Table of Contents

** **

 

** **

**UNITED STATES SECURITIES AND EXCHANGECOMMISSION**

**Washington,DC 20549**

 

----

 

**Form 10-K/A****(Amendment No. 1)**

 

**ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d)**

**OF THE SECURITIES EXCHANGE ACTOF 1934**

**FOR THE FISCAL YEAR ENDED DECEMBER31, 2008**

 

**CommissionFile Number: 1-32939**

 

----

 

**IDEARC INC.**

(ExactName of Registrant as Specified in Its Charter)

 

----

 

| **Delaware**(State of Incorporation)                                                                               | ** ** | **20-5095175**(I.R.S. Employer  Identification Number) |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|
| ** **                                                                                                         | ** ** | ** **                                             |
| **2200 West Airfield Drive,  P.O. Box 619810  D/FW Airport, TX**(Address of Principal Executive Offices) | ** ** | ** **

**75261**(Zip Code)                        |

 

Registrant’s telephone number, including area code:

**(972) 453-7000**

 

----

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 
| **Title of Each Class** | ** ** | **Name of Each Exchange on Which Registered** |
|----------------------------------------|------------|-----------------------------------------------------------------------------|
| Common Stock, par value $.01 per share |       | None                                                                        |

 

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

**None**

 

----

 

Indicate by check mark if the Registrant is awell-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct.  Yes o   No x

 

Indicate by check mark if the Registrant isnot required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes o   No x

 

Indicate by check mark whether the Registrant:(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the Registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days.  Yes x   No o

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

 

Indicate by check mark whether the Registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o |   | Accelerated filer x |   | Non-accelerated filer o |   | Smaller Reporting |
|--------------------------------|--------|--------------------------|--------|------------------------------|--------|-------------------|
|                           |   |                     |   |                         |   | Company o    |

 

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

 

The aggregate market value of the votingcommon stock held by non-affiliates of the Registrant as of June 30, 2008(the last business day of the Registrant’s most recently completed secondfiscal quarter) was approximately $346.7 million, based upon the closingprice of the shares on the New York Stock Exchange on that date.

 

As of March 20, 2009, there were148,191,915 shares of the Registrant’s common stock outstanding.

 

 

 

----

Table of Contents

 

EXPLANATORYNOTE

 

ThisAmendment No. 1 amends Idearc Inc.’s (“Idearc” or the “company”) AnnualReport on Form 10-K for the year ended December 31, 2008, which wasfiled with the Securities and Exchange Commission (the “SEC”) on March 12,2009 (the “Original Filing”). Idearc is filing this Amendment No. 1 toinclude the information required by Items 10, 11, 12, 13 and 14 of Part III,which was not included in the Original Filing. In addition, in connection with the filing of this Amendment No. 1and pursuant to the rules of the SEC, the company is including with thisAmendment No. 1 currently dated certifications.  Accordingly, Item 15 of Part IV has alsobeen amended to reflect the filing of these currently dated certifications.

 

ThisAmendment No. 1 does not include the entire Form 10-K. Except asdescribed in this Explanatory Note, this Amendment No. 1 does not amendany other information set forth in the Original Filing and the company has notupdated disclosures to reflect any events that occurred subsequent to March 12,2009.

 

----

Table of Contents

 

**FORWARD-LOOKINGSTATEMENTS**

 

This report contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934. You should notplace undue reliance on these statements. These forward-looking statementsinclude statements that reflect the current views of our senior management withrespect to our financial performance and future events with respect to ourbusiness and industry in general. Statements that include the words “may,” “could,”“should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “preliminary,”“intend,” “plan,” “project,” “outlook” and similar statements of a future orforward-looking nature identify forward-looking statements. Forward-lookingstatements address matters that involve risks and uncertainties. Accordingly,there are or will be important factors that could cause our actual results todiffer materially from those indicated in these statements. We believe thatthese factors include, but are not limited to, the following:

 

·                  risksrelated to our substantial indebtedness, including covenant compliance, thepotential acceleration of debt obligations and the related impacts on ourliquidity;

 

·                  risksrelated to our declining revenue, including a reduction in customer advertisingspend resulting from the current economic downturn;

 

·                  limitationson our operating and strategic flexibility under the terms of our debtagreements;

 

·                  changesin our competitive position due to competition from other yellow pages directoriespublishers and other traditional and new media and our ability to anticipate orrespond to changes in technology and user preferences;

 

·                  declininguse of print yellow pages directories;

 

·                  accessto capital markets and increased borrowing costs in connection with recentratings downgrades;

 

·                  changesin the availability and cost of paper and other raw materials used to print ourdirectories and our reliance on third-party providers for printing anddistribution services;

 

·                  increasedcredit risk associated with our reliance on small- and medium-sized businessesas clients, in particular in the current economic environment;

 

·                  changesin our operating performance;

 

·                  increaseddemands on our management team as a result of discussions around capitalrestructuring;

 

·                  ourability to attract and retain qualified executives;

 

·                  ourability to maintain good relations with our unionized employees;

 

·                  changesin U.S. labor, business, political and/or economic conditions;

 

·                  changesin governmental regulations and policies and actions of regulatory bodies;

 

·                  theoutcome of pending or future litigation and other claims;

 

·                  ourreliance on third-party providers for computer systems and data processing forkey financial systems, including payroll, accounts payable, procurement andgeneral ledger;

 

·                  risksinherent in our spin-off from our former parent corporation, VerizonCommunications Inc., which we refer to as Verizon, including increasedcosts and reduced profitability associated with operating as an independentcompany; and

 

·                  risksassociated with our obligations under agreements entered into with Verizon inconnection with our spin-off.

 

The foregoing factors should not be construedas exhaustive and should be read together with the other cautionary statementsincluded in this report, including under “Item 1A. Risk Factors.” If oneor more events related to these or other risks or uncertainties materialize, orif our underlying assumptions prove to be incorrect, actual results may differmaterially from what we anticipate.

 

----

Table of Contents

 

**TABLE OF CONTENTS**

 
| ** **    | ** **                                                                                      | **Page  No.** |
|---------------|-------------------------------------------------------------------------------------------------|---------------|
|          | **PART III**                                                                               |          |
| Item 10. | Directors, Executive Officers and Corporate Governance                                          | 1             |
| Item 11. | Executive Compensation                                                                          | 6             |
| Item 12. | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters | 48            |
| Item 13. | Certain Relationships and Related  Transactions, and Director Independence                      | 50            |
| Item 14. | Principal Accountant Fees and Services                                                          | 51            |
| ** **    | ** **                                                                                      | ** **    |
| ** **    | **PART IV**                                                                                | ** **    |
| Item 15.      | Exhibits and Financial Statement Schedules                                                      | 53            |

 

----

Tableof Contents

 

**PART III**

 

**Item10.  Directors, Executive Officers andCorporate Governance.**

 

**DIRECTORS**

 

The company’s by-laws provide that the numberof directors will be determined by our board of directors from time totime.  As of the date of this Amendment No. 1,our board of directors has fixed the number of directors at seven.  However, our board of directors currentlyconsists of five members as a result of the resignation of Jerry V. Elliot,effective as of December 31, 2008 and Jonathan F. Miller, effective as of March27, 2009.  On March 27, 2009, Jonathan F.Miller resigned as a member of the board of directors, effective as of March27, 2009.  Mr. Miller also served as acommittee member of the nominating and corporate governance committee of theboard of directors.  The currentdirectors will serve until the next annual meeting of stockholders, or untiltheir earlier resignation or removal. Our current board of directors includesthe following individuals:

 

**ScottW. Klein**, age 51, has been our chief executive officerand a director of the company since June 2008.  Mr. Klein previously served as anoperating partner of Symphony Technology Group, a private investment firm,since November 1, 2007.  From January 2004to October 2007, Mr. Klein served as president and chief executiveofficer of Information Resources, Inc., a provider of informationsolutions for the consumer packaged goods, retail and healthcareindustries.  Prior to joining InformationResources, Mr. Klein served as president, consumer industries, retail &energy global industry group of Electronic Data Systems Corporation from July 2001to January 2004.  Mr. Kleinalso held management positions with PC Mall, Inc., PrimeSource BuildingProducts, Inc., Guardian Purchasing Corp., PepsiCo, Inc. and TheProcter & Gamble Company earlier in his career.

 

**DonaldB. Reed**, age 64, has served as a director of thecompany since November 2006 and as chairman of the board since April 2008.  He serves as chair of the nominating andcorporate governance committee and as a member of the audit committee.  Mr. Reed currently serves on the boardsof directors of CSG Systems International Inc., and Intervoice, Inc. From May 2000to January 2003, he served as chief executive officer of Cable andWireless Global, or C&W, a unit of Cable & Wireless plc (UK).  C&W provided Internet protocol and dataservices to business customers in the United States, Europe and Japan.  Mr. Reed served in various otherexecutive positions at C&W from June 1998 to May 2000.  He also served for 30 years in variousexecutive positions at New England Telephone, NYNEX Corporation and BellAtlantic Corporation, including as NYNEX’s vice president of government affairsin Washington, D.C., vice president of NYNEX Human Resources, president ofNYNEX Information Resources, the directory operations of NYNEX, and presidentand group executive of NYNEX Corporation.

 

**StephenL. Robertson**, age 57, has served as a director of thecompany since November 2006. He serves as the chair of the human resourcescommittee and as a member of the audit committee.  Mr. Robertson is currently a businessconsultant. Previously, he served as president of Convergys International, aunit of Convergys Corporation, from 2002 to 2005. Convergys Corporation, orConvergys, is a global outsourcing solutions company.  Mr. Robertson also served as Convergys’executive vice president of operations from 2000 to 2002 and as Convergys’president of telecom solutions from 1996 to 2000.  In addition to his positions with Convergys, Mr. Robertsonhas held several other executive positions throughout his 32 years in thetelecommunications and technology industries, including serving as chiefexecutive officer of CBD, Inc., a directory publishing and media servicescompany, from 1990 to 1995.  Mr. Robertsonsuccessfully completed the director certification program at the University ofCalifornia–Los Angeles in May 2007.

 

1

----

Table of Contents

 

**ThomasS. Rogers**, age 54, has served as a director of thecompany since November 2006.  Heserves as a member of the human resources committee and the nominating andcorporate governance committee.  Mr. Rogerscurrently serves as president and chief executive officer of TiVo Inc., aposition he has held since July 2005. He also currently serves on the board of directors of TiVo Inc., aprovider of television-based interactive and entertainment services. Mr. Rogerspreviously served as chairman of the board of Teleglobe International Holdings,Ltd., a provider of international voice, data, internet and mobile roamingservices, from November 2004 to February 2006.  He also has served as chairman of TRget MediaLLC, a media industry investment and operations advisory firm, since July 2003.  Mr. Rogers served as the senioroperating executive for media and entertainment for Cerberus CapitalManagement, a large private equity firm, from 2004 to July 2005.  Prior to holding that position, he served aschairman and chief executive officer of Primedia, Inc., a print, video andonline 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.

 

**PaulE. Weaver**, age 63, has served as a director of thecompany since December 2006.  Heserves as the chair of the audit committee and as a member of the humanresources committee.  Mr. Weaver isa former vice chairman of PricewaterhouseCoopers, LLP. During his more than 30years at PricewaterhouseCoopers, Mr. Weaver served as the lead partner ona number of the firm’s largest global clients and held various managementpositions, including serving as vice chairman of the firm and chairman of thefirm’s global technology practice group for a number of years, focusing on thetechnology, infocomm, entertainment and media industries. Mr. Weavercurrently serves as a director of AMN Healthcare Services Inc., and chairman ofthe board of the Ellis Island/Statue of Liberty Foundation, and serves on theCorporate Advisory Board of the University of Michigan Business School.

 

Theinformation required by Item 10 with respect to our executive officers isincluded in Part I of the Original Filing.

 

**SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**

** **

Compliancewith Section 16(a) of the Securities Exchange Act of 1934, asamended, requires the company’s directors and executive officers, and personswho own more than 10% of a registered class of its equity securities, to filereports of ownership and changes in ownership with the SEC.  These reporting persons are required by SEC rules tofurnish the company with copies of all Section 16(a) forms they file.

 

Based solelyon a review of the copies of such forms furnished to the company, the companybelieves that during 2008 all Section 16(a) filing requirementsapplicable to its directors, executive officers and greater than 10%stockholders were in compliance with Section 16(a).

 

**Code of Conduct**

 

The companyhas adopted a code of conduct applicable to all of its directors, officers andemployees, including the chief executive officer, chief financial officer andchief accounting officer.  The purpose ofthe code of conduct is to, among other things, focus our directors, officersand employees on areas of ethical risk, provide guidance to help them recognizeand deal with ethical issues, provide mechanisms to report unethical orunlawful conduct and to help enhance and formalize our culture of integrity,respect and accountability.  Theinformation with respect to our code of conduct for executive and financialofficers and directors is posted on our website at *www.idearc.com* in the Investor Relations tab under “Governance —Code of Conduct.”  The company will postinformation regarding any amendment to, or waiver from, its code of conduct onits website under the Investor Relations tab as required by applicable law.

 

**Director Nominations**

** **

***Qualifications.***  Inconsidering nominees for election as director, the nominating and corporategovernance committee considers a number of factors.  Characteristics expected of all directorsinclude integrity, high personal and professional ethics, sound businessjudgment and the ability and willingness to commit sufficient time to theboard.  In evaluating the suitability ofindividual board members, the committee takes into account many factors,including the candidate’s general understanding of marketing, finance and otherdisciplines relevant to the success of a large publicly traded company in today’sbusiness environment, understanding of the company’s business and technology,educational and professional background and personal accomplishments.

 

2

----

Table of Contents

 

***Stockholder Recommendations.***  Thenominating and corporate governance committee will evaluate any directorcandidates recommended by a stockholder according to the same criteria as acandidate identified by the nominating and corporate governance committee.

 

Stockholdersmay recommend candidates at any time, but to be considered by the nominatingand corporate governance committee for inclusion in the company’s proxystatement for the next annual meeting of stockholders, recommendations must besubmitted in writing no later than 120 days in advance of the firstanniversary of the date of the company’s proxy statement mailed to stockholdersfor the preceding year’s annual meeting of stockholders.  A stockholder’s notice must contain thefollowing:

 

·                  the name andaddress of the stockholder recommending the director candidate forconsideration, the name of the director candidate and the written consent ofthe stockholder and the director candidate to be publicly identified;

 

·                  a writtenstatement by the director candidate agreeing to be named in the company’s proxymaterials and to serve as a member of the board (and any committee of the boardto which the director candidate is assigned to serve by the board) if nominatedand elected;

 

·                  a writtenstatement by the stockholder and director candidate agreeing to make availableto the nominating and corporate governance committee all information reasonablyrequested in connection with the nominating and corporate governance committee’sconsideration of the director candidate; and

 

·                  the directorcandidate’s name, age, business and residential address, principal occupationor employment, number of shares of the company’s common stock and othersecurities beneficially owned, a resume or similar document detailing personaland professional experiences and accomplishments, and all other informationrelating to the director candidate that would be required to be disclosed in aproxy statement or other filing made in connection with the solicitation ofproxies for the election of directors pursuant to the Securities Exchange Actof 1934, as amended, the rules of the SEC and the NYSE corporategovernance standards.

 

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

 

**The Board**

** **

Under thecompany’s corporate governance guidelines, each director is expected to devotethe time necessary to appropriately discharge his responsibilities, review allmeeting materials distributed in advance of a meeting and be prepared todiscuss the business to be presented and is strongly encouraged to attend andparticipate in all board meetings and meetings of board committees on which heserves.  During 2008, the board held 17** **meetings.  Each director attended at least 75% of thetotal number of meetings of the board and committees on which he served duringthe period he was a director.

 

The board hasestablished a policy that its non-management directors meet regularly inexecutive session, without members of management present.  A non-management director presides over eachexecutive session.  In 2008, our chairmanof the board or, in his absence, the lead director, had this responsibility.

 

As part of thecompany’s corporate governance guidelines, the board has adopted a policy thatstrongly encourages each director to attend each stockholder meeting.  Four of our five board members who weredirectors at the time of the meeting attended the company’s 2008 annual meetingof stockholders.

 

**Board Committees**

** **

The board hasthree standing committees: audit committee, human resources committee andnominating and corporate governance committee, each of which is describedbelow.  Each committee operates under awritten charter adopted by the board. All of the charters are publicly available on our website at *www.idearc.com*under the InvestorRelations tab.  You may also obtain acopy of our charters upon written request to our investor relations departmentat our principal executive offices.

 

3

----

Table of Contents

 

Upon thenominating and corporate governance committee’s recommendations, the boardappoints committee members annually.  Thetable below sets forth the current composition of our board committees.

 
| ** **           | ** ** | **Audit  Committee** | ** **    | **Human  Resources  Committee** | ** ** | **Nominating and  Corporate  Governance  Committee** | ** ** |
|----------------------|------------|----------------------|---------------|---------------------------------|------------|-----------------------------------------------------------|------------|
| Donald B. Reed       |       | ü               |          |                            |       |                                                      |       | ü |  (Chair) |   |
| Stephen L. Robertson |       | ü               |          |                            | ü     |  (Chair)                                             |       |   |   |   |
| Thomas S. Rogers     |       |                 |          |                            | ü     |                                                      |       | ü |   |   |
| Paul E. Weaver       |       | ü               |  (Chair) |                            | ü     |                                                      |       |   |   |   |

 

Thecomposition of the board committees for 2009 is expected to remain the same.

 

**Audit Committee**

** **

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

 

·                  establishing,monitoring and assessing the company’s policies and procedures with respect tobusiness practices, including the adequacy of the company’s internal controlsover accounting and financial reporting;

 

·                  reviewing theannual audited financial statements and quarterly financial statements withmanagement and the company’s independent registered public accounting firm;

 

·                  reviewing withmanagement and the independent registered public accounting firm the scope andthe planning of the annual audit;

 

·                  engaging thecompany’s independent registered public accounting firm and conducting anannual review of the independence of that firm;

 

·                  pre-approvingall audit and permitted non-audit services to be performed by the company’sindependent registered public accounting firm;

 

·                  reviewing thefindings and recommendations of the company’s independent registered publicaccounting firm and management’s response to the recommendations of that firm;

 

·                  overseeing theinternal audit function;

 

·                  overseeing compliancewith applicable legal and regulatory requirements, including ethical businessstandards;

 

·                  establishingprocedures for the receipt, retention and treatment of complaints received bythe company regarding accounting, internal accounting controls or auditingmatters;

 

·                  establishingprocedures for the confidential, anonymous submission by employees of concernsregarding questionable accounting or auditing matters;

 

·                  preparing theAudit Committee Report to be included in our annual report; and

 

·                  reviewing theadequacy of the audit committee charter on an annual basis.

 

During 2008,the audit committee held 16 meetings. Our independent registered public accounting firm reports directly tothe audit committee.  Each member of theaudit committee has the ability to read and understand fundamental financialstatements.  The board has determinedeach member of the audit committee is “independent”

 

4

----

Table of Contents

 

as defined by the NYSE corporate governancestandards, which we have chosen to use to determine independence, and Rule 10A-3of the Securities Exchange Act of 1934. The board has also determined that Mr. Weaver meets therequirements of an “audit committee financial expert” as defined by the rules ofthe SEC.

 

**Human Resources Committee**

** **

The humanresources committee establishes, administers and reviews the company’spolicies, programs and procedures for compensating our executive officers andthe board.  The functions andresponsibilities of the human resources committee include:

 

·                  evaluating theperformance of and determining the compensation for the company’s executiveofficers, including its chief executive officer;

 

·                  administeringand making recommendations to the board with respect to the company’s equityincentive plan;

 

·                  overseeingregulatory compliance with respect to compensation matters;

 

·                  reviewing andapproving employment and severance arrangements with the company’s seniormanagement;

 

·                  reviewingdirector compensation policies and, as appropriate, making recommendations tothe board;

 

·                  preparing theHuman Resources Committee Report to be included in the annual report;

 

·                  overseeingpreparation of the Compensation Discussion and Analysis to be included in theannual report; and

 

·                  reviewing theadequacy of the human resources committee charter on an annual basis.

 

During 2008,the human resources committee held 15 meetings. The board has determined that each member of the human resourcescommittee is “independent” as defined by the NYSE corporate governancestandards, which we have chosen to use to determine independence.

 

**Nominating and CorporateGovernance Committee**

** **

The functionsand responsibilities of the nominating and corporate governance committeeinclude:

 

·                  developing andrecommending corporate governance principles and procedures applicable to theboard and the company’s employees;

 

·                  recommendingcommittee composition and assignments;

 

·                  identifyingindividuals qualified to become directors;

 

·                  recommendingdirector nominees;

 

·                  recommendingwhether incumbent directors should be nominated for re-election to the board;and

 

·                  reviewing theadequacy of the nominating and corporate governance committee charter on anannual basis.

 

During 2008,the nominating and corporate governance committee held six meetings.  The board has determined that each member ofthe nominating and corporate governance committee is “independent” as definedby the NYSE corporate governance standards, which we have chosen to use to determineindependence.  In 2008, the nominatingand corporate governance committee retained a director search firm to help thecommittee identify and evaluate qualified director nominees for considerationby the committee.

 

5

----

Tableof Contents

 

**Item 11.  Executive Compensation.**

 

**COMPENSATION DISCUSSION AND ANALYSIS**

 

**Overview**

 

Decisions withrespect to compensation for our executive officers, including our chiefexecutive officer, are made by the human resources committee of our board ofdirectors (the “*committee*”).  The following discussion and analysis arefocused primarily on the compensation for our executive officers during 2008,with additional detail provided for our named executive officers.  Our “*namedexecutive officers*” are the individuals who served as our chiefexecutive officer during 2008, the individual who served as our chief financialofficer during 2008 and our three other most highly compensated executiveofficers for 2008.  The compensation ofour named executive officers is presented in the tables and related informationand discussed under “Executive Compensation” following this section, beginningon page 24.

 

When reviewingthis discussion, it is important to note that in November 2006 the companywas spun-off from Verizon Communications Inc. Prior to the spin-off, the company was a wholly owned subsidiary ofVerizon.  In connection with thespin-off, the company inherited various legacy compensation programs fromVerizon.  While 2008 executivecompensation reflects decisions made by the committee, the committeecontinuously evaluates the company’s compensation program and expects tofurther modify elements of the program as it determines appropriate to supportthe company’s compensation philosophy and objectives, as well as its coststructure, as a stand-alone public company.

 

**Compensation Philosophyand Objectives**

 

In makingdecisions with respect to compensation for executive officers, the committee isguided by a pay-for-performance philosophy. The committee believes a significant portion of each executive’s totalcompensation opportunity should be tied to and vary with achievement of thecompany’s financial, operational and strategic goals.  Overall, the committee’s objective is toprovide executive officers with base salaries that approximate the 50thpercentile, and incentive compensation for superior performance thatapproximates the 75th percentile, of the base salaries and incentivecompensation earned by executive officers at the companies comprising the 2008comparator group.  In designing thecompensation program for executive officers, the committee seeks to achieve thefollowing key objectives:

 

·                  *Attract and Retain Talented Executives*.  The compensation program should provide eachexecutive officer with a total compensation opportunity that is marketcompetitive.  This objective is intendedto ensure that the company is able to attract and retain executives whilemaintaining an appropriate cost structure for the company.

 

·                  *Motivate Executives*.  The compensation program should encourage ourexecutive officers to achieve the company’s short-term and long-term goals.

 

·                  *Alignment with Stockholders*.  The compensation program should alignexecutives’ interests with those of our stockholders, promoting actions thatwill have a long-term positive impact on total stockholder return.

 

·                  *Compensation Should Be Transparent*.  The elements of our compensation programshould be easily understood by both our executives and our stockholders.

 

6

----

Table of Contents

 

**Elements of Our 2008Compensation Program for Executive Officers**

 

Our 2008compensation program for executive officers used the compensation elementssummarized below.

 
| **Elements of  Compensation Program**           | ** ** | **Employees  Covered**                                    | ** ** | **Description**                                                                                                                                                                                                                                                      | ** ** | **Key  Objectives  Promoted**                                                                                                                                                                                                   |
|-------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                      | ** ** | ** **                                                | ** ** | ** **                                                                                                                                                                                                                                                           | ** ** | ** **                                                                                                                                                                                                                      |
| ***Annual  Cash Compensation***                 |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| *** ***                                    |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| Base Salary                                     |       | All salaried  employees                                   |       | Fixed annual cash compensation paid every  two weeks during the year.                                                                                                                                                                                                |       | Designed to enable the company to attract  and retain talented employees.                                                                                                                                                       |
|                                            |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| Short-Term Incentive                            |       | Approximately  2,400 employees                            |       | Variable cash compensation based on  performance achieved against pre-established goals for a one-year period.                                                                                                                                                       |       | Designed to motivate and reward achievement  of financial, operational and strategic business goals.                                                                                                                            |
|                                            |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| ***Long-Term  Equity-Based Compensation*** (1)  |       |                                                      |       |                                                                                                                                                                                                                                                                 |
| *** ***                                    |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| Long-Term Equity Incentives                     |       | Approximately  150 employees                              |       | Stock equivalents that vest based on the  company’s three-year total stockholder return versus a comparator group and  shares of stock that vest as a result of continued employment with the  company.                                                         |       | Designed to retain, motivate and reward  achievement of long-term operational and strategic business goals, align pay  with performance and drive long-term stockholder value.                                                  |
|                                            |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| Stock Options                                   |       | 3 executive  officers                                     |       | Options to acquire shares of stock that  vest as a result of continued employment with the company.                                                                                                                                                                  |       | Designed to motivate executives to commence  and retain employment with the company.                                                                                                                                            |
| *** ***                                    |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| ***Retirement  Benefits***                      |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| *** ***                                    |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| Savings Plan                                    |       | Available to  approximately 6,100 eligible employees      |       | A 401(k) retirement savings plan that  enables employees to contribute a portion of their compensation with a  company matching contribution of up to 6%. An additional company matching  contribution of up to 3% may be awarded based on company performance. |       | Designed to be market competitive, given  that most companies of our size provide a 401(k) plan with a matching  contribution component.                                                                                   |
|                                            |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| Management and Excess Pension Plans             |       | Approximately  3,400 eligible employees hired before 2006 |       | Retirement benefits provided by Verizon  prior to the spin-off. The plans were frozen by Verizon in 2006. In  connection with the spin-off, Verizon transferred the assets and liabilities  under the plans for company employees to the company.                    |       | A legacy obligation transferred to the  company in connection with our spin-off in 2006.                                                                                                                                        |
| *** ***                                    |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| ***Severance  and Change in Control Benefits*** |       |                                                      |       |                                                                                                                                                                                                                                                                 |
| *** ***                                    |       |                                                      |       |                                                                                                                                                                                                                                                                 |       |                                                                                                                                                                                                                            |
| Severance Benefits absent a Change in  Control  |       | All 10  executive officers                                |       | Severance benefits equal to a multiple of  salary and short-term incentive award in the event of a termination by the  company without cause.                                                                                                                        |       | Designed to enable the company to attract  and retain talented executives. Also intended to protect the company’s  interests through restrictive post-employment covenants, including  noncompetition and nonsolicitation. |

 

7

----

Table of Contents

 
| **Elements of  Compensation Program**                      | ** ** | **Employees  Covered**                               | ** ** | **Description**                                                                                                                                                                                                         | ** ** | **Key  Objectives  Promoted**                                                                                                                                                                  |
|------------------------------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                       |       |                                                 |       |                                                                                                                                                                                                                    |       |                                                                                                                                                                                           |
| Severance Benefits in connection with a  Change in Control |       | All 10  executive officers                           |       | Severance benefits equal to a multiple of  salary and target short-term incentive award in the event of a termination by  the company without cause or by the executive for good reason following a  change in control. |       | Designed to ensure that management is able  to evaluate any potential change in control transaction objectively and  provide for continuity of management in the event of a change in control. |
|                                                       |       |                                                 |       |                                                                                                                                                                                                                    |       |                                                                                                                                                                                           |
| ***Other  Benefits and Perquisites***                      | * *   | * *                                             | * *   | * *                                                                                                                                                                                                                | * *   |
| *** ***                                               | * *   | * *                                             | * *   | * *                                                                                                                                                                                                                | * *   | * *                                                                                                                                                                                       |
| Health Benefits                                            |       | Available to  approximately 6,100 eligible employees |       | Health, dental, vision, term life and  disability insurance.                                                                                                                                                            |       | Customary benefits that enable the company  to attract and retain employees as most companies of our size provide similar  benefits.                                                           |
|                                                       |       |                                                 |       |                                                                                                                                                                                                                    |       |                                                                                                                                                                                           |
| Whole Life Insurance                                       |       | 3 executive  officers                                |       | A supplemental insurance program with a  savings component. Includes a payment for taxes associated with the portion  of the premium reimbursed to the executive by the company.                                        |       | A legacy benefit provided by Verizon and  continued by the company in connection with our spin-off in 2006.                                                                                    |
|                                                       |       |                                                 |       |                                                                                                                                                                                                                    |       |                                                                                                                                                                                           |
| Perquisites                                                |       | All 10  executive officers                           |       | Includes flexible allowances, financial  planning and annual physical exams.                                                                                                                                            |       | Customary benefits generally consistent  with similar perquisites provided by Verizon to its executives that enable  the company to attract and retain employees.                              |

 

----

(1)  Aspreviously disclosed, we are currently in the process of evaluating variousoptions for restructuring our capitalization and debt service obligations.  We believe that any restructuring wouldlikely result in holders of common stock of the company receiving little or novalue for their current holdings. Accordingly, long-term equity incentive awards currently outstanding areexpected to have little or no value. Pursuant to our restructuring, all current equity incentive plans,equity ownership plans or other equity-based plans will likely be terminatedand all equity owned under such plans will likely be cancelled.  During and following any restructuring, thecommittee intends to work with its advisor and senior management to establishan appropriate long-term incentive program for 2009 under which new equityrights may be granted.

 

8

----

Tableof Contents

 

**Overview of 2008 BusinessResults and Incentive Compensation**

 

Our financial resultsfor 2008 reflected substantially larger than anticipated contraction in thedirectory advertising business and smaller than anticipated growth in ourInternet business.

 

Since asignificant portion of the 2008 total compensation opportunity for ourexecutive officers was based on our annual financial results, actual totalcompensation earned was well below target. With respect to the performance goals established by the committee inthe first quarter of 2008, our overall weighted achievement of short-termincentive performance goals was 92.1%, resulting in a short-term incentivepayout of 35.5% of target.

 

In addition,the largest part of the 2008 total compensation opportunity for our executiveofficers consisted of long-term equity-based incentives granted in the form ofperformance share units and restricted stock. Given our financial performance and the significant decline in our stockprice during 2008, total compensation earned by our executive officers wassubstantially less than target in 2008.

 

In reviewing incentivecompensation information, please note that in connection with ourrestructuring, all equity incentive plans, equity ownership plans or otherequity-based plans will likely be terminated and all equity owned under suchplans will likely be cancelled.  Ourrestructuring efforts will provide for a new equity incentive plan underwhich new equity rights may be granted.

 

**Committee’s Role inEstablishing Compensation**

 

The committeeapproves or recommends to the board for approval all compensation decisions forour executive officers, including grants of equity awards.  The committee believes that one of its keyfunctions is to help ensure that our executives are fairly compensated basedupon their performance and contribution to the company’s growth andprofitability and that its compensation decisions support the company’scompensation philosophy and short- and long-term strategic business objectives,as well as stockholder interests.  Thecommittee chair sets the agenda for all committee meetings, with input frommanagement and the committee’s advisor.

 

**Advisor to the Committee**

 

Exequity, LLPis the committee’s executive compensation advisor.  Exequity advised the committee with respectto its compensation decisions for all of our executive officers, including ourchief executive officer, in 2008. Exequity reports directly to the committee and only provides servicesthat are requested and authorized by the committee.  Exequity continues to advise the committeewith respect to our executive compensation matters.

 

**Management’s Role inEstablishing Compensation**

 

The company’shuman resources department administers our executive compensation program.  At the request of the committee ormanagement, the executive vice president — human resources and employeeadministration is responsible for making proposals to the committee for changesto our executive compensation program. The committee may also request its advisor to review and providesuggestions for changes to the compensation program.  Our executive vice president — humanresources and employee administration is the primary management contact for thecommittee chair.

 

In 2008, ourchief executive officer, executive vice president — human resources andemployee administration and executive vice president, general counsel andsecretary attended committee meetings to discuss executive compensation mattersunder consideration by the committee and to answer questions regarding thosematters.  The chairman of our board ofdirectors is an ex-officio member of the committee and usually attendscommittee meetings.  The committee alsoregularly meets in executive session without members of management present.

 

Our chiefexecutive officer recommends to the committee changes in compensation for otherexecutive officers based on an assessment of each individual’s responsibilitiesand contribution to the company’s results and potential for futurecontributions to the company’s success. Neither the chief executive officer nor other executives are directlyinvolved in recommendations of changes in the chief executive officer’scompensation.  The committee evaluatesmarket data provided by Exequity and other relevant information whenconsidering the establishment of or changes to the compensation of our chiefexecutive officer and other executive officers.

 

9

----

Table of Contents

 

**Review of CompensationProgram**

 

In determiningthe company’s compensation program for 2008, the committee considered the threemain factors described below.

 

·                  *Market Competitiveness*.  The committee reviewed market data providedby its advisor for each of the executive officers.  The committee completes a market study at thebeginning of each year to evaluate whether market trends would require changesto the current compensation program and pay levels of the executives.

 

·                  *Internal Equity*.  The committee considered the level of totalcompensation opportunity for the executive officers in relation to one anotherto ensure that each executive’s contribution to company performance wasappropriately reflected.  The committeeconsidered compensation in relation to other executive officers due to theirsimilar scope of responsibility and contribution to the company’sperformance.  The committee alsoconsidered the relationship between the compensation of our current and formerchief executive officers and the company’s other executive officers.

 

·                  *Individual Performance*.  The committee considered each individualexecutive’s experience and the potential for the executive to expand his or herresponsibilities and contributions to the company.

 

**Employment Agreements**

 

***ChiefExecutive Officer***

 

In May 2008,the company entered into an employment agreement with Scott W. Klein inconnection with his appointment as chief executive officer of the company.  In establishing the terms of Mr. Klein’semployment, the committee considered market competitiveness, internal payequity and the current economic conditions impacting our business andindustry.  In addition, the committeeexercised its judgment regarding the compensation opportunities that would benecessary to attract and retain an individual appropriately qualified andmotivated to lead the company through the current market and industryconditions.

 

With respectto market competitiveness, the committee reviewed data provided by its advisorregarding the compensation paid to chief executive officers at companies in the2008 comparator group, which comparator group is described below under “Benchmarkingand Comparator Group.”  Consistent withthe compensation program for the company’s other executive officers, thecommittee targeted a total compensation opportunity for our chief executiveofficer between the 50th and 75th percentiles of the 2008 comparator group,with a base salary near the 50th percentile and performance-based incentiveopportunities, as a percent of base salary, at approximately the 75th percentileof the 2008 comparator group.

 

The finalterms of the employment agreement were the result of an arm’s-lengthnegotiation between the committee and Mr. Klein.  For a description of the material terms of Mr. Klein’semployment agreement, see “Executive Compensation—CEO Employment Agreement” and“Executive Compensation—Potential Payments Upon Termination or Change inControl—CEO Employment Agreement.”

 

In October 2008,the committee recommended, and the board approved, an additional benefit for Mr. Kleinrelated to his relocation from Chicago, Illinois to Dallas, Texas whereby hereceived a cash payment equal to his cost basis in his Chicago home.  The company assumed the risk of loss to theextent the home is sold for less than Mr. Klein’s cost basis.  Additionally, the board authorized thecompany to pay the expenses associated with selling Mr. Klein’s Chicagohome, including costs and fees of a relocation firm, as well as to make anadditional payment to Mr. Klein to offset the tax liability resulting fromthis benefit.  The board approved thisrelocation benefit in light of the deterioration in the housing and creditmarkets in an effort to eliminate distractions associated with Mr. Klein’srelocation and to permit Mr. Klein to focus his full attention on hiscompany responsibilities.  For adescription of the material terms of this relocation benefit, see “ExecutiveCompensation—CEO Employment Agreement.”

 

10

----

Table of Contents

 

***FormerChief Executive Officer***

 

In connectionwith our spin-off from Verizon in November 2006, the company assumed anexisting employment agreement between our former chief executive officer,Katherine J. Harless, and Verizon.  Thecommittee agreed with our former chief executive officer that it wasappropriate for her to have an agreement as the chief executive of a newstand-alone public company.  Theagreement was to expire in June 2008, and provided for minimum short- andlong-term incentive compensation opportunities as well as severance and otherbenefits.  The agreement was terminatedin February 2008 in connection with the involuntary termination of Ms. Harless’employment.  For additional informationabout this agreement, see “Executive Compensation—Former CEO EmploymentAgreement.”

 

***OtherExecutive Officers***

 

The committeehas determined not to enter into employment agreements with the company’s otherexecutive officers.  This decision wasbased on the committee’s review of survey data for similarly positionedexecutives and the fact that the other executive officers are eligible toreceive severance benefits and are subject to certain restrictive covenantsunder the company’s executive transition plan. This plan was approved by the committee in April 2007 and wasdesigned primarily to encourage executives to remain employed by the company byproviding certain severance protection against involuntary termination ofemployment with additional severance protection applicable to a termination ofemployment in connection with a change in control.  For additional information about this plan,see “Executive Compensation—Potential Payments Upon Termination or Change inControl—Executive Transition Plan.”

 

**Benchmarking andComparator Group**

 

In November 2007,the committee engaged in a review of the comparator group of companies used toprovide market references in establishing the total compensation opportunityfor our executive officers in 2007.  Toevaluate the comparator group, the committee’s advisor identified all publiccompanies in the same Global Industry Classification System code as the companywith annual revenue similar to that of the company.  Based on discussions with the committee chairand our executive vice president – human resources and employee administration,Exequity compiled a list of public companies with annual revenue between $750million and $10 billion.  Thesecriteria resulted in a group of 17 companies with revenue ranging from$800 million to $8 billion.  Themedian annual revenue for the group was $1.7 billion, with half of thecompanies generating annual revenue between $1.1 billion and $3.3 billion.  With $3.2 billion in revenue in 2006, thecompany ranked in the 75th percentile of this group ofcompanies.

 

In connectionwith this analysis, the committee reviewed the group of 17 companies anddetermined to eliminate four of the companies for various reasons, includingthe nature of their business operations. The committee then compared the remaining 13 companies against thecomparator group used in establishing compensation for 2007.  After giving effect to mergers andacquisitions, the comparator group of 13 companies was substantially similar tothe comparator group used in the prior year.

 

The committeeapproved the following companies for inclusion in the 2008 comparator group:

 
| ·      Belo Corp.                              |   |   |
|------------------------------------------------------------------------------|--------|--------|
| ·      Dow Jones & Company, Inc. |   |   |
| ·      Gannett Co., Inc.                  |   |   |
| ·      Lee Enterprises, Inc.              |   |   |
| ·      The McClatchy Company                   |   |   |
| ·      Media General, Inc.                |   |   |
| ·      Meredith Corporation                    |   |   |
| ·      The New York Times Company              |   |   |
| ·      PRIMEDIA Inc.                           |   |   |
| ·      R.H. Donnelley Corporation              |   |   |
| ·      Valassis Communications, Inc.      |   |   |
| ·      Tribune Company                         |   |   |
| ·      The Washington Post Company             |   |   |

 

11

----

Table of Contents

 

**2008 Compensation Program**

 

In December 2007and January 2008, the committee reviewed compensation data from thecomparator group, supplemented by data extracted from the most relevantexecutive compensation surveys available, in order to evaluate proposed basesalary changes and incentive award opportunities for 2008.  The committee’s primary objectives were toalign pay with performance and to establish a compensation program that wasmore heavily oriented toward short- and long-term incentive compensation.

 

Based on thisanalysis, the committee concluded that the 2007 total compensation opportunityapproximated the 50th percentile of the 2008 comparator group.  As to individual components, base salarieswere found to be below the 50th percentile, while performance-based incentives,as a percent of salary, were at approximately the 75th percentile.  Performance-based incentives, in dollars,however, were found to be below the 75th percentile because of the lower basesalaries.  As a result of this analysis,the committee determined that the 2008 total compensation opportunity shouldremain generally consistent with the 2007 total compensation opportunity interms of targeted percentiles, with certain adjustments to be made to basesalaries to more closely approximate the 50th percentile of the 2008 comparatorgroup.

 

In allocatingtotal compensation opportunities between base salary and incentiveopportunities, the committee set base salaries near the 50th percentile of the2008 comparator group and provided performance-based incentive compensation, asa percent of base salary, at approximately the 75th percentile of the 2008comparator group for similar executive positions.  The combination of base salary andperformance-based incentive compensation opportunities was intended to resultin a total compensation opportunity between the 50th and 75th percentiles.  The committee believed this approach wasconsistent with our pay-for-performance philosophy because base salaries weregenerally targeted near the median for the comparator group, while totalcompensation was potentially higher than the median if performance objectiveswere achieved.

 

While thecommittee used market competitiveness as a guideline, it also consideredindividual performance, changes in responsibilities from the prior year,experience, potential for future contributions, internal pay equity and thecurrent economic conditions impacting our business and industry.  In addition, the committee exercised itsjudgment regarding the appropriate compensation levels necessary to attract andretain individuals qualified and motivated to lead the company through thecurrent market and industry conditions.

 

During the secondand third quarters of 2008, the company’s newly-appointed chief executiveofficer engaged in a detailed review of the company’s operations and the rolesand responsibilities of each of our executive officers.  At the recommendation of our chief executiveofficer, the board approved the reorganization of executive officerresponsibilities within the sales organization, which resulted in certain ofour executive officers assuming additional responsibilities.  In connection with this managementreorganization, the committee considered and approved further adjustments tothe base salaries of those executive officers whose responsibilities hadchanged significantly.

 

In September 2008,at the recommendation of our chief executive officer, the board appointed Samuel D.Jones as our executive vice president, chief financial officer and treasurerand Cody Wilbanks as our executive vice president, general counsel andsecretary.  Mr. Jones had served asacting chief financial officer and treasurer since November 2007 and Mr. Wilbankshad served as acting general counsel since April 1, 2008.  The committee approved increases in the basesalaries and short- and long-term incentive opportunities for Mr. Jonesand Mr. Wilbanks, effective as of January 1, 2008 and April 1,2008, respectively.  The committeedetermined to make the compensation changes for Mr. Jones effective as of January 1,2008 because he had been serving as acting chief financial officer andtreasurer during 2008.  The committeedetermined to make the compensation changes for Mr. Wilbanks effective asof April 1, 2008 because he had been serving as acting general counselsince that date.

 

Thecompensation decisions made by the committee in September 2008 were basedupon market data provided by Exequity, input from the chief executive officerregarding the recent performance of the executive officers and internal payequity among all executive officers.  Inmaking its decisions, the committee also took into consideration the fact thatthe additional responsibilities assumed by certain of the executive officerswere performed previously by members of senior management who were no longerwith the company and whose positions had been eliminated.  This consolidation of responsibilities isexpected to reduce the company’s future executive compensation expense relatedto these functions.  Further, the totalcompensation opportunities for certain of these executive officers were lessthan those made available to their respective predecessors, which also isexpected to reduce the company’s executive compensation expense in the future.

 

12

----

Table of Contents

 

**Base Salary**

 

Base salariesprovide executives with a predictable level of income.  The committee reviews base salaries of ourexecutive officers on an annual basis. Any changes in base salary are generally effective at or near thebeginning of the year.  During thecommittee’s review of base salaries for executive officers for 2008, thecommittee primarily considered market data provided by the committee’s advisor,individual responsibilities, performance and experience of the executiveofficer, recommendations made by our chief executive officer and internal payequity among all of our executive officers.

 

Based on itsreview, the committee increased the base salaries of the executive officers for2008.  The committee considered the mixof each executive officer’s total compensation opportunity.  The increases were generally consistent withthe committee’s decision to set base salaries near the 50th percentile of thecomparator group.

 

The followingtable sets forth the base salaries for 2007 and 2008 for our named executiveofficers who received base salary increases in 2008.

 
| **Name**                                                                                             | ** ** | **2007  Base Salary** | ** ** | **2008  Base Salary** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|
| Scott W. Klein (1) *Chief Executive Officer*                                                         |       | N/A                   |       | $                     | 1,000,000 |
|                                                                                                 |       |                  |       |                  |   |
| Samuel D. Jones (2) *Executive Vice President, Chief Financial  Officer and Treasurer*               |       | $                     | 240,000    |                  | 325,000 |
|                                                                                                 |       |                  |       |                  |   |
| Frank P. Gatto (3) *Executive Vice President – Operations*                                      |       | 307,400               |       | 385,000               |
|                                                                                                 |       |                  |       |                  |
| Scott B. Laver *Executive Vice President – Central*                                             |       | 304,300               |       | 425,000               |
|                                                                                                 |       |                  |       |                  |
| Georgia R. Scaife (4) *Executive Vice President – Human Resources  and Employee Administration* |       | 270,000               |       | 325,000               |
|                                                                                                 |       |                  |       |                  |
| Cody Wilbanks (5) *Executive Vice President, General Counsel  and Secretary*                         |       | 193,800               |       | 325,000               |

 

----

(1)          Mr. Klein was appointed chief executiveofficer of the company effective May 30, 2008.

 

(2)          Mr. Jones was appointed executive vicepresident, chief financial officer and treasurer of the company effective September 1,2008.  His annual base salary wasincreased to $325,000, effective January 1, 2008.  Mr. Jones had been serving as actingchief financial officer and treasurer since November 26, 2007.

 

(3)          Mr. Gatto’s annual base salary was setat $350,000 effective January 1, 2008, and increased to $385,000 effectiveSeptember 1, 2008 in connection with an increase in his responsibilities.

 

(4)          Ms. Scaife’s annual base salary was setat $295,000 effective January 1, 2008, and increased to $325,000 effectiveSeptember 1, 2008 in connection with an increase in her responsibilities.

 

(5)          Mr. Wilbanks was appointed executivevice president, general counsel and secretary of the company effective September 1,2008.  His annual base salary wasincreased to $325,000, effective April 1, 2008, the date on which Mr. Wilbanksbegan serving as acting general counsel.

 

13

----

Table of Contents

 

**Short-Term IncentiveCompensation**

 

In March 2008,the committee approved target awards under the short-term incentive plan foreach named executive officer, other than our chief executive officer.  The target award for our chief executiveofficer for 2008 was established in May 2008 in connection with thenegotiation of his employment agreement. The target awards were set at a percentage of base salary.  The awards were subject to the company achievinglevels of performance for the following metrics:

 

·                  *Earnings Before Interest, Taxes, Depreciation andAmortization (EBITDA)*.  Thecommittee selected this metric because it provides a measure of the company’sperformance and ability to service debt and reinvest in growthinitiatives.  The committee also believedEBITDA to be a strong indicator of the company’s cash flow.  The committee believed this metric to beimportant given the company’s level of indebtedness following the spin-off in2006.  EBITDA is a non-GAAP measure.  The committee calculated EBITDA by addingGAAP depreciation and amortization to GAAP operating income.  The committee also added the costs ofstock-based compensation related to the one-time restricted stock awardsgranted in 2007 and added separation costs related to the spin-off.  The committee retained discretion to adjustEBITDA for unusual or one-time items.

 

·                  *Print Published Revenue*.  The committee selected this metric because itis useful for evaluating the company’s performance in its print business, whichis its largest and most profitable business. Print published revenue represents the total revenue value ofdirectories published that will be amortized over the life of the directories,which is typically 12 months.

 

·                  *Internet Revenue*.  The committee selected this metric because itis useful for evaluating the company’s performance in its Internet business,which the committee considers a growth engine for the company and important tothe long-term success of the company.

 

The metricsestablished by the committee for the 2008 short-term incentive award wereunchanged from those established by the committee for 2007.  The committee also set minimum, target andmaximum levels of performance for each metric. The company’s performance against each of these metrics was weighted to providean overall, percentage-based measure of performance.  Consistent with 2007, the committee decidedthat the performance metrics should be weighted 50% for EBITDA and 50% for therevenue metrics to balance the company’s focus on revenue growth and cash flowsto service debt and other initiatives. For the revenue metrics, the committee assigned a 25% weighting to theprint published revenue metric and a 25% weighting to the Internet revenuemetric.  This weighting of the revenuemetrics was a change from 2007 in which the print published revenue metric wasweighted 35% and the Internet revenue metric was weighted 15%.  The committee determined to assign equalweightings to the print and Internet revenue metrics in 2008 to reflect thecompany’s focus on growing its Internet business.

 

14

----

Table of Contents

 

The followingtable sets forth the potential short-term incentive award payout as apercentage of the executive officer’s target short-term incentive award basedon the company’s combined measure of performance as a percentage of targetperformance.

 
| **Actual Performance   as a percentage of   Target Performance** | ** ** | **Short-Term Incentive   Payout as a percentage of   Target Award** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| 90                                                                                                  | %          | 25                                                                                                          | %          |
| 91                                                                                                  | %          | 30                                                                                                          | %          |
| 92                                                                                                  | %          | 35                                                                                                          | %          |
| 93                                                                                                  | %          | 40                                                                                                          | %          |
| 94                                                                                                  | %          | 45                                                                                                          | %          |
| 95                                                                                                  | %          | 50                                                                                                          | %          |
| 96                                                                                                  | %          | 60                                                                                                          | %          |
| 97                                                                                                  | %          | 70                                                                                                          | %          |
| 98                                                                                                  | %          | 80                                                                                                          | %          |
| 99                                                                                                  | %          | 90                                                                                                          | %          |
| 100                                                                                                 | %          | 100                                                                                                         | %          |
| 101                                                                                                 | %          | 108                                                                                                         | %          |
| 102                                                                                                 | %          | 116                                                                                                         | %          |
| 103                                                                                                 | %          | 124                                                                                                         | %          |
| 104                                                                                                 | %          | 132                                                                                                         | %          |
| 105                                                                                                 | %          | 140                                                                                                         | %          |
| 112.5                                                                                               | %          | 200                                                                                                         | %          |

 

If thecombined measure of performance was below 90% achievement, no awards werepayable.  The maximum award payable wasequal to 200% of an executive officer’s target award.

 

The followingtable sets forth the threshold, target and maximum levels of performance, theweights of each performance metric and performance attained for each of thesemetrics in 2008.

 
| ** **                   | ** ** | ** ** | ** ** | **Performance Goals**    | ** ** | **Performance Attained** | ** ** |
|------------------------------|------------|------------|------------|-------------------------------|------------|-------------------------------|------------|
| **Performance Metrics** | ** ** | **Weight** | ** ** | **Threshold**                 | ** ** | **Target**                    | ** ** | **Maximum** | ** ** | **Actual** | ** ** | **As Adjusted** | ** ** |
| ** **                   | ** ** | ** ** | ** ** | **($ in millions)** | ** ** |
| EBITDA                       |       | 50         | %          | $                             | 1,249      |                          | $          | 1,388 |   | $ | 1,562 |   | $ | 1,283 |   | $ | 1,294 |   |
| Print Published Revenue      |       | 25         | %          | 2,341                         |       | 2,601                         |       | 2,926 |   | 2,436 |   | 2,436 |   |
| Internet Revenue             |       | 25         | %          | 306                           |       | 340                           |       | 383 |   | 300 |   | 300 |   |
|                              |            |            |            |                               |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |

 

Based on 2008performance, as adjusted and approved by the committee, the weighted overallachievement of the performance metrics was approximately 92.1%.  As a result, the award payable to eachexecutive officer was equal to approximately 35.5% of his or her target award.

 

In approvingthe payouts to the named executive officers, the committee had the authority toapply discretion to the amounts that otherwise would have been payable based onthe company’s actual performance in 2008**.**  The committee exercised this discretion byadjusting actual EBITDA performance results to eliminate the financial impactassociated with unusual items that the committee believed were inconsistentwith the objectives intended to be promoted by the short-term incentive award programand that would have unfairly increased or decreased award payouts based solelyon actual performance results.  Theseitems included a contract settlement with a former reseller of our advertising,benefit-related matters, executive relocation and pension settlementgains.  The net effect of eliminatingthese items was an $11.1 million dollar increase in the EBITDA performancemetric.  If the committee had notexercised its discretion, the weighted overall achievement of the performancemetrics would have been 91.7% and the award payable to each executive officerwould have been equal to 33.5% of his or her target award.  The amounts paid to the named executiveofficers under the short-term incentive plan are shown in the SummaryCompensation Table under the “Non-Equity Incentive Plan Compensation” column onpage 24.

 

15

----

Table of Contents

 

The followingtable sets forth the target awards and actual payouts based on performanceachieved under the short-term incentive plan, as a percentage of base salary,for each of our named executive officers that had an opportunity to earn ashort-term incentive award in 2008.

 
| **Name**           | ** ** | **Target Short-Term  Incentive Award  (% of base salary)** | ** ** | **Actual Payout  (% of base salary)** | ** ** |
|--------------------|------------|-------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Scott W. Klein (1) |       | 100                                                                                 | %          | 50.0                                                      | %          |
| Samuel D. Jones    |       | 80                                                                                  | %          | 28.4                                                      | %          |
| Frank P. Gatto     |       | 80                                                                                  | %          | 28.4                                                      | %          |
| Scott B. Laver     |       | 80                                                                                  | %          | 28.4                                                      | %          |
| Georgia R. Scaife  |       | 80                                                                                  | %          | 28.4                                                      | %          |
| Cody Wilbanks      |       | 80                                                                                  | %          | 28.4                                                      | %          |

 

----

| (1) | Mr. Klein’s short-term incentive award  for 2008 was based on achievement of the same performance metrics and goals  applicable to the other named executive officers. However, under the terms of  his employment agreement, Mr. Klein was entitled to a minimum short-term  incentive payout for 2008 of $500,000, regardless of the level achievement of  these performance metrics and goals. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Long-Term Equity-BasedCompensation**

** **

***2008Annual Long-Term Incentive Opportunity***

*** ***

The committeebelieves generally that equity awards should provide a payout only if long-termperformance goals are achieved.  In March 2008,the committee changed the mix of equity awards granted under the company’sannual long-term incentive award program by granting a combination ofperformance share units and restricted stock. The performance share units will vest based on achievement of pre-determinedperformance metrics and goals.  Theshares of restricted stock will be time-vested. Upon vesting, each performance share unit will be settled with one shareof company common stock.  The committeedetermined to change the mix of equity awards to continue to align employeeinterests with those of our stockholders and to further enhance employeeretention.

 

The committeedetermined that our executive officers would receive a target long-termincentive award for 2008 consisting of 70% performance share units and 30%restricted stock.  The committee believedthat this allocation emphasized its commitment to providing a payout only iflong-term performance goals are achieved, while incorporating a retentionaspect.

 

Each executiveofficer was granted a target number of performance share units and shares ofrestricted stock.  The target number wasdetermined by (a) multiplying each executive officer’s base salary by atarget long-term incentive award percentage, and (b) dividing the productby the average closing price of the company’s common stock over the 20 tradingday period immediately following the company’s release of earnings for the yearended December 31, 2007.  Thecommittee determined to use an average closing stock price to eliminate anypotential advantage or disadvantage in achieving performance targets that mayresult from using the closing price on a single trading day at the beginning ofthe performance measurement period. After the target number was determined, 70% was allocated to performanceshare units and 30% to restricted stock.

 

Our chiefexecutive officer is entitled to a target long-term incentive award percentageof 300% pursuant to the terms of his employment agreement.  In establishing the award percentages foreach of our other named executive officers, the committee, with the advice ofExequity, compared the total compensation opportunity of each executive officerto that offered to similar executive positions in the 2008 comparator group, aswell as the long-term equity-based compensation offered as part of the totalcompensation opportunity.  The targetawards were generally consistent with the committee’s decision to set incentiveawards at approximately the 75th percentile of the 2008 comparator group.

 

16

----

Table of Contents

 

Consistentwith the objectives described above and advice received from Exequity, thecommittee determined that the company’s total stockholder return should be usedas the performance metric for the performance share units granted in 2008.  Total stockholder return (“*TSR*”) is a non-GAAP measure and is basedon the change in the company’s closing stock price over a three-yearperformance period.  The actual number ofperformance share units vested at the end of the performance period will bebased on the company’s TSR as ranked against the TSR of the companiescomprising the S&P Midcap 400 and as compared to the TSR ofR.H. Donnelley over the three-year performance period.  The performance period began on March 8,2008 (the last day of the 20 trading day period described above) and will endon the 20th trading day following the date on which the company releasesearnings for the year ending December 31, 2010.  The company’s TSR as ranked against the TSRof the S&P Midcap 400 companies and as compared to the TSR ofR.H. Donnelley is weighted 80% and 20%, respectively.  The committee included R.H. Donnelley becausethis company was considered the most comparable publicly traded company interms of business, business model, revenue and market capitalization.

 

The tablebelow sets forth the potential payout of performance share units based on thecompany’s TSR as ranked against the S&P Midcap 400 companies and ascompared to the TSR of R.H. Donnelley.

 
| **Benchmarks**      | ** ** | **Performance Targets**                              | ** ** | **Long-Term  Incentive  Percentage Payout** | ** ** | **Long-Term  Incentive  Weighting** |
|---------------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------|
| S&P  Midcap 400 |       | Below 30th percentile                                |       | 0%                                               |       | 80%                                 |
|                |       |                                                      |       |                                             |       |
|                |       | 30th percentile or above  (but below the 50th percentile) |       | 50% – 99%                                   |       |
|                |       |                                                      |       |                                             |       |
|                |       | 50th percentile or above  (but below the 80th percentile) |       | 100% – 199%                                 |       |
|                |       |                                                      |       |                                             |       |
|                |       | 80th percentile or above                                  |       | 200%                                             |       |
|                |       |                                                      |       |                                             |       |                                |
| R.H.  Donnelley     |       | Below 75%                                                 |       | 0%                                               |       | 20%                                 |
|                |       |                                                      |       |                                             |       |
|                |       | 75% or above  (but below 100%)                            |       | 50% – 99%                                   |       |
|                |       |                                                      |       |                                             |       |
|                |       | 100% or above  (but below 125%)                           |       | 100% – 199%                                 |       |
|                |       |                                                      |       |                                             |       |
|                |       | 125% or above                                             |       | 200%                                             |       |

 

The shares ofrestricted stock granted as part of the 2008 long-term incentive award willvest in two equal installments on December 31, 2009 and December 31,2010.  The committee determined that theretention value of the 2008 long-term incentive award would be enhanced if one-halfof the restricted stock vested on December 31, 2009, rather than at ornear the end of the three-year performance period applicable to the performanceshare units.

 

17

----

Table of Contents

 

The followingtable sets forth the target long-term incentive award as a percentage of basesalary for our named executive officers that had an opportunity to earn along-term incentive award in 2008, the target number of performance share unitsand number of shares of restricted stock granted to these named executiveofficers and the aggregate value of the awards based on the company’s closingstock price on the date the awards were approved by the committee.

 
| **Name**          | ** ** | **Target Long-Term  Incentive  Award Percentage  (% of base salary)** | ** ** | **Target  Number of  Performance   Share Units   Granted (1)** | ** ** | **Number of  Shares of   Restricted  Stock  Granted (1)** | ** ** | **Aggregate  Value** | ** ** |
|-------------------|------------|------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|----------------------|------------|
| Scott W. Klein    |       | 300                                                                                            | %          | 311,705                                                                                 |       | 133,588                                                                       |       | $                    | 1,750,000  |   |
| Samuel D. Jones   |       | 175                                                                                            | %          | 379,167                                                                                 |       | 162,500                                                                       |       | 568,750              |       |
| Frank P. Gatto    |       | 175                                                                                            | %          | 59,549                                                                                  |       | 25,521                                                                        |       | 612,500              |       |
| Scott B. Laver    |       | 175                                                                                            | %          | 72,309                                                                                  |       | 30,990                                                                        |       | 743,750              |       |
| Georgia R. Scaife |       | 175                                                                                            | %          | 152,202                                                                                 |       | 65,230                                                                        |       | 455,083              |       |
| Cody Wilbanks     |       | 175                                                                                            | %          | 288,741                                                                                 |       | 123,746                                                                       |       | 471,473              |       |
|                   |            |                                                                                                |            |                                                                                         |            |                                                                               |            |                      |            |  |

 

----

| (1) | Except as described below, the number of  performance share units and shares of restricted stock granted was calculated  using the base salary and target long-term incentive award percentage  approved by the committee in the first quarter of 2008 for each executive  officer, and a stock price of $7.20, which was the 20 trading day  average closing price of the company’s stock on March 8, 2008. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| · | For Mr. Klein, the number of units and shares granted was  calculated using his base salary and target award percentage approved by the  committee in May 2008 and a stock price of $3.93, which was the closing  price of the company’s stock on the first trading day of the month following  the date he commenced employment with the company. Mr. Klein’s award was  pro-rated for the number of days he was employed by the company in 2008; and                                                                                                                                                                                          |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | The target award percentages approved by the committee in the first  quarter of 2008 for Mr. Jones, Ms. Scaife and Mr. Wilbanks  were 135%, 135% and 90%, respectively. In September 2008, the committee  increased their respective target award percentages to 175% and granted  additional performance share units and shares of restricted stock to give  effect to the change in the target awards. The additional units and shares  were calculated using a stock price of $1.05, which was the closing price of  the company’s stock on the first trading day of the month following the date  on which their compensation was adjusted. |

 

**Other Benefits andPerquisites**

 

Our executiveofficers are eligible to participate in various benefit plans availablegenerally to our employees.  Under theseplans, all employees are entitled to health, dental, vision, term lifeinsurance and disability coverage.  Allemployees, 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 atleast 131⁄2 years of service as of June 30, 2006 are also entitled topost-retirement medical benefits.  Weassumed this obligation to provide post-retirement medical benefits fromVerizon in connection with the spin-off in 2006.  The committee believes that the company’scommitment to provide these benefits demonstrates the company’s recognitionthat the health and well-being of our employees contribute directly to aproductive and successful work life that enhances results for the company andour stockholders.

 

The executive officers alsoreceive the following benefits and perquisites:

 
| · | physical examinations;                                     |
|--------|------------------------------------------------------------|
|   |                                                       |
| · | financial planning resources, services and assistance; and |
|   |                                                       |
| · | flexible allowances.                                       |

 

18

----

Table of Contents

 

The company also reimburses aportion of the premiums associated with whole life insurance policies for threeof our executive officers who received this benefit as Verizon employees priorto the spin-off in 2006.  In addition,the company provides these executive officers with payments for taxes owed bythe executives as a result of the premiums reimbursed by the company.  This benefit was provided by Verizon prior tothe spin-off in 2006.  For 2008, thecommittee decided to continue to provide this perquisite only to thoseexecutive officers who received this benefit from Verizon prior to thespin-off.  The committee willperiodically consider whether to continue this benefit.

 

The committee approved theflexible allowance for executives in lieu of other perquisites customarilyprovided by other companies, such as car allowances and club dues.

 

These additional benefits andperquisites are generally consistent with the benefits and perquisites providedto executive officers by Verizon prior to the spin-off.  For additional information regardingperquisites provided by the company, see the “Executive Compensation—SummaryCompensation Table—All Other Compensation” discussion beginning on page 26.

 

**Savings Plan**

 

Our executive officers andother employees are eligible to participate in the Idearc Savings Plan forManagement Employees.  Participants canelect to contribute to this plan on a pre-tax or post-tax basis and receive acompany matching contribution of up to 6% of eligible compensation, whichincludes base salary and annual short-term incentive, subject to applicable IRSlimitations.  Management employees areeligible for an additional company matching contribution under the plan of upto 3% of eligible compensation if performance criteria, established by thecommittee, are met.  For 2008, aperformance-based matching contribution of 1.0% was made based on the company’sweighted attainment of 92.1% of the performance measures established withrespect to the short-term incentive plan awards for 2008.

 

**Pension Plans**

 

In connection with thespin-off, Verizon transferred to the company certain pension assets andliabilities related to our employees, including our executive officers.  The benefit obligations are now providedunder company pension plans.  These plansdo not accept new participants or provide existing participants with additionalyears of service credit other than for determining retirement eligibility.  For a description of these plans and thebenefits payable to the named executive officers, see “ExecutiveCompensation—2008 Pension Benefits” beginning on page 33.

 

**Potential Benefits andPayments upon Severance and Change in Control**

 

The company provides the executiveofficers with severance benefits in the event of a termination of employmentwithout cause or in connection with a change in control of the company.  These benefits are provided to our chiefexecutive officer pursuant to his employment agreement.  For our other executive officers, thesebenefits are provided pursuant to the company’s executive transition plan.  The severance benefits are intended to assistthe company in attracting and retaining talented executives.  In addition, the change in control severancebenefits are intended to (a) ensure that our executives are able, as apractical matter, to evaluate any potential change in control transactionobjectively, (b) encourage executives to remain employed by the company inthe event a change in control becomes a real possibility and (c) protectthe company’s interests through restrictive post-employment covenants,including noncompetition and nonsolicitation. For additional information, see “Executive Compensation—PotentialPayments Upon Termination or Change in Control” beginning on page 35.

 

**Stock OwnershipGuidelines**

** **

In April 2007, thecommittee adopted stock ownership guidelines for senior management, includingour executive officers, to align the interests of these employees with those ofour stockholders and to strengthen the company’s commitment to sound corporategovernance.

 

19

----

Table of Contents

 

The number of shares anexecutive officer is required to own is determined by (a) multiplying hisor her base salary in effect on January 31, 2007 (or, if later, the dateof hire) by the applicable ownership multiple for the executive officer, and (b) dividingthe product by the company’s closing stock price on January 31, 2007.  The number of shares is then rounded up tothe nearest 1,000 shares.  Each of thecurrent executive officers is expected to attain ownership of the requirednumber of shares before January 31, 2012 (for Mr. Klein, May 30,2013) and maintain ownership of at least this number of shares while they holdoffice or until the committee changes the ownership guidelines.  Individuals who become subject to theguidelines in the future will have five years to attain the required number ofshares.

 

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

 
| **Position**              | ** ** | **Multiple of Base Salary** | ** ** |
|---------------------------|------------|--------------------------------------------|------------|
| Chief Executive Officer   |       | 4x                                         |       |
| Executive Vice Presidents |       | 3x                                         |       |
| Senior Vice Presidents    |       | 2x                                         |       |
| Vice Presidents           |       | 1x                                         |       |

 

Until anexecutive officer meets the required stock ownership guideline, he or she isrequired to retain at least 75% of the shares earned under the company’scompensation plans, other than shares sold to satisfy withholding taxobligations.

 

If anexecutive officer does not meet the required stock ownership guideline withinthe permitted time period or subsequently falls below the guideline, he or shewill not be eligible to participate in any company equity-based compensationprograms for the year in which this circumstance occurs and in any subsequentyear during which the circumstance continues.

 

Under ourstock ownership guidelines, the following shares are counted:

 

·      shares owned outright by the executiveofficer or his or her immediate family members residing in the same household;

 

·      shares held in the company’s savings plan;and

 

·      shares of restricted stock granted as partof an executive officer’s compensation, whether or not vested.

 

The followingtable sets forth the applicable stock ownership guideline for and the number ofshares held by each of the named executive officers employed by the company asof March 20, 2009.

 
| **Name**          | ** ** | **Stock Ownership  Guideline** | ** ** | **Number of  Shares Held** | ** ** |
|-------------------|------------|-------------------------------------|------------|--------------------------------------|------------|
| Scott W. Klein    |       | 123,381                             |       | 369,646                              |       |
| Samuel D. Jones   |       | 19,000                              |       | 179,792                              |       |
| Frank P. Gatto    |       | 29,000                              |       | 150,288                              |       |
| Scott B. Laver    |       | 29,000                              |       | 68,572                               |       |
| Georgia R. Scaife |       | 25,000                              |       | 82,537                               |       |
| Cody Wilbanks     |       | 18,000                              |       | 141,677                              |       |

 

In connection with any restructuring, all equity incentiveplans, equity ownership plans or other equity-based plans will likely beterminated and all equity owned under such plans will likely be cancelled.  Our restructuring efforts will providefor a new equity incentive plan under which new equity rights may begranted.  After the completion of thecompany’s capital restructuring, the board intends to establish new stockownership guidelines for senior management.

 

20

----

Table of Contents

 

**Impact of RegulatoryCompliance**

 

***Deductibilityof Compensation***

 

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

 

In reviewingour executive compensation program, the committee considers the anticipated taxtreatment to the company and our executive officers of various payments and benefits.  However, the deductibility of certaincompensation payments depends upon the timing of an executive’s vesting orexercise of previously granted awards, as well as interpretations and changesin the tax laws and other factors beyond the committee’s control.  For these and other reasons, including theneed to maintain flexibility in compensating executive officers in a mannerdesigned to promote varying corporate goals, the committee will notnecessarily, or in all circumstances, limit executive compensation to thatwhich is deductible under Section 162(m) and has not adopted a policyrequiring that all compensation be deductible.

 

The committeewill also consider various alternatives to preserving the deductibility ofcompensation payments and benefits to the extent consistent with its othercompensation objectives and otherwise reasonably practicable.  The committee may establish annualperformance criteria in an effort to ensure deductibility of the cash and restrictedstock awards made under the long term incentive plan.  Base salary does not qualify asperformance-based compensation under Section 162(m).  The company expects that all compensationpaid to the named executive officers in 2008, other than to our chief executiveofficer,****will be deductible by thecompany.

 

***Taxationof Nonqualified Deferred Compensation***

*** ***

To the extentthe committee permits executives to defer compensation or commits to delivercompensation at a later date then when earned and vested, the committee willtake efforts to ensure that the requirements of Section 409A of theInternal Revenue Code are satisfied. Failure to satisfy the Section 409A requirements could subject theexecutive officers receiving nonqualified deferred compensation to a 20% excisetax.

 

**2009 ExecutiveCompensation Decisions**

** **

As previously disclosed, weare currently in the process of evaluating various options for restructuringour capitalization and debt service obligations.  We believe that any restructuring wouldlikely result in holders of common stock of the company receiving little or novalue for their current holdings. Accordingly, long-term equity incentive awards currently outstanding areexpected to have little or no value. Under any restructuring, all current equity incentive plans, equityownership plans or other equity-based plans will likely be terminated and allequity owned under such plans will likely be cancelled.  During and following any restructuring, thecommittee intends to work with its advisor and company management to establishan appropriate long-term incentive program for 2009 under which new equityrights may be granted.

 

21

----

Table of Contents

 

**2009 Short-Term Incentive Compensation Target Awards and PerformanceMeasures**

 

In the firstquarter of 2009, the committee recommended to the board for approval and theboard approved target awards and performance metrics under the short termincentive plan for the executive officers. The target awards were set as a percentage of base salary.  The awards were subject to the companyachieving levels of performance for the opportunity incentive component and theannual incentive component.

 

Opportunity Incentive Component

 

Awards for the opportunity incentive component of the 2009 short termincentive award will be measured by the attainment of short term targetsrelated to multi-product revenue as of June 30, 2009, digital directoryimplementation, and implementation of specific technology initiatives and mediaconsultant and mobility initiatives.  Webelieve that these initiatives are critical to the company’s businesstransformation model.  With respect tothe multi-product revenue performance target, if that figure is not achieved atJune 30, 2009, then no portion of the opportunity incentive component ofthe 2009 short term incentive award will be paid out.  Achievement of 100% of the multi-productrevenue performance target and the achievement of the related strategicinitiatives discussed above would result in payment of a target opportunityincentive component of the 2009 short term incentive award based on apercentage of the applicable executive officer’s base salary, which is up to29.26% for the chief executive officer and 23.41% for all other named executiveofficers.  The opportunity incentivecomponent of the 2009 short term incentive award, if achieved, will be paid incash during the third quarter of 2009.

 

Annual Incentive Component

 

Awards for the annual incentive component of the short term incentiveaward will be measured by the attainment of short term targets related to printpublished revenue, internet revenue and earnings before interest, taxes,depreciation and amortization (EBITDA) during the period beginning January 1,2009 and ending December 31, 2009. Achievement of 100% of the performance targets would result in paymentof the target annual incentive component of the 2009 short term incentive awardbased on a percentage of the applicable executive officer’s base salary, whichis 100% for the chief executive officer and 80% for all other named executiveofficers.  Achievement of the minimumthreshold for payment under the annual incentive component of the short term incentiveaward would result in a payment equal to 25% of the target 2009 short termincentive award.  The maximum payoutunder the annual incentive component of the short term incentive award wouldresult in a payment equal to 200% of the target 2009 short term incentiveaward.  Please see page 16 for atable setting forth in more detail the potential short term incentive awardpayout as a percentage of the executive officer’s target short term incentiveaward based on the company’s combined measure of performance as a percentage oftarget performance.  The annual incentivecomponent of the 2009 short term incentive award, if achieved, will be paid incash during the first quarter of 2010.  Thetarget awards and performance metrics established by the committee for theannual incentive component of the 2009 short term incentive award areconsistent with those established by the committee for 2008.

 

22

----

Table of Contents

 

**HUMANRESOURCES COMMITTEEREPORT ON EXECUTIVE COMPENSATION**

** **

The humanresources committee is currently comprised of three directors, Stephen L.Robertson (Chair), Thomas S. Rogers and Paul E. Weaver.  Messrs. Weaver and Rogers were appointedto the human resources committee effective as of April 16, 2008 and December 31,2008, respectively.  Messrs. Weaverand Rogers did not participate in the decisions described in the CompensationDiscussion and Analysis that were made prior to the dates on which they wereappointed to the human resources committee, except to the extent these matterswere approved by the board of directors. Donald B. Reed served on the human resources committee until April 2008when he assumed the roles of chairman of the board and chair of the nominatingand corporate governance committee.  Mr. Reedparticipated in the decisions described in the Compensation Discussion andAnalysis.

 

The humanresources committee, together with Mr. Reed, reviewed and discussed theCompensation Discussion and Analysis with management.  Based on this review and discussion, thehuman resources committee, together with Mr. Reed, recommended to theboard that the Compensation Discussion and Analysis be included in this annualreport.

 
|   | Stephen L. Robertson, Chair |
|--------|-----------------------------|
|   | Donald B. Reed              |
|   | Thomas S. Rogers            |
|   | Paul E. Weaver              |

 

23

----

Table of Contents

 

**EXECUTIVECOMPENSATION**

** **

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

 

**Summary Compensation Table**

** **

The followingtable sets forth information regarding the compensation of our named executiveofficers.

 
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **          | ** ** | ** **          | ** ** | **Non-Equity**            | ** ** | **Change in** | ** ** | ** **                | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|--------------------|------------|---------------------|------------|---------------------|------------|---------------------------|------------|--------------------|------------|---------------------------|------------|------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | **Stock**           | ** ** | **Option**          | ** ** | **Incentive Plan**   | ** ** | **Pension**        | ** ** | **All Other**        | ** ** | ** ** | ** ** |
| **Name and Principal Position** | ** ** | **Year**   | ** ** | **Salary** | ** ** | **Bonus (1)** | ** ** | **Awards (2)** | ** ** | **Awards (3)** | ** ** | **Compensation (4)** | ** ** | **Value (5)** | ** ** | **Compensation (6)** | ** ** | **Total**  | ** ** |
| Scott W. Klein  (7)                            |       | 2008       |       | $          | 580,769    |               | $          | 681,846             |       | $                   | 421,800    |                      | $          | 133,187            |       | $                         | 218,154    |       | —     |   | $ | 1,841,120 |   | $ | 3,876,876 |   |
| Chief Executive  Officer                       |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
| Samuel D. Jones                                |       | 2008       |       | 334,007    |       | —             |       | 314,785             |       | —              |       | 92,170                    |       | 40,503             |       | 42,588                    |       | 824,053    |       |
| Executive Vice  President,                     |       | 2007       |       | 200,308    |       | —             |       | 243,693             |       | —              |       | 119,340                   |       | —             |       | 36,220                    |       | 599,561    |       |
| Chief Financial  Officer and Treasurer         |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
| Frank P. Gatto  (8)                            |       | 2008       |       | 437,115    |       | —             |       | 858,541             |       | —              |       | 109,186                   |       | $                  | 13,711     |                      | 85,147     |       | 1,503,700  |   |
| Executive Vice  President – Operations    |       | 2007       |       | 307,400    |       | —             |       | 724,288             |       | —              |       | 188,129                   |       | 34,035             |       | 75,992                    |       | 1,329,844  |       |
|                                           |       | 2006       |       | 272,800    |       | 100,000            |       | —              |       | —              |       | 206,646                   |       | 132,426            |       | 64,952                    |       | 776,824    |       |
| Scott B. Laver                                 |       | 2008       |       | 425,000    |       | —             |       | 744,058             |       | —              |       | 120,530                   |       | 3,940              |       | 75,209                    |       | 1,329,844  |       |
| Executive Vice  President – Central       |       | 2006       |       | 270,000    |       | 150,000            |       | —              |       | —              |       | 204,525                   |       | 106,029            |       | 50,664                    |       | 781,218    |       |
| Georgia R. Scaife                              |       | 2008       |       | 304,808    |       | —             |       | 691,278             |       | —              |       | 80,871                    |       | —             |       | 39,616                    |       | 1,116,573  |       |
| Executive Vice  President – Human         |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
| Resources and  Employee                        |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
| Administration                                 |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
| Cody Wilbanks                                  |       | 2008       |       | 293,323    |       | —             |       | 816,697             |       | —              |       | 84,193                    |       | —             |       | 32,914                    |       | 1,227,127  |       |
| Executive Vice  President, General             |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
| Counsel and  Secretary                         |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
| *Former  Executive Officers:*                  |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
| Katherine J.  Harless (9)                      |       | 2008       |       | 100,000    |       | —             |       | (1,182,915          | )          | —              |       | —                    |       | —             |       | 3,715,892                 |       | 2,632,977  |       |
| Former President  and                          |       | 2007       |       | 622,381    |       | —             |       | 3,427,328           |       | —              |       | 559,406                   |       | —             |       | 226,736                   |       | 4,835,851  |       |
| Chief Executive  Officer                       |       | 2006       |       | 483,000    |       | 400,000            |       | —              |       | —              |       | 556,959                   |       | 174,053            |       | 166,833                   |       | 1,780,845  |       |
| John J. Mueller  (10)                          |       | 2008       |       | 26,342     |       | —             |       | —              |       | —              |       | —                    |       | —             |       | 254,809                   |       | 281,151    |       |
| Former Chief  Executive Officer                |       |       |       |       |       |               |       |                |       |                |       |                      |       |               |       |                      |       |       |       |
|                                                |            |            |            |            |            |                    |            |                     |            |                     |            |                           |            |                    |            |                           |            |            |            |  |  |  |  |  |  |  |  |

 

----

(1)                  Bonus in 2008 toMr. Klein consists of (a) a signing bonus of $400,000 paid inconnection with the commencement of his employment in May 2008, and (b) ayear-end bonus of $281,846, which, together with his short-term incentive awardpayment for 2008 of $218,154, represents his minimum short-term incentivepayment for 2008 of $500,000 in accordance with the terms of his employmentagreement.  Bonuses paid to other namedexecutive officers in 2006 represent one-time awards for extraordinary effortsin connection with the company’s spin-off from Verizon in 2006.

 

(2)                  Represents theaccounting expense recognized by the company in 2008 for stock awards grantedto our named executive officers in 2008 and prior years.  The dollar amounts were computed inaccordance with Financial Accounting Standards Board Statement No. 123(R),Share-Based Payment (“*FAS 123R*”),as required by SEC regulations, and do not reflect the actual value that may berealized by the named executive officers. This accounting expense includes:

 

·                  approximatelyone-third of the grant date fair value of the restricted stock awards grantedin January 2007 (for Ms. Harless, pro-rated for the number of daysshe was employed by the company in 2008). These awards vest in three equal annual installments beginning on thefirst anniversary of the grant date.  Thegrant date fair value of this award was $29.32 per share;

 

·                  the grant datefair value of the performance share units and restricted stock awarded as partof the company’s 2008 long-term incentive program, pro-rated for the number ofdays outstanding in 2008 (for Mr. Gatto, Ms. Scaife and Mr. Wilbanks,the full grant date fair value was expensed because all are retirement eligibleand, if they were to retire, their awards would fully vest, subject to thecompany satisfying the applicable performance targets related to theperformance share units).  The grant datefair value of these awards was $4.39 and $3.40 per share, respectively (for Mr. Klein,$4.64 and $3.93,

 

24

----

Table of Contents

 

respectively).  In connection with their promotions andincreases in responsibilities in September 2008, Mr. Jones, Ms. Scaifeand Mr. Wilbanks received additional performance share units andrestricted stock with a grant date fair value of $1.84 and $1.05, respectively;

 

·                  for Mr. Jones,Mr. Gatto and Ms. Harless, the negative year-over-year change in thefair value of the performance units granted as part of the company’s 2007long-term incentive program.  The fairvalue of each unit decreased from $17.63 at December 31, 2007 to $0.55 at December 31,2008.  The fair value at December 31,2008 was determined using a Monte Carlo analysis of the expected awardpayout.  The negative effect of thischange in fair value was as follows:  Mr. Jones$(39,170); Mr. Gatto $(277,165); and Ms. Harless $(1,423,260);and

 

·                  for Mr. Gatto,the full grant date fair value of the restricted stock award he received in May 2008for service as our acting chief executive officer.  The full grant date fair value was expensedbecause Mr. Gatto is retirement eligible and, if he were to retire, hisaward would fully vest.  The grant datefair value of this award was $4.02 per share.

 

See note 14 to theconsolidated financial statements in the company’s Annual Report on Form 10-Kfor the year ended December 31, 2008, for a description of the assumptionsused in determining the accounting expense associated with these stock awards.

 

(3)                  Represents theaccounting expense recognized by the company in 2008 for the option awardgranted to our chief executive officer in June 2008.  The dollar amount was computed in accordancewith FAS 123R, as required by SEC regulations, and does not reflect the actualvalue that may be realized by the executive. This accounting expense includes the grant date fair value of the optionaward, pro-rated for the number of days outstanding during 2008.  See note 14 to the consolidatedfinancial statements in the company’s Annual Report on Form 10-K for theyear ended December 31, 2008, for a description of the assumptions used indetermining the accounting expense associated with this option award.

 

(4)                  Represents cashawards under the company’s short-term incentive plan, as described in “CompensationDiscussion and Analysis—Short-Term Incentive Compensation” on page 14.

 

(5)                  Represents theyear-to-year increase in pension value for each of the named executive officersthat participates in the company’s pension plans.  The pension value decreased for Ms. Scaifeby $63,237 and for Mr. Wilbanks by $17,722.  During 2008, Ms. Harless received adistribution equal to her full accumulated benefit under the company’s pensionplans.  Mr. Klein does not, and Mr. Muellerdid not, participate in the company’s pension plan.  See “2008 Pension Benefits” on page 33 for additional information.

 

(6)                  Includescompensation as described under “All Other Compensation” below.

 

(7)                  Mr. Kleinwas appointed chief executive officer of the company effective May 30,2008.

 

(8)                  Mr. Gattoserved as acting chief executive officer from February 26, 2008 to May 30,2008.  For his service as acting chiefexecutive officer, Mr. Gatto received an additional $25,000 in monthlybase salary and a special award of restricted stock.

 

(9)                  Ms. Harlessserved as president and chief executive officer of the company until February 16,2008.

 

(10)            Mr. Mueller servedas chief executive officer of the company from February 16, 2008 to February 26,2008.  Prior to his appointment as chiefexecutive officer, Mr. Mueller served as a non-management director.  Mr. Mueller’s compensation for serviceas a non-management director during 2008 is described under “All OtherCompensation” below.

 

25

----

***Table of Contents***

*** ***

***AllOther Compensation***

*** ***

The tablebelow sets forth the components of compensation for 2008 included in the “AllOther Compensation” column in the Summary Compensation Table above.

 
| **Name**                      | ** ** | **Flexible  Allowance** | ** ** | **Company  Contributions  to Savings Plan** | ** ** | **Life  Insurance  Premiums** | ** ** | **Life  Insurance  Tax  Payments (1)** | ** ** | **Financial  Planning** | ** ** | **Physical  Examination** | ** ** | **Relocation  Benefits** | ** ** | **Other**  | ** ** | **Total**  | ** ** |
|-------------------------------|------------|-------------------------|------------|-------------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------|------------|-------------------------|------------|---------------------------|------------|--------------------------|------------|------------|------------|------------|------------|
| Scott W. Klein                |       | $                       | 15,400     |                                                  | $          | 17,909                        | ** ** | **—**                                  | ** ** | **—**              | ** ** | $                         | **—** | ** **               | $          | **—** |       | $          | 1,780,688  | (2) | $ | 27,123 | (3) | $ | 1,841,120 |   |
| Samuel D. Jones               |       | 15,600                  |       | 15,828                                                | ** ** | **—**                    | ** ** | **—**                                  |       | 11,160                  | ** ** | **—**                | ** ** | **—**               | ** ** | **—** |       | 42,588     |       |
| Frank P. Gatto                |       | 15,600                  |       | 15,565                                                |       | $                             | 24,988     |                                        | $          | 14,332                  |       | 12,380                    |       | 2,282                    | ** ** | **—** | ** ** | **—** |       | 85,147 |   |
| Scott B. Laver                |       | 15,600                  |       | 15,823                                                |       | 27,826                        |       | 15,960                                      | ** ** | **—**              | ** ** | **—**                | ** ** | **—**               | ** ** | **—** |       | 75,209     |       |
| Georgia R. Scaife             |       | 9,200                   |       | 15,816                                                | ** ** | **—**                    | ** ** | **—**                                  |       | 12,380                  |       | 2,220                     | ** ** | **—**               | ** ** | **—** |       | 39,616     |       |
| Cody Wilbanks                 |       | 11,700                  |       | 14,642                                                | ** ** | **—**                    | ** ** | **—**                                  |       | 3,095                   |       | 3,477                     | ** ** | **—**               | ** ** | **—** |       | 32,914     |       |
| *Former  Executive Officers:* | ** ** | ** **              |       |                                                  |       |                          |       |                                        |       |                    |       |                      |       |                     |       |       |       |       |       |
| Katherine J.  Harless         |       | 4,800                   |       | 7,000                                                 | ** ** | **—**                    | ** ** | **—**                                  | ** ** | **—**              | ** ** | **—**                | ** ** | **—**               |       | 3,704,092  | (4)        | 3,715,892  |       |
| John J. Mueller               | ** ** | **—**              |       | —                                                | ** ** | **—**                    | ** ** | **—**                                  | ** ** | **—**              | ** ** | **—**                | ** ** | **—**               |       | 254,809    | (5)        | 254,809    |       |
|                               |            |                         |            |                                                       |            |                               |            |                                             |            |                         |            |                           |            |                          |            |            |            |            |            |  |  |  |  |  |  |  |  |  |

 

----

(1)                  Represents taxgross-up payments associated with the portion of the premiums paid by the executivesand reimbursed by the company for whole life insurance policies.

 

(2)                  Representsrelocation benefits provided to Mr. Klein, including (a) $47,309associated with the sale of his Chicago residence; (b) $1,051,812representing the difference between the appraised value of his Chicagoresidence and his cost basis in the residence; (c) $50,320 associated withthe purchase of his Dallas residence; (d) $86,247 for relocation andmoving expenses; and (e) approximately $545,000 in tax gross-up payments associatedwith his relocation benefits.

 

(3)                  Representsreimbursement of legal fees related to the negotiation of Mr. Klein’semployment agreement.

 

(4)                  Representsseverance compensation to Ms. Harless pursuant to the company’s executivetransition plan in connection with the involuntary termination of heremployment.  This compensation includes (a) a$2,762,500 cash paymentrepresenting two times the sum of her base salary plus her 2008 targetshort-term incentive opportunity; (b) a $105,891 cash payment representinga pro-rata portion of her 2008 target short-term incentive opportunity; (c) $607,863,representing the present value of the premiums resulting from her continuingparticipation in the executive whole life insurance program, and (d) $227,838,representing the value of certain other continuing benefits andperquisites.  For additional information,see “Potential Payments Upon Termination or Change in Control—Former ExecutiveOfficers—Former President and Chief Executive Officer.”

 

(5)                  Represents thevalue of benefits received by Mr. Mueller in connection with hisresignation and compensation earned in his capacity as a non-managementdirector.  Benefits include (a) $209,245,representing the present value of health and welfare benefits to be provided toMr. Mueller and his spouse and dependents until he reaches the age of 65,and (b) $2,563 representing the tax gross-up paid to Mr. Mueller forhealth and welfare benefit payments made on his behalf during 2008.  Non-management director compensation includes$32,500 of fees paid in cash and $10,501 in restricted stock awards.  The dollar amount for restricted stockrepresents the accounting expense recognized by the company in 2008 computed inaccordance with FAS 123R and does not reflect the actual value that may berealized by Mr. Mueller.

 

26

----

Table of Contents

 

**2008 Grants of Plan-BasedAwards**

** **

The tablebelow sets forth information about plan-based awards granted to our namedexecutive officers during 2008 under the company’s equity incentive plans.  In this table, the short-term incentive awardis abbreviated as “STI” and long-term equity incentive awards are abbreviatedas “PSU” for performance share units, “RSA” for restricted stock awards and “SOA”for stock option awards.  All long-termequity incentive awards were granted under the company’s 2008 incentivecompensation plan, except for the restricted stock award granted to Mr. Gattoin May 2008, which was granted under the company’s long term incentiveplan adopted in 2006.

 
| ** **                    | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **         | ** ** | ** **         | ** ** | ** **          | ** ** | ** **                  | ** ** | **All Other**         | ** ** | **All Other**   | ** ** | ** **           | ** ** | ** **          | ** ** |
|-------------------------------|------------|------------|------------|---------------|------------|------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|-----------------------------|------------|----------------------------|------------|----------------------|------------|----------------------|------------|---------------------|------------|
| ** **                    | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **         | ** ** | ** **         | ** ** | ** **          | ** ** | ** **                  | ** ** | **Stock**                  | ** ** | **Stock**            | ** ** | ** **           | ** ** | ** **          | ** ** |
| ** **                    | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **         | ** ** | ** **         | ** ** | ** **          | ** ** | ** **                  | ** ** | **Awards:**                | ** ** | **Awards:**          | ** ** | **Exercise or** | ** ** | **Grant Date** | ** ** |
| ** **                    | ** ** | ** ** | ** ** | **Board/**    | ** ** | ** ** | ** ** | **Estimated Future**                    | ** ** | **Estimated Future**                    | ** ** | **Number of** | ** ** | **Number of** | ** ** | **Base Price** | ** ** | **Fair Value of** | ** ** |
| ** **                    | ** ** | ** ** | ** ** | **Committee** | ** ** | ** ** | ** ** | **Payouts Under Non-Equity**       | ** ** | **Payouts Under Equity**           | ** ** | **Shares of** | ** ** | **Securities**     | ** ** | **of Option**  | ** ** | **Stock and**          | ** ** |
| ** **                    | ** ** | **Award**  | ** ** | **Action**    | ** ** | **Grant**  | ** ** | **Incentive Plan Awards (1)** | ** ** | **Incentive Plan Awards (2)** | ** ** | **Stock**          | ** ** | **Underlying**     | ** ** | **Awards**          | ** ** | **Option**                  | ** ** |
| **Name**                      | ** ** | **Type**   | ** ** | **Date**      | ** ** | **Date**   | ** ** | **Threshold**                                | ** ** | **Target**                                   | ** ** | **Maximum**        | ** ** | **Threshold**      | ** ** | **Target**          | ** ** | **Maximum**                 | ** ** | **or Units (3)** | ** ** | **Options (4)** | ** ** | **($/Sh)**           | ** ** | **Awards (5)** | ** ** |
| Scott W. Klein                |       | STI        |       | 5/16/08       |       | 5/30/08    |       | $                                            | 153,846    |                                         | $          | 615,385            |       | $                  | 1,230,769  |                | —     |                        | —     |                       | —     |                 | —     |                 | —     |                | —     |   | — |   |
|                          |       | PSU        |       | 5/16/08       |       | 5/30/08    |       | —                                       |       | —                                       |       | —             |       | 155,853            |       | 311,705             |       | 623,410                     |       | —                     |       | —               |       | —               | ** ** | $                   | 1,446,311  | ** ** |
|                          |       | RSA        |       | 5/16/08       |       | 5/30/08    |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 133,588                    |       | —               |       | —               |       | 525,001             |       |
|                          |       | SOA        |       | 5/16/08       |       | 6/2/08     |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | —                     |       | 250,000              |       | $                    | 3.93       |                | 687,500    |   |
| Samuel D. Jones               |       | STI        |       | 3/21/08       |       | 5/1/08     |       | 65,000                                       |       | 260,000                                      |       | 520,000            |       | —             |       | —              |       | —                      |       | —                     |       | —               |       | —               |       | —              |       |
|                          |       | PSU        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | 15,750             |       | 31,500              |       | 63,000                      |       | —                     |       | —               |       | —               |       | 138,285             |       |
|                          |       | PSU        |       | 9/2/08        |       | 10/1/08    |       | —                                       |       | —                                       |       | —             |       | 173,834            |       | 347,667             |       | 695,334                     |       | —                     |       | —               |       | —               |       | 639,707             |       |
|                          |       |       |       |          |       |       |       |                                         |       |                                         |       |               |       | 189,584            |       | 379,167             |       | 758,334                     |       |                       |       |                 |       |                 |       | 777,992             |       |
|                          |       | RSA        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 13,500                     |       | —               |       | —               |       | 45,900              |       |
|                          |       | RSA        |       | 9/2/08        |       | 10/1/08    |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 149,000                    |       | —               |       | —               |       | 156,450             |       |
|                          |       |       |       |          |       |       | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **         |       |               |       |                |       |                        |       | 162,500                    |       |                 |       |                 |       | 202,350             |       |
| Frank P. Gatto                |       | STI        |       | 3/21/08       |       | 5/1/08     |       | 77,000                                       |       | 308,000                                      |       | 616,000            |       | —             |       | —              |       | —                      |       | —                     |       | —               |       | —               |       | —              |       |
|                          |       | PSU        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | 29,775             |       | 59,549              |       | 119,098                     |       | —                     |       | —               |       | —               |       | 261,420             |       |
|                          |       | RSA        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 25,521                     |       | —               |       | —               |       | 86,771              |       |
|                          |       | RSA        |       | 5/16/08       |       | 5/30/08    |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 87,065                     |       | —               |       | —               |       | 350,001             |       |
| Scott B. Laver                |       | STI        |       | 3/21/08       |       | 5/1/08     |       | 85,000                                       |       | 340,000                                      |       | 680,000            |       | —             |       | —              |       | —                      |       | —                     |       | —               |       | —               |       | —              |       |
|                          |       | PSU        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | 36,155             |       | 72,309              |       | 144,618                     |       | —                     |       | —               |       | —               |       | 317,437             |       |
|                          |       | RSA        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 30,990                     |       | —               |       | —               |       | 105,366             |       |
| Georgia R. Scaife             |       | STI        |       | 3/21/08       |       | 5/1/08     |       | 57,029                                       |       | 228,118                                      |       | 456,235            |       | —             |       | —              |       | —                      |       | —                     |       | —               |       | —               |       | —              |       |
|                          |       | PSU        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | 19,360             |       | 38,719              |       | 77,438                      |       | —                     |       | —               |       | —               |       | 169,976             |       |
|                          |       | PSU        |       | 9/2/08        |       | 10/1/08    |       | —                                       |       | —                                       |       | —             |       | 56,742             |       | 113,483             |       | 226,966                     |       | —                     |       | —               |       | —               |       | 208,809             |       |
|                          |       |       |       |          |       |       |       |                                         |       |                                         |       |               |       | 76,102             |       | 152,202             |       | 304,404                     |       |                       |       |                 |       |                 |       | 378,785             |       |
|                          |       | RSA        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 16,594                     |       | —               |       | —               |       | 56,420              |       |
|                          |       | RSA        |       | 9/2/08        |       | 10/1/08    |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 48,636                     |       | —               |       | —               |       | 51,068              |       |
|                          |       |       |       |          |       |       |       |                                         |       |                                         |       |               |       |               |       |                |       |                        |       | 65,230                     |       |                 |       |                 |       | 107,488             |       |
| Cody Wilbanks                 |       | STI        |       | 3/21/08       |       | 5/1/08     |       | 59,378                                       |       | 237,510                                      |       | 475,020            |       | —             |       | —              |       | —                      |       | —                     |       | —               |       | —               |       | —              |       |
|                          |       | PSU        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | 8,733              |       | 17,465              |       | 34,930                      |       | —                     |       | —               |       | —               |       | 76,671              |       |
|                          |       | PSU        |       | 9/2/08        |       | 10/1/08    |       | —                                       |       | —                                       |       | —             |       | 135,638            |       | 271,276             |       | 542,552                     |       | —                     |       | —               |       | —               |       | 499,148             |       |
|                          |       |       |       |          |       |       |       |                                         |       |                                         |       |               |       | 144,371            |       | 288,741             |       | 577,482                     |       |                       |       |                 |       |                 |       | 575,819             |       |
|                          |       | RSA        |       | 3/10/08       |       | 5/1/08     |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 7,485                      |       | —               |       | —               |       | 25,449              |       |
|                          |       | RSA        |       | 9/2/08        |       | 10/1/08    |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | 116,261                    |       | —               |       | —               |       | 122,074             |       |
|                          |       |       |       |          |       |       |       |                                         |       |                                         |       |               |       |               |       |                |       |                        |       | 123,746                    |       |                 |       |                 |       | 147,523             |       |
| *Former  Executive Officers:* | ** ** | ** ** |       |          | ** ** | ** ** | ** ** | ** **                                   | ** ** | ** **                                   |       |               |       |               |       |                |       |                        |       |                       |       |                 |       |                 |       |                |       |
| Katherine J.  Harless         |       | —     |       | —        |       | —     |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | —                     |       | —               |       | —               |       | —              |       |
| John J. Mueller               |       | —     |       | —        |       | —     |       | —                                       |       | —                                       |       | —             |       | —             |       | —              |       | —                      |       | —                     |       | —               |       | —               |       | —              |       |
|                               |            |            |            |               |            |            |            |                                              |            |                                              |            |                    |            |                    |            |                     |            |                             |            |                            |            |                      |            |                      |            |                     |            |  |  |  |  |  |

 

----

(1)          Representsthe potential payout for awards granted under the company’s short-termincentive plan.  These awards weresubject to the attainment of certain performance targets.  The performance targets and target awardmultiples for determining the payout are described under “CompensationDiscussion and Analysis—Short-Term Incentive Compensation” on page 14.  Actualamounts paid under the plan to the named executive officers are reported in theSummary Compensation Table under the “Non-Equity Incentive Plan Compensation”column on page 24.  In accordance with the terms of the company’sshort-term incentive plan, the potential payout for Mr. Klein waspro-rated for the number of days he was employed by the company in 2008.  Under the terms of his employment agreement, Mr. Kleinwas entitled to a minimum short-term term incentive payment for 2008 of$500,000.

 

(2)          Representsthe potential number of performance share units payable under the company’slong-term incentive program for 2008. The number of performance share units paid at the end of the performanceperiod may vary from the target amount (which is equal to the number of unitsoriginally granted) based on the company’s total stockholder return (“*TSR*”) as ranked against the TSR of certainbenchmark companies over the three-year period ending on the 20th trading dayfollowing the date on which the company releases earnings for the year ending December 31,2010.  The TSR performance target andtarget award multiples are described under “Compensation Discussion andAnalysis—Long-Term Equity-Based Compensation—2008 Annual Long-Term IncentiveOpportunity” on page 16.** **Uponvesting, each performance share unit will be settled for one share of thecompany’s common stock.

 

27

----

Table of Contents

 

The potential number of units payable to Mr. Kleinwas pro-rated for the number of days he was employed by the company in2008.  The potential number of unitspayable to Mr. Jones, Ms. Scaife and Mr. Wilbanks were increasedin October 2008 in connection with their respective promotions andincreases in responsibilities.

 

(3)          Representsthe number of shares of restricted stock granted under the company’s long-termincentive program for 2008.  Therestricted stock vests in two equal installments on December 31, 2009 and2010.  The number of shares granted to Mr. Kleinwas pro-rated for the number of days he was employed by the company in2008.  The number of shares granted to Mr. Jones,Ms. Scaife and Mr. Wilbanks were increased in October 2008 inconnection with their respective promotions and increases inresponsibilities.  Mr. Gatto alsoreceived a restricted stock award in May 2008 for his service as actingchief executive officer that vests in three equal annual installments beginningon the first anniversary of the grant date.

 

(4)          Stockoptions awarded to Mr. Klein vest on May 30, 2011.

 

(5)          Representsthe grant date fair value of each equity incentive award.  The dollar amounts were computed in accordancewith FAS 123R, as required by SEC regulations.

 

**CEO Employment Agreement**

** **

In May 2008,the company entered into an employment agreement with Mr. Klein inconnection with his appointment as our chief executive officer.  The agreement provides for an annual basesalary of not less than $1,000,000.  Mr. Kleinis entitled to annual short-term and long-term incentive opportunities of atleast 100% and 300%, respectively, of his annual base salary.  Under the terms of his employment agreement,he was entitled to receive a short-term incentive payment in 2008 of not lessthan $500,000.  Under his employmentagreement, Mr. Klein also received a cash payment of $400,000 and anoption to purchase 250,000 shares of the company’s common stock upon thecommencement of his employment.

 

Under hisemployment agreement, the company agreed to provide Mr. Klein with certainbenefits associated with his relocation from Chicago, Illinois to Dallas,Texas.  In October 2008, the boardapproved an additional relocation benefit whereby Mr. Klein receivedapproximately $3.78 million for his Chicago residence, which amount representedhis approximate cost basis in the home. The appraised value of the residence at the time this benefit wasapproved was approximately $2.75 million. Additionally, the Company agreed to pay the expenses associated withselling Mr. Klein’s Chicago residence, including closing costs and fees ofa relocation firm.  The board alsoauthorized the Company to make an additional payment to Mr. Klein tooffset the tax liability resulting from the additional relocation benefits.

 

Under hisemployment agreement, Mr. Klein is entitled to receive payments and otherbenefits upon the termination of his employment.  These payments and other benefits aredescribed under “Potential Payments Upon Termination or Change in Control—CEOEmployment Agreement” on page 35.  Mr. Klein does not participate in, andis not entitled to receive any payments or other benefits under, the company’sexecutive transition plan.

 

28

----

Table of Contents

 

**Former CEO EmploymentAgreement**

** **

Ms. Harless,our former president and chief executive officer, had an employment agreement withVerizon that we assumed in connection with the spin-off in 2006.  Under her employment agreement, Ms. Harlesswas entitled to receive payments and other benefits in connection with theinvoluntary termination of her employment. Additionally, Ms. Harless participated in the company’s executivetransition plan and was entitled under that plan to payments and other benefitsin connection with the involuntary termination of her employment, withoutduplication of any amounts she was entitled to under her employmentagreement.  Payments and other benefitspaid to Ms. Harless under the transition plan in connection with theinvoluntary termination of her employment are described under “PotentialPayments Upon Termination or Change in Control—Former Executive Officers—FormerPresident and Chief Executive Officer” on page 44.

 

29

----

Table of Contents

 

**Outstanding Equity Awardsat 2008 Fiscal Year-End***

** **

The followingtable sets forth the number and value of performance share units, performanceunits, restricted stock, dividend equivalent restricted stock units and stockoptions held by each named executive officer that were outstanding as of December 31,2008.  The value of these awards wascalculated based on a price of $0.09 per share, the closing price of thecompany’s common stock on December 31, 2008.  In accordance with SEC regulations, thevalues of the performance share units and performance units are based on thenumber of units payable at the end of the performance period assuming thethreshold level of performance is achieved. However, if the performance period had ended on December 31, 2008,approximately 9.6% of the target number of performance share units would bepayable, and no performance units would have been payable.  In this table, awards are abbreviated as“PSU” for performance share unit awards, “PUA” for performance unit awards,“RSA” for restricted stock awards, “RSU” for dividend equivalent restrictedstock units, and “SOA” for stock option awards.

 
| ** **                    | ** ** | ** **      | ** ** | ** **      | ** ** | **Option Awards**                                                        | ** ** | **Stock Awards**                                                                    | ** ** |
|-------------------------------|------------|-----------------|------------|-----------------|------------|-------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| **Name**                      | ** ** | **Grant  Date** | ** ** | **Award  Type** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  Unexercisable (1)** | ** ** | **Option  Exercise  Price** | ** ** | **Option  Expiration  Date** | ** ** | **Number of  Shares or Units  of Stock  That Have  Not Vested (2)** | ** ** | **Market Value  of Shares or  Units of Stock  That Have  Not Vested** | ** ** | **Equity Incentive  Plan Awards:  Number of  Unearned Shares,  Units or Other  Rights That Have  Not Vested (3) (4)** | ** ** | **Equity Incentive  Plan Awards:  Market or Payout  Value of  Unearned Shares,  Units or Other  Rights  That Have Not  Vested (3) (4)** | ** ** |
| Scott W. Klein                |       | 5/30/08         |       | PSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 155,853 |   | $ | 14,027 |   |
|                          |       | 5/30/08         |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 133,588 |   | $ | 12,023 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | 6/2/08          |       | SOA             | ** ** | **—**                                                                    |       | 250,000                                                                                  |       | $ | 3.93 |   | 6/2/18 | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| Samuel D. Jones               |       | 1/9/07          |       | RSA             | ** ** | **—**                                                                    |       | —                                                                                   | ** ** | **—** | ** ** | **—** |   | 13,984 |   | 1,259 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | Various         |       | RSU             | ** ** | **—**                                                                    |       | —                                                                                   | ** ** | **—** | ** ** | **—** |   | 1,815 |   | 164 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | 2/15/07         |       | PUA             | ** ** | **—**                                                                    |       | —                                                                                   | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 2,162 |   | 195 |   |
|                          |       | 5/1/08          |       | PSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 15,750 |   | 1,418 |   |
|                          |       | 10/1/08         |       | PSU             | ** ** | **—**                                                                    |       | —                                                                                   | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 173,834 |   | 15,645 |   |
|                          |       | 5/1/08          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 13,500 |   | 1,215 |   |   |   |   |   |
|                          |       | 10/1/08         |       | RSA             | ** ** | **—**                                                                    |       | —                                                                                   | ** ** | **—** | ** ** | **—** |   | 149,000 |   | 13,410 | ** ** | **—** | ** ** | **—** | ** ** |
| Frank P. Gatto                |       | 1/9/07          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 29,843 |   | 2,686 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | Various         |       | RSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 3,875 |   | 349 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | 2/15/07         |       | PUA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 4,373 |   | 394 |   |
|                          |       | 5/1/08          |       | PSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 29,775 |   | 2,680 |   |
|                          |       | 5/1/08          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 25,521 |   | 2,297 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | 5/30/08         |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 87,065 |   | 7,836 | ** ** | **—** | ** ** | **—** | ** ** |
| Scott B. Laver                |       | 1/9/07          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 29,843 |   | 2,686 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | Various         |       | RSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 3,875 |   | 349 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | 2/15/07         |       | PUA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 4,329 |   | 390 |   |
|                          |       | 5/1/08          |       | PSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 36,155 |   | 3,254 |   |
|                          |       | 5/1/08          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 30,990 |   | 2,789 | ** ** | **—** | ** ** | **—** | ** ** |
| Georgia R. Scaife             |       | 1/9/07          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 13,984 |   | 1,259 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | Various         |       | RSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 1,815 |   | 164 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | 2/15/07         |       | PUA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 2,963 |   | 267 |   |
|                          |       | 5/1/08          |       | PSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 19,360 |   | 1,742 |   |
|                          |       | 10/1/08         |       | PSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 56,742 |   | 5,107 |   |
|                          |       | 5/1/08          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 16,594 |   | 1,493 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | 10/1/08         |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 48,636 |   | 4,377 | ** ** | **—** | ** ** | **—** | ** ** |
| Cody Wilbanks                 |       | 1/9/07          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 6,366 |   | 573 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | Various         |       | RSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 827 |   | 74 | ** ** | **—** | ** ** | **—** | ** ** |
|                          |       | 2/15/07         |       | PUA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 1,418 |   | 128 |   |
|                          |       | 5/1/08          |       | PSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 8,733 |   | 786 |   |
|                          |       | 10/1/08         |       | PSU             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 135,638 |   | 12,207 |   |
|                          |       | 5/1/08          |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 7,485 |   | 674 |   | — | ** ** | **—** | ** ** |
|                          |       | 10/1/08         |       | RSA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** |   | 116,261 |   | 10,463 |   | — | ** ** | **—** | ** ** |
| *Former  Executive Officers:* |       |            |       |            |       |                                                                          |       |                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Katherine J.  Harless         |       | 2/15/07         |       | PUA             | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** |   | 22,455 | (5) | 2,021 |   |
| John J. Mueller               | ** ** | **—**      | ** ** | **—**      | ** ** | **—**                                                                    | ** ** | **—**                                                                               | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
|                               |            |                 |            |                 |            |                                                                               |            |                                                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

*                 Aspreviously disclosed, we are currently in the process of evaluating variousoptions for restructuring our capitalization and debt service obligations.  We believe that any restructuring wouldlikely result in holders of common stock of the company receiving little or novalue for their current holdings. Accordingly, long-term equity incentive awards currently outstanding areexpected to have little or no value. Pursuant to our restructuring, all current equity incentive plans,equity ownership plans or other equity-based plans will likely be terminatedand all equity owned under such plans will likely be cancelled, includingoutstanding equity awards.

 

(1)          Stockoptions held by Mr. Klein will vest on May 30, 2011.

 

30

----

Table ofContents

 

(2)          Therestricted stock awards granted in January 2007 vest in two equalinstallments on January 9, 2009 and 2010.  The restricted stockunits shown in the table above were awarded as dividend equivalents on these restrictedstock awards, in an amount equal to the dividend that would have been paid onany unvested restricted stock awards as if they were vested, when the companypaid a dividend on its common stock. Each restricted stock unit will be settled for one share of thecompany’s common stock and is subject to the same vesting, forfeiture and otherterms applicable to the corresponding restricted stock award.  In March 2008, the company eliminatedthe payment of dividends.  The restrictedstock awards granted in March 2008 (for Mr. Klein, May 2008)vest in two equal installments on December 31, 2009 and 2010.  The restricted stock award granted to Mr. Gattoin May 2008 vests in three equal annual installments beginning on thefirst anniversary of the grant date.

 

(3)          Withrespect to performance unit awards, represents the number of units to be paidassuming the threshold level of performance is achieved, plus additional unitsgranted as dividend equivalents.  Theperformance units will vest on December 31, 2009.  The number of units to be paid at this timemay vary from the number of units originally granted based on the company’s TSRrelative to the TSR of a market benchmark over a three-year period ending December 31,2009.  If the performance period hadended on December 31, 2008, no performance units would have beenpayable.  The number of performance unitsset forth in the table above includes units granted as dividend equivalents asfollows:  Mr. Jones (249); Mr. Gatto(503); Mr. Laver (498); Ms. Scaife (341); Mr. Wilbanks (163);and Ms. Harless (2,581).

 

(4)          Withrespect to performance share unit awards, represents the number of units to bepaid assuming the threshold level of performance is achieved.  The performance share units will vest on December 31,2010.  The number of units to be paid mayvary from the number of units originally granted based on the company’s TSR asranked against the TSR of certain benchmark companies over a three-year periodending on the 20th trading day following the date on which the company releasesearnings for the year ending December 31, 2010.  If the performance period had ended on December 31,2008, approximately 9.6% of the target number of performance share units wouldhave been payable.

 

(5)          Under theterms of her award agreement, the performance units held by Ms. Harlessvested in connection with the involuntary termination of her employment withthe company.  However, the number ofperformance units payable to Ms. Harless remains subject to the companymeeting the TSR target for the performance period ending December 31,2009.

 

31

----

Table of Contents

 

**2008 Option Exercises andStock Vested***

** **

The followingtable sets forth information about the vesting of shares of restricted stock (“RSA”)and dividend equivalent restricted stock units (“RSU”) held by our namedexecutive officers during 2008.  No stockoptions were exercisable during 2008.

 
| ** **                   | ** ** | ** **      | ** ** | ** **      | ** ** | **Stock Awards**                                     | ** ** |
|------------------------------|------------|-----------------|------------|-----------------|------------|-----------------------------------------------------------|------------|
| **Name**                     | ** ** | **Grant  Date** | ** ** | **Award  Type** | ** ** | **Number of  Shares Acquired  on Vesting** | ** ** | **Value Realized  on Vesting (1)** | ** ** |
| Scott W. Klein               |       | —          |       | —          |       | —                                                    |       | — |   |
| Samuel D. Jones              |       | 1/9/07          |       | RSA             |       | 6,992                                                     | ** ** | $ | 104,600 | ** ** |
|                         |       | Various         |       | RSU             |       | 355                                                       |       | 5,311 |   |
| Frank P. Gatto               |       | 1/9/07          |       | RSA             |       | 14,922                                                    |       | 223,233 |   |
|                         |       | Various         |       | RSU             |       | 758                                                       |       | 11,340 |   |
| Scott B. Laver               |       | 1/9/07          |       | RSA             |       | 14,922                                                    |       | 223,233 |   |
|                         |       | Various         |       | RSU             |       | 758                                                       |       | 11,340 |   |
| Georgia R. Scaife            |       | 1/9/07          |       | RSA             |       | 6,992                                                     |       | 104,600 |   |
|                         |       | Various         |       | RSU             |       | 355                                                       |       | 5,311 |   |
| Cody Wilbanks                |       | 1/9/07          |       | RSA             |       | 3,184                                                     |       | 47,633 |   |
|                         |       | Various         |       | RSU             |       | 162                                                       |       | 2,424 |   |
| *Former Executive Officers:* |       |            |       |            |       |                                                      |       |   |   |
| Katherine J. Harless (2)     |       | 1/9/07          |       | RSA             |       | 74,864                                                    |       | 1,053,979 |   |
|                         |       | Various         |       | RSU             |       | 4,448                                                     |       | 57,977 |   |
| John J. Mueller (3)          |       | 2/13/07         |       | RSA             |       | 7,451                                                     |       | 70,337 |   |
|                              |            |                 |            |                 |            |                                                           |            |  |  |  |

 

----

| *      | As previously disclosed, we are currently in the  process of evaluating various options for restructuring our capitalization  and debt service obligations. We believe that any restructuring would likely  result in holders of common stock of the company receiving little or no value  for their current holdings. Accordingly, long-term equity incentive awards  currently outstanding are expected to have little or no value. Under any  restructuring, all current equity incentive plans, equity ownership plans or  other equity-based plans will likely be terminated and all equity owned under  such plans will likely be cancelled, including outstanding options. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (1)    | Represents the number of shares of restricted stock  and dividend equivalent restricted stock units vested multiplied by the  closing price of the company’s common stock on the applicable vesting date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (2)    | Includes 8,197 shares of restricted stock and 1,064  dividend equivalent restricted stock units that vested on February 22,  2008 in connection with her involuntary termination of employment with the  company.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (3)    | Represents annual restricted stock award granted in  February 2007 as compensation for service as a non-management director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

32

----

Table of Contents

 

**2008 Pension Benefits**

** **

Certain of ournamed executive officers participate in the Idearc pension plan for managementemployees (the “*management plan*”)and the Idearc excess pension plan (the “*excessplan*”).  These plans providefor benefits that were provided to these named executive officers under Verizonpension plans prior to the spin-off in 2006. Our management plan does not accept new participants and existing planparticipants do not receive credit for additional years of service other thanfor determining retirement eligibility. Brief descriptions of the management plan and the excess plan areprovided below.

 

***ManagementPlan***

*** ***

The managementplan is a noncontributory, tax-qualified pension plan for salaried employeeswho previously participated in Verizon pension plans.  Benefits are based on a cash balance formulathat provided for pay credits ranging from 4% to 7% of annual eligible pay upto the applicable IRS limit, for each year of pension accrued service.  Participants no longer receive paycredits.  In general, eligible payincluded base salary and short-term incentives, exclusive of certain seniormanagement or other incentive compensation, and other similar types ofpayments.  Participant accounts receivemonthly interest credits based upon the prevailing market yields on certainU.S. Treasury obligations.

 

As part of thetransition to a cash balance formula, all participants with at least ten years ofservice with Verizon as of January 1, 2002, could receive benefits underan alternative benefit formula, referred to as the “highest average payformula,” if that formula provided a larger benefit than the cash balanceformula.  Under this alternative formula,benefits are equal to 1.35% of eligible pay for each year of pension accruedservice, based on the highest average annual salary during any five consecutiveyears of employment, up to the applicable IRS limit.  Each of the named executive officers thatparticipates in the management plan has his or her benefits under the plancalculated under the highest average pay formula.

 

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

 

Under theplan, a participant must have 75 points (age plus years of service) with atleast 15 years of service to be retirement eligible.  Existing participants may earn additionalyears of service for the purpose of determining retirement eligibility.  Retirement-eligible participants who retirebefore 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 whoretire before reaching age 55, the pension benefit is reduced 3% for each yearup to a maximum of 18%.  Of our currentnamed executive officers, only Mr. Gatto, Ms. Scaife and Mr. Wilbanksare retirement eligible.  Ms. Harlesswas retirement eligible on her last day of employment with the company.

 

***ExcessPlan***

*** ***

The excessplan is an unfunded non-qualified plan that provides supplemental retirementbenefits to the participating named executive officers and other eligibleemployees.  The excess plan providesbenefits under the same formulas as the management plan, but only with respectto compensation that cannot be taken into account under the management planbecause it exceeds the applicable IRS limit. Benefits under the excess plan are payable in a lump sum and are paidfollowing a participant’s termination of employment.  Benefits under the excess plan may not bepaid to the participating named executive officers and other key employeesuntil at least six months following termination of their employment with thecompany.

 

33

----

Tableof Contents

 

***PensionBenefits Table***

*** ***

The tablebelow shows the actuarial present value of accumulated benefits and the numberof years of service credited under the management plan and the excess plan asof December 31, 2008, as well as payments made to our named executiveofficers during 2008.

 
| **Name**                      | ** ** | **Plan Name** | ** ** | **Number  of Years  Credited  Service (1)** | ** ** | **Present  Value of  Accumulated  Benefit (2)** | ** ** | **Payments  During Last  Fiscal Year** | ** ** |
|-------------------------------|------------|--------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------|------------|
| Scott W. Klein (3)            |       | —             |       | —                                                |       | —                                                    |       | —                                           |       |
|                          |       |               |       |                                                  |       |                                                      |       |                                             |       |
| Samuel D. Jones               |       | Management Plan    |       | 25.00                                                 |       | 488,993                                                   |       | —                                           |       |
|                          |       | Excess Plan        |       | 25.00                                                 |       | 86,224                                                    |       | —                                           |       |
|                          |       |               |       |                                                  |       |                                                      |       |                                             |       |
| Frank P. Gatto                |       | Management Plan    |       | 29.50                                                 |       | 1,044,409                                                 |       | —                                           |       |
|                          |       | Excess Plan        |       | 29.50                                                 |       | 52,407                                                    |       | —                                           |       |
|                          |       |               |       |                                                  |       |                                                      |       |                                             |       |
| Scott B. Laver                |       | Management Plan    |       | 20.48                                                 |       | 649,775                                                   |       | —                                           |       |
|                          |       | Excess Plan        |       | 20.48                                                 |       | 40,977                                                    |       | —                                           |       |
|                          |       |               |       |                                                  |       |                                                      |       |                                             |       |
| Georgia R. Scaife             |       | Management Plan    |       | 26.52                                                 |       | 936,832                                                   |       | —                                           |       |
|                          |       | Excess Plan        |       | 26.52                                                 |       | 36,560                                                    |       | —                                           |       |
|                          |       |               |       |                                                  |       |                                                      |       |                                             |       |
| Cody Wilbanks                 |       | Management Plan    |       | 21.00                                                 |       | 739,522                                                   |       | —                                           |       |
|                          |       | Excess Plan        |       | 21.00                                                 |       | 100,704                                                   |       | —                                           |       |
|                          |       |               |       |                                                  |       |                                                      |       |                                             |       |
| *Former  Executive Officers:* | ** ** | ** **         | ** ** | ** **                                            | ** ** | ** **                                                | ** ** | ** **                                       | ** ** |
| * *                      | ** ** | ** **         | ** ** | ** **                                            | ** ** | ** **                                                | ** ** | ** **                                       | ** ** |
| Katherine J. Harless          |       | Management Plan    |       | —                                                |       | —                                                    |       | 1,449,370                                        |       |
|                          |       | Excess Plan        |       | —                                                |       | —                                                    |       | 168,158                                          |       |
|                          |       |               |       |                                                  |       |                                                      |       |                                             |       |
| John J. Mueller (3)           |       | —             |       | —                                                |       | —                                                    |       | —                                           |       |

 

----

(1)   Equal to thenumber of years credited service under the applicable legacy Verizon plan priorto the spin-off.  Participants in themanagement plan and excess plan do not receive credit for additional years ofservice other than for determining retirement eligibility.

 

(2)   The present valuehas been calculated based on the age at which the named executive officer mayretire without any reduction in benefits and consistent with the assumptionsdescribed in note 12 to the consolidated financial statements in the company’sAnnual Report on Form 10-K for the year ended December 31, 2008.

 

(3)   Mr. Kleindoes not, and Mr. Mueller did not, participate in the management plan orthe excess plan.

 

34

----

Table of Contents

 

**Potential Payments UponTermination or Change in Control**

** **

***CEO Employment Agreement***

*** ***

In May 2008,the company entered into an employment agreement with Mr. Klein, our chiefexecutive officer.  The employmentagreement provides for payments and benefits to Mr. Klein in the event hisemployment is terminated under the circumstances described below.  Under the terms of his employment agreement, Mr. Kleindoes not participate in the company’s executive transition plan described under“Executive Transition Plan” below.

 

*Termination Without Cause or for Good Reason*.  If the company terminates Mr. Klein’semployment without cause or Mr. Klein terminates his employment for goodreason, then Mr. Klein is entitled to receive the following payments andbenefits:

 

·      an amount equal to amultiple (the “severance multiplier”) of (a) his highest annual rate ofbase salary during the preceding 24 months, plus (b) his target short-termincentive award for the calendar year in which the termination occurs (or, ifgreater, the actual short-term incentive award earned by him for the precedingcalendar year).  The severance multiplieris 2.0 for payments and benefits payable in the event of a termination withoutcause or for good reason.  However, theseverance multiplier is 1.5 times if a termination for good reason results fromthe company’s non-renewal of the term of his employment agreement;

 

·      an amount equal to theshort-term incentive award that would have been earned by him for the year inwhich the termination occurs if his employment had not terminated, prorated forthe number of days elapsed since the beginning of that year;

 

·      an amount equal to hisunpaid base salary earned through the date of termination and unpaid short-termincentive award earned for the preceding year;

 

·      accelerated vesting of hisoption award to purchase 250,000 shares of the company’s common stock grantedunder the terms of his employment agreement (the “*initial**option award*”)and any outstanding long-term incentive awards;

 

·      any payments or benefitspayable to him or his spouse or other dependents under any other companyemployee plan or program, and settlement of any unpaid long-term incentiveawards that have been earned;

 

·      continued participation byhim and his spouse or other dependents in the company’s group health plan, atthe same benefit and contribution levels in effect immediately before thetermination for 24 months or, if sooner, until similar coverage isobtained under a new employer’s plan.  Ifcontinued coverage is not permitted by the company’s plan or applicable law,the company will pay the cost of COBRA continuation coverage to the extent anyof these persons elects and is entitled to receive COBRA continuation coverage;

 

·      continued receipt for 24months of those perquisites made available to him during the 12 monthspreceding the termination; and

 

·      outplacement services for upto one year following the date of termination.

 

Under theemployment agreement, Mr. Klein is deemed to have been terminated withoutcause if he is terminated for any reason other than:

 

·      a felony conviction;

 

·      fraud involving the company;

 

·      willful failure to carry out material employmentresponsibilities;

 

·      behavior likely to have anadverse effect on the company or Mr. Klein’s ability to perform hisemployment responsibilities; or

 

·      a material violation of company policy.

 

Mr. Klein is deemed to have terminated his employment for goodreason if the termination follows:

 

·      a material reduction in duties andresponsibilities;

 

35

----

Table of Contents

 

·      the non-renewal by thecompany of the term of his employment agreement;

 

·      a reduction in base salaryor target incentive opportunities;

 

·      a breach by the company ofany of its material obligations under the employment agreement;

 

·      a required relocation of hisprincipal place of employment of more than 50 miles; or

 

·      in connection with a changein control, a failure by the successor company to assume the company’sobligations under his employment agreement. However, for at least one year after a change in control, Mr. Kleinwill not have good reason to terminate his employment merely because he is nolonger chief executive officer of a public company, provided that hisoperational duties and responsibilities are not materially diminished.

 

*Termination in Connection with a Change in Control.*  If the company terminates Mr. Klein’s employmentwithout cause during the period beginning six months prior to the date of achange in control and ending on the second anniversary of the change incontrol, or he terminates employment for good reason within two years after achange in control, then he is entitled to receive the payments and benefitsdescribed above, except that the amount of the pro rata short-term incentiveaward will be based on his target short-term incentive award for the year inwhich the termination occurs.

 

In the event achange in control occurs, all outstanding equity-based and other long-termincentive awards held by Mr. Klein will become vested in accordance withtheir terms or, if earlier, upon the termination of his employment after achange of control for any reason other than by the company (or successorcompany) for cause or by Mr. Klein without good reason.  Under the terms of his equity awardsoutstanding as of December 31 2008, if Mr. Klein’s employment withthe company is terminated by the company without cause (as defined above) or isterminated by Mr. Klein for good reason (as defined above), then (a) theperformance share units will vest immediately, subject to the companysatisfying the applicable TSR performance target, (b) the shares ofrestricted stock will vest immediately, and (c) the initial option awardwill vest immediately.

 

Under theemployment agreement, a change in control is defined as:

 

·      the acquisition of 40% ormore of the company’s common stock, except in connection with a merger orconsolidation where a majority of the directors of the surviving entity weredirectors of the company prior to the transaction;

 

·      a change in a majority ofthe members of our board, without the approval of the then incumbent members ofthe board;

 

·      the completion of a mergeror consolidation unless (a) a majority of the directors of the survivingentity were directors of the company prior to the transaction or (b) thetransaction is a recapitalization of the company in which no person, entity, orgroup beneficially owns 40% or more of the combined voting stock of thesurviving entity;

 

·      a sale of all orsubstantially all of the company’s assets unless the sale is to an entity inwhich the company’s stockholders own at least 50% of the voting stock insubstantially the same proportions as their ownership of the companyimmediately prior to the sale;

 

·      stockholder approval of acomplete liquidation or dissolution of the company; or

 

·      any other event designatedby our board as a change in control or required to be reported as a change incontrol on a Form 8-K under the Exchange Act.

 

*Termination Due to Death or Disability*.  If Mr. Klein’s employment terminates dueto death or is terminated by the company due to disability, he (or hisbeneficiary) is entitled to receive:

 

·      an amount equal to (a) hisbase salary for 12 months, plus (b) his unpaid short-term incentive awardearned for the preceding year, plus (c) the short-term incentive awardthat would have been earned by him for the year in which the termination occursif his employment had not terminated, prorated for the number of days elapsedsince the beginning of that year;

 

·      accelerated vesting of his initialoption award and any outstanding long-term incentive awards;

 

·      an amount equal to hisunpaid base salary earned through the date of termination;

 

36

----

Table of Contents

 

·      any payments or benefitspayable to him or his spouse or other dependents under any other companyemployee plan or program; and

 

·      continued participation byhim and his spouse or other dependents in the company’s group health plan, atthe same benefit and contribution levels in effect immediately before thetermination for 24 months or, if sooner, until similar coverage isobtained under a new employer’s plan.  Ifcontinued coverage is not permitted by the company’s plan or applicable law,the company will pay the cost of COBRA continuation coverage to the extent anyof these persons elects and is entitled to receive COBRA continuation coverage.

 

*Obligations of Mr. Klein*.  Payment and benefits under the employmentagreement are subject to compliance by Mr. Klein with the restrictivecovenants in the agreement, including non-disclosure, non-competition andnon-solicitation covenants.  Thenon-competition and non-solicitation covenants expire on the first anniversaryof the termination of Mr. Klein’s employment.  The non-disclosure covenant does notexpire.  If Mr. Klein violates anyof these covenants, he will not be entitled to further payments and benefitsunder the employment agreement and must repay the company for the payments andthe value of benefits previously received under the agreement.  All payments or benefits under the employmentagreement are conditioned on the execution of a general release of claims by Mr. Kleinin favor of the company, its affiliates, and their officers, directors andemployees.

 

*TaxGross-Up Payments*. In the event Mr. Klein is subject to federal excise taxes forbenefits he is entitled to under his employment agreement or otherwise from thecompany, he is entitled to receive an amount necessary to offset the excisetaxes and any related income taxes, penalties and interest.

 

***ExecutiveTransition Plan***

*** ***

The company’sexecutive transition plan (the “*transitionplan*”) provides specified payments and other benefits to ourexecutive officers, including each of our current named executive officersother than our chief executive officer, in the event the officer’s employmentis terminated under the circumstances described below.  The company is not required to provide anypayment or benefit under the transition plan that duplicates any payment orbenefit that an executive officer is entitled to receive under any othercompany compensation or benefit plan, award agreement, or otherarrangement.  Payments and other benefitspayable to our chief executive officer in the event his employment isterminated are covered by the terms of his employment agreement.  For a description of these payments and otherbenefits, see “CEO Employment Agreement” above.

 

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

 

·      an amount equal to amultiple (the “*severance multiplier*”)of (a) the officer’s highest annual rate of base salary at any time duringthe preceding 24 months, plus (b) the officer’s target short-termincentive award for the calendar year in which the termination occurs (or, ifgreater, the actual short-term incentive award earned by the officer for thepreceding calendar year).  The severancemultiplier is 1.0 for payments and benefits payable in the event of atermination without cause;

 

·      an amount equal to theofficer’s target short-term incentive award for the year in which thetermination occurs, prorated for the number of days elapsed since the beginningof that year;

 

·      an amount equal to theofficer’s unpaid base salary earned through the date of termination and unpaidshort-term incentive award earned for the preceding year;

 

·      any payments or benefitspayable to the officer or the officer’s spouse or other dependents under anyother company employee plan or program;

 

·      continued participation bythe officer and the officer’s spouse or other dependents in the company’s grouphealth plan, at the same benefit and contribution levels in effect immediatelybefore the termination for a number of months equal to 12 times theseverance multiplier or, if sooner, until similar coverage is obtained under anew employer’s plan.  If continuedcoverage is not permitted by the company’s plan or applicable law, the companywill pay the cost of COBRA continuation coverage to the extent any of these personselects and is entitled to receive COBRA continuation coverage;

 

·      continued participation inthe company’s executive life insurance program for the greater of (a) anumber of months equal to 12 times the severance multiplier as if the officer’semployment had continued at the officer’s highest annual rate of base salary ineffect at any time during the 24 months preceding termination of employment,and (b) the period provided by the program;

 

·      continued receipt ofperquisites made available to the officer during the 12 months preceding thetermination for a number of months equal to 12 times the severance multiplier;and

 

37

----

Table of Contents

 

·      outplacement services for upto one year following the termination.

 

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

 

Under thetransition plan, an executive officer is deemed to have been terminated withoutcause if the executive officer is terminated for any reason other than:

 

·      a felony conviction;

 

·      fraud involving the company;

 

·      willful failure to carry outmaterial employment responsibilities;

 

·      behavior likely to have anadverse effect on the company; or

 

·      a willful, materialviolation of company policy.

 

*Termination in Connection with a Change in Control*.  If the company terminates the employment ofan executive officer without cause during the period beginning six months priorto the date of a change in control (or, if earlier, the date a definitiveagreement is signed that would result in a change in control) and ending on thefirst anniversary of the change in control, or if an executive officerterminates employment for good reason within one year after a change incontrol, then the officer is entitled to receive the payments and benefitsdescribed above, except that the severance multiplier is 2.0.

 

In the event achange in control occurs, all outstanding long-term incentive awards held by anexecutive officer will become fully vested if the officer is employed by thecompany immediately before the change in control occurs.  The payout under any performance-based awardwill equal the target amount.  Under thetransition plan, a change in control is defined in the same manner as describedunder “CEO Employment Agreement—Terminationin Connection with a Change in Control” above.

 

An executiveofficer is deemed to have terminated his or her employment for good reason ifthe termination follows:

 

·      a material reduction induties and responsibilities;

 

·      a reduction in base salaryor target incentive opportunities;

 

·      a required relocation of thecovered named executive officer’s principal place of business of more than50 miles; or

 

·      at the time of a change incontrol, a failure by the successor company to assume the company’s obligationsunder the transition plan.

 

*Termination Due to Death or Disability*.  If an executive officer’s employment terminatesdue to death or is terminated by the company due to disability, the officer (orthe officer’s beneficiary) is entitled to receive a cash payment equal to sixmonths’ base salary plus a prorated portion of the officer’s target short-termincentive award for the year in which the termination occurs.  Vesting of the officer’s outstandinglong-term incentive awards is subject to the discretion of the committee.  An executive officer whose employment isterminated by the company due to disability is also entitled to receive twoyears of continuing group health and welfare benefits (including continuedparticipation in the company’s executive life insurance program and conversionof any life or disability policies) at the company’s expense.

 

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

 

*Tax Gross-Up Payments*.  In the event an executive officer is subjectto federal excise taxes for benefits he or she is entitled to under thetransition plan or otherwise from the company, the officer is entitled toreceive an amount necessary to offset the excise taxes and any related incometaxes, penalties and interest.

 

38

----

Table of Contents

 

***Equity-BasedIncentive Awards***

*** ***

The followingis a summary of the vesting provisions applicable to the outstandingequity-based incentive awards held by our named executive officers, other thanour chief executive officer, as of December 31, 2008.  The vesting provisions applicable tooutstanding equity-based incentive awards held by our chief executive officerare summarized under “CEO Employment Agreement” immediately above.

 

The awardagreements for the equity incentive awards described below include varyingprovisions regarding the treatment of awards in the event a change in controlof the company occurs.  However, thetransition plan provides that, in the event a change in control of the companyoccurs, all outstanding long-term incentive awards held by each of our namedexecutive officers will become fully vested if the officer is employed by thecompany immediately before the change in control occurs.  For additional information, see “ExecutiveTransition Plan — Termination in Connection with a Change in Control”immediately above.

 

*AnnualLong-Term Incentive Awards*.** **The company’s long-term incentiveawards granted since the spin-off from Verizon included a grant of performanceunits for the 2007-2009 performance cycle and grants of performance shareunits and restricted stock for the 2008-2010 performance cycle.  Under the related award agreements, if theemployment of the named executive officer is terminated by the company withoutcause or as a result of the officer’s death, disability or retirement, then (a) theperformance units and performance share units will vest immediately, subject tothe company meeting the applicable TSR performance targets, and (b) theshares of restricted stock will vest immediately.

 

Under theaward agreements, an officer is deemed to have been terminated without cause ifthe officer is terminated for any reason other than:

 

·      a felony conviction;

 

·      fraud involving the company;

 

·      willful failure to carry outmaterial employment responsibilities;

 

·      behavior likely to have anadverse effect on the company;

 

·      a material violation ofcompany policy; or

 

·      with respect to the 2007award agreement only, a material breach of the non-disclosure, non-competitionand non-solicitation covenants in the award agreement.

 

However,please note that pursuant to our restructuring, all current equityincentive plans, equity ownership plans or other equity-based plans will likelybe terminated and all equity owned under such plans will likely becancelled.

 

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

 

If theemployment of a named executive officer is terminated by the company withoutcause, the officer will vest immediately in a prorated portion of the shares ofrestricted 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 thedate the officer’s employment is terminated.

 

Under theaward agreement, an officer is deemed to have been terminated without cause ifthe officer is terminated for any reason other than:

 

·      commission of a felony;

 

·      grossly incompetentperformance or substantial or continuing inattention or neglect of employmentresponsibilities;

 

·      fraud, misappropriation orembezzlement or material breach of the company’s code of conduct; or

 

·      such other misconductdetrimental to the company or the ability of the officer to fully perform hisor her employment duties.

 

If a namedexecutive officer’s employment is terminated due to death or retirement (after June 30of the calendar year in which the retirement occurs), the officer (or his orher beneficiary) will vest immediately in the shares of restricted stock thatwould vest on the next anniversary of the grant if the officer’s employment hadcontinued.

 

39

----

Table of Contents

 

However,pursuant to our restructuring, all current equity incentive plans,equity ownership plans or other equity-based plans will likely be terminatedand all equity owned under such plans will likely be cancelled, includedoutstanding restricted stock.

 

*Gatto Restricted Stock Award*.  The award agreement for the May 2008grant of restricted stock to Mr. Gatto provides that if his employment isterminated by the company without cause or as a result of his death, disabilityor retirement, then all outstanding shares of restricted stock will vestimmediately.  The definition of causeunder this award is consistent with the definition of cause under the long-termincentive award for the 2008-2010 performance cycle described under “AnnualLong-Term Incentive Awards” above. However, pursuant to our restructuring, all current equity incentive plans, equity ownership plans or otherequity-based plans will likely be terminated and all equity owned under suchplans will likely be cancelled.

 

*Obligations of the Officer*.  Each of the equity-based incentive awardsdescribed above is conditioned upon the named executive officer complying withcertain restrictive covenants in the applicable award agreements, includingnon-disclosure, non-competition and non-solicitation covenants.  The non-competition and non-solicitationcovenants expire on the first anniversary of the officer’s termination ofemployment.  The non-disclosure covenantdoes not expire.

 

***Pensionand Retirement Benefits***

*** ***

Upon retirementor other termination of employment, certain of the named executive officers areentitled to pension benefits under the management plan and the excess plan andcertain retiree medical benefits upon retirement.  See “Executive Compensation—2008 PensionBenefits” beginning on page 33 forfurther information regarding the pension benefits payable to the eligiblenamed executive officers under the management plan and excess plan.

 

***Terminationand Change in Control Tables for 2008***

*** ***

The followingtables summarize the compensation and other benefits that would have becomepayable to each of our named executive officers (other than Ms. Harlessand Mr. Mueller) assuming their employment had terminated on December 31,2008, given the named executive officer’s base salary as of that date and theclosing price of the company’s common stock on December 31, 2008, whichwas $0.09.  In addition, the followingtables summarize the compensation that would become payable to each of ournamed executive officers (other than Ms. Harless and Mr. Mueller)assuming that a change in control of the company had occurred on December 31,2008.

 

In reviewingthese tables, please note the following:

 

·      the amounts shown asSeparation Benefits are the benefits payable under our chief executive officer’semployment agreement and, for our other named executive officers, the company’sexecutive transition plan;

 

·      the amounts shown for Mr. Kleinas Separation Benefits and Short-Term Incentive that are based, in whole or inpart, on his target short-term incentive award for 2008 were calculated usinghis target award pro-rated for the number of days he was employed by thecompany in 2008.  The amounts shown for Mr. Gatto,Ms. Scaife and Mr. Wilbanks in the case of a Voluntary Termination assumethey each elect to retire on December 31, 2008.  None of our other named executive officerswere retirement eligible on December 31, 2008;

 

·      for amounts payable asPerformance Share Units or Performance Units, we assumed that approximately9.6% of the target number of Performance Share Units, and no Performance Units,will be paid at the end of the applicable performance period based on the closingprice of the company’s common stock on December 31, 2008, and projectionsof TSR attainment through that date, other than as the result of a change incontrol.  Units payable upon a change incontrol are based on the target number of units granted to the officer and theclosing price of the company’s common stock on December 31, 2008.  The number of units paid at the end of theperformance period may vary from the amounts reflected in the following tables,based on the company meeting the applicable TSR performance target;

 

·      the amounts shown for awardsof Restricted Stock were determined by reference to the closing price of thecompany’s common stock on December 31, 2008;

 

·      the amounts shown for awardsof stock options are zero because the closing price of the company’s commonstock on December 31, 2008 was less than the exercise price of all optionsoutstanding as of that date;

 

·      the amounts shown for Healthand Welfare Benefits vary based on whether the named executive officer iseligible for retirement.  For those namedexecutive officers who were retirement eligible (Mr. Gatto, Ms. Scaifeand Mr. Wilbanks), the amounts shown represent the present value of theofficer’s retiree medical benefits.  Forthe other named executive officers, the amounts represent benefits payableunder the company’s executive transition plan or, for our chief executiveofficer, his employment agreement;

 

40

----

Table of Contents

 

·      the amounts shown asbenefits under the Life Insurance Program represent the present value of thepremiums expected to be reimbursed by the company, assuming the named executiveofficer continues to participate in the executive whole life insuranceprogram.  For these tables, we haveassumed that Mr. Gatto and Mr. Laver will continue to participate inthis program until age 60.  The othernamed executive officers do not participate in the executive whole lifeinsurance program. Life insurance program benefits payable upon death, if any,represent the death benefit payable to the officer’s beneficiaries by the lifeinsurance company; and

 

·      the amounts shown as ExciseTax Gross-Up payments represent benefits payable under Mr. Klein’semployment agreement and, for the other named executive officers, the company’sexecutive transition plan.  Thesebenefits are equal to an amount necessary to offset any excise taxes andrelated income taxes, penalties and interest owed by the officer in connectionwith the termination of his or her employment or a change in control.  The amounts shown were calculated withoutassigning a value to the post-termination non-compete and non-solicitcovenants.  If a value had been assignedto these covenants, the amounts shown would be lower or, in some cases, zero.

 

**Scott W. KleinChief Executive Officer**

 
| **Benefits and Payments** | ** ** | **Voluntary  Termination** | ** ** | **Termination  Without Cause or  for  Good Reason** | ** ** | **Change in  Control Only** | ** ** | **Change in Control and  Termination  Without Cause or for  Good Reason** | ** ** | **Death**  | ** ** | **Disability** | ** ** |
|-------------------------------------|------------|----------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                          |       |                       |       |                                                               |       |                                  |       |                                                                                                         |       |       |       |           |       |
| **Compensation**                    |       |                       |       |                                                               |       |                                  |       |                                                                                                         |       |       |       |           |       |
| Separation Benefits                 |       | $                          | —     |                                                               | $          | 3,230,000                             |       | $                                                                                                            | —     |       | $          | 3,230,000      |       | $ | 1,500,000 |   | $ | 1,500,000 |   |
| Short-Term Incentive                |       | —                     |       | 500,000                                                            |       | —                                |       | 615,385                                                                                                      |       | —     |       | —         |       |
| Performance Share Units (2008)      |       | —                     |       | 2,695                                                              |       | —                                |       | 2,695                                                                                                        |       | 2,695      |       | 2,695          |       |
| Restricted Stock (2008)             |       | —                     |       | 12,023                                                             |       | —                                |       | 12,023                                                                                                       |       | 12,023     |       | 12,023         |       |
| Stock Options                       |       | —                     |       | —                                                             |       | —                                |       | —                                                                                                       |       | —     |       | —         |       |
|                                | ** ** | —                     | ** ** | ** **                                                         | ** ** | ** **                            | ** ** | ** **                                                                                                   | ** ** | ** ** | ** ** | ** **     | ** ** |
| ** **                          | ** ** | ** **                 | ** ** | ** **                                                         | ** ** | ** **                            | ** ** | ** **                                                                                                   | ** ** | ** ** | ** ** | ** **     | ** ** |
| **Benefits and Perquisites**        | ** ** | ** **                 | ** ** | ** **                                                         | ** ** | ** **                            | ** ** | ** **                                                                                                   | ** ** | ** ** | ** ** | ** **     | ** ** |
| Health & Welfare Benefits  |       | —                     |       | 21,521                                                             |       | —                                |       | 21,521                                                                                                       |       | 21,521     |       | 21,521         |       |
| Life Insurance Program              |       | —                     |       | —                                                             |       | —                                |       | —                                                                                                       |       | —     |       | —         |       |
| Flexible Allowance                  |       | —                     |       | 52,800                                                             |       | —                                |       | 52,800                                                                                                       |       | —     |       | —         |       |
| Financial Planning                  |       | —                     |       | 30,000                                                             |       | —                                |       | 30,000                                                                                                       |       | —     |       | —         |       |
| Physical Examination                |       | —                     |       | 4,000                                                              |       | —                                |       | 4,000                                                                                                        |       | —     |       | —         |       |
| Outplacement Services               |       | —                     |       | 9,500                                                              |       | —                                |       | 9,500                                                                                                        |       | —     |       | —         |       |
| Excise Tax Gross-Up                 |       | —                     |       | —                                                             |       | —                                |       | —                                                                                                       |       | —     |       | —         |       |
| ** **                          | ** ** | ** **                 | ** ** | ** **                                                         | ** ** | ** **                            | ** ** | ** **                                                                                                   | ** ** | ** ** | ** ** | ** **     | ** ** |
| **Totals:**                         |       | —                     |       | $                                                                  | 3,862,539  |                                  | $          | —                                                                                                       |       | $          | 3,977,924  |           | $          | 1,536,239 |   | 1,536,239 |   |
|                                     |            |                            |            |                                                                    |            |                                       |            |                                                                                                              |            |            |            |                |            |  |  |  |  |  |  |

 

**Samuel D. Jones**

**Executive Vice President, Chief Financial Officer and Treasurer**

 
| **Benefits and Payments** | ** ** | **Voluntary  Termination** | ** ** | **Termination  Without Cause** | ** ** | **Change in  Control Only** | ** ** | **Change in Control  and Termination  Without Cause or  for Good Reason** | ** ** | **Death**  | ** ** | **Disability** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                          |       |                       |       |                                |       |                                  |       |                                                                                                         |       |       |       |           |       |
| **Compensation**                    |       |                       |       |                                |       |                                  |       |                                                                                                         |       |       |       |           |       |
| Separation Benefits                 |       | —                     |       | $                                   | 585,000    |                                  | —     |                                                                                                         | $          | 1,170,000  |       | $              | 422,500    |   | $ | 422,500 |   |
| Short-Term Incentive                |       | —                     |       | 260,000                             |       | —                                |       | 260,000                                                                                                      |       | —     |       | —         |       |
| Performance Share Units (2008)      |       | —                     |       | 3,279                               |       | $                                     | 34,125     |                                                                                                         | 34,125     |       | 3,279      |           | 3,279      |   |
| Restricted Stock (2008)             |       | —                     |       | 14,625                              |       | 14,625                                |       | 14,625                                                                                                       |       | 14,625     |       | 14,625         |       |
| Performance Units (2007)            |       | —                     |       | —                              |       | 778                                   |       | 778                                                                                                          |       | —     |       | —         |       |
| Restricted Stock (2007)             |       | —                     |       | 693                                 |       | 1,422                                 |       | 1,422                                                                                                        |       | 711        |       | —         |       |
|                                | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |       |       |           |       |
| **Benefits and Perquisites**        | ** ** | ** **                 | ** ** | ** **                          | ** ** | ** **                            | ** ** | ** **                                                                                                   | ** ** | ** ** | ** ** | ** **     | ** ** |
| Health & Welfare Benefits  |       | —                     |       | 8,192                               | ** ** | **—**                            |       | 16,384                                                                                                       | ** ** | **—** |       | 16,384         |       |
| Life Insurance Program              |       | —                     | ** ** | **—**                          | ** ** | **—**                            | ** ** | **—**                                                                                                   | ** ** | **—** | ** ** | **—**     | ** ** |
| Flexible Allowance                  |       | —                     |       | 15,600                              | ** ** | **—**                            |       | 31,200                                                                                                       | ** ** | **—** | ** ** | **—**     | ** ** |
| Financial Planning                  |       | —                     |       | 12,380                              | ** ** | **—**                            |       | 24,760                                                                                                       | ** ** | **—** | ** ** | **—**     | ** ** |
| Physical Examination                |       | —                     |       | 2,000                               | ** ** | **—**                            |       | 4,000                                                                                                        | ** ** | **—** | ** ** | **—**     | ** ** |
| Outplacement Services               |       | —                     |       | 9,500                               | ** ** | **—**                            |       | 9,500                                                                                                        | ** ** | **—** | ** ** | **—**     | ** ** |
| Excise Tax Gross-Up                 |       | —                     |       | —                              | ** ** | **—**                            |       | 541,618                                                                                                      | ** ** | **—** | ** ** | **—**     | ** ** |
|                                | ** ** | ** **                 |       |                                |       |                                  |       |                                                                                                         |       |       |       |           |       |
| **Totals:**                         |       | —                     |       | $                                   | 911,269    |                                  | $          | 50,950                                                                                                       |       | $          | 2,108,412  |           | $          | 441,115 |   | $ | 456,788 |   |

 

41

----

Tableof Contents

 

**Frank P. GattoExecutive Vice President — Operations**

 
| **Benefits and Payments** | ** ** | **Voluntary  Termination** | ** ** | **Termination  Without Cause** | ** ** | **Change in  Control Only** | ** ** | **Change in Control  and Termination  Without Cause or  for Good Reason** | ** ** | **Death** | ** ** | **Disability** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------------|------------|
| ** **                          |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Compensation**                    |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| Separation Benefits                 |       | —                     |       | $                                   | 693,000    |                                  | —     |                                                                                                         | $          | 1,386,000 |       | $              | 500,500    |   | $ | 500,500 |   |
| Short-Term Incentive                | ** ** | $                          | 308,000    |                                | 308,000    |                                  | —     |                                                                                                         | 308,000    |      | —     |           | —     |   |
| Performance Share Units (2008)      |       | 515                        |       | 515                                 |       | $                                     | 5,359      |                                                                                                         | 5,359      |      | 515        |           | 515        |   |
| Restricted Stock (2008)             |       | 2,297                      |       | 2,297                               |       | 2,297                                 |       | 2,297                                                                                                        |       | 2,297     |       | 2,297          |       |
| Special Restricted Stock (2008)     |       | 7,836                      |       | 7,836                               |       | 7,836                                 |       | 7,836                                                                                                        |       | 7,836     |       | 7,836          |       |
| Performance Units (2007)            |       | —                     |       | —                              |       | 1,574                                 |       | 1,574                                                                                                        |       | —    |       | —         |       |
| Restricted Stock (2007)             |       | 1,517                      |       | 1,480                               |       | 3,035                                 |       | 3,035                                                                                                        |       | 1,517     |       | —         |       |
| ** **                          | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Benefits and Perquisites**        | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| Health & Welfare Benefits  |       | 130,383                    |       | 130,383                             |       | —                                |       | 130,383                                                                                                      |       | —    |       | 130,383        |       |
| Life Insurance Program              |       | 162,142                    |       | 162,142                             |       | —                                |       | 162,142                                                                                                      |       | 3,150,000 |       | 162,142        |       |
| Flexible Allowance                  | ** ** | —                     |       | 15,600                              |       | —                                |       | 31,200                                                                                                       |       | —    |       | —         |       |
| Financial Planning                  | ** ** | —                     |       | 12,380                              |       | —                                |       | 24,760                                                                                                       |       | —    |       | —         |       |
| Physical Examination                | ** ** | —                     |       | 2,000                               |       | —                                |       | 4,000                                                                                                        |       | —    |       | —         |       |
| Outplacement Services               | ** ** | —                     |       | 9,500                               |       | —                                |       | 9,500                                                                                                        |       | —    |       | —         |       |
| Excise Tax Gross-Up                 | ** ** | —                     |       | —                              |       | —                                |       | 596,398                                                                                                      |       | —    |       | —         |       |
|                                |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Totals****:**                     |       | $                          | 612,690    |                                | $          | 1,345,133                             |       | $                                                                                                            | 20,101     |      | $          | 2,672,484      |       | $ | 3,662,665 |   | $ | 803,673 |   |

 

**Scott B. LaverExecutive Vice President — Central**

 
| **Benefits and Payments** | ** ** | **Voluntary  Termination** | ** ** | **Termination  Without Cause** | ** ** | **Change in  Control Only** | ** ** | **Change in Control  and Termination  Without Cause or  for Good Reason** | ** ** | **Death** | ** ** | **Disability** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------------|------------|
| ** **                          |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Compensation**                    |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| Separation Benefits                 |       | —                     |       | $                                   | 765,000    |                                  | —     |                                                                                                         | $          | 1,530,000 |       | $              | 552,500    |   | $ | 552,500 |   |
| Short-Term Incentive                | ** ** | $                          | —     |                                | 340,000    |                                  | —     |                                                                                                         | 340,000    |      | —     |           | —     |   |
| Performance Share Units (2008)      |       | —                     |       | 625                                 |       | $                                     | 6,508      |                                                                                                         | 6,508      |      | 625        |           | 625        |   |
| Restricted Stock (2008)             |       | —                     |       | 2,789                               |       | 2,789                                 |       | 2,789                                                                                                        |       | 2,789     |       | 2,789          |       |
| Performance Units (2007)            |       | —                     |       | —                              |       | 1,558                                 |       | 1,558                                                                                                        |       | —    |       | —         |       |
| Restricted Stock (2007)             |       | —                     |       | 1,480                               |       | 3,035                                 |       | 3,035                                                                                                        |       | 1,517     |       | —         |       |
| ** **                          | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Benefits and Perquisites**        | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| Health & Welfare Benefits  |       | —                     |       | 10,760                              |       | —                                |       | 21,520                                                                                                       |       | —    |       | 21,520         |       |
| Life Insurance Program              |       | —                     |       | 233,580                             |       | —                                |       | 233,580                                                                                                      |       | 3,825,000 |       | 233,580        |       |
| Flexible Allowance                  | ** ** | —                     |       | 15,600                              |       | —                                |       | 31,200                                                                                                       |       | —    |       | —         |       |
| Financial Planning                  | ** ** | —                     |       | 12,380                              |       | —                                |       | 24,760                                                                                                       |       | —    |       | —         |       |
| Physical Examination                | ** ** | —                     |       | 2,000                               |       | —                                |       | 4,000                                                                                                        |       | —    |       | —         |       |
| Outplacement Services               | ** ** | —                     |       | 9,500                               |       | —                                |       | 9,500                                                                                                        |       | —    |       | —         |       |
| Excise Tax Gross-Up                 | ** ** | —                     |       | —                              |       | —                                |       | 713,597                                                                                                      |       | —    |       | —         |       |
|                                |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Totals:**                         | ** ** | $                          | —     |                                | $          | 1,393,714                             |       | $                                                                                                            | 13,890     |      | $          | 2,922,047      |       | $ | 4,382,431 |   | $ | 811,014 |   |

 

42

----

Table of Contents

 

**Georgia R. ScaifeExecutive Vice President — Human Resources and Employee Administration**

 
| **Benefits and Payments** | ** ** | **Voluntary  Termination** | ** ** | **Termination  Without Cause** | ** ** | **Change in  Control Only** | ** ** | **Change in Control  and Termination  Without Cause or  for Good Reason** | ** ** | **Death** | ** ** | **Disability** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------------|------------|
| ** **                          |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Compensation**                    |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| Separation Benefits                 | ** ** | —                     |       | $                                   | 585,000    |                                  | —     |                                                                                                         | $          | 1,170,000 |       | $              | 422,500    |   | $ | 422,500 |   |
| Short-Term Incentive                | ** ** | $                          | 260,000    |                                | 260,000    |                                  | —     |                                                                                                         | 260,000    |      | —     |           | —     |   |
| Performance Share Units (2008)      |       | 1,316                      |       | 1,316                               |       | $                                     | 13,698     |                                                                                                         | 13,698     |      | 1,316      |           | 1,316      |   |
| Restricted Stock (2008)             |       | 5,871                      |       | 5,871                               |       | 5,871                                 |       | 5,871                                                                                                        |       | 5,871     |       | 5,871          |       |
| Performance Units (2007)            |       | —                     |       | —                              |       | 1,067                                 |       | 1,067                                                                                                        |       | —    |       | —         |       |
| Restricted Stock (2007)             |       | 711                        |       | 693                                 |       | 1,422                                 |       | 1,422                                                                                                        |       | 711       |       | —         |       |
| ** **                          | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Benefits and Perquisites**        | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| Health & Welfare Benefits  |       | 45,956                     |       | 45,956                              |       | —                                |       | 45,956                                                                                                       |       | —    |       | 45,956         |       |
| Life Insurance Program              | ** ** | —                     |       | —                              |       | —                                |       | —                                                                                                       |       | —    |       | —         |       |
| Flexible Allowance                  | ** ** | —                     |       | 15,600                              |       | —                                |       | 31,200                                                                                                       |       | —    |       | —         |       |
| Financial Planning                  | ** ** | —                     |       | 12,380                              |       | —                                |       | 24,760                                                                                                       |       | —    |       | —         |       |
| Physical Examination                | ** ** | —                     |       | 2,000                               |       | —                                |       | 4,000                                                                                                        |       | —    |       | —         |       |
| Outplacement Services               | ** ** | —                     |       | 9,500                               |       | —                                |       | 9,500                                                                                                        |       | —    |       | —         |       |
| Excise Tax Gross-Up                 | ** ** | —                     |       | —                              |       | —                                |       | 489,528                                                                                                      |       | —    |       | —         |       |
|                                |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Totals:**                         |       | $                          | 313,854    |                                | $          | 938,316                               |       | $                                                                                                            | 22,058     |      | $          | 2,057,002      |       | $ | 430,398 |   | $ | 475,643 |   |

 

**Cody WilbanksExecutive Vice President, General Counsel and Secretary**

 
| **Benefits and Payments** | ** ** | **Voluntary  Termination** | ** ** | **Termination  Without Cause** | ** ** | **Change in  Control Only** | ** ** | **Change in Control  and Termination  Without Cause or  for Good Reason** | ** ** | **Death** | ** ** | **Disability** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------------|------------|
|                                |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Compensation**                    |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| Separation Benefits                 | ** ** | —                     |       | $                                   | 585,000    |                                  | —     |                                                                                                         | $          | 1,170,000 |       | $              | 422,500    |   | $ | 422,500 |   |
| Short-Term Incentive                | ** ** | $                          | 260,000    |                                | 260,000    |                                  | —     |                                                                                                         | 260,000    |      | —     |           | —     |   |
| Performance Share Units (2008)      |       | 2,497                      |       | 2,497                               |       | $                                     | 25,987     |                                                                                                         | 25,987     |      | 2,497      |           | 2,497      |   |
| Restricted Stock (2008)             |       | 11,137                     |       | 11,137                              |       | 11,137                                |       | 11,137                                                                                                       |       | 11,137    |       | 11,137         |       |
| Performance Units (2007)            |       | —                     |       | —                              |       | 510                                   |       | 510                                                                                                          |       | —    |       | —         |       |
| Restricted Stock (2007)             |       | 324                        |       | 316                                 |       | 647                                   |       | 647                                                                                                          |       | 324       |       | —         |       |
| ** **                          | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Benefits and Perquisites**        | ** ** |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| Health & Welfare Benefits  |       | 74,444                     |       | 74,444                              |       | —                                |       | 74,444                                                                                                       |       | —    |       | 74,444         |       |
| Life Insurance Program              | ** ** | —                     |       | —                              |       | —                                |       | —                                                                                                       |       | —    |       | —         |       |
| Flexible Allowance                  | ** ** | —                     |       | 15,600                              |       | —                                |       | 31,200                                                                                                       |       | —    |       | —         |       |
| Financial Planning                  | ** ** | —                     |       | 12,380                              |       | —                                |       | 24,760                                                                                                       |       | —    |       | —         |       |
| Physical Examination                | ** ** | —                     |       | 2,000                               |       | —                                |       | 4,000                                                                                                        |       | —    |       | —         |       |
| Outplacement Services               | ** ** | —                     |       | 9,500                               |       | —                                |       | 9,500                                                                                                        |       | —    |       | —         |       |
| Excise Tax Gross-Up                 | ** ** | —                     |       | —                              |       | —                                |       | 568,631                                                                                                      |       | —    |       | —         |       |
|                                |       |                       |       |                                |       |                                  |       |                                                                                                         |       |      |       |           |       |
| **Totals:**                         |       | $                          | 348,402    |                                | $          | 972,874                               |       | $                                                                                                            | 38,281     |      | $          | 2,180,816      |       | $ | 436,458 |   | $ | 510,578 |   |

 

43

----

Table of Contents

 

***FormerExecutive Officers***

*** ***

*Former President and Chief Executive Officer.*  Ms. Harless served as our president andchief executive officer through February 16, 2008.  She remained an employee of the companythrough February 22, 2008.  Underthe terms of our executive transition plan, Ms. Harless was entitled toseverance payments and benefits of $3,704,092 as a result of her involuntarytermination without cause.  This amountwas comprised of (a) a $2,762,500 cash payment representing two times thesum of her base salary plus her 2008 target short-term incentive opportunity, (b) a $105,891cash payment representing a pro-rata portion of her 2008 target short-term incentiveaward opportunity, (c) $607,863, representing the present value of thepremiums resulting from her continuing participation in the executive wholelife insurance program, and (d) $227,838, representing the value ofcertain other continuing benefits and perquisites.  A portion of the shares of restricted stockand restricted stock units held by Ms. Harless vested upon hertermination.  These shares and restrictedstock units had a value of $63,993 on February 22, 2008.  In addition, under her performance unit awardagreement, Ms. Harless is no longer subject to the three-year continuousemployment requirement as a result of her separation from the company.  However, the units remain subject to thecompany meeting the TSR performance target.

 

*Former Chief Executive Officer.*  Mr. Mueller served as our chiefexecutive officer from February 16, 2008 to February 26, 2008.  In connection with his resignation, Mr. Muellerwill receive health and welfare benefits for himself and his spouse and otherdependents until he reaches the age of 65. The present value of this benefit is approximately $209,245.  The company will also reimburse Mr. Muellerfor applicable taxes resulting from this benefit.

 

44

----

Table of Contents

 

**2008 DirectorCompensation**

** **

***Annual Cash Compensation***.  The table below summarizes the components ofcash compensation payable to our non-management directors for board serviceduring 2008.  The company also reimbursesdirectors for all expenses incurred in attending board and committeemeetings.  A director who is, or becomes,an employee of the company does not receive additional compensation for servingas a director.

 
| **Board Service**                               | ** ** | **Fee Earned** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|
| Cash retainer for Board service                      |       | $                   | 70,000     |   |
| Chairman of the Board                                |       | 70,000              |       |
| Audit Committee chair                                |       | 15,000              |       |
| Human Resources Committee chair                      |       | 15,000              |       |
| Nominating and Corporate Governance  Committee chair |       | 10,000              |       |
| Committee meeting fee                                |       | 1,500               |       |
|                                                      |            |                     |            |  |

 

***Annual Equity-Based Compensation***.  Non-management directors also receive anannual restricted stock award equal to $90,000 divided by the closing price ofour common stock on the grant date.  Theshares of restricted stock vest on the first anniversary of the grantdate.  Dividends are not payable on theunvested shares of restricted stock. However, dividend equivalents, in anamount equal to the dividend that would be paid on the unvested shares of restrictedstock, are credited to the director if the company pays a dividend on itscommon stock.  Dividend equivalents arepaid in cash on the vesting date.  In March 2008,the company eliminated the payment of dividends.

 

***One-Time Equity-Based Compensation***.  Non-management directors who join the boardwill receive a one-time award of restricted stock valued at $85,000.  In February 2007, our then-currentnon-management directors received a one-time award of restricted stock valuedat $170,000 as an initial inducement to serve on the board, as compensation forboard formation activities in 2006 and to provide a significant equity stake inthe company upon initiation of board service. These one-time awards vest on the third anniversary of the grant date. Dividendsare not payable on the unvested shares of restricted stock. However, dividendequivalents, in an amount equal to the dividend that would have been paid onthe unvested shares of restricted stock, are credited to the director. Dividendequivalents are paid in cash on the vesting date.  In March 2008, the company eliminatedthe payment of dividends.

 

***Director Compensation Table***.  Except as otherwise indicated, the tablebelow sets forth the compensation earned by each of our directors who served asa non-management director during 2008.

 
| **Name (1)**      | ** ** | **Fees Earned or  Paid in Cash (2)** | ** ** | **Stock Awards (3)** | ** ** | **Total** | ** ** |
|------------------------|------------|---------------------------------------------------------------|------------|--------------------------------|------------|-----------|------------|
| Donald B. Reed         |       | $                                                             | 148,750    |                           | $          | 127,180   |       | $ | 275,930 |   |
| Stephen L. Robertson   |       | 124,750                                                       |       | 127,180                        |       | 251,930   |       |
| Thomas S. Rogers       |       | 79,000                                                        |       | 127,180                        |       | 206,180   |       |
| Paul E. Weaver         |       | 122,500                                                       |       | 127,180                        |       | 249,680   |       |
| Jerry V. Elliott (4)   |       | 112,000                                                       |       | 127,180                        |       | 239,180   |       |
| Jonathan F. Miller (5) |       |                                                          | 79,000     |                           |       | 97,347    |       |   | 176,347 |   |
|                        |            |                                                               |            |                                |            |           |            |  |  |  |  |  |  |

 

----

(1)   ScottW. Klein, our chief executive officer, and Katherine J. Harless, our formerpresident and chief executive officer, are not included in this table becausethey were employees of the company during 2008 and, therefore, did not receivecompensation for their service as directors. John J. Mueller, our formerchairman of the board and chief executive officer, is not included in thistable because he became an employee of the company during 2008 and hiscompensation as a non-management director and, thereafter, as an employee isdisclosed elsewhere.  See “ExecutiveCompensation—Summary Compensation Table” on page 24****for a discussionof the compensation earned by Mr. Klein, Ms. Harless and Mr. Muellerduring 2008.

 

(2)   Includescash retainers for serving as chairman of the board and/or as a committee chairin 2008 as follows:  Mr. Reed:  $52,500 as chairman of the board, $7,500 aschair of the nominating and corporate governance committee and $3,750 as

 

45

----

Table of Contents

 

chair of thehuman resources committee; Mr. Robertson: $11,250 as chair of the human resources committee; and Mr. Weaver:  $15,000 as chair of the audit committee.

 

(3)   Representsthe accounting expense recognized by the company in 2008 with respect to stockawards granted to our non-management directors in 2008 and 2007.  The dollar amounts were computed inaccordance with Financial Accounting Standards Board Statement No. 123(R),Share-Based Payment (“FAS 123R”), as required by SEC regulations, and do notreflect the actual value that may be realized by the non-managementdirectors.  The accounting expenseincludes the grant date fair values of the following awards, pro-rated for thenumber of months outstanding in 2008:

 

·      2008 restricted stock award,which was granted in May 2008.  Thegrant date fair value of this award was $3.40 per share;

 

·      2007 restricted stock award,which vested in February 2008.  Thegrant date fair value of this award was $34.90 per share (for Mr. Miller,$35.94); and

 

·      2007 one-time restrictedstock award granted to each non-management director upon initiation of boardservice, which vests in 2010.  The grantdate fair value of this award was $34.90 per share (for Mr. Miller,$35.94).

 

The value of theright to receive dividend equivalents was included in the grant date fair valueunder FAS 123R.  Accordingly, dividendequivalents are not reported separately. The grant date fair value of the 2008 annual restricted stock award in2008 was $90,000.  See note 14 to theconsolidated financial statements in the company’s annual report on Form 10-Kfor the year ended December 31, 2008, for a description of the assumptionsused in determining the accounting expense associated with these awards.  As of December 31, 2008, eachnon-management director held 31,343 shares of restricted stock, except for Mr. Millerwho held 28,837 shares of restricted stock.

 

(4)   Mr. Elliott resigned fromthe board effective as of December 31, 2008.

 

(5)   Mr. Miller resigned from the board effectiveas of March 27, 2009.

 

46

----

Table of Contents

 

**Stock OwnershipGuidelines**

** **

In April 2007,the human resources committee adopted a stock ownership guideline fornon-management directors to align their interests with those of the company’sstockholders and to strengthen the company’s commitment to sound corporategovernance.  The stock ownershipguideline provides that each non-management director is required to own 7,000shares.  This number was determined bydividing $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 tocomply with the ownership guideline within five years of becoming a directorand to maintain ownership of at least 7,000 shares while serving as a directoror until the company changes the guideline.

 

Until anon-management director meets the required stock ownership guideline, he isrequired to retain at least 75% of the shares received as equity-basedcompensation from the company, other than shares sold to satisfy withholdingtax obligations.  If a non-managementdirector does not meet the required ownership guideline within the permittedtimeframe or subsequently falls below the guideline, he will not be eligible toreceive any equity-based compensation for the year in which the circumstanceoccurs and in any subsequent year during which the circumstance continues.

 

Shares countedtowards meeting the ownership guideline include (a) shares owned outrightby a non-management director, or his immediate family members residing in thesame household, and (b) shares of restricted stock held by anon-management director.

 

The followingtable sets forth the number of shares held by each of the non-managementdirectors, as of March 20,2009.

 
| **Name**               | ** ** | **Number of  Shares Held** | ** ** |
|------------------------|------------|--------------------------------------|------------|
| Jonathan F. Miller (1) |       | 30,298                               |       |
| Donald B. Reed         |       | 35,139                               |       |
| Stephen L. Robertson   |       | 53,929                               |       |
| Thomas S. Rogers       |       | 33,923                               |       |
| Paul E. Weaver         |       | 177,922                              |       |

 

----

(1)   Mr. Miller resigned from theboard effective March 27, 2009.

 

As previously disclosed, weare currently in the process of evaluating various options for restructuringour capitalization and debt service obligations.  We believe that any restructuring wouldlikely result in holders of common stock of the company receiving little or novalue for their current holdings. Accordingly, long-term equity incentive awards currently outstanding areexpected to have little or no value. Pursuant to our restructuring, all current equity incentive plans,equity ownership plans or other equity-based plans will likely be terminatedand all equity owned under such plans will likely be cancelled.  During and following any restructuring, the committeeintends to work with its advisor and senior management to establish anappropriate long-term incentive program for 2009 under which new equity rightsmay be granted.

 

47

----

Table of Contents

 

**Item 12.  Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters.**

 

**SECURITY OWNERSHIP OF MANAGEMENTAND CERTAIN BENEFICIAL HOLDERS**

** **

The tablesbelow provide information regarding the beneficial ownership of the company’scommon stock as of March 20, 2009, by:

 

·      each of our directors;

 

·      each of the executiveofficers named in the Summary Compensation Table;

 

·      all directors and executiveofficers as a group; and

 

·      each beneficial owner ofmore than 5% of the company’s common stock.

 

Beneficialownership is determined in accordance with SEC rules and regulations.  Unless otherwise indicated and subject tocommunity property laws where applicable, the company believes that each of thestockholders named in the table below has sole voting and investment power withrespect to the shares indicated as beneficially owned.  Each of our directors and executive officers,and all of our directors and executive officers as a group, beneficially ownedless than 1% of our common stock outstanding as of March 20, 2009.

 

**Directors and ExecutiveOfficers***

 
| **Name of Beneficial Owner**                            | ** ** | **Amount and Nature of  Beneficial Ownership** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| Jonathan F. Miller (1)                                                 |       | 30,298                                                             |       |
| Donald B. Reed (1)                                                     |       | 35,139                                                             |       |
| Stephen L. Robertson (1)                                               |       | 53,929                                                             |       |
| Thomas S. Rogers (1)                                                   |       | 33,923                                                             |       |
| Paul E. Weaver (1)                                                     |       | 177,922                                                            |       |
| Scott W. Klein (2)                                                     |       | 369,646                                                            |       |
| Samuel D. Jones (2)                                                    |       | 179,792                                                            |       |
| Frank P. Gatto (2)                                                     |       | 150,288                                                            |       |
| Scott B. Laver (2)                                                     |       | 68,572                                                             |       |
| Georgia R. Scaife (2)                                                  |       | 82,537                                                             |       |
| Cody Wilbanks (2)                                                      |       | 141,677                                                            |       |
| Katherine J. Harless (3)                                               |       | 61,199                                                             |       |
| John J. Mueller (3)                                                    |       | 2,582                                                              |       |
| All directors and executive officers as a  group (15 persons) (4) |       | 1,522,760                                                          |       |

 

----

*      Pursuant to ourrestructuring, the holders of common stock of the company will likely receivelittle or no value for their current holdings.

 

(1)   Includes 31,343 shares ofrestricted stock (28,837 shares for Mr. Miller) for which thedirector has sole voting power, but no dispositive power.  Mr. Miller resigned from the board effectiveas of March 27, 2009.

 

(2)   Includes shares of restrictedstock for which the named executive officer has sole voting power, but nodispositive power, as follows: Mr. Klein (133,588 shares), Mr. Jones(169,492 shares), Mr. Gatto (127,507 shares), Mr. Laver(45,911 shares), Ms. Scaife (72,222 shares) and Mr. Wilbanks(126,929 shares).

 

(3)   Ms. Harless’s last day ofservice to the company as a director was May 1, 2008.  Mr. Mueller’s last day of employmentwith the company was February 26, 2008. The information shown for Ms. Harless and Mr. Mueller isaccording to the company’s records as of these dates.

 

(4)   Includes 995,764 shares ofrestricted stock for which the directors and executive officers have solevoting power, but no dispositive power.

 

48

----

Table of Contents

 

**Five Percent Holders**

** **

The followingtable sets forth information regarding the number and percentage of shares ofcommon stock held by all persons and entities known by the company tobeneficially own 5% or more of the company’s outstanding common stock.  The information regarding beneficialownership of common stock by the entity identified below is included inreliance on a report filed by the entity with the SEC, except that the percentageis based upon the company’s calculations made in reliance upon the number ofshares reported to be beneficially owned by the entity in such report and thenumber of shares of common stock outstanding on March 20, 2009.

 
| **Name and Address of Beneficial Owner** | ** ** | **Amount and Nature of  Beneficial Ownership** | ** ** | **Percent** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------|------------|
| Jack B.  Corwin (1)  2150 Lincoln Street  Burbank, CA 91504       |       | 12,319,729                                                         |       | 8.3         | %          |

 

----

(1)      According to aSchedule 13G filed by Jack B. Corwin, Mr. Corwin has sole votingpower and sole dispositive power with respect to 12,319,729 shares of commonstock.  The Schedule 13G provides thatthe shares beneficially owned by Mr. Corwin include (a) 8,225,347shares owned by the Jack B. Corwin Revocable Trust Dated 6/26/92, of which Mr. Corwinis the sole trustee, and (b) 4,094,382 shares held by the Jack B. Corwin2006 Charitable Remainder Unitrust, of which the Charitable RemainderStewardship Company of Nevada is the trustee and which Mr. Corwin hasinvestment and voting authority.

 

**EQUITY COMPENSATION PLAN INFORMATION**

** **

As of December 31,2008, the company’s long term incentive plan and 2008 compensation incentiveplan were the only equity compensation plans under which securities of thecompany were authorized for issuance. The long term incentive plan was approved by the company’s solestockholder, Verizon Communications, Inc., prior to the spin-off in November 2006.  The 2008 compensation incentive plan wasapproved by the company’s stockholders at the 2008 annual meeting ofstockholders on May 1, 2008.  Thetable below provides information as of December 31, 2008.

 
| **Plan Category**                                  | ** ** | **Number of securities  to be issued upon exercise  of outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by  stockholders     |       | 3,576,934                                                                                                                                            |       | $                                                                                                           | 0.64       | (1)                                                                                                                                         | 7,046,668  | (2) |
| Equity compensation plans not approved by  stockholders |       | —                                                                                                                                               |       | —                                                                                                      |       | —                                                                                                                                      |       |
|                                                         |            |                                                                                                                                                      |            |                                                                                                             |            |                                                                                                                                             |            |  |

 

----

(1)   The weighted-average exercise pricetakes into account 2,926,934 shares issuable upon vesting of outstandingperformance share units and restricted stock units, which have no exerciseprice. The weighted-average exercise price for outstanding stock options is$3.51.

 

(2)   Pursuant to the terms of our2008 incentive compensation plan, we agreed to issue no more than350,000 shares under our original long term incentive plan after December 31,2007 for new awards and dividend equivalents under outstanding awards.  As of December 31, 2008, the number ofshares remaining available for future issuance under our original long termincentive plan was 36,006 shares.

 

49

----

Table of Contents

 

**Item 13.  Certain Relationships and RelatedTransactions, and Director Independence.**

 

**Director Independence**

** **

As part of thecompany’s corporate governance guidelines, the board has established a policyrequiring a majority of the members of the board to be independent.  Four of our five directors who are standingfor re-election are independent (as defined by our corporate governanceguidelines).  The fifth director alsoserves as our chief executive officer. For a director to be independent, the board must determine, among otherthings, that the director does not have any direct or indirect materialrelationship with the company.  Theguidelines for determining director independence are set forth in our corporategovernance guidelines.  Our guidelinesconform to the independence requirements of the NYSE corporate governancestandards which the company has chosen to use in determining directorindependence.  Applying theseindependence standards, the board has determined that Donald B. Reed, StephenL. Robertson, Thomas S. Rogers and Paul E. Weaver are all independentdirectors.

 

**REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS**

** **

The nominatingand corporate governance committee is charged with the responsibility ofreviewing, approving and overseeing all transactions with related persons (asdefined in SEC regulations).  Thenominating and corporate governance committee will periodically reassess anyrelated-person transaction entered into by the company to ensure theircontinued appropriateness.  Thisresponsibility is set forth in the nominating and corporate governancecommittee’s charter.

 

50

----

Table of Contents

 

**Item 14.  Principal Accountant Fees and Services.**

 

**INDEPENDENT PUBLIC ACCOUNTANTS**

** **

**Selection**

** **

Ernst &Young LLP served as the company’s independent registered public accounting firmfor 2008 and has been selected by the audit committee to serve as the company’sindependent registered public accounting firm for 2009.

 

**Audit and Non-Audit Fees**

** **

The followingtable presents fees for audit services rendered by Ernst & Young LLPfor the audit of the company’s annual financial statements for 2008 and 2007,and fees billed for other services rendered by Ernst & Young.

 
| ** **             | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit Fees (1)         |       | $        | 1,645,217  |     | $          | 1,951,723 |   |
| Audit-Related Fees (2) |       | 214,000  |       | 347,040  |       |
| Tax Fees (3)           |       | 162,683  |       | 136,520  |       |
| All Other Fees (4)     |       | 3,610    |       | —   |       |
| Total                  |       | $        | 2,025,510  |     | $          | 2,435,283 |   |

 

----

(1)    Audit feesconsist principally of fees for the audit of the company’s consolidatedfinancial statements, review of the company’s interim consolidated financialstatements and the audit of internal control over financial reporting.

 

(2)    Audit-relatedfees consist principally of fees for audits of the company’s employee benefitplans.

 

(3)    Tax fees consistprincipally of fees for services performed in connection with thereorganization of the company’s operating subsidiaries and consultations onstate tax matters.

 

(4)    All other feesconsist of service costs related to the company’s use of Ernst & Young’sonline accounting and reporting research tool.

 

**Pre-Approval Policies andProcedures**

** **

The audit committee’spolicy is to require the pre-approval of all audit and non-audit servicesprovided to the company by its independent registered public accounting firm(except for items exempt from pre-approval requirements under applicable lawsand rules).  All audit and non-auditservices for 2008 were pre-approved by the audit committee.

 

51

----

Tableof Contents

 

**AUDIT COMMITTEE REPORT**

 

The auditcommittee is currently comprised of three directors, Paul E. Weaver (Chair),Donald B. Reed and Stephen L. Robertson. Mr. Reed was appointed to the audit committee effective as of December 31,2008.

 

The purpose ofthe audit committee is to assist the board of directors (the “*board*”) of Idearc Inc. (the “*company*”) in its general oversight of thecompany’s accounting, auditing and financial reporting practices.  Management is primarily responsible for thecompany’s financial statements, systems of internal controls and compliancewith applicable legal and regulatory requirements.  The company’s independent registered publicaccounting firm, Ernst & Young LLP, is responsible for performing anindependent audit of the consolidated financial statements and expressing anopinion on the conformity of those financial statements with accountingprinciples generally accepted in the United States, as well as expressing anopinion (pursuant to Section 404 of the Sarbanes-Oxley Act of2002) on the effectiveness of internal control over financial reporting.

 

The members ofthe audit committee are not professional accountants or auditors, and theirfunctions are not intended to duplicate or to certify the activities ofmanagement and the independent registered public accounting firm, nor can theaudit committee certify that the company’s registered public accounting firm is“independent” under applicable rules. The audit committee serves a board-level oversight role, in which itprovides advice, counsel and direction to management and the independentregistered public accounting firm on the basis of the information it receives,discussions with management and the independent registered public accountingfirm, and the experience of the audit committee’s members in business,financial and accounting matters.

 

In theperformance of its oversight responsibilities, the audit committee has reviewedand discussed with management and Ernst & Young LLP the auditedfinancial statements of the company for the year ended December 31,2008.  Management represented to theaudit committee that all financial statements were prepared in accordance withaccounting principles generally accepted in the United States and that thesestatements fairly present the financial condition and results of operations ofthe company at the dates and for the periods described.  The audit committee has relied upon thisrepresentation without any independent verification, except for the work ofErnst & Young LLP.  The auditcommittee also discussed these statements with Ernst & Young LLP, bothwith and without management present and has relied upon their reported opinionon these financial statements.  The auditcommittee’s review included discussion with Ernst & Young LLP of thematters required to be discussed pursuant to Statement on Auditing Standards No. 61(Communications with Audit Committees).

 

With respectto the company’s independent registered public accounting firm, the auditcommittee, among other things, discussed with Ernst & Young LLPmatters relating to its independence and received from Ernst & YoungLLP the written disclosures and the letter required by applicable requirementsof the Public Company Accounting Oversight Board regarding the independentaccountant’s communications with the audit committee concerning independence.

 

On the basisof these reviews and discussions, and subject to the limitations of its role,the audit committee recommended that the board approve the inclusion of thecompany’s audited financial statements in the company’s annual report on Form 10-Kfor the year ended December 31, 2008, for filing with the Securities andExchange Commission.

 
|   | **THE AUDIT  COMMITTEE** |
|--------|--------------------------|
|   |                     |
|   | Paul E.  Weaver, Chair   |
|   | Donald B.  Reed          |
|   | Stephen L.  Robertson    |

 

52

----

Table of Contents

 

**PART IV**

**Item 15. Exhibits and Financial Statement Schedules.**

 
| **Exhibits:** | ** ** | ** **                                                                                                                                                                     |
|---------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1          |       | Certification of Scott W. Klein filed pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002                                                                          |
| 31.2          |       | Certification of Samuel D. Jones filed pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                         |
| 32.1          |       | Certification of Scott W. Klein and Samuel D. Jones filed pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

53

----

Tableof Contents

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized on March 27, 2009.

 
|   | IDEARC INC. |
|--------|------------------|
|   |             |   |
|   | By:              | /s/ SCOTT W. KLEIN |
|   |             |   |
|   |             | **Scott W. Klein** |
|   |             | Chief Executive Officer |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities indicated on March 27,2009.

 
|                     |       | Chief Executive Officer and Director                                        |
|--------------------------|------------|-----------------------------------------------------------------------------|
| /s/ SCOTT W. KLEIN       | ** ** | (Principal Executive Officer)                                               |
| **Scott W. Klein**       |       |                                                                        |
| ** **               | ** ** | Executive Vice President — Chief  Financial Officer and Treasurer |
| /s/ SAMUEL D. JONES      | ** ** | (Principal Financial and Accounting  Officer)                               |
| **Samuel D. Jones**      | ** ** |                                                                        |
| ** **               | ** ** | Director                                                                    |
| /s/ DONALD B. REED       | ** ** |                                                                        |
| **Donald B. Reed**       |       |                                                                        |
| ** **               | ** ** | Director                                                                    |
| /s/ STEPHEN L. ROBERTSON |       |                                                                        |
| **Stephen L. Robertson** | ** ** |                                                                        |
| ** **               | ** ** | Director                                                                    |
| /s/ THOMAS S. ROGERS     |       |                                                                        |
| **Thomas S. Rogers**     | ** ** |                                                                        |
| ** **               | ** ** | Director                                                                    |
| /s/ PAUL E. WEAVER       |       |                                                                        |
| **Paul E. Weaver**       |       |                                                                        |

 

54

----

Tableof Contents

 

**EXHIBIT INDEX**

 
| **Exhibits:** | ** ** | ** **                                                                                                                                                                     |
|---------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1          |       | Certification of Scott W. Klein filed pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002                                                                          |
| 31.2          |       | Certification of Samuel D. Jones filed pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                         |
| 32.1          |       | Certification of Scott W. Klein and Samuel D. Jones filed pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

55

----