Director Compensation
In setting director compensation, we
consider the significant amount of time directors dedicate in fulfilling their duties as directors, as well as the skill-level required to be an effective member of our board. We also seek to align the directors compensation with our
stockholders interest by delivering a substantial portion of that compensation in the form of equity-based compensation. The governance/nominating committee reviews the form and amount of director compensation and, with the advice of the chair
of the compensation committee, makes recommendations to the full board. We use a combination of cash and equity-based incentive compensation to compensate our
non-employee
directors, as described below.
In early 2018, the governance/nominating committee engaged Meridian Compensation Partners, LLC (Meridian), the boards independent
compensation consultant, to conduct a competitive analysis of
non-employee
director compensation and evaluate our program in light of the results of its analysis. Meridian analyzed the
non-employee
director compensation programs of three comparator groups: the Companys full peer group used to evaluate executive officer compensation (see page 24 for a list of those companies), a subset of the
full peer group comprised of peers with revenues below $3 billion, and a general industry survey data for companies with revenues between $500 million and $1 billion. Meridians findings indicated that our per director average
compensation was below the 25
th
percentile of the full peer group and approximated the 25
th
percentile of the general industry survey, noting
that the largest discrepancy was the level of equity-based compensation. Following the governance/nominating committees review of the report and discussions with Meridian, the committee recommended and the board approved the following changes
to our program effective May 1, 2018: a $25,000 increase in the annual board retainer and the elimination of all meeting fees, and a $35,000 increase in the annual target equity award.
Cash Compensation
Effective May 1, 2018, each
non-employee
director receives an annual fee paid monthly consisting of, as
applicable:
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$75,000 for serving on our board (including the chairman of the board of directors), increased from $50,000;
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$25,000 for serving as chair of the audit committee (including if performed by the chairman of the board of directors);
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$15,000 for serving as chair of the compensation committee (unless performed by the chairman of the board of directors);
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$10,000 for serving as chair of the governance/nominating committee (unless performed by the chairman of the board of
directors); and
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$100,000 for serving as chairman of the board of directors.
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Also, each director receives reimbursement for reasonable out of pocket expenses incurred in attending board and committee meetings, as well as investor conferences and
education programs attended at the request of the Company. Effective May
1, 2018, we no longer pay meeting fees to our directors.
Equity-Based Compensation
Each
non-employee
director also receives equity-based compensation under our stockholder-approved stock
incentive plan consisting of annual grants of restricted stock. Each year on the day of the annual meeting of stockholders, each
non-employee
director is awarded shares of restricted stock with an aggregate
grant date value of $85,000. The restricted stock vests the day prior to the following years annual meeting of stockholders, with potential accelerated vesting in the event that the
non-employee
director
dies or becomes permanently disabled, or in the event there is a qualifying change of control of the Company. Unless otherwise determined by the Board, the restricted stock is forfeited if prior to vesting, the director ceases to be a director for
any other reason.
2018 Director Compensation
The table below summarizes the total compensation paid to or earned by our
non-employee
directors during 2018. The amount included in the Stock Awards column reflects the aggregate grant date fair value of the restricted stock, and does not necessarily reflect the income that will ultimately be realized by the director for
these stock awards. Mr. Cutillo did not receive any compensation for his service on our board of directors. The compensation paid to Mr.
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Sterling Construction
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2019 Proxy Statement
Long-Term Incentive Program
Under our new long-term incentive, or LTI, program, our NEOs receive a combination of RSUs, which are a time-based award designed to promote retention
and stock ownership, and PSUs, designed to reward increased earnings per share (EPS). In January 2018, the committee assigned each executive officer an LTI Target Amount, which was expressed as a percentage of his annual base salary at
the time.
The LTI awards vest over a three-year performance period and, except for limited circumstances, require continued employment in order to
earn the award. Both awards are settled in shares of our common stock. The terms of the LTI awards are summarized as follows:
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PSUs
vest in three substantially equal annual installments based on the Companys achievement of
annual threshold, target or maximum EPS goals established for each year in the performance period.
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RSUs
vest in three substantially equal annual installments during the performance period.
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In 2018, the number of RSUs and PSUs granted to each executive other than Mr. Wadsworth was computed by multiplying the
executives LTI Target Amount by 50% and then dividing the result by $15.15, which was the closing price per share of the Common Stock on January 16, 2018, the trading day prior to the grant date. With respect to Mr. Wadsworth, in
connection with his promotion to chief operating officer in 2017, his incentive compensation package has gradually been realigned to be consistent with the other executive officers. As part of this
phase-in,
his 2018 LTI Target Amount was split 70% RSUs and 30% PSUs. This
phase-in
ended in 2018, and his 2019 LTI awards were made consistent with the other executive officers.
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Name
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Annual
Base
Salary
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LTI Target
as a % of Base
Salary
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LTI Target
Value
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Target
Value
(RSUs)
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# of RSUs
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Target
Value
(PSUs)
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Target # of
PSUs
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Mr. Cutillo
(1)
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$
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600,000
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190%
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$1,140,000
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$
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570,000
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37,624
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$
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570,000
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37,624
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Mr. Ballschmiede
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465,000
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105%
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488,250
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244,125
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16,114
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244,125
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16,114
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Mr. Wadsworth
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450,000
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90%
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405,000
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284,436
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18,775
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120,564
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7,958
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Mr. Chandler
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328,125
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70%
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229,688
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114,844
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7,581
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114,844
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7,581
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Mr. Allen
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260,000
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35%
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91,000
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45,500
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3,004
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45,500
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3,004
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(1)
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Reflects Mr. Cutillos base salary as of January 1, 2018, which was used to calculate his LTI awards. As
noted under Base Salaries, Mr. Cutillos base salary was subsequently increased to $650,000.
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For the PSUs
granted in January 2018,
one-third
of the award vested based on the Companys adjusted EPS performance for fiscal year 2018, which was calculated as our GAAP EPS of $0.93, plus
non-cash
federal tax expense of $0.05 (Adjusted EPS). Based on an annual Adjusted EPS of $0.98, which fell between the target and maximum EPS goals, in 2019, our NEOs received a payout equal to 185% of
the first installment of the award.
Supplemental PSU Awards
. In connection with the execution of the Executive Employment Agreements
and in
recognition of the significant improvement in the Companys financial position over the last three years (see page 21), each of Messrs. Cutillo, Ballschmiede and Chandler received a
one-time
supplemental award of additional PSUs (the Supplemental PSUs) as follows: Mr. Cutillo - 500,000, Mr. Ballschmiede - 200,000 and Mr. Chandler - 80,000. The Supplemental PSUs
expire in four equal tranches beginning December 31, 2020 through 2023, and each tranche will vest if aggressive EPS targets are achieved on or before the expiration date for such tranche. These targets would require an annualized earnings
growth of over 20% per year over a two to five year period to receive any vesting of the award and total earnings growth in excess of 3 times our 2018 EPS to receive full vesting. See the Executive Compensation TablesGrants of Plan-Based
Awards table for more information regarding these awards.
Clawback Policy
The Companys clawback policy applies to all incentive compensation paid to an employee, including our executive officers (whether paid in cash or
in equity) that was based on financial statements that are subsequently restated. Following such a restatement, the compensation shall be adjusted, if necessary, so that the employee will have received no more and no less than the amount that he or
she would have received had the incentive award been calculated based on the restated financial results. The policy applies regardless of the employees culpability or fault with respect to the error, event, act or omission that caused the
restatement.
Sterling Construction
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2019 Proxy Statement
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Stock Ownership Guidelines
We encourage stock accumulation because we believe that it is important for our executive officers to align their interests with the long-term interests
of our stockholders. Accordingly, our board of directors adopted stock ownership guidelines applicable to our executive officers. Under the guidelines, each of our executive officers is encouraged to maintain ownership of shares of our common stock
valued at five times (for our CEO) or three times (for our other executive officers) his or her base salary. Shares of our common stock owned individually or jointly, shares held by members of the executives immediate family or by a trust for
the executive or his immediate family, as well as shares subject to unvested restricted stock and RSUs are counted for purposes of the stock ownership guidelines.
Our executive officers have five years from the date of their respective appointments (or from January 17, 2018, the date upon which the guidelines
were revised, whichever is later) to attain these ownership levels. Until the specified ownership levels are met, our executive officers are expected to retain 75% of the net shares issued upon the vesting of equity awards granted by the Company,
after deducting any shares used to pay applicable taxes. Mr. Ballschmiede currently exceeds his target ownership level, and each of our other executive officers is currently in compliance with the guidelines. Each of our executive officers
(other than Mr. Allen) has until January 17, 2023 to reach his target ownership level, and Mr. Allen has until May 2023.
Limited
Executive Perquisites and No Special Retirement Benefits
We seek to maintain a cost conscious culture in connection with the benefits provided
to our executive officers. As a result, we provide limited perquisites to our executive officers. Please see Executive Compensation Tables2018 Summary Compensation Table for a description of the perquisites provided in 2018.
Retirement benefits fulfill an important role within our overall executive compensation objectives by providing a financial security component, which in
turn promotes retention. However, our executive officers do not receive any retirement benefits that are not generally available to our other full-time employees. We maintain a 401(k) plan, a
tax-qualified
defined contribution retirement plan in which our executive officers are eligible to participate, which currently provides a 5% employer match. We do not maintain any excess benefit plans, defined benefit or pension plans, or any deferred
compensation plans.
Cash Severance and Change of Control Benefits
Beginning in December 2018, we provide Messrs. Cutillo, Ballschmiede and Chandler with contractual protections in the event of certain terminations of
employment outside of the change of control context, as well as in connection with a change of control. We believe that severance protections, particularly in connection with a change of control transaction, can play a valuable role in attracting
and retaining key executive officers by providing protections commonly provided in the market. In addition, we believe these benefits also serve the companys interest by promoting a continuity of management in the context of an actual or
threatened change of control transaction.
Specifically, these executives are entitled to severance benefits under their Executive Employment
Agreements in the event of a termination of employment by the company without cause or by the executive for good reason. The board determined that it is appropriate to provide these executives with severance benefits under these circumstances in
light of their respective critical positions with the company and as part of their overall compensation package. In addition, we believe that the occurrence, or potential occurrence, of a change of control transaction would create uncertainty
regarding the continued employment of our executive officers. This uncertainty results from the fact that many change of control transactions result in significant organizational changes, particularly at the senior executive level. In order to
encourage these executive officers to remain employed with the company during an important time when their prospects for continued employment following a transaction are often uncertain, the Executive Employment Agreements provide these executive
officers with enhanced severance benefits if their employment is terminated by the company without cause or by the executive for good reason in connection with a change of control. Because we believe that a termination by the executive for good
reason may be conceptually the same as a termination by the company without cause, and because we believe that in the context of a change of control, potential acquirers would otherwise have an incentive to constructively terminate the
executives employment to avoid paying severance, we believe it is appropriate to provide severance benefits in these circumstances. We do not provide excise tax
gross-up
protections under any change of
control arrangements with our executive officers.
In addition, the terms of our outstanding restricted stock, RSU and PSU awards provide for
accelerated vesting under certain circumstances related to a termination of employment and the occurrence of a qualifying change of control.
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Sterling Construction
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2019 Proxy Statement
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received a Notice of the Annual
Meeting of Stockholders of Sterling Construction Company, Inc. (the Company) to be held on Wednesday, May 8, 2019 at 8:30 a.m., local time, at the Companys headquarters located at 1800 Hughes Landing Blvd., Suite 250, The Woodlands, Texas
(the Annual Meeting) and revoking all prior proxies, hereby appoint(s) Milton L. Scott, Chairman of the Board of Directors, Ronald A. Ballschmiede, Chief Financial Officer, and Richard E. Chandler, Jr., General Counsel and Secretary, and each of
them (with full power of substitution) as proxies of the undersigned to attend the Annual Meeting and any adjourned sessions thereof to vote and act upon the matters listed on the reverse side of this proxy card in respect of all shares of common
stock of the Company which the undersigned would be entitled to vote or act upon, with all powers the undersigned would possess, if personally present.
Attendance of the undersigned at the Annual Meeting or at any adjourned session thereof will not be deemed to revoke this proxy unless the undersigned affirmatively indicates at the Annual
Meeting the intention of the undersigned to vote said shares in person. If the undersigned holds any shares in a fiduciary, custodial or joint capacity or capacities, this proxy is signed by the undersigned in every one of those capacities as well
as individually.
(Continued and to be signed on the reverse side)
1.1 14475
ANNUAL
MEETING OF STOCKHOLDERS OF STERLING CONSTRUCTION COMPANY, INC. May 8, 2019 NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The notice of meeting, proxy statement, proxy card and 2018 Annual Report are available at
http://www.astproxyportal.com/ast/04770/ Please sign, date and return your proxy card in the envelope provided as soon as possible. Please detach along perforated line and mail in the envelope provided. 00003333333333300000 2 050819 THE BOARD OF
DIRECTORS RECOMMENDS YOU VOTE FOR EACH OF THE DIRECTOR NOMINEES IN PROPOSAL 1; AND FOR EACH OF PROPOSALS 2, 3, AND 4. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN
HERE X The shares represented by this proxy will be voted as directed by the undersigned. If no direction is given with respect to the election of directors or proposals 2, 3, or 4, specified above, this proxy will be voted FOR the election of each
director; and FOR proposals 2 through 4. All proposals are made by the Board of Directors. None of the matters to be voted on are conditioned on, or related to, the approval of any other matter. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS, YOU NEED ONLY SIGN, DATE AND RETURN THIS PROXY. YOU DO NOT NEED TO MARK ANY BOXES. 1. Election of Directors: Nominees FOR AGAINST ABSTAIN Roger A. Cregg Joseph A. Cutillo Marian M. Davenport Raymond F.
Messer Dana C. OBrien Charles R. Patton Milton L. Scott Thomas M. White 2. To approve, on an advisory basis, the compensation of our named executive officers; 3. To ratify the appointment of Grant Thornton LLP as our independent registered
public accounting firm for 2019; 4. To adopt the 2019 Employee Stock Purchase Plan; and 5. To transact such other business as may properly come before the annual meeting. To change the address on your account, please check the box at right and
indicate your new address in the space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. Election of three Signature of Stockholder Date: Signature of Stockholder Date: Note: Please sign
exactly as your name(s) appear on this proxy card. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please
sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. Note: Please sign exactly as your name(s) appear on this proxy card. When shares are
held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full
title as such. If signer is a partnership, please sign in partnership name by authorized person.
0
STERLING CONSTRUCTION COMPANY, INC.
ANNUAL MEETING OF STOCKHOLDERS MAY 8, 2019
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received a Notice of the Annual
Meeting of Stockholders of Sterling Construction Company, Inc. (the Company) to be held on Wednesday, May 8, 2019 at 8:30 a.m., local time, at the Companys headquarters located at 1800 Hughes Landing Blvd., Suite 250, The Woodlands, Texas
(the Annual Meeting) and revoking all prior proxies, hereby appoint(s) Milton L. Scott, Chairman of the Board of Directors, Ronald A. Ballschmiede, Chief Financial Officer, and Richard E. Chandler, Jr., General Counsel and Secretary, and each of
them (with full power of substitution) as proxies of the undersigned to attend the Annual Meeting and any adjourned sessions thereof to vote and act upon the matters listed on the reverse side of this proxy card in respect of all shares of common
stock of the Company which the undersigned would be entitled to vote or act upon, with all powers the undersigned would possess, if personally present.
Attendance of the undersigned at the Annual Meeting or at any adjourned session thereof will not be deemed to revoke this proxy unless the undersigned affirmatively indicates at the Annual
Meeting the intention of the undersigned to vote said shares in person. If the undersigned holds any shares in a fiduciary, custodial or joint capacity or capacities, this proxy is signed by the undersigned in every one of those capacities as well
as individually.
(Continued and to be signed on the reverse side)
1.1 14475
ANNUAL
MEETING OF STOCKHOLDERS OF STERLING CONSTRUCTION COMPANY, INC. May 8, 2019 PROXY VOTING INSTRUCTIONS INTERNET - Access www.voteproxy.com and follow the on-screen instructions or scan the QR code to the right with your smartphone.
Have your proxy card available when you access the web page. Submit voting instructions and proxy online until 11:59 PM Central Time the day before the meeting. MAIL - Sign, date and return your proxy card in the envelope provided as soon as
possible. IN PERSON - You may vote your shares in person by attending the Annual Meeting. Please bring proper identification. If you plan to attend the annual meeting in person, you can obtain directions to our headquarters located at 1800 Hughes
Landing Boulevard, Suite 250, The Woodlands, Texas by contacting our corporate secretary at (281) 214-0800. COMPANY NUMBER ACCOUNT NUMBER NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The notice of meeting, proxy statement, proxy card and
2018 Annual Report are available at http://www.astproxyportal.com/ast/04770/ Please detach along perforated line and mail in the envelope provided IF you are not submitting voting instructions and proxy via the Internet. 00003333333333300000 2
050819 THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR EACH OF THE DIRECTOR NOMINEES IN PROPOSAL 1; AND FOR EACH OF PROPOSALS 2, 3, AND 4. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE x The shares represented by this proxy will be voted as directed by the undersigned. If no direction is given with respect to the election of directors or proposals 2, 3, or 4, specified above, this proxy will be voted FOR
the election of each director; and FOR proposals 2 through 4. All proposals are made by the Board of Directors. None of the matters to be voted on are conditioned on, or related to, the approval of any other matter. IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS, YOU NEED ONLY SIGN, DATE AND RETURN THIS PROXY. YOU DO NOT NEED TO MARK ANY BOXES. 1. Election of Directors: Nominees FOR AGAINST ABSTAIN Roger A. Cregg Joseph A. Cutillo Marian M. Davenport
Raymond F. Messer Dana C. OBrien Charles R. Patton Milton L. Scott Thomas M. White 2. To approve, on an advisory basis, the compensation of our named executive officers; 3. To ratify the appointment of Grant Thornton LLP as our independent
registered public accounting firm for 2019; 4. To adopt the 2019 Employee Stock Purchase Plan; and 5. To transact such other business as may properly come before the annual meeting. To change the address on your account, please check the box at
right and indicate your new address in the space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. Signature of Stockholder Date: Signature of Stockholder Date: Note: Please sign exactly
as your name(s) appear on this proxy card. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign
full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.