UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K/A

 

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal period ended December 31, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to

Commission File Number 000-51064

GREAT WOLF RESORTS, INC.

Delaware (State or other jurisdiction of incorporation or organization)		51-0510250 (I.R.S. Employer Identification No.)
122 West Washington Avenue Madison, Wisconsin 53703 (Address of principal executive offices)		53703 (Zip Code)

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		NASDAQ Global Market

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o   No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. þ

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

      Large accelerated filer o               Accelerated filer þ                         Non-accelerated filer o                         Smaller reporting company o

                                        (Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

     As of June 30, 2007, the aggregate market value of the voting and non-voting common equity held by non-affiliates was approximately $437,483,821 based on the closing price on the NASDAQ National Market for such shares.

     The number of shares outstanding of the issuer’s common stock was 30,973,311 as of April 28, 2008.

 

 

Great Wolf Resorts, Inc.

Annual Report on Form 10-K
For the Year Ended December 31, 2007

INDEX

     Great Wolf Resorts, Inc. (the “Company”) hereby amends Part III, Items 10 through 14 of its Annual Report on Form 10-K for the year ended December 31, 2007 as set forth in the pages attached hereto to provide the information required by such items that were previously omitted, as they were intended to be incorporated by reference to the Company’s definitive proxy statement for its 2008 annual meeting of shareholders:

PART III
Item 10. Directors and Executive Officers and Corporate Governance of the Registrant			3
Item 11. Executive Compensation			8
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			37
Item 13. Certain Relationships and Related Transactions			40
Item 14. Principal Accountant Fees and Services			41
Certification of CEO
Certification of CFO
Certification of CEO Pursuant to Section 1350
Certification of CFO Pursuant to Section 1350

     This Form 10-K/A (Amendment No. 1) does not reflect events occurring after the filing of the Company’s Form 10-K or modify or update those disclosures affected by subsequent events. Consequently, all other information is unchanged and reflects the disclosures made at the time of the filing of the Form 10-K. With this Form 10-K/A (Amendment No. 1), the principal executive officer and principal financial officer of the Company have reissued their certifications required by Section 302 of the Sarbanes-Oxley Act of 2002, included in Part IV, Item 15. Exhibits, Financial Statement Schedules, furnished herewith.

Table of Contents to Form 10-K/A (Amendment No. 1)

		Page
		No.
PART III
Item 10. Directors and Executive Officers of the Registrant			3
Item 11. Executive Compensation			8
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			37
Item 13. Certain Relationships and Related Transactions			40
Item 14. Principal Accountant Fees and Services			41
PART IV
Item 15. Exhibits and Financial Statement Schedules			42
Signatures			43

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

THE BOARD OF DIRECTORS

     The following table sets forth the names, ages, positions held and business experience of the Company’s directors as of April 28, 2008.

JOSEPH V. VITTORIA, age 72		Mr. Vittoria has served as Chairman of the Board and a director of our company since 2006. Mr. Vittoria is the retired chairman and chief executive officer of Travel Services International, a company he founded and took public in July 1997 and later sold to a large British tour operator. In 1982, he joined Avis, Inc., as chief operating officer, and later was named chairman and chief executive officer. He was selected as the salaried and management representative to the board of United Airlines in 1994 when it created its ESOP. He now is Chairman and CEO of Puradyn Filter Technologies, Inc. and Chairman of Flexcar Inc. Active in community-enhancement programs, Vittoria served as a director of the National Crime Prevention Counsel in Washington, D.C. He later served on President Reagan’s Child Safety Partnership in recognition of his efforts on behalf of missing children. He also is a former member of the board of directors of the National Center for Disability Services. Mr. Vittoria was elected to the Travel Industry Association Hall of Leaders in 2000. He holds a B.S. in civil engineering from Yale University and an M.B.A. from Columbia University. Mr. Vittoria currently serves as one of our independent directors and as a member of our Compensation Committee.
Committees: Compensation
JOHN EMERY, age 44		Mr. Emery has served as our Chief Executive Officer and a director of our company since we commenced operations in May 2004. From January 2004 until completion of the initial public offering of our common stock (the IPO), Mr. Emery served as the Chief Executive Officer of The Great Lakes Companies, Inc. From 1995 to 2003, Mr. Emery served in a number of management positions at Interstate Hotels & Resorts, Inc., a public company and the nation’s largest independent third-party hotel management company, most recently as president and chief operating officer. Additionally, from 1995 to 2002, Mr. Emery served in a number of management positions at MeriStar Hospitality Corporation, a public company and then one of the nation’s largest hotel real estate investment trusts, most recently as president and chief operating officer. He currently serves on the Pamplin College of Business advisory council at Virginia Tech and is executive director of the Stone Circle Foundation, a private, non-profit organization.
Committees: None
ELAN BLUTINGER, age 52		Mr. Blutinger has been a managing director of Alpine Consolidated, LLC, a merchant bank specializing in consolidating fragmented industries, since 1996. Mr. Blutinger serves as a director of Mountain Reservations, a venture-backed consumer travel and lodging company. Mr. Blutinger served as a director of Hotels.com,

		a public company, and as chairman of its special committee to sell the company, from 2001 to 2003. Mr. Blutinger was a founder and director of Resortquest International, a public company, from 1996 to 2003, a founder and director of Travel Services International, a public company, from 1996 to 2001, and a director of Online Travel Services (UK), a public company. from 2000 to 2004. Mr. Blutinger is a trustee of the Washington International School in Washington, D.C. He holds B.A. and J.D. degrees from American University and an M.A. degree from the University of California at Berkeley. Mr. Blutinger currently serves as one of our independent directors and as chair of our Nominating and Corporate Governance Committee and as a member of our Audit Committee. Mr. Blutinger has been a director of our company since 2004.
Committees: Audit; Nominating and Corporate Governance (Chairman)
RANDY L. CHURCHEY, age 47		Mr. Churchey was the President and Chief Executive Officer of Golden Gate National Senior Care (the successor to Beverly Enterprises), the second largest long-term care company in the United States, from March 2006 to September 2007. Mr. Churchey is Co-chairman of the board of MCR Development, LLC, a private hotel construction and management company. Mr. Churchey served as President and Chief Operating Office of RFS Hotel Investors, Inc., a NYSE-listed hotel real estate investment trust, from 1999 to 2003. Mr. Churchey served as a director of RFS from 2000 through 2003. From 1997 to 1999, he was Senior Vice President and Chief Financial Officer of FelCor Lodging Trust, Inc., a NYSE-listed hotel real estate investment trust. For nearly 15 years prior to joining FelCor, Mr. Churchey held various positions in the audit practice of Coopers & Lybrand, LLP. Mr. Churchey holds a B.S. degree in accounting from the University of Alabama and is a certified public accountant. Mr. Churchey currently serves as one of our independent directors and as chair of our Audit Committee and as a member of our Compensation Committee. Mr. Churchey has been a director of our company since 2004.
Committees: Audit (Chairman); Compensation
MICHAEL M. KNETTER, age 44		Mr. Knetter joined the University of Wisconsin-Madison School of Business as its dean in July 2002. From June 1997 to July 2002, Dean Knetter was associate dean of the MBA program and professor of international economics in the Amos Tuck School of Business at Dartmouth College. Dean Knetter has served as a senior staff economist for the President’s Council of Economic Advisors for former presidents George H.W. Bush and William Jefferson Clinton and has been a consultant to the International Monetary Fund. Dean Knetter is a research associate for the National Bureau of Economic Research and a Trustee of Lehman Brothers/First Trust Income Opportunity Fund and the Lehman Brothers Liquid Assets Trust. Dean Knetter currently serves as one of our independent directors and as a member of our Nominating and Corporate Governance Committee. Dean Knetter has served as one of our independent directors since 2004.
Committees: Nominating and Corporate Governance
EDWARD H. RENSI, age 63		Mr. Rensi spent 33 years at McDonald’s, where he rose from grill man up through the management ranks to positions of increasing scope and responsibility, as regional vice president, senior vice

		president operations and training, senior executive vice president, chief operating officer of McDonald’s World Wide, and, from 1984 to 1998, president and CEO of McDonald’s USA. Following his retirement from McDonald’s in 1998, Mr. Rensi began a second career as chairman and CEO of Team Rensi Motorsports. Mr. Rensi graduated from The Ohio State University with a degree in business education. He serves on the boards of directors of Snap On Incorporated, a public company, International Speedway Corporation (ISC) and the National Italian American Foundation. He also serves on the Compensation Committee for ISC and the Snap On boards. Mr. Rensi currently serves as one of our independent directors and as a member of our Nominating and Corporate Governance Committee. Mr. Rensi has been a director of our company since 2006.
Committees: Nominating and Corporate Governance
HOWARD A. SILVER, age 53		Mr. Silver was the president and chief executive officer of Equity Inns, Inc., a public, self-advised hotel real estate investment trust, until its sale to Whitehall Global Real Estate Funds in October 2007. Mr. Silver joined Equity Inns in 1994 and served in various capacities including:
		executive vice president of finance, secretary, treasurer, chief financial officer and chief operating officer. Mr. Silver has been a certified public accountant since 1980. Mr. Silver is a director of Capital Lease Funding, Inc., a public triple net lease real estate investment trust, and serves on its audit committee as chairman, as well as serving on the nomination and investment committees. He is also on the board of managers of GHII, LLC, a national hotel furniture and equipment provider. Mr. Silver currently serves as one of our independent directors and as chair of our Compensation Committee and as a member of our Audit Committee. Mr. Silver has been a director of our company since 2004.
Committees: Audit; Compensation (Chairman)

THE EXECUTIVE OFFICERS

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

JAMES A. CALDER, age 45		Mr. Calder has served as our Chief Financial Officer since we commenced operations in May 2004. From 1997 to 2004, Mr. Calder served in a number of management positions with Interstate Hotels & Resorts, Inc., a public company, and its predecessor company, serving most recently as chief financial officer. Additionally, from 2001 to 2002, Mr. Calder served as chief accounting officer of MeriStar Hospitality Corporation, a public company. From 1995 to 1997, Mr. Calder served as senior vice president and corporate controller of ICF Kaiser International, Inc., a public consulting and engineering company. Prior to that time, from 1984 to 1995, Mr. Calder worked for Deloitte & Touche LLP in various capacities, serving most recently as senior manager for the real estate industry. Mr. Calder holds a Bachelor of Science degree in Accounting from The Pennsylvania State University. Mr. Calder is a certified public accountant and is president and treasurer of the Thomas W. Hetrick Memorial Scholarship Fund, a private, non-profit organization.

ALEXANDER P. LOMBARDO, age 39		Mr. Lombardo has served as our Treasurer since 2004. From 1998 to 2004, Mr. Lombardo served in a number of positions with Interstate Hotels & Resorts, Inc., a public company, and its predecessor company, serving most recently as vice president of finance. Additionally, from 1998 to 2002, Mr. Lombardo served in a number of positions with MeriStar Hospitality Corporation, a public company, serving most recently as assistant treasurer. From 1996 to 1998, Mr. Lombardo served as cash manager of ICF Kaiser International, Inc., a public company. Mr. Lombardo holds a Bachelor of Business Administration degree from James Madison University.
HERNAN R. MARTINEZ, age 55		Mr. Martinez, President of Development, joined the company in April 2004. From 2002 to 2004, Mr. Martinez was principal for Urbana Partners, a real estate advisory company serving international, private and institutional investors. From 2000 to 2002, he served as chief operating officer for American Skiing Company Resort Properties and Executive Vice President of its parent, American Skiing Company, a public company. Before that, Mr. Martinez was Managing Director for Tishman Speyer Properties. Mr. Martinez holds a Diploma in Architecture from the University of Buenos Aires, Argentina, a Post-Graduate Diploma in Urban Development Planning, Development Planning Unit from the University College, London, U.K. and a Masters of Business Administration from Stanford University.
KIMBERLY K. SCHAEFER, age 42		Ms. Schaefer has served as our Chief Operating Officer since 2005. Prior to that she served as our Chief Brand Officer since we commenced operations in May 2004. From 1997 until completion of the IPO, Ms. Schaefer served as Senior Vice President of Operations of The Great Lakes Companies, Inc. and its predecessor companies. At Great Lakes, Ms. Schaefer was involved in site selection and brand development and oversaw all resort operations. Ms. Schaefer has over 18 years of hospitality experience and holds a Bachelor of Science degree in Accounting from Edgewood College in Madison, Wisconsin. Ms. Schaefer sits on the advisory board for Edgewood College Business School. Ms. Schaefer is a certified public accountant.

J. MICHAEL SCHROEDER, age 40		Mr. Schroeder has served as our General Counsel and Corporate Secretary since we commenced operations in May 2004. From 1999 until completion of the IPO, Mr. Schroeder served in several senior management positions for The Great Lakes Companies, Inc., most recently as Senior Vice President and General Counsel. From 1993 to 1999, Mr. Schroeder was associated with several law firms in New York, New York and Greenwich, Connecticut where he specialized in real estate, real estate finance and corporate law, with a focus on the hospitality industry. Mr. Schroeder holds a Juris Doctor degree from Duke University School of Law and a Bachelor of Science degree in Finance from the University of Colorado.

CORPORATE GOVERNANCE

Section 16(a) Beneficial Ownership Reporting Compliance

     Under federal securities laws, our directors, executive officers and any persons beneficially owning more than 10% of a registered class of our equity securities are required to report their ownership and any changes in that ownership to the SEC. These persons are also required by SEC rules and regulations to furnish us with copies of these reports. Precise due dates for these reports have been established, and we are required to report in this annual report any failure to timely file these reports by those due dates by our directors and executive officers during 2007.

     Based solely upon our review of the reports and amendments to those reports furnished to us or written representations from our directors and executive officers that these reports were not required from those persons, we believe that all of these filing requirements were satisfied by our directors and executive officers during 2007.

No Change in Director Nomination Process

     As of the date of this Form 10-K/A (Amendment No. 1), there have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since previously providing the disclosures required by Item 407(c)(2)(iv) or 407(c)(3) of Regulation S-K.

Audit Committee

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

	•		reviews and discusses with management and our independent registered public accounting firm our financial reports, financial statements and other financial information;
	•		makes decisions concerning the appointment, retention, compensation, evaluation and dismissal of our independent registered public accounting firm;
	•		reviews with our independent registered public accounting firm the scope and results of the audit engagement;
	•		approves all professional services provided by our independent registered public accounting firm;
	•		reviews the experience, performance and independence of our independent registered public accounting firm;
	•		considers appropriateness of the audit and non-audit fees;

	•		reviews the adequacy of our internal accounting and financial controls; and
	•		reviews any significant disagreements among the company’s management and our independent registered public accounting firm in connection with preparation of our company’s financial statements.

     Our Audit Committee met five times in 2007.

Availability of Corporate Governance Materials.

     The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s principal executive officer and the Company’s principal financial officer (who is also the Company’s principal accounting officer). Stockholders may view our corporate governance materials, including the charters of our Audit Committee, our Compensation Committee and our Nominating and Corporate Governance Committee, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics, on our Internet Web site under “Investor Relations” at greatwolf.com.

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE AND DIRECTOR COMPENSATION

Report of the Compensation Committee

The Compensation Committee, on behalf of and in certain instances subject to the approval of the Board of Directors, reviews and approves compensation programs for certain senior officer positions. In this context, the committee reviewed and discussed with our company’s management the “Compensation Discussion and Analysis” required by section 402(b) of Regulation S-K and included in this annual report. Based on the review and discussions referred to above, the committee recommended to the Board that the “Compensation Discussion and Analysis” be included in this Annual Report on Form 10-K/A (Amendment No. 1) for its 2007 fiscal year.

The Compensation Committee:
Howard Silver (Chairman)
Joseph Vittoria
Randy Churchey

COMPENSATION DISCUSSION AND ANALYSIS

          The Compensation Committee oversees our executive compensation program, including:

	•		Establishing and administering compensation policies;
	•		Setting salaries of and awarding performance-based cash bonuses to our senior executives, including our Named Executive Officers (NEOs);
	•		Determining grants of equity awards under our incentive stock plan; and
	•		Reviewing the performance and development of management.

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

	•		Structuring our various compensation programs;
	•		Determining appropriate levels of salary, bonus and other awards payable to our NEOs consistent with our competitive strategy, corporate governance principles and stockholder interests; and
	•		Guiding us in the development of near-term individual performance objectives necessary to achieve long-term performance goals.

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

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

General Compensation Policy/Philosophy

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

          Our general compensation philosophy is to:

	•		Design and implement a compensation program to attract, retain and motivate talented executives;
	•		Provide incentives for the attainment of short-term operating objectives and strategic long-term performance goals; and
	•		Place emphasis on, and reward achievement of, long-term objectives that are consistent with the nature of our company as an enterprise focused on resort unit growth and brand expansion/development over the next several years.

          In 2007, our NEOs were:

	•		John Emery, Chief Executive Officer (Principal Executive Officer)
	•		James A. Calder, Chief Financial Officer (Principal Financial Officer)
	•		Hernan R. Martinez, President of Development Division
	•		Kimberly K. Schaefer, Chief Operating Officer
	•		J. Michael Schroeder, General Counsel and Corporate Secretary

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

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

2007 Executive Officer Compensation

          For 2007, the Compensation Committee engaged FPL Associates Compensation, an independent compensation consultant, to assist the Compensation Committee in determining appropriate fiscal year 2007 compensation for our NEOs. Based upon a study of a competitive peer group of 11 public companies that compete with us for talent, investment dollars and/or business, FPL made recommendations to the Compensation Committee for certain of our NEOs of appropriate levels of:

	•		base salaries,
	•		annual incentives, and
	•		long-term incentives.

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

Competitive Peer Groups

          The competitive peer group FPL used included primarily companies that are focused on operating within the public consumer/leisure sector as the foundation for our compensation practices. Those peer group companies are ones considered to appeal

to family-based, consumer leisure activities, including resorts/timeshares, gaming/entertainment and amusement parks. The peer group consisted of the following companies:

Bluegreen Corporation		Red Lion Hotels Corporation
Cedar Fair		Silverleaf Resorts, Inc.
Gaylord Entertainment Company		Six Flags, Inc.
ILX Resorts Incorporated		Steiner Leisure Limited
Isle of Capri Casinos, Inc.		Vail Resorts, Inc.
Nevada Gold & Casinos, Inc.

          For additional context and with respect to benchmarking Mr. Martinez’s position only, FPL also gathered market competitive data from a peer group of active private real estate developers. That peer group consisted of ten private companies that may be considered active developers from a real estate perspective.

Executive Compensation Structure

          Utilizing this process and benchmarking data, FPL recommended, and the Compensation Committee approved, total remuneration for executive compensation for Messrs. Emery, Calder and Martinez and Ms. Schaefer for 2007 structured as follows:

	•		Base salaries at a level commensurate with each executive’s role/responsibilities, tenure and other factors, based on median market practices.
	•		Short-term incentive compensation consisting of annual cash incentive bonuses based on specified threshold, target and high earnings levels, defined as follows:

	•		Threshold performance — solid achievement but falls short of expectations. Would be considered less than meeting a budget plan. This represents the minimum level of performance that must be achieved before any bonus will be earned.
	•		Target performance — achievement that normally signifies meeting business objectives. In many situations, represents budget level performance.
	•		High performance — significant achievement that would be considered upper-tier or exceptional performance by industry standards.

•

Long-term incentive compensation in the form of restricted stock grants based on specified threshold, target and high earnings levels, consisting of:

	•		annual equity grants with performance metrics and
	•		multi-year program equity grants with performance metrics and/or time-based vesting.

          For 2007, the Compensation Committee established both an annual cash incentive plan and long-term incentive compensation plan for Messrs. Emery, Calder and Martinez and Ms. Schaefer that was structured differently than that for Mr. Schroeder, as follows:

	•		The Compensation Committee designed annual cash incentives and long-term incentives for these four NEOs that creates an overall compensation program that can provide for superior compensation when primary company-wide financial goals are met or exceeded, and, conversely, total compensation below competitive levels when such goals are not met. The Compensation Committee believes this is an appropriate structure for these four NEOs due to their broad responsibilities for overseeing our overall performance in financial, development and operating areas.
	•		For executive officers other than Messrs. Emery, Calder and Martinez and Ms. Schaefer, the Compensation Committee feels a total compensation structure that is less likely to provide total compensation significantly above or below competitive levels is appropriate, due to other executive officers having less broad overall responsibilities for overseeing our overall performance.

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

Elements of Compensation

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

	•		base salary,
	•		annual cash incentive and
	•		long-term incentive compensation.

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

Base Salary

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

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

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

          The Compensation Committee reviewed the salaries for John Emery, our CEO, and Messrs. Calder and Martinez and Ms. Schaefer in December 2006. In addition, Mr. Emery reviewed the salary for Mr. Schroeder in March 2007. As a result of these reviews, base salaries established for 2007 and the percentage increase from prior base salaries are shown below:

		2007 Base				Increase From
		Salary				Prior Base Salary
Name		($)				(%)
Mr. Emery			475,000				14.2
Mr. Calder			285,000				9.6
Mr. Martinez			375,000				—
Ms. Schaefer			340,000				9.7
Mr. Schroeder			260,000				4.0

Annual Cash Incentive

          For Messrs. Emery, Calder and Martinez and Ms. Schaefer, annual cash incentives exist in the form of bonuses as a means of linking compensation to objective performance criteria that are within the control of the NEO. At the beginning of each year, the Compensation Committee establishes a range of potential bonus amount for each executive and identifies performance targets for each NEO to meet in order to receive the full bonus. The range incorporates the threshold, target and high (maximum) performance concepts as described above in 2007 Executive Officer Compensation.

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

	•		Corporate — overall corporate performance is the primary dimension for executive and senior management.
	•		Team/Unit — refers to key functional areas. This dimension is utilized to link individuals to the performance of their collective work group and is intended to foster cooperation.
	•		Individual — refers to specific goals and objectives developed for each individual participant.

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

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

          By way of example, assume that a financial target is $1,000 and an executive’s maximum potential award related to achieving that financial target is $300. The threshold financial amount to begin to achieve annual cash incentive amounts would then equal $950 (that is, 95% of the $1,000 financial target amount). If the actual financial result for the year was $980, the NEO would earn $160 of their potential award under that particular financial target, calculated as the sum of (a) $100 for reaching the threshold level of performance (that is, earning 1/3 of the $300 maximum potential award) plus (b) $60 for 30% of the potential cash incentive award in excess of the threshold amount (that is, 30% multiplied by [$300 maximum award amount less $100 threshold amount]). If the actual financial result for the financial target were less than $950, no annual incentive amount would be earned for that particular financial target. If the actual financial result for the financial target were $1,050 or more, the NEO would earn 100% of the potential under that particular financial target (that is, $300 in this example).

          The Compensation Committee employs clearly defined objective measures of performance to support the annual cash incentive awards for the company’s employees. Within the annual incentive award component of the compensation program, performance measures are often based on operational/financial initiatives as well as, to a lesser extent, individual/subjective performance, providing a balance with long-term incentive award components, which are generally primarily tied to value creation.

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

For 2007, the Compensation Committee established overall threshold, target and maximum annual incentive opportunities for Messrs. Emery, Calder and Martinez and Ms. Schaefer, expressed as a percentage of each executive’s base salary, as follows:

		2007 Annual Incentive Opportunity
		Threshold								Target								Maximum
Name		(%)				($)				(%)				($)				(%)				($)
Mr. Emery			50.0				237,500				100.0				475,000				150.0				712,500
Mr. Calder			37.5				106,875				75.0				213,750				112.5				320,625
Mr. Martinez			37.5				140,625				75.0				281,250				112.5				421,875
Ms. Schaefer			37.5				127,500				75.0				255,000				112.5				382,500

          Additionally, the maximum annual incentive opportunity established for Mr. Schroeder was 50.0% of his base salary.

          For 2007, the annual cash incentive amount awarded to Messrs. Emery, Calder and Martinez and Ms. Schafer was subject to a number of criteria, including:

	•		Our company achieving certain levels of Adjusted EBITDA for 2007;
	•		Our company achieving certain levels of Adjusted EPS for 2007; and
	•		The individual achieving certain individual, business unit and/or departmental performance goals in 2007, as determined by the Compensation Committee.

          The threshold, target and maximum amounts for the two financial measures (Adjusted EBITDA and Adjusted EPS) for 2007 were as follows:

		Threshold				Target				Maximum
Financial Measure		($)				($)				($)
Adjusted EBITDA		47.5 million				50.0 million				52.5 million
Adjusted EPS			(0.03	)			(0.02	)			(0.01	)

          For 2007, the Compensation Committee, in consultation with our CEO, reviewed and approved the performance criteria and weighting of those criteria for each eligible executive. The weightings of the performance criteria may vary among the eligible executives by position due to functional accountability, responsibility and other factors the Compensation Committee deems relevant. For 2007, weightings for Messrs. Emery, Calder and Martinez and Ms. Schaefer were as follows:

										Individual/
										Business Unit/
										Departmental
		Adjusted EBITDA				Adjusted EPS				Performance Goals
Name		(%)				(%)				(%)
Mr. Emery			60				20				20
Mr. Calder			60				20				20
Mr. Martinez			40				—				60
Ms. Schaefer			60				20				20

          For Messrs. Emery, Calder and Martinez and Ms. Schaefer, the Compensation Committee reviewed in February 2008 the levels of Adjusted EBITDA and Adjusted EPS we had achieved for 2007 and the success of each of those NEOs in achieving individual, business unit and/or departmental performance goals in 2007. Based that review:

	•		We achieved Adjusted EBITDA of $51.1 million, an amount in excess of 102% of the Adjusted EBITDA financial target amount as established by the Compensation Committee. The Compensation Committee, however, elected to cap the calculation amount for the Adjusted EBITDA financial factor at $50.0 million, the Adjusted EBITDA financial target amount as established by the Compensation Committee, resulting in 66.7% of the maximum potential payout for that financial factor being earned.
	•		We achieved Adjusted EPS of $0.03, an amount in excess of the Adjusted EPS maximum amount as established by the Compensation Committee, resulting in 100% of the potential payout for that financial factor being earned.
	•		The Compensation Committee determined the individual/departmental goal achievements for NEOs as follows: Mr. Emery — 95%; Mr. Calder — 95%; Mr. Martinez — 60%; and Ms. Schaefer — 95%.

          For Mr. Schroeder, annual cash incentives for 2007 existed in the form of a bonus available based on achieving individual and/or departmental performance goals in 2007, as determined by Mr. Emery. Based on Mr. Emery’s determination, Mr. Schroeder earned a bonus amount of $52,000 for 2007.

          For 2007 annual cash incentives bonus amounts to be paid in 2008, as an incentive to increase our NEOs’ ownership of our common stock, we offered our NEOs the opportunity to take some or all of their bonus in shares of our common stock in lieu of cash. If an executive elected to receive shares of our common stock in lieu of cash, he or she received shares having a market value equal to 125% of the cash they would have otherwise received. We believe this 25% conversion premium was an appropriate incentive to reward executives who chose to receive shares in lieu of cash. For example:

	•		If an executive’s cash bonus payment would have been $50,000 and they elected this shares-in-lieu-of-cash option for the entire amount of their bonus, he or she would receive $62,500 of shares.
	•		The dollar value of shares to be received is divided by a conversion price as determined by the Compensation Committee in order to determine the number of shares each officer receives.

The Compensation Committee has established a policy of using the average closing price for the company’s common stock for the first and second full calendar weeks of January of the following calendar year (that is, 10 trading days) as the stock price to use for the conversion of the cash value of each NEO’s bonus to a number of shares to be received. For 2007 cash bonus amounts converted to shares, the conversion price used was $7.56, representing the average closing price for the company’s common stock for the period January 7, 2008 through January 18, 2008. Shares issued under this shares-in-lieu-of-cash bonus option are 100% vested when issued.

          For 2007, cash bonus amounts earned by each of the NEOs under the annual cash incentives program as described above were as follows:

						Cash Bonus
		Cash Bonus				as a
		Amount				Percentage of
		Earned				Base Salary
Name		($)				(%)
Mr. Emery			562,875				118.5
Mr. Calder			253,294				88.9
Mr. Martinez			264,375				70.5
Ms. Schaefer			302,175				88.9
Mr. Schroeder			52,000				20.0

          Messrs. Emery, Calder and Martinez and Ms. Schaefer elected to take all of their earned cash bonus in shares of our common stock, in accordance with the shares-in-lieu-of-cash bonus provisions explained above. As a result, in February and March 2008 we paid cash and shares-in-lieu-of-cash bonus amounts for 2007 to our NEOs as follows:

						Shares In Lieu of
		Cash Bonus				Cash Bonus
Name		($)				(#)
Mr. Emery			—				93,068
Mr. Calder			—				41,881
Mr. Martinez			—				43,713
Ms. Schaefer			—				49,963
Mr. Schroeder			52,000				—

Long-Term Incentives

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

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

          For 2007, the Compensation Committee approved maximum long-term stock-based incentive compensation amounts for Messrs. Emery, Calder and Martinez and Ms. Schaefer. The stock-based compensation amounts consisted of performance-based shares of our common stock. The stock-based incentive compensation total award amounts consisted of two parts:

	•		annual equity grant amounts for 2007 and
	•		multi-year program equity grant amounts for the three-year period 2007-2009.

          We have not issued stock options to any of our NEOs since our IPO in December 2004.

Establishing 2007 Award Amounts

          The process in establishing the number of shares awarded as stock-based compensation to each officer as an annual equity grant amount and multi-year program equity grant amount involved four steps, as follows:

•

First, based on benchmarking data as supplied by FPL, we computed the total maximum annual dollar value of stock-based compensation award (combined annual equity grant and one year of multi-year program equity grant) amount as a percentage of each officer’s January 1, 2007 base salary. Applicable percentages and the resulting maximum annual dollar value amounts were as follows:

						Percentage of Base
						Salary Used to
		January 1, 2007				Compute Maximum				Maximum Annual
		Base Salary				Annual Dollar Value				Dollar Value
Name		($)				(%)				($)
Mr. Emery			475,000				225.0				1,068,750
Mr. Calder			285,000				112.5				320,625
Mr. Martinez			375,000				60.0				225,000
Ms. Schaefer			340,000				112.5				382,500

In designing the percentage of base salary used to compute the maximum annual dollar value amount above, the Compensation Committee took into consideration the amount and type of existing equity incentive opportunities for the NEOs, specifically an award grant of 150,000 shares of our common stock to Mr. Martinez in 2006 that has time-based vesting (that is, vests based on continuous employment with us) over the five-year vesting period.

•

Second, for each officer, the total maximum annual dollar value was split between (a) annual equity grant amounts and (b) multi-year program equity grant amounts. Based on recommendations from FPL, the applicable splits for each officer were as follows:

										One Year of Multi-Year Program
		Annual Equity Grant								Equity Grant
Name		(%)				($)				(%)				($)
Mr. Emery			60				641,250				40				427,500
Mr. Calder			60				192,375				40				128,250
Mr. Martinez			—				—				100				225,000
Ms. Schaefer			60				229,500				40				153,000

•

Third, since the multi-year program equity grant was designed to cover a three-year period (2007-2009), the “One Year of Multi-Year Program Equity Grant” amounts in the table above were multiplied by three to obtain a total maximum multi-year program equity grant dollar amount for the three-year period (2007-2009). As a result, the total maximum dollar values for the combination of (a) the annual equity grant and (b) all three years of the multi-year program equity grant were as follows:

										Total Maximum
						Three Years of				Dollar Value of
		Annual Equity				Multi-Year Program				Stock-Based
		Grant				Equity Grant				Compensation
		(2007)				(2007-2009)				Awards
Name		($)				($)				($)
Mr. Emery			641,250				1,282,500				1,923,750
Mr. Calder			192,375				384,750				577,125
Mr. Martinez			—				675,000				675,000
Ms. Schaefer			229,500				459,000				688,500

•

Fourth, for each officer, the Total Maximum Dollar Value of Stock-Based Compensation Awards amount listed above was then converted to a maximum total number of shares to be awarded by dividing (a) the total maximum dollar value amount by (b) $13.96, the closing price of our common stock on NASDAQ on December 31, 2006 (the last trading day

in the year ended December 31, 2006). Based on this conversion, the maximum number of             shares to be awarded to each officer was as follows:

		Annual Equity				Multi-Year Program
		Grant				Equity Grant				Total
Name		(#)				(#)				(#)
Mr. Emery			45,935				91,869				137,804
Mr. Calder			13,780				27,560				41,340
Mr. Martinez			—				48,352				48,352
Ms. Schaefer			16,440				32,880				49,320

Determining Amounts of 2007 Awards Earned

          The actual long-term incentive compensation award earned by each officer was subject to a number of factors:

•

With regard to each officer’s annual equity grant amount, those factors included:

	•		A portion of the award amount was earned based on our common stock performance in calendar year 2007 relative to the Russell 2000 stock index total return in calendar year 2007. Under this performance criterion, an individual earned a portion of his or her total potential award amount if our stock performance for 2007 was 80% or greater than the performance of the Russell 2000 stock index. The individual earned less than the full portion amount of his or her award amount if our stock performance was less than 120% of the Russell 2000 stock index’s performance, and earned no award under this performance criterion if our stock performance was less than 80% of the Russell 2000 stock index’s performance.
	•		A portion of the award amount was earned based on the individual achieving certain individual, business unit and/or departmental performance goals in 2007, as determined by the Compensation Committee.
	Weightings for Messrs. Emery, and Calder and Ms. Schaefer for the 2007 annual equity grant amounts were as follows:

						Individual/
						Business Unit/
		Relative Common				Departmental
		Stock Performance				Performance Goals
Name		(%)				(%)
Mr. Emery			75.0				25.0
Mr. Calder			75.0				25.0
Ms. Schaefer			50.0				50.0

•

With regard to each officer’s multi-year program equity grant amount, those factors included:

	•		A portion of the award amount may be earned based on our common stock performance in the three-year period 2007-2009 relative to the total return of a relevant stock index, as designated by the Compensation Committee, for the three-year period 2007-2009. Under this performance criterion, an individual may earn a portion of his or her total potential award amount if our stock performance for the three-year period 2007-2009 was 80% or greater than the performance of a relevant stock index designated by the Compensation Committee. The individual will earn less than the full portion amount of his or her award amount if our stock performance for the three-year period 2007-2009 is less than 120% of the designated index’s performance, and will earn no award under this performance criterion if our stock performance for the three-year period 2007-2009 is 80% or less of the designated index’s performance.
	•		A portion of the award amount may be earned based on our common stock absolute performance in the three-year period 2007-2009. Under this performance criterion, an individual may earn a portion of his or her total potential award amount if our stock performance for the three-year period 2007-2009 exceeds a threshold compounded annual return for the three-year period 2007-2009. The individual will earn less than the full portion amount of his or her award amount if our stock performance for the three-year period 2007-2009 is less than a maximum compounded annual return, and will earn no award under this performance criterion if our stock performance for the three-year period 2007-2009 is less than the threshold compounded annual return.

	•		A portion of the award amount is time-based (that is, award amounts may be earned based on continuous employment with us over the vesting period).
	Weightings for Messrs. Emery, Calder and Martinez and Ms. Schaefer for the 2007-2009 multi-year program equity grant amounts are as follows:

		Relative Common				Absolute Common
		Stock Performance				Stock Performance				Time-Based
Name		(%)				(%)				(%)
Mr. Emery			37.5				37.5				25.0
Mr. Calder			37.5				37.5				25.0
Mr. Martinez			50.0				50.0				—
Ms. Schaefer			37.5				37.5				25.0

          For the 2007 annual equity grant amounts, based on our common stock’s actual performance and the Compensation Committee’s assessment of each NEO’s achievement of individual/departmental performance goals:

	•		Our common stock decreased 29.7% in 2007 and the Russell 2000 stock index decreased 2.7%. Therefore, our common stock performance was not at least 80% of the Russell 2000’s performance. As a result, none of the potential payout for that financial factor was earned (that is, the NEOs earned no shares for 2007 under the relative common stock performance factor).
	•		The Compensation Committee determined the individual/business unit/department goal achievements for NEOs as follows: Mr. Emery — 85%; Mr. Calder — 95%; Mr. Martinez — 60%; and Ms. Schaefer — 95%.

          In February 2008, we issued the following number of shares of our common stock as long-term incentives earned for 2007 under the annual equity grants as described above: Mr. Emery — 9,761 shares; Mr. Calder — 3,273 shares; and Ms. Schaefer — 7,809 shares.

          Additionally, we awarded 10,000 shares of our common stock to Mr. Schroeder in April 2007. These shares vest based on continued employment with us in 2,000-share increments on April 1 of 2008, 2009, 2010, 2011 and 2012.

Vesting of Awards

          The shares earned under the awards under the 2007 annual equity grant and multi-year program equity grant vest as follows:

	•		For annual equity grant amounts, shares earned vest 1/3 on issuance; 1/3 on December 31, 2008; and 1/3 on December 31, 2009.
	•		For multi-year equity grant amounts, shares earned vest 1/2 on December 31, 2009 and 1/2 on December 31, 2010.

          Shares issued in February 2008 for Messrs. Emery and Calder and Ms. Schaefer, as described above, vest as follows:

Mr. Emery

Mr. Calder

Ms. Schaefer

Amounts

Amounts

Amounts

Vesting

Vesting

Vesting

Vesting

Date

(#)

(#)

(#)

2/25/08

3,254

1,091

2,603

12/31/08

3,254

1,091

2,603

12/31/09

3,253

1,091

2,603

          Vesting of the shares awarded under these programs is affected by certain termination events as follows:

	•		For shares granted under the 2007 annual equity grant program, vesting of the shares will accelerate upon a termination of the officer by the company without cause, a termination by the officer for good reason, death or disability, or a change in control of the company. Officers will forfeit all unvested annual equity grant awards upon termination by the company with cause or a voluntary termination by the officer without good reason.
	•		For shares granted under the 2007-2009 multi-year equity grant program, vesting of the shares will accelerate upon a termination of the officer by the company without cause, a termination by the officer for good reason, death or disability,

or a change in control of the company. From January 1, 2007 through December 31, 2008, individuals would be entitled to a pro-rated amount of awards with respect to the relative and absolute common stock performance portions of their grant based on the company’s performance up until the time of the triggering termination event. After December 31, 2008, the relative and absolute common stock performance would be assessed, projected out through December 31, 2009, and the corresponding number of awards would be deemed earned had the program lasted through December 31, 2009. Awards with respect to time-based shares would at all times be deemed fully vested upon a change in control of the company. Officers will forfeit all unvested multi-year equity grant program awards upon termination by the company with cause or a voluntary termination by the officer without good reason.

Grant Valuation Parameters

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

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

Stock Ownership Guidelines

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

Other Compensation

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

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

Nonqualified Deferred Compensation Plan

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

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

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

	•		Mandatory annual matching contributions to the plan for each participant equal to the lesser of (a) 4% of the participant’s base salary or (b) the participant’s annual deferrals to the plan. Matching contributions are reduced by the maximum amount of matching contributions the executive was eligible to receive in our 401(k) plan for the fiscal year.
	•		Discretionary annual profit-sharing contributions equal to up to 150% of the annual matching contribution.

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

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

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

Tax Deductibility of Compensation

          Section 162(m) of the Internal Revenue Code generally limits the deductibility on our tax return of compensation over $1 million to any of our officers unless the compensation is paid pursuant to a plan that is performance-related, non-discriminatory and

has been approved by our stockholders. The Compensation Committee’s policy with respect to Section 162(m) is to make every reasonable effort to ensure that compensation is deductible to the extent permitted. The Compensation Committee has the authority to award compensation in excess of the $1 million limit, regardless of whether that compensation will be deductible, if the Compensation Committee determines in good faith that the compensation is appropriate to incentivize and compensate the recipient.

Employment Agreements

          We have entered into an employment agreement with each of our NEOs. The agreements were entered into on December 20, 2004 and continued through December 20, 2007. Each of the employment agreements provides for a one-year extension at its ending date, unless either we or the NEO provides at least 120 days notice of non-renewal. As a result, each of the NEOs’ employment agreements is in a one-year extension period as of December 31, 2007. The form of employment agreement is substantially identical for all of our NEOs; that form of agreement was filed as Exhibit 10.5 to our Form S-1 filed with the SEC on August 12, 2004.

          The material terms in each agreement are as follows:

	•		Base salaries subject to annual review and periodic increases, if any, as determined by the Compensation Committee.
	•		Annual bonus eligibility based on criteria determined by the Compensation Committee.
	•		Eligibility to participate in our benefit plans at identical participation costs offered to all of our employees eligible to participate in those plans.
	•		Eligibility to have business expenses reimbursed, subject to reimbursement policies to which all of our employees are subject equally.
	•		Severance payment due under various termination scenarios.
	•		Covenants for the applicable NEO not to compete with us.

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

Change of Control and Severance Payments

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

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

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

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

EXECUTIVE COMPENSATION TABLES AND DISCUSSION

SUMMARY COMPENSATION TABLE

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

																		Non-Equity
														Option				Incentive Plan				All Other
										Stock Awards				Awards				Compensation				Compensation
						Salary				(1)(3)				(2)(3)				(4)				(5)				Total
Name and Principal Position		Year				($)				($)				($)				($)				($)				($)
John Emery			2007				475,000				678,019				545,598				562,875				37,102				2,298,594
Chief Executive Officer (Principal Executive Officer)			2006				416,000				274,534				562,556				301,600				18,675				1,573,365
James A. Calder			2007				285,000				224,509				155,885				253,294				27,072				945,760
Chief Financial Officer (Principal Financial Officer)			2006				260,000				128,697				160,728				188,500				11,608				749,533
Hernan R. Martinez			2007				375,000				521,475				233,829				264,375				69,737				1,464,416
President of Development Division			2006				375,000				463,246				241,095				150,000				31,304				1,260,245
Kimberly K. Schaefer			2007				340,000				255,990				155,885				302,175				28,215				1,082,265
Chief Operating Officer			2006				310,000				153,440				160,728				224,750				8,534				857,452
J. Michael Schroeder			2007				257,308				20,070				116,915				52,000				24,622				470,915
General Counsel and Corporate Secretary			2006				250,000				—				120,548				50,000				9,231				429,779

Stock Award																		Mr.
Component		Mr. Emery				Mr. Calder				Mr. Martinez				Ms. Schaefer				Schroeder
Annual Equity Grant — Relative Common Stock Performance:
Amount expensed ($)			249,804				74,939				—				59,603				—
Shares earned (#)			—				—				N/A				—				N/A
Annual Equity Grant — Performance Goals:
Amount expensed ($)			50,148				15,048				—				35,892				—
Shares earned (#)			3,254				1,091				N/A				2,603				N/A
Multi-Year Program Equity Grant — Relative/Absolute Common Stock Performance:
Amount expensed ($)			149,592				44,870				104,981				53,535				—
Shares earned (#)		To be determined at 12/31/09				To be determined at 12/31/09				To be determined at 12/31/09				To be determined at 12/31/09					N/A
Multi-Year Program Equity Grant — Time-Based:
Amount expensed ($)			87,756				26,328				—				31,416				—
Shares earned (#)			—				—				—				—				N/A
Other Time-Based:
Amount expensed ($)			—				—				350,400				—				20,070
Shares earned (#)			N/A				N/A				30,000				N/A				1,500
Incremental value for electing to receive stock in lieu of cash bonus (see Note (4) below):
Amount expensed ($)			140,719				63,324				66,094				75,544				—
Shares earned (#)			18,614				8,376				8,743				9,993				N/A
Totals:
Amount expensed ($)			678,019				224,509				521,475				255,990				20,070
Shares earned (#)			21,868				9,467				38,743				12,596				1,500

Under generally accepted accounting principles, the fair value amounts of our grants of stock awards are determined at their grant dates. That fair value amount as of the grant date is then expensed ratably over the vesting period of the stock awards. For stock awards subject to a market condition (for example, having our common stock’s total return meet certain levels relative to a market index or designated absolute performance levels), the amount we record as expense on our financial statements (and which is included as a portion of Stock Awards in the table above) is based on the value assigned to the stock award at its grant date; that value is then recorded as expense regardless of whether each of the stock awards has any intrinsic

	value to the executive (that is, whether or not the executive earns any portion of the award based on the actual performance of our common stock in relation to the relevant market condition).
	For example:
	•		The table above includes amounts for Annual Equity Grant — Relative Common Stock Performance. Those awards were eligible to be earned based on our common stock performance in calendar year 2007 relative to the Russell 2000 stock index total return in calendar year 2007. Those stock awards were market condition awards, as explained in the paragraph above. Based on our common stock’s performance in 2007, the executives did not earn any shares under this portion of the annual equity grant. In accordance with generally accepted accounting principles, however, we expensed amounts for these market condition stock awards. Amounts expensed for these awards (and reflected as a component of the Stock Awards amount in the tables above) for which no shares were or will be earned are as follows: Mr. Emery — $249,804; Mr. Calder — $74,939; and Ms. Schaefer — $59,603.
	•		The table above includes amounts for Multi-Year Program Equity Grant — Relative/Absolute Common Stock Performance. Those awards were eligible to be earned based on our common stock performance in the three-year period 2007-2009 relative to the Russell 2000 stock index total return and in absolute terms. Those stock awards are also market condition awards. In accordance with generally accepted accounting principles, however, we will expense (and include as a part of the Stock Awards values in the table above) amounts for these market condition stock awards during the three-year period 2007-2009, regardless of the amount of shares, if any, the executives earn on these awards. The shares, if any, the executives may earn will not be determined until the end of 2009

	(2)		Under generally accepted accounting principles, the fair value amounts of our grants of option awards are determined at their grant date. That full value amount as of the grant date is then expensed ratably over the vesting period of the options. The amount we record as expense on our financial statements (and which is listed as Option Awards in the table above) is based on the value assigned to the options at the grant date; that value is then recorded as expense regardless of whether the options ever have any intrinsic value to the executive (that is, whether or not the price of our common stock ever exceeds the option exercise price).
			For example, all of the option awards we have recorded as expense for our NEOs (and reflected under Option Awards in the table above) relate to stock options we granted to our NEOs in December 2004. Because those options were subject to a three-year vesting period, we recognized expense related to those options in 2004, 2005, 2006 and 2007. The exercise price for all of those options is $17.00 per share. For all of 2006 and 2007, however, our common stock traded at values below $17.00 per share. As a result, at no time in 2006 or 2007 did the stock options awarded to our NEOs in 2004 have any intrinsic value to those NEOs.
	(3)		The value reported for Stock Awards and Option Awards for each executive is the aggregate cost recognized in our financial statements for such awards. These values can include the cost in a year for awards granted in prior years. The costs for awards made during 2007 and 2006 were determined in accordance with Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123(R)), and the costs for awards made prior to 2006 were determined in accordance with the modified prospective transition method under SFAS 123(R). The assumptions for making the valuation determinations are set forth in the footnote or footnote sections to our financial statements captioned “Stock Based Compensation” or “Share-Based Compensation” in each of our Forms 10-K for the fiscal years 2004 through 2007. For additional information on these awards, see the Grants of Plan-Based Awards table, below.
	(4)		This column includes amounts earned under our annual cash incentives bonus plan for 2007, as discussed in the Compensation Discussion and Analysis above. For 2007 annual cash incentives bonus amounts to be paid in 2008, we offered our NEOs the opportunity to take some or all of their bonus in shares of our company’s common stock in lieu of cash. If an executive elected to receive shares, they received shares having a market value equal to 125% of the cash they would have otherwise received. Amounts shown in this column represent the cash bonus that each executive earned, regardless of whether the executive elected to take all or part of their cash bonus in the form of shares of our common stock; any incremental value as a result of an executive taking all or part of their bonus in the form of shares is included in the Stock Awards column (see Note (1) above). Cash and share amounts earned were paid in February and March 2008.
	(5)		All Other Compensation consists of our contributions to executives’ accounts in our qualified 401(k) plan and our non-tax qualified deferred compensation plan, and personal benefits and perquisites consisting of housing allowances for certain executives. Pursuant to SEC rules, perquisites and personal benefits are not reported for any executive officer for whom such

amounts were less than $10,000 in aggregate for the fiscal year. Our contributions to the deferred compensation plan are also reported in the Nonqualified Deferred Compensation table below.

The following table details the components of each executive’s All Other Compensation:

										Company
										Contributions to
						Company				Deferred
						Contributions to				Compensation				Housing
						401(k) Plan				Plan				Allowance				Total
Name		Year				($)				($)				($)				($)
Mr. Emery			2007				3,155				33,947				—				37,102
			2006				6,368				12,307				—				18,675
Mr. Calder			2007				3,365				23,707				—				27,072
			2006				1,608				10,000				—				11,608
Mr. Martinez			2007				3,565				36,172				30,000				69,737
			2006				3,173				10,823				17,308				31,304
Ms. Schaefer			2007				4,500				23,715				—				28,215
			2006				3,100				5,434				—				8,534
Mr. Schroeder			2007				4,357				20,265				—				24,622
			2006				5,000				4,231				—				9,231

Deferred Compensation

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

2007 GRANTS OF PLAN-BASED AWARDS

						Estimated Future Payouts Under Non-												Estimated Future Payouts Under Equity
						Equity Incentive Plan Awards (1)												Incentive Plan Awards (2)
																														Grant Date
																														Fair Value
																														of Stock and
																														Option
		Grant				Threshold				Target				Maximum				Threshold				Target				Maximum				Awards (3)
Name		Date		Type of Grant		($)				($)				($)				(#)				(#)				(#)				($)
				Annual Cash
Mr. Emery		N/A		Incentive			237,500				475,000				712,500				—				—				—
				Annual Equity
				Grant - Relative
				Common Stock
		3/5/2007		Performance			—				—				—				11,484				22,968				34,451				249,804
				Annual Equity
				Grant -
				Performance
		3/5/2007		Goals			—				—				—				3,828				7,656				11,484				150,440
				Multi-Year
				Program Equity
				Grant - Relative
				Common Stock
		3/5/2007		Performance			—				—				—				11,484				22,968				34,451				229,202
				Multi-Year
				Program Equity
				Grant -
				Absolute
				Common Stock
		3/5/2007		Performance			—				—				—				11,484				22,968				34,451				283,704
				Multi-Year
				Program Equity
				Grant - Time-
		3/5/2007		Based			—				—				—				22,967				22,967				22,967				300,868
				Annual Cash
Mr. Calder		N/A		Incentive			106,875				213,750				320,625				—				—				—				—
				Annual Equity
				Grant - Relative
				Common Stock
		3/5/2007		Performance			—				—				—				3,445				6,890				10.335				74,939
				Annual Equity
				Grant -
				Performance
		3/5/2007		Goals			—				—				—				1,148				2,297				3,445				45,129
				Multi-Year
				Program Equity
				Grant - Relative
				Common Stock
		3/5/2007		Performance			—				—				—				3,445				6,890				10.335				68,759
				Multi-Year
				Program Equity
				Grant -
				Absolute
				Common Stock
		3/5/2007		Performance			—				—				—				3,445				6,890				10.335				85,109
				Multi-Year
				Program Equity
				Grant - Time-
		3/5/2007		Based			—				—				—				6,890				6,890				6,890				90,259
				Annual Cash
Mr. Martinez		N/A		Incentive			140,625				281,250				421,875				—				—				—
				Multi-Year
				Program Equity
				Grant - Relative
				Common Stock
		3/5/2007		Performance			—				—				—				8,059				16,117				24,176				160,843

						Estimated Future Payouts Under Non-												Estimated Future Payouts Under Equity
						Equity Incentive Plan Awards (1)												Incentive Plan Awards (2)
																														Grant Date
																														Fair Value
																														of Stock and
																														Option
		Grant				Threshold				Target				Maximum				Threshold				Target				Maximum				Awards (3)
Name		Date		Type of Grant		($)				($)				($)				(#)				(#)				(#)				($)
				Multi-Year
				Program Equity
				Grant -
				Absolute
				Common Stock
		3/5/2007		Performance			—				—				—				8,059				16,117				24,176				199,089
				Annual Cash
Ms. Schaefer		N/A		Incentive			127,500				255,000				382,500				—				—				—
				Annual Equity
				Grant - Relative
				Common Stock
		3/5/2007		Performance			—				—				—				2,740				5,480				8,220				59,603
				Annual Equity
				Grant -
				Performance
		3/5/2007		Goals			—				—				—				2,740				5,480				8,220				107,682
				Multi-Year
				Program Equity
				Grant - Relative
				Common Stock
		3/5/2007		Performance			—				—				—				4,110				8,220				12,330				82,031
				Multi-Year
				Program Equity
				Grant -
				Absolute
				Common Stock
		3/5/2007		Performance			—				—				—				4,110				8,220				12,330				101,538
				Multi-Year
				Program Equity
				Grant - Time-
		3/5/2007		Based															8,220				8,220				8,220				107,682
				Annual Cash
Mr. Schroeder		N/A		Incentive			—				65,000				130,000				—				—				—
		4/1/2007		Time-Based			—				—				—				10,000				10,000				10,000				133,800