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

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GREAT WOLF RESORTS, INC.

(Name of Registrant as Specified In Its Charter)

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

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 2009

 

 

 

We cordially invite you to attend our annual meeting of stockholders to be held at the Hilton Chicago O’Hare Airport, Chicago, Illinois, on Tuesday, May 26, 2009 at 4:00 p.m., Central Time. At this meeting, you and our other stockholders will be able to vote on the following:

 

1. The election of six directors to serve on our Board of Directors until our annual meeting of stockholders in 2010, or until their successors have been duly elected and qualified;

 

2. The ratification of the appointment of Grant Thornton LLP as independent auditors of Great Wolf Resorts, Inc. for the fiscal year ending December 31, 2009, and

 

3. Any other business that may properly come before our annual meeting, including any adjournments or postponements of our annual meeting.

 

Only stockholders of record at the close of business on Thursday, April 9, 2009 will be entitled to vote at our annual meeting or any adjournment of our annual meeting.

 

All company stockholders are cordially invited to attend the meeting in person. Your vote is very important. Whether or not you attend the meeting, please take the time to vote your shares by promptly completing, signing, dating and mailing the proxy card in the postage-paid envelope provided. You retain the right to revoke the proxy at any time before it is actually voted by delivering notice of such revocation to the Secretary of the company at the annual meeting or by filing with the Secretary of the company either notice of revocation or a duly executed proxy bearing a later date.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 26, 2009.

 

Our Proxy Statement and the proxy card for our 2009 Annual Meeting of Stockholders are available on our Web site at www.greatwolf.com. Information on our Web site, other than this Proxy Statement and the proxy card, is not a part of this Proxy Statement.

 

BY ORDER OF THE BOARD OF DIRECTORS:

 

J. MICHAEL SCHROEDER, Secretary

 

Madison, Wisconsin

April 15, 2009

 

PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 2009

 

GENERAL INFORMATION

 

Our Board of Directors is soliciting your proxy for use at our annual meeting of stockholders to be held at the Hilton Chicago O’Hare Airport, Chicago, Illinois, on Tuesday, May 26, 2009 at 4:00 p.m., Central Time, and at any adjournments of our annual meeting. You are invited to attend our annual meeting and vote your shares directly. Even if you do not attend, however, you may vote by proxy, which allows you to instruct another person to vote your shares on your behalf at our annual meeting. For this purpose, we enclose one blank proxy card for your use.

 

The mailing address of our principal executive offices is 122 West Washington Avenue, Madison, Wisconsin 53703.

 

This proxy statement and the accompanying proxy card and Notice of Annual Meeting are being mailed to our stockholders on or about April 24, 2009.

 

Purposes of Our Annual Meeting

 

The purposes of our annual meeting are (1) to elect six directors to serve on our Board and (2) the ratification of the appointment of Grant Thornton LLP as independent auditors of Great Wolf Resorts, Inc. for the fiscal year ending December 31, 2009, and (3) to transact any other business that may properly come before our annual meeting and any adjournments of our annual meeting. We know of no matters, other than the election of directors and ratification of the appointment of our auditors, to be brought before our annual meeting.

 

This Proxy Solicitation

 

There are two parts to this proxy solicitation: the proxy card and this proxy statement. The proxy card is the means by which you actually authorize another person to vote your shares in accordance with your instructions. This proxy statement provides you information that you may find useful in deciding how to vote.

 

Proxies are being solicited by and on behalf of our Board, and the solicitation of proxies is being made primarily by the use of the mails. We will bear the cost of preparing and mailing this proxy statement and the accompanying material and the cost of any supplementary solicitations which may be made by mail, telephone or personally by our officers and employees, who will not be additionally compensated for their activities. We have retained Computershare, Inc. to provide administrative and record-keeping assistance in the solicitation of proxies.

 

No person is authorized to give any information or to make any representation not contained in this proxy statement and, if given or made, you should not rely on that information or representation as having been authorized by us. This proxy statement does not constitute the solicitation of a proxy, in any jurisdiction, from anyone to whom it is unlawful to make such proxy solicitation in that jurisdiction. The delivery of this proxy statement shall not, under any circumstances, imply that there has been no change in the information set forth since the date of this proxy statement.

 

VOTING

 

Record Date for Our Annual Meeting; Who Can Vote at Our Annual Meeting

 

Our Board has fixed the close of business on Thursday, April 9, 2009, as the record date for determining which of our stockholders are entitled to receive notice of, and to vote at, our annual meeting. You will be entitled to notice of, and to vote at, our annual meeting and any adjournments of our annual meeting, only if you were a stockholder of record at the close of business on the record date. At the close of business on our record date of April 9, 2009, we had issued and outstanding 31,229,071 shares of our common stock, which are entitled to vote at our annual meeting. See “Required Votes.”

 

How to Vote Your Shares and How to Revoke Your Proxy

 

How to Vote.  You may vote your shares at our annual meeting in person, or if you cannot attend our annual meeting in person or you wish to have your shares voted by proxy even if you do attend our annual meeting, you may vote by duly authorized proxy. To vote in person, you must attend the annual meeting and obtain and submit a ballot, which will be provided at the meeting. To vote by proxy, you must complete and return the enclosed proxy card.

 

By completing and returning the proxy card and by following the specific instructions on the card, you will direct the designated persons (known as “proxies”) to vote your shares at our annual meeting in accordance with your instructions. Our Board has appointed James A. Calder and J. Michael Schroeder to serve as the proxies for our annual meeting.

 

Your proxy card will be valid only if you sign, date and return it before our annual meeting. If you complete the entire proxy, then the designated proxies will vote your shares “FOR” the election of the six nominees for directors or will withhold your vote for one or more nominees if you so specify. If a nominee for election to our Board is unable to serve — which we do not anticipate — or if any other matters are properly raised at the annual meeting, then either Messrs. Calder or Schroeder as the designated proxies will vote your shares in accordance with his best judgment.

 

Even if you plan to attend our annual meeting, we ask you to vote, sign, date and return the enclosed proxy card as soon as possible. If your shares are held in the name of a broker or other intermediary, you may vote and revoke a previously submitted vote only through, and in accordance with, procedures established by the record holder(s) or their agent(s).

 

How to Revoke a Proxy.  If you have already returned your proxy to us, you may revoke your proxy at any time before it is exercised at our annual meeting by any of the following actions:

 

 

If you choose either of the first two means to revoke your proxy, you must submit either your notice of revocation or your new proxy card by mail to us at our principal executive offices located at 122 West Washington Avenue, Madison, Wisconsin 53703.

 

Required Votes

 

Voting Rights.  You are entitled to one vote for each share of our common stock that you hold. Cumulative voting of our shares is not allowed.

 

Quorum Requirements.  Under Delaware law and our bylaws, a majority of votes entitled to be cast at the annual meeting, represented in person at the annual meeting or by proxy, will constitute a quorum for the

consideration of the election of the nominees for directors and for each matter to properly come before our annual meeting.

 

Vote Required.  The six nominees receiving the highest number of affirmative votes will be elected as directors. This number is called a plurality.

 

Abstentions and Broker Non-Votes.  Abstentions will not be counted “for” or “against” proposals, but will be counted for the purpose of determining the existence of a quorum.

 

Under applicable NASDAQ Global Market (the exchange on which our common stock is traded) or NASDAQ rules, brokers holding shares for beneficial owners in nominee or “street name” must vote those shares according to the specific instructions they receive from the beneficial owners. If you do not provide your broker with specific instructions regarding how to vote your shares, your broker still has authority to vote your shares on certain “routine” matters. Under NASDAQ’s rules, however, brokers do not have discretionary voting power on non-routine matters. In these cases, if no specific voting instructions are provided by the beneficial owner, the broker may not vote on non-routine proposals. This results in what is known as a “broker non-vote.” “Broker non-votes” will not be counted “for” or “against” a proposal, but will be counted only for the purpose of determining the existence of a quorum.

 

Because the election of directors is a “routine” matter for which specific instructions from beneficial owners are not required under NASDAQ’s rules, no “broker non-votes” will arise in the context of voting for the nominees for directors.

 

If you do not vote your shares, your brokerage firm may either (1) vote your shares on routine matters, if any, or (2) leave your shares unvoted.

 

To be certain that your shares are voted at our annual meeting, we encourage you to provide instructions to your brokerage firm by signing and returning the enclosed proxy card.

 

THE ELECTION OF DIRECTORS

 

Board of Director Nominees

 

At our annual meeting, our stockholders will vote on the election of six directors.

 

Our Nominating and Corporate Governance Committee has recommended to our Board as nominees, and our Board has nominated, Joseph Vittoria, Kimberly Schaefer, Elan Blutinger, Randy Churchey, Edward Rensi and Howard Silver for election to our Board. If elected, all of these individuals will serve as directors for a one-year term that will expire at our annual meeting of stockholders in 2010, or when their successors are duly elected and qualified. You will find below a brief biography of each nominee. See also “Ownership of Our Common Stock” on page 10 for information on their holdings of our common stock.

 

In an effort to reduce expenses and achieve efficiencies, we are nominating six individuals for election to the Board this year although our current Board has nine members. We believe that a Board comprised of six individuals is more commensurate to the current size and scope of operations of our company. As a result, Michael Knetter, Steven Hovde and Richard Murray will not stand for re-election to the Board this year.

 

If any nominee becomes unavailable or unwilling to serve as a director for any reason, the persons named as proxies on the proxy card are expected to consult with our management in voting the shares represented by them and will vote in favor of any substitute nominee or nominees approved by our Board. Our Board has no reason to doubt the availability of any of the nominees for director. Each of the nominees has expressed his or her willingness to serve as a director if elected by our stockholders at our annual meeting.

Our Board recommends that you vote FOR the election of each nominee for director.

 

 

OUR BOARD OF DIRECTORS

 

Each director serves a one-year term and is subject to annual re-election. Our Board nominees consist of six directors, five of whom are independent as determined by our Board under the rules promulgated by the Securities and Exchange Commission, or SEC, and NASDAQ listing standards. At our annual meeting, as discussed above, our stockholders will vote on the six nominees for director.

 

CORPORATE GOVERNANCE

 

Independence of Our Board of Directors

 

Rules promulgated by the SEC and the listing standards of NASDAQ require that a majority of our directors be independent directors. Our Board has adopted as categorical standards NASDAQ independence standards to provide a baseline for determining independence. Under these criteria, our Board has determined that the following nominees for our Board are independent: Messrs. Vittoria, Blutinger, Churchey, Rensi and Silver.

 

Committees and Meetings of Our Board of Directors

 

Board Meetings.  We operate under the general management of our Board as required by our bylaws and the laws of Delaware, our state of incorporation. Our Board held seven meetings during 2008. Each director attended at least 75% of the total number of those meetings of the Board and of any committee of which he was a member. While our Board has not adopted a mandatory attendance policy for our annual meetings, directors are encouraged to attend. In 2008, all of our directors attended our annual meeting.

 

Executive Sessions of Our Non-Management Directors.  The non-management directors of our Board met in regularly scheduled executive sessions that excluded members of the management team at every Board meeting held in 2008. At each meeting, the non-management directors determined who presided over the meeting’s agenda and related discussion topics. The non-management directors may also choose to appoint a chairman to preside over these meetings, and the chairman may also rotate from time to time. Stockholders and other interested persons may contact our non-management directors in writing by mail c/o Great Wolf Resorts, Inc., 122 West Washington Avenue, Madison, Wisconsin 53703, Attn: Non-Management Directors. All such letters will be forwarded to our non-management directors.

 

Audit Committee.  Our Board has established an Audit Committee, currently consisting of Messrs. Steven Hovde, Silver and Vittoria, with Mr. Silver serving as its chairman. Our Board has determined that each of our Audit Committee members is independent, as that term is defined under the enhanced independence standards for audit committee members in the Securities Exchange Act of 1934 and rules thereunder, as amended, and under the listing standards of NASDAQ. Our Board has also determined that Mr. Silver is an “audit committee financial expert” within the meaning of SEC rules. Our Audit Committee operates under a written charter adopted by our Board. A copy of this charter is available on our Web site at greatwolf.com. Among other duties, this committee:

 

 

 

Our Audit Committee met five times in 2008. For more information, please see “Report of our Audit Committee” on page 45.

 

Compensation Committee.  Our Board has also established a Compensation Committee, currently consisting of Messrs. Murray, Rensi, Silver and Vittoria, with Mr. Rensi serving as its chairman. Our Board has determined that each of the Compensation Committee members is independent, as that term is defined by NASDAQ. The Compensation Committee operates under a written charter adopted by our Board. A copy of this charter is available on our Web site at greatwolf.com. Among other duties, this committee:

 

 

The Compensation Committee met four times in 2008. For more information, please see “Report of the Compensation Committee” on page 16.

 

Nominating and Corporate Governance Committee.  Our Board has also established a Nominating and Corporate Governance Committee, currently consisting of Messrs. Blutinger, Knetter and Vittoria, with Mr. Blutinger serving as its chairman. Our Board has determined that each of our Nominating and Corporate Governance Committee members is independent, as that term is defined by NASDAQ. The Nominating and Corporate Governance Committee operates under a written charter adopted by our Board. A copy of this charter is available on our Web site at greatwolf.com. Among other duties, this committee:

 

 

The Nominating and Corporate Governance Committee met two times in 2008.

 

The Nominating and Corporate Governance Committee has established a mandatory director education program, adopted a policy that our governance practices will meet or exceed those required by NASDAQ, developed a process for CEO evaluation, and assisted in self-evaluations of the Board and each of its committees. The Nominating and Corporate Governance Committee also has instituted an annual review of the charters of each of the committees of the Board to ensure that each reflects best practices.

 

Other Committees.  From time to time, our Board may form other committees as circumstances warrant. Those committees will have such authority and responsibility as delegated to them by our Board and consistent with Delaware law.

 

Availability of Corporate Governance Materials.  Stockholders may view our corporate governance materials, including the charters of our Audit Committee, our Compensation Committee and our Nominating and Corporate Governance Committee, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics, on our Web site under “Investor Relations” at greatwolf.com.

 

Director Nominations

 

Nominating and Corporate Governance Committee.  Our Nominating and Corporate Governance Committee performs the functions of a nominating committee. The Nominating and Corporate Governance Committee Charter describes the committee’s responsibilities, including identifying, screening and recommending director candidates for nomination by our Board.

Director Candidate Recommendations and Nominations by Stockholders.  The Nominating and Corporate Governance Committee’s charter provides that the committee will consider director candidate recommendations by stockholders. Stockholders should submit any such recommendations for the consideration of our Nominating and Corporate Governance Committee through the method described under “Communications With Our Board” below. In addition, any stockholder of record entitled to vote for the election of directors at the applicable meeting of stockholders may nominate persons for election to the Board of Directors if such stockholder complies with the notice procedures summarized in “Stockholder Proposals for Our 2010 Proxy Materials or Annual Meeting” below.

 

Process For Identifying and Evaluating Director Candidates.  The Nominating and Corporate Governance Committee evaluates all director candidates in accordance with the director qualification standards described in our Corporate Governance Guidelines. The committee evaluates any candidate’s qualifications to serve as a member of the Board based on the skills and characteristics of individual Board members, the projected long-term oversight, strategic, financial and industry needs of the company, as well as the composition of the Board as a whole. Directors are also considered in light of their past history and actual experience creating shareholder value in previous companies. In addition, the Nominating and Corporate Governance Committee will evaluate a candidate’s independence and diversity, age, skills and experience in the context of the Board’s needs.

 

Communications with Our Board

 

Our Board has approved unanimously a process for stockholders to send communications to our Board. Stockholders can send communications to our Board and, if applicable, to the Nominating and Corporate Governance Committee or to specified individual directors in writing c/o Great Wolf Resorts, Inc., 122 West Washington Avenue, Madison, Wisconsin 53703, Attn: Corporate Secretary. All such letters will be forwarded to our Board, the Nominating and Corporate Governance Committee or any such specified individual directors.

 

OUR EXECUTIVE OFFICERS

 

Ms. Schaefer is an executive officer and director and her biographical information is set forth under “The Election of Directors.” The names, positions, business experience, terms of office and ages of our other executive officers are as follows:

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Under federal securities laws, our directors, executive officers and any persons beneficially owning more than 10% of a registered class of our equity securities are required to report their ownership and any changes in that ownership to the SEC. These persons are also required by SEC rules and regulations to furnish us with copies of these reports. Precise due dates for these reports have been established, and we are required to report in this proxy statement any failure to timely file these reports by those due dates by our directors and executive officers during 2008.

 

Based solely upon our review of the reports and amendments to those reports furnished to us or written representations from our directors and executive officers that these reports were not required from those persons, we believe that all of these filing requirements were satisfied by our directors and executive officers during 2008.

 

OWNERSHIP OF OUR COMMON STOCK

 

We summarize below the beneficial ownership of our common stock, as of March 11, 2009, except where noted, by (1) each person or group known by us to beneficially own more than five percent (5%) of our company’s common stock, (2) each of our directors and nominees for election to the Board, (3) each of our named executive officers and (4) all of our directors and our executive officers as a group. A person generally “beneficially owns” shares if he or she, directly or indirectly, has or shares either the right to vote those shares or dispose of them. Except as indicated in the footnotes to this table, to our knowledge the persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned.

 

The number of shares beneficially owned by each person or group includes shares of common stock that such person or group had the right to acquire on or within 60 days after March 11, 2009, including, but not limited to, upon the exercise of options or the vesting of restricted stock. References to options in the footnotes of the table below include only options to purchase shares that were exercisable on or within 60 days after March 11, 2009, and references to restricted stock in the footnotes of the table below include only restricted stock that would vest and settle on or within 60 days after March 11, 2009.

 

For each individual and group included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the shares of common stock outstanding on March 11, 2009 plus the number of shares of common stock that such person or group had the right to acquire on or within 60 days after March 11, 2009. Unless otherwise indicated in the accompanying footnotes, all of the shares of our common stock listed below are owned directly, and the indicated person has sole voting and investment power. The address for each individual listed below is: c/o Great Wolf Resorts, Inc., 122 West Washington Avenue, Madison, WI 53703.

 

 

 

 

 

Equity Compensation Plan Information

 

This table provides certain information as of December 31, 2008 with respect to our equity compensation plans:

 

 

 

 

 

Our 2004 Incentive Stock Plan authorizes us to grant up to 3,380,740 incentive and/or nonqualified stock options, stock appreciation rights or shares of our common stock to our employees and directors.

 

RELATED PERSON TRANSACTIONS

 

In accordance with our Code of Business Conduct and Ethics, all related party transactions known to us are subject to review and approval of our Audit Committee. Since January 1, 2008, we have not been a party to, and we have no plans to be a party to, any transaction or series of similar transactions in which the amount involved exceeded or will exceed $120,000 and in which any current director, executive officer, holder of more than 5% of our capital stock, or any member of the immediate family of any of the foregoing, had or will have a direct or indirect material interest, other than in connection with the transactions described below.

 

 

EXECUTIVE AND DIRECTOR COMPENSATION

 

REPORT OF THE COMPENSATION COMMITTEE

 

The Compensation Committee, on behalf of and in certain instances subject to the approval of the Board of Directors, reviews and approves compensation programs for certain senior officer positions. In this context, the committee reviewed and discussed with our company’s management the “Compensation Discussion and Analysis” required by section 402(b) of Regulation S-K and included in this proxy statement. Based on the review and discussions referred to above, the committee recommended to the Board that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated by reference into the company’s Annual Report on Form 10-K for its 2008 fiscal year.

 

The Compensation Committee:
Ed Rensi (Chairman)
Richard Murray
Howard Silver
Joseph Vittoria

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The Compensation Committee oversees our compensation program for our senior executives, including our Named Executive Officers (NEOs), including:

 

 

From time to time, the Compensation Committee may retain compensation consultants to assist with, among other things:

 

 

We expect to use these compensation consultants only in circumstances where the consultants have no other business dealings with us.

Each member of the Compensation Committee is independent as defined in the Compensation Committee’s charter, as determined by the Board of Directors.

 

General Compensation Policy/Philosophy

 

Our general compensation policy is to devise and implement compensation for our NEOs commensurate with their positions and, for certain executives, determined with reference to compensation paid to similarly situated employees and officers of companies that the Compensation Committee, in consultation with our Chief Executive Officer (CEO) and external compensation consultants, deems to be comparable to us.

 

Our general compensation philosophy is to:

 

 

Our overall executive compensation philosophy is based on a pay-for-performance model. In general, our executive compensation is structured to reward performance through a combination of competitive base salaries coupled with cash-based and equity-based incentives. The “at risk” components of our executive compensation (cash annual incentives and stock-based long-term incentives) are designed to provide incentives that are predicated on our company and/or the NEO meeting or exceeding predefined goals.

 

The Compensation Committee occasionally requests that our CEO be present at Compensation Committee meetings where executive compensation and company, individual, business unit and departmental performance are discussed and evaluated. Our CEO is free to provide insight, suggestions or recommendations regarding executive compensation if present during these meetings or at other times. Only Compensation Committee members, however, are allowed to vote on decisions made regarding executive compensation.

 

Named Executive Officers

 

At December 31, 2008, our NEOs were:

 

 

In addition, John Emery served as our CEO until his resignation from the company in May 2008. Following Mr. Emery’s resignation, Mr. Churchey was our Interim CEO through December 31, 2008. Also, Hernan R. Martinez served as our President of Development Division until his resignation from the company in July 2008. Messrs. Emery and Martinez were considered NEOs until their resignations.

 

2008 Executive Officer Compensation

 

For 2008, the Compensation Committee used as a reference tool the overall compensation structure recommendations for certain NEOs, including Mr. Calder and Ms. Schaefer, which had been developed for 2007-2009 by FPL Associates Compensation (FPL), an independent compensation consultant. For 2007, the Compensation Committee had engaged FPL to assist the Compensation Committee in determining appropriate fiscal year 2007 compensation for certain of our NEOs and an appropriate structure for long-term incentive compensation for the period 2007-2009. Based upon a study of a competitive peer group of 11 public companies that competed with us for

talent, investment dollars and/or business, FPL made recommendations to the Compensation Committee, for certain of our NEOs, of appropriate levels of:

 

 

The structure and amounts of the executive officer base salary, annual incentives and long-term incentives compensation components for Mr. Calder and Ms. Schaefer for 2008 as detailed in the Compensation Discussion and Analysis are based on the final recommendations of FPL in its report.

 

Competitive Peer Group

 

The competitive peer group FPL used in its report included primarily companies that are focused on operating within the public consumer/leisure sector as the foundation for our compensation practices. Those peer group companies are ones considered to appeal to family-based, consumer leisure activities, including resorts/timeshares, gaming/entertainment and amusement parks. The peer group consisted of the following companies:

 

 

Executive Compensation Structure

 

Utilizing this process and benchmarking data, FPL recommended, and the Compensation Committee approved, total remuneration for executive compensation for Mr. Calder and Ms. Schaefer structured as follows:

 

 

 

 

 

For NEOs other than Mr. Calder and Ms. Schaefer, for 2008 the Compensation Committee established both an annual cash incentive plan and long-term incentive compensation plan that was structured differently than that for Mr. Calder and Ms. Schaefer, as follows:

 

 

 

For a further discussion on the details of these annual cash incentives and long-term incentives, see Elements of Compensation below.

 

Elements of Compensation

 

The compensation for each of our NEOs consists of three components:

 

 

These components provide elements of fixed income and variable compensation that are linked to the achievement of individual and corporate goals and the enhancement of value to our stockholders.

 

Base Salary

 

Base salary represents the fixed annual component of our executive compensation. Executives receive salaries that are within a range established by the Compensation Committee for their respective positions, in some instances based on the comparative analysis described above. Where each executive’s salary falls within the salary range is based on a determination of the level of experience that the executive brings to the position and how successful the executive has been in achieving set goals. Salary adjustments are based on a similar evaluation and may include a comparison of adjustments made by competitors and any necessary inflationary adjustments.

 

When reviewing the competitive market data described above, the Compensation Committee considers that the competitive market is comprised of professionals with varying backgrounds, experience and education who may be more junior or senior within the role. As such, the compensation, particularly as it relates to base salaries, provided to these incumbents may, appropriately, vary. In establishing base salary amounts for our NEOs, the Compensation Committee considers the level of responsibility, experience, performance and tenure of our company’s incumbents relative to those commonly found in the market and/or summarized by FPL in its report.

 

We generally review the base salaries of our NEOs each fiscal year. In the event of an NEO’s promotion and/or increased scope of responsibility, we consider base salary adjustments at other points during the year as well.

The Compensation Committee reviewed the salaries for John Emery, our CEO through May 2008, and Messrs. Calder, Martinez and Schroeder and Ms. Nolan and Ms. Schaefer in December 2007. As a result of these reviews, base salaries established for 2008 and the percentage increase from prior base salaries are shown below:

 

 

Upon Mr. Churchey’s appointment as our Interim CEO in May 2008, the Compensation Committee established his annual base salary at $510,000, consistent with Mr. Emery’s base salary prior to his resignation as our CEO.

 

Annual Cash Incentive

 

For Mr. Calder and Ms. Schaefer

 

For Mr. Calder and Ms. Schaefer, annual cash incentives exist in the form of bonuses as a means of linking compensation to objective performance criteria that are within the control of the NEO. Consistent with the guidelines in FPL’s report, at the beginning of each year, the Compensation Committee establishes a potential bonus amount range for each executive and identifies performance targets for each NEO to meet in order to receive the full bonus. The range incorporates the threshold, target and high (maximum) performance concepts as described above in 2008 Executive Officer Compensation.

 

Our annual incentive program utilizes multiple aspects or dimensions of performance to establish a “line-of-sight” between the individual and the reward. The emphasis on one dimension versus another depends on the level and type of position. Three dimensions we consider in the annual incentive program for our NEOs are:

 

 

The Compensation Committee reviews each executive’s position to determine the proportion or percentage of incentive opportunity that will be attributed to each of the three dimensions, based on the position’s ability to impact performance at each dimension. The benefit to using this three-tier construct is in balancing the required level of objectivity with the desired level of subjectivity. While corporate and team/unit goals include specific, quantifiable targets, the individual component can often be based on a more subjective assessment of performance or on management discretion.

 

For the plan designed for Mr. Calder and Ms. Schaefer, the Compensation Committee establishes financial targets at the beginning of each year that are tied to our annual business plan. Those NEOs generally begin to earn a threshold annual cash incentive award amount once a financial target is at least 95% attained. The threshold award amount is generally 1/3 of the maximum potential award amount for a particular financial target. The maximum annual cash incentive award is earned when a financial target is at least 105% attained. Any potential amount of the annual cash incentive award in excess of the threshold amount, up to the maximum potential award amount, is earned ratably from 95% up to 105% of the financial target attained.

 

The Compensation Committee employs clearly defined, objective measures of performance to support the annual cash incentive awards for Mr. Calder and Ms. Schaefer. Within the annual incentive award component of the compensation program, performance measures are often based on operational/financial initiatives as well as, to a

lesser extent, individual/subjective performance, providing a balance with long-term incentive award components, which are generally primarily tied to value creation.

 

The Compensation Committee, in consultation with our CEO, establishes and approves specific, written performance objectives for annual cash incentives. For each such objective, actual performance is reviewed by the Compensation Committee (generally in February following the performance year) in order to determine the actual payment to occur following release of the performance year fiscal year financial results. The Compensation Committee has the ability to apply discretion to increase or decrease the actual payout resulting from the relative achievement of performance objectives. Discretion may be applied in the case of significant business disruption, unusual business events or conditions, or other factors the Compensation Committee deems relevant.

 

For 2008, the Compensation Committee established overall threshold, target and maximum annual incentive opportunities for Mr. Calder and Ms. Schaefer, expressed as a percentage of each executive’s 2008 base salary, as follows:

 

 

For 2008, the annual cash incentive amounts awarded to Mr. Calder and Ms. Schafer were subject to a number of performance objectives, including:

 

 

The threshold, target and maximum amounts for the two financial measure performance objectives (Adjusted EBITDA and Adjusted EPS) for 2008 were as follows:

 

 

The relative weightings for the performance objectives were primarily based on the recommendations of FPL in its report. For 2008, the Compensation Committee, in consultation with our CEO, reviewed and approved the performance criteria and weighting of those criteria for each eligible executive. The weightings of the performance criteria may vary among the eligible executives by position due to functional accountability, responsibility and other factors the Compensation Committee deems relevant. For 2008, weightings for Mr. Calder and Ms. Schaefer and corresponding maximum bonus amounts available for each bonus measure were as follows:

 

For Mr. Calder and Ms. Schaefer, the Compensation Committee reviewed in February 2009 the levels of Adjusted EBITDA and Adjusted EPS we had achieved for 2008 and the success of each of those NEOs in achieving individual, business unit and/or departmental performance goals in 2008. Based that review:

 

 

Based on the level of achievement of the various financial and other factors for 2008 as described above, Mr. Calder and Ms. Schaefer earned the following amounts for the various performance objectives:

 

 

Other NEOs

 

For 2008, the maximum annual incentive opportunities established for Ms. Nolan and Mr. Schroeder were 100.0% and 50.0%, respectively, of base salary. Also, upon Mr. Churchey’s appointment as our Interim CEO in May 2008, the Compensation Committee established his minimum annual incentive opportunity at not less than $510,000; any increase above that minimum amount is at the discretion of the Compensation Committee or our Board of Directors as a whole.

 

For Ms. Nolan and Mr. Schroeder, annual cash incentives for 2008 existed in the form of a bonus available based on achieving individual and/or departmental performance goals in 2008, as determined by the Compensation Committee. Based on that determination, Ms. Nolan and Mr. Schroeder earned bonus amounts of $75,000 and $52,000, respectively, for 2008.

 

Shares-in-Lieu-of-Cash Option for Bonus Payments

 

For 2008 annual cash incentives bonus amounts to be paid in 2009, as an incentive to increase our NEOs’ ownership of our common stock, we offered our NEOs the opportunity to take some or all of their bonus in shares of our common stock in lieu of cash. Shares issued under this shares-in-lieu-of-cash bonus option are 100% vested

when issued. If an executive elected to receive shares of our common stock in lieu of cash, he or she received shares having a market value equal to 125% of the cash they would have otherwise received. For example:

 

 

We believe this 25% conversion premium is an appropriate incentive to reward executives who choose to receive shares in lieu of cash.

 

The Compensation Committee has established a policy of using the average closing price for the company’s common stock for the first and second full calendar weeks of January of the following calendar year (that is, 10 trading days) as the stock price to use for the conversion of the cash value of each NEO’s bonus to a number of shares to be received.

 

None of our NEOs elected to take a portion of their earned 2008 cash bonus in shares of our common stock, in accordance with the shares-in-lieu-of-cash provisions explained above.

 

Long-Term Incentives

 

For Mr. Calder and Ms. Schaefer, the long-term incentive component of executive compensation is targeted toward providing rewards for long-term performance. The Compensation Committee believes that long-term incentives are important to motivate and reward these executives for maximizing stockholder value. Long-term incentives are provided primarily by grants of stock options and/or stock under our 2004 Incentive Stock Plan, which is administered by the Compensation Committee. The purpose of our 2004 Incentive Stock Plan is to assist us in recruiting and retaining key employees, by enabling such persons to participate in the future success of our company, and to align their interests with those of our stockholders.

 

The Compensation Committee, in consultation with our CEO, establishes annually and approves specific, written performance objectives for long-term incentives. For these objectives, the Compensation Committee reviews actual performance (generally in February following the performance year) in order to determine the actual amount of the long-term incentive grant that has been earned. The Compensation Committee has the ability to apply discretion to increase or decrease the actual amount calculated as earned resulting from the relative achievement of performance objectives. Discretion may be applied in the case of significant business disruption, unusual business events or conditions, or other factors the Compensation Committee deems relevant.

 

For 2008, the Compensation Committee approved maximum long-term, stock-based incentive compensation amounts for Mr. Calder and Ms. Schaefer. The stock-based compensation amounts consisted of performance-based shares of our common stock. The stock-based incentive compensation total award amounts consisted of annual equity grant amounts for 2008.

 

Establishing 2008 Award Amounts

 

The process in establishing the number of shares awarded as stock-based compensation to Mr. Calder and Ms. Schaefer as annual equity grant (AEG) amounts and multi-year program equity grant (MYPEG) amounts for 2008 involved four steps, as follows:

 

 

 

 

 

Note that the MYPEG amount was for part of the three-year period 2007-2009, and was accounted for as part of each NEO’s grants for 2007 (that is, the MYPEG grants in 2007 covered the three-year period 2007-2009). Therefore, the MYPEG amounts were not considered further in setting compensation for 2008.

 

 

As a result, the total maximum number of shares to be awarded to each officer under the AEGs for 2008 was as follows: Mr. Calder — 21,330 shares and Ms. Schaefer — 27,408 shares.

 

Determining Amounts of 2008 AEG Awards Earned

 

The actual long-term incentive compensation AEG award earned by Mr. Calder and Ms. Schaefer was subject to a number of performance factors:

 

 

 

The relative weightings for the performance factors were primarily based on the recommendations of FPL in its report. Weightings for the performance factors for Mr. Calder and Ms. Schaefer for the 2008 AEG awards were as follows:

 

 

For the 2008 AEG award factors, based on our common stock’s actual performance and the Compensation Committee’s assessment of each individual’s achievement of individual/departmental performance goals:

 

 

Based on the level of achievement of the various award factors for 2008 as described above, Mr. Calder and Ms. Schaefer earned the following number of shares under the AEGs for 2008:

 

 

In February 2009, we issued the shares of our common stock as long-term incentives earned for 2008 under the AEGs as described above.

 

Additionally, we awarded 5,000 shares of our common stock to Mr. Schroeder in April 2008.

 

Vesting of Awards

 

The shares earned under the 2008 AEG awards vest as follows: shares earned vest 1/3 on issuance; 1/3 on December 31, 2009; and 1/3 on December 31, 2010. The shares issued to Mr. Schroeder in April 2008 vest in 1,000-share increments on April 1 of 2009, 2010, 2011, 2012 and 2013, based on continued employment with us.

Shares issued related to 2008 as described above vest as follows:

 

 

For shares granted under the 2008 AEG program, vesting of the shares will accelerate upon a termination of the officer by the company without cause; a termination by the officer for good reason, death or disability; or a change in control of the company. Officers will forfeit all unvested AEG awards upon termination by the company with cause or a voluntary termination by the officer without good reason.

 

Grant Valuation Parameters

 

As described above, when awarding stock to Mr. Calder and Ms. Schaefer, we first establish a dollar value of the maximum equity-based compensation potential that we want to provide to the employee in the form of stock over the vesting period. On the date of the grant, we divide the total maximum equity-based compensation potential by the per share fair value of our common stock as of the close of the prior fiscal year. Although we use what we consider to be a reasonable approach in determining the number of shares of common stock to award to these NEOs, the ultimate value to these NEOs of the shares awarded only becomes clear when (a) performance conditions related to earning the award are met or not met and (b) the future fair value of the shares earned is known.

 

The shares of stock we award under long-term incentive plans ultimately may be worth much more or less than the maximum equity-based compensation potential we computed when the shares were awarded. As a result, we do not consider realizable gains or losses from prior stock grants when setting new stock grant amounts. We do not believe it is a fair practice to offset or enhance current compensation by realized and unrealized gains or losses in periods after the grants have been issued. Our goal is that the ultimate value realized the NEO from stock grants exceeds our initial estimate of total maximum equity-based compensation potential that we awarded, because value realized by the NEO in excess of the award date total maximum equity-based compensation potential is also realized by all of our other stockholders that held our common stock over that time period. We believe that limiting potential upside on stock value gains would undermine incentives for our NEOs when they focus on long-term results.

 

Stock Ownership Guidelines

 

We believe that stock ownership by our NEOs is desirable for aligning management’s long-term interests with those of our stockholders. We have not, however, established formal or fixed stock ownership guidelines for our NEOs.

 

Other Compensation

 

We offer certain other perquisites and personal benefits to our NEOs. These perquisites and personal benefits are reflected in the relevant tables and narratives that follow. In addition, the executives may participate in company-wide plans and programs such as our 401(k) plan (including a company match); group health and welfare plans; group accidental death and dismemberment insurance and life insurance; and health care and dependent care spending accounts, in accordance with the terms of those programs.

 

We do not provide our NEOs defined benefit or supplemental executive retirement plans.

Nonqualified Deferred Compensation Plan

 

In addition to a qualified 401(k) plan, we maintain a deferred compensation plan for certain executives (including our NEOs) by depositing amounts into a trust for the benefit of the participating employees. The deferred compensation plan offers these participants the opportunity to defer payment and income taxation of a portion of their base salary and/or annual cash incentives. The Compensation Committee believes that offering this plan to executives is helpful to achieve our objectives of attracting and retaining talent, particularly because we do not offer a defined benefit pension plan.

 

A participant may elect to defer up to 100% of annual base salary and/or annual cash incentives. Participants must make deferral elections in the election period that is prior to the beginning of the plan year in which the related compensation is earned. Such elections are irrevocable for the entire plan year, and the participants may only change the elections for compensation earned in subsequent plan years during the annual election period.

 

We make the following employer contributions to our deferred compensation plan:

 

 

Matching and profit-sharing contributions vest based on a participant’s years of service with us or our predecessor company, with pro-rata vesting over a period of five years of service.

 

Amounts in the deferred compensation plan’s trust earn investment income, which serves to increase our corresponding deferred compensation obligation. Investments, which are recorded at market value, are directed by the participants, and consist of our common stock and mutual funds. The plan provides participants the opportunity for long-term capital appreciation by crediting their accounts with notional earnings (or losses) based on the performance of benchmark investment funds from which participants may select or our common stock. Currently, the plan offers a choice of ten benchmark investment funds that are identified in the narrative following the Nonqualified Deferred Compensation table below.

 

The market value of an NEO’s deferred compensation account is not considered when setting their other current compensation. The compensation earned and deferred into the deferred compensation plan was already reviewed and analyzed based on the above-described compensation philosophy and policies at the time the compensation was awarded. Had the executive officer instead elected to receive a payout of the compensation earned (rather than deferring it into the plan), and then invested those amounts externally, we would not have considered external investment experience when considering the amount by which we should compensate the NEO. Thus, we do not believe it is either proper or necessary to consider the value of the NEO’s deferred compensation account just because it is held in a plan we sponsor. See the Nonqualified Deferred Compensation table and accompanying narrative below for additional information on our deferred compensation plan.

 

Tax Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code generally limits the deductibility on our tax return of compensation over $1 million to any of our officers unless the compensation is paid pursuant to a plan that is performance-related, non-discriminatory and has been approved by our stockholders. The Compensation Committee’s policy with respect to Section 162(m) is to make every reasonable effort to ensure that compensation is deductible to the extent permitted. The Compensation Committee has the authority, however, to award compensation in excess of the $1 million limit, regardless of whether that compensation will be deductible, if the Compensation Committee determines in good faith that the compensation is appropriate to incentivize and compensate the recipient.

Employment Agreements

 

We have entered into an employment agreement with each of our NEOs. The following table summarizes the significant terms of those employment contracts:

 

 

The following employment agreement provisions apply to all NEOs:

 

 

The following employment agreement provisions apply to all of our NEOs, except Mr. Churchey:

 

 

See “Potential Payment Upon Termination or Change of Control” below for a discussion of certain severance payments applicable under these agreements.

 

Change of Control and Severance Payments

 

Change of control provisions applicable to our NEOs are either “single trigger,” meaning that the change of control event alone triggers either a payment or an acceleration of certain rights, or “double trigger,” meaning that the change of control coupled with either (a) the officer’s termination from service or (b) the officer’s resignation for “good reason” (as that term is defined in the employment agreement) within a certain period of the time before or after the change of control, triggers the payment or accelerated right.

 

The change of control provision in each NEO’s employment agreement for the payment of severance is a double trigger. A double trigger for severance payments was selected because, generally unless the NEO’s employment is terminated after the change of control, his or her cash compensation in the form of salary and annual bonus would continue from the acquiring entity, which is what the severance payment is based upon and intended to replace. See the “Potential Payment Upon Termination or Change of Control” discussion below for additional information on these severance payments. The payment amounts reflect our belief that it is difficult for senior managers to find comparable employment opportunities in a short period of time, particularly after experiencing a termination that was beyond their control.

 

The change of control provisions in our stock option and stock grant agreements with time-based vesting are single trigger, reflecting our intent that the NEOs have the ability to use those shares to vote upon any proposed transaction.

Under the employment agreements, we have agreed to make an additional tax gross-up payment to the executive if any amounts paid or payable to the executive would be subject to the excise tax imposed on certain so-called “excess parachute payments” under Section 4999 of the Internal Revenue Code. However, if a reduction in the payments and benefits of $25,000 or less would render the excise tax inapplicable, then the payments and benefits will be reduced by such amount, and we will not be required to make the gross-up payment.

 

EXECUTIVE COMPENSATION TABLES AND DISCUSSION

 

Summary Compensation Table

 

The following Summary Compensation Table shows the compensation in 2008, 2007 and 2006 for our Chief Executive Officer (Principal Executive Officer), our Chief Financial Officer (Principal Financial Officer), and our other three most highly compensated executive officers as of December 31, 2008.

 

 

 

 

 

Under generally accepted accounting principles, the fair value amounts of our grants of stock awards are determined at their grant dates. That fair value amount as of the grant date is then expensed ratably over the vesting period of the stock awards. For stock awards subject to a market condition (for example, having our common stock’s total return meet certain levels relative to a market index or designated absolute performance levels), the amount we record as expense on our financial statements (and which is included as a portion of Stock Awards in the table above) is based on the value assigned to the stock award at its grant date; that value is then recorded as expense regardless of whether each of the stock awards has any intrinsic value to the executive (that is, whether or not the executive actually earns any portion of the award based on the actual performance of our common stock in relation to the relevant market condition).

 

For example:

 

 

 

 

 

Deferred Compensation

 

Elective deferrals under our deferred compensation plan are reported in the Summary Compensation Table above in the columns that are associated with the type of compensation (that is, Salary or Non-Equity Incentive Plan Compensation) that is deferred. Company matching and profit-sharing contributions are included in the values reported in the All Other Compensation column, and are specifically identified in the Nonqualified Deferred Compensation table below and related text.

 

2008 GRANTS OF PLAN-BASED AWARDS

 

 

 

 

POTENTIAL PAYMENT UPON TERMINATION OR CHANGE OF CONTROL

 

Our NEOs are eligible to receive certain termination and/or change in control payments and acceleration rights under certain of the compensation arrangements that they hold with us. These payments and acceleration rights are contained within the executive officers’ employment agreements, employee stock option stock grant agreements, and deferred compensation plan agreement.

 

Employment Agreements

 

As noted previously, we have entered into employment agreement with our NEOs. The agreements cover the additional payments that would be due to these individuals in the following scenarios:

 

 

 

 

 

The terms are substantially identical in each of the agreements (with the exception that Mr. Churchey’s employment agreement did not provide for any severance arrangements), except with respect to certain multipliers for payouts, as explained below.

 

We do not believe that we should pay our applicable NEOs any incremental compensation upon termination when the termination is by either choice or due to conduct that is potentially detrimental to our company. Thus, we do not provide any of our NEOs any incremental severance benefits other than any amounts already earned and accrued at the date of termination if the termination is voluntary (unless for good reason) or for cause.

 

In the event of a termination by us without cause or by the executive for good reason, we provide severance benefits, as described more fully below. These amounts reflect our belief that it is difficult for senior managers to find comparable employment opportunities in a short period of time, particularly after experiencing a termination that was beyond their control.

Termination Events

 

Severance payments (for NEOs other than Mr. Churchey) under the above termination event scenarios are summarized below.

 

 

 

 

 

In the event of a termination by us without cause within 180 days prior to, or 18 months following, a change of control, then the multipliers for the severance benefits described above are increased to 200%. A change of control means the occurrence of any of the following events:

 

 

 

 

 

In the event of one of these termination events for good reason, the NEO would be entitled to receive the same benefits as for a termination without cause as described above.

 

 

Conditions to Receive Payment

 

The covenants within the employment agreements, except for Mr. Churchey’s agreement, include various non-compete and non-solicitation provisions following a termination event, including the prohibition for a one-year period from:

 

 

In addition, the employment agreements prohibit the executive from using confidential information (meaning any secret, confidential or proprietary information possessed by the company relating to their businesses) that has not become generally available to the public.

Summary of Payments Due Under Different Termination Events

 

Assuming a December 31, 2008 termination event by the executive or the company, including before or after a change in control as described above, payments would be as follows: