UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

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Exchange Act of 1934 (Amendment No.     )

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BLACK BOX CORPORATION
1000 Park Drive
Lawrence, Pennsylvania 15055

 

 

Notice of Annual Meeting of Stockholders
to be held on August 9, 2011

 

 

To the Stockholders of

Black Box Corporation:

 

The Annual Meeting of Stockholders (the “Annual Meeting”) of Black Box Corporation (the “Company”) will be held at NASDAQ MarketSite, 4 Times Square (at the corner of 43^rd Street and Broadway, with the entrance on Broadway between 42^nd and 43^rd Streets), New York, New York 10036 on Tuesday, August 9, 2011, at 8:00 a.m. Eastern Daylight Time, to consider and act upon the following matters:

 

 

Stockholders also will be asked to consider such other matters as may properly come before the Annual Meeting. Our Board of Directors has established the close of business on Monday, June 13, 2011 as the record date for the determination of the stockholders entitled to notice of and to vote at the Annual Meeting.

 

If you plan to attend the Annual Meeting in person, please note that you will be required to present a valid picture identification such as a driver’s license or passport.

 

IT IS REQUESTED, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THAT YOU COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Michael McAndrew, Secretary

 

June 21, 2011

 

BLACK BOX CORPORATION
1000 Park Drive
Lawrence, Pennsylvania 15055

 

 

PROXY STATEMENT FOR ANNUAL MEETING
OF STOCKHOLDERS

 

August 9, 2011

 

This proxy statement is being furnished to the holders of common stock, par value $.001 per share (“Common Stock”), of Black Box Corporation, a Delaware corporation (the “Company,” “we,” “our” or “us”), in connection with the solicitation by our Board of Directors (“Board of Directors” or “Board”) of proxies to be voted at the Annual Meeting of Stockholders (the “Annual Meeting”) scheduled to be held on Tuesday, August 9, 2011, at 8:00 a.m. Eastern Daylight Time, at NASDAQ MarketSite, 4 Times Square (at the corner of 43^rd Street and Broadway), New York, New York 10036, or at any adjournment thereof. This proxy statement and form of proxy were first mailed to stockholders on or about June 23, 2011.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on August 9, 2011:

 

This proxy statement and the Company’s 2011 Annual Report to stockholders are available for you to review online at www.proxydocs.com/bbox.

 

Only holders of Common Stock of record as of the close of business on Monday, June 13, 2011 are entitled to notice of and to vote at the Annual Meeting and at any adjournment thereof. On that date, 18,041,526 shares of Common Stock, each entitled to one vote per share, were outstanding.

 

All shares of Common Stock represented by valid proxies received by the Secretary of the Company prior to the Annual Meeting will be voted as specified in the form of proxy. If no specification is made, the shares will be voted FOR each of the nominees named below for election as director; FOR ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012 (“Fiscal 2012”); FOR approval, on an advisory basis, of the compensation of our named executive officers as required to be disclosed in this proxy statement; and FOR, on an advisory basis, a frequency of every year for future advisory votes on the compensation of our named executive officers. Unless otherwise indicated by the stockholder, the proxy card also confers discretionary authority on the Board-appointed proxies to vote the shares represented by the proxy on any matter that is properly presented for action at the Annual Meeting of which our management had no knowledge prior to the mailing of this proxy statement. A stockholder giving a proxy has the power to revoke it at any time prior to its exercise by delivering to the Secretary of the Company a written revocation or a duly-executed proxy bearing a later date (although no revocation shall be effective until actual notice thereof has been given to the Secretary of the Company) or by attending the meeting and voting his or her shares in person.

 

Under our Second Restated Certificate of Incorporation, as amended (“Certificate of Incorporation”), Amended and Restated By-laws, as amended (“By-laws”), and applicable state law, abstentions and broker non-votes (which arise from proxies delivered by brokers and others, where the record holder has not received direction on voting and does not have discretionary authority to vote on one or more matters) are each included in the determination of the number of shares present for purposes of determining a quorum. At the Annual Meeting, directors will be elected by a plurality vote, the advisory vote on the frequency of future advisory votes on the compensation of our named executive officers will be decided by a plurality vote and all other matters will be decided by the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes are not votes cast and will not be included in calculating the number of votes necessary for approval of the matter.

 

Our Board of Directors unanimously recommends a vote FOR each of the nominees named below for election as director; FOR ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2012; FOR approval, on an advisory basis, of the compensation of our named executive officers as required to be disclosed in this proxy statement; and FOR, on an advisory basis, a frequency of every year for future advisory votes on the compensation of our named executive officers.

 

ANNUAL MEETING MATTERS

 

Proposal 1 – Election of Directors

 

Our By-laws provide that the number of directors constituting our entire Board shall be nine (9), or such other number as shall be fixed by the stockholders or by our Board. At present, our Board has fixed the number of directors at seven (7) members. All of our directors stand for election each year. Therefore, seven (7) directors are to be elected at the Annual Meeting to hold office for a term of one (1) year and until their respective successors are elected and qualified, subject to the right of our stockholders to remove any director as provided in our By-laws. Stockholders may fill any vacancy in the office of a director. In the absence of a stockholder vote, a vacancy in the office of a director may be filled by the remaining directors then in office, even if less than a quorum, or by the sole remaining director. Any director elected by our Board to fill a vacancy will serve until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. If our Board increases the number of directors, it may fill any vacancy so created.

 

The holders of Common Stock have one vote for each share owned as of the record date in the election of directors. The seven (7) nominees receiving the greatest number of affirmative votes will be elected as directors for terms expiring in 2012.

 

Upon recommendation of the Nominating Committee of our Board of Directors (“Nominating Committee”), our Board has nominated the following seven (7) persons for election to the position of director at the Annual Meeting: William F. Andrews, R. Terry Blakemore, Richard L. Crouch, Thomas W. Golonski, Thomas G. Greig, William H. Hernandez and Edward A. Nicholson, Ph.D. These nominees are all of the directors currently on our Board. All of these nominees/directors are independent under the listing standards of The NASDAQ Stock Market (“NASDAQ”) except for R. Terry Blakemore as a result of his position as our President and Chief Executive Officer (“CEO”).

 

The persons named as proxies on the enclosed proxy card were selected by our Board and have advised our Board that, unless authority is withheld, they intend to vote the shares represented by them at the Annual Meeting FOR the election to our Board of Directors of each of our Board’s nominees named above.

 

Our Board knows of no reason why any nominee for director would be unable to serve as director. If, at the time of the Annual Meeting, any of the named nominees is unable or unwilling to serve as a director, the persons named as proxies intend to vote for such substitute as may be nominated by our Board of Directors.

 

The following sets forth certain information concerning our Board’s nominees for election to our Board of Directors at the Annual Meeting:

 

William F. Andrews, 79, was elected as a director of the Company on May 18, 1992. Mr. Andrews currently is Chairman of the Executive Committee of Corrections Corporation of America (private prisons) and Chairman of Katy Industries, Inc. (diversified manufacturing company). He has been a principal with Kohlberg & Co., a private investment company, since 1995. He is also a director of Corrections Corporation of America, Katy Industries, Inc., O’Charley’s, Inc. and Trex Company, Inc., all publicly-held companies, and SVP Holdings Limited.

 

Qualifications:  Mr. Andrews has been a director of the Company for over 19 years and provides the Board with his vast knowledge and experience of the Company. He is a respected business leader with a diverse business background, bringing to the board multiple perspectives, including those of an investor and an executive. Mr. Andrews has served on the boards of over twenty (20) public and private companies and has been the Chairman of seven public companies, currently serving as Chairman for two (2) public companies. Additionally, Mr. Andrews’ service as a chief executive officer of other publicly-traded companies and in leadership roles on public company boards has resulted in valuable experience in the processes and policies needed to effectively govern a publicly-traded enterprise.

 

R. Terry Blakemore, 54, was selected as a member of the Board on October 13, 2007 and was named President and Chief Executive Officer of the Company on the same date. He was elected as a director by our stockholders on August 12, 2008. He had served in the capacity of Interim President and Chief Executive Officer of the Company from May 21, 2007. Previously, on May 15, 2007, the Board had named Mr. Blakemore a Senior Vice President of

the Company. Prior to becoming a Senior Vice President, Mr. Blakemore served as a manager of business development and, prior thereto, as a manager of the Company’s Voice Services business unit. Mr. Blakemore has been with the Company for 12 years.

 

Qualifications:  Mr. Blakemore is our Chief Executive Officer and provides the Board with significant insight and direction regarding the strategic development and day-to-day operations of the Company. He also provides the Board with his more than 25 years of experience in the telephony services industry, the Company’s primary services offering. Mr. Blakemore serves as a key liaison between the Board and our key management and facilitates the implementation of the Board’s strategic decisions.

 

Richard L. Crouch, 64, was elected as a director on August 10, 2004. Mr. Crouch was a General Partner with the firm of PricewaterhouseCoopers LLP from 1979 to 2004, having served as an Audit Partner principally assigned to public companies. He served in various capacities for the firm, including service as a regional accounting, auditing and Securities and Exchange Commission (“SEC”) services consultant. He retired from the firm on July 2, 2004.

 

Qualifications:  Mr. Crouch adds significant financial reporting and management expertise as a result of his more than 25 years of experience with a large public accounting firm which provided him with exposure to and interaction with a variety of industries and companies. He is one of our audit committee financial experts. His tenure as an SEC services consultant for PricewaterhouseCoopers LLP gives Mr. Crouch first-hand insight into the financial reporting and disclosure obligations of the Company, which is a vitally important qualification for service on our Board.

 

Thomas W. Golonski, 68, was selected to be a director on February 11, 2003 and was elected by our stockholders on August 12, 2003. Mr. Golonski served as Chairman, President and Chief Executive Officer of National City Bank of Pennsylvania and Executive Vice President of National City Corporation from 1996 to 2005. He retired from National City in 2005. Mr. Golonski is a director of several educational and health care organizations and active in other charitable organizations.

 

Qualifications:  In Mr. Golonski’s 18 years as the top executive for National City Bank, he was directly responsible for all management functions including human resources, financial and strategic planning and board development. He also has substantial experience in organizational governance issues gained during his tenure on the boards of directors of a university and two regional hospitals. He adds significantly to the collective financial, operational and strategic planning expertise of our Board.

 

Thomas G. Greig, 63, was elected as a director on August 10, 1999 and appointed as non-executive Chairman of the Board in May 2004. Mr. Greig has been a Managing Director of Liberty Capital Partners, a private equity partnership, since 1998. He is also a director of publicly-held Rudolph Technologies, Inc., a number of privately-held companies and a public, not-for-profit foundation.

 

Qualifications:  Mr. Greig brings 38 years of financial experience to our Board. His career has included over 25 years in a corporate finance environment and 13 years of investment management and private equity experience. He has served as an audit committee member for numerous companies, both privately-held and public, and a public not-for-profit foundation. As a result, he has significant expertise and insight into finance and corporate governance issues that are invaluable to our Board.

 

William H. Hernandez, 63, was selected to be a director on December 3, 2009 and was elected by our stockholders on August 10, 2010. Mr. Hernandez was the Senior Vice President, Finance and Chief Financial Officer of PPG Industries, Inc. (“PPG”) from 1995 until October 15, 2009. Prior to assuming those duties in 1995, Mr. Hernandez served as PPG’s Controller from 1990 to 1994 and as Vice President and Controller from 1994. From 1974 until 1990, Mr. Hernandez held a number of positions at Borg-Warner Corporation. Mr. Hernandez is a Certified Management Accountant. Mr. Hernandez is a director of USG Corporation, Eastman Kodak Company and Albermarle Corporation, all publicly-held companies.

 

Qualifications:  Mr. Hernandez contributes to the Board’s broad experience in corporate finance, risk management, operations, mergers and acquisitions, strategic planning and executive compensation. In particular, Mr. Hernandez is highly qualified in the fields of accounting, internal controls, investor relations and economics, all

of which contribute to effective service on the Board and its committees. Mr. Hernandez serves on the boards of other public companies through which he has gained additional experience in risk management and corporate governance.

 

Edward A. Nicholson, Ph.D., 71, was elected as a director on August 10, 2004. Dr. Nicholson served as President of Robert Morris University from 1989 to 2005 and is presently a Professor of Management at Robert Morris University. He is also a director of Brentwood Bank and several regional economic, charitable and cultural organizations. He has served a number of businesses and government agencies as a consultant in the areas of long-range planning, organization design and labor relations.

 

Qualifications:  Dr. Nicholson brings to our Board a broad range of academic, business and government experience. As president of Robert Morris University, Dr. Nicholson was directly responsible for all management functions of the university. His experience as a consultant in the areas of long-range planning, organization design and labor relations, as well as his service as a director of many organizations, provide valuable insights to our Board.

 

Our Board of Directors unanimously recommends that our stockholders vote FOR each of our Board’s nominees for election to our Board.

 

Proposal 2 – Ratification of the Appointment of the Independent Registered Public Accounting Firm

 

In May 2011, the Audit Committee of our Board (“Audit Committee”) appointed BDO USA, LLP (“BDO”) as our independent registered public accounting firm for Fiscal 2012. As a sound governance matter, our Audit Committee has determined to submit the appointment to our stockholders for ratification at the Annual Meeting.

 

The affirmative vote of a majority of the votes cast in person or by proxy at the Annual Meeting is required for the ratification by our stockholders of such appointment. Unless otherwise directed by our stockholders, proxies will be voted FOR the ratification of the appointment of BDO as our independent registered public accounting firm for Fiscal 2012. In the event that this appointment is not ratified by the stockholders, our Audit Committee will consider this vote in determining its future appointment of our independent registered public accounting firm. Even if the appointment is ratified, our Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such change would be in our and our stockholders’ best interests.

 

A representative of BDO is expected to be present at the Annual Meeting, will not be making a statement but will be available to respond to appropriate questions.

 

Our Board of Directors unanimously recommends that our stockholders vote FOR approval of Proposal 2.

 

Proposal 3 – Advisory Vote on Executive Compensation

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in July 2010, requires that we provide our stockholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement. This “Say on Pay” vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and our compensation philosophy, policies and practices as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC, including the “Compensation Discussion and Analysis” (“CD&A”) section set forth in this proxy statement under the caption “Executive Compensation and Other Information” and the compensation tables and narrative following the CD&A.

 

We believe that our CD&A and other compensation disclosures included in the proxy statement evidence a sound and prudent compensation philosophy and set of policies and practices and that our compensation decisions are consistent with that philosophy and those policies and practices.

 

In light of the foregoing considerations, we are asking our stockholders to indicate their approval, on an advisory basis, of the compensation of our named executive officers as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC, including the CD&A and the compensation tables and narrative following the CD&A. Although this is an advisory vote which will not be binding on the Compensation Committee

of the Board (“Compensation Committee”) or the Board, the Compensation Committee and the Board will carefully review the results of the stockholder vote and consider stockholders’ concerns in future determinations concerning executive compensation.

 

Our Board of Directors unanimously recommends that our stockholders vote FOR approval of the compensation of our named executive officers as disclosed in this proxy statement.

 

Proposal 4 – Advisory Vote on Frequency of Advisory Vote on Executive Compensation

 

The Dodd-Frank Act also requires that we give stockholders the opportunity to inform us as to how often we should include a “Say on Pay” proposal, similar to Proposal 3, in our proxy statements for future annual stockholder meetings. Under this Proposal 4, stockholders may indicate their preference, on an advisory basis, for including a “Say on Pay” proposal in our future proxy statements every year, every two (2) years or every three (3) years, or may abstain from voting on the frequency of future “Say on Pay” proposals.

 

After careful consideration, our Board, upon the recommendation of our Compensation Committee, has determined that an advisory vote on executive compensation every year is the best approach for the Company. The annual advisory vote on executive compensation will allow our stockholders to provide timely, direct input on the Company’s most current executive compensation philosophy, policies and practices and allow the Compensation Committee and the Board to better understand our stockholders’ views. The Company recognizes that stockholders may have different opinions as to the appropriate frequency for advisory votes on named executive officer compensation, and we will carefully review the voting results on this proposal.

 

This vote is advisory and not binding on the Company or the Board, but the Board and the Compensation Committee will take into account the outcome of the vote when making a decision as to how often the Company will conduct its advisory votes on the compensation of our named executive officers.

 

As noted above, stockholders will be able to specify one of four choices for this proposal on the form of proxy: “1 Year,” “2 Years,” “3 Years” or abstain. Stockholders are not voting to approve or disapprove the Board’s recommendation.

 

Our Board of Directors unanimously recommends that our stockholders vote for “1 Year” for the frequency of future executive compensation advisory votes.

 

BOARD OF DIRECTORS AND CERTAIN BOARD COMMITTEES

 

Our Board of Directors held seven (7) meetings during the fiscal year ended March 31, 2011 (“Fiscal 2011”). During Fiscal 2011, each director attended not fewer than seventy-five percent (75%) of the meetings of our Board and each committee on which such director served during the period in which such director served on our Board. Executive sessions of the non-employee members of our Board are scheduled for each regular Board meeting and many committee meetings and many regular Board meetings and certain committee meetings include such an executive session.

 

Stockholders can communicate with our Board or individual directors by writing to the Company’s Secretary at: Black Box Corporation, 1000 Park Drive, Lawrence, Pennsylvania 15055. Our Board believes that our annual meetings also are appropriate for stockholder communications with our Board. Our Board strongly encourages board member attendance at all meetings, including annual meetings with stockholders. All current directors attended the annual meeting of stockholders held in August 2010.

 

Board Leadership Structure and Role in Oversight of Risk Management

 

We have separate Chief Executive Officer and Chairman of the Board of Directors positions. Our Board believes this is currently the most appropriate structure for us because it allows each person to focus on their respective roles. Mr. Blakemore, as Chief Executive Officer, can focus on the strategic direction of the Company and the day-to-day leadership and performance of the Company, while Mr. Greig, as Chairman of our Board of Directors, focuses on providing guidance to the Chief Executive Officer and presiding over meetings of the Board. Our Board has adopted a resolution that the Chairman of the Board shall be an independent director under the applicable SEC and NASDAQ rules. Our Board believes this leadership structure has enhanced our Board’s oversight of, and independence from, our management, the ability of our Board to carry out its roles and responsibilities on behalf of our stockholders and our overall corporate governance.

 

Our management is responsible for the day-to-day management of the risks we face, while our Board, as a whole and through its committees, has responsibility for the oversight of risk management. No single Board committee, however, is responsible for overall risk oversight. Rather, each Board committee identifies and assesses Company risk, as appropriate, within its given area of responsibility, and any such identified risk is reported to the Board as part of the governance process. Our internal audit department conducts an annual risk assessment to identify the most significant risks to which we are subject. The results of this assessment are compiled and reported to our Audit Committee and internal audit makes recommendations regarding remedial actions where necessary. Our Audit Committee subsequently reports the results of the assessment, as well as any remediation of the material risks identified in the risk assessment, to our Board.

 

Our Board of Directors has four (4) standing committees: the Audit Committee, the Compensation Committee, the Nominating Committee and the Governance Committee of the Board (“Governance Committee”).

 

Audit Committee

 

Our Audit Committee consists of Mr. Richard L. Crouch, as chair, Mr. Thomas G. Greig and Mr. William H. Hernandez. Each member of this committee is independent under NASDAQ’s listing standards for audit committee members.

 

Our Audit Committee’s duties include:

 

 

Our Audit Committee has such other duties and responsibilities as are set forth in its written charter adopted by our Board, a copy of which is posted in the “About – Investor Relations – Corporate Governance” section of our Web site at http://www.blackbox.com. These other duties and responsibilities include pre-approval of all audit

services and permitted non-audit services, oversight of the independent auditors, review of financial statements and SEC filings, review of the lead audit partner, review of the auditors’ independence, discussions with the auditors regarding the planning and scope of the audit, discussions regarding our internal controls over financial reporting and the establishment of procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing and the confidentiality thereof. Our Audit Committee has delegated authority for pre- approval of audit services and permitted non-audit services to its chair, subject to subsequent ratification of such pre-approval at the next subsequent regular meeting of our Audit Committee.

 

All services performed by BDO during Fiscal 2011 that were required to be pre-approved under the SEC’s and NASDAQ’s rules and the Audit Committee’s charter were either pre-approved by our Audit Committee or pre-approved by our Audit Committee chair and later ratified by our Audit Committee.

 

Our Board has determined that all of the members of our Audit Committee, Messrs. Crouch, Greig and Hernandez, qualify as audit committee financial experts within the meaning of SEC regulations and that they have the requisite level of financial sophistication required under NASDAQ’s listing standards. Our Board has also determined that Messrs. Crouch, Greig and Hernandez are independent within the meaning of SEC regulations.

 

Our Audit Committee met six (6) times in Fiscal 2011.

 

Compensation Committee

 

Our Compensation Committee consists of Mr. Thomas W. Golonski, as chair, Mr. William F. Andrews and Edward A. Nicholson, Ph.D. Each member of this committee is independent under NASDAQ’s listing standards.

 

Our Compensation Committee’s duties include:

 

 

Our Compensation Committee operates under a written charter adopted by our Board, a copy of which is posted in the “About – Investor Relations – Corporate Governance” section of our Web site. For a description of our Compensation Committee’s processes and procedures for the consideration and determination of executive officer compensation, see the “Compensation Discussion and Analysis” section of this proxy statement.

 

In Fiscal 2011, our Compensation Committee continued to engage Towers Watson & Co. (“Towers Watson”), as its independent consultants, to assist in the further development of our executive compensation programs. Such services included (i) providing a competitive assessment of the total direct compensation (e.g., sum of base salary, annual bonus and long-term incentive opportunity) for our named executive officers and other key employees relative to a peer group and general survey data; (ii) providing an assessment of the appropriateness of incentive plan targets; (iii) advising our Compensation Committee regarding design changes to compensatory programs and the development of new programs based on the Company’s strategic goals, competitive assessment and regulatory changes; (iv) assisting our Compensation Committee in analyzing the effectiveness of the Company’s compensation programs; (v) a review of our management’s proposals on behalf of our Compensation Committee; (vi) an analysis of the Company’s share utilization for equity-based compensation in view of institutional investor guidelines; (vii) informing our Compensation Committee of emerging trends in executive compensation; (viii) advising on stock ownership or retention guidelines for our named executive officers; and (ix) the other services described below in the “Compensation Discussion and Analysis” section of this proxy statement, including assisting our Compensation Committee in conducting a risk assessment regarding our compensation practices and policies. The scope of services of any executive compensation consultants is approved by our Compensation Committee or its chair. As noted below, Towers Watson also was engaged by our Governance Committee during Fiscal 2011 to provide information regarding competitive director compensation data. During Fiscal 2011, Towers Watson performed no other services for the Company except to assist us with the valuation of certain of our performance share awards. During Fiscal 2011, Towers Watson’s compensation consulting team advising the Company separated from Towers Watson and joined a newly-formed compensation consulting firm, Pay Governance, LLC (“PayGovernance”). For Fiscal 2012, the Compensation Committee engaged PayGovernance to perform the services previously provided by Towers Watson and other services as described herein. During Fiscal

2012, Towers Watson was engaged to perform a calculation of the results of the performance criteria of certain of our performance share awards.

 

Our Compensation Committee met four (4) times in Fiscal 2011.

 

Nominating Committee

 

Our Nominating Committee consists of Edward A. Nicholson, Ph.D., as chair, Mr. Richard L. Crouch and Mr. Thomas G. Greig. Each member of this committee is independent under NASDAQ’s listing standards.

 

Our Nominating Committee’s duties include:

 

 

This committee considers the independence, experience relative to our business and the needs of our Board, diversity and the ability to represent our stockholders in evaluating potential nominees. Potential Board members should show a willingness to fully participate in Board meetings, a proven track record of career accomplishments, the ability to make sound judgments and leadership qualities. Although the Company does not have a specific diversity policy as it relates to the evaluation of potential Board members, the Nominating Committee charter provides that the Nominating Committee is to consider diversity when evaluating candidates. Accordingly, the Nominating Committee strives to identify potential Board members with a diverse array of talents, backgrounds and perspectives.

 

It is our Nominating Committee’s policy to consider stockholder proposals for nominees for election as directors that are nominated in accordance with our Certificate of Incorporation and our By-laws, and other applicable laws, including the rules and regulations of the SEC and any stock market on which our stock is listed for trading or quotation. Generally, such recommendations made by a stockholder entitled to notice of, and to vote at, the meeting at which such proposed nominee is to be considered are required to be written and received by the Secretary of the Company within a prescribed time period prior to the annual or special meeting. See the “Stockholder Nominations and Proposals” section of this proxy statement for a description of the procedures to be followed in order to submit a recommendation for a nominee.

 

Our Nominating Committee operates under a written charter adopted by our Board, a copy of which is posted in the “About – Investor Relations – Corporate Governance” section of our Web site.

 

Our Nominating Committee met three (3) times in Fiscal 2011.

 

Governance Committee

 

Our Governance Committee consists of Mr. William F. Andrews, as chair, Mr. Thomas W. Golonski and Mr. William H. Hernandez. Each member of this committee is independent under NASDAQ’s listing standards.

 

Our Governance Committee’s duties include:

 

 

During Fiscal 2011, our Governance Committee engaged Towers Watson to provide information regarding competitive director compensation data, including identification of an appropriate peer group for comparison purposes, an analysis of director compensation levels and compensation vehicles and programs and market-competitive compensation data. In Fiscal 2011, Towers Watson also advised on stock ownership or retention guidelines for our non-employee directors. For Fiscal 2012, our Governance Committee engaged PayGovernance to provide these services.

 

Our Governance Committee operates under a written charter adopted by our Board, a copy of which is posted in the “About – Investor Relations – Corporate Governance” section of our Web site.

 

Our Governance Committee met four (4) times in Fiscal 2011.

 

LITIGATION INVOLVING DIRECTORS AND OFFICERS

 

In November 2006, two stockholder derivative lawsuits were filed against the Company itself, as a nominal defendant, and several of our current and former officers and directors, including Michael McAndrew, Francis Wertheimber, William F. Andrews and Thomas G. Greig, in the United States District Court for the Western District of Pennsylvania (the “District Court”). The two complaints were substantially identical and contained allegations regarding and related to backdated stock options. The two lawsuits were consolidated into a single action as In re Black Box Corporation Derivative Litigation, Master File No. 2:06-CV-1531-JFC, and plaintiffs filed an amended consolidated shareholder derivative complaint on August 31, 2007. During the second quarter of the fiscal year ended March 31, 2010 (“Fiscal 2010”), the Company recorded expense of $3,992,000 in connection with an agreement in principle for settlement of this action and related matters arising out of the Company’s review of its historical stock option practices. During the third quarter of Fiscal 2010, certain of the parties to this action and certain insurers entered into a Memorandum of Understanding regarding this settlement. On January 22, 2010, the parties to this action and certain insurers executed a Stipulation of Compromise and Settlement (the “Stipulation”) and the parties to the action executed a Joint Motion for Preliminary and Final Approval of Proposed Settlement (the “Joint Motion”), and such documents were filed with the District Court. On January 27, 2010, the District Court entered an order preliminarily approving the proposed settlement and setting forth a process and scheduling a hearing for consideration of final approval of the proposed settlement (the “Preliminary Order”). Pursuant to the Preliminary Order, on February 1, 2010, the Company filed with the SEC a Current Report on Form 8-K regarding the proposed settlement and filed, as exhibits to such Form 8-K, the Joint Motion, the Stipulation, the Preliminary Order, a Notice of Proposed Settlement of Derivative Action and of Settlement Hearing (the “Notice”) and a proposed Order of Dismissal and Judgment. Also on February 1, 2010, the Company issued a press release including the Notice. On March 19, 2010, the District Court approved the settlement and executed an Order of Dismissal and Judgment. On April 20, 2010, no party having appealed the District Court’s Order of Dismissal and Judgment, the matter concluded. Thereafter, the Company received and paid the amounts due to and from it in accordance with the Stipulation.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

During Fiscal 2011, one (1) report with respect to one (1) transaction was not timely filed for each of Messrs. Blakemore and McAndrew regarding the mandatory tax withholding of shares of Common Stock by the Company upon the vesting of restricted stock units.

 

 

POLICIES AND PROCEDURES RELATED TO THE APPROVAL
OF TRANSACTIONS WITH RELATED PERSONS

 

Our policies and procedures for review, approval or ratification of transactions with related persons are not contained in a single policy or procedure; instead, relevant aspects of such program are drawn from various corporate documents. Most importantly, our Audit Committee’s charter provides that our Audit Committee must review and, if appropriate, approve or ratify all transactions between us and any related persons.

 

Our Standards of Business Conduct require that all of our and our subsidiaries’ directors, officers and employees refrain from activities that might involve a conflict of interest. Additionally, our Code of Ethics provides that each of our and our subsidiaries’ directors, officers and employees must openly and honestly handle any actual, apparent or potential conflict between that individual’s personal and business relationships and our interests. Before making any investment, accepting any position or benefit, participating in any transaction or business arrangement or otherwise acting in a manner that creates or appears to create a conflict of interest, such person must make a full disclosure of all relevant facts and circumstances to, and obtain the prior written approval of, our Chief Financial Officer or our General Counsel. Our Chief Financial Officer and our General Counsel make reports to our Audit Committee, pursuant to the terms of its charter, regarding compliance with our Code of Ethics. Further, our Chief Financial Officer makes reports to our Audit Committee with respect to proposed related-party transactions for which that committee’s approval would be required.

 

We did not participate in any transactions with related persons during Fiscal 2011 and there are no currently-proposed transactions with related persons.

 

COMPENSATION OF DIRECTORS

 

The following table sets forth the compensation of our non-employee directors in Fiscal 2011:

 

DIRECTOR COMPENSATION – FISCAL 2011

 

Name(1)			Fees Earned					Stock					Total
			or Paid					Awards(4)(5)(6)					($)
			in Cash(2)(3)					($)
			($)
William F. Andrews				57,000					92,160					149,160
Richard L. Crouch				75,000					92,160					167,160
Thomas W. Golonski				70,000					92,160					162,160
Thomas G. Greig				135,000					92,160					227,160
William H. Hernandez				61,000					92,160					153,160
Edward A. Nicholson, Ph.D.				60,000					92,160					152,160

 

 

 

Name			Outstanding
			Options
			(#)
William F. Andrews				42,000
Richard L. Crouch				26,000
Thomas W. Golonski				37,000
Thomas G. Greig				42,000
William H. Hernandez				—
Edward A. Nicholson, Ph.D.				26,000

 

To further achieve the objective of more closely aligning the interests of our non-employee directors with those of our stockholders, upon the recommendation of our Governance Committee after discussions with our Governance Committee’s compensation consultants, our Board has adopted stock retention guidelines for our non-employee directors requiring them to hold, until retirement, but subject to diversification at age 60, 50% of the net, after-tax shares of Common Stock issued to them pursuant to performance share awards and restricted stock awards/units. All of our non-employee directors are in compliance with these ownership guidelines.

 

EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

 

The following provides an overview of our executive compensation philosophy and programs as detailed further in this Compensation Discussion and Analysis:

 

 

Role of Our Compensation Committee and Our Compensation Philosophy

 

Our Compensation Committee evaluates and recommends to our Board our compensation philosophy and practices and is charged with administering our compensation program for our named executive officers: R. Terry Blakemore, our President and Chief Executive Officer; Michael McAndrew, our Executive Vice President, Chief Financial Officer, Treasurer and Secretary; Kenneth P. Davis, our Vice President – Voice Services North, Europe and Latin America and Francis W. Wertheimber, our Senior Vice President. Mr. Davis became an executive officer on November 1, 2010 and, thus, was not a named executive officer with respect to the compensation decisions discussed below made in May 2010.

 

Our Compensation Committee believes that the total executive compensation package paid to our named executive officers should be designed to pay-for-performance by rewarding the achievement of our short- and long-range goals, recognizing individual executive performance and contributions and promoting increased value creation for our stockholders.

 

Objectives of Our Compensation Program

 

In line with our philosophy, our Compensation Committee has developed the following objectives for our compensation program which are to:

 

 

Our compensation program rewards our named executive officers and other key employees for:

 

 

The Compensation Committee has identified a number of key performance metrics that it believes represents value creation for our stockholders. These metrics have been incorporated into the incentive arrangements for our named executive officers in Fiscal 2011 and Fiscal 2012 as follows:

 

 

Components of Our Executive Compensation Program

 

Our Compensation Committee has designed a compensation package that includes the following elements positioned against the competitive market as follows:

 

 

In designing our compensation program, our Compensation Committee, in line with our pay-for-performance philosophy, had historically placed more emphasis upon at-risk, variable compensation in the form of annual

performance cash bonuses and/or grants of stock options. Our Compensation Committee’s and Board’s philosophy has been to approve below-market base salaries and modestly above-market incentive compensation opportunities for our named executive officers. Our Compensation Committee’s goal is to deliver total compensation to our named executive officers (base salary plus annual cash bonus plus long-term incentives) modestly above the market median with a focus on performance-based incentives.

 

Beginning in the fiscal year ended March 31, 2008 (“Fiscal 2008”) our Compensation Committee extensively re-evaluated the nature and structure of our executive compensation program and the relative mix of cash and equity incentives to be awarded to our named executive officers and other key employees. In connection with this evaluation, our Compensation Committee retained the services of outside compensation consultants to assist with a review of peer and broad market executive compensation data and to help us determine how our executive compensation program, given our philosophy and culture, should be structured to achieve our objectives. The structure of our executive program that was established for the fiscal year ended March 31, 2009 (“Fiscal 2009”), providing for a base salary, an annual cash incentive and a long-term incentive, provided the foundation for the executive compensation decisions made for Fiscal 2011 and Fiscal 2012 described below. The elements and objectives of our compensation program are presented in the following chart:

 

 

Overview of Annual Setting of Executive Compensation

 

Beginning in Fiscal 2008, our Compensation Committee sought the advice of outside compensation consultants to assist it with collecting and reviewing information regarding the executive compensation programs of a selected group of peer companies (the list of which for Fiscal 2011 is below) and to provide it with more general survey data regarding executive compensation practices for Fiscal 2009 and beyond. The role of the outside compensation consultants in our executive compensation processes and procedures is described under “Board of Directors and Certain Board Committees – Compensation Committee.” Our Chief Executive Officer and our Chief Financial Officer also consult with our Compensation Committee regarding each element of our executive compensation program. At our Compensation Committee’s request, these executives provide recommendations to our Compensation Committee related to appropriate financial performance metrics and goals for the Company to

align compensatory programs with our overall business strategy. Our Compensation Committee also reviews with our Chief Executive Officer each element of compensation to be paid to our named executive officers (other than our Chief Executive Officer) and other key employees. Our Compensation Committee generally holds special meetings to prepare for its annual compensation recommendations. Our Compensation Committee is provided with and reviews survey data provided by our compensation consultants, our management’s recommendations, tally sheets of our named executive officer’s historical compensation and other data and utilizes the committee members’ collective knowledge of industry and market pay practices of similarly-situated executives, along with our overall compensation philosophy, in connection with determining its executive compensation recommendations for each executive officer. At certain of its meetings, the Compensation Committee holds executive sessions, which exclude our management and, subject to the Compensation Committee’s discretion, include its independent consultants. Our Compensation Committee then submits its recommendations to our Board for review and approval.

 

We do not have a policy of reducing awards based upon the amounts realized from prior compensation. Our Compensation Committee believes that the intended value of an award on its grant date reflects both the possible upside and the possible downside of any such award. Likewise, we do not have a policy of increasing awards based upon amounts not realized from prior compensation awards.

 

Relationship between Pay and Performance

 

One of the main objectives of our compensation philosophy is to align our named executive officers’ compensation with the performance of the Company (“pay-for-performance”). Our Compensation Committee recently reviewed the relationship between our Chief Executive Officer’s realizable compensation and the Company’s performance from Fiscal 2009 through Fiscal 2011. The analysis, which was prepared by the Compensation Committee’s compensation consultants, compared our Chief Executive Officer’s realizable compensation and the Company’s performance, relative to a peer group, in order to assess whether the Company’s performance and realizable compensation for our Chief Executive Officer are aligned. The peer group utilized for this analysis is the same peer group utilized for the Fiscal 2012 compensation decisions identified below.

 

Realizable compensation is defined as (i) base salary, (ii) actual bonus earned, (iii) aggregate current value of restricted stock grants made during the period, (iv) aggregate in-the-money value of stock option grants made during the period and (v) for performance plans, the actual payouts for awards beginning and ending during the three-year performance period and the estimated payout for unvested awards granted during the three-year performance period. Realizable compensation was calculated in the same manner for our CEO and the CEOs of our peer group companies. The realizable value of long-term equity-based awards was valued using each company’s closing stock price on March 31, 2011.

 

Financial and shareholder performance for the Company and the peer group were evaluated over the same three-year period as realizable compensation using the following four (4) performance measures: TSR; revenue growth; EBITDA growth; and operating margin. These measures were selected because they are used in the Company’s short-term and/or long-term incentive plans and were considered by the Compensation Committee’s compensation consultants to be reasonable indicators of Company performance. The Company’s percentile ranking for each performance measure relative to the peer group was averaged to form a composite performance ranking.

 

Over the three-year period, our CEO’s realizable compensation ranked at the 25^th percentile of the peer group while our composite performance ranked at the 43^rd percentile of the peer group. This means that our CEO’s realizable compensation is positioned well below the middle of the peer group while our performance was ranked just below the middle of the peer group. The Compensation Committee observed that the relatively low positioning of realizable compensation (i.e., the 25^th percentile) is attributable to the following factors:

 

 

Based on this analysis and the above observations, the Compensation Committee is satisfied with the alignment of our CEO’s realizable compensation with the performance of the Company. The chart below provides an illustration of this realizable pay-for-performance analysis.

 

 

Summary of Fiscal 2011 Executive Compensation Decisions

 

The following is a summary of significant compensation decisions that were made in Fiscal 2011:

 

In making Fiscal 2011 compensation decisions relating to our named executive officers, our Compensation Committee considered our executive compensation philosophy of paying below-market base salaries and modestly above-market incentive compensation. Our compensation consultants provided a comprehensive, current assessment of a peer group first developed in Fiscal 2009 and modified in Fiscal 2011 as noted below (the “Fiscal 2011 Peer Group”) and survey data relating to these positions to develop overall compensatory arrangements for these executives. Our Compensation Committee also reviewed our management’s recommendations related to appropriate financial performance metrics and goals for the Company to align compensatory programs with our overall business strategy. Our Compensation Committee considered summary information of the total compensation paid to our named executive officers during the prior five (5) fiscal years and summary data of each named executive officer’s stock awards and stock options position. Our Compensation Committee discussed with our Chief Executive Officer proposals relating to the compensation of our named executive officers (other than the Chief Executive Officer). After discussions with our Chief Executive Officer and the outside compensation consultants, our Compensation Committee recommended to our Board for approval the Fiscal 2011 total direct compensation of the named executive officers, other than for our Chief Executive Officer, described below and, in the case of our Chief Executive Officer, after review of the Fiscal 2011 Peer Group and survey data with the compensation consultants in the absence of our Chief Executive Officer, our Compensation Committee recommended to our Board for approval the Fiscal 2011 total direct compensation of our Chief Executive Officer described below. Our

Compensation Committee believes that the incentive compensation of the named executive officers (annual cash bonus and long-term incentive compensation) described below, combined with Fiscal 2011 base salaries, provided for compensation opportunity for each executive above median as compared to similarly-situated executives as reflected in the data provided by our compensation consultants, consistent with our executive compensation philosophy.

 

Use of Market Compensation Data

 

In order to make informed decisions regarding compensation matters for our named executive officers, the Compensation Committee’s compensation consultants provide market compensation data for each executive position using a combination of survey data and peer group data as disclosed in each company’s proxy statement.

 

A peer group of companies was first developed in Fiscal 2009, after discussions among our Compensation Committee, the compensation consultants and our management, for use, along with survey data, to assess whether each of the named executive officers’ total compensation (base salary, annual bonus and long-term incentive compensation) was competitive relative to similarly-situated executives. The Fiscal 2011 Peer Group, shown below, is the same peer group utilized in Fiscal 2010 except that Brocade Communications Systems, Inc. (“Brocade”) and ManTech International Corporation (“ManTech”) were removed because they were no longer considered comparable due to their significant growth from acquisitions (including Brocade and ManTech, the “Fiscal 2010 Peer Group”).

 

Acxiom Corporation		Gartner, Inc.
ADC Telecommunications, Inc.		GTSI Corp.
ARRIS Group, Inc.		MasTec, Inc.
Belden Inc.		MAXIMUS, Inc.
CIBER, Inc.		Novell, Inc.
Ciena Corporation		Nu Horizons Electronics Corp.
Cincinnati Bell Inc.		Plantronics, Inc.
CommScope Inc.		Polycom, Inc.
Dycom Industries, Inc.		SAVVIS, Inc.

 

These companies were selected based on the following criteria presented by our compensation consultants and agreed upon by our Compensation Committee:

 

 

In selecting peer companies, the Compensation Committee takes a collective view of the selection criteria and does not rely on any single metric. The Compensation Committee believes that the peer companies represent businesses that are our competitors and represent companies of similar size and complexity to us.

 

The outside compensation consultants also presented our Compensation Committee with broad survey data from consulting firms Towers Watson and Mercer Inc. (and utilizing companies with revenues less than $3 billion from the Towers Watson High-Technology Compensation Database as supplemented with data from the Fiscal 2011 Peer Group for the Chief Executive Officer and the Chief Financial Officer positions for market target annual and long-term incentives), which was based on executive-position match, as another means by which our Compensation Committee could assess and judge the compensation paid to our named executive officers. The survey data is further size adjusted using regression equations based on the revenue responsibility of the executive position.

 

Base Salaries.  A review was conducted of our named executive officers’ base salaries in light of their performance and the survey and Fiscal 2011 Peer Group data presented by our compensation consultants and our compensation philosophy to pay below-market base salaries. This review revealed that, relative to the survey data, the base salary for the Chief Executive Officer was positioned 18% below the market median, the base salary for the Chief Financial Officer was positioned 13% below the market median and the base salary for the Senior Vice

President was positioned 17% below the market median. A determination was made, based on such review, that the base salaries for our Chief Executive Officer and our Chief Financial Officer (especially since our Chief Financial Officer also performs some functions that are comparable to a chief operating officer) should be increased but should remain below the market median for base salaries. Accordingly, our Compensation Committee recommended, and our Board approved, the following base salaries for our named executive officers for Fiscal 2011: $600,000 for our Chief Executive Officer, an increase of $50,000 over the prior fiscal year, $350,000 for our Chief Financial Officer, an increase of $35,000 over the prior fiscal year, and $265,000 for our Senior Vice President. Mr. Davis became an executive officer on November 1, 2010 and, in connection therewith, and after review of a compensation analysis prepared by our compensation consultants, our Compensation Committee recommended, and our Board approved, a base salary for Mr. Davis, consistent with our philosophy, at an annual rate of $330,000.

 

Fiscal 2011 Annual Cash Bonus Program.  At the recommendation of our Compensation Committee, in May 2010, our Board approved an annual cash incentive bonus plan for Fiscal 2011 (the “FY11 Annual Incentive Plan”). The FY11 Annual Incentive Plan was similar to the annual cash incentive plan for Fiscal 2010. The main objective of the FY11 Annual Incentive Plan was to motivate our named executive officers to achieve the Company’s overall operating plan and was implemented after strategic planning meetings attended by the Compensation Committee and other Board members at which the Company’s operating plan for Fiscal 2011 was presented by our management and then reviewed and approved by our Board. The performance goals for the FY11 Annual Incentive Plan and the actual Company achievement of such performance goals were as follows:

 

 

For the FY11 Annual Incentive Plan, “operating earnings per share” was “operating net income” divided by weighted average common shares outstanding (diluted) with “operating net income” meaning net income plus “Reconciling Items” (as defined below); “adjusted operating margin percent” was operating income plus Reconciling Items divided by total revenues; “adjusted EBITDA” was EBITDA (defined as net income plus provision for income taxes, interest, depreciation and amortization) plus Reconciling Items; and “DSOs” was an internal management calculation based on the balances in net accounts receivable, cost in excess of billings and billings in excess of costs at the end of the measurement period. DSOs essentially measures the average number of days for the Company to receive payment after revenue has been recognized. These performance goals were equally weighted. For the FY11 Annual Incentive Plan, “Reconciling Items” were: (i) amortization of intangible assets on acquisitions; (ii) stock-based compensation expense; (iii) asset write-up expense on acquisitions; (iv) expenses, settlements, judgments and fines associated with material litigation ($500,000 or greater per matter); (v) changes in fair value of any interest-rate swaps; (vi) certain pension plan funding expenses; (vii) the impact of any goodwill impairment; and (viii) the effect of changes in tax laws or accounting principles affecting reported results. The Compensation Committee considered revenue growth as a potential performance measure for the FY11 Annual Incentive Plan but concluded that revenue growth could be embodied within the targets determined for the foregoing performance goals. The Compensation Committee also discussed Reconciling Items for the Fiscal 2011 compensation decisions and concluded that employee severance costs should not be included in those Reconciling Items. The Compensation Committee retained negative discretion to decrease any payout that would otherwise be made under the FY11 Annual Incentive Plan.

Pursuant to the FY11 Annual Incentive Plan design, the achievement of the performance goals at the threshold level would have resulted in a payout of 50% of targeted annual bonus, the achievement of the performance goals at the target level would have resulted in a payout of 100% of targeted annual bonus and the achievement of the performance goals at the maximum level would have resulted in a payout of 150% of targeted annual bonus. The targeted annual bonus award levels under the FY11 Annual Incentive Plan for our named executive officers were as follows: our Chief Executive Officer – 100% of base salary, or $600,000; our Chief Financial Officer – 100% of base salary, or $350,000; and our Senior Vice President – approximately 50% of base salary, or $133,000. At the time of the election of our new Vice President in November 2010, our Compensation Committee recommended, and our Board approved, a modification to his annual incentive plan to make it subject to the performance criteria reflected above and an award of 100% of base salary, or $330,000 (to be pro-rated from the time of his election as an executive officer). The foregoing amounts reflect the cash bonus that the executive would have received if each performance goal was achieved at the target level.

 

In Fiscal 2011, our operating earnings per share were $3.66⁽¹⁾, or 111% of the target, adjusted operating margin was 10.7%⁽²⁾, or 105% of the target, our adjusted EBITDA was $119.6 million⁽³⁾, or 106% of the target, and our DSOs were 81 days⁽⁴⁾, or 94% of the target. In the first quarter of Fiscal 2012, our Compensation Committee met to review our performance under the FY11 Annual Incentive Plan and determined that such performance resulted in a payout under the FY11 Annual Incentive Plan of 106% of each named executive officer’s targeted compensation based on such performance. Our Compensation Committee then recommended to our Board, and our Board approved, the following payouts under our FY11 Annual Incentive Plan: $636,000 to our Chief Executive Officer; $371,000 to our Chief Financial Officer; $166,000 to our new Vice President (including the amount earned prior to his election as an executive officer); and $140,000 to our Senior Vice President.

 

Fiscal 2010 Long-Term Incentive Program Payouts.  The approval by our stockholders of the Incentive Plan in August 2008 provided our Compensation Committee with the ability, for the first time in Fiscal 2010, to make a variety of equity and cash awards which most appropriately fit with our compensation philosophy, achieve our corporate objectives with the executive compensation program, provide awards that are competitive to attract and retain executive talent relative to our peer group, align our compensation practices with market trends and provide tax efficiencies. Given the flexibility of the Incentive Plan, our Compensation Committee discussed with our management and the outside compensation consultants various equity-based long-term incentive awards that would be appropriate to achieve our objectives consistent with our compensation philosophy. These objectives for the long-term incentive program included facilitating the achievement of long-range goals, promoting value creation for our stockholders, providing certain long-term incentive that is independent of the Company’s stock price and providing an overall above-median compensation opportunity through the use of above-market long-term compensation along with below-market base salaries. Our Compensation Committee also discussed the overall uncertainty in the general economy, which led to a discussion of the appropriate length of this long-term program and a conclusion that a portion of the long-term incentive should be earned based on Company performance relative to a peer group.

 

Consistent with the foregoing, after discussions among our Compensation Committee, our management and the outside compensation consultants, our Compensation Committee recommended, and our Board approved, the Long-Term Incentive Program for Fiscal 2010 (the “FY10 LTIP”) which included, for the first time, the use of

 

 

performance share awards (the “Performance Awards”) that measure performance for the two fiscal years ended March 31, 2011 (the “FY10 LTIP Performance Period”). Our Compensation Committee’s intent was to measure performance over a three-year period; however, given the uncertainty in the economy and the Compensation Committee’s ability to establish reliable long-term goals, our Compensation Committee decided to measure performance over a two-year period for FY10 LTIP performance share awards. Since the number of shares payable under the Performance Awards was determined as of the date of grant, the named executive officers were at risk for market changes in the value of the Common Stock during the performance period which affected the value of the Performance Awards.

 

The performance criteria for the Performance Awards under the FY10 LTIP were Adjusted EBITDA for 50% of the Performance Awards and TSR relative to the Fiscal 2010 Peer Group for the other 50% of such awards. In May 2011, the Compensation Committee reviewed the Company’s performance with respect to these metrics. The Company achieved Adjusted EBITDA of $227.9 million for the FY10 LTIP Performance Period against a target of $226 million, resulting in a payout of 103% of the Performance Shares based on this metric. With respect to the Performance Shares based on relative TSR, although the Company achieved annualized stockholder returns of approximately 30% during the FY10 LTIP Performance Period, this placed the Company slightly below the threshold level relative to the Fiscal 2010 Peer Group⁽⁵⁾ for a payout of these awards and thus no payout was made on these awards. This demonstrates the alignment of the Company’s compensation programs with its pay-for-performance philosophy. As a result of the foregoing, in May 2011, our Compensation Committee recommended to our Board, and our Board approved, the following payouts in the form of issuances of our Common Stock under our FY10 LTIP Performance Awards which represents just over fifty percent (50%) of the target award payout: 20,600 shares to our Chief Executive Officer; 5,150 shares to our Chief Financial Officer; 3,090 shares to our Vice President; and 2,575 shares to our Senior Vice President.

 

Fiscal 2011 Long-Term Incentive Program.  In connection with the Fiscal 2011 compensation decisions, the Compensation Committee considered the elements used under the FY10 LTIP described above and concluded that such elements provided appropriate long-term incentives. After consideration and input from our management and our compensation consultants, our Compensation Committee recommended, and our Board approved, the Long-Term Incentive Program for Fiscal 2011 (the “FY11 LTIP”) substantially similar to the FY10 LTIP, although it was determined that the performance measurement period for the Performance Awards should be extended from two (2) to three (3) fiscal years. Accordingly, the FY11 LTIP was comprised of a restricted stock unit grant payable in shares of Common Stock representing 20% of the award, a stock option grant representing 30% of the award and Performance Awards representing, at the target level payout at the time of grant, 50% of the award and payable in shares of Common Stock. Since the number of shares payable under Performance Awards was determined as of the date of grant, the named executive officers are at risk for market changes in the value of the Common Stock during the performance period which will affect the value of the Performance Award.

 

The restricted stock units and stock options granted pursuant to the FY11 LTIP will vest in equal increments over three years. The payout on the Performance Awards will be based on (i) the Company’s performance relative to a cumulative adjusted EBITDA (as defined above) goal (the “FY11 EBITDA Goal”) and (ii) the Company’s TSR relative to the Fiscal 2011 Peer Group, in each case for the three fiscal years ending March 31, 2013. These two (2) performance goals will be equally weighted. As a result, for purposes of determining the payout of the Performance Awards: (A) the achievement of 75% of the FY11 EBITDA Goal will result in a payout of 25% of the targeted Performance Award, the achievement of 100% of the FY11 EBITDA Goal will result in a payout of 50% of the targeted Performance Award and the achievement of 120% of the FY11 EBITDA Goal will result in a payout of 75% of the targeted Performance Award; and (B) the ranking of the Company’s TSR in the 25^th percentile of the peer group’s TSR will result in a payout of 25% of the targeted Performance Award, the ranking of the Company’s TSR at the median level of performance of the Company’s TSR as compared to the peer group’s TSR will result in a payout of 50% of the targeted Performance Award and the ranking of the Company’s TSR in the 75^th percentile of the peer group’s TSR will result in a payout of 75% of the targeted Performance Award.

 

 

Following Board review and approval, our Compensation Committee approved the following awards under the FY11 LTIP to the Company’s then named executive officers: our Chief Executive Officer received a restricted stock unit award of 16,000 shares of Common Stock, a stock option grant for 80,000 shares of Common Stock and a Performance Award of 27,000 shares of Common Stock; our Chief Financial Officer received a restricted stock unit award of 8,000 shares of Common Stock, a stock option grant for 40,000 shares of Common Stock and a Performance Award of 13,500 shares of Common Stock; and our Senior Vice President received a restricted stock unit award of 2,500 shares of Common Stock, a stock option grant for 12,000 shares of Common Stock and a Performance Award of 4,000 shares of Common Stock. Key, non-executive employees also participated in the FY11 LTIP generally on the same relative basis as the named executive officers. Our Compensation Committee also discussed the timing of the grant of the stock option and determined that the grant date (and, therefore, the determination of the exercise price) should be after the Company’s earnings release regarding its Fiscal 2010 financial results. Accordingly, such stock option awards were granted on May 17, 2010. The stock options were granted with an exercise price of $32.21 per share, the fair market value of the Common Stock on the grant date.

 

The FY11 EBITDA Goal for the Performance Awards is likely to be achieved at 75% of target, is challenging but achievable at 100% of target (but will require successful implementation of our mergers & acquisitions program) and is remotely achievable at 120% of target.

 

Description of Compensation Practices and Policies for Fiscal 2012

 

In connection with our Fiscal 2012 compensation decisions, our Compensation Committee engaged our outside compensation consultants to undertake a comprehensive market assessment to provide our Compensation Committee with context and market insights for making compensation decisions. This review included a discussion of current market trends in executive compensation.

 

Similar to the decision-making process for Fiscal 2011, in making Fiscal 2012 compensation decisions relating to our named executive officers, our Compensation Committee considered our executive compensation philosophy of paying below-market base salaries and modestly above-market incentive compensation. In connection with its comprehensive review, our compensation consultants reviewed our prior compensation decisions and advised our Compensation Committee that our executive compensation decisions were aligned with this compensation philosophy.

 

For the Fiscal 2012 compensation decisions, our Compensation Committee reviewed peer group data developed by our compensation consultants at the request of our Compensation Committee. The peer group utilized for Fiscal 2012 compensation decisions was the Fiscal 2011 Peer Group except that three (3) companies (ADC Telecommunications, Inc., CommScope Inc. and Nu Horizons Electronics Corp.) were removed as a result of being acquired and a fourth company was removed as a result of a significant disconnect from the Company based on market capitalization. In their place, ADTRAN, Inc., Finisar Corporation, Qlogic Corporation and Tellabs, Inc. were added for Fiscal 2012 after a review and analysis of the peer group selection criteria discussed earlier by our compensation consultants and discussions among our Compensation Committee, the compensation consultants and our management (the “Fiscal 2012 Peer Group”). Our compensation consultants also presented and our Compensation Committee reviewed broad survey data from consulting firms Towers Watson and Mercer Inc. (and utilizing companies with revenues less than $3 billion from the Towers Watson High-Technology Compensation Database as supplemented with data from the Fiscal 2012 Peer Group defined below for the Chief Executive Officer, the Chief Financial Officer and Vice President positions for market target annual and long-term incentives). Our compensation consultants presented this data to the Compensation Committee in relation to the positions held by our named executive officers to develop overall compensatory arrangements for these executives. Our Compensation Committee also reviewed our management’s recommendations related to appropriate financial performance metrics and goals for the Company to align compensatory programs with our overall business strategy. Our Compensation Committee considered summary information of the total compensation paid to our named executive officers during the prior three (3) fiscal years and summary data of each named executive officer’s stock awards and stock options position. Our Compensation Committee discussed with our Chief Executive Officer proposals relating to the compensation of our named executive officers (other than the Chief Executive Officer). After discussions with our Chief Executive Officer and the outside compensation consultants, our Compensation Committee recommended to our Board for approval the Fiscal 2012 total direct compensation of the named

executive officers, other than for our Chief Executive Officer, described below and, in the case of our Chief Executive Officer, after review of peer group and survey data with the compensation consultants in the absence of our Chief Executive Officer, our Compensation Committee recommended to our Board for approval the Fiscal 2012 total direct compensation of our Chief Executive Officer described below. Our Compensation Committee believes that the incentive compensation of the named executive officers (annual cash bonus and long-term incentive compensation) described below, combined with Fiscal 2012 base salaries, provides for compensation opportunity for each executive above median as compared to similarly-situated executives as reflected in the data provided by the consultants, consistent with our executive compensation philosophy.

 

Base Salaries.  A review was conducted of our named executive officers’ base salaries in light of their performance and the survey and peer group data presented by our compensation consultants and our compensation philosophy to pay below-market base salaries. Following such review, it was determined that the current base salaries of our named executive officers continued to align with our compensation philosophy of paying base salaries below the market median and, therefore, were considered appropriate for Fiscal 2012. Accordingly, no change was made in the base salaries of our named executive officers for Fiscal 2012. These base salaries are positioned from 8 to 18% below the market median based on the survey data presented by our compensation consultants.

 

Annual Cash Bonus Program.  At the recommendation of our Compensation Committee, in May 2011, our Board approved an annual cash incentive bonus plan for Fiscal 2012 (the “FY12 Annual Incentive Plan”) similar to the FY11 Annual Incentive Plan. The main objective of the FY12 Annual Incentive Plan is to motivate our named executive officers to achieve the Company’s overall operating plan. The performance goals for the FY12 Annual Incentive Plan (operating earnings per share, adjusted operating margin percent, adjusted EBITDA and DSOs) are the same as for the FY11 Annual Incentive Plan. The FY12 Annual Incentive Plan performance goals approved by the Compensation Committee represent growth over the performance goals for the FY11 Annual Incentive Plan and over the Fiscal 2011 actual results. The Compensation Committee retained negative discretion to decrease any payout that would otherwise be made under the FY12 Annual Incentive Plan.

 

The performance goals for the FY12 Annual Incentive Plan will be equally weighted. Under the FY12 Annual Incentive Plan, the achievement of the performance goals at 80% of target (90% of target for the DSOs performance goal) will result in a payout of 50% of targeted annual bonus, the achievement of the performance goals at 100% of target will result in a payout of 100% of targeted annual bonus and the achievement of the performance goals at 120% of target (110% of target for the DSOs performance goal) will result in a payout of 150% of targeted annual bonus. These performance goals are likely to be achieved at 80% of target (90% of target for the DSOs performance goal), are challenging but achievable at 100% of target (but will require successful implementation of our mergers & acquisitions program) and are remotely achievable at 120% of target (110% of target for the DSOs performance goal).

 

Our Board made targeted annual bonus awards under the FY12 Annual Incentive Plan to the Company’s named executive officers as follows: our Chief Executive Officer – 100% of base salary, or $600,000; our Chief Financial Officer – 100% of base salary, or $350,000; our Vice President – 100% of base salary, or $330,000; and our Senior Vice President – approximately 50% of base salary, or $133,000.

 

Total Cash Compensation.  Total cash compensation is comprised of base salary and annual cash bonus opportunity. Based on the survey data discussed above, the target total cash compensation for the Chief Executive Officer is positioned 9% below the market median, the target total cash compensation for the Chief Financial Officer is positioned 8% above the market median (although, as noted above, our Chief Financial Officer also performs some functions that are comparable to a chief operating officer), the target total cash compensation for the Vice President is positioned 15% above the market median and the target total cash compensation for the Senior Vice President is positioned 9% below the market median. Key, non-executive employees are also participating in the FY12 Annual Incentive Plan generally on the same terms as the named executive officers.

 

Fiscal 2012 Long-Term Incentive Program.  In connection with its Fiscal 2012 compensation decisions, the Compensation Committee considered the elements used under the FY11 LTIP described above and concluded that such elements provided appropriate long-term incentives. After consideration and input from our management and our compensation consultants, our Compensation Committee recommended, and our Board approved, the Long-Term Incentive Program for Fiscal 2012 (the “FY12 LTIP”) in a form substantially similar to the FY11 LTIP, except for an increase in the performance standards under our performance share program. Accordingly, the FY12 LTIP is comprised

of a restricted stock unit grant payable in shares of Common Stock representing 20% of the award, a stock option grant representing 30% of the award and a Performance Award representing, at the target level payout at the time of grant, 50% of the award and payable in shares of Common Stock. In a change from prior years, based on the recommendation of its compensation consultants as to the majority practice, the Compensation Committee recommended, and the Board approved, the FY12 LTIP awards based on a dollar value, and also approved the methodology for determining the number of shares under each award based on such dollar value. Since the number of shares payable under these awards was determined as of the date of grant, the named executive officers are at risk for market changes in the value of Common Stock during the performance period which will affect the value of the Performance Award.

 

The restricted stock units and stock options granted pursuant to the FY12 LTIP will vest in equal increments over three years. The payout on 50% of the dollar value of the Performance Awards will be based on the Company’s performance relative to a cumulative adjusted EBITDA (as defined above) goal (the “FY12 EBITDA Goal”) and the payout on the remaining 50% of the dollar value of the Performance Awards will be based on the Company’s TSR relative to the Fiscal 2012 Peer Group’s TSR, in each case for the three fiscal years ending March 31, 2014. With respect to the Performance Awards based on the FY12 EBITDA Goal, the achievement of 75% of the FY12 EBITDA Goal will result in a payout of 50% of such Performance Awards, the achievement of 100% of the FY12 EBITDA Goal will result in a payout of 100% of such Performance Awards and the achievement of 120% of the FY12 EBITDA Goal will result in a payout of 150% of such Performance Awards. With respect to the Performance Awards based on relative TSR, and in a change from prior years, the ranking of the Company’s TSR in the 35^th percentile (increased from the 25^th percentile) of the peer group’s TSR will result in a payout of 50% of such Performance Awards, the ranking of the Company’s TSR in the 55^th percentile (increased from the median or 50^th percentile) of the peer group’s TSR will result in a payout of 100% of such Performance Awards, the ranking of the Company’s TSR in the 75^th percentile of the peer group’s TSR will result in a payout of 150% of the targeted Performance Award and the ranking of the Company’s TSR in the 100^th percentile of the peer group’s TSR will result in a payout of 200% of the targeted Performance Award. Also new for Fiscal 2012, if the Company’s TSR over the performance period is negative, the award is capped at 100% regardless of the Company’s performance relative to the peer group.

 

Following Board review and approval, our Compensation Committee approved the following targeted amounts and awards (rounded to the nearest ten shares) under the FY12 LTIP to the Company’s named executive officers: our Chief Executive Officer – $2,324,000 comprised of a restricted stock unit award for 14,350 shares of the Common Stock, a stock option grant for 56,150 shares of the Common Stock and Performance Awards for 34,030 shares of the Common Stock; our Chief Financial Officer – $1,162,000 comprised of a restricted stock unit award for 7,180 shares of the Common Stock, a stock option grant for 28,080 shares of the Common Stock and Performance Awards for 17,010 shares of the Common Stock; our Vice President – $800,000 comprised of a restricted stock unit award for 4,940 shares of the Common Stock, a stock option grant for 19,330 shares of the Common Stock and Performance Awards for 11,710 shares of the Common Stock; and our Senior Vice President – $350,000 comprised of a restricted stock unit award for 2,160 shares of the Common Stock, a stock option grant for 8,460 shares of the Common Stock and Performance Awards for 5,120 shares of the Common Stock. Key, non-executive officer employees are also participating in the FY12 LTIP generally on the same relative basis as the executive officers. All such awards were granted on May 17, 2011.

 

The FY12 EBITDA Goal for the Performance Awards is likely to be achieved at 75% of target, is challenging but achievable at 100% of target (but will require successful implementation of our mergers & acquisitions program) and is remotely achievable at 120% of target.

 

Based on the survey data discussed above, the FY12 LTIP opportunity for the Chief Executive Officer is positioned 11% above the market median, the FY12 LTIP opportunity for the Chief Financial Officer is positioned 58% above the market median, the FY12 LTIP opportunity for the Vice President is positioned 46% below the market median and the FY12 LTIP opportunity for the Senior Vice President is positioned 189% above the market median.

 

Executive Stock Ownership Guidelines

 

To further achieve the objective of building our named executive officers’ ownership in shares of Common Stock, thereby more closely aligning the interests of our named executive officers with those of our stockholders, the Company has executive stock ownership guidelines that utilize a retention approach. Under these guidelines, our

named executive officers are required to hold, until retirement, but subject to diversification at age 60, 50% of the net, after-tax shares of Common Stock issued to them pursuant to performance share awards and restricted stock awards/units. All of our named executive officers are in compliance with these ownership guidelines.

 

Retirement Benefits

 

We generally do not have a Company-funded post-retirement medical benefits program or a defined benefit pension program for our key employees. Mr. Blakemore participates in the Retirement and Security Program of the National Telecommunications Cooperative Association (the “NTCA Plan”), a multiple employer pension plan in which the subsidiary of the Company that employs Mr. Blakemore participates as a contributing employer. Mr. Blakemore participated in such plan at the time of the Company’s acquisition of this subsidiary in 1999. Mr. Wertheimber is a citizen of Japan and, under Japanese law, must enroll in Japan’s national pension system to which we make contributions. Messrs. Davis and McAndrew participate in a defined contribution plan similar to most Company employees.

 

Perquisites

 

The Company does not provide any perquisites to executives who reside in the United States. The Company does provide an automobile benefit to the Senior Vice President who is a local national in Japan, which is a customary practice in that country.

 

Change-in-Control and Employment Termination Arrangements

 

We entered into agreements with Mr. Wertheimber in November 2004, with Messrs. McAndrew and Blakemore in May 2007 and with Mr. Davis in January 2011 in connection with his election as an executive officer of the Company (at which time Mr. Davis voluntarily terminated a severance agreement that generally provided for a severance payment equal to his annual salary). In October 2007, our Board approved a revised compensatory arrangement for Mr. Blakemore in connection with his selection to the positions of President and Chief Executive Officer. After discussion, our Compensation Committee and Board determined to amend Mr. Blakemore’s agreement to provide that severance would be due to Mr. Blakemore upon termination of employment by us (other than due to death, disability, retirement or for cause) or by Mr. Blakemore for good reason, in each case prior to a change-in-control of the Company. Our Compensation Committee and Board approved this amendment to our Chief Executive Officer’s agreement as an inducement for him to accept the positions of President and Chief Executive Officer with us. Mr. McAndrew’s agreement was amended and restated in December 2008 to comply with Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”) (or certain exceptions thereto).

 

The agreements with Messrs. Blakemore, Davis, McAndrew and Wertheimber generally provide for certain benefits to these named executive officers in the event that their respective employment is terminated within two (2) years of a change-in-control either by (i) us for a reason other than cause, death, disability or retirement or (ii) the named executive officer’s resignation for good reason.

 

Our Compensation Committee and our Board approved these agreements and change-in-control and employment termination provisions in our compensation arrangements to reduce the distraction regarding the impact of such a transaction on the personal situation of a named executive officer and to provide incentives to them to remain with us through the consummation of a change-in-control transaction, if any. The level of severance provided, should the executive be terminated prior to or within two years following a change-in-control, aligns with the level commonly provided in the market.

 

For a more detailed description of the change-in-control arrangements with our named executive officers, see the “Potential Payments Upon Termination or Change-in-Control” section of this proxy statement below.

 

Other Matters

 

Section 409A generally provides that amounts deferred under nonqualified deferred compensation arrangements will be subject to accelerated income recognition, interest and substantial penalties unless the arrangement

satisfies certain design and operational requirements. We have modified our compensatory arrangements as necessary so that compensation payable under the arrangements is not subject to taxation under Section 409A. These amendments were not intended to increase the benefits payable under our plans and arrangements.

 

Section 162(m) provides that a publicly-traded corporation may not deduct from its federal income taxes compensation in excess of $1 million for amounts paid to each of its chief executive officer or to any of the three highest compensated officers other than the chief executive officer unless such excess compensation is “performance-based.” Among other requirements, for compensation to be “performance-based” for purposes of Section 162(m), the performance goals must be pre-established and objective. The awards made pursuant to the FY11 Annual Incentive Plan, the FY11 LTIP, the FY12 Annual Incentive Plan and the FY12 LTIP were issued pursuant to the Incentive Plan and, other than the restricted stock units, are intended to be “performance-based” for purposes of Section 162(m). Our Compensation Committee or Board also may provide incentive compensation that is not “performance-based” for purposes of Section 162(m) and therefore not deductible for federal income tax purposes to the extent that non-deductible compensation is in excess of the $1 million limitation.

 

Risk Assessment

 

In Fiscal 2011, the Compensation Committee reviewed our compensation policies and practices in order to assess whether such compensation policies and practices are reasonably likely to have a material adverse effect on the Company. In order to assist in such review, the Compensation Committee engaged our compensation consultants. Our compensation consultants reviewed our pay philosophy, program design, program governance and administration and mitigating factors that offset risk. Our compensation consultants concluded that:

 

 

Based on such review, in Fiscal 2011 our Compensation Committee recommended to the Board, and our Board concluded, that our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. In Fiscal 2012, our Compensation Committee confirmed with our compensation consultants that, at the present time, there is no basis for a contrary conclusion.

 

Report of the Compensation Committee

 

Our Compensation Committee reviewed and discussed with our management the Compensation Discussion and Analysis set forth in this proxy statement. Based on the foregoing review and discussions, our Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

The information contained in this report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates it by reference into such filing.

 

Compensation Committee:

 

Thomas W. Golonski, Chairman
William F. Andrews
Edward A. Nicholson, Ph.D.

 

SUMMARY COMPENSATION TABLE – FISCAL 2011, FISCAL 2010 and FISCAL 2009

 

The following table sets forth cash compensation paid by us and our subsidiaries, as well as other compensation paid or accrued during Fiscal 2011, Fiscal 2010 and Fiscal 2009 to (i) R. Terry Blakemore, our President and Chief Executive Officer, (ii) our principal financial officer, Michael McAndrew, (iii) Francis W. Wertheimber, an executive officer at the end of Fiscal 2011 who received total compensation (determined in accordance with SEC rules) in Fiscal 2011 that exceeded $100,000 and (iv) Kenneth P. Davis, also an executive officer at the end of Fiscal 2011 who received total compensation (determined in accordance with SEC rules) in Fiscal 2011 that exceeded $100,000 (each, a “Named Executive Officer”). Such compensation was paid for services rendered in all capacities to us and our subsidiaries:

 

 

 

 

 

GRANTS OF PLAN-BASED AWARDS – FISCAL 2011

 

The following table sets forth each grant of awards made to our Named Executive Officers in Fiscal 2011 under plans established by us:

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END – FISCAL 2011

 

The following table sets forth all unexercised stock options and stock awards which have been awarded by us to our Named Executive Officers and are outstanding as of March 31, 2011: