UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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March 14, 2008

 

Dear Idearc Stockholder:

 

You are invited to attend Idearc Inc.’s 2008 annual meeting of stockholders. The meeting will be held on May 1, 2008, beginning at 9:00 a.m., local time, at the Hilton Dallas/Southlake Town Square hotel, located at 1400 Plaza Place, Southlake, Texas 76092.

 

Information about the meeting is presented in the following notice of annual meeting of stockholders and proxy statement. At the meeting, management will report on the company’s operations. The report will be followed by a question-and-answer session. We hope that you will be able to attend the annual meeting.

 

Under new Securities and Exchange Commission rules, we are providing stockholders access to our proxy materials over the Internet. We believe that the new rules will allow us to provide our stockholders with the information they need while lowering the costs of delivery.

 

Please take a few minutes to sign, date and return the proxy card or to vote using the Internet or telephone voting procedures described on the proxy card.

 

We look forward to seeing you on May 1.

 

Sincerely,

 

 

Frank P. Gatto

Acting Chief Executive Officer

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To be held on May 1, 2008

 

 

 

The 2008 annual meeting of stockholders of Idearc Inc. (the “company”) will be held on Thursday, May 1, 2008, at 9:00 a.m., local time, at the Hilton Dallas/Southlake Town Square hotel, located at 1400 Plaza Place, Southlake, Texas 76092. The meeting will be held for the following purposes:

 

1. To elect six directors to serve until the 2009 annual meeting of stockholders;

 

2. To consider and take action upon a proposal to approve the 2008 incentive compensation plan;

 

3. To ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2008; and

 

4. To transact such other business as may properly come before the meeting.

 

Information concerning the matters to be voted upon at the meeting is set forth in the accompanying proxy statement. Holders of record of the company’s common stock as of the close of business on March 3, 2008, are entitled to notice of, and to vote at, the meeting.

 

By Order of the Board of Directors,

 

William G. Mundy

Executive Vice President

and General Counsel

 

D/FW Airport, Texas

March 14, 2008

 

 

 

 

IDEARC INC.
P.O. Box 619810
2200 West Airfield Drive
D/FW Airport, TX 75261

 

 

PROXY STATEMENT

 

 

 

This proxy statement provides information in connection with the solicitation of proxies by the board of directors (the “board”) of Idearc Inc. (the “company”) for use at the company’s 2008 annual meeting of stockholders or any postponement or adjournment thereof (the “annual meeting”). This proxy statement also provides information you will need in order to consider and to act upon the matters specified in the accompanying notice of annual meeting of stockholders.

 

Under rules recently adopted by the Securities and Exchange Commission (“SEC”), we are providing stockholders access to our proxy materials for the annual meeting over the Internet. Stockholders will receive a printed copy of the proxy materials only upon request. A notice of Internet availability of proxy materials will be mailed to stockholders on or about March 17, 2008. The notice will provide instructions on how to access the proxy materials over the Internet and how to request a printed copy of the proxy materials.

 

Holders of record of the company’s common stock as of the close of business on March 3, 2008, are entitled to vote at the annual meeting. Each holder of record as of that date is entitled to one vote for each share of common stock held. On March 3, 2008, there were 146,679,450 shares of common stock outstanding.

 

You cannot vote your shares of common stock unless you are present at the annual meeting or you have previously given your proxy. You can vote by proxy in one of three convenient ways:

 

 

You may revoke your proxy at any time prior to the vote at the annual meeting by:

 

 

All properly executed proxies, unless revoked as described above, will be voted at the annual meeting in accordance with your directions on the proxy. With respect to the election of directors, you may vote for all nominees, withhold your vote for all nominees, or withhold your vote as to one or more specific nominees. If a properly executed proxy does not provide instructions, the shares of common stock represented by your proxy will be voted:

 

 

A majority of the outstanding shares of common stock must be present, in person or by proxy, to constitute a quorum at the annual meeting. The directors will be elected by a plurality of the votes cast by holders of the company’s common stock. If you withhold authority to vote for a director nominee, your shares will not be counted in the vote for the director nominee. The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting will be required to approve the 2008 incentive compensation plan. In addition, the New York Stock Exchange (“NYSE”) rules require that the total votes cast on the approval of the 2008 incentive compensation plan represent greater than 50% of the shares outstanding as of the record date.

 

Those who fail to return a proxy or attend the annual meeting will not count towards determining any required vote or quorum. Stockholders and brokers returning proxies or attending the meeting who abstain from voting on the election of our directors will count towards determining a quorum. Brokers holding shares of record for customers are not entitled to vote on certain matters unless they receive voting instructions from their customers. In the event that a broker does not receive voting instructions for these matters from its customers, a broker may notify us that it lacks voting authority to vote those shares. These broker non-votes refer to votes that could have been cast on the matter in question by brokers with respect to uninstructed shares if the brokers had received their customers’ instructions. These broker non-votes will be included in determining whether a quorum exists. Even if you do not instruct your broker how to vote on the election of directors or the ratification of our independent registered public accounting firm for 2008, your broker may exercise its discretion to vote your shares on these proposals. Your broker may not vote on the approval of the 2008 incentive compensation plan without your instruction. To be sure your shares are voted in the manner you desire, you should instruct your broker how to vote your shares.

 

The proxy card also provides voting instructions for any shares of company common stock that you may hold in a company benefit plan.

 

The company is soliciting your proxy and will pay the cost of preparing this proxy statement and the proxy card and the costs of any mailing. The company has retained Georgeson Inc. to assist in the solicitation of proxies for the annual meeting. For these services, the company will pay Georgeson $7,500 and will reimburse Georgeson for reasonable out-of-pocket expenses. Additionally, employees of the company may solicit proxies personally and by telephone. The company’s employees will receive no compensation for soliciting proxies other than their regular salaries. The company may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of these proxy materials to their principals and to request authority for the execution of proxies. The company may reimburse such persons for their expenses in so doing.

 

PROPOSAL 1
ELECTION OF DIRECTORS

 

The board currently consists of seven members, of whom six are standing for re-election. Each director serves a term that expires at the annual meeting. In June 2007, Jonathan Miller was appointed a director by the board upon the recommendation of the nominating and corporate governance committee. Mr. Miller was recommended to the nominating and corporate governance committee by a director search firm. Each of the director nominees listed below is an incumbent director whose nomination to serve on the board was recommended by the nominating and corporate governance committee and approved by the board. The director nominees, if elected, will serve until the 2009 annual meeting of stockholders, or until their earlier resignation or removal. Each of the director nominees has indicated a willingness to serve as a director if elected. If any director nominee becomes unable to serve, the board may designate a substitute nominee, in which case the designated proxy holders, Frank Gatto and Michael Pawlowski, will vote for such substitute nominee.

 

The directors will be elected by a plurality of the votes cast at the annual meeting. A “withheld vote” is not considered a vote cast and will have no effect on the outcome of the election of directors.

 

The board recommends a vote “FOR” each of the six director nominees listed below.

 

Jerry V. Elliott, age 48, has served as a director of the company since December 2006. Mr. Elliott currently serves as chief financial officer of Cengage Learning Inc. and is an adjunct professor at the United States Military Academy at West Point. He also currently serves on the boards of directors of Tekelec, Inc. and SunCom Wireless Holdings, Inc. Previously, he served as president, chief executive officer and director of Global Signal Inc., a publicly traded real estate investment trust that rents tower space to wireless carriers, from April 2006 until it was acquired by Crown Castle International in January 2007. From December 2005 to April 2006, Mr. Elliott served as president of Citizens Communications Co., a provider of communication services to rural areas and small to medium-sized towns. He served as chief financial officer of Citizens Communications from February 2002 to November 2005 and as a director from September 2004 until April 2006. Prior to holding these positions, Mr. Elliott was a Managing Director — Media and Communications in Morgan Stanley’s investment banking group, a partner at the law firm of Shearman & Sterling LLP and an accountant at Arthur Andersen LLP.

 

Jonathan F. Miller, age 51, has served as a director of the company since June 2007. Mr. Miller currently is a private investor, investing in early stage venture companies and advising a number of private equity firms. He is also a founding partner of Velocity Interactive Group, a private investment firm, specializing in the digital media and communication sectors. From August 2002 until November 2006, Mr. Miller served as chairman and chief executive officer of America Online, Inc. Before joining America Online, he served as president and chief executive officer of USA Information Services (now IAC/InterActiveCorp), which at the time of his service included businesses such as Ticketmaster, CitySearch, Expedia and Match.com. Mr. Miller has also held positions at Viacom, the National Basketball Association and Public Broadcasting Service station WGBH in Boston, Massachusetts. Mr. Miller currently serves as a director of Premier Exhibitions, Inc. and TM Entertainment & Media, Inc. Mr. Miller also currently serves as a member of the board of trustees of the American Film Institute, Emerson College and WYNC (New York Public Radio).

 

Donald B. Reed, age 63, has served as a director of the company since November 2006. Mr. Reed currently serves on the boards of directors of CSG Systems International Inc. and Intervoice, Inc. From May 2000 to January 2003, he served as chief executive officer of Cable and Wireless Global, or C&W, a unit of Cable & Wireless plc (UK). C&W provided Internet protocol and data services to business customers in the United States, Europe and Japan. Mr. Reed served in various other executive positions at C&W from June 1998 to May 2000. He also served for 30 years in various executive positions at New England Telephone, NYNEX Corporation and Bell Atlantic Corporation, including as NYNEX’s vice president of government affairs in Washington, D.C., vice president of NYNEX Human Resources, president of NYNEX Information Resources, the directory operations of NYNEX, and president and group executive of NYNEX Corporation.

Stephen L. Robertson, age 56, has served as a director of the company since November 2006. Mr. Robertson is currently a business consultant. Previously, he served as president of Convergys International, a unit of Convergys Corporation, from 2002 to 2005. Convergys Corporation, or Convergys, is a global outsourcing solutions company. Mr. Robertson also served as Convergys’ executive vice president of North American operations from 2000 to 2002 and as Convergys’ president of telecom solutions from 1996 to 2000. Prior to joining Convergys, he served 22 years in the telecommunications industry with Cincinnati Bell Corporation and Southwestern Bell Corporation. Mr. Robertson also served on the respective senior executive committees of Convergys and Cincinnati Bell Corporation. In 2007, he successfully completed an exam to be certified as having core competencies as a board member following completion of an executive education program sponsored by the UCLA Anderson School of Management.

 

Thomas S. Rogers, age 53, has served as a director of the company since November 2006. Mr. Rogers currently serves as president and chief executive officer of TiVo Inc., a position he has held since July 2005. He also currently serves on the board of directors of TiVo Inc., a provider of television-based interactive and entertainment services. Mr. Rogers previously served as chairman of the board of Teleglobe International Holdings, Ltd., a provider of international voice, data, Internet and mobile roaming services, from November 2004 to February 2006. He also serves as chairman of TRget Media LLC, a media industry investment and operations advisory firm. Mr. Rogers served as the senior operating executive for media and entertainment for Cerberus Capital Management, a large private equity firm, from 2004 to July 2005. Prior to holding that position, he served as chairman and chief executive officer of Primedia, Inc., a print, video and online media company, from October 1999 to April 2003. From January 1987 until October 1999, Mr. Rogers held positions with National Broadcast Company, Inc., including president of NBC Cable and executive vice president.

 

Paul E. Weaver, age 62, has served as a director of the company since December 2006. Mr. Weaver currently serves as a director of AMN Healthcare Services Inc., is chairman of the board of the Ellis Island/Statue of Liberty Foundation and serves on the Corporate Advisory Board of the University of Michigan Business School. Mr. Weaver was a vice chairman of PricewaterhouseCoopers LLP, until 2006. During his more than 30 years at PricewaterhouseCoopers, Mr. Weaver served as the lead partner on a number of the firm’s largest global clients and held various management positions, including serving as a vice chairman of the firm and chairman of the firm’s global technology practice group, focusing on the technology, infocomm, entertainment and media industries.

 

PROPOSAL 2
APPROVAL OF THE 2008 INCENTIVE COMPENSATION PLAN

 

The board and the human resources committee believe that incentive-based compensation programs are an important element of the company’s continued financial and operational success. In February 2008, the board adopted the company’s 2008 incentive compensation plan (the “incentive plan”) to replace our original long term incentive plan. The board approved the incentive plan upon the recommendation of the human resources committee, subject to stockholder approval at the 2008 annual meeting of stockholders. If our stockholders approve the incentive plan, we will issue no more than 350,000 shares under our original long term incentive plan after December 31, 2007, for new awards and dividend equivalents under outstanding awards.

 

Under NYSE rules, we are required to obtain stockholder approval of the incentive plan. In addition, stockholder approval is necessary to ensure that our ability to deduct for tax purposes compensation paid under the incentive plan will not be limited by Section 162(m) of the Internal Revenue Code. Although we do not expect to grant stock options at this time, stockholder approval of the plan is also required if we wish to grant “incentive stock options” to employees under Section 422 of the Internal Revenue Code.

 

You are being asked to approve the incentive plan. You should read and understand the terms of the incentive plan before you vote. A summary of the incentive plan is provided below and is qualified in its entirety by reference to the full text of the incentive plan. A copy of the incentive plan is attached to this proxy statement as Appendix A. The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting is required to approve the incentive plan. Abstentions will be counted toward a quorum and considered shares present in person or by proxy and entitled to vote. Accordingly, abstentions will have the effect of a vote against this proposal. Broker non-votes will have no effect on the approval of this proposal other than with respect to the NYSE requirement that the votes cast represent greater than 50% of the shares outstanding as of the record date. Broker non-votes will not be counted as votes cast.

 

As of March 10, 2008, the closing price of the company’s common stock was $5.06.

 

The board recommends a vote “FOR” proposal 2.

 

Material Provisions of the Incentive Plan

 

Purposes

 

The purposes of the incentive plan are to:

 

 

Administration

 

The incentive plan will be administered by the human resources committee (the “committee”). The committee will have full authority to interpret and oversee the operation of the incentive plan. The committee may delegate its administrative duties and powers, subject to limitations set forth in the incentive plan. The committee may also delegate to one or more officers, within the limitations set forth in the incentive plan, the authority to designate award recipients and to determine the amount, timing and term of awards (other than performance-based awards) for participants other than directors and executive officers.

Term

 

The incentive plan will become effective as of March 4, 2008, subject to stockholder approval at the 2008 annual meeting of stockholders. The incentive plan will terminate ten years from the effective date, or earlier in specified circumstances under the plan.

 

Eligibility

 

All employees, non-management directors and consultants and independent contractors providing services to us or any of our subsidiaries are eligible to participate in the incentive plan. The committee, acting in its discretion, is authorized to designate which eligible persons will actually receive awards under the plan. We have approximately 7,200 employees and expect to issue awards annually to approximately 170 senior employees.

 

Types of Awards

 

The incentive plan is an “omnibus” plan under which we can make the following types of awards:

	•	Restricted Stock
	•	Restricted Stock Units
	•	Stock Options
	•	Stock Appreciation Rights
	•	Deferred Stock Units

	•	Performance Shares
	•	Performance Share Units
	•	Other Stock-Based Awards
	•	Performance-Based Cash Incentive Awards

 

Shares Available for Awards

 

We may issue 12 million shares of common stock under the incentive plan, subject to adjustment for changes in our capital structure or a reorganization of the company. Shares issued under the incentive plan may be authorized and unissued shares, treasury shares or any combination of the two. Shares forfeited or repurchased or underlying the unexercised portion of an award that terminates, expires, is canceled or is settled in cash will be available for further awards under the incentive plan. Shares withheld or delivered to pay the exercise or purchase price of an award or to satisfy tax withholding obligations will also be available for further awards under the plan.

 

Award Limits

 

No more than 2 million shares of common stock may be covered by stock-based awards granted to any participant under the plan in a calendar year. The maximum amount that a participant may earn for any calendar year under cash incentive awards under the plan is $10 million. Of the shares available for issuance under the plan, a maximum of 12 million shares may be issued pursuant to incentive stock options.

 

Descriptions of Awards

 

Restricted Stock and Restricted Stock Units.  Restricted stock is common stock that is issued subject to restrictions, vesting and other conditions as determined by the committee. Shares of restricted stock generally vest on the basis of the satisfaction of performance conditions established by the committee and/or continuing employment or other service for a specified period of time. Unless otherwise determined by the committee, recipients of restricted stock are entitled to vote their shares of restricted stock and to receive the dividends paid on the shares, which may also be subject to vesting and other conditions.

 

A restricted stock unit is a right to receive one share of our common stock or cash equal to the value of one share at the end of a specified period, subject to transfer restrictions and other conditions as determined by the committee. Restricted stock units generally vest on the basis of the satisfaction of performance conditions established by the committee and/or continuing employment or other service for a specified period of time. The holder of a restricted stock unit award has no rights as a stockholder with respect to the

underlying shares unless and until the award vests and the award is settled in shares. However, the committee may provide for the payment of dividend equivalents in the form of cash or shares in an amount equal to the dividends that would have been payable if the shares were outstanding.

 

Performance Shares and Performance Share Units.  A performance share is a share of common stock that is issued subject to vesting and/or other conditions that are based on the achievement of pre-established performance goals, as determined by the committee. A performance share unit is a restricted stock unit award under which the number of shares and/or the vesting of the award is subject to the achievement or level of achievement of pre-established performance goals, as determined by the committee. Performance share units are payable in cash or shares as set forth in the applicable award agreement. Performance share awards and performance share unit awards may be structured in a manner that will qualify for the performance-based exception from the tax deductibility limitation imposed by Section 162(m) of the Internal Revenue Code.

 

Stock Options.  A stock option is a right to purchase shares of our common stock at a price fixed on the grant date, subject to restrictions and conditions as determined by the board. Grants of options under the incentive plan may be incentive stock options or non-qualified stock options under the Internal Revenue Code. The exercise price may not be less than the fair market value of our common stock on the option grant date. A participant may pay the exercise price in cash, by delivering unrestricted shares to the company having a value at the time of exercise equal to the exercise price, by a cashless broker-assisted exercise, by a combination of these methods or any other method approved by the committee. Options may not be re-priced in the absence of stockholder approval. No option may be exercisable after the tenth anniversary of the grant date. The holder of an option will have no rights as a stockholder with respect to the underlying shares unless and until the shares are issued upon exercise.

 

Stock Appreciation Rights (SARs).  A stock appreciation right, or SAR, entitles a participant to receive upon exercise a payment equal to the difference between the grant price of the SAR and the market price of our common stock on the date of exercise. The settlement of an SAR may be in the form of cash, shares, a combination of cash and shares or in any other manner, as determined by the committee. The grant price of an SAR may not be less than the fair market value of our common stock on the grant date. SARs may not be re-priced without stockholder approval. No SARs may be exercisable after the tenth anniversary of the grant date.

 

Deferred Stock Units.  A deferred stock unit is a right to receive one share of our common stock or cash equal to the value of one share, subject to deferred distribution or payment conditions and other restrictions, as determined by the committee. The committee may allow a participant to defer receipt of all or a portion of his annual base salary and incentive compensation, other than stock options or SARs, and instead receive an award of deferred stock units. The number of deferred stock units payable is calculated by dividing (1) the amount of the deferred compensation by (2) the fair market value of our common stock on the date the compensation is payable. Upon the grant of deferred stock units, we will establish a notional account for the participant and will record the number of shares underlying the deferred stock units. No shares will be issued to the participant at the time of grant. The committee may provide for the payment of dividend equivalents in the form of cash or shares in an amount equal to the dividends that would have been payable if the shares were outstanding.

 

Other Stock-Based Awards.  The committee may grant other awards denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of our common stock. These awards may include stock bonuses, dividend equivalents (either alone or in conjunction with other awards, including with respect to awards outstanding under our original long term incentive plan), convertible or exchangeable debt securities, other rights convertible or exchangeable into shares, purchase rights for shares and share-based awards designed to comply with or take advantage of applicable laws outside of the United States.

 

Performance-Based Cash Incentive Awards.  The committee may grant cash incentive awards, including short- and long-term cash incentive awards subject to the attainment of specified performance goals established by the committee. At the end of the applicable performance period, the committee will determine whether and to what extent the performance goals are achieved and to what extent each cash incentive award has been earned. The committee will have the flexibility to structure cash incentive awards under the incentive plan in a

manner that is intended to qualify for the performance-based exception from the tax deductibility limitation imposed by Section 162(m) of the Internal Revenue Code.

 

Performance Measures

 

The committee may establish conditions based on the achievement of performance measures for awards that are intended to qualify for the performance-based exception from the tax deductibility limitation imposed by Section 162(m) of the Internal Revenue Code. The measures may be based on company-wide performance or performance of a business unit, department, function or subsidiary of the company. The performance measures may include a comparison of the company’s performance as measured against the performance of a group of comparator companies, a published or special index or a stock market index. The following performance measures may be used under the incentive plan:

 

 

For any performance-based award, the committee may allow for adjustments to performance measures for specified events set forth in the incentive plan to the extent allowed by Section 162(m) of the Internal Revenue Code.

 

Amendment and Termination

 

The board or the committee may, at any time, amend, suspend or terminate the incentive plan in whole or in part, except that any change that requires stockholder approval under applicable law, regulation or rule will

not be effective unless we obtain stockholder approval. No termination, amendment, suspension or modification of the incentive plan or an award agreement may materially adversely affect any prior award under the incentive plan, without the written consent of the participant holding the award.

 

Transferability of Awards

 

Awards will not be transferable, other than by will or the laws of descent and distribution. The committee may determine that any transfer in violation of the incentive plan is null and void.

 

Forfeiture of Awards

 

The committee may specify in an award agreement that the award is subject to reduction, cancellation, forfeiture or recoupment upon termination of employment for cause, violation of material company policies, breach of restrictive covenants or other events specified by the committee.

 

Change in Control

 

Unless provided otherwise in an award agreement, in the event a change in control of the company occurs, each award outstanding under the incentive plan immediately prior to the change in control may be assumed and converted into an alternative award by the acquiring company, upon similar vesting and other terms and conditions, subject to post-change in control severance protection. In general, except as otherwise determined by the committee, any outstanding award that is not assumed and converted into an alternative award will become fully vested immediately before the change in control, and the holder of the award will realize the full value of the award upon or in connection with the change in control.

 

Under the incentive plan, a change in control is defined as:

 

 

Tax Withholding

 

Our obligation to make payments or issue unrestricted shares in connection with any award will be subject to and conditioned upon the satisfaction by the holder of applicable tax withholding obligations. We may require a participant to pay an amount sufficient to satisfy applicable withholding taxes or deduct or withhold the amount from any payments otherwise owed to the participant, whether or not under the incentive plan. The committee may allow a participant to satisfy a withholding tax obligation in whole or in part by having us withhold shares that would otherwise be issued to the participant, or by having the participant deliver shares to us, with a value equal to the minimum amount of the withholding obligation.

Federal Income Tax Consequences

 

The following is a summary of anticipated federal income tax consequences associated with stock-based awards under the incentive plan.

 

Stock-Settled Awards Other than Options and SARs

 

In general, a participant who receives restricted stock or other stock settled awards under the plan will realize ordinary income at the time the restricted stock becomes vested or the participant receives vested shares in settlement of the award in an amount equal to the then fair market value of the shares, and we will be entitled to a corresponding deduction (subject to potentially applicable deduction limitations under Section 162(m) of the Internal Revenue Code). The participant’s tax basis in the shares will generally be equal to the value of the shares on the date that ordinary income is realized, and the participant’s tax holding period for the shares will generally begin on that date. Gain or loss on a subsequent sale of the shares will be long- or short-term capital gain or loss, depending on whether the sale occurs more than one year after the participant’s holding period begins.

 

Stock Options

 

The grant of a stock option is not a taxable event. In general, a participant who receives an option that does not qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code will realize ordinary income at the time the option is exercised equal to the difference between the then value of the shares acquired by the exercise of the option over the option exercise price paid for the shares, and we will be entitled to a corresponding deduction. The participant’s tax basis for the shares will be equal to the value of the shares on the date ordinary income is realized and the participant’s tax holding period for shares will begin on that date. Gain or loss on a subsequent sale of the shares will be long- or short-term capital gain or loss, depending on whether the sale occurs more than one year after the participant’s holding period begins.

 

If a participant receives a stock option that qualifies as an “incentive stock option” under Section 422 of the Internal Revenue Code, the participant will not realize income at the time the option is exercised (although the difference between the value of the shares and the exercise price will be taken into account as income for alternative minimum tax purposes), but will realize taxable income when the option shares are subsequently sold. If the participant sells the option shares more than two years after the date the option is granted and more than one year after the date the option is exercised, any gain or loss realized on the sale will be long-term capital gain or loss, and we will not be entitled to a deduction. On the other hand, if the participant sells the option shares before the end of either of those periods, any gain realized on the sale will be taxable as ordinary income to the extent of the difference between the value of the shares on the date the option was exercised and the exercise price paid for the shares, and any remaining gain will be capital gain. In general, we will be entitled to a deduction equal to the ordinary income realized by the participant upon the sale of the option shares.

 

Stock Appreciation Rights (SARs)

 

The grant of an SAR will not result in any immediate tax consequence to us or to the participant. Generally, the participant will realize ordinary income upon the exercise of an SAR, equal to the value of the shares or the cash payment issued or made in settlement of the award, and we will be entitled to a corresponding deduction.

 

Tax Deductibility Limitation

 

The Internal Revenue Code limits the allowable tax deduction that may be taken by us for compensation paid to some of our executive officers. The limit is $1,000,000 per executive per year, but qualified “performance-based compensation” is excluded from the limitation. Under the incentive plan, stock options, SARs, and performance-based stock and performance-based cash incentive awards may qualify as performance-based compensation not subject to the $1,000,000 limitation. Restricted stock and other share-based awards that are not performance based would be subject to the limitation unless the vesting and settlement of the awards are subject to the achievement of performance goals established under the incentive plan.

Plan Benefits

 

In the first quarter of 2008, the committee approved short-term cash incentive awards, performance share unit awards and restricted stock awards under the incentive plan for some of our officers and other employees, subject to stockholder approval of the incentive plan at the 2008 annual meeting of stockholders. The actual amounts that will be paid under the short-term cash incentive awards and performance share unit awards will depend on the attainment of specified performance measures. As a result, the amounts payable under these awards are not determinable at this time.

 

The table below sets forth the restricted stock awards and the amounts or shares payable under the performance-based awards if the target levels of performance are attained, for the following:

 

 

 

 

 

PROPOSAL 3
RATIFICATION OF APPOINTMENT OF
ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2008

 

The audit committee has appointed Ernst & Young LLP as the company’s independent registered public accounting firm for 2008. The board is asking stockholders to ratify this appointment. Although the company is not required to obtain stockholder ratification of the appointment of Ernst & Young, the board considers the selection of an independent registered public accounting firm to be an important matter to stockholders and considers a proposal for stockholders to ratify such appointment to be an opportunity for stockholders to provide input to the audit committee and the board on a key corporate governance issue.

 

The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting is required to ratify the appointment of Ernst & Young. Abstentions will be counted toward a quorum and considered shares present in person or by proxy and entitled to vote. Accordingly, abstentions will have the effect of a vote against this proposal.

 

Representatives of Ernst & Young are expected to be present at the annual meeting and will be offered the opportunity to make a statement if they so desire. They will also be available to answer questions.

 

The board recommends a vote “FOR” proposal 3.

 

CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

The company is committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our stockholders well and maintaining our integrity in the marketplace. The company has adopted a code of conduct for directors, officers and employees and corporate governance guidelines, which, together with our certificate of incorporation, by-laws and board committee charters, form our framework for governance. All of these documents are publicly available on our website at www.idearc.com or may be obtained free of charge upon written request to: Idearc Inc., P.O. Box 619810, 2200 West Airfield Drive, D/FW Airport, TX 75261, Attention: Investor Relations.

 

Director Independence

 

As part of the company’s corporate governance guidelines, the board has established a policy requiring a majority of the members of the board to be independent. Our board currently consists of seven directors, of whom six are standing for re-election. Each of these six directors is independent (as defined by our corporate governance guidelines). For a director to be independent, the board must determine, among other things, that the director does not have any direct or indirect material relationship with the company. The guidelines for determining director independence are set forth in our corporate governance guidelines, which conform to the independence requirements of the NYSE corporate governance standards. Applying these independence standards, the board has determined that Jerry V. Elliott, Jonathan F. Miller, Donald B. Reed, Stephen L. Robertson, Thomas S. Rogers and Paul E. Weaver are all independent directors.

 

Director Nominations

 

Qualifications.  In considering nominees for election as director, the nominating and corporate governance committee considers a number of factors. Characteristics expected of all directors include integrity, high personal and professional ethics, sound business judgment and the ability and willingness to commit sufficient time to the board. In evaluating the suitability of individual board members, the committee takes into account many factors, including the candidate’s general understanding of marketing, finance and other disciplines relevant to the success of a large publicly traded company in today’s business environment, understanding of the company’s business and technology, educational and professional background and personal accomplishments.

 

 

Stockholder Recommendations.  The nominating and corporate governance committee will evaluate any director candidates recommended by a stockholder according to the same criteria as a candidate identified by the nominating and corporate governance committee. The company has never received any recommendations for director candidates from stockholders.

 

Stockholders may recommend candidates at any time, but to be considered by the nominating and corporate governance committee for inclusion in the company’s proxy statement for the next annual meeting of stockholders, recommendations must be submitted in writing no later than 120 days in advance of the first anniversary of the date of the company’s proxy statement mailed to stockholders for the preceding year’s annual meeting of stockholders. A stockholder’s notice must contain the following:

 

 

 

The stockholder’s notice must be signed by the stockholder recommending the director candidate for consideration and sent to the following address: Idearc Inc., P.O. Box 619810, 2200 West Airfield Drive, D/FW Airport, TX 75261, Attention: Corporate Secretary (Nominating and Corporate Governance Committee Communication/Director Candidate Recommendation).

 

Communications with the Board

 

Any stockholder and other interested party may communicate with the board, any board committee, the non-management directors or any other individual director. All written communications must identify the recipient and the author and be forwarded by certified mail to: Idearc Inc., P.O. Box 619810, 2200 West Airfield Drive, D/FW Airport, TX 75261, Attention: Corporate Secretary. The corporate secretary will act as agent for the directors in facilitating these communications.

 

Code of Conduct

 

The company has adopted a code of conduct applicable to all of its directors and employees, including the chief executive officer, chief financial officer and chief accounting officer. The purpose of the code of conduct is to, among other things, focus our directors, officers and employees on areas of ethical risk, provide guidance to help them recognize and deal with ethical issues, provide mechanisms to report unethical or unlawful conduct and to help enhance and formalize our culture of integrity, respect and accountability. The company will post information regarding any amendment to, or waiver from, its code of conduct on its website under the Investor Relations tab as required by applicable law.

 

THE BOARD, ITS COMMITTEES AND ITS COMPENSATION

 

The Board

 

Under the company’s corporate governance guidelines, each director is expected to devote the time necessary to appropriately discharge his or her responsibilities, review all meeting materials distributed in advance of a meeting and be prepared to discuss the business to be presented and is strongly encouraged to attend and participate in all board meetings and meetings of board committees on which he or she serves. During 2007, the board held 15 meetings. Each director attended at least 75% of the total number of meetings of the board and committees on which he or she served during the period he or she was a director.

 

The board has established a policy that its non-management directors meet regularly in executive session, without members of management present. A non-management director presides over each executive session. In 2007, our chairman of the board had this responsibility. In 2008, the board appointed Donald B. Reed to serve as lead director. In that capacity, Mr. Reed will preside over executive sessions of the non-management directors.

 

As part of the company’s corporate governance guidelines, the board has adopted a policy that strongly encourages each director to attend each stockholder meeting. All board members who were directors at the time of the meeting attended the company’s 2007 annual meeting of stockholders.

 

Board Committees

 

The board has three standing committees: audit committee, human resources committee and nominating and corporate governance committee, each of which is described below. Each committee operates under a written charter adopted by the board. All of the charters are publicly available on our website at www.idearc.com under the Investor Relations tab. You may also obtain a copy of our charters upon written request to our investor relations department at our principal executive offices.

 

Upon the nominating and corporate governance committee’s recommendations, the board appoints committee members annually. The table below sets forth the current composition of our board committees.

 

 

Subject to their re-election at the annual meeting, the composition of the board committees for 2008 is expected to remain the same.

 

Audit Committee

 

The audit committee oversees our accounting and financial reporting processes and the audits of the company’s financial statements. The functions and responsibilities of the audit committee include:

 

 

 

During 2007, the audit committee held nine meetings. Our independent registered public accounting firm reports directly to the audit committee. Each member of the audit committee has the ability to read and understand fundamental financial statements. The board has determined each member of the audit committee is “independent” as defined by the NYSE corporate governance standards and Rule 10A-3 of the Securities Exchange Act of 1934. The board has also determined that Mr. Weaver meets the requirements of an “audit committee financial expert” as defined by the rules of the SEC.

 

Human Resources Committee

 

The human resources committee establishes, administers and reviews the company’s policies, programs and procedures for compensating our executive officers and the board. The functions and responsibilities of the human resources committee include:

 

 

During 2007, the human resources committee held ten meetings. The board has determined that each member of the human resources committee is “independent” as defined by the NYSE corporate governance standards.

Nominating and Corporate Governance Committee

 

The functions and responsibilities of the nominating and corporate governance committee include:

 

 

During 2007, the nominating and corporate governance committee held three meetings. The board has determined that each member of the nominating and corporate governance committee is “independent” as defined by the NYSE corporate governance standards. In 2007, the nominating and corporate governance committee retained a director search firm to help the committee identify and evaluate qualified director nominees for consideration by the committee.

 

Director Compensation

 

Annual Cash Compensation.  The table below summarizes the components of cash compensation payable to our non-management directors for board service during 2007. A director who is an employee of the company does not receive additional compensation for serving as a director.

 

 

Annual Equity-Based Compensation.  Non-management directors also receive an annual restricted stock award equal to $90,000 divided by the closing price of our common stock on the grant date. The shares of restricted stock vest on the first anniversary of the grant. Dividends are not payable on the unvested shares of restricted stock. However, dividend equivalents, in an amount equal to the dividend that would have been paid on the unvested shares of restricted stock, are credited to the director. Dividend equivalents are paid in cash on the vesting date.

 

One-Time Equity-Based Compensation.  Non-management directors who join the board will receive a one-time award of restricted stock valued at $85,000. In February 2007, our then-current non-management directors received a one-time award of restricted stock valued at $170,000 as an initial inducement to serve on the board, as compensation for board formation activities in 2006 and to provide a significant equity stake in the company at the start of board service. These one-time awards vest on the third anniversary of the grant date. Dividends are not payable on the unvested shares of restricted stock. However, dividend equivalents, in an amount equal to the dividend that would have been paid on the unvested shares of restricted stock, are credited to the director. Dividend equivalents are paid in cash on the vesting date.

Director Compensation Table.  The table below sets forth the compensation earned by each of our directors who served as a non-management director during 2007.

 

 

 

 

Stock Ownership Guideline

 

In April 2007, the human resources committee adopted a stock ownership guideline for non-management directors to align their interests with those of the company’s stockholders and to strengthen the company’s commitment to sound corporate governance. The stock ownership guideline provides that each non-management director is required to own 7,000 shares. This number was determined by dividing $200,000 by the company’s closing stock price on January 31, 2007, and rounding up to the nearest 1,000 shares. Each non-management director is expected to comply with the ownership guideline within five years of becoming a director and to maintain ownership of at least 7,000 shares while serving as a director or until the company changes the guideline.

Until a non-management director meets the required stock ownership guideline, he or she is required to retain at least 75% of the shares received as equity-based compensation from the company, other than shares sold to satisfy withholding tax obligations. If a non-management director does not meet the required ownership guideline within the permitted timeframe or subsequently falls below the guideline, he or she will not be eligible to receive any equity-based compensation for the year in which the circumstance occurs and in any subsequent year during which the circumstance continues.

 

Shares counted towards meeting the ownership guideline include (a) shares owned outright by a non-management director, or his or her immediate family members residing in the same household, and (b) shares of restricted stock held by a non-management director, whether or not vested.

 

The following table sets forth the number of shares held by each of the non-management directors that are standing for re-election at the 2008 annual meeting of stockholders, as of March 10, 2008.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Overview

 

Decisions with respect to compensation for our executive officers, including our chief executive officer, are made by the human resources committee of our board of directors (the “committee”). The following discussion and analysis are focused primarily on the compensation for our executive officers during 2007, with additional detail provided for our named executive officers. Our “named executive officers” are the individual who served as our president and chief executive officer during 2007, the two individuals who served as our chief financial officer during 2007 and our three other most highly compensated executive officers for 2007. The compensation of our named executive officers is detailed in the tables and related information provided under “Executive Compensation” following this section, beginning on page 33. Frank P. Gatto was appointed acting chief executive officer in February 2008. His compensation is discussed below and in the executive compensation tables because he was a named executive officer of our company, but not our chief executive officer, during 2007.

 

When reviewing this discussion, it is important to note that in November 2006 the company was spun-off from Verizon Communications Inc. Prior to the spin-off, the company was a wholly owned subsidiary of Verizon. In connection with the spin-off, the company inherited various legacy compensation programs from Verizon. While 2007 compensation reflects decisions made by the committee, the committee is continuing to evaluate the company’s compensation program and expects to further modify elements of the program as it determines appropriate to support the company’s compensation philosophy and objectives, as well as its cost structure, as a stand-alone public company.

 

Compensation Philosophy and Objectives

 

In making decisions with respect to compensation for executive officers, the committee is guided by a pay-for-performance philosophy. The committee believes a significant portion of each executive’s total compensation opportunity should be tied to and vary with achievement of the company’s financial, operational and strategic goals. In designing the compensation program for executive officers, the committee seeks to achieve the following key objectives:

 

Elements of Our 2007 Compensation Program for Executive Officers

 

Our 2007 compensation program for executive officers used the compensation elements summarized below.

 

 

Committee’s Role in Establishing Compensation

 

The committee approves or recommends to the board for approval all compensation decisions for our executive officers, including grants of equity awards. The committee believes that one of its key functions is to help ensure that our executives are fairly compensated based upon their performance and contribution to the company’s growth and profitability and that its compensation decisions support the company’s compensation philosophy and objectives, as well as stockholder interests. The committee chair sets the agenda for all committee meetings, with input from management and the committee’s advisor.

 

Advisor to the Committee

 

Prior to the spin-off, Verizon retained Hewitt Associates, LLC to initiate a review of our compensation program, including total compensation opportunities and individual pay components (e.g., base salary, short-

term incentive and long-term equity-based compensation) for each of our executive officers. Hewitt was directed to identify a comparator group of publicly traded companies, provide comparative market data with respect to these companies and provide recommendations regarding our overall compensation program and the executive officers’ pay levels. Based in part on Hewitt’s recommendations, the committee recommended to the board for approval and the board approved several changes to our compensation program in the first quarter of 2007.

 

During 2007, the committee conducted a search for an independent advisor. At the committee’s direction, the company’s human resources department developed a list of advisor candidates. Candidates were then asked to submit a written proposal and references and to participate in a series of interviews with the committee and management. Based on this search process, the committee selected Exequity, LLP in September 2007 to serve as the committee’s executive compensation advisor. Exequity reports directly to the committee and only provides services that are authorized by the committee.

 

Management’s Role in Establishing Compensation

 

The company’s human resources department administers our executive compensation program. At the request of the committee or management, the executive vice president—human resources and employee administration is responsible for making proposals to the committee for changes to our executive compensation program. The committee may also request its advisor to review and provide suggestions for changes to the compensation program. Our executive vice president—human resources and employee administration is the primary management contact for the committee chair.

 

In 2007, our chief executive officer, executive vice president—human resources and employee administration and general counsel attended committee meetings to discuss matters under consideration by the committee and to answer questions regarding those matters. Mr. Mueller, our former chairman of the board, was an ex-officio member of the committee and usually attended committee meetings. The committee also regularly meets in executive session without members of management present.

 

Our chief executive officer recommends to the committee changes in compensation for other executive officers based on an assessment of each individual’s responsibilities and contribution to the company’s results and potential for future contributions to the company’s success. Neither the chief executive officer nor other executives are directly involved in recommendations of changes in the chief executive officer’s compensation. The committee relies on its advisor for market data and other relevant information when considering the establishment of or changes to the chief executive officer’s compensation.

 

Review of Compensation Program

 

The company began a review of its compensation program shortly before its spin-off from Verizon. During 2007, the committee continued that review and began implementing changes to the legacy compensation programs the company inherited from Verizon. This process continues in 2008. The committee anticipates that additional modifications to our executive compensation program will be made in 2008.

 

In determining the compensation program for 2007, the committee considered the three main factors described below. The committee’s actions were influenced by the fact that the company had been a stand-alone public company for less than two months in 2006. As a result, the committee placed greater emphasis on market competitiveness in making compensation decisions for our executive officers in 2007.

 

 

 

Employment Agreement

 

In connection with the spin-off, the company assumed an existing employment agreement between our former president and chief executive officer and Verizon. The committee agreed with our former chief executive officer that it was appropriate for her to have an agreement as the chief executive of a new stand-alone public company. The agreement was to expire in June 2008, and provided for minimum short- and long-term incentive compensation opportunities as well as severance and other benefits. Following the spin-off, the committee approved an increase in base salary as described under the caption “Base Salary” below to reflect her additional responsibilities as president and chief executive officer of a stand-alone public company. For additional information about this agreement, see “Executive Compensation—Summary Compensation Table — Former CEO Employment Agreement” on page 35.

 

The committee has determined not to enter into employment agreements with the company’s other executive officers. This decision was based on the committee’s review of survey data for similarly positioned executives and the fact the executive officers receive severance protection and are subject to certain restrictive covenants under the company’s executive transition plan. This plan was approved by the committee in April 2007 and was designed primarily to encourage executives and other key employees to remain employed by the company following the spin-off by providing certain severance protection against involuntary termination of employment with additional severance protection applicable to a termination of employment in connection with a change in control. For additional information about this plan, see “Executive Compensation—Potential Payments Upon Termination or Change in Control—Executive Transition Plan” on page 40.

 

Benchmarking and Comparator Group

 

Based on Hewitt’s advice, the committee reviewed aggregate compensation data from a survey group of more than 100 companies to use in a comparative analysis in determining executive compensation for 2007. From this survey group, the committee selected a comparator group of 15 publicly traded media and publishing companies having revenue and number of employees similar to the company. Although our company is not included in an identifiable peer group, the committee believed that this comparator group represented an appropriate mix of industry participants to use for benchmarking and comparative analysis. The following companies comprised the 2007 comparator group:

 

 

2007 Compensation Program

 

To evaluate proposed base salary changes and incentive award opportunities for 2007, the committee reviewed compensation data from the comparator group. The committee used aggregate data from the larger survey group to confirm the competitiveness of its decisions before they were finalized. The committee’s primary objectives were to align pay with performance and to establish a compensation program that was more heavily oriented toward short- and long-term incentive compensation.

In allocating total compensation opportunities between base salary and incentive opportunities, the committee set base salaries near the 50th percentile of the comparator group and provided performance-based incentive compensation, as a percent of base salary, at approximately the 75th percentile of the comparator group for similar executive positions. The combination of base salary and performance-based incentive compensation opportunities was intended to result in a total compensation opportunity between the 50th and 75th percentiles. While the committee used these percentiles as a guideline, it also considered individual performance, experience, potential for future contributions and internal pay equity. The committee believed this approach was consistent with our pay-for-performance philosophy because base salaries were generally targeted near the median for the comparator group, while total compensation was potentially higher than the median if performance objectives were achieved.

 

In establishing 2007 compensation for our former president and chief executive officer, the committee considered compensation paid to chief executive officers at companies in the comparator group. The committee also considered other factors, including (a) the terms of her employment agreement, (b) the minimum short- and long-term incentive award opportunities provided for under her employment agreement, (c) severance benefits and restrictive covenants provided for under her employment agreement and the company’s long term incentive plan, and (d) the fact that prior to the spin-off she was a business unit president within Verizon and following the spin-off she was president and chief executive officer of a stand-alone public company. In allocating the total compensation opportunity for our former president and chief executive officer, the committee modified the policy described above due to the terms of her employment agreement. That agreement provided for minimum incentive award opportunities that were tied to base salary. Due to these minimum incentive awards and her one-time restricted stock award, the committee decided to set the base salary and performance-based incentive opportunities for our former president and chief executive officer below the 50th percentile. By setting these components of her compensation in this manner, the committee intended to provide her with a total compensation opportunity, including that portion of the one-time restricted stock award that vested on the first anniversary of the grant date, slightly above the 75th percentile.

 

Base Salary

 

Base salaries provide executives with a predictable level of income. The committee reviews base salaries of our executive officers on an annual basis. Any changes in base salary are generally effective at or near the beginning of the year. During the committee’s review of base salaries for executive officers for 2007 the committee primarily considered market data provided by the committee’s advisor, individual performance and experience of the executive officer and internal pay equity among all of our executive officers.

 

Based on its review, the committee increased the base salaries of the executive officers for 2007, in part to reflect their additional responsibilities as a result of the company becoming a stand-alone public company. In addition, the committee considered the mix of each executive officer’s total compensation opportunity. The increases were generally consistent with the committee’s decision to set base salaries near the 50th percentile of the comparator group. Our former president and chief executive officer, however, was provided a base salary below the 50th percentile due to the minimum performance-based incentive awards provided for under her employment agreement and the value of her one-time restricted stock award.

The following table sets forth the base salaries for 2006 and 2007 for our named executive officers.

 

 

 

 

Short-Term Incentive Compensation

 

In the first quarter of 2007, the committee recommended to the board for approval and the board approved target awards under the short term incentive plan for each executive officer. The target awards were set at a percentage of base salary. Later in the first quarter of 2007, the committee approved the remaining terms of the awards. The awards were subject to the company achieving levels of performance for the following metrics:

 

 

The committee set minimum, target and maximum levels of performance for each metric. The company’s performance against each of these metrics was weighted to provide an overall, percentage-based measure of performance. The committee decided the performance metrics should be weighted 50% for OIBITDA and 50% for the revenue metrics to balance the company’s focus on revenue growth and cash flows to service debt and other initiatives. For the revenue metrics, the committee allocated more weight, 35%, to print published revenue, compared to 15% for Internet revenue, because of the significant portion of the company’s overall revenue and profit represented by the print business. If the combined measure of performance was below 90%

achievement, no awards were payable. At 90% to 100% achievement, awards were payable on a scale from 25% to 100% of an executive officer’s target award. At 100% to 112.5% achievement, awards were payable on a scale from 100% to 200% of the target award. The maximum award payable was equal to 200% of an executive officer’s target award.

 

The following table sets forth the threshold, target and maximum levels of performance, the weights of each performance metric and actual performance for each of these metrics in 2007.

 

 

Based on 2007 performance, the weighted overall achievement of the performance metrics was 97.65%. As a result, the award payable to each executive officer was equal to 76.50% of his or her target award (based on the scale of 25% to 100%). The following table sets forth the target awards and actual payouts based on performance achieved under the short term incentive plan, as a percentage of base salary, for each of the named executive officers other than Mr. Coticchio. Under the executive transition plan, Mr. Coticchio received a payment equal to his target short-term incentive award of 80% of his base salary.

 

 

In approving the actual payouts to the named executives officers, other than Mr. Coticchio, the committee had the authority to apply discretion to the amounts that otherwise would have been payable based on the company’s performance in 2007. The committee exercised this discretion in 2007 by reducing the company’s OBITDA for 2007 to eliminate the gain resulting from the company’s sale of a printing plant. The committee determined to eliminate this gain from OIBITDA because of the non-operational nature of the sale. The amounts paid to the named executive officers under the short term incentive plan are shown in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column on page 33.

 

Long-Term Equity-Based Compensation

 

Performance Units

 

The committee believes generally that equity awards should provide a payout only if long-term performance goals are achieved. Consistent with this objective, the committee determined that the company’s total stockholder return should be used as the performance metric for long-term incentive awards granted in 2007. Total stockholder return (“TSR”) is a non-GAAP measure and is based on the change in the company’s closing stock price on the first and last trading days of a three-year performance period. The calculation of TSR will include the assumed reinvestment of any dividends paid during the performance period. The awards were granted in the form of performance units. Each executive officer was granted a target number of performance units. The target number of performance units was determined by (a) multiplying each executive officer’s base salary by a target long-term incentive award percentage, and (b) dividing the product by the company’s closing stock price on the grant date. The incentive award percentage for our former president and chief executive officer was equal to the minimum award she is entitled to under her employment agreement that was assumed by the company in connection with the spin-off. In establishing the award percentages for

each of our other named executive officers, the committee with the advice of Hewitt, compared the total compensation opportunity of the executive officer to that offered to similar executive positions in the comparator group, as well as the long-term equity-based compensation offered as part of the total compensation opportunity. The target awards were generally consistent with the committee’s decision to set incentive awards at approximately the 75th percentile of the comparator group.

 

The actual number of performance units paid at the end of the performance period will be based upon the company’s TSR measured against the weighted average TSR of the S&P Midcap 400 companies and R.H. Donnelley over a three-year period ending December 31, 2009. The TSR of the S&P Midcap 400 is weighted 80% and R.H. Donnelley is weighted 20%. The committee included R.H. Donnelley because this company was considered the most comparable publicly traded company in terms of business, business model, revenue and market capitalization.

 

At the end of the performance period, if the company’s TSR, divided by the weighted TSR of the S&P Midcap 400 and R.H. Donnelley, is below 90%, no performance units will be paid. If this relative TSR is between 90% to 106%, performance units will be payable on a scale from 25% to 150% of the executive officer’s target number of performance units. The maximum number of performance units that will be paid is equal to 150% of the executive officer’s target number of performance units.

 

The performance units will be settled in cash at the end of the performance period. The cash payment will be determined for each executive officer by multiplying the company’s closing stock price on the last trading day of the performance period by the number of performance units payable. Dividends are not payable on the performance units. However, dividend equivalents, in an amount equal to the dividend that would have been paid on an equivalent number of shares of the company’s stock, are granted in the form of additional performance units. The payout of the dividend equivalents is subject to the achievement of the same TSR targets as the performance units.

 

The following table sets forth the target long-term incentive award as a percentage of base salary, the target number of performance units granted to the named executive officers and the aggregate value of the target awards based on the company’s closing stock price on the grant date.

 

 

One-Time Restricted Stock Awards

 

In January 2007, the committee approved one-time grants of restricted stock to the company’s management employees, including each of the named executive officers. In setting the amount of these awards, the committee reviewed market data for other public companies that had become publicly traded as the result of a spin-off. The committee considered this data to be relevant because generally senior management of a spin-off company does not have the opportunity to acquire shares prior to the spin-off, and as a result, only owns shares through an equity award.

 

These awards were intended to create an immediate and significant equity interest in the company, thereby aligning the interests of our executives with those of our stockholders. In addition, these awards were granted for the purpose of creating a significant incentive to continue to be employed by the company for at least the first three years following the company’s spin-off. The committee considered this time period to be critical to the company’s future success as it transitioned from operating as a wholly owned subsidiary of Verizon to a stand-alone public company, creating a heightened importance of continuity of senior

management with significant knowledge of the company’s business and operations. One-third of these awards vest on the first, second and third anniversaries of the grant date.

 

Dividends are not payable on these restricted stock awards until they vest. However, dividend equivalents, in an amount equal to the dividend that would have been paid on the restricted stock awards as if they were vested, are granted in the form of restricted stock units. Each restricted stock unit will be settled for one share of the company’s stock and is subject to the same vesting terms applicable to the corresponding restricted stock awards. These dividend equivalents were intended to provide a continuing increase in management’s equity interest in the company and further align the interests of our executive officers with those of our stockholders.

 

The following table sets forth the number of shares of restricted stock granted to the named executive officers in connection with this one-time award and the aggregate grant date value of the awards. The values shown below represent the value of the restricted stock awards, based on the company’s closing stock price on January 9, 2007, which was the grant date. The numbers of shares shown below do not include the additional shares underlying dividend equivalent restricted stock units that accrue on the shares of restricted stock that have not vested.

 

 

For additional information regarding this one-time award, see “Executive Compensation—Grants of Plan-Based Awards” on page 35 and “Executive Compensation—Outstanding Equity Awards at Fiscal Year-End” on page 37.

 

Other Benefits and Perquisites

 

Our executive officers are eligible to participate in various benefit plans available generally to our employees. Under these plans, all employees are entitled to health, dental, vision, term life insurance and disability coverage. All employees, including our executive officers, are also entitled to vacation, sick leave and other paid holidays. Former employees of Verizon’s directories business and employees with at least 131/2 years of service as of June 30, 2006 are also entitled to post-retirement medical benefits. We assumed this obligation to provide post-retirement medical benefits from Verizon in connection with the spin-off. The committee believes that the company’s commitment to provide these benefits demonstrates the company’s recognition that the health and well-being of our employees contribute directly to a productive and successful work life that enhances results for the company and our stockholders.

 

The executive officers also receive the following benefits and perquisites:

 

 

The company also reimburses a portion of the premiums associated with whole life insurance policies for the executive officers that received this benefit as a Verizon employee. In addition, the company provides these executive officers with payments for taxes owed by the executives as a result of the premiums reimbursed by the company. This benefit was provided by Verizon prior to the spin-off. For 2007, the committee decided to

continue to provide this perquisite only to those executive officers who received this benefit from Verizon prior to the spin-off. The committee expects to periodically review whether to continue this benefit.

 

The company owns an airplane that is used for business purposes. The board has also authorized the limited use of this airplane for non-business purposes by the executive officers if approved in advance by our chief executive officer or chief financial officer. The company believes that the use of this airplane by the executive officers is appropriate considering the significant obligations required by their positions with the company.

 

The committee approved the flexible allowance for executives in lieu of other perquisites customarily provided by other companies, such as car allowances and club dues.

 

These additional benefits and perquisites are generally consistent with the benefits and perquisites provided to executive officers by Verizon prior to the spin-off. For additional information regarding perquisites provided by the company, see “Executive Compensation—Summary Compensation Table—All Other Compensation” beginning on page 34.

 

Savings Plan

 

Our executive officers and other employees are eligible to participate in the Idearc Savings Plan for Management Employees. Participants can elect to contribute to the plan on a pre-tax or post-tax basis and receive a company matching contribution of up to 6% of eligible compensation, which includes base salary and annual short-term incentive, subject to applicable IRS limitations. Management employees are eligible for an additional company matching contribution under the plan of up to 3% of eligible compensation if performance criteria, established by the committee, are met. For 2007, a performance-based matching contribution of 1.5% was made based on the company’s weighted attainment of 97.65% of the performance measures established with respect to the short term incentive plan awards for 2007.

 

Pension Plans

 

In connection with the spin-off, Verizon transferred to the company certain pension assets and liabilities related to our employees, including our executive officers. The benefit obligations are now provided under company pension plans. These plans do not accept new participants or provide existing participants with additional years of service credit other than for determining retirement eligibility. For a description of these plans and the benefits payable to the named executive officers, see “Executive Compensation—Pension Benefits” beginning on page 38.

 

Potential Benefits and Payments upon Severance and Change in Control

 

The company provides the executive officers with severance benefits for termination of employment without cause and in connection with a change in control of the company. The severance benefits are intended to assist the company in attracting and retaining talented executives. In addition, the change in control benefits are intended to ensure that our executives are able, as a practical matter, to evaluate any potential change in control transaction objectively and to encourage executives to remain employed by the company in the event a change in control becomes a real possibility. For additional information, see “Executive Compensation—Potential Payments Upon Termination or Change in Control” beginning on page 40.

 

Mr. Coticchio served as executive vice president, chief financial officer and treasurer of the company through November 26, 2007. He remained an employee of the company through December 31, 2007. Under the executive transition plan, he was entitled to severance payments and benefits of $1,487,139 as a result of his separation from the company. For additional information, see “Executive Compensation—Summary Compensation Table—All Other Compensation” on page 34 and “Executive Compensation—Potential Payments Upon Termination or Change in Control—Former Officers—Former Chief Financial Officer” on page 48.

Stock Ownership Guidelines

 

In April 2007, the committee adopted stock ownership guidelines for senior management, including our executive officers, to align the interests of these employees with those of our stockholders and to strengthen the company’s commitment to sound corporate governance.

 

The number of shares an executive officer is required to own is determined by (a) multiplying his or her base salary in effect on January 31, 2007 by the applicable ownership multiple for the executive officer, and (b) dividing the product by the company’s closing stock price on January 31, 2007. The number of shares is then rounded up to the nearest 1,000 shares. Each of the current executive officers is expected to attain ownership of the required number of shares before January 31, 2012 and maintain ownership of at least this number of shares while they hold office or until the committee changes the ownership guidelines. Individuals who become subject to the guidelines in the future will have five years to attain the required number of shares.

 

The applicable multiple is generally determined by an officer’s title as shown in the table below.

 

 

Until an executive officer meets the required stock ownership guideline, he or she is required to retain at least 75% of the shares earned under the company’s compensation plans, other than shares sold to satisfy withholding tax obligations.

 

If an executive officer does not meet the required stock ownership guideline within the permitted time period or subsequently falls below the guideline, he or she will not be eligible to participate in any company equity-based compensation programs for the year in which this circumstance occurs and in any subsequent year during which the circumstance continues.

 

Under our stock ownership guidelines, the following shares are counted:

 

 

The following table sets forth the applicable stock ownership guideline for and the number of shares held by each of the named executive officers employed by the company as of March 10, 2008.

 

Impact of Regulatory Compliance

 

Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation the company may deduct for federal income tax purposes in any one year with respect to the chief executive officer and the next four most highly compensated officers (excluding the principal financial officer) who were serving as executive officers as of the last day of the applicable year. Performance-based compensation that meets certain requirements is, however, excluded from this limitation.

 

In reviewing our executive compensation program, the committee considers the anticipated tax treatment to the company and our executive officers of various payments and benefits. However, the deductibility of certain compensation payments depends upon the timing of an executive’s vesting or exercise of previously granted awards, as well as interpretations and changes in the tax laws and other factors beyond the committee’s control. For these and other reasons, including the need to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the committee will not necessarily, or in all circumstances, limit executive compensation to that which is deductible under Section 162(m) and has not adopted a policy requiring that all compensation be deductible.

 

The committee will also consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent consistent with its other compensation objectives and otherwise reasonably practicable. The committee may establish annual performance criteria in an effort to ensure deductibility of the cash and restricted stock awards made under the long term incentive plan. Base salary does not qualify as performance-based compensation under Section 162(m). The company expects that all compensation paid to the named executive officers in 2007 will be deductible by the company.

 

Taxation of Nonqualified Deferred Compensation

 

To the extent the committee permits executives to defer compensation or commits to deliver compensation at a later date then when earned and vested, the committee will take efforts to ensure that the requirements of Section 409A of the Internal Revenue Code are satisfied. Failure to satisfy the Section 409A requirements could subject the executive officers receiving nonqualified deferred compensation to a 20% excise tax.

 

HUMAN RESOURCES COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

 

The human resources committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the human resources committee recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement.

 

THE HUMAN RESOURCES COMMITTEE

 

Donald B. Reed, Chair
Jerry V. Elliott
Stephen L. Robertson

 

EXECUTIVE COMPENSATION

 

The following executive compensation tables and related information are intended to be read together with the more detailed disclosure regarding our executive compensation program presented under the caption “Compensation Discussion and Analysis” above.

 

Summary Compensation Table

 

The following table sets forth information regarding the compensation of our named executive officers.

 

 

 

 

 

 

 

All Other Compensation

 

The table below sets forth the components of compensation for 2007 included in the All Other Compensation column in the Summary Compensation Table above.

 

 

 

 

Former CEO Employment Agreement

 

Ms. Harless, our former president and chief executive officer, was covered by an employment agreement that we assumed from Verizon in connection with the spin-off. This agreement provided for an annual base salary of not less than Ms. Harless’ annual base salary on July 1, 2002, or any subsequent increase. Following the spin-off, the human resources committee approved an increase in her base salary as described under the caption “Compensation Discussion and Analysis—Base Salary” to reflect her additional responsibilities as president and chief executive officer of a stand-alone public company. Her annual base salary for 2007 was $650,000. Under her employment agreement, Ms. Harless was entitled to short-term and long-term incentive opportunities of at least 75% and 425%, respectively, of her annual base salary. Benefits that would have been payable to Ms. Harless under this agreement upon termination of her employment are described under “Potential Payments Upon Termination or Change in Control—Former CEO Employment Agreement” on page 42. The employment agreement did not provide for payments or other benefits in connection with a change in control of the company, as those benefits would have been provided under the executive transition plan. Benefits that would have been payable to Ms. Harless under the transition plan are described under “Potential Payments Upon Termination or Change in Control—Executive Transition Plan” on page 40. The company was not required to provide Ms. Harless with any payment or benefit under her employment agreement that would have duplicated any payment or benefit that she would have been entitled to receive under the transition plan or any other company compensation plan or program.

 

Grants of Plan-Based Awards

 

The table below sets forth information about plan-based awards granted to the named executive officers during 2007 under the company’s short term incentive plan and long term incentive plan. In this table, the short term incentive plan is abbreviated as “STI” and awards under the long term incentive plan are abbreviated as “RSA” for restricted stock awards and “PUA” for performance unit awards.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth the number and value of shares of restricted stock, dividend equivalent restricted stock units and performance units held by each named executive officer that were outstanding as of December 31, 2007. The value of these awards was calculated based on a price of $17.56 per share, the closing price of the company’s common stock on December 31, 2007. In accordance with SEC regulations, the value of the performance units is based on the number of units payable at the end of the performance period assuming the threshold level of performance is achieved. The threshold payout is reported due to the fact that if the performance period had ended on December 31, 2007, no performance units would have been payable. In this table, awards under the long term incentive plan are abbreviated as “RSA” for restricted stock awards, “RSU” for dividend equivalent restricted stock units and “PUA” for performance unit awards.

 

 

 

 

 

Stock Vested

 

The following table sets forth information about the vesting of shares of restricted stock and dividend equivalent restricted stock units held by the named executive officers during 2007. None of the outstanding performance units held by the named executive officers vested during 2007. However, under the terms of their performance unit award agreements, neither Ms. Harless nor Mr. Coticchio is subject to the three-year continuous employment requirement as a result of separating from the company. His outstanding performance units remain subject to the company meeting the total stockholder return performance target.

 

 

 

 

Pension Benefits

 

Each of the named executive officers participates in the Idearc pension plan for management employees (the “management plan”) and the Idearc excess pension plan (the “excess plan”). These plans provide for benefits that were provided to the named executive officers under Verizon pension plans prior to the spin-off. Neither plan accepts new participants and existing plan participants do not receive credit for additional years of service other than for determining retirement eligibility. Brief descriptions of the management plan and the excess plan are below.

 

Management Plan

 

The management plan is a noncontributory, tax-qualified pension plan for salaried employees who previously participated in Verizon pension plans. Benefits are based on a cash balance formula that provided for pay credits ranging from 4% to 7% of annual eligible pay up to the applicable IRS limit, for each year of pension accrued service. Participants no longer receive pay credits. In general, eligible pay included base salary and short-term incentives, exclusive of certain senior management or other incentive compensation, and other similar types of payments. Participant accounts receive monthly interest credits based upon the prevailing market yields on certain U.S. Treasury obligations.

 

As part of the transition to a cash balance formula, all participants with at least ten years of service with Verizon as of January 1, 2002, could receive benefits under an alternative benefit formula, referred to as the “highest average pay formula,” if that formula provided a larger benefit than the cash balance formula. Under this alternative formula, benefits are equal to 1.35% of eligible pay for each year of pension accrued service, based on the highest average annual salary during any five consecutive years of employment, up to the

applicable IRS limit. Each of the named executive officers has his or her benefits under the management plan calculated under the highest average pay formula.

 

Benefits under the management plan are payable in a lump sum or an annuity, at the participant’s election. Lump sum benefits are generally equal to the greater of the participant’s cash balance account or the actuarial value of the highest average pay formula, if applicable. Annuity benefits are generally equal to the greater of the actuarial value of a participant’s cash balance account or the highest average pay formula, if applicable.

 

Under the plan, a participant must have 75 points (age plus years of service) with at least 15 years of service to be retirement eligible. Existing participants may earn additional years of service for the purpose of determining retirement eligibility. Retirement-eligible participants who retire before the normal retirement age under the plan are entitled to their full, unreduced pension benefit if they have reached age 55 before they retire. For retirement-eligible participants who retire before reaching age 55, the pension benefit is reduced 3% for each year up to a maximum of 18%. Of our current named executive officers, Mr. Gatto, Mr. Hanle and Mr. Mundy are retirement eligible. Ms. Harless was retirement eligible on December 31, 2007 and on her last day of employment with the company. Under the terms of the management plan, Mr. Coticchio was retirement eligible on December 31, 2007, his last day of employment with the company.

 

Excess Plan

 

The excess plan is an unfunded non-qualified plan that provides supplemental retirement benefits to the named executive officers and other eligible employees. The participation of the named executive officers in the excess plan is limited to the cash balance formula in the management plan. The excess plan provides benefits under the same formulas as the management plan, but only with respect to compensation that cannot be taken into account under the management plan because it exceeds the applicable IRS limit. Benefits under the excess plan are payable in a lump sum and are paid following a participant’s termination of employment. Benefits under the excess plan may not be paid to the named executive officers and other key employees until at least six months following termination.

 

Pension Benefits Table

 

The table below shows the actuarial present value of accumulated benefits and the number of years of service credited for each named executive officer under the management plan and the excess plan.

 

 

 

 

 

Potential Payments Upon Termination or Change in Control

 

Executive Transition Plan

 

In April 2007, the human resources committee (the “committee”) approved the adoption of the company’s executive transition plan (the “transition plan”). The transition plan provides specified payments and other benefits to our executive officers, including each of the named executive officers, in the event the officer’s employment is terminated under the circumstances described below. The company is not required to provide any payment or benefit under the transition plan that duplicates any payment or benefit that an executive officer is entitled to receive under any other company compensation or benefit plan, award agreement, or other arrangement.

 

Termination Without Cause.  If the company terminates the employment of a named executive officer without cause, unrelated to a change in control, then the officer is entitled to receive the following payments and benefits:

 

 

In addition, the committee, in its sole discretion, may accelerate vesting of any outstanding long-term incentive awards held by the officer.

 

Under the transition plan, an officer is deemed to have been terminated without cause if the officer is terminated for any reason other than:

 

 

 

Termination in Connection with a Change in Control.  If the company terminates the employment of a named executive officer without cause during the period beginning six months prior to the date of a change in control (or, if earlier, the date a definitive agreement is signed that would result in a change in control) and ending on the first anniversary of the change in control, or if a named executive officer terminates employment for good reason within one year after a change in control, then the officer is entitled to receive the payments and benefits described above, except that the severance multiplier is 3.0 for our chief executive officer and 2.0 for all other named executive officers.

 

In the event a change in control occurs, all outstanding long-term incentive awards held by a named executive officer will become fully vested if the named executive officer is employed by the company immediately before the change in control occurs. The payout under any performance-based award will equal the target amount.

 

Under the transition plan, a change in control is defined as:

 

 

An officer is deemed to have terminated his or her employment for good reason if the termination follows:

 

 

Termination Due to Death or Disability.  If a named executive officer’s employment terminates due to death or is terminated by the company due to disability, the officer (or the officer’s beneficiary) is entitled to receive a cash payment equal to six months’ base salary plus a prorated portion of the officer’s target short-term incentive award for the year in which the termination occurs. Vesting of the officer’s outstanding long-

term incentive awards is subject to the discretion of the committee. A named executive officer whose employment is terminated by the company due to disability is also entitled to receive two years of continuing group health and welfare benefits (including continued participation in the company’s executive life insurance program and conversion of any life or disability policies) at the company’s expense.

 

Obligations of the Officer.  Payment and benefits under the transition plan are subject to compliance by the former officer with the restrictive covenants in the transition plan, including non-disclosure, non-competition and non-solicitation covenants. The non-competition and non-solicitation covenants expire on the first anniversary of the termination of the officer’s employment. The non-disclosure covenant does not expire. If the former officer violates any of these covenants, the officer will not be entitled to further payments and benefits under the transition plan and must repay the company for the payments and the value of benefits previously received under the transition plan. All payments or benefits under the transition plan are conditioned on the execution of a general release of claims by the former officer in favor of the company, its affiliates, and their officers, directors and employees.

 

Tax Gross-Up Payments.  In the event a named executive officer is subject to federal excise taxes for benefits he or she is entitled to under the transition plan or otherwise from the company, the officer is entitled to receive an amount necessary to offset the excise taxes and any related income taxes, penalties and interest.

 

Former CEO Employment Agreement

 

Ms. Harless, our former president and chief executive officer, was covered by an employment agreement that we assumed from Verizon in connection with the spin-off. The employment agreement provided benefits to Ms. Harless in the event her employment was terminated under the circumstances described below. The employment agreement did not provide additional payments or other benefits in connection with a change in control of the company, as those benefits would have been provided under the transition plan. The company was not required to provide Ms. Harless with any payment or benefit under the agreement that would have duplicated any payment or benefit that she may have been entitled to receive under the transition plan or any other company compensation plan or program.

 

Termination Without Cause or for Good Reason.  If the employment of Ms. Harless was terminated by the company without cause or by Ms. Harless for good reason, she would have been entitled to receive a cash payment equal to two times the sum of (a) her base salary plus (b) 50% of her maximum short-term incentive opportunity. Ms. Harless would also have been entitled to accelerated vesting of all outstanding stock options and outplacement services to the same extent these services were available to other senior executives at the company. In the event Ms. Harless would have been subject to federal excise taxes for benefits under the agreement or otherwise from the company, she would have been entitled to receive an amount necessary to offset the excise taxes and any related income taxes, penalties and interest. The stock options would have been exercisable until the earlier of five years after the date of termination or the maximum term of each option. These payments and benefits were conditioned on the execution of a release of employment-related claims by Ms. Harless in favor of the company.

 

Under the agreement, termination without cause included termination for any reason other than:

 

 

Ms. Harless would have been deemed to have terminated her employment for good reason if the termination followed:

 

 

 

Retirement.  If Ms. Harless had retired, she would have been entitled to a prorated portion of any short-term and long-term incentive opportunities (when and to the extent earned), accelerated vesting of all outstanding stock options and any compensation and benefits that a similarly situated senior executive would have been eligible to receive under the company’s compensation and benefits plans. Stock options would have been exercisable until the earlier of five years after the date of termination or the maximum term of each option. The company has not issued any stock options since the spin-off and has no outstanding stock options.

 

Termination Due to Death or Disability.  If her employment would have been terminated due to her death or by the company due to her disability, Ms. Harless would have been entitled to a cash payment equal to the sum of her base salary plus 50% of her maximum short-term incentive opportunity, less any amounts payable under any company-sponsored disability plan. Ms. Harless would also have been entitled to accelerated vesting of all outstanding stock options, which would have been exercisable until the earlier of five years after the date of termination or the maximum term of each option.

 

Termination for Cause.  If her employment would have been terminated by the company for cause, Ms. Harless would have been entitled to any accrued and unpaid base salary and accrued vacation time through the date of termination plus any compensation and benefits that a similarly situated senior executive would have been eligible to receive under the company’s compensation and benefits plans.

 

Obligations of Ms. Harless.  Payments and benefits under the agreement are conditioned on Ms. Harless complying with certain restrictive covenants, including non-disclosure, non-competition and non-solicitation covenants. The non-competition covenant expires six months after the termination of her employment and the non-solicitation covenant expires on the first anniversary of the termination of her employment. The non-disclosure covenant does not expire.

 

Long Term Incentive Plan Awards

 

In the event of a change in control of the company, the company’s long term incentive plan provides for vesting of all outstanding long-term incentive awards.

 

Under the long term incentive plan, a change in control is defined as:

 

 

Under the award agreement for the grant of performance units for the 2007—2009 award period, a change in control is defined in the same manner described above, provided that:

 

 

The award agreements for restricted stock and performance units under the company’s long term incentive plan establish the vesting provisions applicable to termination of employment. The following is a summary of the vesting provisions applicable to the awards made to the named executive officers in 2007.

 

Restricted Stock.  The award agreement for the January 9, 2007, grant of restricted stock provides for accelerated vesting if the named executive officer’s employment is terminated by the company without cause or is terminated due to death or retirement (after June 30 of the calendar year in which the retirement occurs).

 

If the employment of a named executive officer is terminated by the company without cause, the officer will vest immediately in a prorated portion of the shares of restricted stock that would have vested on the next anniversary of the grant, based upon the number of days elapsed from the preceding January 9 until the date the officer’s employment is terminated.

 

Under the award agreement, an officer is deemed to have been terminated without cause if the officer is terminated for any reason other than:

 

 

If a named executive officer’s employment is terminated due to death or retirement (after June 30 of the calendar year in which the retirement occurs), the officer (or his or her beneficiary) will immediately vest in the shares of restricted stock that would vest on the next anniversary of the grant if the officer’s employment had continued.

 

Performance Units.  The award agreement for the grant of performance units for the 2007—2009 award period provides that if the employment of the named executive officer is terminated by the company without cause or as a result of the officer’s death, disability or retirement, the performance units will vest. However, the units will remain subject to the company meeting the total stockholder return performance target.

 

The performance unit awards are conditioned on the named executive officer complying with certain restrictive covenants in the award agreement, including non-disclosure, non-competition and non-solicitation covenants. The non-competition and non-solicitation covenants expire on the first anniversary of the officer’s termination of employment. The non-disclosure covenant does not expire.

 

Under the award agreement, an officer is deemed to have been terminated without cause if the officer is terminated for any reason other than:

 

 

Pension and Retirement Benefits

 

Upon retirement or other termination of employment, the named executive officers are entitled to pension benefits under the management plan and the excess plan. In addition, the named executive officers are entitled to certain retiree medical benefits upon retirement. See “Executive Compensation—Pension Benefits”

beginning on page 38 for information about the pension benefits payable to the named executive officers under the management plan and excess plan.

 

Termination and Change in Control Tables for 2007

 

The following tables summarize the compensation and other benefits that would have become payable to each named executive officer (other than Mr. Coticchio) assuming his or her employment had terminated on December 31, 2007, given the named executive officer’s base salary as of that date, and, if applicable, the closing price of the company’s common stock on December 31, 2007, which was $17.56. In addition, the following tables summarize the compensation that would become payable to each named executive officer (other than Mr. Coticchio) assuming that a change in control of the company had occurred on December 31, 2007.

 

In reviewing these tables, please note the following: