April 3, 2009

 

Dear Fellow Shareholder:

 

I invite you to attend our annual meeting of shareholders that will be held on May 14, 2009 in the auditorium of The Belo Building at 400 South Record Street, Third Floor, Dallas, Texas. Included is a map for your use.

 

At the meeting, you will hear a report on A. H. Belo’s operations and have a chance to meet your directors and executive officers. This package includes the formal notice, proxy statement, and proxy card for the meeting, together with A. H. Belo’s 2008 annual report. The proxy statement tells you more about the agenda and voting procedures for the meeting. It also describes how the A. H. Belo Board operates and provides information about A. H. Belo’s directors, including those nominated for election at this year’s meeting.

 

We are using recently adopted Securities and Exchange Commission rules that allow A. H. Belo to furnish proxy materials on the Internet to participants in the A. H. Belo Savings Plan and the separate Belo Savings Plan maintained by Belo Corp. Accordingly, these shareholders will not automatically receive paper copies of our proxy materials. We will mail a notice to these shareholders with instructions for accessing the proxy materials, including our proxy statement and annual report, and for voting via the Internet. This notice also provides information on how these shareholders may obtain paper copies of our proxy materials free of charge, if they so choose. We believe that these rules allow us to provide these shareholders with the information they need to vote their shares while reducing delivery costs and any environmental impact.

 

For those A. H. Belo shareholders with access to the Internet, we encourage you to vote your shares over the Internet. Detailed instructions on how to vote over the Internet or by telephone are set forth on the proxy card. We encourage you to elect to receive future annual reports, proxy statements, and other materials over the Internet by following the instructions in the proxy statement. This electronic means of communication is quick and convenient and reduces the Company’s printing and mailing costs.

 

Whether or not you attend the meeting, I encourage you to vote your shares as soon as possible either by returning your proxy card or by voting using the Internet or telephone voting procedures outlined in the enclosed materials or in the Notice of Internet Availability of Proxy Materials. Even if you own only a few shares, it is important that your shares be represented at the annual meeting. If you are unable to attend the annual meeting in person, you may listen to the meeting by online Webcast. Please see the notice on the next page for more information.

 

I hope to see you on May 14th.

 

Sincerely,

 

 

Robert W. Decherd

Chairman of the Board

President and Chief Executive Officer

 

A. H. Belo Corporation P. O. Box 224866 Dallas, Texas 75222-4866 Tel. 214.977.8200 Fax 214.977.8201

www.ahbelo.com Deliveries: 400 South Record Street Dallas, Texas 75202-4806

 

P. O. Box 224866

Dallas, Texas 75222-4866

www.ahbelo.com

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 2009

 

 

 

To A. H. Belo Shareholders:

 

Please join us for the 2009 annual meeting of shareholders of A. H. Belo Corporation (“A. H. Belo” or the “Company”). The meeting will be held in the auditorium of The Belo Building at 400 South Record Street, Third Floor, Dallas, Texas, on Thursday, May 14, 2009, at 1:30 p.m., Dallas, Texas time. The annual meeting of shareholders will be simultaneously Webcast on A. H. Belo’s Web site (www.ahbelo.com/invest). Following the conclusion of the meeting, a replay of the Webcast will be archived on the Company’s Web site through May 28, 2009.

 

At the meeting, holders of A. H. Belo Series A common stock and A. H. Belo Series B common stock will act on the following matters:

 

 

All record holders of shares of A. H. Belo Series A common stock and A. H. Belo Series B common stock at the close of business on March 19, 2009 are entitled to vote at the meeting or at any postponement or adjournment of the meeting.

 

This year, we are using recently adopted Securities and Exchange Commission rules that allow A. H. Belo to furnish proxy materials on the Internet to participants in the A. H. Belo Savings Plan and the separate Belo Savings Plan maintained by Belo Corp. Consequently, these shareholders will not automatically receive paper copies of our proxy materials. We will instead send to these shareholders a Notice of Internet Availability of Proxy Materials with instructions for accessing the proxy materials, including our proxy statement and annual report, and for voting via the Internet. The electronic delivery of our proxy materials will reduce our printing and mailing costs and any environmental impact.

 

The Notice of Internet Availability of Proxy Materials identifies the date, time and location of the annual meeting; the matters to be acted upon at the meeting and the Board of Directors’ recommendation with regard to each matter; a toll-free telephone number, an e-mail address, and a Web site where shareholders can request a paper or e-mail copy of their proxy materials, including our proxy statement, annual report to shareholders and a voting instruction card, free of charge.

 

By Order of the Board of Directors

 

DONALD F. CASS, JR.

Secretary

 

April 3, 2009

TABLE OF CONTENTS

 

 

P. O. Box 224866

Dallas, Texas 75222-4866

www.ahbelo.com

 

 

PROXY STATEMENT

 

 

For the Annual Meeting of Shareholders
To Be Held On May 14, 2009

 

This proxy statement contains information related to the annual meeting of shareholders of A. H. Belo Corporation (“A. H. Belo” or the “Company”) to be held on Thursday, May 14, 2009, beginning at 1:30 p.m., Dallas, Texas time, in the auditorium of The Belo Building at 400 South Record Street, Third Floor, Dallas, Texas, and any postponement or adjournment of the meeting.

 

This proxy statement and related proxy card will be distributed to shareholders beginning on or about April 7, 2009. For those shareholders receiving a Notice of Internet Availability of Proxy Materials (the “Notice”), the Notice will be distributed to those shareholders on or about April 3, 2009.

 

What is the purpose of the annual meeting?

 

At the annual meeting, shareholders will act on matters outlined in the accompanying notice, including the election of four directors, approval of the A. H. Belo 2008 Incentive Compensation Plan, the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm, and any other matters properly brought before the meeting. Management will report on A. H. Belo’s performance in 2008 and respond to questions and comments from shareholders.

 

Who can attend the annual meeting?

 

Shareholders and guests of A. H. Belo may attend the annual meeting.

 

Who may vote at the meeting?

 

Only shareholders who owned A. H. Belo shares at the close of business on March 19, 2009, the record date, or their duly appointed proxies, are entitled to vote at the meeting. If you owned A. H. Belo shares at the close of business on March 19, 2009, you are entitled to vote all of the shares that you held on that date at the meeting, or any postponement or adjournment of the meeting. Our common stock is divided into two series: Series A common stock and Series B common stock. Holders of either series of common stock as of the close of business on the record date will be entitled to vote at the meeting. At the close of business on the record date, a total of 18,091,204 shares of Series A common stock and 2,443,782 shares of Series B common stock were outstanding and entitled to vote.

 

What are the voting rights of the holders of Series A common stock and Series B common stock?

 

Holders of A. H. Belo Series A and Series B common stock vote together as a single class on all matters to be acted upon at the annual meeting. Each outstanding share of Series A common stock will be entitled to one vote on each matter. Each outstanding share of Series B common stock will be entitled to 10 votes on each matter.

 

Can I vote my shares of Belo Corp.?

 

No, shares of Belo Corp. are not eligible for voting at this meeting. A. H. Belo is now a separate public company. Only shares of A. H. Belo Corporation are eligible to vote at the May 14, 2009 meeting.

What constitutes a quorum to conduct business at the meeting?

 

In order to carry on the business of the meeting, we must have a quorum present in person or by proxy. A majority of the voting power of the outstanding shares eligible to vote and at least one-third of the outstanding shares entitled to vote must be present at the meeting, in person or by proxy, in order to constitute a quorum.

 

Abstentions and broker non-votes are counted as present at the meeting for purposes of determining whether we have a quorum. A broker non-vote occurs when a broker or other nominee returns a proxy but does not vote on a particular proposal because the broker or nominee does not have authority to vote on that particular item and has not received voting instructions from the beneficial owner.

 

How do I cast my vote?

 

You may vote by proxy, which gives the proxy holder the right to vote your shares on your behalf, or you may vote in person at the meeting.

 

You may receive more than one proxy card depending on how you hold your shares. Shares registered in your name are covered by a proxy card. If you hold shares indirectly through someone else, such as a broker, you may receive material from that person asking how you want to vote.

 

Shares held in your A. H. Belo Savings Plan account or in your Belo Savings Plan account (maintained by Belo Corp.) may be voted only by the plan trustee, but you may instruct the plan trustee on how to vote them. Information on how to provide voting instructions to the plan trustee via the Internet is set out in the Notice of Internet Availability of Proxy Materials. The Notice also includes information on how to obtain paper copies of the proxy materials, including a voting instruction card, if you so desire. (For more information, please refer to the question and answer “How do I vote my shares held in the A. H. Belo Savings Plan or in the Belo Savings Plan” below.)

 

It is important that you follow the instructions on each proxy card or the Notice and vote the shares represented by each card or the Notice separately.

 

Why did I receive a Notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

 

Pursuant to rules adopted by the Securities and Exchange Commission, the Company has elected to provide access to its proxy materials over the Internet to participants in the A. H. Belo Savings Plan and the separate Belo Savings Plan maintained by Belo Corp. Accordingly, a Notice was sent to these shareholders. These shareholders will have the ability to access the proxy materials on the Web site referred to in the Notice or request to receive free of charge a printed set of the proxy materials, including a voting instruction card. Instructions on how to access the proxy materials over the Internet or to request a printed copy are set out in the Notice. The Notice also has instructions on how to provide voting instructions to the plan trustee via the Internet.

 

In addition, all shareholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis by following the instructions in the paragraph captioned “How to Receive Future Proxy Statements and Annual Reports Online” in the “Annual Report and Additional Materials” section on page 61 of this proxy statement. The Company encourages shareholders to take advantage of the availability of the proxy materials on the Internet in order to help reduce printing and mailing costs and any environmental impact.

 

How do I vote by proxy?

 

If you vote by proxy, you may vote online via the Internet, by telephone, or by completing and returning your enclosed proxy card in the envelope provided. All proxy cards that are properly completed and submitted will be voted as specified. However, if you sign, date, and return your proxy card but do not check any boxes, the shares represented by that card will be voted FOR all nominees standing for election as directors, FOR approval of the A. H. Belo 2008 Incentive Compensation Plan, FOR ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm, and, at the discretion of the proxy holders, on any other matter that properly may come before the meeting or any adjournment or postponement of the meeting.

 

If you want to vote using the Internet or telephone, please follow the instructions on each proxy card or the Notice and have the proxy card or the Notice available when you call in or access the voting site. In order to be included in the final tabulation of proxies, completed proxy cards must be received and votes cast using the Internet or telephone must be cast by the date and time noted on the card or the Notice.

 

If your shares are held indirectly, your broker or nominee may not offer voting using the Internet or telephone. Please be certain to check your proxy card or contact your broker or nominee to determine available voting arrangements.

 

If you participate in either the A. H. Belo Savings Plan or the Belo Savings Plan and had full shares credited to your account as of the record date, please refer to the information set forth in the question and answer “How do I vote my shares held in the A. H. Belo Savings Plan or in the Belo Savings Plan” below.

 

How do I vote in person?

 

For shares registered in your name, you may vote in person by completing a ballot at the annual meeting. If you plan to vote in person but hold shares through a broker or other nominee, you must provide a legal proxy from the broker or nominee evidencing your authority to vote shares the broker held for your account at the close of business on March 19, 2009. You must contact your brokerage firm directly in advance of the annual meeting to obtain a legal proxy. Voting instructions with respect to shares held in the A. H. Belo Savings Plan or the Belo Savings Plan must be submitted by May 12, 2009, and may not be provided at the meeting.

 

Blank ballots will be available at the registration table at the meeting. Completed ballots may be deposited at the registration table and a call for completed ballots will be made during the course of the meeting prior to the close of the polls.

 

Can I change my vote or revoke my proxy?

 

Yes. For shares registered in your name, you may revoke your proxy (including an Internet or telephone vote) by:

 

 

If your shares are held through a broker or nominee, contact that broker or nominee if you wish to change your voting instructions.

 

For information on how to revoke or modify previously given voting instructions with respect to shares held through one of the Savings Plans, please see “How do I vote my shares held in the A. H. Belo Savings Plan or in the Belo Savings Plan” below.

 

Attendance at the meeting does not by itself revoke a previously granted proxy.

 

How do I vote my shares held in the A. H. Belo Savings Plan or in the Belo Savings Plan?

 

Fidelity Management Trust Company is the plan trustee for both the A. H. Belo Savings Plan and the separate Belo Savings Plan maintained by Belo Corp. (together, the “Savings Plans”). Only the plan trustee can vote the shares held by the Savings Plans. If you participate in either of these Savings Plans and had full shares of A. H. Belo common stock credited to your account as of the record date, you received a Notice of Internet Availability of Proxy Materials in lieu of paper copies of our proxy materials. The Notice includes instructions on how to access the proxy materials over the Internet and how to request a printed set of the proxy materials, including a voting instruction card, if you desire to do so. The Notice also has information on how to provide your voting instructions to the plan trustee via the Internet. You will not be able to vote these shares in person at the annual meeting.

 

Because of the time required to tabulate voting instructions from participants in the Savings Plans before the annual meeting, the trustee must receive your voting instructions by May 12, 2009. If you sign, date, and return a paper voting instruction card but do not check any boxes on the card, the trustee will vote your shares FOR all nominees standing for election as directors, FOR approval of the A. H. Belo 2008 Incentive Compensation Plan and FOR ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm. In addition, at its discretion, the trustee of the Savings Plans will be authorized to vote on any other matter that properly may come before the meeting or any adjournment or postponement of the meeting. If the trustee does not receive instructions from you (by Internet, telephone or voting instruction card) by May 12, the trustee will vote your shares in the same proportion as the shares in your particular savings plan for which voting instructions have been received. You may revoke or modify previously given voting instructions by May 12, 2009, by submitting a new voting instruction by Internet or telephone, filing with the trustee either a written notice of revocation or submitting a properly completed and signed voting instruction card by that date.

 

What vote does the Board recommend?

 

The Board recommends a vote FOR all nominees standing for election as directors, FOR approval of the A. H. Belo 2008 Incentive Compensation Plan and FOR ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm. With respect to any other matter that properly comes before the meeting, the proxy holders will vote in their own discretion.

 

What number of votes is required to approve each matter?

 

4  Election of directors — The affirmative vote of a plurality of the voting power represented at the annual meeting and entitled to vote is required for the election of directors. This means that the nominees receiving the highest number of votes cast for the number of positions to be filled are elected. You do not have the right to cumulate votes in the election of directors. In other words, you cannot multiply the number of shares you own by the number of directorships being voted on and then cast the total for only one candidate or among any number of candidates as you see fit. Broker non-votes have no effect on the outcome of the election. Votes that are instructed to be withheld with respect to the election of one or more directors will not be voted for the director or directors indicated, although they will be counted for purposes of determining whether a quorum is present.

 

Additionally, if an incumbent director does not receive the affirmative vote of at least a majority of the votes cast with respect to that director’s election at the annual meeting (which for this purpose includes votes cast “for” the director’s election and votes to withhold authority with respect to the director’s election), then that director is required to promptly tender his or her resignation and the Board will act on such resignation as provided in the Company’s corporate governance guidelines, the applicable portion of which is attached to this proxy statement as Appendix A. All nominees standing for election at the 2009 annual meeting of shareholders are incumbent directors, except Tyree B. (Ty) Miller, who first stands for election as an A. H. Belo director at the 2009 annual meeting of shareholders.

 

4  Approval of the A. H Belo 2008 Incentive Compensation Plan — The affirmative vote of a majority of the voting power represented at the annual meeting and entitled to vote is required to approve the A. H. Belo 2008 Incentive Compensation Plan.

 

4  Ratification of appointment of independent registered public accounting firm  — The affirmative vote of a majority of the voting power represented at the annual meeting and entitled to vote is required to ratify the appointment of KPMG LLP as the independent registered public accounting firm for the Company for 2009.

 

4  Other matters — Unless otherwise required by law or the Company’s Certificate of Incorporation, the affirmative vote of a majority of the voting power represented at the annual meeting and entitled to vote is required for other matters that properly may come before the meeting.

 

For matters requiring majority approval, abstentions have the effect of negative votes, meaning that abstentions will be counted in the denominator, but not the numerator, in determining whether a matter has received sufficient votes to be approved. Broker non-votes are not treated as shares entitled to vote on matters requiring majority approval and are excluded from the calculation. Therefore, broker non-votes have no effect on the outcome of the vote with respect to these matters.

 

Your proxy is being solicited on behalf of A. H. Belo’s Board of Directors. In addition to use of the mail, the solicitation may also be made by use of facsimile, the Internet or other electronic means, or by telephone or personal contact by directors, officers, employees, and agents of A. H. Belo. A. H. Belo pays the costs of this proxy solicitation.

 

We also supply brokers, nominees, and other custodians with proxy forms, proxy statements, and annual reports for the purpose of sending proxy materials to beneficial owners. We reimburse brokers, nominees, and other custodians for their reasonable expenses.

 

The following tables set forth information as of March 19, 2009, about the beneficial ownership of A. H. Belo common stock by our current directors, nominees for election as director, the executive officers named in the Summary Compensation Table in this 2009 proxy statement, all current directors, director nominees and executive officers as a group, and by each person known to A. H. Belo to own more than 5% of the outstanding shares of A. H. Belo Series A or Series B common stock. At the close of business on March 19, 2009, there were 18,091,204 Series A shares, 2,443,782 Series B shares, and 20,534,986 combined Series A and Series B shares, issued and outstanding.

 

Under the rules of the Securities and Exchange Commission (“SEC”), the beneficial ownership of a person or group includes not only shares held directly or indirectly by the person or group but also shares the person or group has the right to acquire within 60 days of the record date pursuant to exercisable options and convertible securities. The information below, including the percentage calculations, is based on beneficial ownership of shares rather than direct ownership of issued and outstanding shares.

 

Unless otherwise indicated, each person listed below has sole voting power and sole dispositive power with respect to the shares of common stock indicated in the table as beneficially owned by such person. Series A common stock has one vote per share and Series B common stock has 10 votes per share. Consequently, the voting power of Series B holders is greater than the number of shares beneficially owned. For example, the shares of A. H. Belo common stock beneficially owned by all current directors, director nominees and executive officers as a group, representing 14.5% of the outstanding shares of Series A and Series B common stock, have combined voting power of 57.3%.

 

A. H. Belo Corporation Stock Ownership of Current Directors, Director Nominees and Executive Officers

 

 

 

 

 

 

 

 

 

A. H. Belo Corporation Stock Ownership of Other Principal Shareholders (greater than 5%)

 

 

 

 

Equity Compensation Plan Information

 

The following table provides information regarding Series A and Series B common stock authorized for issuance under A. H. Belo’s equity compensation plans as of December 31, 2008; the amounts set out in the table do not include any adjustment for risk of forfeiture:

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Federal securities laws require that A. H. Belo’s executive officers and directors, and persons who own more than ten percent of a registered class of A. H. Belo common stock, file reports with the SEC within specified time periods disclosing their beneficial ownership of A. H. Belo common stock and any subsequent changes in beneficial ownership of A. H. Belo common stock. These reporting persons are also required to furnish us with copies of these reports. Based on information provided to us by these reporting persons or otherwise, we believe that all filings required to be made by the reporting persons during 2008 were timely filed, except as follows. Initial reports on Form 3 for all current directors and executive officers were required to be filed on January 22, 2008, but were filed one day late due to administrative error; except for the Forms 3 for Messrs. Morgan and Puerner, which were timely filed.

 

A. H. Belo’s bylaws provide that the Board of Directors comprises 5 to 10 directors, divided into three classes, approximately equal in number, with staggered terms of three years so that the term of one class expires at each annual meeting. The bylaws further provide that a director will retire on the date of the annual meeting of shareholders next following his or her 68th birthday.

 

Each independent director serves on each of the three standing committees of the Board (Audit, Compensation, and Nominating and Corporate Governance); Mr. Decherd and Mrs. Herndon do not serve on any standing committee of A. H. Belo’s Board of Directors.

 

In connection with his appointment by President Barack Obama as Assistant to the President and Director of the White House Military Office, Louis E. Caldera tendered his resignation as an A. H. Belo director effective January 16, 2009.

 

Nominees for A. H. Belo Directors

 

The following candidates are nominated by the Board. Each Class I Director is an incumbent director and will be eligible to serve a three-year term until the 2012 annual meeting. Tyree B. (Ty) Miller is not currently a director of A. H. Belo. He is standing for election as a Class III Director and will be eligible to serve a two-year term until the 2011 annual meeting.

 

The independence of each incumbent director and of the director nominee, Ty Miller, is addressed under “Corporate Governance — Director Independence”; see page 28 of this proxy statement.

Class I Directors (Current terms expire at A. H. Belo’s 2009 annual meeting)

 

Class III Director (Term expires at A. H. Belo’s 2011 annual meeting)

 

 

The Board of Directors recommends a vote FOR Proposal One for the election of each of the nominees.

Directors Continuing in Office

 

Information regarding our directors continuing in office is provided below.

 

Class II Directors (Terms expire at A. H. Belo’s 2010 annual meeting)

 

Class III Directors (Terms expire at A. H. Belo’s 2011 annual meeting)

 

 

In 2008, our Board of Directors adopted the A. H. Belo 2008 Incentive Compensation Plan, which is designed to provide long-term and short-term incentives to executive officers, other key employees and directors. The plan was subsequently amended in 2008 by the Compensation Committee of the Board of Directors to make a minor change. We refer to the A. H. Belo 2008 Incentive Compensation Plan, as amended, as the 2008 Incentive Compensation Plan, the 2008 plan or the ICP.

 

The 2008 plan permits grants of stock-based awards and performance-based cash bonus opportunities to directors, executive officers and other key employees. The number of shares reserved for award under the 2008 plan is eight million, of which 2,888,025 shares were issued in connection with the spin-off transaction and 3,973,841 shares remain available for future awards as of March 19, 2009.

 

The Company desires to provide incentive compensation to the Company’s Chief Executive Officer and other designated executive officers of the Company under a plan that will meet the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Generally, Section 162(m) prevents a company from receiving a federal income tax deduction for compensation paid to certain executive officers in excess of $1 million for any year, unless that compensation is “performance-based.” In order to qualify as performance-based compensation for purposes of Section 162(m) of the Code, the material terms of the performance goal under which the compensation is to be paid must be disclosed to and approved by a company’s shareholders.

 

In light of the Company’s desire to obtain shareholder approval of the 2008 plan, and in order to provide incentive compensation to the Company’s Chief Executive Officer and other designated executive officers under a plan that will meet the requirements of Section 162(m), the Board has recommended that the 2008 plan be submitted to the Company’s shareholders for approval at the Company’s 2009 annual meeting of shareholders.

 

Before the Company’s 2009 annual meeting of shareholders, the 2008 plan will continue to operate under a transitional rule for new public companies like the Company that were created in a spin-off from another public company. This transitional rule provides that “performance-based” compensation is exempt from the $1 million limitation if such compensation is awarded or paid prior to the first regularly scheduled meeting of shareholders that occurs more than 12 months after the date the Company became a separate publicly-traded company.

 

The following summary of the principal provisions of the 2008 plan is not intended to be exhaustive and is qualified in its entirety by reference to the full text of the 2008 plan, a copy of which is set forth in Exhibit I to this proxy statement.

 

General

 

The goal of the 2008 plan is to provide appropriate incentives that will allow the Company to attract and retain the best available talent and to encourage the directors and participating employees to put forth their maximum efforts for the success of the Company’s business, thereby serving the best interests of the Company and its shareholders.

 

All executive officers and other key employees of the Company and its subsidiaries and the Company’s non-employee directors are eligible to participate in the 2008 plan. In addition, certain holders of stock options and restricted stock units issued by Belo Corp. were granted stock options and restricted stock units under the 2008 plan in connection with the spin-off of the Company from Belo Corp. Approximately 55 individuals currently participate in the 2008 plan, including the Company’s non-employee directors and the executives officers named in the Summary Compensation Table on page 45 of this proxy statement.

 

The 2008 plan is a flexible plan that provides the Compensation Committee with discretion to fashion the terms of awards to provide eligible participants with stock-based incentives and performance-based bonus opportunities, payable in cash or stock as the Compensation Committee deems appropriate. The 2008 plan permits the issuance of awards in a variety of forms, including: (1) non-qualified and incentive stock options, (2) appreciation rights, (3) restricted stock, (4) restricted stock units, (5) performance shares and performance units, and (6) performance bonus opportunities (which we refer to as Incentive Compensation Plan Bonuses) that become payable annually upon achievement of specified Management Objectives (as defined below).

 

3,973,841 shares of common stock, subject to adjustment, will be available for future awards under the 2008 plan. See “Adjustments” below. Shares issued or transferred pursuant to the 2008 plan will be shares of Series A common stock or Series B common stock, as determined by the Compensation Committee in its discretion. The number of shares of common stock available under the 2008 plan will be adjusted to include shares that relate to awards which expire or are forfeited, or are transferred, surrendered or relinquished to or withheld by the Company in satisfaction of the exercise price of an option or in satisfaction of any tax withholding amount, or are paid in cash in lieu of shares.

 

On March 19, 2009, the market value of a share of Series A common stock was $0.92, and the market value of a share of Series B common stock is assumed to be the same as a Series A share.

 

The 2008 plan will expire on February 8, 2018, which is the tenth anniversary of the date on which Belo Corp. distributed to its shareholders all of the common stock of the Company. No further awards will be made under the 2008 plan on or after such tenth anniversary.

 

Administration of the 2008 Plan

 

Unless the administration of the 2008 plan has been expressly assumed by the Board pursuant to a resolution of the Board, the 2008 plan will be administered by the Compensation Committee, which at all times will consist of two or more directors appointed by the Board, all of whom will (1) meet all applicable independence requirements of the New York Stock Exchange and (2) qualify as “non-employee directors” as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and as “outside directors” as defined in regulations adopted under Section 162(m) of the Code, as such terms are amended from time to time. The Compensation Committee has the full authority and discretion to administer the 2008 plan and to take any action that is necessary or advisable in connection with the administration of the 2008 plan, including, without limitation, the authority and discretion to interpret and construe any provision of the 2008 plan or of any agreement, notification or document evidencing the grant of an award.

 

Awards under the 2008 Plan

 

Stock Options.  The Compensation Committee may from time to time authorize grants of stock options to any employee participant upon such terms and conditions as it may determine in accordance with the provisions of the 2008 plan. The Compensation Committee in its discretion will determine the number of shares of common stock subject to stock options to be granted to each participant. The Compensation Committee may grant non-qualified stock options, incentive stock options or a combination thereof to the participants. Stock options granted under the 2008 plan will provide for the purchase of common stock at a price not less than 100% of the market value thereof on the date the stock option is granted. No stock option will be exercisable more than ten years from the date of grant.

 

Stock options granted under the 2008 plan will be exercisable at such times and subject to such restrictions and conditions as the Compensation Committee shall approve. Each grant will specify that the exercise price is payable (1) in cash or by check acceptable to the Company, (2) by the actual or constructive transfer to the Company of shares of common stock already owned by the participant, (3) with the consent of the Compensation Committee, by withholding a number of shares otherwise issuable to a participant having a market value equal to the exercise price, or (4) in a combination of such methods of payment.

 

Each grant may also specify the required periods of continuous service by the participant with the Company or any subsidiary and/or the Management Objectives to be achieved before the stock options or installments thereof will become exercisable, and any grant may provide for the earlier exercise of the stock options in the event of a change in control (as defined below) or other similar transaction or event.

 

Neither the Compensation Committee nor the Board of Directors will authorize the amendment of any outstanding stock option to reduce the exercise price without the further approval of the shareholders of the Company, and no stock option will be cancelled and replaced with stock options having a lower exercise price without the further approval of the shareholders of the Company. The limitations described in this paragraph are not intended to

prohibit adjustments permitted in the event of a stock split, stock dividend, merger, consolidation, or other corporate event or transaction as described in the 2008 plan. See “Adjustments” below.

 

Appreciation Rights.  The Compensation Committee may from time to time authorize grants of appreciation rights to any employee participant upon such terms and conditions as it may determine in accordance with the provisions of the 2008 plan. Appreciation rights may be granted in tandem with stock options or separate and apart from a grant of stock options. An appreciation right will be a right of the participant to receive from the Company upon exercise an amount which will be determined by the Compensation Committee at the date of grant and will be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise. “Spread” means the excess of the market value per share of the common stock on the date the appreciation right is exercised over (1) the exercise price of the related stock option or (2) if there is no tandem stock option, the grant price provided for in the appreciation right, multiplied by the number of shares of common stock in respect of which the appreciation right is exercised.

 

Each grant of an appreciation right made in tandem with stock options will specify the exercise price and any grant not made in tandem with stock options will specify the grant price, which in either case will not be less than 100% of market value of the common stock on the date of grant. No appreciation right will be exercisable more than ten years from the date of grant.

 

Any grant may specify that the amount payable upon exercise of an appreciation right may be paid by the Company in cash, shares of common stock having an aggregate market value per share equal to the Spread or any combination thereof, as determined by the Compensation Committee in its discretion. Any grant may also specify that the amount payable on exercise of an appreciation right may not exceed a maximum amount specified by the Compensation Committee at the date of grant.

 

Each grant will specify the required periods of continuous service by the participant with the Company or any subsidiary and/or the Management Objectives to be achieved before the appreciation rights or installments thereof will become exercisable, and will provide that no appreciation right may be exercised except at a time when the Spread is positive and, with respect to any grant made in tandem with stock options, when the related stock option is also exercisable. The Compensation Committee may also grant limited stock appreciation rights, which would become exercisable in the event of a change in control or other similar transaction or event.

 

Restricted Stock Units.  The Compensation Committee may from time to time authorize grants or sales to any employee participant of restricted stock units upon such terms and conditions as it may determine in accordance with the provisions of the 2008 plan. Each grant or sale will constitute the agreement by the Company to issue or transfer shares of common stock to the participant in the future in consideration of the performance of services, subject to the fulfillment during the deferral period of such conditions as the Compensation Committee specifies. Each grant or sale will provide that the restricted stock units will be subject to a deferral period fixed by the Compensation Committee on the date of grant, and any grant or sale may provide for early termination of the deferral period in the event of a change in control or other similar transaction or event. Each such grant or sale may be made without additional consideration or in consideration of a payment by the participant of an amount that is less than the market value of the common stock on the date of grant.

 

During the deferral period, the participant will not have any right to transfer any rights under the restricted stock units, any rights of ownership in the restricted stock units, or any right to vote the restricted stock units. The Compensation Committee can authorize the payment of dividend equivalents on the restricted stock units in cash or shares of common stock on a current, deferred, or contingent basis.

 

Restricted Stock.  The Compensation Committee may from time to time authorize grants or sales to any participant of restricted stock upon such terms and conditions as it may determine in accordance with the provisions of the 2008 plan. Each grant or sale will constitute an immediate transfer of the ownership of shares of common stock to the participant in consideration of the performance of services, entitling such participant to voting and other ownership rights, but subject to the restrictions hereinafter referred to. Each grant or sale may limit the participant’s dividend rights during the period in which the shares of restricted stock are subject to any such restrictions. Each such grant or sale may be made without additional consideration or in consideration of a payment by such participant that is less than the market value of the common stock on the date of grant or sale.

 

Each such grant or sale will establish restrictions, such as required periods of continuous service, or other restrictions, including restrictions that constitute a “substantial risk of forfeiture” within the meaning of Section 83 of the Code and the regulations of the Internal Revenue Service thereunder. Any grant or sale may provide for the earlier termination of any such restrictions in the event of a change in control or other similar transaction or event. Each grant or sale may specify the Management Objectives, if any, that are to be achieved in order for the ownership restrictions to lapse.

 

Each grant or sale will provide that during the period for which such restriction or restrictions are to continue, the transferability of the restricted stock will be prohibited or restricted in a manner and to the extent prescribed by the Compensation Committee at the date of grant (which restrictions may include, without limitation, rights of repurchase or first refusal of the Company or provisions subjecting the restricted stock to continuing restrictions in the hands of any transferee).

 

Performance Shares and Performance Units.  The Compensation Committee may from time to time authorize grants to any employee participant of performance shares and performance units, which will become payable upon achievement of specified Management Objectives, upon such other terms and conditions as it may determine in accordance with the provisions of the 2008 plan.

 

Each grant will specify the time and manner of payment of performance shares or performance units that have become payable, which payment may be made in (1) cash, (2) shares of common stock having a market value equal to the aggregate value of the performance shares or performance units that have become payable, or (3) any combination thereof, as determined by the Compensation Committee in its discretion at the time of payment.

 

Each grant of a performance share or a performance unit may also contain such terms and provisions, consistent with the 2008 plan, as the Compensation Committee may approve, including provisions relating to the payment of performance shares or performance units upon a change in control or other similar transaction or event.

 

Any grant of performance shares may specify that the amount payable with respect to such performance shares may not exceed a maximum specified by the Compensation Committee on the date of grant. Any grant of performance units may specify that the amount payable, or the number of shares of common stock issued, with respect to such performance units may not exceed maximums specified by the Compensation Committee on the date of grant.

 

Incentive Compensation Plan Bonuses.  The Compensation Committee may from time to time authorize payment of annual incentive compensation in the form of an Incentive Compensation Plan Bonus to an employee participant, which will become payable upon achievement of specified Management Objectives during a 12-month performance period. Incentive Compensation Plan Bonuses will be payable upon such terms and conditions as the Compensation Committee may determine in accordance with the provisions of the 2008 plan. The Compensation Committee will specify the time and manner of payment of an Incentive Compensation Plan Bonus that becomes payable, which payment may be made in (1) cash, (2) shares of common stock having a market value equal to the aggregate value of the bonus that has become payable or (3) any combination thereof, as determined by the Compensation Committee in its discretion at the time of payment. In the event of a change in control during a performance period, each Incentive Compensation Plan Bonus will be determined at the greater of the target level of achievement or the actual level of achievement of the Management Objectives at the time of the change in control, without proration for a performance period of less than 12 months.

 

Management Objectives.  The Compensation Committee has broad discretion in its establishment of performance criteria for participants under the 2008 plan. As used in the 2008 plan, “Management Objectives” means the measurable performance objectives, if any, established by the Committee for a performance period that are to be achieved with respect to an award under the 2008 plan. Management Objectives may be described in terms of Company-wide objectives (in other words, the performance of the Company and all of its subsidiaries) or in terms of objectives that are related to the performance of the individual participant or of the division, subsidiary, department, region or function within the Company or a subsidiary in which the participant receiving the award is employed or on which the participant’s efforts have the most influence. The achievement of Management Objectives will be determined without regard to the effect on the Management Objectives of any acquisition or disposition by the Company of a trade or business, or of substantially all of the assets of a trade or business, during the performance period and without regard to any change in accounting standards or applicable tax laws.

 

The Management Objectives applicable to any award to a participant who is, or is determined by the Compensation Committee to be likely to become, a “covered employee” within the meaning of Section 162(m) of the Code (or any successor provision) will be limited to specified levels of, growth in, or performance relative to performance standards set by the Compensation Committee relating to or peer company performance in, one or more of the following performance measures (excluding the effect of extraordinary or nonrecurring items): earnings per share; earnings before interest, taxes, depreciation and amortization (EBITDA); net income; net operating profit; revenue; operating margins; share price; total shareholder return (measured as the total of the appreciation of and dividends declared on the common stock); return on invested capital; return on shareholder equity; return on assets; working capital targets; cost reduction; debt reduction; and industry-specific measures of audience or revenue share.

 

If the Compensation Committee determines that, as a result of a change in the business, operations, corporate structure or capital structure of the Company (other than an acquisition or disposition by the Company of a trade or business), or the manner in which the Company conducts its business, or any other events or circumstances, the Management Objectives are no longer suitable, the Compensation Committee may in its discretion modify the Management Objectives or the related minimum acceptable level of achievement, in whole or in part, with respect to a performance period as the Compensation Committee deems appropriate and equitable, except where taking action would result in the loss of the otherwise available exemption of an award under Section 162(m) of the Code. In those cases, the Compensation Committee will not make any modification of the Management Objectives or minimum acceptable level of achievement.

 

Awards for Non-employee Directors

 

At a Board of Directors meeting held on May 13, 2008 and on the date of each annual meeting of the Company’s shareholders occurring after 2008, each non-employee director of the Company will be granted (1) an award under the 2008 plan that has a fair market value equal to 50% of the director’s annual compensation from the Company and (2) if the director so elects, an award that has a fair market value equal to all or a portion of the director’s remaining compensation from the Company. The form and terms of awards to non-employee directors will be determined by the Compensation Committee in its discretion subject to the terms of the 2008 plan, but unless the Compensation Committee decides otherwise, awards to nonemployee directors under the 2008 plan will be in the form of stock options. Any portion of the non-employee director’s compensation that is not paid in an award will be paid in cash.

 

For awards to non-employee directors, fair market value is determined as follows:

 

 

If an individual is elected to the Board of Directors on a date other than the date of an annual shareholders meeting, the director’s compensation will be pro-rated for less than a full year of service as a director, and the pro-rated compensation will be paid in the form of an award valued as of the date of the director’s election to the Board and cash as described in the preceding paragraphs.

 

General Terms for Awards

 

Adjustments.  The Compensation Committee will make adjustments in the maximum number of shares reserved for issuance under the 2008 plan or that may be issued as part of any award, in the numbers of shares of common stock covered by outstanding stock options, appreciation rights, restricted stock units or performance shares granted thereunder, in the exercise price or grant price applicable to any stock options and appreciation rights, and/or in the kind of shares covered by awards (including shares of another issuer) as is equitably required to prevent dilution or enlargement of the rights of participants that otherwise would result from (1) any stock dividend, stock split,

combination of shares, recapitalization or other change in the capital structure of the Company, or (2) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (3) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Compensation Committee, in its discretion, may provide in substitution for any or all outstanding awards under the 2008 plan such alternative consideration as it, in good faith, may determine to be equitable in the circumstances and may require in connection with such substitution the surrender of all awards that are replaced.

 

Effect of Termination.  Each agreement evidencing an award may contain provisions relating to the effect upon the award of an employee participant’s termination of employment or a director’s termination of service by reason of retirement, death, disability or otherwise.

 

Change in Control.  Under the 2008 plan, a change in control means the first to occur of the following events:

 

(1) the individuals who, as of February 8, 2008, were members of the Board of Directors (the “Incumbent Directors”) cease to constitute at least a majority of the Board; except that any individual who becomes a director after February 8, 2008 and whose election, or nomination for election, by the Company’s shareholders was approved by a vote of at least a majority of the Incumbent Directors will be considered an Incumbent Director, other than as a result of an actual or threatened proxy contest with respect to election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or entity other than the Board;

 

(2) the consummation of (A) a merger, consolidation or similar form of corporate transaction involving the Company or (B) a sale or other disposition of all or substantially all the assets of the Company, unless, immediately following such transaction or sale, (i) all or substantially all the individuals and entities who were the “beneficial owners” (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of shares of common stock of the Company or other securities eligible to vote for the election of the Board outstanding immediately prior to the consummation of such transaction or sale beneficially own more than 60% of the combined voting power of the then outstanding voting securities of the entity resulting from such transaction or sale (the “Continuing Entity”) in substantially the same proportions as their ownership, immediately prior to the consummation of such transaction or sale, of the Company’s outstanding voting securities (excluding any outstanding voting securities of the Continuing Entity that such beneficial owners hold immediately following the consummation of the transaction or sale as a result of their ownership prior to such consummation of voting securities of any entity involved in or forming part of such transaction or sale other than the Company or its subsidiary), (ii) no person or entity (excluding any employee benefit plan (or related trust) sponsored or maintained by the Continuing Entity or any entity controlled by the Continuing Entity) beneficially owns 30% or more of the combined voting power of the then outstanding voting securities of the Continuing Entity, and (iii) at least a majority of the members of the board of directors or other governing body of the Continuing Entity were Incumbent Directors at the time of the execution of the definitive agreement providing for such transaction or sale or, in the absence of such an agreement, at the time at which approval of the Board was obtained for such transaction or sale;

 

(3) the Company’s shareholders approve a plan of complete liquidation or dissolution of the Company; or

 

(4) any person, entity or group becomes the beneficial owner of securities of the Company representing 30% or more of the combined voting power of the Company’s voting securities; provided, however, that for purposes of this item (4), the following acquisitions will not constitute a change in control: (A) any acquisition directly from the Company, (B) any acquisition by the Company or any of its subsidiaries, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries, (D) any acquisition by an underwriter temporarily holding such securities pursuant to an offering of such securities, or (E) any acquisition pursuant to a transaction or sale that does not constitute a change in control for purposes of item (2) above.

 

For purposes of applying the provisions of items (2) and (4) above at any time on or after February 8, 2008, neither Robert W. Decherd nor any person or entity holding voting securities of the Continuing Entity or the Company, as

applicable, over which Robert W. Decherd has sole or shared voting power will be considered to be the beneficial owner of 30% or more of such voting securities.

 

Limitation on Awards

 

Awards under the 2008 plan will be subject to the following limitations:

 

(a) No more than four million shares will be issued or transferred as restricted stock or restricted stock units, excluding any such shares awarded to directors.

 

(b) No more than eight million shares, subject only to adjustment as described in “Adjustments” above, may be issued as incentive stock options.

 

(c) The maximum aggregate number of shares that may be subject to stock options, appreciation rights, restricted stock units, performance shares and restricted stock granted to any employee participant during a calendar year will not exceed 800,000 shares, subject to adjustment as described in “Adjustments” above. This limitation will apply whether the award is paid in cash or shares of common stock.

 

(d) The maximum aggregate cash value of payments to any employee participant for any performance period pursuant to an award of performance units will not exceed $5 million.

 

(e) The maximum Incentive Compensation Plan Bonus paid to any employee participant during any calendar year will not exceed $5 million.

 

Transferability; Amendments; Termination

 

Unless the Compensation Committee determines otherwise, (1) no award will be transferable by a participant other than by will or the laws of descent and distribution and (2) no stock option or appreciation right granted to a participant will be exercisable during the participant’s lifetime by any person other than the participant or his or her guardian or legal representative.

 

The 2008 plan may be amended from time to time by the Compensation Committee or the Board of Directors, but may not be amended without further approval by the shareholders of the Company if such amendment would result in the 2008 plan failing to satisfy any applicable requirements of the New York Stock Exchange, Rule 16b-3 of the Exchange Act or Section 162(m) of the Code. The Board of Directors may terminate the 2008 plan at any time; provided, that no such termination will adversely affect any outstanding awards under the 2008 plan.

 

Benefits under the 2008 Plan

 

Pursuant to the transitional rule described above, grants were made during 2008 under the 2008 plan for performance in 2008. Please see the “Compensation Discussion and Analysis” section of this proxy statement and the “Grants of Plan-Based Awards in 2008” table for information regarding the 2008 grants to the named executive officers for 2008 performance and the “A. H. Belo Corporation Outstanding Equity Awards at Fiscal Year-End 2008” table in the “Executive Compensation” section of this proxy statement for information regarding all awards held by named executive officers under the 2008 plan as of December 31, 2008. All executive officers as a group (5 persons), the non-executive officer employee group and the non-executive director group received 460,000 stock options and no restricted stock unit awards, 946,498 stock options and no restricted stock unit awards, and 111,300 stock options and 37,100 restricted stock unit awards, respectively, during the year ended December 31, 2008, under the 2008 plan. Please see the “Director Compensation” table of this proxy statement for information about awards granted to each non-employee director during the year ended December 31, 2008 under the 2008 plan. No determination has yet been made as to the awards, if any, that any individual who is eligible to participate in the 2008 plan will be granted in the future.

 

Federal Income Tax Consequences

 

The following summary of the federal income tax consequences of the 2008 plan is not comprehensive and is based on current income tax laws, regulations and rulings.

 

Non-Qualified Stock Options.  Non-qualified stock options do not qualify for the special tax treatment accorded to incentive stock options under the Code. Although an optionee does not recognize income at the time of the grant of the option, he or she recognizes ordinary income upon the exercise of a non-qualified option in an amount equal to the difference between the fair market value of the stock on the date of exercise of the option and the amount of the exercise price.

 

As a result of the optionee’s exercise of a non-qualified stock option, the Company will be entitled to deduct as compensation an amount equal to the amount included in the optionee’s gross income. The Company’s deduction will be taken in the Company’s taxable year in which the option is exercised.

 

The excess of the fair market value of the stock on the date of exercise of a non-qualified stock option over the exercise price is not an item of tax preference for alternative minimum tax purposes.

 

Incentive Stock Options.  An optionee does not recognize income upon the grant of an incentive stock option. Subject to the effect of the alternative minimum tax, discussed below, if an optionee exercises an incentive stock option in accordance with the terms of the option and does not dispose of the shares acquired within two years from the date of the grant of the option or within one year from the date of exercise, the optionee will not recognize any income by reason of the exercise and the Company will be allowed no deduction by reason of the grant or exercise. The optionee’s basis in the shares acquired upon exercise will be the amount paid upon exercise. If the optionee holds the shares as a capital asset at the time of sale or other disposition of the shares, his or her gain or loss, if any, recognized on the sale or other disposition will be capital gain or loss. The amount of his or her gain or loss will be the difference between the amount realized on the disposition of the shares and his or her basis in the shares. The Company generally will not be entitled to any income tax deduction upon disposition of the shares.

 

If an optionee disposes of the shares within two years from the date of grant of the option or within one year from the date of exercise (an “Early Disposition”), the optionee generally will recognize ordinary income at the time of such Early Disposition which will equal the excess, if any, of the lesser of (1) the amount realized on the Early Disposition, or (2) the fair market value of the shares on the date of exercise, over the optionee’s basis in the shares. The Company will be entitled to a deduction in an amount equal to such income. The excess, if any, of the amount realized on the Early Disposition of such shares over the fair market value of the shares on the date of exercise will be long-term or short-term capital gain, depending upon the holding period of the shares, provided the optionee holds the shares as a capital asset at the time of Early Disposition. The Company generally will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the optionee upon an Early Disposition.

 

The excess of the fair market value of the shares at the time the incentive stock option is exercised over the exercise price for the shares is an item of “tax preference” for alternative minimum tax purposes.

 

Appreciation Rights.  Recipients of appreciation rights do not recognize income upon the grant of awards. When a recipient elects to receive payment under an appreciation right, he or she recognizes ordinary income in an amount equal to the cash and/or fair market value of shares received, and the Company is entitled to a deduction equal to such amount.

 

Restricted Stock Units.  Recipients of restricted stock units will generally recognize ordinary income equal to the fair market value of restricted stock units on the date that the shares are distributed to the recipient. The Company will be entitled to a tax deduction for the same amount. The holding period to determine whether a recipient has long-term or short-term capital gain or loss on a subsequent sale will generally begin when the shares are transferred to the recipient, and a recipient’s tax basis for the shares will generally equal the fair market value of the shares on the same date.

 

Restricted Stock.  Grantees of restricted stock generally do not recognize income at the time of the grant. However, when shares of restricted stock become free from any restrictions, grantees recognize ordinary income in an amount equal to the fair market value of the stock on the date all restrictions are satisfied, and the Company will receive a corresponding deduction. Alternatively, a grantee of restricted stock may, pursuant to Section 83(b) of the Code, elect to recognize income upon the grant of the stock and not at the time the restrictions lapse, in which event the Company would receive a corresponding deduction at that time.

 

Performance Shares and Performance Units.  Grantees of performance shares and performance units do not recognize income at the time of grant. When performance shares or performance units are paid, grantees recognize ordinary income in an amount equal to the fair market value of the shares or units paid, and the Company will receive a corresponding deduction.

 

Change in Control.  If there is an acceleration of the vesting of benefits and/or an acceleration of the exercisability of stock options upon a change in control, all or a portion of the accelerated benefits may constitute “excess parachute payments” under Section 280G of the Code. The employee receiving an excess parachute payment incurs an excise tax of 20% of the amount of the payment in excess of the employee’s average annual compensation over the five calendar years preceding the year of the change in control, and the Company is not entitled to a deduction for a similar amount.

 

Limitation on Deduction.  Section 162(m) of the Code provides that no deduction will be allowed for certain remuneration with respect to a covered employee (within the meaning of Section 162(m) of the Code) to the extent such remuneration exceeds $1 million per taxable year. Section 162(m) of the Code does not apply to compensation payable solely on account of the attainment of one or more performance goals if (1) the goals are determined by a committee of two or more outside directors, (2) the material terms under which the remuneration will be paid, including the goals, are disclosed to shareholders and approved by a majority of the shareholders, and (3) except in the case of appreciation rights and eligible stock options, the Compensation Committee certifies that the goals have been met before the compensation is paid to the covered employee. Compensation arising from appreciation rights and stock options in which the exercise price is no less than the fair market value on the date of grant constitutes compensation on account of attainment of a performance goal as long as the shareholders approve the 2008 plan, including the maximum number of shares per participant over a specific time period.

 

Vote Required for Approval

 

The affirmative vote of a majority of the voting power represented at the annual meeting and entitled to vote is required for approval of the A. H. Belo 2008 Incentive Compensation Plan.

 

The Board of Directors recommends a vote FOR Proposal Two for the approval of the A. H. Belo 2008 Incentive Compensation Plan.

 

As part of our cost control measures, the Audit Committee determined to solicit and consider competitive proposals for audit services from independent public accounting firms. This proposal process resulted in the Audit Committee’s appointment of KPMG LLP to serve as our independent auditor to perform the audit of our financial statements for the fiscal year ending December 31, 2009. As a matter of good corporate governance, we have determined to submit the appointment of KPMG LLP for ratification by our shareholders.

 

Ernst & Young LLP served as our independent public accounting firm from February 2008 to March 2009. In March 2009, the Audit Committee of the Company elected not to continue its engagement of Ernst & Young LLP effective March 30, 2009. The reports of Ernst & Young LLP on the financial statements of the Company did not contain an adverse opinion, or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. The Company did not have any disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Ernst & Young LLP, would have caused it to make a reference to the subject matter of the disagreements in connection with its report.

 

In March 2009, the Audit Committee approved KPMG LLP as our independent public accountant for the fiscal year ended December 31, 2009. No consultations occurred between the Company and KPMG LLP prior to KPMG LLP’s appointment regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements; or (2) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.

 

Representatives of Ernst & Young LLP and KPMG LLP will be present at the annual meeting. They will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions presented at the annual meeting.

 

The table below sets forth the Ernst & Young LLP fees related to the audits of our financial statements for the fiscal years ended December 31, 2008 and December 31, 2007 and the reviews of our financial statements for the quarterly periods within those fiscal years, and all other fees Ernst & Young LLP has billed us for services rendered during the fiscal years ended December 31, 2008 and December 31, 2007:

 

 

 

 

 

The Audit Committee has adopted a policy and procedures that set forth the manner in which the Audit Committee will review and approve all services to be provided by KPMG LLP before the firm is retained to provide such services. The policy requires Audit Committee pre-approval of the terms and fees of the annual audit services engagement, as well as any changes in terms and fees resulting from changes in audit scope or other items. The Audit Committee also pre-approves, on an annual basis, other audit services, and audit-related and tax services set forth in the policy, subject to estimated fee levels pre-approved by the Committee. Any other services to be provided by the independent auditors must be separately pre-approved by the Audit Committee. In addition, if the fees for any pre-approved services are expected to exceed by 5% or more the estimated fee levels previously approved by the Audit Committee, the services must be separately pre-approved by the Committee. As a general guideline, annual fees paid to the independent auditors for services other than audit, audit-related, and tax services should not exceed one-half the dollar amounts of fees to be paid for these three categories of services collectively. The Audit Committee has delegated to the Committee Chairman and other Committee members the authority to pre-approve services in amounts up to $500,000 per engagement. Services pre-approved pursuant to delegated authority must be reported to the full Committee at its next scheduled meeting. The Company’s Chief Financial Officer reports periodically to the Audit Committee on the status of pre-approved services, including projected fees.

 

All services provided by and all fees paid to Ernst & Young LLP prior to February 8, 2008 were approved by the Belo Corp. Audit Committee in accordance with Belo Corp.’s pre-approval policy. All services provided by and all fees paid to Ernst & Young LLP subsequent to February 8, 2008 have been approved by our Audit Committee in accordance with our pre-approval policy.

 

Vote Required for Approval

 

The affirmative vote of a majority of the voting power represented at the annual meeting and entitled to vote on this proposal is required for approval.

 

The Board of Directors recommends a vote FOR Proposal Three for the ratification of the appointment of KPMG LLP as A. H. Belo’s independent registered public accounting firm.

 

Introduction

 

Our Board periodically reviews and evaluates A. H. Belo’s corporate governance policies and practices in light of the Sarbanes-Oxley Act of 2002, SEC regulations implementing this legislation, corporate governance listing standards adopted by the New York Stock Exchange (“NYSE”), and evolving best practices. The Board has formalized its corporate governance guidelines, approved a code of business conduct and ethics applicable to A. H. Belo’s directors, management and other A. H. Belo employees, and adopted a charter for each Board committee. The Nominating and Corporate Governance Committee reviews A. H. Belo’s corporate governance guidelines and Board committee charters annually and recommends changes to the Board as appropriate. Our corporate governance documents are posted on our Web site at www.ahbelo.com under “About A. H. Belo — Corporate Governance,” and are available in print, without charge, upon written or oral request to A. H. Belo Corporation, Attention: Donald F. Cass, Jr., Secretary, P. O. Box 224866, Dallas, Texas 75222-4866, (214) 977-8200. A. H. Belo’s corporate governance documents codify our existing corporate governance practices and policies.

 

Director Independence

 

To assist it in making determinations of a director’s independence, the Board has adopted independence standards, which are set forth in A. H. Belo’s corporate governance guidelines, the applicable portion of which is attached to this proxy statement as Appendix B. These standards incorporate the director independence criteria included in the NYSE listing standards, as well as additional, more stringent criteria established by the Board. The Board has determined that the following directors and director nominee are independent under these standards: Doug Carlston, Larry Hirsch, Ty Miller, Dave Morgan, John Puerner and Don Williams. Each of the Audit, Compensation, and Nominating and Corporate Governance Committees is composed entirely of independent directors. In accordance with SEC requirements, NYSE listing standards and the independence standards set forth in A. H. Belo’s corporate governance guidelines, all members of the Audit Committee meet additional independence standards applicable to audit committee members.

 

Meetings of the Board

 

The Board held eight meetings in 2008. Each director attended at least 75% of the aggregate of (1) the total number of meetings held by the Board and (2) the total number of meetings held by all committees on which he or she served. Directors are expected to attend annual meetings of shareholders. The May 2009 meeting is the first annual meeting of shareholders to be held since A. H. Belo became a separate public company.

 

Committees of the Board

 

Each of the Board’s standing committees currently consists of Doug Carlston, Larry Hirsch, Dave Morgan, John Puerner and Don Williams, each of whom is an independent director under the NYSE listing standards and under the independence standards set forth in A. H. Belo’s corporate governance guidelines. If elected, it is anticipated that Ty Miller will serve on each of the Board’s standing committees. The Board has determined that Mr. Miller meets the director independence criteria included in the NYSE listing standards as well as the independence standards set forth in the Company’s corporate governance guidelines.

 

The Board has three standing committees, as follows:

 

Audit Committee.  Don Williams chairs the Audit Committee. Louis Caldera chaired the Audit Committee from December 2007 until his resignation from the Board effective January 16, 2009. The Audit Committee is responsible for the appointment, compensation and oversight of the independent auditors. The Audit Committee also represents the Board in overseeing A. H. Belo’s financial reporting processes, and, as part of this responsibility, consults with our independent auditors and with personnel from A. H. Belo’s internal audit and financial staffs with respect to corporate accounting, reporting, and internal control practices. The Audit Committee met six times during 2008.

 

The Board has determined that each member of the Audit Committee meets both the SEC and the NYSE standards for independence. In addition, the Board has determined that at least one member of the Audit Committee meets the NYSE standard of having accounting or related financial management expertise. The Board has also determined that at least one member of the Audit Committee, Don Williams, meets the SEC criteria of an “audit committee financial expert.”

 

Compensation Committee.  Doug Carlston chairs the Compensation Committee. The Compensation Committee evaluates the performance of the Chief Executive Officer and sets his compensation level based on this evaluation. The Compensation Committee makes recommendations to the Board for base salaries of other executive officers and compensation for non-management directors, approves bonus levels and stock option awards for executive officers, and administers, among other plans, the Company’s 2008 Incentive Compensation Plan, the A. H. Belo Savings Plan, the A. H. Belo Change in Control Severance Plan, the A. H. Belo Pension Transition Supplement Plan, and the A. H. Belo Pension Transition Supplement Restoration Plan. The Compensation Committee met eight times during 2008.

 

To assist the Compensation Committee and management in assessing and determining appropriate, competitive compensation for our executive officers, the Committee annually engages an outside compensation consultant. In February 2008, the Compensation Committee engaged Mercer as its compensation consultant. The scope of Mercer’s engagement was to undertake a comprehensive review of A. H. Belo’s executive compensation programs, and to assist in executive compensation recommendations for 2008. For additional information regarding the operation of the Compensation Committee, including the role of consultants and management in the process of determining the amount and form of executive compensation, see the Company’s Compensation Discussion and Analysis below.

 

Nominating and Corporate Governance Committee.  The Nominating and Corporate Governance Committee is chaired by John Puerner, who also serves as Lead Director. Don Williams chaired the Committee and was Lead Director from December 2007 through March 2009. The responsibilities of the Nominating and Corporate Governance Committee include the identification and recommendation of director candidates and the review of qualifications of directors for continued service on the Board. The Nominating and Corporate Governance Committee also has responsibility for shaping A. H. Belo’s corporate governance practices, including the development and periodic review of the corporate governance guidelines and the Board committee charters. The Nominating and Corporate Governance Committee met twice during 2008.

 

In evaluating director nominees, the Nominating and Corporate Governance Committee considers a variety of criteria, including an individual’s character and integrity; business, professional and personal background; skills; current employment; community service; and ability to commit sufficient time and attention to the activities of the Board. The Committee considers these criteria in the context of the perceived needs of the Board as a whole and seeks to achieve a diversity of backgrounds and perspectives on the Board.

 

The Nominating and Corporate Governance Committee employs a variety of methods for identifying and evaluating director nominees. The Committee reviews the size and composition of the Board as part of the annual Board evaluation process and makes recommendations to the Board as appropriate. If vacancies on the Board are anticipated, or otherwise arise, the Nominating and Governance Committee considers various potential candidates for director. Candidates may come to the Committee’s attention through current Board members, shareholders or other persons.

 

The policy of the Nominating and Corporate Governance Committee, as set forth in A. H. Belo’s corporate governance guidelines, is to consider shareholders’ recommendations for nominee(s) when shareholders supply the information required for director nominations under the advance notice provisions set forth in Article II of A. H. Belo’s bylaws within the time periods set forth in such Article of the bylaws. Shareholders desiring to submit a nomination for director should consult A. H. Belo’s bylaws, which are available upon request, for more specific information prior to submitting a nomination. The Committee evaluates shareholder nominees based on the same criteria it uses to evaluate nominees from other sources.

 

After the Nominating and Corporate Governance Committee identifies a potential candidate, there is generally a mutual exploration process, during which A. H. Belo seeks to learn more about a candidate’s qualifications,

background, and level of interest in A. H. Belo, and the candidate has the opportunity to learn more about A. H. Belo. A candidate may meet with members of the Nominating and Corporate Governance Committee, other directors, and senior management. Based on information gathered during the course of this process, the Nominating and Corporate Governance Committee makes its recommendation to the Board. If the Board approves the recommendation, the candidate is nominated for election.

 

The Board convenes executive sessions of non-management directors without Company management at each regularly-scheduled meeting. The Lead Director is responsible for presiding at the executive sessions of the non-management directors. In addition, the independent directors meet in executive session at least annually. Board committee chairs preside at executive sessions of their respective committees.

 

Audit Committee Report

 

As described more fully in our written charter, which is posted on our Web site at www.ahbelo.com under “About A. H. Belo — Corporate Governance,” the Audit Committee represents the Board in its oversight of A. H. Belo’s financial reporting processes. In this context, the Audit Committee has reviewed and discussed with management and Ernst & Young LLP, our independent auditors, A. H. Belo’s audited consolidated financial statements. The Audit Committee has discussed with Ernst & Young LLP various matters, including the firm’s judgments as to the quality of A. H. Belo’s accounting principles and other matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T. In addition, the Audit Committee has received from Ernst & Young LLP the written disclosures and the letter required by applicable requirements of the PCAOB regarding their communications with the Audit Committee concerning independence, and has discussed with the firm its independence from A. H. Belo and our management team.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited consolidated financial statements be included in A. H. Belo’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, for filing with the SEC.

 

Respectfully submitted,

 

Audit Committee

J. McDonald Williams, Chairman

Douglas G. Carlston

Laurence E. Hirsch

David R. Morgan

John P. Puerner

 

Communications with the Board

 

The Company has a process for shareholders and other interested parties to communicate with the Board. These parties may communicate with the Board by writing c/o the corporate Secretary, P. O. Box 224866, Dallas, Texas 75222-4866. Communications intended for a specific director or directors (such as the Lead Director or non-management directors) should be addressed to his, her, or their attention c/o the corporate Secretary at this address. Communications received from shareholders are forwarded directly to Board members at, or as part of the materials mailed in advance of, the next scheduled Board meeting following receipt of the communications. The Board has authorized management, in its discretion, to forward communications on a more expedited basis if circumstances warrant or to exclude a communication if it is illegal, unduly hostile or threatening, or similarly inappropriate. Advertisements, solicitations for periodical or other subscriptions, and other similar communications generally are not forwarded to the directors.

 

A. H. Belo’s executive officers are as follows:

 

 

 

 

The following executive summary highlights and summarizes information from this Compensation Discussion and Analysis and does not purport to contain all of the information that is necessary to gain an understanding of our executive compensation policies and decisions. Please carefully read the entire Compensation Discussion and Analysis section and the compensation tables that follow for a more complete understanding of our executive compensation program.

 

A. H. Belo became a separate public company following its spin-off from Belo Corp. on February 8, 2008. A. H. Belo’s named executive officers’ compensation for 2008 was initially determined by Belo Corp.’s Compensation Committee in December 2007 prior to the spin-off. Following the February 8, 2008 spin-off, all compensation decisions for A. H. Belo’s named executive officers became subject to the oversight of A. H. Belo’s Compensation Committee. Accordingly, this Compensation Discussion and Analysis describes the compensation philosophy applied by Belo to the named executive officers with respect to the initial setting of 2008 compensation, and the ways in which A. H. Belo has changed its compensation philosophy during the year given current industry conditions and the economic environment. The Board of Directors and Compensation Committee of A. H. Belo have reviewed each of the elements of executive compensation during fiscal year 2008 and have made appropriate adjustments for the Company’s named executive officers as discussed herein.

 

The newspaper industry is experiencing substantial change caused by factors such as the effect of the Internet and other transformational technologies on consumers and advertisers and the rapid ascent of new media businesses. These challenges have become more pronounced given the impact of the current economic conditions in the U.S. and the additional stresses that these economic conditions have placed on our advertisers and consumers. From an executive compensation perspective, this challenging business environment underscores the importance of retaining both experienced and high-potential executives and rewarding superior individual performance that may not be reflected in the Company’s stock price or revenues. As a result, in March 2008, based upon our compensation consultant’s recommendation, the Compensation Committee approved a change in the performance criteria used to measure cash incentive award opportunities under the Company’s Incentive Compensation Plan. The Company decided to move away from an EPS model to a model that looks at four key business metrics: revenue, interactive revenue, expense control and EBITDA. These metrics better align incentive compensation opportunities with performance factors that directly impact the business. At the same time, however, the Compensation Committee also decided to retain the prerogative to award or not to award cash incentive bonuses under the Company’s Incentive Compensation Plan, including awards to the Company’s executive officers, even if the financial performance measures are met.

 

The significant downturn in the U.S. economy during 2008 negatively affected both the Company’s revenues and its stock price. During 2008, the Company took actions designed to align expenses with expected lower revenues in 2009, including actions to lower compensation expense. In September 2008, the Company amended the A. H. Belo Savings Plan to eliminate the Company’s two percent match under its 401(k) plan, and instead provided for a discretionary Company profit sharing contribution that will depend on the Company’s profitability. In addition, the Company announced in October 2008 a wage freeze that impacted all levels of the organization, including our executive officers. In December 2008, the Company changed its initial approach of targeting the median of compensation surveys in determining the size and type of long-term incentive compensation awards to Incentive Compensation Plan participants, including to its executive officers. Instead, the total value of long-term incentive awards made in December 2008 was significantly below the median in consideration of the Committee’s and the Company’s desire to moderate the level of share utilization given the Company’s recent stock price decline and the general downward trend in the size of long-term awards reflected in compensation survey data provided by the Company’s compensation consultant.

 

The Compensation Committee continuously monitored compensation trends as impacted by industry and U.S. economic trends during 2008, and reviewed its policies and approach in light of such trends. As a result, going forward into 2009, the Compensation Committee has also taken several new measures applicable in 2009. Effective January 1, 2009, the Company adopted the A. H. Belo Severance Plan to provide for a severance framework applicable both to employees generally and to our executive officers. The benefits payable under the Severance Plan

represent a reduction from the Company’s prior severance guidelines. In addition, on March 31, 2009, the Company approved an amendment to its Change in Control Severance Plan to, among other matters, reduce the severance multiple payable under that plan and also took action to reduce the base salary levels of the executive officers. In the face of these unprecedented industry conditions compounded by the downturn in the U.S. economy generally, the Compensation Committee intends to address executive compensation policies and practices proactively.

 

Overview of Compensation Program

 

The Compensation Committee of the A. H. Belo Board of Directors oversees the Company’s overall compensation structure, policies and programs, and has responsibility for establishing, implementing and continually monitoring adherence to the Company’s compensation philosophy. The primary management liaisons to the Committee in 2008 were the Company’s Chief Executive Officer, Robert Decherd, and its vice president/Human Resources, Sheila Hartley.

 

Compensation Objectives

 

A. H. Belo adopted compensation policies to achieve the following objectives:

 

 

Setting Executive Compensation

 

Prior to the spin-off of A. H. Belo from Belo Corp. in February 2008, Belo Corp. made initial executive compensation determinations for the A. H. Belo named executive officers. To assist the Belo Compensation Committee and management in assessing and determining appropriate competitive compensation for the executive officers of the post-spin companies, the Belo Compensation Committee engaged Mercer LLC (“Mercer”) as its compensation consultant. Mercer provided information, analyses, and objective advice regarding executive compensation for both Belo and A. H. Belo. After the spin-off, to assist the A. H. Belo Compensation Committee and management in assessing and determining appropriate competitive compensation for A. H. Belo executive officers, the A. H. Belo Compensation Committee also engaged Mercer as its compensation consultant. Mercer reports directly to the Chairman of the Compensation Committee, and also works with the Company’s management liaisons in developing market information to assist the Committee in making its decisions. In conjunction with Mercer, A. H. Belo determined that it would continue Belo Corp.’s practice of annually reviewing the competitiveness of our compensation programs to determine how well our actual compensation levels compare to our overall philosophy and target markets. Throughout 2008, the A. H. Belo Compensation Committee reviewed and monitored, with the assistance of its compensation consultant, trends in the industry, trends at similarly situated companies in terms of revenue, and trends in the market generally to determine appropriate compensation policies and recommendations to address deteriorating market and economic conditions.

 

Surveys and Determination of the Market.  In anticipation of the spin-off, Belo Corp., with the aid of its compensation consultant, assisted management in determining a peer group of companies in the newspaper industry with which A. H. Belo competes for executive talent (the “Peer Survey”) and designing compensation programs that would be competitive in that market. Peer selection was focused on size of the company in terms of revenue because revenues provide a reasonable point of reference for comparing like positions and scope of

responsibility of individual officers. Peer selection was difficult due to the lack of publicly-traded companies with similar revenues with which we compete. For 2008, the Peer Survey included the following companies:

 

 

To establish pay levels for our named executive officers, including A. H. Belo’s Chief Executive Officer, all components of direct compensation, including base salary, incentive cash bonus, and long-term incentives of the Peer Survey companies were reviewed. Belo’s compensation consultant determined the median (50th percentile) and the 75th percentile of the Peer Survey for each element of compensation. Given the changing nature of our industry, the actual companies used in the review process will likely vary from year to year, and the A. H. Belo Compensation Committee intends to review the peer group again during 2009 and make changes as appropriate.

 

Long-term incentive recommendations were developed by A. H. Belo after the spin-off with the assistance of the Company’s compensation consultant. In putting together the LTI award recommendations, it became clear that due to the significant decline in the Company’s stock price, the Company had to change its past approach of targeting the median value in determining the size of long-term incentive awards to Incentive Compensation Plan participants, including A. H. Belo executive officers. Otherwise, the resulting awards would have had an excessive dilutive effect on the Company’s outstanding common stock. Given the Company’s stock price and the unprecedented decline in the newspaper industry sector, management concluded, upon the guidance and advice of its compensation consultant, to look beyond the Peer Survey to set appropriate long-term incentive levels.

 

As an additional point of reference for purposes of determining long-term incentive compensation, data from general industry (“General Industry Data”) compiled by our compensation consultant was used as supplemental information in cases where the sample size of comparable data was too small for a given executive position. Companies selected by the Company’s compensation consultant were those with revenues ranging from $500 million up to $3 billion. Three survey sources were used to compile this General Industry Data: the Mercer Benchmark Database, the Towers Perrin Executive Compensation Database, and the Towers Perrin Media Survey. Due to the proprietary nature of these surveys and the size of the participant groups, the company names were not provided to management or the Compensation Committee.

 

The Mercer Benchmark Database consisted of compensation survey information from 107 companies with revenues in the $500 million to $1.5 billion range. The Towers Perrin Executive Compensation Database for General Industry participants is a database of approximately 42 companies that participate in Towers Perrin’s compensation survey, with revenues of less than $1 billion. The Towers Perrin Media Industry Executive Compensation Database, referred to as the Towers Perrin Media Survey, consisted of compensation survey information from 27 companies with media operations, with revenues of less than $3 billion. A. H. Belo does not choose the participants in these surveys, nor did it provide to its Compensation Committee the individual names of the participant companies in these three survey sources, other than the Peer Group selections. The Committee reviewed relevant data on these companies’ long-term incentive practices and the aggregate number of shares granted for long-term incentives. The Committee also considered the dollar value of awards, overall cost and the overall dilutive effect of long-term incentive awards.

 

Process and Role of Management.  In December 2007, prior to the spin-off, the Belo Compensation Committee used the Peer Survey to develop recommendations for base salary and annual cash incentive bonus opportunity for A. H. Belo’s executive officers, including its Chief Executive Officer. Using the estimated median and 75th percentile of the market data provided by our compensation consultant as a guide, the 2008 base salary recommendations were presented by Mercer to Belo’s Chief Executive Officer, Robert Decherd. Mr. Decherd adjusted these recommendations after taking into account each individual executive officer’s recent performance, as well as his or her experience, level of responsibility, and contributions to long-term goals during the current year. The compensation recommendations, together with the compensation histories and the percentile rankings for base salary and total cash compensation of A. H. Belo’s named executive officers relative to the Peer Survey, were then

presented to the Belo Compensation Committee, which had full access to its compensation consultant, Robert Decherd and the Belo human resources staff who were involved in the formulation of recommendations. After consideration of the recommendations and adequate opportunity to address specific questions and concerns, the Belo Compensation Committee made final base salary and annual cash incentive compensation recommendations for the A. H. Belo named executive officers, excluding A. H. Belo’s Chief Executive Officer, to the non-management members of Belo’s Board of Directors for their approval. In its deliberations, the Belo Board considered compensation objectives and philosophy in light of the recommendations and the anticipated market characteristics of the post-spin Company. Based on its review and analysis, the non-management members of Belo’s Board approved the final compensation to be awarded to each named A. H. Belo executive officer, with the exception of A. H. Belo’s Chief Executive Officer. The Belo Compensation Committee evaluated and determined A. H. Belo’s Chief Executive Officer’s base salary and cash bonus opportunity after following the same process. In this regard, the Compensation Committee reviewed and received the same peer group information, except that market data for chief executive officer compensation was provided to Belo’s Compensation Committee without any specific compensation recommendation. In January 2008, the newly-formed A. H. Belo Compensation Committee approved and ratified the 2008 base salary and bonus opportunity for A. H. Belo’s Chief Executive Officer. The A. H. Belo Board of Directors also approved and ratified the 2008 base salary and bonus opportunity for the Company’s other named executive officers as previously approved by the Belo Corp. Board in December 2007.

 

After the spin-off, the A. H. Belo Compensation Committee, with the assistance of the Company’s compensation consultant and input from management, developed performance standards to be used as 2008 financial performance measures based upon the 2008 financial plan for the new A. H. Belo. The four performance measures and their relative weighting, as discussed in more detail below, were approved by the Compensation Committee in March 2008.

 

Long-term incentive compensation recommendations were continually re-evaluated by management and the Compensation Committee throughout 2008 in light of continuing deterioration in U.S. economic conditions and the Company’s stock price. Long-term incentive recommendations for all ICP participants were developed initially in March 2008 by Mr. Decherd and Ms. Hartley, with input from the Company’s compensation consultant. They were re-evaluated again in October 2008 with respect to the named executive officers. In putting together the LTI recommendations during 2008, it became clear that the Company had to change its initial approach of targeting the median in determining the size and type of long-term incentive awards to ICP participants, otherwise, the resulting awards would have been too costly and had an excessive dilutive effect. Instead, the Company, upon advice of its compensation consultant, determined that the Company should target aggregate LTI awards for ICP participants, including its named executive officers, that would not result in approximately more than 5% dilution of the Company’s outstanding Series A Common Stock. Utilizing that pool of awards, the Company, with the assistance of its compensation consultant, then developed LTI award recommendations for its named executive officers that resulted in award recommendations at or below the 25th percentile of the market. LTI recommendations for all named executive officers, other than the Chief Executive Officer, were presented to Robert Decherd. Mr. Decherd and Ms. Hartley then further adjusted these recommendations to reflect the appropriate level of share utilization given the Company’s stock price, the expense of such awards, and the continuing deterioration of economic conditions. These recommendations were then presented to the Committee, which had full access to its compensation consultant, Mr. Decherd and Ms. Hartley, who were involved in the formulation of recommendations. The Compensation Committee determined the amount of Mr. Decherd’s award. The Compensation Committee and the non-management members of the Board of Directors evaluated the recommendations and determined the long-term incentive awards for the named executive officers in December 2008.

 

Timing of Decisions.  The A. H. Belo Compensation Committee has three regularly-scheduled meetings each year in or around February, July, and December. Because this was the first year for A. H. Belo as a separate public company, the Compensation Committee also held a number of special meetings by telephone and in person to address compensation issues that arose from time to time. With respect to 2008 compensation for the A. H. Belo executive officers, the Belo Compensation Committee before the spin-off, and the A. H. Belo Compensation Committee after the spin-off held meetings to review, discuss, and set or recommend compensation levels for the A. H. Belo named executive officers.

 

The Committee continued to meet throughout 2008 in person during scheduled Board of Director meetings and via special meetings by telephone to address compensation issues. With respect to 2008 compensation for A. H. Belo executive officers, the following meetings were held to review, discuss, and set or recommend compensation levels:

 

 

Elements of 2008 Executive Compensation

 

For the fiscal year ended December 31, 2008, the principal elements of compensation for A. H. Belo’s named executive officers were:

 

 

The structure of A. H. Belo’s executive compensation program is set forth in the A. H. Belo 2008 Incentive Compensation Plan and administered by the A. H. Belo Compensation Committee. The Company refers to the Incentive Compensation Plan as the ICP. The A. H. Belo ICP provides for two elements of compensation: short-term cash incentives (performance bonus), and long-term equity-based compensation. Awards under the ICP are supplemental to an ICP participant’s base salary. Officers of A. H. Belo and its subsidiaries, including A. H. Belo’s Chief Executive Officer and its other executive officers, are eligible to participate in the ICP. Additional ICP

participants are selected by the A. H. Belo Compensation Committee based on management’s evaluation of an individual’s ability to affect significantly A. H. Belo’s profitability.

 

Base Salary.  The 2008 base salaries for the A. H. Belo named executive officers were initially set by Belo Corp. in December 2007 and were ratified by the A. H. Belo Compensation Committee in January 2008. In determining base salaries for 2008, Belo used the median and 75th percentile data from the Peer Survey as reference points for determining compensation levels. Belo used this survey data to prepare recommendations for base salary and total target cash compensation for each A. H. Belo executive officer, including the Chief Executive Officer. Further consideration was then given to each executive’s anticipated future role he or she would play in the stand-alone newspaper company following the spin-off. Base salaries for A. H. Belo executive officers are reviewed annually.

 

As discussed above, the Belo Corp. Compensation Committee reviewed the base salary recommendations for 2008 and made final recommendations to the Belo Corp. Board, except with respect to the Chief Executive Officer, for which the Committee had final approval. The A. H. Belo Compensation Committee ratified these decisions in connection with the spin-off. The 2008 base salaries for the A. H. Belo named executive officers were set in December 2007 as follows: Jim Moroney — $550,000; Ali Engel — $250,000; Skip Cass — $465,000; and Dan Blizzard — $240,000. Although Robert Decherd’s base salary was initially set at $800,000 by the Belo Corp. Compensation Committee in December 2007; effective as of February 8, 2008, Robert Decherd recommended a reduction in his 2008 base salary to $250,000, which the A. H. Belo Compensation Committee approved in March 2008. Robert Decherd’s initial 2008 base salary was significantly below the market median; Jim Moroney’s was at 54 percent of the median. Ali Engel’s base salary was materially below the median for her position but represented a significant increase over her 2007 base salary in light of her promotion to Chief Financial Officer of A. H. Belo. Relevant market data was not available for Mr. Cass’ and Mr. Blizzard’s positions, and the Committee considered their experience and responsibilities along with their relative positions within the organization and retention needs.

 

During 2008, the A. H. Belo Compensation Committee continued to review market and peer company salary data provided by Mercer. On December 3, 2008, the Compensation Committee of A. H. Belo approved the recommendation of its Board of Directors to change the 2009 base salaries of its Chief Executive Officer, Robert Decherd, and its senior vice president/Chief Financial Officer, Ali Engel. Effective as of January 1, 2009, in connection with the Compensation Committee’s decision to return to a more standard compensation structure for Mr. Decherd, Mr. Decherd’s base salary was changed from $250,000 to $600,000. At the beginning of 2008, in connection with the spin-off of A. H. Belo from Belo Corp. and the industry outlook at that time, Mr. Decherd’s compensation structure changed. As discussed above, he recommended a reduction in his 2008 base compensation from $800,000 to $250,000, and was instead awarded a cash bonus opportunity four times his annual base salary if performance targets were reached, and seven times his annual base salary if maximum performance targets were achieved. The target bonus structure for Mr. Decherd for 2009 has also been changed back to a more standard structure, and he waived his right to receive any bonus for 2008, which based on 2008 Company performance, was calculated to be $293,700, primarily based on the expense control performance factor. The Committee determined that the $600,000 base salary represents an amount 31 percent below the median survey provided by the Company’s compensation consultant. Ali Engel, senior vice president and Chief Financial Officer, was granted a salary increase effective January 1, 2009 from $250,000 to $315,000 as the market data indicated her salary was well below the median for similar positions. This relationship to median was known when Ms. Engel was named to her newly-appointed position at the time of the spin-off, and the Compensation Committee elected to review her salary based upon her performance during 2008 in this new role. Her base salary represents an amount 28 percent below the median. Due to the adverse economic industry conditions, it was determined that for the other three named executive officers — Jim Moroney, Skip Cass, and Dan Blizzard — no salary adjustment for 2009 would be implemented.

 

Annual Cash Incentive Opportunity.  Each A. H. Belo executive officer is eligible to receive annual cash incentive compensation based on financial performance objectives established in the annual financial plan (the “Financial Plan”) approved by A. H. Belo’s Board of Directors. The financial performance objectives may vary from year to year and reflect the cyclical nature of A. H. Belo’s businesses due to fluctuating advertising demand and changes in newspaper circulation, changes in media use habits by consumers and advertisers, and other competitive conditions, including recruiting and retaining talent. The A. H. Belo Compensation Committee establishes an annual performance-based incentive pool for each senior executive, as permitted by the ICP and in compliance with the performance-based compensation exemption under Section 162(m) of the Internal Revenue Code of 1986, as

amended, referred to as the Code. The performance pool, expressed as a percentage of A. H. Belo’s consolidated net income for each executive officer, provides a maximum for the award of cash and certain equity incentives under the ICP, described below, and is designed to allow for tax deductibility of the compensation awarded within the pool.

 

Under the ICP, in December 2007, Belo Corp. established a 2008 target bonus opportunity for the A. H. Belo executive officers expressed as a percentage of base salary based on competitive market information using the Peer Survey. Belo Corp. considered, but did not grant awards at the median, or 50th percentile, of the Peer Survey for annual cash incentives. The 2008 target bonus opportunities, expressed as a percentage of base salary, for each of A. H. Belo’s named executive officers, other than Robert Decherd, were set as follows: Jim Moroney — 70 percent; Skip Cass — 60 percent; Ali Engel — 50 percent; and Dan Blizzard — 40 percent. These A. H. Belo named executive officers’ target bonus opportunities do not materially vary from the median range of market data, except that relevant market data was not available for Mr. Cass’ or Mr. Blizzard’s positions and the Committee considered each executive’s experience and responsibilities along with his relative position within the organization and retention needs. In determining the appropriate target bonus percentage for each A. H. Belo named executive officer, the Compensation Committee used Mercer estimates of the market median.

 

The A. H. Belo Compensation Committee determined to use the following financial performance measures to measure 2008 achievement under the ICP: revenue; interactive revenue; expenses and earnings before interest, taxes, depreciation and amortization (EBITDA). The weighting given to each factor was 15 percent, 20 percent, 15 percent, and 50 percent, respectively. The minimum threshold for any cash incentive payment was set at 85 percent of target with respect to each measure of financial performance, except for expense control, which was set at 102.5% of target. Each year, the Compensation Committee will determine target and maximum multiples, the performance measures, and the weighting to be given to each performance measure. Target bonus opportunities for 2009 for each of the A. H. Belo named executive officers are shown in the “Grants of Plan-Based Awards in 2008” table in the “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns.

 

The target bonus opportunity calculation for Robert Decherd was different from other named executive officers for 2008. As mentioned above, on March 25, 2008, the A. H. Belo Compensation Committee approved the change in compensation structure of Robert Decherd to be more cash-based and performance-oriented. At the same time Mr. Decherd recommended that his base salary be reduced to $250,000, the A. H. Belo Compensation Committee also changed the structure of his annual target bonus opportunity. His annual target bonus opportunity for 2008 was based on the same four measures of A. H. Belo financial performance and thresholds as set forth in the preceding paragraph for other named executive officers, however, if all 2008 target levels for the four performance measures had been achieved, Mr. Decherd was to have received a cash bonus of four times his annual base salary. If maximum performance levels had been achieved, Mr. Decherd would have received a cash bonus of seven times his annual base salary. Had Mr. Decherd not waived his right to receive his 2008 target bonus, his 2008 target bonus would have been $293,700, which was determined by extrapolating between the minimum and target, or between target and maximum, based on actual levels of revenue and expense control performance. The interactive revenue and EBITDA components were below the thresholds for payment of any target bonus award.

 

Actual bonus amounts earned by ICP participants may range from zero to a maximum bonus of 200 percent of the target bonus opportunity established by the A. H. Belo Compensation Committee, depending on the level of achievement of Financial Plan targets. For 2008, the A. H. Belo Compensation Committee approved financial performance ranges for each performance measure for A. H. Belo’s named executive officers based on A. H. Belo’s Financial Plan, as shown in the table below. Bonus payout for performance between minimum threshold payout at 10 percent and the maximum payout at 200 percent of target for each performance factor is pro-rated between those two points. A. H. Belo believes that linking bonus opportunity directly to financial performance, with an opportunity to earn a 200 percent payout of target bonus amount if maximum performance of all four factors is achieved, provides participants with significant motivation to achieve the Company’s financial objectives.

 

As was the practice of the Belo Corp. Compensation Committee prior to the spin-off, certain adjustments are made to actual year-end performance as measured by the financial performance measures. These adjustments historically have included share-based compensation expense, variations in newsprint pricing above or below plan, and non-cash charges. For 2008, the A. H. Belo Compensation Committee made no adjustments to actual revenue, interactive revenue or EBITDA achievement. Expense performance for the year ended December 31, 2008 was adjusted at the A. H. Belo Compensation Committee’s discretion. The primary adjustments included the elimination of the effect of expenses associated with severance costs and newsprint prices above plan. Negative adjustments to the expense performance measure included share-based compensation expense and medical insurance expense relative to plan. The measures of revenue, interactive revenue, expense (as adjusted) and EBITDA, which were approved by the A. H. Belo Compensation Committee, were then compared to the targets, and an achievement of 89% percent and 94% percent of target, respectively, resulted for the revenue and expense performance measures. The interactive revenue and EBITDA components were below the thresholds for payment of any target bonus award.

 

A proposed cash bonus under the ICP formula was then calculated for each A. H. Belo named executive officer by applying this achievement percentage to each executive officer’s target bonus opportunity. For example, in 2008, Ali Engel’s target bonus was up to 50 percent of her base salary ($125,000). Actual financial performance qualified her for a 35 percent target bonus payout on the revenue measure and a 161 percent target bonus payout on the expense measure, resulting in a total cash incentive bonus payout of $36,712. However, in connection with the spin-off transaction and retention concerns, a total of 45 officers and employees of Belo Corp. and A. H. Belo Corporation, including Ms. Engel, were guaranteed bonuses at target-level for 2008. Ms. Engel was granted a target level cash bonus of $125,000. Accordingly, she was paid $88,288 in connection with that guaranteed retention bonus. Messrs. Cass and Blizzard were also guaranteed cash incentive bonus awards at target-level for 2008. The incentive payments paid by A. H. Belo to its named executive officers based on actual performance are quantified in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation table. That portion which constitutes the guaranteed portion is set forth in the “Bonus” column of the Summary Compensation table.

 

In December 2008, the A. H. Belo Compensation Committee determined that ICP participants, including executive officers, will continue to be eligible to receive performance-based cash bonuses expressed as a percentage of his or her base salary. The target bonus percentages of base salary for the Company’s executive officers, other than Mr. Decherd, remain unchanged from 2009. For 2009, Mr. Decherd will be eligible for an annual target bonus opportunity expressed as a percentage (85 percent) of his base salary. Any actual cash bonus awards based on performance, however, will be made entirely at the prerogative of the Compensation Committee at the end of 2009. Bonus amounts may range from zero to a maximum of 200 percent of the target bonus opportunity, depending on the level of achievement versus financial performance measures. The A. H. Belo financial performance measures previously established by the Compensation Committee for A. H. Belo’s executive officers will also remain the same for 2009: revenue; interactive revenue; expenses; and EBITDA, and will be weighted as follows: 15 percent; 20 percent; 15 percent; and 50 percent, respectively. The minimum threshold for any cash incentive payment will be at 102.5 percent of the expense target and 85 percent of target with respect to each of the other three measures of financial performance.

 

Long-Term Equity Incentive Compensation.  A. H. Belo awards long-term equity incentive grants, or LTI compensation, to executive officers as part of its overall compensation package. These awards are designed to offer competitive compensation that encourages the retention and motivation of key executives, and rewards them based upon market-driven results. The ICP provides the A. H. Belo Compensation Committee with discretion to require performance-based standards to be met before awards vest. Generally, the A. H. Belo Compensation Committee determines each executive officer’s intended LTI compensation value, then determines the allocation of the LTI compensation award among three types of equity instruments available under the ICP: stock options, time-based RSUs, referred to as TBRSUs, and performance-related RSUs, referred to as PBRSUs. A. H. Belo’s LTI equity awards described below are designed to meet its compensation objectives in three ways. First, stock options encourage and reward stock price performance, thus aligning the executive’s interests with those of shareholders. Second, PBRSUs reward the achievement of Belo’s cumulative annual financial performance goals. Finally, TBRSUs encourage executives to remain with the Company and to focus on its long-term success. Since the

ultimate value of the LTI compensation awards depends upon the performance of A. H. Belo common stock, the interests of the A. H. Belo executive officers are aligned with the financial interests of A. H. Belo’s shareholders.

 

As discussed above, the Company changed its initial approach of targeting the median of compensation surveys in determining the size and type of long-term incentive compensation awards to Incentive Compensation Plan participants, including to its executive officers. Due primarily to the significant decline in the Company’s stock price during 2008 and an analysis by the Committee’s compensation consultant reflecting a general downward trend in the size of LTI awards to executives among peer companies and similarly-sized companies in 2007, the Committee concluded that using the prior methodology for determining the size of LTI awards would result in an unacceptably high rate of share utilization. The Committee directed the Company to work with the Committee’s compensation consultant to determine an alternate approach for establishing LTI award levels. The Company first determined the maximum desired share utilization rate for the awards to all ICP participants, including executive officers. It then considered several alternatives for moderating the size of awards, including reducing overall value of award amounts, reducing the number of ICP participants receiving awards and substituting time-based cash awards. Among these alternatives, the Company elected to recommend reduced amounts of share-based awards to ICP participants to further its objectives of motivating performance and retention of key executives. Given the maximum number of shares desired to be issued, the Committee then determined the allocation of awards that were at or below the 25^th percentile of the market for each named executive officer. To emphasize these objectives and because of the difficulty of setting performance goals in an uncertain economic environment, the Company recommended that LTI awards be made in stock options.

 

Stock Option Awards — Generally, stock option awards are granted for shares of A. H. Belo Series B common stock at an exercise price equal to the closing market price of A. H. Belo’s Series A common stock on the date of grant. The option awards for Company employees vest 40 percent on the first anniversary of the date of grant, an additional 30 percent on the second anniversary, and the remaining 30 percent on the third anniversary of the date of grant. All options expire on the tenth anniversary of the date of grant. No stock option awards were made to A. H. Belo’s named executive officers with respect to 2008 compensation. However, with respect to 2009 compensation, in December 2008 the A. H. Belo Compensation Committee awarded options to purchase the Company’s Series B common stock at the closing price on December 3, 2008. The grant of these options was viewed by the Compensation Committee as the least expensive type of long-term incentive award that could be made, and determined award levels that, in the aggregate, would have less than a five percent dilutive effect on outstanding common stock. Accordingly, the Company’s executive officers received option grants in the following amounts: Robert Decherd — 120,000; Jim Moroney — 100,000; Skip Cass — 100,000; Ali Engel — 90,000; and Dan Blizzard — 50,000. The amounts in the Summary Compensation table, under the column “Option Awards,” include the accounting expense recognized in 2008 by A. H. Belo in accordance with FAS 123R for these option grants to the named executive officers. The December 2008 grants are also included in the “Grant of Plan Based Awards in 2008” table.

 

Time-Based Restricted Stock Unit Awards.  TBRSUs may be awarded to ICP participants, including A. H. Belo executive officers. TBRSUs are based on continued employment with A. H. Belo and vest at the end of a three-year period. The A. H. Belo Compensation Committee believes that the three-year cliff-vesting feature of the TBRSUs optimizes their retention effect, and because the ultimate value of the award depends on A. H. Belo’s stock price, aligns the recipient’s interest with the maximization of shareholder value. The A. H. Belo Compensation Committee determined not to award any TBRSUs to A. H. Belo executive officers in 2008 due to the distressed condition of the industry sector and the expense associated with such awards.

 

Performance-Related Restricted Stock Units.  PBRSUs may be awarded to A. H. Belo ICP participants, including A. H. Belo executive officers. These awards are earned based upon the same performance criteria, financial performance achievement levels, and payout levels established annually for short-term cash incentives. When the actual number of PBRSUs earned is determined following the close of the fiscal year, the PBRSUs vest at a rate of 331/3 percent per year over a three-year period. The A. H. Belo Compensation Committee determined not to award any PBRSUs to A. H. Belo executive officers in respect of 2008 performance due to the distressed condition of the industry sector and the expense associated with such awards.

 

Retirement Benefits.  Prior to the spin-off, Belo Corp. offered pension benefits to certain of its employees through The G. B. Dealey Retirement Pension Plan (the “Pension Plan”). In March 2007, Belo froze the Pension Plan and all affected employees were provided with transition benefits. In connection with the Pension Plan freeze, at the time of the spin-off, A. H. Belo adopted two separate defined contribution plans similar to those adopted by Belo Corp. prior to the spin, which are designed to provide supplemental pension benefits for all A. H. Belo employees who were participants in the Pension Plan, including Robert Decherd, Jim Moroney and Skip Cass. The A. H. Belo Pension Transition Supplement Plan, or the PTS Plan, is an account-balance plan intended to qualify under the provisions of Section 401(a) of the Internal Revenue Code. The A. H. Belo Pension Transition Supplement Restoration Plan, referred to as the Restoration Plan, is a non-qualified plan and is intended to cover any pension supplement payments that exceed IRS limits to all qualified plan accounts. A participant in either plan must be actively employed on the last day of the plan year in which the contribution was earned in order to receive a contribution. The amount of the contribution is determined by applying an actuarially determined factor to the participant’s eligible compensation earned during a given plan year. Participant accounts are funded following a plan year or period in which a benefit is earned. Participants are fully vested in their account balances at all times and are able to direct the investment of their accounts in the same manner as under the A. H. Belo Savings Plan. Upon termination of employment, a participant’s benefit is distributed in a single lump sum payment. Distributions from the PTS Plan are subject to IRS early withdrawal restrictions associated with qualified plans. Amounts to be contributed by the Company to our named executive officers under the PTS Plan in respect of 2008 are set forth in footnote 2 to the “Pension Benefits at December 31, 2008” table. Since there were zero account balances in the Restoration Plan as of December 31, 2008, no Restoration Plan benefit payments are included in the “Non-Qualified Deferred Compensation for 2008” table. For additional discussion of the PTS Plan and the Restoration Plan, see “Post-Employment Benefits” below.

 

Change in Control and Severance Benefits

 

Employment Agreements.  A. H. Belo does not have any individual employment agreements with any of its executive officers, except for certain retention compensation arrangements granted in connection with the spin-off and which have now all been paid. In consultation with its compensation consultant, Belo Corp. provided and A. H. Belo assumed the obligation for certain retention and special bonuses to a selected group of executives and managers who would become employees of A. H. Belo at the time of the spin-off. A total of 21 Belo Corp. and 24 A. H. Belo employees, including certain executive officers, received retention bonuses in connection with the spin-off. The retention incentive bonuses were intended to counter the effect of an offer by a potential employer during the uncertain time before, during, and after the spin-off and served to retain key employees in important positions who have institutional knowledge that would be difficult to replace or restore during and after the spin-off. The Belo Compensation Committee approved and the A. H. Belo Compensation Committee ratified retention bonuses for Skip Cass, Ali Engel, and Dan Blizzard. The retention bonus was comprised of a payment made 90 days following the spin date that was equivalent to 20 percent of the executive’s 2008 base salary, plus an assurance that such executive’s cash incentive bonus for 2008 (payable in early 2009) would be equivalent to the greater of target or actual bonus achieved for 2008 under the A. H. Belo ICP. Total retention bonuses paid or earned in respect of 2008 compensation were as follows: Skip Cass, $372,000; Ali Engel, $175,000; and Dan Blizzard, $144,000. For additional discussion, see “Termination of Employment and Change in Control Arrangements.”

 

Benefit Plans-ICP.  Under A. H. Belo’s 2008 Incentive Compensation Plan or ICP, the compensation and benefits of all plan participants, which include A. H. Belo’s executive officers, may be affected by a change in control of A. H. Belo. Generally under the ICP, a change in control event means the first of the following to occur, unless the A. H. Belo Board of Directors has adopted a resolution stipulating that such event will not constitute a change in control for purposes of the ICP:

 

 

Following a change in control of A. H. Belo, ICP bonuses are paid in full at the higher of target or forecasted full-year results in the year of the change in control; stock options held by participants, including senior management, sales executives and non-employee directors, become fully-vested and are immediately exercisable; TBRSUs vest and are payable in full immediately; and PBRSUs vest at the higher of target or forecasted full-year results in the year of the change in control; and all vested units are payable in full immediately. See “Potential Payments on Termination of Employment or Change in Control at December 31, 2008” for additional discussion.

 

Pension Transition Supplement Restoration Plan.  As discussed above, effective February 8, 2008, A. H. Belo adopted the Pension Transition Supplement Restoration Plan, or the Restoration Plan, as a non-qualified plan, to provide the portion of PTS Plan benefit that cannot be provided under the PTS Plan because of Code limitations on the amount of qualified plan benefits. Generally under the Restoration Plan, a change in control will occur on the date that:

 

 

Upon the occurrence of a change in control, the A. H. Belo Compensation Committee has the right, but not the obligation, to terminate the Restoration Plan and distribute the entire balance of participants’ accounts to the participants. Since there were zero account balances in the Restoration Plan as of December 31, 2007, no benefits are listed in the “Non-Qualified Deferred Compensation for 2008” table.

 

Change in Control Severance Plan.  Effective February 8, 2008 with the spin-off, A. H. Belo adopted a Change in Control Severance Plan. The adoption of the Change in Control Severance Plan was preceded by a review performed by our compensation consultant of change in control severance plans at media peer companies and in general industry. The study indicated that change in control arrangements were common and are generally viewed as an important tool for attracting and retaining executive talent. Over 70 percent of the companies in the peer and general industry groups reviewed by our compensation consultant provided participation in change in control severance plans to key executives. A. H. Belo’s severance plan was adopted in light of media industry consolidation, including a number of notable industry mergers, in order to promote executive retention and reduce the level of uncertainty and distraction that is likely to result from a change in control or potential change in control of A. H. Belo. When the Compensation Committee first approved the Change in Control Severance Plan, it determined that payment and benefits levels were appropriate in light of survey data for media companies the size of the Company following the spin-off, and the initial severance multiples for participants in the Change in Control Severance Plan were set in the range of 3.0 to 1.5. Subsequent to the initial adoption of the plan in February 2008, however, the plan was amended, effective December 31, 2008, to reduce the severance multiple to 2 for the Chief Executive Officer and to 1.5 for all other designated participants. The severance multiples, as reduced by the amendment, are below the typical multiples in the plans surveyed by Mercer. A. H. Belo does not design its other elements of compensation in anticipation of a change in control, but instead change in control payments provide security to executives in the event of job loss in a triggering transaction. The A. H. Belo plan provides for severance benefits for designated participants in the event of a change in control of A. H. Belo and a termination of employment under specified circumstances. The current participants, as designated by the A. H. Belo Compensation Committee, are A. H. Belo’s executive officers. Additional participants may be designated by the Committee from time to time.

 

The triggering change in control events under the Change in Control Plan are similar to the triggering events under A. H. Belo’s ICP discussed above. If triggered, designated participants in the Change in Control Severance Plan are entitled to benefits upon termination of employment within 24 months of a change in control of A. H. Belo if their termination is (1) involuntary other than for “cause” as defined in the plan or (2) voluntary for “good reason” as defined in the plan. In addition, a participant may voluntarily terminate employment for any reason or without

reason during the 30-day period immediately following the first anniversary of a change in control and will be entitled to receive payments and benefits under the plan. The triggering of severance benefits upon the occurrence of both a change in control and termination of employment is a common feature of change in control benefits surveyed. Upon such termination, a participant will receive his or her base salary in effect at the time of change in control, plus the greater of (i) current target bonus in effect prior to the change in control or (ii) actual bonus (defined as the average of the last three years’ bonus payments), multiplied by the severance multiple.

 

Upon a change of control under the plan, a participant will receive a cash payment in lieu of (1) employer-provided contributions to the A. H. Belo Savings Plan, the PTS Plan, and the Restoration Plan for a number of years equal to the severance multiple; (2) cost of medical and dental benefits in excess of employee premiums for a number of years equal to the severance multiple; and (3) reimbursement for employment outplacement services up to $25,000 and legal expenses incurred to enforce participant’s rights under the plan. If all or a portion of any payment or distribution by A. H. Belo under the plan is subject to excise tax, then A. H. Belo will make a “gross-up” payment to the terminated employee, designed to cover the excess tax liability. Except in connection with the Change in Control Severance Plan, A. H. Belo’s named executive officers do not receive tax “gross-up” payments to compensate them for taxes incurred as a result of payments or benefits received in connection with a change in control or termination of employment. See “Potential Payments on Termination of Employment or Change in Control at December 31, 2008” for additional discussion.

 

Severance Plan.  Effective as of January 1, 2009, the A. H. Belo Management Committee, under the authority of the Board of Directors, adopted the A. H. Belo Severance Plan which provides for severance payments for both officers and non-officer employees of A. H. Belo and its subsidiary companies in the event of termination of employment due to general involuntary terminations including, but not limited to, reduction-in-force and cost re-engineering actions. Under this plan, named executive officers, as well as all vice presidents and above, who are terminated due to an action outlined above are eligible for severance pay in a lump sum payment equal to the sum of (1) 1.0 week of base salary multiplied by the participant’s years of service; provided, however that in no event will the amount paid under this plan to such participants be less than 16 weeks’ base salary, plus (2) an amount equal to six times the monthly COBRA premium applicable to the participant’s coverage level under the A. H. Belo Health Care and Welfare Benefit Plan or its successor at the participant’s termination of employment. For additional discussion, see “Termination of Employment and Change in Control Arrangements” and the “Potential Payments on Termination of Employment or Change in Control at December 31, 2008” table.

 

Compensation Committee Interlocks and Insider Participation

 

Doug Carlston (Chairman), Louis Caldera, Larry Hirsch and Don Williams served as members of A. H. Belo’s Compensation Committee during 2008. Two new directors, Dave Morgan and John Puerner, were elected to the Board of Directors in May 2008 and became Compensation Committee members at that time. Louis Caldera resigned from the A. H. Belo Board of Directors and Compensation Committee effective as of January 16, 2009 as a result of his appointment by President Barack Obama as Assistant to the President and Director of the White House Military Office. No member of the A. H. Belo Compensation Committee during 2008 was a current or former officer or employee of A. H. Belo or had any relationship with A. H. Belo requiring disclosure under “Director Compensation — Certain Relationships.” None of A. H. Belo’s executive officers served as a director or as a member of the compensation committee (or other committee serving an equivalent function) of any other entity that had an executive officer serving as a director or as a member of A. H. Belo’s Compensation Committee during 2008.

 

Compensation Committee Report

 

In accordance with its written charter adopted by our Board, the Compensation Committee has oversight of the Company’s overall compensation structure, policies and programs. In exercising its oversight responsibility, the Committee has retained a compensation consultant to advise the Committee regarding market and general compensation trends.

 

The Committee, after consultation with its compensation consultant, has reviewed and discussed the Compensation Discussion and Analysis with management, which has the responsibility for preparing the Compensation Discussion and Analysis. Based upon this review and discussion, the Committee recommended to our Board that the

Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2008.

 

COMPENSATION COMMITTEE

 

Douglas G. Carlston, Chairman

Laurence E. Hirsch

David R. Morgan

John P. Puerner

J. McDonald Williams

 

The following information summarizes annual and long-term compensation awarded to, earned by or paid to A. H. Belo’s principal executive officer, principal financial officer and its three other most highly-paid executive officers (the “named executive officers”) for services in all capacities to A. H. Belo for the year ended December 31, 2008.

 

It is important to note that the executive compensation information in the table below includes required SEC disclosures about long-term equity awards that are valued at SEC-prescribed amounts. The amounts in columns (e) and (f) below reflect accounting expense and not actual award value that may be received by the executive officer upon vesting.

 

 

 

 

 

Additionally, amounts in the All Other Compensation column (i) for 2008 include $8,760 for life insurance purchased for Robert Decherd in 2008 by A. H. Belo and $1,882 for tax gross-ups. The total value of executive perquisites and personal benefits paid by A. H. Belo in 2008 did not exceed $10,000 for any named executive officer.

 

 

 

For 2008, the proportion of equity-based compensation in relation to total compensation, excluding changes in pension value and above-market interest from non-qualified deferred compensation plans, for each of the named executive officers was as follows: Robert Decherd-55%; Jim Moroney-14%; Skip Cass-16%; Ali Engel-5%; and Dan Blizzard-7%.

 

Equity Holdings and Value Realization

 

When Belo Corp. spun off its newspaper businesses to form A. H. Belo, equitable adjustments were made with respect to stock options and restricted stock units (RSUs) originally relating to Belo common stock. Each outstanding Belo stock option was divided into two stock options: (1) an adjusted Belo stock option covering the same number of shares as the existing option but with an exercise price adjusted to reflect the value of A. H. Belo stock distributed to Belo shareholders; and (2) a new A. H. Belo stock option to acquire the number of shares of A. H. Belo Series B common stock equal to the product of the number of Belo stock options held by the person at the time of the spin-off and the distribution ratio. The exercise price of the new A. H. Belo stock option was established by reference to the relative trading value of the A. H. Belo and Belo common stock on the spin date.

 

The RSUs were treated for purposes of the spin-off as if they were issued and outstanding shares. The Belo RSUs and the A. H. Belo RSUs, taken together, had the same aggregate value, based on the closing prices of the Belo stock and the A. H. Belo stock on the spin date, as the original RSUs immediately prior to the spin-off. Each stock option and RSU (Belo and A. H. Belo) otherwise has the same terms as the original award. The awards will continue to vest under the original vesting schedule based on continued employment with Belo or A. H. Belo, as applicable.

 

The following two tables show each named executive officer’s A. H. Belo and Belo equity awards.

 

The following table contains information on all A. H. Belo equity awards that were outstanding as of December 31, 2008.