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 x
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
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Definitive
Proxy Statement
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Definitive
Additional Materials
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o
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Soliciting
Material Pursuant to §240.14a-12
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Sterling
Construction Company, Inc.
(Name of
Registrant as Specified In Its Charter)
______________________________________________________________________
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
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STERLING
CONSTRUCTION COMPANY, INC.
20810
Fernbush Lane
Houston,
Texas 77073
Telephone:
(281) 821-9091
NOTICE
OF THE 2008 ANNUAL MEETING OF STOCKHOLDERS
Notice is
hereby given that the 2008 Annual Meeting of Stockholders of Sterling
Construction Company, Inc., a Delaware corporation, will be held as
follows:
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Date:
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May
8, 2008
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Place:
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Grand
Sierra Resort
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2500
East 2nd
Street
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Reno,
Nevada 89595
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Time:
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11:30
a.m., local time
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Purposes:
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To
elect two Class I directors, each to serve for a term of three years and
until his successor is duly elected and qualified.
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To
approve the adoption of an Amended and Restated Certificate of
Incorporation.
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To
approve the adoption of an amendment to Article FOURTH of Certificate of
Incorporation to increase the number of shares of common stock that the
Company is authorized to issue from 14 million shares to 19 million
shares.
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To
consider the ratification of the selection of Grant Thornton LLP as the
Company's independent registered public accounting firm for
2008.
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To
transact any other business that may properly come before the
meeting.
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Only the
stockholders of record at the close of business on March 17, 2008 are entitled
to notice of the meeting and to vote at the meeting or any adjournment of
it.
By Order
of the Board of Directors
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April
3, 2008
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Roger
M. Barzun, Secretary
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You
are urged to complete, sign and date the enclosed proxy and to return it in the
envelope provided.
The
execution of a proxy will not affect a record holder’s right to vote in person
if present at the meeting.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON MAY 8, 2008:
The
Proxy Statement, Proxy Card and Annual Report to Stockholders for the fiscal
year ended December 31, 2007 are available at our internet website,
www.SterlingConstructionCo.com on the "Investors Relations"
page.
STERLING CONSTRUCTION COMPANY, INC.
Proxy
Statement for the 2008 Annual Meeting of Stockholders
Table
of Contents
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_____________________
STERLING
CONSTRUCTION COMPANY, INC.
20810
Fernbush Lane
Houston,
Texas 77073
Tel.:
(281) 821-9091
PROXY
STATEMENT
FOR
THE 2008 ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION
This
Proxy Statement and the enclosed Annual Report on Form 10-K are being sent to
stockholders on or about April 3, 2008.
In this
Proxy Statement, Sterling Construction Company, Inc. is sometimes referred to as
the Company, and the Board of Directors of the Company is sometimes referred to
as the Board. The Company is furnishing this Proxy Statement to
stockholders in connection with the solicitation of proxies by the Board for the
2008 Annual Meeting of Stockholders. The Annual Meeting will be held
on May 8, 2008 at 11:30 a.m. local time at Grand Sierra Resort, 2500 East 2nd Street,
Reno, Nevada 89595.
The Record
Date. The Company has
established March 17, 2008 as the Record Date. The persons or
entities whose names appear on the records of the Company as holders of the
Company's common stock on the Record Date are entitled to notice of the Annual
Meeting and to vote at the Annual Meeting or any adjournment of the
meeting. On the Record Date, there were 13,088,692 shares of the
Company's common stock outstanding.
Methods of
Voting. There are two ways that as a record holder you may
vote your shares. You may come to the Annual Meeting and vote in
person, or you may appoint someone to vote your shares for you by giving that
person a proxy. In this Proxy Statement, you are being asked to
appoint each of James H. Allen, Jr., the Company's Chief Financial Officer, and
Roger M. Barzun, the Company's Senior Vice President, Secretary & General
Counsel, as your proxy holder to vote your shares in the manner you direct, both
at the Annual Meeting and at any adjournment of the meeting.
Voting by
Proxy. Your shares will be voted as you direct if your proxy
is properly signed, if it is returned to the Company before the Annual Meeting,
and if it is not revoked by you before the voting. If you do not
specify on your proxy how you want your shares voted, they will be voted
—
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FOR
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the
election of the nominees for director listed on the
proxy;
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FOR
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the
approval of the Amended and Restated Certificate of
Incorporation;
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FOR
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the
approval of an amendment to the Certificate of Incorporation to increase
the number of shares of common stock that the Company is authorized to
issue from 14 million shares to 19 million shares;
and
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FOR
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the
ratification of the selection of Grant Thornton LLP as the Company's
independent registered public accounting
firm.
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The Board
does not know of any proposal that will be presented for consideration at the
Annual Meeting other than those four items. However, if any other
business should come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote or otherwise to act in accordance with their
best judgment.
Revocation of a
Proxy. You may revoke a proxy you have already given in any
one of the following three ways:
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By
sending to the Secretary of the Company at the Company's address set forth
above a written statement saying that you wish to revoke your
proxy;
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By
submitting another proxy dated later than a previous proxy;
or
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By
attending the Annual Meeting in person and notifying the chairman of the
meeting that you wish to vote in
person.
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Quorum, Vote Required
and Method of Counting.
The Quorum for
the Meeting. A quorum must be
present in order to hold the Annual Meeting. A quorum consists of the
holders of a majority of the shares of common stock issued and outstanding on
the Record Date. Holders of shares of common stock who are either
present at the Annual Meeting in person or through representation by a proxy
(including those who abstain from voting or who do not vote on one or more of
the proposals) will be counted for purposes of determining whether there is a
quorum present at the meeting.
Vote
Required. Each share of common stock entitles the record
holder to one vote on each of the matters to be voted on at the Annual
Meeting.
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In
the election of directors (Proposal 1) a nominee who receives more votes
for his election than against his election will be
elected.
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The
approval of the Amended and Restated Certificate of Incorporation
(Proposal 2) requires the affirmative vote of the holders of at least
75% of the outstanding shares of common stock of the
Company.
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The
approval of the amendment of Article FOURTH of the Certificate of
Incorporation to increase the number of shares of common stock that the
Company is authorized to issue from 14 million shares to 19 million shares
(Proposal 3) requires the affirmative vote of the holders
of a majority of the outstanding shares of common stock of the
Company
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For
the effect of your vote on the ratification of the selection of Grant
Thornton LLP as our independent registered public accounting firm for 2008
(Proposal 4) see the information below under the heading Ratification of the Selection
of Independent Registered Public Accounting Firm (Proposal
4).
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Method of
Counting. The Company will not count as votes cast on a
proposal either the shares of stockholders who abstain from voting on that
proposal, or the shares held in "street" name by brokers or by nominees who
indicate on their proxies that they do not have the discretionary authority to
vote the shares on the proposal, which are known as broker
non-votes. As a result, abstentions and broker non-votes will have no
effect on the voting on Proposals 1 and 4. An abstention or broker
non-vote on Proposals 2 and 3 has the effect of a no vote because of the
requirement that the proposal receive the affirmative vote of the holders of at
least a certain number, or a certain percentage of shares of the Company's
outstanding common stock.
The Solicitation of
Proxies and Expenses. In addition to sending this Proxy
Statement to stockholders, directors, officers and employees of the Company and,
if deemed necessary, a third-party solicitation agent may solicit proxies using
personal interviews, telephone calls, facsimiles and e-mail. The
Company will request banks, brokerage houses and other custodians, nominees and
fiduciaries to solicit their customers who are beneficial owners, but not record
holders, of common stock and to forward solicitation materials to those
beneficial owners. The Company will reimburse them for the reasonable
out-of-pocket expenses they incur in doing so and will pay the expenses of
preparing, printing and mailing this Proxy Statement, the enclosed form of
proxy, the Company's Annual Report on Form 10-K for 2007 and any other
solicitation materials.
The 2007 Annual
Report. A copy of the
Company's Annual Report on Form 10-K for the year ended December 31, 2007, which
has been filed with the Securities and Exchange Commission, or SEC, contains
financial statements and other information of interest to
stockholders. A copy of that Annual Report is enclosed with this
Proxy Statement.
ELECTION OF DIRECTORS
(Proposal 1)
The Composition of the
Board. The by-laws of the Company permit the Board to
determine from time to time how many directors the Company will
have. The size of the Board is currently set at eight directors, the
two nominees and the six continuing directors whose terms do not expire at the
Annual Meeting. The Company’s Certificate of Incorporation divides
directors into three classes. The term of each class is three years
and the terms are staggered so that at each Annual Meeting of Stockholders, the
term of one of the classes expires. A director holds office until the
expiration of his or her term and until a successor is elected and qualified
unless the director dies, resigns or is removed from the Board. In
that case, the Board has the authority to appoint a replacement. The
term of the Class I directors expires at the 2008 Annual
Meeting.
Director
Independence.
The
following table shows the Company's independent directors at the date of this
Proxy Statement and the committees of the Board on which they
serve. Each of the directors has in the past and continues to satisfy
the Nasdaq's definition of an independent director. Each member of
the Audit Committee, the Compensation Committee and the Corporate Governance
& Nominating Committee also satisfies Nasdaq's independence standards for
service on those committees. In addition, the members of the Audit
Committee satisfy the independence requirements of the SEC's Regulation
§240.10A-3. Independent directors have voted Mr. Abernathy Lead
Director.
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Name
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Committee
Assignment
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John
D. Abernathy
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Audit
Committee (Chairman)
Compensation
Committee
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Robert
W. Frickel
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Compensation
Committee (Chairman)
Corporate
Governance & Nominating Committee
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Milton
L. Scott
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Audit
Committee
Corporate
Governance & Nominating Committee
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David
R. A. Steadman
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Corporate
Governance & Nominating Committee (Chairman)
Audit
Committee
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Donald
P. Fusilli, Jr.
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Audit
Committee
Compensation
Committee
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Christopher
H. B. Mills
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None
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The
relationship between Mr. Frickel's accounting firm and the Company is described
below under the heading Business Relationships with
Directors and Officers.
In
determining that Mr. Mills is independent under Nasdaq rules, the Board of
Directors considered the fact that Mr. Mills is the Chief Executive Officer of
NASCIT, which is a stockholder holding less than 10% of the Company's common
stock and therefore under applicable rules and regulations is not an affiliate
of the Company. The Board also considered the payments of interest
that the Company made on a promissory note it issued to NASCIT in 2001 in
connection with the Company's acquisition of Texas Sterling Construction Co. and
the fact that the note was paid in full on June 30, 2005. The Board
has concluded that under Nasdaq's standards for independence, neither of Mr.
Frickel's nor Mr. Mills' relationship to the Company adversely affects his
independence. In reaching this conclusion, the Board also relied on
the fact that both Messrs. Frickel and Mills were directors at the time that the
Company applied for the listing of its common stock on Nasdaq and that they
qualified as independent at that time.
In 2005,
the Company retained Eugene Abernathy, brother of Audit Committee Chairman John
Abernathy, to assist the Company on GAAP compliance issues. Eugene
Abernathy is a certified public accountant and a consultant who has in the past
worked at a predecessor of PricewaterhouseCoopers, a public accounting firm, and
was a member of the Construction Contractor Guide Committee that issued the
Audit and Accounting Guide for Construction Contractors under the sponsorship of
the American Institute of Certified Public Accountants. In 2007 the
Company paid fees of $10,625 to Eugene Abernathy. In view of the
small amount of the fees the Company has paid to Eugene Abernathy, the Board
does not consider that this relationship has any effect on John Abernathy's
independence.
The Nominees and
Continuing Directors.
The
following table lists the nominees for director and the directors whose terms
continue after the Annual Meeting. Each of the nominees has stated
his willingness to serve if elected. If any nominee is unable to
serve, persons named in the enclosed proxy may vote for a substitute
nominee. The Board has no reason to believe that any of the nominees
will be unable to serve. The enclosed form of proxy cannot be voted
by the proxy holders for more persons than the number of nominees named in this
Proxy Statement. Information about the number of shares of common
stock of the Company owned by the nominees and the continuing directors can be
found below under the heading Stock Ownership
Information.
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Nominees
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Current
Position
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Age
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Class
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Director
Since
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Term
Expires
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Patrick
T. Manning
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Chairman
of the Board of Directors & Chief Executive Officer
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62
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I
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2001
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2008
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Joseph
P. Harper, Sr.
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President,
Treasurer &
Chief
Operating Officer, Director
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62
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I
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2001
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2008
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Continuing
Directors
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John
D. Abernathy
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Director
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70
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II
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1994
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2009
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Robert
W. Frickel
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Director
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64
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II
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2001
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2009
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Milton
L. Scott
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Director
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51
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II
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2005
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2009
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Donald
P. Fusilli, Jr.
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Director
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56
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III
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2007
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2010
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Maarten
D. Hemsley
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Director
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58
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III
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1998
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2010
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Christopher
H. B. Mills
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Director
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55
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III
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2001
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2010
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The Background of the
Nominees.
Patrick T.
Manning. Mr. Manning
joined the predecessor of Texas Sterling Construction Co., the Company's Texas
construction subsidiary, which along with its predecessors is referred to as
TSC, in 1971 and led its move from Detroit, Michigan into the Houston market in
1978. He has been TSC’s President and Chief Executive Officer since 1998 and
Chairman of the Board of Directors and Chief Executive Officer of the Company
since July 2001. Mr. Manning has served on a variety of construction
industry committees, including the Gulf Coast Trenchless Association and the
Houston Contractors’ Association, where he served as a member of the board of
directors and as President from 1987 to 1993. He attended Michigan State
University from 1969 to 1972.
Joseph P. Harper,
Sr. Mr. Harper has
been employed by TSC since 1972. He was Chief Financial Officer of TSC for
approximately 25 years until August 2004, when he became Treasurer of
TSC. In addition to his financial responsibilities, Mr. Harper has
performed both estimating and project management functions. Mr.
Harper has been a director and the Company's President and Chief Operating
Officer since July 2001, and in May 2006 was elected Treasurer. Mr.
Harper is a certified public accountant.
The Background of the
Continuing Directors.
John D.
Abernathy. Mr. Abernathy
was Chief Operating Officer of Patton Boggs LLP, a Washington D.C. law firm,
from January 1995 through May 2004 when he retired. He is also a
director of Par Pharmaceutical Companies, Inc., a New York Stock Exchange-listed
company that manufactures generic and specialty drugs, and Neuro-Hitech, Inc., a
development-stage drug company. Mr. Abernathy is a certified public
accountant. In December 2005, Mr. Abernathy was elected Lead Director
by the independent members of the Board of Directors.
Robert W.
Frickel. Mr. Frickel is
the founder and President of R.W. Frickel Company, P.C., a public accounting
firm that provides audit, tax and consulting services primarily to companies in
the construction industry. Prior to the founding of R.W. Frickel
Company in 1974, Mr. Frickel was employed by Ernst & Ernst. Mr.
Frickel is a certified public accountant.
Milton L.
Scott. Mr. Scott is Chairman and Chief Executive Officer of
the Tagos Group, a strategic advisory and services company in supply chain
management, transportation and logistics, and integrated supply. He
was previously associated with Complete Energy Holdings, LLC, a company of which
he was Managing Director until January 2006 and which he co-founded in January
2004 to acquire, own and operate power generation assets in the United
States. From March 2003 to January 2004, Mr. Scott was a Managing
Director of The StoneCap Group, an entity formed to acquire, own and operate
power generation assets. From October 1999 to November 2002, Mr.
Scott served as Executive Vice President and Chief Administrative Officer at
Dynegy Inc., a public company that was a market leader in power distribution,
marketing and trading of gas, power and other commodities, midstream services
and electric distribution. From July 1977 to October 1999, Mr. Scott
was with the Houston office of Arthur Andersen LLP, a public accounting firm,
where he served as partner in charge of the Southwest Region Technology and
Communications practice. Mr. Scott is currently the lead director and
chairman of the audit committee of W-H Energy Services.
Donald P.
Fusilli, Jr. Mr. Fusilli is
the Chief Executive Officer of a marine services subsidiary of David Evans and
Associates, Inc., a company that provides underwater mapping and analysis
services. From May 1973 until September 2006, Mr. Fusilli served in a
variety of capacities at Michael Baker Corporation, a public company listed on
the American Stock Exchange that provides a variety of professional engineering
services spanning the complete life cycle of infrastructure and managed asset
projects. Mr. Fusilli joined Michael Baker Corporation as an engineer
and over the course of his career rose to president and chief executive officer
in April 2001. From September 2006 to January 2008, Mr. Fusilli was
an independent consultant providing strategic planning, marketing development
and operations management services. Mr. Fusilli is a director of RTI
International Metals, Inc., a New York Stock Exchange-listed company that is a
leading U.S. producer of titanium mill products and fabricated metal
components. He holds a Civil Engineering degree from Villanova
University, a Juris Doctor degree from Duquesne University School of Law and
attended the Advanced Management Program at the Harvard Business
School.
Maarten D.
Hemsley. Mr. Hemsley served as the Company's President and
Chief Operating Officer from 1988 until 2001, and as Chief Financial Officer
from 1998 until August 2007. From January 2001 to May 2002, Mr.
Hemsley was also a consultant to, and thereafter has been an employee of, JO
Hambro Capital Management Limited, which is part of JO Hambro Capital Management
Group Limited, or JOHCMG, an investment management company based in the United
Kingdom. Mr. Hemsley has served since 2001 as Fund Manager of
JOHCMG’s Leisure & Media Venture Capital Trust, plc, and since February
2005, as Senior Fund Manager of its Trident Private Equity II LLP investment
fund. Mr. Hemsley is a director of Tech/Ops Sevcon, Inc., a U.S.
public company that manufactures electronic controls for electric vehicles and
other equipment, and of a number of privately-held companies in the United
Kingdom. Mr. Hemsley is a Fellow of the Institute of Chartered
Accountants in England and Wales.
Christopher H. B.
Mills. Mr. Mills is a
director of JOHCMG. Prior to founding JOHCMG in 1993, Mr. Mills
was employed by Montagu Investment Management and its successor company, Invesco
MIM, as an investment manager and director, from 1975 to 1993. He is
the Chief Executive of North Atlantic Smaller Companies Investment Trust plc,
which is a part of JOHCMG and a 3.82% holder of the Company's common
stock. Mr. Mills is a director of two U.S. public companies, W-H
Energy Services, Inc., a New York Stock Exchange-listed company that is in the
oilfield services industry, and SunLink Healthcare Systems, Inc., a non-urban
community healthcare provider for seven hospitals and related businesses in four
states in the Southwest and Midwest. Mr. Mills also serves as a
director of a number of public and private companies outside of the U.S. in
which JOHCMG funds have investments.
The Executive Officers
of the Company. In addition to Messrs. Manning, Harper and
Hemsley, the only other executive officers of the Company are James H. Allen,
Jr. and Roger M. Barzun.
James H. Allen,
Jr. Mr. Allen became
the Company's Senior Vice President & Chief Financial Officer in August
2007. He spent approximately 30 years with Arthur Andersen & Co.,
including 19 years as an audit and business advisory partner and as head of the
firm’s Houston office construction industry practice. After being
retired for several years, he became chief financial officer of a process
chemical manufacturer and served in that position for over three years prior to
joining the Company. Mr. Allen is a certified public
accountant.
Roger M.
Barzun. Mr. Barzun has
been the Company's Vice President, Secretary and General Counsel since August
1991. He was elected a Senior Vice President from May 1994 until July
2001 and again in March 2006. Mr. Barzun has been a lawyer since 1968
and is a member of the bar of New York and Massachusetts. Mr. Barzun
also serves as general counsel to other corporations from time to time on a
part-time basis.
THE AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION
(Proposal 2)
Adoption of the Amended and Restated
Certificate of Incorporation. On March 13, 2008, the Board of
Directors adopted, subject to stockholder approval, an Amended and Restated
Certificate of Incorporation, or charter. If the Amended and Restated
Certificate of Incorporation is approved by stockholders, it will become
effective upon filing with the Secretary of State of the State of
Delaware.
Reasons for the Adoption of the
Amended and Restated Certificate of Incorporation. The amendment and
restatement of the charter is designed to bring the charter more in line with
current concepts of good corporate governance, to clarify some of its terms, and
to conform it more closely to those of other Delaware public
corporations. In addition, certain current restrictions and
requirements in the charter were designed to protect the Company's substantial
book tax loss carryforwards, or tax benefits. The tax benefits have
substantially been used up by the Company or have expired, so the Board of
Directors has determined that the restrictions and requirements are no longer
necessary or appropriate. The full text of the proposed Amended and
Restated Certificate of Incorporation is set forth and attached as Exhibit A to this Proxy
Statement.
Required
Approval. As mentioned above, the approval of the restatement
and amendment of the charter requires the approval of the holders of at least
75% of the Company's outstanding shares of common stock. This is
because many, but not all, of the proposed amendments in the amended and
restated charter require such a vote. One of the reasons for amending
and restating the charter is to eliminate almost all of those so-called
super-majority voting requirements.
Summary. The
following is a summary of the proposed amendments contained in the amended and
restated charter. It is qualified in its entirety by reference to the
full text of the Amended and Restated Certificate of Incorporation, which is
attached to this Proxy Statement as Exhibit A.
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Elimination
of the requirement for a written ballot in the election of
directors.
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|
Currently,
only a majority of the
total number of authorized directors (currently eight directors) may call
a special meeting of stockholders. This is amended to provide
that the call of a special meeting requires only the approval of the Board
of Directors, which under the Bylaws may act by majority vote if a quorum
of directors is present.
|
|
·
|
Elimination
in its entirety of Article SIXTH, which contains the restrictions on
stockholders acquiring more than 4.5% of the Company's common stock that
were designed to protect the Company's tax
benefits.
|
|
·
|
Elimination
of the requirement that an amendment to the Company's Bylaws by
stockholders requires approval by the holders of at least 75% of the
Company's common stock, which is replaced with a requirement that an
amendment to the Company's Bylaws by stockholders requires approval only
by the affirmative vote of the holders of a majority of all classes and
series of the Company's outstanding capital stock voting together as a
single class. Currently the Company has only one class of
capital stock, the common stock, outstanding, but the Board of Directors
is authorized to issue up to one million shares of preferred
stock.
|
|
·
|
Elimination
of the requirement that the affirmative vote of the holders of at least
75% of the Company's common stock is required to remove directors, which
is replaced with a requirement that the removal of directors requires the
affirmative vote of the holders of only a majority of all classes and
series of the Company's outstanding capital stock voting together as a
single class.
|
|
·
|
Elimination
of the requirement that an amendment to the following articles of the
charter requires approval by the holders of at least 75% of the Company's
common stock:
|
|
|
o
|
Article
FIFTH, which sets forth certain powers of directors and related
matters;
|
|
|
o
|
Article
SEVENTH, which provides for a staggered board of directors;
and
|
|
|
o
|
Article
EIGHTH regarding amendment of the Company's Bylaws by
stockholders.
|
The
amended and restated charter retains a requirement for a 75% vote of all classes
and series of the Company's outstanding capital stock voting together as a
single class to amend or repeal the provisions of the charter that provide for
the elimination of certain personal liability of directors and for the
indemnification of directors, as well as to amend or repeal this 75% approval
requirement itself.
|
·
|
The
addition of a provision that sets forth the voting rights of the holders
of the Company's common stock that are now in effect, but are not included
in the charter.
|
|
·
|
An
increase in the number of shares of common stock the Company is authorized
to issue from 14 million shares to 19 million
shares.
|
|
·
|
The
charter currently provides that a director elected by the Board to fill a
vacancy on the Board serves for the unexpired term of the class of
directors to which the new director was elected. The amended
and restated charter provides that the new director serves only until the
next Annual Meeting of Stockholders at which directors are
elected.
|
|
·
|
The
addition of a provision that any increase in the limitation of the
personal liability of directors that arises from an amendment of Delaware
law automatically becomes applicable to the Company's
directors.
|
|
·
|
The
addition of a provision that any decrease or the elimination of the
limitation of the personal liability of directors or the indemnification
of directors by the Company will only have prospective
effect.
|
|
·
|
The
addition of a provision that indemnification by the Company will not be
available to a director for a settlement entered into by the director that
was not approved by the Company and will not be available to cover a
judicial award if the Corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of the
action.
|
|
·
|
The
charter currently give the Board of Directors the power to issue preferred
stock. The amended and restated charter gives the Board the
added power to amend the terms of already issued preferred stock subject
to any required approval of the holders of the preferred stock and
provides that if the number of shares of any series of preferred stock is
decreased, those shares resume the status they had before the adoption of
the resolution originally fixing the number of shares of the
series. There are currently no outstanding shares of preferred
stock.
|
|
·
|
The
elimination of the provision that requires the Company to maintain a
separate office as well as separate records and books of account from its
subsidiaries, and that prohibits the Company from commingling its assets
with those of another corporation, such as a
subsidiary.
|
|
·
|
Elimination
of a lengthy provision no longer needed relating to arrangements by the
Company with its creditors in the event of insolvency, bankruptcy and the
like.
|
|
·
|
Simplification
of the description of the purpose for which the Company was formed to
provide that the Company may engage in any activity that is lawful under
Delaware law.
|
|
·
|
The
updating of the address of the Company and its resident agent in Delaware
and the reformatting of the articles and sections of the
charter.
|
Effect of the
Amendments. The effect of the amendments as a whole will be to
give the holders of a simple majority of outstanding shares of common stock
greater power under the Company's charter than it now has. In
addition, the amended and restated charter provides for the increase in the
number of shares of common stock that the Company is authorized to issue as
described above. The issuance of additional shares of common stock
would have the effect of diluting the percentage ownership of current
stockholders of the Company. In addition, in the absence of a
proportionate increase in the Company’s earnings and book value, an increase in
the aggregate number of outstanding shares of common stock could dilute the
earnings per share and book value per share of currently outstanding shares of
common stock.
The
Board of Directors recommends that stockholders vote for the approval of the
Amended and Restated Certificate of Incorporation
THE AMENDMENT OF ARTICLE FOURTH OF THE CERTIFICATE OF INCORPORATION
(Proposal 3)
Adoption of the
Amendment. On March 13, 2008, the Board of Directors adopted,
subject to the approval of the stockholders, an amendment to Article FOURTH of
the Company's charter in order to increase the number of shares of common stock
the Company is authorized to issue from 14 million shares to 19 million
shares. Pursuant to Delaware law, the Board of Directors has declared
the amendment to Article FOURTH to be advisable. Approval of the
amendment requires the affirmative vote by the holders of a simple majority of
the outstanding shares of common stock.
The Relationship of this Proposal 3
to Proposal 2. The Board of Directors believes that the
increase in the number of authorized shares of common stock is of particular
importance. Since the amendment and restatement of the charter
requires a 75% stockholder vote, but the amendment to increase the number of
shares the Company is authorized to issue requires the approval of the holders
of only a simple majority of the outstanding shares of common stock, the Board
made the Article FOURTH amendment a separate proposal in the event the amendment
and restatement of the charter does not receive the required vote.
The text
of Article FOURTH as it is proposed to be amended is set forth in Exhibit B to this Proxy
Statement. The substance of the amendment is also contained in the
Amended and Restated Certificate of Incorporation, which is set forth in its
entirety in Exhibit A
to this Proxy Statement. As a result, if stockholders approve the
proposed amendment and restatement of the Company's charter described in
Proposal 2, the approval of the amendment to Article FOURTH will have no
additional effect on the charter.
If
stockholders do not approve the
proposed amendment and restatement of the Company's charter, but do approve the
amendment of Article FOURTH, that amendment will be the only change that is made
to the charter. The Article FOURTH amendment would become effective
upon the filing of a Certificate of Amendment with the Secretary of State of the
Sate of Delaware.
Reasons for the
Amendment. After deducting reserves for the issuance of common
stock under the Company's incentive stock plans, there remain only 10,000 shares
of common stock available for issuance. The Board of Directors
believes that an increase in the number of shares of common stock the Company is
authorized to issue is needed for several reasons. In order to make
the recent 1.84 million-share public offering, the Company reduced the reserve
for the issuance of shares under the Company's 2001 Stock Incentive Plan with
the result that only 83,736 shares are available for new stock option grants and
restricted stock awards. If the amendment is approved, the Board has
voted to restore the reserve for the 2001 Stock Incentive Plan to the level
previously approved by stockholders. Additional shares of common
stock may also be required to implement the Company's acquisition strategy,
which is described in the Company's Annual Report on Form 10-K accompanying this
Proxy Statement. By way of example, in the recent purchase of Road
and Highway Builders, LLC, or RHB, a portion of the purchase price was paid by
the issuance of shares to one of the sellers, who is the current Chief Executive
Officer of RHB, thereby giving him increased incentive to contribute to the
success of the Company as a whole.
Effect of the
Amendment. The issuance by the Company of additional shares of
common stock would have the effect of diluting the percentage ownership of
current stockholders of the Company. In addition, in the absence of a
proportionate increase in the Company’s earnings and book value, an increase in
the aggregate number of outstanding shares of common stock could dilute the
earnings per share and book value per share of currently outstanding shares of
common stock.
The
Board of Directors recommends that stockholders vote for the approval of the
Amendment to Article FOURTH
RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM (Proposal 4)
The Audit
Committee has selected Grant Thornton LLP as the Company's independent
registered public accounting firm to perform the audit of the Company's
financial statements for 2008. Grant Thornton was also the Company's
independent registered public accounting firm for the year ended December 31,
2007.
The Board
is asking stockholders to approve the selection of Grant Thornton although
ratification is not required by law or by the Company's Bylaws. The
Board is submitting the selection of Grant Thornton for ratification as a matter
of good corporate practice. Whether stockholders ratify the selection
or not, the Audit Committee in its discretion may select an independent
registered public accounting firm at any time during the year if it determines
that to do so would be in the best interests of the Company and its
stockholders. There is additional information about Grant Thornton
under the heading Information
About Audit Fees and Audit Services, below.
The
Board of Directors recommends that stockholders vote for the ratification of the
selection of Grant Thornton LLP.
BOARD OPERATIONS
Communicating with the
Board. Interested persons wishing to communicate with the
Board about their concerns, questions or other matters may do so by U.S. Mail
addressed to: Board of Directors, ℅ The Secretary, Sterling Construction
Company, Inc., 20810 Fernbush Lane, Houston, TX 77073. The Secretary
will give these communications to the directors as received unless they are
voluminous, in which case the Secretary will summarize them and furnish the
summary to the directors instead.
Nomination of
Directors. The Board's Corporate Governance & Nominating
Committee has the responsibility, among others, to identify and nominate
qualified candidates for election to the Board. The Committee has
nominated Messrs. Manning and Harper for re-election to the Board as Class I
directors. Their current term of office expires at the Annual
Meeting. The term of Class II directors expires at the Annual Meeting
of Stockholders in 2009, and the term of Class III directors expires at the
Annual Meeting of Stockholders in 2010. Information about the
background of the nominees is set forth above in the section entitled Background of Nominees under
the heading Election of
Directors (Proposal 1).
The
Corporate Governance & Nominating Committee seeks to achieve a Board that is
composed of individuals who have experience relevant to the needs of the Company
and who have a high level of professional and personal ethics. The Committee
looks for candidates with business experience in the construction industry
and/or with engineering, financial reporting, investment, corporate governance,
senior management or other skills and experience that can contribute to an
effective Board. Candidates are expected to be committed to enhancing
stockholder value and to have sufficient time to carry out the duties of a
director and member of one or more Board committees. The Corporate
Governance & Nominating Committee has not specified any minimum
qualifications for serving on the Board.
The
Committee uses a variety of methods for identifying and evaluating nominees for
director. Candidates may come to the attention of the Committee
through current members of the Board, Company employees, professional search
firms, stockholders and other persons, but in any event, the Committee requires
and checks multiple references before nominating a candidate for election to the
Board.
The
Committee has not established a policy regarding the consideration of director
candidates recommended by stockholders primarily because the Company has not
received recommendations of that kind for more than the last ten
years. If a stockholder wishes to recommend a person as a director
candidate, the stockholder may follow the procedure for communicating with the
Board that is described above in this section under the heading Communicating with the
Board. Recommendations of candidates for nomination for the
2009 Annual Meeting of Stockholders must be received by the date set forth below
under the heading Submission
of Stockholder Proposals.
Directors' Attendance
at Meetings in 2007. The Board held nine meetings during
2007. Mr. Mills did not attend three of those
meetings. During 2007, each of the other directors attended more than
75% of the meetings of the Board while he was a director, as well as more than
85% of the meetings of committees of the Board on which he
served. All directors attended last year’s Annual Meeting of
Stockholders. The Company's policy is to schedule the Annual Meeting
of Stockholders to coincide with a regular Board meeting so that directors can
attend the Annual Meeting without the Company incurring extra travel and related
expenses.
Committees of the
Board. The Board has three standing committees, the Audit
Committee, the Compensation Committee and the Corporate Governance &
Nominating Committee.
The Audit Committee. The members of
the Audit Committee are John D. Abernathy,
Chairman, Milton L. Scott, David R. A. Steadman and since May 2007, Donald P.
Fusilli, Jr.. The Board has determined that Messrs. Abernathy and
Scott are Audit Committee Financial Experts based on the definition of that term
contained in applicable regulations. Their backgrounds are described
above in Background of
Continuing Directors under the heading Election of Directors (Proposal 1).
The Audit Committee meets at least quarterly and held seven meetings in
2007. The Audit Committee has a charter that is posted on the
Company's website at www.sterlingconstructionco.com.
The Audit
Committee assists the Board in fulfilling its responsibility to oversee the
Company's accounting and financial reporting processes and the audits by the
Company's independent registered public accounting firm (referred to in the
policy as the independent auditors.) In particular, the Audit
Committee has the responsibility to —
|
·
|
Review
financial reports and other financial information, internal accounting and
financial controls, controls and procedures relating to public disclosure
of information, and the audit of the Company's financial statements by the
Company's independent auditors;
|
|
·
|
Appoint
independent auditors, approve their compensation, supervise their work,
oversee their independence and evaluate their qualifications and
performance;
|
|
·
|
Review
with management and the independent auditors the audited and interim
financial statements that are included in filings with the
SEC;
|
|
·
|
Review
the quality of the Company's accounting
policies;
|
|
·
|
Review
with management major financial risk
exposures;
|
|
·
|
Review
all proposed transactions between the Company and related parties in which
the amount involved exceeds $50,000;
and
|
|
·
|
Provide
for the confidential, anonymous submission by employees and others of
concerns regarding questionable accounting or auditing
matters.
|
The Audit Committee Report.
In
fulfillment of its responsibilities, the Audit Committee has reviewed, and met
and discussed with management and the Company's independent registered public
accounting firm the Company's 2007 audited consolidated financial
statements. The Audit Committee has discussed with the Company's
independent registered public accounting firm the matters required to be
discussed by Statement on Accounting Standards No. 61 Communication with Audit
Committees. In addition, the Audit Committee has received from
the Company's independent registered public accounting firm the written
disclosures and the letter required by Independence Standards Board Standard No.
1 Independence Discussions
with Audit Committees and discussed with them their independence from the
Company and its management.
In
reliance on the reviews and discussions described above, the Audit Committee
recommended to the Board, and the Board has approved, the inclusion of the
Company's audited consolidated financial statements in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007 for filing with the
SEC.
Submitted
by the members of the Audit Committee on April 3, 2008
John D.
Abernathy, Chairman
Donald P.
Fusilli, Jr.
Milton L.
Scott
David R.
A. Steadman
The Compensation Committee. The members of
the Compensation Committee are Robert W. Frickel, Chairman, John D. Abernathy
and Donald P. Fusilli, Jr. (since May 2007). The Compensation
Committee held nine meetings in 2007. The Compensation Committee has
a charter that is posted on the Company's website at www.sterlingconstructionco.com.
The
Compensation Committee oversees senior-level compensation arrangements and has
particular responsibility to —
|
·
|
Review
and approve any corporate goals and objectives relating to the
compensation of the Company's chief executive officer; chief financial and
other executive officers;
|
|
·
|
Evaluate
performance of the Company's chief executive officer; chief financial and
other executive officers in light of those corporate goals and
objectives;
|
|
·
|
Either
as a committee or together with the other independent directors (as
directed by the Board), determine and approve the compensation of
Company's chief executive officer; chief financial and other executive
officers, and together with the boards of directors of the Company's
subsidiaries, to determine and approve the compensation of their senior
officers;
|
|
·
|
Either
as a committee or together with the other independent directors (as
directed by the Board), review and approve any employment agreements,
severance arrangements, change-in-control arrangements or special or
supplemental employee benefits, and any material amendments to the
foregoing, that are applicable to senior officers of the Company and,
together with the boards of directors of the Company's subsidiaries, that
are applicable to their senior
officers;
|
|
·
|
Either
as a committee or together with the other independent directors (as
directed by the Board), administer the Company's stock plans and make
grants of stock options and other awards as provided in those
plans;
|
|
·
|
Make
recommendations to the Board regarding incentive compensation plans and
equity-based plans for other senior officers and those of the Company's
subsidiaries;
|
|
·
|
Advise
the Corporate Governance & Nominating Committee on the compensation of
directors, including the chairman of the board and the chairpersons of the
committees of the Board; and
|
|
·
|
Make
a recommendation to the Board of Directors as to the inclusion of the
Compensation Discussion and Analysis in SEC
filings.
|
The scope
of the Committee's authority is described above. In exercising its
authority and carrying out its responsibilities, the Committee meets to discuss
proposed salaries and cash and equity incentive awards based on information
circulated in advance of the meeting by the Chairman of the
Committee. This information may include salaries of comparable
officers in comparable companies in the construction industry and the Company's
financial results for the year on which incentive awards are
based. The Committee may not delegate any of its responsibilities,
but may share them with other independent directors as described above in the
summary of its responsibilities. The Committee discusses an executive
officer's compensation in advance of making a decision on it. For a
description of the compensation of executives of the Company, see the
information below under the heading Executive
Compensation.
Compensation Committee Interlocks and Insider
Participation.
During
2007, Robert W. Frickel (Chairman), John D. Abernathy, Donald P. Fusilli, Jr.
(since May 2007) and Milton L. Scott (until May 2007) served on the Compensation
Committee. None of these Compensation Committee members is or has
been an officer or employee of the Company. Mr. Frickel is President
of R.W. Frickel Company, P.C., an accounting firm that performs certain
accounting and tax services for the Company. In 2007, the Company
paid or accrued for payment to R.W. Frickel Company approximately $63,580 in
fees. The Company estimates that during 2008, the fees of R.W.
Frickel Company will be approximately the same as in 2007.
None of
the Company's executive officers served as a director or member of the
compensation committee, or any other committee serving an equivalent function,
of any other entity that has an executive officer who is serving or during 2007
served as a director or member of the Compensation Committee of the
Company.
The Compensation Committee Report.
The
Compensation Committee of the Board of Directors has reviewed and discussed with
management the Compensation
Discussion and Analysis set forth below under the heading
Executive
Compensation. Based on that review and those discussions, the
Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in the Company's Annual Report
on Form 10-K and in this Proxy Statement.
Submitted
by the members of the Compensation Committee on April 3, 2008
Robert W.
Frickel, Chairman
John D.
Abernathy
Donald P.
Fusilli, Jr.
The Corporate Governance & Nominating Committee. The
members of the Corporate Governance & Nominating Committee are David R. A.
Steadman, Chairman, Robert W. Frickel and Milton L. Scott. The
Corporate Governance & Nominating Committee held four meetings in
2007. The Corporate Governance & Nominating Committee has a
charter that is posted on the Company's website at www.sterlingconstructionco.com.
The
Corporate Governance & Nominating Committee assists the Board in fulfilling
its responsibility for corporate governance and in particular has the
responsibility to —
|
·
|
Develop
and recommend to the Board appropriate corporate governance principles and
rules;
|
|
·
|
Recommend
appropriate policies and procedures to ensure the effective functioning of
the Board;
|
|
·
|
Identify
and nominate qualified candidates for election to the Board and its
committees;
|
|
·
|
Recommend
directors for membership on Board
committees;
|
|
·
|
Develop
and make recommendations to the Board regarding standards and processes
for determining the independence of directors under applicable laws, rules
and regulations;
|
|
·
|
Develop
and oversee the operation of an orientation program for new directors and
determine whether and what form and level of continuing education for
directors is appropriate;
|
|
·
|
Periodically
review the Company's Code of Business Conduct & Ethics and its Insider
Trading Policy to ensure that they remain responsive both to legal
requirements and to the nature and size of the business;
and
|
|
·
|
With
the advice of the Chairman of the Compensation Committee, make
recommendations to the Board of Directors for the remuneration for
non-employee directors and for committee members and committee
chairpersons.
|
Compensation of
Directors.
The
Company does not pay additional compensation for serving on the Board of
Directors to directors who are employees of the Company, namely Messrs. Manning,
Harper and through October 2007, Mr. Hemsley. The following
table contains information concerning the compensation paid for 2007 to
non-employee directors. All dollar numbers are rounded to the nearest
dollar.
| Name |
Fees
Earned
or
Paid in
Cash
($)
|
Stock
Awards
(1)(3)
($)
|
Total(2)
($)
|
|||||||||
|
John
D. Abernathy (Lead director)
Chairman
of the Audit Committee
Member
of the Compensation Committee
|
$ | 33,300 | $ | 35,000 | $ | 68,300 | ||||||
|
Robert
W. Frickel
Chairman
of the Compensation Committee
Member
of the Corporate Governance & Nominating Committee
|
$ | 21,700 | $ | 35,000 | $ | 56,700 | ||||||
|
Donald
P. Fusilli, Jr.
Member of the Audit
Committee
Member
of the Compensation Committee
|
$ | 17,350 | $ | 35,000 | $ | 52,350 | ||||||
|
Maarten
D. Hemsley (for November and December 2007)
|
$ | 5,550 | — | $ | 5,550 | |||||||
|
Christopher
H. B. Mills
|
$ | 12,600 | $ | 35,000 | $ | 47,600 | ||||||
|
Milton
L. Scott
Member
of the Audit Committee
Member of the Corporate
Governance & Nominating Committee
|
$ | 23,400 | $ | 35,000 | $ | 58,400 | ||||||
|
David
R. A. Steadman
Chairman
of the Corporate Governance & Nominating Committee
Member of the Audit
Committee
|
$ | 24,600 | $ | 35,000 | $ | 59,600 | ||||||
|
(1)
|
The
aggregate value of these restricted stock awards was $210,000, including
$140,000 recognized in 2007 for financial reporting purposes in accordance
with FAS 123R. No amounts earned by a director have been
capitalized on the balance sheet for 2007. The cost does not
reflect any estimates made for financial statement reporting purposes of
future forfeitures related to service-based vesting
conditions. The valuation of the awards was made on the equity
valuation assumptions described in Note 8 of Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K, which
accompanies this Proxy Statement. None of the awards has been
forfeited to date.
|
|
(2)
|
During
2007, none of the non-employee directors received any other compensation
for any service provided to the Company. All directors are
reimbursed for their reasonable out-of-pocket expenses incurred in
attending meetings of the Board and Board committees. Directors
living outside of North America, currently only Mr. Mills, have the
option of attending regularly-scheduled in-person meetings by telephone,
and if they choose to do so, they are paid an attendance fee as if they
had attended in person.
|
|
(3)
|
The
following table shows for each non-employee director the grant date fair
value of each stock award that has been expensed, the aggregate number of
shares of stock awarded, and the number of shares underlying stock options
that were outstanding on December 31,
2007.
|
|
Name
|
Grant
Date
|
Securities Underlying Option
Awards Outstanding
at December 31, 2007
(#)
|
Aggregate Stock Awards
Outstanding
at December 31, 2007
(#)
|
Grant Date Fair
Value of Stock
and
Option Awards
($)
|
|||||||||
|
John
D. Abernathy
|
5/1/1998
|
3,000 | † | ||||||||||
|
5/1/1999
|
3,000 | † | |||||||||||
|
5/1/2000
|
3,000 | † | |||||||||||
|
5/1/2001
|
1,166 | † | |||||||||||
|
7/23/2001
|
12,000 | 57,600 | |||||||||||
|
5/19/2005
|
5,000 | 27,950 | |||||||||||
|
5/7/2007
|
1,598 | 35,000 | |||||||||||
|
Total
|
27,166 | 1,598 | N/A | ||||||||||
|
Name
|
Grant
Date
|
Securities Underlying Option
Awards Outstanding
at December 31, 2007
(#)
|
Aggregate Stock Awards
Outstanding
at December 31, 2007
(#)
|
Grant Date Fair
Value of Stock
and
Option Awards
($)
|
|||||||||
|
Robert
W. Frickel
|
7/23/2001
|
12,000 | 57,600 | ||||||||||
|
5/19/2005
|
5,000 | 27,950 | |||||||||||
|
5/7/2007
|
1,598 | 35,000 | |||||||||||
|
Total
|
17,000 | 1,598 | 120,550 | ||||||||||
|
Donald
P. Fusilli, Jr.
|
5/7/2007
|
— | 1,598 | 35,000 | |||||||||
|
Maarten
D. Hemsley
|
7/18/2007
|
2,800 | 27,640 | ||||||||||
|
7/18/2006
|
2,800 | 45,917 | |||||||||||
|
7/18/2005
|
2,800 | 17,534 | |||||||||||
|
8/12/2004
|
5,000 | 12,762 | |||||||||||
|
1/13/1998
|
75,000 | † | |||||||||||
|
Total
|
88,400 | N/A | |||||||||||
|
Christopher
H. B. Mills
|
5/19/2005
|
5,000 | 27,950 | ||||||||||
|
5/7/2007
|
1,598 | 35,000 | |||||||||||
|
Total
|
5,000 | 1,598 | 62,950 | ||||||||||
|
Milton
L. Scott
|
5/7/2007
|
1,598 | 35,000 | ||||||||||
|
David
R. A. Steadman
|
5/19/2005
|
5,000 | 27,950 | ||||||||||
|
5/7/2007
|
1,598 | 35,000 | |||||||||||
|
Total
|
5,000 | 1,598 | 62,950 | ||||||||||
|
†
|
These
options were not expensed
|
Standard Director
Compensation Arrangements. The following table shows the
standard compensation arrangements for non-employee directors that were adopted
by the Corporate Governance & Nominating Committee of the Board on May 10,
2006.
Annual
Fees
|
Annual
Fees
|
Each
Non-Employee Director
|
|||
| $ | 7,500 | |||
An award
(on the date of each
Annual
Meeting of Stockholders) of restricted stock that has an
accounting
income charge under FAS 123R of $35,000 per grant.*
|
Additional
Annual Fees for Committee Chairmen
|
||||
|
Chairman
of the Audit Committee
|
$ | 7,500 | ||
|
Chairman
of the Compensation Committee
|
$ | 2,500 | ||
|
Chairman
of the Corporate Governance & Nominating Committee
|
$ | 2,500 | ||
|
Meeting
Fees
|
||||
|
In-Person
Meetings
|
Per
Director, Per Meeting
|
|||
|
Board Meetings
|
$ | 1,500 | ||
|
Committee Meetings
|
||||
|
Audit Committee
Meetings
|
||||
|
on
the same day as a Board meeting
|
$ | 1,000 | ||
|
on
a day other than a Board meeting day
|
$ | 1,500 | ||
|
Other Committee
Meetings
|
||||
|
on
the same day as a Board meeting
|
$ | 500 | ||
|
on
a day other than a Board meeting day
|
$ | 750 | ||
|
Telephonic Meetings (Board & committee
meetings)
|
||||
|
One hour or
longer
|
$ | 1,000 | ||
|
Less than one
hour
|
$ | 300 | ||
|
|
*
|
The
shares awarded are restricted because they may not be sold, assigned,
transferred, pledged or otherwise disposed of until the restrictions
expire. The restrictions for the award made on May 7, 2007
expire on the day before the 2008 Annual Meeting of Stockholders, but
earlier if the director dies or becomes disabled or if there is a change
in control of the Company. The shares are forfeited if before
the restrictions expire, the director ceases to be a director other than
because of his death or disability.
|
STOCK OWNERSHIP INFORMATION
Security Ownership of
Certain Beneficial Owners and Management.
The
following table sets forth certain information at February 15, 2008 about the
beneficial ownership of shares of the Company's common stock by each person or
entity known to the Company to own beneficially more than 5% of the outstanding
shares of common stock; by each director; by each executive officer named below
in the section entitled Summary Compensation Table for
2007; and by all directors and executive officers as a
group. The Company has no other class of equity securities
outstanding.
Based on
information furnished by the beneficial owners, the Company believes that those
owners have sole investment and voting power over the shares of common stock
shown as beneficially owned by them, except as stated otherwise in the footnotes
to the table.
Rule
13d-3(d)(1) of the Securities Exchange Act of 1934 requires that the percentages
listed in the following table assume for each person or group the acquisition of
all shares that the person or group can acquire within sixty days of February
15, 2008, for instance by the exercise of a stock option, but not the
acquisition of the shares that can be acquired in that period by any other
person or group listed.
Except
for Mr. Mills and the entities listed below, the address of each person is the
address of the Company.
|
Name and Address of Beneficial
Owner
|
Number of
Outstanding
Shares of
Common Stock
Owned
|
Shares Subject
to
Purchase*
|
Total
Beneficial
Ownership
|
Percent
of Class
|
||||||||||||
|
North
Atlantic Smaller Companies Investment Trust plc (or NASCIT)
℅ North
Atlantic Value LLP, Ryder Court, 14 Ryder Street,
London
SW1Y 6QB, England
|
500,000 | (1) | — | 500,000 | 3.82 | % | ||||||||||
|
North
Atlantic Value LLP (or NAV)
Ryder
Court, 14 Ryder Street,
London
SW1Y 6QB, England
|
500,000 | (1) | — | 500,000 | 3.82 | % | ||||||||||
|
John
D. Abernathy
|
29,801 | (2) | 27,166 | 56,967 | † | |||||||||||
|
Name and Address of Beneficial
Owner
|
Number of
Outstanding
Shares of
Common Stock
Owned
|
Shares Subject
to
Purchase*
|
Total
Beneficial
Ownership
|
Percent
of Class
|
||||||||||||
|
Robert
W. Frickel
|
64,805 | (2) | 17,000 | 81,805 | † | |||||||||||
|
Donald
P. Fusilli, Jr.
|
1,598 | (2) | — | 1,598 | † | |||||||||||
|
Joseph
P. Harper, Sr.
|
550,141 | (3) | 172,574 | 722,715 | 4.20 | % | ||||||||||
|
Maarten
D. Hemsley
|
246,924 | (4) | 88,400 | 335,324 | 2.08 | % | ||||||||||
|
Patrick
T. Manning
|
132,500 | (5) | 65,120 | 197,620 | 1.01 | % | ||||||||||
|
Christopher
H. B. Mills
℅
North Atlantic Value LLP, Ryder Court, 14 Ryder Street,
London
SW1Y 6QB, England
|
514,805 | (2)(6) | 5,000 | 519,805 | 3.93 | % | ||||||||||
|
Milton
L. Scott
|
2,805 | (2) | — | 2,805 | † | |||||||||||
|
David
R. A. Steadman
|
16,805 | (2) | 5,000 | 21,805 | † | |||||||||||
|
All
directors and executive officers as a group (10 persons)
|
1,573,047 | (7) | 382,780 | (7) | 1,955827 | (7) | 14.57 | % | ||||||||
|
*
|
These
are the shares that the entity or person can acquire within sixty days of
February 15, 2008.
|
|
†
|
Less
than one percent.
|
|
(1)
|
According
to a Form 13G/A (Amendment No. 4) filed with the Securities and Exchange
Commission on February 7, 2008, each of NASCIT, NAV and Mr. Mills have
shared voting and investment power over these
shares.
|
|
(2)
|
This
number includes, or in the case of Mr. Fusilli, consists entirely of,
1,598 restricted shares awarded to non-employee directors described above
in footnote (1) to the table of directors' compensation in 2007 under the
heading Compensation of
Directors. The restrictions expire on the day preceding
the 2008 Annual Meeting of Stockholders, but earlier if the director dies
or becomes disabled or if there is a change in control of the
Company. The shares are forfeited before the expiration of the
restrictions if the director ceases to be a director other than because of
his death or disability.
|
|
(3)
|
This
number includes 8,000 shares held by Mr. Harper as custodian for his
grandchildren.
|
|
(4)
|
This
number includes 10,000 shares owned by the Maarten and Mavis Hemsley
Family Foundation as to which Mr. Hemsley has shared voting and investment
power with his wife and two
daughters.
|
|
(5)
|
Of
these shares 100,000 have been pledged to Mr. Manning's broker to secure a
line of credit with the broker of up to $1.5
million.
|
|
(6)
|
This
number consists of the 500,000 shares owned by NASCIT; 13,207 shares owned
by Mr. Mills personally over which he claims sole voting and investment
power; and the 1,598 restricted shares the Company awarded to each
non-employee director described above in footnote
(2).
|
|
(7)
|
See
the footnotes above for a description of certain of the shares included in
this total.
|
Section 16(a)
Beneficial Ownership Reporting Compliance.
Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
persons who own more than 10% of the Company’s equity securities, or insiders,
to file with the Securities and Exchange Commission (SEC) reports of beneficial
ownership of those securities and certain changes in beneficial ownership on
Forms 3, 4 and 5, and to give the Company a copy of those reports.
Based
solely upon a review of Forms 3 and 4 and amendments to them furnished to the
Company during 2007, any Forms 5 and amendments to them furnished to the Company
relating to 2007, and any written representations that no Form 5 is required,
all Section 16(a) filing requirements applicable to the Company’s insiders were
satisfied except as follows:
Mr.
Fusilli failed to timely file a Form 3, which was required by his election as a
director of the Company on March 14, 2007. His Form 3 was filed with
the SEC on April 10, 2007.
In
September 2007, Mr. Hemsley failed to timely file a Form 4 covering sales on
September 10 and September 18, 2007 totaling 14,000 shares of the Company's
common stock. A Form 4 reporting those sales was filed with the SEC
on October 1, 2007.
In August
2007, Mr. Mills shared voting and investment power over 600,000 shares of the
Company's common stock with North Atlantic Smaller Companies Investment Trust
plc, or NASCIT, of which he is chief executive officer. Mr. Mills
failed to timely file a Form 4 covering sales by NASCIT on August 14, 2007
of 200 shares. A Form 4 reporting that sale was filed with the SEC on
August 21, 2007.
EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis.
Introduction. This discussion and
analysis of executive compensation is designed to show how and why the
compensation of the named executive officers was determined. Their
compensation is determined by the Compensation Committee of the Board of
Directors, or the Committee, whose members are three independent directors of
the Company.
During
the first half of 2007, the Company compensated Messrs. Manning and Harper under
three-year employment agreements that expired on July 18, 2007, referred to as
the prior agreements. During the second half of 2007, the Company
compensated Messrs. Manning and Harper under employment agreements entered into
as of July 19, 2007, referred to as the new agreements. The Company
hired Mr. Allen in July 2007 and has compensated him since then under the
terms of his employment agreement, which contains essentially the same basic
terms as those of Messrs. Manning and Harper except for compensation
levels.
Mr. Hemsley's
employment agreement was to expire on July 18, 2007 as well, but the Committee
extended its term through October 31, 2007 in order to provide a transition
period for Mr. Allen, who became Chief Financial Officer on August 10,
2007. Following the expiration of Mr. Hemsley's employment
agreement, he ceased to be an employee, but remains a director of the
Company.
Compensation
Objectives. The Committee's compensation objectives for each
of the named executive officers as well as for other management employees is to
provide the employee with a rate of pay for the work he does that is appropriate
in comparison to similar companies in the industry and that is considered fair
by the executive; to give the executive a significant incentive to make the
Company financially successful; and to give him an incentive to remain with the
Company.
Employment
Agreements. The Company believes that compensating an
executive under an employment agreement has the benefit of assuring the
executive of continuity, both as to his employment and the amounts and elements
of his compensation. At the same time, an employment agreement gives
the Company some assurance that the executive will remain with the Company for
the duration of the agreement and enables the Company to budget salary costs
over the term of the agreement. All elements of the compensation of
the named executive officers are paid according to the terms of their employment
agreements.
The Prior
Agreements. Under the prior agreements, executive compensation
has three main elements: a salary paid in cash, an annual cash incentive bonus,
in which payment is contingent on the Company's financial performance, and a
long-term equity element that the Company provides through the award of options
to purchase the Company's common stock.
Elements of
Compensation. Salary is intended to reward the executive for
his current, day-to-day work. The cash incentive bonus is intended to
be a reward for the executive's contribution to the financial success of the
Company in a given year. Awards of equity are intended to create a
longer-term incentive for the executive to remain with the Company because the
benefit is realized, if at all, over a multi-year period.
Compensation
Levels. The Committee based the salary levels under the prior
agreements primarily on the executive's prior salary and his level of
responsibility in the Company. Before entering into the prior
agreements, the Committee made a relatively informal review of
publicly-available industry trade publications to ensure that the executives'
compensation fell within the range of comparable companies, both as to salary
and as to incentive compensation.
The
amount of the cash incentive bonus for Messrs. Manning, Harper and Hemsley under
the prior agreements is based on the annual budgeted earnings before payment of
interest charges, taxes, and charges for depreciation and amortization, referred
to as EBITDA, and the extent to which the budget is achieved or
exceeded.
EBITDA is
defined as annual net income determined in accordance with generally accepted
accounting principles —
|
|
Plus
|
Interest
expense for the period;
|
|
|
Plus
|
Depreciation
and amortization expense for the
period;
|
|
|
Plus
|
Federal
and state income tax expense incurred for the
period;
|
|
|
Plus
|
Extraordinary
items (to the extent negative) if any, for the
period;
|
|
|
Plus
|
Any
and all fees paid to Menai Capital, LLC, and any fees paid to non-employee
directors;
|
|
|
Plus
|
Any
and all parent-company charges for corporate overhead or similar
non-operating charges;
|
|
Minus
|
Extraordinary
items (to the extent positive) if any;
and
|
|
Minus
|
Interest
income for the period.
|
In the
case of Messrs. Manning and Harper, the EBITDA of the Company's operating
subsidiary Texas Sterling Construction Co., or TSC, is used, and in the case of
Mr. Hemsley, the EBITDA of the Company on a consolidated basis is
used. The budgeted EBITDA for each year must have been approved by
the Board of Directors, which has a majority of directors who are not employees
of the Company. The cash incentive bonus plan does not have any
portion based on the executive's achievement of personal goals or
objectives.
For
Messrs. Manning and Harper, the cash incentive bonus plan has a discretionary
element that comes into effect if EBITDA exceeds a predetermined percentage of
budgeted EBITDA. In exercising this discretion, members of the
Committee use their personal judgment of appropriate amounts after taking into
account information about the executive's work during the year, his past
compensation, his perceived contribution to the Company generally, his level of
responsibility, and any notable individual achievements or failings in the year
in question.
For
Mr. Hemsley, any additional cash incentive bonus above that earned upon the
achievement of the budgeted EBITDA target is in the discretion of the
Committee. In exercising its discretion, the Committee takes into
account the Company's consolidated financial results, the number of non-routine
business transactions to which Mr. Hemsley devoted substantial time during
the year and any other matters the Committee deems relevant.
The
Committee believes that the award of an option to buy the Company's common stock
is a long-term element of compensation because on the date of the award, the
exercise price, or purchase price, of the shares subject to the option is the
same as the price of those shares on the open market. Since the
recipient of a stock option will only realize its value if the market price of
the shares increases over the life of the option, the award gives the executive
an incentive to remain with the Company.
When the
prior employment agreements of Messrs. Manning and Harper were negotiated in
July 2004, they each agreed to accept stock option awards over the life of the
agreement in place of a portion of their salary to save the Company
cash. To accomplish this, the prior agreements provide for annual
stock option awards that are larger than would otherwise have been
made.
Under the
prior agreements, the Company paid Messrs. Manning and Harper car allowances to
reflect the fact that they use their own automobiles for business purposes, such
as visiting construction sites, attending meetings with customers and providing
transportation to out-of-town business colleagues. The Company paid
their country club dues because the clubs are often used for business purposes
and as accommodation for out-of-town business colleagues. The payment
of Mr. Hemsley's term life insurance and long-term disability insurance
premiums is a benefit that the Company has provided to him for many years and
was continued because of that fact.
The New
Agreements. In anticipation of the expiration of the prior
agreements, in May 2007, the Committee began a discussion of new employment
agreements for Messrs. Manning and Harper.
The
Committee's starting point was a written salary and cash incentive bonus
proposal from Messrs. Manning and Harper for themselves and for the five senior
managers of TSC. In connection with the proposal, Messrs. Manning and
Harper stressed the importance of a team approach to compensation, which is
designed to avoid the disruptive influence of variations in compensation levels
between managers of equal importance and responsibility. The
Committee discussed management's proposal in the course of several
meetings. No member of senior management, including Messrs Manning or
Harper, was present at any of the Committee's deliberations and
discussions.
Compensation Principles and
Policies. In the course of their discussions, members of the
Committee came to a consensus on the following general compensation principles
as a guide for their further discussion of the compensation of Messrs. Manning,
Harper and Allen as well as of the five senior managers of TSC:
|
·
|
Compensation
should consist of two main elements, base salary and cash incentive bonus
for the reasons discussed above.
|
|
·
|
Equity
compensation should not be an element of compensation for executives who
already hold a substantial number of shares of the Company's common stock
or options to purchase a substantial number of shares of common stock, or
both.
|
|
·
|
The
cash incentive bonus element of compensation should be divided into two
parts: one part, 60%, of the incentive bonus based on the achievement by
the Company, on a consolidated basis, of financial goals, and the other
part, 40%, based on the achievement by the executive of personal goals and
objectives to be established annually by the Committee in consultation
with the executive.
|
|
·
|
Perquisites
such as car allowances, reimbursement of club dues and the like should not
be an element of compensation because salaries are designed to be
sufficient for the executive to pay these items
personally.
|
|
·
|
The
Committee should determine at the end of each year the extent to which
each of Messrs. Manning, Harper and Allen have achieved his personal goals
as provided in the committee’s
charter.
|
|
·
|
In
determining individual compensation levels, the Committee should take into
account, among other things, the
following:
|
|
|
o
|
The
elimination of stock options as an element of compensation (except for
Mr. Allen, who is a new
employee.)
|
|
|
o
|
The
executives' existing salaries.
|
|
|
o
|
Salaries
of comparable executives in the
industry.
|
|
|
o
|
Wage
inflation from 2004 through 2007, to the extent
applicable.
|
|
|
o
|
The
Company's growth since July 2004 when the prior agreements became
effective and the resulting increase in senior management
responsibilities.
|
|
|
o
|
The
total amount that is appropriate for the Company to allocate to the
compensation of all seven members of the Company's senior management given
the Company's size and industry.
|
|
|
o
|
The
elimination of perquisites.
|
Compensation
Consultant. To assist them in evaluating management's proposed
salary and bonus structure, in May 2007, the Committee authorized its Chairman
to retain the services of Hay Group, a large firm that performs a number of
consulting services, including the benchmarking of executive
compensation. The Committee's Chairman instructed Hay Group to
prepare an analysis of the levels of compensation payable under the prior
agreements to Messrs. Manning, Harper and the five senior managers of TSC, and
to compare them to a representative group of similar
companies. Mr. Allen joined the Company in July 2007 just before
Hay Group's report was finished and as a result, its analysis did not cover his
compensation.
The peer
group was selected by Hay Group in consultation with the Chairman of the
Committee and Messrs. Manning and Harper. The peer group consisted of
eight engineering and construction companies with 2006 revenues of between $85
million and $651 million. The following is a list of companies in the
peer group:
Devcon
International Corp.
Furmanite
Corporation
Modtech
Holdings Inc.
Meadow
Valley Corporation
SPARTA,
Inc. (Delaware)
Great
Lakes Dredge & Dock Company
Insituform
Technologies Inc.
Michael Baker Corporation
The
Committee determined that although these companies are in different areas of the
construction and engineering industry, they present an appropriate range in size
and types of construction-related businesses to which to compare the
Company.
After
distributing its report to members of the Committee, two representatives of Hay
Group reviewed its findings in detail at a meeting of the Committee held at the
end of July 2007. Hay Group performed no other services for the
Committee. Because of the work it did for the Committee, the
Corporate Governance & Nominating Committee retained Hay Group to do a
similar analysis and report on non-employee director compensation.
The
following is a summary of the Hay Group's Executive Compensation
Report:
|
·
|
Except
for net income, the Company is at or about the median of the peer group in
sales, assets, market capitalization and number of
employees. In total shareholder return, growth in income before
interest and taxes, and return on investment, the Company is ahead of the
peer group.
|
|
·
|
The
Company's 2006 net income was above the peer group and its stockholders'
equity was 135% of the peer-group
median.
|
|
·
|
Using
the peer group, the base salaries of Messrs. Manning and Harper under the
prior agreements were 64% and 81%, of the median, respectively; the sum of
their base salaries and annual incentive awards were 130% and 150% of the
median, respectively; and their total direct compensation (which includes
equity compensation) was 86% and 93% of the median,
respectively.
|
|
·
|
Using Hay Group's so called
national general industry database updated to July 2007, the prior
agreements' base salaries of Messrs. Manning and Harper were below the
median, 91% and 81% respectively, but their total cash compensation was
above the median, 144% and 132%,
respectively.
|
These
numbers demonstrated to the Committee that it is the financial success of the
Company that causes the total compensation of Messrs. Manning and Harper to be
above the median.
Compensation
Levels. It was the consensus of the Committee that both the
salary and cash incentive bonus levels of Messrs. Manning and Harper should be
significantly above the peer-group median to reflect the following:
|
·
|
The
Company's excellent, above-median performance in net income and
stockholders' equity;
|
|
·
|
The
growth of the Company since 2004 and the resulting increase in the
complexity of the business; and
|
|
·
|
The elimination of equity
as an element of compensation.
|
To
account for the elimination of long-standing perquisites, the Committee added
$25,000 to the proposed base salaries of both executives. In
addition, the Committee took into account the fact that under the accounting
rules of FAS 123R, the elimination of equity compensation causes the proposed
$3.41 million of total compensation for the seven-person management group
consisting of Messrs. Manning, Harper and the five TSC senior managers, to be
below the total of prior years.
Because
of management's expressed desire for a team concept of compensation, the
Committee agreed with Messrs. Manning's and Harper's proposal that their
salaries and cash incentive bonuses be the same, reflecting their belief that
each has different but equal levels of responsibility and
expertise.
The
Committee determined that performance-based compensation should be approximately
equal to base salary after disregarding the $25,000 that represents the
elimination of perquisites. In the case of Mr. Allen, his
performance-based compensation when combined with his equity compensation is
approximately 60% of his base salary.
As noted
above, Mr. Allen's compensation was not a subject of Hay Group's report
because he joined the Company just before the report was
presented. The Committee established his salary based on a number of
factors, including Mr. Allen's thirty years of experience in Houston with a
major public accounting firm, including nineteen years of concentration in the
construction industry; his financial and business experience; the compensation
package requested by Mr. Allen; and Committee members' own judgment of what
are reasonable levels of compensation. The Committee granted him the
stock option described above so that like other members of senior management, he
would have a long-term equity interest in the Company. The Committee
determined that Mr. Allen would be compensated under the same form of
employment agreement as the one eventually agreed upon with Messrs. Manning and
Harper.
Cash Incentive Bonus
Performance Goals. The Committee's first inclination was to
have cash incentive bonuses tied solely to a financial measurement found in the
Company's annual financial statements. Mr. Harper advised the
Committee that EBITDA was used in the past as a measure of financial performance
because it was the number on which management believes that its performance has
the most direct effect. Mr. Harper also noted that the threshold
for bonus achievement was 75% instead of 100% of budgeted EBITDA because base
salaries were set at a relatively low level, a fact supported by the Hay Group
report. The relatively easily achieved cash incentive bonus together
with base salary was intended to yield fair base compensation, but was also
intended to conserve cash by keeping salaries low in years in which the Company
had especially poor financial performance and did not even achieve 75% of
budgeted EBITDA.
The
Committee agreed to maintain this concept, but determined that it would be
better structured by revising the base salary arrangements. The
Committee divided base salary into two parts; the larger part to be paid in
periodic installments through the payroll system, or base payroll salary, and
the balance to be deferred (base deferred salary) to be paid in a lump sum after
year end only if 75% of budgeted EBITDA is achieved. EBITDA is
defined in the new agreements in the same way as in the prior agreements,
described above.
In
keeping with its principle of basing 60% of the cash incentive bonus on the
achievement of a financial measurement that can be determined by direct
reference to the Company's financial statements, the Committee decided to use
budgeted earnings-per-share in the belief that it is a measure that most
directly affects a stockholder's investment in the Company.
2007 Transition
Terms. The new agreements provide that the cash incentive
bonuses for 2007 under the prior agreements and the base deferred salaries under
the new agreements are to be prorated based on the number of days during 2007
that each agreement was in effect. In 2007, the Company achieved the
75% of budgeted EBITDA goal, so that each of Messrs. Manning and Harper earned a
portion of the cash incentive bonus provided for in the prior agreements and a
portion of the base deferred salary provided for under the new
agreements. No such transition terms are applicable to
Mr. Hemsley's bonus. Mr. Allen's base deferred salary is prorated
based on the number of days during 2007 that he was an employee.
The new
agreements also provide that cash incentive bonuses for 2007 will be based
solely on the terms of the new agreements. Although the new
employment agreements became effective as of July 19, 2007, they were not
completed and signed until early January 2008. As a result, no 2007
personal goals and objectives were established for Messrs. Manning, Harper or
Allen. In light of this, the Committee agreed that the award of any
or all of the portion of the cash incentive bonus (40%) that would have been
based on the achievement of 2007 personal goals and objectives would be solely
in the discretion of the Committee.
Termination
Events. The obligations of the Company under the new
employment agreements in the event of the termination of the employment of the
named executive officers or a change in control of the Company are described in
detail in the section entitled Potential Payments Upon Termination
and Change-in-Control, below.
The
Committee's principle in setting termination provisions was based on the belief
that absent a termination for cause, an employee should at least receive the
base deferred salary and cash incentive bonus that he would have earned had his
employment not terminated, prorated for the portion of the year that he was an
employee. The Committee made an exception to this in the event the
executive voluntarily resigns, in which case the Committee determined that
payment of any cash incentive bonus is not warranted because incentive bonuses
in part are designed to encourage the employee to remain in the Company's
employ.
In the
event that termination is by the Company without cause or because of an uncured
breach by the Company of the employment agreement, the executive should also
receive the benefit of his base salary for the balance of the term of the
agreement, but at least for twelve months.
The Committee did not believe that any
special payments should be made to executives in the event of a change in
control of the Company because the protections afforded by their employment
agreements against termination without cause are unaffected by a change in
control. The executives' stock options by their terms vest in full in
the event of a change in control. The acceleration of vesting is
based on the assumption that a change in control often results in a change in
senior management. Absent accelerated vesting, a termination without
cause after a change in control could unfairly reduce or eliminate the benefit
of a stock option depending on when the change occurs. If the
executive is terminated for cause, all of the executives' stock options
immediately terminate.
2007 Cash Bonus and Incentive
Awards. In 2007, the Company achieved both its budgeted EBITDA
and its earnings-per-share goals. As a result, each of Messrs.
Manning and Harper became entitled to the prorated portion of his bonus under
the prior agreements and his base deferred salary under the new agreements as
well as 60% of the cash incentive bonus under the new agreements. In
the exercise of its discretion, the Committee in February, 2007 awarded each of
Messrs. Manning and Harper the entire 40% balance of their cash incentive
bonuses. Although Mr. Allen's employment agreement provides that for
2007 his maximum base deferred salary and cash incentive bonus are to be
prorated based on the 46% of the year in which he was an employee, the Committee
nevertheless awarded Mr. Allen two-thirds of his annual base deferred
salary and maximum cash incentive bonus.
In
exercising its discretion, the Committee took into account the following 2007
accomplishments by the Company, in each of which Messrs. Manning, Harper and
Allen played a significant role:
|
·
|
In
spite of adverse weather conditions in 2007, the achievement of budgeted
EBITDA and earnings per share
goals.
|
|
·
|
The
completion of a major acquisition
(RHB);
|
|
·
|
The
completion of a refinancing of the Company's revolving line of credit;
and
|
|
·
|
The completion of a public
offering of 1.8 million shares of the Company's common
stock.
|
The
Committee awarded Mr. Barzun a discretionary cash incentive bonus of
$75,000 based on the significant role he also played in the acquisition, the
refinancing and the public offering, all of those transactions being outside his
normal duties as General Counsel, and increased his annual salary to
$75,000.
Because
the Company in 2007 achieved 75% of EBITDA, the Committee awarded
Mr. Hemsley a cash incentive bonus of $50,000 as provided in his employment
agreement.
All cash
incentive bonuses, including base deferred salary payments for 2007, are more
fully described in the following sections:
|
·
|
Employment
Agreements of Named Executive
Officers
|
|
·
|
Summary
Compensation Table for 2007
|
|
·
|
Grants
of Plan-Based Awards for 2007
|
Employment Agreements of Named Executive Officers.
During
2007, Messrs. Manning, Harper and Hemsley were compensated under similar
employment agreements that expired on July 18, 2007 (the prior agreements)
except that in the case of Mr. Hemsley, the Compensation Committee, or the
Committee, extended the expiration date of his agreement through October 31,
2007, when he ceased to be an employee of the Company. Mr. Allen
became an employee of the Company on July 16, 2007 and was elected Senior Vice
President & Chief Financial Officer effective August 10, 2007.
Effective
July 2007, Messrs. Manning, Harper and Allen entered into new employment
agreements with the Company (the new employment agreements). In the
case of Messrs. Manning and Harper, the new agreements became effective with the
expiration of their prior agreements.
The Prior
Agreements. The following table describes the material
financial features of each of the prior employment agreements.
|
Mr. Manning
|
Mr. Harper
|
Mr. Hemsley
|
||||||||||
|
Base
Salary
|
$ | 240,000 | $ | 215,000 | $ | 135,000 | ||||||
|
Threshold Cash Incentive
Bonus(1)
|
$ | 125,000 | $ | 125,000 | $ | 50,000 | ||||||
|
Maximum Additional Cash
Incentive Bonus(1)
|
$ | 240,000 | $ | 215,000 | $ | 75,000 | ||||||
|
Annual Option Grant
(Shares)
(2)
|
10,000 | 10,000 | 2,800 | |||||||||
|
Vacation
Time
|
(3) | (3) |
Not
specified
|
|||||||||
|
Benefits Paid by the
Company(4)
|
||||||||||||
|
Car
Allowance
|
$700/month
|
$700/month
|
No
|
|||||||||
|
Country
Club Dues
|
Yes
|
Yes
|
No
|
|||||||||
|
Payment
of Commuting Expenses
|
Yes
|
Yes
|
No
|
|||||||||
|
Company-Paid
Long-Term Disability Insurance
|
No
|
No
|
$7,500/month
benefit
|
|||||||||
|
Company-Paid
Term Life Insurance
|
No
|
No
|
$100,000
death benefit
|
|||||||||
|
(1)
|
This
cash incentive bonus was based on the financial performance of TSC for
Messrs. Manning and Harper, and of the Company for Mr.
Hemsley. The calculation of the cash incentive bonus and the
additional cash incentive bonus is described below in footnote (1) to the
table of Grants of
Plan-Based Awards for 2007.
|
|
(2)
|
The
terms of these stock options are described below in footnote (2) to the
table of Grants of
Plan-Based Awards for 2007.
|
|
(3)
|
Mr.
Manning was entitled to eight weeks of vacation per year and Mr. Harper
was entitled to 18 weeks of vacation each year. Mr. Harper
could take additional vacation by forfeiting salary at the rate of $4,000
per week and he could forfeit his vacation time and be paid for it at the
rate of $4,000 per week.
|
|
(4)
|
For
the Company's cost of these benefits in 2007, see footnote (3) of the
Summary Compensation
Table for 2007, below.
|
The New
Agreements. The new employment agreements of Messrs. Manning,
Harper and Allen became effective in July 2007 and expire on December 31,
2010. The following table describes the material financial features
of each of the new employment agreements.
|
Mr. Manning
|
Mr. Harper
|
Mr. Allen
|
||||||||||
|
Base
Salary
|
$ | 365,000 | $ | 365,000 | $ | 250,000 | ||||||
|
Base
Deferred Salary
|
$ | 162,500 | $ | 162,500 | $ | 75,000 | ||||||
|
Mr. Manning
|
Mr. Harper
|
Mr. Allen
|
||||||||||
|
Maximum
Incentive Bonus
|
$ | 162,500 | $ | 162,500 | $ | 75,000 | ||||||
|
Equity
Compensation
|
None
|
None
|
13,707-share
stock option award (1)
|
|||||||||
|
Vacation
|
Discretionary
(2)
|
Discretionary
(2)
|
5
weeks
|
|||||||||
|
Benefits
Paid by the Company
|
None
|
None
|
None(3)
|
|||||||||
|
(1)
|
The
terms of this August 7, 2007 stock option are described below in the
section entitled Grants
of Plan-Based Awards for
2007.
|
|
(2)
|
The
executive is entitled to take so many days vacation per year as he
believes is appropriate in light of the needs of the
business.
|
|
(3)
|
When
he joined the Company, the Company, at Mr. Allen's request, agreed that he
would continue his then current health plan rather than participate in the
Company's health plan and would be reimbursed for up to $1,000 of the
monthly premiums. This arrangement is less expensive for the
Company than if Mr. Allen had joined the Company's health
plan.
|
Mr. Barzun's
Employment Agreement. Mr. Barzun's employment agreement became
effective in March 2006 and continues until terminated by the Company or by Mr.
Barzun. His base salary in 2007 under the terms of the employment
agreement was $62,500, subject to merit increases, and an annual cash incentive
bonus in the discretion of the Committee. Because he is a part-time
employee, there is no provision in his agreement for paid vacation
time.
All of
the foregoing agreements provide for the election of the executive to his
current positions with the Company. The new employment agreements of
Messrs. Manning, Harper and Allen provide that they may not compete with the
Company after termination of employment for a period of twelve months or for the
period, if any, during which the Company is obligated to continue to pay him his
base payroll salary, whichever period is longer.
Potential Payments upon Termination or
Change-in-Control.
The
following table describes the payment and other obligations of the Company and
the named executive officers under the new agreements in the event of a
termination of employment or a change in control of the Company. The
table also shows the estimated cost to the Company had the executive's
employment been terminated on December 31, 2007.
Patrick T. Manning, Joseph P. Harper,
Sr.& James H. Allen, Jr.
|
Event
|
Payment
and/or Other Obligations *
|
|
1.Termination
by the Company without cause(1)
|
The
Company must —
·
Continue to pay the executive his base salary for the balance of
the term of his employment agreement or for one year, whichever period is
longer;
·
Continue to cover him under its medical and dental plans provided
the executive reimburses the Company the COBRA cost thereof, in which
event the Company must reimburse the amount of the COBRA payments to the
executive; and
· Pay him
a portion of any base deferred salary and cash incentive bonus that he
would have earned had he remained an employee of the Company through the
end of the calendar year in which his employment is terminated, based on
the number of days during the year that he was an employee of the
Company.
|
|
Event
|
Payment
and/or Other Obligations *
|
|
Estimated December 31, 2007
termination payments:
Messrs. Manning & Harper
(each)
|
$1,095,000
in monthly installments plus COBRA payment reimbursement, which currently
would be approximately $48,400 for Mr. Manning and $29,200 for Mr. Harper
for the three year-period.
|
|
Mr. Allen
|
$786,000
in monthly installments
|
|
2.Termination
by reason of the executive's death
|
The
Company is obligated to pay the executive a portion of any base deferred
salary and of any cash incentive bonus that he would have earned had he
remained an employee of the Company through the end of the calendar year
in which his employment terminated, based on the number of days during the
year that he was an employee of the Company.
|
|
Estimated termination
payments:
|
None
|
|
3.Termination
by the Company for cause(1)
|
The
Company is required to pay the executive any accrued but unpaid base
payroll salary through the date of termination and any other
legally-required payments through that date.
All
of the executive's stock options terminate.
|
|
Estimated termination
payments:
|
None
|
|
4.Involuntary
resignation of the executive
(2)
|
An
involuntary resignation, also known as a constructive termination, is
treated under the agreement as a termination by the Company without
cause.
|
|
Estimated termination
payments:
|
See
Event 1, above.
|
|
5.Voluntary
resignation by the executive
|
The
Company is obligated to pay the executive a portion of any base deferred
salary that he would have earned had he remained an employee of the
Company through the end of the calendar year in which he resigned, based
on the number of days during the year that he was an employee of the
Company.
|
|
Estimated December 31, 2007
termination payments:
|
None
|
|
6.A
change in control of the Company.
|
All
the executives' unexercisable in-the-money stock options become
exercisable in full and at December 31, 2007, had the following
value based upon their market value at that date less their exercise
price:
Mr.
Manning $43,883
Mr.
Harper $4,536
Mr.
Allen $38,791
Mr.
Barzun $3,024
|
|
*
|
The
base payroll salaries, base deferred salaries and cash incentive bonus
eligibility of the executives are set forth above under the heading Employment Agreements of Named
Executive Officers.
|
|
(1)
|
The
term cause is defined in the employment agreements and means what is
commonly referred to as cause in employment matters, such as gross
negligence, dishonesty, insubordination, inadequate performance of
responsibilities after notice and the like. A termination
without cause is a termination for any reason other than for cause, death
or voluntary resignation.
|
|
(2)
|
The
executive is entitled to resign in the event that the Company commits a
material breach of a material provision of his employment agreement and
fails to cure the breach within thirty days, or, if the nature of the
breach is one that cannot practicably be cured in thirty days, if the
Company fails to diligently and in good faith commence a cure of the
breach within the thirty-day
period.
|
Roger M.
Barzun. In the event that Mr. Barzun's employment is
terminated for cause, the Company is only obligated to pay him his salary
through the date of termination and his outstanding options terminate on that
date. In the event that his employment is terminated without cause,
or by reason of his death or permanent disability, the Company is obligated to
pay him his salary then in effect for a period of six months, which at December
31, 2007 would be $31,250, and to pay him within thirty days of his termination
a portion of any cash incentive bonus to which he would otherwise have been
entitled had his employment not been terminated, based on the number of days
during the year that he was an employee of the Company. For purposes
of determining the amount of the cash incentive bonus to which he would have
been entitled, the Company is required to make such reasonable assumptions as it
determines in good faith. In the event of a change in control of the
Company, all of Mr. Barzun’s options become exercisable in full.
Maarten D.
Hemsley. As already noted, Mr. Hemsley's employment
terminated on October 31, 2007 by reason of his voluntary resignation with the
result that no termination payments were made to him.
Summary Compensation
Table for 2007.
The
following table sets forth for calendar years 2006 and 2007 all compensation
awarded to, earned by, or paid to, Patrick T. Manning, the Company's principal
executive officer; James H. Allen, Jr., its principal financial officer, who
joined the Company on July 16, 2007; and Maarten D. Hemsley, its former
principal financial officer.
The table
also shows the same compensation information of Joseph P. Harper, Sr., the
Company's President, Treasurer & Chief Operating Officer, and Roger M.
Barzun, its Senior Vice President, Secretary & General Counsel, who are the
only other executive officers whose compensation for 2007 exceeded
$100,000.
The
Company does not pay Messrs. Manning or Harper additional compensation for
service on the Board of Directors. The Company pays compensation to
these executive officers according to the terms of their employment
agreements. The amounts include any compensation that was deferred by
the executive through contributions to his defined contribution plan account
under Section 401(k) of the Internal Revenue Code. All amounts are
rounded to the nearest dollar.
|
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Option
Awards(1)
($)
|
Non-Equity
Incentive
Plan
Compensation(2)
($)
|
All
Other
Compensation
($)(3)
|
Total
($)
|
|||||||||||||||
|
Patrick
T. Manning
|
2006
|
240,000 | 82,883 | 341,000 | 38,950 | 702,833 | |||||||||||||||
|
Chairman
of the Board
&
Chief Executive
Officer
(principal executive officer)
|
2007
|
296,500 | — | 325,000 | 31,258 | 652,758 | |||||||||||||||
|
Joseph
P. Harper, Sr.
|
2006
|
235,800 | * | 82,883 | 318,500 | 21,150 | 658,333 | ||||||||||||||
|
President,
Treasurer & Chief Operating Officer
|
2007
|
282,500 | — | 325,000 | 14,396 | 621,896 | |||||||||||||||
|
James
H. Allen, Jr.
Senior
Vice President & Chief Financial Officer (principal accounting
officer)
|
2007
|
115,500 | 14,553 | 100,000 | 865 | 230,918 | |||||||||||||||
|
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Option
Awards(1)
($)
|
Non-Equity
Incentive
Plan
Compensation(2)
($)
|
All
Other
Compensation
($)(3)
|
Total
($)
|
|||||||||||||||
|
Maarten
D. Hemsley
|
2006
|
129,808 | 22,862 | 117,500 | 12,350 | 282,520 | |||||||||||||||
|
Chief
Financial
Officer
(former principal financial officer)
|
2007
|
106,500 | 27,640 | 50,000 | 6,823 | 190,963 | |||||||||||||||
|
Roger
M. Barzun
Senior
Vice President & General Counsel, Secretary
|
2007
|
62,500 | — | 75,000 | 137,500 | ||||||||||||||||
|
*
|
This
includes $20,800 paid to Mr. Harper for foregoing approximately five weeks
of the vacation he was entitled to under his prior employment agreement,
which expired in July 2007.
|
|
(1)
|
The
value of these stock option awards is the total dollar cost of the award
recognized by the Company in the year of grant for financial reporting
purposes in accordance with FAS 123R. No amounts earned by the
executive officers have been capitalized on the balance sheet for
2007. The cost does not reflect any estimates made for
financial statement reporting purposes of forfeitures by the executive
officers related to service-based vesting
conditions.
|
|
|
The
valuation of these options was made on the equity valuation assumptions
described in Note 8 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K, which accompanies this Proxy
Statement. None of the awards has been
forfeited. The following section, entitled Grants of Plan-Based
Awards for 2007, contains a description of the basis on which these stock
options were awarded and their full grant date fair market
value.
|
|
(2)
|
Cash
incentive bonuses were calculated and approved by the Committee in March
2007 and February and March 2008. The bonuses for 2006 were
determined in part by the application of a formula found in the prior
employment agreement of each executive officer and in part by the
Committee exercising its discretion as to the amount of additional cash
incentive bonus within the range provided for in his employment
agreements. Footnotes (1) and (2) to the table in the following
section, entitled Grants of Plan-Based Awards for 2007, contain a
description of the formula and its
application.
|
|
(3)
|
The
following table shows a breakdown of the amounts shown above in the All
Other Compensation column. The dollar amounts are the costs of
the items to the Company.
|
|
Type
of Other Compensation
|
Year
|
Mr.
Manning
|
Mr. Harper
|
Mr. Hemsley
|
Mr.
Allen
|
||||||||||||
|
Car
allowance
|
2006
|
$ | 8,400 | $ | 8,400 | — | — | ||||||||||
|
2007
|
$ | 5,000 | $ | 5,000 | — | — | |||||||||||
|
Expenses
of commuting to work
|
2006
|
$ | 2,500 | $ | 1,800 | — | — | ||||||||||
|
2007
|
$ | 2,400 | $ | 1,750 | — | — | |||||||||||
|
Country
club dues
|
2006
|
$ | 25,000 | $ | 4,500 | — | — | ||||||||||
|
2007
|
$ | 15,000 | $ | 3,420 | — | — | |||||||||||
|
Company
contribution to 401(k)
|
2006
|
$ | 3,050 | $ | 6,450 | $ | 7,500 | — | |||||||||
|
Plan
account
|
2007
|
$ | 8,858 | $ | 4,226 | $ | 6,407 | $ | 865 | ||||||||
|
Long-term
disability insurance
|
2006
|
— | — | $ | 4,502 | — | |||||||||||
|
premium
|
2007
|
— | — | $ | 152 | — | |||||||||||
|
Term
life insurance premium
|
2006
|
— | — | $ | 348 | — | |||||||||||
|
2007
|
— | — | $ | 264 | — | ||||||||||||
Grants of Plan-Based
Awards for 2007.
The
following table shows each grant of an award for 2007 to a named executive
officer under a Company plan. The Company did not award any SAR's,
stock, restricted stock, restricted stock units, or similar instruments to any
of the named executive officers in 2007.
|
Name
|
Grant
Date
|
Estimated
Future Payouts
Under
Non-Equity Incentive
Plan Awards(1)
($)
|
All Other Option Awards: Number
of Securities Underlying Options(2)
(#)
|
Exercise or Base Price of
Option Awards (3)
($/share)
|
Grant
Date
Fair
Value
of
Option
Awards(4)
($)
|
||||||||||||||||||||
|
Threshold
|
Target
|
Maximum
|
|||||||||||||||||||||||
|
Patrick
T. Manning
|
7/19/2007
|
142,156 | 239,656 | 304,656 | -0- | N/A | N/A | ||||||||||||||||||
|
Joseph
P. Harper, Sr.
|
7/19/2007
|
142,156 | 239,656 | 304,656 | -0- | N/A | N/A | ||||||||||||||||||
|
James
H. Allen, Jr.
|
8/7/2007
|
50,000 | 50,000 | 100,000 | 13,707 | 18.99 | $ | 172,692 | |||||||||||||||||
|
Maarten
D. Hemsley
|
7/18/2007
|
50,000 | 75,000 | 125,000 | 2,800 | 21.60 | $ | 27,640 | |||||||||||||||||
|
Roger
M. Barzun
|
75,000 | 75,000 | 75,000 | -0- | N/A | N/A | |||||||||||||||||||
(1)
Non-Equity
Incentive Plan Awards.
Messrs. Manning and
Harper. Under their prior employment agreements, which expired
in July 2007, each of Messrs. Manning and Harper is entitled to an annual bonus
of $125,000 for any year in which TSC achieves 75% or more of its budgeted
EBITDA, which is a term defined in their agreements. Under their new
employment agreements, which took effect upon the expiration of their prior
employment agreements, each of them is entitled to what is referred to as a base
deferred salary of $162,500 for any year in which the Company, on a consolidated
basis, achieves 75% or more of its budgeted EBITDA. In 2007, both TSC
and the Company reached the 75% EBITDA goal.
The
transition terms of the new employment agreements provide for the pro-ration of
the prior agreement's bonus and the new agreement's base deferred salary based
on the number of days during 2007 that each agreement was in
effect. As a result of the pro-ration, the Company paid each
executive 54.25% of his bonus under the prior agreement and 45.75% of the base
deferred salary under his new agreement. The sum of these two amounts
is the Threshold amount
in the table above.
Under the
new agreements, the Company agrees to pay each of Messrs. Manning and Harper a
cash incentive bonus of up to $162,500. Sixty percent of the cash
incentive bonus is payable for a year in which the Company reaches its budgeted
earnings-per-share goal, which it did in 2007. The sum of the Threshold amount and the 60%
portion of the cash incentive bonus is the Target amount in the table
above.
Under the
same transition terms of the new agreements, the Compensation Committee may pay
the 40% balance of the cash incentive bonus for 2007 is in its sole discretion,
which it did. The sum of the Target amount and the 40%
portion of the cash incentive bonus is the Maximum amount in the table
above.
In
subsequent years, the 40% portion of the cash incentive bonus will be payable
based on the extent to which the executive achieves his personal goals for the
year.
|
|
Mr. Allen. Mr. Allen's
employment agreement has the same goal for earning a base deferred salary
($75,000) and a cash incentive bonus ($75,000) as do the new employment
agreements of Messrs. Manning and Harper, except that since Mr. Allen was
an employee for slightly less than half of 2007, his employment agreement
provides for the pro-ration of his base deferred salary and cash incentive
bonus based on the 169 days or 46% of 2007 that he was an
employee.
|
|
|
As
described above in the Compensation Discussion &
Analysis, the Compensation Committee decided to award Mr. Allen
two-thirds of his base deferred salary and two-thirds of both the 60%
earnings-per-share portion and the 40% discretionary portion of his cash
incentive bonus. Accordingly, in the table above, the Threshold amount is
two-thirds of Mr. Allen's base deferred salary, the Target amount is the
sum of the Threshold amount and
two-thirds of the 60% portion of his cash incentive bonus, and the Maximum amount is the
sum of the Target
amount and two-thirds of the 40% portion of his cash incentive
bonus.
|
|
|
Mr. Hemsley. Under
his employment agreement, which expired by extension on October 31, 2007,
Mr. Hemsley is entitled to a cash incentive bonus of $50,000 for any
year during the term of his agreement in which the Company on a
consolidated basis achieves 75% or more of its budgeted
EBITDA. He is also eligible for an additional cash incentive
bonus not to exceed $75,000 in the discretion of the Compensation
Committee. In exercising their discretion, members of the
Committee are to consider the Company's consolidated financial results for
the year in question, the number of non-routine business transactions to
which Mr. Hemsley devoted substantial time during the year and such
other matters as they considered relevant. Accordingly, the
Maximum amount is
the sum of the Threshold and the Target
amounts.
|
|
|
Mr. Barzun. Mr. Barzun's
cash incentive bonus for a given year is entirely in the discretion of the
Committee and is based on the Company's consolidated financial results for
the year, the number of non-routine legal transactions to which he devoted
substantial time during the year, and such other matters as the Committee
deems relevant. Accordingly, for Mr. Barzun, his Threshold, Target and Maximum in the table
above is the bonus amount awarded to him for
2007.
|
|
(2)
|
Stock
Option Awards. The stock
option awards in this column were all granted under the Company's 2001
Stock Incentive Plan. In addition to the vesting dates of these
options, described below, they vest in full if there is a change in
control of the Company.
|
The July 18, 2007 Stock Option
Award.
|
|
·
|
This
stock option was granted to Mr. Hemsley pursuant to the terms of his
employment agreement.
|
|
|
·
|
The
option has a five-year term and vests, or becomes exercisable, in full on
the date of grant.
|
|
|
·
|
The
exercise or purchase price of the shares subject to this option is the
closing price of the common stock on the NASDAQ Global Select Market on
the date of grant.
|
|
|
·
|
Had
Mr. Hemsley's employment been terminated by the Company for cause,
which is defined in the stock option agreement, or for good cause, which
is defined in his employment agreement, all of his options would have
immediately terminated.
|
|
|
·
|
Because
his employment terminated upon the expiration of his employment agreement,
he may exercise this stock option from the date it became exercisable
through its expiration date. Mr. Hemsley's employment
agreement is described above in the section entitled Employment Agreements of Named
Executive Officers.
|
The August 7, 2007 Stock Option
Award.
|
|
·
|
This
stock option was awarded by the Committee in the exercise of its
discretion in connection with Mr. Allen's election as Senior Vice
President & Chief Financial Officer of the
Company.
|
|
|
·
|
The
option has a ten-year term and vests, or becomes exercisable, in three
substantially equal installments on each of the first three anniversaries
of the date of the grant.
|
|
|
·
|
The
exercise price, or purchase price, of the shares subject to this stock
option is the closing price of the Company's common stock on August 7,
2007, which was the date of the meeting of the Committee at which the
stock option was approved.
|
|
|
·
|
If
Mr. Allen's employment terminates by reason of his permanent
disability or death, or if he dies within three months after he ceases to
be an employee, then he, his legal representative, his estate, or his
beneficiaries (depending on the circumstances of the termination) may
exercise the option for a period of one year or until the option's
expiration date, whichever comes first, but only for the number of shares
that had become exercisable on the date his employment
terminated.
|
|
|
·
|
If
Mr. Allen's employment is terminated for cause, which is defined in
the option agreement, the option immediately
terminates.
|
|
|
·
|
If
Mr. Allen's employment terminates for any other reason, he may
exercise the option for a period of ninety days after his employment
terminates or until the expiration date of the option, whichever comes
first, but only for the number of shares that had become exercisable on
the date his employment terminated.
|
|
(3)
|
Establishing
the Option Exercise Price. It is the Company's policy to
use the closing price of the common stock on the date of the meeting at
which a stock option award is approved as the option's per-share exercise
price. In the case of a stock option awarded on a date
specified in an employment agreement, the exercise price is the closing
price of the common stock on that
date.
|
|
(4)
|
The
grant date fair value is the value computed for financial reporting
purposes in accordance with FAS 123R. The valuation was made on
the equity valuation assumptions described in Note 8 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form
10-K, which accompanies this Proxy
Statement.
|
Option Exercises and
Stock Vested for 2007.
The
following table contains information on an aggregated basis about each exercise
of a stock option during 2007 by each of the named executive
officers.
|
Name
|
Option
Awards
|
|
|
Number
of Shares Acquired
on
Exercise
(#)
|
Value
Realized Upon
Exercise(1)
($)
|
|
|
Patrick
T. Manning
|
—
|
—
|
|
Joseph
P. Harper, Sr.
|
—
|
—
|
|
James
H. Allen, Jr.
|
—
|
—
|
|
Maarten
D. Hemsley
|
128,424
|
$2,714,821
|
|
Roger
M. Barzun
|
9,990
|
$207,503
|
|
(1)
|
SEC
regulations define the "Value Realized Upon Exercise" as the difference
between the market price of the shares on the date of the purchase, and
the option exercise price of the shares, whether or not the shares are
sold, or if they are sold, whether or not the sale occurred on the date of
the exercise.
|
Outstanding Equity Awards at December 31, 2007.
The
following table shows certain information concerning unexercised stock options
and stock options that have not vested outstanding on December 31, 2007 for each
named executive officer. No other equity awards have been made to the
named executive officers.
|
Option
Awards
|
||||||||||||||||||
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price/Share
($)
|
Option
Grant
Date
|
Option
Expiration
Date
|
Vesting
Date
Footnotes
|
||||||||||||
|
Patrick
T. Manning
|
200 | 800 | $ | 25.21 |
8/08/2006
|
9/08/2011
|
(1) | |||||||||||
| 10,000 | — | $ | 24.96 |
7/18/2006
|
7/18/2011
|
(2) | ||||||||||||
| 600 | 900 | $ | 16.78 |
8/12/2005
|
9/12/2010
|
(1) | ||||||||||||
| 10,000 | — | $ | 9.69 |
7/18/2005
|
7/18/2010
|
(2) | ||||||||||||
| 2,100 | 1,400 | $ | 3.10 |
8/12/2004
|
8/12/2014
|
(1) | ||||||||||||
| 10,000 | — | $ | 3.10 |
8/12/2004
|
8/12/2009
|
(2) | ||||||||||||
| 2,800 | 700 | $ | 3.05 |
8/20/2003
|
8/20/2013
|
(1) | ||||||||||||
| 3,500 | — | $ | 1.725 |
7/24/2002
|
7/24/2012
|
(1) | ||||||||||||
| 3,700 | — | $ | 1.50 |
7/23/2001
|
7/23/2011
|
(1) | ||||||||||||
|
Joseph
P. Harper, Sr.
|
200 | 800 | $ | 25.21 |
8/08/2006
|
9/08/2011
|
(1) | |||||||||||
| 10,000 | — | $ | 24.96 |
7/18/2006
|
7/18/2011
|
(2) | ||||||||||||
| 600 | 900 | $ | 16.78 |
8/12/2005
|
9/12/2010
|
(1) | ||||||||||||
| 10,000 | — | $ | 9.69 |
7/18/2005
|
7/18/2010
|
(2) | ||||||||||||
| 3,500 | — | $ | 3.10 |
8/12/2004
|
8/12/2014
|
(3) | ||||||||||||
| 10,000 | — | $ | 3.10 |
8/12/2004
|
8/12/2009
|
(2) | ||||||||||||
| 3,500 | — | $ | 3.05 |
8/20/2003
|
8/20/2013
|
(3) | ||||||||||||
| 3,500 | — | $ | 1.725 |
7/24/2002
|
7/24/2012
|
(3) | ||||||||||||
| 3,700 | — | $ | 1.50 |
7/23/2001
|
7/23/2011
|
(1) | ||||||||||||
|
Option
Awards
|
||||||||||||||||||
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price/Share
($)
|
Option
Grant
Date
|
Option
Expiration
Date
|
Vesting
Date
Footnotes
|
||||||||||||
|
James
H. Allen, Jr.
|
— | 13,707 | $ | 18.99 |
8/7/2007
|
8/7/2012
|
(3) | |||||||||||
|
Maarten
D. Hemsley
|
2,800 | — | $ | 21.60 |
7/18/2007
|
7/18/2012
|
(4) | |||||||||||
| 2,800 | — | $ | 24.96 |
7/18/2006
|
7/18/2011
|
(2) | ||||||||||||
| 2,800 | — | $ | 9.69 |
7/18/2005
|
7/18/2010
|
(2) | ||||||||||||
| 5,000 | — | $ | 3.10 |
8/12/2004
|
1/29/2008
|
(5) | ||||||||||||
| 75,000 | — | $ | 0.875 |
1/13/1998
|
10/27/2013
|
(6) | ||||||||||||
|
Roger
M. Barzun
|
120 | 480 | $ | 25.21 |
8/8/2006
|
9/8/2011
|
(1) | |||||||||||
| 400 | 600 | $ | 16.78 |
8/12/2005
|
9/12/2010
|
(1) | ||||||||||||
| 2,000 | — | $ | 3.10 |
8/12/2004
|
8/12/2014
|
(4) | ||||||||||||
| 1,190 | — | $ | 0.875 |
2/4/1998
|
2/4/2008
|
(4) | ||||||||||||
Vesting of Stock
Options. If there is a change-in-control of the Company, all
the stock options then held by a named executive officer become exercisable in
full. Absent a change in control of the Company, the options listed
above vest as described in the following footnotes:
|
(1)
|
This
option vests in equal installments on the first five anniversaries of its
grant date.
|
|
(2)
|
This
option vested in a single installment on July 18,
2007.
|
|
(3)
|
This
option vests in equal installments on the first three anniversaries of its
grant date.
|
|
(4)
|
This
option vested in a single installment on its grant
date.
|
|
(5)
|
This
option vests in equal installments on the grant date and the first three
anniversaries of its grant date.
|
|
(6)
|
This
option vested in a single installment on December 18,
1998.
|
_________________________
PERFORMANCE
GRAPH.
The
following graph compares the percentage change in the Company's cumulative total
stockholder return on its common stock for the last five years with the Dow
Jones US Total Market Index, a broad market index, and the Dow Jones US Heavy
Construction Index, a group of companies whose marketing strategy is focused on
a limited product line, such as civil construction. Both indices are
published in The Wall Street Journal.
The
returns are calculated assuming that an investment with a value of $100 was made
in the Company's common stock and in each index at the end of 2002 and that all
dividends were reinvested in additional shares of common stock; however, the
Company has paid no dividends during the periods shown. The graph
lines merely connect the measuring dates and do not reflect fluctuations between
those dates. The stock performance shown on the graph is not intended
to be indicative of future stock performance.
|
December
2002
|
December
2003
|
December
2004
|
December
2005
|
December
2006
|
December
2007
|
|||||||||||||||||||
|
Sterling
Construction Company, Inc
|
100.00 | 258.86 | 296.57 | 961.71 | 1,243.43 | 1,246.86 | ||||||||||||||||||
|
Dow
Jones US
|
100.00 | 130.75 | 146.45 | 155.72 | 179.96 | 190.77 | ||||||||||||||||||
|
Dow
Jones US Heavy Construction
|
100.00 | 136.41 | 165.42 | 239.03 | 298.17 | 566.39 | ||||||||||||||||||
BUSINESS RELATIONSHIPS
WITH DIRECTORS AND OFFICERS.
Transactions with
Related Persons.
Maarten D.
Hemsley. At December 31, 2007, NASCIT held 3.82% of the
Company's outstanding common stock. NASCIT is a part of JO Hambro
Capital Management Group Limited, or JOHCMG, an investment company and fund
manager located in the United Kingdom. From January 2001 until May
2002, Mr. Hemsley was a consultant to JO Hambro Capital Management Limited,
or JOHCM, which is part of JOHCMG, and since May 2002 has been an employee of
JOHCM. Mr. Hemsley has served since 2001 as Fund Manager of JOHCMG's
Leisure & Media Venture Capital Trust, plc, and since February 2005, as
Senior Fund Manager of its Trident Private Equity II LLP investment
fund. Neither of those funds was or is an investor in the Company or
any of the Company's affiliates.
Robert W.
Frickel. Mr. Frickel is President of R.W. Frickel Company,
P.C., an accounting firm based in Michigan that performs certain accounting and
tax services for the Company. In 2007, the Company paid or accrued
for payment to R.W. Frickel Company approximately $63,580 in
fees. The Company estimates that during 2008, the fees of R.W.
Frickel Company will be approximately the same as in 2007.
Joseph P. Harper,
Jr. Joseph P. Harper, Jr. is Chief Financial Officer of the
Company's wholly-owned subsidiary, Texas Sterling Construction Co., or TSC, and
the son of Joseph P. Harper, Sr., who is President, Treasurer & Chief
Operating Officer of the Company. For 2007 Mr. Harper Jr.
received salary and a cash bonus aggregating approximately
$274,125.
The Paradigm
Companies. Since July 2005, Patrick T. Manning has been the
husband of Amy Peterson, the sole beneficial owner of Paradigm Outdoor Supply,
LLC and Paradigm Outsourcing, Inc. The Paradigm companies have
provided materials and services to the Company and to other contractors for many
years. In 2007, the Company paid a total of approximately $1.72
million to the Paradigm companies. The Audit Committee reviews and
approves these payments in the manner described below.
Richard H.
Buenting. Prior to the Company's acquisition of a majority
interest in Road and Highway Builders, LLC, or RHB, Mr. Buenting, the Chief
Executive Officer of RHB, made use of RHB equipment, materials and labor for the
construction of a new home for himself and his family and then would reimbursed
RHB. This practice, which Mr. Buenting had fully disclosed to the
Company prior to the purchase, inadvertently continued for a short period after
the acquisition during which Mr. Buenting used a total of $18,730 of RHB's
materials and labor. The practice has ceased and Mr. Buenting has
reimbursed RHB in full.
Policies and
Procedures for the Review, Approval or Ratification of Transactions with Related
Persons.
General. The
Board of Directors' policy on transactions between the Company and related
parties is set forth in the written charter of the Audit
Committee. The policy requires that the Audit Committee must review
in advance the terms of any transaction by the Company with a director;
executive officer; nominee for election as director; stockholder; or any
affiliate or any of their immediate family members that involves more than
$50,000. If the Audit Committee approves the transaction, it must do
so in compliance with Delaware law and report it to the full Board of
Directors.
Mr.
Hemsley. Mr. Hemsley's relationship with JOHCM has not been
the subject of any approval process by the Board or the Audit Committee because,
as noted above, neither of the funds he manages were or are an investor in the
Company or any of its affiliates.
Mr.
Frickel. The Company's Audit Committee reviews and approves
the retention of Mr. Frickel's firm and the payment of its fees. A
description of this written procedure is found below under the heading Audit and Non-Audit Service Approval
Policy.
Joseph P. Harper,
Jr. The Compensation Committee reviews Mr. Harper, Jr.'s
salary and bonus as well as the salary and bonus of other senior managers of
TSC. Neither Mr. Harper, Sr. nor Mr. Harper, Jr. is a member of the
Compensation Committee, which is made up entirely of independent
directors.
The Paradigm
Companies. TSC engages the Paradigm companies primarily for
City of Houston projects to comply with requirements that a portion of project
contracts be subcontracted to minority and/or women-owned
businesses. Both Paradigm companies are woman-owned
businesses. Paradigm Outdoor Supply arranges for the purchase of
construction materials. Paradigm delivers the materials directly to
the project site and bills the Company for them. Paradigm Outdoor
Supply and similar companies charge a percentage commission ranging from 2% to
3% of the cost of the materials. Paradigm Outsourcing provides
flagmen and other temporary construction personnel to contractors and charges
competitive rates for those services.
During
2007, the Company paid Paradigm Outdoor Supply a total of approximately $1.5
million for the materials it purchased for the Company. During 2007
the Company paid Paradigm Outsourcing $221,000 for temporary personnel supplied
to the Company.
The Audit
Committee has determined that it is not practical for the Company to get more
than oral bids from Paradigm Outdoor Supply and its main competitor or to get
any competitive bids on the type of services performed by Paradigm
Outsourcing. As a result, the Audit Committee requires management on
a quarterly basis to obtain rates from Paradigm Outdoor Supply and its main
competitor and prepare a memorandum for the Audit Committee on the results of
those calls. On a quarterly basis, the Audit Committee approves the
continuation of business with the Paradigm companies and reviews the payments
the Company has made to the Paradigm companies in the prior
quarter.
INFORMATION ABOUT AUDIT FEES AND AUDIT SERVICES
A
representative of the Company's independent registered
public accounting firm, Grant Thornton LLP, is expected to be available at the
Annual Meeting and will have the opportunity to make a statement if he or she
wishes and will also be available to respond to appropriate questions from
stockholders.
Audit
Fees.
The
following table sets forth the aggregate fees that the Company's independent
registered public accounting firm, Grant Thornton LLP, billed to the Company for
the years ended December 31, 2007 and 2006.
|
Fee
Category
|
2007
|
Percentage
Approved
by
the
Audit
Committee
|
2006
|
Percentage
Approved
by
the
Audit
Committee
|
||||||||||||
|
Audit
Fees:
|
$ | 602,900 | 100 | % | $ | 529,300 | 100 | % | ||||||||
|
Audit-Related
Fees:
|
$ | 25,500 | 100 | % | $ | 110,300 | 100 | % | ||||||||
|
Tax
Fees:
|
$ | 3,300 | 100 | % | — |
NA
|
||||||||||
|
All
Other Fees:
|
— |
NA
|
— |
NA
|
||||||||||||
In 2006
and 2007 audit fees include the fees for Grant Thornton's audit of the
consolidated financial statements included in the Company's Annual Report on
Form 10-K; reviews of the consolidated financial statements included in the
Company's quarterly reports on Form 10-Q; the resolution of issues that arose
during the audit process; and other audit services that are normally provided in
connection with statutory and regulatory filings. For 2006 and 2007,
Grant Thornton's fees also included attestation work required by Section 404 of
the Sarbanes-Oxley Act of 2002 to enable Grant Thornton to issue an opinion on
management's assessment of the effectiveness of internal controls over financial
reporting. For 2007, Grant Thornton's fees also included attestation
work to enable Grant Thornton to issue a report on Internal Controls over
Financial Reporting.
Audit-Related
Fees. In 2007 audit-related fees included fees in connection
with the Company's October 2007 acquisition of RHB.
Tax Fees. Our independent
registered public accounting firm provides tax consulting services to the
Company.
Audit and Non-Audit
Service Approval Policy. In accordance with
the requirements of the Sarbanes-Oxley Act of 2002 and related rules and
regulations, the Audit Committee has adopted a policy that it believes will
result in an effective and efficient procedure to approve the services of the
Company's independent registered public accounting firm.
Audit
Services. The Audit Committee annually approves specified
audit services engagement terms and fees and other specified audit
fees. All other audit services must be specifically pre-approved by
the Audit Committee. The Audit Committee monitors the audit services
engagement and must approve, if necessary, any changes in terms, conditions and
fees resulting from changes in audit scope or other items.
Audit-Related
Services. Audit-related services are assurance and related
services that are reasonably related to the performance of the audit or review
of the Company's financial statements, which historically have been provided by
our independent registered public accounting firm, and are consistent with the
SEC’s rules on auditor independence. The Audit Committee annually
approves specified audit-related services within established fee
levels. All other audit-related services must be pre-approved by the
Audit Committee.
Tax
Fees. As the fees related to these services are de minimis in amount, they
are approved by the Chairman of the Audit committee prior to being
incurred.
All Other
Services. Other services, if any, are services provided by our
independent registered public accounting firm that do not fall within the
established audit, audit-related and tax services categories. The
Audit Committee must pre-approve specified other services that do not fall
within any of the specified prohibited categories of services.
Procedures for Approval of Services.
All
requests for services that are to be provided by our independent registered
public accounting firm, which must include a detailed description of the
services to be rendered and the amount of corresponding estimated fees, are
submitted to both the Company's President and the Chairman of the Audit
Committee. The Chief Financial Officer authorizes services that have
been approved by the Audit Committee within the pre-set limits. If
there is any question as to whether a proposed service fits within an approved
service, the Chairman of the Audit Committee is consulted for a
determination. The Chief Financial Officer submits to the Audit
Committee any requests for services that have not already been approved by the
Audit Committee. The request must include an affirmation by the Chief
Financial Officer and the independent registered public accounting firm that the
request is consistent with the SEC’s rules on auditor
independence.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any
proposal that a stockholder intends to present at the 2009 Annual Meeting of
Stockholders must be submitted to the Secretary of the Company no later than
January 1, 2009 in order to be considered timely received.
By Order
of the Board of Directors
Roger M.
Barzun, Secretary
STERLING
CONSTRUCTION COMPANY, INC.
ANNUAL
MEETING OF STOCKHOLDERS
May
8, 2008
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned, having received a Notice of the Annual Meeting of Stockholders of
Sterling Construction Company, Inc. (the "Company") to be held on May
8, 2008 at 11:30 a.m. local time at Grand Sierra Resort,2500 East 2nd Street,
Reno, Nevada 89595 or at any adjournment thereof (the "Annual Meeting") together
with the Board of Directors' proxy statement therefor; and revoking all prior
proxies, hereby appoint(s) James H. Allen, Jr. and Roger M. Barzun, and each of
them (with full power of substitution) as proxies of the undersigned to attend
the Annual Meeting and any adjourned sessions thereof and there to vote and act
upon the following matters in respect of all shares of common stock of the
Company which the undersigned would be entitled to vote or act upon, with all
powers the undersigned would possess if personally present.
Attendance
of the undersigned at the Annual Meeting or at any adjourned session thereof
will not be deemed to revoke this proxy unless the undersigned affirmatively
indicates at the Annual Meeting the intention of the undersigned to vote said
shares in person. If the undersigned holds any shares in a fiduciary,
custodial or joint capacity or capacities, this proxy is signed by the
undersigned in every one of those capacities as well as
individually.
(Continued and to be signed on the reverse side)
Please
date, sign and mail your proxy card in the envelope provided as soon as
possible.
Please
sign, date and return promptly in the enclosed envelope. Please mark your
vote in blue or black ink as shown here x
|
1.
|
Election
of two Class I directors (or if a nominee is not available for election, a
substitute designated by the Board of
Directors.)
|
|
Nominees
|
Class
|
Term
|
FOR
|
AGAINST
|
ABSTAIN
|
|
Patrick
T. Manning
|
I
|
Three
years
|
o
|
o
|
o
|
|
Joseph
P. Harper, Sr.
|
I
|
Three
years
|
o
|
o
|
o
|
FOR ALL
NOMINEES o AGAINST
ALL
NOMINEES o
|
2.
|
Approval
of an Amended and Restated Certificate of
Incorporation.
|
|
FOR
|
o
|
AGAINST
|
o
|
ABSTAIN
|
o
|
|
3.
|
Approval
of an increase in the number of shares of common stock that the Company is
authorized to issue from 14 million shares to 19 million
shares.
|
|
FOR
|
o
|
AGAINST
|
o
|
ABSTAIN
|
o
|
|
4.
|
Ratification
of the selection of Grant Thornton LLP as the Company's independent
registered public accounting firm.
|
|
FOR
|
o
|
AGAINST
|
o
|
ABSTAIN
|
o
|
|
5.
|
In
their discretion, the named proxies are authorized to vote upon any other
matters that may properly come before the Annual Meeting or any
adjournment thereof.
|
|
FOR
|
o
|
AGAINST
|
o
|
ABSTAIN
|
o
|
The
shares represented by this proxy will be voted as directed by the
undersigned. If no direction is given with respect to any election to
office or proposal specified above, this proxy will be voted FOR the
election to office or proposal. None of the matters to be voted on is
conditioned on, or related to, the approval of any other matter. All
proposals are made by the Board of Directors.
If
you wish to vote in accordance with the recommendations of the Board of
Directors, you need only sign and date this proxy. You do not need to mark
any boxes.
|
Signature
of Stockholder:
|
Date:
|
||||
|
Signature
of Stockholder:
|
Date:
|
Note:
Please sign exactly as your name appears on this Proxy. When shares
are held jointly, both should sign. When signing as an executor,
administrator, attorney, trustee
or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
Exhibit
A
STERLING
CONSTRUCTION COMPANY, INC.
(A
Delaware corporation)
Amended
and Restated Certificate of Incorporation
(Pursuant
to Section 242 and Section 245 of the
Delaware
General Corporation Law)
|
1.
|
The
name of the corporation (the "Corporation") is Sterling
Construction Company, Inc. The date of filing of the
original certificate of incorporation of the Corporation with the
Secretary of State of the State of Delaware was April 1, 1991 and it was
filed under the name Hallwood Holdings Incorporated. The
Corporation's name was subsequently changed to Oakhurst Capital, Inc.;
then to Oakhurst Company, Inc.; and finally to its current
name.
|
|
2.
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Pursuant
to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, this Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation, and on May 8, 2008,
it was approved by the stockholders of the Corporation entitled to vote
thereon in accordance with Section 242 of the Delaware General Corporation
Law and the provisions of the Certificate of Incorporation then in effect
regarding the amendment thereof.
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3.
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The
Certificate of Incorporation of the Corporation is hereby amended and
restated to read in its entirety as set forth below, which instrument
shall be entitled and hereafter referred to as the "Certificate of
Incorporation of Sterling Construction Company,
Inc."
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_________________
Certificate
of Incorporation
of
Sterling
Construction Company, Inc.
Article
I
The name
of the Corporation is Sterling Construction Company, Inc. (hereinafter sometimes
referred to as the "Corporation.")
Article
II
The
address of the registered office of the Corporation in the State of Delaware is
2751 Centerville Road — Suite 3131, Wilmington, Delaware
19803. The name of the registered agent for service of process of the
Corporation is The Corporation Trust Company with an address at 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801.
Article
III
The
purpose for which the Corporation is formed is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
Article
IV
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4.1
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Capitalization. The
Corporation is authorized to issue two classes of stock, one to be
designated common stock ("Common Stock") and the
other to be designated preferred stock ("Preferred
Stock.")
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(a)
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The
number of shares of Preferred Stock the Corporation has authority to issue
is one million (1,000,000) with a par value of one cent ($0.01) per
share.
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(b)
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The
number of shares of Common Stock the Corporation has authority to issue is
nineteen million (19,000,000) with a par value one cent ($0.01) per
share.
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4.2
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Preferred
Stock.
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(a)
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Preferred
Stock may be issued from time to time in one or more series, without
further stockholder approval.
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(b)
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In
a resolution providing for the issue of any wholly-unissued series of
Preferred Stock, the Board of Directors is hereby authorized within the
limitations and restrictions stated in this Certificate of Incorporation
to fix, alter or amend the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking
fund provisions,) the redemption price or prices, and the liquidation
preferences of any wholly-unissued series of Preferred Stock and the
number of shares constituting any such series and the designation thereof,
or any of them.
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(c)
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The
Board of Directors is hereby authorized to increase or decrease the number
of shares of any series subsequent to the issue of shares of that series,
but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally
fixing the number of shares of such
series.
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(d)
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The
Board of Directors is hereby authorized to alter or amend the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms
of redemption (including sinking fund provisions) the redemption price or
prices, and the liquidation preferences of any issued and outstanding
series of Preferred Stock, subject to any required approval of the holders
thereof.
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4.3
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Common
Stock. Each holder of Common Stock shall be entitled to
one vote for each share of Common Stock held of record by such holder on
all matters on which stockholders generally are entitled to vote; provided, however, that
except as otherwise required by law, holders of Common Stock shall not be
entitled to vote on any amendment to this Certificate of Incorporation
(including any Certificate of Designations relating to any series of
Preferred Stock) that relates solely to the terms of one or more
outstanding series of Preferred Stock if the holders of that series are
entitled, either separately or together with the holders of one or more
other series to vote thereon pursuant to this Certificate of Incorporation
(including any Certificate of Designations relating to any series of
Preferred Stock) or pursuant to the Delaware General Corporation
Law.
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Article
V
The
following provisions are inserted for the management of the business and the
conduct of the affairs of the Corporation, and for the further definition,
limitation and regulation of the powers of the Corporation and its directors and
stockholders:
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5.1
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Powers of
Directors. The business and affairs of the Corporation
shall be managed by, or under the direction of, the Board of
Directors. In addition to the powers and authority expressly
conferred upon them by statute or by this Certificate of Incorporation or
the Bylaws of the Corporation, the directors are hereby empowered to
exercise all such powers and to do all such acts and things as are not by
statute or by this Certificate of Incorporation to be exercised or done by
the stockholders of the
Corporation.
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5.2
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Written
Ballot. The directors of the Corporation need not be
elected by written ballot unless the Bylaws so
provide.
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5.3
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Stockholders Must Meet to
Act. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be
effected by any written consent by such
stockholders.
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5.4
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Special Meetings of
Stockholders. Special meetings of stockholders of the
Corporation may be called only by the Board of
Directors.
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Article
VI
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6.1
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Number of
Directors. The number of directors of the Corporation
which shall constitute the entire Board of Directors shall be such number
as is initially fixed by the Incorporator and thereafter as fixed from
time to time exclusively by the Board of
Directors.
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6.2
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Classification of
Directors. At the first annual meeting of stockholders
of the Corporation, the directors shall be divided into three classes as
nearly equal in number as reasonably possible, with the initial term of
office of directors of the first class to expire at the second annual
meeting of stockholders of the Corporation, the initial term of office of
directors of the second class to expire at the third annual meeting of
stockholders of the Corporation, and the initial term of office of
directors of the third class to expire at the fourth annual meeting of
stockholders of the Corporation. At each annual meeting of
stockholders following such initial classification and election, directors
shall be chosen for a full term of three years to succeed those directors
whose terms expire. All directors shall hold office until the
expiration of their terms and until their successors are elected and
qualified, except in the case of death, resignation or removal of a
director.
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6.3
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Filling Vacancies on the
Board. Subject to the rights of the holders of any
outstanding series of Preferred Stock, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, removal from office, disqualification or other cause may be
filled only by a majority vote of the directors then in office, although
less than a quorum. Directors so chosen shall hold office for a
term expiring at the next annual meeting of stockholders at which
directors are to be elected. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of
any incumbent director.
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6.4
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Removal of
Directors. Subject to the rights of the holders of any
outstanding series of Preferred Stock, any director or the entire Board of
Directors may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of a majority of the combined
voting power of the then outstanding shares of capital stock of all
classes and series of the Corporation entitled to vote generally in the
election of directors, voting together as a single
class.
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Article
VII
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7.1
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Power to Amend
Bylaws.
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(a)
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The
Board of Directors is expressly empowered to adopt, amend or repeal any or
all of the Bylaws of the Corporation. Any adoption, amendment
or repeal of the Bylaws of the Corporation by the Board of Directors shall
require the approval of a majority of the Whole Board. The term
"Whole Board" shall mean the total number of authorized directors whether
or not there exists any vacancy in previously authorized
directorships.
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(b)
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The
stockholders shall also have the power to adopt, amend or repeal the
Bylaws of the Corporation. In addition to any vote of the
holders of any class or series of stock of the Corporation required by law
or by this Certificate of Incorporation, the affirmative vote of the
holders of a majority of the combined voting power of the then outstanding
shares of capital stock of all classes and series of the Corporation
entitled to vote generally in the election of directors, voting together
as a single class shall be required to adopt, amend or repeal any
provisions of the Bylaws of the
Corporation.
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Article
VIII
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8.1
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Elimination of Certain
Liability of Directors. A director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of his or her fiduciary duty as a director,
except for liability —
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(a)
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For
any breach of the director's duty of loyalty to the Corporation or its
stockholders;
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(b)
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For
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of
law;
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(c)
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Under
Section 174 of the Delaware General Corporation Law;
or
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(d)
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For
any transaction from which the director derived an improper personal
benefit.
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If after
approval by the stockholders of this Article VIII the
Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so
amended.
Any
repeal or modification of the foregoing provisions of this Article VIII by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of, or increase
the liability of any director of this Corporation with respect to any acts or
omissions of such director occurring prior to, such repeal or
modification.
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8.2
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Indemnification.
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(a)
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Right to
Indemnification. Each person who was or is made a party
or is threatened to be made a party to, or is involved in, any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding") by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or
was a director or officer, of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended, but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment, against all expense, liability and loss
(including attorneys' fees, judgments, fines, excise taxes under the
Employee Retirement Income Security Act of 1974 or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person in connection
therewith.
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(b)
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The
indemnification provided for herein shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Subsection (d),
below, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the
Corporation.
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(c)
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The
right to indemnification conferred in this Section 8.2
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition. However, if the Delaware
General Corporation Law requires the payment of such expenses incurred by
a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, payment shall be made only upon delivery to the Corporation of
an undertaking by or on behalf of such director or officer to repay all
amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section 8.2 or
otherwise. The Corporation may by action of its Board of
Directors provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing
indemnification of directors and
officers
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(d)
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Right of Claimant to Bring
Suit.
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(i)
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If
a claim under this Section 8.2 is
not paid in full by the Corporation within thirty (30) days after a
written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim, and if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim.
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(ii)
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It
shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not
met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Corporation.
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(iii)
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Neither
(1) the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor (2) an actual determination by the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable
standard or conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of
conduct.
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(e)
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Non-Exclusivity of
Rights. The right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section 8.2
shall not be exclusive of any other right that any person may have or
hereafter acquire under any statute; any provision of this Certificate of
Incorporation; any bylaw; any agreement; any vote of stockholders or
disinterested directors; or
otherwise.
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(f)
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Insurance. The
Corporation may, at its own expense, maintain insurance to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation
Law.
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(g)
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Settlement of
Claims. The Corporation shall not be liable to indemnify
any indemnitee under this Section 8.2 for
any amounts paid in settlement of any action or claim effected without the
Corporation's written consent, which consent shall not be unreasonably
withheld, conditioned or delayed, or for any judicial award if the
Corporation was not given a reasonable and timely opportunity, at its
expense, to participate in the defense of such
action.
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(h)
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Subrogation. In
the event the Corporation makes a payment under this Section 8.2,
the Corporation shall be subrogated to the extent of such payment to all
of the rights of recovery of the indemnitee, and the indemnitee shall
execute all papers required and shall do everything that may be necessary
to secure such rights, including the execution of such documents necessary
to enable the Corporation effectively to bring suit to enforce such
rights.
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(i)
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Procedures for Submission of
Claims. The Board of Directors may establish reasonable
procedures for the submission of claims for indemnification pursuant to
this Section
8.2, for the determination of the entitlement of any person
thereto, and for the review of any such
determination.
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Article
IX
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9.1
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Amendments.
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(a)
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Amendment of Article
VIII. Notwithstanding any other provision of this
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any vote of the
holders of any class or series of the stock of this Corporation required
by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 75% of the combined voting power of the then
outstanding shares of capital stock of all classes and series of the
Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to amend or repeal
Article
VIII hereof and this Section
9.1(a).
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(b)
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Amendment of Other
Articles. In addition to any vote of the holders of any
class or series of stock of this Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of a
majority of the combined voting power of the then outstanding shares of
capital stock of all classes and series of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class shall be required to amend or repeal the provisions of this
Certificate of Incorporation except as provided above with respect to the
amendment of Article VIII
and Section
9.1(a) hereof.
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In
Witness Whereof, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed by a duly authorized officer of the
Corporation this ___ day of ____________, 2008.
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Sterling
Construction Company, Inc.
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By:
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Patrick
T. Manning
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Chairman
of the Board of Directors
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Chief
Executive Officer
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Exhibit
B
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FOURTH:
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Section
1. Capitalization. The
total number of shares of all classes of stock which the Corporation has
authority to issue is 20,000,000, consisting
of:
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(a)
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One
million (1,000,000) shares of Preferred Stock, par value one cent ($0.01)
per share (the "Preferred Stock");
and
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(b)
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Nineteen
million (19,000,000) shares of Common Stock, par value one cent ($0.01)
per share (the "Common
Stock")."
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