UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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QUANTA SERVICES, INC.

(Name of Registrant as Specified In Its Charter)

 

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

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QUANTA SERVICES, INC.
1360 Post Oak Boulevard, Suite 2100
Houston, TX 77056
(713) 629-7600

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 24, 2007

 

To our Stockholders:

 

The Annual Meeting of Stockholders of Quanta Services, Inc. (Quanta) will be held at the Omni Houston Hotel, Four Riverway, Houston, Texas 77056, on May 24, 2007 at 9:00 a.m. local time.

 

At the meeting, you will be asked to consider and act upon the following matters, which are more fully described in the accompanying Proxy Statement:

 

1. election of eleven members of our Board of Directors, ten by the holders of Common Stock and one by the holders of Limited Vote Common Stock;

 

2. ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm;

 

3. approval of the Quanta Services, Inc. 2007 Stock Incentive Plan; and

 

4. any other matters that properly come before the meeting or any adjournments of the meeting.

 

Our stockholders of record at the close of business on March 26, 2007 are entitled to notice of, and to vote at, the annual meeting and any adjournments of the meeting.

 

By Order of the Board of Directors,

 

 

Vincent A. Mercaldi
Corporate Secretary

 

Houston, Texas
April 20, 2007

 

 

 

 

 

TABLE OF CONTENTS

 

QUANTA SERVICES, INC.
1360 Post Oak Boulevard, Suite 2100
Houston, TX 77056
(713) 629-7600

 

 

PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2007

 

 

We are distributing this Proxy Statement and the form of proxy beginning on or about April 20, 2007.

 

At the meeting, you and our other stockholders will act upon proposals to elect members of our Board of Directors (the Board), ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm and approve the Quanta Services, Inc. 2007 Stock Incentive Plan (the Quanta 2007 Stock Incentive Plan or the 2007 Plan).

 

Only holders of record of our Common Stock, par value $0.00001 per share, and Limited Vote Common Stock, par value $0.00001 per share, at the close of business on March 26, 2007, the record date for the meeting, are entitled to notice of and to participate in the annual meeting. If you were a stockholder of record on that date, you will be entitled to vote all of the shares that you held on that date at the meeting, or at any postponements or adjournments of the meeting unless a new record date is then set.

 

As of March 26, 2007, 118,681,172 shares of our Common Stock and 780,171 shares of our Limited Vote Common Stock were outstanding and entitled to vote. In addition, on March 26, 2007, we had 2,760,000, 24,245,703 and 8,658,480 shares of Common Stock reserved for issuance upon the conversion of our outstanding 4.0% Convertible Subordinated Notes due 2007, 4.5% Convertible Subordinated Notes due 2023 and 3.75% Convertible Subordinated Notes due 2026, respectively, none of which is entitled to vote at the meeting.

 

Each share of Common Stock is entitled to one vote on each matter on which it may vote. With respect to the election of directors, holders of Common Stock, voting as a class, will elect ten directors.

 

Holders of Limited Vote Common Stock, voting as a class, will elect one director. Each share of Limited Vote Common Stock is entitled to one-tenth of one vote on each other matter on which it may vote.

 

On all matters other than the election of directors, holders of Common Stock and Limited Vote Common Stock will vote together.

 

All stockholders of record as of March 26, 2007, or their duly appointed proxies, may attend the meeting, and each may be accompanied by one guest. Seating, however, is limited. Admission to the meeting will be on a first-come, first-served basis. Registration will begin at 8:00 a.m. and seating will begin at 8:30 a.m. Each stockholder will be asked to present valid picture identification, such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

Please note that if you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting.

 

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

 

1. by signing and dating the enclosed proxy card and returning it in the accompanying envelope;

 

2. if you hold your shares through a broker, by going to the website www.proxyvote.com, with your proxy card in hand, and following the simple instructions (not available to holders of Limited Vote Common Stock);

 

3. if you hold your shares through a broker, by telephone following the instructions included with your proxy card (not available to holders of Limited Vote Common Stock); or

 

4. by written ballot at the meeting.

 

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

 

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

 

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

 

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered the stockholder of record for those shares, and these proxy materials are being sent directly to you.

 

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

 

Yes. You may change your vote at any time before the proxy is exercised, even after you have submitted your proxy card, by filing with our Corporate Secretary either a written notice of revocation or a duly executed proxy card bearing a later date. The powers of the proxy holders will be suspended if you attend the meeting in person and vote your shares in person by completing a written ballot. Attendance at the meeting will not by itself revoke a previously granted proxy. If you hold your shares in “street name” and you wish to change your vote at the meeting, you will need to obtain a proxy from the broker or nominee that holds your shares.

 

With respect to the election of directors, a majority of the outstanding shares of each of the Common Stock and Limited Vote Common Stock entitled to vote must be present, either in person or by proxy, to constitute a quorum.

 

For all other matters, a majority of the outstanding shares entitled to vote of the Common Stock and Limited Vote Common Stock in the aggregate must be present, either in person or by proxy, to constitute a quorum. As of

March 26, 2007, 118,681,172 shares of Common Stock and 780,171 shares of Limited Vote Common Stock were outstanding and entitled to vote. Properly executed proxies received, but marked as abstentions and broker non-votes, will be counted for purposes of establishing a quorum at the meeting.

 

Directors are elected by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote. Accordingly, the ten nominees who receive the highest number of properly executed “FOR” votes from the holders of Common Stock, and the one nominee who receives the highest number of properly executed “FOR” votes from the holders of Limited Vote Common Stock, will be elected as directors.

 

Ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm requires the affirmative vote of the majority of the shares of Common Stock and Limited Vote Common Stock in the aggregate present at the meeting in person or by proxy and entitled to vote on the matter.

 

In order to approve the Quanta 2007 Stock Incentive Plan, the rules of the New York Stock Exchange (the NYSE) require the affirmative vote of a majority of the votes cast on the proposal, provided that the total votes cast on the proposal represent over 50% of the shares entitled to vote on the proposal.

 

Under Delaware law, any other matter properly coming before the meeting will be decided by the vote of the holders of a majority of the shares present at the meeting in person or by proxy and entitled to vote on that matter, with all classes of stock voting together.

 

A properly executed proxy marked “ABSTAIN” with respect to any matter is considered entitled to vote and thus, will have the effect of a vote against a matter, except for the election of directors and the proposal to approve the Quanta 2007 Stock Incentive Plan. A properly executed proxy marked as a broker non-vote is not considered entitled to vote and thus, will not be counted as a vote for or against any matter properly coming before the meeting.

 

Broker non-votes occur when you hold your shares through a broker, and your broker does not vote your shares on a particular matter because (i) the NYSE does not deem the matter “routine” and (ii) your broker has not received voting instructions from you. On routine matters, such as the election of directors and the ratification of the appointment of our independent registered public accounting firm, your broker can vote your shares without instructions from you. The approval of the Quanta 2007 Stock Incentive Plan is deemed a non-routine matter, and thus, your broker may not vote your shares on the proposal if it has not received voting instructions from you.

 

Unless you give other instructions on your proxy card, the persons named as proxy holders on your properly completed proxy card will vote in accordance with the recommendations of the Board. The Board recommends a vote “FOR” each of the proposed directors, “FOR” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm and “FOR” the approval of the Quanta 2007 Stock Incentive Plan. With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion.

 

If you hold your shares in more than one type of account or your shares are registered differently, you may receive more than one proxy card. We encourage you to vote each proxy card that you receive.

 

We plan to announce preliminary voting results at the meeting and publish final results in our Quarterly Report on Form 10-Q for the three months ending June 30, 2007.

 

On March 18, 2007, Quanta entered into an Agreement and Plan of Merger with Quanta MS Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of Quanta (Merger Sub), and InfraSource Services, Inc., a Delaware corporation (InfraSource) (the Merger Agreement). Pursuant to the Merger Agreement, Merger Sub will merge with and into InfraSource and InfraSource will become a wholly owned subsidiary of Quanta (the Merger). Quanta and InfraSource currently expect the Merger to be completed in the third quarter of 2007, subject to satisfaction of various conditions to closing, including approval of the Merger by the stockholders of Quanta and InfraSource. The directors and executive officers of Quanta will continue as the directors and executive officers of Quanta after the Merger. In accordance with the Merger Agreement, it is also expected that after the Merger, the Quanta Board will appoint three new directors, all of whom are InfraSource directors.

 

This Proxy Statement is for our annual meeting and does not contain information regarding the proposed Merger and does not ask you to consider the Merger Agreement or the transactions contemplated by the Merger Agreement. Quanta will hold a separate, special meeting of stockholders to consider and approve the issuance of Quanta Common Stock in connection with the proposed Merger. Quanta will send a separate package of proxy solicitation materials to you for the special meeting in connection with the Merger.

 

* * * * *

 

The information presented above and elsewhere in this Proxy Statement relating to the proposed Merger may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon Quanta’s current beliefs and expectations and are subject to significant risks and uncertainties.

 

Stockholders are urged to read the joint proxy statement/prospectus regarding the proposed Merger between Quanta and InfraSource because it will contain important information. Stockholders will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings of Quanta and InfraSource, at the SEC’s Internet site (http://www.sec.gov). Free copies of the joint proxy statement/prospectus and other SEC filings that will be incorporated therein by reference may be obtained by submitting a written request to Corporate Secretary, Quanta Services, Inc., 1360 Post Oak Blvd., Suite 2100, Houston, Texas 77056.

 

The following table sets forth information, as of March 30, 2007, unless otherwise indicated, with respect to each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our Common Stock or Limited Vote Common Stock.

 

 

 

The following table sets forth, as of March 30, 2007, the number of shares of Common Stock and Limited Vote Common Stock beneficially owned by (i) each of our directors and director nominees, (ii) each of our named executive officers listed in the Summary Compensation Table (the NEOs) and (iii) all of our directors and executive officers as a group.

 

 

 

 

The Board currently consists of eleven directors, whose current terms of office all expire at the 2007 annual meeting. The Board proposes that the following nominees be elected for a new term of one year or until their successors are duly elected and qualified or until their earlier death, resignation or removal. Each of the nominees has consented to serve if elected. If a nominee becomes unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee designated by the Board. Proxies cannot be voted for a greater number of persons than the number of nominees named below.

 

The directors standing for election by each class of shares entitled to vote are:

 

 

 

James R. Ball has been a member of the Board since 1998 and is a private investor with J. R. Ball Investments, a private investment firm. Mr. Ball serves as a director of Kraton Polymers LLC. Mr. Ball holds a Master of Science in Management degree.

 

John R. Colson has been a member of the Board since 1998 and has served as Chairman of the Board since 2002. Mr. Colson has served as our Chief Executive Officer since December 1997. He joined PAR Electrical Contractors, Inc. (PAR), an electrical specialty contractor and now a subsidiary of Quanta, in 1971 and served as its President from 1991 until December 1997. He is currently Vice President at Large of the National Electrical Contractors Association (NECA), a director of the Missouri Valley Chapter of NECA and a regent of the Electrical Contracting Foundation.

 

Ralph R. DiSibio has been a member of the Board since May 2006. He has been a senior consultant to Washington Group International, Inc., an integrated engineering, construction and management services provider, since April 2004. He served as President of Energy & Environment Business Unit, an engineering, construction and environmental services operating unit of Washington Group International, Inc., from November 2001 until April 2004, and Executive Vice President — Business Development of Washington Group Power, a power generation engineering, design and construction services operating unit of Washington Group International, Inc., from March 2001 until November 2001. Mr. DiSibio holds a Doctor of Education in Administration degree.

 

Vincent D. Foster has been a member of the Board since 1998. He has served as Senior Managing Director of Main Street Capital Partners, LLC (and its predecessor firms), a venture capital firm, since 1997. Mr. Foster is also a director of U.S. Concrete, Inc., Carriage Services, Inc. and Team Industrial Services, Inc. Mr. Foster holds a J.D. degree and is a Certified Public Accountant.

 

Bernard Fried has been a member of the Board since March 2004. He has served as Chief Executive Officer and President of Siterra Corporation, a software services provider, since May 2005. From November 2003 until May 2005, he served as an independent consultant to the financial and software services industries. Mr. Fried served as Chief Executive Officer and President of Citadon, Inc., a software services provider, from 2001 until November 2003, Principal Vice President and Program Manager of Bechtel Business Services, a shared services operating unit of Bechtel Group, Inc., an international engineering and construction firm, from 2000 until 2001, and Chief Financial Officer and Managing Director of Bechtel Enterprises, Inc., a financing and development subsidiary of Bechtel Group, Inc., from 1997 until 2000. Mr. Fried holds a Bachelor of Engineering degree and an M.B.A. degree.

 

Louis C. Golm has been a member of the Board since July 2002 and from May 2001 until May 2002. He has been an independent consultant and senior advisor to the telecommunications and information management industries since 1999. Mr. Golm serves as a director of Kirusa Inc. Mr. Golm holds a Master of Science in Management degree and an M.B.A. degree.

 

Worthing F. Jackman has been a member of the Board since May 2005. He has served as Executive Vice President — Chief Financial Officer of Waste Connections, Inc., an integrated solid waste services company, since September 2004 and served as its Vice President — Finance and Investor Relations from April 2003 until August 2004. From 1991 until April 2003, Mr. Jackman held various positions with Deutsche Bank Securities, Inc., an investment banking firm, most recently serving as a Managing Director, Global Industrial and Environmental Services Group. Mr. Jackman holds an M.B.A. degree.

 

Bruce Ranck has been a member of the Board since May 2005. He has been a partner with Bayou City Partners, a venture capital firm, since 1999. Mr. Ranck served as Chief Executive Officer of Tartan Textile Services, Inc., a healthcare linen services provider, from August 2003 until April 2006. From 1970 until 1999, he held various positions with Browning-Ferris Industries, Inc., a provider of waste management services, most recently as Chief Executive Officer and President. Mr. Ranck is also a director of Dynamex Inc.

 

Gary A. Tucci has been a member of the Board since 1998. Mr. Tucci joined Potelco, Inc. (Potelco), a gas, telecommunications and power infrastructure services provider and now a subsidiary of Quanta, in 1975 and has served as Chief Executive Officer of Potelco since November 2002 and served as President of Potelco from 1988 until November 2002. He is governor of the Northwest Line Constructors Chapter of NECA, and he is a member of the Joint NECA/International Brotherhood of Electrical Workers Apprenticeship and Training Committee as well as the National Labor Relations Board.

 

John R. Wilson has been a member of the Board since 1998. He has served as our President of the Electric Power and Gas Division since January 2003 and served as a Senior Vice President of Quanta from June 2001 until December 2002, as a Regional Vice President of Quanta from April 1999 until June 2001, and as President of PAR from 1997 until December 2002. Mr. Wilson joined PAR in 1977 and served as an Executive Vice President of PAR from 1991 until 1997.

 

Pat Wood, III has been a member of the Board since May 2006. He has been an independent energy developer since July 2005. He served as chairman of the Federal Energy Regulatory Commission from June 2001 until July 2005 and as chairman of the Public Utility Commission of Texas from February 1995 until June 2001. Mr. Wood serves as a director of SunPower Corporation. Mr. Wood holds a Bachelor of Science in Civil Engineering degree and a J.D. degree.

 

We recommend a vote FOR the election of each of the director nominees.

 

During the year ended December 31, 2006, the Board held six meetings. All directors attended at least 75% of the meetings of the Board and the committees of the Board, if any, on which they served during the periods for which they have served as a director. We encourage, but do not require, the members of the Board to attend the annual meeting of stockholders. Last year, nine of our directors attended the annual meeting of stockholders.

 

As of the date of this Proxy Statement, the Board is composed of eleven directors.

 

The standing committees of the Board are as follows:

 

 

 

 

 

We are committed to having sound corporate governance practices that maximize stockholder value in a manner consistent with legal requirements and the highest standard of integrity. In that regard, the Board has adopted guidelines that provide a framework for the governance of Quanta. In addition, we continually review these guidelines and regularly monitor developments in the area of corporate governance. Our Corporate Governance Guidelines are posted on our website at www.quantaservices.com under the heading “Corporate Governance,” and a printed copy may be obtained without charge upon written request to Corporate Secretary, Quanta Services, Inc., 1360 Post Oak Blvd., Suite 2100, Houston, Texas 77056.

 

The Board has determined that Messrs. Ball, DiSibio, Fried, Golm, Jackman, Ranck and Wood have no material relationship with Quanta (either directly or as a partner, shareholder or officer of an organization that has a relationship with Quanta) and are “independent” within the meaning of the NYSE’s corporate governance listing standards. The Board has made this determination based on its finding that these independent director nominees meet the categorical standards for director independence set forth in our Corporate Governance Guidelines as currently in effect, which are more stringent than the NYSE director independence standards. Our Corporate Governance Guidelines, which include our categorical standards for director independence, are posted on our website at www.quantaservices.com under the heading “Corporate Governance.”

 

The Board has examined the composition of the Audit Committee in light of Securities and Exchange Commission (SEC) regulations, NYSE rules governing audit committees and our Corporate Governance Guidelines. Based upon this examination, the Board confirmed that each of the members of the Audit Committee is “independent”

within the meaning of SEC regulations, NYSE corporate governance listing standards and our Corporate Governance Guidelines. The Audit Committee is established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The Audit Committee operates under a formal charter adopted by the Board that governs its duties and conduct. The Audit Committee Charter was last amended on December 1, 2006, and is attached as Appendix A to this Proxy Statement. It is also posted on our website at www.quantaservices.com under the heading “Corporate Governance,” and a printed copy may be obtained without charge upon written request to Corporate Secretary, Quanta Services, Inc., 1360 Post Oak Blvd., Suite 2100, Houston, Texas 77056. The membership and number of meetings held during the last fiscal year and the primary responsibilities of the Audit Committee are described in “Committees of the Board” above. The Board has determined that Messrs. Fried and Jackman are “audit committee financial experts” within the meaning of SEC regulations.

 

The Board has determined that each of the members of the Compensation Committee is “independent” within the meaning of NYSE corporate governance listing standards and our Corporate Governance Guidelines. The Compensation Committee operates under a formal charter adopted by the Board that governs its duties and standards of performance. The Compensation Committee Charter is posted on our website at www.quantaservices.com under the heading “Corporate Governance,” and a printed copy may be obtained without charge upon written request to Corporate Secretary, Quanta Services, Inc., 1360 Post Oak Blvd., Suite 2100, Houston, Texas 77056. The membership and number of meetings held during the last fiscal year and the primary responsibilities of the Compensation Committee are described in “Committees of the Board” above. For additional information on the Compensation Committee, including a description of its processes and procedures for the consideration and determination of NEO compensation, please see “Compensation Discussion and Analysis — Compensation Committee” below.

 

The Board has determined that each of the members of the Governance and Nominating Committee is “independent” within the meaning of NYSE corporate governance listing standards and our Corporate Governance Guidelines. The Governance and Nominating Committee operates under a formal charter adopted by the Board that governs its duties and standards of performance. The Governance and Nominating Committee Charter is posted on our website at www.quantaservices.com under the heading “Corporate Governance,” and a printed copy may be obtained without charge upon written request to Corporate Secretary, Quanta Services, Inc., 1360 Post Oak Blvd., Suite 2100, Houston, Texas 77056. The membership and number of meetings held during the last fiscal year and the primary responsibilities of the Governance and Nominating Committee are described in “Committees of the Board” above.

 

The Board has adopted a Code of Ethics and Business Conduct that applies to all directors, officers and employees of Quanta and its subsidiaries, including the principal executive officer, principal financial officer and principal accounting officer or controller. The Code of Ethics and Business Conduct is posted on our website at www.quantaservices.com under the heading “Corporate Governance,” and a printed copy may be obtained without charge upon written request to Corporate Secretary, Quanta Services, Inc., 1360 Post Oak Blvd., Suite 2100, Houston, Texas 77056. We intend to post at the above location on our website any amendments or waivers to the Code of Ethics and Business Conduct that are required to be disclosed pursuant to Item 5.05 of Form 8-K.

 

In accordance with the NYSE corporate governance listing standards, our non-management directors meet in executive session without management following each regularly scheduled Board meeting. In addition, our “independent” directors meet in executive session at least once each year without the directors who are not “independent.” These sessions are presided over by a Presiding Director who is selected on a rotating basis by the participants at each session.

 

Stockholders and other interested parties may communicate with one or more of our directors, including any Presiding Director or our non-management directors as a group, a committee or the full Board by writing to Corporate Secretary, Quanta Services, Inc., 1360 Post Oak Blvd., Suite 2100, Houston, Texas 77056. All communications will be reviewed by the Corporate Secretary and forwarded to one or more of our directors, as appropriate.

 

Our Corporate Governance Guidelines contain Board membership qualifications that the Governance and Nominating Committee considers in selecting nominees for our Board. Pursuant to these qualifications, members of the Board should possess the highest standards of personal and professional ethics, integrity and values, and be committed to representing the long-term interests of our stockholders. They must also have an inquisitive and objective perspective, practical wisdom, mature judgment, the willingness to speak their mind and the ability to challenge and stimulate management in a constructive manner. In addition, Board members should have experience at the policy-making level in business, government, education or technology, and in areas that are relevant to our business. Further, they should have demonstrated leadership skills in the organizations with which they are or have been affiliated. Members of the Board must also be willing to devote sufficient time to carrying out their duties and responsibilities effectively and should be committed to serve on the Board for an extended period of time.

 

The Governance and Nominating Committee regularly evaluates the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Governance and Nominating Committee will consider candidates for Board membership suggested by incumbent directors, management, third-party search firms and others. The Governance and Nominating Committee will also consider director nominations by stockholders that are made in compliance with the notice provisions and procedures set forth in our bylaws. For a discussion of these requirements, see “Additional Information — Stockholder Proposals and Nomination of Directors for the 2008 Annual Meeting” below. All applications, recommendations or proposed nominations for Board membership received by Quanta will be referred to the Governance and Nominating Committee. The manner in which the Governance and Nominating Committee evaluates the qualifications of a nominee for director does not differ if the nominee is recommended by a stockholder.

 

The Governance and Nominating Committee has the authority to retain a third-party search firm to help identify and facilitate the screening and interview process of potential director nominees, including screening candidates, conducting reference checks, preparing a biography of each candidate for the Governance and Nominating Committee to review and helping coordinate interviews.

 

Once the Governance and Nominating Committee has identified a potential director nominee, the committee makes an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on whatever information is provided to the committee with the recommendation of the candidate, as well as the committee’s own knowledge of the candidate, which may be supplemented by inquiries to the person making the recommendation or others. The committee also may engage a third party to conduct a background check of the candidate. If the committee determines that additional consideration is warranted, the committee then will evaluate the extent to which the candidate meets the Board membership qualifications described in “Director Qualifications” above.

 

In addition, the Governance and Nominating Committee considers other relevant factors it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for a certain Board committee expertise, and the nature and extent of a candidate’s activities unrelated to Quanta, including service as a director on the boards of other public companies. In connection with this evaluation, the committee determines whether to interview the candidate, and, if warranted, the committee interviews the candidate in person or by telephone. The committee may also ask the candidate to meet with members of Quanta management. After completing this evaluation, if the committee believes the candidate would be a valuable addition to the Board, it will recommend to the Board the candidate’s nomination for appointment or election as a director.

 

The Governance and Nominating Committee has the responsibility of recommending to the Board compensation and benefits for non-employee directors. The committee is guided by certain director compensation principles set forth in our Corporate Governance Guidelines. Directors who also are employees of Quanta or any of its subsidiaries do not receive additional compensation for serving as directors. John R. Colson, Chairman of the Board and Chief Executive Officer, and John R. Wilson, President of the Electric Power & Gas Division, are employees of Quanta and thus receive no compensation for their services as directors of Quanta. The compensation received by Messrs. Colson and Wilson as employees of Quanta is set forth in the 2006 Summary Compensation Table on page 25. Gary A. Tucci, Chief Executive Officer of Potelco, a subsidiary of Quanta, also is an employee of Quanta and does not receive any additional compensation for services provided as a director of Quanta.

 

Pursuant to our director compensation policy, each non-employee director currently receives a fee for attendance at each meeting of the Board or any committee according to the following schedule: $2,000 for attendance at a board meeting in person; $1,000 for attendance at a board meeting by telephone; $1,000 for attendance at a committee meeting in person; $500 for attendance at a committee meeting by telephone; and $500 additional compensation for attendance at a committee meeting by the committee chairman. Effective as of the 2007 annual meeting of the Board, the additional compensation for attendance at a committee meeting by the committee chairman will be eliminated.

 

Upon initial election to the Board at an annual meeting of stockholders, each such initially elected non-employee director receives an annual cash retainer payment of $30,000 and an annual award of shares of restricted stock having a value of $120,000. Upon initial appointment to the Board other than at an annual meeting of stockholders, for the period from the appointment through the end of the director service year during which the appointment is made, each such initially appointed non-employee director currently receives a pro rata portion of both (i) an annual cash retainer payment of $30,000 and (ii) an annual award of shares of restricted stock having a value of $60,000. Beginning with the 2007 annual meeting of the Board, each such non-employee director who is appointed to the Board other than at an annual meeting of stockholders will receive a pro rata portion of both (i) an annual cash retainer payment of $30,000 and (ii) an annual award of shares of restricted stock having a value of $75,000. At every annual meeting of stockholders at which a non-employee director is re-elected or remains a director, each such re-elected or remaining non-employee director currently receives an annual cash retainer payment of $30,000 and an annual award of shares of restricted stock having a value of $60,000. Beginning with the 2007 annual meeting of the Board, each such re-elected or remaining non-employee director will receive an annual cash retainer payment of $30,000 and an annual award of shares of restricted stock having a value of $75,000.

 

In addition, at every annual meeting of the Board, the chairman of the Audit Committee currently receives an annual cash retainer payment of $5,000 and the chairman of the Compensation Committee and of the Governance and Nominating Committee receive an annual cash retainer payment of $3,000. Beginning with the 2007 annual meeting of the Board, the chairman of the Audit Committee will receive an annual cash retainer payment of $10,000, the chairman of the Compensation Committee will receive an annual cash retainer payment of $5,000 and the chairman of the Governance and Nominating Committee will receive an annual cash retainer payment of $4,000.

 

Unless the director’s service is interrupted, shares of restricted stock awarded to non-employee directors vest over three years in three equal annual installments. Any unvested shares of restricted stock will vest in full if the non-employee director is not nominated for or elected to a new term or resigns at our convenience. If the non-employee director voluntarily resigns or is asked to resign, or is removed for cause prior to vesting, all unvested shares of restricted stock will be forfeited. Directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the Board or the committees thereof, and for other expenses reasonably incurred in their capacity as directors of Quanta. Currently, eight non-employee director nominees are standing for election at this meeting.

The following table sets forth the compensation for each non-employee director during the 2006 fiscal year.

 

 

 

 

In 2006, James R. Ball, Ralph R. DiSibio, Louis C. Golm and Bruce Ranck served as members of the Compensation Committee. None of these persons served as an employee or officer of Quanta or any of its subsidiaries during 2006 or was formerly an officer of Quanta or any of its subsidiaries. Additionally, no executive officers served on the compensation committee or as a director of another company, one of whose executive officers served on Quanta’s Compensation Committee or as a director of Quanta.

 

Our current executive officers are as follows:

 

 

For a description of the business background of Messrs. Colson and Wilson, see “Election of Directors” above.

 

James H. Haddox has served as our Chief Financial Officer since November 1997 and served as our Secretary from December 1997 until March 1999 and as our Treasurer from December 1997 until September 1999. Mr. Haddox is a Certified Public Accountant.

 

Kenneth W. Trawick has served as our President of the Telecommunications and Cable Television Division since June 2004 and served as President of Trawick Construction Company, Inc. (Trawick Construction), a telecommunications specialty contractor and now a subsidiary of Quanta, from April 2003 until May 2004, and as a Vice President of Quanta from June 2001 until March 2003. Mr. Trawick joined Trawick Construction in 1974 and served as its Executive Vice President from January 2000 until May 2001.

 

Joseph A. Avila has served as our Executive Vice President of Strategic Operations and Process since October 2006. From 1978 until May 2006, he held various positions with McKinsey & Company, a global management consulting firm, most recently as a Director providing leadership to Energy and Technology Management Practices. Mr. Avila holds an M.B.A. degree.

 

Tana L. Pool has served as our Vice President and General Counsel since January 2006. Ms. Pool served as Senior Counsel with the law firm of Akin Gump Strauss Hauer & Feld LLP from August 2004 until December 2005 and as Counsel with the law firm of King & Spalding LLP from May 2001 until July 2004. Ms. Pool holds a J.D. degree and is a Certified Public Accountant.

 

Derrick A. Jensen has served as our Vice President and Controller since December 1997 and as our Chief Accounting Officer since March 1999.

 

Nicholas M. Grindstaff has served as our Treasurer since October 1999 and served as our Assistant Treasurer from March 1999 until September 1999. Mr. Grindstaff holds a Master of Science in Accounting degree.

 

Benadetto G. Bosco has served as our Senior Vice President of Business Development and Outsourcing since May 2004 and served as our Senior Vice President of Outsourcing from April 2003 until April 2004 and as our Vice President of Outsourcing from July 2002 until April 2003. From 1997 until joining Quanta, he served as Vice President of Network/National Sales for Exelon Infrastructure Services, Inc., a provider of transmission and

distribution infrastructure services to electrical, gas, telecommunications and cable industries. Mr. Bosco holds an M.B.A. degree.

 

James F. O’Neil III has served as our Senior Vice President of Operations Integration and Audit since December 2002 and served as our Vice President of Operations Integration from August 1999 until December 2002.

 

Darren B. Miller has served as our Vice President of Information Technology and Administration since October 2003. From 1996 until May 2003, Mr. Miller held various positions with Encompass Services Corporation, a provider of facilities systems and services to the construction, healthcare, commercial realty and technology industries, most recently serving as Senior Vice President and Chief Financial Officer. Encompass Services Corporation filed for Chapter 11 bankruptcy in November 2002.

 

Compensation Committee

 

Overview

 

The Compensation Committee administers the compensation programs for all of our NEOs. As described above under “Information Concerning the Board of Directors — Committees of the Board,” the Board has determined that each member of the Compensation Committee is “independent” within the meaning of NYSE corporate governance listing standards and our Corporate Governance Guidelines. The Compensation Committee’s primary purposes with respect to NEO compensation are to align our NEOs’ incentives with stockholder value creation, to attract, motivate and retain the best possible executive officer talent, to tie cash and stock incentives to the achievement of measurable corporate, business unit and individual performance goals and to encourage our NEOs to behave like owners of the business. To achieve these purposes, the Compensation Committee has implemented and maintained compensation plans that reward our NEOs for their contributions to Quanta’s short-term and long-term performance and for creating and building stockholder value. Overall, the total potential compensation payouts for our NEOs are intended to create compensation opportunities equivalent to the median compensation levels of our peer companies.

 

In the first quarter of each fiscal year, the Compensation Committee meets both to determine the amounts, if any, that will be awarded to each NEO under our annual, supplemental and discretionary incentive plans (each of which is described below) for the prior fiscal year as well as to establish compensation targets for each NEO for the upcoming fiscal year. In establishing compensation targets for the NEOs for the upcoming fiscal year, and as further discussed below, the Compensation Committee takes into account the results of the most recent compensation benchmarking study and published compensation survey data for our industry and also solicits input from our Chief Executive Officer and certain other NEOs.

 

Use of Compensation Benchmarking Studies and Published Compensation Survey Data

 

A key objective of the Compensation Committee’s compensation setting process is establishing pay standards for our NEOs at median market levels. To achieve this objective, the Compensation Committee utilizes compensation benchmarking studies and published compensation survey data prepared and compiled for the committee by outside consultants. The Compensation Committee utilizes the compensation benchmarking studies and the published compensation survey data not only to establish the overall compensation levels for our NEOs, but also to determine the individual components of compensation and the allocation of compensation between long-term and short-term compensation and cash and non-cash compensation. Typically, the Compensation Committee engages an outside consultant to conduct a compensation benchmarking study for it no less than once every two years for our Chief Executive Officer and Chief Financial Officer and no less than once every three years for our other NEOs. The Compensation Committee uses the results of the compensation benchmarking studies to establish market competitive compensation targets (in the aggregate as well as for each component of our compensation plans, including base salary) for our NEOs. In addition to utilizing compensation benchmarking studies as a source of competitive data, the Compensation Committee utilizes certain published compensation survey data. In the years

that the Compensation Committee does not commission a compensation benchmarking study, it establishes compensation targets for our NEOs by utilizing the prior year’s compensation amounts, generally revising base salaries pursuant to an inflation rate adjustment.

 

The Compensation Committee believes that it is appropriate to establish compensation levels based on compensation benchmarking studies of our peer and competitor companies and the published compensation survey data for our industry because the competitiveness of our compensation practices greatly influences our ability to attract, motivate and retain top executive officer talent, which is an important determinant of our business success. The Compensation Committee Charter grants to the Compensation Committee the authority to hire and fire its advisors and compensation consultants and to approve their compensation. These advisors report directly to the Compensation Committee.

 

In 2006, the Compensation Committee retained Ernst & Young LLP (E&Y) to develop a compensation benchmarking study for our NEOs that would provide market data for base salary, annual incentive compensation, total cash compensation, long-term incentive compensation and total direct compensation (cash compensation plus long-term incentive compensation) for each NEO position. The Compensation Committee instructed E&Y to report directly to it but authorized E&Y to communicate with Darren B. Miller, our Vice President of Information Technology and Administration, to obtain information. E&Y, with input from our management, assembled a broad group of companies for the purpose of obtaining competitive data and, with Compensation Committee approval, selected the following twelve companies for inclusion in the compensation benchmarking study either because they are our direct competitors or because they provide similar services and are of a similar size or market capitalization:

 

 

E&Y’s 2006 compensation benchmarking study (the E&Y Compensation Benchmarking Study) provided the Compensation Committee with information regarding compensation programs of, and the average and median compensation levels among, companies in the peer group. E&Y also utilized several sources of published compensation survey data by matching, with management’s input, our NEOs’ titles and job descriptions with those in the surveys to provide us with additional competitive compensation information. With respect to Messrs. Colson, Haddox, Trawick and Wilson, the Compensation Committee utilized the E&Y Compensation Benchmarking Study and the published compensation survey data and, with respect to Mr. Jensen, the Compensation Committee utilized the published compensation survey data, to establish compensation targets for the 2006 performance year. The Compensation Committee expects that it will be necessary, as a result of mergers, acquisitions and other changes, to update periodically the companies in our future compensation benchmarking studies using the criteria outlined above.

 

The Compensation Committee engaged E&Y for the E&Y Compensation Benchmarking Study independently and without input from our management for the purpose of providing competitive data and advice regarding compensation programs. E&Y did not provide, and was not asked by the Compensation Committee to provide,

recommendations as to specific compensation payments to our NEOs. The Compensation Committee had the authority to terminate E&Y’s engagement and to engage another consultant at its discretion. Our Governance and Nominating Committee separately also engaged E&Y to develop a director compensation benchmarking study that would provide it with market data for each element of board compensation, including cash retainers, meeting fees, committee fees and equity compensation.

 

Management has engaged E&Y from time to time in the past to provide compensation benchmarking services to it with respect to non-executive officer positions in order to leverage E&Y’s knowledge of Quanta’s dynamics and E&Y’s previously performed data gathering work for the Compensation and Governance and Nominating Committees.

 

Management’s Role in the Compensation-Setting Process

 

Management plays an important role in the compensation setting process of our NEOs. The most significant aspects of our management’s role are recommending compensation plans, financial performance goals and strategic goals relating to each NEO, evaluating NEO performance and recommending base salary levels and cash bonus and equity awards (other than with respect to Mr. Colson). At the same time, it should be noted that, while our management makes recommendations as to the goals and awards for NEO compensation (other than with respect to Mr. Colson), the Compensation Committee has final authority and complete discretion in ultimately setting NEO compensation goals and awards.

 

In the first quarter of each fiscal year, our Chief Executive Officer and certain of our other NEOs meet with the Compensation Committee to propose financial performance goals for the upcoming fiscal year. The Compensation Committee reviews these goals and adjusts them as it deems appropriate. Each of our NEOs also proposes individual strategic goals for the upcoming fiscal year to our Chief Executive Officer (except for Mr. Jensen, who proposes his individual strategic goals to, and has them approved by, our Chief Financial Officer). Our Chief Executive Officer reviews the submitted strategic goals and, together with his own individual strategic goals, submits them to the Compensation Committee for its consideration. Once the Compensation Committee is satisfied with the strategic goals submitted and any of its modifications, it approves them and, along with the financial performance goals, utilizes them to determine payouts under our executive compensation plans. In addition, our Chief Executive Officer selects, with the approval of the Compensation Committee, the participants in our annual, supplemental and discretionary incentive plans for each fiscal year.

 

At the request of the Compensation Committee, our Chief Executive Officer and certain other NEOs also participate in the Compensation Committee meeting held in the first quarter of each year to review Quanta’s and each NEO’s performance for the purposes of making NEO compensation awards. Our Chief Executive Officer presents to the Compensation Committee his evaluation of the performance of the other NEOs (except for Mr. Jensen, whose performance is evaluated by our Chief Financial Officer), including in relation to each of their prior year’s strategic goals, and his compensation recommendations as to them. The Compensation Committee considers these evaluations and recommendations in determining salaries for the upcoming fiscal year and the amounts to be paid pursuant to the annual, supplemental and discretionary incentive plans. Our management also prepares information for some of the Compensation Committee meetings, including detailed spreadsheets indicating, among other things, the prior year’s financial performance and individual strategic goals and the Chief Executive Officer’s recommendations as to the prior year’s compensation payouts (other than as to himself) under our incentive plans. All of our NEOs, other than our Chief Executive Officer, leave the Compensation Committee meetings at the time their performance, goals and awards are discussed. Our Chief Executive Officer leaves the Compensation Committee meetings and the Compensation Committee meets in executive session when his performance, goals and awards are discussed.

 

2006 Compensation Committee Meetings

 

The Compensation Committee met a total of six times during the fiscal year ended December 31, 2006. The significant actions taken by the Compensation Committee with respect to executive compensation matters in 2006 include: (i) approving the payouts under our incentive plans relating to the 2005 performance year and approving the financial performance and individual strategic goals for the 2006 performance year, all as discussed below, and (ii) retaining E&Y to conduct and discuss the E&Y Compensation Benchmarking Study discussed above.

 

Objectives of our Compensation Programs

 

The Compensation Committee has designed compensation plans (1) that reward our NEOs for their contributions to Quanta’s short-term and long-term performance and for creating and building stockholder value and (2) that are competitive with programs offered by companies with which Quanta competes for executive officer talent. In addition, the Compensation Committee has established and approved, and continues to establish and approve, financial performance goals for Quanta and individual strategic goals for our NEOs, respectively, that cannot be easily achieved without sustained focus and effort, thereby challenging management to excel in the performance of their duties.

 

The Compensation Committee believes that the pay of our NEOs should be directly linked to performance, thus our compensation programs are designed to reward strong performance by both Quanta and the individual NEOs. The Compensation Committee believes that the two financial performance goals critical in measuring our success and stockholder value creation are operating income and return on equity (ROE) (as both terms are defined in the annual incentive plan and supplemental incentive plan, respectively). Consequently, the Compensation Committee ties a substantial portion of the compensation provided to our NEOs to their contributions in achieving success with respect to these two financial performance goals. Operating income is the primary driver of net income, which is a key element impacting our stock price. In comparison to net income, operating income is a more direct measure of the effectiveness of our business operations. ROE measures our effectiveness in generating financial return relative to the level of equity our stockholders have invested in us. When determining the operating income and ROE financial performance goals, and as further discussed below, the Compensation Committee uses a multiplier to incorporate a “stretch” factor that it believes will motivate our NEOs to drive our performance. As discussed above, certain of our NEOs, led by our Chief Executive Officer, meet with the Compensation Committee to propose goals with respect to operating income and ROE. After reviewing and making any adjustments to these goals that the Compensation Committee deems appropriate, it approves them for the upcoming fiscal year.

 

In addition to rewarding our NEOs for the achievement of financial performance goals, the Compensation Committee rewards them for their achievement of certain strategic goals that it believes to be critical to stockholder value creation. These goals are established for each NEO with the approval of the Compensation Committee (except in the case of Mr. Jensen, for whom such goals are approved by our Chief Financial Officer).

 

Although the Compensation Committee makes many decisions in the first quarter of the fiscal year, the Compensation Committee remains engaged throughout the year in evaluating our performance and that of our NEOs and making adjustments to eligible participants and financial performance and individual strategic goals as it deems appropriate. The Compensation Committee measures the effectiveness of our compensation programs based on their success in creating incentives for our NEOs to meet and exceed the financial performance and strategic goals that the Compensation Committee believes are strongly linked to stockholder value creation and to our ability to attract and retain executive officers who will provide exceptional levels of service.

 

The Compensation Committee seeks to maintain the competitiveness of our executive compensation levels with those of our peers and competitors and thus, makes changes to the level of our executive officer compensation from time to time. Adjustments to both overall compensation and the individual components of compensation are based on various factors, including the results of compensation benchmarking studies, published compensation survey data, economic conditions and the effects of inflation, changes in our business operations and changes in the compensation practices of our competitors. The Compensation Committee also takes into account the executive officer’s individual performance when making compensation adjustments.

 

Under our incentive plans, the Compensation Committee also rewards our NEOs with restricted stock, which generally vests over three years in equal annual installments, because it believes that such awards encourage the alignment of the NEOs’ interests with those of our stockholders. Moreover, the vesting period of the restricted stock encourages an ownership culture, executive officer retention and the preservation of stockholder value. All grants of restricted stock in 2006 were made pursuant to the Quanta Services, Inc. 2001 Stock Incentive Plan (as amended and restated, the Quanta 2001 Stock Incentive Plan or the 2001 Plan).

 

Elements of Executive Compensation

 

The key components of our current compensation program for our NEOs are base salary, awards under our annual, supplemental and discretionary incentive plans and other compensation consisting primarily of matching 401(k) contributions. Each component of our compensation program has a critical role in creating compensation payouts that motivate and reward strong performance and retaining the NEOs who deliver such performance.

 

Base Salary

 

Base salary is a critical element of our NEO compensation because it provides NEOs with a base level of monthly income that is consistent with competitive practices. Base salaries for NEOs, including our Chief Executive Officer, are determined annually by the Compensation Committee, taking into account such factors as competitive industry salaries (especially the salary practices at companies in our peer group), a subjective assessment of the nature of the position, contribution, experience and level of responsibility of the NEO and such NEO’s length of service. While base salaries provide a basic level of economic security for our NEOs, the Compensation Committee uses the compensation benchmarking studies and published compensation survey data to establish our performance-based compensation such that a significant portion (generally the majority) of a NEO’s total compensation opportunity is pursuant to the incentive compensation plans described below.

 

Annual Incentive Plan

 

Our annual incentive plan is designed to provide Quanta’s NEOs with performance awards payable annually in cash in recognition of achieving certain financial performance goals (as discussed below) that the Compensation Committee believes are strongly linked to stockholder value creation. An important factor in our decision to pay our annual incentive in cash rather than in equity is so that our compensation program remains competitive with those of our direct competitors, who are predominantly private companies generally paying all compensation in cash. Our annual incentive plan rewards performance measured against financial performance goals approved by the Compensation Committee and encourages our NEOs to increase stockholder value by focusing on growth in revenue and earnings.

 

In recent years, including for the 2006 performance year, each NEO’s award pursuant to the plan has been determined based on the achievement by Quanta of a certain operating income goal. Taking into account competitive market data, and consistent with our compensation objective of linking NEO compensation with performance, the Compensation Committee establishes the operating income financial performance goal by applying a multiplier (which in 2006 was 110%) to the budgeted amount approved by the Board so that our NEOs will be challenged to excel in the performance of their duties. For purposes of the annual incentive plan, operating income is defined as operating income less interest expense, net of interest income.

 

The payout for each NEO under the annual incentive plan is dependent on the percent of such NEO’s salary that is determined to be subject to the plan (the AIP Target Incentive). The Compensation Committee, after taking into account the E&Y Compensation Benchmarking Study, established the AIP Target Incentive for the NEOs for the 2006 performance year as 100% of their respective base salaries. To receive the threshold payout under the plan, established at 25% of the AIP Target Incentive (or 25% of base salary), Quanta would have to achieve 75% of the operating income goal for the 2006 performance year. Achievement by Quanta of 100% and 200% or greater of the operating income goal would result in a target and maximum payout of 100% and 200%, respectively, of the AIP Target Incentive. The plan also provides for a range of payouts for the achievement by Quanta of the operating income goal at other percentages between 75% and 200%.

 

Supplemental Incentive Plan

 

Our supplemental incentive plan provides additional awards to Quanta’s NEOs based upon Quanta’s performance against a specified financial performance goal and the NEOs’ individual performance against specified strategic goals. In recent years, including for the 2006 performance year, there have been two components to the supplemental incentive plan. The first component, which accounts for 50% of the total supplemental incentive plan payout, has been based on Quanta’s achievement of a ROE financial performance goal (the ROE Component), while the second component, which accounts for the remaining 50% of the payout and is discretionary, has been based on

a NEO’s achievement of certain approved individual strategic goals (the Strategic Goal Component). The Compensation Committee believes that the discretionary payout of the Strategic Goal Component assists the Compensation Committee in linking executive pay with individual performance and rewarding strong individual performance apart from considerations of whether Quanta has met its financial performance goals for a stated fiscal year.

 

The payouts under both components of the supplemental incentive plan are dependent on a fixed dollar amount that the Compensation Committee, based on compensation benchmarking studies, determines to be subject to the plan (the SIP Target Incentive). For 2006, the Compensation Committee utilized the E&Y Compensation Benchmarking Study to establish the SIP Target Incentive. A portion of the SIP Target Incentive is allocated to each component of the plan based on the percentage of the total plan payout that is attributable to such component. Accordingly, for the 2006 performance year, 50% of the SIP Target Incentive was subject to the ROE Component and 50% was subject to the Strategic Goal Component.

 

For purposes of the ROE Component, the ROE financial performance goal is broadly defined as the quotient of the budgeted amount of net income, as approved by our Board and as adjusted by a multiplier, over stockholder’s equity, as adjusted for certain items. The multiplier (which in 2006 was 110% and was applied to the budgeted amount approved by the Board) is used to challenge our NEOs in the performance of their duties. To receive the threshold payout, established at 25% of the SIP Target Incentive allocated to the ROE Component, Quanta would have to achieve 75% of the ROE goal for the 2006 performance year. Achievement by Quanta of 100% and 200% or greater of the ROE goal would result in a target and maximum payout of 100% and 200%, respectively, of the SIP Target Incentive allocated to the ROE Component. The plan also provides for a range of payouts for the achievement by Quanta of the ROE goal at other percentages between 75% and 200%.

 

The Strategic Goal Component of the supplemental incentive plan is based on achieving certain individual strategic goals that are approved annually by the Compensation Committee for each NEO (except in the case of Mr. Jensen, for whom such goals are approved by our Chief Financial Officer). The strategic goals generally relate to both quantitative and qualitative measures of performance that the Compensation Committee believes create stockholder value. A general description of the strategic goals for 2006 utilized by the Compensation Committee to evaluate the individual performances of our NEOs is set forth under “Executive Compensation Decisions for the 2006 Performance Year.” In determining payouts under this portion of our supplemental incentive plan, the Compensation Committee also considers each NEO’s demonstration of ethical behavior and compliance with our Code of Ethics and Business Conduct.

 

Awards under the supplemental incentive plan can be paid in cash, restricted stock or a combination thereof at the Compensation Committee’s discretion. In recent years, including the 2006 performance year, all awards have been paid in restricted stock to provide a concrete link between our NEOs’ compensation and the creation of stockholder value and to encourage executive officer retention. In order to adjust the restricted stock awards to their cash equivalent, the Compensation Committee applies a multiplier to the established SIP Target Incentive. This multiplier ensures that the value of the restricted stock awards incorporate the risk and liquidity premiums that a cash award has relative to a restricted stock award of the same dollar value. For the 2006 performance year, the Compensation Committee established the multiplier at 115% of the SIP Target Incentive.

 

Discretionary Incentive Plan

 

Awards under the discretionary incentive plan are made at the discretion of our Chief Executive Officer, with the approval of the Compensation Committee, and are payable in cash, restricted stock or a combination thereof. These rewards provide the Chief Executive Officer with the flexibility to correct any unfair outcomes inherent in any formalized plans. No awards were made under this plan to our NEOs for the 2006 performance year.

 

Other Compensation

 

In addition to their base salaries and awards under the incentive plans described above, our NEOs receive matching contributions from Quanta to their 401(k) accounts. Quanta matches 100% of a NEO’s pre-tax contributions up to the first 3% of such NEO’s base salary. Thereafter, Quanta matches 50% of a NEO’s pre-tax contributions up to the next 3% of such NEO’s base salary.

 

Exercise of Discretion in Executive Compensation Decisions

 

The Compensation Committee has complete discretion to withhold payment pursuant to any of our incentive compensation plans irrespective of whether we or our NEOs have successfully met the goals set under these plans. Likewise, the Compensation Committee has the authority to grant payment under any of the plans despite the non-attainment by us or our NEOs of the pre-established goals. For 2006, the Compensation Committee did not exercise such discretion in the payment of awards to our NEOs.

 

Grants of Equity Awards Practices

 

As described above, the Compensation Committee meets in the first quarter of each fiscal year to discuss our prior year’s financial performance, evaluate the performance of our NEOs, determine incentive compensation awards for the prior fiscal year and establish base salaries and financial performance and strategic goals for the upcoming fiscal year. This Compensation Committee meeting occurs after our earnings release for the fourth quarter of the prior fiscal year to allow the Compensation Committee to have complete financial results for the prior fiscal year at the time that it evaluates our performance and that of our NEOs. Our Compensation Committee may, in its discretion, also grant restricted stock awards in connection with the hiring of a new executive officer or the promotion of an employee to an executive officer position. Our practice with respect to restricted stock awards is to use the closing market price on the date of grant to determine the value of the award. It is not the intention of the Compensation Committee to time the granting of awards under our incentive plans, including those made to newly hired or newly promoted executive officers, with the release of any material, non-public information.

 

Executive Compensation Decisions for the 2006 Performance Year

 

In March 2007, the Compensation Committee evaluated the compensation of our NEOs relative to the E&Y Compensation Benchmarking Study, the published compensation survey data and Quanta’s 2006 financial performance. The Compensation Committee also reviewed the individual performance of each of our NEOs relative to the strategic goals that the Compensation Committee approved for them in March 2006 (except in the case of Mr. Jensen, for whom such goals and performance were reviewed by our Chief Financial Officer).

 

Compensation of Chief Executive Officer

 

Based on the results of the E&Y Compensation Benchmarking Study and the published compensation survey data, the Compensation Committee approved an increase in Mr. Colson’s annual base salary to $695,000. After an evaluation of the achievement during the 2006 performance year of Quanta’s financial performance goals and of Mr. Colson’s individual strategic goals of (i) managing debt maturities and optimizing cost of capital, (ii) attaining a specified consolidated net income margin goal and (iii) documenting Quanta’s executive development plan, the Compensation Committee awarded Mr. Colson a cash incentive of $851,760 under the annual incentive plan and $1,600,798 worth of restricted stock under the supplemental incentive plan.

 

Compensation of Other Named Executive Officers

 

Based on the results of the E&Y Compensation Benchmarking Study and the published compensation survey data, the Compensation Committee approved an increase in base salary for our other NEOs. The new base salaries are as follows: Mr. Haddox, $375,000; Mr. Trawick, $365,000; Mr. Wilson, $375,000 and Mr. Jensen, $244,139. After an evaluation of Quanta’s achievement of the operating income financial performance goal during the 2006 performance year, the Compensation Committee awarded the following cash incentives under the annual incentive plan: Mr. Haddox — $459,545; Mr. Trawick — $446,160; Mr. Wilson — $459,545 and Mr. Jensen — $305,174. Additionally, the Compensation Committee awarded the following amount of restricted stock under the supplemental incentive plan for Quanta’s achievement of the ROE financial performance goal and the achievement by each other NEO of the individual strategic goals specified: Mr. Haddox — $667,000 (strategic goals achieved: managing debt maturities and optimizing cost of capital, improving Quanta’s credit rating and successfully complying with Section 404 of the Sarbanes-Oxley Act of 2002 (SOX)); Mr. Trawick — $400,200 (strategic goals achieved: attaining specified financial goals, improving safety performance and successfully complying with Section 404 of SOX); Mr. Wilson — $400,200 (strategic goals achieved: attaining specified financial goals,

completing a strategic review of assets and successfully complying with Section 404 of SOX) and Mr. Jensen — $200,100 (strategic goals achieved: successfully enhancing Quanta’s financial reporting system, timely complying with applicable SEC reporting obligations and successfully complying with Section 404 of SOX).

 

Stock Ownership Guidelines

 

We expect all of our directors and executive officers to display confidence in us by ownership, after five years of service, of a significant amount of our stock. Our Governance and Nominating Committee has established minimum stock ownership guidelines, for which the amounts are calculated as follows:

 

 

 

The amount of each of the above is then divided by the average closing price of our Common Stock during the immediately preceding 12 months as reported by the NYSE to calculate the number of shares required to be held by each director or executive officer. Under the stock ownership guidelines, the amount of unvested restricted stock held by a director or executive officer is included in the calculation of the amount of such director’s or executive officer’s ownership. The number of shares to be held by any individual will only change, with respect to directors, annually as of our annual Board meeting and, with respect to an executive officer, if the individual is promoted to a higher position.

 

At December 31, 2006, all of our directors and NEOs were in compliance with our stock ownership guidelines.

 

2007 Changes to Compensation Plans

 

The design of our 2007 performance year compensation programs and the compensation targets approved for our executive officers are substantially the same as under our 2006 performance year compensation programs.

 

Impact of Regulatory Requirements on our Executive Compensation Decisions

 

Under Section 162(m) of the Internal Revenue Code (the Code), we may not take a tax deduction for compensation to certain NEOs in excess of $1 million per year, unless such compensation is “performance-based compensation” or qualifies under certain other exceptions. Beginning on January 1, 2006, Quanta began accounting for stock-based awards in accordance with the requirements of FAS 123(R). Our Compensation Committee considers the accounting and tax implications of its compensation decisions as one factor among many in achieving its executive compensation objectives.

 

Conclusion

 

The Compensation Committee designs and administers our compensation program in a manner that emphasizes the retention of key executive officers and rewards them appropriately for positive results. The Compensation Committee monitors the program in recognition of the dynamic marketplace in which we compete for talent and will continue to emphasize pay-for-performance and equity-based incentive plans that reward our NEOs for results consistent with the interests of our stockholders.

 

Shares of restricted stock, the dollar value of which is listed under the column “Stock Awards” below, vest over three years in three equal annual installments commencing on the applicable date for the quarter in which the award is made, assuming the NEO continues to meet the requirements for vesting. Dividends are paid on restricted stock as and when dividends are paid on Common Stock.

 

Based on the base salary of the NEOs earned during 2006, the compensation cost of equity awards recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 and the dollar value of non-equity incentive plan compensation awarded to the NEOs for the 2006 performance year, “Salary,” “Stock Awards” and “Non-Equity Incentive Plan Compensation” accounted for approximately 32%, 26% and 41%, respectively, of the “Total” compensation of the NEOs.

 

The following table sets forth the compensation paid or accrued by Quanta in the last fiscal year to our NEOs:

 

 

 

 

The following table sets forth each grant of an award made to each of the NEOs in 2006 under non-equity and equity incentive plans.

 

 

 

 

The following table sets forth for each NEO, unexercised options, unvested stock and equity incentive plan awards outstanding as of the end of the 2006 fiscal year.

 

 

 

 

 

The following table sets forth for each NEO information concerning the exercise of options and the vesting of stock during the 2006 fiscal year:

 

 

In December 1997, the Board adopted, and our stockholders approved, the 1997 Stock Option Plan to provide directors, key employees, executive officers and certain advisors with additional incentives by increasing their proprietary interest in Quanta. The 1997 Stock Option Plan was amended from time to time and, in May 2001, was amended and renamed the Quanta 2001 Stock Incentive Plan. The 2001 Plan was amended and restated on March 13, 2003, which amendment and restatement, in addition to incorporating all prior amendments, removed the formula stock option grant to non-management directors and provided the Chief Executive Officer limited authority to make restricted stock awards. Additionally, the Board approved an amendment to the 2001 Plan on April 17, 2007 to allow a cashless “net exercise” method as a mean of payment for the exercise price of incentive stock options (ISOs) and non-qualified stock options. The 2001 Plan provides for the award of ISOs, non-qualified stock options and restricted stock. The aggregate number of shares of our Common Stock with respect to which options or restricted stock may be awarded may not exceed the greater of 3,571,275 shares or 12% of the outstanding shares of our Common Stock and Limited Vote Common Stock. The amount of ISOs that may be awarded under the 2001 Plan is limited to 3,571,275 shares. We have filed Registration Statements on Form S-8 with respect to 13,410,943 shares of Common Stock issuable pursuant to the 2001 Plan.

 

The 2001 Plan is administered by the Compensation Committee of the Board, which, subject to applicable regulations and the terms of the 2001 Plan described below, has the sole authority to grant awards under the 2001 Plan (except to the extent that the Chief Executive Officer may grant awards), to construe and interpret the 2001 Plan and to make all other determinations and take any and all actions necessary or advisable for the administration of the 2001 Plan. Pursuant to the terms of the 2001 Plan, our Chief Executive Officer has the authority to award to individuals who are not executive officers (i) non-qualified stock options, provided that the aggregate number of shares of Common Stock issuable upon the exercise of the options awarded in any one calendar quarter does not exceed 100,000 shares of Common Stock (or 20,000 shares of Common Stock in any one calendar quarter with respect to any individual) and (ii) shares of restricted stock, provided that the aggregate value of the awards of restricted stock granted in any one calendar quarter does not exceed $250,000 (or $25,000 in any one calendar quarter with respect to any individual) determined based on the fair market value of our Common Stock at the time of the grants.

 

All of our employees (including our executive officers), non-employee directors and certain consultants and advisors are eligible to receive awards under the 2001 Plan, but only our employees are eligible to receive ISOs. Awards in the form of stock options are exercisable during the period specified in each stock option agreement and generally become exercisable in installments pursuant to a vesting schedule designated by the Compensation Committee. No option will remain exercisable later than ten years after the date of award (or five years in the case of ISOs awarded to employees owning more than 10% of our voting capital stock). The exercise price for ISOs awarded under the 2001 Plan may be no less than the fair market value of a share of Common Stock on the date of

award (or 110% in the case of ISOs awarded to employees owning more than 10% of our voting capital stock). Awards in the form of restricted stock are subject to forfeiture and other restrictions until they vest. These awards vest pursuant to a vesting schedule generally designated by the Compensation Committee and as specified in each restricted stock award agreement. Most restricted stock awards vest at the rate of 33.33% per year, assuming the grantee continues to meet the applicable vesting requirements. Unless specifically provided otherwise in the award agreement, awards under the 2001 Plan become immediately vested and exercisable in the event of a “Change in Control” (as defined in the 2001 Plan) of Quanta.

 

On January 21, 2003, we offered eligible employees and consultants the opportunity to exchange outstanding stock options with an exercise price of $10.00 or more for shares of restricted stock at an exchange ratio of one share of restricted stock for every 2.24 option shares tendered. As restricted stock, the shares were subject to forfeiture and other restrictions until they vested. Regardless of the vesting schedule of the eligible options offered for exchange, the restricted stock issued in the offer vested over three years in three equal annual installments, assuming the employee or consultant continued to meet the requirements for vesting. On March 10, 2003, we accepted for exchange and canceled eligible options to purchase an aggregate of 6,769,483 shares of Common Stock, representing approximately 93% of the 7,289,750 options that were eligible to be tendered in the offer as of the offer expiration date. Pursuant to the terms of the exchange offer, we issued 3,022,112 shares of restricted stock in exchange for the tendered eligible options. The restricted stock issued in the offer fully vested on February 28, 2006.

 

The above description of the exchange offer is not complete, but is qualified by reference to the Schedule TO, as amended, that was publicly filed with the SEC on January 21, 2003.

 

The following table sets forth information as of December 31, 2006 with respect to the Quanta 2001 Stock Incentive Plan, which has been approved by our stockholders.

 

 

 

 

Employment and Change of Control Employment Agreements

 

Each NEO was party to an employment agreement (an Employment Agreement), as well as a change of control employment agreement (a Change of Control Agreement) during the 2006 fiscal year. Prior to their expiration in March 2007, the Change of Control Agreements were intended to supersede the change in control provisions in the Employment Agreements. Nonetheless, under the Change of Control Agreements, a NEO could elect to have any provision in his Employment Agreement apply in lieu of any similar provision in his Change of Control Agreement.

 

Employment Agreements

 

Under the Employment Agreements, the NEOs are eligible to receive base salary, as well as bonuses and benefits, and, at the Compensation Committee’s discretion, may be entitled to participate in any other

compensation, perquisite, incentive or retirement plans, policies and arrangements that are provided generally to our other executive officers. Subject to prior notice, the Employment Agreements renew automatically each year for an additional one-year term. The Employment Agreements contain customary non-competition covenants restricting the ability of the NEOs to compete with Quanta during the term of their employment and for a period of one year thereafter and prohibiting them from disclosing confidential information and trade secrets.

 

The Employment Agreements generally terminate upon a NEO’s (i) death, (ii) disability, (iii) termination for “good cause” or “good reason” (as both are defined in the Employment Agreements and generally described below), (iv) termination without good cause or good reason or (v) termination resulting from a “Change in Control” of Quanta (as defined in each Employment Agreement and generally described below). If termination results from any of the foregoing, each NEO would be entitled to all compensation earned and all benefits and reimbursements due through the date of termination, and any gross-up payments for related excise taxes. Additionally, if termination results from any of the reasons set forth below, a NEO would be entitled to the following payments:

 

 

As mentioned above, each Employment Agreement may terminate upon a Change in Control of Quanta. Under the Employment Agreements of Messrs. Colson, Haddox and Wilson, a Change in Control generally occurs when (i) any person or entity acquires directly or indirectly the beneficial ownership of 50% or more of the total voting power of Quanta’s then outstanding voting securities, (ii) the majority of the Board as of the date of the NEO’s Employment Agreement are replaced other than in specific situations or (iii) the stockholders approve a plan of complete liquidation or a sale or disposition of all or a substantial portion of Quanta’s assets. A Change in Control generally occurs under the Employment Agreements of Messrs. Trawick and Jensen when (i) any person or entity acquires directly or indirectly the beneficial ownership of 50% or more of the total voting power of Quanta’s then outstanding voting securities, (ii) the majority of the Board as of the date of Quanta’s initial public offering are replaced other than in specific situations, (iii) the stockholders approve a merger, consolidation or reorganization of Quanta unless 50% (75% with respect to Mr. Jensen) of the total voting securities outstanding of the surviving entity are beneficially owned by at least 50% (75% with respect to Mr. Jensen) of the holders of outstanding voting securities of Quanta immediately prior to the transaction or (iv) the stockholders approve a plan of complete liquidation or a sale or disposition of all or a substantial portion of Quanta’s assets.

 

Payments and benefits in connection with a Change in Control under the Employment Agreements are dependent on whether Quanta’s successor assumes Quanta’s obligations under such agreements. With respect to Messrs. Colson, Haddox, Trawick and Wilson, if there is no assumption of the Employment Agreements, or if there is an assumption and within 12 months of such assumption the NEO terminates his respective Employment Agreement for good reason or is terminated other than for good cause, such NEO (i) will be entitled to a lump-sum payment equal to three times the sum of (x) his annual base salary and (y) the higher of (1) the highest annual bonus paid to him under the annual incentive plan in effect on the date of the Employment Agreement for the past three fiscal years and (2) his annual bonus paid or payable under the annual incentive plan in effect on the date of the Employment Agreement for the most recently completed or current fiscal year, (ii) will be entitled to continued benefits for him and his dependents under welfare benefit plans for three years after termination and (iii) will not be subject to the non-competition covenants of the Employment Agreement. Mr. Haddox will also receive the above payment and benefits if during any Change in Control situation, Mr. Haddox elects to terminate his employment at least 5 days prior to the closing of the anticipated transaction giving rise to the Change in Control. With respect to Mr. Jensen, if there is no assumption of his Employment Agreement, or if there is an assumption and within

12 months of such assumption he is offered a “Lesser Position” (as defined in Mr. Jensen’s Employment Agreement) or is terminated other than for good cause, he (i) will be entitled to a lump-sum payment equal to three times the greater of his base salary at the rate then in effect for the period remaining under his Employment Agreement or for one year and (ii) will not be subject to the non-competition covenants in his Employment Agreement.

 

The Employment Agreements generally define good cause as a NEO’s (i) willful, material and irreparable breach of the Employment Agreement, (ii) continuing gross negligence in the performance or intentional non-performance of his duties after notice of the same is given, (iii) willful dishonesty, fraud or material misconduct with respect to Quanta’s business, (iv) conviction of a felony or crime or (v) chronic alcohol or illegal drug abuse. Good reason exists under the Employment Agreements of Messrs. Colson, Haddox, Trawick and Wilson if within twelve months of a Change in Control, such NEO is offered a “Lesser Position” (as defined in each Employment Agreement) or is required to relocate to another geographic location.

 

Change of Control Agreements

 

During the 2006 fiscal year, the NEOs were party to Change of Control Agreements that would only become effective in the event of a “Change of Control” (as defined in each Change of Control Agreement and generally described below). These Change of Control Agreements expired in March 2007, but were intended to supersede the change in control provisions in each NEO’s Employment Agreement, unless the NEO elected otherwise. Generally, a Change of Control would occur under the agreements when (i) any person or entity acquired directly or indirectly the beneficial ownership of 50% or more of the total voting power of Quanta’s outstanding voting securities, (ii) the majority of the Board as of the date of the Change of Control Agreement were replaced, (iii) stockholders approved a merger, consolidation or reorganization of Quanta unless 50% of the total voting securities outstanding of the surviving entity were beneficially owned by at least 50% of the holders of outstanding voting securities of Quanta immediately prior to the transaction or (iv) the stockholders approved a plan of complete liquidation or a sale or disposition of all or a substantial portion of Quanta’s assets.

 

During the employment period of the Change of Control Agreements, the NEOs would be entitled to an annual base salary and cash bonus, fringe benefits, reimbursement of reasonable expenses, paid vacation and the use of office space and a secretary. Additionally, the NEOs would be entitled to participate in certain incentive, savings, retirement and welfare plans. Upon termination of the Change of Control Agreements, the non-competition covenants of any employment agreement (including those described above) would cease to apply (except as discussed below), and the NEOs would be entitled to the following payments, in addition to any gross-up payments for related excise taxes:

 

 

A termination of employment by Messrs. Colson, Haddox, Wilson and Jensen in the seventh month following the effective date of his respective Change of Control Agreement would constitute a termination by such NEO for “good reason” (as defined in each Change of Control Agreement) (Mr. Colson previously waived this provision). In the event of such termination by Mr. Jensen, the non-competition covenants of any of his employment agreements would not cease to apply. Under Mr. Haddox’s Change of Control Agreement, a termination of employment by him during the 5 days prior to the effective date of his agreement would also constitute a termination by him for “good reason” (as defined in Mr. Haddox’s Change of Control Agreement).

 

Quanta 2001 Stock Incentive Plan

 

Generally upon a “Change in Control” (as defined in the Quanta 2001 Stock Incentive Plan), (i) options become immediately exercisable and are released from any repurchase or forfeiture rights and (ii) restricted stock vests and becomes free of any forfeiture restrictions. A “Change of Control” is generally defined as the occurrence of any of the following events: (i) any person becomes the beneficial owner, directly or indirectly, of securities representing 50% or more of the voting power of Quanta’s then outstanding securities, (ii) as a result of, or in connection with, any tender or exchange offer, merger or other business combination, a majority of the Board as of the date immediately preceding such transaction is replaced, (iii) Quanta is merged with another corporation, and as a result, less than 75% of the outstanding securities of the surviving corporation is owned in the aggregate by Quanta’s former stockholders, (iv) a tender or exchange offer is consummated for 50% or more of the voting power of Quanta’s then outstanding securities or (v) Quanta transfers substantially all of its assets to a corporation that is not controlled by Quanta.

 

Options awarded under the 2001 Plan may be exercised following a participant’s termination only to the extent provided in the option agreement. Generally, subject to the provisions of a particular restricted stock agreement, restricted stock awards are forfeited by a participant upon termination of such participant’s employment during the restriction period.

 

Estimated Potential Payments

 

The tables below reflect the estimated amount of payments that would be paid to each NEO in the event of such NEO’s termination. The amounts shown assume that such termination was effective as of December 31, 2006, and thus include amounts earned through such time. The actual amounts to be paid out can only be determined at the time of such NEO’s separation from Quanta.