UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.  )

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DOLAN MEDIA COMPANY

(Name of Registrant as Specified In Its Charter)

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

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April 7, 2010

 

Dear Fellow Stockholder:

 

I am pleased to invite you to attend Dolan Media Company’s Annual Meeting of Stockholders, which we will hold on May 26, 2010, at the Minneapolis Club, 729 Second Avenue South, Minneapolis, MN 55402. The meeting will begin promptly at 9:00 a.m., central daylight time.

 

Please read the accompanying Notice of Annual Meeting and Proxy Statement for more details about the annual meeting and matters that will be presented to stockholders for a vote.

 

I, and other members of our management team, as well as members of our board of directors, will be available to respond to your questions and comments. We look forward to this opportunity to communicate directly with our stockholders and share information about our operations and activities and hope that you are able to join us.

 

Your vote is very important to us. Whether you own a few shares or many, it is important that your shares are represented at our annual meeting. If you cannot attend the annual meeting in person, please vote as soon as possible. We offer three convenient ways for you to vote — on the Internet (which we recommend), by telephone, or, if you requested a paper copy of these materials, by completing and mailing the proxy card in the postage-paid envelope provided. Instructions regarding these voting options are described in the Notice of Internet Availability of Proxy Materials we mailed to you and on the proxy card, if you requested one be sent to you.

 

We appreciate your continued support of Dolan Media Company and look forward to meeting you at our annual meeting.

 

Very truly yours,

 

James P. Dolan

Chairman, Chief Executive Officer and President

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

Dolan Media Company will hold its Annual Meeting of Stockholders as follows:

 

 

 

By Order of the Board of Directors,

 

Vicki J. Duncomb, Corporate Secretary

 

 

PROXY STATEMENT

 

Annual Meeting of Stockholders

May 26, 2010

 

 

 

 

Our board of directors is soliciting proxies for the 2010 Annual Meeting of Stockholders and we are providing these proxy materials in connection with that solicitation. You are receiving these proxy materials because you owned shares of our common stock on March 29, 2010, and are entitled to vote at the annual meeting. If you are unable to attend the annual meeting in person, you may vote your shares by proxy. This proxy statement describes the proposals that we would like you to consider and vote on and provides additional information to you relating to these proposals so that you can make an informed decision.

 

You will be asked to vote on five proposals at the annual meeting. Our Board recommends that you vote your shares on these proposals as indicated below:

 

 

The Board is not aware of any other matters to be presented to you for a vote at the annual meeting. If you grant a proxy by the Internet, telephone or by signing and returning a proxy card by mail, James P. Dolan, our chairman, chief executive officer and president, and Vicki J. Duncomb, our vice president and chief financial officer, or either of them, may, as your proxies, vote your shares in their discretion for any additional matters that properly come before the stockholders at the annual meeting. Further, if any director candidate is unavailable to serve as director prior to the election at the annual meeting, Mr. Dolan and Ms. Duncomb, or either of them, will vote your proxy for another candidate nominated by our board unless our board allows the vacancy to remain open or reduces the size of our board.

 

If you owned shares of our common stock at the close of business on March 29, 2010, the record date, you may vote at the annual meeting. On that date, there were 30,315,032 shares of common stock outstanding. You have one vote for each share of common stock you held on that date. This includes shares for which you are the “stockholder of record” and those for which you are the “beneficial owner.”

You are the STOCKHOLDER OF RECORD if your shares are registered directly in your name with our transfer agent, BNY Mellon Shareholder Services. If you are the stockholder of record, we have made these proxy materials available to you directly and you may grant your voting proxy directly to us or vote in person at the annual meeting.

 

You are a BENEFICIAL OWNER if your shares are held in a stock brokerage account or by another person, as nominee, on your behalf (sometimes referred to as being held in “street name”). If you are a beneficial owner, your broker or nominee is making these proxy materials available to you and will provide you a voting instruction card to use. You must use this voting card or follow its instructions regarding voting on the Internet or by telephone to instruct your broker or nominee as to how you would like to vote your shares. You are invited to attend the annual meeting, but may not vote your shares in person at the meeting, unless you receive a proxy from your broker or nominee and are present at the meeting.

 

We need a majority of the votes that could be cast by stockholders entitled to vote, present in person at the annual meeting or represented by proxy, to constitute a quorum for the transaction of business at this meeting. We count abstentions and broker non-votes, if applicable, as present and entitled to vote for purposes of determining a quorum.

 

The nominees for director will be elected by a plurality of the votes of the shares present and entitled to vote on the proposal, whether in person or by proxy. A plurality means the nominees receiving the largest number of votes cast at the meeting will be elected for the available director positions. It is possible that a plurality might not be a majority of the votes cast at the meeting in person or by proxies. An affirmative “FOR” vote by a majority of the votes of the shares present and entitled to vote on the proposal, whether in person or by proxy, is required on the following matters: (1) approving the 2007 Incentive Compensation Plan, as amended and restated, which includes authorizing an additional 2,100,000 shares of our common stock for potential future issuance under the plan, and reapproving the performance goals under which compensation may be paid under the plan for purposes of Section 162(m) of the Internal Revenue Code; (2) ratifying the Rights Agreement, as amended; (3) ratifying the appointment of McGladrey & Pullen, LLP; and (4) approving all other matters that are properly presented to the stockholders at the annual meeting or any adjournment or postponement of it. The affirmative “FOR” vote by a majority of the shares outstanding and entitled to vote on the proposal, whether in person or by proxy, is required to approve the amendment to the Amended and Restated Certificate of Incorporation.

 

A “broker non-vote” occurs when a beneficial owner fails to provide voting instructions to his/her broker or nominee with respect to a matter which the broker or nominee indicates when voting by proxy that it does not have the discretionary authority to vote on such matter. We believe that brokers or nominees have discretionary authority to vote shares held by beneficial owners with respect to only two of the five proposals: Proposal 4 — Approval of an Amendment to the Amended and Restated Certificate of Incorporation and Proposal 5 — Ratification of the appointment of McGladrey & Pullen, LLP. Therefore, if you are a beneficial owner, to ensure that your shares are voted in the manner you wish, please provide voting instructions to your broker or nominee.

 

You may either vote “FOR” or “WITHHOLD” authority to vote for the nominees for the board of directors. Withholding your authority to vote for a nominee and broker non-votes will not affect the outcome of the elections for directors. You may either vote “FOR,” “AGAINST,” or ABSTAIN” on the four other proposals set forth on the agenda. If you “ABSTAIN” from voting on any of those proposals, your vote will be counted as a vote “AGAINST” this proposal. Broker non-votes, if applicable, may affect the outcome of some of our proposals. If you are a beneficial owner and do not send voting instructions to your broker, if applicable, your broker may vote your shares at its discretion on Proposals 4 and 5, because the New York Stock Exchange considers these two proposals routine matters. If you are a stockholder of record and sign and mail a proxy card, but do not include voting instructions, the proxies will vote your shares “FOR” all of the proposals and, in their discretion, as to any other matter that may properly come before the stockholders at the annual meeting.

A representative of Broadridge Financial Solutions, Inc. will tabulate the votes represented in person or by proxy at our annual meeting and act as the inspectors of the election.

 

Please refer to “Stockholders Entitled to Vote at Annual Meeting” to determine if you are the stockholder of record of your shares or if you are a beneficial owner of your shares.

 

Stockholders of record may vote their shares in person at the annual meeting or by granting a proxy. If you are a stockholder of record, you may vote by proxy on the Internet (which our board recommends) or by telephone by following the voting instructions set forth on the Notice of Internet Availability of Proxy Materials you received. If you requested a paper copy of our proxy materials, you may also vote by marking, signing and dating the proxy card and mailing it to us in the envelope provided. Please sign your name exactly as it appears on your proxy card.

 

Internet and telephone voting ends at 11:59 p.m., eastern daylight time, on May 25, 2010.

 

If you mail your proxy card, we must receive it no later than 6:00 p.m. central daylight time, on May 25, 2010, for your vote to be counted at the annual meeting.

 

We encourage you to vote by proxy even if you plan to attend the annual meeting in person.

 

Please refer to “Changing Your Vote” for more information about the effect of your proxy if you vote in person at the annual meeting.

 

Beneficial owners may vote their shares by providing voting instructions to their broker or nominee before our annual meeting. If you are a beneficial owner, you may not vote your shares in person at our annual meeting unless you obtain and present at the annual meeting a proxy from your broker or nominee; however, you may attend the annual meeting.

 

If you received more than one Notice of Internet Availability of Proxy Materials, you hold shares registered in more than one name. This sometimes occurs when a stockholder holds shares in his/her own name and then also in a representative capacity, such as a trustee on behalf of a trust. Please vote all shares for which you received a Notice of Internet Availability of Proxy Materials so that you can ensure all of your shares are represented at the meeting.

 

The annual meeting begins promptly at 9:00 a.m., central daylight time. Please arrive no later than 8:30 a.m. to allow us to register your attendance and to ensure that we start the meeting on time. You must bring a valid driver’s license or other proof of identification.

 

You may change your vote and revoke your proxy at any time prior to the vote at the annual meeting. If you are a stockholder of record, you may change your vote by:

 

 

By Mail Dolan Media Company Attention: Corporate Secretary 222 South Ninth Street Suite 2300 Minneapolis, MN 55402		By electronic mail secretary@dolanmedia.com

 

We must receive your written statement, revoking your proxy, by 6:00 p.m., central daylight time, May 25, 2010, for it to be effective.

 

 

If you are a beneficial owner, you may change your vote by submitting new voting instructions to your broker or nominee by the deadline your broker or nominee has set for changing voting instructions.

 

Pursuant to SEC rules, we are making our proxy materials, which include our notice of the 2010 annual meeting of stockholders, proxy statement and annual report to stockholders, available to you over the Internet at www.proxyvote.com instead of mailing you a printed set of the proxy materials. You will need your 12-digit Control Identification Number, provided with the Notice of Internet Availability of Proxy Materials, to access the notice of the 2010 annual meeting of stockholders, proxy statement and annual report to stockholders. We believe that this e-proxy process will expedite your receipt of proxy materials, lower our costs and reduce the environmental impact of our annual meeting. In accordance with the e-proxy process, we mailed to each of our stockholders of record as of March 29, 2010, a Notice of Internet Availability of Proxy Materials, which mailing commenced on or about April 7, 2010. The Notice contains instructions on how you may access our proxy materials and vote your shares over the Internet or by telephone. If you would like to receive a printed copy of our proxy materials from us instead of downloading them from the Internet, please follow the instructions included with the Notice of Internet Availability of Proxy Materials.

 

We will make available, upon request, a list of the names of all stockholders of record who are eligible to vote at our annual meeting. This list will be available ten days prior to the annual meeting during the hours of 8:30 a.m. to 4:30 p.m. (central daylight time) at our principal executive offices, located at 222 South Ninth Street, Suite 2300, Minneapolis, Minnesota 55402. You may review the list for any purpose relevant to the annual meeting by contacting our corporate secretary in writing, either by mail address to our principal executive offices, attention Corporate Secretary, or by email to secretary@dolanmedia.com. We will also make this list available at the annual meeting.

 

We will pay the costs of preparing, assembling, printing, mailing and distributing the Notice of Internet Availability of Proxy Materials and any proxy materials that our stockholders have requested be mailed to them. This includes reimbursing stockholders of record for the expenses they incur in forwarding our proxy materials to beneficial owners. Our directors, officers and employees may solicit proxies personally, by mail, telephone, fax or over the Internet. We do not pay our directors, officers or employees any extra compensation for soliciting proxies. We have also engaged Morrow & Co., LLC to solicit proxies on our behalf, either by mail, telephone, fax, or over the Internet. Morrow & Co., LLC’s address is 470 West Ave., Stamford, CT 06902. We expect to pay Morrow & Co. approximately $30,000 for its proxy solicitation services, consisting of a flat fee of $7,000, along with a fee of $5.50 for each stockholder of record and beneficial owner it contacts to solicit a proxy on our behalf. We will also reimburse Morrow & Co. for reasonable expenses it incurs on our behalf in connection with soliciting proxies.

 

Our transfer agent is BNY Mellon Shareholder Services. If you are a stockholder of record and need to change your name or address, need information regarding the transfer of your shares, or have other questions regarding your shares, please contact BNY Mellon Shareholder Services directly, at 1-800-953-2495, on the Internet at www.bnymellon.com/shareowner/isd or in writing at BNY Mellon Shareholder Services, P.O. Box 358015, Pittsburgh, PA 15252-8015.

 

Our board has adopted corporate governance guidelines. These, along with our committee charters, provide a framework for the governance of our company. These guidelines provide, among other things, that:

 

 

The nominating and corporate governance committee is responsible for overseeing these guidelines and ensuring that we adhere to them. The committee periodically reviews and reassesses the adequacy of these guidelines and recommends proposed changes to the board of directors for consideration.

 

Copies of our corporate governance guidelines and committee charters are available under Corporate Governance in the Investor Relations section of our web site at www.dolanmedia.com, or by written request to our corporate secretary. Please refer to “Communications with the Company and the Board” in this proxy statement for information about how to contact our corporate secretary.

 

We have adopted two codes of ethics: a Code of Business Conduct and Ethics, which we refer to as our Code of Conduct, and a Code of Ethics for our Senior Financial Officers, Chief Operating Officer and Principal Executive Officer, which we refer to as our Code of Ethics. We adopted these policies to ensure that all of our directors, officers and employees observe the highest standards of ethics in conducting our business.

 

Under our Code of Conduct, our core values include respect for individuals, honesty, integrity and leadership by example. Among other things, our Code of Conduct:

 

 

Our Code of Ethics requires our senior financial officers (including our principal financial officer), chief operating officer and principal executive officer to:

 

 

 

Mr. Dolan, Mr. Pollei, Ms. Duncomb, who also acts as our principal accounting officer, our controller, and our senior financial officers at National Default Exchange, DiscoverReady and Counsel Press are subject to this policy.

 

The nominating and corporate governance committee is responsible for overseeing and periodically evaluating these policies. The committee recommends proposed changes to these policies to the Board for consideration. Both our Code of Conduct and our Code of Ethics are available in the Corporate Governance section of our web site under the Investor Relations at www.dolanmedia.com, or by written request from our corporate secretary. Please refer to “Communications with the Company and our Board.”

 

Our board of directors recognizes that transactions or other arrangements between us and any of our directors or executive officers may present potential or actual conflicts of interest. Accordingly, as a general matter, it is our board’s preference to avoid such transactions and other arrangements. Nevertheless, our board recognizes that there are circumstances where such transactions or other arrangements may be in, or not inconsistent with, our best interests. We have adopted a formal written policy that requires any transaction, arrangement or relationship in which we will be a participant and in which the amount involved exceeds $120,000, and in which any related person (directors, executive officers, stockholders owning at least 5% of any class of our voting securities, their immediate family members and any entity in which any of the foregoing persons is employed or is a general partner or principal) had or will have a direct or indirect material interest, to be submitted to our audit committee for review, consideration and approval.

 

In the event that a proposed transaction with a related person involves an amount that is less than $120,000, the transaction will be subject to the review and approval of our chief financial officer (or our chief executive officer, if the chief financial officer, an immediate family member of the chief financial officer, or an entity in which any of the foregoing persons is employed or is a general partner or principal is a party to such transaction). If the transaction is approved by the chief financial officer or chief executive officer, if applicable, such officer will report the material terms of the transaction to our audit committee at its next meeting. The policy provides for periodic monitoring of pending and ongoing transactions. In approving or rejecting the proposed transaction, our audit committee (or chief financial officer or chief executive officer, if applicable) will consider the relevant facts and circumstances available to the audit committee (or chief financial officer or chief executive officer, if applicable), including (1) the impact on a director’s independence if the related person is a director or his or her family member or related entity, (2) the material terms of the proposed transaction, including the proposed aggregate value of the transaction, (3) the benefits to us, (4) the availability of other sources for comparable services or products (if applicable), and (5) an assessment of whether the proposed transaction is on terms that are comparable to the terms available to an unrelated third party or to our employees generally. Our audit committee (or chief financial officer or chief executive officer, if applicable) will approve only those transactions that, in light of known circumstances, are in, or are not inconsistent with, our best interests and the best interest of our stockholders.

 

The following is a summary of transactions since January 1, 2009, (1) to which we have been a party in which the amount involved exceeded $120,000 and in which any related person had or will have a direct or indirect material interest, other than compensation arrangements that are described in “Compensation Discussion and Analysis,” “Executive Compensation” and “Director Compensation” in this proxy statement, or (2) that we otherwise believe should be disclosed. Except as noted below, all of the transactions described below are continuing related party transactions that we initially entered into prior to our board’s adoption of a written policy regarding related party relationships in July 2007. The audit committee reviewed and ratified such continuing transactions at its February 2009 and 2010 committee meetings in accordance with our related party transactions policy.

David A. Trott

 

David A. Trott is the chairman and chief executive officer of our majority-owned subsidiary, American Processing Company, LLC d/b/a National Default Exchange, which we refer to as NDeX. Mr. Trott owns a 68% interest in and is the managing attorney of Trott & Trott, P.C., one of eight law firm customers with whom NDeX has entered an exclusive long-term services agreement to provide mortgage default processing services. See “Services Agreement” below.

 

Until January 4, 2010, Mr. Trott owned a 5.1% interest in NDeX. From January 1, 2009, through November 30, 2009, he held this interest indirectly through his ownership in APC Investments, LLC, whose members comprised the members of Mr. Trott’s law firm, Trott & Trott. APC Investments held a 7.6% interest in NDeX. On December 1, 2009, APC Investments distributed its interest in NDeX to each of its members, including Mr. Trott, who had a 68% ownership interest in APC Investments. On December 31, 2009, the members of APC Investments sold an aggregate 5.1% interest in NDeX (including Mr. Trott, who sold a 3.5% interest) to our wholly-owned subsidiary, Dolan APC, LLC. On January 4, 2010, the members of APC Investments, including Mr. Trott, sold their remaining interest in NDeX (including 1.7% held by Mr. Trott) to Dolan APC. See “Notes Payable to and Stock Issued to Mr. Trott” below for more information regarding the sale of Mr. Trott’s interest in NDeX.

 

During 2009, NDeX made distributions to APC Investments (or its members) in the aggregate amount of $1.6 million, of which Mr. Trott received approximately $1.1 million. Under the terms of NDeX’s amended and restated operating agreement, APC Investments had the right until February 7, 2010, to require NDeX to repurchase all or any portion of its membership interests at a purchase price based on 6.25 times NDeX’s trailing twelve month earnings before interest, depreciation and amortization, less the aggregate amount of any interest bearing indebtedness outstanding for NDeX as of the date the repurchase occurs. This put right expired when the members of APC Investments, including Mr. Trott, sold their interest in NDeX in January 2010.

 

Services Agreement.  During the year ended December 31, 2009, Trott & Trott was one of NDeX’s eight law firm customers. In 2009, Trott & Trott was NDeX’s second largest law firm customer, accounting for 28.7% of our mortgage default processing services revenues. NDeX’s relationship with Trott & Trott is governed by a services agreement dated March 14, 2006. The services agreement provides for the exclusive referral of files from Trott & Trott to NDeX for servicing, unless Trott & Trott is otherwise directed by its clients. The services agreement is for an initial term of fifteen years, with the term to be automatically extended for up to two successive ten-year periods unless either party provides the other party with written notice of its intention not to extend the initial or extended term then in effect. During 2009, NDeX was paid a fixed fee for each file its customers directed NDeX to process, with the amount of such fixed fee being based upon the type of file (e.g., foreclosure, bankruptcy, eviction or litigation). For the year ended December 31, 2009, NDeX received revenues of $43.5 million from fees for mortgage default processing services by Trott & Trott, which takes into account an increase in the fees Trott & Trott pays to us that took effect in January 2009. The success of our mortgage default processing services business is tied to the number of files that Trott & Trott and NDeX’s other customers receive from their mortgage lender and loan servicer clients or that NDeX receives directly from its customers related to residential real estate in California. We therefore rely upon Mr. Trott, who through Trott & Trott has developed and maintains relationships with a substantial number of Trott & Trott’s clients, to attract additional business from its current and/or new clients.

 

Detroit Legal News Publishing.  We own 35.0% of the membership interests in The Detroit Legal News Publishing Company, or DLNP, the publisher of Detroit Legal News. Mr. Trott and his family members indirectly own 80.0% of Legal Press, LLC, which is the holder of 10.0% of the membership interests in DLNP.

 

In November 2005, DLNP entered into an agreement with Trott & Trott pursuant to which Trott & Trott agreed to forward to DLNP for publication all legal notices that Trott & Trott is required to publish on behalf of its mortgage default clients in Michigan. As a result, Detroit Legal News publishes, or through its statewide network causes to be published, all public notices required to be filed in connection with files serviced by NDeX for Trott & Trott that involve foreclosures in Michigan. DLNP also agreed that it would provide certain other services for Trott & Trott, including attending foreclosure sales, bidding on real property and recording

of sheriff’s deeds in connection with foreclosure sales. In exchange for the services provided by DLNP under the agreement, Trott & Trott pays DLNP according to fees agreed to by the parties from time to time. These fees, however, are not permitted to exceed the customary fee that DLNP charges its other customers. In 2009, Trott & Trott paid DLNP $21.3 million to post foreclosure notices in Detroit Legal News and for other related services. The agreement terminates on December 31, 2015 (unless at such date, Legal Press, LLC remains a member of DLNP, in which case the agreement would terminate at such date when Legal Press, LLC, or its successor, is no longer a member of DLNP), but Trott & Trott may terminate the agreement at any time upon the failure by DLNP to cure a material breach of its obligations under the agreement. DLNP maintains a small number of its clerical employees at the offices of Trott & Trott to facilitate the provision of services for Trott & Trott.

 

In November 2005, DLNP entered into a consulting agreement with Mr. Trott whereby Mr. Trott agreed to provide consulting services related to the business of DLNP for a term lasting until December 31, 2015. The agreement may be terminated by either party prior to December 31, 2015, in the event of a material breach by either party or in the event the number of foreclosure notices submitted to DLNP by Trott & Trott is less than 1,000 in any calendar year during the term of the agreement. Under the consulting agreement, DLNP agreed to obtain, for its benefit, an insurance policy on the life of Mr. Trott in the amount of $15.0 million for a term of 15 years. In exchange for the consulting services provided to DLNP, Mr. Trott is entitled to receive a consulting fee equal to the lesser of (1) $500,000 or (2) the amount equal to 7% of DLNP’s net income less the amount paid by DLNP for the life insurance policy. In 2009, Mr. Trott was paid $483,974 in fees by DLNP for his consulting services. In addition to the fees Mr. Trott receives under the consulting agreement, DLNP also pays Mr. Trott an annual salary of $20,000.

 

Notes Payable and Stock Issued to David A. Trott.  In connection with the sale to us of his aggregate 5.1% ownership interest in two transactions on December 31, 2009, and January 4, 2010, we issued 168,644 shares of our common stock, having an aggregate value of $1.7 million based on the closing share price on December 31, 2009, and agreed to pay him $8.8 million (exclusive of interest on $2.3 million of the balance payable beginning August 1, 2010). Through the date of this proxy statement, we have paid him $4.1 million. We will pay an additional $0.7 million on the first business day of April, May, June and July 2010. Beginning on August 1, 2010, we will pay the remaining $2.3 million balance (including interest accruing at a rate of 4.25%) in 29 equal monthly installments. This transaction was not made in accordance with the terms of our related party transaction policy because it was approved by our board of directors, instead of our audit committee.

 

Net Director.  Mr. Trott owns approximately 11.1% of the membership interests in Net Director, LLC, which provides an information clearing house service used by NDeX. NDeX paid Net Director approximately $0.1 million for these services in 2009. The Barrett law firm, NDeX’s largest customer, also owns a 5.0% interest in Net Director.

 

American Servicing Corporation.  Mr. Trott owns 50% of American Servicing Corporation, or ASC, a provider of property tax searches and courier services to NDeX. NDeX paid ASC approximately $0.3 million for these services in 2009.

Loan Agreements.  While Mr. Trott directly or indirectly owned an interest in NDeX, Dolan Finance Company, our wholly-owned subsidiary, entered into loan agreements with NDeX, in the following amounts with the following borrowing and maturity dates:

 

 

 

 

Each of the loans described above bears interest at the prime rate plus 2.0% and interest and principal for each loan are payable in equal monthly installments over such loan’s term. In connection with the loans made to NDeX to fund the acquisition of the mortgage default processing services business of Feiwell & Hannoy, Dolan Finance Company agreed to pay Trott & Trott a fee equal to 1/2% of the outstanding balance times Trott & Trott’s (or its assignees) ownership percentage of NDeX so long as the loan is outstanding. During 2009, Dolan Finance made aggregate payments of approximately $2,398 to Trott & Trott pursuant to this agreement. This agreement terminated when we acquired the remaining portion of Trott & Trott’s interest in NDeX from the former members of APC Investments in January 2010.

 

Lease of Office Space.  On April 1, 2007, NDeX and our Michigan Lawyers Weekly publishing unit began subleasing approximately 30,000 square feet in suburban Detroit, Michigan from Trott & Trott at a rate of $10.50 per square foot, triple net, which sublease expires on March 31, 2012. During 2009, NDeX and Michigan Lawyers Weekly paid Trott & Trott an aggregate of $688,970 in lease payments. Trott & Trott leases this space from NW13, LLC, a limited liability company in which Mr. Trott owns 75% of the membership interests.

Employment of Mr. Dolan’s Spouse

 

Mr. Dolan’s spouse administers Dolan Media Newswires, our Internet-based, subscription newswire, and is our employee. In 2009, we paid $72,288 to Mr. Dolan’s spouse as compensation for her services. On May 15, 2009, in connection with annual employee stock grants, we issued to Mr. Dolan’s spouse stock options with an exercise price equal to $12.51 that are exercisable for 455 shares of common stock, as well as 250 shares of restricted stock. The options and restricted stock vest in four equal annual installments commencing on May 15, 2010, and the options terminate in seven years.

 

Employment of Mr. Stodder’s Brother

 

We employ Mr. Stodder’s brother as the director of social media for our Business Information Division. In 2009, we paid Mr. Stodder’s brother $120,000 for his services. On May 15, 2009, in connection with annual employee stock grants, we issued to Mr. Stodder’s brother stock options with an exercise price equal to $12.51 that are exercisable for 800 shares of common stock, as well as 439 shares of restricted stock. The options and restricted stock vest in four equal annual installments commencing on May 15, 2010, and the options terminate in seven years.

 

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee and the charters for these committees are available under the Investor Relations section of our web site at www.dolanmedia.com. Our board may establish other committees from time to time to facilitate the management of Dolan Media Company.

 

During 2009, our board of directors held six meetings. During 2009, each incumbent director attended all of the board meetings and meetings of committees on which he or she served that occurred while such director was a member of our board and such committees, except Ms. Rich Fine who attended 83% of the board meetings and 100% of the compensation committee meetings.

 

Our practice is that all directors attend our annual meeting, unless a director is unable to attend due to illness or another emergency or because his or her term is ending and he or she has not been nominated for re-election to the Board. We expect that most of our directors will attend our 2010 annual meeting.

 

Mr. Christianson serves on the boards of more than three public companies, including us. Our board has determined that his service as a director on these other boards does not impair his ability to serve us effectively.

 

The following table describes the composition of each of the board’s standing committees during the year ended December 31, 2009. In accordance with our corporate governance guidelines and the requirements of the New York Stock Exchange, each of our committees consists solely of independent directors.

 

 

 

 

In 2009, the audit committee met four times and each member of the committee attended every meeting. Our audit committee oversees a broad range of issues relating to our accounting and financial reporting processes and audits of our financial statements. In particular, our audit committee:

 

 

The committee reviews and approves all engagement letters between our independent registered public accounting firm and us. Please refer to our discussion on the audit committee’s “Policy on Pre-approval of Audit and Permissible Non-Audit Services” later in this proxy statement for more information about the committee’s policies and practices related to the approval of services our independent registered public accounting firm performs for us. The committee also reviews all related party transactions (unless it has elevated a transaction to our board for its review and consideration) and resolves conflicts of interest involving our directors, executive officers and us. Please refer to “Related Party Transactions and Policies” for more detailed information about how we address transactions between our directors, executive officers, other related persons and us. Our audit committee is responsible for receiving and investigating complaints or reports regarding our accounting practices, internal controls and financial matters and has developed procedures that allow our employees to communicate anonymously and/or confidentially these concerns directly to our audit committee.

 

Our Board has determined that each member of the audit committee is “independent” under the New York Stock Exchange listing standards, Section 10A(m)(3) of the Securities Exchange Act of 1934 and our corporate governance guidelines. The Board has also determined that, as required by the committee’s charter, each member is financially literate and no member serves on the audit committees of more than three public companies. Our audit committee chair, Mr. Rossi, is our financial expert under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act, although both Messrs. Massicotte and Kingsbury also qualify as a financial expert under the SEC Rules implementing Section 407 of the Sarbanes-Oxley Act.

 

In 2009, the compensation committee met eleven times and each member of the committee attended every meeting that occurred while he or she was a member. The committee reviews our compensation practices and policies and approves the compensation plans of our executive officers and key employees. In particular, the compensation committee is responsible for:

 

 

 

In addition, the committee reviews all employment, severance and change-in-control agreements for our chief executive officer and other executive officers, approves those agreements for the chief executive officer and either approves, or recommends for approval by the board, those agreements for other executive officers. The committee also periodically reviews our equity-based and other incentive compensation plans and makes recommendations to our board regarding those plans. In determining the compensation of our executive officers and awards under our incentive compensation plans other than for our chief executive officer, the committee considers the recommendations of Mr. Dolan, our chief executive officer. The committee believes that Mr. Dolan is in the best position to regularly evaluate the performance of the other executive officers and our other employees.

 

From time to time, the compensation committee engages third party consultants to assist it in making decisions about executive compensation, our equity-based and other incentive compensation plans and other compensation related matters. During 2008 and 2006, the committee engaged Hewitt Associates, a human resources consulting firm, to conduct an analysis of the executive compensation of certain peer companies. In 2009 and 2007, our compensation committee did not conduct an analysis of executive compensation of peer companies because the committee believes that this study is not required on an annual basis. However, the committee did engage Hewitt Associates in 2009 and 2007 to assist the committee in designing executive compensation plans, including the equity compensation awards we granted in connection with our initial public offering in 2007. The committee expects to continue to conduct peer company analyses from time to time to ensure that our executive compensation is consistent with that of similar companies.

 

You should refer to our “Compensation Discussion and Analysis” later in this proxy statement for more information about our compensation committee’s use of Hewitt Associates and for additional information on the committee’s processes and practices relating to the compensation of our board and executive officers.

 

Our Board has determined that each member of the compensation committee is “independent” under the New York Stock Exchange listing standards and our corporate governance guidelines. Our Board also has determined that each member qualifies as a “non-employee director” under Rule 16(b)(3) of the Securities Exchange Act of 1934 and that each member qualifies as an “outside director” under Section 162(m) of the Code.

 

In 2009, our nominating and corporate governance committee met seven times and each member of the committee attended every meeting that occurred. Our nominating and corporate governance committee:

 

 

Our board of directors has determined that each member of our nominating and corporate governance committee is “independent” under the New York Stock Exchange listing standards and our company’s corporate governance guidelines.

 

Our corporate governance guidelines require our board to select its chairman and our chief executive officer in any way that it considers to be in our best interests. Our board believes that an effective leadership structure can be achieved either by combining or separating the chairman and chief executive officer positions as long as the structure encourages the free and open dialogue of competing views and provides for strong oversight of management. Our board further believes that the decision of whether to combine or separate these positions depends upon our particular circumstances at a given point in time. Accordingly, our board has no policy with respect to separating the offices of chairman and chief executive officer, believing that this issue is part of our succession planning and that it is in our best interests for the board to make this determination each time it elects a new chief executive officer.

 

Since 1992 (which includes time served for our predecessor company), Mr. Dolan has served as both the chairman of our board of directors and our chief executive officer. Our board believes that Mr. Dolan is best situated to serve as its chairman because he is very familiar with our business and the industries we serve and is most capable of effectively identifying the opportunities (including potential acquisitions) and challenges we face. Because of his long service to us as both chief executive officer and chairman, our board believes that Mr. Dolan is in the best position to lead discussions on and execute our operating strategy and develop agendas to ensure our board is focusing on the issues that are most important to our long-term growth. Therefore, we believe that Mr. Dolan generally speaking for and leading both the company and our board is appropriate and in our best interests.

 

Our non-employee directors have designated Mr. Christianson, the chair of our nominating and corporate governance committee, to serve as the board’s lead independent director for an indefinite term. Like Mr. Dolan, Mr. Christianson is a founder of our company and has served on our board (including the board of our predecessor company) since 1992. Mr. Christianson sets the agenda for and presides over all executive sessions of the non-employee directors of our board. In addition, Mr. Christianson performs those duties our board delegates to him to assist the board in fulfilling its responsibilities to us. Our board meets regularly in executive session, without Mr. Dolan and other members of our management team, and Mr. Christianson acts as the board’s liaison in discussing matters raised in these sessions with Mr. Dolan and other members of our management team.

 

We believe that our current leadership structure, whereby a single person with the knowledge, skills and experience of Mr. Dolan sets the tone and has primary responsibility for managing our operations, allows for decisive leadership and ensures that we are able to communicate our message and strategy clearly and consistently to our stockholders, employees, customers and other stakeholders. Further, we believe our leadership structure provides effective oversight of our board for the following reasons:

 

 

 

From time to time, we are exposed to risks, including strategic, operational, financial and compliance risks. Our management has designed an enterprise-wide risk management process to identify, monitor and

evaluate these risks. Our board of directors is responsible for overseeing our risk management process and ensuring that this process, as designed, is adequate to effectively manage the risks that we face. Annually, our board reviews the risk assessments undertaken by our management team and assists us in ensuring that we have policies and practices in place to mitigate potential risks we have identified.

 

While our board is ultimately responsible for overseeing our risk management, our audit committee assists our board in fulfilling this responsibility by working with our management team to evaluate and assess our financial risk exposure and plans we have implemented to monitor and mitigate these risks. These risks include threatened and pending litigation, published reports that raise material issues regarding our financial statements or accounting policies, tax matters, legal and regulatory compliance, and matters that could materially impact our internal control over financial reporting, disclosure controls and financial reporting. At each meeting of our audit committee, our chief financial officer reports to the audit committee on these risks and other enterprise risks we are facing, highlighting any new risks that may have arisen since the committee last met. Our audit committee updates the board on these discussions and the results of the risk assessments that the committee has reviewed. The audit committee further ensures that our management updates and presents its enterprise risk assessment to the board at least annually. We have designed the audit committee’s role in risk management oversight to provide our board visibility regarding identifying and assessing the critical risks we face, as well as mitigation strategies we have employed to manage these risks.

 

In addition, our compensation committee evaluates the compensation programs and practices for certain key employees to ensure these programs are designed so these key employees are incentivized to make decisions that lead to long-term value for our stockholders, without encouraging excessive behavior and risks that are reasonably likely to have a material adverse effect on us.

 

The following table provides information for the year ended December 31, 2009, regarding all plan and non-plan compensation awarded to, earned by or paid to each person who served as a director during 2009.

 

 

 

 

 

The options have an exercise price equal to $12.51 per share, the closing share price of our common stock on the grant date, which was also the date of our 2009 annual meeting. The number of options we granted to each non-employee director had a target economic value that was 100% of the annual retainer and attendance fees we expected to make to these directors during the 2009 calendar year. The compensation committee determined the target economic value in the same manner as described for the named executive officers in “Long-Term Equity Incentive Compensation” later in this proxy statement. These stock options vest in four equal annual installments beginning on May 15, 2010, and terminate seven years after the grant date.

 

In addition to those stock options awarded to our directors in 2009, each of our directors who served in 2009 had the following other stock option awards outstanding at December 31, 2009:

 

 

 

The table below describes the cash fees we paid to each non-employee director for his or her services as a director and for services on board committees for the year ended December 31, 2009, and that we will pay our non-employee directors during the year ending December 31, 2010. The compensation committee reviews the payments we make to directors for serving on our board and the board’s committees and recommends proposed changes to our board for approval on an annual basis. From time to time, the committee collects and reviews information about director compensation for comparably-sized public companies. In determining the board fees for 2010, the committee reviewed and considered information provided by Hewitt Associates. For 2010, the committee recommended an increase to the fees because, after reviewing a Hewitt survey of director compensation for comparably-sized companies, it determined that the retainer and other cash fees paid to our directors were well below the average of these companies. In addition, as the committee did not recommend an increase to the board fees in 2009 consistent with our overall policy of not granting increases in base salary in 2009, the committee believed an increase was appropriate in 2010 and necessary to more closely align our director compensation with that paid to the directors of our peers.

 

 

 

 

The stock option grants to non-employee directors in 2009, as described above, reflect our policy, which the board adopted in December 2007, to grant to each non-employee director non-qualified stock options exercisable for shares of our common stock or other equity awards on the date of each regular annual stockholders meeting if such director is elected at such meeting to serve as a non-employee director or continues to serve as a non-employee director. We use a formula that provides for awards with a certain targeted economic value, calculated in the same manner as described for the named executive officers in “Compensation Discussion and Analysis — Long-Term Equity Incentive Compensation” later in this proxy statement. The economic value of the awards would be equal to a percentage (100% in 2009 for continuing directors and 200% in 2009 for new directors) of the expected cash payments to be made to such non-employee director in the form of the annual retainer and attendance fees, assuming the director attends all board meetings and the meetings of committees for which he or she is a member, during the applicable year.

 

In 2010 and for future years, we expect to continue to make grants of stock options (1) to each continuing and re-elected director coincident with each annual stockholders meeting having a target economic value that is 100% of the expected cash payments to be made during the calendar year and (2) to each newly elected director having a target economic value equal to 200% of the cash payments we would have expected to make during the calendar year in which the director is elected if he or she had served us as a director for the entire year. For example, in the first quarter of 2010, we granted an option exercisable for the purchase of 9,477 shares of our common stock to Mr. Stern, who was appointed to our board in January. The option had a target economic value of $68,900, which was 200% of the cash fees we would expect to pay him during 2010.

 

All directors are also reimbursed for their reasonable out-of-pocket expenses incurred in attending board and committee meetings and associated with board or board committee responsibilities. We also offer medical coverage under our self-insured medical plan to our directors at no cost to them. In addition, we reimburse our directors up to $5,000 annually in connection with training related to their service on our board.

From time to time, the compensation committee may consider and propose special consulting arrangements or other fees for directors for our board’s approval. No director receives, or received in 2009, any payments or equity awards in compensation for his services as a director or on a committee other than as set forth above.

 

 

In 2010, our board of directors adopted stock ownership guidelines. These guidelines require each of our non-employee directors to own shares of our common stock, having a value equal to 300% of the annual retainer for board services (based on the closing sales price for a share of our common stock on the measurement date). Our non-employee directors have a period of five years to fully comply with the guidelines and we measure their ownership on January 1 of each year. Under the phase-in provisions of our guidelines, each of our non-employee directors, except Mr. Stern, must own shares of our common stock, having a value at least equal to the percentage of the target level set forth for each measurement date below:

 

 

For purposes of this table, “target level” means 300% of the annual retainer for board services that we would pay our non-employee directors during the calendar year in which the measurement date occurs. So, for example, for our non-employee directors, except Mr. Stern, to fully comply with our ownership guidelines on January 1, 2014, such directors would need to own shares of our common stock, having a value at least equal to 300% of the annual retainer for board services that we would pay our non-employee directors in 2014. For Mr. Stern, the first measurement date of the five year phase-in is January 1, 2011. For each new non-employee director appointed or elected to our board in the future, the five-year phase-in period will begin on January 1 following the effective date of the director’s appointment or election to our board.

 

For purposes of satisfying these guidelines, the non-employee directors may use stock they own directly or for which they have investment and/or voting control and unvested shares of restricted stock that we may grant to them in connection with their service as directors. As of the date of this proxy statement, all of our non-employee directors, except Mr. Stern, have met the first year phase-in requirement of holding 20% of the targeted number of shares of our common stock. As discussed above, Mr. Stern, who joined our board in January 2010, is not yet subject to these guidelines.

 

Our named executive officers are also subject to these stock ownership guidelines. You should refer to “Compensation Discussion and Analysis — Policies related to Compensation — Stock Ownership Guidelines” for information about how these guidelines affect our named executive officers.

 

 

We have a policy that our board consists of a majority of outside directors who are independent and that our audit, compensation and nominating and corporate governance committees consist solely of independent directors. A director is “independent” if our board, as a whole, affirmatively determines that the director has no material relationship with us (or our consolidated subsidiaries) either directly or as a partner, shareholder or officer of an organization that has a relationship with us (or our consolidated subsidiaries). In determining whether a relationship is material and thus whether a director is independent, our board uses the “independence” tests set forth in Section 303A.02 of the New York Stock Exchange’s Listing Company Manual. In addition, our board also has adopted specific independence guidelines that conform to, or augment, the independence tests prescribed by the New York Stock Exchange. Under these guidelines, a director will not be independent if, within the last three years:

 

 

 

These independence guidelines are part of our corporate governance guidelines, which are available under Corporate Governance in the Investor Relations section of our web site at www.dolanmedia.com. For purposes of the New York Stock Exchange’s independence tests and our independence guidelines, an immediate family member is a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who shares the person’s home. In addition to applying the NYSE independence tests and our independence guidelines, the board considers all relevant facts and circumstances, and considers the issue from the standpoint of both the director and person or organization affiliated with the director.

 

Members of our audit committee will not be considered independent if the member directly or indirectly accepts any consulting, advisory or other compensation fee from us (or any of our consolidated subsidiaries), other than compensation as a director or a member of our board’s committees, or is an affiliated person of us (or any of our consolidated subsidiaries). A director is an affiliated person if the director directly or indirectly controls, is controlled by, or is under common control with us (or any of our consolidated subsidiaries), including an executive officer, employee, general partner or managing member of the affiliated person. A director will not be deemed to be in control of us (or one of our consolidated subsidiaries) if the director does not beneficially own more than 10% of our common stock and is not an executive officer of us or our consolidated subsidiary.

 

In accordance with these guidelines, our board undertook its annual review of director independence at the regularly scheduled board meeting following our 2009 annual meeting of stockholders. During this review, our board considered transactions and relationships between each director or any member of his or her immediate family and us and our consolidated subsidiaries. Our board also considered whether there were any

transactions or relationships between directors or any member of their immediate families (or any entity of which a director or an immediate family member is an executive officer, general partner or significant equity holder). For example, the board also reviewed relationships between Messrs. Bergstrom, Christianson and Dolan, who also serve on the board of directors of Peoples Educational Holdings, Inc. (NASDAQ: PEDH) together. Also, in connection with his appointment to our board in January 2010, our board evaluated the independence of Mr. Stern.

 

Based on this review, our board determined that no such transactions or relationships existed or they were immaterial, including the fact that Messrs. Dolan, Bergstrom and Christianson serve on another board together, because they did not approach the thresholds set forth in either the New York Stock Exchange’s independence tests or our independence guidelines.

 

In addition to the foregoing, several of our directors were designated to our board pursuant to the rights of stockholders under an amended and restated stockholders agreement dated September 1, 2004. These directors were Messrs. Dolan and Rossi. The rights of the stockholders who designated these directors terminated upon the consummation of our initial public offering. Both Messrs. Dolan and Rossi are the Board’s nominees for election as directors at the 2010 annual meeting. See “Proposal 1— Election of Directors” below for more information.

 

As a result of this review, our board has affirmatively determined that each of our non-employee directors are independent. The board has also determined that no members of the audit committee received any compensation from us other than directors’ fees and, in the case of Mr. Kingsbury, medical benefits for the last three years. Mr. Dolan is considered an inside director because of his employment as our chairman, chief executive officer and president.

 

Our nominating and corporate governance committee is responsible for conducting searches and identifying, reviewing and evaluating candidates for election to our board. In addition to identifying their own candidates, the committee also considers candidates suggested by stockholders. If you are interested in recommending a person to the nominating and corporate governance committee to serve as a director of our company, you must notify the corporate secretary in writing no later than December 16, 2010. Your recommendation should include biographical information about your proposed candidate as well as the supporting information required by our bylaws and our corporate governance guidelines. Our bylaws require that you disclose the following additional information: (1) information regarding any stockholder associated with you; (2) a description of any derivative positions and other hedging transactions that you or any stockholder affiliated with you may have entered into; and (3) a description of any agreement, arrangement or understanding that your proposed candidate is or intends to become a party to with respect to how your proposed candidate, if elected, will act or vote on any issue coming before our board or pursuant to which another person will compensate or indemnify your proposed candidate, if elected, for his or her service as our director.

 

The nominating and corporate governance committee will review and evaluate your proposed candidate, along with any potential candidates the committee has identified through its candidate searches. Provided that you have timely submitted your candidate in accordance with our bylaws, as amended, the committee will give appropriate consideration to your candidate as it does to our other candidates. If an incumbent director has consented to re-nomination and that director continues to be qualified and has satisfactorily performed his duties and no reason otherwise exists as to why this director should not stand for re-election, the committee’s policy is to propose the incumbent director to our board for re-election. After evaluating all the candidates, the committee will recommend candidates to our board to be included as our board’s nominees for our next annual meeting. The committee makes its recommendations based upon the director criteria described in our corporate governance guidelines. Our guidelines require that our directors possess the highest personal and professional ethics; have sufficient time to carry out their duties and responsibilities effectively; and be committed to serving on our board for an extended period of time. In addition, the nominating and corporate governance committee considers the candidate’s experience, business skills, judgment and the existence of conflicts of

interest between the candidate and us. In addition, although our board does not have a policy with regard to the consideration of diversity in identifying director nominees, among the many factors that our nominating and corporate governance committee carefully considers are the benefits to us of diversity, including gender and racial diversity, in board composition. Further, our board does not discriminate on the basis of race, gender or ethnicity and is supportive of any qualified candidate that would also provide our board with more diversity, including diversity in skills and experiences.

 

Our bylaws are available on the SEC’s web site (www.sec.gov) as Exhibit 3.2 to our current report on Form 8-K filed with the SEC on December 18, 2008. Our corporate governance guidelines are available in the Corporate Governance section of our web site under Investor Relations at www.dolanmedia.com. You may also request copies of the bylaws and corporate governance guidelines by sending a written request to our corporate secretary. Please refer to “Communications with the Company and our Board” below for information about how to request information from our corporate secretary and the address for sending your candidates for consideration by our nominating and corporate governance committee.

 

Alternatively, if you intend to attend the annual meeting in person and would like to nominate a candidate for election by the stockholders at that meeting (in cases where our board does not intend to nominate your candidate or you have not requested that the nominating and corporate governance committee consider your candidate for inclusion in our board’s slate of nominees), you must comply with the procedures set forth in our bylaws and corporate governance guidelines regarding director nominations. See “Requirements for Submission of Stockholder Proposals” below for information about these procedures.

 

If you intend to bring business appropriate for stockholder action at our next annual meeting and intend to have your stockholder proposal (other than a nominee for election to our board) considered for inclusion in our proxy materials, our corporate secretary must receive your stockholder proposal no later than 5:00 p.m. central daylight time, December 16, 2010. You should send your proposals by registered, certified or express mail, courier, electronic mail or other means that allow you to determine when we received the notice and/or proposal, addressed to the corporate secretary at the address set forth in “Communications with the Company and our Board” below. Your proposal must contain the information required by our bylaws, including the following information: (1) information regarding any stockholder associated with you; and (2) a description of any derivative positions and other hedging transactions that you or any stockholder affiliated with you may have entered into. In addition, you must also comply with Rule 14a-8 of the Securities Exchange Act and other applicable SEC rules regarding the inclusion of your proposal in company-sponsored proxy materials. The advance notice requirements and the procedures set forth in our bylaws are the sole and exclusive means for you to propose business to be heard at our stockholders meetings.

 

If you intend to present a proposal at the next annual meeting, but do not intend to have it included in our proxy materials, you still must comply with the advance notice and other requirements set forth in our bylaws. The bylaws require, among other things, that you give written notice of proposals to our corporate secretary no sooner than December 16, 2010, and no later than February 14, 2011. The written notice must contain the information required by our bylaws, including (1) information regarding any stockholder associated with you; and (2) a description of any derivative positions and other hedging transactions that you or any stockholder affiliated with you may have entered into. If you are nominating a person to be considered as a director, the written notice must also include the supporting information required by our corporate governance guidelines, as well as a description of any agreement, arrangement or understanding that your proposed candidate is or intends to become a party to with respect to how your proposed candidate, if elected, will act or vote on any issue coming before our board or pursuant to which another person will compensate or indemnify your proposed candidate, if elected, for his or her service as our director.

 

If our corporate secretary receives your proposal after the deadlines set forth above, your proposal will not be acted upon at our 2011 annual meeting, and, if applicable, will not be included in our proxy materials for such meeting.

 

If you would like to communicate with a member of the board of directors, you may send a letter or an email to our board of directors addressed as follows:

 

 

Please include the following information in your communication to our board: (1) your address, telephone number and email address (if you have one); (2) if you are a stockholder, a statement of the type and amount of securities you own; (3) if you are not a stockholder, the nature of your interest in us; and (4) any special interest you may have in the subject matter of your communication to our board.

 

Our corporate secretary reviews all correspondence to our board and regularly forwards to our board a summary of correspondence or copies of correspondence that relates to the functions of our board or its committees. These matters include communications regarding governance matters or potential accounting, control or auditing concerns. Our corporate secretary will not forward other communications to our board; however, our corporate secretary may, from time to time, update the chairman of our board with a brief description of communications received, but not forwarded to our board.

 

To request copies of our corporate governance documents, including our committee charters, or to otherwise communicate with our corporate secretary, please send a written request to our corporate secretary at our principal executive offices, 222 South Ninth Street, Suite 2300, Minneapolis, MN 55402 or by email to secretary@dolanmedia.com.

 

Our board of directors currently consists of eight directors, divided into three classes as follows: Class 1 (3 directors), Class II (2 directors) and Class III (3 directors). Members in each class are elected to serve for three year terms.

 

Our Board has nominated our chair, James P. Dolan, as well as John C. Bergstrom and George Rossi for re-election to the board of directors to serve until the 2013 annual meeting and until his respective successor is elected and qualified, subject to his earlier death, resignation, retirement or removal. Mr. Dolan, who also serves as our chief executive officer, is not independent. Both Messrs. Bergstrom and Rossi are independent directors and also serve as the chairs of our compensation committee and audit committee, respectively. Messrs. Dolan and Rossi were previously designated as directors pursuant to the terms of an amended and restated stockholder agreement. This agreement terminated upon the consummation of our initial public offering on August 7, 2007.

 

Each of Messrs. Dolan, Bergstrom and Rossi has consented to his respective nomination in this proxy statement and each has indicated that he is willing to serve as a director, if elected. If any of Messrs. Dolan, Bergstrom or Rossi becomes unable or declines to serve before the election at our annual meeting, the proxies may vote any shares represented by proxy that are voted in favor of Messrs. Dolan, Bergstrom or Rossi for a substitute nominee the board has designated unless our board has decided to leave the director position vacant or reduce the size of our board.

 

Nominees for Director for Three-Year Term Ending at 2013 Annual Meeting

 

Class III Directors

 

John C. Bergstrom, age 49, has served as our director since July 2003, and also served as a director of our predecessor company from its inception in 1992 to July 2003. Mr. Bergstrom has served as managing partner of RiverPoint Investments, a St. Paul, Minnesota-based business and financial advisory firm, since June 1995. Mr. Bergstrom is also a director of Peoples Educational Holdings, Inc. (NASDAQ: PEDH), an educational materials publisher; and Znomics, Inc. (OTCBB:ZNOM), a shell public company. Mr. Bergstrom also served as a director of Make Music, Inc. ( NASDAQ:MMUS) from 2004 to 2006. Mr. Bergstrom also serves as a director for several private companies including Tecmark, Inc., a provider of business services focused on loyalty marketing programs; Instrumental, Inc., a provider of technology services to the government sector; Creative Publishing Solutions, Inc., a specialty marketing publisher; Cramer, LLC, an office furniture supplier; and JobDig, Inc., a provider of employment advertising services. Because Mr. Bergstrom has served us for more than seventeen years, he brings an extensive knowledge about our business and industry and its evolution. In addition, he has built his career advising fast-growing companies similar to ours, making him a skilled adviser to us in the areas of corporate governance, executive compensation and other organizational management matters.

 

James P. Dolan, age 60, has served as our president, chief executive officer and chairman of the board since July 2003, and as president, chief executive officer and chairman of the board of our predecessor company rom 1992 to July 2003. Through his long service to our company, both as our chief executive and as a director, Mr. Dolan is uniquely positioned to understand the opportunities and challenges that we face as company and has the most in-depth knowledge about our core businesses and long-term growth strategies. In addition, through the industry experiences described below, he offers us organizational and operational management skills that are critical for leading our company as chief executive officer and our board as its chairman. From January 1989 to January 1993, Mr. Dolan served first as managing director, and then executive vice president, of the Jordan Group, New York City, an investment bank specializing in media. He has previously held executive positions with Kummerfeld Associates, Inc., a media mergers and acquisitions advisory firm in New York and Chicago; News Corporation in New York and San Antonio; Sun-Times Company in Chicago; and Centel Corp. in Chicago, and also was an award-winning reporter and editor at newspapers in Texas. Mr. Dolan is currently a director of each of Advisor Media, Inc., a magazine and

conference company; Peoples Educational Holdings, Inc. (NASDAQ: PEDH), an educational materials publisher; and The Greenspring Companies, the for-profit arm of The American Public Media Group. He also serves as chairman of the board of Greenspring.

 

George Rossi, age 57, has served as our director since April 2005. Since 1985, Mr. Rossi has provided independent consulting services to Capital NDSL, Inc., a Montréal-based investment company. Mr. Rossi also regularly provides independent consulting services to Radio Nord Communications, a Montréal-based media company. From October 2000 through May 2002, Mr. Rossi served as senior vice president and chief financial officer, and from June 2002 through July 2003, as interim president, of Cinar Corporation, a Montréal-based children’s entertainment company. From January 1983 through September 2000, Mr. Rossi served as chief financial officer and treasurer of Radiomutuel, a Montréal-based public media company. Mr. Rossi currently serves as a director of Student Transportation of America (TSE: STB.UN), a New Jersey-based provider of school bus transportation in the United States, and Radio Nord Communications, a Montréal-based media company, and serves on the investment valuation committee of Investissement Desjardins, a Montréal-based fund. Mr. Rossi is a chartered accountant. He also served as a director for Spectra Premium, a manufacturer of fuel tanks (TSE: SPD) from 2005 to 2008, and two then-public companies: Kangaroo Media, a Montréal-based manufacturer and distributor of portable media devices, where he served from 2006 to 2010; and OFI Income Fund, an Ottawa-based manufacturer and distributor of insulation materials, where he served from 2005 to 2009. Through these experiences, Mr. Rossi is qualified to continue to serve us a director as well as audit committee chair because he offers us an in-depth knowledge and understanding of financial and operational issues that are critical to the management of our company. In addition, Mr. Rossi’s varied industry experiences, including his service on a number of public company boards, makes him a highly valuable director.

 

Vote Required

 

A plurality of the votes of the shares represented in person or by proxy at the annual meeting and entitled to vote on this proposal is required to elect a nominee for director.

 

The board of directors unanimously recommends a vote FOR the election of John C. Bergstrom, James P. Dolan and George Rossi as Class III directors.

 

Directors Continuing in Office

 

Class I Directors (Term ends in 2011)

 

Arthur F. Kingsbury, age 61, has served as our director since June 2008. Mr. Kingsbury has more than thirty-five years of business and financial experience in the media and communications sectors and is currently a private investor. His experience includes financial, senior executive and director positions at companies engaged in publishing, internet research, radio broadcasting, cable television, and cellular telephone communications. Mr. Kingsbury is well qualified to serve on our board because of his extensive experience in managing and leading fast growing companies, particularly in the media sector. During his career he has been president and chief operating officer of VNU-USA, Inc., vice chairman and chief operating officer of BPI Communications, Inc., and chief financial officer of Affiliated Publications, Inc. Currently Mr. Kingsbury also serves on the board of HSW International, Inc. (NASDAQ: HSWI), an internet publisher and web site developer, and Solera Holdings, Inc. (NYSE: SLH), a provider of claims processing software and information for automobile insurance companies. He served as a director on the boards of then-public companies: NetRatings, Inc., a provider of web site analytics from 2000 to 2007 and Affiliated Publications, Inc., the former parent company of the Boston Globe, and McCaw Cellular Communications, Inc., an operator of cellular telephone systems, during the late eighties and early nineties.

 

Lauren Rich Fine, age 50, has served as our director since July 2008. Ms. Rich Fine serves as a practitioner in residence at Kent State University’s College of Communication and Information, where she teaches and is helping the school develop its curricula to serve the changing media landscape. She recently completed a term on the advisory board of the Poynter Institute, a school for journalists. Previously, Ms. Rich Fine was managing director at Merrill Lynch & Co. in the Economics & Securities Research Division covering the publishing, information, advertising and online industries. During her 19-year equity research career at

Merrill Lynch, Ms. Rich Fine was a ranked member of the Institutional Investor All-American Research Team for 14 years, holding the number one position for 11 years. Her experience as an analyst, her extensive industry connections, and her deep insights into large numbers of comparable fast-growing companies makes her a valuable resource for our board. Ms. Rich Fine is also a certified financial analyst.

 

Gary H. Stern, age 65, has served as our director since January 2010. Prior to joining our board, Mr. Stern served as the president and chief executive officer of the Federal Reserve Bank of Minneapolis from 1985 until his retirement in 2009. He joined the Federal Reserve Bank of Minneapolis as its senior vice president and director of research in 1982. Prior to 1982, he was a partner in a New York based consulting firm and also spent seven years at the Federal Reserve Bank of New York. He has also served on the faculties of Columbia University, Washington University and New York University. Through his career leading the Federal Reserve Bank of Minneapolis and his extensive executive experience, Mr. Stern has a unique understanding of national economic and fiscal conditions, trends and drivers that affect many of our businesses.

 

Class II Directors (Term ends in 2012)

 

Anton J. Christianson, age 57, has served as our director since July 2003, and also served as a director of our predecessor company from its inception in 1992 to July 2003, making him very familiar with our business and industry, as well as the evolution of our business over the last seventeen years. Since October 1980, Mr. Christianson has served as the chairman and managing partner of Cherry Tree Companies, a Minnetonka, Minnesota-based firm involved in investment management and investment banking. Affiliates of Cherry Tree Companies act as the general partner of Adam Smith Fund, LLC and Adam Smith Growth Partners, L.P. Mr. Christianson also serves as a director of each of Peoples Educational Holdings, Inc. (NASDAQ: PEDH), an educational materials publisher; AmeriPride Services, Inc., a provider of customized apparel for companies; Titan Machinery, Inc. (NASDAQ: TITN), a provider of new and used farm and construction equipment; Arctic Cat, Inc. (NASDAQ:ACAT), a manufacturer of snowmobiles and related equipment; and Znomics, Inc. (NASDAQ: ZNOM), a public shell company. Mr. Christianson also served as a director of Capella Education Company (NYSE: CPLA) from 1993 to 2006 and Fair Isaac Corporation (NYSE:FICO) from 1999 to 2009. In addition to his perspective on our business due to his long service to us as a director, Mr. Christianson offers valuable insights regarding investor relations, business and capital strategy, and corporate governance.

 

Jacques Massicotte, age 56, has served as our director since December 2006. Mr. Massicotte is a certified financial analyst and private investor. From December 2000 through February 2004, he served as managing director, investment banking of TD Securities Inc., a Canadian investment banking firm. From 1986 to 2000, Mr. Massicotte served as a financial analyst, covering the Canadian media and communications sectors with Newcrest Capital (1995-2000), RBC Dominion Securities (1994-1995) and Nesbitt Thomson (1986-1994). Through his investment banking experience, and particularly his experience as an analyst covering public companies, Mr. Massicotte offers valuable insight on how our communications, strategies and business will be viewed by analysts and investors in the market.

 

Background

 

The Dolan Media Company Incentive Compensation Plan was originally adopted in 2006, and our board amended and restated the plan on June 22, 2007, prior to the completion of our initial public offering. The plan, as amended and restated, was approved by our stockholders on July 9, 2007. As of December 31, 2009, we had 734,144 shares of common stock available for issuance under the plan. On March 2, 2010, our board amended and restated the plan, which would, subject to stockholder approval, authorize an additional 2,100,000 shares of our common stock for issuance under the plan. The amended and restated plan included other changes to the plan that were not material. The following table sets forth information regarding the

number of shares underlying stock options and restricted stock that we have granted since the plan’s adoption in 2006.

 

 

The table below sets forth information regarding securities authorized for issuance under the plan as of December 31, 2009, including those authorized for issuance under an Employee Stock Purchase Plan, which has an effective date after December 31, 2007, but which we have not yet implemented.

 

 

 

 

We intend to use between 400,000 to 730,000 of the remaining shares available for issuance under the plan in connection with annual equity grants to be awarded in conjunction with the 2010 annual meeting of stockholders. To the extent that our stockholders do not approve the plan, as amended and restated, our ability to issue the equity awards to our non-employee directors and named executive officers as described in “Director Compensation” and “Compensation Discussion and Analysis” will be affected in future years.

 

The purpose of the plan is to attract and retain exceptionally qualified employees, consultants and directors upon whom, in large measure, our sustained progress, growth and profitability depend. By encouraging our employees, consultants and directors to acquire a proprietary interest in our growth and performance, we intend to motivate employees, consultants and directors to achieve our long-term goals and to more closely align such persons’ interests with those of our other stockholders.

 

Why We Are Seeking Stockholder Approval

 

We are seeking stockholder approval of the plan, as recently amended and restated by our board, to obtain approval from our stockholders to add 2,100,000 shares of our common stock to the shares available for grants, for a total share authorization of 4,800,000 shares. If the stockholders do not approve to increase the shares available for grant, we will continue to issue equity awards under the plan until we have used all of the shares authorized for issuance. In addition, we are seeking stockholder approval of the plan, as amended and restated, because such approval would constitute reapproval by the stockholders of the material terms of the performance goals under which compensation may be paid under the plan, for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). In general, under Section 162(m), in order for

us to be able to deduct compensation in excess of $1 million paid in any one year to our chief executive officer or any of our other named executive officers (other than our chief financial officer), such compensation must qualify as performance-based. One of the requirements of performance-based compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by stockholders at least once every five years. For purposes of Section 162(m), the material terms include the employees eligible to receive compensation, a description of the business criteria on which performance goals may be based, and the maximum amount of compensation that can be paid to an employee under the performance goals.

 

Material Terms of the 2007 Incentive Compensation Plan

 

Summary.  The following description of the plan is only a summary of certain provisions of the plan and is qualified in its entirety by reference to the full text of the plan, marked to show changes including the proposed amendment to Section 4.1, which is included in the electronic copy of this proxy statement as Appendix A. You may also request a copy of the 2007 Incentive Compensation Plan, as amended and restated, including the proposed amendment to Section 4.1, by sending a written request to our corporate secretary. Please refer to “Communications with the Company and the Board” in this proxy statement for information about how to contact our corporate secretary. We have registered the shares authorized for issuance under this plan on Form S-8, which we filed with the SEC on August 1, 2007, and plan to register the additional shares authorized for issuance if the stockholders approve the plan, including the proposed amendment to increase the number of shares available for issuance under the plan.

 

Administration of Plan.  The plan is administered by our compensation committee, which interprets the plan and has broad discretion to select the eligible persons to whom awards will be granted, as well as the type, size and terms and conditions of each award, including the exercise price of stock options, the number of shares subject to awards and the expiration date of, and the vesting schedule or other restrictions applicable to, awards. The committee may establish, amend, suspend or waive any rules relating to the plan, and make any other determination or take any other action that may be necessary or advisable for the administration of the plan. Except as otherwise expressly provided in the plan, all determinations, designations, interpretations and other decisions of the committee are final, conclusive and binding. While the committee has the general authority to administer the plan and the awards to be granted thereunder, our board of directors has the authority to determine, upon the recommendation of the committee, the awards to be made to non-employee directors. In addition, the committee has delegated to our chief executive officer the authority to grant option awards in connection with the hiring of new non-executive employees and/or the promotion of non-executive employees. The chief executive officer, however, may only grant options exercisable for (1) an aggregate of 45,000 shares of our common stock to non-executive employees during each fiscal year and (2) 9,000 shares of our common stock to any one non-executive employee during each fiscal year.

 

Awards.  The plan allows us to grant the following types of awards:

 

 

In any calendar year, no grantee may be granted awards for options, SARs, restricted stock, deferred stock, restricted stock units or performance units (or any other award that is determined by reference to the value of shares of our common stock or appreciation in the value of such shares) that exceed, in the aggregate,

450,000 underlying shares of our common stock. No grantee may be granted cash awards for any grant year that exceed 300% of the grantee’s annual base salary, up to a maximum of $1,000,000 of base salary.

 

Options.  Options may be granted by the committee (or the board of directors or our chief executive officer as provided above) and may be either non-qualified options or incentive stock options. Options are subject to the terms and conditions, including vesting conditions, set by the committee (and incentive stock options are subject to further statutory restrictions that are set forth in the plan). The exercise price for all stock options granted under the plan will be determined by the committee (or our board of directors or chief executive officer as provided above), except that no stock options can be granted with an exercise price that is less than 100% of the fair market value of our common stock on the date of grant. Further, stockholders who own greater than 10% of our voting stock will not be granted incentive stock options that have an exercise price less than 110% of the fair market value of our common stock on the date of grant. The term of all stock options granted under the plan will be determined by the committee (or our board of directors or chief executive officer), but may not exceed 10 years (five years for incentive stock options granted to stockholders who own greater than 10% of our voting stock). No incentive stock option may be granted to an optionee, which, when combined with all other incentive stock options becoming exercisable in any calendar year that are held by that optionee, would have an aggregate fair market value becoming exercisable in the year in excess of $100,000. In the event an optionee is awarded incentive stock options with more than $100,000 becoming exercisable in any calendar year, any incentive stock options having in excess of $100,000 becoming exercisable during the same year will be treated as non-qualified stock options. Each stock option will be exercisable at such time and pursuant to such terms and conditions as determined by the committee (or our board of directors or chief executive officer) in the applicable stock option agreement. Each option gives the grantee the right to receive a number of shares of our common stock upon exercise of the option and payment of the exercise price. The exercise price may be paid by cash (including cash obtained through a broker selling the share acquired on exercise) or, if approved by the committee, shares of our common stock or restricted common stock.

 

Stock Appreciation Rights, or SARs.  All SARs must be granted on a stand-alone basis (i.e., not in conjunction with stock options granted under the plan). A SAR granted under the plan entitles its holder to receive, at the time of exercise, an amount per share equal to the excess of the fair market value (at the date of exercise) of a share of our common stock over a specified price, known as the strike price, fixed by the committee, which will not be less than 100% of the fair market value of our common stock on the grant date of the SAR. Payment may be made in cash, shares of our common stock, or other property, in any combination as determined by the committee.

 

Restricted Stock and Restricted Stock Units.  Restricted stock is our common stock that is forfeitable until the applicable restrictions lapse. Restricted stock units are rights granted as an award to receive shares of our common stock, conditioned upon the satisfaction of restrictions imposed by the committee. The committee will determine the restrictions for each award and the purchase price in the case of restricted stock, if any. Restrictions on the restricted stock and restricted stock units may include time-based restrictions, the achievement of specific performance goals or, in the case of restricted stock units, the occurrence of a specific event. Vesting of restricted stock and restricted stock units is conditioned upon the grantee’s continued employment. Grantees do not have voting rights in restricted stock units. If the performance goals are not achieved or the restrictions do not lapse within the time period provided in the award agreement, the grantee will forfeit his or her restricted stock and/or restricted stock units.

 

Deferred Stock.  Deferred stock is the right to receive shares of our common stock at the end of a specified deferral period. The committee will determine the number of shares and terms and conditions for each deferred stock award, and whether such deferred stock will be acquired upon the lapse of restrictions on restricted stock or restricted stock units. Grantees do not have voting rights in deferred stock, but grantees’ deferred stock may be credited with dividend equivalents to the extent dividends are paid or distributions made during the deferral period.

 

Performance Units.  Performance units are any grant of (1) a bonus consisting of cash or other property the amount and value of which, and/or the receipt of which, is conditioned upon the achievement of certain

performance goals specified by the committee, or (2) a unit valued by reference to a designated amount of property. Performance units may be paid in cash, shares of common stock or restricted stock units. The committee will determine the number and terms of all performance units, including the performance goals and performance period during which such goals must be met. If the performance goals are not attained during the performance period specified in the award agreement, the grantee will forfeit all of his or her performance units.

 

Annual Incentive Awards.  The plan includes annual incentive awards. The committee will determine the amounts and terms of all annual incentive awards, including performance goals, which may be weighted for different factors and measures. The committee will designate individuals eligible for annual incentive awards within the first 90 days of the year for which the annual cash incentive award will apply, with certain exceptions, and will certify attainment of performance goals within 60 days following the end of each year. In addition, the committee will establish the threshold, target and maximum annual incentive award opportunities for each grantee. Payment may be made in cash, shares of our common stock, options or any other award or any combination as provided in the award agreement or determined by the committee.

 

Performance-Based Compensation.  The objective performance criteria for awards (other than stock options and SARs) granted under the plan that are designed to qualify for the performance-based exception from the tax deductibility limitations of Section 162(m) of the Code, and are to be based on one or more of the following measures relating to the Company and/or any of its subsidiaries:

 

 

 

The committee may, on the grant date of an award intended to comply with the performance-based exception under Section 162(m), and in the case of other awards, at any time, provide that the formula for such award may include or exclude items to measure specific objectives, such as losses from discontinued operations, extraordinary gains or losses, the cumulative effect of accounting changes, acquisitions or divestitures, foreign exchange impacts and any unusual, nonrecurring gain or loss. The committee shall have the discretion to adjust the determinations of the degree of attainment of the pre-established performance goals; provided that any awards designed to qualify for the performance-based exception generally may not be adjusted upward (the committee shall retain the discretion to adjust such awards downward).

 

Change in Control.  Except as otherwise set forth in an award agreement, in the event of a change in control (as defined in the plan) of Dolan Media Company, all awards will become vested, all restrictions will lapse and all performance goals shall be deemed to be met, as applicable, except that no payment of an award shall be accelerated to the extent that such payment would violate Section 409A of the Code. The committee may, in order to maintain a grantee’s rights in the event of any change in control, (1) make any adjustments to an outstanding award to reflect such change in control or (2) cause the acquiring or surviving entity to assume or substitute rights with respect to an outstanding award. Furthermore, the committee may cancel any outstanding unexercised options or SARs (whether or not vested) that have an exercise price or strike price, as applicable, that is greater than the fair market value of our common stock as of the date of the change in control. Under the plan, the committee will also have the ability to cash out any options or SARs (whether or not vested) that have an exercise price or strike price, as applicable, that is less than the fair market value of our common stock as of the date of the change in control.

 

Termination of Employment.  With respect to stock options and SARs granted pursuant to an award agreement, unless the applicable award agreement provides otherwise, in the event of a grantee’s termination of employment or service for any reason other than cause, retirement, disability or death, such grantee’s stock options or SARs (to the extent exercisable at the time of such termination) will remain exercisable until 60 days after such termination and thereafter will be cancelled and forfeited to us. Unless the applicable award agreement provides otherwise, in the event of a grantee’s termination of employment or service due to retirement, disability or death, such grantee’s stock options or SARs (to the extent exercisable at the time of such termination) will remain exercisable until one year after such termination and thereafter will be cancelled and forfeited to us. In the event of a grantee’s termination of employment or service for cause, such grantee’s outstanding stock options or SARs will immediately be cancelled and forfeited to us.

 

Unless the applicable award agreement provides otherwise, or unless otherwise determined by the committee as provided in the plan, (1) with respect to restricted stock, in the event of a grantee’s termination of employment or service for any reason other than death or disability, all unvested shares will be forfeited to us, (2) upon termination because of death or disability, all unvested shares of restricted stock will immediately vest, (3) all performance units and unvested restricted stock units will be forfeited upon termination for any reason, and (4) annual cash incentive awards will be forfeited in the event of a grantee’s termination of employment or service.

 

Amendment and Termination.  Unless the plan is earlier terminated by our board of directors, the plan will automatically terminate on June 22, 2017. Awards granted before the termination of the plan may extend beyond that date in accordance with their terms. The committee is permitted to amend the plan or the terms and conditions of outstanding awards, including to extend the exercise period and accelerate the vesting schedule of such awards, subject to the prohibition on repricing described below. However, no such action may adversely affect the rights of any participant with respect to outstanding awards without the applicable grantee’s written consent and no such action or amendment may violate rules under Section 409A of the Code regarding the form and timing of payment of deferred compensation. Stockholder approval of any such

amendment will be obtained if required to comply with applicable law or the rules of the New York Stock Exchange.

 

No Repricing Without Stockholder Approval.  In general, without the prior approval of the company’s stockholders, (i) no option or SAR will be repriced, replaced, or regranted through cancellation, (ii) the exercise price of a previously granted option or SAR will not be lowered and (iii) no option or SAR will be exchanged for an option or SAR with a lower exercise price, for any other award or for cash.

 

Transferability.  Unless otherwise determined by the committee, awards granted under the plan are not transferable except by will or the laws of descent and distribution, and except that certain assignments are permitted in connection with marriage dissolutions. The committee will have sole discretion to permit the transfer of an award to certain family members specified in the plan.

 

Adjustments.  In the event a stock dividend, stock split, reorganization, recapitalization, spin-off, or other similar event affects shares such that the committee determines an adjustment to be appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the plan, the committee will (among other actions and subject to certain exceptions) adjust the number and type of shares available under the plan, the number and type of shares subject to outstanding awards and the exercise price of outstanding stock options and other awards.

 

Federal Income Tax Consequences

 

Grant of Options and SARs.  The grant of an option or SAR is not expected to result in any taxable income for the participant.

 

Exercise of Options and SARs.  Upon exercising a non-qualified stock option, the holder must recognize ordinary income equal to the excess of the fair market value of the shares of our common stock acquired on the date of exercise over the exercise price, and we will generally be entitled at that time to an income tax deduction for the same amount. Upon the exercise of a SAR, the amount of any cash received by the participant and the fair market value on the exercise date of any shares of our common stock received are taxable to the recipient as ordinary income and generally deductible by us.

 

Upon exercising an incentive stock option, generally the stock option holder is not taxed (except that an alternative minimum tax liability may arise), and we are not entitled to a deduction so long as the requirements of Section 422 of the Code continue to be met. If the stock option holder meets the employment requirements and does not dispose of the shares of our common stock acquired upon exercise of an incentive stock option until at least one year after date of the exercise of the stock option and at least two years after the date the stock option was granted, gain or loss realized on sale of the shares will be treated as long-term capital gain or loss. If the shares of our common stock are disposed of before those periods expire, which is called a disqualifying disposition, the stock option holder will be required to recognize ordinary income in an amount equal to the lesser of (a) the excess, if any, of the fair market value of our common stock on the date of exercise over the exercise price, or (b) if the disposition is a taxable sale or exchange, the amount of gain realized. Upon a disqualifying disposition, we will generally be entitled, in the same tax year, to a deduction equal to the amount of ordinary income recognized by the stock option holder.

 

Disposition of Shares Acquired Upon Exercise of Options and SARs.  The tax consequence upon a disposition of shares acquired through the exercise of an option or SAR will depend on how long the shares have been held. Ordinarily, any gain realized upon a disposition will be treated as a capital gain, with the precise character of that gain (either short or long term) being determined by the length of time during which the holder has held the shares. Generally, there will be no tax consequence to us in connection with the disposition of shares acquired under an option or SAR.

 

Awards Other than Options and SARs.  As to other awards granted under the plan that are payable either in cash or shares of our common stock that are either transferable or not subject to substantial risk of forfeiture, the holder of the award must recognize ordinary income equal to (a) the amount of cash received or, as applicable, (b) the excess of (i) the fair market value of the shares received (determined as of the date of

receipt) over (ii) the amount (if any) paid for the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction for the same amount.

 

As to an award that is payable in shares of our common stock that are restricted from transfer and subject to substantial risk of forfeiture, unless a special election is made by the holder of the award under the Code, the holder must recognize ordinary income equal to the excess of (1) the fair market value of the shares received (determined as of the first time the shares become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier) over (2) the amount (if any) paid for the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction for the same amount.

 

Income Tax Deduction.  Subject to the usual rules concerning reasonable compensation, including our obligation to withhold or otherwise collect certain income and payroll taxes, we will generally be entitled to a corresponding income tax deduction at the time a participant recognizes ordinary income from awards made under the plan. However, in general, under Section 162(m), in order for our company to be able to deduct compensation in excess of $1 million paid in any one year to our chief executive officer or certain of our other officers with the highest compensation, the compensation in excess of $1 million must qualify as “qualified performance based compensation” within the meaning of Section 162(m). We expect that options, SARs and certain other performance awards paid under the plan will continue to qualify as performance based compensation. As discussed above, stockholder approval of the amendment of the plan also will constitute reapproval of the material terms of the performance goals for purposes of the approval requirements of Section 162(m) of the Code.

 

Delivery of Shares for Tax Obligation.  Under the plan, the committee may permit participants receiving or exercising awards, subject to the discretion of the committee and upon any terms and conditions it may impose, to deliver shares of our common stock (either shares received upon the receipt or exercise of the award or shares previously owned by the participant) to us to satisfy federal and state tax obligations.

 

Withholding.  We have the right to withhold from any payments made under the plan or to collect as a condition of payment, any taxes required by law to be withheld. The participant may satisfy this obligation in whole or in part by electing to have us withhold shares of common stock having a fair market value up to the minimum amount of withholding taxes required to be collected on the transaction.

 

Plan Benefits

 

The committee in its sole discretion will determine the number and types of awards that will be granted under the plan. Therefore, it is not possible to determine at this time the benefits that will be received by eligible participants if the amendment to the plan is approved by our stockholders. However, to the extent that our stockholders do not approve this amendment, our ability to issue the equity awards to our non-employee directors and named executive officers as described in “Director Compensation” and “Compensation Discussion and Analysis” will be affected in future years. The closing price per share of our common stock as reported on the NYSE on March 29, 2010, was $10.43.

 

Vote Required

 

The affirmative vote of a majority of the shares represented in person or by proxy at the annual meeting and entitled to vote on the proposal is required for the approval of the Dolan Media Company 2007 Incentive Compensation Plan, as amended and restated, which includes increasing the shares of common stock available for issuance under the plan to 4,800,000 shares, and reapproving the performance goals under which compensation may be paid under the plan, for purposes of Section 162(m) of the Code.

The board of directors unanimously recommends a vote FOR the Dolan Media Company 2007 Incentive Compensation Plan, as amended and restated, which includes increasing the shares of common stock available for issuance under the plan to 4,800,000 shares and reapproving the performance goals under which compensation may be paid under the plan, for purposes of Section 162(m) of the Internal Revenue Code.

 

Background

 

We are currently a party to a Rights Agreement, dated as of January 29, 2009, as amended March 17, 2010, with Mellon Investor Services, LLC. Under the Rights Agreement, we declared a dividend distribution of one preferred share purchase right for each outstanding share of our common stock outstanding on February 9, 2009. Our board has approved the Rights Agreement to enable the board of directors to assure that our stockholders are able to realize the long-term value of an investment in our common stock. Although none of our certificate of incorporation, our bylaws or applicable law require stockholder approval or ratification of a stockholder rights plan or similar arrangement, our board has decided to request stockholder ratification of the Rights Agreement as a matter of sound corporate governance. If the stockholders do not ratify the Rights Agreement, the board will reconsider its decision to keep the Rights Agreement in place, but will not be required to terminate the Rights Agreement. Even if our stockholders ratify the Rights Agreement, our board could terminate the Rights Agreement prior to the distribution date (as described below). If the board does not otherwise terminate the Rights Agreement, it will expire under its current terms on January 29, 2013. We have summarized certain key provisions of the Rights Agreement below. Because this is a summary, it may not contain all of the information that is important to you. Accordingly, this summary is qualified in its entirety by its reference to the specific provisions of the Rights Agreement, as amended, the full text of which we have included as Appendix B to the electronic copy of this proxy statement. You may also request a copy of the Rights Agreement, as amended, by sending a written request to our corporate secretary. Please refer to “Communications with the Company and the Board” in this proxy statement for information about how to contact our corporate secretary.

 

We have recently amended the rights agreement to meet the standards of sound corporate governance, as determined by many institutional investors. As a result, our rights agreement contains a number of provisions that have been tailored to meet these standards and are intended to be “stockholder friendly,” including, but not limited to the following: (1) 20% flip-in and flip-over thresholds as described under “Flip-in and Flip-Over Events and Adjustments” below; (2) a three-year sunset provision as described under “Term” below; (3) no features that would limit the ability of a future board of directors of the company to redeem the rights or otherwise make the rights agreement non-applicable to a particular transaction prior to a person or group becoming an “acquiring person;” and (4) a permitted or qualified offer feature that, under certain circumstances, allows the holders of 10% of our outstanding common stock to direct our board to call a special meeting of stockholders to consider a resolution authorizing a redemption of all of the outstanding rights.

 

Reasons for the Rights Agreement

 

Our board adopted the Rights Agreement as a precautionary measure and believes that it is in our stockholders’ best interests for the following reasons:

 

 

The rights may have certain anti-takeover effects. The rights will cause substantial dilution to any person or group that attempts to acquire us without our board’s approval. As a result, the overall effect of the rights may be to render more difficult or discourage any attempt to acquire us even if such acquisition may be favorable to the interests of our stockholders. Because our board can redeem the rights and amend the rights agreement in any respect prior to a person or group owning more than 20% of our outstanding common stock, the rights should not interfere with a merger or other business combination that our board approves or any other potential acquirer that is willing to make an offer at a fair price or otherwise in our stockholders’ best interests.

 

Our rights agreement is similar to rights agreements that other public companies have adopted and our adoption of this plan was not prompted by any external actions. We have received no hostile communications or takeover approaches of any kind. We adopted the plan to give our board time to evaluate and respond to any unsolicited future attempts to acquire our company and to protect the long-term value of our stockholders’ investment in us.

 

Description of Rights Agreement

 

Distribution of Rights.  On January 29, 2009, our board declared a dividend of one right for each outstanding share of our common stock, $0.001 par value per share, or common stock, to stockholders of record at the close of business on February 9, 2009. Each right entitles the registered holder to purchase from us one ten-thousandth of a share of our series A junior participating preferred stock, or preferred stock, at a purchase price of $40.00 in cash per one ten-thousandth of a share, subject to adjustment. The rights are attached to the certificates representing shares of our common stock and do not trade separately. Until the distribution date, the rights are not exercisable or transferable separately from the common stock.

 

Term.  The rights currently will expire on January 29, 2013, unless earlier redeemed or exchange. If our stockholders do not ratify the Rights Agreement at the annual meeting, our board may, but is not required to, terminate the rights agreement prior to January 29, 2013.

 

Events Causing Exercisability of Rights.  The rights will separate from our common stock after the distribution date which is the earlier to occur of the following:

 

 

Acquiring Person.  Our rights agreement generally defines an “acquiring person” as a person or group of affiliated or associated persons that have acquired beneficial ownership of at least 20% of our outstanding shares of common stock. As described below, after a person or group becomes an acquiring person, the rights may not be redeemed or amended.

 

Authority of the Board.  When evaluating decisions surrounding the redemption of the rights or any amendment to the rights agreement to delay or prevent the rights from detaching and becoming exercisable as a result of a particular transaction, the board, or any future board, is not subject to restrictions that would limit its ability to redeem the rights or ototherwise make the rights non-applicable to a particular transaction prior to a person or group becoming an “acquiring person.”

 

Flip-in and Flip-Over Events and Adjustment.  After a person or group of affiliated or associated persons becomes an acquiring person, each holder of a right, except an acquiring person, will have the right to receive, upon exercise, shares of our common stock (or, in certain circumstances, cash, property or other securities of the company) having a value equal to two times the purchase price of the right instead of our preferred stock.

At any time after a person or group of affiliated or associated persons becomes an acquiring person, but prior to the acquisition by an acquiring person of 50% or more of our outstanding shares of our common stock, our board may exchange the rights (other than rights owned by such acquiring person that have become null and void), in whole or in part, without any additional payment, for shares of our common stock, at an exchange ratio of one share of common stock (or of a share of a class or series of the company’s preferred shares having equivalent rights, preferences and privileges) per right (subject to adjustment).

 

At any time after the first date of public announcement by the company or an acquiring person that an acquiring person has become such, if (1) the company is the surviving corporation in a merger with any other company or entity, (2) the company is acquired in a merger or other business combination transaction, (3) 50% or more of the company’s consolidated assets or earning power are sold, or (4) an acquiring person engages in certain “self-dealing” transactions with the company, each holder of a right (other than those of an acquiring person whose rights have become null and void) will thereafter have the right to receive, upon the exercise thereof at the then-current purchase price of the right, that number of shares of common stock of the surviving or acquiring company which at the time of such transaction will have a market value of two times the purchase price of such right.

 

Redemption of Rights.  At any time prior to a person or group of affiliated or associated persons becomes an acquiring person, our board may redeem all, but not less than all, of the rights at a price of $.001 per right, which we refer to as the “redemption price.” The redemption of the rights may be made effective at such time, on such basis and with such conditions as the board in its sole discretion may establish. Immediately upon any redemption of the rights, the right to exercise the rights will terminate and the only right of the holders of rights will be to receive the redemption price. Immediately upon any redemption of the rights, the right to exercise the rights will terminate and the only right of the holders of rights will be to receive the redemption price.

 

Qualified Offer.  A qualifying offer is an offer that, among other things, our board of directors has determined to have the following characteristics:

 

 

 

Further, any offers that have cash or common stock as all or partial consideration are subject to further conditions for qualification as “qualifying offers,” as set forth in the Rights Agreement, as amended.

 

Under the qualified offer provisions of our Rights Agreement, as amended, if our board does not hold a special meeting within 90 business days of receipt of the notice from holders of 10% of our outstanding common stock (excluding the acquiring person), the rights will be automatically redeemed at the close of business on the 10th business day following that date. If a meeting is held and the holders of a majority of our outstanding common stock representing a majority of the shares of common stock represented at the meeting at which a quorum is present vote in favor of the redemption of the rights, the qualifying offer will be deemed exempt from the Rights Agreement, provided that no acquiring person has emerged and the qualifying offer continues to be a qualifying offer.

 

Vote Required

 

The affirmative vote of a majority of the shares represented in person or by proxy at the annual meeting and entitled to vote on the proposal is required for ratification of the Rights Agreement, as amended.

 

The board of directors unanimously recommends a vote FOR ratification of the Rights Agreement, as amended.

 

Our board of directors has approved an amendment to our Amended and Restated Certificate of Incorporation to change the name of the company from “Dolan Media Company” to “The Dolan Company.” Our board is recommending the change to our name because a majority of our revenues are now derived from our Professional Services Division, which provides outsourced services to the legal profession through our subsidiaries, NDeX, DiscoverReady and Counsel Press. While our Business Information Division, which consists of business journals, court and commercial newspapers and other business information products and services, remains an important part of our business, our board believes that the name “Dolan Media Company” no longer fully and accurately describes the breadth of our operations.

 

As approved by our board, the change of our name to “The Dolan Company” will not become effective until our stockholders approve the amendment to our Amended and Restated Certificate of Incorporation and we file it with the Delaware Secretary of State. We anticipate filing the Certificate of Amendment to our Amended and Restated Certificate of Incorporation on May 26, 2010, or as soon as practicable thereafter, if our stockholders approve the amendment at our 2010 annual meeting.

 

If the stockholders approve this proposal, Article FIRST of the Company’s Certificate of Incorporation will be amended to read in its entirety as follows:

 

“The name of the Corporation is “The Dolan Company.”

As described above, our board believes that changing our name is in our best interests because “The Dolan Company” more accurately reflects our current operations. We have included the full text of the Certificate of Amendment to our Amended and Restated Certificate of Incorporation as Appendix C to the electronic copy of this proxy statement. You may also request a copy of the proposed amendment to our Amended and Restated Certificate of Incorporation by sending a written request to our corporate secretary. Please refer to “Communications with the Company and the Board” in this proxy statement for information about how to contact our corporate secretary.

 

Vote Required

 

Approval of the amendment to our Amended and Restated Certificate of Incorporation to change our name to “The Dolan Company” requires the affirmative vote of the holders of a majority of the shares outstanding and entitled to vote on this matter.

 

The board of directors unanimously recommends a vote FOR the approval of the amendment to our Amended and Restated Certificate of Incorporation, changing our name from “Dolan Media Company” to “The Dolan Company.”

 

Our audit committee has appointed McGladrey & Pullen, LLP, certified public accountants and independent registered public accounting firm, as Dolan Media Company’s independent registered public accounting firm for the year ending December 31, 2010. Our audit committee has engaged McGladrey & Pullen, LLP as our independent registered accounting firm since 2003. Although it is not required by our audit committee’s charter or Delaware law, the audit committee is submitting the selection of McGladrey & Pullen, LLP for stockholders’ ratification at the annual meeting because we believe it is a good corporate practice. If the stockholders do not ratify the committee’s selection of McGladrey & Pullen, LLP, the committee will reconsider its decision, but will not be required to change its decision to appoint McGladrey & Pullen, LLP as the company’s independent registered public accounting firm. Even if our stockholders’ ratify this appointment, our audit committee may change this appointment at any time during the year if it determines that a change would be in our or our stockholders’ best interests.

 

We expect representatives of McGladrey & Pullen, LLP to be present at the annual meeting. They will have an opportunity to make a statement to the stockholders if they desire and you will have an opportunity to ask them appropriate questions.

 

Vote Required

 

The affirmative vote of a majority of the shares represented in person or by proxy at the annual meeting and entitled to vote on the proposal is required for ratification of the audit committee’s appointment of McGladrey & Pullen, LLP, as our independent registered public accounting firm for 2010.

 

The board of directors unanimously recommends a vote FOR ratification of the audit committee’s appointment of McGladrey & Pullen, LLP, as our independent registered public accounting firm for 2010.

 

The audit committee of the board of directors of Dolan Media Company has reviewed and discussed the company’s audited consolidated financial statements for the year end December 31, 2009, with the company’s management, which has primary responsibility for the financial statements. The committee has discussed with the company’s independent registered public accounting firm, McGladrey & Pullen, LLP, the matters required to be discussed by the statement on Auditing Standards No. 61, Communication with Audit Committees, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the PCAOB in Rule 3200T. Further, the committee has received the written disclosures and the letter from the company’s independent registered public accounting firm required by Rule 3526 of the Public Accounting Oversight Board “Communication with Audit Committees Concerning Independence,” and the committee has discussed with McGladrey & Pullen, LLP, the company’s registered public accounting firm, that firm’s independence.

 

Based upon the review and discussions described above, the audit committee recommended to the board of directors that the company’s audited consolidated financial statements be included in its annual report on Form 10-K for the year ended December 31, 2009, for filing with the SEC.

 

Submitted by the Audit Committee

 

George Rossi, chair

Arthur F. Kingsbury

Jacques Massicotte

AUDIT COMMITTEE MATTERS

 

The following table presents fees for professional services rendered by McGladrey & Pullen, LLP for the audit of our consolidated financial statements for the years ended December 31, 2009, and 2008, and fees billed for other services rendered by McGladrey & Pullen, LLP during those periods.

 

Audit and Non-Audit Fees

 

 

 

 

As described earlier in this proxy statement, our audit committee is responsible for appointing and overseeing the work of McGladrey & Pullen, LLP, our independent registered public accounting firm, and has established the following procedures for the pre-approval of all audit, audit-related, and other permissible services that McGladrey & Pullen, LLP provides to us. At this time, McGladrey & Pullen, LLP does not provide any tax services to us.

 

During the first quarter of each fiscal year, the committee determines the type of audit, audit-related, and other permissible services that it expects McGladrey & Pullen, LLP will provide to us during that year. McGladrey & Pullen, LLP then provides the audit committee with detailed information regarding the specific services in those categories and the proposed fee structure for the fiscal year. After reviewing the information McGladrey & Pullen, LLP provides, the committee will pre-approve those services up to a specific fee level for that fiscal year. All other services that McGladrey & Pullen, LLP expects to provide or that exceed the pre-approved fee level require separate pre-approval from the committee. McGladrey & Pullen, LLP and our chief financial officer, Ms. Duncomb, submit joint requests to our audit committee for approval of services requiring the separate pre-approval of our audit committee. These requests include a joint statement, describing whether, in their view, the request is consistent with the SEC’s rules on auditor independence.

 

The policy authorizes our audit committee to delegate to one or more of its members pre-approval authority with respect to permitted services. During the year ended December 31, 2009, and for the fiscal year 2010, our audit committee has delegated its pre-approval authority to its chair, Mr. Rossi. He must report any pre-approval decisions to the audit committee at its next scheduled meeting.

 

Our audit committee pre-approved all audit and permissible non-audit related services that McGladrey & Pullen, LLP provided to us during the year ended December 31, 2008, in accordance with this pre-approval policy. Our audit committee further concluded that McGladrey & Pullen, LLP could provide these services to us and still maintain their independence. You may request a copy of our audit committee’s pre-approval policy by writing to our corporate secretary. See “Communications with the Company and the Board” in this proxy statement for our corporate secretary’s mailing and email addresses.

 

The following table sets forth information concerning our executive officers, including their age as of the date of this proxy statement.

 

 

You should refer to “Nominees for Director for Three-Year Term Ending at 2013 Annual Meeting” earlier in this proxy statement for biographical information about our chairman, chief executive officer and president, James P. Dolan. Biographical information for our other executive officers is set forth below.

 

Vicki J. Duncomb has served as our vice president and chief financial officer since August 2009. Prior to serving in this capacity, she served as our vice president — finance from July 2006 until August 2009. She has also served as our corporate secretary since April 2007. From February 2000 through March 2006, Ms. Duncomb served as the director of finance and operations for The McGraw-Hill Companies Healthcare Information Group, an Edina, Minnesota-based educational and professional healthcare information provider.

 

Scott J. Pollei has served as our executive vice president and chief operating officer since August 2009 and our executive vice president and chief financial officer from December 2001 to August 2009. From January 1994 to December 2001, Mr. Pollei served as our vice president of finance. Prior to 1994, Mr. Pollei was a senior manager at KPMG LLP. Mr. Pollei is an inactive certified public accountant.

 

Mark W.C. Stodder has served as our executive vice president — business information since February 2005. Prior to serving in this capacity, Mr. Stodder served as our vice president, newspapers, from January 2004 to February 2005; as our chair, Circulation Marketing Board, from May 2001 to January 2004; and as our vice president and publisher, Daily Reporter Publishing Company in Milwaukee, from March 1994 to January 2004. Prior to joining Dolan Media Company, Mr. Stodder held news reporting, editing and executive positions with community newspapers in Los Angeles and Colorado. Mr. Stodder is active in a number of newspaper, media and legislative associations. He is a director of DLNP and the National Newspaper Association, and is the president of the Public Notice Resource Center, a non-profit foundation which tracks and studies public notice legislation across the country. He is a past president of American Court and Commercial Newspapers, Inc.

 

David A. Trott has served as chairman and chief executive officer of National Default Exchange since September 2008 and its president from March 2006 to September 2008. In addition, since January 1992, Mr. Trott has served as the managing attorney of Trott & Trott, P.C., a law firm located in Farmington Hills, Michigan, of which he is the majority shareholder, and the president of Attorneys Title Agency, LLC, a title agency located in Southfield, Michigan. Mr. Trott has also previously served as president of the Michigan Mortgage Bankers Association and the U.S. Foreclosure Network, one of the largest organizations of foreclosure attorneys in the United States.

 

The compensation committee of our board of directors, or for purposes of this compensation discussion and analysis, the committee, has responsibility for establishing, implementing and administering our executive compensation program. In this section, we discuss certain aspects of our executive compensation program as it relates to James P. Dolan, our chairman, chief executive officer and president; Vicki J. Duncomb, our vice president and chief financial officer (who has served as our principal financial officer since August 1, 2009); Scott J. Pollei, our executive vice president and chief operating officer (who served as our principal financial officer from January 1, 2009, through July 31, 2009); and our two other most highly-compensated executive officers in 2009 (Mark W.C. Stodder, executive vice president, Business Information Division; and David A. Trott, chairman and chief executive officer of NDeX). We have also included Mark Baumbach, our former vice president — technology, who would have been one of our three other most highly compensated executive officers in 2009 if he were employed with us at December 31, 2009. We refer to these individuals as our “named executive officers.”

 

The committee’s primary objectives with respect to executive compensation are to (1) attract, motivate and retain talented and dedicated executive officers, (2) tie annual and long-term cash and equity incentives to the achievement of measurable corporate and individual performance objectives, (3) compensate our executives at levels comparable to executives at similar companies to remain competitive in our recruiting, and (4) align the interests of our executives with the long-term interests of our stockholders through award opportunities that will result in the ownership of our common stock. To achieve these objectives, the committee has designed and implemented an executive compensation program for the named executive officers consisting of a mix of the following items:

 

 

The relative mix of compensation for the three primary components (base salary, performance-based short term cash incentive and long term equity incentive) for each of our named executive officers (excluding Mr. Baumbach who was not employed with us at the end of 2009) based on compensation paid in 2009 is set forth in the charts below. We have also presented the targeted 2009 compensation mix for each named executive officer (excluding Mr. Baumbach who was not employed with us at the end of 2009) for comparison purposes. As discussed in “Performance-based Short Term Cash Incentives” below, we paid each of our named executive officers (excluding Mr. Baumbach who was not employed with us at the end of 2009) more than the targeted short-term cash incentive because our performance in relation to each performance metric exceeded the performance targets.

 

 

Since 2006, our compensation committee has engaged Hewitt Associates, a human resources consulting firm, to advise the committee and assist us in ensuring that our compensation plans are consistent with our strategic and financial goals. We do not use Hewitt Associates or any of its affiliated entities for any other work. In 2006 and again in 2008, as a part of this process, Hewitt, in consultation with the committee, developed a peer group for compensation purposes composed of companies with similar revenues and in industries with respect to which we believe we compete for executive talent. The peer group that was developed consisted of public companies that are generally in the business information, business process outsourcing, business services or publishing industries. On February 1, 2010, Hewitt spun-off its executive compensation business into a separate company known as Meridian Compensation Partners, LLC. Since the spin-off, Meridian, rather than Hewitt, has been advising our compensation committee on the matters in which the compensation committee had previously engaged Hewitt.

 

Hewitt delivered the most recent version of this study to the committee in writing as well by presentation at the committee’s meeting held on October 29, 2008. The 2008 Hewitt study consisted of the following peer group companies, who were chosen because they operate in similar industries and have similar annual revenues to us. As shown by the table below, these twenty companies ranged in size from $83 million to $749 million in revenues, with a mean and median revenue size of $300 million and $206 million, respectively, as compared to our 2009 annual revenues of $263 million.

 

 

 

 

The peer group study examined the most recently available stockholder meeting proxy information, which for the 2008 study was generally from the 2008 annual stockholders meeting and therefore included 2007 fiscal year compensation information for each of the peer companies.

 

The committee has carefully considered Hewitt’s analyses of the peer group compensation information, as well as other factors in establishing our executive compensation programs. For example, the committee also considers the results of its performance evaluation of the named executive officers an important factor in setting total compensation packages. In general, the committee intends to establish total compensation packages for our named executive officers at or near the 50th percentile level for total compensation paid to executives in similar positions and with similar responsibilities at companies in our peer group but does not require that total compensation packages meet or exceed this level. In particular, the allocation of total compensation for each named

executive officer among base salary, short-term cash incentive, long-term equity-based incentive and other non-cash benefit components was based, in part, on a review of the results of the Hewitt study, with the objective of providing a significant portion of total compensation in the form of performance-based compensation. The Hewitt study is one, but not the only, factor the committee reviews in setting compensation for our named executive officers. For 2008 and 2009, total compensation packages for our named executive officers were at or near the 50th percentile level of similarly situated executives at our peer companies.

 

Base Salary

 

Base salary is intended to reflect the executive’s skill level, knowledge base and performance record, and takes into account competitive market compensation paid by companies in our peer group for similar positions. The committee reviews the base salaries of our named executive officers on an annual basis, and adjusts base salaries from time to time to realign salaries with market levels, taking into account individual responsibilities, performance and experience, and to comply with the requirements in any applicable employment agreements. The committee approves the base salary of our president and chief executive officer, and, with input from our president and chief executive officer, the base salary for each executive officer below the chief executive officer level.

 

For the year ended December 31, 2009, the committee established base salaries for each of the named executive officers at the same level as the named executive officers’ respective base salaries for the year ended December 31, 2008. This was consistent with an overall decision by us to maintain 2008 salary levels due to the general economic environment. Further, Messrs. Dolan, Pollei and Stodder, who each have employment agreements with automatic increases to their base salaries, executed waivers of their contractual increases. We promoted Mr. Pollei to executive vice president and chief operating officer and Ms. Duncomb to vice president and chief financial officer on August 1, 2009. In connection with those promotions, we increased Mr. Pollei’s and Ms. Duncomb’s salaries to $289,000 and $225,000, respectively.

 

In January 2010, the committee established base salaries for the year ending December 31, 2010, based on a combination of the Hewitt study information, individual performance evaluations, changes in the cost of living in the area where the executive resides, as well as any requirements of employment agreements between us and the executives. The committee also noted that, other than the increases in connection with the promotions of Ms. Duncomb and Mr. Pollei, it had not awarded any increases in base salaries to the named executive officers in 2009. The committee further noted that a part of the consideration for determining Mr. Trott’s base salary level is the fact that he splits his time between NDeX and his law firm, Trott & Trott. The increase in base salaries for our named executive officers ranged between three and eleven percent to meet the committee’s overall goal of compensating our named executive officers similar to the executive officers of our peer companies, as well as providing compensation packages that, in the committee’s judgment, were appropriate given the competitive market for talent. Based upon the Hewitt analysis of our peer groups for 2008, as adjusted for changes in the cost of living, the total target compensation packages for 2010 are approximately equal to, or below, the 50% percentile of the compensation packages for similarly situated executive officers at our peer companies. The committee also noted that salaries are set forth in the employment agreements for all of the named executive officers and that, except in the case of Mr. Trott, will, at a minimum, increase each year at a rate based on a change in the consumer price index specified in these employment agreements. See “Executive Compensation — Employment Agreements” for further information regarding the matters set forth above.

In January 2010, the committee established the base salaries for each of the named executives for the year ending December 31, 2010, as follows:

 

 

 

 

Performance-Based Short-Term Cash Incentives

 

Under our 2007 incentive compensation plan, which includes a cash short-term incentive program, we provide annual short-term cash incentives to our named executive officers. Annually, the committee establishes the target cash incentive for each named executive officer as a targeted percentage of base salary. In addition, the committee scales performance based on achieving results above or below targeted performance-metric levels. This provides the named executive officers with an opportunity to earn more or less than the targeted incentive amount. The maximum payout of this cash incentive is capped at 2 times the target cash incentive. The table below provides the threshold cash incentive, the target cash incentive, and the maximum cash incentive that could have been earned, as well as the actual cash incentive earned, for each named executive officer in 2009.

 

 

 

 

The committee sets the performance targets, which our named executive officers must achieve to earn a short-term cash incentive payment. In each case, the performance targets, as established by the committee for 2009, consisted of a combination of cash earnings per diluted share, adjusted EBITDA for Dolan Media Company, adjusted EBITDA for NDeX, adjusted EBITDA for the Business Information Division or other metrics. The relative weight of each performance target as it relates to the named executive officer is set forth in the following table:

 

 

 

 

We define cash earnings as net income attributable to Dolan Media Company before (1) non-cash interest income or expense related to the change in fair value of our interest rate swaps; (2) non-cash compensation expense; (3) amortization of intangibles, including the DLNP intangible; (4) non-recurring items of income or expense; and (5) an adjustment to income tax expense related to the reconciling items at the effective tax rate. We define cash earnings per diluted share as cash earnings divided by the weighted average number of diluted common shares outstanding over the period measured. We define adjusted EBITDA for Dolan Media Company as net income (loss) attributable to Dolan Media Company (1) before (a) non-cash interest expense related to redeemable preferred stock; (b) interest expense, net; (c) income tax expense; (d) depreciation and amortization (including the amortization of the DLNP intangible); (e) non-cash compensation expense; (f) noncontrolling interest, and (g) non-recurring income and/or expense, and (2) after cash distributions paid to holders of noncontrolling interest. We calculate adjusted EBITDA for NDeX in the same manner as we calculate adjusted EBITDA for Dolan Media Company, except as follows: (1) we start from net income attributable to NDeX and only add back that portion of each reconciling item that is attributable to our NDeX operations; and (2) we do not add back the amortization expense for our DLNP intangible as it is not attributable to our NDeX operations. We calculate adjusted EBITDA for our Business Information Division in the same manner as we calculate adjusted EBITDA for Dolan Media Company, except as follows: (1) we start with the net income of our Business Information Division; and (2) do not add back non-controlling interest or subtract the cash distributions we pay to the holders of our noncontrolling interests as those reconciling items are not attributable to our Business Information Division.

 

The committee believes that adjusted EBITDA and cash earnings per diluted share are more appropriate measures than EBITDA, earnings per share and other similar GAAP financial metrics, as well as EBITDA, because they are the same primary metrics being used by our management and board of directors to evaluate our financial performance.

We have grown in large part through acquisitions, many of which were financed with debt. These acquisitions have generally resulted in relatively significant levels of interest expense due to increased debt service obligations and amortization expense due to the amortization of acquired finite-lived intangibles. The committee believes that the combination of increased interest expense and amortization expense renders our accounting profits or losses less meaningful as a measure of success of our business operations than EBITDA or adjusted EBITDA, which the committee believes also serve as a proxy for operational cash flow. The committee expects that we will continue to identify and evaluate potential acquisition opportunities and, accordingly, the committee and our board of directors has established a rigorous process of amending adjusted EBITDA targets during the fiscal year to account for acquisitions.

 

We also believe cash earnings per diluted share provides a meaningful measure of our cash earnings on a per share basis, after both interest and taxes, which are generally paid in cash, but before amortization expense which is a non-cash charge. The committee believes that the combination of amortization expense and certain other non-cash charges related to interest rate swaps renders our accounting earnings per share less meaningful as a measure of success of our business operations than cash earnings per diluted share.

 

The performance targets for the metrics set forth above, along with the actual performance for those metrics, as adjusted by the compensation committee, where applicable, is set forth in the table below (in thousands, except per share amounts and percentages).

 

 

 

 

We developed our target cash earnings per diluted share and adjusted EBITDA goals as a company and for NDeX and the Business Information Division during our annual financial planning process, when we assess our operations, the markets we serve and our competitors, and formulate internal financial projections. Our cash earnings per diluted share and adjusted EBITDA targets for 2009 were established based on a careful examination of the prospects for the business. The committee’s ultimate objective is to set performance targets that are likely to be achieved such that the target cash incentive will be paid out. This would mean that the actual performance metrics would equal the performance targets. Our targeted adjusted EBITDA for Dolan Media Company and NDeX were increased by our committee to reflect acquisitions occurring during 2009. We further note that, in the past three years, we paid our named executive officers at above the targets in both 2007 and 2009 and below the targets in 2008 because in each of 2009 and 2007, the actual results for the performance metrics exceeded the targets the committee had set and in 2008.

For 2010, the committee has established the target short-term incentive payouts for each of the named executive officers, based on weighted performance metrics, as follows:

 

 

 

 

 

Similar to the process in the prior year, our adjusted EBITDA and cash earnings per diluted share targets for 2010 were established based on a careful examination of the prospects for the business and represent a significant increase over the results of the prior year. These targets were set with the objective of making it equally likely that actual results for each performance metric will exceed the performance target or fall short of those targets. As with 2009, the named executive officers are entitled to a short term cash incentive payment, ranging from the threshold cash incentive to the maximum cash incentive depending upon whether the actual performance metrics exceed the performance targets set by the committee. The named executive officers are entitled to a portion of their short term cash incentive to the extent a performance metric exceeds 80% of the performance target.

 

For more information about expected and earned payouts to the named executive officers under our short term incentive performance plan, please refer to the “Executive Compensation” and the “Grants under Non-Equity Incentive Plans” and “Summary Compensation” tables in that section of this proxy statement.

 

Long-Term Equity Incentive Compensation

 

The committee believes that long-term company performance will be improved through the development of an ownership culture that includes the use of stock-based awards as a part of our executive compensation program. Our incentive plan permits the grant of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other stock awards to our executive officers, employees, consultants and non-employee board members.

 

After consultation with Hewitt and Associates, the committee has determined that equity awards under our 2007 Incentive Compensation Plan should be made on an annual basis using a formula that provides for aggregate awards with an economic value equal to a designated percentage of each named executive officer’s

base salary. The economic value of an award is calculated based on certain assumptions determined by the compensation committee to be appropriate for compensation purposes, which may or may not be consistent with valuations determined for accounting purposes. In particular, the committee utilizes a value of its common stock based on a weighted average trading price for a period of time, while for accounting purposes the valuation of stock and options granted for compensation purposes is based exclusively on the value of stock as traded on the single date of the issuance of the stock or options. In addition, certain assumptions utilized in the Black-Scholes model for determining the value of stock options for compensation purposes are not the same as the assumptions used in the accounting version of that calculation.

 

For 2009, the committee issued long term equity awards to each named executive officer, having a targeted economic value of 110% of base salary for Mr. Dolan, 75% of base salary for Messrs. Pollei, Stodder and Trott, and 60% of base salary for Ms. Duncomb and Mr. Baumbach. For 2009, the committee allowed each of the named executive officers to decide whether they wanted that targeted economic value in the form of stock options or a mix of 50% stock options and 50% restricted stock. Messrs. Pollei and Trott and Ms. Duncomb elected to take both options and restricted stock. The committee believes it is advantageous to provide executive officers with such a choice, as this can enhance the perceived value of the award to that officer. These grants were issued on May 15, 2009, to each of the named executive officers in the amounts and components set forth in the table below.

 

 

The restricted stock and stock options we granted vest in four equal annual installments beginning on May 15, 2010. The stock options have an exercise price of $12.51 and have a term of seven years. See the Summary Compensation Table and the Grants under Equity Incentive Plans for more information about the stock options granted to our named executive officers under this plan in 2009.

 

For 2010, the committee increased the targeted economic value of long term equity awarded to Mr. Pollei and Ms. Duncomb to 85% and 75% of base salary, respectively, as a result of their promotions in 2009. The targeted economic value of long term equity awarded to each of Messrs. Dolan, Stodder and Trott did not change. The committee will continue to evaluate this targeted economic value for each named executive officer on an annual basis. The committee again will allow the named executive officers to decide whether they would prefer long term equity compensation in the form of stock options or a mix of stock options and restricted stock. We expect that 2010 awards made under the incentive plan to the named executive officers as well as awards to other management employees may be either non-qualified stock options, restricted stock grants or a combination thereof. “Executive Compensation — Incentive Compensation Plan” for further information regarding our incentive plan. The committee again will allow the named executive officers to decide whether they would prefer long term equity compensation in the form of stock options or a mix of stock options and restricted stock.

 

Perquisites and Other Benefits

 

The committee believes that it has taken a conservative approach to other elements of its compensation program relative to companies similarly situated to us. We provide our named executive officers with various perquisites and other personal benefits that are described below. The committee does not consider these benefits and perquisites when working to establish total compensation at or near the 50th percentile level of executives at companies in our competitive peer group.

401(k) Plan Contributions.  Our 401(k) retirement savings plan is a qualified defined contribution plan under which employees may make pre-tax contributions into the plan, up to certain specified annual limits. We also provide discretionary employer matching contributions. We provided in 2009, and provide in 2010, a discretionary employer matching contribution of 50% of the first 6% of employee contributions. For highly compensated employees, including the named executive officers, this match was capped at $7,350 for 2009 and 2010.

 

Medical and Dental Insurance.  We self-insure for medical insurance by withholding an amount from participating employees’ compensation to fund our medical insurance program. In 2009 for each of Messrs. Dolan, Stodder, and Baumbach, we withheld $9,268, $11,966 and $8,078, respectively, less than the amount withheld by us from our other employees for applicable medical coverage. We do not self-insure for dental insurance; however, in 2009, we paid $990 on behalf of Messrs. Dolan, Stodder and Baumbach for dental insurance premiums. In 2009, we paid $18,121 to a third party provider on Mr. Trott’s behalf for medical insurance.

 

Club Memberships.  We pay club membership dues to a professional or social club for each of Messrs. Dolan, Pollei and Trott. We believe these club memberships serve to facilitate their roles as our representatives in the local business communities that we serve.

 

Minneapolis Apartment and Commuting Expenses.  Mr. Stodder, who lives in Whitefish Bay, Wisconsin, receives a rent reimbursement for an apartment that we lease for him near our offices in Minneapolis. We also pay for Mr. Stodder’s flights between Minneapolis and his home in Whitefish Bay. In 2009, we reimbursed Mr. Stodder $10,140 for rent and paid $4,969 for such flights.

 

Parking Expenses.  In 2009, we paid parking expenses in the amounts of $3,000, $2,392, and $1,750 for each of Ms. Duncomb, Mr. Pollei and Mr. Baumbach (through July 31, 2009), respectively, because they drove to our headquarters in Minneapolis on a regular basis.

 

Home Office Expenses.  In 2009, we paid $1,704 for home Internet access for Mr. Dolan because Mr. Dolan and his spouse, who administers Dolan Media Newswires, use his home office on a regular basis for business purposes. This amount represents the portion of such payments attributable to personal use of the home office and Internet access, which we have assumed constitutes 25% of total use.

 

Use of Company Apartment in New York City.  We have acquired the right to use an apartment in New York City in connection with our employees’ business travel. We also make this apartment available for the named executive officers to use for personal reasons. During 2009, Mr. Dolan and Ms. Duncomb used this apartment for personal reasons, the benefit of which equaled $650 and $975, respectively.

 

The graphs below set forth the 2010 target compensation mix (exclusive of perquisites, severance payments and other benefits) for each of the named executive officers (except Mr. Baumbach, who is no longer employed by us).

 

 

Severance Benefits.  The committee believes that severance arrangements for our named executive officers will allow us to continue to attract, motivate and retain the best possible executive talent in a marketplace where such protections are commonly offered. In particular, severance benefits help ease the named executive officer’s burden if he or she is unexpectedly terminated by us for reasons other than cause. Accordingly, our employment agreements with each named executive officer contain severance arrangements pursuant to which each such executive officer will receive severance benefits if their employment with us is terminated by us without cause or, with respect to the named executive officers, except Mr. Trott, if such named executive officer terminates his employment with us for good reason. See “Executive Compensation — Employment Agreements” and “Executive Compensation — Potential Payments Upon Termination or Change In Control” for further information regarding these severance benefits and “Executive Compensation — Severance and Other Payments to Mark E. Baumbach” for information about severance benefits we paid to Mr. Baumbach in connection with the termination of his employment relationship with us. Mr. Baumbach did not have an employment agreement with us.

 

Change in Control Plan.  Our board of directors, upon the recommendation of the committee, has adopted an Executive Change of Control Plan that provides each of the named executive officers other than Mr. Trott with certain severance benefits in the event of termination of employment in connection with a qualified change of control event. The committee believes that this change in control plan will provide continuity and focus for these named executive officers in the event of a change in control of the company. See “Executive Compensation — Potential Payments Upon Termination or Change In Control” for further information regarding these severance benefits.

 

Guidelines for Equity Awards

 

The committee and our board of directors have approved and adopted guidelines for equity awards, or guidelines. Among other things, the guidelines delineate the authority of our board of directors, the committee and our chief executive officer with respect to the grant of equity awards, specify procedures for equity awards to be made under various circumstances, address the timing of equity awards in relation to the availability of information about us and provide procedures for grant information to be communicated to and tracked by our human resources and finance departments. The guidelines require that any stock options or stock appreciation rights have an exercise or strike price not less than the fair market value of our common stock on the date of the grant. See “Executive Compensation — Incentive Compensation — Administration of Plan” for more information regarding the approval of our equity awards by the committee, our board of directors or our chief executive officer.

 

Stock Ownership Guidelines

 

Consistent with the committee’s executive pay philosophy, the board of directors adopted stock ownership guidelines in 2010. These guidelines require that all of our executive officers own shares of our common stock, and establish a targeted level of stockholder ownership with a value equal to the ownership multiple set forth in the table below (based on the closing sales price for a share of our common stock on the measurement date).

 

 

The phase-in provision of our guidelines require each of our named executive officers, except Mr. Baumbach who is no longer employed by us, to own common stock, having a value equal to the target level set forth for each measurement date below:

 

For purposes of this table, “target level” means the named executive officer’s stock ownership multiple, using base salary for that calendar year. So, for example, for our named executive officers, except Mr. Baumbach, to fully comply with our ownership guidelines on January 1, 2014, such named executive officers would need to own common stock, having a value equal to their respective stock ownership multiple, using their base salary for 2014. For each executive officer appointed in the future, the five-year phase-in period will begin on January 1 following the effective date of the executive officer’s appointment. For purposes of satisfying these guidelines, the executive officers may use stock they own directly or for which they have investment and/or voting control and unvested shares of restricted stock that we may grant to them in connection with their service as officers. As of the date of this proxy statement, each executive officer has met the first year phase-in requirement of holding at least 20% of the targeted number of shares of our common stock.

 

Our non-employee directors are also subject to these stock ownership guidelines. You should refer to “Board Committees and Committee Membership — Stock Ownership Guidelines” for information about how these guidelines affect our non-employee directors.

 

We generally intend for our executive compensation program to comply with Code Section 162(m) and Code Section 409A. The committee currently intends for all compensation paid to the named executive officers to be tax deductible to us pursuant to Section 162(m) of the Code. Section 162(m) provides that compensation paid to the named executive officers, except our chief financial officer, Ms. Duncomb, in excess of $1,000,000 cannot be deducted by us for federal income tax purposes unless, in general, such compensation is performance based, is established by a committee of independent directors, is objective and the plan or agreement providing for such performance based compensation has been approved in advance by stockholders. In the future the committee may determine to provide compensation, or to adopt a compensation program, that does not satisfy the conditions of Section 162(m) if, in its judgment, after considering the additional costs of not satisfying Section 162(m), such compensation or program is appropriate. During the year ended December 31, 2009, none of our named executive officers received non-performance based compensation in excess of the Section 162(m) tax deduction limit.

 

Section 409A of the Code addresses certain nonqualified deferred compensation benefits payable to our executives and provides that, if such benefits do not comply with Section 409A, they will be taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, our executives are subject to regular federal income tax, interest and an additional federal income tax of 20% of the benefit includible in income. In 2008, we amended the employment agreements of Messrs. Dolan, Stodder and Trott, as well as our executive change in control plan, to comply with Section 409A. Ms. Duncomb and Mr. Pollei’s employment agreements were entered into after the effective date of Section 409A.

 

In the first quarter of 2010, the committee reviewed the company’s compensation policies and practices for executive and management employees who, in the committee’s judgment, had positions with us where their compensation plans could potentially raise material risks to us if we did not design their plans appropriately. These employees included all of our named executive officers, as well as certain highly-compensated management employees in both of our divisions. In selecting the compensation plans of these employees, the committee considered a number of factors, including whether the employee had the ability to direct strategic and operational decisions for a significant operating unit or multiple operating units of the business.

 

The committee reviewed base salary, short-term incentive and equity compensation for each of the employees the committee selected, evaluating both 2009 actual compensation results and 2010 compensation plans. In particular, the committee reviewed these policies and practices to ensure they were designed in a way that did not encourage excessive risk-taking, including evaluating the plans for, among other things: (1) too much focus on equity compensation; (2) too much focus on short-term incentive compensation; (3) uncapped formulas for short-term incentives; (4) highly leveraged payout curves for short-term incentives; (5) incentive

targets or thresholds set at unreasonably high levels; and (6) steep cliffs on payout plans under short-term incentive formulas.

 

In evaluating the plans, the committee noted certain features of our compensation plans and programs that mitigate and reduce the likelihood that these employees would engage in excessive risk-taking, as follows:

 

 

Based on this review and analysis, the committee determined that, for these employees, the company’s compensation policies and practices for 2009, and as proposed for 2010, do not encourage excessive risk taking and, thus, are not reasonably likely to encourage behavior that would have a material adverse effect on us or our operations.

 

The compensation committee of the board of directors of Dolan Media Company has reviewed and discussed with management the compensation discussion and analysis required by Item 402(b) of Regulation S-K and included in this proxy statement and incorporated by reference in the company’s annual report on Form 10-K filed with the SEC on March 8, 2010. Based on this review and these discussions with management, the compensation committee recommended to the board of directors that this compensation discussion and analysis be included in the company’s 2010 proxy statement and incorporated by reference in the company’s annual report on Form 10-K.

 

Submitted by the Compensation Committee

 

John C. Bergstrom, chair

Arthur F. Kingsbury

Lauren Rich Fine

 

The following table provides information concerning the compensation for services in all capacities to us for the years ended December 31, 2009, 2008, and 2007, earned by our named executive officers. See “Compensation Discussion and Analysis,” “Employment Agreements” and “Severance and Other Payments to Mark E. Baumbach” in this proxy statement for a description of the material factors necessary to understand the information in the table below.