UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

Local.com Corporation

(Name of Registrant as Specified in Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

Rule 0- 11 (set forth the amount on which the filing fee is calculated and state how it was

determined):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

to be held

July 20, 2011

and

 

PROXY STATEMENT

 

IMPORTANT
Please mark, sign and date your proxy
and promptly return it in the enclosed envelope

7555 Irvine Center Drive

Irvine, CA 92618

 

May 31, 2011

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Local.com Corporation on July 20, 2011, at 10 a.m., local time, at the offices of RR Donnelly, Inc., 19200 Von Karman Avenue, Suite 700, Irvine, CA 92612. We look forward to greeting those stockholders who are able to attend.

 

At the meeting, you are being asked to elect Philip K. Fricke and Norman K. Farra Jr., as our two Class I members to our Board of Directors and Lowell W. Robinson as a Class III member to our Board of Directors; to ratify the selection of Haskell & White, LLP as our independent registered public accounting firm for the fiscal year ending 2011; to approve our 2011 Omnibus Incentive Plan; to provide an advisory vote on executive compensation disclosed in this proxy statement; and to provide an advisory vote to determine the desired frequency of the stockholder executive compensation advisory vote.

 

It is very important that your shares are represented and voted at the meeting, whether or not you plan to attend. Accordingly, please sign, date, and return your proxy in the enclosed envelope at your earliest convenience.

 

As always, your interest and participation in the affairs of Local.com are greatly appreciated. Thank you for your continued support.

 

Sincerely,

 

The Board of Directors

Local.com Corporation

 

7555 Irvine Center Drive

Irvine, CA 92618

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held July 20, 2011

 

 

May 31, 2011

 

To our Stockholders:

 

The 2011 Annual Meeting of Stockholders of Local.com Corporation (the “Company”) will be held at the office of RR Donnelley, Inc., 19200 Von Karman Avenue, Suite 700, Irvine, CA 92612 on July 20, 2011, beginning at 10:00 a.m. PDT for the following purposes, each as more fully described in the proxy statement accompanying this Notice:

 

(1) To elect two directors as Class I members of the Company’s Board of Directors for a three-year term expiring in 2014 and one director as a Class III member of the Company’s Board of Directors for a two-year term expiring in 2013;

 

(2) To ratify the appointment of Haskell & White LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011;

 

(3) To approve the Company’s 2011 Omnibus Incentive Plan;

 

(4) To provide an advisory vote on executive compensation disclosed in this proxy statement;

 

(5) To provide an advisory vote to determine the desired frequency of the stockholder executive compensation advisory vote: and

 

(6) To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

The Board of Directors has fixed the close of business on May 24, 2011, as the record date for determining the stockholders entitled to notice of and to vote at the annual meeting and any adjournment or postponement thereof.

 

All of our stockholders are cordially invited to attend the annual meeting in person. It is important that your shares be represented; therefore, even if you presently plan to attend the Annual Meeting, PLEASE COMPLETE, SIGN AND DATE, AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED. If you do attend the Annual Meeting and wish to vote in person, you may withdraw your proxy at that time in accordance with the procedures set forth in the Proxy Statement.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on July 20, 2011. The Notice of Annual Meeting of Stockholders, Proxy Statement and 2010 Annual Report on Form 10-K/A are also available at http://ir.local.com/proxy

 

Your vote is very important regardless of the number of shares you own, please read the attached proxy statement carefully, and complete, sign, date and return the enclosed proxy card or voting instruction form as promptly as possible.

 

By Order of the Board of Directors,

 

 

Heath B. Clarke

Chief Executive Officer and Chairman

 

7555 Irvine Center Drive

Irvine, CA 92618

 

 

PROXY STATEMENT

 

 

This proxy statement is furnished to the stockholders of Local.com Corporation (the “Company,” “Local.com,” “we,” “us” or “our”), a Delaware corporation, in connection with the solicitation by the Board of Directors of Local.com of proxies for use at the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on July 20, 2011, beginning at 10:00 a.m., PDT, at the offices of RR Donnelley, Inc., 19200 Von Karman Avenue, Suite 700, Irvine, CA 92612, and at any postponements or adjournments thereof. This Proxy Statement and the accompanying Proxy are first being mailed to our stockholders on or about June 3, 2011. When your proxy is properly executed and returned, the shares it represents will be voted in accordance with any directions noted thereon.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 20, 2011: The Notice of Annual Meeting of Stockholders, Proxy Statement and 2010 Annual Report on Form 10-K/A are also available at http://ir.local.com/proxy

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE 2011 ANNUAL MEETING AND VOTING

 

What is the purpose of the Annual Meeting?

 

At our Annual Meeting, stockholders will act upon the matters outlined in the Notice of Annual Meeting on the cover page of this proxy statement, including:

 

 

Who is entitled to vote at the Annual Meeting?

 

Only stockholders of record at the close of business on May 24, 2011, the record date for the Annual Meeting, are entitled to receive notice of and to participate in the Annual Meeting. If you were a stockholder of record on the close of business on May 24, 2011, you will be entitled to vote all of the shares that you held at that time at the Annual Meeting, or any postponements or adjournments of the Annual Meeting. A list of such stockholders will be available for examination by any stockholder at the Annual Meeting and, for any

purpose germane to the Annual Meeting, at our principal business office, 7555 Irvine Center Drive, Irvine, CA 92618, for a period of ten days prior to the Annual Meeting.

 

How many shares of our Common Stock are outstanding and what are the voting rights of the holders of those shares?

 

On May 24, 2011, the record date for the Annual Meeting, 21,265,393 shares of our common stock, $0.00001 par value (our “Common Stock”) were outstanding. Each of the holders of the outstanding shares of our Common Stock on the record date will be entitled to one vote on each matter for each share of Common Stock held.

 

Who can attend the Annual Meeting?

 

All stockholders as of the record date, or their duly appointed proxies, may attend the Annual Meeting, and guests may accompany each attendee. Registration will begin at 9:45 a.m., and seating will begin immediately thereafter. If you attend, please note that you may be asked to present valid picture identification, such as a driver’s license or passport. Please also note that if you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the Annual Meeting.

 

What constitutes a quorum?

 

The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the Common Stock issued and outstanding on the record date, will constitute a quorum, permitting the Annual Meeting to conduct its business. Proxies marked “withheld” as to any director nominee or “abstain” as to a particular proposal are counted by us for purposes of determining the presence or absence of a quorum at the Annual Meeting for the transaction of business. Broker non-votes (i.e., shares that are not voted by the broker who is the record holder of the shares because the broker is not instructed to vote by the actual owner of the shares and does not have discretionary authority to vote such shares) will also be included in the calculation of the number of votes considered to be present at the meeting for purposes of a quorum. Brokers or other nominees who hold shares of our Common Stock in street name for a beneficial owner of those shares generally have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners.

 

What if a quorum is not present at the Annual Meeting?

 

If a quorum is not present at the scheduled time of the Annual Meeting, we may adjourn the Annual Meeting, either with or without the vote of the stockholders. If we propose to have the stockholders vote whether to adjourn the Annual Meeting, the proxy holders will exercise their discretion to vote all shares for which they have authority in favor of the adjournment.

 

How do I vote?

 

If you complete and properly sign the accompanying proxy card and return it to us, it will be voted as you direct. If you are a registered stockholder and attend the Annual Meeting, you may vote in person. We encourage you, however, to submit the enclosed proxy card in advance of the Annual Meeting. In addition, ballots will be available for registered stockholders to vote in person at the Annual Meeting. Stockholders who hold their shares in “street name” may vote in person at the Annual Meeting only by obtaining a proxy form from the broker or other nominee that holds their shares.

 

Can I vote by telephone or electronically?

 

If you are a registered stockholder (that is, if you hold your stock in certificate form) you may not vote by telephone or electronically since we do not have that capability. Registered stockholders must follow the instructions included with that proxy card. If your shares are held in “street name,” please check the proxy card you received from your broker or nominee or contact your broker or nominee to determine whether you

will be able to vote by telephone or electronically and what deadlines may apply to your ability to vote your shares by telephone or electronically.

 

Can I change my vote after I return my proxy card?

 

Yes. As a registered stockholder, you may change your vote (also known as revoking your proxy) at any time before the proxy is voted at the Annual Meeting by filing with our Secretary either a notice of revocation or a duly executed proxy bearing a later date. Written notice of revocation and other communications with respect to the revocation of proxies should be addressed to Local.com Corporation, 7555 Irvine Center Drive, Irvine, CA 92618, Attn: Corporate Secretary. In addition, the powers of the proxy holders will be suspended if you attend the Annual Meeting in person and request that your proxy be suspended, although attendance at the Annual Meeting will not by itself revoke a previously granted proxy. If your shares are held in “street name,” please check the proxy card you received from your broker or nominee or contact your broker or nominee to determine how to change your vote.

 

Who will bear the cost of soliciting votes for the Annual Meeting?

 

The solicitation of proxies will be conducted by mail, and Local.com will bear the costs. These costs will include the expense of preparing and mailing proxy solicitation materials for the Annual Meeting and reimbursements paid to brokerage firms and others for their expenses incurred in forwarding solicitation materials regarding the Annual Meeting to beneficial holders of Common Stock. Local.com may conduct further solicitation personally, telephonically, through the Internet or by facsimile through its officers, directors and employees, none of whom will receive additional compensation for assisting with the solicitation. Local.com may generate other expenses in connection with the solicitation of proxies for the Annual Meeting. To date the total expenses incurred by Local.com in connection with the solicitation of proxies is approximately $22,000 and an additional $25,000 in expenses is anticipated.

 

What are the Board’s recommendations?

 

Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board. The Board’s recommendation is set forth together with the description of each proposal in this proxy statement. In summary, the Board recommends a vote:

 

 

With respect to other business that may properly come before the meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion.

 

What does it mean if I receive more than one proxy card?

 

If your shares are registered differently and are in more than one account, you will receive more than one proxy card. To ensure that all your shares are voted, sign and return all proxy cards.

 

What vote is required to approve each of the proposals?

 

For Proposal 1: We have adopted, pursuant to our bylaws, a plurality voting standard with respect to the election of directors. As such, the two nominees for Class I directors with the highest number of affirmative

votes of the outstanding shares present or represented by proxy and entitled to vote at the Annual Meeting (in other words, a plurality), shall be elected as our Class I directors to serve until our annual meeting of stockholders in 2014 and/or until his successor is duly elected and qualified. Similarly, the nominee for Class III director with the highest number of affirmative votes of the outstanding shares present or represented by proxy and entitled to vote at the Annual Meeting (in other words, a plurality), shall be elected as our Class III director to serve until our annual meeting of stockholders in 2013 and/or until his successor is duly elected and qualified. As brokers will not have discretionary voting power on the election of our Class I or Class III directors at the Annual Meeting, there will be “broker non-votes” for such matter. If you do not instruct your broker how to vote with respect to the election of our Class I and Class III directors, your broker may not vote with respect to this proposal and those votes will be counted as “broker non-votes.” “Broker non-votes” will not count as votes “For” or to “Withhold Authority.”

 

For Proposal 2: The proposal to ratify the appointment of Haskell & White LLP as our independent registered public accounting firm requires the affirmative “FOR” vote of a majority of those shares present in person or represented by proxy and entitled to vote on such proposal. A properly executed proxy marked “ABSTAIN” will not be voted, although it will be counted as present and entitled to vote for purposes of a proposal. Accordingly, an abstention will have the effect of a vote “Against” that proposal. Additionally, brokers may have discretionary authority to vote on the ratification of our independent auditors and, as such, there would not be expected to be broker non-votes in connection with that proposal.

 

For Proposal 3: The proposal to approve the Company’s 2011 Omnibus Incentive Plan requires the affirmative “FOR” vote of a majority of those shares present in person or represented by proxy and entitled to vote on such proposal. A properly executed proxy marked “ABSTAIN” will not be voted, although it will be counted as present and entitled to vote for purposes of a proposal. Accordingly, an abstention will have the effect of a vote “Against” that proposal. Additionally, brokers may have discretionary authority to vote on the approval of the Company’s 2011 Omnibus Incentive Plan and, as such, there would not be expected to be broker non-votes in connection with that proposal.

 

For Proposal 4: The advisory vote to approve our executive compensation, as described in this proxy statement, requires the affirmative “FOR” vote of a majority of those shares present in person or represented by proxy and entitled to vote on such proposal. A properly executed proxy marked “ABSTAIN” will not be voted, although it will be counted as present and entitled to vote for purposes of a proposal. Accordingly, an abstention will have the effect of a vote “Against” that proposal. Broker non-votes will have no effect on this proposal as brokers are not entitled to vote on such proposals in absence of voting instructions from the beneficial owner.

 

For Proposal 5: The advisory vote on the desired frequency of the stockholder advisory vote on executive compensation requires the affirmative vote of a majority of those shares present in person or represented by proxy and entitled to vote on such proposal. A properly executed proxy marked “ABSTAIN” will not be voted, although it will be counted as present and entitled to vote for purposes of a proposal. Accordingly, an abstention will have the effect of a vote “Against” that proposal. Broker non-votes will have no effect on this proposal as brokers are not entitled to vote on such proposals in absence of voting instructions from the beneficial owner. With respect to this item, if none of the frequency alternatives (one year, two years or three years) receive a majority vote, we will consider the frequency that received the highest number of votes by stockholders to be the frequency that has been selected by stockholders. However, because this vote is advisory and not binding on us or our board of directors in any way, our board may decide that it is in our and our stockholders’ best interests to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.

 

What effect do abstentions and broker non-votes have on the proposals?

 

In all matters other than the election of directors, abstentions have the same effect as votes “AGAINST” a matter. A “broker non-vote” occurs on an item when a broker identified as the record holder of shares is not permitted to vote on that item without instruction from the beneficial owner of the shares and no instruction has been received. A broker is entitled to vote shares held for a beneficial holder on routine matters, such as

the ratification of the appointment of Haskell & White LLP as our independent registered public accounting firm, without instructions from the beneficial holder of those shares. As such, your shares will count for purposes of determining whether a quorum exists for the Annual Meeting if your broker votes on the routine matter, with or without your proxy. However, brokers are no longer permitted to vote on the election of directors without instruction from the beneficial owner of the shares.

 

Who will count the votes?

 

Members of the Company’s management will tabulate the votes and act as Inspector of Elections.

 

Where can I find the voting results of the Annual Meeting?

 

Local.com will announce preliminary voting results at the annual meeting and publish final results in a current report on Form 8-K.

 

How do I obtain a separate set of proxy materials if I share an address with other stockholders?

 

As permitted by applicable law, for stockholders who have requested a printed copy of the proxy materials, only one copy of the proxy materials, which include the proxy statement and the 2010 Annual Report, is being delivered to stockholders with the same last name residing at the same address, unless such stockholders have notified Local.com of their desire to receive multiple copies of the proxy materials. Local.com will promptly deliver within 30 days, upon oral or written request, a separate copy of the proxy materials to any stockholder residing at an address to which only one copy was mailed. If you are a stockholder at a shared address to which we delivered a single copy of the proxy materials and you desire to receive a separate copy of this proxy statement and/or the 2010 Annual Report, or if you desire to receive a separate copy of this proxy statement and/or annual report in the future, or if you are a stockholder at a shared address to which we delivered multiple copies of the proxy materials and you desire to receive one copy in the future, please submit your request by mail to Investor Relations, Local.com Corporation, 7555 Irvine Center Drive, Irvine, CA 92618, or by telephone at (949) 784-0800.

 

If a broker, bank or other nominee holds your Local.com shares, please contact your broker, bank or other nominee directly if you have questions, require additional copies of this proxy statement and/or the 2010 Annual Report, or wish to receive multiple copies of proxy materials in the future if you reside at the same address as another stockholder and only one copy was delivered to you.

 

Are proxy materials for the 2011 annual meeting available electronically?

 

Yes. This proxy statement and the 2010 Annual Report are available electronically at http://ir.local.com/proxy.

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

Our Amended and Restated Certificate of Incorporation, as amended, provides for a Board comprised of not less than three nor more than seven directors and authorizes the Board to set the number of directors within that range by a majority vote from time to time. Our Amended and Restated Certificate of Incorporation, as amended, also divides our Board into three classes with staggered terms. Our number of directors is currently set at six with two directors each in Classes I, II and III. The number of directors was increased to six in April 2011 and Lowell W. Robinson was named as a Class III director pursuant to the authority of the Board pursuant to our Amended and Restated Certificate of Incorporation, as amended, until the 2011 Annual Meeting. As such, at the 2011 Annual Meeting, only the Class I directors and the newly created Class III director position will be elected at the 2011 Annual Meeting and the Board has nominated Philip K. Fricke and Norman K. Farra Jr. for election as Class I directors and Lowell W. Robinson for election as the Class III director. Unless you specifically withhold authority in the attached proxy for the election of these directors, the person named in the attached proxy will vote FOR the election of Philip K. Fricke, Norman K. Farra Jr. and Lowell W. Robinson. Messrs. Fricke and Farra will be elected to serve a three year

term expiring at the annual meeting in 2014 and until his successor has been duly elected and qualified, or until his earlier resignation or removal. Mr. Robinson will be elected to serve a two year term expiring at the annual meeting in 2013 and until his successor has been duly elected and qualified, or until his earlier resignation or removal.

 

Our nominees have consented to serve if elected. If a nominee becomes unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the proxy holders will vote for the substitute nominee designated by the Board. As of the date of this proxy statement, the Board has no reason to believe that the nominees will be unable or unwilling to serve.

 

Our bylaws provide for the election of nominees to the Board based on a plurality of the votes received at a meeting called for the purpose of electing directors. As such, the nominee with the highest number of affirmative votes of the outstanding shares present or represented by proxy and entitled to vote at the Annual Meeting, shall be elected as our Class I directors and Class III director.

 

The Board recommends a vote “FOR” the election of the nominees for director. If you fail to vote your shares or instruct your broker on how to vote your shares, your broker will not be able to vote on your behalf with respect to the election of the nominees for director.

The following provides information regarding our nominees as the Class I and Class III members to the Board, their age, the year in which they first became a director of the Company, their principal occupations or employment during the past five years and any family relationship with any other director or our executive officers:

 

Class I Nominees

 

Class III Nominee

 

The following provides information regarding the other members of the Board continuing in office, their age, the year in which they first became a director of the Company, their principal occupations or employment during the past five years and any family relationship with any other director or our executive officers:

 

Directors Continuing in Office Until 2012 (Class II):

 

 

Directors Continuing in Office Until 2013 (Class III):

 

 

 

Committee memberships noted above are as of May 24, 2011. Previously, Messrs. Lavoie, Farra and Fricke served on the Audit Committee and Messrs. Rehfeld, Lavoie and Fricke served on the NCCG Committee.

 

Director Compensation

 

The following table provides information regarding the compensation earned during the fiscal year ended December 31, 2010, by members of our Board, unless the director is also a named executive officer:

 

2010 Director Compensation

 

 

 

 

 

 

Non-employee members of the Board receive an annual retainer of $30,000 plus $1,500 for each in-person or telephonic meeting attended and $750 for each in-person meeting attended telephonically. The Lead Director receives an annual fee of $12,500. The Chairman of the Audit Committee receives an annual fee of $15,000. The Chairman of the Nominating, Compensation and Corporate Governance Committee receives an annual fee of $10,000. Members of committees of the Board receive $1,200 for each committee meeting attended. In addition, all members of the Board receive an annual grant of an option to purchase 15,000 shares of our Common Stock. New members to the Board receive a grant of an option to purchase 20,000 shares of our Common Stock and a pro-rata amount of the regular annual grant amount of an option to purchase 15,000 shares of our Common Stock. One-half of each of the options granted to the member of the Board are vested at the time of the grant, and the remaining portions vest in equal monthly installments over the following twelve months. In December 2010, the Nominating, Compensation and Corporate Governance Committee of the Board considered the findings and several suggestions of its compensation consultant, Frederic W. Cook & Co., Inc. and, as a result, the Nominating, Compensation, and Corporate Governance Committee recommended and the full Board approved an option grant to each of the Board’s independent members to purchase a total of 8,750 shares of our Common Stock as a pro-rata option grant, allowing all future grants to coincide with our annual meeting of stockholders at which directors are elected, beginning in 2013. One-half of the options granted vested on the date of grant and the remainder vests each month over the next seven months. Finally, it was determined that all future stock option grants, including the 8,750 shares

granted, would have a post-separation exercise period of two years, compared to the previous practice of three months.

 

Board Meeting Attendance

 

Our Board met sixteen times and acted once by unanimous written consent during 2010. During the year, overall attendance by incumbent directors was 100% at Board meetings and 100% at committee meetings. At last year’s annual meeting of stockholders, one member of our Board was in attendance.

 

Director Independence

 

 

 

 

Board Leadership Structure

 

The Board, in conjunction with the Nominating, Compensation and Corporate Governance Committee, has determined that it is in the best interests of the Company that our Chief Executive Officer, Heath Clarke, serve as Chairman in light of the size of the Company, the size of the overall Board, and his familiarity with the Company’s business, strategy and the industry in general. The Board believes that the dual role of Chairman and Chief Executive Officer allows Mr. Clarke, who is deeply involved in the Company’s day-to-day operations, to best present to the independent directors his ideas for the Company, the challenges facing the Company, the opportunities available to the Company, and the operations of the Company. The independent directors can then utilize their collective experience, oversight and expertise in determining the strategies and priorities the Company should focus its efforts on. Together, the Chairman and CEO and the independent directors make determinations about the strategic direction of the Company, and management is accountable for executing the strategy. The Board believes that this manner of governance appropriately balances the need for an informed and involved Chairman with independent Board oversight. In furtherance of these objectives, the independent directors meet at least four times annually in executive session without management or non-independent directors present. The Board has appointed John Rehfeld as lead director to preside at such meetings and to lead the Board in the event a conflict of interest should arise. In the event of an actual or potential conflict of interest involving any director, including the Chairman or lead director, both the Chairman and lead director are both promptly informed.

 

The Board’s Role in Risk Oversight

 

The entire Board is engaged in risk oversight, including reviewing management’s operational and financial planning and associated risks. The Board’s role in the Company’s risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company, including operational, financial, legal, regulatory and strategic. The full Board receives these reports from the appropriate officer within the organization to enable it, pursuant to its Corporate Governance Guidelines, to

assess the major risks facing the Company and to review the options to mitigate such risks. Furthermore, the Audit Committee regularly considers policies with respect to risk assessment and risk management as they relate to the Company’s financial statements and financial reporting process. During meetings of the full Board, the Chairman or other members of the Audit Committee report to the full Board on applicable issues related to risk.

 

Board Committees

 

Our Board has two active committees, an Audit Committee and a Nominating, Compensation and Corporate Governance Committee.

 

Audit Committee

 

The Audit Committee is currently comprised of Mr. Lavoie as Chairman and Messrs. Fricke and Robinson, each of whom satisfies the Nasdaq and Securities and Exchange Commission (the “SEC”) rules for Audit Committee membership (including rules regarding independence). The Audit Committee held ten meetings during 2010. The Board has determined that Mr. Lavoie is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC and satisfies the financial sophistication requirements of the Nasdaq listing standards.

 

The Audit Committee operates pursuant to its written charter, which is available on our corporate web site at http://ir.local.com, under the “Corporate Governance” tab, as well as our by-laws and applicable law. In accordance with its charter, the Audit Committee’s purpose is to assist the Board in fulfilling its oversight responsibilities to our stockholders with respect to the integrity of our financial statements and reports and financial reporting process. Specific responsibilities include:

 

 

The Audit Committee meets periodically with management to consider the adequacy of Local.com’s internal controls and the financial reporting process. It also discusses these matters with our independent registered public accounting firm and with appropriate company financial personnel. The Audit Committee reviews Local.com’s financial statements and discusses them with management and our independent registered public accounting firm before those financial statements are filed with the SEC.

 

The Audit Committee regularly meets privately with the independent registered public accounting firm. The Audit Committee has the sole authority and direct responsibility for the appointment, compensation, retention, termination, evaluation and oversight of the work of the independent registered public accounting

firm engaged by Local.com to perform the audit of the Company’s financial statement or related work or other audit, review or attestation services for the Company. The Audit Committee periodically reviews the independent registered public accounting firm’s performance and independence from management. The independent registered public accounting firm has access to Company records and personnel and reports directly to the Audit Committee.

 

The Audit Committee is empowered to retain outside legal counsel and other experts at our expense where reasonably required to assist and advise the Audit Committee in carrying out its duties and responsibilities.

 

Nominating, Compensation and Corporate Governance Committee

 

The Nominating, Compensation and Corporate Governance Committee (the “NCCG Committee”) is currently comprised of Mr. Rehfeld as Chairman and Messrs. Farra and Fricke, each of whom satisfies the Nasdaq and SEC rules for membership to the NCCG Committee (including rules regarding independence). The NCCG Committee held nine meetings during 2010.

 

The NCCG Committee operates pursuant to its written charter, which is available on our corporate web site at http://ir.local.com, under the “Corporate Governance” tab, as well as our by-laws and applicable law. In accordance with its charter, the NCCG Committee’s purpose is to assist the Board in discharging the Board’s responsibilities regarding:

 

 

 

In addition to the powers and responsibilities expressly delegated to the NCCG Committee in its charter, the NCCG Committee may exercise other powers and carry out other responsibilities that may be delegated to it by the Board from time to time, consistent with the Company’s bylaws.

 

Consideration and Determination of Executive and Director Compensation.

 

The NCCG Committee undertakes a review of executive and director compensation on at least an annual basis. The NCCG Committee applies its established compensation principles to such considerations when determining when and if changes are warranted with respect to the compensation of our executives and directors. The NCCG Committee, as part of its considerations, reviews the compensation and compensation philosophies of companies within the Company’s peer group, as established by the NCCG Committee. The NCCG Committee utilizes a combination of salary, annual cash incentives, long-term, equity based incentives and other benefits to structure executive compensation packages in conformity with its compensation principles, generally with the intent of rewarding performance in a manner that is aligned with stockholder interests. While the NCCG Committee retains authority over all such compensation matters, it may delegate certain matters, such as the administration of certain of its benefits plans, to the Company’s vice president of human resources.

 

In undertaking all of these processes, the NCCG Committee utilizes a compensation consultant. In the third quarter of 2009, the NCCG Committee engaged Frederic W. Cook & Co. as its outside compensation consultant. This consultant has assisted the NCCG Committee in (1) developing the Company’s peer group and analyzing information relative to such peer group companies, (2) conducting benchmarking of executive officer cash compensation relative to the peer group, (3) advising on best practices, trends, and developments with respect to executive compensation, and (4) advising on executive employment agreement structure.

 

Our chief executive officer does provide recommendations to the NCCG Committee as to the compensation of his direct reports, including all of our other Named Executive Officers. These recommendations are not binding on the NCCG Committee, which reserves for itself the final determination of compensation packages for all Named Executive Officers, including the chief executive officer. Our chief executive officer also has an opportunity to discuss with the NCCG Committee his compensation on at least an annual basis.

 

Director Nomination Process

 

In selecting director nominees, the Board, through the NCCG Committee, may consider suggestions from many sources, including our stockholders. Any such director nominations, together with appropriate biographical information and qualifications, should be submitted by the stockholder(s) to Kenneth S. Cragun, Secretary, c/o Local.com Corporation, 7555 Irvine Center Drive, Irvine, CA 92618. Director nominees submitted by stockholders are subject to the same review process as director nominees submitted from other sources such as other Board members or senior management.

The Board, through its NCCG Committee, will consider a number of factors when reviewing potential director nominees. The factors which are considered by the Board and its NCCG Committee include, but are not limited to the following: the candidate’s ability and willingness to commit adequate time to Board and committee matters, the fit of the candidate’s skills and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to our needs, the candidate’s personal and professional integrity, ethics and values, the candidate’s experience in corporate management, such as serving as an officer or former officer of a publicly held company, the candidate’s experience in our industry, the candidate’s experience as a board member of another publicly held company, whether the candidate would be “independent” under applicable standards, whether the candidate has practical and mature business judgment, and the candidate’s academic expertise in an area of our operations.

 

In identifying, evaluating and selecting future potential director nominees for election at each future annual meeting of stockholders and nominees for directors to be elected by the Board to fill vacancies and newly created directorships, the Board, through its NCCG Committee, engages in a selection process. The Board, through its NCCG Committee, will consider as potential director nominees candidates recommended by various sources, including any member of the Board, any of our stockholders or senior management. The Board may also hire a search firm if deemed appropriate. All potential new director nominees will be initially reviewed by the NCCG Committee. The members of the NCCG Committee will make an initial determination in their own independent business judgment as to the qualifications and fit of such director candidates based on the criteria set forth above. If the NCCG Committee determines that it is appropriate to proceed, the Chief Executive Officer and at least one additional member of the Board will interview the prospective director candidate(s). The full Board may interview the candidates as well. The NCCG Committee provides informal progress updates to the Board, as appropriate, and meets to consider and recommend final director candidates to the entire Board as necessary. The Board ultimately determines which candidates are nominated or elected to fill a vacancy.

 

There have been no changes to the procedure by which our stockholders may recommend nominees to our board of directors.

 

Communications with the Board

 

Stockholders who wish to contact members of the Board may send written correspondence to the following address: Kenneth S. Cragun, Secretary, c/o Local.com Corporation, 7555 Irvine Center Drive, Irvine, CA 92618. Stockholders should provide proof of share ownership with their correspondence. It is suggested that stockholders also include contact information. All communications will be received and processed by the Secretary, and then directed to the appropriate member(s) of the Board. In general, correspondence relating to accounting, internal accounting controls or auditing matters will be referred to the Chairperson of the Audit Committee. To the extent correspondence is addressed to a specific director or requires a specific director’s attention, it will be directed to that director.

 

Code of Business Conduct and Ethics

 

We have adopted a code of business conduct and ethics that applies to our officers, directors and employees. Our code of business conduct and ethics, as applied to our Chief Executive Officer, senior executive officers, principal accounting officer, controller and other senior financial officers complies with the requirements of Section 406 of the Sarbanes-Oxley Act. Our code of business conduct and ethics is available on our web site at http://ir.local.com, under the “Corporate Governance” tab. In addition, a copy of the code of business conduct and ethics will be provided to any person without charge upon request to Kenneth S. Cragun, Local.com Corporation, 7555 Irvine Center Drive, Irvine, CA 92618. We intend to timely disclose any amendments to or waivers of certain provisions of our code of business conduct and ethics that apply to our Chief Executive Officer, senior executive officers, principal accounting officer, controller and other senior financial officers on our web site within four business days of such amendment or waiver or as otherwise required by the SEC or Nasdaq.

 

REPORT OF THE AUDIT COMMITTEE

 

The Audit Committee of the Board (the “Audit Committee”) consists of three non-employee directors, including as of the date of this report, Theodore E. Lavoie, as chairman, Norman K. Farra Jr. and Phillip K. Fricke, each of whom the Board has determined to be an independent director under applicable SEC rules, the NASDAQ listing standards and the Company’s own internal guidelines. The Audit Committee is a standing committee of the Board and operates pursuant to a written charter adopted by the Board, which is available on our website, http://ir.local.com, under the “Corporate Governance” tab.

 

Among its functions, the Audit Committee has the authority and responsibility to retain and terminate the engagement of the Company’s independent registered public accounting firm (the “independent Auditors”). The role of the Audit Committee is to oversee the Company’s financial reporting process on behalf of the Board. Management of the Company has the primary responsibility for the Company’s consolidated financial statements as well as the Company’s financial reporting process, principles and internal controls. The independent registered public accounting firm is responsible for performing an audit of the Company’s financial statements and expressing an opinion as to the conformity of such consolidated financial statements with generally accepted accounting principles.

 

The Audit Committee met ten times during fiscal 2010 to fulfill its responsibilities. The Audit Committee’s chairman and senior members of the Company’s financial management team establish the Audit committee’s agenda for all such meetings. During 2010, the Audit Committee also met with the Company’s independent Auditors and the senior members of the Company’s financial management team to discuss any matters that, in the opinion of the Audit Committee, should be discussed privately with the Audit Committee, the independent Auditors or the senior members of the Company’s financial management team.

 

In this context, the Audit Committee has reviewed and discussed the audited financial statements of the Company as of and for the year ended December 31, 2010, with management and the independent Auditors. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles. The Audit Committee discussed with the independent Auditors matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communication with Audit Committees)(as modified or superseded).

 

In addition, the Audit Committee has received the written disclosures and the letter from the independent Auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent Auditor’s communications with the Audit Committee concerning independence, and has discussed with the independent Auditor the independent Auditor’s independence.

 

Based on the reports and discussions described above, the Audit Committee’s review of the Company’s audited consolidated financial statements, representations of management and the report of the independent Auditors to the Audit Committee, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2010, for filing with the Securities and Exchange Commission.

 

AUDIT COMMITTEE

 

Theodore E. Lavoie, Chairman
Norman K. Farra Jr.
Philip K. Fricke

 

April 28, 2011

 

EXECUTIVE OFFICERS

 

Executive Officers

 

The following table sets forth, as of May 24, 2011, certain information concerning our executive officers:

 

 

Heath B. Clarke has served as our Chairman of the Board since March 1999, as our President from March 1999 to December 2000 and as our Chief Executive Officer since January 2001. From 1998 to February 1999, Mr. Clarke was the Vice President of eCommerce for LanguageForce, Inc., a language translation software company. Prior to that time, he was a Marketing Manager for Starnet International (Canada), an Internet company. From 1995 to 1998 he held managerial positions with the Berg Group of Companies (Australia), and from 1988 to 1995 he was founder and Chief Executive Officer of Australian Fibre Packaging.

 

Michael A. Sawtell has served as our Chief Operating Officer since May 2011. Mr. Sawtell joined us as Sr. Vice President and General Manager, SAS in May 2011 with the acquisition of the Rovion assets from DigitalPost Interactive, Inc. (“DGLP”). From July 2005 to May 2011, Mr. Sawtell was Chief Executive Officer of DGLP. From March 2000 to March 2005, Mr. Sawtell was our President and Chief Operations Officer. From 1993 to 2000, Mr. Sawtell was the Chief Operating Officer and the Vice President of Sales for Informative Research, a mortgage services firm. From 1986 to 1993, Mr. Sawtell worked as director of operations on the B-2 Stealth Bomber program for Northrop Grumman, a global defense company. Mr. Sawtell’s responsibilities prior to Local.com have included chief executive officer functions at a public company, as well as general oversight of the operations and management of both public and private companies.

 

Kenneth S. Cragun has served as our Chief Financial Officer since December 2010, as our Secretary since October 2010, as our interim Chief Financial Officer from October 2010 to December 2010 and our Vice President of Finance from April 2009 to October 2010. From June 2006 to March 2009, Mr. Cragun was the Chief Financial Officer of Modtech Holdings, Inc., a supplier of modular buildings. From May 2005 to April 2006 Mr. Cragun served as Senior Vice President of Finance for MIVA, Inc. an online advertising and media company. Prior to that role, Mr. Cragun served at MIVA as Vice President of Finance from October 2004 to May 2005, and as Director of Finance from July 2003 to October 2004. Mr. Cragun received a Bachelors of Science degree in Accounting from Colorado State University-Pueblo. Mr. Cragun’s responsibilities prior to Local.com have included chief financial officer functions at a public company, including preparation of financials for SEC disclosures in accordance with GAAP, audit experience at a nationally recognized certified public accounting firm, and day-to-day management of the financial affairs of both public and private companies.

 

Michael O. Plonski has served as our Chief Technology Officer since July 2009. From July 2005 to June 2009, Mr. Plonski served as SVP/Chief Information Officer and Chief Operating Officer Digital of Martha Stewart Living Omnimedia, Inc., an integrated media and merchandising company providing consumers with inspiring lifestyle content and well-designed, high-quality products. Mr. Plonski received a Bachelor of Science degree in Mechanical Engineering from the University of Notre Dame. Mr. Plonski’s responsibilities prior to Local.com have included chief information officer and chief technology officer functions at a public company, including oversight of technology development, deployment, maintenance and enhancement, managing multiple technology initiatives, managing corporate infrastructure and integrating the technologies of acquired companies. In the role of chief operating officer digital, his responsibilities included product management, project management, editorial, design, user-experience, web site production and integration of partners and partner digital properties.

Scott Reinke has served as our General Counsel since April 2009. From October 2006 to April 2009, Mr. Reinke served as executive vice president and general counsel of Emerging Media Group, Inc., parent company of TRAFFIQ, Inc., a marketplace for advertising inventory and a self-service media management and planning platform. From March 2004 to October 2006, Mr. Reinke served as assistant general counsel and vice president — legal of MIVA, Inc., an online advertising and media company. Mr. Reinke received a Juris Doctorate from Georgetown University Law Center and a Bachelors of Arts degree in English and Political Science from Boston College. Mr. Reinke’s responsibilities prior to Local.com have included general counsel functions at a private technology company, day-to-day management of the legal affairs of both public and private companies, including securities law compliance, contract management, merger, acquisition and capital fundraising related matters and risk assessment.

 

Involvement In Certain Legal Proceedings

 

On October 20, 2008, Modtech Holdings, Inc., a Delaware Corporation, filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. Mr. Cragun, our chief financial officer was chief financial officer of Modtech Holdings, Inc. at the time of filing.

 

On March 30, 2011, DigitalPost Interactive, Inc., a Nevada Corporation, and its subsidiaries, The Family Post, Inc. and Rovion, Inc., filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Mr. Sawtell, our chief operating officer was chief executive officer of DigitalPost Interactive, Inc. at the time of the filing.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth the beneficial ownership of shares of our Common Stock as of May 24, 2011:

 

 

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our Common Stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of shares beneficially owned by a person listed below and the percentage ownership of such person, shares of Common Stock underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of May 24, 2011, are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.

 

The percentage of beneficial ownership is based on 21,265,393 shares of Common Stock outstanding as of May 24, 2011.

 

Except as otherwise noted below, and subject to applicable community property laws, the persons named have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Unless otherwise indicated, the address of the following stockholders is c/o Local.com Corporation, 7555 Irvine Center Drive, Irvine, CA 92618.

 

 

 

 

 

Compensation Discussion and Analysis

 

Executive Summary

 

2010 was a year of continued growth for the Company. Our annual revenue increased to $84 million, a 49% increase over 2009 results. The Company also delivered positive net income for the first time in 2010.

 

The Company’s executive compensation programs, as developed by the Nominating, Compensation and Corporate Governance Committee of our Board of Directors (the “NCCG Committee”), have been designed to incentivize and reward sustainable growth. We continued to deliver a majority of our executives’ compensation in a performance-based manner, primarily through the cash incentive bonus plan and grants of stock options. In 2010, the NCCG Committee also entered into amended employment agreements with its Named Executive Officers, specifically to remove change in control excise tax gross-up payments and “single trigger” change in control severance provisions. The NCCG Committee removed these provisions in light of the potentially high cost to our shareholders in a change in control transaction.

 

The NCCG Committee administers the Company’s executive compensation arrangements. In conference with the Board of Directors, the NCCG Committee determines the compensation of our Chief Executive Officer. As discussed in more detail below, in determining the compensation for our other Named Executive Officers (as defined below), the recommendations of our Chief Executive Officer, among other factors, are considered by the NCCG Committee. Nevertheless, the NCCG Committee is solely responsible for making the final decisions on compensation for our Named Executive Officers.

 

The general compensation arrangements of the Company are guided by the following principles and business objectives:

 

 

Our Company is guided by the above principles in its compensation philosophy for our executive officers, which has been designed to achieve the following two objectives:

 

 

The executives listed in the Summary Compensation Table in this proxy statement are referred to as the “Named Executive Officers.” Mr. Cragun became our Interim Chief Financial Officer on October 18, 2010, and our Chief Financial Officer on December 29, 2010, following the departure of Brenda Agius as our Chief Financial Officer on October 18, 2010.

 

Executive Compensation Program Objectives and Overview

 

Overview

 

Our Company is dependent upon the experience and talents of our executives to successfully manage our highly technical, complex and rapidly evolving business. Our Company is in a rapidly changing industry, one which regularly experiences paradigm shifting technological developments and shifting trends in the businesses and markets in which we compete. We rely on our executives to successfully address these developments and to improve our business and its performance in order to increase shareholder value. We face a highly competitive executive labor market and face competitors for our executives’ skills of similar size and scale to the Company, as well as larger competitors with greater resources than we have and smaller competitors that seek to hire our executives to facilitate and expedite their own businesses that compete with us directly or in the same industry.

 

Executive Compensation Programs

 

The current executive compensation program for the Company is comprised of three key components, which collectively are intended to conform to the Company’s compensation philosophy and to reward our executives based on individual and company performance. The Company uses (1) base salary, (2) quarterly or semi-annual incentive cash bonuses, and (3) long-term equity awards, in the form of stock options, as its primary compensation components. The NCCG Committee considers how each such component of executive compensation promotes retention and rewards performance by the individual and the Company generally when structuring its executive compensation arrangements.

 

The Company seeks to provide targeted compensation opportunities above the median of competitive market practice in order to attract, retain, and motivate our executives. However, the NGGC Committee may target an individual executive’s compensation higher or lower than the median based on the individual’s role, experience, and/or performance, among other factors. The NCCG Committee uses certain peer companies (as identified below) to inform it of competitive pay levels and generally intends that base salary levels be consistent with competitive market base salary levels. The NCCG Committee generally targets performance-based compensation, such as bonus and long-term incentive equity opportunities to make up a substantial portion of each executive’s total direct compensation opportunity, as achievement of those are tied to company and individual performance and provide long-term incentives to our executives. The NCCG Committee believes that the cash and long-term equity incentives provided to our executives have been designed to provide an effective and appropriate mix of incentives to ensure our executive performance is focused on building long-term stockholder value. In furtherance of this, the NCCG Committee has designed our compensation arrangements for our executive officers such that the performance based compensation opportunities represent a material portion of the total direct compensation opportunity.

 

The Company does not provide any pensions or other retirement benefits for our executives other than our 401(k) plan. Generally, except for payment of up to $1,500 a month in health insurance payments that would otherwise be paid by our executives, the Company also does not provide any perquisites. The Company provides our executive officers with certain severance protections as a further means of attracting and retaining

our key executives and to preserve the stability of our executive team. These severance protections are described below under “Severance and Change in Control Severance Benefits” and “Potential Payments Upon Termination or Change in Control.”

 

Independent Consultant and Peer Group

 

The NCCG Committee has retained Frederic W. Cook & Co., Inc. (“Cook & Co.”) as its independent compensation consultants, to provide advice to the NCCG Committee with respect to the compensation programs of the Company. Cook & Co. advised the NCCG Committee with respect to trends in executive compensation, the selection of the Company’s peer companies, the determination of pay programs, an assessment of competitive pay levels, and the setting of compensation levels. Cook & Co. provided no other services to the Company in 2010 beyond the compensation consulting services provided to our Board of Directors and the NCCG Committee, as noted above.

 

The NCCG Committee considers peer company data obtained and evaluated by Cook & Co, as well as compensation data compiled by management, in establishing compensation levels. The NCCG Committee utilizes this information to when considering executive compensation arrangements, including the reasonableness of such arrangements from a competitive vantage point. For 2010, the NCCG Committee, in consultation with Cook & Co., considered compensation data for the following companies in 2010: InfoSpace, Openwave Systems, the Knot, Saba Software, Travelzoo, Web.com, marchex, eLoyalty, Double-Take, Innodata, Healthstream, TheStreet.com, Autobytel, Spark Networks, ADAM, Market Leader. This group of companies is referred to by us hereafter as our “peer group” or our “peer companies for 2010.

 

The peer group was selected based on objective criteria, taking into account company size and industry. The peers revenue and market capitalizations generally fell within a range of 0.3x to 3x ours, with our revenue and market capitalization in the middle range to avoid distortion from size. The peers are technology and/or media companies that have businesses that are generally similar to the Company’s business.

 

Current Executive Compensation Program Elements

 

Base Salaries

 

The Company provides the Named Executive Officers, along with other employees, with base salary to compensate them for their services throughout the year. The NCCG Committee performs an annual review of the base salaries of the Company’s Named Executive Officers. These base salary levels are intended to be generally consistent with competitive market base salary levels, but are not specifically targeted or “bench-marked” against any particular company or group of companies, including the Company peer group. The NCCG Committee sets base salaries so that a substantial portion of the executives’ total direct compensation remains contingent on performance-based bonuses and long-term incentive equity awards. The NCCG Committee considers and assesses, among other factors, the scope of an executive’s responsibility, prior experience, past performance, advancement potential, impact on results, salary relative to other executives in the Company and relevant competitive data in setting specific salary levels for each of our Named Executive Officers, as well as the Company’s other officers.

 

The annual base salary of each of our Named Executive Officers was increased effective July 1, 2010, following the NCCG Committee’s review of relevant market compensation data, general economic conditions, and the Company’s financial performance and position. Mr. Clarke’s salary was increased from $350,000 to $415,000, which was the median. Mr. Crair’s salary was increased to the median of $287,000 per year from $270,000 per year, effective July 1, 2010. Mr. Cragun’s salary was increased to $208,500 per year from $199,000 per year, effective July 1, 2010, during which time he was serving as our vice president of finance. Mr. Cragun’s salary was subsequently increased again to $220,000 per year on October 18, 2010, in connection with becoming our interim chief financial officer (the 25th percentile), and to $268,000 per year on January 1, 2011, in connection with becoming our permanent chief financial officer (the 60th percentile). Mr. Plonski’s salary was increased to $268,000 per year from $260,000 per year, effective July 1, 2010. Mr. Reinke’s salary was increased to $227,500 per year from $215,000 per year (the median), effective July 1,

2010. Our former chief financial officer, Ms. Agius, had her salary increased from $260,000 per year to $268,000 per year (the 60^th percentile), effective July 1, 2010.

 

Cash Bonuses

 

For 2010, the Committee approved a cash bonus plan (“Bonus Plan”) under which our Named Executive Officers were eligible to earn cash bonuses based on achievement against pre-determined semi-annual performance goals. The cash bonus incentive opportunity is intended to motivate and reward executives by tying a significant portion of their total compensation to the achievement of pre-established performance metrics that are generally short-term. The Committee determined that use of independent semi-annual performance and payment periods for 2010 was appropriate in light of the Company’s strong growth and the difficulty in setting meaningful annual performance goals.

 

First-Half 2010 Bonus

 

For the First-Half 2010 Bonus period, each of our Named Executive Officers’ target bonuses were defined as a percentage of base salary as set forth in each officer’s employment agreement. Actual earned awards could range between 70% and 150% of target depending on performance. Performance is measured against Company-wide financial goals and individual performance goals. The weighting of the Company and individual goal components range from 50% to 80% and 20% to 50%, respectively. In determining the mix of Company and individual performance goals for each executive, the Committee considered each executive’s ability to affect Company-wide performance and the importance of individual contributions.

 

 

 

 

First-Half Bonus: Company Performance Component

 

The Company performance component of the First-Half period was based equally on Revenue and Adjusted Net Income¹. The Committee believes these metrics, and the related goals, are the key drivers of delivering value to our stockholders. The Revenue and Adjusted Net Income targets were set to the Company’s

 

 

¹ Adjusted Net Income (Loss) is defined by the Company as net income (loss) excluding: provision for income taxes; interest and other income (expense), net; depreciation; amortization; stock based compensation charges, warrant revaluation and non-recurring items. Adjusted Net Income (Loss), as defined above, is not a measurement under GAAP. Adjusted Net Income (Loss) is reconciled to net income (loss) and earnings (loss) per share, which we believe are the most comparable GAAP measures, in the company’s press release dated February 7, 2011, as furnished on the Company’s Form 8-K filed with the Securities and Exchange Commission on February 7, 2011. The Company believes that Adjusted Net Income (Loss) provides useful information to investors about the Company’s performance because it eliminates the effects of period-to-period changes in income from interest on the Company’s cash and marketable securities, expense from the Company’s financing transactions and the costs associated with income tax expense, capital investments, stock-based compensation expense, warrant revaluation charges, and non-recurring charges which are not directly attributable to the underlying performance of the Company’s business operations. Management used Adjusted Net Income (Loss)

budget for the period. The Committee also set threshold and maximum performance goals, which corresponded to bonus payouts equal to 70% and 150% of target. For the First-Half period, the Company’s performance was above the target for both the Revenue and Adjusted Net Income goals. The resulting bonus payout for the Company performance component was 129% of target. The performance levels and actual performance for First-Half 2010 are shown in detail below:

 

 

 

 

First-Half Bonus: Individual Performance Component

 

The individual performance component of each Named Executive Officer’s bonus is determined by the Committee and actual bonuses can range between 0% and 150% of target. The Committee’s assessment is based on performance against pre-set strategic objectives and for Named Executive Officers, except the Chief Executive officer, the general recommendations and performance evaluations of the Chief Executive Officer. For the First-Half period, the Committee’s bonus decisions were based upon the following individual goals.

 

Heath B. Clarke — The Committee awarded Mr. Clarke a bonus equal to 110% of target for the individual performance component. In addition to delivering financial performance during the period, the Committee recognized Mr. Clarke’s achievement of the following key strategic objectives: achievement of subscriber targets, enhancement of traffic reporting systems, introduction and Board-approval of growth plans, completion of the Octane360 acquisition, achievement of traffic targets, enhancement of network business platform and achievement of financing objectives. The Committee determined that most of these objectives were achieved, certain of them, including the achievement of a $30 million line of credit, were overachieved, while others were underachieved, including goals with respect to enhancement of the network business platform.

 

Stanley B. Crair — Based in part on the CEO’s recommendation, the Committee approved Mr. Crair’s individual performance bonus component at 96% of target. Mr. Crair’s goals were tied to achievement of traffic targets, enhancement of traffic reporting systems, Local.com site enhancements, certain facilities based goals, growth of the Network business unit, and enhancement of the SAS operations plan. The Committee’s decision to award an amount below target was based on achievement of most goals satisfactorily, partially offset by achievement of a less than planned increase in organic traffic.

 

Kenneth S. Cragun — During the first half of the fiscal year, Mr. Cragun served as our Vice President of Finance and was not an executive officer of the Company. His bonus based on individual performance was approved by the CEO and was equal to 106% of target. Mr. Cragun’s goals were tied to annual audit related matters, SEC reporting matters, enhancement of business unit financial reporting, enhancements to the financial forecasting processes and executive financial reporting dashboard, developing a second half 2010 budget, and completion of the Octane360 acquisition. The decision to award Mr. Cragun an amount above target was based on the Committee’s determination that Mr. Cragun met or exceeded nearly all of these goals.

 

Michael O. Plonski — Based in part on the CEO’s recommendation, the Committee approved Mr. Plonski’s individual performance bonus component at 108% of target. Mr. Plonski’s goals were related to achievement of traffic targets, development and deployment of key product functionality, enhancing technology support plans, achievement of certain site performance metrics, and completion of the Octane360 acquisition. The decision to

¹ in evaluating the overall performance of the Company’s business operations, making it useful to the NCCG Committee in evaluating management’s performance.

award Mr. Plonski an amount above target was based on the Committee’s determination that Mr. Plonski met many or his targets, exceeded others, including assistance with acquisition matters and certain technology development milestones, while underperforming others, including with respect to certain other technology development goals and achievement of certain traffic target goals.

 

Brenda Agius — Based in part on the CEO’s recommendation, the Committee approved Ms. Agius’s individual performance bonus component at 116% of target. Ms. Agius’s goals related to accounting, finance, and investor relations matters. The approved award was based on Ms. Agius’s key accomplishments related to exceeding the Board-approved budget, closing of the $30 million line of credit, and achievement of certain investor relations goals.

 

Scott Reinke — Based in part on the CEO’s recommendation, the Committee determined Mr. Reinke’s individual performance bonus component to be earned at 106% of target. Mr. Reinke’s goals were based on the legal matters of the Company related to risk management, litigation, contracts, and securities regulations.

 

Total First-Half bonuses for our Named Executive Officers are summarized in the following table.

 

 

Second-Half 2010 Bonus

 

For the Second-Half 2010 Bonus plan, the Committee maintained a similar structure as used in the First-Half 2010 Bonus. Actual awards were based on performance against pre-set Company-wide financial goals and individual performance objectives. The relative weighting of the Company and individual goal components for each Named Executive Officer was the same as in the First Half Bonus, except for Mr. Cragun. The Committee increased the portion of Mr. Cragun’s bonus tied to Company-wide results from 50% to 70% following his promotion to interim Chief Financial Officer.

 

In addition, the Committee increased each Named Executive Officer’s target bonus opportunity based on market data provided by the Committee’s independent consultant. In connection with the July 1 salary

increases, the new target bonus levels were set at a level to provide target annual cash compensation opportunities consistent with the median of our peers.

 

 

 

 

Second-Half Bonus: Company Performance Component

 

As with the First Half period, the Committee determined that Company performance would be measured equally on revenue and adjusted net income. The revenue and adjusted net income targets were set to the Company’s budget for the period. The revenue and adjusted net income goals for the Second Half period were 26% and 217% higher than in the First-Half period, respectively. The Committee also set threshold and maximum performance goals, which corresponded to bonus payouts equal to 70% and 150% of target. For the Second-Half period, the Company’s performance was below-target for the revenue goal and above-target adjusted net income goals. The resulting bonus payout for the Company performance component was 129% of target. The performance levels and actual performance for Second-Half 2010 shown in detail below:

 

 

Second-Half Bonus: Individual Performance Component

 

In the Second-Half period, the determination of the individual performance component of each Named Executive Officer’s bonus followed the same process as used in the First-Half period, except that the Committee approved Mr. Cragun’s bonus following his promotion to interim Chief Financial Officer.

 

Heath B. Clarke — The Committee awarded Mr. Clarke a bonus equal to 106% of target for the individual performance component. In addition to delivering strong financial performance during the period, the Committee recognized Mr. Clarke’s achievement of the following key strategic objectives: Local.com website enhancements, integration of Octane360 products, services and operations into Local.com and increasing related revenues from Octane360, certain financing and corporate development activities, among others. Each of these objectives were met or exceeded. Other objectives, including achievement of certain traffic targets, achieving certain subscriber targets, and achieving certain Network partner targets were not fully achieved.

 

Stanley B. Crair — Based in part on the CEO’s recommendation, the Committee approved Mr. Crair’s individual performance bonus component at 97% of target. Mr. Crair’s goals were tied to Local.com website enhancements, achieving certain Network partner targets, achievement of subscriber targets, integrating Octane360 products, services and operations into Local.com, developing certain compensation structures,

certain marketing goals, achievement of traffic targets, enhancement of traffic reporting systems. The Committee’s decision to award an amount below target was based on achievement of most goals satisfactorily, including some, such as Octane360 integration and achievement of certain Network partner targets, that were outperformed against target, offset by achievement of less than targeted traffic objectives and subscriber targets.

 

Kenneth S. Cragun — Based in part on the CEO’s recommendation, the Committee approved Mr. Cragun’s individual performance bonus component at 116% of target. Mr. Cragun’s goals were tied enhancing the financial and business models for certain of the Company’s business units, certain financial modeling enhancements and allocation methodologies, integration targets related to the Octane360 acquisition, enhancing certain regulatory compliance plans, certain financing activities, and assuming role of Interim Chief Financial Officer. The decision to award Mr. Cragun an amount above target was based on the Committee’s determination that Mr. Cragun met the vast majority of these goals, exceeded certain others, including with respect to the financing matters and assuming his new Chief Financial Officer duties, while performing slightly below target with respect to certain financial modeling enhancements and allocation methodologies.

 

Michael O. Plonski — Based in part on the CEO’s recommendation, the Committee approved Mr. Plonski’s individual performance bonus component at 112% of target. Mr. Plonski’s goals were related to increasing achieving traffic targets, Local.com website enhancements, integration targets related to the Octane360 acquisitions, certain facilities related goals, enhancement of certain product functionality, certain financing activities. The decision to award Mr. Plonski an amount above target was based on the Committee’s determination that Mr. Plonski met many or his targets, exceeded others, including the Local.com website enhancements and facilities related goals, while underperforming others, including with respect to certain product enhancement goals and traffic targets.

 

Brenda Agius — Ms. Agius’ employment with the Company was terminated prior to the completion of the Second-Half period. As such, Ms. Agius did not earn a bonus under the Bonus Plan.

 

Scott Reinke — Based in part on the CEO’s recommendation, the Committee determined Mr. Reinke’s individual performance bonus component to be earned at 127% of target. Mr. Reinke’s goals were tied to assuming certain legal functions in-house, establishing new outside counsel contacts, certain corporate development activities, developing certain intellectual property initiatives, and assisting with financing activities. The decision to award Mr. Reinke an amount above target was based on the Committee’s determination that Mr. Reinke exceeded the vast majority of these goals, while performing slightly below target with respect to only one target related to the establishing new outside counsel contacts.

Total Second-Half bonuses for our Named Executive Officers are summarized in the following table.

 

 

Discretionary Bonuses

 

On January 27, 2011, the Committee approved payment of a $3,500 bonus to Mr. Reinke in recognition of his exemplary efforts in connection with a certain business development transaction. This award was made outside of the Bonus Plan because such effort was not included in Mr. Reinke’s individual performance goals under the Bonus Plan.

 

Long-Term Incentive Equity Awards

 

The Company relies on long-term incentive equity awards as a key element of compensation for our executive officers so that a substantial portion of their total direct compensation is tied to increasing the market value for our Company. The Company has historically made annual grants of stock options to align the interests of our executives with those of our shareholders, while promoting focus by our executives’ on the long-term financial performance of the Company, and, through staggered grants with extended time-based vesting requirements, to enhance long-term retention of our executives.

 

The NCCG Committee considers competitive grant data for comparable positions as well as various subjective factors primarily relating to the responsibilities of the individual executive, past performance, and the executive’s expected future contributions and value to the Company when determining the size of equity-based awards. Additionally, the NCCG Committee also considers the executive’s historic total compensation, including prior equity grants and value realized from those grants, as well as the number and value of shares owned by the executive, the number and value of shares which continue to be subject to vesting under outstanding equity grants previously made to such executive, and each executive’s tenure, responsibilities, experience and value to the Company. No one fact is given any specific weighting and the NCCG Committee exercises its judgment to determine the appropriate size of awards.

As with prior years, all of the Company’s 2010 long-term incentive grants to our Named Executive Officers were in the form of stock options with an exercise price that is equal to the closing price of our common stock on the grant date. As a consequence, our Named Executive Officer will only realize actual, delivered compensation value if our shareholders realize value through stock price appreciation after the date of grant of the options. The stock options also function as a retention incentive for our executives as they generally vest in installments over a period of three years after the date of grant.

 

2010 Annual Option Grants.  In December 2010, the NCCG Committee approved grants of stock options to each of the then-employed Named Executive Officers. The NCCG Committee considered the factors identified above in determining the amounts of these grants. The stock option awards granted to the Named Executive Officers in December 2010 are scheduled to vest over a three-year period, contingent on the executive’s continued employment with the Company through the third-anniversary of the grant date, subject to certain earlier vesting in the event of certain severance and change in control scenarios, each as more particularly described below.

 

Promotion Grant for Mr. Cragun.  In October 2010, the NCCG Committee approved a grant of stock options to Mr. Cragun in connection with his assuming the role of interim chief financial officer. Another subsequent grant of stock options was made to Mr. Cragun when he was named our permanent chief financial officer. These grants were negotiated with Mr. Cragun in connection with his joining the Company and determined based on his experience and qualifications, as well as his expected responsibilities with the Company.

 

Grant Practices.  The Company does not have any plan, program, or practice to time the grant of equity-based awards to our executives or any of our employees in coordinate with the release of material non-public information. All equity grants are made under the Company’s stock plans, which have been approved by the Company’s stockholders. The per share exercise price of stock options cannot be less than the closing sale price of the Company’s common stock on the grant date. The NCCG Committee typically makes annual grants of stock options in the month of December and when an officer begins employment or is promoted.

 

Severance and Change in Control Severance Benefits

 

The Company provides severance, including change-in-control severance, to each of the Named Executive Officers as well as other members of the Company’s management team, as provided for in their respective employment agreements. It is the belief of the NCCG Committee that the severance offered by the Company helps to retain the Company’s management team, including its Named Executive Officers, by providing a stable work environment in which these employees are provided certain economic benefits in the event their employment is actually or constructively terminated, including in connection with a change in control of the Company. It also helps to create a mutually beneficial separation as the Company is able to secure a release from claims. The Company believes that the occurrence, or potential occurrence, of a change-in-control transaction may create uncertainty regarding continued employment of our executives and other key employees and the change-in-control severance benefits offered by the Company will alleviate much of that uncertainty. The material terms of the change-in-control severance benefits offered to our Named Executive Officers are described below in the section entitled “Employment Agreements and Change in Control Arrangements with Our Named Executive Officers.”

 

In providing severance agreements, the NCCG Committee considers best practices. Severance benefits available following a change-in-control are provided only on a “double-trigger” basis which means that there must be both a change in control of the Company and a termination, either actually or constructively, of the eligible employee’s employment in the circumstances described in the “Employment Agreements and Change in Control Arrangements with Our Named Executive Officers” section below. In addition, when the Company entered into amended agreements with its Named Executive Officers in 2010, excise tax gross-up provisions and “single-trigger” severance payment provisions were removed. The Company does not maintain any severance plans beyond the severance benefits provided for in the employment agreements with our Named Executive Officers and other members of the Company’s management team.

Under their employment agreements, each of our Named Executive Officers, including Mr. Clarke, would be entitled to severance benefits in the event of his termination by the Company without cause or by the Named Executive Officer for good reason, or to due to his disability and, to a lesser extent, his death. The NCCG Committee determined that it is appropriate to provide the Named Executive Officers with these severance benefits under these circumstances in light of their positions with the Company, general competitive practices, and as part of their overall compensation package.

 

The Named Executive Officers and certain other members of the management team are also entitled to accelerated vesting of all of their respective stock option awards in the event of a change in control or a termination without cause by the Company or a termination for good reason by the Named Executive Officer within the 120 day period preceding or following a change in control of the Company. Further, if accelerated vesting of all stock option awards is not available as described above, the Named Executive Officers and certain other members of the management team are entitled to accelerated vesting of those stock option awards that would vest during the initial period of their employment agreements with the Company in the event of a termination without cause by the Company or a termination for good reason by the Named Executive Officer outside of the 120 day period preceding or following a change in control of the Company. The NCCG Committee determined that this severance benefit was appropriate for each of its Named Executive Officers and certain of its management team based upon their positions with the Company, general competitive practices, and as part of their overall package.

 

Recipients of long-term incentive equity awards are also entitled to limited severance protections with respect to awards granted prior to the applicable severance event. The NCCG Committee determined that these protections help maximize the retention benefits to the Company of the long-term incentive equity awards and are consistent with general competitive practices.

 

Material NCCG Committee Actions After Fiscal 2010

 

In January 2011, the NCCG Committee adjusted its Cash Bonus program for 2011 to be based on quarterly Company financial performance and corresponding quarterly cash bonus payments during the first half of 2011, as opposed to semi-annual performance periods and payments, as was the case in 2010. The NCCG Committee considered the impact that recent material shifts in revenue faced by the Company and determined that semi-annual financial performance goals would provide the employees with too great of an opportunity to over-achieve its financial performance goals based on factors unrelated to superior performance.

 

Policy with Respect to Section 162(m)

 

Section 162(m) of the Internal Revenue Code limits the tax deductibility by a corporation of compensation in excess of $1 million paid to its chief executive officer and certain of its other executive officers. However, compensation which qualifies as “performance-based” is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals under a plan approved by the corporation’s shareholders.

 

The Company and the NCCG Committee review and consider the deductibility of executive compensation under Section 162(m). The Company believes that the realized gains on nonqualified stock options at the time of exercise are fully deductible under the terms of the Company’s shareholder-approved stock plan. The Company and the NCCG Committee may, however, from time to time approve compensation arrangements for our executive officers that may not satisfy the requirements of Section 162(m).

 

Compensation Risk Assessment

 

The Company conducted a risk assessment of the Company’s compensation policies and practices and concluded that such policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. The NCCG assessed the compensation arrangements for the Company’s Named Executive Officers and concluded that they do not encourage unnecessary or excessive risk-taking. In particular, the NCCG Committee believes that the design of the Company’s annual cash and long-term equity incentives provides an effective and appropriate mix of incentives to ensure our executive performance is

focused on long-term shareholder value creation and does not encourage the taking of short-term risks at the expense of long-term results. While the Company’s performance-based cash bonuses are based on the achievement of Company financial goals and individual performance objectives, the amount of such bonuses are based on a percentage of salary, are capped under the Cash Bonus Program, and the Cash Bonus Programs represent only a portion of executives’ overall total compensation opportunities. The NCCG Committee and Company further have discretion under the Cash Bonus Program to reduce bonus payments based on individual performance. A significant portion of each executive’s compensation is in the form of long-term incentive equity awards. Long-term incentive awards are generally made on an annual basis and are subject to a multi-year vesting schedule which helps ensure that award recipients always have significant value tied to long-term stock price performance.

 

Nominating, Compensation and Corporate Governance Committee Report

 

The NCCG Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis Section of this proxy statement. Based upon this review and discussion, the NCCG Committee recommended to the Board of Directors that the Compensation Discussion and Analysis Section be included in this proxy statement.

 

NCCG Committee of the Board of Directors

 

John E. Rehfeld (Chairman)

Theodore E. Lavoie

Philip K. Fricke

 

April 26, 2011

 

EXECUTIVE COMPENSATION

 

Summary Compensation

 

The following table provides information regarding the compensation earned during the fiscal years ended December 31, 2010, 2009 and 2008 by our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers in 2010. We refer to our Chief Executive Officer, Chief Financial Officer and these other executive officers as the named executive officers in this proxy.

 

2010 Summary Compensation Table

 

 

 

 

 

 

Stock Options Granted — 2010

 

The following table provides information regarding grants of stock options that we granted to the named executive officers during the fiscal year ended December 31, 2010. All options were granted at the fair market value of our Common Stock on the date of grant, as determined by our Board. Each option represents the right to purchase one share of our Common Stock. None of the shares subject to options are vested at the time of grant and 33.33% of the shares subject to such option grants vest on the date which is one year from the date of grant. The remainder of the shares vests in equal quarterly installments over the eight quarters thereafter.

 

2010 Stock Options Granted

 

 

 

 

Employment Agreements and Change in Control Arrangements with Our Named Executive Officers

 

Employment Agreements

 

We entered into amended and restated employment agreements with each of Messrs. Clarke, Crair, Cragun, Plonski and Reinke on April 26, 2010, and a subsequently amended and restated employment agreement with Mr. Cragun on October 18, 2010, upon his appointment as interim chief financial officer. Each of those employment agreements has a term of one year and automatically renews for additional one year terms unless either party terminates it with at least 30 days notice to the other party.

 

If we terminate an executive’s employment agreement without cause (the definition of which is summarized below), or if an executive terminates his or her agreement with good reason (the definition of which is also summarized below), each as defined in the agreement, we are obligated to pay that executive: (i) his or her annual salary and other benefits earned prior to termination, (ii) his or her annual salary payable over one year after termination, (iii) an amount equal to all bonuses earned during the four quarters immediately prior to the termination date, payable in accordance with our standard bonus payment practices or immediately if and to the extent such bonus will be used by the executive to exercise stock options, (iv) benefits for 12 months following the date of termination, (v) the vesting of all options that would have vested had the executive’s employment agreement remained in force through the end of the initial one-year term of the amended and restated agreement will be fully vested immediately prior to such termination, and (vi) the right for 12 months from the date of termination to exercise all vested options granted to the executive.

 

Notwithstanding the foregoing, in the event of a change of control or a termination without cause or for good reason by the executive within 120 days of a change of control, all options granted to the executive will be immediately vested and remain exercisable through the end of the option term as if the executive were still employed by the Company. Furthermore, in the event of a termination without cause of for good reason by the executive in connection with a change of control, we are obligated to pay that executive: (i) his or her annual

salary and other benefits earned prior to termination, (ii) 1.25 times his or her annual salary payable in a lump sum, (iii) an amount equal to 1.25 times all bonuses earned during the four quarters immediately prior to the termination date or immediately prior the date of the change of control, whichever is greater, payable in a lump sum, and (iv) benefits for 15 months following the date of termination.

 

Under the terms of the agreements, a change of control is deemed to have occurred generally in the following circumstances:

 

 

Under the terms of the agreements, “cause” is generally defined as:

 

 

Under the terms of the agreements, good reason is generally defined as:

 

 

Separation Agreement

 

Brenda Agius

 

We entered into a separation and general release agreement (“Agius Agreement”) with Brenda Agius, our former chief financial officer and secretary. Under the terms of the Agius Agreement, we paid Ms. Agius her unpaid, earned wages and unused vacation pay and are obligated to pay her $268,000, representing one year’s base salary, in equal installments over the twelve month period following her separation from the Company.

We will also pay Ms. Agius a bonus of $118,938, representing bonus earned over the previous four quarters immediately prior to the Agius Agreement, the first 50% of which was paid on December 30, 2010, and the remaining 50% shall be payable on or before July 1, 2011. In addition, we have agreed to pay 100% of Ms. Agius’ health insurance premiums through October 2011 to the extent Ms. Agius elected to continue her health care insurance coverage under COBRA. Ms. Agius has the right to exercise any vested stock options through October 18, 2011. Additionally, we agreed that in any transaction constituting a “Change of Control” (as defined in Ms. Agius’ employment agreement), Ms. Agius will be included in any continuing “tail” coverage with respect to director and officer insurance policies that may be purchased for or provided to our current directors and officers at the time of any such Change of Control, as if Ms. Agius were still employed by us.

 

Stanley B. Crair

 

We entered into a separation and general release agreement (“Crair Agreement”) with Stanley B. Crair, our former president and chief operating officer. Under the terms of the Crair Agreement, we paid Mr. Crair his unpaid, earned wages and unused vacation pay and are obligated to pay him $287,000, representing one year’s base salary, in equal installments over the twelve month period following his separation from the Company. We will also pay Mr. Crair a bonus of $174,962, representing bonus earned over the previous four quarters immediately prior to the Crair Agreement, which will be paid in accordance with the Company’s standard bonus payment practices. In addition, we have agreed to pay 100% of Mr. Crair’s health insurance premiums through May 2012 to the extent Mr. Crair elected to continue his health care insurance coverage under COBRA. Mr. Crair has the right to exercise any vested stock options through May 11, 2012.

Outstanding Equity Awards at Fiscal Year-End — 2010

 

The following table sets forth the number of shares of Common Stock subject to exercisable and unexercisable stock options held as of December 31, 2010, by each of our named executive officers.

 

2010 Outstanding Equity Awards at Fiscal Year-End

 

 

 

 

 

Options Exercises and Stock Vested — 2010

 

The following table sets forth the information concerning stock options that were exercised during the fiscal year ended 2010 for our named executive officers. There we no stock awards vesting during the fiscal year ended 2010.

 

 

Transactions with Related Persons

 

Our Audit Committee monitors and reviews issues involving potential conflicts of interest and approves all transactions with related persons as defined in Item 404 of Regulation S-K under the securities laws.

Examples of such transactions that must be approved by our Audit Committee include, but are not limited to any transaction, arrangement, relationship (including any indebtedness) in which:

 

 

 

When reviewing transactions with related person, the Audit Committee applies the standards for evaluating conflicts of interest outlined in the Company’s written Code of Business Conduct and Ethics. There were no reportable transactions during 2010.

 

Termination and Change of Control Benefits

 

The table below sets forth estimated payments with respect to our Named Executive Officers upon the termination of employment with the Company under various circumstances and upon a change in control (“CIC”).

 

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act of 1934, as amended, requires our directors and officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC reports of ownership and changes in ownership of our equity securities. Copies of the reports filed with the SEC are required by SEC Regulation to be furnished to Local.com. Based solely on our review of the copies of such reports furnished to us and written representations from certain insiders that no other reports were required, the Company believes each reporting person has complied with the disclosure requirements with respect to transactions made during 2010.

 

PROPOSAL 2 — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.

 

Haskell & White LLP has served as the Company’s independent registered public accounting firm for all fiscal years ending December 31, since 2003. Haskell & White LLP has been appointed by the Audit

Committee to continue as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011.

 

Although it is not required to do so, the Audit Committee is submitting the appointment of our independent registered public accounting firm for ratification by the stockholders at the Annual Meeting in order to ascertain the view of the stockholders regarding such appointment. In the event ratification of this appointment of independent registered public accounting firm is not approved by a majority of the shares of Common Stock voting thereon, the Audit Committee will consider this fact in connection with its future appointment of an independent registered public accounting firm.

 

A representative of Haskell & White LLP is expected to be present at the Annual Meeting where he or she will be given the opportunity to make a statement if he or she desires and will be available to respond to appropriate questions.

 

The Board recommends a vote “FOR” ratification of the appointment of Haskell & White LLP as our independent registered public accounting firm for fiscal year ending December 31, 2011.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table sets forth the aggregate fees for professional audit services rendered by Haskell & White LLP for audit of our annual financial statements for the years ended December 31, 2010 and 2009, and fees billed for other services provided by Haskell & White LLP for the years ended December 31, 2010 and 2009.

 

 

Audit Fees

 

The aggregate fees for the annual audit of our financial statements, review of our quarterly financial statements and the audit of internal controls in order to comply with the Sarbanes-Oxley Act of 2002.

 

Audit-Related Fees

 

The aggregate fees for the auditor’s consent for use of our audited financial statements in our S-8 registration statement and our Form 10-K/A, and review of our Form 10-Q/A and SEC comment letter responses.

 

Tax Fees

 

The aggregate fees for tax preparation, tax advice and tax planning.

 

All Other Fees

 

The aggregate fees for services related to our acquisitions.

 

Our audit committee pre-approves all services provided by Haskell & White LLP.

 

PROPOSAL 3 — APPROVAL OF THE 2011 OMNIBUS INCENTIVE PLAN.

 

On April 26, 2011, the Board of Directors adopted the Company’s 2011 Omnibus Incentive Plan (the “Plan”), subject to the approval of the stockholders at our 2011 Annual Meeting. The following summary of the principal features of the Plan is qualified in its entirety by reference to the full text of the Plan which is attached to this proxy statement as Exhibit A.

 

Summary of the Plan

 

Purpose of the Plan.  The purpose of the Plan is to assist us and any subsidiaries we may have in attracting and retaining selected individuals who, serving as our employees, directors, consultants and/or advisors, are expected to contribute to our success and to achieve long-term objectives which will benefit our stockholders through the additional incentives inherent in the awards under the Plan.

 

Shares Available.  The maximum number of shares of Common Stock that are available for awards under the Plan (subject to the adjustment provisions described under “Adjustments upon Changes in Capitalization” below) is 1,440,000 shares, less one (1) share of Common Stock for every one (1) share of Common Stock that was subject to a stock option or stock appreciation right (“SAR”) granted after December 31, 2010 under our 2004 Equity Incentive Plan, as amended, (“2004 Plan), our 2005 Equity Incentive Plan (“2005 Plan”), our 2007 Equity Incentive Plan (“2007 Plan) and our 2008 Equity Incentive Plans, as amended (“2008 Plan”) (collectively with our 1999 and 2000 Equity Incentive Plans, the “Prior Plans”) and one and three-tenths (1.3) shares of Common Stock for every one (1) share of Common Stock that was subject to an award other than an option or SAR granted after December 31, 2010 under the Prior Plans. Any shares of Common Stock that are subject to options or SARs granted under the Plan shall be counted against this limit as one (1) share of Common Stock for every one (1) share of Common Stock granted. Any shares of Common Stock that are subject to awards other than options or SARs granted under the Plan shall be counted against this limit as one and three-tenths (1.3) shares of Common Stock for every one (1) share of Common Stock granted. After the date of the approval of the Plan by stockholders, no awards may be granted under the Prior Plans.

 

If any shares of Common Stock subject to an award under the Plan or, after December 31, 2010 any shares of Common Stock subject to an award under the Prior Plans, are forfeited, expire or are settled for cash, the shares subject to the award may be used again for awards under the Plan to the extent of the forfeiture, expiration or cancellation. The shares of Common Stock will be added back as one (1) share for every share of Common Stock if the shares were subject to options or SARs granted under the Plan or under the Prior Plans and (ii) as one and three-tenths (1.3) shares for every share of Common Stock if the shares were subject to awards other than options or SARs granted under the Plan or under the Prior Plans. The following shares of Common Stock will not be added to the shares authorized for grant as described above: (i) shares tendered by the participant or withheld by us in payment of the purchase price of an option, (ii) shares tendered by the participant or withheld by us to satisfy tax withholding with respect to an award, (iii) shares subject to a SAR that are not issued in connection with the stock settlement of the SAR on exercise and (iv) shares repurchased in the open market with the proceeds from the exercise of an option.

 

Shares of Common Stock under awards made under the Plan in substitution or exchange for awards granted by a company acquired by us or a subsidiary, or with which we or a subsidiary combine (“Substitute Awards), do not reduce the maximum number of shares that are available for awards under the Plan. In addition, if a company acquired by us or a subsidiary, or with which we or a subsidiary combine, has shares remaining available under a pre-existing plan approved by its stockholders, the available shares (adjusted to reflect the exchange or valuation ratio in the acquisition or combination) may be used for awards under the Plan and will not reduce the maximum number of shares of Common Stock that are available for awards under the Plan; provided, however that awards using such available shares shall not be made after the date awards or grants could have been made under the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not our employees or directors prior to the acquisition or combination.

 

The maximum number of shares of Common Stock that may be issued under the Plan pursuant to the exercise of “incentive stock options,” as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) is 1,440,000 shares.

Eligibility.  Options, SARs, restricted stock awards, restricted stock unit awards, other share-based awards and performance awards may be granted under the Plan. Options may be either incentive stock options or nonstatutory stock options. Awards may be granted under the Plan to any employee and non-employee member of the Board of Directors, and any consultant or advisor who is a natural person and provides services to us or a subsidiary (except for incentive stock options which may be granted only to our employees).

 

Awards to be Granted to Certain Individuals and Groups.  As of May 24, 2011, approximately 150 employees and non-employee directors would have been eligible to participate in the Plan had it been effective. The Nominating, Compensation and Corporate Governance Committee of the Board of Directors (the “Committee”), in its discretion, selects the persons to whom awards may be granted, determines the type of awards, determines the times at which awards will be made, determines the number of shares subject to each such award (or the dollar value of certain performance awards), and determines the other terms and conditions relating to the awards. For this reason, it is not possible to determine the benefits or amounts that will be received by any particular person in the future.

 

Limits on Awards to Participants.  The Plan provides that no participant may (i) be awarded options or SARs in any 36-month period to purchase more than 1,000,000 shares of common stock or (ii) earn restricted stock awards, restricted stock unit awards, performance awards or other share based awards that are intended to be performance-based compensation under Section 162(m) of the Code with respect to more than 500,000 shares for each 12 months in the vesting or performance period. Shares subject to a cancelled award continue to count against the applicable limit. The maximum dollar value that may be earned by any participant for each 12 months in a performance period with respect to performance-based awards that are intended to be performance-based compensation under Section 162(m) of the Code is $2,500,000. The dollar value of a cancelled award will continue to count against the $2,500,000 limit.

 

Administration.  The Plan will be administered by the Committee (or a subcommittee) which shall consist of at least two members of the Board of Directors, each of whom must qualify as a “non-employee director” under Rule 16b-3 under the Securities Exchange Act of 1934, an “outside director” under Section 162(m) of the Code and an “independent director” under the rules of the principal U.S. national securities exchange on which the Common Stock is traded (the “Principal Exchange”), to the extent required by such rules. The Committee has the authority to determine the terms and conditions of awards, and to interpret and administer the Plan. The Committee may (i) delegate to a committee of one or more directors the right to make awards and to cancel or suspend awards and otherwise take action on its behalf under the Plan (to the extent not inconsistent with applicable law, including Section 162(m) of the Code, and the rules of the Principal Exchange), and (ii) to the extent permitted by law, delegate to an executive officer or a committee of executive officers the right to make awards to employees who are not directors or executive officers and the authority to take action on behalf of the Committee pursuant to the Plan to cancel or suspend awards under the Plan to key employees who are not directors or executive officers of the Company.

 

Stock Options.  The Committee may grant either non-qualified stock options or incentive stock options. A stock option entitles the recipient to purchase a specified number of shares of common stock at a fixed price subject to terms and conditions set by the Committee, including conditions for exercise that must be satisfied, which typically will be based solely on continued provision of services. The purchase price of shares of Common Stock covered by a stock option cannot be less than 100% of the fair market value of the Common Stock on the date the option is granted (except for Substitute Awards). Fair market value of the Common Stock is generally equal to the closing price for the Common Stock on the Principal Exchange on the date the option is granted (or if there was no closing price on that date, on the last preceding date on which a closing price was reported) , except for Substitute Awards. As of May 24, 2011, the closing price of the Common Stock as reported on the NASDAQ Stock Market was $3.33 per share.

 

The Plan permits payment of the purchase price of stock options to be made by cash or cash equivalents, shares of Common Stock previously acquired by the participant, any other form of consideration approved by the Committee and permitted by applicable law (including withholding of shares of Common Stock that would otherwise be issued on exercise), or any combination thereof. Options granted under the Plan expire no later than seven years from the date of grant (except (i) in the event of the participant’s death or disability, or (ii) if on the last day of the term the exercise of the option is prohibited by applicable law or the holder cannot

purchase or sell shares of Common Stock due a “black-out period” under the Company’s insider trading policy or a “lock-up” agreement undertaken in connection with an issuance of securities by the Company, the term shall be automatically extended for a 30-day period from the end of the prohibition or black-out period).

 

Stock Appreciation Rights.  The Committee is authorized to grant SARs in conjunction with a stock option or other award granted under the Plan, and to grant SARs separately. The grant price of a SAR may not be less than 100% of the fair market value of a share of Common Stock on the date the SAR is granted (except for Substitute Awards). The term of an SAR may be no more than seven years from the date of grant (except (i) in the event of the participant’s death or disability, or (ii) if on the last day of the term the exercise of the SAR is prohibited by applicable law or the holder cannot sell shares of Common Stock due a black-out period under the Company’s insider trading policy, the term shall be automatically extended for a 30-day period from the end of the prohibition or black-out period). SARs are subject to terms and conditions set by the Committee, including conditions for exercise that must be satisfied, which typically will be based solely on continued provision of services.

 

Upon exercise of an SAR, the participant will have the right to receive the excess of the fair market value of the shares covered by the SAR on the date of exercise over the grant price. Payment may be made in cash, shares of our Common Stock or other property, or any combination thereof, as the Committee may determine. Shares issued upon the exercise of SARs are valued at their fair market value as of the date of exercise.

 

Restricted Stock Awards.  Restricted stock awards may be issued either alone or in addition to other awards granted under the Plan, and are also available as a form of payment of performance awards and other earned cash-based incentive compensation. The Committee determines the terms and conditions of restricted stock awards, including the number of shares of Common Stock granted, and the conditions for vesting that must be satisfied, which may be based principally or solely on continued provision of services, and also may include a performance-based component. Awards of restricted stock that vest solely on continued employment generally will have a minimum vesting period of three years (which may be pro rata), except in the case of death, disability, retirement, a change in control, or special circumstances determined by the Committee, such as achievement of performance objectives. Grants to new hires to replace forfeited awards from a prior employer, and grants in payment of performance awards or other earned cash-based incentive compensation will have a minimum vesting period of one year. Unless otherwise provided in the award agreement, the holder of a restricted stock award will have the rights of a stockholder from the date of grant of the award, including the right to vote the shares of Common Stock and the right to receive cash dividends and share and property distributions on the shares (subject to the requirements for dividends on restricted stock that vest on the attainment of performance goals as described under “Dividends; Dividend Equivalents” below).

 

Restricted Stock Unit Awards.  Awards of restricted stock units having a value equal to an identical number of shares of Common Stock may be granted either alone or in addition to other awards granted under the Plan, and are also available as a form of payment of performance awards granted under the Plan and other earned cash-based incentive compensation. The Committee determines the terms and conditions of restricted stock units, including the number of units granted and the conditions for vesting that must be satisfied, which may be based principally or solely on continued provision of services, and also may include a performance-based component (subject to the same vesting limitations discussed above for restricted stock awards). The holder of a restricted stock unit award will not have voting rights with respect to the award. Except as otherwise provided in the award agreement, any cash dividends and share and other property distributed with respect to the award will be subject to the same restrictions as the award (subject to the requirements for dividend equivalents on restricted stock units that vest on the attainment of performance goals as described under “Dividends; Dividend Equivalents” below).

 

Other Share-Based Awards.  The Plan also provides for the award of shares of Common Stock and other awards that are valued by reference to Common Stock or other property (“Other Share-Based Awards”). Such awards may be granted above or in addition to other awards under the Plan. Other Share-Based Awards may be paid in cash, shares of Common Stock or other property, or a combination thereof, as determined by the Committee. The Committee determines the terms and conditions of Other Share-Based Awards, subject to the same vesting limitations discussed above for restricted stock awards. If determined by the Board, non-employee directors may receive Other Share-Based Awards in the form of deferred stock units instead of all or a portion of their annual retainers for their services as directors. Non-employee directors may also elect to

receive Other Share-Based Awards in the form of deferred stock units instead of all or a portion of their annual and committee retainers for their services as directors, as well as annual meeting fees.

 

Performance Awards.  Performance awards provide participants with the opportunity to receive shares of Common Stock, cash or other property based on performance and other vesting conditions. Performance awards may be granted from time to time as determined at the discretion of the Committee. Subject to the share limit and maximum dollar value set forth above under “Limits on Awards to Participants,” the Committee has the discretion to determine (i) the number of shares of common stock under, or the dollar value of, a performance award and (ii) the conditions that must be satisfied for grant or for vesting, which typically will be based principally or solely on achievement of performance goals.

 

Performance Criteria.  At the Committee’s discretion, performance goals for restricted stock awards, restricted stock units, performance awards or other share-based awards may be based on the attainment of specified levels of one or more of the following criteria: net sales; revenue; revenue growth or product revenue growth; operating income (before or after taxes); pre-or after-tax income or loss (before or after allocation of corporate overhead and bonus); earnings or loss per share; net income or loss (before or after taxes); return on equity; total stockholder return; return on assets or net assets; appreciation in and/or maintenance of the price of the Shares or any other publicly-traded securities of the Company; market share; gross profits; earnings or losses (including earnings or losses before taxes, before interest and taxes, or before interest, taxes, depreciation and amortization); economic value-added models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; improvement in or attainment of expense levels or working capital levels, including cash, inventory and accounts receivable; operating margin; gross margin; year-end cash; cash margin; debt reduction; stockholders equity; operating efficiencies; market share; customer satisfaction; customer growth; employee satisfaction; regulatory achievements (including submitting or filing applications or other documents with regulatory authorities or receiving approval of any such applications or other documents and passing pre-approval inspections (whether of the Company or the Company’s third-party manufacturer) and validation of manufacturing processes (whether the Company’s or the Company’s third-party manufacturer’s)); strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property; establishing relationships with commercial entities with respect to the marketing, distribution and sale of the Company’s products (including with group purchasing organizations, distributors and other vendors); supply chain achievements (including establishing relationships with manufacturers or suppliers of component materials and manufacturers of the Company’s products); co-development, co-marketing, profit sharing, joint venture or other similar arrangements); financial ratios, including those measuring liquidity, activity, profitability or leverage; cost of capital or assets under management; financing and other capital raising transactions (including sales of the Company’s equity or debt securities; factoring transactions; sales or licenses of the Company’s assets, including its intellectual property, whether in a particular jurisdiction or territory or globally; or through partnering transactions); implementation, completion or attainment of measurable objectives with respect to research, development, manufacturing, commercialization, products or projects, production volume levels, acquisitions and divestitures; factoring transactions; and recruiting and maintaining personnel. The performance goals also may be based solely by reference to our performance or the performance of one or more of our subsidiaries, divisions, business segments or business units, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. The Committee may also exclude under the terms of the performance awards the impact of an event or occurrence which the Committee determines should appropriately be excluded, including (i) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (ii) an event either not directly related to our operations or not within the reasonable control of our management, or (iii) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles.

 

Adjustments to Awards Subject to Performance Criteria.  The Committee may make downward, but not upward, adjustments with respect to any amount payable pursuant to any restricted stock award, restricted stock unit award, performance award or other share-based payment award that is subject to performance criteria and is intended to be treated as performance-based compensation under Section 162(m) of the Code.

The Committee may not waive achievement of performance goals for such awards, except in the case of death, disability or as otherwise determined by the Committee in special circumstances.

 

Dividends; Dividend Equivalents.  Awards other than options and SARs may, if determined by the Committee, provide that the participant will be entitled to receive, currently or on a deferred basis, cash, stock or other property dividends, or cash payments in amounts equivalent to cash, stock, or other property dividends declared with respect to shares of Common Stock covered by an award. The Committee may provide that such amounts will be deemed to have been reinvested in additional shares of Common Stock or otherwise, and that they are subject to the same vesting or performance conditions as the underlying award. Any dividends or dividend equivalents provided with respect to performance awards or restricted stock, restricted stock unit or other share-based awards that are subject to the attainment of performance goals will be subject to the same restrictions and risk of forfeiture as the underlying awards.

 

No Repricing.  The Plan prohibits option and SAR repricings (other than to reflect stock splits, spin-offs or other corporate events described under “Adjustments upon Changes in Capitalization” below, or in connection with a change in control of the Company) unless stockholder approval is obtained. For purposes of the Plan, a “repricing” means a reduction in the exercise price of an option or the grant price of a SAR, the cancellation of an option or SAR in exchange for cash or another award under the Plan if the exercise price or grant price of the option of SAR is greater than the fair market value of the Common Stock, or any other action with respect to an option or SAR that may be treated as a repricing under the rules of the Principal Exchange.

 

Nontransferability of Awards.  No award under the Plan, and no shares subject to awards that have not been issued or as to which any applicable restriction, performance or deferral period has not lapsed, is transferable other than by will or the laws of descent and distribution, and an award may be exercised during the participant’s lifetime only by the participant or the participant’s guardian or legal representative, except that the Committee may provide in an award agreement that a participant may transfer an award without consideration to certain family members, family trusts, or other family-owned entities, or for charitable donations under such terms and conditions determined by the Committee.

 

Adjustments upon Changes in Capitalization.  In the event of any merger, reorganization, consolidation, recapitalization, dividend or distribution (whether in cash, shares or other property, other than a regular cash dividend), stock split, reverse stock split, spin-off or similar transaction or other change in our corporate structure affecting our Common Stock or the value thereof, appropriate adjustments to the Plan and awards will be made as the Committee determines to be equitable and appropriate, including adjustments in the number and class of shares of stock available for awards under the Plan, the number, class and exercise or grant price of shares subject to awards outstanding under the Plan, and the limits on the number of awards that any person may receive.

 

Termination of Employment.  The Committee will determine and set forth in the award agreement whether any awards will continue to be exercisable, and the terms of such exercise, on and after the date the participant ceases to be employed by, or to otherwise provide services to, us, whether by reason of death, disability, voluntary or involuntary termination of employment or service, or otherwise.

 

Amendment and Termination.  The Plan may be amended or terminated by the Board of Directors except that stockholder approval is required for any amendment to the Plan which increases the number of shares of Common Stock available for awards under the Plan, expands the types of awards available under the Plan, materially expands the class of persons eligible to participate in the Plan, permits the grant of options or SARs with an exercise or grant price of less than 100% of fair market value on the date of grant, amends the provisions prohibiting the repricing of stock options and SARs as described above under “No Repricing,” increases the limits on shares subject to awards or the dollar value payable with respect to performance awards, or takes any action with respect to an option or SAR that may be treated as a repricing under the rules of the Principal Exchange. No amendment or termination may materially impair a participant’s rights under an award previously granted under the Plan without the written consent of the participant.

 

The Plan will expire on the 10th anniversary of the date of its approval by stockholders, except with respect to awards then outstanding, and no further awards may be granted thereafter.

Federal Income Tax Consequences

 

The following discussion summarizes certain federal income tax considerations of awards under the Plan. However, it does not purport to be complete and does not describe the state, local or foreign tax considerations or the consequences for any particular individual

 

Stock Options.  A participant does not realize ordinary income on the grant of a stock option. Upon exercise of a non-qualified stock option, the participant will realize ordinary income equal to the excess of the fair market value of the shares of Common Stock over the option exercise price. The cost basis of the shares acquired for capital gain treatment is their fair market value at the time of exercise. Upon exercise of an incentive stock option, the excess of the fair market value of the shares of Common Stock acquired over the option exercise price will be an item of tax preference to the participant, which may be subject to an alternative minimum tax for the year of exercise. If no disposition of the shares is made within two years from the date of granting of the incentive stock option or within one year after the transfer of the shares to the participant, the participant does not realize taxable income as a result of exercising the incentive stock option; the tax basis of the shares received for capital gain treatment is the option exercise price; any gain or loss realized on the sale of the shares is long-term capital gain or loss. If the participant disposes of the shares within the two-year or one-year periods referred to above, the participant will realize ordinary income at that time in an amount equal to the excess of the fair market value of the shares at the time of exercise (or the net proceeds of disposition, if less) over the option exercise price. For capital gain treatment on such a disposition, the tax basis of the shares will be their fair market value at the time of exercise.

 

Stock Appreciation Rights.  No ordinary income will be realized by a participant in connection with the grant of a SAR. When the SAR is exercised, the participant will realize ordinary income in an amount equal to the sum of the amount of any cash received and the fair market value of the shares of Common Stock or other property received upon the exercise.

 

Restricted Stock, Performance and Restricted Stock Unit Awards.  The participant will not realize ordinary income on the grant of a restricted stock award (or a performance award if the shares of Common Stock are issued on grant), but will realize ordinary income when the shares subject to the award become vested in an amount equal to the excess of (i) the fair market value of the shares on the vesting date over (ii) the purchase price, if any, paid for the shares. The participant may, however, elect under Section 83(b) of the Code to include as ordinary income in the year the shares are granted an amount equal to the excess of (i) the fair market value of the shares on the date of issuance, over (ii) the purchase price, if any, paid for the shares. If the Section 83(b) election is made, the participant will not realize any additional taxable income when the shares become vested.

 

The participant will not realize ordinary income on the grant of a restricted stock unit award, (or a performance award under which shares of Common Stock are not issued on grant), but will realize ordinary income when the shares subject to the award are issued to the participant after they become vested. The amount of ordinary income will be equal to the excess of (i) the fair market value of the shares on the date they are issued over (ii) the purchase price, if any, paid for the award.

 

Upon disposition of shares of Common Stock acquired under a restricted stock award, performance award or restricted stock unit award, the participant will realize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for the shares plus any amount realized as ordinary income upon grant (or vesting) of the shares.

 

Company Tax Deduction.  We generally will be entitled to a tax deduction in connection with an award under the Plan, subject to the provisions of Section 162(m) of the Code, in an amount equal to the ordinary income realized by a participant and at the time the participant realizes such income (for example, on the exercise of a nonqualified stock option). Section 162(m) of the Code may limit the deductibility of compensation paid to the Company’s Chief Executive Officer and to each of the next three most highly compensated executive officers other than the Chief Financial Officer. Under Section 162(m), the annual compensation paid to any of these executives will be deductible to the extent that it does not exceed $1,000,000 or if the compensation is treated as performance-based compensation under Section 162(m) of the Code. Compensation attributable to stock options and SARs under the Plan should qualify as performance-based compensation if the awards are made by the Committee and the exercise or grant price of the award is no less than the fair market value of the Common Stock on the date of grant. Compensation attributable to

restricted stock awards, restricted stock unit awards and performance awards should qualify as performance-based compensation if (i) the compensation is approved by the Committee, (ii) the compensation is paid only upon the achievement of an objective performance goal established in writing by the Committee while the outcome is substantially uncertain, and (iii) the Committee certifies in writing prior to the payment of the compensation that the performance goal has been satisfied.

 

Burn Rate Commitment

 

We commit to cap our average annual burn rate at 7.26% in fiscal years 2011, 2012 and 2013. In calculating our compliance with this maximum burn rate commitment, we define “burn rate” as the number of shares subject to stock awards granted in a fiscal year divided by the weighted average number of shares of our common stock outstanding (basic) during our fiscal year. For the purposes of calculating the number of awards granted in each of the next three fiscal years, (i) awards of stock options and stock appreciation rights will count as one share, and (ii) awards of restricted stock, restricted stock units or other full value awards will count as 1.5 shares.

 

Equity Compensation Plan Information

 

The following table sets forth aggregated information about the Company’s compensation plans (Prior Plans) under which equity securities of the Company are authorized for issuance as of December 31, 2010:

 

 

The number of securities remaining available for future issuance in column (c) above will no longer be available for future grants if the 2011 Omnibus Incentive Plan is approved by stockholders.

 

As of December 31, 2010, 4,037,768 shares were reserved for issuance under the Prior Plans in connection with outstanding stock options (with a weighted average exercise price of $$5.02 and a weighted average remaining term of 7.2 years; there were no shares to be issued pursuant to any other type of award under the Plans. As of December 31, 2010, 868,632 shares remained available for future issuance under the 2004 Plan, 2005 Plan, 2007 Plan and 2008 Plan (no shares remained available for future issuance under the 1999 and 2000 Plans as of December 31, 2010).

 

Required Vote

 

The approval of the Plan requires a majority of the total votes cast on the proposal, provided that the total votes cast on the proposal represent over 50% of all shares of common stock present or represented and entitled to vote on the proposal at the Annual Meeting with respect to such proposal. The Board of Directors is of the opinion that approval of the Plan is in the best interests of the Company and its stockholders and recommends a vote for the approval of the Plan. All proxies will be voted to approve the Plan unless a contrary vote is indicated on the enclosed proxy card.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE 2011 OMNIBUS INCENTIVE PLAN.

 

PROPOSAL 4 — ADVISORY VOTE TO APPROVE OUR EXECUTIVE COMPENSATION, AS DESCRIBED IN THIS PROXY STATEMENT.

 

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with rules promulgated by the SEC.

 

As we discuss above under the caption “Compensation Discussion and Analysis,” the general compensation arrangements of the Company are guided by the following principles and business objectives: