United States

Securities and Exchange Commission

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Under Rule 14a-12

 

DYCOM INDUSTRIES, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DYCOM INDUSTRIES, INC.

11770 U.S. Highway 1, Suite 101

Palm Beach Gardens, Florida 33408

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held On November 24, 2009

 

To our Shareholders:

 

The Annual Meeting of Shareholders (the “Annual Meeting”) of Dycom Industries, Inc. (the “Company”) will be held at 11:00 a.m., local time, on Tuesday, November 24, 2009, at the City Club of the Palm Beaches, 11780 U.S. Highway 1, Suite 600, Palm Beach Gardens, Florida 33408.

 

At the Annual Meeting, you will be asked to vote on the following proposals, which are more fully described in the Proxy Statement accompanying this notice:

 

1. To elect three directors; and

 

2. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent auditor for fiscal 2010.

 

The Board of Directors has fixed the close of business on Friday, October 2, 2009, as the record date for determining the shareholders entitled to notice of and to vote at the Annual Meeting.

 

By Order of the Board of Directors,

 

Richard B. Vilsoet

Secretary

Palm Beach Gardens, Florida

October 27, 2009

 

 

YOUR VOTE IS IMPORTANT

 

Whether or not you plan to attend in person, it is important that your shares be represented and voted. You can vote your shares by signing and dating the enclosed proxy card and returning it in the accompanying envelope or via the Internet or telephone. You will find specific instructions for voting via the Internet or telephone on the proxy card. If you decide to attend the Annual Meeting and prefer to vote by ballot, your proxy will be revoked automatically and only your vote at the Annual Meeting will be counted. If you hold your shares through a broker and wish to vote at the meeting, you will need to obtain a proxy from the institution that holds your shares.

 

If you choose to attend the meeting, you will be asked to present valid picture identification, and if you hold your shares through a broker, you will be asked to present a copy of your brokerage statement showing your stock ownership as of October 2, 2009.

 

TABLE OF CONTENTS

 

DYCOM INDUSTRIES, INC.
11770 U.S. Highway 1, Suite 101
Palm Beach Gardens, Florida 33408

 

 

PROXY STATEMENT

 

ANNUAL MEETING OF SHAREHOLDERS
Tuesday, November 24, 2009

 

 

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Dycom Industries, Inc. (the “Company”) for use at the Annual Meeting of Shareholders to be held on Tuesday, November 24, 2009, at the City Club of the Palm Beaches, 11780 U.S. Highway 1, Suite 600, Palm Beach Gardens, Florida 33408, at 11:00 a.m., local time, or at any adjournments thereof (the “Annual Meeting”). This Proxy Statement and the accompanying proxy card are being mailed to shareholders on or about October 27, 2009.

 

What will I be voting on?

 

At the meeting, you and our other shareholders will be voting on the following:

 

 

Who may vote?

 

You may vote if you owned common stock of the Company as of the close of business on October 2, 2009, the record date for the Annual Meeting. Each share of the Company’s common stock is entitled to one vote on each matter to be voted on. As of the record date, there were 38,994,161 shares of the Company’s common stock outstanding and entitled to vote at the Annual Meeting.

 

Who may attend the Annual Meeting?

 

All shareholders of record at the close of business on October 2, 2009, or their duly appointed proxies, may attend the Annual Meeting. Please be prepared to present valid photo identification for admission to the meeting. Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting.

 

If you hold shares in “street name” (that is, in a brokerage account or through a bank or other nominee) and you plan to attend the Annual Meeting, you will need to bring a copy of a statement reflecting your share ownership as of the record date and check in at the registration desk at the Annual Meeting.

What are the voting recommendations of the Board of Directors?

 

The Board of Directors recommends that you vote your shares “FOR” each of the nominees named in this Proxy Statement for election to the Board of Directors and “FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditor for fiscal 2010.

 

How do I vote?

 

You may vote your shares in any of the following manners:

 

 

If you are a stockholder of record and you attend the Annual Meeting, you may deliver your completed proxy card in person. If you hold your shares in “street name” and you wish to vote at the Annual Meeting, you will need to obtain a proxy from the broker or nominee that holds your shares.

 

Whether or not you plan to attend the Annual Meeting, we encourage you to vote by proxy as soon as possible.

 

What if I hold my shares in “street name”?

 

Many shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. This is often called holding shares in “street name.” As summarized below, there are some distinctions between record shareholders and “street name” holders.

 

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, and these proxy materials are being sent directly to you.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of those shares and you hold your shares in “street name.” In this case, proxy materials are being forwarded to you by your broker or nominee. As the beneficial owner, you have the right to direct your broker how to vote and are also invited to attend the Annual Meeting. However, because you are not a shareholder of record, you may not vote these shares in person at the Annual Meeting unless you bring with you a proxy from your broker or nominee. Your broker or nominee has enclosed a voting instruction card for you to use in directing the vote of your shares.

 

Can I change my mind after I vote?

 

Yes. If you are a shareholder of record, you may change your vote or revoke your proxy at any time before it is voted at the Annual Meeting by filing an instrument of revocation with the Secretary of the Company or by submitting a proxy bearing a later date than the proxy being revoked prior to the Annual Meeting. Additionally, shareholders who attend the Annual Meeting may revoke a previously granted proxy and vote in person. If you hold your shares in “street name” and wish to change your vote at the Annual Meeting, you will need to obtain a proxy from the broker or nominee that holds your shares.

Will my shares be voted if I do not provide my proxy?

 

If you are a shareholder of record and you do not vote or provide a proxy, your shares will not be voted.

 

Your shares may be voted if they are held in street name, even if you do not provide the brokerage firm with voting instructions. Brokerage firms have the authority under New York Stock Exchange rules to vote shares for which their customers do not provide voting instructions on certain “routine” matters. The election of directors and the ratification of the appointment of the independent auditor are both considered “routine” matters under these rules.

 

What constitutes a quorum?

 

The presence in person or by proxy of the holders of a majority of the common stock of the Company will constitute a quorum. A quorum is necessary to transact business at the Annual Meeting. Shares of common stock represented by proxies that reflect abstentions or “broker non-votes” (i.e., shares held by a broker or nominee which are represented at the Annual Meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum.

 

What vote is required to approve each proposal?

 

The affirmative vote of a majority of the shares of common stock represented and entitled to vote at the Annual Meeting is required to ratify the appointment of Deloitte & Touche LLP as the Company’s independent auditor for fiscal year 2010. Directors are elected by a plurality of the votes cast by the shares of common stock represented and entitled to vote at the Annual Meeting.

 

Will any other matters be voted on at the Annual Meeting?

 

As of the date of this Proxy Statement, management of the Company knows of no other matter that will be presented for consideration at the Annual Meeting other than those matters discussed in this Proxy Statement. If any other matters properly come before the Annual Meeting and call for a vote of shareholders, validly executed proxies in the enclosed form returned to the Company will be voted in accordance with the recommendation of the Board of Directors, or, in absence of such a recommendation, in accordance with the judgment of the proxy holders.

 

Deadline for Appointment of Proxies by Telephone or the Internet or Returning Your Proxy Card

 

Company shareholders should complete and return the proxy card as soon as possible. To be valid, your proxy card must be completed in accordance with the instructions on it and received by us no later than 11:59 p.m., Eastern Time, on November 23, 2009. If you appoint your proxy by telephone or the Internet, we must receive your appointment no later than 11:59 p.m., Eastern Time, on November 23, 2009. If your common shares are held in street name, you should return your proxy card or voting instruction card in accordance with the instructions on that card or as provided by the bank, brokerage firm or other nominee who holds Company common stock on your behalf.

 

* * * *

 

A copy of the Company’s Annual Report to Shareholders, including financial statements for the fiscal years ended July 25, 2009 and July 26, 2008, is enclosed with this Proxy Statement, but such documentation does not constitute a part of the proxy soliciting material.

 

The Articles of Incorporation of the Company provide that the Board of Directors shall be divided into three classes, with each class having as equal a number of directors as possible. The Board of Directors currently consists of seven members.

 

Three director nominees have been nominated for election at the Annual Meeting. The nominees are Stephen C. Coley, Patricia L. Higgins and Steven E. Nielsen. Each nominee was selected by the Corporate Governance Committee and approved by the Board of Directors for submission to shareholders of the Company. Stephen C. Coley, Patricia L. Higgins and Steven E. Nielsen are each currently serving terms that expire at the Annual Meeting and each has been nominated for a three-year term expiring at the fiscal 2012 annual meeting of shareholders.

 

Each of the nominees has consented to serve if elected to the Board of Directors. If any director nominees become unable to accept nomination or election, which is not anticipated, the persons named as proxies will vote for the election of such other person as the Board of Directors may recommend. Proxies cannot be voted for a greater number of persons than the number of nominees named below.

 

NOMINEES FOR ELECTION AT THIS MEETING

 

The following table sets forth the name, age and principal occupation of each nominee for election as a director of the Company:

 

DIRECTORS WHOSE TERMS CONTINUE BEYOND THE MEETING

 

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that shareholders vote “FOR” the election of Stephen C. Coley, Patricia L. Higgins and Steven E. Nielsen as directors.

 

The Company is committed to sound corporate governance and to full compliance with New York Stock Exchange (“NYSE”), Securities and Exchange Commission (“SEC”) and other regulatory and legal requirements. In furtherance of these goals the Board of Directors has adopted a Business Code of Conduct and Ethics, a Code of Ethics for Senior Financial Officers, Corporate Governance Guidelines and written charters for each of its Corporate Governance Committee, Compensation Committee and Audit Committee, all of which are available on the Company’s website at www.dycomind.com. Copies of each may also be obtained, without charge, upon written request to the Secretary of the Company at 11770 U.S. Highway 1, Suite 101, Palm Beach Gardens, Florida 33408. These documents are periodically reviewed in light of corporate governance developments and modified as appropriate. Please note that the information contained in or connected to the Company’s website is not intended to be part of this Proxy Statement.

 

The Board of Directors held eight meetings during the fiscal year ended July 25, 2009. All directors attended at least 75% of the meetings of the Board of Directors and the committees of the Board of Directors, if any, on which they served during the periods for which they have served as a director. Attendance at the annual meeting of shareholders is expected of all directors as if it were a regular meeting. All of the directors attended the annual meeting of shareholders held on November 25, 2008.

 

In accordance with our Corporate Governance Guidelines, the Board of Directors monitors the independence of its members on an ongoing basis using standards set forth in the guidelines. The guidelines reflect the requirements set forth in the NYSE Corporate Governance listing standards. Under these standards, the Board of Directors has determined that each of the six non-management members of the Board of Directors, including the two non-management director nominees that are currently members of the Board of Directors, is independent and that such group constitutes a majority of the Board of Directors. Mr. Nielsen, who serves as our President and Chief Executive Officer, is not independent.

 

The Board of Directors has the authority to appoint committees to perform certain management and administrative functions and currently has an Audit Committee, a Compensation Committee, a Corporate Governance Committee, an Executive Committee and a Finance Committee.

 

Audit Committee.  The Audit Committee met seven times during fiscal 2009. The following directors are current members of the Audit Committee: Charles M. Brennan, III, Charles B. Coe and Stephen C. Coley. The Board of Directors has determined that each of the members of the Audit Committee is independent within the meaning of the NYSE Corporate Governance listing standards and our Corporate Governance Guidelines. In addition, the Board of Directors has reviewed the qualifications and experience of each of the Audit Committee members and determined that all members of the Audit Committee are “financially literate” as defined by the NYSE listing standards. The Board of Directors has determined that the Chair of the Audit Committee, Charles M. Brennan, III, qualifies as an “audit committee financial expert” within the meaning of applicable regulations of the SEC, promulgated pursuant to the Sarbanes-Oxley Act of 2002, and has “accounting or related financial management expertise” within the meaning of the NYSE listing standards. The SEC has indicated that the designation of Mr. Brennan as an audit committee financial expert does not make him an “expert” for any purpose, impose any duties, obligations or liability that are greater than the duties, obligations or liability imposed as a member of the Audit Committee and the Board of Directors in the absence of such designation, or affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.

 

The Audit Committee has responsibility for, among other things, assisting the Board of Directors in the oversight of:

 

 

Compensation Committee.  The Compensation Committee met eleven times during fiscal 2009. The Compensation Committee currently consists of Thomas G. Baxter, Charles B. Coe and Patricia L. Higgins. The Board of Directors has determined that each of the members of the Compensation Committee is independent within the meaning of the NYSE Corporate Governance listing standards and our Corporate Governance Guidelines.

 

Under its charter, the Compensation Committee has responsibility for, among other things:

 

 

Pursuant to its charter, the Compensation Committee is empowered to hire outside advisors as it deems appropriate to assist it in the performance of its duties. The Compensation Committee has sole authority to retain or terminate any compensation consultants or advisors and to approve their fees. The Compensation Committee has engaged Compensation Strategies, Inc. as an independent executive compensation consulting firm to provide executive compensation consulting services to the Compensation Committee. In fiscal 2009, Compensation Strategies, Inc. attended eight Compensation Committee meetings.

 

For additional discussion on the services provided by Compensation Strategies, Inc. to the Compensation Committee, as well as the Compensation Committee’s role and the process and procedures for the consideration and determination of executive compensation, see “Director Compensation” beginning on page 9 of this Proxy Statement and “Executive Compensation — Compensation Discussion and Analysis,” beginning on page 13 of this Proxy Statement.

 

Corporate Governance Committee.  The Corporate Governance Committee met six times during fiscal 2009. The Corporate Governance Committee currently consists of James A. Chiddix, Stephen C. Coley and Patricia L. Higgins. The Board of Directors has determined that each of the members of the Corporate Governance Committee is independent within the meaning of the NYSE Corporate Governance listing standards and our Corporate Governance Guidelines.

 

The Corporate Governance Committee has responsibility for, among other things:

 

 

 

Executive Committee.  The Executive Committee met twice during fiscal 2009. The Executive Committee currently consists of Thomas G. Baxter, Charles M. Brennan, III and Steven Nielsen. The Executive Committee is empowered to act for the full Board of Directors during intervals between Board of Directors meetings, with the exception of certain matters that by law may not be delegated.

 

Finance Committee.  The Finance Committee met six times during fiscal 2009. The Finance Committee currently consists of Thomas G. Baxter, Charles M. Brennan, III and Charles B. Coe. The principal functions of the Finance Committee are to set policy for short-term investments; to review borrowing arrangements; and to recommend changes in the capital structure and operating budget of the Company.

 

The Company has adopted a Code of Ethics for Senior Financial Officers and a Business Code of Conduct and Ethics, each of which is a code of ethics as that term is defined in Item 406(b) of Regulation S-K. The Code of Ethics for Senior Financial Officers applies to the Chief Executive Officer, Chief Financial Officer, Controller and other employees performing similar functions, including the Chief Accounting Officer. The Business Code of Conduct and Ethics applies to all directors, officers, managers and employees of the Company. The Code of Ethics for Senior Financial Officers and the Business Code of Conduct and Ethics reflects the Company’s expectation that its directors, officers and other employees conduct themselves with the highest standard of business ethics. The Company discloses amendments to, or a waiver from, provisions of the Code of Ethics for Senior Financial Officers and the Business Code of Conduct and Ethics by posting such information on the Company’s website at the address specified above.

 

In accordance with the Company’s Corporate Governance Guidelines, non-management directors meet without management present at regularly scheduled executive sessions (at least quarterly). The lead non-management director, who is currently Stephen C. Coley, presides at such sessions.

 

The Board of Directors has adopted a formal process by which shareholders and other interested parties may communicate with one or more of the Company’s non-management directors, the non-management directors as a group, a committee or the full Board of Directors. Shareholders who wish to communicate with a director or director group should direct their communications in writing to:

 

Dycom Industries, Inc.
c/o Richard B. Vilsoet, Secretary
11770 U.S. Highway 1, Suite 101
Palm Beach Gardens, Florida 33408

 

The Secretary of the Company has primary responsibility for monitoring director related communications from shareholders and other interested parties and forwarding collected communications to the intended recipient provided they meet certain criteria. In general, communications are forwarded to the intended director or director group as long as the communications do not relate to ordinary business, legal or administrative matters or other non-substantive or inappropriate matters further described in the Company’s Internal Process for Handling Communications to Directors. All concerns and complaints relating to accounting, internal accounting controls or auditing matters, as well as complaints regarding violations of the Business Code of Conduct and Ethics or Code of Ethics for Senior Financial Officers, will be referred to the Audit Committee in accordance with the Company’s Whistleblower Policy and Procedures. Both the Internal Process for Handling Communications to Directors and the Whistleblower Policy and Procedures are available on the Company’s website at www.dycomind.com.

 

Pursuant to its charter and the Company’s Corporate Governance Guidelines, the Corporate Governance Committee is responsible for recommending to the Board of Directors the director nominees for election by shareholders of the Company, including those nominees that are recommended by shareholders in accordance with the procedures set forth in the Company’s By-Laws. The process followed by the Corporate Governance Committee to identify and evaluate director candidates includes requests to directors and others for recommendations, engagements of third-party search firms, meetings from time to time to evaluate biographical information and background materials relating to potential candidates, and interviews of selected candidates by members of the Corporate Governance Committee and the Board of Directors.

 

In considering whether to recommend any particular candidate for inclusion in the slate of recommended director nominees, the Corporate Governance Committee will consider numerous attributes, including the candidate’s integrity, business acumen, knowledge of the Company’s business and industry, age, experience and conflicts of interest. The Corporate Governance Committee does not assign specific weights to particular criteria, and no particular criterion is a prerequisite for a prospective nominee. The Corporate Governance Committee believes that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow the Board of Directors to fulfill its responsibilities and operate effectively.

 

The Corporate Governance Committee considers director nominee candidates from many sources, including shareholders. If a shareholder wishes to recommend a nominee for director, written notice should be sent to the Secretary of the Company in accordance with the instructions set forth later in this Proxy Statement under “Proposals for Year 2010 Annual Meeting of Shareholders.” Assuming that appropriate biographical and background material has been provided on a timely basis, the Corporate Governance Committee will evaluate shareholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.

 

The Company’s compensation program for non-employee directors is designed to enable the Company to attract, retain and motivate highly qualified directors to serve on the Board of Directors. The program is also intended to further align the interests of the directors with those of the shareholders by compensating directors with a mix of cash and equity-based compensation. Directors who are employees of the Company receive no additional compensation for serving on the Board of Directors or its committees. The Compensation Committee periodically receives reports on the competitiveness

of director compensation for non-employee directors from its independent compensation consultant and is responsible for recommending to the Board of Directors changes in director compensation. In November 2008, Compensation Strategies, Inc. prepared a report regarding the annual equity awards made to directors.

 

Directors’ Fees.  Non-employee directors received the following fees in fiscal 2009: (i) an annual retainer fee of $30,000; and (ii) a fee of $10,000 for service as Audit Committee chair, $7,500 for service as Compensation Committee chair and $5,000 for service as Corporate Governance Committee chair.

 

During fiscal 2009, non-employee directors received $2,250 for each regular or special meeting of the Board of Directors attended in person and $1,000 for each telephonic meeting. Non-employee directors received $1,250 for each regular meeting attended in person of the Audit, Corporate Governance, Finance and Executive Committees, and $750 for each telephonic meeting. Non-employee directors received $1,250 for each Compensation Committee meeting at which executive or director compensation was approved, whether attended in person or telephonically, and $750 for all other meetings. All directors are reimbursed for reasonable expenses incurred in connection with all meetings.

 

Non-Employee Directors’ Equity Plan.  The 2007 Non-Employee Directors Equity Plan, adopted in November 2007, provides for (i) an annual equity award to each continuing non-employee director as of the date of the Company’s annual general meeting of shareholders and (ii) an equity award upon a new non-employee director’s initial election or appointment to the Board of Directors. In each case, the value, type and terms of such awards are approved by the Board of Directors based on the recommendation of the Compensation Committee. Non-qualified stock options, shares of restricted stock, restricted stock units and deferred restricted stock units may be granted under the 2007 Non-Employee Directors Equity Plan. For fiscal 2009, each continuing director was granted 10,000 options to acquire shares of common stock of the Company which vest, subject to continuing service, ratably over four years following the grant date. Additionally, each director received restricted stock units valued at $25,000, based on the closing price of the Company’s common stock on the grant date. These units vest upon the one year anniversary of the date of grant. Pursuant to the 2007 Non-Employee Directors Equity Plan, non-employee directors who do not beneficially own at least 7,500 shares of Company common stock or restricted stock units must elect to receive at least 60% of their annual retainer(s) in restricted shares of Company common stock or restricted stock units, at the Company’s discretion. Additionally, non-employee directors may elect to receive up to 100% of such retainer(s) in restricted shares of Company common stock or restricted stock units. The number of restricted shares of Company common stock or restricted stock units to be granted to a non-employee director is determined by (i) dividing (a) the U.S. dollar amount of the director’s annual retainer(s) elected to be received in the form of restricted stock or restricted stock units by (b) the fair market value of a share of the Company’s common stock on the date such fees are payable and (ii) rounding up to the nearest whole share of common stock. Non-employee directors are permitted to defer settlement of their restricted stock units until the earlier of their termination of service on the Board of Directors for any reason and a date specified by such director. Under the 2007 Non-Employee Directors Equity Plan 300,000 shares of common stock are authorized for issuance and, as of July 25, 2009, the Company had 159,813 shares available for future awards under the plan.

 

The following table sets forth the compensation for the non-employee members of the Board of Directors for the fiscal year ended July 25, 2009.

 

 

 

 

 

 

 

 

* Includes vested and unvested stock options.

 

 

 

Thomas G. Baxter, Charles B. Coe and Patricia L. Higgins are members of the Compensation Committee. No member of the Compensation Committee is a current or former officer or employee of the Company. In addition, there are no compensation committee interlocks between the Company and other entities involving the Company’s executive officers and the Company’s Board members who serve as executive officers of those other entities.

 

Overview

 

The Compensation Committee of the Board of Directors (the “Compensation Committee”) is responsible for establishing the Company’s overall executive compensation philosophy and overseeing the Company’s executive compensation program in accordance with its charter. This charter is available on the Company’s website at www.dycomind.com. The Compensation Committee approves the types and amounts of compensation for the Chief Executive Officer and the other executive officers named in the Summary Compensation Table set forth on page 29 of this Proxy Statement (together, the “Named Executive Officers”). Information about the Compensation Committee and its members can be found on page 7 of this Proxy Statement. The Board of Directors has determined that each member of the Compensation Committee is “independent” within the meaning of the New York Stock Exchange corporate governance listing standards and the Company’s Corporate Governance Guidelines.

 

Compensation Philosophy and Objectives

 

The Company’s executive compensation program is designed to promote the long-term success of the Company and to increase shareholder value. It rewards executive officers who contribute to the Company’s sustained growth and successful attainment of strategic goals with total compensation that is comparable to those companies with which the Company competes for executive talent. The executive compensation program has been designed to:

 

 

To accomplish the objectives set forth above, the Compensation Committee has structured the compensation program to include the following elements:

 

 

Consistent with the objectives and philosophy of the executive compensation program, the program places a substantial amount of total executive compensation “at risk” based on the performance of the Company and the executive through the annual cash incentive program and equity-based compensation awards granted under the Company’s 2003 Long-Term Incentive Plan. For fiscal 2009, based on the grant date fair value of equity awards, base salary was approximately 35% and 38% of the target total direct compensation, while at-risk, performance based compensation represented approximately 65% and 62%% of target total direct compensation for Messrs. Nielsen and Estes, respectively.

Of the at-risk performance based compensation, approximately 46% and 43% consisted of annual cash incentive awards and approximately 54% and 57% consisted of long-term equity-based incentive awards for Messrs. Nielsen and Estes, respectively. The equity-based incentive awards included stock options, time vesting restricted stock units and performance vesting restricted stock units. With respect to the Named Executive Officers other than Messrs. Nielsen and Estes, and excluding Ms. Aliperta whose employment with the Company ended on September 1, 2009, base salary was approximately 60% of total direct compensation, the fiscal 2009 annual cash incentive award was approximately 20% of total direct compensation, and at-risk, long-term equity-based incentive awards were approximately 20% of total direct compensation. The equity-based incentive awards included stock options and time vesting restricted stock units. Messrs. Nielsen and Estes received a greater percentage of performance based compensation than the other Named Executive Officers in order to reflect their relative significance in influencing the operations and performance of the Company.

 

Overall levels of executive compensation are established based on an assessment of the Company’s performance as a whole. Individual executive compensation is determined based on an assessment of the performance of the Named Executive Officer and the compensation levels of the Company’s peer group. Variation in compensation among the Named Executive Officers reflects the different roles, responsibilities, and performance of the Named Executive Officers as well as their relative value in relation to similarly situated executive officers of the Company’s peer group with which the Company competes for talent. These factors are the basis of the Compensation Committee’s decision regarding determinations of base salary, annual cash incentive awards and long-term equity awards.

 

In addition to determining the compensation for the Named Executive Officers, the Compensation Committee evaluates risks and rewards associated with the Company’s overall compensation philosophy and structure. Management and the Compensation Committee discuss those practices that identify and mitigate potential risks, as necessary. With respect to the elements of compensation:

 

 

Role of the Compensation Committee

 

The Compensation Committee is responsible for designing, reviewing and overseeing the administration of the Company’s executive compensation program, and annually reviewing and approving all compensation decisions relating

to the Named Executive Officers. Generally, all decisions with respect to determining the amount or form of compensation for the Named Executive Officers are made by the Compensation Committee in accordance with the methodology described below.

 

To assist the Compensation Committee in making its compensation decisions, management prepares detailed information for certain of the Compensation Committee meetings, which indicates, among other things, the base salary and compensation payouts, both cash and equity, under the Company’s incentive plans over an extended period of years. This information also presents the potential payments to each of the Named Executive Officers under various performance scenarios. The overall purpose of this information is to present, in a unified fashion, all of the elements of actual and potential future compensation possible for the Named Executive Officers. This single presentation assists the Compensation Committee in analyzing the individual elements of compensation (including the compensation mix) and the total amount of actual and projected compensation for a particular performance year.

 

Additionally, the Compensation Committee reviews information regarding the Company’s peer group, as well as other compensation data, which has been provided by the Committee’s independent compensation consultants, as described below. The Compensation Committee also considers the following factors in setting the target total direct compensation for each Named Executive Officer: (i) the individual responsibilities, experience and achievements of the Named Executive Officers and their potential contributions to the Company’s performance, (ii) recommendations from senior management and (iii) whether the components of a Named Executive Officer’s compensation align with the executive compensation program’s overall objectives.

 

Role of Consultants and Market Review

 

The Compensation Committee possesses the authority under its charter to hire outside advisors to provide the Compensation Committee with information as needed in making compensation decisions. Typically, the Compensation Committee engages an independent compensation consultant to conduct a compensation benchmarking study no less than once every two years for the Named Executive Officers. During fiscal 2008, the Compensation Committee retained Compensation Strategies, Inc. (“Compensation Strategies”) to advise it in connection with setting compensation for the Named Executive Officers for fiscal 2009. In connection with this engagement, Compensation Strategies provided market compensation data based upon a peer group of companies (the “Peer Group”). The Peer Group consists of 20 companies

from the specialty construction and engineering services industry with annual revenues ranging from $540 million to $9.6 billion. The companies comprising the Peer Group are:

 

 

These companies were selected as they represent a group of companies with which the Company competes for executive talent. Market data for the Peer Group was size-adjusted using statistical regression analysis to remove significant swings between raw data points, and to construct market pay levels commensurate with the Company’s revenues. This data was used by the Compensation Committee to benchmark executive compensation and evaluate the Company’s cash incentive and equity compensation mix and levels based on then current compensation practices and trends.

 

The Compensation Committee, together with its compensation consultants, periodically reviews the composition of the Peer Group based on available market data. In the years that the Compensation Committee does not commission a benchmarking study it establishes compensation targets for our Named Executive Officers by utilizing the prior year’s compensation amounts, generally adjusting base salaries to reflect inflation. All of the decisions with respect to determining the amount or form of executive compensation under the Company’s executive compensation programs are made by the Compensation Committee and reflect judgments by the Compensation Committee based in part on the information and advice provided by the outside advisors that it retains.

 

In addition to providing executive compensation benchmarking data, in October 2008, Compensation Strategies reviewed the Chief Executive Officer and Chief Operating Officer’s annual incentive award opportunities and performance vesting restricted stock unit award structures and provided advice to the Compensation Committee. Compensation Strategies also provided advice to the Compensation Committee in connection with the negotiation of a new employment agreement with Mr. Estes. This agreement was entered into in November 2008 and is described on page 40 of this Proxy Statement.

 

At the direction of the Compensation Committee, in December 2008, Compensation Strategies reviewed the Company’s long-term incentive plans and equity award practices and proposed changes designed to address the effects of widespread decreases in public company stock prices and the effect on the Company’s equity compensation programs. The Compensation Committee considered the data provided by Compensation Strategies, as well as deteriorating market conditions, and, as a result, decided to award stock option grants instead of performance vesting restricted stock units in the fiscal 2009 equity awards made to the Named Executive Officers in December 2008. The long-term equity based compensation awards made in fiscal 2009 are discussed in greater detail beginning on page 21 of this Proxy Statement.

Based on market data provided by Compensation Strategies, the Compensation Committee concluded that the base salaries of the Named Executive Officers were generally between the 50th and 75th percentile for the Peer Group, and that average cash incentive targets and long-term equity incentive compensation were generally below the 50th percentile as compared to the Peer Group’s compensation levels.

 

Role of Executive Officers

 

In the first quarter of each fiscal year, the Company’s Chief Executive Officer meets with the Compensation Committee to discuss the prior fiscal year financial results and to evaluate and assess the performance of the other Named Executive Officers. This assessment, together with the Compensation Committee’s own judgment, taking into account the results of the most recent compensation benchmarking study, is used to evaluate the individual performance and compensation of those Named Executive Officers. The Compensation Committee is solely responsible for evaluating the Chief Executive Officer’s performance and setting the level and components of his compensation. The Chief Executive Officer is not present when the Compensation Committee determines his compensation.

 

Major Compensation Components of Named Executive Officers and Analysis of 2009 Compensation Decisions

 

In order to achieve its compensation philosophy and objectives, the Compensation Committee has designed the executive compensation program for the Named Executive Officers to utilize three major compensation components: (i) annual base salary; (ii) annual cash incentive awards; and (iii) long-term equity-based incentives. The Compensation Committee considers each compensation component individually and all compensation components in the aggregate when making decisions regarding amounts that may be awarded under each of the other compensation components.

 

Annual Base Salaries.  Named Executive Officers are provided with a base salary which recognizes the value of the executive’s skills, experience, prior record of achievement, and importance to the Company. Base salary levels are intentionally set to attract quality executives, to provide a fixed base of cash compensation, and to recognize the challenges and varied skill requirements of different positions.

 

Base salaries are reviewed annually and from time to time in connection with a promotion or other change in responsibility. The Chief Executive Officer submits written base salary recommendations to the Compensation Committee for the other Named Executive Officers. In making his recommendation, the Chief Executive Officer reviews each executive’s performance, market compensation levels for comparable positions, the executive’s potential attractiveness to other companies, and the overall financial health and performance of the Company. The Compensation Committee reviews the Chief Executive Officer’s recommendations for Named Executive Officers (other than the Chief Executive Officer), and together with its own judgments, sets actual base salaries relative to the recommendations. Periodically, the Compensation Committee utilizes a study of market compensation levels prepared by an independent compensation consultant in order to evaluate the executives’ base salaries and the Chief Executive Officer’s recommendations. Such a study was prepared by Compensation Strategies for use by the Compensation Committee in setting base salaries for fiscal 2009. In years where the study is not prepared, the most recent study’s findings are adjusted by a reasonable factor primarily reflecting an increase for inflation and the adjusted findings are then considered by the Compensation Committee.

 

The Compensation Committee directly sets the base salary for the Chief Executive Officer. In so doing, the Committee reviews the performance of the Chief Executive Officer, market compensation levels as set forth in the independent compensation consultant’s most recent study and other relevant information. In addition, the Committee

reviews the results of any assessment of the Chief Executive Officer’s performance resulting from a formal survey of all of the Company’s directors which are conducted from time to time and informal communications from any of the Company’s directors. At a meeting in August 2008, the Compensation Committee determined annual base salaries for the executive officers of the Company for fiscal 2009.

 

The Compensation Committee has generally set base salaries between the 50th and 75th percentile of the survey data prepared by its compensation consultant adjusted, as discussed above, by a factor in years when the survey is not prepared. In setting base salaries for the Named Executive Officers, the Compensation Committee made a general assessment of each Named Executive Officer’s performance, experience and scope of responsibilities. For fiscal 2009, the base salary increases for our Named Executives Officers were 3.5% for Mr. Nielsen, 8.3% for Mr. DeFerrari, 4.2% for Mr. Estes and 4.8% for Mr. Vilsoet. The increases for Messrs. Nielsen, Estes and Vilsoet primarily reflect an adjustment over the prior year’s base salary consistent with setting the base salaries generally between the 50th and 75th percentile of the survey data determined based on the study by Compensation Strategies previously described. The increase for Mr. DeFerrari recognized his recent promotion to Chief Financial Officer, and his growing importance to and increased tenure with the Company. The base salary of each Named Executive Officer is set forth in the “Salary” column of the Summary Compensation Table on page 29 of this Proxy Statement.

 

Annual Cash Incentives.  Named Executive Officers are provided annual cash incentive award opportunities in order to recognize and reward individual performance that meaningfully enhances the operations of the Company during a fiscal year. Awards are designed to communicate to executives that good performance is recognized and valued. Furthermore, the Company believes annual cash incentive awards strongly encourage executives to continuously improve their efforts to enhance the Company’s short-term performance.

 

Annual Cash Incentive Awards — Named Executive Officers (other than Chief Executive Officer and Chief Operating Officer).  Prior to fiscal 2008, the annual cash incentive compensation for all of the Named Executive Officers, other than the Chief Executive Officer, was determined as described under this subheading. Beginning with fiscal 2008, the Compensation Committee, upon the recommendation of the Chief Executive Officer, determined to include the annual cash incentive awards for both the Chief Executive Officer and the Chief Operating Officer under the Company’s annual incentive plan described under “Annual Incentive Plan — Chief Executive Officer and Chief Operating Officer” below in order to qualify such amounts as “performance-based compensation” under Section 162(m) of the Internal Revenue Code. References under this subheading to other Named Executive Officers exclude the Chief Executive Officer and the Chief Operating Officer.

 

Each fiscal year the Chief Executive Officer prepares a written report to the Compensation Committee recommending annual cash incentive awards for each of the other Named Executive Officers (other than the Chief Operating Officer). The Chief Executive Officer’s recommendations result from a two-step analysis. First, the overall financial performance of the Company is evaluated in order to determine the appropriate level of total annual cash incentive awards for all eligible employees, including the other Named Executive Officers. Second, the Chief Executive Officer evaluates the individual performance of the other Named Executive Officers against ranges of annual award opportunities that were established at the beginning of the fiscal year and correspond to minimum and maximum percentages of base salary. Generally, maximum annual cash incentive awards to the other Named Executive Officers have been capped at 50% of base salary. Based on a review of other companies with which the Company competes for executive talent, this cap was increased to 75% of base salary beginning for fiscal 2010. The purpose of this process is to ensure that individual awards reflect an appropriate balance between the overall financial performance of the Company and the individual executive’s performance. The Chief Executive Officer presents his evaluation and objective recommendations regarding the

individual performance component of the annual cash incentive compensation earned by each of the other Named Executive Officers to the Compensation Committee for their consideration. This evaluation has elements of subjectivity and depends on an overall analysis of the effectiveness of the individual executive and his or her ability to meet Company expectations. The Compensation Committee then conducts its own deliberations and approves the final annual cash incentive compensation, if any. Any cash incentives resulting from this process are discretionary and subjectively determined.

 

After receiving the recommendation of the Chief Executive Officer, the Compensation Committee met with the Chief Executive Officer in August 2009 to discuss his recommendations. Discussion of these recommendations continued at a meeting of the Compensation Committee in October 2009 and the fiscal 2009 awards to Messrs. DeFerrari and Vilsoet were approved at that meeting. The annual cash incentive awards paid to Messrs. DeFerrari and Vilsoet were 35% of those officers’ fiscal 2009 base salaries and are set forth in the “Bonus” column of the Summary Compensation Table on page 29 of this Proxy Statement. Annual cash incentive award payments were made following the conclusion of the Company’s financial statement audit.

 

Annual Incentive Plan — Chief Executive Officer and Chief Operating Officer.  In October 2008, the Compensation Committee established the performance goals of the fiscal 2009 performance based cash incentive opportunity for both the Chief Executive Officer and the Chief Operating Officer under the Company’s annual incentive plan.

 

Annual incentive plan compensation is derived from performance measures that are established by the Compensation Committee within 90 days of the beginning of each fiscal year in order to qualify such compensation as “performance-based compensation” under Section 162(m) of the Internal Revenue Code. Accordingly, the Chief Executive Officer’s and Chief Operating Officer’s annual incentive plan compensation is not discretionary, although it may be reduced (but not increased) by the Compensation Committee through the exercise of its discretion. Compensation paid under the annual incentive plan is designed to be “at risk” based on the performance of the Company and has exhibited significant variability from year to year. Over the last three fiscal years, the payout to the Chief Executive Officer has ranged from 29% to 121% of base salary and the payout ratio for the Chief Operating Officer during the two years he has participated in the annual incentive plan has ranged from 29% to 60% of base salary.

 

For fiscal 2009, the award opportunity under the annual incentive plan was comprised of two components. The first, was based on operating earnings and cash flows of the Company, while the second, was based on the operating earnings and contract revenues of the Company coupled with the achievement of a number of non-financial performance measures that were established by the Compensation Committee in October 2008. At the time the Compensation Committee determined the performance criteria for fiscal 2009, it capped any possible award under the annual incentive plan to Mr. Nielsen at 170% of his base salary and Mr. Estes at 140% of his base salary. In addition, each of the two components of the plan was subject to a cap as described below. The amount earned under each of the components can be reduced at the discretion of the Compensation Committee. The two components of the annual incentive plan are described in more detail below.

For fiscal 2009, the targets for Messrs. Nielsen and Estes, the range of potential payouts and the actual amounts awarded under the annual incentive plan were as follows:

 

 

The performance measures established by the Compensation Committee under the first component of the annual incentive plan for fiscal 2009 applied a pre-established payout ratio as a percentage of operating earnings (before asset impairments, annual incentive plan compensation and amounts associated with the extinguishment of debt or termination of debt agreements) above a threshold percentage (2.5%) of contract revenues. The payout percentage varied as a function of the Company’s cash flow ratio, which was measured as the ratio of operating cash flow to net income (before asset impairments, annual incentive plan compensation and amounts associated with the extinguishment of debt or termination of debt agreements). For fiscal 2009, operating cash flow of approximately $126.6 million was more than two times net income (before asset impairments, annual incentive plan compensation and amounts associated with the extinguishment of debt or termination of debt agreements).

 

The range of pre-established payout percentage was as follows:

 

 

The use of a threshold amount before any annual incentive compensation was earned ensured that the Company’s performance exceeded a pre-established level before any award was earned by the Chief Executive Officer or the Chief Operating Officer. The reliance on cash flow and earnings measures in determining the payout amount reflects the importance to the Company of both operating margins and cash flows. As designed, the fiscal 2009 performance criteria provided that acceptable margins without solid cash flows resulted in a reduced award payment, while solid cash flows absent acceptable margins would result in no award payment. Once the cash flow threshold requirement is met, only incremental earnings generate an award payout. The use of both operating earnings and cash flow as performance criteria ensures that only high quality earnings result in the payout of awards, as both income statement and balance sheet performance is required. The maximum cash incentive award under the first component of the annual incentive plan was capped at 130% of base salary for Mr. Nielsen and 110% of base salary for Mr. Estes. Additionally, Mr. Nielsen would not earn an award under this component of the plan if the award, as calculated under the established performance criteria, was less than 10% of his base salary for fiscal 2009.

 

Eligible operating earnings under the first component of the annual incentive plan were approximately $10.0 million for Mr. Nielsen and $9.9 million for Mr. Estes. The actual payout ratio for the first component of the annual incentive plan

was 3.90% and 2.30% for Messrs. Nielsen and Estes, respectively, resulting in an award of $391,150 for Mr. Nielsen and $226,901 for Mr. Estes.

 

The performance measure established by the Compensation Committee for the second component of the annual incentive plan was operating earnings (before asset impairments, annual incentive plan compensation and amounts associated with the extinguishment of debt or termination of debt agreements) above a threshold percentage (1%) of contract revenues. If this threshold is attained, a maximum payout of 40%, with respect to Mr. Nielsen, and 30%, with respect to Mr. Estes, of annual base salary was established. Although driven by the performance measures set forth in the preceding sentence, the Compensation Committee also established a number of non-financial performance criteria to be met in determining whether Mr. Nielsen and Mr. Estes were to be awarded the full amount available under this component of the annual incentive plan. These non-financial performance measures were designed to increase the Company’s long term competiveness, while improving margins through cost reduction. The Compensation Committee applied an actual payout ratio of 30% and 15% for Messrs. Nielsen and Estes, respectively, under this component of the annual incentive plan resulting in an award of $219,000 and $75,000 for Messrs. Nielsen and Estes, respectively.

 

The actual annual incentive award paid to the Chief Executive Officer and Chief Operating Officer, as approved by the Compensation Committee, is set forth on the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 29 of this Proxy Statement. Annual cash incentive award payments were made following conclusion of the Company’s financial statement audit.

 

Long-Term Equity Based Compensation

 

Named Executive Officers are eligible to receive long-term equity-based incentive compensation awards under the Company’s 2003 Long-Term Incentive Plan. Long-term equity awards provide for compensation that is “at risk” based on the performance of the Company, and, consequently, directly align the interests of executive officers with those of shareholders. Furthermore, long-term equity awards contain vesting provisions which are important to the retention of key executives. The value of issued but unvested long-term equity awards meaningfully encourages executives to remain with the Company as leaving the Company results in the forfeiture of any unvested value of previously accumulated long-term equity awards. For Named Executive Officers, other than the Chief Executive Officer, individual long-term equity based awards are recommended by the Chief Executive Officer for consideration and approval by the Compensation Committee.

 

The Compensation Committee has generally made grants of long-term equity awards annually in December of each year to the Named Executive Officers. However, performance vesting equity awards granted to the Chief Executive Officer and Chief Operating Officer have been made in October of each year to comply with Section 162(m) of the Internal Revenue Code. In limited instances, awards under the long-term equity awards may also be granted to recognize outstanding performance during the year or at the initiation of employment for newly hired key executives, or upon renewal of employment agreements for existing key executives.

 

The equity grants made to the Named Executive Officers have historically been comprised of a number of different equity based instruments awarded from time to time, including restricted stock, restricted units and stock options. In October 2008, the Chief Executive Officer and Chief Operating Officer received grants of performance vesting restricted units as discussed in greater detail below in “Performance Vesting Restricted Stock Units — Chief Executive Officer and Chief Operating Officer. The grant of performance vesting restricted units was consistent with the type of award granted to the Chief Executive Officer and the Chief Financial Officer in the prior fiscal year although, because of the volatility in the Company’s stock price at the time of the fiscal 2009 grant, the actual number of shares awarded was determined by

dividing the dollar level of the award approved by the Compensation Committee by an average of the closing price of the Company’s common stock for the 45 trading days ending two days prior to the date of grant.

 

Subsequent to the October 2008 awards, as a result of the continued economic uncertainty that existed, the Compensation Committee determined that the fiscal 2009 equity awards to be made in December 2008 would include stock options and time vesting restricted stock units. The Compensation Committee believed that the economic uncertainty and depressed Company stock price at the time of the December 2008 awards made it imprudent to deliver a grant-date value of restricted stock units at previous award levels as the number of shares granted would have significantly increased potential dilution to a level determined by the Compensation Committee to be unacceptable. Conversely, a grant of a number of restricted units consistent with the number of units granted in the prior year would have significantly reduced the value of the grant delivered to the executives.

 

Awards granted to the Named Executive Officers under the 2003 Long-Term Incentive Plan in December 2008 consisted of (i) stock options which vest ratably on the four subsequent anniversaries of the grant date and (ii) time vesting restricted stock units which vest ratably on the four subsequent anniversaries of the grant date. Continued employment at the time of vesting is required for both the time vesting restricted stock unit awards and the stock options. In addition, as described under “Performance Vesting Restricted Stock Units — Other Named Executive Officers” below, an award of performance vesting restricted stock units was made to Ms. Aliperta in December 2008.

 

Stock Options.  Stock options represent the opportunity to purchase shares of the Company’s common stock at a fixed price at a future date. This generally aligns the Named Executive Officers’ incentives with those of the Company’s shareholders because stock options have value only if the Company’s stock price increases from the date of grant. Stock options also inherently reward performance as it is the Company’s performance over an extended period that causes the value of its common stock, and the value of the stock options, to increase.

 

In December 2008, stock options were granted to the Named Executive Officers (other than Ms. Aliperta, who received an award of performance based restricted stock units in connection with being appointed Chief Accounting Officer) at an exercise price equal to the closing price of the underlying Company common stock on the grant date. These stock options vest ratably on the four subsequent anniversaries of the grant date and outstanding stock options are no longer exercisable upon the termination of the Named Executive Officer. Information regarding stock options awarded during fiscal 2009 is shown in the Grant of Plan-Based Awards Table on page 30 of this Proxy Statement.

 

Time Vesting Restricted Stock Units.  The 2003 Long-Term Incentive Plan provides for the issuance of time vesting restricted stock units that vest in equal installments on the first, second, third and fourth anniversaries of the date such units are granted, so long as the employee remains employed by the Company on the vesting date. These awards are not subject to performance conditions, but are designed to enhance retention by rewarding continued employment, as leaving the Company results in the forfeiture of the unvested awards. This retention effect is further enhanced as the price of the Company’s common stock increases. Upon satisfaction of the vesting requirements, each time vesting restricted stock unit is settled for one share of Company common stock. The shares of common stock received upon vesting of the time vesting restricted stock units are subject to shareholding requirements, see “Shareholding Requirements” on page 27 of this Proxy Statement.

 

In December 2008, time vesting restricted stock units having an aggregate share value of approximately $227,600 were granted to Mr. Nielsen, Mr. Estes, Mr. DeFerrari, Mr. Vilsoet and Ms. Aliperta. The value of the individual grants received by the Named Executive Officers was approximately 12%, 10% and 22% of each executive’s base salary for Messrs. Nielsen and Estes and Ms. Aliperta, respectively, and approximately 6% of base salary for each of

Messrs. DeFerrari and Vilsoet. The award to Ms. Aliperta was made in connection with her appointment as Chief Accounting Officer of the Company in November 2008.

 

The number of units granted to these Named Executive Officers was determined by dividing the value granted by the closing price of the Company’s common stock on the date of grant of the units. Information regarding the fair value and the number of time vesting restricted stock units that the Named Executive Officers were granted in December 2008 is shown in the Grant of Plan-Based Awards Table on page 30 of this Proxy Statement. Information regarding the number of shares of time vesting restricted stock units and the value realized on vesting in fiscal 2009 is shown in the Option Exercises and Stock Vested Table on page 35 of this Proxy Statement.

 

Performance Vesting Restricted Stock Units — Chief Executive Officer and Chief Operating Officer.  In October 2008, an award of performance vesting restricted stock units was made to the Chief Executive Officer and the Chief Operating Officer. The performance vesting restricted stock units vest in three annual installments beginning on the anniversary of the date of grant subject to the Company achieving annual pre-tax income and operating cash flow goals (the “Annual Goals”) pre-established by the Compensation Committee for each of fiscal years 2009, 2010 and 2011. Upon the satisfaction of the relevant vesting requirements (as discussed below), each performance vesting restricted stock unit is settled for one share of Company common stock. For the annual long-term equity awards to vest, the Company’s operating earnings (before asset impairments, performance share and performance unit compensation and amounts associated with the extinguishment of debt or termination of debt agreements) must exceed certain pre-established targets, which are set forth as a percentage of contract revenue as described below. If such operating earnings are less than or equal to 2.5% of contract revenue, no annual award will vest and, subject to reduction as described below, 100% of the potential award will vest if such operating earnings equal or exceed 5.0% of contract revenues. For qualifying earnings between these amounts the percentage of the potential award vesting is interpolated between zero and 100%. The amount of annual performance share units subject to vesting each year will be reduced to 75% of the award otherwise earned if the ratio of operating cash flow for the fiscal period is less than net income for the period (before asset impairments, performance share and performance unit compensation and amounts associated with the extinguishment of debt or termination of debt agreements).

 

The use of a threshold amount ensured that performance exceeded a pre-established level before any award is earned. The reliance on earnings and cash flow measures in determining the level of vesting reflects the importance of both operating margins and cash flows. Similar to the annual incentive plan, no award is earned absent acceptable margins and the level of award may be reduced if the pre-establish cash flow criteria is not met. The use of both operating earnings and cash flow as performance criteria ensure that both income statement and balance sheet performance are required to earn the maximum award.

The components of the Annual Goals and the potential annual payout of performance vesting restricted stock units are summarized as follows:

 

 

In addition to the performance units earned when Annual Goals are met, the Chief Executive Officer and the Chief Operating Officer may each earn supplemental units if the Company achieves cumulative qualifying earnings and operating cash flow ratio goals based on the previous three fiscal years (the “Three Year Goals”). To comply with Section 162(m) of the Internal Revenue Code, the Compensation Committee established the performance criteria for these supplemental units within ninety days of the beginning of fiscal 2009.

 

If the Three Year Goals are achieved, the Chief Executive Officer and the Chief Operating Officer will each vest in additional restricted stock units of up to 100% of the number of restricted stock units vesting in that fiscal year upon the satisfaction of the relevant Annual Goals. Vesting of these supplemental units only occurs if cumulative operating earnings for the three year period (before asset impairments, performance share and performance unit compensation and amounts associated with the extinguishment of debt or termination of debt agreements) exceed certain pre-established targets, which are set forth as a percentage of contract revenue. If such cumulative qualifying earnings for the three year period are more than 7.51% of cumulative contract revenues for the period but less than 10% of cumulative contract revenue for the period, a supplemental award of 50% of the target annual units will be earned so long as cumulative operating cash flow for such period is greater than cumulative net income (before asset impairments, amounts recorded for performance share and performance unit compensation and amounts associated with the extinguishment of debt and termination of debt agreements) for the period. If such cumulative qualifying earnings for the three year period are 10.01% or more of cumulative contract revenues for the period, a supplemental award of 100% of the target annual units will be earned so long as cumulative operating cash flow for such period is greater than cumulative net income (before asset impairments, amounts recorded for performance vesting restricted units and amounts associated with the extinguishment of debt and termination of debt agreements) for the period. No supplemental units will vest if such operating cash flow is not equal to or greater than such net income, in each case as measured over the same cumulative three year period.

The components of the Three Year Goals and the potential payout of performance vesting restricted stock units are summarized as follows:

 

 

Supplemental units are earned only in a fiscal year for which units are awarded for meeting the Annual Goals. Consequently, strong prior performance does not ensure vesting if unaccompanied by current fiscal year performance. The three year performance required to earn supplemental units is meaningfully more difficult than that required to earn an annual award and is only triggered by operating earnings and cash flow performance that is significantly better than that of fiscal 2009. The performance criteria selected, operating margin and cash flow, require both income statement and balance sheet performance. These performance criteria provide that good margins without acceptable cash flows result in reduced vesting of the annual awards or the elimination of vesting of any supplemental awards, while acceptable cash flows absent acceptable margins result in no vesting. Applying these criteria historically for the last seven years would have resulted in partial vesting of supplemental units at 50% in three years and no vesting in four of the years.

 

The awards granted to the Chief Executive Officer and Chief Operating Officer for fiscal 2009 totaled $561,920 in share value (based on the closing price of a share of Company common stock on the date of grant, October 20, 2008, and the target award under the grant). This amount represented 46% of their aggregate base salaries, with the Chief Executive Officer receiving 48% of his base salary in the form of performance vesting restricted stock units and the Chief Operating Officer receiving 42% of his base salary in the form of performance vesting restricted stock units. For both the Chief Executive Officer and the Chief Operating Officer, the share values granted were converted into a specific target number of performance share units by dividing the share values granted by the average closing price of the Company’s common stock for a 45-day period ending two days prior to the day of the Compensation Committee’s grant of the units.

 

Based on fiscal 2009 results, the Chief Executive Officer and the Chief Operating Officer will vest in approximately 42% of their respective target annual awards under the fiscal 2009 grants of performance based restricted stock units or 12,065 units and 7,628 units, respectively. This was the result of the Company’s qualifying earnings of approximately 3.6% of contract revenue and an operating cash flow ratio greater than 1.0 of qualifying net income, based on operating cash flow of approximately $126.6 million.

 

Mr. Nielsen and Mr. Estes were granted awards of performance based restricted stock units in fiscal 2008 and 2007. The annual goals under the fiscal 2008 and 2007 awards are the same as those set forth above with respect to the fiscal 2009 awards. The three year goals under the fiscal 2008 and 2007 awards are also the same as those set forth above for the fiscal 2009 awards, except to the extent that the three year measurement period is determined by the fiscal year of the grant. Based on fiscal 2009 performance, Messrs. Nielsen and Estes will vest in 6,465 and 4,268 shares of common stock, respectively, representing 42% of target annual awards under the fiscal 2008 and 2007 grants of performance based

restricted stock units. Based on fiscal 2009 results, no supplemental awards were earned under the fiscal 2009, 2008 or 2007 grants of performance vesting restricted units.

 

Information regarding the fair value and the number of performance vesting restricted stock units granted to the Chief Executive Officer and Chief Operating Officer in fiscal 2009 is shown in the Grant of Plan-Based Awards Table on page 30 of this Proxy Statement.

 

Performance Vesting Restricted Stock Units — Other Named Executive Officers.  In December 2008, $100,012 in share value was granted to Ms. Aliperta in the form of performance vesting restricted stock units (based on the closing price of a share of Company common stock on the date of grant, December 15, 2008, and the target award under the grant) with substantially the same terms as those awarded to the Chief Executive Office and Chief Operating Officer in October 2008 as discussed above. This award was made in connection with Ms. Aliperta’s appointment to Chief Accounting Officer and represented 44% of her base salary. The share values granted were converted into a specific number of restricted stock units by dividing the share value granted by the closing price of the Company’s common stock on the day of the Compensation Committee’s approval. Ms. Aliperta’s employment ended prior to the vesting date of her fiscal 2009 grant of performance vesting restricted stock units; see “Employment and Separation Agreements — Lisa Aliperta — Separation Agreement.”

 

Mr. DeFerrari and Mr. Vilsoet were granted awards of performance based restricted stock units in fiscal 2008 and 2007. The annual goals under the fiscal 2008 and 2007 awards are the same as those set forth above with respect to the fiscal 2009 awards. The three year goals under the fiscal 2008 and 2007 awards are also the same as those set forth above for the fiscal 2009 awards, except to the extent that the three year measurement period is determined by the fiscal year of the grant. Based on fiscal 2009 performance, Messrs. DeFerrari and Vilsoet will vest in 1,091 and 1,899 shares of common stock, respectively, representing 42% of target annual awards under the fiscal 2008 and fiscal 2007 grants of performance based restricted stock units. Based on fiscal 2009 results, no supplemental awards were earned under the fiscal 2007 or 2008 grants of performance vesting restricted units.

 

Information regarding the fair value and the number of performance vesting restricted stock units that Ms. Aliperta was granted in fiscal 2009 is shown in the Grant of Plan-Based Awards Table on page 30 of this Proxy Statement.

 

Other Benefits

 

We provide employees with a range of retirement and health and welfare benefits that are designed to assist us in attracting and retaining employees and to reflect the competitive practices of the companies in the Peer Group. The Named Executive Officers are eligible for the following benefits:

 

401(k) Plan.  We maintain a tax qualified deferred contribution retirement plan (the “401(k) Plan”) that covers substantially all of our salaried and hourly employees. Each of the Named Executive Officers participates in the 401(k) Plan. Participants may contribute up to 15% of their compensation on a before-tax basis into their 401(k) Plan accounts, subject to statutory limits. In addition, we match an amount equal to 30% for each dollar contributed by participants on the first 5% of their eligible earnings.

 

Because the 401(k) Plan is a tax qualified retirement plan, the Internal Revenue Code limits the “additions” that can be made to a participant’s 401(k) Plan account each calendar year. “Additions” include Company matching contributions, before-tax contributions made by a participant and participant after-tax contributions. In addition, the Internal Revenue

Code limits the amount of annual compensation that may be taken into account in computing benefits under the 401(k) Plan.

 

The Company does not maintain any defined benefit pension plan, non-tax qualified supplemental retirement plan or non-tax qualified supplemental deferred compensation plan.

 

Health and Welfare Plans.  Active employee benefits such as medical, dental, life insurance and disability coverage are available to all salaried and hourly employees through our flexible benefits plan. Employees contribute to the cost of the benefits plan by paying a portion of the premium costs.

 

Named Executive Officers participate in the medical and dental plans on terms identical with those afforded all other employees. In addition, we provide certain key employees, including the Named Executive Officers, with additional life insurance and disability coverage at no cost to the individual. The amount paid on behalf of the Named Executive Officers is set forth in the “All Other Compensation” column of the Summary Compensation Table on page 29 of this Proxy Statement.

 

Shareholding Requirements

 

Beginning in fiscal 2006, awards of time vesting restricted stock and time vesting restricted stock units granted to the Named Executive Officers have been subject to shareholding requirements. As each grant vests, the executive is required to retain, on account with the Company’s stock transfer agent, one-half of the shares that have vested, net of shares withheld to pay taxes. The shareholding requirement continues until the shares on account are equal in value to the executive’s base salary then in effect. From that point forward, the executive is free to sell shares that vest subsequently, but must hold those shares previously on account so long as the executive remains employed by the Company. All restrictions on those shares held by the transfer agent lapse ninety days after an executive is no longer employed by the Company. None of the Named Executive Officers who have received awards of time vesting restricted stock or restricted stock units since fiscal 2006 have reached the shareholding requirement.

 

Severance and Change in Control Benefits

 

The Company provides for the payment of severance benefits to the Named Executive Officers upon certain types of employment terminations both prior to and following a change of control. In addition, the Company also provides for the vesting of certain equity based awards upon the occurrence of a change of control. Providing severance and change of control benefits assists us in attracting and retaining executive talent and reduces the personal uncertainty that executives are likely to feel when considering a corporate transaction. These arrangements also provide valuable retention incentives that focus executives on completing such transactions, thus, enhancing long-term shareholder value. The Named Executive Officers are provided with severance benefits under individual arrangements negotiated with the Company. The terms and payment amounts reflect the Compensation Committee’s determination of competitive practices at those companies that we compete with for executive talent at the time the arrangements were entered into and were based, in part, on market information provided by its independent compensation consultants.

 

The terms of the individual arrangements, and a calculation of the estimated severance benefits that would be payable to each Named Executive Officer under their respective arrangements upon the occurrence of certain events, is set forth under “Potential Payments upon Termination of Employment or Change of Control” table beginning on page 35 of this Proxy Statement. The amounts set forth for Ms. Aliperta reflect actual payments under her separation agreement, see

“Employment and Separation Agreements — Lisa Aliperta — Separation Agreement” on page 44 of this Proxy Statement.

 

Tax Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code (and the regulations promulgated thereunder) precludes a public corporation from taking an income tax deduction in any one year for compensation in excess of $1 million for its named executive officers (excluding the Chief Financial Officer) employed on the last day of the fiscal year, unless certain specific performance criteria are satisfied. While the executive compensation program seeks to maximize the tax deductibility of compensation payable to the Named Executive Officers by having such compensation qualify as performance based, the Compensation Committee retains the flexibility to compensate Named Executive Officers in a manner intended to promote varying corporate goals, even if certain amounts that may be payable in excess of $1 million may not be deductible under Section 162(m). For fiscal 2009, all of the compensation paid to Mr. Nielsen was deductible for federal income tax purposes.

 

Code Section 409A

 

Code Section 409A generally changes the tax rules that affect most forms of nonqualified deferred compensation. The Company believes it is in compliance with Code Section 409A and the regulations promulgated thereunder.

 

Accounting Rules

 

The Compensation Committee takes into consideration the accounting treatment of equity incentive awards under SFAS No. 123(R), “Share-Based Payment,” when determining the form and timing of equity grants to employees, including the Named Executive Officers. The accounting treatment of such grants, however, is not determinative of the type, timing or amount of any particular grant of equity incentive award made to the Company’s employees.

 

The Compensation Committee has reviewed and discussed with management the preceding Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended July 25, 2009.

 

The foregoing report has been furnished on behalf of the Board of Directors by the undersigned members of the Compensation Committee.

 

Compensation Committee

 

Thomas G. Baxter, Chair
Charles B. Coe
Patricia L. Higgins

 

The following table sets forth the compensation of our Chief Executive Officer, Chief Financial Officer and the next three highest paid individuals who were serving as executive officers on the last day of fiscal 2009 (collectively, the “Named Executive Officers”).

 

 

 

 

The following table sets forth certain information with respect to grants of restricted stock units and stock options under the 2003 Long-Term Incentive Plan and the potential range of awards that were approved under the Annual Incentive Plan for the fiscal year ended July 25, 2009.

 

 

 

 

 

The equity incentive awards granted to Messrs. Nielsen and Estes on October 17, 2008 and Ms. Aliperta on December 15, 2008 were subject to the Company achieving certain annual goals (the “Annual Goals”) established by the Compensation Committee. The Annual Goals were pre-established performance measures based upon (a) pre-tax operating earnings (before asset impairments, amounts recorded for performance share and performance unit compensation and amounts associated with the extinguishment of debt or termination of debt agreements), in excess of 2.5% of contract revenues and (b) the ratio of operating cash flow to net income (before asset impairment, amounts recorded for performance share and performance unit compensation and amounts associated with the extinguishment of debt or termination of debt agreements). Each of Mr. Nielsen’s, Mr. Estes’ and Ms. Aliperta’s target awards vest in three substantially equal installments subject to the Company achieving the Annual Goals in each of fiscal years 2009, 2010 and 2011. In the event the Company achieves the Annual Goals with respect to a performance period and the Company also achieves additional goals established by the Compensation Committee which we based, for each year, on the trailing three year period, each of Mr. Nielsen, Mr. Estes and Ms. Aliperta will vest in up to an additional 100% of the number of shares of the target award that vested in such annual performance period. These additional goals are pre-established performance measures for the indicated period based upon (a) pre-tax operating earnings (before asset impairments, amounts recorded for performance share and performance unit compensation and amounts associated with the extinguishment of debt or termination of debt agreements), in excess of 2.5% of contract revenues and (b) the ratio of operating cash flow to net income (before asset impairments, amounts recorded for performance share and performance unit compensation and amounts associated with the extinguishment of debt).

 

The following table sets forth certain information with respect to all outstanding equity awards held by each of the Named Executive Officers as of July 25, 2009.

 

 

 

 

 

 

The following table sets forth certain information with respect to stock options and restricted stock units awarded to the Named Executive Officers that were exercised or vested, respectively, during fiscal 2009.

 

 

 

 

The Company has entered into certain arrangements that will require it to provide compensation to the Named Executive Officers in the event of certain terminations of employment or a change of control of the Company. The amount of compensation that is potentially payable to each Named Executive Officer in each situation is shown in the table below. The amounts assume that a termination of employment and/or change of control event occurred on July 25, 2009 and, where applicable, uses the closing price of a share of the Company’s common stock on July 24, 2009 ($12.10).

The amounts for Mr. Nielsen, Mr. DeFerrari, Mr. Estes, and Mr. Vilsoet are estimates based only on hypothetical assumptions and do not necessarily reflect the actual amounts that would be paid to the Named Executive Officers, which would be known only at the time they become eligible for payment.

 

The following table and the narrative that follows describe the potential payments upon termination of employment or a change of control of the Company as of July 25, 2009.