We provide our Named Executive Officers and other employees with a base salary to compensate them for services rendered during the year. Base salary ranges for Named Executive Officers are determined for
each executive officer based on various factors considered by the Compensation Committee, including his or her position and level of responsibility and his or her actual performance during the preceding year. Base salaries for each year are
typically evaluated annually in the first quarter of such year. Merit-based increases to base salaries for executive officers are based on the Compensation Committees assessment of various factors, including the individuals performance
during the preceding year and base salary history.
Performance-Based Incentive Compensation
Our 2005 Employee Stock and Incentive Plan provides the Compensation Committee with the flexibility to design cash and stock-based
incentive compensation programs to promote performance and the achievement of our goals and objectives by executive officers and other key employees by allowing them to participate in our long-term growth and profitability. The Compensation
Committee believes that providing performance-based incentive compensation is necessary to attract and retain superior executive talent and to align the financial interests of executive officers with those of our stockholders. A portion of each
executive officers potential aggregate compensation is in the form of incentive compensation. There are two types of performance-based incentive compensation used by the Compensation Committee. The first type is short-term incentive
compensation in the form of a performance based cash award. The second type is long-term incentive compensation in the form of grants of stock options, restricted stock or restricted stock units.
For fiscal year 2011, the Compensation Committee adopted a 2011 management bonus (the 2011 Bonus Plan) plan pursuant to our
2005 Employee Stock and Incentive Plan. Under the terms of the 2011 Bonus Plan, performance based cash awards, if any, were to be awarded to the Chief Executive Officer and other executive officers, officers and senior management based on, and
subject to, the quarterly achievement of a specified performance goal. The performance goal was for the Company to exceed, on an individual quarterly basis, the corresponding projected quarterly adjusted earnings before interest, taxes,
depreciation, amortization, stock based compensation, and certain other charges contained in the Companys 2011 annual budget (or, in case of a budgeted operating loss, to reduce the operating loss below the budgeted operating loss)
The maximum aggregate amount to be awarded for any quarter was to be equal to the sum of the
following: (i) fifty percent (50%) of the first Two Hundred Thousand Dollars ($200,000) in amount by which the Adjusted EBITDA for such quarter exceeded the budgeted Adjusted EBITDA for such quarter (the Excess EBITDA) up to a
maximum of One Hundred Thousand Dollars ($100,000), plus (ii) if the amount of Excess EBITDA for such quarter exceeded Two Hundred Thousand Dollars ($200,000), twenty percent (20%) of the amount of such excess, provided, however, the total
bonus amount under clauses (i) and (ii) for each quarter cannot exceed Two Hundred Thousand Dollars ($200,000).
During fiscal year 2011, $259,000 of performance based cash awards were granted under the 2011 Bonus Plan.
Long-term incentive compensation for each executive officer consists of awards of stock options based on the executive officers
level and scope of responsibility. The Compensation Committee is responsible for the granting of all equity-based compensation, including the award dates for each grant, which is determined in its discretion. Stock options typically vest over a
three-year period in quarterly installments. An important purpose of the granting of stock options is to retain executive talent and incentivize the executive team to increase stockholder value. During 2011 the Committee approved the issuance of a
total of 266,000 stock options to all executive officers and officers (including the Named Executive Officers, other than the Chief Executive Officer) and the issuance of 88,000 stock options to the Chief Executive Officer. The grant of options to
the Companys executive officers and officers, including the Named Executive Officers, was approximately 53% of the total options granted by the Company during 2011.
For fiscal year 2012, the Compensation Committee has retained an independent compensation consultant to assist the Committee in reviewing and establishing executive and senior management compensation. As
of the date of this Proxy Statement, the Committee has not finalized short-term compensation or long-term incentive compensation for fiscal year 2012. Pending its final determination, the Committee has authorized the continuation of the 2011 base
compensation and the 2011 Bonus Plan. Upon its final determination of 2012 compensation, appropriate adjustments may be made, to the extent permissible, to effectuate such determination as of the beginning of the fiscal year.