SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

ReachLocal Inc – ‘PREM14A’ for 10/1/14

On:  Wednesday, 10/1/14, at 4:30pm ET   ·   For:  10/1/14   ·   Accession #:  1437749-14-17752   ·   File #:  1-34749

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/01/14  ReachLocal Inc                    PREM14A    10/01/14    1:1.2M                                   RDG Filings/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Preliminary Proxy Solicitation Material -- Merger   HTML    808K 
                          or Acquisition                                         

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant    ☑

Filed by a Party other than the Registrant    ☐

Check the appropriate box:

Payment of Filing Fee (Check the appropriate box):

October [●], 2014

Dear Stockholder:

You are cordially invited to join us at a special meeting of stockholders of ReachLocal, Inc., which will be held at 9:00 a.m. (PDT) on [____________], 2014 at the Warner Center Marriot Woodland Hills hotel, 21850 Oxnard Street, Woodland Hills, CA 91367.

At the meeting, we will ask our stockholders to vote on a proposal to approve a one-time stock option exchange for eligible employees. This proposal is an important part of our ongoing strategy to execute a successful turnaround of our business. The board of directors unanimously believes that the proposal is in the best interests of ReachLocal and its stockholders, and, accordingly, recommends a vote “FOR” the approval of the stock option exchange.

We hope that you will take this opportunity to participate in the affairs of the company. Whether or not you plan to attend the meeting, it is important that your shares be represented and voted. You may vote on the Internet, by telephone or by completing and mailing a proxy card. Voting over the Internet, by telephone or by written proxy will ensure your shares are represented at the meeting. Additional information about voting your shares is included in the proxy statement.

We look forward to seeing you at the meeting.

Sincerely,

REACHLOCAL, INC.

21700 Oxnard Street, Suite 1600
Woodland Hills, California 91367

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [__________________]

To the Stockholders of ReachLocal, Inc.:

The special meeting of stockholders of ReachLocal, Inc., a Delaware corporation, will be held on [___________], 2014 at the Warner Center Marriot Woodland Hills hotel, 21850 Oxnard Street, Woodland Hills, CA 91367, at 9:00 a.m. (PDT), for the purpose of considering and acting upon the following:

Only stockholders of record at the close of business on October 8, 2014 will be entitled to notice of and to vote at the meeting and any continuations, adjournments or postponements thereof. A list of stockholders eligible to vote at the meeting will be available for inspection at the meeting and at the executive offices of ReachLocal during regular business hours for at least ten days prior to the meeting.

All stockholders are cordially invited to attend the meeting in person. Your vote is important to us, and we hope that you will take this opportunity to participate in the affairs of the company. Whether or not you plan to attend the meeting, we urge you to read the accompanying materials regarding matters to be voted on at the meeting and use the proxy card and instructions to submit your vote by proxy. You may vote by completing and mailing the proxy card enclosed with the proxy statement, or you may grant your proxy electronically via the Internet or by telephone by following the instructions on the proxy card. Submitting a proxy over the Internet, by telephone or by mailing a proxy card will ensure your shares are represented at the meeting. If you hold your shares in street name, which means your shares are held of record by a broker, bank or other nominee, you will receive instructions on how to vote your shares from such broker, bank or other nominee.

You may revoke your proxy delivered pursuant to this solicitation at any time prior to the meeting. If you attend the meeting and wish to change your proxy vote, you may do so automatically by voting in person at the meeting. If your shares are held in street name, you may change your vote by submitting new voting instructions to your broker, bank or other nominee. We look forward to your participation.

Dated: October [●], 2014

TABLE OF CONTENTS

REACHLOCAL, INC.

21700 Oxnard Street, Suite 1600
Woodland Hills, California 91367

Your proxy is solicited on behalf of the board of directors (the “Board”) of ReachLocal, Inc., a Delaware corporation (“ReachLocal,” “we,” “us,” “our” or “the company”), for use at our special meeting of stockholders to be held on [____________], 2014, at the Warner Center Marriot Woodland Hills hotel, 21850 Oxnard Street, Woodland Hills, CA 91367, or at any continuation, postponement or adjournment thereof, for the purposes discussed in this proxy statement and in the accompanying Notice of Special Meeting and any business properly brought before the meeting. Proxies are solicited to give all stockholders of record an opportunity to vote on matters properly presented at the meeting. This proxy statement is first being released to stockholders on or about October [●], 2014.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON [______________], 2014

The following proxy materials are available for review at http://investors.reachlocal.com/events.cfm:

You are encouraged to access and review all of the important information contained in the proxy materials before voting.

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE SPECIAL MEETING

Why am I receiving this Proxy Statement?

You have been sent this proxy statement because you were a stockholder, or held ReachLocal stock through a broker, bank or other nominee, at the close of business on October 8, 2014, which is the record date for stockholders entitled to vote at the meeting.

What proposal will be considered at the meeting?

At the meeting, stockholders will be asked to consider and act upon the following:

We are not aware of any other business to be brought before the meeting. If any additional business is properly brought before the meeting, the designated officers serving as proxies will vote in accordance with their best judgment.

The Board unanimously believes that the proposal is in the best interests of ReachLocal and its stockholders, and, accordingly, recommends a vote “FOR” the approval of the stock option exchange.

Who is entitled to vote at the meeting?

We have set October 8, 2014 as the record date for the special meeting. All stockholders who owned our stock at the close of business on the record date are entitled to this notice and to vote at the meeting and any adjournments or postponements thereof.

As of the record date, there were [●] shares of our common stock outstanding and entitled to vote at the meeting.

How many votes do I have?

Each outstanding share of our common stock is entitled to one vote at the meeting. You have one vote per share that you owned at the close of business on the record date.

How do I vote my shares?

You may vote by attending the meeting and voting in person, or you may vote by submitting a proxy. The method of voting by proxy differs for shares held as a record holder and shares held in “street name.” If you hold your shares of common stock as a record holder, you may vote your shares by completing, dating and signing the proxy card that was included with the proxy statement and promptly returning it in the preaddressed, postage paid envelope provided to you, or by submitting a proxy over the Internet or by telephone by following the instructions on the proxy card. If you hold your shares of common stock in street name, which means your shares are held of record by a broker, bank or other nominee, you will receive the proxy materials from your broker, bank or other nominee with instructions on how to vote your shares. Your broker, bank or other nominee may allow you to deliver your voting instructions over the Internet and may also permit you to vote by telephone.

The Internet and telephone voting facilities will close at 11:59 p.m. (EDT) on [____________], 2014. If you vote by Internet or telephone, then you need not return a written proxy card by mail.

YOUR VOTE IS VERY IMPORTANT. You should submit your proxy even if you plan to attend the meeting. If you properly give your proxy and submit it to us in time to vote, one of the individuals named as your proxy will vote your shares as you have directed.

What happens if I vote my shares by proxy?

If you properly fill in your proxy card and send it to us in time to vote, or vote your shares by telephone or Internet, you authorize our officers listed on the proxy card to vote your shares on your behalf as you direct.

If you sign and return a proxy card, but do not provide instructions on how to vote your shares, the designated officers will vote “FOR” the approval of the stock option exchange on your behalf.

Can I change or revoke my vote after I return my proxy card or voting instructions?

If you choose to vote your shares by giving a proxy pursuant to this solicitation, you may revoke or change your proxy instructions at any time prior to the casting of votes at the meeting if you take any of the following actions:

If your shares are held in street name, you may change your vote by submitting new voting instructions to your broker, bank or other nominee.

Who pays for the proxy solicitation and how will ReachLocal solicit votes?

We pay all costs associated with the solicitation of proxies. We will also pay any costs incurred by brokers and other fiduciaries to forward proxy solicitation materials to beneficial owners.

Proxies may be solicited by any of our directors, officers or employees on behalf of the Board by mail or in person, by telephone, via facsimile or e-mail. Additionally, we have retained the firm of MacKenzie Partners, Inc. to assist with the solicitation of proxies and will pay a fee of $5,000 for this service, plus reasonable costs and expenses.

How many votes must be present to hold the meeting?

In order to conduct business and have a valid vote at the meeting, a quorum must be present in person or represented by proxies. A quorum is defined as a majority of the shares outstanding on the record date and entitled to vote. In accordance with our Amended and Restated Bylaws (our “bylaws”) and Delaware law, proxies reflecting broker “non-votes” and abstentions will be counted for purposes of determining whether a quorum is present.

What are broker “non-votes”?

Brokers who hold shares for the accounts of their clients may vote such shares either as directed by their clients, or in the absence of such direction, in most cases in their own discretion as to certain “routine” proposals. If a broker votes shares for which a client has not given voting instructions for or against a routine proposal, those shares are considered present and entitled to vote at the meeting. Those shares will be counted towards determining whether or not a quorum is present and will also be taken into account in determining the outcome of the routine proposals. However, where a proposal is not routine, a broker who has received no instructions from its client generally does not have discretion to vote its clients’ uninstructed shares on that proposal. When a broker indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular proposal, the missing votes are referred to as broker “non-votes.” Those shares will be considered present for the purpose of determining whether or not a quorum is present, but will not be considered entitled to vote on the non-routine proposals and, therefore, will not be taken into account in determining the outcome of the non-routine proposals. The proposal to approve the option exchange is not considered a routine matter, and without your instruction, your broker cannot vote your shares on the proposal.

How many votes are required to approve the proposals?

Detailed information regarding the option exchange proposal, and the means for stockholders to present proposals to be considered at the 2015 Annual Meeting, are presented on the following pages. Additional information about our equity ownership, compensation of officers and directors and other matters can be found starting at page .

What does it mean if I receive more than one set of materials?

If you receive more than one set of materials, your shares are registered in more than one name or are registered in different accounts. In order to vote all the shares you own, you must either sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards you receive.

How can I find out the results of the voting at the meeting?

 Voting results will be announced by the filing of a Current Report on Form 8-K within four business days after the meeting. If final voting results are unavailable at that time, we will file an amended Current Report on Form 8-K within four business days of the day the final results are available.

Whom can I contact for assistance?

If you need assistance in voting over the Internet, by telephone or by completing your proxy card or have questions regarding the meeting, please contact Adam F. Wergeles at 818-274-0260 or write to Adam F. Wergeles, Secretary, ReachLocal, Inc., 21700 Oxnard Street, Suite 1600, Woodland Hills, California 91367.

PROPOSAL — APPROVAL OF A ONE-TIME STOCK OPTION EXCHANGE

Our Board authorized a one-time stock option exchange for eligible employees on September 27, 2014, subject to stockholder approval, as part of a general review of our business turnaround progress and plans. We are now seeking stockholder approval of the option exchange. If implemented, the option exchange would permit our eligible employees to surrender certain outstanding stock options for cancellation in exchange for the grant of new replacement options on a one-for-one basis with per-share exercise prices equal to the greater of $6.00 or the fair market value of our common stock on the replacement grant date, for which we use the closing price of our common stock on the Nasdaq on the grant date. Only stock options with per-share exercise prices at or above $8.00 will be eligible for the exchange. In addition, options issued pursuant to the stock option exchange we conducted in 2012 will not be eligible to be exchanged.

Overview

2014 has been a challenging year for ReachLocal. A primary driver of this year’s disappointing performance has been the December 2013 realignment of our North American sales operations. This has contributed to a substantial decline in the performance of our North American business. In addition, unexpected challenges in our foreign operations have added to our growth challenges. Our financial performance, and likewise our stock performance, has been accordingly adversely impacted. As a result, approximately 99% of our employees’ stock options have exercise prices that exceed the recent trading prices of our common stock, and as of September 25, 2014, over 80% of our employees’ stock options had exercise prices at least 100% above the current market price of our common stock.

In April 2014, Sharon Rowlands joined as our new Chief Executive Officer, and she is leading a turn-around of the company to return it to sustained growth and profitability. Among the many actions that she has taken to date have been steps to restructure our sales operations team as part of a plan to remedy the issues created by the 2013 realignment.

While the company is making progress, we have suffered significant challenges with employee retention and continue to suffer from elevated employee attrition. Equity compensation is an important component of employee compensation in our industry and the large decline in value of our employees’ stock options has substantially reduced the competitiveness of our employees’ overall compensation as compared to other companies in our industry. In addition, the market for exceptional employees is increasingly competitive, which is exacerbating the problem. In order to increase our chances of success during our turnaround, it is important to incentivize employees to remain with us through this period.

A consistent message that has been communicated from employees at all levels of the company is that they perceive their underwater stock options as having little or no value and that they provide no incentive to stay with the company through this difficult period. Moreover, unlike a majority of our peer group’s equity compensation programs that are solely or partially comprised of full-value awards, our equity compensation program has relied primarily on stock options. As a result, our equity compensation program is largely ineffective at providing the incentives that we believe are necessary to motivate and retain our employees.

The objective of our equity incentive programs has been, and continues to be, to link the personal interests of equity incentive plan participants to those of our stockholders. We believe that, if approved by our stockholders, the option exchange would be an important component in our efforts to achieve that goal.

Our Compensation Committee and Board have decided to allow Ms. Rowlands to participate in the proposed option exchange because it is critical to the success of our turnaround to align Ms. Rowlands’ interests with those of our stockholders. Furthermore, they believe that the deteriorating operating performance is primarily attributable to events and circumstances that predated the commencement of her tenure. Indeed, when Ms. Rowlands joined the company and received her initial stock option grant on April 1, 2014, the deterioration of the business was accelerating, which quickly resulted in her stock option grant being substantially underwater. Accordingly, to ensure that her interests remain aligned with those of our stockholders, our Board has decided to include her in the option exchange.

Stockholder approval of the option exchange is required under the Nasdaq listing rules and the terms of our Amended and Restated 2008 Stock Incentive Plan (which is referred to as the 2008 Plan). Stockholder approval of this proposal requires the affirmative vote of a majority of shares represented and voting at the special meeting. If our stockholders do not approve the option exchange, eligible options will remain outstanding in accordance with their existing terms.

If our stockholders approve this proposal, and our Board, Compensation Committee or senior management determine to implement the option exchange, the option exchange is expected to commence during the fourth quarter of 2014. Our Board, Compensation Committee or senior management may, however, in their sole discretion, determine to accelerate or postpone the actual start date of the option exchange to a date within 12 months following the date of the meeting, or determine not to effect the option exchange at all.

 Summary of Material Terms

The option exchange, if approved by our stockholders, would provide for the following:

If stockholders approve the option exchange, it is expected to commence during the fourth quarter of 2014. Our Board, Compensation Committee or senior management may, in their sole discretion, determine to postpone the actual start date of the option exchange to a date within 12 months following the date of stockholder approval or determine not to effect the option exchange at all. If the option exchange does not commence within 12 months following stockholder approval, we would consider any future option exchange or similar program to require new stockholder approval before it can be implemented.

While the terms of the option exchange are expected to be materially similar to the terms described in this proposal, our Board, Compensation Committee and senior management may, in their sole discretion, change the terms of the option exchange to take into account a change in circumstances, as described below, and may determine not to implement the option exchange even if stockholder approval of the option exchange is obtained.

Reasons for the Option Exchange

We believe that to be successful, our employees need to think like owners. Consistent with this philosophy, our equity compensation program continues to be broad-based. This broad-based equity compensation program is intended to provide us with a competitive advantage, particularly in our efforts to hire and retain top talent in technology-related fields.

Due to the significant decline of our stock price during the last year, however, approximately 99% of our employees’ stock options have exercise prices that exceed the current market price of our common stock, and as of September 25, 2014, over 80% of our employees’ stock options had exercise prices at least 100% above the current market price of our common stock. For example, the closing price of our common stock on Nasdaq on September 25, 2014 was $3.93, whereas the weighted average exercise price of all outstanding options held by our employees on that date was $10.79 and approximately 84% of those stock options had per-share exercise prices of $8.00 or higher.

Although we continue to believe that equity awards are an important component of our employees’ total incentive benefits and can provide us with a competitive advantage, we also believe that employees generally perceive these options to have little or no value due to the significant difference between the exercise prices and the current market price of our common stock. In addition, the market for exceptional employees is increasingly competitive, which is exacerbating the problem. Moreover, unlike a majority of our peer group’s equity compensation programs that are solely or partially comprised of full-value awards, our equity compensation program has relied primarily on stock options. As a result, our equity compensation program is largely ineffective at providing the incentives that we believe are necessary to motivate and retain our employees.

 In June 2012 we completed a value-for-value option exchange. However, due to a combination of employee turnover since the 2012 option exchange and low participation, less than 5% of currently outstanding stock options are options that were issued as part of the 2012 option exchange. Therefore, notwithstanding the 2012 option exchange, we believe that the proposed option exchange is fundamental to the success of our ongoing turnaround plans. However, options issued as part of the 2012 option exchange will not be eligible to be exchanged in this option exchange.

Alternatives Considered

When considering how best to continue to provide incentives to and reward our employees who hold options that are significantly underwater, we considered the following alternatives:

The Option Exchange

After weighing each of these alternatives, our Board and Compensation Committee decided to implement a one-for-one option-for-option exchange. We have determined that a program under which our employees generally could exchange significantly underwater stock options for stock options having a per-share exercise price equal to the fair market value of our common stock on the replacement grant date is the most attractive alternative for a number of reasons, including the following:

Details of the Stock Option Exchange

Implementing the Option Exchange

We will not commence the option exchange unless our stockholders approve this proposal. Our Board authorized the option exchange on September 27, 2014, subject to stockholder approval. If this proposal is approved, the offer to surrender eligible options in exchange for replacement options is expected to commence during the fourth quarter of 2014. Our Board, Compensation Committee or senior management may, in their sole discretion, determine to postpone the actual start date of the option exchange to a date within 12 months following the date of stockholder approval of this proposal or determine not to effect the option exchange at all.

If stockholders approve this proposal, eligible employees will be offered the opportunity to participate in the option exchange pursuant to a written offer that will be distributed to all eligible employees. Eligible employees will be given at least 20 business days to elect to exchange all, some, or none of their eligible options for replacement options. On the last day of the exchange offer, the eligible options surrendered for exchange will be cancelled, and replacement options will be granted to participating employees. All such replacement options will be granted under, and subject to the terms of, the 2008 Plan, and will have a per-share exercise price equal to the greater of $6.00 and the fair market value of our common stock on the replacement grant date.

Prior to commencement of the option exchange, we will file the offer to exchange with the Securities and Exchange Commission (“SEC”) as part of a tender offer statement on Schedule TO. Eligible employees, as well as stockholders and members of the public, will be able to review the offer to exchange and other related documents filed by us with the SEC free of charge on the SEC’s website at http://www.sec.gov.

Eligibility

If implemented, the option exchange will be open to all of our employees (except as described below) who hold stock options with a per-share exercise price at or above $8.00, including our CEO, Ms. Rowlands. Options issued pursuant to the 2012 stock option exchange will not be eligible to be exchanged in this option exchange. The option exchange will not be available to non-employee members of our Board, any consultants, or any former employees. In addition, our Board may determine that it would be more efficient and better serve the interests of our company and our stockholders, while remaining consistent with the goals of our incentive compensation programs, to address through other means the issues presented by underwater options held by employees located in certain foreign jurisdictions, and in such case, employees in those foreign jurisdictions would not be eligible to participate in the option exchange. As of September 25, 2014, we estimate that approximately 450 of our employees would be eligible to participate in the option exchange.

An employee who tenders his or her options for exchange must also remain employed through the last day of the exchange offer in order to receive the replacement options. If an option holder is no longer an employee with us for any reason, including layoff, termination, voluntary resignation, death or disability, on the date that the option exchange is commenced, that option holder cannot participate in the option exchange. If an option holder is no longer an employee with us for any reason on the last day of the exchange offer, even if he or she had elected to participate and had tendered his or her options for exchange, such employee’s options will automatically be deemed withdrawn and he or she will not participate in the option exchange. He or she will retain his or her outstanding options in accordance with their original terms and conditions, and he or she may exercise them during a limited period of time following termination of service in accordance with their terms and to the extent that they are vested. A vote by an employee in favor of this proposal at the special meeting does not constitute an election to participate in the option exchange.

Of the outstanding options held by eligible employees as of September 25, 2014, the maximum number of shares of common stock underlying options which could be surrendered for exchange and replaced is approximately 3.5 million.

Election to Participate

Participation in the option exchange will be voluntary. Under the option exchange, eligible employees may make an election to surrender eligible stock options in exchange for replacement options.

Granting of Replacement Options

Replacement options will cover the same number of shares as the surrendered options they replace.

Vesting of Replacement Options

Replacement options will vest 12.5% on the six-month anniversary of the replacement grant date and in substantially equal installments monthly thereafter over the subsequent 42 months, subject to the option holder’s continued service with us through the applicable vesting date.

Term of the Replacement Options

Replacement options will have a maximum seven-year term measured from the replacement grant date.

Other Terms and Conditions of the Replacement Options

Other than the terms discussed above, replacement options will have terms and conditions similar to the surrendered options.

U.S. Federal Income Tax Consequences

The option exchange should be treated as a non-taxable exchange for U.S. federal income tax purposes, and we and our participating employees should recognize no income for U.S. federal income tax purposes upon the surrender of eligible options and the grant of replacement options. The tax consequences of the option exchange in foreign jurisdictions will depend on applicable foreign tax rules and regulations but will be fully disclosed to participants subject to the tax laws of foreign jurisdictions as part of the offer to exchange options.

Accounting Impact

Under ASC Topic 718, the exchange of options under the option exchange is treated as a modification of the terms or conditions of the existing option awards. Accordingly, we will recognize the unamortized compensation cost of the surrendered options, as well as the incremental compensation cost of the replacement options granted in the option exchange, ratably over the vesting period of the replacement options. The incremental compensation cost will be measured as the excess of the fair value of each replacement option granted to an employee over the fair value of the option surrendered in exchange, measured as of the last day of the exchange offer. The amount of incremental compensation expense we will recognize as a result of the option exchange will depend on a number of factors, including the participation in the program and fair values of the replacement options and surrendered options. We expect, however, to recognize incremental compensation expense as a result of the option exchange between $2 million and $3 million. In the event that any of the replacement options are forfeited prior to their vesting due to termination of service, the incremental compensation cost for the forfeited replacement options will not be recognized; however, we would recognize any unamortized compensation expense from the surrendered options which would have been recognized under the original vesting schedule.

Potential Modification to Terms to Comply with Governmental Requirements

The terms of the option exchange will be described in a tender offer document that will be filed with the SEC. Although we do not anticipate that the SEC would require us to modify the terms materially, it is possible that we will need to alter the terms of the option exchange to comply with potential SEC comments. In addition, it is currently our intention to make the program available to our eligible employees, including eligible employees who are located outside of the United States, where permitted by local law and where we determine it is feasible and practical to do so. It is possible that we will make modifications to the terms offered to employees in countries outside the United States to comply with local requirements, or for tax or accounting reasons. The Compensation Committee will retain the discretion to make any such necessary or desirable changes to the terms of the option exchange for purposes of complying with comments from the SEC or optimizing the U.S. federal or foreign tax consequences.

Benefits of the Option Exchange to Eligible Employees

Because the decision whether to participate in the option exchange is completely voluntary, we are not able to predict who will participate, how many options any particular group of employees will elect to exchange, or the number of replacement options that we may grant. As noted above, non-employee members of our Board, consultants and former employees are not eligible to participate in the option exchange.

Effect on Stockholders

The option exchange was designed to provide renewed incentives and motivate the eligible employees to continue to create stockholder value and reduce the number of shares currently subject to outstanding options, thereby avoiding the dilution in ownership that normally results from supplemental grants of new stock options or other awards. We are unable to predict the precise impact of the option exchange on our stockholders because we cannot predict which, or how many, employees will elect to participate in the option exchange, and which or how many eligible options such employees will elect to exchange.

Vote Required

Approval of the option exchange requires the affirmative vote of a majority of shares of common stock present or represented by proxy at the meeting and entitled to vote on the option exchange.

The Board unanimously recommends that you vote “FOR” the approval of a one-time option exchange.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2013 regarding compensation plans under which our equity securities are authorized for issuance:

OWNERSHIP OF THE COMPANY

Security Ownership of Directors, Executive Officers and Certain Beneficial Owners

The following table shows the beneficial ownership of our common stock as of September 25, 2014 by:

Beneficial ownership, which is determined in accordance with the rules and regulations of the SEC, means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of our common stock. The number of shares of our common stock beneficially owned by a person includes shares of common stock issuable with respect to options held by the person that are exercisable within 60 days. The percentage of our common stock beneficially owned by a person assumes that the person has exercised all options the person holds which are exercisable or exercisable within 60 days of September 25, 2014 and that no other persons exercised any of their options.

Except as otherwise indicated in the footnotes to the table or in cases where community property laws apply, we believe, based on the information furnished to us, that each person identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the person.

Except as otherwise indicated, the business address for each of the following persons is 21700 Oxnard Street, Suite 1600, Woodland Hills, California 91367.

COMPENSATION DISCUSSION AND ANALYSIS

This section discusses the principles underlying our policies and decisions with respect to the compensation of our executive officers who are named in the “Summary Compensation Table” and the most important factors relevant to an analysis of these policies and decisions. The “named executive officers” for 2013 include David Carlick, former Interim Chief Executive Officer and Chairman of the Board; Zorik Gordon, former Chief Executive Officer and director; Ross G. Landsbaum, Chief Financial Officer; Joshua Claman, former President; Nathan Hanks, former President and director; Kris Barton, Chief Product Officer; and Daniel Della Flora, Chief Accounting Officer. Messrs. Gordon and Hanks resigned in August and November 2013, respectively, Mr. Carlick resumed his role as non-executive Chairman in April 2014, and Mr. Claman resigned in May 2014.

Executive Summary

Our compensation strategy focuses on providing a total compensation package that will not only attract and retain high-caliber executive officers and employees, but will also be utilized as a tool to communicate and align employee contributions with our corporate objectives and stockholder interests. It is our philosophy to provide a competitive total compensation package that enables our named executive officers, as well as our other employees, to share our success when our objectives are met.

Pay for Performance

Pay for performance is an important component of our compensation philosophy. Consistent with this focus, our compensation program includes annual performance-based bonuses and long-term equity-based compensation, historically, primarily in the form of stock options. We have not adopted any formal or informal policies or guidelines for allocating compensation between long-term and short-term compensation, between cash and non-cash compensation or among different forms of cash and non-cash compensation. For 2013, on average, approximately 55% of our named executive officers’ potential compensation initially came from variable, performance-based pay consisting of performance-based bonuses (both formulaic and discretionary), incentive stock option awards and performance-vesting restricted stock awards. Non-variable pay includes base salaries, non-performance-vesting restricted stock awards and other perquisites and benefits. The chart below shows the mix between potential variable performance-based pay and non-variable pay for our named executive officers in 2013, prior to the issuance of the Retention Awards and amendment of the Performance Awards, each as described below.

As described in more detail below, in connection with the changing of our leadership, in November 2013, the compensation committee implemented a retention program intended to ensure that the key personnel needed to manage the company during the transitional period remained with the company. This retention program had two components: the grant of time-based vesting restricted stock awards (the Retention Awards) and the amendment of the performance-vesting restricted stock awards (the Performance Awards) to provide time-based vesting as well. After implementation of the retention program, on average, approximately 38% of our named executive officers’ potential compensation came from variable, performance-based pay consisting of performance-based bonuses (both formulaic and discretionary), incentive stock option awards and performance-vesting restricted stock awards. The chart below shows the mix between potential variable performance-based pay and non-variable pay for our named executive officers in 2013, after the issuance of the Retention Awards and amendment of the Performance Awards.

Annual Cash Bonus Plan

For 2013, the compensation committee adopted the 2013 Executive Bonus Plan that included both a formulaic component and a discretionary component. This discretionary element gave the compensation committee greater flexibility to consider other performance aspects, such as individual performance, execution against strategic initiatives and overall performance of our company as compared to new and existing competitors in determining annual bonus payouts.

As is more fully discussed under “Elements of Compensation—Cash Bonuses” below, the 2013 Executive Bonus Plan, or the bonus plan, established a target bonus pool, which was divided into three component target bonus pools: (i) 25% of the total bonus pool was tied to achievement of certain revenue objectives, (ii) 25% of the total bonus pool was tied to achievement of certain adjusted EBITDA (AEBITDA) objectives, and (iii) 50% of the total bonus pool was left to the discretion of the compensation committee (for information regarding our definition of adjusted EBITDA, see “Determination of Compensation—Compensation Philosophy” below). The actual size of the revenue and AEBITDA bonus pools were subject to adjustment upwards or downwards by multiplying the applicable bonus pool by a multiplier, which was determined based on the company’s actual achievement against the applicable targets. The multiplier used to calculate each bonus pool was equal to the lower of the multiplier applied to the revenue pool and the multiplier applied to the AEBITDA pool. Although the revenue and AEBITDA bonus pools were determined independently, the compensation committee established this linkage to emphasize the importance of avoiding seeking either revenue growth or profitability at the expense of the other.

In 2013, neither the revenue target nor the AEBITDA target was met, and accordingly, no bonuses were paid from the revenue or AEBITDA bonus pools. In addition, in view of the overall performance of the company during 2013, the compensation committee declined to award the named executive officers any bonuses under the discretionary component of the bonus.

Mr. Carlick was not eligible to participate in the bonus plan.  

Alignment with Stockholder Interests—Equity Awards

We believe that our equity compensation program supports a long-term performance orientation by aligning interests between our executives and our stockholders. In addition, equity compensation awards with multi-year vesting requirements are intended to serve as a retention tool. We therefore view equity compensation as an important component of our executive compensation program. We provide long-term incentive awards to executives primarily through grants of stock options and restricted stock awards. Equity-based awards represented between 39% and 82% of our named executive officers’ compensation opportunity for 2013.

Ordinary Course Equity Awards. We generally use stock options to compensate our named executive officers both in the form of initial grants in connection with the commencement of employment and additional or “refresher” grants. Although the compensation committee typically grants annual refresher grants, we have not established a formula or program for determining the size of any equity award, including any annual refresher grants, and our compensation committee retains discretion to make stock option awards to employees at any time, including in connection with the promotion of an employee, to reward an employee, for retention purposes or in other circumstances recommended by management. During 2013, each named executive officer received a stock option grant in accordance with our past practices.

Stock Performance Awards and Retention Awards. During 2013, our compensation committee approved grants of performance-vesting restricted stock tied to achievement of a stock price target (the Performance Awards). The Performance Awards were designed to tie our named executive officers’ interests to those of our stockholders and to assist in retention by focusing on the achievement of pre-determined stock price targets over a three-year performance period

2013, however, was a year of transition from a management standpoint— the three remaining founders, Zorik Gordon, Chief Executive Officer; Nathan Hanks, President; and Michael Kline, President, Local Commerce and Chief Strategy Officer, all left the company by the end of 2013. As a consequence of these changes in management, in November 2013 the compensation committee adopted a retention program for key personnel including Messrs. Landsbaum, Claman, Barton and Della Flora. This retention program had two components. First, the company granted a restricted stock award on November 7, 2013, that vests in two equal tranches on November 7, 2014 and November 7, 2015, subject to the recipient’s continuous employment with the company through each vesting date (the Retention Awards). Second, in connection with this retention program, the Performance Awards granted to such employees in February 2013 were amended to provide that the Performance Awards would vest on the earlier of the Performance Award vesting schedule (assuming the performance goals are achieved) or in two equal tranches on November 7, 2014 and November 7, 2015. The compensation committee chose to amend the Performance Awards instead of increasing the size of the Retention Awards, to minimize both dilution and depletion of shares available under the 2008 Plan. The compensation committee implemented this retention program as it sought to ensure that the key personnel needed to manage the company during this transitional period remained with the company.

Good Governance and Best Practices

In furtherance of our objective of implementing policies and practices that are mindful of the concerns of our stockholders, (i) our compensation committee is comprised solely of independent directors, (ii) our compensation committee retained an independent compensation consultant to provide it with advice on matters related to executive compensation, non-employee director remuneration and assistance with preparing compensation disclosure for inclusion in our SEC filings, and (iii) our compensation committee meets frequently so as to be certain that it remains current with the performance of our senior team and addresses compensation matters in a timely manner.

We also endeavor to structure our executive compensation program in a manner that reflects best practices, including the following:

We provide our stockholders with the opportunity to cast a triennial advisory vote on the compensation of our named executive officers (a “say-on-pay proposal”). A substantial majority of the votes cast at our 2011 Annual Meeting, our most recent annual meeting at which a say-on-pay proposal was presented to our stockholders, voted in favor of our say-on-pay proposal. In evaluating our executive compensation program, the compensation committee considered the results of the say-on-pay proposal and other factors as discussed in this Compensation Discussion and Analysis. The compensation committee will consider the outcome of this year’s say-on-pay proposals when making future compensation decisions for our named executive officers. Following this year’s vote on the say-on-pay proposal at the annual meeting, we will provide our stockholders with the opportunity to next cast a say-on-pay vote at our 2017 Annual Meeting.

Determination of Compensation

Roles of Our Board of Directors, Compensation Committee and Chief Executive Officer in Compensation Decisions

Our compensation committee oversees our executive compensation program. Our Chief Executive Officer provides recommendations to our compensation committee with respect to salary adjustments, annual cash incentive bonus targets (if applicable), and awards and equity incentive awards for the named executive officers (excluding himself) and the other executive officers that report to him. Our compensation committee meets with our Chief Executive Officer at least annually to discuss and review his or her recommendations, together with the market data provided by its independent compensation consultant regarding executive compensation for our executive officers (excluding him). Our policy has been that our compensation committee considers these recommendations in determining the compensation of the Chief Executive Officer and our other senior officers, and has the ability to increase or decrease amounts of compensation payable to our executive officers pursuant to those recommendations. In September 2013 upon becoming Interim Chief Executive Officer, David Carlick resigned as chair of the compensation committee. Shortly thereafter, Robert Dykes joined the committee and was appointed chair.

Competitive Market Data and Use of Compensation Consultants

Commencing in 2010, our compensation committee retained Frederic W. Cook & Co., or Cook, to advise on executive compensation matters. For 2013, the compensation committee again retained Cook, who compiled a peer group of companies against which to assess the three key components comprising our named executive officers’ compensation: base salary, cash bonus and equity incentives. The peer group consisted of the following 17 publicly-traded Internet and distribution companies:

This peer group represented a fairly significant change in the peer group used in 2012 as the compensation committee worked closely with management and Cook to ensure that our peer group closely reflected our business operations and financial profile. The compensation committee removed the following five companies: Concur Technologies, Liquidity Services, and NetSuite due to substantial differences in their business models, and SuccessFactors and Taleo due to acquisition in 2012 (meaning that compensation data was no longer publicly available). The compensation committee added the following seven companies that have business models which are more similar to the company’s business model: Active Network, Angie’s List, Boingo Wireless, Cbeyond, Web.com Group, WebMD Group and Yelp. The company’s revenues are between the median and 75th percentile of the 2013 peer group and the company’s market capitalization is at approximately the 25th percentile of the 2013 peer group.

For 2013, our compensation committee considered peer group data, but only as one element of the compensation committee’s overall consideration of the appropriate compensation levels. Our compensation committee does not aim to set total compensation, or any compensation element, at a specified level as compared to the companies in this peer group. Although our compensation committee considered Cook’s peer group analysis in considering our executive compensation program in 2013, our compensation committee ultimately made their own decisions about these matters, based on the peer group analysis and their own business experience and judgment.

For the 2014 peer group, the compensation committee only removed Kenexa due to its acquisition by IBM in December 2012 (meaning that compensation data was no longer publicly available). The company’s revenues approximate the 75^th percentile of the 2014 peer group and the company’s market capitalization is below the 25^th percentile of the 2014 peer group.

Cook performs services solely on behalf of the compensation committee and, except as it may relate to the performance of such services, did not provide any other services to the company or company management in 2013. Cook provided the following services to the compensation committee in 2013: development of an applicable peer group, providing comparative data regarding compensation levels and practice, and assistance with the design of our incentive programs. Our compensation committee has assessed the independence of Cook pursuant to SEC and Nasdaq rules and concluded that no conflict of interest exists that would prevent Cook from independently representing the compensation committee.

Compensation Philosophy

Our compensation philosophy has been driven by a number of factors that are closely linked with our broader strategic objectives. Our ability to excel depends on the skill, creativity, integrity and teamwork of our employees. To this end, we strive to create an environment of mutual respect, encouragement and teamwork that rewards commitment and performance while ensuring that the interests of the management team are aligned both internally, and with our strategic plan and the interests of our stockholders. Our executive compensation philosophy also recognizes that key and core to our success is our ability to rapidly expand the size and breadth of our direct sales force throughout the United States and overseas to create competitive barriers to entry. In that regard, a primary focus of our compensation program has been to incentivize and reward growth in revenue and adjusted EBITDA. We define adjusted EBITDA, or AEBITDA as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, the effects of accounting for business combinations (including any impairment of acquired intangibles and, in the case of the acquisition of SMB:LIVE, the deferred cash consideration), and amounts included in other non-operating income or expense.

Compensation for our named executive officers in 2013 consisted of the elements identified in the following table:

Each of the primary elements of our executive compensation program is discussed in more detail below. While we have identified particular compensation objectives that each element of executive compensation serves, our compensation programs are designed to be flexible and complementary and to collectively serve all of the executive compensation objectives described above. Accordingly, whether or not specifically mentioned below, we believe that, as a part of our overall executive compensation policy, each individual element, to a greater or lesser extent, serves each of our objectives. The compensation levels of our named executive officers reflect to a significant degree the varying roles and responsibilities of such executives, as well as the length of time those executives have served our company.

Elements of Compensation

The following is a discussion of the primary elements of the compensation for each of our named executive officers.

Base Salaries

Messrs. Gordon and Hanks were among the original five founders of our company, and accordingly, their compensation was initially established to reflect their positions as founding executives of a start-up company and evolved as we grew and new investors joined us. Mr. Carlick, the Chairman of our Board, served as Interim Chief Executive Officer from September 2013 to April 2014, with annual base compensation of $400,000, which was the same as the annual base compensation that Mr. Gordon had been paid during 2013. While serving as Interim Chief Executive Officer, Mr. Carlick was not eligible to participate in ReachLocal’s non-employee director compensation program in respect of his service as Chairman of the Board. Messrs. Landsbaum, Claman, Barton and Della Flora joined us in June 2008, July 2012, February 2012, and September 2013, respectively, and their initial base salaries were the result of an arms-length negotiation at that time.

Base salaries of our named executive officers (other than our Chief Executive Officer) are recommended and reviewed periodically by our Chief Executive Officer, and the base salary for each named executive officer is approved by our compensation committee. Adjustments to base salaries are based on the scope of an executive’s responsibilities, individual contribution, experience and sustained performance. Decisions regarding salary increases may take into account the named executive officer’s current salary, equity ownership and the amounts paid to individuals in comparable positions at our peer companies. No formulaic base salary increases are provided to our named executive officers. This strategy is consistent with our intent of offering compensation that is cost-effective, competitive and contingent on the achievement of performance objectives.

During January 2013, Mr. Hanks received an increase in his base salary to match the base salary of Mr. Gordon in light of his appointment as our President and their division of labor. Mr. Landsbaum received a 10% increase in his base salary in view of his performance and the fact that he had not received an increase in base salary since 2010. Mr. Barton received a 3% increase in his base salary, which was consistent with peer group practice.

The actual base salaries paid to all of our named executive officers during 2013 are set forth in the “Summary Compensation Table” below.

Cash Bonuses

2013 Executive Bonus Plan. In addition to base salaries, our executives are also eligible to receive annual cash bonuses. In 2013, the compensation committee both moved to standardize target bonus amounts amongst our executives and also approved increases in targets for certain of our executives. Previously, the target bonus had for certain executives been denominated in a dollar amount. However, as the result of a companywide compensation rationalization, the compensation committee agreed to denominate bonus targets as a percentage of base salary as follows:

(1) Mr. Della Flora’s participation in the bonus pool was prorated based on his partial-year of service with us in 2013.

The increase in the bonus target for Mr. Hanks was attributable to the equalization of Mr. Gordon’s and Mr. Hanks’ overall compensation as discussed above, and the increases in the bonus targets for Messrs. Landsbaum and Barton was attributable both to the move to bonus targets denominated as a percentage of base salaries and increases intended to reflect their strong performance. Messrs. Claman’s and Della Flora’s targets were determined as part of the original negotiation of the terms of their employment. Mr. Carlick’s compensation, as Interim Chief Executive Officer, did not include a bonus opportunity.

In 2013 the compensation committee recommended, and the board of directors adopted, our 2013 Executive Bonus Plan, or the bonus plan, in which the named executive officers participated and had an opportunity to earn an annual bonus based on the target bonuses set forth above. The bonus plan consisted of both a formulaic component and a discretionary component. The formulaic part of the plan was comprised of two target bonus pools, one of which was based on achievement of an annual consolidated revenue objective, or Revenue Target, and the other of which was based on achievement of an annual AEBITDA objective, or AEBITDA Target. Each of the Revenue Target and the AEBITDA Target was derived from the 2013 operating plan adopted by our board of directors and we developed this component of our bonus plan, in cooperation with our compensation committee, to motivate achievement of the Revenue Target and the AEBITDA Target. Finally, the compensation committee also determined that it was beneficial for there to be a purely discretionary element to focus and motivate outstanding individual performance and achievement of strategic and/or non-financial goals that may not be directly reflected through achievement of revenue or AEBITDA targets.

The aggregate 2013 target bonus pool for all our senior executives was set at approximately $2.6 million, with achievement of the Revenue Target comprising 25% of the target amount, or the Revenue Pool, achievement of the AEBITDA Target comprising 25% of the target amount, or the AEBITDA Pool, and the discretionary component comprising the remaining 50% of the target amount, or the Discretionary Pool. Our compensation committee determined that this allocation was consistent with the corporate objectives of rewarding revenue and AEBITDA growth, while at the same time encouraging focus on individual performance.

The Revenue Targets for 2013 were set as follows:

For amounts between $542 million and $566 million, the percentage of the Revenue Pool payable was prorated between 50% and 125% depending on actual achievement in 2013.

The AEBITDA Targets for 2013 were set as follows:

For amounts between $31 million and $39 million, the percentage of the AEBITDA Pool payable was prorated between 50% and 125% depending on actual achievement in 2013. The Revenue and AEBITDA Targets set forth above are before giving effect to the treatment of ClubLocal as discontinued operations.

Our compensation committee also determined that the percentage-payable multiplier applicable to both pools would be the lower of the two (as determined based on actual 2013 performance). For instance, if the percentage payable for the Revenue Pool was 100% and the percentage payable for the AEBITDA Pool was 110%, the percentage payable for both pools would be 100%. The committee established this linkage to emphasize the importance of not seeking either revenue growth or profitability at the expense of the other. The Discretionary Pool would be payable based on our compensation committee’s assessment of the individual performance of the participating executives.

The following table sets forth the allocation of the target bonus pool for 2013 for participating named executive officers. Mr. Carlick, as Interim Chief Executive Officer, did not participate in the bonus plan and was not awarded a 2013 cash bonus.

For 2013, we ended the year with revenue of $514.1 million and AEBITDA of $25.7 million (before giving effect to the treatment of ClubLocal as discontinued operations). Accordingly, neither target was met, and no bonuses were paid from such pools.

The compensation committee then considered whether to pay some or all of the 50% in the Discretionary Pool. The compensation committee decided to not pay any of the Discretionary Pool. While the compensation committee acknowledged the strong performance of the continuing named executive officers, the compensation committee concluded that the overall performance of the company in 2013 was unsatisfactory and, therefore, no bonuses to the section 16 officers were merited under the bonus plan.

2014 Executive Bonus Plan. For 2014, the compensation committee has approved a new bonus paradigm, with 50% tied to performance against AEBITDA objectives, and 50% tied to performance against revenue objectives. The compensation committee also reserved the right to grant other bonuses to the named executive officers as may be necessary for retention or other purposes.

Long-Term Equity Incentives

The goals of our long-term, equity-based incentive awards are to align the interests of our named executive officers with the interests of our stockholders. Because vesting is based on continued employment, our equity-based incentives also encourage the retention of our named executive officers during the award vesting period. In determining the size of the long-term equity incentives to be awarded to our named executive officers, we take into account a number of internal factors, such as the relative job scope, the value of existing stockholdings and long-term incentive awards, individual performance history, prior financial contributions to us and the size of prior grants.

To reward and retain our named executive officers in a manner that aligns their interests with stockholders’ interests, we have historically used stock options as the primary incentive vehicle for long-term compensation. Because employees realize value from stock options only if our stock price increases relative to the stock option’s exercise price, we believe stock options provide meaningful incentives to achieve increases in the value of our stock over time. We will also, from time to time, grant restricted stock to our named executive officers, which we believe incentivizes future growth, and also delivers value to these officers in excess of simple future appreciation. These awards are further intended to enable our executive officers to establish or augment meaningful equity stakes in the Company.

We generally use stock options to compensate our named executive officers both in the form of initial grants in connection with the commencement of employment and additional or “refresher” grants. Although the compensation committee typically grants annual refresher grants, we have not established a formula or program for determining the size of any equity award, including any annual refresher grants, and our compensation committee retains discretion to make stock option awards to employees at any time, including in connection with the promotion of an employee, to reward an employee, for retention purposes or in other circumstances recommended by management. The exercise price of each stock option grant is at or above the fair market value of our common stock on the grant date, for which we use the closing price of our common stock on the Nasdaq on the grant date. Stock option awards typically vest over a four-year period as follows (subject to continued service through the applicable vesting date): 25% of the shares underlying the option vest on the first anniversary of the vesting commencement date, and the remainder of the shares underlying the option vest in equal monthly installments over the following 36 months. The restrictions pertaining to the restricted stock grants generally lapse with respect to 25% of the shares on the first anniversary of the grant date, and lapse with respect to 1/12th of the shares on each three month anniversary of the grant date thereafter, subject to continued service. We believe these vesting schedules appropriately encourage continued service with the company while allowing our executives to realize compensation in line with the value they have created for our stockholders.

In February 2013, the compensation committee also granted Performance Awards to the named executive officers (other than Messrs. Carlick and Della Flora), which were later amended in November 2013. The restrictions on the shares were originally scheduled to lapse based on achievement of a stock price target, as well as continued service, as follows: if the stock price target was first achieved in 2013, 100% of the shares would have vested in 1/3 increments on the first, second and third anniversaries of the February 14, 2013 grant date; if the stock price target was first achieved during 2014, 20% of the shares would have been forfeited and the remaining 80% of the shares would have vested 2/3 on the second anniversary of the grant date and 1/3 on the third anniversary of the grant date; and if the stock price target was first achieved during 2015, 60% of the shares would have been forfeited and the remaining 40% of the shares would have vested on the third anniversary of the grant date. If the stock price target was not achieved by December 31, 2015, all shares would have been forfeited. The stock price target was not achieved in 2013.

After the departure of our Chief Executive Officer in August 2013, the compensation committee determined it prudent to amend the terms of the Performance Awards and grant special, one-time restricted stock awards (the Retention Awards) to key personnel as retention inducements. The Retention Awards granted to Messrs. Landsbaum, Claman, Barton and Della Flora are scheduled to vest in two equal tranches on November 7, 2014 and November 7, 2015, subject to the recipient’s continuous employment with the company through each vesting date. The Performance Awards granted to Messrs. Landsbaum, Claman and Barton were amended to include the same time based vesting schedule as the Retention Awards, such that even if the applicable performance goals were not achieved, these awards would vest over the same two-year period. In addition, if the performance goals were achieved and such achievement would cause the Performance Awards to vest earlier than the Retention Awards, the Performance Awards would vest on such earlier date(s). The compensation committee implemented this retention program as it sought to ensure that the key personnel needed to manage the company during this transitional period remained in with the company. The Performance Awards granted to Messrs. Gordon and Hanks were not amended, as they departed from our company prior to the November 2013 amendments.   

In November 2013, in light of Mr. Carlick’s agreement to serve as Interim Chief Executive Officer, Mr. Carlick was awarded a one-time restricted stock grant of 50,000 shares. The restrictions on this award will lapse on the one-year anniversary of the grant, subject to Mr. Carlick’s continued service with the Company as a director, employee or consultant.

During 2013, we made the following grants of stock options and restricted stock to our named executive officers. The options and restricted stock vest in accordance with the vesting schedules described above.

The foregoing equity awards granted to our named executive officers for the 2013 fiscal year are also set forth in the “Grants of Plan-Based Awards Table.”

Equity-based awards held by our named executive officers are also subject to accelerated vesting in the event of certain terminations of the named executive officer or a change in control. For more information, see “Severance and Change in Control Benefits” below. We do not currently have any formal stock ownership requirements for our named executive officers.

Severance and Change in Control Benefits

Change in Control and Severance Policy for Senior Management

We maintain a Change in Control and Severance Policy for Senior Management, which our board of directors adopted because it believes that change in control and severance benefits are essential for us to fulfill our objective of attracting and retaining key managerial talent. The Change in Control and Severance Policy was adopted, and is maintained, to reinforce and encourage the continued attention and dedication of members of management to their assigned duties without the distraction arising from the possibility of a change in control, and to enable and encourage management to focus their attention on obtaining the best possible outcome for our stockholders without being influenced by their personal concerns regarding the possible impact of various transactions on the security of their jobs and benefits. In addition to providing severance benefits to any participant who incurs a termination of employment under certain circumstances following a change in control, the policy provides for severance payments in the event of termination without cause or termination by the employee for good reason under circumstances not involving a change in control. The Change in Control and Severance Policy provides that “Group A Participants” receive 12 months of benefits and “Group B Participants” receive six months of benefits. In the event of a change in control or a qualifying termination, an eligible participant in the policy may be entitled to receive salary continuation payments, equity award acceleration and certain other benefits as more fully described in the section entitled “Potential Payments Upon Termination or Change in Control” below. Payments under the policy are subject to the participant delivering an effective general release of claims in a form acceptable to us.

In 2013, as part of the equalization of the compensation for Messrs. Gordon and Hanks, Mr. Hanks joined Mr. Gordon as a Group A Participant in the Change in Control and Severance Policy. Messrs. Landsbaum, Barton and Della Flora are each eligible, and Mr. Claman was eligible, to participate in this policy and are Group B Participants, and Mr. Carlick does not participate in this policy.

Employment Letters

As more fully described below in the section entitled “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table—Employment Letters,” Mr. Hanks’ employment letter provided for certain payments and benefits upon a qualifying termination or a change in control, including salary continuation and the acceleration of certain unvested equity awards.

Retention Awards

The Retention Awards and, after amendment, the Performance Awards, granted to named executive officers are each subject to immediate acceleration in full in the event the holder is terminated by us other than for “cause” or resigns for “good reason.” 

Retirement Savings

All of our full-time employees in the United States, including our named executive officers, are eligible to participate in our 401(k) plan. Pursuant to our 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit, which was $17,500 in 2013, and to have the amount of this reduction contributed to our 401(k) plan.

Employee Benefits and Perquisites

All of our full-time employees in the United States, including our named executive officers, are eligible to participate in our health and welfare plans. For employees generally, we bear some portion of the premium costs for such plans and the employee bears some of the premium costs. For Mr. Landsbaum, however, we bear all of the premium costs. The incremental cost to our company related to bearing such costs for our named executive officers for 2013 is reflected under “All Other Compensation” in the “Summary Compensation Table” below. We do not view perquisites or other personal benefits as a material component of our executive compensation program. In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual executive officer in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment, motivation and/or retention purposes. Future practices with respect to perquisites or other personal benefits for our named executive officers will be approved and subject to periodic review by the compensation committee.

Entrance into Separation Agreements with Former Officers, and Employment Letter with New Chief Executive Officer

On September 4, 2013, November 1, 2013, and May 30, 2014, we entered into Separation Agreements with Messrs. Gordon, Hanks, and Claman, respectively. For additional information, see “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table—Employment Letters” below.

On March 31, 2014, we entered into an employment letter with Ms. Rowlands, pursuant to which she serves as our Chief Executive Officer. For additional information, see “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table— Employment Letter Entered into with New Chief Executive Officer” below.

Tax Considerations

Section 162(m) of the Internal Revenue Code

Section 162(m) of the Code disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for its named executive officers, other than its Chief Financial Officer, unless compensation is performance-based. Where reasonably practicable and to the extent that the Code Section 162(m) deduction disallowance becomes applicable to our company, our compensation committee may seek to qualify the variable compensation paid to our named executive officers for an exemption from the deductibility limitations. As such, in approving the amount and form of compensation for our named executive officers in the future, our compensation committee will consider all elements of the cost to our company of providing such compensation, including the potential impact of Section 162(m) of the Code. However, our compensation committee may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) of the Code when it believes that such payments are appropriate to attract and retain executive talent.

Section 409A of the Internal Revenue Code

Section 409A of the Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans. Accordingly, we generally intend to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our named executive officers, so that they are either exempt from, or satisfy the requirements of, Section 409A of the Code.

Accounting Standards

ASC Topic 718, Compensation—Stock Compensation, or ASC Topic 718, requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of stock options, restricted stock, and restricted stock units under our equity incentive award plans are accounted for under ASC Topic 718. Our compensation committee regularly considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

 EXECUTIVE COMPENSATION TABLES

Summary Compensation Table

The following table sets forth summary information concerning the compensation of our named executive officers: