Lender Processing Services, Inc.
601 Riverside Avenue
Jacksonville, Florida 32204

 

April 4, 2011

 

Dear Shareholder:

 

On behalf of the board of directors of Lender Processing Services, Inc., I cordially invite you to attend the annual meeting of shareholders of Lender Processing Services, Inc. The meeting will be held on May 19, 2011 at 10:00 a.m., Eastern Daylight Time, in the Peninsular Auditorium at 601 Riverside Avenue, Jacksonville, Florida 32204. The formal Notice of Annual Meeting and Proxy Statement for this meeting are attached to this letter.

 

The Notice of Annual Meeting and Proxy Statement contain more information about the annual meeting, including:

 

 

Whether or not you plan to attend the annual meeting, please vote by one of these outlined methods to ensure that your shares are represented and voted in accordance with your wishes. This will help us avoid the expense of sending follow-up letters to ensure that a quorum is represented at the annual meeting, and will assure that your vote is counted if you are unable to attend.

 

On behalf of the board of directors, I thank you for your cooperation.

 

Sincerely,

 

Jeffrey S. Carbiener
President and Chief Executive Officer

Lender Processing Services, Inc.
601 Riverside Avenue
Jacksonville, Florida 32204

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

To the Shareholders of Lender Processing Services, Inc.:

 

Notice is hereby given that the 2011 Annual Meeting of Shareholders of Lender Processing Services, Inc. will be held on May 19, 2011 at 10:00 a.m., Eastern Daylight Time, in the Peninsular Auditorium at 601 Riverside Avenue, Jacksonville, Florida 32204 for the following purposes:

 

1. to elect three Class III directors to serve until the 2014 annual meeting of shareholders or until their successors are duly elected and qualified or until their earlier death, resignation or removal;

 

2. to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2011 fiscal year;

 

3. to approve, by non-binding vote, executive compensation;

 

4. to recommend, by non-binding vote, the frequency of the vote to approve executive compensation;

 

5. to consider and approve the Lender Processing Services, Inc. Amended and Restated 2008 Omnibus Incentive Plan; and

 

6. to transact such other business as may properly come before the meeting or any adjournment thereof.

 

The board of directors set March 21, 2011 as the record date for the meeting. This means that owners of Lender Processing Services, Inc. common stock at the close of business on that date are entitled to:

 

 

All shareholders are cordially invited to attend the meeting in person. However, even if you plan to attend the annual meeting in person, please read these proxy materials and cast your vote on the matters that will be presented at the meeting. You may vote your shares through the Internet, by telephone, or by mailing the enclosed proxy card. Instructions for our registered shareholders are described under the question “How do I vote?” on page 2 of the proxy statement.

 

Sincerely,

 

Todd C. Johnson
Executive Vice President, General
Counsel and Corporate Secretary

 

Jacksonville, Florida

April 4, 2011

 

PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE (OR VOTE VIA TELEPHONE OR INTERNET) TO ASSURE REPRESENTATION OF YOUR SHARES.

 

TABLE OF CONTENTS

 

Lender Processing Services, Inc.
601 Riverside Avenue
Jacksonville, Florida 32204

 

 

 

 

PROXY STATEMENT

 

 

 

 

The enclosed proxy is solicited by the board of directors of Lender Processing Services, Inc. (the “Company” or “LPS”) for use at the Annual Meeting of Shareholders to be held on May 19, 2011 at 10:00 a.m., Eastern Daylight Time, or at any adjournment thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders. The meeting will be held in the Peninsular Auditorium at 601 Riverside Avenue, Jacksonville, Florida 32204.

 

It is anticipated that such proxy, together with this proxy statement, will be first mailed on or about April 4, 2011 to all shareholders entitled to vote at the meeting.

 

The Company’s principal executive offices are located at 601 Riverside Avenue, Jacksonville, Florida 32204, and its telephone number at that address is (904) 854-5100.

 

Unless stated otherwise or the context otherwise requires, all references in this proxy statement to “us,” “we,” “our,” “LPS” or the “Company,” are to Lender Processing Services, Inc., a Delaware corporation that was incorporated in December 2007 as a wholly-owned subsidiary of FIS, and its subsidiaries; all references to “FIS,” the “former parent,” or the “holding company” are to Fidelity National Information Services, Inc., a Georgia corporation formerly known as Certegy Inc. (“Certegy”), and its subsidiaries, that owned all of LPS’s shares until July 2, 2008; all references to “former FIS” are to Fidelity National Information Services, Inc., a Delaware corporation, and its subsidiaries, prior to the Certegy merger described below; all references to “old FNF” are to Fidelity National Financial, Inc., a Delaware corporation that owned a majority of FIS’s shares through November 9, 2006; and all references to “FNF” are to Fidelity National Financial, Inc. (formerly known as Fidelity National Title Group, Inc.), formerly a subsidiary of old FNF.

 

Prior to July 2, 2008, the Company was a wholly-owned subsidiary of FIS. In October 2007, the board of directors of FIS approved a plan of restructuring pursuant to which FIS would spin off its lender processing services segment to its shareholders in a tax free distribution. Pursuant to this plan of restructuring, on June 16, 2008, FIS contributed to us all of its interest in the assets, liabilities, businesses and employees related to FIS’s lender processing services operations in exchange for a certain number of shares of our common stock and $1,585.0 million aggregate principal amount of our debt obligations. On July 2, 2008, FIS distributed to its shareholders a dividend of one-half share of our common stock, par value $0.0001 per share, for each issued and outstanding share of FIS common stock held on June 24, 2008, which we refer to as the “spin-off.” Also on July 2, 2008, FIS exchanged 100% of our debt obligations for a like amount of FIS’s existing Tranche B Term Loans issued under its Credit Agreement dated as of January 18, 2007. The spin-off was tax-free to FIS and its shareholders, and the debt-for-debt exchange undertaken in connection with the spin-off was tax-free to FIS.

 

FIS is the result of the February 2006 merger of Certegy Inc. and former FIS, which we refer to as the Certegy merger. Certegy, Inc. survived the merger and was renamed Fidelity National Information Services, Inc. Prior to the Certegy merger, former FIS was a majority-owned subsidiary of old FNF. Old FNF merged into our former parent in November 2006 as part of a reorganization, which included old FNF’s spin-off of Fidelity National Title Group, Inc. Fidelity National Title Group, Inc. was renamed Fidelity National Financial, Inc. following this reorganization, and we refer to it as FNF.

 

Your shares can be voted at the annual meeting only if you vote by proxy or if you are present and vote in person. Even if you expect to attend the annual meeting, please vote by proxy to assure that your shares will be represented.

 

Who is entitled to vote?

 

All record holders of LPS common stock as of the close of business on March 21, 2011 are entitled to vote. On that day, 86,344,646 shares were issued and outstanding and eligible to vote, and there were 8,338 shareholders of record. Each share is entitled to one vote on each matter presented at the annual meeting.

 

What shares are covered by the proxy card?

 

The proxy card covers all shares held by you of record (i.e., shares registered in your name), and any shares held for your benefit in LPS’s 401(k) plan and Employee Stock Purchase Plan.

 

What if I am a beneficial holder rather than an owner of record?

 

If you hold your shares through a broker, bank, or other nominee, you will receive separate instructions from the nominee describing how to vote your shares.

 

How do I vote?

 

There are three ways to vote by proxy, other than by attending the annual meeting and voting in person:

 

 

What does it mean to vote by proxy?

 

It means that you give someone else the right to vote your shares in accordance with your instructions. In this case, we are asking you to give your proxy to the Executive Chairman of our board of directors and our President and Chief Executive Officer, who are sometimes referred to as the “proxy holders.” By giving your proxy to the proxy holders, you assure that your vote will be counted even if you are unable to attend the annual meeting. If you give your proxy but do not include specific instructions on how to vote on a particular proposal described in this proxy statement, the proxy holders will vote your shares in accordance with the recommendation of the board for such proposal.

 

On what am I voting?

 

You will be asked to consider five proposals at the annual meeting.

 

 

 

What happens if other matters are raised at the meeting?

 

Although we are not aware of any matters to be presented at the annual meeting other than those contained in the Notice of Annual Meeting, if other matters are properly raised at the meeting in accordance with the procedures specified in LPS’s certificate of incorporation and bylaws, all proxies given to the proxy holders will be voted in accordance with their best judgment.

 

What if I submit a proxy and later change my mind?

 

If you have submitted your proxy and later wish to revoke it, you may do so by doing one of the following: giving written notice to the Corporate Secretary; submitting another proxy bearing a later date (in any of the permitted forms); or casting a ballot in person at the annual meeting.

 

Who will count the votes?

 

Broadridge Investor Communications Services will serve as proxy tabulator and count the votes, and the results will be certified by the inspector of election.

 

How many votes must each proposal receive to be adopted?

 

The following votes must be received:

 

 

What constitutes a quorum?

 

A quorum is present if a majority of the outstanding shares of common stock entitled to vote is represented. Broker non-votes and abstentions will be counted for purposes of determining whether a quorum is present.

 

What are broker non-votes?

 

Broker non-votes occur when nominees, such as banks and brokers holding shares on behalf of beneficial owners, do not receive voting instructions from the beneficial holders at least ten days before the meeting. If that happens, the nominees may vote those shares only on matters deemed “routine” by the NYSE, such as Proposal No. 2 regarding ratification of auditors. The board of directors has determined that Proposals Nos. 1, 3, 4 and 5 are non-routine matters. Nominees cannot vote on non-routine matters if they do not receive voting instructions from beneficial holders, resulting in so-called “broker non-votes.” Please be sure to give specific voting instructions to your broker so that your vote can be counted.

What effect does an abstention have?

 

With respect to Proposal No. 1 and Proposal No. 4, abstentions or directions to withhold authority will not be included in vote totals and will not affect the outcome of the vote. For purposes of the Delaware law requirement that Proposal No. 2, Proposal No. 3 and Proposal No. 5 receive the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote, abstentions will have the effect of a vote against the proposals. With respect to Proposal No. 5, an abstention or direction to withhold authority is a vote “cast” for purposes of the NYSE listing standard that requires that the total vote cast on Proposal No. 5 must represent over 50% of the total number of shares entitled to vote on the proposal.

 

Who pays the cost of soliciting proxies?

 

We pay the cost of the solicitation of proxies, including preparing and mailing the Notice of Annual Meeting of Shareholders, this proxy statement and the proxy card. Following the mailing of this proxy statement, directors, officers and employees of the Company may solicit proxies by telephone, facsimile transmission or other personal contact. Such persons will receive no additional compensation for such services. Brokerage houses and other nominees, fiduciaries and custodians who are holders of record of shares of common stock will be requested to forward proxy soliciting material to the beneficial owners of such shares and will be reimbursed by the Company for their charges and expenses in connection therewith at customary and reasonable rates. In addition, the Company has retained Georgeson Inc. to assist in the solicitation of proxies for an estimated fee of $10,000, plus reimbursement of expenses.

 

What if I share a household with another shareholder?

 

We have adopted a procedure approved by the Securities and Exchange Commission called “householding.” Under this procedure, shareholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of our annual report and proxy statement unless one or more of these shareholders notifies us that they wish to continue receiving individual copies. This procedure will reduce our printing costs and postage fees. Shareholders who participate in householding will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings. If you are eligible for householding, but you and other shareholders of record with whom you share an address currently receive multiple copies of our annual reports and/or proxy statements, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of the annual report or proxy statement for your household, please contact our transfer agent, Computershare Investor Services (in writing: 250 Royall Street, Canton, Massachusetts 02021; or by telephone: (866) 299-4219). If you participate in householding and wish to receive a separate copy of the 2010 Annual Report or this proxy statement, or if you do not wish to participate in householding and prefer to receive separate copies of future annual reports and/or proxy statements, please contact Computershare Investor Services as indicated above. Beneficial shareholders can request information about householding from their banks, brokers or other holders of record. The Company hereby undertakes to deliver promptly, upon written or oral request, a separate copy of the annual report to shareholders or proxy statement, as applicable, to a Company shareholder at a shared address to which a single copy of the document was delivered.

 

The following paragraphs provide information as of the date of this proxy statement about each nominee for director, and each director continuing in office. The information presented includes their ages, years of service on our board, business experience and service on other public companies’ boards of directors, including any such directorships held during the past five years. We have also included information about each nominee’s and each continuing director’s specific experience, qualifications, attributes or skills that led the board to conclude, at the time we filed our proxy statement in light of our business and structure, that such nominee or continuing director should serve on our board.

Information About the Nominees for Election

 

The names of the nominees for election as directors of the Company and certain biographical information concerning each of them is set forth below:

 

 

 

 

Lee A. Kennedy.  Lee A. Kennedy has served as a director of our Company since May 2008, as Chairman of our board since March 2009, and as our Executive Chairman since September 2009. Mr. Kennedy also serves as Chairman of Ceridian Corporation, a position he has held since January 2010, and served as interim Chief Executive Officer of Ceridian from January 2010 until August 2010. Mr. Kennedy served as President and Chief Executive Officer of our former parent FIS from the time of the Certegy merger in February 2006 until October 2009, and as Executive Vice Chairman of FIS from October 2009 through February 2010. Prior to the Certegy merger in February 2006, Mr. Kennedy had served as the Chief Executive Officer of Certegy since March 2001 and as the Chairman of Certegy since February 2002. Prior to that, he served as President, Chief Operating Officer and a director of Equifax Inc., a provider of consumer credit and other business information, from June 1999 until Certegy was spun off from Equifax in June 2001. Mr. Kennedy also serves as the non-executive Chairman of the board of directors of Ceridian Corporation, and has served on the boards of directors of FIS and Equifax Inc. in the past five years. In determining that Mr. Kennedy should serve as a director, our board considered the deep knowledge and understanding of our operations and our industry he gained as President and Chief Executive Officer of our former parent. The board also believes that, as a result of Mr. Kennedy’s longtime service as a leader of a complex business organization, he can provide the board with valuable insight into the challenges the Company may face as it grows and continues to operate in a regulated industry and can contribute to our vision for our long-term strategy and success.

 

Philip G. Heasley.  Philip G. Heasley has served as a director of our Company since March 2009. Mr. Heasley has served as the President and CEO of ACI Worldwide, Inc., a global provider of electronic payment solutions to financial institutions, since May 2005. From 2003 until May 2005, he served as Chairman and Chief Executive Officer of Paypower LLC. Prior to that, Mr. Heasley served as Chairman and Chief Executive Officer of First USA Bank from 2000 to 2003. Before First USA, Mr. Heasley spent 13 years in executive positions at U.S. Bancorp, including six years as Vice Chairman and two years as President and Chief Operating Officer. Mr. Heasley served on the board of directors of FNF from October 2005 until March 2009, and served on the board of old FNF from 2000 until it was merged into FIS in November 2006. Mr. Heasley also serves as a director of ACI Worldwide, Inc. and Tier Technologies, Inc., and formerly served on the boards of Kinterra, Inc. and Ohio Casualty Corporation. In addition, since April 2008, Mr. Heasley has served on the National Infrastructure Advisory Council, which provides the President of the United States, through the Secretary of Homeland Security, with advice on the security of the critical infrastructure sectors and their information systems. In determining that Mr. Heasley should serve as a director, our board considered his experience as chief executive of a company that provides technology services to financial institutions and his experience as an executive of large financial institutions, and his resulting ability to understand our customer base and the unique issues surrounding those relationships. In addition, the board considered Mr. Heasley’s historical understanding of certain of our businesses that were formerly old FNF businesses, which he acquired as a director of old FNF.

 

Susan E. Lester.  Susan E. Lester has served as a director of our Company since December 2010, and has been a private investor since May 2002. Ms. Lester served as Chief Financial Officer of Homeside Lending, Inc., a

mortgage bank, from October 2001 to May 2002. Prior to that, Ms. Lester served as Chief Financial Officer of U.S. Bancorp, a commercial bank, from February 1996 to May 2000. Ms. Lester also serves as a director of PacWest Bancorp and Arctic Cat Inc., and formerly served on the board of Bremer Investment Funds, Inc. In determining that Ms. Lester should serve as a director, our board considered her high level of financial expertise and extensive knowledge of accounting issues and senior leadership, which we believe provide a strong foundation for her service on our Audit Committee. Our board also considered her significant experience working for and knowledge of banking organizations, which helps her to understand our customers and our industry.

 

Information About Our Directors Continuing in Office

 

Term Expiring 2012

 

 

 

 

David K. Hunt.  David K. Hunt has served as a director of our Company since February 2010. Since December 2005, Mr. Hunt has been a private investor. He previously served as the non-executive Chairman of the Board of OnVantage, Inc., a provider of corporate spend management and supplier marketing technology for global professional meetings and events, from October 2004 until December 2005. Prior to that, he served as the Chairman and Chief Executive Officer of PlanSoft Corporation, an internet-based business-to-business solutions provider in the meeting and convention industry, a position he held from May 1999 to October 2004. Mr. Hunt also serves on the board of directors of our former parent, FIS, where he serves as a member of both the audit and compensation committees. In determining that Mr. Hunt should serve as a director, our board considered his long familiarity with our businesses and industry which he acquired as a director of FIS prior to the spin-off. The board also considered Mr. Hunt’s experience on the audit and compensation committees of FIS and his familiarity with the responsibilities of those committees and the issues they consider, which we believe enhances his ability to more effectively serve on the audit and compensation committees of our board.

 

James K. Hunt.  James K. Hunt has served as a director of our Company since May 2008. He served as a director of FIS from April 2006 until the spin-off date. Mr. Hunt has served as Chairman of the Board, Chief Executive Officer and Chief Investment Officer of THL Credit, Inc., an externally-managed, non-diversified closed-end management investment company, and of THL Credit Advisors, a registered investment advisor that provides administrative services to THL Credit, Inc., since April 2010. He has also served as Chief Executive Officer and Chief Investment Officer of THL Credit Group, L.P., which provides capital to public and private companies for growth, recapitalizations, leveraged buyouts and acquisitions, since May 2007. THL Credit Advisors, THL Credit, Inc. and THL Credit Group, L.P. are each affiliates of Thomas H. Lee Partners, L.P. Previously, Mr. Hunt founded and was CEO and Managing Partner of Bison Capital Asset Management, LLC, a private equity firm, since 2001. Prior to founding Bison Capital, Mr. Hunt was the President of SunAmerica Corporate Finance and Executive Vice President of SunAmerica Investments (subsequently, AIG SunAmerica). Mr. Hunt also serves as a director of THL Credit, Inc., and formerly served on the boards of Primus Guaranty, Ltd. and our former parent FIS. In determining that Mr. Hunt should serve as a director, our board considered his experience in managing financial services companies and in capital markets. The board also considered Mr. Hunt’s experience in overseeing the management of significantly leveraged companies in which his private equity firms have invested, and his ability to understand the issues we may face as a result of our significant debt under our credit agreement and senior notes.

Term Expiring in 2013

 

 

 

 

Jeffrey S. Carbiener.  Jeffrey S. Carbiener has served as our President and Chief Executive Officer since the spin-off and has served as a director since March 2009. He served as Executive Vice President and Chief Financial Officer of FIS, our former parent, from February 2006 until the spin-off, and served as the Executive Vice President and Group Executive, Check Services of Certegy from June 2001 until the time of the Certegy merger in February 2006. Prior to joining Certegy, Mr. Carbiener served as Senior Vice President, Equifax Check Solutions, a unit of Equifax Inc., from February 1998 until June 2001. In determining that Mr. Carbiener should serve as a director, our board considered the deep knowledge and understanding of our operations and our industry that Mr. Carbiener has obtained as our Chief Executive Officer, as well as through his service in leadership positions with FIS, Certegy and Equifax. Our board believes that Mr. Carbiener has demonstrated integrity, values and good judgment in the leadership positions in which he has served, and believes those qualities make him well-suited to provide thoughtful and well-reasoned input as a member of our board of directors.

 

Alvin R. (Pete) Carpenter.  Mr. Carpenter has served as a director of our Company since April 2009 and as our lead director since February 2010. Mr. Carpenter retired from CSX Corporation (“CSX”) in February 2001, where he had served as Vice Chairman from July 1999 until his retirement. From 1962 until February 2001, he held a variety of positions with CSX, including President and Chief Executive Officer of CSX Transportation, Inc. from 1992 to July 1999, and Executive Vice President — Sales and Marketing of CSX Transportation, Inc. from 1989 to 1992. Mr. Carpenter also serves on the boards of directors of PSS World Medical, Inc., Regency Centers Corporation and Stein Mart, Inc., and previously served on the boards of Barnett Bank, Inc., Nations Bank and Florida Rock Industries, Inc. In determining that Mr. Carpenter should serve as a director, our board considered his extensive experience operating a complex and decentralized business organization. The board also considered Mr. Carpenter’s experience serving on the boards of banking companies, which helps him to understand our customers and industry, and his service on other public company boards of directors and their committees, which we believe enhances his ability to more effectively serve on our board of directors and the committees on which he serves.

 

John F. Farrell, Jr. John F. Farrell, Jr. has served as a director of our Company since March 2009. Mr. Farrell is a private investor and has been since 1997. From 1985 through 1997 he was Chairman and Chief Executive Officer of North American Mortgage Company. Mr. Farrell served on the board of directors of FNF from October 2005 until March 2009, and served on the board of old FNF from 2000 until it was merged into FIS in November 2006. In determining that Mr. Farrell should serve as a director, our board considered his long experience as chief executive of a mortgage company and the knowledge of our industry and customers that he acquired through that service. The board also considered Mr. Farrell’s historical understanding of certain of our businesses that were formerly old FNF businesses, which he acquired as a director of old FNF.

 

The Certificate of Incorporation of the Company provides that our board shall consist of not less than one nor more than fourteen directors. Our board determines the number of directors within these limits, and the current number of directors is set at eight. Our directors are divided into three classes, each class as nearly equal in number as possible. The term of office of only one class of directors expires in each year. The directors elected at this annual meeting will hold office for a term of three years or until their successors are elected and qualified.

 

At this annual meeting, the following persons, each of whom is a current director of the Company, have been nominated to stand for election to the board for a three-year term expiring in 2014:

 

Lee A. Kennedy
Philip G. Heasley
Susan E. Lester

 

The board believes that each of the nominees will stand for election and will serve if elected as a director.

 

THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” EACH OF THE LISTED NOMINEES.

 

General Information About KPMG LLP

 

Although shareholder ratification of the appointment of our independent registered public accounting firm is not required by our bylaws or otherwise, we are submitting the selection of KPMG LLP to our shareholders for ratification as a matter of good corporate governance practice. Even if the selection is ratified, the audit committee in its discretion may select a different independent registered public accounting firm at any time if it determines that such a change would be in the best interests of LPS and our shareholders. If our shareholders do not ratify the audit committee’s selection, the audit committee will take that fact into consideration, together with such other factors it deems relevant, in determining its next selection of our independent registered public accounting firm.

 

In choosing our independent registered public accounting firm, our audit committee conducts a comprehensive review of the qualifications of those individuals who will lead and serve on the engagement team, the quality control procedures the firm has established, and any issue raised by the most recent quality control review of the firm. The review also includes matters required to be considered under the SEC rules on “Auditor Independence,” including the nature and extent of non-audit services, to ensure that they will not impair the independence of the accountants.

 

Representatives of KPMG LLP are expected to be present at the annual meeting. These representatives will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

Principal Accounting Fees and Services

 

The audit committee has engaged KPMG LLP to audit the consolidated financial statements of the Company for the 2011 fiscal year. For services rendered to us during or in connection with our fiscal years ended December 31, 2010 and 2009, we were billed the following fees by KPMG:

 

Audit Fees.  Audit fees consisted principally of fees for the audits and other filings related to the Company’s 2010 and 2009 audits, and audits of the Company’s subsidiaries required for regulatory reporting purposes, including billings for out-of-pocket expenses incurred.

 

Audit-Related Fees.  Audit-related fees in 2010 and 2009 consisted principally of fees for SAS 70 attestations, including billings for out-of-pocket expenses incurred.

 

Tax Fees.  Tax fees in 2010 consisted principally of fees for preparation of the Form 5500 for the Company’s health and welfare benefit plan.

 

All Other Fees.  We were not billed for any other fees in 2010.

 

Approval of Accountants’ Services

 

In accordance with the requirements of the Sarbanes-Oxley Act of 2002, all audit and audit-related work and all non-audit work performed by KPMG LLP is approved in advance by the audit committee, including the proposed fees for such work. The audit committee has adopted policies and procedures for pre-approving all work performed by KPMG. Specifically, the audit committee has pre-approved the use of KPMG for specific types of services subject to maximum amounts set by the committee. Additionally, specific pre-approval authority is delegated to our audit committee chairman, provided that the estimated fee for the proposed service does not exceed a pre-approved maximum amount set by the committee. Our audit committee chairman must report any pre-approval decisions to the audit committee at its next scheduled meeting. Any other services are required to be pre-approved by the audit committee.

 

THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF KPMG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2011 FISCAL YEAR.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, enacted in July 2010, requires that we provide our shareholders with the opportunity to vote to approve, on a non-binding advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission.

 

As described in detail under the heading “Compensation Discussion and Analysis and Executive and Director Compensation,” we seek to closely align the interests of our named executive officers with the interests of our shareholders. Our compensation programs are designed to reward our named executive officers for the achievement of short-term and long-term strategic and operational goals and the achievement of increased total shareholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking.

 

The vote on this resolution is not intended to address any specific element of compensation. Instead, the vote relates to the compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC. The vote is advisory, which means that the vote is not binding on the Company, our board of directors or the compensation committee of our board and will not require us to take any action. The final decision on the compensation of our named executive officers remains with our compensation committee and the board, although the compensation committee and the board will consider the outcome of this vote when making compensation decisions.

 

Accordingly, we ask our shareholders to vote on the following resolution at the Annual Meeting:

 

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2010 Summary Compensation Table and the other related tables and disclosure.”

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT.

 

 

The Dodd-Frank Act also provides that shareholders must be given the opportunity to vote, on a non-binding advisory basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our named executive officers as disclosed in accordance with the compensation disclosure rules of the Securities and Exchange Commission, which we refer to as an advisory vote on executive compensation. By voting with respect to this Proposal No. 4, shareholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation once every one, two or three years. Shareholders also may, if they wish, abstain from casting a vote on this proposal.

 

Our board of directors has determined that an annual advisory vote on executive compensation will allow our shareholders to provide timely, direct input on the Company’s executive compensation philosophy, policies and practices as disclosed in the proxy statement each year. The board believes that an annual vote is therefore consistent with the Company’s efforts to engage in an ongoing dialogue with our shareholders on executive compensation and corporate governance matters.

 

We recognize that our shareholders may have different views as to the best approach for the Company, and therefore we look forward to hearing from our shareholders as to their preferences on the frequency of an advisory vote on executive compensation. This vote is advisory and not binding on the Company or our board of directors in any way. The board of directors and the compensation committee will take into account the outcome of the vote, however, when considering the frequency of future advisory votes on executive compensation. The board may decide that it is in the best interests of our shareholders and the Company to hold an advisory vote on executive compensation more or less frequently than the frequency receiving the most votes cast by our shareholders.

 

The proxy card provides shareholders with the opportunity to choose among four options (holding the advisory vote on executive compensation every one, two or three years, or abstaining). Shareholders will not be voting to approve or disapprove the recommendation of the board of directors.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE OPTION OF ONCE EVERY YEAR AS THE PREFERRED FREQUENCY FOR ADVISORY VOTES ON EXECUTIVE COMPENSATION.

 

 

Purpose of the Plan and Description of the Proposal

 

Our board of directors has adopted and recommends that our shareholders approve the Lender Processing Services, Inc. Amended and Restated 2008 Omnibus Incentive Plan, or omnibus plan. The primary purpose of the amendments to the omnibus plan is to increase the authorized shares available for issuance under the plan by 4,700,000 shares in order to assure that we have adequate means to provide equity incentive compensation to our employees on a going-forward basis. The omnibus plan was approved by our board of directors and by FIS, as our former parent, prior to the spin-off, and became effective on July 1, 2008. Subsequently, our shareholders approved the omnibus plan on May 28, 2009. As of March 21, 2011, the record date, there were approximately 2,657,486 shares previously authorized under the omnibus plan which remain available for grant.

 

Grants under the omnibus plan may be made in the form of stock options, stock appreciation rights, which we refer to as SARs, restricted stock, restricted stock units, which we refer to as RSUs, performance shares, performance units, and other cash or stock-based awards. Following approval of the amendment and restatement, the omnibus plan will authorize awards in respect of 18,700,000 shares of our common stock (which includes 4,700,000 newly authorized shares and 2,657,486 shares which were previously authorized under the omnibus plan but not granted as of March 21, 2011). All of the 18,700,000 shares authorized under the plan are available for grants of “full-value”

awards, meaning awards other than stock options, stock appreciation rights or other awards for which the recipient pays the exercise price.

 

Shareholder approval of the omnibus plan will allow incentive awards paid thereunder to qualify as deductible performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code.

 

Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount we may deduct in any one year for compensation paid to our chief executive officer and each of our other three most highly-paid executive officers other than our chief financial officer. There is, however, an exception to this limit for certain performance-based compensation. Awards made pursuant to the omnibus plan may constitute performance-based compensation not subject to the deductibility limitation of Section 162(m) of the Internal Revenue Code. However, in order to qualify for this exception, shareholders must approve the material terms of the performance goals of the omnibus plan under which compensation will be paid.

 

The material terms of the performance goals being submitted for approval for purposes of Section 162(m) of the Internal Revenue Code include (i) the employees eligible to receive awards under the omnibus plan, (ii) a description of the business criteria on which the performance goals are based, and (iii) the maximum amount that may be granted or paid to any employee in any one year with respect to awards that are intended to meet the exception to the tax deduction limitations contained in Section 162(m) of the Internal Revenue Code. This information is provided in the description of the omnibus plan below.

 

We had 7,683,414 stock options outstanding as of March 21, 2011, with a weighted average exercise price of $33.11 and a weighted average remaining term of 4.3 years. We also had 1,029,567 full-value awards outstanding in the form of restricted stock as of March 21, 2011. On March 21, 2011, the fair market value of a share of our common stock was $32.61 per share and we had 2,657,486 shares remaining available for grant under the omnibus plan.

 

The future benefits that will be received under the plan by particular individuals or groups are not determinable at this time. The following information concerning holdings by our executive officers, directors and employees under the omnibus plan is as of March 21, 2011. As of that date, our continuing named executive officers had the following number of options and restricted shares outstanding under the plan: Lee A. Kennedy 261,500 options and 87,076 restricted shares; Jeffrey S. Carbiener 1,786,911 options and 237,333 restricted shares; Thomas L. Schilling 86,000 options and 40,800 restricted shares; and Daniel T. Scheuble 701,867 options and 97,560 restricted shares. All current executive officers as a group had 3,519,774 options and 612,784 restricted shares outstanding under the plan. In addition, Mr. Swenson had 692,111 options and 97,560 restricted shares and Mr. Chan had 255,500 options and 13,900 restricted shares outstanding under the omnibus plan. All current directors as a group, other than those who serve as executive officers, had 145,856 options and 27,304 restricted shares outstanding under the plan. The nominees for election as directors (other than Mr. Kennedy) had the following number of options outstanding under the plan: Philip G. Heasley 25,400 options and 5,466 restricted shares; and Susan E. Lester 7,800 options and 2,340 restricted shares. No associates of such directors, executive officers or nominees have received options under the plan. All employees as a group, excluding our executive officers and Mr. Swenson, had 2,837,584 options and 275,289 restricted shares outstanding under the plan.

 

The purpose of the omnibus plan is to optimize our profitability and growth through incentives that are consistent with our goals and that link the personal interests of participants to those of our shareholders. The omnibus plan is further intended to provide us flexibility in our ability to motivate, attract and retain the services of employees, directors and consultants who make significant contributions to our success and to allow such individuals to share in our success.

 

Our general compensation philosophy is that long-term incentive compensation should closely align the interests of our officers, directors and key employees with the interests of our shareholders, as more fully described under “Compensation Discussion and Analysis and Executive and Director Compensation.” We believe that stock options and restricted stock are very effective in enabling us to attract and retain the talent critical to operate as a leading provider of integrated technology and outsourced services to the mortgage lending industry. We believe that stock ownership focuses our key employees on improving our performance, and helps to create a culture that

encourages employees to think and act as shareholders. Participants in our long-term incentive compensation program generally include our officers, directors and certain key employees.

 

We believe that our equity programs and our emphasis on employee stock are integral to our ability to achieve our corporate performance goals in the years ahead. We believe that the ability to attract, retain and motivate talented employees is critical to long-term company performance and shareholder returns. We believe that the omnibus plan will enable us to continue to align executive and shareholder interests consistent with our long-term incentive compensation philosophy. For these reasons, we consider approval of the omnibus plan important to our future success.

 

Description of the Omnibus Plan

 

The complete text of the omnibus plan is set forth as Annex A hereto. The following is a summary of the material features of the omnibus plan and is qualified in its entirety by reference to Annex A.

 

Effective Date and Duration

 

If approved by our shareholders, the omnibus plan, as amended and restated, will become effective on May 19, 2011, and will authorize the granting of awards for up to ten years. The omnibus plan will remain in effect with respect to outstanding awards until no awards remain outstanding.

 

Amendment and Termination

 

The omnibus plan may be amended or terminated by our board at any time, subject to certain limitations, and, subject to limitations under the plan, the awards granted under the plan may be amended by the compensation committee of our board of directors at any time, provided that no such action to the plan or an award may, without a participant’s written consent, adversely affect in any material way any previously granted award. No amendment that would require shareholder approval under the NYSE’s listing standards or to comply with the securities laws may become effective without shareholder approval.

 

Administration of the Omnibus Plan

 

The omnibus plan will be administered by our compensation committee or another committee selected by our board, any of which we refer to as the committee. The members of the committee are appointed from time to time by, and serve at the discretion of, the board. The committee has the full power to select employees, directors and consultants who will participate in the plan; determine the size and types of awards; determine the terms and conditions of awards; construe and interpret the omnibus plan and any award agreement or other instrument entered into under the omnibus plan; establish, amend and waive rules and regulations for the administration of the omnibus plan; and, subject to certain limitations, amend the terms and conditions of outstanding awards. The committee’s determinations and interpretations under the omnibus plan are binding on all interested parties. The committee is empowered to delegate its administrative duties and powers as it may deem advisable, to the extent permitted by law.

 

Shares Subject to the Omnibus Plan

 

Awards under the omnibus plan may be made in LPS common stock. The maximum number of shares with respect to which new awards may be granted under the plan is 18,700,000 (which includes 4,700,000 newly authorized shares and 2,657,486 shares which were previously authorized under the omnibus plan but not granted as of March 21, 2011). All of these shares may be issued pursuant to incentive stock options, and all of the shares are available for grants as full value awards.

 

If an award under the omnibus plan is canceled, forfeited, expires or otherwise terminates or is settled in cash, the shares related to that award will not be treated as having been delivered under the omnibus plan.

 

For purposes of determining the number of shares available for grant as incentive stock options, only shares that are subject to an award that expires or is cancelled, forfeited or settled in cash shall be treated as not having been issued under the omnibus plan.

In the event of any equity restructuring, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, the committee shall cause an equitable adjustment to be made (i) in the number and kind of shares of our common stock that may be delivered under the omnibus plan, (ii) in the individual annual limitations on each type of award under the omnibus plan, and (iii) with respect to outstanding awards, in the number and kind of shares subject to outstanding awards, the exercise price, grant price or other price of shares subject to outstanding awards, any performance conditions relating to shares, the market price of shares, or per share results, and other terms and conditions of outstanding awards, in the case of (i), (ii) and (iii) to prevent dilution or enlargement of rights. In the event of any other change in corporate capitalization, such as a merger, consolidation or liquidation, the committee may, in its sole discretion, cause an equitable adjustment as described in the foregoing sentence to be made, to prevent dilution or enlargement of rights.

 

Share Counting

 

The omnibus plan does not permit shares that are held back, tendered or returned to cover the exercise price or tax withholding obligations with respect to an award to be available for future grants under the plan, nor does it permit us to use the cash proceeds from option exercises to repurchase shares on the open market for reuse in the plan. Any SARs issued under the omnibus plan will be counted as one share issued regardless of whether the Company issues net shares to the participant.

 

Repricing

 

Neither LPS nor our compensation committee may (i) reduce the exercise price of outstanding options (except to the extent described above in the event of an equity restructuring or other change in corporate capitalization), (ii) cancel options and grant substitute options with a lower exercise price, or (iii) purchase outstanding underwater options from participants for cash.

 

Eligibility and Participation

 

Eligible participants include all employees, directors and consultants of LPS and our subsidiaries, as determined by the committee. Currently this group includes approximately 100 executives and other key employees, our six outside directors and one consultant.

 

Limitations on Awards under the Omnibus Plan

 

With respect to awards that are intended to meet the exception to the tax deduction limitations contained in Section 162(m) of the Internal Revenue Code, (i) the maximum number of our shares with respect to which stock options or SARs may be granted to any participant in any fiscal year is, with respect to each type of award, 4,000,000 shares; (ii) the maximum number of our shares of restricted stock that may be granted to any participant in any fiscal year is 2,000,000 shares; (iii) the maximum number of our shares with respect to which RSUs may be granted to any participant in any fiscal year is 2,000,000 shares; (iv) the maximum number of our shares with respect to which performance shares may be granted to any participant in any fiscal year is 2,000,000 shares; (v) the maximum amount of compensation that may be paid with respect to performance units or other cash or stock-based awards awarded to any participant in any fiscal year is, with respect to each type of award, $25,000,000 or a number of shares having a fair market value not in excess of that amount; and (vi) the maximum dividend or dividend equivalent that may be paid to any one participant in any one fiscal year is $25,000,000.

 

Types of Awards

 

Following is a general description of the types of awards that may be granted under the omnibus plan. Terms and conditions of awards will be determined on a grant-by-grant basis by the committee, subject to limitations contained in the omnibus plan.

 

Stock Options.  The committee may grant incentive stock options, which we refer to as ISOs, nonqualified stock options, which we refer to as NQSOs, or a combination thereof under the omnibus plan. The exercise price for each such award will be at least equal to 100% of the fair market value of a share of common stock on the date of grant (110% of fair market value in the case of an ISO granted to a person who owns more than 10% of the voting

power of all classes of stock of LPS or any subsidiary). Options will expire at such times, be in respect of such number of shares and will have such other terms and conditions as the committee may determine at the time of grant; provided, however, that no option may be exercisable later than the tenth anniversary of its grant (fifth anniversary in the case of an ISO granted to a person who owns more than 10% of the voting power of all classes of stock of LPS or any subsidiary).

 

The exercise price of options granted under the omnibus plan may be paid in cash, by tendering previously acquired shares of common stock having a fair market value equal to the exercise price, through broker-assisted cashless exercise or any other means permitted by the committee consistent with applicable law or by a combination of any of the permitted methods.

 

Stock options may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, and are exercisable during a participant’s lifetime only by the participant. Stock options may not be transferred for consideration.

 

The committee may also award dividend equivalent payments in connection with a stock option.

 

Stock Appreciation Rights.  SARs granted under the omnibus plan may be in the form of freestanding SARs (SARs granted independently of any option), tandem SARs (SARs granted in connection with a related option) or a combination thereof. The grant price of a freestanding SAR will be equal to the fair market value of a share of common stock on the date of grant. The grant price of a tandem SAR will be equal to the exercise price of the related option.

 

Freestanding SARs may be exercised upon such terms and conditions as are imposed by the committee and set forth in the SAR award agreement. A tandem SAR may be exercised only with respect to the shares of common stock for which its related option is exercisable.

 

Upon exercise of a SAR, a participant will receive the product of the excess of the fair market value of a share of common stock on the date of exercise over the grant price multiplied by the number of shares with respect to which the SAR is exercised. Payment upon SAR exercise may be in cash, in shares of common stock of equivalent value, or in some combination of cash and shares, as determined by the committee. The committee may also award dividend equivalent payments in connection with SARs.

 

Restricted Stock.  Restricted stock is an award that is non-transferable and subject to a substantial risk of forfeiture until vesting conditions, which can be related to continued service or other conditions established by the committee, are satisfied. Prior to vesting, holders of restricted stock may receive dividends and voting rights. If the vesting conditions are not satisfied, the participant forfeits the shares.

 

Restricted Stock Units and Performance Shares.  RSUs and performance shares represent a right to receive a share of common stock, an equivalent amount of cash, or a combination of shares and cash, as the committee may determine, if vesting conditions are satisfied. The initial value of an RSU or performance share granted under the omnibus plan shall be at least equal to the fair market value of our common stock on the date the award is granted. The committee may also award dividend equivalent payments in connection with such awards. RSUs may contain vesting conditions based on continued service or other conditions established by the committee. Performance shares may contain vesting conditions based on attainment of performance goals established by the committee in addition to service conditions.

 

Performance Units.  Performance units are awards that entitle a participant to receive shares of common stock, cash or a combination of shares and cash if certain performance conditions are satisfied. The amount received depends upon the value of the performance units and the number of performance units earned, each of which is determined by the committee. The committee may also award dividend equivalent payments in connection with such awards, although the dividend equivalents will only be paid if the performance units to which they relate are earned.

 

Other Cash and Stock-Based Awards.  Other cash and stock-based awards are awards other than those described above, the terms and conditions of which are determined by the committee. These awards may include, without limitation, the grant of shares of our common stock based on attainment of performance goals established by the committee, the payment of shares as a bonus or in lieu of cash based on attainment of performance goals established by the committee, and the payment of shares in lieu of cash under an incentive or bonus program.

Payment under or settlement of any such awards will be made in such manner and at such times as the committee may determine.

 

Dividend Equivalents.  Dividend equivalents granted to participants will represent a right to receive payments equivalent to dividends with respect to a specified number of shares.

 

Replacement Awards.  Replacement awards are awards issued in substitution of awards granted under equity-based incentive plans sponsored or maintained by an entity with which we engage in a merger, acquisition or other business transaction, pursuant to which awards relating to interests in such entity are outstanding immediately prior to such transaction. Replacement awards shall have substantially the same terms and conditions as the award it replaces; provided, however, that the number of shares, the exercise price, grant price or other price of shares, any performance conditions, or the market price of underlying shares or per-share results may differ from the awards they replace to the extent such differences are determined to be appropriate and equitable by the committee, in its sole discretion.

 

Performance Goals

 

Performance goals, which are established by the committee, will be chosen from among the following performance measures: earnings per share, economic value created, market share (actual or targeted growth), net income (before or after taxes), operating income and/or earnings before interest, taxes, depreciation and amortization, adjusted net income after capital charge, return on assets (actual or targeted growth), return on capital (actual or targeted growth), return on equity (actual or targeted growth), return on investment (actual or targeted growth), revenue (actual or targeted growth), cash flow, operating margin, share price, share price growth, total shareholder return, and strategic business criteria consisting of one or more objectives based on meeting specified market penetration goals, productivity measures, geographic business expansion goals, cost targets, customer satisfaction or employee satisfaction goals, goals relating to merger synergies, management of employment practices and employee benefits, or supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries, affiliates or joint ventures.

 

The targeted level or levels of performance with respect to such performance measures may be established at such levels and on such terms as the committee may determine, in its discretion, including in absolute terms, as a goal relative to performance in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies.

 

The committee may make adjustments in the terms and conditions of, and the criteria included in, awards in recognition of unusual or nonrecurring events, including, for example, events affecting us or our financial statements or changes in applicable laws, regulations, or accounting principles, whenever the committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the plan. With respect to any awards intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code, any such exception shall be specified at such times and in such manner as will not cause such awards to fail to so qualify.

 

Termination of Employment or Service

 

Each award agreement will set forth the participant’s rights with respect to the award following termination of employment or service.

 

Change in Control

 

Except as otherwise provided in a participant’s award agreement, upon the occurrence of a change in control (as defined below), unless otherwise specifically prohibited under applicable laws or by the rules and regulations of any governing governmental agencies or national securities exchanges, any and all outstanding options and SARs granted under the omnibus plan will become immediately exercisable (provided that the committee may also provide that these awards be immediately cashed out), any restriction imposed on restricted stock, RSUs and other awards granted under the omnibus plan will lapse, and any and all performance shares, performance units and other

awards granted under the omnibus plan with performance conditions will be deemed earned at the target level, or, if no target level is specified, the maximum level.

 

For purposes of the omnibus plan, the term “change in control” is defined as the occurrence of any of the following events:

 

 

Transferability

 

Awards generally will be non-transferable except upon the death of a participant, although the committee may permit a participant to transfer awards (for example, to family members or trusts for family members) subject to such conditions as the committee may establish.

 

Deferrals

 

The committee may permit the deferral of vesting or settlement of an award and may authorize crediting of dividends or interest or their equivalents in connection with any such deferral. Any such deferral and crediting will be subject to the terms and conditions established by the committee and any terms and conditions of the plan or arrangement under which the deferral is made.

 

Tax Withholding

 

We may deduct or withhold, or require a participant to remit, an amount sufficient to satisfy federal, state, local, domestic or foreign taxes required by law or regulation to be withheld with respect to any taxable event arising as a result of the omnibus plan. The committee may require or permit participants to elect that the withholding requirement be satisfied, in whole or in part, by having us withhold, or by tendering to us, shares of our common stock having a fair market value equal to the minimum withholding obligation.

Federal Income Tax Consequences

 

The following is a brief description of the principal federal income tax consequences relating to options awarded under the omnibus plan. This summary is based on our understanding of present federal income tax law and regulations. The summary does not purport to be complete or applicable to every specific situation.

 

Consequences to the Optionholder

 

Grant.  There are no federal income tax consequences to the optionholder solely by reason of the grant of ISOs or NQSOs under the omnibus plan.

 

Exercise.  The exercise of an ISO is not a taxable event for regular federal income tax purposes if certain requirements are satisfied, including the requirement that the optionholder generally must exercise the ISO no later than three months following the termination of the optionholder’s employment with LPS. However, such exercise may give rise to alternative minimum tax liability (see “Alternative Minimum Tax” below).

 

Upon the exercise of an NQSO, the optionholder will generally recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock at the time of exercise over the amount paid therefor by the optionholder as the exercise price. The ordinary income, if any, recognized in connection with the exercise by an optionholder of an NQSO will be subject to both wage and employment tax withholding.

 

The optionholder’s tax basis in the shares acquired pursuant to the exercise of an option will be the amount paid upon exercise plus, in the case of an NQSO, the amount of ordinary income, if any, recognized by the optionholder upon exercise thereof.

 

Qualifying Disposition.  If an optionholder disposes of shares of common stock acquired upon exercise of an ISO in a taxable transaction, and such disposition occurs more than two years from the date on which the option was granted and more than one year after the date on which the shares were transferred to the optionholder pursuant to the exercise of the ISO, the optionholder will recognize long-term capital gain or loss equal to the difference between the amount realized upon such disposition and the optionholder’s adjusted basis in such shares (generally the option exercise price).

 

Disqualifying Disposition.  If the optionholder disposes of shares of common stock acquired upon the exercise of an ISO (other than in certain tax free transactions) within two years from the date on which the ISO was granted or within one year after the transfer of shares to the optionholder pursuant to the exercise of the ISO, at the time of disposition the optionholder will generally recognize ordinary income equal to the lesser of (i) the excess of each such share’s fair market value on the date of exercise over the exercise price paid by the optionholder or (ii) the optionholder’s actual gain (i.e., the excess, if any, of the amount realized on the disposition over the exercise price paid by the optionholder). If the total amount realized in a taxable disposition (including return of capital and capital gain) exceeds the fair market value on the date of exercise of the shares of common stock purchased by the optionholder under the option, the optionholder will recognize a capital gain in the amount of such excess. If the optionholder incurs a loss on the disposition (i.e., if the total amount realized is less than the exercise price paid by the optionholder), the loss will be a capital loss.

 

Other Disposition.  If an optionholder disposes of shares of common stock acquired upon exercise of an NQSO in a taxable transaction, the optionholder will recognize capital gain or loss in an amount equal to the difference between the optionholder’s basis (as discussed above) in the shares sold and the total amount realized upon disposition. Any such capital gain or loss (and any capital gain or loss recognized on a disqualifying disposition of shares of common stock acquired upon exercise of ISOs as discussed above) will be short-term or long-term depending on whether the shares of common stock were held for more than one year from the date such shares were transferred to the optionholder.

 

Alternative Minimum Tax.  Alternative minimum tax, or AMT, is payable if and to the extent the amount thereof exceeds the amount of the taxpayer’s regular tax liability, and any AMT paid generally may be credited against future regular tax liability (but not future AMT liability). AMT applies to alternative minimum taxable income.

For AMT purposes, the spread upon exercise of an ISO (but not an NQSO) will be included in alternative minimum taxable income, and the taxpayer will receive a tax basis equal to the fair market value of the shares of common stock at such time for subsequent AMT purposes. However, if the optionholder disposes of the ISO shares in the year of exercise, the AMT income generally will not exceed the gain recognized for regular tax purposes.

 

Consequences to LPS

 

There are no federal income tax consequences to LPS by reason of the grant of ISOs or NQSOs or the exercise of an ISO (other than disqualifying dispositions).

 

At the time the optionholder recognizes ordinary income from the exercise of an NQSO, we will be entitled to a federal income tax deduction in the amount of the ordinary income so recognized (as described above), provided that we satisfy our reporting obligations described below. To the extent the optionholder recognizes ordinary income by reason of a disqualifying disposition of the stock acquired upon exercise of an ISO, we will be entitled to a corresponding deduction in the year in which the disposition occurs.

 

We will be required to report to the Internal Revenue Service any ordinary income recognized by any optionholder by reason of the exercise of an NQSO or upon a disqualifying disposition of an ISO. We will be required to withhold income and employment taxes (and pay the employer’s share of employment taxes) with respect to ordinary income recognized by the optionholder upon the exercise of an NQSO, but not upon a disqualifying disposition of an ISO.

 

Stock Appreciation Rights

 

A participant generally will not realize taxable income at the time a SAR is granted. Upon settlement of a SAR, the participant will recognize as ordinary income the amount of cash received or, if the right is paid in shares of our common stock, the fair market value of such shares at the time of payment. We will generally be allowed a tax deduction in the taxable year the participant includes the amount in income.

 

Restricted Stock

 

A participant generally does not realize taxable ordinary income as a result of receiving a restricted stock grant, and we are not entitled to a deduction for federal income tax purposes at the time of the grant, provided that the shares are not transferable and are subject to restrictions constituting a “substantial risk of forfeiture.” When the restrictions lapse, the participant will be deemed to have received taxable ordinary income equal to the fair market value of the shares underlying the award at the time of lapse. An amount equal to the compensation included in the participant’s income will generally be deductible by us in the taxable year of inclusion. The participant’s tax basis in the shares will be equal to the fair market value of such shares on the date the restrictions lapse. Any gain realized upon disposition of such shares is taxable as capital gain income, with the applicable tax rate depending upon, among other things, how long such shares were held following the lapse of the restrictions.

 

Under certain circumstances, a participant may, within thirty days after transfer of the restricted shares, irrevocably elect under Section 83(b) of the Internal Revenue Code to include in the year in which such restricted shares are transferred as gross income, the fair market value of such shares, which is determined as of the date of transfer and without regard to any restriction other than a restriction that by its terms will never lapse. A copy of this election must be provided to us. The basis of such shares will be equal to the amount included in income. The holding period for capital gains purposes begins when the shares are transferred to the participant. If such shares are forfeited before the restrictions lapse, the forfeiture will be treated as a sale or exchange and no tax deduction will be allowed for the amount included in income as a result of the original election.

 

Restricted Stock Units and Other Awards

 

Restricted stock units and other awards granted under the omnibus plan are generally not subject to tax at the time of the award but are subject to ordinary income tax at the time of payment, whether paid in cash or shares of our common stock. With respect to such awards, we generally will be allowed a tax deduction for the amount included in the taxable income of the participant in the taxable year of inclusion.

Other Tax Consequences

 

The foregoing discussion is not a complete description of the federal income tax aspects of awards granted under the omnibus plan. In addition, administrative and judicial interpretations of the application of the federal income tax laws are subject to change. Furthermore, the foregoing discussion does not address state or local tax consequences.

 

THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE OMNIBUS PLAN.

 

The number of our common shares beneficially owned by each individual or group is based upon information in documents filed by such person with the SEC, other publicly available information or information available to us. Percentage ownership in the following table is based on 86,344,646 shares of LPS common stock outstanding as of March 21, 2011. Unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares of common stock beneficially owned by that shareholder. The number of shares beneficially owned by each shareholder is determined under rules issued by the SEC.

 

Security Ownership of Certain Beneficial Owners

 

The following table sets forth information regarding beneficial ownership of our common stock by each shareholder who is known by the Company to beneficially own 5% or more of our common stock:

 

 

 

 

Security Ownership of Management and Directors

 

The following table sets forth information regarding beneficial ownership of our common stock by:

 

 

The information is not necessarily indicative of beneficial ownership for any other purpose. The mailing address of each director and executive officer shown in the table below is c/o Lender Processing Services, Inc., 601 Riverside Avenue, Jacksonville, Florida 32204.

 

 

 

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table provides information as of December 31, 2010, about our common stock which may be issued under our omnibus plan, which is our only equity compensation plan:

 

 

 

 

The executive officers of the Company as of the date of this Proxy Statement are set forth in the table below. Certain biographical information with respect to those executive officers who do not also serve as directors follows the table. There are no family relationships among the executive officers, directors or nominees for director.

 

 

Thomas L. Schilling has served as our Executive Vice President and Chief Financial Officer since October 2010. Prior to joining the Company, Mr. Schilling was with USA Mobility, Inc., a provider of paging products and other wireless services to the business, government and health care sectors, where he served as Chief Financial Officer from January 2005 until October 2010 and as Chief Operating Officer from October 2007 to October 2010. Prior to joining USA Mobility, Mr. Schilling served as the Chief Financial Officer of Cincinnati Bell, Inc. from 2002 to August 2003.

 

Daniel T. Scheuble served as our Executive Vice President and Co-Chief Operating Officer from the spin-off until March 31, 2011, at which time he became our sole Chief Operating Officer. He served as Executive Vice President of the Mortgage Processing Services division of FIS from April 2006 until the spin-off date. Mr. Scheuble joined former FIS in 2003 as Chief Information Officer of the Mortgage Servicing Division. Before joining former FIS, Mr. Scheuble was Chief Information Officer at GMAC Residential and prior to that, he was the Executive Vice President and Chief Information Officer of Loan Operations for HomeSide Lending.

 

Parag Bhansali has served as our Executive Vice President of Corporate Development since April 2009. Prior to that, Mr. Bhansali served as our Senior Vice President of Investor Relations and Strategic Planning from February 2008 until April 2009. Before joining LPS in February 2008, Mr. Bhansali had served as Vice President of Finance of Rayonier Inc., a forest products company, since April 2000. Prior to that, Mr. Bhansali was with Covance Inc., a pharmaceutical research and drug development company, where he served in various positions including Vice President, Corporate Development and Strategy and Vice President, Investor Relations.

 

Todd C. Johnson has served as our Executive Vice President, General Counsel and Corporate Secretary since the spin-off. Prior to the spin-off date, he had served as Assistant General Counsel and Corporate Secretary of FIS since February 2006 and of FNF since October 2005. Mr. Johnson also served as Assistant General Counsel and Corporate Secretary of old FNF from July 2003 until November 2006. Prior to joining old FNF, Mr. Johnson was a partner in the Corporate and Securities practice group of Holland & Knight LLP.

 

Joseph M. Nackashi has served as our Executive Vice President and Chief Information Officer since the spin-off. Prior to the spin-off date, he had served as Senior Vice President and Chief Technology Officer of FIS since the merger with Certegy in February 2006. Prior to that, Mr. Nackashi had served as Senior Vice President and Chief Technology Officer of former FIS and its predecessor, ALLTEL Information Services, Inc., since 2000.

 

Christopher P. Breakiron is our Senior Vice President and Chief Accounting Officer. He served as Vice President of Financial Planning and Analysis of FIS from September 2006 until the spin-off date. Prior to joining FIS, Mr. Breakiron had served as Senior Vice President and Controller, International Card Services of Certegy since 2002.

 

Compensation Discussion and Analysis

 

The following compensation discussion and analysis may contain statements regarding corporate performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.

 

Introduction

 

LPS was able to demonstrate strong performance in 2010. We were able to grow our revenues to $2.46 billion in 2010, an increase 3.6% over the prior year. We were also able to expand our margins and generate strong free cash flow, which we put to use by continuing to pay down our debt and repurchasing 7.4 million shares, thereby allowing us to generate strong growth in our adjusted net earnings per share (GAAP net earnings adjusted for the impact of certain non-recurring adjustments, if applicable, plus the after-tax purchase price amortization of intangible assets added through acquisitions, divided by weighted average shares) for our shareholders.

 

LPS was able to produce these strong results despite facing extremely difficult conditions in both of our core markets in 2010. Origination volumes were down 23% compared to the prior year, and foreclosure starts were down 5% from 2009. In addition, the ongoing economic downturn, troubled housing market and industry foreclosure issues have resulted in increased scrutiny of all parties involved in the mortgage industry, including LPS, by governmental authorities, judges and the news media, among others.

 

One of the key factors enabling LPS to perform well in a difficult market like the one we experienced in 2010 is our ability to identify the market dynamics impacting our customers. Our positioning as a leading end-to-end technology and service provider to the mortgage industry allows us to capitalize on these dynamics and assist our customers. Examples of current market dynamics include pressure from increasing government regulation; the need to control costs while maintaining quality service; the demand for better risk management tools; the need for better transparency and quality in the loan origination process; and finally, the move towards centralization of processes to improve control. These dynamics give us the opportunity to execute on our growth strategies, and to assist our customers by increasing the usage and penetration of our solutions and services, expanding the usage and breadth of our technology platforms, and introducing new solutions and services through either internal development or acquisition. These core strategies are supplemented by our efforts to leverage our core competencies to selectively enter markets outside of our more traditional markets, such as our expansion into the local government technology space in 2010.

 

Management successfully executed on these strategies during 2010, which resulted in significant market share gains. For example, some of the largest companies in the mortgage industry have converted onto our Desktop system, a workflow management application designed to streamline and automate business processes. In all, we had more than $360 million in new sales wins and contract renewals during 2010. Management was able to produce these strong results despite the adverse market conditions discussed above.

 

Our named executive officers for 2010 are set forth below. In this compensation discussion and analysis, we discuss the compensation objectives and decisions, and the rationale behind those decisions, relating to the compensation we provided to our named executive officers in 2010.

 

 

 

Objectives of our Compensation Program

 

Our compensation programs are designed to attract and motivate high performing executives with the objective of delivering long-term shareholder value and financial results. Retaining our key employees is also a high priority, as there is significant competition in our industry for talented managers. We think the most effective way of accomplishing these objectives is to link the compensation of our named executive officers to specific annual and long-term strategic goals, thereby aligning the interests of the executives with those of our shareholders. We believe it is important to deliver strong results for our shareholders, and we believe our practice of linking compensation with corporate performance will help us to accomplish that goal.

 

We link a significant portion of each named executive officer’s total annual compensation to performance goals that are intended to deliver measurable results. Executives are generally rewarded only when and if the pre-established performance goals are met or exceeded. We also believe that material stock ownership by executives assists in aligning executives’ interests with those of shareholders and strongly motivates executives to build long-term shareholder value. We structure our stock-based compensation programs to assist in creating this link. Finally, we provide our executives with total compensation that we believe is competitive relative to the compensation paid to similarly situated executives from similarly sized companies, and which is sufficient to motivate, reward and retain those individuals with the leadership abilities and skills necessary for achieving our ultimate objective: the creation of long-term shareholder value.

 

Role of Compensation Committee and Executive Officers in Determining Executive Compensation

 

Our compensation committee is responsible for approving and monitoring the compensation of all our named executive officers. Jeffrey S. Carbiener, our President and Chief Executive Officer, plays an important role in determining executive compensation levels by making recommendations to our compensation committee regarding salary adjustments and incentive awards for his direct reports. These recommendations are based on a review of an executive’s performance and job responsibilities and potential future performance. Mr. Carbiener sometimes consults with Lee A. Kennedy, our Executive Chairman of the Board, when making these recommendations. Our compensation committee may exercise its discretion in modifying any recommended salary adjustments or incentive awards for our executives. Mr. Carbiener and Mr. Kennedy do not make recommendations to the compensation committee with respect to their own compensation.

 

Role of Compensation Consultants

 

To further the objectives of our compensation program, the compensation committee engaged Strategic Compensation Group, LLC, an independent compensation consultant, to conduct an annual review of our compensation programs for the named executive officers, as well as for other key executives and our board of directors. Strategic Compensation Group was selected by our compensation committee, reports directly to the committee, receives compensation only for services provided to the committee and does not provide other services to us. Strategic Compensation Group provided the compensation committee with relevant market data and alternatives to consider when making compensation decisions for our key executives, including the named executive officers.

 

At the request of the compensation committee, Strategic Compensation Group gathered marketplace data on compensation, including annual salary, annual incentives, long-term incentives, other benefits, total compensation and pay mix. The compensation committee did not limit the consultant’s discretion in selecting the surveys and peer group companies that are contained in this marketplace data. The committee also requested Strategic Compensation

Group to conduct an annual review of compensation of all of the Company’s executive officers, including the named executive officers, and of the Company’s board of directors, and to propose 2011 compensation amounts with alternatives for the committee to consider. As part of this process, the consultant is instructed to first provide its recommendations to David K. Hunt, the chairman of the compensation committee, and to Mr. Carbiener (other than with respect to Mr. Carbiener’s compensation). Mr. Carbiener has telephonic meetings with representatives of Strategic Compensation Group regarding the compensation of his direct reports (which includes the other named executive officers). Mr. Carbiener does not discuss his own compensation with the consultant. Strategic Compensation Group discusses Mr. Carbiener’s compensation only with the committee. Following its discussions with the committee chairman and Mr. Carbiener, Strategic Compensation Group presents its evaluation and proposals to the full committee.

 

At the direction of the compensation committee, members of management, including the Chief Financial Officer, the General Counsel, and the Assistant Corporate Secretary, assist Strategic Compensation Group to gather financial information about the Company and stock ownership information for the Company’s executives for inclusion in the consultant’s reports to the committee, and coordinate with the committee’s chairman and the representatives of Strategic Compensation Group in preparing the committee’s meeting agendas. The Chief Financial Officer also assists Strategic Compensation Group with the setting of performance targets for the Company’s incentive plans.

 

Strategic Compensation Group also assists the compensation committee in its review of the risks to the Company of its compensation policies and practices for all employees. The compensation committee may also give specific assignments to its consultant, or may ask for the consultant’s assistance when it is considering a special or one-time compensation arrangement. For example, in 2010 the compensation committee requested that its consultant propose long term incentive awards for the Company’s executives to promote retention and continued Company growth following a significant loss in value of the executives’ outstanding equity, which was due largely to adverse conditions in the primary markets for the Company’s services. In addition, members of the compensation committee may have discussions with the consultant between meetings as specific questions arise.

 

Establishing Executive Compensation Levels

 

We operate in a highly competitive industry, and compete with our peers and competitors to attract and retain highly skilled executives within that industry. In order to attract talented executives with the leadership abilities and skills necessary for building long-term shareholder value, motivate our executives to perform at a high level, reward outstanding achievement and retain our key executives over the long-term, our compensation committee sets total compensation at levels it determines to be competitive in our market.

 

When determining the overall compensation of our executive officers, including base salaries and annual and long-term incentive amounts, the compensation committee considers a number of factors it deems important. These factors include quantitative factors (such as financial performance) and qualitative factors (such as the executive’s individual performance, experience, knowledge, skills, level of responsibility and expected impact on the Company’s future success).

 

Of the factors referred to above, prior year financial performance is generally the most significant factor in the judgments of the compensation committee members and is considered the most significant measure of individual performance. In the case of Messrs. Kennedy, Carbiener and Chan, the overall financial performance of the Company in 2009 was the most important consideration when determining their compensation for 2010. In setting Mr. Kennedy’s 2010 compensation, the committee also considered the best way to maintain his focus on long-term planning and strategic decision-making in order to benefit the Company’s long-term goals and stock price. In determining Messrs. Scheuble’s and Swenson’s compensation for 2010, the compensation committee considered both the Company’s overall performance in 2009, as well as the performance of the business units each of those executives oversaw in 2009. Among the key financial performance metrics considered by the compensation committee in setting 2010 compensation levels were the Company’s pro-forma revenue growth, adjusted earnings per share, organic free cash flow compared to budgeted free cash flow, and proactive cash flow management and debt reduction measures undertaken. The other individual qualitative factors described above, such as the individual’s qualitative performance, experience and expected impact on future success, were also considered.

At that time, each of the named executive officers was considered to be performing his job satisfactorily and consistently with the compensation committee’s expectations.

 

To assist the compensation committee in determining 2010 compensation levels, Strategic Compensation Group gathered for the committee’s consideration marketplace compensation data on total compensation, which consisted of annual salary, annual incentives, long-term incentives and pay mix. Strategic Compensation Group used two different marketplace data sources: (1) marketplace surveys, and (2) a study group of 18 publicly-traded companies.

 

The marketplace surveys include a general executive compensation survey prepared by Towers Perrin that contains compensation data for 337 companies, and a survey of approximately 60 publicly traded companies in the same general industry as us within a revenue range of $2.2 billion to $3.2 billion. The Towers Perrin survey contains compensation data relating to base salary, annual incentive and equity compensation (as well as a total of these three components) on a position-by-position basis. The Compensation Committee reviewed the Towers Perrin survey information for the positions that the Company’s named executive officers hold, and applied a formula contained in the survey that allows for the adjustment of the survey’s compensation amounts to take into account differences in revenues between the survey companies and the Company. The Compensation Committee also reviewed the general survey of publicly traded companies in the same general industry as the Company with a revenue range of $2.2 billion to $3.2 billion for compensation levels with respect to base salary, annual incentives, equity compensation, pension, deferred compensation, and the total of the foregoing, as well as pay mix, on a position-by-position basis (and with respect to Mr. Kennedy, limited their review to such companies with a separate executive chairman position). Strategic Compensation Group provided information to the compensation committee on the 50^th and 75^th percentile levels of total compensation (consisting of salary, target annual incentive and equity grants) for these two marketplace surveys.

 

The study group of 18 publicly traded companies included:

 

 

These companies are in the same general industry as us, and had a revenue range of $1.4 billion to $4.7 billion, and a median revenue of $2.3 billion. In identifying the study group, which was approved by the compensation committee, Strategic Compensation Group looked at companies that were publicly traded in 2009 that had comparable annual revenues and a similar industry focus, including companies that compete with us for revenues and/or key employees.

 

The compensation committee reviewed the compensation data for this study group when considering the compensation levels and pay mix of the Company’s named executive officers other than Mr. Kennedy. The study group was not reviewed in connection with Mr. Kennedy’s compensation because these companies did not generate enough data with respect to the position of a separate executive chairman. Strategic Compensation Group provided information to the committee on the 50^th, 75^th and 90th percentile levels of total compensation (consisting of salary, target annual incentive, equity grant, pension and deferred compensation) in this group of 18 companies for each named executive officer’s position (other than Mr. Kennedy).

 

Mr. Carbiener’s total compensation level in 2010 was slightly above the 75^th percentile of the study group. Mr. Schilling’s total compensation level in 2010, which includes the retention grant of restricted shares described below, was between the 50^th and 75^th percentiles of the study group. Messrs. Scheuble’s and Swenson’s total compensation levels in 2010 were above the 75^th percentile as a result of the November 2010 restricted stock awards described below. Excluding the November 2010 restricted stock awards, Messrs. Schueble’s and Swenson’s total compensation levels in 2010 were slightly below the 75^th percentile of the study group. Finally, Mr. Chan’s total compensation level was near the 50^th percentile of the study group.

 

The compensation committee considered all of this compensation data in making its compensation decisions in 2010. While its ultimate compensation decisions were subjective judgments, it reviewed this data to assess whether the named executive officers’ proposed compensation was within a “market” range of compensation. The committee also used the compensation data in its determination of the size of the named executive officers’ equity awards and in decisions relating to base salary changes.

 

The compensation committee also considers corporate governance principles, and tax and other rules and regulations in making executive compensation decisions. The compensation committee’s decisions are not formulaic and the members of the committee are not required to assign precise weights to the different factors considered in reaching their individual and collective business judgments to approve compensation.

 

Allocation of Total Compensation for 2010

 

We compensate our executives through a mix of base salary, annual cash incentives and long-term equity-based incentives. We also maintain standard employee benefit plans for our employees and executive officers and provide some limited perquisites. These benefits and perquisites are described later. The compensation committee generally allocates our executive officers’ compensation based on the committee’s determination of the appropriate ratio of performance-based compensation to other forms of regularly-paid compensation. In making this determination, the compensation committee considers how other companies allocate compensation based on the marketplace data provided by Strategic Compensation Group, as well as each executive’s level of responsibility, the individual skills, experience and contribution of each executive, and the ability of each executive to impact company-wide performance and create long-term shareholder value.

 

In 2010, our named executive officers’ compensation was allocated among annual salary, target annual cash incentives and long-term equity-based incentives, with a heavy emphasis on the at-risk, performance-based components of annual cash incentives and long-term equity-based incentives.

 

The compensation committee believes a significant portion of an executive officer’s compensation should be allocated to equity-based compensation in order to effectively align the interests of our executives with the long-term interests of our shareholders. Consequently, for 2010, a majority of our named executive officers’ total compensation was provided in the form of nonqualified stock options and restricted stock. In addition, when allocating Mr. Kennedy’s compensation among base salary and annual and long-term incentives, our compensation committee considered that he is not employed exclusively by us. Specifically, because Mr. Kennedy did not dedicate 100% of his time on a day-to-day basis to LPS matters, our compensation committee allocated a smaller portion of

his annual compensation to the cash components of base salary and performance-based annual incentives. Rather, because of his unique experience and his focus as Executive Chairman on our long-term strategy and success, our compensation committee heavily weighted Mr. Kennedy’s compensation toward at-risk, performance-based long-term incentive opportunities. As a result of these considerations, target performance-based incentive compensation comprised 80% to 90% of total target compensation for each of our named executive officers in 2010. The compensation committee found this range to be appropriate after consideration of the factors described above.

 

2010 Executive Compensation Components

 

For 2010, the principal components of compensation for our named executive officers consisted of:

 

 

We also provided our executives with certain retirement and other benefits, as well as limited perquisites, although these items are not significant components of our compensation programs.

 

Below is a summary of each element of our 2010 compensation programs.

 

Base Salary

 

Our compensation committee seeks to provide each of our named executive officers with a level of assured cash compensation for services rendered during the year sufficient, together with performance-based incentive awards, to motivate the executive to perform consistently at a high level. However, base salary is a relatively small component of the total compensation package, as the committee’s emphasis is on performance-based, at-risk pay. The compensation committee typically reviews salary levels at least annually as part of its performance review process, as well as in the event of promotions or other changes in executive officers’ positions.

 

In March 2010, the compensation committee conducted its annual review of our executives’ (other than Mr. Schilling) base salaries. In reviewing base salaries, the committee considered each executive’s performance in 2009, level of responsibility and ability to impact our future success, as well as the marketplace data discussed above. The committee determined to increase Mr. Carbiener’s base salary by $30,000 after considering his responsibility for the Company’s overall direction and strategy and the challenges he would face as chief executive in light of the likelihood of difficult market conditions and increasing regulatory scrutiny in 2010. The compensation committee determined to increase Mr. Scheuble’s base salary by $30,000 after noting that his role as Co-Chief Operating Officer had grown to include business units he had not overseen in 2009. The committee approved an increase of $14,000 to Mr. Swenson’s base salary after considering his level of responsibility and the performance of the business units for which he had responsibility in 2009.

 

The compensation committee did not adjust Mr. Chan’s salary in 2010 after considering that Mr. Chan had received a significant increase in base salary in 2009 in order to bring his total compensation more in line with the marketplace data provided by Strategic Compensation Group and that Mr. Chan’s level of responsibility had not materially changed in 2010. The committee did not increase Mr. Kennedy’s base salary in 2010 because Mr. Kennedy’s salary had been set in September 2009 and the committee believed that it was still appropriate, and because the committee believed Mr. Kennedy’s compensation should be weighted more heavily toward long-term equity incentives and less toward short-term incentives and salary in order to encourage his focus on long-term planning and strategic decision-making.

 

In October 2010, Mr. Schilling replaced Mr. Chan as our Executive Vice President and Chief Financial Officer. In establishing Mr. Schilling’s salary, the committee considered Mr. Schilling’s considerable financial and operational management experience, including his experience in the role of chief financial officer, his expected contributions to the Company, as well as the marketplace data discussed above.

Annual Performance-Based Cash Incentive

 

Generally, we will award annual cash incentives based upon the achievement of performance goals that are specified in the first quarter of the year. The annual incentives are provided to our executive officers under an annual incentive plan that is designed to allow the annual incentives to qualify as deductible performance-based compensation, as that term is used in Section 162(m) of the Internal Revenue Code. The annual incentive plan includes a set of performance goals that can be used in setting incentive awards under the plan. We use the annual incentive plan to provide a material portion of the executives’ total compensation in the form of at-risk, performance-based pay.

 

In the first quarter of 2010, annual incentive award targets were established by the compensation committee as described above for our named executive officers other than Mr. Schilling as a percentage of the individual’s base salary. Our named executive officers’ annual incentive targets, other than Mr. Carbiener’s, were set in accordance with their respective employment agreements, which are described below. Mr. Kennedy’s target was 100% of base salary, Messrs. Scheuble’s and Swenson’s targets were 125% of their respective base salaries, and Mr. Chan’s target was 100% of base salary. In setting the targets in our executives’ employment agreements, the committee considered the executive’s position within our organization, level of responsibility and ability to impact company-wide performance and create long-term shareholder value. The compensation committee increased Mr. Carbiener’s annual incentive target from 150% of base salary in 2009 to 165% of base salary in 2010 after considering his responsibility for the overall direction and strategy of the Company and the challenges he would face as chief executive in light of the likelihood of difficult market conditions and increasing regulatory scrutiny in 2010.

 

The committee set Mr. Schilling’s annual incentive target for 2010 in connection with him joining the Company in October 2010. Mr. Schilling’s target was set at 100% of base salary, and he was eligible to receive a bonus for the full year 2010 (rather than a bonus prorated for the portion of the year he was an LPS executive), each in accordance with his employment agreement. In setting the target and terms of Mr. Schilling’s 2010 annual incentive eligibility, the compensation committee considered his considerable experience in financial and operational management, the anticipated bonus he would likely have received had he remained with his previous employer, and the marketplace data discussed above.

 

Actual payout under the annual incentive plan can range from one-half to two times the target incentive opportunity, depending on achievement of the pre-established goals described below. However, no annual incentive payments may be paid to an executive officer if the minimum performance levels set by the compensation committee are not met. Minimum performance levels were established to challenge executive officers while providing reasonable opportunities for achievement. Maximum performance levels were established to encourage performance beyond the target levels while placing limits on the annual incentive awards to avoid excessive compensation. The ranges of possible payments under our annual incentive plan are set forth in the Grants of Plan-Based Awards table under the column Estimated Possible Payouts Under Non-Equity Incentive Plan Awards.

 

During the first quarter of 2010, our compensation committee also established performance goals for 2010 relating to the incentive targets described above and set a threshold performance level that needed to be achieved before any awards could be paid. These performance goals were specific, objective quantitative measures, and the determination of the amount by which the Company’s results met or exceeded the targets was objective and based on actual results. Annual incentive awards for 2010 for the Company’s named executive officers were based on meeting the following objectives:

 

 

Our compensation committee did not retain discretion to increase the amount of the incentive awards, but did retain discretion to reduce such amounts. In addition, in the event that our 2010 adjusted net earnings fell short of the adjusted net earnings threshold set by the committee of $331.0 million, the committee had discretion to reduce the executives’ awards under the annual incentive plan to zero regardless of our 2010 revenue and free cash flow results.

These three measures are key measures in evaluating the performance of our business. Revenue was selected as a performance goal with the intent of focusing our executives on achieving our revenue growth objectives. The committee believes that revenue is an important measure of financial success that is clearly understood by both our executives and our shareholders. Adjusted net earnings (net earnings adjusted for the impact of certain non-recurring adjustments, if applicable, plus the after-tax purchase price amortization of intangible assets added through acquisitions) and adjusted free cash flow (net cash provided by operating activities less additions to property, equipment and computer software, as well as non-recurring adjustments, if applicable) were selected because they measure our operating strength and management’s ability to operate the Company efficiently.

 

In approving the performance goals for 2010, the committee determined that final calculations would be subject to adjustment for federal and state regulatory actions, acquisitions, divestitures, major restructuring charges, significant changes in revenue mix and non-budgeted discontinued operations. The compensation committee noted that the performance goals assumed a 15% increase in foreclosure starts in 2010. After considering the uncertainty facing the Company, particularly with respect to the increased likelihood that the government would take actions to slow foreclosure volumes in order to mitigate the ongoing downturns in the housing market and the economy, the compensation committee approved an adjustment to the threshold goals in the event that the year-over-year increase in industry wide foreclosure starts in 2010 was 10% or less due to governmental actions. The committee determined that, for every 1% that the year-over-year increase in industry wide foreclosure starts in 2010 was below 11%, the revenue threshold would be reduced by $11.4 million, and the adjusted net earnings and free cash flow thresholds would each be reduced by $1.7 million.

 

In 2010, foreclosure starts decreased 8.7% from the previous year due to governmental actions, resulting in an adjustment factor of 18.7%. As a result, the threshold performance goal for revenue was adjusted downward by $213.7 million to $2,347.3 million, the threshold performance goal for adjusted net earnings was adjusted downward by $31.9 million to $299.1 million, and the threshold goal for free cash flow was adjusted downward by $31.9 million to $306.1 million.

 

In 2010, LPS had actual revenue of $2,456.3 million, adjusted net earnings of $317.7 million, and free cash flow of $340.4 million. However, in determining the achievement of its 2010 performance goals under the annual incentive plan, LPS increased its adjusted net earnings and free cash flow, net of tax, by $2.6 million and $1.5 million, respectively, to exclude the impact of the separation payments made to Mr. Chan in connection with his departure from the Company, which are described below under “Potential Payments Upon Termination or Change in Control — Actual Payments Upon Termination of Employment.” Accordingly, for purposes of determining the achievement of its 2010 performance goals under the annual incentive plan, LPS revenue, adjusted net earnings and free cash flow (as adjusted as described above) were $2,456.3 million, $320.4 million and $342.0 million, respectively. As a result, the threshold (as adjusted for the impact of governmental actions on foreclosure starts) was exceeded for each objective, but the target was not met, and the named executive officers received approximately 75.5% of the target amount of annual performance-based cash compensation. The annual incentive amounts earned under the annual incentive plan were approved by our compensation committee and are reported in the Summary Compensation Table under the column Non-Equity Incentive Plan Compensation.

 

Without taking into consideration the above-described adjustments to our adjusted net earnings and free cash flow results, LPS’s results relating to the 2010 performance goals exceeded the threshold level (as adjusted for the impact of governmental actions on foreclosure starts), but did not meet the target level, with respect to each of the objectives and the incentive awards earned by its named executive officers would have been slightly lower.

 

Long-Term Equity Incentive Awards

 

We use our Lender Processing Services, Inc. 2008 Omnibus Incentive Plan, or the omnibus plan, for long-term incentive awards. Our long-term incentive awards are generally made to management-level employees, including our executives, who have an ability to impact our long-term results. All long-term incentive awards made under the omnibus plan are approved by the compensation committee. Generally, the committee will consider annual long-term incentive awards in the second quarter of each year, although the committee may make grants with respect to new hires or promotions, in recognition of special achievements or for retention purposes at any time. The

compensation committee regularly reviews the dilutive impact of our long-term incentive awards on our shareholders.

 

Awards under the omnibus plan are granted on the date they are approved by the committee, and the exercise price for stock options awarded under the omnibus plan is the closing price of our common stock on the NYSE on the date of grant. The omnibus plan does not permit us to amend the terms of previously granted options to reduce the exercise price per share (except in the case of certain equity restructurings or other changes in our capitalization) or to cancel outstanding options and grant substitute options with a lower exercise price per share. Moreover, the omnibus plan does not permit us to purchase outstanding underwater options from participants for cash. A description of the omnibus plan can be found under the heading “Stock Incentive Plans” following the Grants of Plan-Based Awards table.

 

In March 2010, our compensation committee adopted several new policies with respect to our long-term incentive awards. First, the committee approved a policy that our annual stock option and restricted stock awards will utilize a vesting schedule of not less than three years. Second, the committee adopted a policy that dividends on restricted shares granted in the future will be accrued during the restricted period, and will be paid only if and when the restricted shares vest. Finally, our compensation committee also approved a mandatory holding period of six months following vesting for one-half of the shares of our common stock acquired by our named executive officers through a restricted share grant.

 

In 2010, we used a combination of nonqualified stock options and restricted stock to provide long-term incentives to our executive officers. Our compensation committee believes stock options and restricted stock assist in its goal of creating long-term shareholder value by linking the interests of our named executive officers, who are in positions to directly influence shareholder value, with the interests of our shareholders, and should constitute a significant portion of our named executive officers’ total compensation. We also believe these awards aid in retention, because the executive must remain with us until the awards fully vest.

 

In May 2010, our compensation committee approved grants of nonqualified stock options and performance-based restricted stock to each of our named executive officers, other than Mr. Schilling, pursuant to the omnibus plan. In determining the specific amount of equity to be granted to the Company’s named executive officers in 2010, the compensation committee considered quantitative factors (such as financial performance) and qualitative factors (such as the executive’s individual performance, experience, knowledge, skills, level of responsibility and expected impact on the Company’s future success). The committee also considered the marketplace data described above. As is the case when considering overall executive compensation, the committee generally considers prior year financial performance to be the most significant factor in determining the specific amount of equity to be granted to each named executive officer, and weights considerations related to qualitative performance, experience and expected impact on future success less heavily. However, the compensation decisions are not formulaic and the members of the compensation committee are not required to assign precise weights to the different factors considered in reaching their individual and collective business judgment to approve long-term incentive awards.

 

Specifically, for Messrs. Kennedy, Carbiener, Scheuble, Swenson and Chan, the committee considered marketplace data, financial performance as a measure of individual performance and individual qualitative factors such as those described in the section above titled “Establishing Executive Compensation Levels.” The grants awarded in May 2010 to Mr. Carbiener were between the 75^th and 90^th percentiles of grants to comparable officers in the study group; the grants awarded in May 2010 to Messrs. Scheuble and Swenson had dollar values that were slightly above the 75^th percentiles of grants to comparable officers in the study group; and the grants awarded to Messrs. Kennedy and Chan in May 2010 were between the 50^th and 75^th percentiles of the grants to comparable officers in the study group. As described in “Establishing Executive Compensation Levels” above, Mr. Kennedy’s compensation was more heavily weighted toward equity and less to salary and annual incentives, and the committee considered the fact that he does not dedicate 100% of his time to LPS matters. As stated above, the marketplace data was not used as a target but rather as a point of reference in making compensation judgments.

 

The stock options awarded by the committee in May 2010 have an exercise price equal to the fair market value of a share of our common stock on the date of grant, vest proportionately each year over three years based on continued employment with us, and have a seven-year term. Subject to the satisfaction of the performance-based vesting criteria described in the next sentence, the performance-based restricted stock awarded in May 2010 vests

proportionately each year over three years based on the executive’s continued employment with us. However, in order for the any of the performance-based restricted shares to vest, the Company must achieve $100 million in market share gain during any 12-month period between April 1, 2010 and December 31, 2011. Market share gain is determined based upon internal and external sources, and is calculated using the same methodology used to determine the Company’s market share for purposes of its strategic plan. Dividends on the performance-based restricted stock will be accrued during the restricted period, and will be paid only if and when the restricted shares to which the dividends relate vest. In addition, following the vesting of the restricted stock, our executive officers must hold one-half of the after-tax shares for six months following vesting. Further details concerning the stock option and restricted stock awards made to our named executive officers in 2010, including the number of options and restricted shares awarded and the exercise price of the options, are provided in the Grants of Plan-Based Awards table and the related footnotes.

 

In October 2010, the compensation committee approved grants of nonqualified stock options and performance-based restricted stock as an annual long-term incentive award in connection with Mr. Schilling joining the Company as our Executive Vice President and Chief Financial Officer. The stock options have an exercise price equal to the fair market value of a share of our common stock on the date of grant, vest proportionately each year over three years based on continued employment with us, and have a seven-year term. The performance-based restricted stock carries the same terms as the performance-based restricted stock granted to our executives in May 2010, except that the performance period runs from October 1, 2010 through June 30, 2012. The committee also approved a retention grant of restricted shares to Mr. Schilling, of which 40% will vest on the first anniversary of the date of grant and the remaining 60% will vest on the second anniversary of the date of grant. In considering the long-term incentive awards to be made to Mr. Schilling in 2010, the committee considered Mr. Schilling’s considerable financial and operational management experience, including his experience in the role of chief financial officer, his anticipated contributions to the Company, as well as the marketplace data discussed above.

 

As discussed above, LPS faced extremely difficult market conditions in 2010, including a 23% decline in market origination volumes and a 5% decline in foreclosure starts. In addition, the ongoing economic downturn and troubled housing market have resulted in increased scrutiny of all parties involved in the mortgage industry, including LPS, by governmental authorities, judges and the news media, among others. These combined factors contributed to a significant decline in the market price for our stock in 2010, which resulted in, among other things, a significant decrease in the value of the stock options and restricted stock held by our executives. Many of the stock options held by our executives, including awards that were granted by FIS prior to the spin-off and were converted into LPS awards, are underwater. However, despite the difficult market conditions, management continued to perform well and to generate strong results for our shareholders, including revenue growth of 3.6% over the prior year, expansion of margins, strong free cash flow which we used to repurchase shares and grow our adjusted net earnings per share, and significant market share gains.

 

In November 2010, after considering the significant decrease in the value of our executives’ outstanding long-term incentive awards and the correlating decrease in the intended retention quality of those awards, our compensation committee determined to award performance-based restricted stock to certain of our operational executives, including Messrs. Scheuble and Swenson. In order to encourage retention, and subject to the satisfaction of the performance-based vesting criteria described in the next sentence, the performance-based restricted stock vests in its entirety two years from the date of grant. However, in order to encourage continued strong performance, the committee determined that the Company must achieve $100 million in market share gain between January 1, 2011 and December 31, 2011 in order for any of the performance-based restricted shares to vest. Mr. Chan did not receive an award at this time because he had already departed the Company, and Mr. Schilling did not receive a November 2010 award because he had received a retention-based restricted stock grant in connection with joining the Company in October 2010. Because the November 2010 awards were designed to encourage retention and performance for certain executives who are directly involved in the day-to-day operation of our businesses, the committee determined in November 2010 to defer consideration of a performance-based restricted stock grant aimed at retention for Messrs. Kennedy and Carbiener, who are less directly involved in the day-to-day operation of our businesses and are more responsible for the overall management and strategic direction of our businesses, until a later date.

Subsequently, in February 2011, the compensation committee determined to make similar awards to Messrs. Kennedy and Carbiener. The committee approved the February 2011 awards after considering the important roles Messrs. Kennedy and Carbiener play in overseeing the management of the Company and its strategic direction, and the importance of those roles in the current challenging economic and political environment. The February 2011 performance-based restricted stock awards contain substantially the same terms as those awarded in November 2010, including with respect to the performance period which runs from January 1, 2011 through December 31, 2011.

 

Further details concerning the stock option and restricted stock awards made to our named executive officers in 2010, including the number of options and restricted shares awarded and the exercise price of the options, are provided in the Grants of Plan-Based Awards table and the related footnotes. Mr. Kennedy was granted 28,000 performance-based restricted shares and Mr. Carbiener was granted 50,000 performance-based restricted shares in February 2011.

 

Retirement and Employee Benefit Plans

 

We provide retirement and other benefits to our employees under a number of compensation and benefit plans. Our named executive officers generally participate in the same compensation and benefit plans as our other executives and employees. All employees in the United States, including our named executive officers, are eligible to participate in our 401(k) plan and our Employee Stock Purchase Plan (the “ESPP”). In addition, our named executive officers generally participate in the same health and welfare plans as our other employees. Mr. Carbiener also continues to participate in the LPS split dollar plan and the LPS special plan, which are described below.

 

Executive Life and Supplemental Retirement Benefit Plan and Special Supplemental Executive Retirement Plan

 

Following the spin-off, Mr. Carbiener retained death benefits under the FIS Executive Life and Supplemental Retirement Benefit Plan, which obligations we subsequently assumed solely with respect to Mr. Carbiener. We refer to this plan as the “LPS split dollar plan.” The purpose of the LPS split dollar plan is to reward executives for their service to the company and to provide an incentive for future service and loyalty. The plan provides benefits through life insurance policies on the lives of participants. However, as a result of amendments made to the plan to comply with applicable law resulting from the Sarbanes-Oxley Act of 2002, the LPS split dollar plan does not provide Mr. Carbiener with a deferred cash accumulation benefit.

 

Prior to the spin-off, to replace the lost cash accumulation benefits, FIS adopted the FIS Special Supplemental Executive Retirement Plan. Following the spin-off, we assumed the obligations under this plan with respect to Mr. Carbiener, which we refer to as the “LPS special plan.” The LPS special plan provides participants with a benefit opportunity comparable to the deferred cash accumulation benefit opportunity that would have been available had they been able to continue participation in the split dollar plan. Information regarding Mr. Carbiener’s continuing benefits under the LPS special plan, as well as the material terms of the LPS special plan and the LPS split dollar plan, can be found in the Nonqualified Deferred Compensation table and accompanying narrative. Mr. Carbiener is the only participant in both the LPS split dollar plan and the LPS special plan, and we do not maintain any other supplemental plans.

 

401(k) Plan

 

We sponsor a defined contribution savings plan that is intended to be qualified under Section 401(a) of the Internal Revenue Code. The plan contains a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code, as well as an employee stock ownership plan feature. Participating employees may contribute up to 40% of their eligible compensation, but not more than statutory limits (generally $16,500 in 2010). We contribute an amount equal to 50% of each participant’s voluntary contributions under the plan, up to a maximum of 6% of eligible compensation for each participant.

 

A participant may receive the value of his or her vested account balance upon termination of employment. A participant is always 100% vested in his or her voluntary contributions. Vesting in matching contributions occurs on a pro rata basis over an employee’s first three years of employment with the Company.

Deferred Compensation Plans

 

We also provide our named executive officers, as well as other key employees, with the opportunity to defer receipt of their compensation under a non-qualified deferred compensation plan. Mr. Chan is the only named executive officer who has deferred compensation under the plan. A description of the plan and information regarding Mr. Chan’s deferrals under the plan can be found in the Nonqualified Deferred Compensation table and accompanying narrative.

 

Employee Stock Purchase Plan

 

We sponsor an Employee Stock Purchase Plan, or ESPP, which provides a program through which our executives and employees can purchase shares of our common stock through payroll deductions and through matching employer contributions. Participants may elect to contribute between 3% and 15% of their salary into the ESPP through payroll deduction. At the end of each calendar quarter, we make a matching contribution to the account of each participant who has been continuously employed by us or a participating subsidiary for the last four calendar quarters. For most employees, matching contributions are equal to 1/3 of the amount contributed during the quarter that is one year earlier than the quarter in which the matching contribution is made. For certain officers, including our named executive officers, and for employees who have completed at least ten consecutive years of employment with us, the matching contribution is 1/2 of such amount. The matching contributions, together with the employee deferrals, are used to purchase shares of our common stock on the open market. The ESPP was approved by FIS, as our former parent, prior to the spin-off.

 

Health and Welfare Benefits

 

We sponsor various broad-based health and welfare benefit plans for our employees. Certain executives, including the named executive officers, are provided with additional life insurance. The taxable portion of the premiums on this additional life insurance is reflected in the Summary Compensation Table under the column All Other Compensation and the related footnote.

 

Perquisites and Other Benefits

 

We provide few perquisites to our executives. In general, the perquisites provided are intended to help our executives be more productive and efficient and to protect us and the executive from certain business risks and potential threats. In 2010, the perquisites enjoyed by our executive officers in 2010 were personal use of corporate airplane and a financial and tax planning benefit of up to $15,000. In utilizing the financial and tax planning benefit, which was approved by our compensation committee in order to assist our executives with the difficulties of devoting sufficient time to fulfill their job responsibilities while successfully dealing with their personal financial issues, an executive may use a provider with which the Company has negotiated rates, or a provider of their own choosing. The compensation committee regularly reviews the perquisites provided to our executive officers and believes they are reasonable and within market practice. Further detail regarding executive perquisites in 2010 can be found in the Summary Compensation Table under the column All Other Compensation and the related footnote.

 

Post-Termination Compensation and Benefits

 

We have entered into employment agreements with each of our named executive officers. These agreements provide us and the executives with certain rights and obligations following a termination of employment, and in some instances, following a change in control. We believe these agreements are necessary to protect our legitimate business interests, as well as to protect the executives in the event of certain termination scenarios. A description of the material terms of Messrs. Kennedy’s, Carbiener’s, Schilling’s, Scheuble’s and Swenson’s employment agreements can be found in the narrative following the Grants of Plan-Based Awards table and in the Potential Payments Upon Termination or Change in Control section.

 

In May 2009, our compensation committee adopted a policy stating that we will not enter into future new employment agreements, or materially amended employment agreements, with our named executive officers that include any excise tax gross-up provisions with respect to payments contingent upon a change in control. In December 2009, we entered into amended and restated employment agreements with each of Messrs. Carbiener,

Chan, Scheuble and Swenson that, among other things, eliminated the provisions in their respective employment agreements that provided for a tax gross-up. Messrs. Kennedy’s and Schilling’s employment agreements, which we entered into in March 2010 and October 2010, respectively, do not include a tax gross-up provision.

 

On October 28, 2010, our board of directors elected Thomas L. Schilling to serve as our Executive Vice President and Chief Financial Officer. Our board appointed Mr. Schilling to this position after considering his extensive experience in financial and operational management, including business development. The board believed that Mr. Schilling’s experience and skills would enhance management’s ability to balance the creativity needed to drive new sales, new product development, and new business opportunities against the appropriate financial discipline in order to maximize margins and cash flows. As a result of the board’s decision to elect Mr. Schilling to this role, Francis K. Chan ceased to serve as our Executive Vice President and Chief Financial Officer on October 28, 2010, and departed the Company on November 21, 2010. Mr. Chan will continue to serve as a consultant to the Company in connection with special projects until November 21, 2011. For a description of the termination payments made to Mr. Chan and the treatment of Mr. Chan’s stock option and restricted stock awards with respect to his departure, see “Potential Payments Upon Termination or Change in Control — Actual Payments Upon Termination of Employment.”

 

Subsequently, on March 31, 2011, after considering the challenges facing the Company with respect to ongoing difficult market conditions and increased governmental, regulatory and media scrutiny, the board determined that the Company’s businesses would be best served by uniting them under one chief operating officer in order to promote a more cohesive operational direction and strategy. As a result, on March 31, 2011, the board appointed Daniel T. Scheuble as the Company’s sole Executive Vice President and Chief Operating Officer, and Mr. Swenson ceased to serve as Executive Vice President and Co-Chief Operating Officer. It is anticipated that Mr. Swenson will depart the Company on April 30, 2011. For a description of the termination payments anticipated to be made to Mr. Swenson and the treatment of Mr. Swenson’s stock option and restricted stock awards with respect to his departure, see “Potential Payments Upon Termination or Change in Control — Actual Payments Upon Termination of Employment.”

 

Stock Ownership Guidelines

 

We established formal stock ownership guidelines in August 2008 for all corporate officers, including the named executive officers, and members of our board, to encourage such individuals to hold a multiple of their base salary (or annual retainer) in our common stock. The guidelines call for an executive or director to reach the ownership multiple within four years. Shares of restricted stock and unrealized gain on stock options count toward meeting the guidelines. The guidelines, including those applicable to non-employee directors, are as follows:

 

 

As of December 31, 2010, each of our named executive officers met the requirements of the stock ownership guidelines. The compensation committee may consider the guidelines and an executive’s satisfaction of such guidelines in determining executive compensation.

 

Executive Compensation Recoupment

 

In the event of a material restatement of our financial results, our board of directors will review the facts and circumstances that led to the restatement and will take such action as it may deem appropriate. The board will consider whether any executive officer received compensation based on the original financial statements because it appeared he or she achieved financial performance targets that, based upon the restatement, were not actually achieved. The board will also consider the accountability of any named executive officer whose acts or omissions were responsible in whole or in part for the events that led to the restatement and whether such actions or omissions constituted misconduct. The actions the board might take against a particular executive officer in such an event, depending on all facts and circumstances as determined during its review, include the pursuit of recoupment of all or

part of any bonus or other compensation paid to the executive officer that was based upon achievement of financial results that were subsequently restated, disciplinary actions (up to and including termination), and/or the pursuit of other available remedies. In order to better protect the Company in such circumstances, our compensation committee included in our 2010 and 2011 annual incentive programs the ability to recoup an executive’s bonus upon a finding of fraud, a restatement of results, or in the event of certain errors or omissions.

 

Tax and Accounting Considerations

 

The compensation committee considers the impact of tax and accounting treatment when determining executive compensation.

 

Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount that can be deducted in any one year for compensation paid to certain executive officers. There is, however, an exception for certain performance-based compensation. The compensation committee takes the deduction limitation under Section 162(m) into account when structuring and approving awards under our annual incentive plan and omnibus plan. Compensation paid under our annual incentive plan and awards granted under the omnibus plan are generally intended to qualify as performance-based compensation. However, in certain situations, the compensation committee may approve compensation that will not meet these requirements.

 

The compensation committee also considers accounting impact when structuring and approving awards. We account for stock-based payments, including stock option grants, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation — Stock Compensation.

 

All non-qualified pension and other benefits have been modified to be in full compliance with the American Jobs Creation Act of 2004, which imposes tax penalties unless the form and timing of distributions are fixed to eliminate executive and company discretion.

 

Compensation Committee Report

 

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management, and the compensation committee recommended to the board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

THE COMPENSATION COMMITTEE

 

David K. Hunt, Chairman
Alvin R. (Pete) Carpenter
Philip G. Heasley
James K. Hunt

 

Executive Compensation

 

The following table sets forth information concerning the 2010, 2009 and 2008 cash and non-cash compensation awarded to or earned by our named executive officers. The 2008 compensation for Mr. Kennedy is not shown because he was a non-employee director prior to September 15, 2009. The information in this table includes compensation earned by the individuals for services to LPS, or to FIS while LPS was still an operating segment of FIS. The amounts we report for 2008 reflect all of the compensation paid by FIS, whether or not allocable to

services provided to us. The amounts of compensation shown below do not necessarily reflect the compensation such person will receive in the future, which could be higher or lower.

 

Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth information concerning long-term incentive awards granted to the named executive officers by LPS during the fiscal year ended December 31, 2010, and (iii) non-equity incentive plan awards granted to the named executive officers by LPS during the fiscal year ended December 31, 2010.

 

 

 

 

Employment Agreements

 

In December 2009, we entered into amended and restated employment agreements with certain of our senior executives, including Messrs. Carbiener, Scheuble, Swenson and Chan. The agreements provide for an initial term that expires on December 31, 2012, subject to a provision for automatic annual extensions following the initial term unless either party provides timely notice that the term should not be extended. Each named executive officer’s employment agreement provides that he is entitled to supplemental disability insurance sufficient to provide at least 2/3 of his pre-disability base salary, and that the executive and his eligible dependents are entitled to medical and other insurance coverage we provide to our other top executives as a group. The agreements further provide that the executive is eligible to receive equity grants under our equity incentive plans, as determined by our compensation committee. The employment agreements do not provide for a tax gross-up in the event that the total payments and benefits made under the agreements or under other plans or arrangements between the Company and the executive were subject to the federal excise tax on parachute payments.

 

In March 2010 and in November 2010, we entered into employment agreements with Mr. Kennedy and Mr. Schilling, respectively, that are substantially similar to the agreements described above, except that Mr. Schilling’s agreement expires on December 31, 2013 (subject to automatic annual extensions). The general terms of each named executive officer’s employment agreement, other than Mr. Chan’s, is described below. Mr. Chan’s agreement is omitted because he departed the Company in November 2010.

 

Lee A. Kennedy

 

Mr. Kennedy’s employment agreement provides that he will serve as the Company’s Executive Chairman of the Board, and will receive a minimum annual base salary of $250,000. The agreement further provides that Mr. Kennedy’s annual cash bonus target under our annual incentive plan will be 100% of his base salary, with higher or lower amounts payable depending on performance relative to targeted results.

 

Jeffrey S. Carbiener

 

Mr. Carbiener’s employment agreement provides that he will serve as the Company’s President and Chief Executive Officer, and will receive a minimum annual base salary of $850,000. The agreement further provides that Mr. Carbiener’s annual cash bonus target under our annual incentive plan will be 150% of his base salary, with higher or lower amounts payable depending on performance relative to targeted results.

 

Thomas L. Schilling

 

Mr. Schilling’s employment agreement provides that he will serve as the Company’s Executive Vice President and Chief Financial Officer, and will receive a minimum annual base salary of $475,000. Under his employment agreement, Mr. Schilling’s annual cash bonus target under our annual incentive plan will be 100% of his base salary, with higher or lower amounts payable depending on performance relative to targeted results.

 

Daniel T. Scheuble

 

Mr. Scheuble’s employment agreement provides that he will serve as Executive Vice President and Co-Chief Operating Officer of the Company, and that Mr. Scheuble will receive a minimum annual base salary of $490,000. Under his employment agreement, Mr. Scheuble’s annual cash bonus target under our annual incentive plan will be 125% of his base salary, with higher or lower amounts payable depending on performance relative to targeted results.

Eric D. Swenson

 

Mr. Swenson’s employment agreement provides that he will serve as Executive Vice President and Co-Chief Operating Officer of the Company, and that Mr. Swenson will receive a minimum annual base salary of $540,000. Under his employment agreement, Mr. Swenson’s annual cash bonus target under our annual incentive plan will be 125% of his base salary, with higher or lower amounts payable depending on performance relative to targeted results.

 

Each named executive officer’s employment agreement contains provisions related to the payment of benefits upon certain termination events. The details of these provisions are set forth in the “Potential Payments Upon Termination or Change in Control” section.

 

Stock Incentive Plans

 

Omnibus Plan

 

We used the Lender Processing Services, Inc. 2008 Omnibus Incentive Plan, or omnibus plan, for long-term incentive compensation of our executive officers in 2010. The omnibus plan is administered by our compensation committee and permits the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other cash or stock-based awards. Eligible participants include all employees, directors and consultants of the Company and our subsidiaries, as determined by the committee. The committee has the full power to select employees, directors and consultants who will participate in the plan; determine the size and types of awards; determine the terms and conditions of awards; construe and interpret the omnibus plan and any award agreement or other instrument entered into under the omnibus plan; establish, amend and waive rules and regulations for the administration of the omnibus plan; and, subject to certain limitations, amend the terms and conditions of outstanding awards. The omnibus plan was approved by our former parent FIS prior to the spin-off, and was approved by our shareholders on May 28, 2009.

 

Each award granted under the omnibus plan is subject to an award agreement, which sets forth the participant’s rights with respect to the award. The stock options awarded in May 2010 and October 2010 have an exercise price equal to the fair market value of a share of our common stock on the date of grant, vest proportionately each year over three years based on continued employment with us, and have a seven-year term.

 

The performance-based restricted stock granted to our named executives other than Mr. Schilling in May 2010 vests proportionately each year over three years, subject to the Company’s achievement of $100 million in annual market share gain during any 12-month period between April 1, 2010 and December 31, 2011. The restricted stock granted to Mr. Schilling in October 2010 includes (i) a retention grant, 40% of which vests on the first anniversary of the date of grant, with the remaining 60% vesting on the second anniversary of the date of grant; and (ii) a performance-based restricted stock grant that vests proportionately each year over three years, subject to the Company’s achievement of $100 million in annual market share gain during any 12-month period between October 1, 2010 and June 30, 2012. The performance-based restricted stock granted to Messrs. Scheuble and Swenson in November 2010 vests on the second anniversary of the date of grant, subject to the Company’s achievement of $100 million in annual market share gain between January 1, 2011 and December 31, 2011. The time-based vesting requirements for the May 2010, October 2010 and November 2010 restricted stock grants are based on the executive’s continued employment with us.

 

Dividends on the restricted stock and performance-based restricted stock awarded in 2010 will be accrued during the restricted period, and will be paid only if and when the restricted shares to which the dividends relate vest. In addition, following the vesting of the restricted stock, our executive officers must hold one-half of the after-tax shares for six months following vesting. The award agreement also sets forth the participant’s rights with respect to the award following termination of employment or service. In addition, the omnibus plan provides that all outstanding awards will immediately vest upon the occurrence of a change in control, unless the participant’s award agreement provides otherwise. Further details are set forth under “Potential Payments Upon Termination or Change in Control.”

The following table sets forth information concerning unexercised stock options and unvested restricted stock outstanding as of December 31, 2010 for each named executive officer:

 

Outstanding Equity Awards at Fiscal Year-End