Beneficial Owners

 

If you are a beneficial owner whose shares are held of record by a broker, bank or other nominee, be sure to complete, sign and return the voting instruction card received from your broker, bank or other nominee. The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other nominee. Therefore, we recommend that you follow the voting instructions in the materials you receive. Shares held beneficially may be voted at the annual meeting only if you obtain and bring with you to the annual meeting a legal proxy from your broker, bank or other nominee.

 

What if I do not specify a choice for a matter when returning a proxy?

 

Shareholders should specify their choice for each matter on the enclosed proxy card. If you just sign and submit your proxy card without marking your vote, your shares will be voted:

 

 

 

May I revoke my proxy and change my vote?

 

You may revoke your proxy at any time before it is voted at the annual meeting by:

 

 

How are proxies solicited and what are the costs?

 

We have hired Morrow & Co., LLC, located at 470 West Avenue, Stamford, Connecticut 06902, to assist us in soliciting proxies from brokers, banks and nominees and we will pay Morrow & Co., LLC a fee of approximately $10,000, plus expenses, for these services. We will reimburse banks, brokerage houses, and other institutions, custodians, nominees, and fiduciaries for reasonable expenses in forwarding proxy material to their principals. Our directors, officers, and employees may also solicit proxies by mail, e-mail, telephone or personal contact. They will not receive additional compensation for these activities.

 

What is householding?

 

If you and other residents at your mailing address own shares of USEC stock in “street name,” your broker, bank or other nominee may have notified you that your household will receive only one annual report, proxy statement and Notice of Internet Availability of Proxy Materials for each company in which you hold stock through that broker or bank or other nominee. This practice is known as “householding.” Unless you responded that you did not want to participate in “householding,” you were deemed to have consented to the process. Your broker, bank or other nominee will send one copy of our annual report, proxy statement and Notice of Internet Availability of Proxy Materials to your address. Each shareholder will continue to receive a separate proxy card or voting instruction card.

 

If you would like to receive your own set of USEC’s future annual report, proxy statement and Notice of Internet Availability of Proxy Materials or if you share an address with another USEC shareholder and together both of you would like to receive only a single set of USEC annual disclosure documents, please contact Broadridge Financial Solutions, Householding Department, 51 Mercedes Way, Edgewood, New York 11717 or call them at (800) 542-1061. Be sure to indicate your name, the name of your brokerage firm or bank or other nominee, and your account number. Any revocation of your consent to householding will be effective 30 days following its receipt.

 

If you did not receive an individual copy of this year’s proxy statement, our annual report, or the Notice of Internet Availability of Proxy Materials, we will promptly send a copy to you if you address a written request to USEC Inc., Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817, Attention: Investor Relations or call (301) 564-3354.

 

How can I find out the results of the annual meeting?

 

Preliminary results will be announced at the annual meeting. Final results also will be published in a current report on Form 8-K to be filed with the SEC within four business days after the annual meeting. If the official results are not available at that time, we will provide preliminary voting results in the Form 8-K and will provide the final results in an amendment to the Form 8-K as soon as they become available.

 

The current structure of our Board of Directors consists of eleven directors elected by the holders of USEC Inc. common stock and two directors elected by the holders of the Company’s convertible preferred stock, as described below under “Governance of the Company — Governance Information — Investor-Designated Directors.”

 

At the 2011 annual meeting, eleven directors are to be elected to hold office until the 2012 annual meeting and until their successors have been elected and qualified. The eleven nominees for election at the 2011 annual meeting are listed below, with brief biographies. They are all presently USEC directors. Mr. Cornelius, Mr. Skowronski and Mr. Smith were elected to the board of directors in 2011 as part of a Board search process. The board of directors has determined that all nominees except John K. Welch, President and CEO, satisfy the New York Stock Exchange’s definition of independent director. All nominees have consented to serve if elected, but if any nominee becomes unavailable to serve, the persons named as proxies may exercise their discretion to vote for a substitute nominee.

 

The Board recommends a vote FOR the election of these eleven nominees as directors.

 

NOMINEES FOR DIRECTOR

 

OTHER DIRECTORS

 

Biographical information, including relevant business and professional experience for each of the investor-designated directors is provided below:

 

 

The Board has adopted Governance Guidelines, which serve as principles addressing the role of the Board of Directors in the areas of fiduciary oversight, independence, evaluation of the chief executive officer, and succession planning. The Governance Guidelines also set standards relating to the composition and operation of the Board and its committees, including standards relating to the selection and qualification of directors, evaluation of the Board and its committees, and director education. The Governance Guidelines are administered by the Board’s Nominating and Governance Committee, which regularly reviews director criteria and qualifications, and leads the performance assessments of the Board and its Committees. The Board annually assesses the adequacy and effectiveness of its Governance Guidelines. Copies of the current Governance Guidelines are available on our website at www.usec.com under “Corporate Governance” or upon written request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

 

Our Governance Guidelines contemplate that non-management directors meet regularly in executive session. During 2010, the non-management directors met without management at regularly scheduled executive sessions, and James R. Mellor, Chairman, presided at these executive sessions.

 

The Board has an established process to receive communications from shareholders and other interested parties. This process has been approved by a majority of the independent directors. Shareholders and other interested parties may contact the Board, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group, by mail or electronically. Communications by mail should be addressed to such recipient or recipients in care of USEC’s Secretary at the following address: c/o Secretary, USEC Inc., Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817. Electronic communications can be made through our website at www.usec.com. Under the Corporate Governance section, you will find a link to the e-mail address for writing an electronic message to the Board, the presiding director for executive sessions of the non-management directors, or the non-management directors as a group.

 

The New York Stock Exchange (“NYSE”) listing standards require that the boards of listed companies have a majority of independent directors and that audit, nominating and governance, and compensation committee members must all be independent as affirmatively determined by the Board. At its February 2011 meeting, after reviewing the NYSE standards of independence, the Board of Directors affirmatively determined that the following ten directors were independent: Mr. Armacost, Dr. Brown, Mr. Cornelius, Mr. Doyle, Mr. Habermeyer, Dr. Madia, Mr. Mellor, Mr. Moore, Mr. Skowronski, and Mr. Smith. The basis for these determinations was that each of these ten directors (other than Mr. Habermeyer and Dr. Madia) had no relationships with the Company other than being a director and/or shareholder of the Company. The Board determined that Mr. Habermeyer had no material relationships with the Company, taking into consideration his service on the board of directors of Southern Company, a customer of USEC. The Board determined that Dr. Madia had no material relationships with the Company, taking into consideration his service on a scientific advisory board of The Babcock & Wilcox Company, who through its subsidiaries is an investor in the Company (described below under “Investor-Designated Directors”) and is a supplier to the Company and party to a manufacturing joint venture with the Company. All of the members of the Company’s Audit and Finance, Nominating and Governance, and Compensation committees are independent.

 

On May 25, 2010, we announced that Toshiba Corporation and Babcock and Wilcox Investment Company (“B&W”) signed a securities purchase agreement to make a $200 million investment in the Company over three phases upon the satisfaction at each phase of certain closing conditions. Toshiba Corporation assigned its rights and obligations as an investor pursuant to the securities purchase agreement to its subsidiary, Toshiba America Nuclear Energy Corporation (“Toshiba”). Toshiba and B&W will invest equally in each of the phases in an aggregate amount of $100 million each. On September 2, 2010, the first closing of $75 million occurred and Toshiba and B&W received shares of convertible preferred stock and warrants to purchase shares of common stock, which will be exercisable in the future. Effective at the first closing, Mr. Hiroshi Sakamoto and Mr. Michael S. Taff became members of the Board of Directors of the Company. Under the purchase agreement and related transaction documents, Toshiba and B&W, as the holders of the convertible preferred stock, have the right to elect a total of two directors of the Company (the “Investor-Designated Directors”). They could lose this right under certain circumstances, including the failure to close the remaining two phases of the investment because of their breach, a change in control of the Company, or reductions in their equity holdings of the Company below certain thresholds.

 

Mr. Sakamoto and Mr. Taff abstain from voting on any matters involving Toshiba, B&W and their affiliates.

 

The Nominating and Governance Committee believes that the minimum qualifications for serving as a director of the Company are that a nominee demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the Board’s oversight of the business and affairs of the Company. This assessment includes the consideration of each director’s, or each nominee’s, business background, experience and capabilities complementary to other directors’ experience and capabilities, financial acumen, experience with government, willingness and ability to devote adequate time to the Company, integrity, and any other factor deemed appropriate, all in the context of an assessment of the perceived needs of the Board at that point in time. In addition, the Board considers the diversity of its members when considering a candidate. USEC does not have a formal policy on Board diversity, however, USEC’s Board of Directors Governance Guidelines include diversity as one of the criteria to be considered in reviewing the appropriate skills and characteristics required of Board members and nominees. When the Nominating and Governance Committee considers diversity, it takes an expansive view and seeks to achieve a diversity of viewpoints, skills, experience and other factors.

 

The Nominating and Governance Committee identifies potential nominees by asking current directors to notify the Committee if they become aware of persons meeting the criteria described above, who might be available to serve on the Board. The Nominating and Governance Committee also, from time to time, may engage firms that specialize in identifying director candidates. During 2010, the Company engaged a third-party search firm to assist in a director search in light of the retirement of two directors in 2010. As described below, the Committee will also consider candidates recommended by shareholders.

 

Once a person has been identified by the Nominating and Governance Committee as a potential candidate, the Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Nominating and Governance Committee determines that the candidate warrants further consideration, the Chairman or another member of the Committee or their designee contacts the person. Generally, if the person expresses a willingness to be considered and to serve on the Board, the Nominating and Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of any other candidates that the Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate’s accomplishments. The Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a shareholder.

Mr. Cornelius, Mr. Skowronski and Mr. Smith, who were appointed directors by the Board effective in 2011 and are nominated for election at the 2011 annual meeting, were identified by the Nominating and Governance Committee in consultation with the third-party search firm engaged to assist in a director search. Mr. Sakamoto and Mr. Taff, who were appointed to the Board in 2010, were designated by Toshiba and B&W, respectively. Under the terms of the securities purchase agreement with Toshiba and B&W, the Nominating and Governance Committee reviewed the qualifications of Mr. Sakamoto and Mr. Taff prior to their election to the Board.

 

The Nominating and Governance Committee will consider director candidates recommended by shareholders. In considering candidates submitted by shareholders, the Nominating and Governance Committee will take into consideration the needs of the Board and the qualifications of the candidate. To have a candidate considered by the Nominating and Governance Committee, a shareholder must comply with notification requirements in USEC’s bylaws. The bylaws require, among other things, that a shareholder must submit the recommendation in writing and must include the following information:

 

 

Under our bylaws, a shareholder’s nomination for director must be delivered to the Company’s Secretary not less than 90 days nor more than 120 days prior to the anniversary date of the previous year’s annual meeting, unless the date of the next annual meeting is more than 30 days before or more than 60 days after such anniversary date, in which case notice must be received not later than the tenth day following the day on which notice of the meeting is mailed or public disclosure of the date of the annual meeting is made. Accordingly, shareholder nominations for director must be received by the Company between December 30, 2011 and January 29, 2012, in order to be considered timely, unless the Company gives notice that the date of the annual meeting is more than 30 days before, or more than 60 days after, April 28, 2012.

 

The Board does not have a policy on whether or not the role of the Chairman and Chief Executive Officer should be separate. However, USEC currently has a separate, independent Chairman. Mr. Mellor has been Chairman since USEC’s privatization in 1998. USEC believes this leadership structure is appropriate for USEC at this time because Mr. Mellor provides valuable oversight of management, while avoiding potential conflicts, and encourages a proactive and effective board. In his role as Chairman, Mr. Mellor provides Board leadership, presides at all Board meetings, approves all Board agendas, and attends all Committee meetings.

 

The Board has responsibility for risk oversight of USEC and exercises this oversight function both through the entire Board and through the individual committees of the Board. Individuals who are responsible for USEC’s key risks report directly to the entire Board on a regular basis regarding USEC’s enterprise risk management (ERM) program. The Audit and Finance Committee has responsibility to discuss the Company’s guidelines and policies governing risk assessment and risk management and the process by which each is handled. The risks that are identified as part of USEC’s ERM program and through the Audit and Finance Committee process flow down to the specific committees based on their areas of responsibility. For example, the Audit and Finance Committee oversees the management by USEC of risks as they relate to audit and finance matters or other matters within the committee’s scope of responsibilities, while the Regulatory and Government Affairs Committee oversees the management by USEC of risks as they relate to compliance with regulatory requirements or other matters within the committee’s scope of responsibilities.

 

USEC has a code of business conduct, applicable to all of our directors, officers and employees. The code of business conduct provides a summary of the standards of conduct that are at the foundation of our business operations. The code of business conduct states that we conduct our business in strict compliance with all applicable laws and addresses other important matters such as conflicts of interest and how violations of the code may be reported and will be handled. Each director, officer and employee must read the code of business conduct and sign a form stating that he has read, understands and agrees to comply with the code of business conduct. Our Business Conduct Committee is responsible for monitoring performance under the code of business conduct and for addressing any issues that arise with respect to the code. A copy of the code of business conduct is available on our website at www.usec.com or upon written request, addressed to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

 

The Board has adopted a policy and procedures for review, approval or ratification of transactions involving the Company and “related persons” (the Company’s directors and executive officers and shareholders owning 5% or greater of the Company’s outstanding stock, or their immediate family members). The policy covers any related person transaction that meets the minimum threshold for disclosure under the relevant SEC rules or that is otherwise referred to the Board for review. This generally includes transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest. Under this policy, related person transactions must be approved by the Nominating and Governance Committee, although the Chairman of the Board may direct that the full Board review specific transactions. The transaction must be approved in advance whenever feasible and, if not feasible, must be ratified at the Nominating and Governance Committee’s next meeting. In determining whether to approve or ratify a related person transaction, the Nominating and Governance Committee will take into account all factors it deems appropriate, including: whether the subject matter of the transaction is available from other non-affiliated sources; whether the transaction is on terms no less favorable to the Company than terms generally available from an unaffiliated third party; the extent of the related person’s interest in the transaction; and whether the transaction is in the best interests of the Company.

 

Management is responsible for the development and implementation of processes and controls to ensure that related person transactions are identified and that disclosure is made as required by law. To that end, currently we annually require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related person transactions.

 

Shareholders will find information about our corporate governance practices on our website at www.usec.com. Our website contains information about our Board of Directors, Board committees, current copies of our bylaws and charter, committee charters, Code of Business Conduct and Governance Guidelines. Shareholders may obtain, without charge, hard copies of the above documents by writing to the Secretary, USEC Inc. at Two Democracy Center, 6903 Rockledge Drive, Bethesda, Maryland 20817.

 

Pursuant to the Delaware General Corporation Law, under which USEC is organized, our business, property, and affairs are managed under the direction of our Board of Directors. Members of the Board are kept informed of our business through discussions with the Chief Executive Officer and other officers, by reviewing materials prepared for them by management, by participating in meetings of the Board and its committees, and by other means.

 

It is the Board’s policy that all directors attend the annual meeting. We had ten directors at the time of the 2010 annual meeting, nine of whom attended the 2010 annual meeting. One director was unable to attend for medical reasons.

During 2010, the Board of Directors held eight regular meetings and no special meetings. All directors attended 75% or more of the Board of Directors’ meetings and meetings of the committees on which they served. The average attendance of all directors at all Board and committee meetings in 2010 was 99%.

 

During 2010, the Board held one meeting at the Company’s American Centrifuge Plant in Piketon Ohio. The Technology and Competition Committee also held one of its regular meetings at the Company’s testing facility in Oak Ridge, Tennessee.

 

During 2010, the Board had designated five committees, each identified in the table below. All five committees are composed entirely of non-employee directors. The Board has adopted a written charter for each of these committees. The full text of each charter is available on the Company’s website located at www.usec.com.

 

The table below sets forth the membership of these committees as of March 4, 2011 and the number of meetings held in 2010:

 

 

 

 

The functions performed by our five standing committees are described below.

 

The Audit and Finance Committee represents and assists the Board with the oversight of: the integrity of the Company’s financial statements and internal controls, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, the performance of the Company’s internal audit function, and the performance of the independent auditors. In addition, the Committee is responsible for appointing, overseeing and terminating the Company’s independent auditors, and reviewing the Company’s accounting processes, financial controls, reporting systems, and the scope of the audits to be conducted. The Committee is also responsible for advising the Board regarding significant financial matters. The Committee is also responsible for discussing the Company’s guidelines and policies governing risk assessment and risk management and the process by which each is handled and to oversee the management by the Company of risks as they relate to audit and finance matters or other matters within the Committee’s scope of responsibilities. The Committee meets regularly in executive session with the Company’s independent auditors and with the Company’s internal auditors.

 

The Board has determined that each member of the Audit and Finance Committee is an “independent director” in accordance with NYSE listing standards. Under the NYSE listing standards, all audit committee

members must be “financially literate,” as that term is determined by the Board in its business judgment. Further, under the Securities and Exchange Commission’s (the “SEC”) rules, the Board must determine whether at least one member of the audit committee is an “audit committee financial expert,” as defined by the SEC’s rules. The Board has determined that all members of the Audit and Finance Committee are “financially literate” and that Mr. Doyle, Mr. Cornelius and Mr. Skowronski qualify as “audit committee financial experts.”

 

The Compensation Committee’s responsibilities include annually reviewing the performance of the Chief Executive Officer and other senior management; overseeing and administering the Company’s executive compensation program; and reviewing, overseeing and evaluating overall compensation programs and policies for the Company and its employees. The Compensation Committee is also responsible for overseeing the management by the Company of risks as they relate to the Company’s compensation policies and practices and other matters within the Committee’s scope of responsibilities. The Compensation Committee is also responsible for periodically reviewing compensation for non-employee directors and making recommendations to the Board. The Compensation Committee also establishes annual performance objectives under the Company’s incentive programs and oversees administration of employee benefit plans. Additional information on the processes and procedures for consideration of executive and director compensation are addressed in the Compensation Discussion and Analysis.

 

The Board has determined that each member of the Compensation Committee is an “independent director” in accordance with NYSE listing standards.

 

The functions of the Nominating and Governance Committee include the following: identifying and recommending to the Board individuals qualified to serve as directors of the Company; recommending to the Board directors to serve on committees of the Board; advising the Board with respect to matters of Board composition and procedures; developing and recommending to the Board a set of corporate governance principles applicable to the Company and overseeing corporate governance matters generally; overseeing the annual evaluations of the Chief Executive Officer, the Board and its committees; and overseeing the management by the Company of risks as they relate to the Company’s corporate governance or other matters within the Committee’s scope of responsibilities.

 

The Nominating and Governance Committee will consider director candidates recommended by shareholders in accordance with the procedures previously described under “Governance Information — Director Nominations by Shareholders.” In addition, the Nominating and Governance Committee is responsible for reviewing the Company’s code of business conduct and overseeing the Company’s processes for monitoring compliance, and for reviewing and approving all transactions between the Company and any related person under the Company’s related person transaction policy previously described.

 

The Board has determined that each member of the Nominating and Governance Committee is an “independent director” in accordance with NYSE listing standards.

 

The Regulatory and Government Affairs Committee’s responsibilities include monitoring the Company’s compliance with regulatory requirements, overseeing the Company’s initiatives with and involving various agencies of the United States government and applicable State governments, advising the Board on regulatory and other governmental considerations in the Board’s deliberations and decision-making processes, and overseeing the management by the Company of risks as they relate to the Company’s compliance with regulatory requirements or other matters within the Committee’s scope of responsibilities.

 

The Technology and Competition Committee’s responsibilities include providing oversight and guidance to management with respect to the Company’s technology initiatives, with a focus on the potential technological advances and technological risk related to the Company’s centrifuge technology; informing the Board of significant energy policy developments and developments in enrichment technology; monitoring competition and market demand in the enrichment industry; monitoring the protection of the Company’s intellectual property; monitoring issues with respect to the Company’s information technology; monitoring operational readiness activities; and overseeing the management by the Company of risks as they relate to the Company’s technology, competition or other matters within the Committee’s scope of responsibilities.

 

Annual compensation for non-employee directors covers service for the one-year term commencing at the annual meeting. The compensation is unchanged for the 2011–2012 term. Mr. Welch, President and Chief Executive Officer, does not receive separate compensation for his Board activities. The Investor-Designated Directors described under “Governance Information–Investor-Designated Directors” do not receive compensation from the Company for their Board activities.

 

During the 2010–2011 term, non-employee directors received an annual retainer of $200,000, consisting of $80,000 in cash and restricted stock units with a value of $120,000 under the USEC Inc. 2009 Equity Incentive Plan. These restricted stock units will vest one year from the date of grant, however, vesting is accelerated upon (1) the director attaining eligibility for retirement (defined below), (2) termination of the director’s service by reason of death or disability, or (3) a change in control. No separate meeting fees are paid. The Chairman of the Board receives an annual chairman’s fee of $100,000 in cash in connection with his duties as Chairman of the Board. The chairman of the Audit and Finance Committee receives an annual chairman’s fee of $20,000 in cash, the chairman of the Compensation Committee receives an annual chairman’s fee of $10,000 in cash, and the chairman of each other committee receives an annual chairman’s fee of $7,500 in cash. Directors have the option to receive their cash fees in restricted stock units. A director who elects to receive their cash fees in restricted stock units will receive an incentive payment of restricted stock units equal to 20% of the portion of the cash fees that the director elects to take in restricted stock units in lieu of cash. These incentive restricted stock units will vest in equal annual installments over three years from the date of grant, however, vesting is accelerated upon (1) the director attaining eligibility for retirement, (2) termination of the director’s service by reason of death or disability, or (3) a change in control. All fees are payable at the beginning of the term. Settlement of restricted stock units granted to non-employee directors is made in shares of USEC stock upon the director’s retirement or other end of service. All non-employee directors are reimbursed for any reasonable expenses incurred in connection with their duties as directors of the Company.

 

Retirement is defined in the 2009 Equity Incentive Plan in the case of non-employee directors as a termination of service on or after age 75. As of December 31, 2010, Mr. Mellor was eligible for retirement.

 

Directors also have the option to defer all or a portion of their cash fees into the USEC Inc. Director Deferred Compensation Plan. This plan is intended to be a non-qualified deferred compensation plan that complies with the regulations of Section 409A of the Internal Revenue Code of 1986, as amended. Directors who elect to participate in the plan may defer up to a maximum of 100% and a minimum of 5% of cash director fees. A director may receive a distribution from the plan upon a qualifying distribution event such as a separation from service, disability, death, or in-service distribution, change in control or an unforeseeable emergency all as defined in the plan. Distributions from the plan will be made in cash in a lump sum, annual installments, or a combination of both, in the manner elected by the director and provided for in the plan. During 2010, no directors participated in the plan.

 

In order to more closely align directors’ interests with the interests of shareholders, directors are required to hold 25,000 shares of Company common stock. The stock ownership guidelines do not apply to the Investor-Designated Directors. Restricted stock units are counted toward meeting this objective. As an incentive to take more of their compensation in the form of Company stock, directors are eligible to receive incentive restricted stock units described above under “Non-Employee Director Compensation Arrangement.” As of December 31, 2010, all of the directors had satisfied their stock ownership guidelines. Mr. Cornelius, Mr. Smith and Mr. Skowronski joined the Board in early 2011 and therefore have not yet satisfied their stock ownership guidelines.

 

 

 

 

 

 

The amounts shown in the Stock Awards column includes $120,000 annual retainer payable in restricted stock units. The amount for Mr. Doyle, Mr. Hall and Dr. Madia also includes restricted stock units granted in lieu of cash fees and any related incentive restricted stock units. The amounts shown in the Stock Awards column for each of the non-employee directors includes the following grants of restricted stock units, which have the following grant date fair value, calculated using the closing price of USEC’s

common stock on the date of grant in accordance with FASB ASC Topic 718 (Compensation — Stock Compensation):

 

 

The aggregate number of stock awards, including shares of restricted stock and restricted stock units, outstanding at December 31, 2010 for each of the non-employee directors is as follows:

 

 

 

 

 

The following table sets forth, as of March 4, 2011, the beneficial ownership of the Company’s common stock for the following persons: (a) all shareholders known by the Company to beneficially own more than 5% of the common stock; (b) each of the Company’s directors; (c) the Company’s Chief Executive Officer, Chief Financial Officer, and the three other most highly paid executive officers of the Company serving as executive officers at December 31, 2010; and (d) all of the Company’s directors and executive officers as a group. Unless otherwise indicated in the table, each person has the sole power to vote and dispose of the shares reported as beneficially owned by such person. Certain information in the table is based on information contained in filings made by the beneficial owner with the SEC.

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors, and persons who own more than 10% of our common stock to file reports of beneficial ownership and changes in beneficial ownership with the SEC and to furnish us with copies of the reports. We received written representations from each such person who did not file an annual report with the SEC on Form 5 that no Form 5 was due. Based on our review of the reports and representations, we believe that all required Section 16(a) reports were timely filed in 2010.

 

This section describes the compensation programs for our Chief Executive Officer and Chief Financial Officer in 2010 as well as our other three most highly compensated executive officers during 2010, all of whom we refer to collectively as our named executive officers or NEOs. Our NEOs for 2010 are:

 

 

Executive Summary

 

Company Background

 

USEC, a global energy company, is a leading supplier of low enriched uranium (“LEU”) for commercial nuclear power plants. USEC enriches uranium at the Paducah gaseous diffusion plant that we lease from the U.S. Department of Energy (“DOE”) and is also the exclusive executive agent for the U.S. government under a nuclear nonproliferation program with Russia known as Megatons to Megawatts. In addition, we perform contract work for DOE and its contractors at the Paducah, Kentucky and Portsmouth, Ohio sites and provide transportation and storage systems for spent nuclear fuel and nuclear and energy consulting services. Our business is in the midst of a critical transition period as we work to deploy a highly efficient uranium enrichment gas centrifuge technology, called the American Centrifuge technology, as a replacement for our gaseous diffusion technology. We are deploying this technology in the American Centrifuge Plant (“ACP”) in Piketon, Ohio.

 

We must make the transition to more modern and cost-effective technology in order to remain competitive in the long term and so we are devoting significant resources to do so, which has a negative impact on our current operational results.

 

Overview of 2010 Performance

 

During 2010, under the leadership of our senior executive team, our company performed well and management met or exceeded many of its performance goals and objectives. We worked aggressively in 2010 to strengthen the American Centrifuge project, retire or mitigate risks, address DOE concerns, attract additional sources of capital and take steps to improve our capital structure.

 

 

 

Our better than projected 2010 results would not have been achieved without significant effort and initiative by management during 2010 and these efforts were a key factor in the compensation decisions and performance-based outcomes for 2010.

 

Taking into account the achievements of management and other key employees, the NEOs were awarded annual incentive awards that were above target for 2010.

 

Highlights of Our Compensation Program and Pay-For-Performance

 

Our executive compensation program is built on a strong governance framework and pay-for-performance philosophy. Key design elements and features of this program are:

 

 

The Compensation Committee continually reviews the compensation programs for our NEOs and other key executives to ensure that they achieve the desired goals of attracting and retaining highly qualified individuals during this critical transition period while further enhancing the focus on pay-for-performance. As a result of its review process, for 2011, the Compensation Committee made the following changes to our executive compensation programs, which further enhanced our pay-for-performance philosophy:

 

Compensation Philosophy and Objectives

 

The Compensation Committee on behalf of the Board of Directors oversees an executive compensation program designed to enable USEC to attract and retain highly talented individuals. This program reflects the Company’s philosophy that the majority of an executive’s compensation should be based on his or her overall contribution to the success of the Company and the creation of long-term value for our shareholders. In keeping with this philosophy, the Compensation Committee has established the following objectives for the Company’s executive compensation program:

 

Role of Executive Officers in Compensation Decisions

 

 

Role of Compensation Consultant

 

The Compensation Committee has retained Towers Watson to provide the Compensation Committee with independent compensation data, analysis and advice. Towers Watson reports to the Compensation Committee and its Chairman and, under the Compensation Committee’s charter, the Compensation Committee has sole authority to retain and terminate them and to approve their fees and other retention terms. The Compensation Committee periodically reviews the retention of the compensation consultant, including taking into account its independence. Throughout 2010, Towers Watson worked closely with the Compensation Committee and attended all Compensation Committee meetings and met with the Compensation Committee regularly in executive session. Examples of projects assigned to Towers Watson included market studies of executive pay and of Board pay, pay-for-performance analysis, review of the peer group for executive compensation benchmarking, a review of the value of Company equity owned by executives, a compensation risk-assessment, a review of walk-away values as of year-end, and advice on compensation best practices, including advice regarding implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

Setting Executive Compensation

 

Each year, the Compensation Committee evaluates compensation levels for each of the executive officers of the Company. In setting compensation for 2010, the Compensation Committee reviewed and considered total compensation for each NEO, including a review of tally sheets that provide the value of (1) historic and current elements of each officer’s compensation (including savings plans, pension plans, health and welfare benefits and perquisites); (2) stock and stock options held by the executive at year end in the Company’s incentive and benefits plans; and (3) a review of compensation that would be paid upon termination of employment under various scenarios.

 

Use of Peer Group and Survey Data

 

The Compensation Committee strives to set target opportunity compensation levels to be competitive with the market in which we compete for executive talent. We use compensation information from (1) a “Peer Group” of publicly traded companies in specific industries in which we compete for executive talent and (2) general industry companies with revenues comparable to ours through the pooled survey data. Towers Watson combines the data from the Peer Group with pooled survey data to create the market data reviewed by the Compensation Committee.

 

Currently, as the only publicly traded uranium enrichment company in the United States, we do not have direct publicly traded U.S. peers. Therefore, the Peer Group was selected by the Compensation Committee upon the recommendation of Towers Watson taking into consideration: industry relevance (focusing on specialty chemicals, aerospace and defense, construction and engineering, utilities with nuclear operations, and other utilities); business operations; and roughly comparable size in terms of revenue and market capitalization (although this is given less weight due to our stock price volatility). The Peer Group was not picked on the

basis of executive compensation levels. The Peer Group during 2010 was the same as 2009 and included the following 19 companies:

 

 

The Peer Group is different from the peer group index utilized in the performance graph included in our annual report on Form 10-K, which is more focused on companies with similar business attributes, primarily utilities with nuclear power generation capabilities, but also including chemical processing companies and aluminum companies (that are also large users of electric power). Peer Group compensation data is limited to publicly available information and therefore does not provide precise comparisons by position as offered by more comprehensive survey data. As a result, our Compensation Committee uses Peer Group data on a limited basis to analyze the competitiveness of our target compensation and our general compensation philosophy.

 

Our Compensation Committee also used commercially available survey data provided to it by Towers Watson to identify market-median and other market elements related to our 2010 compensation program. This survey data included the 2010/2011 Towers Watson Data Services Top Management Report, the 2010 Mercer Executive Compensation Survey, and the Towers Watson Compensation Database. This survey data includes pooled compensation data from many companies and the findings are segregated by, for example, revenue level, number of employees, and industry. Using survey cuts of durable goods manufacturing organizations and general manufacturing organizations with comparable annual revenues, the Compensation Committee reviewed pooled compensation data for positions similar to those held by each NEO. In the case of the CEO and CFO, whose positions are the most directly comparable with those in other companies, the Compensation Committee also used a survey cut of metals and mining organizations with comparable annual revenues. The Compensation Committee is not provided with the names of the companies making up these surveys and is only privy to the statistical summaries provided in these surveys.

 

Pay-for-Performance Assessment

 

In July 2010, the Compensation Committee reviewed a historical pay-for-performance analysis conducted by Towers Watson to evaluate the alignment of pay to performance at the Company versus our Peer Group for the three-year period ended December 31, 2009. The analysis considered a comparison of each of the following over the three-year period:

 

 

The analysis concluded that our executive compensation is in alignment with our operational performance and total shareholder return. The analysis reflected that although the Company’s performance was generally below that of the Peer Group over the three-year period, our executives’ realizable compensation was below opportunity levels during the period, thus indicating that pay was in alignment with performance.

Elements of Executive Compensation

 

TOTAL DIRECT COMPENSATION

 

Summary of Total Direct Compensation

 

Observations Regarding the Mix of Total Direct Compensation

 

The chart below shows the relative proportion of each element of total direct compensation (based on 2010 target levels). The target value of long-term incentives is more than double that of the annual incentive to weight an executive’s compensation toward a focus on long-term rather than short-term goals. In addition, the amount of variable or “at-risk” compensation is higher for the CEO than the other NEOs in light of his greater responsibility and ability to influence the Company’s results.

 

 

Total Pay — The sum of base salary, target annual incentive, and target long-term incentives.

 

Fixed Pay — Base pay or salary.

 

Variable Pay — Compensation that can vary based on Company or individual performance. Variable pay is “at risk.”

 

Cash — Compensation paid in the form of cash (base salary and annual incentive).

 

Equity — Restricted stock awards or other equity awards. Equity awards are “at risk.”

 

Short-Term — Compensation based on performance of one year or less.

 

Long-Term — Compensation based on performance of greater than one year.

 

Base Salary

 

The Compensation Committee recommends base salary levels for executive officers, including the CEO, to the Board for its approval. The Compensation Committee consults with the CEO with respect to the recommended base salaries for the other officers. Towers Watson provides market data to the Compensation Committee for use in determining base salaries, as previously described under “Use of Peer Group and Survey Data.” In setting individual base salaries, consideration is given to (1) the performance of the Company; (2) the individual performance of each executive, taking into account the recommendation of the CEO with respect to the performance and contribution of individuals and the individual performance measures under the annual incentive program; (3) the executive’s scope of responsibility in relation to other officers and key executives within the Company and internal pay equity; and (4) any retention issues.

Following a base salary freeze for most officers in 2009, modest market competitive adjustments of between 4% and 6% were made in 2010 to the base salaries for three of the NEOs. Base salaries for the other NEOs, including the CEO, and the majority of other officers were frozen for the second consecutive year. No base salary adjustments were made for the NEOs for 2011. The CEO has not had a base salary adjustment since 2008. Base salary changes during 2010 are shown on the table below.

 

 

Base salaries affect other elements of total compensation, including annual incentives, long-term incentives, and retirement benefits. In setting base salaries for the NEOs, the Compensation Committee considers the effects on other elements of total compensation.

 

Annual Incentive

 

The Compensation Committee sets annual incentive awards and performance goals for NEOs under our annual incentive program under the 2009 Equity Incentive Plan.

 

Form of Awards.  The 2010 annual incentives for the NEOs and other eligible executives are paid in cash, in recognition that all of the NEOs had satisfied their stock ownership guidelines and have substantial USEC equity ownership. Annual incentive awards were formerly payable 65% in cash and 35% in restricted stock (although, if a participant had met his stock ownership guidelines, he was entitled to receive his entire annual incentive award in cash). This adjustment was made for retention reasons and to also be consistent with the form of payment of annual incentive awards by companies that we compete with for executive talent. The Compensation Committee retained the discretion to direct that a portion of a participant’s annual incentive be paid in restricted stock if he is not making sufficient progress in achieving his stock ownership guidelines.

 

If an NEO elects to receive any portion of his annual incentive award in the form of restricted stock he would also receive an incentive grant of restricted stock (that vests one year from the date of grant) equal to 20% of the portion of the annual incentive that he took in restricted stock in lieu of cash. All of the NEOs elected to take their entire annual incentive award for 2010 in cash, as reflected on the “Summary Compensation Table.”

 

Target Levels.  Target incentive opportunities are expressed as a percentage of base salary, which percentage is determined by the Compensation Committee based on position, market data provided by Towers Watson (as previously described under “Use of Peer Group and Survey Data.”), and our overall compensation philosophy, which emphasizes performance-based compensation. The CEO’s target level is set above the other NEOs to reflect that a greater portion of his total direct compensation is variable or “at risk.” The table below sets forth the 2010 target annual incentive opportunities as a percentage of base salary for our NEOs. The actual payout amounts are determined based on the actual performance under our annual incentive plan for 2010, as described below.

 

 

Performance Measures.  For NEOs, 55% of their annual incentive award is determined based on the achievement of corporate financial performance measures (referred to as “corporate quantitative goals”) and the remaining 45% is based on the achievement of individual performance measures (referred to as “key performance objectives”).

The corporate quantitative goals for 2010, and the weighting for each goal, are described in the table below:

 

Each corporate quantitative goal comprises threshold, target and maximum performance levels, which, if achieved, results in payments of 0%, 100% and 150% of that target financial performance measure component, respectively. Proportional payments are made for achievement between threshold, target and maximum performance levels. If the threshold corporate financial performance is not achieved, no amount is paid for that financial performance measure component. The 2010 target levels were set at or above the Company’s budget for 2010 and the maximum levels were set based on significant stretch goals, taking into account potential opportunities for management to effectuate positive impacts and were not designed to encourage or reward the taking of excessive or unnecessary risk. The table below describes the corporate quantitative goal target and achievement levels for 2010.

 

 

For 2011, the corporate quantitative goals for the annual incentive will no longer include total shareholder return because that measure will be used as a performance goal in the Company’s long-term incentive program.

 

For 2010, the Compensation Committee set specific individual key performance objectives for the CEO and adopted specific individual key performance objectives recommended by the CEO for our remaining NEOs (which flow down from the key performance objectives established for the CEO). The 2010 key performance objectives for the CEO and the other NEOs targeted the following five objectives, designed to achieve the Company’s strategic business plan. The weight of each of the key performance objectives varied by individual based on their areas of responsibility.

 

 

For individual NEOs (other than the CEO), their particular objectives were a more detailed subset of these objectives with a focus on their functional area. For example, Mr. Barpoulis’ specific objectives as CFO generally related to financial matters and financing for the ACP; Mr. Sewell’s specific objectives as Senior

Vice President, American Centrifuge and Russian HEU generally related to American Centrifuge and Russian highly enriched uranium (HEU) program management matters; Mr. Van Namen’s specific objectives as Senior Vice President, Uranium Enrichment generally related to uranium enrichment operations and marketing and sales matters; and Mr. Saba’s specific objectives as Senior Vice President, General Counsel and Secretary generally related to legal matters and matters related to financing for the ACP. There are no individual performance factors in addition to, and separate from, the factors listed in the tables above and each of the NEOs’ key performance objectives were designed to be difficult to achieve and to challenge the executive.

 

2010 Achievement Levels.  The Compensation Committee reviews and certifies the annual incentive achievement level and incentive payment for each NEO. The Compensation Committee may adjust performance-based criteria or awards in recognition of unusual or non-recurring events; however, in 2010, no adjustments were made. The achievement levels and incentive payment percentages approved by the Compensation Committee for the NEOs for 2010 are shown in the table below:

 

 

Long-Term Incentives

 

Our long-term incentives granted in 2010 consisted of restricted stock and stock options. Annualized target award levels for the NEOs under the long-term incentive program for 2010 were unchanged from 2009, and were comprised of the following (as more fully described below):

 

 

Restricted Stock Awards.  NEOs receive an annual grant of restricted stock as a part of their long-term incentive. In light of the difficulty in setting appropriate long-term performance targets in early 2010, and given the Company’s business circumstances which made retention incentives appropriate, the Compensation Committee determined for 2010 to fold in the prior one-year performance-based restricted stock award into the annual grant of time-vested restricted stock. The value of the 2010 restricted stock grants was equal to a percentage of the NEO’s base salary as follows:

 

 

Restricted stock granted in 2010 vests ratably over three years, subject to accelerated vesting under certain circumstances. In addition to serving as a retention-based component of the NEO’s market-based total direct compensation, restricted stock further aligns the interests of executives with shareholders through promoting significant share ownership by our NEOs.

As described below under “Revisions to the Long-Term Incentive Program for 2011,” for 2011, the Compensation Committee approved a separate performance-based cash incentive plan for 2011 and reverted to the pre-2010 value of time-vested restricted stock (as a percentage of base salary) for all NEOs, with a slight increase in target from 40% to 50% for Mr. Saba for 2011.

 

Stock Option Awards.  During 2010, NEOs also received an annual grant of non-qualified stock options. The value of the 2010 grant was equal to a percentage of the NEOs’ base salary as follows:

 

 

Stock options are valued using the Black-Scholes methodology. Pursuant to our policy, stock option grants are made seven days after the release of our annual earnings and are awarded at the New York Stock Exchange’s closing price of our common stock on the date of grant. Stock option grants vest ratably over three years and expire five years after grant, subject to accelerated vesting under certain circumstances. Each NEO’s 2010 grant of stock options is detailed on the Grants of Plan-Based Awards in Fiscal Year 2010 table.

 

As described below under “Revisions to the Long-Term Incentive Program for 2011,” the Compensation Committee eliminated the grant of stock options as part of the long-term incentive program for 2011.

 

Revisions to the Long-Term Incentive Program for 2011

 

In February 2011, the Compensation Committee, in consultation with its compensation consultant, approved a revised long-term incentive program under the 2009 Equity Incentive Plan to better link pay to performance and to better motivate individuals to achieve our objectives. The new program: (1) replaced annual stock option grants to executives with performance-based restricted stock; and (2) reduced the amount of the existing annual grant of restricted stock to executives and shifted that value into a new three year performance-based cash incentive program (the “Strategic Incentive Plan”).

 

Performance-Based Restricted Stock.  Beginning in 2011, executives will receive a one-year performance-based award of restricted stock that, subject to being earned, vests over three years (the “Performance-Based Restricted Stock”). Target awards for the NEOs for 2011 are based on a percentage of the executive’s base salary as follows:

 

 

The target number of shares of restricted stock was calculated based on the Company’s stock price on March 1, 2011 (seven days after the release of earnings for the year ended December 31, 2010, per our policy), and the shares will vest over three years from that date. Actual awards will be determined by performance during the period January 1, 2011 through December 31, 2011 against a pre-determined performance goal relating to the Company’s total shareholder return compared to the Russell 2000 total shareholder return (without dividends). Participants are eligible to receive from 25% (threshold) to 150% (maximum) of their target award based on performance, with performance below 25% (threshold) level resulting in no award.

Three-Year Strategic Incentive Plan.  Beginning in 2011, each of the NEOs and certain other executive officers participate in the Strategic Incentive Plan under the 2009 Equity Incentive Plan. It is designed to focus rewards on a limited number of highly important objective targets that if completed will significantly add to the long-term value of our business. The Strategic Incentive Plan is an objective, performance-based program which rewards participants for successful performance against financial and business strategy-based targets over a three-year period. A new overlapping three-year performance period will begin every year. The first performance period runs from January 1, 2011 through December 31, 2013. Under the Strategic Incentive Plan, the NEOs are awarded the right to earn cash. Cash was chosen to balance the compensation paid to executives in the forms of cash and equity and provide liquidity to executives who have already built up substantial Company equity ownership. Each NEO’s target award is based on a percentage of the executive’s base salary as follows: CEO: 100%; other NEOs: 60%. This amount is equal to the value of the grant of time-vested restricted stock it is replacing.

 

Actual payout of these awards will be determined by the performance of the Company during the period January 1, 2011 through December 31, 2013 against two pre-determined performance goals relating to the completion or attainment of objectively determinable targets with respect to the Company’s American Centrifuge project and other strategic business objectives. Awards will be granted following the completion of the performance period.

 

For the initial performance period January 1, 2011 through December 31, 2013, there is a supplementary phase-in of the target awards to take into account that no awards from prior performance periods will be paying out during the first two years of the new plan. Thus, the size of the target award for the initial performance period is three times the normal amount. For the initial performance period only, there will be two pre-determined interim performance goals as of the end of each of the first two years of the performance period that are based on interim progress steps in the achievement of the three-year goals. Participants may “bank” up to 25% of their target award during each of the first two years of the initial performance period based solely on performance against the interim performance goals. This “banked” award will become vested at the end of the three year initial performance period regardless of the performance against the three year performance goals. Failure to satisfy any of the interim performance goals will not reduce the target opportunity under the three-year performance goals.

 

Participants may receive between 80% (threshold) to 120% (maximum) of their target award based on performance, with performance below the threshold (80%) level resulting in no award. Interim “banked” performance awards count against, and are not payable in addition to, the overall award. If, prior to the payout of an award with respect to a performance period: (1) there is a change in control of the Company and a participant’s employment is terminated by the Company other than for cause (or is terminated by the participant for good reason) (e.g., “double trigger”), fully vested awards will be made at target regardless of performance; (2) a participant leaves the Company due to retirement or termination by the Company other than for cause, fully vested prorated awards will be paid in accordance with actual performance at the end of the performance period at the same time as other awards are paid to executives; and (3) a participant leaves the Company due to death or disability, fully vested prorated awards will be paid at target regardless of performance. Performance must be certified by the Compensation Committee prior to any award being paid (other than on death, disability or change in control).

 

INDIRECT COMPENSATION

 

Retirement Plans

 

We provide our executive officers with health, welfare and retirement programs comparable to those provided to employees and executives at other companies in similar industries. All employees of USEC Inc., including the NEOs, are eligible to participate in the USEC Savings Program (401(k) Plan). Employees of USEC Inc. hired before September 1, 2008 are eligible to participate in the Employees’ Retirement Plan of USEC Inc. Effective September 1, 2008, we closed the retirement plan to new participants. Employees hired on or after September 1, 2008 or who elect not to participate in the retirement plan receive an enhanced employer matching contribution under the USEC Savings Plan. All of the NEOs participate in the Employees’

Retirement Plan of USEC Inc. In addition, NEOs and other executives designated by the Company are entitled to participate in the USEC Inc. Executive Deferred Compensation Plan and (in the case of executives eligible to participate in the Employees’ Retirement Plan) the Pension Restoration Plan. Each of the NEOs also participates in a supplemental executive retirement plan. The benefit plan descriptions here and in the Pension Benefits in Fiscal Year 2010 table provide an explanation of the major features of these benefit plans.

 

Savings Plans.  NEOs have the opportunity to participate in two defined contribution savings plans: The USEC Savings Program and the USEC Inc. Executive Deferred Compensation Plan (the “Deferred Compensation Plan”).

 

The USEC Savings Program is a tax-qualified broad-based 401(k) employee savings plan. USEC Inc. employees, including the NEOs, are able to contribute the lesser of up to 50% of their annual base salary or dollar limits established annually by the Internal Revenue Service (“IRS”) ($16,500 in 2010 and 2011). The Company matches 100% of the first 3% of pay that is contributed to the USEC Savings Program and 50% of the next 2% of pay contributed. Employee contributions are fully vested upon contribution and Company match contributions vest 50% after two years of service and 100% after three years of service.

 

The Deferred Compensation Plan is intended to be a non-qualified deferred compensation plan that complies with the regulations of Section 409A of the Internal Revenue Code of 1986, as amended. Participants in the Deferred Compensation Plan may elect to defer up to a maximum of 90% and a minimum of 5% of base salary and a maximum of 100% and a minimum of 5% of cash bonus amounts received through the Company’s incentive compensation programs. The Company matches participant contributions under the Deferred Compensation Plan at the rate that would apply if they had been contributed to the USEC Savings Program without regard for any statutory limitations, reduced by amounts contributed to the USEC Savings Program. More information regarding the Deferred Compensation Plan can be found in the narrative accompanying the Nonqualified Deferred Compensation in Fiscal Year 2010 table.

 

Pension Plans.  NEOs (all of whom were hired prior to September 1, 2008 and are therefore eligible to participate in the Employees’ Retirement Plan) have the opportunity to participate in a qualified pension plan, a pension restoration plan and one of two supplemental executive retirement plans (each, a “SERP”).

 

The Employees’ Retirement Plan of USEC Inc. is a broad-based, tax-qualified defined benefit pension plan whose maximum benefits are limited by legislation, while the USEC Inc. Pension Restoration Plan is a non-qualified supplemental pension benefit that is designed to continue the accrual of pension benefits that exceed the legislated limits under the Employees’ Retirement Plan of USEC Inc. All officers, including the NEOs, who are eligible for the qualified pension plan and whose compensation exceeds the qualified plan limits, are automatically enrolled in the USEC Inc. Pension Restoration Plan. Information regarding the calculation of benefits under the Employees’ Retirement Plan of USEC Inc. and the USEC Inc. Pension Restoration Plan can be found in the narrative accompanying the Pension Benefits in Fiscal Year 2010 table.

 

We also maintain two SERPs. The USEC Inc. 1999 Supplemental Executive Retirement Plan (the “1999 SERP”) was approved by the Compensation Committee in 1999 and Mr. Sewell is the only active participant. No additional participants were added after 2001. The 1999 SERP provides Mr. Sewell with a benefit calculated in the form of a monthly annuity equal to 55% of his final average compensation, with offsets for benefits received under our retirement programs and any U.S. government retirement program to which the Company contributed, and Social Security benefits. More information regarding the calculation of benefits payable to Mr. Sewell under the 1999 SERP can be found in the narrative accompanying the Pension Benefits in Fiscal Year 2010 table.

 

The other NEOs participate in the USEC Inc. 2006 Supplemental Executive Retirement Plan (the “2006 SERP”). The 2006 SERP was designed to be less expensive than the 1999 SERP. As applicable to the CEO, the 2006 SERP incorporates the terms of a SERP agreed to with Mr. Welch in September 2005 in connection with setting his initial terms of employment. We agreed to provide Mr. Welch a benefit equal to 30% of final average pay with five years of service, increasing to 50% with ten or more years of service, with offsets for benefits received under our other retirement programs and Social Security benefits.

As applicable to participants other than the CEO, the 2006 SERP provides for a monthly supplemental retirement benefit equal to 2.5% of final average pay for each year of service, to a maximum benefit of 50% after 20 years of service, with offsets for benefits received under our other retirement programs and Social Security benefits. In determining to implement the 2006 SERP and determining the level of benefits to be provided, the Compensation Committee worked with its compensation consultant and reviewed tally sheets that showed the value of total compensation paid to executives. More information regarding the calculation of benefits under the 2006 SERP can be found in the narrative accompanying the Pension Benefits in Fiscal Year 2010 table.

 

Participation in the 2006 SERP is contingent on the participant’s agreeing to comply with certain restrictive covenants relating to confidentiality, non-competition and non-solicitation of Company employees for a period of time following his termination of employment.

 

Severance Arrangements

 

Executive Severance Plan.  We believe that in the absence of employment agreements between the Company and its key employees, it is appropriate to have a reasonable severance policy in place in order to attenuate concerns about short-term continuity of income and allow executives to focus on the Company’s business. The USEC Inc. Executive Severance Plan (the “Executive Severance Plan”) was approved by the Board in 2008. Payment and benefit levels under the Executive Severance Plan were set in 2008 by the Compensation Committee, in consultation with its compensation consultant, at a level determined to be competitive and reasonable with respect to the intent of the program and consistent with an earlier executive severance policy, and are generally equal to one times annual base salary and annual incentive, as described in more detail in the narrative accompanying the Potential Payments Upon Termination or Change in Control table. We believe the Executive Severance Plan continues to be important in attracting and retaining executives and is competitive with our peers.

 

Change in Control Agreements.  We believe that change in control agreements are an important tool for executive retention and the retention of other key employees. We undertook a review of the Company’s strategic alternatives in 2010 and these agreements were important in retaining our executives. We have entered into change in control agreements with each of the NEOs. These agreements have an initial term of three years, which is automatically extended for additional one-year periods unless the Board has given notice of non-renewal. We believe it is important to protect executives with change in control agreements from termination of those agreements on short notice. Upon a change in control, the agreements will expire no earlier than three years following the date that the change in control occurs. A change in control is generally defined as the acquisition by a person of 30% or more of the voting power of the Company, a change in the majority of the Company’s Board, the consummation of certain mergers or consolidations involving the Company, a sale or disposition of 40% or more of the Company’s assets, or a liquidation of the Company involving the sale of at least 40% of the Company’s assets.

 

Payment and benefit levels under the change in control agreements were set when these agreements were put into place and were based on an assessment by the Compensation Committee of what was competitive and reasonable with respect to the intent of the program. The Compensation Committee periodically reviews the payment and benefit level under these agreements and we continue to believe they are competitive and reasonable.

 

The change in control agreements provide each NEO with certain benefits if there is a change in control of the Company and within a protected period beginning three months before and ending three years after that change in control (the “protected period”) the Company terminates his employment for any reason other than cause, or the executive terminates his employment for “good reason” (as defined in the agreement). We believe this “double trigger” is appropriate because the purpose of the change in control agreements is to provide enhanced severance protection and not to provide a windfall upon the change in control. These benefits are in lieu of any severance benefits the NEO would otherwise be eligible to receive under our Executive Severance Plan. In order to receive these benefits, the NEO must comply with the non-competition, non-solicitation, and

confidentiality provisions of the change in control agreement during the term of the agreement and for a period thereafter.

 

Under the terms of each NEO’s change in control agreement, if during a protected period he is terminated other than for cause or terminates his employment for “good reason,” he would receive a cash payment of his unpaid base salary through the date of termination plus all other amounts to which he was entitled under any compensation or benefit plan of the Company. In addition, as a change in control payment, he would receive a cash lump sum payment equal to 2.5 times the sum of his final base salary and his final average bonus (generally the average of the three most recent annual incentive awards paid to the executive prior to the date of termination). In addition, under the terms of each agreement, we would provide him and his dependents with continuation of life, accident and health insurance benefits for 2.5 years following the occurrence of the change in control or, if sooner, until he is covered by comparable programs of a subsequent employer. In addition, the executive will receive 2.5 additional years of service for purposes of retirement plan benefits under the SERPs. If the executive receives payments, whether or not under his or her agreement that would subject him to any federal excise tax due under Section 4999 of the Internal Revenue Code, either his severance payments would be reduced so as not to trigger the excise tax or, if it would produce a larger net benefit, the executive will receive a cash payment equal to the amount of the excise tax, which would partially reimburse the executive for the amount of the tax. This excise tax gross-up has been in the Company’s form of agreement since the Company’s change in control arrangements were put in place in 1999 to mitigate the arbitrary tax results that can fall inequitably on some executives and not others. However, the Compensation Committee has determined that beginning in 2011, new or materially amended agreements will not provide for an excise tax gross-up.

 

For details of payments under the above arrangements, see the Potential Payments Upon Termination or Change in Control table.

 

Limited Perquisites

 

We maintain a limited number of perquisites for senior executive officers, including an annual financial counseling allowance of $7,500 ($15,000 for the CEO) and an annual executive physical valued at approximately $4,000. We also reimburse the CEO for annual dues for up to two business or social organizations or clubs. Perquisites do not represent a significant compensation element for any of the NEOs.

 

Recovery of Incentive Compensation

 

Our equity incentive plan includes a compensation recovery or “claw back” provision that requires repayment of all payments in settlement of any awards earned or accrued (including annual and long-term incentives) during the 12-month period following the first public issuance or filing with the SEC of a financial document that is subsequently restated as a result of misconduct. The claw back applies to a grantee who knowingly or through gross negligence engaged in or failed to prevent the misconduct or who is subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002. In addition, we intend to adopt a clawback policy in 2011 that implements any final rulemaking under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the amendment to our equity incentive plan that we are proposing to shareholders for approval at the annual meeting amends our equity incentive plan to implement this policy once adopted. See “Proposal 4. Approval of First Amendment to the USEC Inc. 2009 Equity Incentive Plan.”

 

Hedging Prohibition

 

As part of our insider trading policy, our directors, executives and other employees are prohibited from entering into short sales or engaging in hedging transactions involving our securities.

 

Stock Ownership Guidelines

 

Every executive officer and certain other employees must hold an ownership stake in the Company that is significant in comparison to their base salary. The Compensation Committee has established stock ownership

guidelines which apply to all executive officers and certain other employees. The amount required to be retained varies depending on the executive’s position. These guidelines must generally be achieved within five years after the person becomes subject to the guidelines. The stock ownership guidelines that apply to each of the NEOs as well as their achievement as of December 31, 2010 are shown in the table below:

 

 

Tax and Accounting Treatments of Elements of Compensation

 

In its deliberations, the Compensation Committee considers the potential impact of IRC Section 162(m). IRC Section 162(m) currently disallows a tax deduction for the Company for individual executive compensation exceeding $1 million in any taxable year for the CEO and certain of our other NEOs, other than compensation that is performance-based under a plan that is approved by the shareholders of the Company and that meets certain other technical requirements. Annual incentive awards, performance-based restricted stock, the new performance-based long-term cash incentive, and stock options are intended to meet the performance-based compensation requirements, while base salary and time-vested restricted stock are not.

 

While we design certain components of executive compensation to preserve deductibility, we believe that shareholder interests are best served by not restricting our discretion and flexibility in crafting compensation programs, even though such programs may result in certain non-deductible compensation expenses. Accordingly, the Compensation Committee may from time to time approve compensation arrangements for certain officers that are not fully deductible. Further, because of ambiguities and uncertainties as to the application and interpretation of IRC Section 162(m) and the regulations issued thereunder, no assurance can be given, notwithstanding our efforts, that compensation intended to satisfy the requirements for deductibility under IRC Section 162(m) does in fact do so.

 

In addition, in structuring compensation arrangements, we intend to permit participants to avoid potential tax penalties under IRC Section 409A. We also take into account the impact of potential gross-up payments by the Company to cover federal excise taxes due under Section 4999 of the Internal Revenue Code.

 

We consider the accounting and dilution impact of equity awards made to executive officers. We account for our equity incentive grants under FASB Accounting Standards Codification Topic 718 and use the Black-Scholes option pricing formula for determining the fair value of our stock option grants.

 

Compensation Consultant Independence

 

In addition to the fees paid to Towers Watson in 2010 for consulting services related to executive or director compensation, Towers Watson also provided human resources consulting services to the Company in 2010, including services related to actuarial valuations for the Company’s pension and postretirement plans, retirement plan consulting and health and welfare plan consulting. The following table shows the fees that were paid to Towers Watson in 2010. All of the services described in the following fee table were approved or ratified by the Compensation Committee:

 

 

The total fees paid to Towers Watson represented less than one-tenth of 1% of Towers Watson’s revenue for 2010. Towers Watson has in place policies and procedures to prevent conflicts of interest, including: (1) neither Towers Watson’s compensation consultant nor any member of his team participates in any of the

other consulting services provided to us by Towers Watson and (2) Towers Watson’s compensation consultant is not compensated or rewarded in any way for the other consulting services provided to us. In addition, the Compensation Committee has adopted a policy under which the Compensation Committee must approve in advance all consulting services provided to us by Towers Watson or its affiliates. No member of the Towers Watson consulting team has any business or personal relationship with any member of the Compensation Committee and the lead consultant does not directly own any USEC stock. Accordingly, the Compensation Committee is satisfied that Towers Watson’s advice to the Compensation Committee is objective and independent.

 

Director Compensation

 

Director compensation is established by the Board upon the recommendation of the Compensation Committee. In recommending director compensation, the Compensation Committee consults with Towers Watson. Towers Watson utilizes compensation information from a peer group of companies with board members with comparable experience to the Company’s Board.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K (Section 229.402(b)) with management. Based on this review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Compensation Committee

 

H. William Habermeyer, Chairman

Joyce F. Brown

Joseph T. Doyle

 

The Compensation Committee reviews the Company’s compensation policies and practices for all employees, including executive officers, and has determined that risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. The Compensation Committee also considers whether our compensation programs include certain design features which have been identified as having the potential to encourage excessive risk-taking when part of the plan design at other companies, such as: too much focus on short-term objectives, too much weight on one metric or objective, too many objectives or improper weighting of objectives, compensation mix overly weighted to cash, excessive use of stock options, and unreasonable award levels or goals. The Compensation Committee has noted several design features of the Company’s compensation programs for executives that reduce the likelihood of excessive risk-taking: the program design provides a balanced mix of cash and equity, annual and long-term incentives, and performance metrics, maximum payout levels awards are reasonable and market competitive, the Compensation Committee has downward discretion over incentive program awards, the Company’s equity incentive plan allows the Company to “claw back” payments to those engaged in misconduct related to a restatement of the Company’s financial results, and executives are subject to stock ownership guidelines. The Compensation Committee has determined that, for all employees, the Company’s compensation programs do not encourage excessive risk and instead encourage behaviors that support sustainable value creation.

 

 

The following table sets forth information regarding the compensation of our NEOs for the years ended December 31, 2008, 2009 and 2010.

 

 

 

 

 

The following table sets forth information concerning each grant of an award to a NEO in the year ended December 31, 2010 under any plan.

 

 

 

 

The following table sets forth information regarding unexercised options, stock that has not vested, and outstanding equity incentive plan awards as of the year ended December 31, 2010 for each of the NEOs. Awards granted prior to April 30, 2009 are governed by the USEC Inc. 1999 Equity Incentive Plan (the “1999 Plan”) and awards granted on or after April 30, 2009 are governed by the USEC Inc. 2009 Equity Incentive Plan (the “2009 Plan”). If an executive’s employment is terminated by the Company without cause or is terminated by reason of the executive’s death, disability or retirement (normal retirement or unreduced early retirement), or upon a change in control, all of the executive’s shares of restricted stock and unvested stock options granted under the 1999 Plan will become vested. If an executive’s employment is terminated by the Company without cause or is terminated by reason of the executive’s death, disability or retirement, or is terminated by the Company without cause or by the executive with good reason coincident with or following a

change in control, all of the executive’s shares of restricted stock and unvested stock options granted under the 2009 Plan will become vested. In addition, if an executive becomes eligible for retirement, all of the executive’s shares of restricted stock granted under the 2009 Plan will become vested.