def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Sterling
Construction Company, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
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STERLING CONSTRUCTION COMPANY, INC.
20810 Fernbush Lane
Houston, Texas 77073
Telephone: (281) 821-9091
NOTICE OF THE 2007 ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the 2007 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 7, 2007 |
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Place:
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The offices of Sterling Construction Company, Inc.
20810 Fernbush Lane
Houston, Texas 77073 |
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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 three Class III directors, each to serve for a term of
three years and until his successor is duly elected and
qualified. |
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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 2007. |
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To transact any other business that may properly come before the
meeting. |
The stockholders of record at the close of business on March 9, 2007 are entitled to notice of the
meeting and to vote at the meeting or any adjournment of it.
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By Order of the Board of Directors |
April 4, 2007
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Roger M. Barzun, Secretary |
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.
STERLING CONSTRUCTION COMPANY, INC.
Proxy Statement for the 2007 Annual Meeting of Stockholders
Table of Contents
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-ii-
STERLING CONSTRUCTION COMPANY, INC.
20810 Fernbush Lane
Houston, Texas 77073
Tel.: (281) 821-9091
PROXY STATEMENT
FOR THE 2007 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 4, 2007.
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 2007 Annual Meeting of Stockholders. The Annual Meeting will be held
on May 7, 2007 at 11:30 a.m. local time at the Company’s offices at 20810 Fernbush Lane, Houston,
Texas.
The Record Date.
The Company has established March 9, 2007 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.
On the Record Date, there were 10,936,468 shares of the Company’s common stock outstanding.
Methods of Voting.
There are two ways that as a record holder you may vote 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
Patrick T. Manning, Joseph P. Harper, Sr. and Karen A. Stempinski 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 —
FOR the election of the nominees for director listed on the proxy; and
FOR the ratification of the selection of the Company’s independent registered public accounting
firm.
The Board does not know of any proposal that will be presented for consideration at the Annual
Meeting other than the election of directors and the ratification of the selection of the
Company’s independent registered public accounting firm. 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
ways:
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By delivering to the Secretary of the Company at the Company’s address set forth above a
written statement to that effect; |
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By submitting a proxy dated later than a previous proxy; or |
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By notifying the chairman at the Annual Meeting that you wish to vote in person and to
thereby revoke your proxy. |
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.
- 1 -
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. In the election of directors (Proposal 1) the
director nominees with the most votes will be elected. For the effect of your vote on Proposal 2,
see the information below under the heading Ratification of the Selection of Independent Registered
Public Accounting Firm (Proposal 2).
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 — known as broker non-votes. As a result,
abstentions and broker non-votes will have no effect on the voting on any of the proposals
described in this Proxy Statement.
The Solicitation of Proxies and Expenses.
In addition to sending this Proxy Statement to
stockholders, directors, officers and employees of the Company 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 of common stock and to forward solicitation materials to those beneficial owners. The
Company will reimburse them for their 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 and any other solicitation materials.
The 2006 Annual Report.
A copy of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2006, which has been filed with the Securities and Exchange Commission (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
nine directors. The Company’s Certificate of Incorporation divides directors into three classes
and there are currently three directors in each class. 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. On March 14, 2007, the Board
increased the number of directors from eight to nine and elected Donald P. Fusilli, Jr. a Class III
director to fill the new directorship. The term of Class III directors expires at the 2007 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,
Compensation and Corporate Governance & Nominating Committees 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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Committee Assignment |
John D. Abernathy
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Audit Committee (Chairman) |
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Compensation Committee |
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Corporate Governance & Nominating Committee |
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Robert W. Frickel
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Compensation Committee (Chairman) |
- 2 -
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Committee Assignment |
Milton L. Scott
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Audit Committee |
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Compensation Committee |
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Corporate Governance & Nominating Committee |
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David R. A. Steadman
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Corporate Governance & Nominating Committee (Chairman) |
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Audit Committee |
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Donald P. Fusilli, Jr.
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Christopher H. B. Mills
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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 considered the fact that
Mr. Mills is the Chief Executive Officer of North Atlantic Smaller Companies Investment Trust plc,
or NASCIT, which is a stockholder, but 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 TSC 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 the 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 2006 the Company paid
fees of $18,975 to Eugene Abernathy, of which $8,875 had been accrued at December 31, 2005. 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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Donald P. Fusilli, Jr.
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Director
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III
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2007 |
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Maarten D. Hemsley
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Chief Financial Officer, Director
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III
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1998 |
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Christopher H. B. Mills
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Director
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III
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2001 |
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2007 |
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Continuing Directors |
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Patrick T. Manning
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Chairman of the Board & Chief Executive Officer
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2001 |
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Joseph P. Harper, Sr.
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President, Treasurer &
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Chief Operating Officer, Director |
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Nominees |
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Term Expires |
David R. A. Steadman
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Director
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John D. Abernathy
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Director
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II
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Robert W. Frickel
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Director
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II
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2001 |
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Milton L. Scott
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Director
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II
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2005 |
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The Background of the Nominees.
Donald P. Fusilli, Jr. Mr. Fusilli was elected a director of the Company on March 14, 2007. Mr.
Fusilli is an independent consultant. 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. Since September 12, 2006 Mr. Fusilli has been an independent consultant providing
strategic planning, marketing development and operations management services. Mr. Fusilli is a
director of RTI International Metals, Inc., an NYSE-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 has been an employee in various capacities and/or a director of
the Company and its predecessors since 1988. Mr. Hemsley served as President, Chief Operating
Officer and Chief Financial Officer until July 2001, and currently serves as Chief Financial
Officer. 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, or JOHCM, 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 JO Hambro Capital Management Group Limited,
or JOHCMG, an investment management company based in the United Kingdom. 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 6.23% holder of
the Company’s common stock. Mr. Mills is a director of three U.S. public companies: Lesco, Inc.,
which manufactures and sells fertilizer and lawn products; NetBank, Inc., a financial holding
company that operates a family of businesses focused primarily on consumer and small business
banking as well as conforming mortgage lending; and W-H Energy Services, Inc., which is in the
oilfield services industry. 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 Background of the Continuing Directors.
Patrick T. Manning. Mr. Manning joined the predecessor of Texas Sterling Construction, L.P., our
construction subsidiary, which along with its predecessors we refer 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 the Company’s Chairman of the Board of Directors and Chief
Executive Officer 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.
- 4 -
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 its Treasurer. 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.
David R. A. Steadman. Mr. Steadman is President of Atlantic Management Associates, Inc., a
management services and investment group. An engineer by profession, he served as Vice President
of the Raytheon Company from 1980 until 1987 where he was responsible for commercial
telecommunications and data systems businesses in addition to setting up a corporate venture
capital portfolio. Subsequent to that and until 1989, Mr. Steadman was Chairman and Chief
Executive Officer of GCA Corporation, a manufacturer of semiconductor production equipment. Mr.
Steadman serves as Chairman of Brookwood Companies Incorporated, a major textile converter, dyer
and finisher and as a director of Aavid Thermal Technologies, Inc., a provider of thermal
management solutions for the electronics industry, both privately-held companies. Mr. Steadman
also serves as Chairman of Tech/Ops Sevcon, Inc., a public company that manufactures electronic
controls for electric vehicles and other equipment. Mr. Steadman is a Visiting Lecturer in
Business Administration at the Darden School of the University of Virginia.
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 non-executive
chairman of the board of Par Pharmaceutical Companies, Inc., an NYSE-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 Company’s 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 currently an independent consultant to the energy industry. He
was previously a consultant to 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, an NYSE-listed company that is
in the oilfield services industry.
The Executive Officers of the Company.
In addition to Messrs. Manning, Harper and Hemsley, the
only other executive officer of the Company is Roger M. Barzun, 65, who has been Vice President,
Secretary and General Counsel since August 1991, 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.
RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Proposal 2)
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 2007. Grant
Thornton was also the Company’s independent registered public accounting firm for the year ended
December 31, 2006.
- 5 -
The Board is asking stockholders to approve the selection of Grant Thornton although ratification
is not required by law or by the Company’s by-laws. 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.
BOARD OPERATIONS
Communicating with the Board.
Interested persons wishing to communicate with the Board about
their concerns or questions about the Company or on other matters may do so by U.S. Mail addressed
to Board of Directors, c/o 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. Fusilli, Hemsley and Mills for re-election to the Board
as Class III directors. Their current term of office expires at the Annual Meeting. The term of
Class I directors expires at the Annual Meeting of Stockholders in 2008, and the term of Class II
directors expires at the Annual Meeting of Stockholders in 2009. Information about the background
of the nominees is set forth above in 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. 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. It seeks 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.
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. Mr. Fusilli was initially brought to the attention of the Board through the recommendation
of the Company’s financial advisor, D.A. Davidson & Co., who were aware of his background in
engineering and construction as well as his management experience.
The Committee has not established a policy regarding the consideration of director candidates
recommended by stockholders primarily because no recommendations of that kind have been received by
the Company 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
described in this section above under the heading Communicating with the Board. Recommendations of
candidates for nomination for the 2008 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 2006.
The Board held seven meetings during 2006. Mr. Mills
did not attend three of those meetings. During 2006, each of the other directors (except Mr.
Fusilli, who was not a director in 2006) attended all of the meetings of the Board while he was a
director, as well as all meetings of committees of the Board on which he served. Five of the eight
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.
- 6 -
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 and David R. A. Steadman. 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
five meetings in 2006. 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 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 2006
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, 2006 for
filing with the SEC.
Submitted by the members of the Audit Committee on April 4, 2007
John D. Abernathy, Chairman
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 Milton L. Scott. The Compensation Committee held three meetings in
2006. The Compensation Committee has a charter that is posted on the Company’s website at
www.sterlingconstructionco.com.
- 7 -
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 executive officers; |
|
|
• |
|
evaluate executive officers’ performance 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 the chief executive officer 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 executive officers 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. To date, the Committee has not employed any compensation consultants, but may do
so in the future. 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.
As noted above, during 2006, Robert W. Frickel, John D. Abernathy and Milton L. Scott served on the
Compensation Committee. None of the Compensation Committee members is or has ever 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 2006, the Company paid
or accrued for payment to R.W. Frickel Company approximately $57,500 in fees. The Company
estimates that during 2007, the fees of R.W. Frickel Company will be approximately the same as in
2006.
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 2006 served as a director or member of the Company’s
Compensation Committee.
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
- 8 -
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 4, 2007
Robert W. Frickel, Chairman
John D. Abernathy
Milton L. Scott
The Corporate Governance & Nominating Committee.
The members of the Corporate Governance &
Nominating Committee are David R. A. Steadman, Chairman, John D. Abernathy and Milton L. Scott.
The Corporate Governance & Nominating Committee held two meetings in 2006. 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 |
|
|
• |
|
set the remuneration for non-employee directors, committee members and committee
chairpersons. |
Compensation of Directors.
Directors who are employees of the Company, namely Messrs. Manning, Harper and Hemsley are not paid
additional compensation for serving on the Board. The following table contains information
concerning the compensation for 2006 of directors who are not officers or employees of the Company.
All dollar numbers are rounded to the nearest dollar.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
or Paid in |
|
|
Stock |
|
|
|
|
|
|
Cash(1) |
|
|
Awards(1) (2) (3) |
|
|
Total(1) (4) |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
John D. Abernathy (Lead director)
Chairman of the Audit Committee
Member of the Compensation Committee
Member of the Corporate Governance &
Nominating Committee |
|
$ |
32,300 |
|
|
$ |
23,333 |
|
|
$ |
55,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Frickel
Chairman of the Compensation Committee |
|
$ |
18,800 |
|
|
$ |
23,333 |
|
|
$ |
42,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald P. Fusilli, Jr.* |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Christopher H. B. Mills |
|
$ |
11,750 |
|
|
$ |
23,333 |
|
|
$ |
35,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton L. Scott
Member of the Audit Committee
Member of the Compensation Committee
Member of the Corporate Governance &
Nominating Committee |
|
$ |
19,800 |
|
|
$ |
23,333 |
|
|
$ |
43,133 |
|
- 9 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
or Paid in |
|
|
Stock |
|
|
|
|
|
|
Cash(1) |
|
|
Awards(1) (2) (3) |
|
|
Total(1) (4) |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
David R. A. Steadman
Chairman of the Corporate Governance
& Nominating Committee
Member of the Audit Committee |
|
$ |
25,500 |
|
|
$ |
23,333 |
|
|
$ |
48,833 |
|
|
|
|
* |
|
Mr. Fusilli was elected to the Board on March 14, 2007 as a third Class I director and
therefore earned no fees for 2006. |
|
(1) |
|
The fees and awards for 2006 are based on the standard compensation arrangements for
directors adopted by the Corporate Governance & Nominating Committee on May 10, 2006 and are
as follows: |
|
|
|
|
|
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 |
|
|
|
|
limited to $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 may not be sold, assigned, transferred, pledged or otherwise
disposed of until the restrictions expire. The restrictions for the May 10, 2006 grants
expire on the day before the 2007 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. |
|
(2) |
|
The value of these stock awards is the total dollar cost recognized from the award in 2006
for financial reporting purposes in accordance with FAS 123R. No amounts earned by a director
have been capitalized on the balance sheet for 2006. The cost does not reflect any estimates
made for financial statement reporting purposes of future forfeitures by the executive officer
related to service-based vesting conditions. The valuation of these |
- 10 -
|
|
options was made on the equity valuation assumptions described in the Company’s Annual Report on
Form 10 K (which accompanies this Proxy Statement) in Note 10 of Notes to Consolidated Financial
Statements. None of the awards has been forfeited. |
|
(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, 2006. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
|
|
|
Grant Date Fair |
|
|
|
|
|
|
Option Awards |
|
Aggregate Stock |
|
Value of Stock |
|
|
|
|
|
|
Outstanding |
|
Awards Outstanding |
|
and |
|
|
|
|
|
|
at December 31, 2006 |
|
at December 31, 2006 |
|
Option Awards |
Name |
|
Grant Date |
|
(#) |
|
(#) |
|
($) |
John D. Abernathy |
|
|
5/1/1997 |
|
|
|
3,000 |
|
|
|
|
|
|
|
† |
|
|
|
|
1/13/1998 |
|
|
|
65,000 |
|
|
|
|
|
|
|
† |
|
|
|
|
5/1/1998 |
|
|
|
3,000 |
|
|
|
|
|
|
|
† |
|
|
|
|
5/1/1999 |
|
|
|
3,000 |
|
|
|
|
|
|
|
† |
|
|
|
|
5/1/2000 |
|
|
|
3,000 |
|
|
|
|
|
|
|
† |
|
|
|
|
5/1/2001 |
|
|
|
1,666 |
|
|
|
|
|
|
|
† |
|
|
|
|
7/23/2001 |
|
|
|
12,000 |
|
|
|
|
|
|
|
57,600 |
|
|
|
|
5/19/2005 |
|
|
|
5,000 |
|
|
|
|
|
|
|
27,950 |
|
|
|
|
5/10/2006 |
|
|
|
|
|
|
|
1,207 |
|
|
|
34,991 |
|
Total |
|
|
|
|
|
|
95,166 |
|
|
|
1,207 |
|
|
|
N/A |
|
|
Robert W. Frickel |
|
|
7/23/2001 |
|
|
|
12,000 |
|
|
|
|
|
|
|
57,600 |
|
|
|
|
5/19/2005 |
|
|
|
5,000 |
|
|
|
|
|
|
|
27,950 |
|
|
|
|
5/10/2006 |
|
|
|
|
|
|
|
1,207 |
|
|
|
34,991 |
|
Total |
|
|
|
|
|
|
17,000 |
|
|
|
1,207 |
|
|
|
120,541 |
|
|
Donald P. Fusilli, Jr. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
Christopher H. B. Mills |
|
|
5/19/2005 |
|
|
|
5,000 |
|
|
|
|
|
|
|
27,950 |
|
|
|
|
5/10/2006 |
|
|
|
|
|
|
|
1,207 |
|
|
|
34,991 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton L. Scott |
|
|
5/10/2006 |
|
|
|
|
|
|
|
1,207 |
|
|
|
34,991 |
|
|
David R. A. Steadman |
|
|
5/19/2005 |
|
|
|
5,000 |
|
|
|
|
|
|
|
27,950 |
|
|
|
|
5/10/2006 |
|
|
|
|
|
|
|
1,207 |
|
|
|
34,991 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,941 |
|
|
|
|
|
† |
|
These options were granted prior to 2003 when the Company started to record the value
of stock option awards as an expense. |
|
(4) |
|
During 2006, 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. |
STOCK OWNERSHIP INFORMATION
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information at March 1, 2007 about the beneficial ownership
of shares of the Company’s common stock by each person or entity known to the Company to own
- 11 -
beneficially more than 5% of the outstanding shares of common stock and by each director; the
executive officers named below in the Summary Compensation Table for 2006 under the heading
Executive Compensation; and all directors and executive officers as a group. None of the shares
are pledged as security. 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.
Rule 13d-3(d)(1) of the Exchange Act requires that the percentages listed in the following table
assume for each person, entity or group the acquisition of all shares that the person, entity or
group could acquire within sixty days of March 1, 2007, for instance by the exercise of a stock
option, but not the acquisition of the shares that could be acquired in that period by any other
person, entity or group listed.
Except for Mr. Mills and the entities listed below, the address of each person listed below is the
address of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Shares of |
|
|
Shares Subject |
|
|
Total |
|
|
|
|
Name and Address of Beneficial |
|
Common Stock |
|
|
to |
|
|
Beneficial |
|
|
Percent |
|
Owner |
|
Owned |
|
|
Purchase* |
|
|
Ownership |
|
|
of Class |
|
North Atlantic Smaller Companies
Investment Trust plc (or NASCIT)
c/o North Atlantic Value LLP,
Ryder Court, 14 Ryder Street,
London SW1Y 6QB, England |
|
|
681,400 |
(1) |
|
|
— |
|
|
|
681,400 |
|
|
|
6.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Atlantic Value LLP (or NAV)
Court, 14 Ryder Street,
London SW1Y 6QB, England |
|
|
681,400 |
(1) |
|
|
— |
|
|
|
681,400 |
|
|
|
6.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dreman Value Management, LLC
Harborside Financial Center
Plaza 10, Suite 800
Jersey City, New Jersey 07311 |
|
|
934,183 |
(2) |
|
|
— |
|
|
|
934,183 |
|
|
|
8.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deutsche Bank AG
Taunusanlage 12
D-60325 Frankfurt am Main
Federal Republic of Germany |
|
|
648,900 |
(3) |
|
|
— |
|
|
|
648,900 |
|
|
|
5.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John D. Abernathy |
|
|
10,203 |
(4) |
|
|
45,166 |
|
|
|
55,369 |
|
|
|
† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Frickel |
|
|
63,207 |
(4) |
|
|
17,000 |
|
|
|
80,207 |
|
|
|
† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald P. Fusilli, Jr. †† |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph P. Harper, Sr. |
|
|
585,140 |
(5) |
|
|
140,908 |
|
|
|
726,048 |
|
|
|
6.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maarten D. Hemsley |
|
|
114,888 |
|
|
|
207,174 |
|
|
|
322,062 |
|
|
|
2.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick T. Manning |
|
|
149,000 |
|
|
|
32,520 |
|
|
|
181,520 |
|
|
|
1.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher H. B. Mills
c/o North Atlantic Value LLP,
Ryder Court, 14 Ryder Street,
London SW1Y 6QB, England |
|
|
694,607 |
(1)(4)(6) |
|
|
5,000 |
|
|
|
699,607 |
|
|
|
6.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton L. Scott |
|
|
1,207 |
(4) |
|
|
— |
|
|
|
1,207 |
|
|
|
† |
|
- 12 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Shares of |
|
|
Shares Subject |
|
|
Total |
|
|
|
|
Name and Address of Beneficial |
|
Common Stock |
|
|
to |
|
|
Beneficial |
|
|
Percent |
|
Owner |
|
Owned |
|
|
Purchase* |
|
|
Ownership |
|
|
of Class |
|
David R. A. Steadman |
|
|
15,207 |
(4) |
|
|
5,000 |
|
|
|
20,207 |
|
|
|
† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive
officers as a group (10 persons) |
|
|
1,655,620 |
(7) |
|
|
463,248 |
(7) |
|
|
2,118,868 |
(7) |
|
|
18.59 |
% |
|
|
|
* |
|
These are shares that person, entity or group could acquire within sixty days of March 1,
2007. |
|
† |
|
Less than one percent. |
|
†† |
|
Mr. Fusilli was elected a director on March 14, 2007. He owns no
shares of the Company’s common stock and has no rights to acquire
shares of the Company’s common stock. |
|
(1) |
|
According to a Form 13G/A (Amendment No. 3) filed with the Securities and Exchange Commission
on February 6, 2007, each of NASCIT, Mr. Mills and NAV claims shared voting and investment
power over these shares. |
|
(2) |
|
According to a Form 13G filed with the Securities and Exchange Commission on February 14,
2007, Dreman Value Management, LLC is an investment adviser with sole voting and dispositive
power over these shares. |
|
(3) |
|
According to a Form 13G filed with the Securities and Exchange Commission on February 2,
2007, Deutsche Bank AG has sole voting and dispositive power over these shares. Deutsche Bank
AG further states in the filing: “In accordance with Securities Exchange Act Release No. 39538
(January 12, 1998), this filing reflects the securities beneficially owned by the Corporate
and Investment Banking business group and the Corporate Investments business group
(collectively, “CIB”) of Deutsche Bank AG and its subsidiaries and affiliates (collectively,
“DBAG”). This filing does not reflect securities, if any, beneficially owned by any other
business group of DBAG. Consistent with Rule 13d-4 under the Securities Exchange Act of 1934
(“Act”), this filing shall not be construed as an admission that CIB is, for purposes of
Section 13(d) under the Act, the beneficial owner of any securities covered by the filing.
Furthermore, CIB disclaims beneficial ownership of the securities beneficially owned by (i)
any client accounts with respect to which CIB or its employees have voting or investment
discretion, or both, and (ii) certain investment entities, of which CIB is the general
partner, managing general partner, or other manager, to the extent interests in such entities
are held by persons other than CIB.” |
|
(4) |
|
This number includes, or in the case of Mr. Scott, consists entirely of, 1,207 shares subject
to restrictions that expire on the day preceding the 2007 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. |
|
(5) |
|
This number includes 8,000 shares held by Mr. Harper as custodian for his grandchildren. |
|
(6) |
|
This number consists of the 681,400 shares owned by NASCIT; 12,000 shares owned by Mr. Mills
personally over which he claims sole voting and investment power; and 1,207 shares owned by
Mr. Mills that are subject to the same restrictions as are described in footnote (4), above. |
|
(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 SEC reports of
beneficial ownership of those securities and certain changes in beneficial ownership on Forms 3, 4
and 5 and to furnish the Company with copies of those reports.
Based solely upon a review of Forms 3 and 4 and amendments to them furnished to the Company during
2006, any Forms 5 and amendments to them furnished to the Company relating to 2006, 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:
In May 2006 Mr. Mills shared voting and investment power over 870,000 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 seven sales by
NASCIT between May 26 and June 6, 2006 of 113,856 shares in total. A Form 4 reporting these
sales was filed with the SEC on July 21, 2006.
- 13 -
In November 2006 Mr. Mills failed to timely file a Form 4 covering three sales by NASCIT of a
total of 74,744 shares of the Company’s common stock between November 20 and November 22, 2006.
A Form 4 reporting these sales was filed with the SEC on November 27, 2006.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis.
Introduction.
The Company has three executive officers whose compensation is required to be
disclosed in the Summary Compensation Table for 2006, below. They are sometimes referred to in
this Proxy Statement as the named executive officers. They consist of the Chief Executive Officer,
or CEO; the President and Chief Operating Officer, or COO; and the Chief Financial Officer, or CFO.
From the early 1970’s until 2001, the CEO and COO were senior managers of TSC and
its predecessors, privately-held companies in which they and their family members were the
principal stockholders. The CFO has been an employee of the Company and its predecessors since
1988. The compensation of these officers is not policy-driven because they are few in number and
because of their long tenure. Since July 2001, when the Company acquired a majority interest in
TSC, the CEO and the COO have continued their former positions at TSC and have also filled similar
positions at the Company. As a result, their compensation has been based on their prior
compensation, the Company’s financial condition, and comparable compensation in the construction
industry.
Compensation Objectives.
The Company’s compensation objectives for the named executive officers,
as well as for other management employees, is to provide them with a fair rate of pay for the work
they do, to give them an incentive to make the Company financially successful, and to give them an
incentive to remain with the Company.
Employment Agreements.
Since the July 2001 acquisition of TSC, the Company has entered into
successive multi-year employment agreements with its named executive officers. Their current
agreements expire in July 2007. The material terms of those agreements are described below under
the heading Employment Agreements of Named Executive Officers. The Company believes that an
employment agreement has the benefit of assuring the executive of continuity both as to his
employment and the amount and elements of his compensation. An employment agreement gives the
Company some level of assurance that the executive will remain with the Company and enables the
Company to budget salary costs over the term of the agreement. In the case of each named executive
officer, his salary remains unchanged during the term of his agreement. All elements of the cash
compensation of the named executive officers are paid according to the terms of their agreements.
Elements of Compensation.
As shown in the Summary Compensation Table for 2006, below, executive
compensation has three main parts: a salary paid in cash, an annual cash incentive bonus plan, in
which payment is contingent on the financial performance of the Company, and a long-term equity
incentive that the Company provides through the award of options to purchase the Company’s common
stock.
Salary is intended to reward executives for their 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.
Levels of Compensation.
Salary. Because an executive’s salary is meant to reflect his value to the Company on a
day-to-day basis, it is a fixed, predetermined element of his compensation. When the Compensation
Committee reviews the level of an executive’s salary for a possible increase at the end of the term
of his employment agreement, that review is based on two main factors: his prior salary and the
salary range of executives in comparable companies at a comparable
level of responsibility.
Compensation Committee members take an executive’s prior salary into account because they believe
that it reflects the assessment of prior boards and/or compensation committees of the executive’s
value to the Company. Compensation levels of comparable companies are obtained from industry trade
publications such as the Pas, Inc. “Executive Compensation Survey for Contractors.” In addition,
the Chairman of the Compensation Committee provides his knowledge of construction industry
compensation levels gained in
- 14 -
the course of the work of his accounting firm, which represents
several construction companies in the Detroit area. The executives’ salaries are designed to fall
within the range of comparable companies both as to salary and as to overall compensation. To date
the Committee has not used compensation consultants.
Cash Incentive Bonus Plan. The level of compensation that an executive can earn under the
cash incentive bonus plan is based on the Company’s attainment of financial goals for a given year
in relation to the annual budget, which the Board of Directors has approved in advance. Financial
performance that exceeds expectations can enable the CEO and COO to earn an additional bonus equal
to, but not more than, his salary, a limitation that Committee members in their personal judgement
based on their business experience believe is reasonable. The cash incentive bonus plan has both
fixed and discretionary parts. The cash incentive bonus plan does not have any portion based on the executive’s achievement of
specific personal or individual goals or objectives because the Company has not believed that it is
practical to try to distinguish on a year-to-year basis the relative contributions of the executive
officers to the Company’s overall financial results. In the case of the CFO, whose employment
agreement permits him to work on non-Company matters, the Compensation Committee takes into
account, among other things, the amount of time during a given year he has devoted to non-routine
tasks for the Company in awarding any discretionary portion of his bonus.
The amount of the cash incentive bonus in a given year, if any, is derived from a formula based on
TSC’s, or in the case of Mr. Hemsley, the Company’s, annual budgeted earnings before payment of
interest charges, taxes, and charges for depreciation and amortization, referred to as EBITDA. The
amount of budgeted EBITDA for each year must be approved by the Board of Directors, which has a
majority of directors who are not employees of the Company.
EBITDA is not a financial measure found in generally accepted accounting principles, or GAAP; it is
calculated according to its definition in the named executive officers’ employment agreements by
taking net income determined in accordance with GAAP for a given fiscal year and —
adding back:
Interest expense for the period;
Depreciation and amortization expense for the period;
Federal and state income tax expense incurred for the period;
Any extraordinary items to the extent a negative number;
Any fees paid to non-employee directors;
All charges for overhead or similar non-operating expenses of the Company as TSC’s ultimate
parent company; and
subtracting:
Any extraordinary items to the extent a positive number; and
Interest income for the period.
Because Mr. Hemsley’s cash incentive bonus is based on the Company’s consolidated EBITDA, bonuses
paid to other members of management are also deducted in the computation of the Company’s budgeted
EBITDA, which is further adjusted for any material changes in the Company’s business that occur
during the year, such as the sale of a part of the business.
Footnote (1) to the table of Grants of Plan-Based Awards for 2006, below, describes the formulas
for the calculation of cash incentive bonuses and additional cash incentive bonuses. The formula
was made part of the executives’ compensation agreements in 2001 when the Company acquired its
majority interest in TSC. It was proposed by one of the major investors in the acquisition, among
other things because the Company already had an operating subsidiary, Steel City Products. EBITDA
was used as a measure of financial performance because it was the number over which the efforts of
senior management had the most direct effect. Debt levels of the Company at the time of the
acquisition were unrelated to the operations of TSC’s business, and income tax expenses were being
offset by tax loss carryforwards. In addition, the success or lack of success of operating
management did not directly affect the overhead expenses of the Company as the ultimate parent of
TSC.
- 15 -
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
Compensation Committee use their personal judgement 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.
The Compensation Committee authorizes the payment of incentive bonuses and, if applicable, makes
any decisions on discretionary amounts, when the results for the year in question are known,
typically in March of the following year. Bonuses for 2006 were approved in March, 2007. The 2006
EBITDA level achieved was sufficient to earn the executives their fixed cash incentive bonuses.
However, because 2006
EBITDA fell between 110% of budgeted EBITDA, the level for earning the minimum additional cash
incentive bonus, and 130% of budgeted EBITDA, the level for earning the maximum additional cash
incentive bonus, the Committee was required under the executives’ employment agreements to exercise
its discretion in determining the amount of additional cash incentive bonuses to award between the
minimum and the maximum. In exercising that discretion, members of the Committee considered the
fact that 2006 EBITDA missed the target for the maximum bonus by only four percentage points; the
overall management of the Company during 2006 by senior executives; and the Company’s notable
financial achievements during the year. The Committee approved additional cash incentive bonuses
at 90% of the maximum that could have been awarded under the employment agreements. The Summary
Compensation Table for 2006, below, shows the total 2006 cash incentive bonuses of each named
executive officer.
When the executives’ current employment agreements expire in July 2007, the Compensation Committee
plans to use one or more GAAP financial measures for cash incentive bonuses that reflect the
performance of the Company as a whole.
Equity Incentive Plan. The award of an option to buy the Company’s common stock is a
long-term element of compensation since 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. Because 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.
The Company calculates the value of a stock option award on the date of its grant under accounting
requirements that involve the use of a complex formula consisting of estimates about the Company,
its stock price and the likelihood of the option holder forfeiting the stock option. In 2003 the
Company voluntarily started to record the value of stock option awards as an expense incurred by
the Company like any other expense, such as salaries. As a result, in considering the size of a
stock option award, the Compensation Committee takes into account both the value of the award to
the recipient and the corresponding accounting cost to the Company. In 2006 recording stock option
awards as an expense was required of all companies under Financial Accounting Standard No. 123
(revised 2004), or FAS 123R. The dollar amount shown in the Summary Compensation Table for 2006,
below, for stock option awards is the value of the options computed under FAS 123R.
When the current employment agreements of Messrs. Manning and Harper were negotiated in July 2004,
they each agreed to receive stock option awards in place of some of their salary to save the
Company cash. To accomplish this, their employment agreements provide for annual stock option
awards that are larger than would have otherwise been made, and the Company awarded smaller
additional stock options to them when stock option awards were made to other management employees.
Other Compensation. The only other forms of compensation of the executive officers are
health and other benefits made available to all salaried employees and the so-called perquisites
shown in the Summary Compensation Table for 2006, below, in the column labeled All Other
Compensation. A detailed description of the perquisites is shown in footnote 3 to the table. The
car allowances and the payment of expenses of commuting to work for Messrs. Manning and Harper
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 pays Messrs. Manning’s and Harper’s country club dues because the
clubs are often used for business purposes and as
- 16 -
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 has been provided to him by the Company for many years and is continued
because of that fact. Mr. Harper’s 18 weeks of vacation is carried over from his prior employment
agreement in which his vacation time increased over three years to eighteen weeks in contemplation
of his possibly reducing his time commitment to the Company. In practice, however, with the rapid
growth of the business, Mr. Harper has elected not to take all of that vacation time.
Overall Compensation Levels. As with salary, the Company attempts to provide its
executives with a total compensation package that is comparable to their peers in the industry and
that the members of the Compensation Committee believe in their personal judgement based on their
business experience is fair
and appropriate for the executive’s level of responsibility and contribution to the Company. In
the case of Mr. Hemsley, his compensation is also based on the fact that he is not a full-time
employee.
The Company considers any payments made under the cash incentive bonus plan and any value realized
from stock option awards to have been earned in the calendar year for which they were paid or
realized. The Company takes prior compensation from these sources into account when considering
whether future compensation should be increased or maintained at the then current level.
The Company does not have any policy on equity ownership by senior executives, primarily because in
most cases they already have significant ownership positions.
Stock Option Exercise Price and Fair Market Value.
The agreement covering the Company’s acquisition of TSC required the Company to award stock options
promptly after the closing of the purchase in July 2001 to certain management employees who were
stockholders of TSC, including Messrs. Manning and Harper. Following those grants, the
Compensation Committee has met annually on or about the anniversary of these awards to consider the
further award of stock options. These meetings have been combined with the third
regularly-scheduled quarterly Board meeting at which the Company’s second quarter Form 10-Q is
reviewed and approved for filing.
Although it has not adopted a formal, written policy on the subject, the Company has always set the
exercise price of stock options at the fair market value on the date of the award. Until recently,
the Company’s custom and practice was to treat the closing price of the common stock on the trading
day immediately preceding the date of the meeting at which a stock option award was approved as the
fair market value. These meetings were typically scheduled weeks in advance.
Beginning with the stock option awards made in August 2006, the Company has treated the closing
price on the date of the meeting at which a stock option award is approved as the fair market
value.
To the extent permissible under applicable tax laws and regulations, stock option awards to
employees are intended to qualify as incentive stock options as defined in Section 422 of the
Internal Revenue Code. The compensation paid to the named executive officers is not expected to
exceed the limits on deductibility imposed by Section 162(m) of the Internal Revenue Code.
The Compensation Committee or the independent members of the Board of Directors makes the final
determination of the compensation of the named executive officers. However, the Committee
discusses his compensation with each of the named executive officers in advance of making a
decision.
Summary Compensation Table for 2006.
The following table sets forth all compensation awarded to, earned by, or paid to, the Company’s
principal executive officer and its principal financial officer for 2006. The table also shows the
compensation of the Company’s President, who is the only other executive officer whose compensation
for 2006 exceeded $100,000. These executive officers are not compensated for their service on the
Board of Directors. The Company pays compensation to these executive officers according to the
terms of their employment agreements, which are described below in detail under the heading
Employment Agreements of Named Executive Officers. The amounts include any compensation that was
deferred by the executive through contributions to his defined contribution plan account under
Section 401(k) of the Internal Revenue Code. All amounts are rounded to the nearest dollar.
- 17 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
Name |
|
|
|
|
|
|
|
Option |
|
Incentive Plan |
|
All Other |
|
|
and |
|
|
|
|
|
Salary |
|
Awards(1) |
|
Compensation(2) |
|
Compensation |
|
Total |
Principal Position |
|
Year |
|
($) |
|
($) |
|
($) |
|
($)(3) |
|
($) |
|
Patrick T. Manning |
|
|
2006 |
|
|
$ |
240,000 |
|
|
$ |
82,883 |
|
|
$ |
341,000 |
|
|
$ |
38,950 |
|
|
$ |
702,833 |
|
Chairman of the Board
& Chief Executive
Officer (principal
executive officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph P. Harper, Sr. |
|
|
2006 |
|
|
$ |
235,800 |
* |
|
$ |
82,883 |
|
|
$ |
318,500 |
|
|
$ |
21,150 |
|
|
$ |
658,333 |
|
President, Treasurer &
Chief Operating Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maarten D. Hemsley |
|
|
2006 |
|
|
$ |
129,808 |
|
|
$ |
22,862 |
|
|
$ |
117,500 |
|
|
$ |
12,350 |
|
|
$ |
282,520 |
|
Chief Financial
Officer (principal
financial officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
This includes $20,800 paid to Mr. Harper for foregoing approximately five weeks of the
vacation he is entitled to under his employment agreement. |
|
(1) |
|
The value of these stock option awards is the total dollar cost recognized by the Company of
the award in 2006 for financial reporting purposes in accordance with FAS 123R. No amounts
earned by the executive officers have been capitalized on the balance sheet for 2006. The
cost does not reflect any estimates made for financial statement reporting purposes of
forfeitures by the executive officer related to service-based vesting conditions. |
|
|
|
The valuation of these options was made on the equity valuation assumptions described in the
Company’s Annual Report on Form 10 K (which accompanies this Proxy Statement) in Note 10 of
Notes to Consolidated Financial Statements. None of the awards has been forfeited. For a
description of the basis on which these stock options were awarded and their full grant date
fair market value, see the table of Grants of Plan-Based Awards for 2006, below. |
|
(2) |
|
Cash incentive bonuses were calculated and approved by the Company’s Compensation Committee
in March 2007. The amounts are determined in part by the application of a formula found in
the employment agreement of each executive officer and in part by the Compensation Committee
exercising its discretion as to the amount of additional cash incentive bonus within the range
provided for in the employment agreements. For a description of the formula and its
application, see footnotes (1) and (2) to the table of Grants of Plan-Based Awards for 2006,
below. |
|
(3) |
|
A breakdown of the amounts in the All Other Compensation column is set forth in the following
table. The dollar amounts indicated is the cost of the item to the Company. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Other Compensation |
|
Mr. Manning |
|
Mr. Harper |
|
Mr. Hemsley |
|
Car allowance |
|
$ |
8,400 |
|
|
$ |
8,400 |
|
|
|
— |
|
Expenses of commuting to work |
|
$ |
2,500 |
|
|
$ |
1,800 |
|
|
|
— |
|
Country club dues |
|
$ |
25,000 |
|
|
$ |
4,500 |
|
|
|
— |
|
Company contribution to 401(k) plan
account |
|
$ |
3,050 |
|
|
$ |
6,450 |
|
|
$ |
7,500 |
|
Long-term disability insurance premium |
|
|
— |
|
|
|
— |
|
|
$ |
4,502 |
|
Term life insurance premium |
|
|
— |
|
|
|
— |
|
|
$ |
348 |
|
Grants of Plan-Based Awards for 2006.
The following table shows each grant under a Company plan of an award for 2006 to an executive
officer named in the Summary Compensation Table for 2006, above. 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 2006.
- 18 -
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
|
Grant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Exercise |
|
Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
or Base |
|
Fair |
|
|
|
|
|
|
Estimated Future Payouts |
|
Securities |
|
Price of |
|
Value of |
|
|
|
|
|
|
Under Non-Equity Incentive |
|
Underlying |
|
Option |
|
Option |
|
|
Grant |
|
Plan Awards(1)(2) |
|
Options(3) |
|
Awards (4) |
|
Awards(5) |
Name |
|
Date |
|
($) |
|
(#) |
|
($/sh) |
|
($) |
|
|
|
|
|
|
Threshold |
|
Target |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick T. Manning |
|
|
7/18/2006 |
|
|
$ |
125,000 |
|
|
$ |
24,000 to $240,000 |
|
|
$ |
240,000 |
|
|
|
10,000 |
|
|
$ |
24.96 |
|
|
$ |
163,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/08/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
$ |
25.21 |
|
|
$ |
16,440 |
|
|
Joseph P. Harper, Sr. |
|
|
7/18/2006 |
|
|
$ |
125,000 |
|
|
$ |
21,500 to $215,000 |
|
|
$ |
215,000 |
|
|
|
10,000 |
|
|
$ |
24.96 |
|
|
$ |
163,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/08/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
$ |
25.21 |
|
|
$ |
16,440 |
|
|
Maarten D. Hemsley |
|
|
7/18/2006 |
|
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
125,000 |
|
|
|
2,800 |
|
|
$ |
24.96 |
|
|
$ |
45,724 |
|
|
(1) |
|
|
Messrs. Manning and Harper Non-Equity Incentive Plan Awards. |
|
|
|
|
Under his employment agreement, each of Messrs. Manning and Harper is entitled to an annual
bonus of $125,000 for any fiscal year during the term of the agreement in which TSC achieves 75%
or more of its budgeted EBITDA. This is the Threshold listed in the table since if the 75% is
not achieved, no incentive payment is earned. |
|
|
|
|
An additional cash incentive bonus is payable if TSC’s EBITDA for a given year exceeds the
amount budgeted by at least 10%. If TSC’s EBITDA for a given year exceeds the amount budgeted
by between 10% and 30%, the amount of the additional cash incentive bonus is in the discretion
of the Compensation Committee of the Board of Directors, but may not be less that 10% of the
executive’s base salary or more than 100% of his base salary. This is the Target listed in the
table. |
|
|
|
|
If TSC’s EBITDA for a given year exceeds the amount budgeted by more than 30%, the maximum
additional cash incentive bonus is required to be paid. This is the Maximum listed in the
table. |
|
|
|
|
Certain officers of TSC’s general partner, Sterling General, Inc., or SGI, are entitled to cash
incentive bonuses based on the same formulas described above. The employment agreements of
Messrs. Manning and Harper provide that the additional cash incentive bonuses that can be paid
to them and to those SGI officers together cannot exceed 30% of the amount by which TSC’s EBITDA
exceeds the budgeted EBITDA. |
|
(2) |
|
|
Mr. Hemsley’s Non-Equity Incentive Plan Awards. Under his employment agreement, Mr. Hemsley
is entitled to a 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. The amount of
any additional cash incentive bonus up to a maximum of $75,000 is in the discretion of the
Compensation Committee of the Board of Directors. In exercising their discretion, members of
the Compensation 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 consider relevant. |
|
(3) |
|
|
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, 2006 Stock Option Awards. |
|
• |
|
The employment agreements of the executive officers provide for the grant of these stock
options on this date, which was the second anniversary of the date of the agreement. |
|
|
• |
|
Each option has a five-year term and vests, or becomes exercisable, in full on July 18,
2007, which is the date that each of the employment agreements expires if it is not
extended by the Company. The exercise or purchase price of the shares subject to these
stock options was set at the closing price of the common stock on the Nasdaq National
Market on the trading day immediately preceding the date of grant, the custom and practice
of the Company for many years. |
|
|
• |
|
If the executive officer’s employment is 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 immediately terminate. |
|
|
• |
|
If the executive officer’s employment terminates for any other reason, the officer, his
personal representative or a permitted transferee of the officer (depending on the
circumstances of his termination) may exercise the option from the date it becomes
exercisable through its expiration date. The executives’ |
- 19 -
|
|
|
employment agreements are
described in detail under the heading Employment Agreements of Named
Executive Officers, below. |
|
|
|
The August 8, 2006 Stock Option Awards. |
|
• |
|
These stock options were awarded by the Compensation Committee in the exercise of its
discretion on the date that stock options were awarded to other officers and employees of
the Company. |
|
|
• |
|
Each option has a sixty-one-month term and vests, or becomes exercisable, in five
substantially equal installments on each of the first five anniversaries of the date of the
grant. |
|
|
• |
|
The exercise or purchase price of the shares subject to these stock options is the
closing price of the Company’s common stock on August 8, 2006, which was the date of the
meeting of the Compensation Committee at which the stock options were approved. |
|
|
• |
|
If the officer’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 the officer, 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 the officer’s employment is terminated for cause, which is defined in the option
agreement, or for good cause, which is defined in his employment agreement, all of his
options immediately terminate. |
|
|
• |
|
If the officer’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. |
|
(4) |
|
Establishing the Option Exercise Price. Before August 2006, the Company as a matter of
custom and practice used the closing price of its common stock on the trading day immediately
preceding the date an option was approved as the grant date market value. Granting a stock
option with an exercise price equal to the fair market value on the date of grant is required
if the option holder is to receive the tax benefits of Section 422 of the Internal Revenue
Code. Using the closing price immediately preceding the approval date of the grant satisfied
this requirement. |
|
|
|
|
Had the Company used the closing price of the common stock on July 18, 2006 as the fair market
value rather than the closing price on the immediately preceding trading day, the exercise price
would have been twenty-four cents per share more. |
|
|
|
|
In view of the recently heightened sensitivity of the investing public to the establishment of
the exercise price of stock options, beginning with the August 2006 stock option grants, the
Company’s policy has been 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. |
|
|
(5) |
|
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 the Company’s Annual Report on Form 10 K (which accompanies this Proxy Statement)
in Note 10 of Notes to Consolidated Financial Statements. |
|
|
Employment Agreements of Named Executive Officers. |
|
|
Each of Messrs. Manning and Harper is an executive officer of both the Company and its wholly-owned
subsidiary, Sterling General, Inc., or SGI, which in turn is the general partner of the Company’s
construction business, TSC. Mr. Hemsley is an executive officer of the Company and a director of
SGI. |
|
|
|
Messrs. Manning, Harper and Hemsley are compensated under similar employment agreements that expire
on July 18, 2007. Features of these agreements are discussed above under the heading Compensation
Discussion and Analysis and quantified in the Summary Compensation Table for 2006, and in the table
of Grants of Plan-Based Awards for 2006. The following discussion describes material features of
those agreements not described elsewhere in this Proxy Statement. |
|
|
|
Under the agreements, the executive may resign his employment at any time by giving the Company 180
days’ notice. After July 18, 2007, assuming the executive has not given the Company a notice of
resignation, the Company may continue the executive’s agreement for successive one-year terms by
giving him 90 days’ notice before the July 18, 2007 expiration date and after that, 90 days before
the expiration of each following one-year extension. If at the end of the initial term or of any
one-year extension the Company does not give a notice to extend the agreement, the executive may
terminate his employment for good reason, a defined term in the agreement. For a description of
the different |
- 20 -
circumstances in which the executive’s employment may terminate and the consequences of
termination, see the section below entitled Potential Payments Upon Termination or
Change-in-Control. |
|
The following table describes the material financial features of each of the 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 |
|
8 weeks |
|
18 weeks* |
|
Not specified |
Benefits Paid by the Company(3) |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
* |
|
Mr. Harper is entitled to take 18 weeks of vacation each year. He may take additional
vacation by forfeiting salary at the rate of $4,000 per week and he may forfeit his vacation
time and be paid for it at the rate of $4,000 per week. In 2006, Mr. Harper took
approximately thirteen weeks of vacation and was paid $20,800 for the approximately five weeks
not taken. That amount is included as part of his 2006 salary in the Summary Compensation
Table for 2006, above. |
|
(1) |
|
This cash incentive bonus is based on the financial performance of the Company. The
calculation of the cash incentive bonus and the additional cash incentive bonus is described
in detail in footnotes (1) and (2) to the table of Grants of Plan-Based Awards for 2006,
above. The cash incentive bonus plan is also discussed above under the heading Compensation
Discussion and Analysis — Cash Incentive Bonus Plan. |
|
(2) |
|
The terms of these stock options, which each have a July 18 grant date, are described above
in footnote (3) to the table of Grants of Plan-Based Awards for 2006. Option grants are also
discussed above under the heading Compensation Discussion and Analysis — Equity Incentive
Plan. |
|
(3) |
|
For the cost of these benefits in 2006, see footnote (3) of the Summary Compensation Table
for 2006, above. |
Outstanding Equity Awards at December 31, 2006. |
|
The following table shows certain information concerning unexercised stock options and stock
options that have not vested and that were outstanding on December 31, 2006 for each executive
officer named in the Summary Compensation Table for 2006, above. No other equity awards have been
made to the named executive officers. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Unexercised |
|
Unexercised |
|
Option |
|
|
|
|
|
|
|
|
Options |
|
Options |
|
Exercise |
|
Option |
|
Option |
|
Vesting |
|
|
(#) |
|
(#) |
|
Price/Share |
|
Grant |
|
Expiration |
|
Date |
Name |
|
Exercisable |
|
Unexercisable |
|
($) |
|
Date |
|
Date |
|
Footnotes |
|
Patrick T. Manning |
|
|
— |
|
|
|
1,000 |
|
|
$ |
25.21 |
|
|
|
8/08/2006 |
|
|
|
9/08/2011 |
|
|
|
(1) |
|
|
|
|
— |
|
|
|
10,000 |
|
|
$ |
24.96 |
|
|
|
7/18/2006 |
|
|
|
7/18/2011 |
|
|
|
(2) |
|
|
|
|
300 |
|
|
|
1,200 |
|
|
$ |
16.78 |
|
|
|
8/12/2005 |
|
|
|
9/12/2010 |
|
|
|
(1) |
|
|
|
|
— |
|
|
|
10,000 |
|
|
$ |
9.69 |
|
|
|
7/18/2005 |
|
|
|
7/18/2010 |
|
|
|
(2) |
|
|
|
|
1,400 |
|
|
|
2,100 |
|
|
$ |
3.10 |
|
|
|
8/12/2004 |
|
|
|
8/12/2014 |
|
|
|
(1) |
|
|
|
|
— |
|
|
|
10,000 |
|
|
$ |
3.10 |
|
|
|
8/12/2004 |
|
|
|
8/12/2009 |
|
|
|
(2) |
|
|
|
|
2,100 |
|
|
|
1,400 |
|
|
$ |
3.05 |
|
|
|
8/20/2003 |
|
|
|
8/20/2013 |
|
|
|
(1) |
|
|
|
|
2,800 |
|
|
|
700 |
|
|
$ |
1.725 |
|
|
|
7/24/2002 |
|
|
|
7/24/2012 |
|
|
|
(1) |
|
|
|
|
3,700 |
|
|
|
— |
|
|
$ |
1.50 |
|
|
|
7/23/2001 |
|
|
|
7/23/2011 |
|
|
|
(1) |
|
- 21 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Unexercised |
|
Unexercised |
|
Option |
|
|
|
|
|
|
|
|
Options |
|
Options |
|
Exercise |
|
Option |
|
Option |
|
|
|
|
(#) |
|
(#) |
|
Price/Share |
|
Grant |
|
Expiration |
|
Vesting Date |
Name |
|
Exercisable |
|
Unexercisable |
|
($) |
|
Date |
|
Date |
|
Footnotes |
|
Joseph P. Harper, Sr. |
|
|
— |
|
|
|
1,000 |
|
|
$ |
25.21 |
|
|
|
8/08/2006 |
|
|
|
9/08/2011 |
|
|
|
(1) |
|
|
|
|
— |
|
|
|
10,000 |
|
|
$ |
24.96 |
|
|
|
7/18/2006 |
|
|
|
7/18/2011 |
|
|
|
(2) |
|
|
|
|
300 |
|
|
|
1,200 |
|
|
$ |
16.78 |
|
|
|
8/12/2005 |
|
|
|
9/12/2010 |
|
|
|
(1) |
|
|
|
|
— |
|
|
|
10,000 |
|
|
$ |
9.69 |
|
|
|
7/18/2005 |
|
|
|
7/18/2010 |
|
|
|
(2) |
|
|
|
|
2,334 |
|
|
|
1,166 |
|
|
$ |
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) |
|
|
Maarten D. Hemsley |
|
|
— |
|
|
|
2,800 |
|
|
$ |
24.96 |
|
|
|
7/18/2006 |
|
|
|
7/18/2011 |
|
|
|
(2) |
|
|
|
|
— |
|
|
|
2,800 |
|
|
$ |
9.69 |
|
|
|
7/18/2005 |
|
|
|
7/18/2010 |
|
|
|
(2) |
|
|
|
|
3,750 |
|
|
|
1,250 |
|
|
$ |
3.10 |
|
|
|
8/12/2004 |
|
|
|
8/12/2014 |
|
|
|
(4) |
|
|
|
|
75,000 |
|
|
|
— |
|
|
$ |
0.875 |
|
|
|
1/13/1998 |
|
|
|
10/27/2013 |
|
|
|
(5) |
|
|
|
|
100,000 |
|
|
|
— |
|
|
$ |
2.75 |
|
|
|
4/29/1994 |
|
|
|
2/11/2010 |
|
|
|
(6) |
|
|
|
|
28,424 |
|
|
|
— |
|
|
$ |
2.75 |
|
|
|
6/29/1991 |
|
|
|
6/13/2007 |
|
|
|
(7) |
|
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 follows:
|
|
|
(1) |
|
This option vests in equal installments on the first five anniversaries of its grant date. |
|
(2) |
|
This option vests 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 vests in equal installments on the grant date and the first three anniversaries
of its grant date. |
|
(5) |
|
This option vested in a single installment on December 18, 1998. |
|
(6) |
|
This option vested in equal installments on the grant date and the first four anniversaries
of its grant date. |
|
(7) |
|
This option vested in a single installment on its grant date. |
Option Exercises and Stock Vested for 2006.
The following table contains information on an aggregated basis about each exercise of a stock
option during 2006 by each of the executive officers named in the Summary Compensation Table for
2006, above. No other equity awards have been made to an executive officer named in the Summary
Compensation Table for 2006, above.
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Number of Shares Acquired |
|
Value Realized Upon |
|
|
on Exercise |
|
Exercise(1) |
Name |
|
(#) |
|
($) |
|
Patrick T. Manning |
|
|
— |
|
|
|
— |
|
Joseph P. Harper, Sr. |
|
|
— |
|
|
|
— |
|
Maarten D. Hemsley |
|
|
233,000 |
|
|
$ |
5,246,480 |
|
|
|
|
(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 exercise or purchase price of
the option 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. |
Potential Payments Upon Termination or Change-in-Control.
The following table describes the payment and other obligations of the Company and the named
executive officer if there is a termination of his employment or a change in control of the
Company. If the executive had been terminated on December 31, 2006, the payments to him (in
monthly installments)
- 22 -
would have been be $12,000 or $24,000 depending on whether the payments were required to be made
for twelve months or twenty-four months.
|
|
|
Event |
|
Payment and/or Other Obligations* |
Termination by the Company without good cause(1)
|
|
The Company must — |
|
• |
|
Give the executive 180 days notice of termination. |
|
|
• |
|
Continue to pay the executive his base
salary(2) for the balance of the term of his
employment agreement or for one year, whichever period is
longer. |
|
|
• |
|
Pay the executive an additional $1,000 per month
for one year. |
The executive may —
|
• |
|
accept the additional $1,000/month payment, in
which case he may not compete with the Company or solicit
its customers or employees during the one-year period, or |
|
|
• |
|
decline any post employment payments by the
Company, in which case he is not prohibited from competing
with the Company or soliciting its customers or employees. |
|
|
• |
|
The executive’s options continue to be exercisable
for varying periods depending on the terms of the option
agreement. |
|
|
|
Termination by the Company for good cause(1)
|
|
The executive is prohibited from competing with the
Company or soliciting its customers or employees for two
years, during which period the Company must pay the
executive $1,000 a month.
All of the executive’s stock options terminate. |
|
|
|
Termination by the executive for good reason(1)
|
|
The Company must — |
|
• |
|
Continue to pay the executive his base salary for
the remaining term of his agreement, but in no event for
less than twelve additional months. |
|
• |
|
Pay the executive an additional $1,000 per month
for one year, during which time he is prohibited from
competing with the Company or soliciting its customers or
employees. |
|
|
|
Termination by the executive without good reason(1)
|
|
The Company is only obligated to pay the executive $1,000
a month for two years during which period he is prohibited
from competing with the Company or soliciting its
customers or employees. |
|
|
|
A change in control of the Company or the execution by the
Company of any agreement that will result in a change in
control that is not consented to in writing by the executive
before the change in control is completed.
|
|
All the executive’s stock options become exercisable in
full.
The executive may elect by written notice to the Company
to terminate his employment agreement and his employment.
If he does so, the executive is not thereafter prohibited
from competing with the Company or soliciting its
customers or employees and the Company is not required to
make any monthly payment to him.
The Company is obligated to pay the executive any bonus
earned but not yet paid. |
|
|
|
* |
|
In all events, the Company is required to pay the executive his accrued but unpaid salary
through the date of termination, as required by law. |
- 23 -
|
|
|
(1) |
|
The terms good reason and good cause are defined in the agreement and generally mean either a
breach of the terms of the agreement or 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. |
|
(2) |
|
Any obligation of the Company to continue to pay the executive his base salary after
termination of his employment ceases if the executive breaches his obligation under the
agreement not to disclose confidential information of the Company or any obligation he has
under the terms of the termination not to compete with the Company or solicit its customers or
employees. The executives’ base salaries are set forth above under the heading Employment
Agreements of Named Executive Officers. |
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 (i) the Dow Jones US Total
Market Index, a broad market index, and (ii) 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, over the same period. Both indices are published in The Wall Street Journal.
The returns are calculated assuming the value of an investment of $100 in the Company’s common
stock and in each index at the Company’s 2001 fiscal year-end and that all dividends were
reinvested into additional shares of common stock; however, the Company paid no dividends during
the periods shown. The graph lines merely connect the beginning and end of the periodic measuring
dates and do not reflect fluctuations between those dates. The historical stock performance shown
on the graph is not intended to be indicative of future stock performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Sterling Construction Company, Inc, The Dow Jones US Total Market Index
And The Dow Jones US Heavy Construction Index
* $100 invested on 12/31/01 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December |
|
December |
|
December |
|
December |
|
December |
|
December |
|
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
|
|
Sterling Construction Company, Inc |
|
|
100.00 |
|
|
|
104.17 |
|
|
|
269.64 |
|
|
|
308.93 |
|
|
|
1001.79 |
|
|
|
1295.24 |
|
Dow Jones US Total Market |
|
|
100.00 |
|
|
|
77.92 |
|
|
|
101.88 |
|
|
|
114.12 |
|
|
|
121.34 |
|
|
|
140.23 |
|
Dow Jones US Heavy Construction |
|
|
100.00 |
|
|
|
83.87 |
|
|
|
114.41 |
|
|
|
138.74 |
|
|
|
200.48 |
|
|
|
250.08 |
|
- 24 -
BUSINESS RELATIONSHIPS WITH DIRECTORS AND OFFICERS.
Transactions with Related Persons.
At December 31, 2006, NASCIT held 6.23% 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.
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 2006, the Company paid or accrued
for payment to R.W. Frickel Company approximately $57,500 in fees. The Company estimates that
during 2007, the fees of R.W. Frickel Company will be approximately the same as in 2006.
Joseph P. Harper, Jr., the son of Joseph P. Harper, Sr., President and Chief Operating Officer, is
Chief Financial Officer of Sterling General, Inc., or SGI, the general partner of TSC. For 2006
Mr. Harper Jr. received a salary and cash incentive bonus aggregating approximately $225,750.
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 2006,
the Company paid a total of approximately $3.3 million to the Paradigm companies. The Audit
Committee reviews and approves these payments in the manner described below under the heading
Policies and Procedures for the Review, Approval or Ratification of Transactions with Related
Persons.
On January 27, 2006 the Company prepaid in full the approximately $8.5 million of outstanding
principal amount (together with accrued interest) of the Company’s five-year, 12% promissory notes,
which are described in the Company’s Annual Report on Form 10-K (which accompanies this Proxy
Statement) in Item 7. —Management’s Discussion and Analysis of Financial Condition and Results of
Operation under the heading Related Party Notes and in Notes 5 and 14 of Notes to Consolidated
Financial Statements. In making the prepayment, the Company made the following
payments, among others:
|
|
|
|
|
Name |
|
Amount |
Patrick T. Manning |
|
$ |
321,459 |
|
James D. Manning |
|
$ |
1,872,047 |
|
Joseph P. Harper, Sr. |
|
$ |
2,661,159 |
|
Maarten D. Hemsley |
|
$ |
182,836 |
|
Joseph P. Harper, Jr. |
|
$ |
118,750 |
|
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 in Audit
and Non-Audit Service Approval Policy under the heading Information About Audit Fees and Audit
Services.
- 25 -
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 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. The materials are delivered directly
to the project site and are billed by Paradigm to the Company. 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 such services.
During 2006, the Company paid Paradigm Outdoor Supply a total of approximately $2.4 million for the
materials it purchased for the Company. During 2006 the Company paid Paradigm Outsourcing $896,101
for temporary personnel supplied to the Company.
The Audit Committee has a written policy regarding transactions with the Paradigm companies. Under
the policy, project managers are required, as for all subcontracts, to request competitive bids for
goods and/or services they need on a project. The project manager then prepares a list of all bids
received and presents them at a review meeting with at least one senior manager. At this meeting,
the project manager and the senior manager or managers select the bidder they believe will provide
the Company with the best combination of price and service. Mr. Manning or any other member of
management with a connection to a bidder is not permitted to be present at the meeting or to be
involved in the selection of the winning bid. Every quarter, the payments the Company has made to
the Paradigm companies are subject to the review and approval of the Audit Committee.
Note Prepayment. The prepayment of the notes held by management was approved by the independent
members of the Board of Directors and was described in the Use of Proceeds section of the Company’s
prospectus for its public offering of common stock in January 2006.
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 present at the Annual Meeting and will have the opportunity
to make a statement if he or she wishes and will be available to respond to appropriate questions
from stockholders.
Audit Fees.
The following table sets forth the aggregate fees Grant Thornton billed to the Company for the
years ended December 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Approved by the |
|
|
|
|
|
Approved by the |
Fee Category |
|
2006 |
|
Audit Committee |
|
2005 |
|
Audit Committee |
|
Audit Fees: |
|
$ |
529,300 |
|
|
|
100 |
% |
|
$ |
208,000 |
|
|
|
100 |
% |
Audit-Related Fees: |
|
$ |
110,300 |
|
|
|
100 |
% |
|
$ |
259,300 |
|
|
|
100 |
% |
Tax Fees: |
|
|
— |
|
|
NA |
|
|
— |
|
|
NA |
All Other Fees: |
|
|
— |
|
|
NA |
|
|
— |
|
|
NA |
Audit Fees in 2005 and 2006 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
separate audit of Texas Sterling Construction, L.P. (TSC) and Sterling Houston Holdings, Inc.,
TSC’s 99% limited partner; 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, 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.
- 26 -
Audit-Related Fees in 2005 include work in connection with the Company’s public offering of common
stock made in January 2006. These fees in both 2005 and 2006 also included audit work on potential
acquisition candidates ($168,000 in 2005 and $59,000 in 2006) in connection with acquisitions that
were not consummated.
As indicated in the table, Grant Thornton does not perform any tax or other work for the Company.
Audit and Non-Audit Service Approval Policy.
In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the 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 may 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. Our independent registered public accounting firm does not provide tax services to the
Company.
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 may 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 fees, are submitted to both the 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 2008 Annual Meeting of Stockholders
must be submitted to the Secretary of the Company no later than January 1, 2008 in order to be
considered timely received.
By Order of the Board of Directors
Roger M. Barzun, Secretary
- 27 -
STERLING CONSTRUCTION COMPANY, INC.
ANNUAL MEETING OF STOCKHOLDERS
May 7, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, having received a Notice of the Annual Meeting of Stockholders of Sterling
Construction Company, Inc. (the “Company”) to be held on May 7, 2007 at 11:30 a.m. local time at
the Company’s offices at 20810 Fernbush Lane, Houston, Texas 77073 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) Patrick T. Manning, Joseph P. Harper, Sr. and Karen A.
Stempinski, 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.
[X] Please mark your votes as in this example.
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 below, 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 Company.
1. |
|
Election of three Class III directors (or if the nominee is not available for election, a
substitute designated by the Board of Directors). |
|
|
|
|
|
Nominees |
|
Class |
|
Term |
Maarten D. Hemsley
|
|
III
|
|
Three years |
Christopher H. B. Mills
|
|
III
|
|
Three years |
Donald P. Fusilli, Jr.
|
|
III
|
|
Three years |
|
|
|
FOR ALL NOMINEES
WITHHOLD FROM ALL NOMINEES
|
|
[ ]
[ ] |
|
|
INSTRUCTION: To withhold authority for any individual nominee, write the nominee’s name in the
space provided above. |
|
2. |
|
Ratification of the selection of Grant Thornton LLP as the Company’s independent registered
public accounting firm. |
FOR [
]
AGAINST [ ]
ABSTAIN [ ]
3. |
|
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 [
]
AGAINST [
]
ABSTAIN [ ]
If you wish to vote in accordance with the recommendations of the Board of Directors, you need
only sign and date this proxy on the reverse side — you do not need to mark any boxes.
CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Please sign exactly as your name appears on this proxy. Joint owners should both sign. When
signing as an attorney, executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by the president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
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Signature:
|
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Date: |
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Signature:
|
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Date: |
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PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE.