UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

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GSI Commerce, Inc.

(Name of Registrant as Specified in its Charter)

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

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April 13, 2010

 

Dear Stockholder:

 

We cordially invite you to attend the Annual Meeting of Stockholders of GSI Commerce, Inc. which will be held on May 28, 2010 at 9:00 a.m. local time, at the Company’s headquarters, located at 935 First Avenue, King of Prussia, Pennsylvania 19406.

 

At the Annual Meeting, stockholders of GSI Commerce, Inc. are being asked to (i) elect nine directors of GSI Commerce, Inc., (ii) to approve GSI Commerce, Inc.’s 2010 Equity Incentive Plan, (iii) to approve an amendment to GSI Commerce, Inc.’s Amended and Restated Certificate of Incorporation, as amended to date, to increase the authorized shares of capital stock to 185,000,000 shares, (iv) ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2010, and (v) act upon such other business as may properly come before the Annual Meeting.

 

We are furnishing proxy materials to stockholders primarily over the Internet. We believe that this process expedites stockholders’ receipt of proxy materials and lowers the costs of our annual meeting. We are mailing to our stockholders a notice containing instructions on how to access our 2010 Proxy Statement and 2009 Annual Report to Stockholders and vote online. The notice also includes instructions for requesting a paper copy of your annual meeting materials, including the notice of annual meeting, proxy statement, and proxy card. If you do receive annual meeting materials by mail, the notice of annual meeting, proxy statement, and proxy card from our Board of Directors will be enclosed. If you receive your annual meeting materials via e-mail, the e-mail will contain voting instructions and links to the annual report and the proxy statement on the Internet, both of which are available at www.proxyvote.com.

 

Whether or not you expect to attend the meeting in person, it is important that your shares be voted at the meeting. I urge you to vote your shares promptly by using the Internet or by signing and returning a proxy card.

 

If you have any questions or require assistance in voting please contact The Proxy Advisory Group, LLC toll-free at (888) 557-7699.

 

Sincerely,

 

Michael G. Rubin

Chairman of the Board, President

and Chief Executive Officer

 

935 First Avenue, King of Prussia, PA 19406          (610) 491-7000

TABLE OF CONTENTS

 

GSI COMMERCE, INC.

935 FIRST AVENUE

KING OF PRUSSIA, PA 19406

 

 

GSI Commerce, Inc.

935 First Avenue

King of Prussia, PA 19406

 

 

How many votes must be present to hold the Annual Meeting?

 

A majority of the votes that can be cast, or 30,724,602 votes, must be present or represented by proxy at the Annual Meeting in order to hold the meeting and conduct business. This is called a quorum. All shares of GSI Common Stock present in person or represented by proxy (including broker non-votes) and entitled to vote at the Annual Meeting, no matter how they are voted or whether they abstain from voting, will be counted in determining the presence of a quorum. A broker non-vote occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner.

 

How do I vote my shares?

 

In order to vote your shares, you may vote by proxy or you may attend the Annual Meeting and vote in person.

 

You may vote by proxy by either (i) via the Internet at: www.proxyvote.com (using the 12-digit number included on your proxy card or notice of annual meeting), (ii) by telephone at: 800-690-6903 (using the 12-digit number included on your proxy card or notice of annual meeting) or (iii) by completing and signing the enclosed proxy card and returning the card in the postage-paid envelope GSI has provided if you received a paper copy of the proxy materials. The deadline for voting by Internet is 11:59 p.m. (EDT) on May 27, 2010. If you receive more than one control number, in order for all of your shares to be voted, you must vote using all control numbers you receive.

 

How can I obtain a full set of proxy materials and/or a traditional proxy card at no additional charge?

 

You may request a paper copy of the full set of proxy materials any of the following three ways:

 

1. By Internet: www.proxyvote.com;

 

2. By Phone: (800) 579-1639; or

 

3. By Email: sendmaterial@proxyvote.com (your email should contain the 12-digit number from your notice of annual meeting in the subject line).

 

To ensure timely delivery prior to the Annual Meeting, please make your request by May 13, 2010.

 

What if I do not specify how I want my shares voted?

 

If you submit a proxy but do not indicate how you want your shares voted, the persons named in the proxy will vote all shares of Common Stock represented by such proxy:

 

 

 

How are my votes counted?

 

You may either vote for or withhold authority to vote for a nominee for the Board. For the election of directors, withheld votes do not affect whether a nominee has received sufficient votes to be elected.

 

You may vote for or against or you may abstain from voting on any other proposal. For the purpose of determining whether the stockholders have approved matters other than the election of directors, abstentions are treated as shares present or represented and entitled to vote, so abstaining has the same effect as a vote against that

proposal. Broker non-votes are not counted or deemed to be present or represented for the purpose of determining whether stockholders have approved a proposal.

 

If you hold your shares in street name it is critical that you cast your vote if you want it to count in the election of Directors (Proposal 1 of this Proxy Statement). In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of Directors, your bank or broker was allowed to vote those shares on your behalf in the election of Directors as they felt appropriate. Recent changes in regulation were made to take away the ability of your bank or broker to vote your uninstructed shares in the election of Directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote in the election of Directors, no votes will be cast on your behalf.

 

Your bank or broker will, however, continue to have discretion to vote any uninstructed shares on the ratification of the appointment of the Company’s independent registered public accounting firm (Proposal 4 of this Proxy Statement). They will not have discretion to vote uninstructed shares on the other proposals (Proposals 2 and 3 of this Proxy Statement). Accordingly, if you do not instruct your broker or bank how to vote, no votes would be cast on your behalf on Proposals 2 and 3.

 

How many votes are required to elect directors or to approve any other proposal?

 

The election of directors will be determined by a plurality vote and the nine nominees receiving the most votes will be elected. The affirmative vote of a majority of the shares of Common Stock outstanding entitled to vote at the Annual Meeting is required to approve the amendment to the certificate of incorporation. The affirmative vote of a majority of the shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting is required to approve any other proposal at the Annual Meeting.

 

Can I change my vote?

 

Yes. You can change your vote at any time before your proxy is voted at the Annual Meeting. If you are a stockholder of record, you may revoke your proxy by:

 

 

The last vote received chronologically will supersede any prior vote. The deadline for voting by Internet is 11:59 p.m. (EDT) on May 27, 2010.

 

If you hold your shares in street name, you must contact your broker, bank or other nominee to change your vote.

 

Could other matters be decided at the Annual Meeting?

 

GSI does not know of any other matters that will be considered at the Annual Meeting. If any other matters arise at the Annual Meeting, the proxies will be voted at the discretion of the proxy holders.

 

Who can answer my questions?

 

If you have any questions or require assistance in the voting your shares, please call the Proxy Advisory Group, LLC, the firm assisting us in the solicitation of proxies:

 

The Proxy Advisory Group, LLC

18 East 41 ^st Street, Suite 2000

New York, NY 10017

Stockholders call toll free: (888) 557-7699

 

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

GSI’s amended and restated bylaws provide that the number of directors will be set at nine unless otherwise determined by the Board of Directors. The Board has set the number of directors at nine. The following table sets forth certain information regarding the nominees for election to the Board to serve for one-year terms until the 2011 Annual Meeting and until their respective successors are elected and qualified. All of the nominees currently serve as directors of GSI. The nominees have consented to being named in this Proxy Statement and to serve if elected.

 

The Board of Directors seeks to ensure that it is composed of members of high character and integrity and whose particular experience, qualifications, attributes and skills, when taken together, will allow the Board of Directors to satisfy its oversight responsibilities effectively. As discussed below under “-Director Nomination Process,” the slate of directors are nominated by the Board of Directors upon recommendation by the Nominating and Corporate Governance Committee for election at the annual stockholders’ meeting each year. In considering whether to recommend a director candidate, the Nominating and Corporate Governance Committee evaluates each individual in the context of the Board as a whole taking into account relevant factors including, among other things:

 

 

While the Nominating and Corporate Governance Committee does not have a formal policy regarding director diversity, it believes that the directors should encompass a range of experience, viewpoints, qualifications, attributes and skills in order to provide sound and prudent guidance to GSI’s management. The Nominating and Corporate Governance Committee considers diversity in connection with its review of each potential director candidate and is satisfied that the current composition of the Board of Directors reflects its commitment to diversity. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees.

 

The specific backgrounds and qualifications of GSI’s current directors, each of whom is nominated for re-election in this Proxy Statement, is reflected in each director’s biography below.

 

 

 

 

Michael G. Rubin has served as GSI’s chairman of the board and chief executive officer since July 1995 and as president since August 2006. Previously, Mr. Rubin served as GSI’s co-president from May 2004 through August 2005 and as GSI’s president from June 2000 through May 2004. Mr. Rubin’s day to day leadership of GSI, as Chief Executive Officer, provides him with intimate knowledge of GSI’s businesses, results of operations and financial condition. As founder of GSI, he has provided and continues to provide strategic guidance. The Board believes that Mr. Rubin provides unique insights into GSI’s challenges, opportunities, risks and operations.

 

M. Jeffrey Branman has been one of GSI’s directors since October 2001. Since March 2007, Mr. Branman has been a managing director of Hilco Consumer Capital LLC, a private equity firm focused on North American consumer products companies and brands. From February 2007 to March 2007, Mr. Branman was a managing director of Petsky Prunier LLC, a specialty investment bank. From March 2005 through February 2007, Mr. Branman was the president and owner of Interactive Commerce Partners LLC, a provider of financial advisory services. Mr. Branman served as president of Interactive Technology Services, a subsidiary of Comcast Corporation, a developer, manager and operator of broadband cable networks, from April 2000 through March 2005. Interactive Technology Services served as financial advisor to Interactive Technology Holdings, LLC, a joint venture of Comcast Corporation and QVC, Inc. which sought and made investments. From March 1996 to February 2000, Mr. Branman was senior vice president corporate development of Foot Locker, Inc., a retailer of athletic footwear and apparel, and chief executive officer of FootLocker.com, the internet and direct marketing subsidiary of Foot Locker. Mr. Branman was a director of Sona Mobile Holdings Corp. from 2006 to 2009. Mr. Branman’s operating experience and investment banking background, particulary in the interactive commerce, technology services and retail industries, provides GSI with industry insight, financial perspective and guidance about capital markets and financings. His experience with mergers and acquisitions and his industry experience, both from an investment banking perspective and an executive perspective, provides GSI with insight on potential acquisition opportunities and corporate strategies.

 

Michael J. Donahue has been one of GSI’s directors since June 2006. Since March 2005, Mr. Donahue has served as a self-employed advisor in the technology industry. From January 2000 to March 2005, Mr. Donahue served as the group executive vice president and chief operating officer of BearingPoint, Inc., a consulting and systems integration firm. Prior to January 2000, Mr. Donahue served as managing partner, solutions, for the consulting division of KPMG LLP, the global accounting firm, and as a member of the boards of directors of KPMG LLP US and KPMG Consulting KK Japan. Mr. Donahue is also a director of Air Products and Chemicals, Inc. and The Orchard Enterprises, Inc. and was a director of Arbinet-thexchange, Inc. from 2006 to 2008. Mr. Donahue’s management experience and his experience in the technology services industry provides insight about the challenges GSI faces due to rapidly changing IT capabilities. He also brings global perspective from his leadership positions and experience in international enterprises and transactions. His service as Chairman of The Orchard Enterprises, Inc. and positions on committees of other public companies provides valuable insight on corporate governance. He also has mergers and acquisitions experience in the U.S. and globally.

 

Ronald D. Fisher has been one of GSI’s directors since March 2000. Mr. Fisher currently serves as the president of SOFTBANK Holdings Inc. and as a managing general partner of SOFTBANK Capital Partners LP, a venture capital organization. He joined SOFTBANK in October 1995. From January 1990 to September 1995, Mr. Fisher was chief executive officer of Phoenix Technologies, Ltd., a developer and marketer of system software products. Mr. Fisher is also a director of SOFTBANK Corporation and E*TRADE Group, Inc. Mr. Fisher’s extensive investment and mergers and acquisitions experience, particularly in the global internet market, provides GSI with important technology and market insights that can affect its business. As a former chief executive of a technology company, he brings strategic, operational, and management insight.

 

John A. Hunter has been one of GSI’s directors since November 2005. Mr. Hunter currently serves as executive vice president of customer fulfillment services for QVC Inc., an electronic retailer. Prior to February 2007, Mr. Hunter was senior vice president of distribution for QVC. He joined QVC in 1991 as a vice president of customer service. Prior to 1991, Mr. Hunter was a senior vice president in the credit division of Citibank, where he was employed from 1983 to 1991. Mr. Hunter brings many years of senior management experience in fulfillment and customer service, particularly in direct-to-consumer businesses. Mr. Hunter provides insight on the direct-to-consumer industry on operations, employee relations and building customer-focused organizations.

Mark S. Menell has been one of GSI’s directors since April 2000. Mr. Menell has been a partner of Rustic Canyon Partners, a venture capital firm, since January 2000. From August 1990 to January 2000, Mr. Menell was an investment banker at Morgan Stanley & Co. Incorporated, most recently as principal and co-head of Morgan Stanley’s Technology Mergers and Acquisitions Group, in Menlo Park, CA. Mr. Menell is also a director of Betawave Corporation. Mr. Menell provides knowledge about the technology services, consumer internet and software industries and advice about capital markets, financings and corporate development strategies. He has significant mergers and acquisitions experience especially with respect to technology services, internet and software companies.

 

Dr. Jeffrey F. Rayport has been one of GSI’s directors since April 1999. Dr. Rayport has been chairman of Marketspace LLC, a digital strategy advisory and research business of Monitor Group, since October 2003 and was chief executive officer of Marketspace from September 1998 to October 2003. From September 1991 through September 1999, Dr. Rayport was a faculty member in the marketing and service management units at the Harvard Business School. Dr. Rayport is also a director of ValueClick Inc., International Data Group, iCrossing, and Andrews McMeel Universal. Dr. Rayport’s extensive service on boards of international public companies provides insight about corporate governance. His academic background and his knowledge and experiences with technology services and marketing services businesses provides the Board with industry insight as well as an understanding of industry trends.

 

Lawrence S. Smith has been one of GSI’s directors since February 2008. Mr. Smith served as an Executive Vice President and as Co-Chief Financial Officer of Comcast Corporation from November 2002 until his retirement in March 2007. Prior to November 2002, Mr. Smith served as an Executive Vice President of Comcast Holdings Corporation, the predecessor of Comcast Corporation, for more than five years. Mr. Smith is also a director of Air Products and Chemicals, Inc. and Tyco Electronics Ltd. Mr. Smith brings many years of public company experience both as Chief Financial Officer of a large public company and by serving on the boards of international public companies. His significant experience with complex financial and operational issues combined with his knowledge of public reporting requirements and processes brings accounting, financial management and operational insight to the Board. He also has extensive mergers and acquisitions and corporate finance experience.

 

Andrea M. Weiss has been one of GSI’s directors since June 2006. Since August 2002, Ms. Weiss has served as president and chief executive officer of Retail Consulting Inc., an international retail consulting company she owns. From April 2001 to August 2002, Ms. Weiss served as president of dELiA*s Corp., a direct marketing and retail company comprised of lifestyle brands for teenage girls. From May 1998 to February 2001, Ms. Weiss served as executive vice president and chief stores officer of Limited Brands, Inc., a specialty retail business. Ms. Weiss is also a director of CBRL Group, Inc. and Chicos FAS, Inc.. Ms. Weiss was a director of eDiets.com Inc. from 2004 to 2009 and Brookstone, Inc. from 2002 to 2006. Ms. Weiss has extensive leadership experience in the retail apparel industry and has served as chief executive of an international retail consulting company. Her experience in the retail and direct-to-consumer industries provides industry insight as well as management and operational insight to the Board. She also serves as a member of other public company boards which provides insight on corporate governance issues.

 

Prior Right to Designate Directors

 

Until August 18, 2009, SOFTBANK Capital Partners LP, SOFTBANK Capital LP and SOFTBANK Capital Advisors Fund LP, or SOFTBANK, had the right to designate one member of GSI’s Board of Directors, and to have such director serve as a member of each committee of GSI’s Board of Directors. Mr. Fisher was SOFTBANK’s designee to GSI’s Board of Directors.

 

Until February 18, 2010, Liberty Media Corporation, together with its subsidiaries, collectively referred to as Liberty, had the right to designate one member of GSI’s Board of Directors, and to have such director serve as a member of each committee of GSI’s Board of Directors. Mr. Hunter was Liberty’s designee to GSI’s Board of Directors.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR ELECTION OF ALL OF THE NOMINEES FOR DIRECTORS.

Board, Committees and Attendance at Meetings of the Board and Committees

 

The Board of Directors of GSI held 15 meetings during fiscal 2009. The Board of Directors also meets in executive session outside the presence of Mr. Rubin, our only director who is also an employee of GSI, and other members of management at each of its regularly scheduled meetings. During fiscal 2009, no director attended fewer than 75% of the aggregate of (i) the total number of Board meetings held during the period for which he or she was a director and (ii) the total number of meetings held by committees of the Board of Directors on which he or she served during the period he served. A description of each of the committees of the Board of Directors of GSI is set forth below.

 

The Board has determined that the following directors, constituting a majority of the members of the Board of Directors, are independent as defined in the applicable listing standards of the Nasdaq Stock Market: Messrs. Branman, Donahue, Hunter, Fisher, Menell and Smith, Ms. Weiss and Dr. Rayport. The independence standards of Nasdaq are composed of objective standards and subjective standards. Under the objective standards, a director will not be deemed independent if he directly or indirectly receives compensation (other than as a director) in excess of certain thresholds or if certain described relationships exist. Under the subjective independence standard, a director will not be deemed independent if he has a relationship with GSI that, in the view of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Under the Nasdaq Stock Market rules, an independent director must satisfy both the objective and the subjective standards.

 

In evaluating the independence of Mr. Branman, the Board considered that he is a Managing Director of Hilco Consumer Capital, LLC, the Managing Partner of Hilco Consumer Capital, L.P., and the transaction between GSI and HCC described under Other Relationships and Related Transactions. In evaluating the independence of Mr. Fisher, the Board considered that he was affiliated with SOFTBANK, a former principal stockholder of GSI. In evaluating the independence of Mr. Hunter, the Board considered that he was an employee of QVC, a subsidiary of Liberty, a former principal stockholder of GSI, and the transactions between GSI and QVC described under “Certain Relationships and Related Transactions”. In evaluating the independence of Messrs. Donahue and Smith the Board considered that these directors each serve on the Board of Directors of Air Products and Chemicals, Inc. In each case, the Board concluded that, in their view, such relationships would not interfere with the exercise of such person’s independent judgment in carrying out their responsibilities as a director.

 

The Board of Directors has four standing committees.

 

Audit Committee.   The Board of Directors has a separately designated standing audit committee. The current members of the Audit Committee are Messrs. Smith (Chairman), Donahue and Menell. The Board of Directors has determined that each member of the Audit Committee is independent as defined in the applicable listing standards of the Nasdaq Stock Market and SEC regulations and that all members of the Audit Committee qualify as audit committee financial experts as that term is defined in SEC regulations. The Audit Committee held eight meetings during fiscal 2009.

 

The Audit Committee’s responsibilities include:

 

 

 

The responsibilities of the Audit Committee are further described in the Audit Committee Charter adopted by the Audit Committee and the Board of Directors, a copy of which is available on GSI’s Web site at www.gsicommerce.com.

 

Compensation Committee.   The current members of the Compensation Committee are Ms. Weiss (Chairwoman), Mr. Hunter and Dr. Rayport. The Board of Directors has determined that each member of the Compensation Committee is independent as defined in the applicable listing standards of the Nasdaq Stock Market. The Compensation Committee held seven meetings during fiscal 2009.

 

The Compensation Committee’s responsibilities include:

 

 

The responsibilities of the Compensation Committee are further described in the Compensation Committee Charter, a copy of which is available on GSI’s Web site at www.gsicommerce.com.

 

As provided in its charter, the Compensation Committee may, in its discretion, form and delegate all or a portion of its authority, duties and responsibilities to one or more subcommittees of the Compensation Committee. To date, the Compensation Committee has not delegated its responsibilities. Mr. Rubin, GSI’s president and chief executive officer, makes recommendations to the Compensation Committee with respect to the compensation of executive officers, other than himself. The Compensation Committee has the authority to retain independent counsel or other advisors and has, in the past, retained compensation consultants and outside counsel to assist it. For more information concerning the Compensation Committee’s processes and procedures for the determination of executive officer compensation, see “Executive Compensation — Compensation Discussion and Analysis.”

 

Nominating and Corporate Governance Committee.   The current members of the Nominating and Corporate Governance Committee are Dr. Rayport (Chairman) and Mr. Fisher and Ms. Weiss. The Board of Directors has determined that each member of the Nominating and Corporate Governance Committee is independent as defined in the applicable listing standards of the Nasdaq Stock Market. The Nominating and Corporate Governance Committee held no meetings during fiscal 2009.

 

The Nominating and Corporate Governance Committee’s responsibilities include:

 

 

The responsibilities of the Nominating and Corporate Governance Committee are further described in the Nominating and Corporate Governance Committee Charter, a copy of which is available on GSI’s Web site at www.gsicommerce.com.

 

Financings and Acquisitions Committee.   The current members of the Financings and Acquisitions Committee are Messrs. Branman (Chairman), Menell and Smith. The Financings and Acquisitions Committee held six meetings during fiscal 2009. The Financings and Acquisitions Committee’s responsibilities include reviewing potential mergers, acquisitions, divestitures, joint ventures, significant asset sales or purchases, significant

investments and other significant business opportunities and making recommendations to the Board of Directors and reviewing structures and methods of financing and making recommendations to the Board of Directors.

 

Board Leadership Structure and Risk Oversight

 

The Board of Directors has adopted a board leadership structure consisting of the combined roles of Chief Executive Officer and Chairman of the Board and a separate Lead Director. The Board believes this structure provides the appropriate balance between corporate strategy development and independent oversight of management.

 

Mr. Rubin serves as GSI’s Chief Executive Officer and Chairman of the Board. As Chief Executive Officer and founder of GSI, Mr. Rubin is uniquely situated to serve as Chairman. He is the director most familiar with GSI’s business and industry and most capable of effectively identifying strategic priorities and leading the board’s discussions of and GSI’s efforts to execute on corporate strategies and opportunities. The Board of Directors believes having one unified voice of management and the Board of Directors to both internal and external constituencies puts management in the best position to carry-out GSI’s business strategies and objectives. The Board also recognizes Mr. Rubin’s continued leadership and business development skill and that, as GSI’s founder, Mr. Rubin’s vision and drive have been essential to GSI’s growth.

 

Recognizing the importance of the Board of Directors to be able to meet independent of management and for there to be independent oversight of management, in August 2008, the Board of Directors created the position of Lead Director. The Board of Directors elected Ronald D. Fisher, one of the Board’s independent directors, to serve as Lead Director. The responsibilities of the Lead Director include: chairing meetings of the Board when Mr. Rubin is not present; chairing meetings of the Company’s outside directors; serving as a liaison between management of the Company and the outside directors of the Company; working with management on the agendas for Board meetings and information to be supplied to the Board; and consulting with the Mr. Rubin and other members of management on Board business and other matters.

 

The Board of Directors as a whole is responsible for consideration and oversight of risks facing GSI, and is responsible for ensuring that material risks are identified and managed appropriately. Certain risks are overseen by committees of the Board of Directors and these committees make reports to the full Board of Directors on a quarterly basis, including reports on noteworthy risk-management issues. Financial risks are overseen by the Audit Committee which meets with management and GSI’s internal audit department to review GSI’s major financial risk exposure and the steps management has taken to monitor and control such exposures. Compensation risks are overseen by the Compensation Committee. Members of the GSI Senior Management Team regularly report to the full Board about their areas of responsibility and a component of these reports is risk within the area of responsibility and the steps management has taken to monitor and control such exposures. Additional review or reporting on risks is conducted as needed or as requested by the Board or committee.

 

Compensation Risks

 

Our Compensation Committee has discussed the concept of risk as it relates to our compensation program for all employees and the Compensation Committee does not believe our compensation program is reasonably likely to have a material adverse effect on the Company. The Compensation Committee reviewed the components of our compensation program, risks inherent n the compensation program and factors to control or mitigate these risks. The Compensation Committee noted several design features of our compensation program that reduce the likelihood of excessive risk-taking and encourage appropriate risk taking in support of sustainable value creation, including:

 

 

 

Director Attendance at Annual Meeting

 

GSI does not have a policy with regard to Board members’ attendance at the Annual Meeting. Mr. Rubin attended GSI’s 2009 annual meeting of stockholders.

 

Corporate Governance Guidelines

 

The GSI Commerce, Inc. Board of Directors Corporate Governance Guidelines are available on GSI’s website under “Corporate Governance,” at www.gsicommerce.com/investors.

 

Director Nomination Process

 

Director Qualifications.   While GSI does not have any specific, minimum qualifications for Board nominees, in considering possible candidates for election as a director, the Nominating and Corporate Governance Committee will be guided by the following:

 

 

Director Nominee Selection Process.   GSI’s Nominating and Corporate Governance Committee recommends qualified candidates as directors of GSI and recommends that the Board nominate such individuals for election to the Board at the next annual meeting of stockholders. The Nominating and Corporate Governance Committee will consider director candidates recommended by Board members, management and stockholders, as well as those identified by any third-party search firm it may retain. Director candidates recommended by stockholders which comply with the procedures set forth below, subject to GSI’s contractual obligations to certain stockholders described above, will receive the same consideration as candidates recommended by other persons.

 

In the case of considering a new director candidate, the selection process for director candidates includes the following steps:

 

 

In the past, on some occasions, the Nominating and Corporate Governance Committee has engaged a third party search firm to assist in identifying candidates to serve as members of GSI’s Board of Directors.

 

Procedure for Stockholders Recommending Director Candidates.   A stockholder who wishes to recommend a prospective director nominee should submit their recommendation to Chairman of the Nominating and Corporate Governance Committee in writing c/o GSI Commerce, Inc., 935 First Avenue, King of Prussia, PA 19406. The following information must be included in or attached to the letter:

 

 

The deadline for submitting stockholder recommendations pursuant to the foregoing procedures for the 2011 annual meeting of stockholders is December 14, 2010. All stockholder recommendations which are late will be rejected by the Company.

 

In connection with the 2010 Annual Meeting, GSI has not received a director nominee recommendation from any stockholder, or group of stockholders, that beneficially owns more than five percent of GSI’s Common Stock. Each of the current nominees listed for directors under Proposal 1 of this Proxy Statement is a current director standing for re-election.

 

Procedure for Stockholders Nominating Directors.   In addition, under GSI’s amended and restated bylaws, stockholders are permitted to nominate directors to be elected at a meeting of stockholders. GSI’s amended and restated bylaws set forth procedures which stockholders must follow for nominations of directors to be brought before a meeting of GSI’s stockholders. Stockholders are directed to review GSI’s amended and restated bylaws prior to submitting a nomination to ensure compliance with these procedures.

 

For nominations to be properly brought before an annual meeting by a stockholder, the stockholder must give written notice to GSI’s Secretary at GSI’s principal executive offices no later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting. The notice timing is subject to change under certain circumstances such as in the event that the date of GSI’s annual meeting is moved more than 30 days of the anniversary of the preceding year’s annual meeting.

 

Generally, a stockholder’s notice must set forth:

 

(A) as to each stockholder’s proposed director nominee (i) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 14a-4(d) thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) a description of all direct and indirect agreements, arrangements and understandings during the past three years between or among the nominating stockholder (and any beneficial owner on whose behalf the nominee is made) and the proposed director nominee (including their affiliates or associates); and

 

(B) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made (i) the name and address of such stockholder and of such beneficial owner, (ii) (a) the number of shares of the Company which are, directly or indirectly, owned beneficially and of record by such stockholder and such beneficial owner, (b) information regarding any option, warrant, convertible security,

stock appreciation right, or similar right with a conversion privilege or a settlement payment or mechanism at a price related to or with a value derived in whole or in part from the value of any shares of the Company (a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder and the beneficial owner, if any, (c) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder and/or the beneficial owner, if any, has a right to vote any shares of the Company, and (d) such other information required by GSI’s amended and restated bylaws, including, but not limited to, any performance-related fees (other than an asset-based fee) that such stockholder and the beneficial owner, if any, is made is entitled to based on any increase or decrease in the value of shares of the Company or Derivative Instruments, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to a sufficient number of holders of GSI’s voting shares to elect such nominee or nominees (an affirmative statement of such intent, a “Solicitation Notice”).

 

If the stockholder, or the beneficial owner on whose behalf any such nomination is made, has provided GSI with a Solicitation Notice, such stockholder or beneficial owner must, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of GSI’s voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice.

 

GSI’s amended and restated bylaws also set forth procedures which stockholders must follow for nominations of directors to be brought before a special meeting of stockholders.

 

Except as otherwise provided by law, the chairman of the meeting has the power and duty to determine whether a nomination to be brought before the meeting was made in accordance with the procedures set forth in GSI’s amended and restated bylaws and, if any proposed nomination is not in compliance with GSI’s amended and restated bylaws, to declare that the defective nomination will not be presented for stockholder action at the meeting and will be disregarded.

 

GSI’s amended and restated bylaws are available, at no cost, at the SEC’s Web site, www.sec.gov, as Exhibit 3.1 to GSI’s Form 8-K filed with the Securities and Exchange Commission on March 16, 2009 or upon the stockholder’s written request directed to the Corporate Secretary c/o GSI Commerce, Inc., 935 First Avenue, King of Prussia, PA 19406.

 

 

Discussion of Director Compensation

 

The compensation payable to each director, other than Messrs. Fisher, Hunter and Rubin, for services provided as a director during fiscal 2009, as set by GSI’s Nominating and Corporate Governance Committee, was as follows:

 

 

 

In accordance with GSI’s compensation policy for directors, on June 18, 2009, 3,333 restricted stock units, or RSUs, automatically were granted to each of Messrs. Branman, Donahue, Menell and Smith, Dr. Rayport and Ms. Weiss valued, in each case, at a price of $13.61 per share, the fair market value on the date of grant, and will vest in full one year from the date of grant.

 

In addition, as the chair of the Audit Committee, Mr. Smith received an additional cash retainer of $10,000 and each of Mr. Branman, Ms. Weiss and Dr. Rayport, as the chairs of the Finance and Acquisitions Committee, Compensation Committee and the Nominating and Corporate Governance Committee, respectively, received an additional cash retainer of $5,000.

 

Additionally, any director who serves, at GSI’s request, as a director or observer on the Board of Directors of another company with respect to which we have the contractual right to appoint a director or observer will receive an annual cash fee of $10,000. Accordingly, Mr. Branman received an annual cash fee of $10,000 for serving as an observer on the board of directors of another company at GSI’s request.

 

In accordance with GSI’s director compensation policy, directors who are designees of stockholders that have a contractual right to appoint a director to GSI’s Board do not receive compensation under the policy described above. Accordingly, Mr. Hunter did not receive any compensation from GSI for acting in his capacity as a director in fiscal 2009. Until August 18, 2009, the date that SOFTBANK sold all of their shares of Common Stock and no longer had the right to designate a member to GSI’s Board of Directors, Mr. Fisher did not receive any compensation in fiscal

2009 in his capacity as a director in fiscal 2009. Mr. Rubin, GSI’s chairman, president and chief executive officer, did not receive any separate compensation for acting in his capacity as a director.

 

The Nominating and Corporate Governance Committee approved the following compensation increases for fiscal 2010: (i) an increase in the annual cash retainer from $25,000 to $37,500, (ii) an increase in the annual cash retainer payable to the Audit Committee chair from $10,000 to $15,000, and (iii) an increase in the annual cash retainers payable to the Compensation Committee, Nominating and Corporate Governance Committee, and Financings and Acquisitions Committee from $10,000 to $15,000. In addition, the Nominating and Corporate Governance Committee determined that beginning in fiscal 2010 the Lead Director will receive an annual cash retainer of $15,000.

 

 

PROPOSAL 2 — GSI’s 2010 EQUITY INCENTIVE PLAN
Approval Of The 2010 Equity Incentive Plan

 

Our 2010 Equity Incentive Plan (the “2010 Equity Plan”), was adopted by our Board of Directors on March 3, 2010 and amended on March 31, 2010, subject to stockholder approval.

 

The 2010 Equity Plan is the successor to and continuation of our 2005 Equity Incentive Plan (the “2005 Equity Plan”), and the Amended and Restated 1996 Equity Incentive Plan (the “1996 Equity Plan”, and together with the 2005 Equity Plan, the “Prior Plans”).

 

In the event GSI’s stockholders approve the 2010 Equity Plan, the Prior Plans will be terminated. No awards may be granted pursuant to the Prior Plans following their termination. However, all outstanding stock awards granted under the Prior Plans will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the Prior Plans.

 

We have carefully designed the 2010 Equity Plan to enable us to secure and retain the services of our employees, consultants and directors, to provide a means by which such persons may be given an opportunity to purchase our stock, and to provide incentives for such persons to exert maximum efforts for our success or the success of our affiliates. Important features of the 2010 Equity Plan Include:

 

 

Contingent on approval by GSI’s stockholders of the 2010 Equity Plan, GSI commits to its stockholders that for the next three fiscal years, beginning with the fiscal 2010 and continuing through the fiscal 2012, GSI’s total “burn rate” for stock awards shall not exceed 6.12% per year on average for such fiscal years. “Burn rate” is defined as the number of shares subject to stock awards granted in a fiscal year divided by the weighted average number of shares of GSI common stock outstanding for that fiscal year. For purposes of calculating the number awards granted in a particular year, (i) awards of stock options and stock appreciation rights will count as one share, and (ii) awards of restricted stock, restricted stock units, or other full value awards will count as two shares. This limitation applies to all awards that can result in the delivery of shares and, unlike other 2010 Equity Plan terms, applies to stock awards granted under the 2010 Equity Plan and any other equity compensation plan, but excluding awards assumed in acquisitions, qualified employee stock purchase plans, and certain other tax-qualified plans.

 

Stockholders are requested in this Proposal 2 to approve the 2010 Equity Plan. To be approved, this Proposal 2 must receive a “For” vote from the majority of shares present and entitled to vote either in person or by proxy. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes will be counted towards a quorum, but will not be counted for any purpose in determining whether this matter has been approved.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE 2010 EQUITY INCENTIVE PLAN.

 

The essential features of the 2010 Equity Plan, as amended, are outlined below. Please note that the description of the essential features of the 2010 Equity Plan is qualified in its entirety by reference to the copy of the 2010 Equity Plan, as amended, attached hereto as Appendix A.

General

 

The 2010 Equity Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of equity compensation, together referred to as stock awards, as well as performance cash awards, together with stock awards, referred to as awards. See “— Federal Income Tax Information” for a discussion of the tax treatment of stock awards.

 

Administration

 

The terms of the 2010 Equity Plan provide that it be administered by the Board, which has delegated this responsibility to the Compensation Committee. Subject to the provisions of the 2010 Equity Plan, the Compensation Committee has the power to construe and interpret the 2010 Equity Plan and to determine the persons to whom and the dates on which awards will be granted, the number of shares of our common stock subject to each award, the time or times during the term of each award within which all or a portion of such award may be exercised, the exercise price, the type of consideration and other terms of the award. As used below with respect to the 2010 Equity Plan, the “Board” refers to the Compensation Committee, as well as to the Board itself.

 

Eligibility

 

Incentive stock options may be granted under the 2010 Equity Plan only to our employees (including officers). Our new and existing employees (including officers), directors, and consultants are eligible to receive all other types of awards under the 2010 Equity Plan. All of our approximately 5,300 employees, directors and consultants are eligible for awards under the 2010 Equity Plan.

 

No incentive stock option may be granted under the 2010 Equity Plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of our total combined voting power, unless the exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and the term of the option does not exceed five years from the date of grant. In addition, the aggregate fair market value, determined at the time of grant, of the shares of our common stock with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year (under the 2010 Equity Plan and all other of our equity incentive plans) may not exceed $100,000.

 

No employee may be granted options or stock appreciation rights under the 2010 Equity Plan exercisable for more than 2,000,000 shares of our common stock during any calendar year. This restriction is referred to as the Section 162(m) Limitation.

 

Stock Subject to the 2010 Equity Plan

 

The maximum number of shares of common stock available for future issuance under the 2010 Equity Plan is equal to the sum of 3,500,000 shares to be approved in this Proposal 2 and the number of shares of common stock subject to outstanding stock awards that would have reverted to the reserve of the Prior Plans pursuant to the terms of the Prior Plans As of January 2, 2010, 1,493,835 shares were not subject to outstanding awards and remained available for grant under the 2005 Equity Plan and 7,533,335 shares were subject to outstanding awards under the Prior Plans.

 

Shares may be issued in connection with a merger or acquisition as permitted by the rules of the applicable national securities exchange, and such issuance shall not reduce the number of shares available for issuance under the 2010 Equity Plan. If a stock award granted under the 2010 Equity Plan expires or otherwise terminates without being exercised in full, or if any shares of common stock issued pursuant to a stock award are forfeited to or repurchased by us, including, but not limited to, any repurchase or forfeiture caused by the failure to meet a contingency or condition required for the vesting of such shares or if any stock award is settled in cash, then the shares of common stock not issued under such stock award, or forfeited to or repurchased by us shall revert to and again become available for issuance under the 2010 Equity Plan.

 

If any shares subject to a stock award are not delivered to a participant because such shares are withheld for the payment of taxes or the stock award is exercised through a reduction of shares subject to the stock award (i.e., “net

exercised”), or an appreciation distribution in respect of a stock appreciation right is paid in shares of common stock, the number of shares that are not delivered shall remain available for issuance under the 2010 Equity Plan. If the exercise price of any stock award is satisfied by tendering shares of common stock held by the participant, then the number of shares so tendered shall remain available for issuance under the 2010 Equity Plan.

 

The aggregate maximum number of shares of common stock that may be issued under the 2010 Equity Plan pursuant to the exercise of incentive stock options is 3,000,000 shares.

 

Cancellation and Re-grant

 

Under the 2010 Equity Plan, the Board may not, without stockholder approval, reduce the exercise price or strike price of outstanding options or stock appreciation rights and/or cancel outstanding options or stock appreciation rights in exchange for cash or other stock awards.

 

Terms of Options and Stock Appreciation Rights

 

Options and stock appreciation rights may be granted under the 2010 Equity Plan pursuant to stock option agreements and stock appreciation right agreements. The following is a description of the permissible terms of options and stock appreciation rights under the 2010 Equity Plan. Individual grants may be more restrictive as to any or all of the permissible terms described below.

 

Stock Appreciation Rights.   Each stock appreciation right is denominated in shares of common stock equivalents. Upon exercise of a stock appreciation right, we will pay the participant an amount equal to the excess of (i) the aggregate fair market value of our common stock on the date of exercise over (ii) the strike price determined by the Board on the date of grant. The appreciation distribution upon exercise of a stock appreciation right may be paid in cash, shares of our common stock, any combination of the two or any other form of consideration determined by the Board.

 

Exercise Price, Strike Price; Payment.   The exercise price of options and strike price of stock appreciation rights may not be less than 100% of the fair market value of the stock or stock equivalents subject to the award on the date of the grant and, in some cases (see “— Eligibility” above), may not be less than 110% of such fair market value. As of April 12, 2010, the closing price of our common stock as reported on the NASDAQ Global Select Market was $28.77 per share. Acceptable forms of consideration for payment of the option exercise price will be determined by our Board and set forth in the applicable award agreement and may include cash, common stock previously owned by the optionholder, payment through a broker assisted exercise or a net exercise feature, deferred payment, or any other legal consideration approved by our Board.

 

Exercise.   Options and stock appreciation rights granted under the 2010 Equity Plan may become exercisable and vest in cumulative increments as determined by the Board. The Board has the power to accelerate the time during which an option or stock appreciation right may vest or be exercised. To the extent provided by the terms of any award, a participant may satisfy any federal, state or local tax withholding obligation relating to the exercise of such award by a cash payment upon exercise, by authorizing us to withhold a portion of the stock otherwise issuable to the participant, by delivering already-owned shares of our common stock or by a combination of these means.

 

Term.   The maximum term of options and stock appreciation rights granted under the 2010 Equity Plan is ten years, except that in certain cases (see “— Eligibility”) the maximum term of options is five years. Options and stock appreciation rights granted under the 2010 Equity Plan generally terminate three months after termination of the participant’s service unless (i) such termination is due to the participant’s disability, in which case the award may, but need not, provide that it may be exercised (to the extent the award was exercisable at the time of the termination of service) at any time within 12 months of such termination; (ii) the participant dies before the participant’s service has terminated, or within the period specified in the award agreement after termination of such service, in which case the award may, but need not, provide that it may be exercised (to the extent the award was exercisable at the time of the participant’s death) within 18 months of the participant’s death by the person or persons to whom the rights to exercise such award pass by will or by the laws of descent and distribution; (iii) the award by its terms specifically provides otherwise, or (iv) the termination is for cause. Except as provided otherwise in a participant’s award agreement, upon termination of a participant’s service for cause, the award shall

immediately terminate and may not thereafter be exercised. A participant may designate a beneficiary who may exercise the award following the participant’s death. Individual grants by their terms may provide for exercise within a longer or shorter period of time following termination of service. In no event, however, may an option or stock appreciation right be exercised beyond the expiration of its maximum term.

 

The option or stock appreciation right term generally is extended in the event that exercise of the award within the foregoing periods is prohibited. A participant’s award agreement may provide that if the exercise of the award following the termination of the participant’s service would be prohibited because the issuance of stock would violate the registration requirements under the Securities Act of 1933, then the award will terminate on the earlier of (i) the expiration of the term of the award or (ii) three months after the termination of the participant’s service during which the exercise of the award would not be in violation of such registration requirements.

 

No Dividend Rights; Restrictions on Transfer.   Options and stock appreciation rights granted under the 2010 Equity Plan do not have dividend equivalent rights attached. The Board may in its discretion impose limitations on the transferability of options and stock appreciation rights as it deems appropriate and as provided in the award agreement.

 

Terms of Restricted Stock Awards and Restricted Stock Unit Awards

 

Restricted stock awards and restricted stock unit awards may be granted under the 2010 Equity Plan pursuant to restricted stock award and restricted stock unit award agreements. The following is a description of the permissible terms of restricted stock awards and restricted stock unit awards under the 2010 Equity Plan. Individual grants may be more restrictive as to any or all of the permissible terms described below.

 

Consideration.   The Board may grant restricted stock awards and restricted stock unit awards in consideration for past services rendered to us or in exchange for any other form of legal consideration acceptable to the Board.

 

Vesting.   Shares of stock issued under a restricted stock award agreement may, but need not, be subject to forfeiture to us in accordance with a vesting schedule as determined by the Board. Stock unit awards vest and are issued at the rate specified in the restricted stock unit award agreement as determined by the Board. However, at the time of grant, the Board may impose additional restrictions or conditions that delay the delivery of stock or cash subject to the restricted stock unit award after vesting. The Board has the authority to accelerate the vesting of stock issued pursuant to a restricted stock award, or stock issuable pursuant to a restricted stock unit award, in its discretion.

 

Dividend Equivalents.   Dividend equivalent rights may be credited with respect to shares covered by a restricted stock unit award. However, we do not anticipate paying cash dividends on our common stock for the foreseeable future.

 

Termination of Service.   Upon termination of a participant’s service, we may reacquire any forfeited shares of stock that have not vested as of such termination under the terms of the applicable restricted stock award agreement. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participant’s termination of service.

 

Restrictions on Transfer.   Rights to acquire shares under a restricted stock award or restricted stock unit award may be transferred only upon such terms and conditions as determined by the Board.

 

Terms of Performance Awards

 

The 2010 Equity Plan allows the Board to issue performance stock awards and performance cash awards, referred to as performance awards. Performance awards may be granted, vest or be exercised based upon the attainment during a certain period of time of certain performance goals. All of our employees, consultants and directors are eligible to receive performance awards under the 2010 Equity Plan. The length of any performance period, the performance goals to be achieved during the performance period and the measure of whether and to what degree such performance goals have been attained shall be determined by the Board. The maximum amount to be granted to any individual in any calendar year attributable to such performance awards may not exceed the value of

2,000,000 shares of our common stock, in the case of performance stock awards. The maximum amount to be granted to any individual may not exceed $10,000,000 for each full calendar year covered by the applicable performance period in the case of performance cash awards, with such limit to be adjusted pro-rata for any performance period that is less than a full calendar year by multiplying such limit by a ratio calculated by reference to the number of days in the applicable performance period divided by 365.

 

In granting a performance award, the Board will set a period of time, or a performance period, over which the attainment of one or more goals, or performance goals, will be measured for the purpose of determining whether the award recipient has a vested right in or to such performance award. Within the time period prescribed by Section 162(m) of the Code (typically before the 90th day of a performance period), the Board will establish the performance goals, based upon one or more pre-established criteria, or performance criteria, enumerated in the 2010 Equity Plan and described below. As soon as administratively practicable following the end of the performance period, the Board will certify (in writing) whether the performance goals have been satisfied.

 

Performance goals under the 2010 Equity Plan shall be established by the Board, based on one or more of the following performance criteria: (i) earnings (including earnings per share, net earnings, operating earnings or other earnings); (ii) adjusted earnings; (iii) earnings before taxes; (iv) earnings before interest, taxes and depreciation; (v) earnings before interest, taxes, depreciation and amortization; (vi) earnings before interest, taxes, depreciation, amortization and stock-based compensation expense; (vii) total stockholder return; (viii) return on equity or average stockholder’s equity; (ix) return on assets, investment, capital employed, or other financial return ratios; (x) growth in assets; (xi) stock price; (xii) margin (including gross margin, operating margin, variable contribution margin, or other margin); (xiii) income (before or after taxes); (xiv) operating income; (xv) operating income after taxes; (xvi) non-GAAP operating income, including or excluding stock-based compensation expense, (xvii) profits (before or after taxes); (xviii) net cash flow, free cash flow, or operating cash flow; (xix) sales or revenue targets; (xx) revenue, including increases in revenue or product revenue; (xxi) expense and cost containment and reduction goals; (xxii) improvement in or attainment of working capital levels; (xxiii) economic value added (or an equivalent metric); (xxiv) sales or market share; (xxv) cash flow; (xxvi) cash flow per share; (xxvii) share price performance; (xxviii) debt reduction and debt levels; (xxix) implementation or completion of projects or processes; (xxx) customer satisfaction and customer service metrics, including quality metrics and quality improvement (e.g., call abandonment rate); (xxxi) stockholders’ equity; (xxxii) capital expenditures; (xxxiii) operating profit or net operating profit; (xxxiv) workforce diversity; (xxxv) growth of net income or operating income; (xxxvi) billings; (xxxvii) employee metrics (e.g., reduced turnover); (xxxviii) fulfillment metrics (e.g., units per hour or unit volume); (xxxix) technology metrics (e.g., uptime);(xl) business development metrics (e.g., client renewals); (xli) client satisfaction; and (xlii) to the extent that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board.

 

With respect to any performance criteria listed above, the Board may adjust the definition of the performance criteria by excluding elements of the performance criteria or including an additional element, provided the achievement or non-achievement of the resulting performance criteria can be objectively determined by the financial information collected by GSI in the preparation of its financial reports. For example, the revenue performance criteria could be modified to include or exclude the revenue from specified subsidiaries, divisions, or other operational or administrative units in existence less than one year as of the beginning of the performance period. Also by way of example, the earnings before interest, taxes, depreciation and amortization could be modified to take into account one of the aforementioned excluded elements in the calculation of this performance criteria. Furthermore, a performance criteria could be created that compares GSI’s performance in a performance criteria listed above to (i) the approved budgets for such performance criteria, or (ii) to the performance over the same performance period of a pre-selected group of companies or a pre-selected index.

 

The Board is authorized to determine whether, when calculating the attainment of performance goals for a performance period: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; and (v) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles. In addition, the Board retains

the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of performance goals.

 

Terms of Other Stock Awards

 

The Board may grant other stock awards that are valued in whole or in part by reference to our common stock. Subject to the provisions of the 2010 Equity Plan, the Board has the authority to determine the persons to whom and the dates on which such other stock awards will be granted, the number of shares of common stock (or cash equivalents) to be subject to each award, and other terms and conditions of such awards.

 

Changes to Capital Structure

 

If any change is made to the outstanding shares of our common stock without our receipt of consideration (whether through a stock split or other specified change in our capital structure), appropriate adjustments will be made to: (i) the maximum number and/or class of securities issuable under the 2010 Equity Plan; (ii) the maximum number and/or class of securities issuable pursuant to the exercise of incentive stock options; (iii) the maximum number and/or class of securities for which any one person may be granted stock awards per calendar year pursuant to the limitation under Section 162(m) of the Code; and (iv) the number and/or class of securities and the price per share in effect under each outstanding stock award under the 2010 Equity Plan.

 

Effect of Certain Corporate Events

 

The 2010 Equity Plan provides that, in the event of a dissolution or liquidation of us, then all outstanding awards under the 2010 Equity Plan shall terminate immediately prior to such dissolution or liquidation. The 2010 Equity Plan further provides that, in the event of a sale, lease or other disposition of all or substantially all of the assets of us or specified types of mergers or consolidations (each, a “corporate transaction”), any surviving or acquiring corporation shall either assume awards outstanding under the 2010 Equity Plan or substitute similar awards for those outstanding under the 2010 Equity Plan. If any surviving corporation declines to assume awards outstanding under the 2010 Equity Plan or to substitute similar awards, then, with respect to participants whose service with us has not terminated more than three months prior to the time of such corporate transaction, the vesting and the time during which such awards may be exercised will be accelerated in full, and all outstanding awards will terminate if the participant does not exercise such awards at or prior to the corporate transaction. With respect to any awards that are held by other participants that terminated service with us more than three months prior to the corporate transaction, the vesting and exercisability provisions of such awards will not be accelerated and such awards will terminate if not exercised prior to the corporate transaction.

 

Duration, Amendment and Termination

 

The Board may suspend or terminate the 2010 Equity Plan without stockholder approval or ratification at any time or from time to time. Unless sooner terminated, the 2010 Equity Plan will terminate on March 2, 2020.

 

The Board may also amend the 2010 Equity Plan at any time or from time to time. However, no amendment will be effective unless approved by our stockholders if stockholder approval of the amendment is required by applicable law or listing requirements. The Board may submit any other amendment to the 2010 Equity Plan for stockholder approval, including, but not limited to, amendments intended to satisfy the requirements of Section 162(m) of the Code regarding the exclusion of performance-based compensation from the limitation on the deductibility of compensation paid to certain employees.

 

Federal Income Tax Information

 

The following is a summary of the principal United States federal income taxation consequences to employees and us with respect to participation in the 2010 Equity Plan. This summary is not intended to be exhaustive, and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside.

 

Incentive Stock Options.   Incentive stock options granted under the 2010 Equity Plan are intended to be eligible for the favorable federal income tax treatment accorded “incentive stock options” under the Code. There

generally are no federal income tax consequences to the participant or us by reason of the grant or exercise of an incentive stock option. However, the exercise of an incentive stock option may increase the participant’s alternative minimum tax liability, if any.

 

If a participant holds stock acquired through exercise of an incentive stock option for more than two years from the date on which the option was granted and more than one year after the date the option was exercised for those shares, any gain or loss on a disposition of those shares, or a qualifying disposition, will be a long-term capital gain or loss. Upon such a qualifying disposition, we will not be entitled to any income tax deduction. Generally, if the participant disposes of the stock before the expiration of either of these holding periods, or a disqualifying disposition, then at the time of disposition the participant will realize taxable ordinary income equal to the lesser of (i) the excess of the stock’s fair market value on the date of exercise over the exercise price or (ii) the participant’s actual gain, if any, on the purchase and sale. The participant’s additional gain or any loss upon the disqualifying disposition will be a capital gain or loss, which will be long-term or short-term depending on whether the stock was held for more than one year.

 

To the extent the participant recognizes ordinary income by reason of a disqualifying disposition, generally we will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of a tax reporting obligation) to a corresponding income tax deduction in the tax year in which the disqualifying disposition occurs.

 

Nonstatutory Stock Options.   No taxable income is recognized by a participant upon the grant of a nonstatutory stock option. Upon exercise of a vested nonstatutory stock option, the participant will recognize ordinary income equal to the excess, if any, of the fair market value of the purchased shares on the exercise date over the exercise price paid for those shares. Generally, we will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of a tax reporting obligation) to a corresponding income tax deduction in the tax year in which such ordinary income is recognized by the participant. Upon disposition of the stock, the participant will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon acquisition (or vesting) of the stock. Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year.

 

Stock Appreciation Rights.   No taxable income is realized upon the receipt of a stock appreciation right. Upon exercise of the stock appreciation right, the fair market value of the shares (or cash in lieu of shares) received is recognized as ordinary income to the participant in the year of such exercise. Generally, with respect to employees, we are required to withhold from the payment made on exercise of the stock appreciation right or from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness, Section 162(m) of the Code and the satisfaction of a reporting obligation, we will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant.

 

Restricted Stock Awards.   Upon receipt of a restricted stock award, the participant will recognize ordinary income equal to the excess, if any, of the fair market value of the shares on the date of issuance over the purchase price, if any, paid for those shares. We will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of a tax reporting obligation) to a corresponding income tax deduction in the year in which such ordinary income is recognized by the participant.

 

However, if the shares issued upon the grant of a restricted stock award are unvested and subject to repurchase by us in the event of the participant’s termination of service prior to vesting in those shares, the participant will not recognize any taxable income at the time of issuance, but will have to report as ordinary income, as and when our repurchase right lapses, an amount equal to the excess of (i) the fair market value of the shares on the date the repurchase right lapses over (ii) the purchase price, if any, paid for the shares. The participant may, however, elect under Section 83(b) of the Code to include as ordinary income in the year of issuance an amount equal to the excess of (a) the fair market value of the shares on the date of issuance over (b) the purchase price, if any, paid for such shares. If the Section 83(b) election is made, the participant will not recognize any additional income as and when the repurchase right lapses. The participant and GSI will be required to satisfy certain tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income

recognized by the participant at the time the shares are issued. In general, the deduction will be allowed for the taxable year in which such ordinary income is recognized by the participant.

 

Upon disposition of the stock acquired upon the receipt of a restricted stock award, the participant will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon issuance (or vesting) of the stock. Such gain or loss will be long-term or short-term depending on whether the stock was held for more than one year.

 

Restricted Stock Unit Awards.   No taxable income is recognized upon receipt of a restricted stock unit award. The participant will recognize ordinary income in the year in which the shares subject to that unit are actually issued to the participant in an amount equal to the fair market value of the shares on the date of issuance. The participant and GSI will be required to satisfy certain tax withholding requirements applicable to such income. Subject to the requirement of reasonableness, Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time the shares are issued. In general, the deduction will be allowed for the taxable year in which such ordinary income is recognized by the participant.

 

Potential Limitation on Company Deductions.   Section 162(m) of the Code denies a deduction to any publicly-held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to each covered employee exceeds $1,000,000. It is possible that compensation attributable to awards, when combined with all other types of compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year. Certain kinds of compensation, including qualified “performance-based compensation,” are disregarded for purposes of the deduction limitation. In accordance with Treasury Regulations issued under Section 162(m) of the Code, generally, compensation attributable to stock options and stock appreciation rights granted under the 2010 Equity Plan will qualify as performance-based compensation. Compensation attributable to performance awards under the 2010 Equity Plan will qualify as Section 162(m) performance-based compensation, provided that: (i) the award is granted by a compensation committee comprised solely of “outside directors,” (ii) the award is granted (or exercisable) only upon the achievement of an objective performance goal established in writing by the compensation committee while the outcome is substantially uncertain and (iii) the compensation committee certifies in writing prior to the granting (or exercisability) of the award that the performance goal has been satisfied.

 

Plan Benefits

 

Awards under the 2010 Equity Plan are discretionary. As of April 12, 2010, a cash performance cash award was made under the 2010 Equity Plan to one individual who is not a Named Officer. The value of this award is not determinable. No options or other stock awards have been granted under the 2010 Equity Plan.

 

Background

 

A total of 60,033,190 shares of GSI’s common stock was outstanding as of January 2, 2010 and 1,493,835 shares remained available for future issuance under our Prior Plans. As of January 2, 2010, an aggregate of 7,533,335 shares were subject to outstanding stock awards granted under the Prior Plans, of which 3,239,131 were subject to outstanding, unexercised stock options, and 4,294,204 of which were subject to unvested restricted stock awards and restricted stock unit awards. The weighted average exercise price of options outstanding under our equity incentive plans as of January 2, 2010 was approximately $9.90 per share, and the weighted average remaining term of such options was approximately 2.82 years.

 

 

 

PROPOSAL 3 — APPROVAL OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED SHARES

 

Overview

 

The Board of Directors has approved a proposal to amend GSI’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”) to increase the number of authorized shares from 95,000,000 to 185,000,000, increasing the number of authorized shares of Common Stock from 90,000,000 shares to 180,000,000 shares and maintaining 5,000,000 shares of Preferred Stock. Accordingly, only the number of shares of Common Stock available for issuance will be increased as a result of the proposed amendment. The form of amendment to our Certificate of Incorporation is attached to this Proxy Statement as Appendix B. If approved by the stockholders, the proposed amendment will become effective upon the filing of the Amendment to the Certificate of Incorporation with the Secretary of State of Delaware, which will occur as soon as reasonably practicable.

 

As of January 2, 2010, GSI had 60,033,190 shares of Common Stock outstanding and the following number of shares of Common Stock reserved for issuance:

 

 

In addition, the Company has reserved 3,500,000 shares of Common Stock for awards under the 2010 Equity Incentive Plan described in “Proposal 2 — GSI’s 2010 Equity Incentive Plan.”

 

Purpose and Background of the Increase in Authorized Shares

 

The Board of Directors believes that it is in GSI’s best interests to increase the number of authorized shares of Common Stock in order to have additional authorized but unissued shares available for issuance to meet business needs as they arise. These business needs may include, among others, issuances of GSI’s capital stock to raise capital, purchase property, invest in products or technologies, increase the number of shares of Common Stock reserved for issuance under GSI’s equity incentive plans, declare stock splits or distributions and other general corporate purposes. In addition, GSI considers merger and acquisition opportunities from time to time in the ordinary course of business and may use shares of Common Stock to satisfy any portion of the consideration for such transactions. The Board of Directors has determined that the number of authorized but unissued shares of Common Stock presently available for issuance is insufficient to meet current and anticipated share issuance requirements.

 

The failure of stockholders to approve the proposed amendment may require GSI to forego attractive acquisition opportunities that arise in a market environment that have proven very difficult for a number of attractive companies and to increase cash compensation to replace stock-based compensation that the Board of Directors believes more closely aligns the interests of GSI with stockholders. The Board of Directors also believes that the availability of such additional shares will provide GSI with the flexibility to issue capital stock for corporate purposes that may be identified in the future by the Board of Directors, without the possible expense and delay of a special stockholders’ meeting.

 

Additional stockholder action will not be required for the Board of Directors to issue these additional shares for any proper corporate purpose approved by the Board of Directors, except as may be required by law, regulation or the rules of any stock exchange or quotation system on which the Common Stock is then listed or quoted. Additional stockholder approval requirements may apply in the case of certain transactions, such as business combination transactions or the adoption of employee benefit plans. If any such additional shares are to be issued in connection

with potential business transactions that independently require stockholder approval, such approval will be sought at the appropriate time.

 

Other than as specified in this Proxy Statement, as permitted or required under the 2005 Equity Plan and under outstanding options, warrants and convertible notes or in connection with any offering that may be conducted pursuant to GSI’s shelf Registration Statement on Form S-3 (Registration No. 333-163167), filed with the SEC on November 18, 2009 (the “Shelf S-3”), GSI has no present arrangements, agreements or understandings for the use of the additional shares proposed to be authorized. We reserve the right to seek a further increase in authorized shares from time to time in the future as we consider appropriate. Any future issuance of Common Stock will be subject to the rights of holders of outstanding shares of any preferred stock that we may issue in the future.

 

Effect on Outstanding Common Stock

 

The additional shares of Common Stock authorized by the amendment to the Certificate of Incorporation as described in this Proposal would have the same rights and privileges as the shares of Common Stock currently authorized and issued. The adoption of this Proposal would not have any immediate dilutive effect on the proportionate voting power or other rights of GSI’s existing stockholders; however, if the Board of Directors elects to issue additional shares of Common Stock authorized pursuant to adoption of this Proposal, such issuance could have the effect of diluting equity or earnings per share, book value or the voting rights of the present holders of shares of the Common Stock. Current stockholders do not have preemptive rights under the Certificate of Incorporation and will not have such rights with respect to the additional authorized shares of Common Stock.

 

Potential Anti-Takeover Effect

 

The proposed amendment to increase the number of authorized shares of our common stock as described in this Proposal could, under certain circumstances, have an anti-takeover effect. For example, in the event of a hostile takeover attempt, it may be possible for us to issue additional shares of common stock, thereby diluting or impairing the voting power of the other outstanding shares of common stock and increasing the potential costs to acquire control of us. The amendment to our Certificate of Incorporation therefore may have the effect of discouraging unsolicited takeover attempts, thereby potentially limiting the opportunity for our stockholders to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger proposal. It also may have the effect of perpetuating our current management, including the current Board of Directors, and placing it in a better position to resist changes that our stockholders may wish to make if they are dissatisfied with the conduct of our business.

 

No Dissenters’ Rights

 

No dissenters’ rights are available under the Delaware General Corporation Law, the Certificate of Incorporation or GSI’s Amended and Restated Bylaws to any stockholder who dissents from this Proposal.

 

Vote Required

 

The affirmative vote of a majority of the issued and outstanding shares of Common Stock is required to approve this Proposal.

 

Our Board of Directors unanimously recommends a vote “FOR” the Amendment to the Certificate of

Incorporation to increase our authorized shares of capital stock.

 

PROPOSAL 4 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

General Information

 

The Audit Committee of the Board has appointed Deloitte & Touche LLP as GSI’s independent registered public accounting firm for fiscal 2010. Services provided to the Company and its subsidiaries by Deloitte & Touche LLP in fiscal 2009 are described under “Independent Registered Public Accounting Firm Fees.”

 

GSI is asking its stockholders to ratify the selection of Deloitte & Touche LLP as its independent registered public accounting firm. Although ratification is not required by GSI’s amended and restated bylaws or otherwise, the Board of Directors is submitting the selection of Deloitte & Touche LLP to its stockholders for ratification as a matter of good corporate practice.

 

Representatives of Deloitte & Touche LLP will be present at the Annual Meeting to respond to appropriate questions and to make such statements as they may desire.

 

The Board of Directors recommends that stockholders vote “FOR” ratification of the appointment of Deloitte & Touche LLP as GSI’s independent registered public accounting firm for fiscal 2010.

 

In the event stockholders do not ratify the appointment, the appointment will be reconsidered by the Audit Committee and the Board of Directors. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of GSI and its stockholders.

 

Independent Registered Public Accounting Firm Fees

 

Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”) served as GSI’s independent registered public accounting firm in fiscal 2009 and 2008 for the purposes of auditing GSI’s annual consolidated financial statements, auditing the effectiveness of GSI’s internal controls over financial reporting and reviewing GSI’s quarterly financial statements. The aggregate expenses, including fees billed to GSI, for professional services rendered by Deloitte & Touche for fiscal 2009 and 2008 were as follows:

 

 

 

 

Audit Fees for fiscal 2009 and 2008 were for professional services rendered for the integrated audit of GSI’s consolidated financial statements, including auditing the effectiveness of GSI’s internal controls over financial reporting, review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Deloitte & Touche in connection with statutory and regulatory filings or engagements. Audit fees for fiscal 2009 also included professional services rendered in connection with audit procedures performed related to GSI’s registration statements on Form S-3. Audit fees for fiscal 2008 also included professional services rendered in connection with audit procedures performed related to GSI’s registration statements on Form S-4 and Form S-8.

 

Audit-Related Fees for fiscal 2009 and 2008 were for due diligence related to mergers and acquisitions and audit services related to a governmental incentive program.

Tax Fees for fiscal 2009 and 2008 were for professional services for federal, state and international tax compliance, tax advice, and tax planning.

 

Other Fees for fiscal 2009 and 2008 were for a subscription to an on-line research library.

 

Pre-Approval Policies and Procedures.   The Audit Committee has adopted policies and procedures for pre-approving all audit and non-audit work performed by Deloitte & Touche. All audit-related services, tax services and other services must be pre-approved by the Audit Committee. In accordance with GSI’s policy and applicable SEC rules and regulations, the Audit Committee pre-approves services provided to GSI by Deloitte & Touche (“Auditor Services”). Pre-approval is detailed as to the particular service or category of services. If Auditor Services are required prior to a regularly scheduled Audit Committee meeting, a member of the Audit Committee is authorized to approve such services, provided that they are consistent with GSI’s policy and applicable SEC rules and regulations, and that the full Audit Committee is advised of such services at the next regularly scheduled Audit Committee meeting. For fiscal 2009 and 2008, all audit and non-audit services described above were pre-approved by the Audit Committee. The Audit Committee has considered and concluded that the provision of such audit and non-audit services by Deloitte & Touche was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

 

BENEFICIAL OWNERSHIP OF COMMON STOCK

 

The following table sets forth information, as of March 29, 2010, concerning the beneficial ownership of GSI Common Stock by:

 

 

Unless otherwise specified, all persons listed below have sole voting and investment power with respect to their shares. The securities “beneficially owned” by an individual are determined in accordance with the definition of “beneficial ownership” set forth in the regulations of the Securities and Exchange Commission. Accordingly, they include securities as to which the individual has or shares voting or investment power or has the right to acquire under outstanding stock options or warrants within 60 days of March 29, 2010 or which are issuable upon the vesting of outstanding unvested restricted stock or restricted stock units, referred to as RSUs, within 60 days of March 29, 2010. Beneficial ownership may be disclaimed as to certain of the securities. The business address of GSI’s executive officers and directors is the same as GSI’s address.

 

 

 

 

 

 

 

Determination of Compensation for Named Officers Other than Our Chief Executive Officer

 

For purposes of this Compensation Discussion and Analysis only, and except where the context otherwise requires, references to our “Named Officers” means all of the executive officers named in the Summary Compensation Table on page 38 of this proxy statement except for Mr. Rubin, our president and chief executive officer.

 

Overall Compensation Program.

 

With respect to the Named Officers, each of the four main components of compensation are determined as part of a total compensation amount. As discussed below, each component serves to meet one or more of our compensation objectives. The allocation between each of the elements comprising the total 2009 compensation was consistent with the allocations used in prior years. In light of the uncertain economic conditions at the beginning of fiscal 2009, we implemented an across-the-board salary freeze applicable to all employees, including the Named Officers.

 

We believe it is important for our compensation to be competitive and attractive when compared to other companies with which we compete for talent in order to acquire the talent to lead our company. Because we have experienced a high level of growth, operate in a rapidly changing industry and have moved strategically to expand our business, we desire to attract and retain executives who will be able to lead our organization in a changing market. We believe an attractive compensation program materially aids us in our search for and retention of talented executive personnel.

 

The total compensation amount for our Named Officers was also established relative to our officers at levels above and below them, which we believe rewards them for increased levels of knowledge, experience and responsibility. Through fiscal 2009 we have made an effort to maintain a reasonable level of parity in compensation among Named Officers and other officers of the same or similar rank, while permitting some deviation in individual total compensation amounts to reward particular executives for individual personal achievement, overall contribution to the success of the organization and to better reflect the differentials in total compensation for executives with different roles and responsibilities. Our business has grown and diversified over the past few years and our senior executive team has grown to include a larger group of executives with more diverse roles, responsibilities and experiences. As a result, the Compensation Committee has determined that with respect to fiscal 2010 compensation, it will begin to place a greater emphasis on differentiation of executive compensation to reflect the differing skills and responsibilities of executives.

 

Role of Compensation Consultants.   From time to time, the Compensation Committee has engaged the Hay Group to act as independent compensation consultant to the Compensation Committee to conduct compensation studies and make recommendations with respect to the executive compensation program for all executive officers other than Mr. Rubin. We believe that the Hay Group is independent because, prior to our engagement, Hay Group had not provided any services to us or any of our subsidiaries.

 

The Hay Group was engaged to conduct a proxy analysis of the compensation of our Named Officers and other executive officers with respect to base salary, total cash compensation and total direct compensation which was utilized to structure the compensation for our Named Officers and other executive officers for fiscal 2008. The Hay Group also provided recommendations to management and the Compensation Committee with respect to the executive compensation program for all executive officers other than Mr. Rubin. As part of the 2008 compensation study, the Compensation Committee worked with Hay Group to review and update the peer group previously used by management and the Compensation Committee as a factor in determining the executive compensation program for all executive officers other than Mr. Rubin. The goal of the review was to create a peer group that reflects companies, primarily in the internet, retail and internet software and services industries, with revenues similar to

ours which we believe we compete with when recruiting and retaining executive talent. The Hay Group has been engaged by the Compensation Committee again to update its compensation study and recommendations for purposes of evaluating and updating the compensation program for all executive officers other than Mr. Rubin for fiscal 2010.

 

The Compensation Committee reviewed the results of the analysis conducted by the Hay Group for fiscal 2008 as one of the factors in reviewing current compensation practices and in determining the compensation packages of the Named Officers in fiscal 2009 but did not benchmark the compensation of Named Officers against the results of the Hay Group analysis.

 

Role of Management.   Mr. Rubin makes recommendations to the Compensation Committee as to the total compensation package and each of the components of compensation for each of the company’s executive officers, including the Named Officers. Mr. Rubin also makes recommendations to the Compensation Committee as to the performance goals discussed below for each executive officer, including the Named Officers. Mr. Rubin consults with James Flanagan, Executive Vice President, Human Resources and Mr. Conn in making these recommendations to the Compensation Committee.

 

Base Salary.   Base salary represents amounts paid during the year to Named Officers as direct compensation for their services to us. Moreover, base salary and increases to base salary recognize the overall experience, position and responsibilities of the executive and expected contributions to our performance.

 

For fiscal 2009, as part of an across-the-board salary freeze, the Compensation Committee decided to maintain base salaries of each of the Named Officers at the same level they were in fiscal 2008. We also use our base salary to attract and retain top quality executives and other management employees from other companies. Accordingly, Mr. Conn’s base salary was $390,000, Mr. Gold’s base salary was $404,000, Mr. Hardy’s base salary was $415,000 and Mr. Mintzer’s base salary was $444,158 for fiscal 2009.

 

Performance-Based Cash Bonuses.   We use cash bonuses to reward eligible employees, including the Named Officers, for our financial performance and to a lesser extent their individual performance during the year. These bonuses are designed to reward these employees for their short-term contributions to our company and to link compensation to our annual financial performance goals. The performance-based cash bonus plan is referred to as the leadership bonus plan.

 

Under the leadership bonus plan for fiscal 2009, the Compensation Committee set bonus targets and the performance goal for eligible employees, including the Named Officers, in March 2009. The Compensation Committee established the target award for each employee who is eligible under the leadership bonus plan, including each Named Officer, as a percentage of base salary. For 2009, each Named Officer’s bonus target award was equal to 50% of the Named Officer’s base salary.

 

In August 2009 the Compensation Committee approved the amendment to Mr. Gold’s offer letter, discussed below at “Employment Agreements and Arrangement — Stephen J. Gold.” The Compensation Committee approved the amendment after reviewing Mr. Gold’s role and responsibilities, his performance and the performance of the business units Mr. Gold is responsible for overseeing. Under the amendment, Mr. Gold was entitled to an additional bonus of up to 50% of his annual base salary based on his achievement of performance and developmental goals to be established by the Compensation Committee. The Compensation Committee established performance targets for Mr. Gold relating to the performance of the business units reporting to Mr. Gold. The performance targets were subjective in nature the Committee did not assign particular weights to the achievement of these targets.

 

The Compensation Committee selected Non-GAAP Income from Operations as the sole performance target. Non-GAAP Income from Operations was defined as: income from operations excluding the effects of stock-based compensation, depreciation and amortization expenses, transaction and due diligence expenses relating to acquisitions, after taking into affect any payment of incentives under the leadership bonus plan for fiscal 2009, and excluding any one time significant gains or losses on assets or equity sales or any other extraordinary, non-operating revenue or expense.

Non-GAAP Income from Operations was chosen as the performance metric under the leadership bonus plan because the Compensation Committee determined it was the most significant financial metric used by management and our investors to evaluate our performance.

 

For fiscal 2009, the target was based upon management-developed long-term operating and financial forecasts and the target level for a 100% payout was derived from the high end of the fiscal 2009 guidance range for Non-GAAP Income from Operations we publicly announced in February 2009. The Compensation Committee used the high end of guidance as the basis for the performance target in order to set an aggressive target that rewards our management team for achieving strong financial performance.

 

The fiscal 2009 Non-GAAP Income from Operations thresholds and corresponding leadership bonus plan payouts are set forth in the following table. Awards for results between the levels indicated in the table below would have been determined by linear interpolation.

 

 

Under the leadership bonus plan, the Compensation Committee has the flexibility to increase, decrease or eliminate the amounts paid under the leadership bonus plan, based on individual performance during the year and other factors, regardless of whether the targets were met. The decision to increase or decrease an actual payout award is generally based on a variety of subjective factors the Compensation Committee deems appropriate. Having discretion with respect to individual performance permits individual performance to have a more direct impact on the ultimate payment received by each eligible employee. In the event the performance targets are not met, the Compensation Committee can reward individuals who exhibit superior individual performance during the year. Also, in the event the performance targets are met, the Compensation Committee can adjust downward a payout to an individual who did not perform up to expectations.

 

After reviewing our performance against its operating plan for fiscal 2009, the Compensation Committee determined that the financial performance of businesses acquired during fiscal 2009 and certain non-recurring revenue items were not reflective of our operating performance in fiscal 2009, achievement against management’s operating plan, or achievement against the performance targets set by the Compensation Committee at the beginning of the year. The Compensation Committee determined that these items constituted extraordinary items that were excluded from the calculation of Non-GAAP Income from operations. In addition, the Compensation Committee determined that it was in the best interests of our company to exercise its discretion to reduce the payments to all eligible employees, including the Named Officers, and use the amount of the reduction to create a bonus pool for certain non-eligible employees. For all corporate employees eligible to participate in the leadership bonus plan, including the Named Officers, the fiscal 2009 payment under the leadership bonus plan was 111% of the target award after excluding extraordinary items and creating the bonus pool for non-eligible employees. Without these adjustments, the payments to Named Officers would have been approximately 129% of the target award.

 

In addition, the Compensation Committee adjusted Mr. Mintzer’s bonus upward by $50,000 based on his performance and contributions to our company during fiscal 2009. After reviewing Mr. Gold’s performance and the additional performance targets, the Compensation Committee determined that Mr. Gold was entitled to an additional bonus in the amount of $100,000 based on his achievement of performance and developmental goals established by the Compensation Committee.

For fiscal 2009, the Named Officers received the following performance-based cash bonuses:

 

 

Equity-Based Compensation.   All equity-based compensation issued to our Named Officers in 2009 took the form of restricted stock units, or RSUs, entitling the holder to receive shares of our common stock upon the vesting date. Historically, through fiscal 2005, we used a combination of stock options, restricted stock and RSUs, with greater emphasis placed on stock options. From fiscal 2006 through the present, we have awarded only RSUs to our Named Officers. As the result of the volatility of our common stock, we determined that issuing stock options would result in a larger compensation expense than issuing RSUs because the accounting value of our options exceeds their perceived value to our employees. Additionally, the use of stock options would result in a larger pool of equity being granted and have a less favorable impact on share utilization than RSUs. We also chose to issue RSUs rather than restricted stock because RSUs do not require the issuance of common stock unless and until they are vested and received by the employee and do not result in a tax event for the employee until shares are received.

 

Generally, we make three types of RSU grants to our Named Officers:

 

 

An initial grant of RSUs when an executive officer is hired serves to help us recruit new executives, especially executives we seek to hire from larger, more financially stable companies with longer and historically more profitable and predictable operating histories. Because these initial grants are structured as an incentive for employment, the amount of these grants may vary from executive to executive depending on the particular circumstances of the executive. None of the Named Officers were hired in 2009. Accordingly, we did not make any initial RSU grants to the Named Officers.

 

Annual, time-vested grants of RSUs are designed to compensate our executives, including our Named Officers, for their contributions to our long-term performance. On March 10, 2009, Messrs. Conn and Hardy each received an RSU award with a grant date fair market value of $301,815 and Messrs. Gold and Mintzer each received an RSU award with a grant date fair market value of $275,340.

 

The Compensation Committee makes retention grants from time-to-time to retain the services of key employees. There were no retention grants awarded to Named Officers in 2009.

 

In March 2009, the Compensation Committee determined that RSU awards would be made on the basis of a number of shares determined by the Compensation Committee at its discretion, rather than on the basis of a target dollar value. This determination was made in light of the impact on equity utilization of the previous practice, where fixed target dollar values were divided by a fluctuating stock price. Due to the recent volatility in our stock price, it became difficult to forecast the number of shares to be awarded under fixed dollar value awards. For example, during fiscal 2009, the sales price of our common stock ranged from $7.35 to $26.00. Determining the number of shares subject to awards based on share targets set at the discretion of the Compensation Committee gives the Compensation Committee greater control over the number of shares awarded in a given year.

 

Our annual grants of equity awards historically have been approved at the first regularly scheduled Compensation Committee meeting of each fiscal year, which typically occurs one to two weeks after we issue our year-end earnings release. For new hires, we generally approve grants of equity compensation at the regularly scheduled quarterly Compensation Committee meeting following acceptance of an offer of employment, which meetings are typically held two weeks after our quarterly earnings release, although we occasionally find it necessary to approve

a grant between these quarterly meetings. In such a case, it is company policy to hold a telephonic special meeting of the Compensation Committee. While we prefer not to take action by written consent to grant equity-based awards, we do not prohibit the Compensation Committee from doing so where necessary or desirable.

 

In general, RSUs granted to Named Officers as either initial or annual grants vest in equal annual installments over a four-year period. The Compensation Committee selected a four-year vesting schedule for initial and annual grants to reflect our objectives of rewarding each Named Officer’s contributions to our long-term performance and aligning their interests with those of our stockholders.

 

All of the RSUs awarded to Named Officers in 2009 vest based upon the continued employment of the Named Officer upon each of the respective vesting dates.

 

Non-Performance-Based Cash Bonuses.   The Compensation Committee has, from time to time, granted non-performance-based bonuses to new employees. This type of bonus is used to attract and recruit qualified executives and is not based on specific individual or company performance achievements. In most cases these non-performance payments are designed to “buy out” a candidate who is leaving a cash incentive, equity, pension or other compensation at the candidate’s former employer. In fiscal 2009, none of the Named Officers received a non-performance-based cash bonus.

 

Change in Control Agreements.   On August 1, 2006, the Compensation Committee approved a form of change in control agreement for certain members of senior management, including our current Named Officers, and certain other employees. We implemented this form to standardize the applicable change in control protections among our senior management and other key employees (except Mr. Rubin), which until that time had varied from executive to executive. We believe that change in control protections are important to protect our Named Officers from a termination or significant change in responsibilities arising after a change in control of GSI. Equity awards are a significant component of the compensation packages of our Named Officers and these protections provide that the Named Officers will not lose the value of these awards due to certain change of control events not related to the performance of any individual executive. Each Named Officer other than Mr. Mintzer has entered into the standard form of change of control agreement.

 

Among other things, these agreements provide for a “double trigger” mechanism, requiring both a change in control and an ensuing negative employment action before severance is payable. The double trigger mechanism was chosen so that the vesting of equity awards would not accelerate in connection with a change in control where an executive had not suffered any adverse employment consequences. Generally, these change in control provisions provide that all previously unvested equity awards held by the executive will vest in full, and the post-termination exercise period for stock options will be extended until the option’s expiration date.

 

Determination of Compensation for GSI’s Chief Executive Officer

 

On August 23, 2006, we entered into a new employment arrangement with Mr. Rubin, which restructured his overall compensation program. The Compensation Committee approved this arrangement on August 1, 2006, following negotiations between the Compensation Committee and Mr. Rubin. The Compensation Committee was advised in these negotiations by Semler Brossy Consulting Group, its independent compensation consultant, and Gibson, Dunn & Crutcher LLP, as outside independent legal counsel. The Compensation Committee believed that Semler Brossy Consulting Group was independent because Semler Brossy did not provide consulting or other services to us or any of our subsidiaries prior to the engagement. The Compensation Committee believed that Gibson Dunn was impendent, because, although Gibson Dunn had previously provided legal services to the Board or committees of the Board to act as independent legal counsel, it had not provided legal services to us or our subsidiaries. Mr. Rubin was represented by separate legal counsel. In determining this employment arrangement, the Compensation Committee considered compensation paid to chief executive officers of internet based companies and retailers with similar focuses and revenue sizes of GSI in 2006, compensation paid to then executive officers of GSI and Mr. Rubin’s leadership, industry knowledge and business development skills as well as the importance of his vision and drive to our future success.

The components of Mr. Rubin’s compensation package approved by our Compensation Committee, effective July 1, 2006, are as follows:

 

 

Mr. Rubin is not eligible to participate in our leadership bonus plan. For more information, see “— Employment Agreements and Arrangements — Michael G. Rubin.”

 

Overall Compensation Program.   Mr. Rubin’s compensation was determined on a target range for Mr. Rubin’s total compensation established by the Compensation Committee in negotiations with Mr. Rubin. The Compensation Committee determined that the total amount of compensation to be received, including annual salary, annual grant of RSUs and annual grant of PRSUs, should be approximately $2.6 and $3.3 million at the target and maximum levels, respectively.

 

In recognition of the potential total value of Mr. Rubin’s compensation package, the Compensation Committee structured the bulk of Mr. Rubin’s equity compensation in the form of PRSU grants, which cannot be earned unless we have achieved performance goals set by the Compensation Committee. Mr. Rubin is our only executive officer to receive PRSUs at this time, which underscores the Compensation Committee’s belief that Mr. Rubin’s involvement with GSI is unique and critical to our future success. This structure also aligns a significant part of Mr. Rubin’s compensation with our stockholders by ensuring that a significant portion of Mr. Rubin’s compensation is tied to our long-term financial performance and stock price.

 

Base Salary.   Base salary represents the amount paid to Mr. Rubin during the year as direct compensation for his services. The base salary for Mr. Rubin during the term of the employment agreement was set at $474,000. The Compensation Committee maintained Mr. Rubin’s base salary at $474,000 for fiscal 2009.

 

Annual RSU Grant.   The annual RSU grant with a fair market value of $675,000 was computed by multiplying Mr. Rubin’s base salary by a factor of approximately 1.4. This relationship between base salary and the RSU grant was set by taking into consideration the relationship between these compensation components for other members of our senior management team. The Compensation Committee chose to make an annual grant rather than a multi-year grant because of our lack of predictable long-term financial results and our desire to maintain maximum flexibility to determine the amount and vesting of grants each year as our operations and compensation needs change. Mr. Rubin’s annual RSU grant vests in equal annual installments over a four-year period. The annual RSU grant for Mr. Rubin serves the same purpose as the annual time-vested RSU grants issued to our Named Officers; that is, to reward Mr. Rubin for his individual contribution to our long-term performance. Also, the time-based vesting feature of this grant rewards Mr. Rubin for continuing to lead us in the long-term and provides balance to the substantial amount of performance-based awards in Mr. Rubin’s total compensation, as described below.

 

This component of Mr. Rubin’s compensation was paid in RSUs rather than cash for several reasons. The ownership of equity aligns Mr. Rubin’s interests more closely with those of our stockholders, as the value of the compensation will change depending upon the market price of our stock. Furthermore, the issuance of our common stock under this RSU grant is conditioned upon Mr. Rubin’s continued employment with us, which provides Mr. Rubin additional incentive to remain with us. We also considered it significant that Mr. Rubin specifically requested to receive his performance-based compensation in PRSUs rather than cash.

As discussed above under “— Determination of Compensation for Named Officers Other than Our chief Executive Officer — Equity Based Compensation,” in fiscal 2009, the Compensation Committee determined that annual RSU awards for all employees would be determined with respect to a target number of shares set at the discretion of the Compensation Committee rather than based upon target dollar values. In March 2009, in lieu of Mr. Rubin’s annual RSU grant under his employment agreement in the amount of $675,000, the Compensation Committee and Mr. Rubin agreed that he would receive an RSU award for 45,000 shares of Common Stock. The grant date fair market value of this award was $476,550.

 

Performance-Based RSU Grant.   Under Mr. Rubin’s employment agreement, his total compensation has been heavily weighted towards performance-based incentive compensation. Consistent with our compensation philosophies described above, this element of compensation is based on both annual and longer-term company performance.

 

The Compensation Committee preferred this type of performance-vested equity award to other alternatives, such as a cash bonus, stock options, additional time-vested RSUs and a value-sharing plan. We believe that the PRSU award closely aligns chief executive officer compensation to our long-term stock and financial performance and stockholder return. The number of shares earned is determined by the Compensation Committee based upon our annual performance against the performance target set at the beginning of the year and the ultimate value to Mr. Rubin will be determined by the performance of our stock over the vesting period. Also, Mr. Rubin’s performance-based compensation represents approximately 55% of his total compensation at the target level and approximately 65% at the maximum level, which is also appropriate given the Compensation Committee’s desire to provide Mr. Rubin with a competitive total compensation package. Mr. Rubin’s annual PRSU grant vests in equal annual installments over a two-year period. In addition to tying Mr. Rubin’s compensation to our financial performance, the annual PRSU grant encourages Mr. Rubin to continue to lead us in the long-term. Given our historical rapid rate of business expansion, we have found it difficult to predict or forecast accurately our operating results for periods greater than a year and the Compensation Committee determined that annual rather than multi-year targets were appropriate.

 

The Compensation Committee chose the same performance target and payment schedule for Mr. Rubin’s 2009 PRSU award as it chose for the leadership bonus plan for fiscal 2009 applicable to the Named Executives and described above. On March 2, 2010, the Compensation Committee determined that based on our performance during fiscal 2009 and the considerations discussed above, Mr. Rubin had earned 111% of the target shares.

 

The following table illustrates the number of shares Mr. Rubin will receive, subject to the two year vesting provisions, under his 2009 PRSU Award:

 

 

Change in Control and Severance Provisions.   Mr. Rubin’s employment agreement contains termination provisions that provide him with a severance arrangement of approximately $2.5 million payable over 24 months plus continuation of his medical benefits for up to 24 months if his employment is terminated without cause or if he terminates his employment for good reason, as defined in Mr. Rubin’s employment agreement, including within a specified period of time after a change in control. However, Mr. Rubin would forfeit any unvested PRSUs and RSUs, other than with respect to a termination in connection with a change in control. See “— Potential Payments Upon Termination of Employment or Change in Control.”

 

The Compensation Committee provided Mr. Rubin with these severance provisions to protect him in the event of an actual termination of his employment agreement for no reason or a constructive termination of the agreement. We selected a severance payment amount that was approximately equal to the total current value of his base salary, annual RSUs and performance-based RSUs for one year.

 

Mr. Rubin agreed that as a condition prior to receiving any severance payments, he will provide us with a general release and to abide by customary confidentiality and non-disparagement provisions. He also agreed not to compete with us while we are paying him severance, which also prohibits him from soliciting employees, consultants, agents, representatives, partners, customers, clients or prospects of us or any of our subsidiaries.

Other Compensation Components

 

401(k) Plan Matching Contributions.   For 2009, we matched, in cash, contributions to our 401(k) plan that each employee, including each Named Officer and Mr. Rubin, made during the year in an amount of $.25 on each dollar contributed. For each eligible employee, this match is limited to contributions equaling six percent of such employee’s salary and is subject to further limitations imposed through Internal Revenue Service discrimination testing. We provide these matching grants to all of our employees, including Named Officers and Mr. Rubin, who participate in the 401(k) plan, to encourage them to systematically save for retirement.

 

Deferred Compensation Plan.   We maintain a non-qualified deferred compensation plan that allows eligible employees, including Named Officers and Mr. Rubin, to defer compensation that the employee cannot defer under the applicable tax-qualified plans because of limits under the Internal Revenue Code on the amount of compensation that can be deferred. There is currently no company match under our deferred compensation plan. Mr. Rubin and some of our executive officers have elected to participate in this plan in the past, although neither Mr. Rubin nor any of Named Officers contributed to this plan in fiscal 2009. For more information, see “-Nonqualified Deferred Compensation.”

 

Perquisites, Personal Benefits and Other Compensation.   During 2009, each of our Named Officers and Mr. Rubin received a limited amount of perquisites and other personal benefits that we paid on their behalf or for which we provided reimbursement. We believe that the nature of the perquisites, as well as total cost of perquisites provided in 2009, is reasonable. The perquisites and other personal benefits provided to our Named Officers are disclosed below in the “Summary Compensation Table.”

 

Policy on Deductibility of Compensation

 

Our policy is to maximize the tax deductibility of compensation paid to our most highly compensated executives under Section 162(m) of the Internal Revenue Code and related regulations. Our stockholders have approved our 2005 Equity Plan, our Leadership Incentive Plan, and the performance criteria formula that are designed and administered to qualify compensation awarded under these plans as “performance-based.” Mr. Rubin’s PRSU award has been structured to qualify as performance-based compensation exempt from the limitations on deductibility imposed by Section 162(m). We may, however, authorize payments to our Named Officers that may not be fully deductible if we believe such payments are in our stockholders’ interests. For fiscal 2009, we did not make any payments to our Named Officers which were not fully deductible. For fiscal 2009, approximately $391,000 paid to Mr. Rubin was not deductible. The non- deductibility of this amount resulted from the vesting of non-performance RSU awards made in prior years which vested in fiscal 2009.

 

 

 

 

 

Other benefits consisted of the following: (i) for Mr. Conn, a car allowance; and (ii) for Mr. Gold, reimbursement for housing expenses.

 

 

Grants of Plan-Based Awards

 

The following table summarizes non-equity and equity awards granted by GSI in fiscal 2009 to its Named Officers. For a discussion concerning the awards granted in fiscal 2009, see the preceding “— Compensation Discussion and Analysis” and “— Employment Agreements and Arrangements” which follows. The performance restricted stock units and restricted stock units shown in the table below are not entitled to the payment of dividends declared on GSI’s common stock.

 

 

 

 

 

Employment Agreements and Arrangements

 

The following describes employment agreements and arrangements with GSI’s Named Officers:

 

Michael G. Rubin.   On August 23, 2006, GSI entered into an employment agreement with Michael G. Rubin, its chairman, president and chief executive officer. The employment agreement was effective as of July 1, 2006 with an initial term of one and one-half years until December 31, 2007 and automatically renews for subsequent one year periods thereafter until a notice of nonrenewal is delivered by GSI or Mr. Rubin. The employment agreement has automatically renewed for a one year term ending December 31, 2010.

 

Under the employment agreement, Mr. Rubin receives an annual base salary of $474,000 per year and an annual restricted stock unit award granted under GSI’s 2005 Equity Plan with an aggregate fair market value of at least $675,000 as of the date of grant. The annual stock award will vest as to 25% of the total number of restricted stock units annually in each of the first four years following the year of grant. Such vesting will be subject to Mr. Rubin’s “continuous service,” as defined in the 2005 Equity Plan, to the Company and to acceleration in certain circumstances following a change in control. In lieu of Mr. Rubin’s annual restricted stock unit award in 2009 under his employment agreement in the amount of $675,000, the Compensation Committee and Mr. Rubin agreed that he would receive a restricted stock unit award for 45,000 shares of Common Stock. On March 10, 2009, the Compensation Committee granted Mr. Rubin a restricted stock unit award for 45,000 shares, representing the annual stock award for 2009. The grant date fair value of this award was $476,550.

 

Mr. Rubin also is entitled to receive an award of performance restricted stock units, referred to as a “PRSU Award,” to be granted on or before March 31 of each year. The number of shares to be issued pursuant to a PRSU Award is based on the Company achieving certain performance targets during a certain performance period, each as established by the Compensation Committee of GSI’s Board of Directors. Depending on the level of the performance targets that is achieved during the performance period, Mr. Rubin will be entitled to the issuance of shares having a fair market value, as of the date of grant, of between $700,000 and $2,100,000. If the Company fails to achieve the 90% level of the performance targets, Mr. Rubin will not be entitled to the issuance of any shares. Once issued, the shares will be subject to additional time based vesting restrictions, with 50% of the shares vesting annually in each of the first two years following the year the Compensation Committee determines that the PRSU Award is earned.

 

The employment agreement contains a “clawback” provision. In the event that the Board or the Compensation Committee determines in good faith that the earlier determination as to the achievement of the performance targets was based on incorrect data, which incorrect data would require the restatement of GSI’s financial statements for reasons other than changes in law or accounting principles, and that in fact the performance targets had not been achieved or had been achieved to a lesser extent than originally determined and a portion of any performance restricted stock units granted under any PRSU Award would not have been issued, vested or settled, given the correct data, then:

 

 

On March 10, 2009, under Mr. Rubin’s employment agreement described above, the Compensation Committee granted Mr. Rubin a PRSU Award for 132,200 shares, referred to as the target units, representing the PSRU Award for 2009. If the Company achieved 100% of the non-GAAP income from operations target established by the Compensation Committee for fiscal 2009, Mr. Rubin would have received 100% of the target units. If the Company failed to achieve 90% of the non-GAAP income from operations target for the performance period, Mr. Rubin would have received no shares. The performance restricted stock unit vests in the following increments, or earlier upon certain events, in two equal installments on April 20, 2011 and April 20, 2012. Vested performance units result in the delivery to Mr. Rubin of shares of common stock. On March 2, 2010, the Compensation Committee determined that Mr. Rubin earned 146,742 performance restricted stock units for fiscal 2009.

 

Mr. Rubin will also continue to be entitled to participate in the Company’s stock purchase, profit sharing, savings, health insurance, life insurance, group insurance, disability insurance, pension, retirement and other benefit plans or programs on the same terms and to the same extent as the other senior executives of the Company.

 

Michael R. Conn.   GSI does not have an employment agreement with Michael R. Conn, GSI’s executive vice president, finance and chief financial officer. Mr. Conn will receive an annual base salary of $390,000 in fiscal 2010 and is entitled to participate in GSI’s bonus and equity award plans. Mr. Conn also receives a car allowance.

 

Stephen J. Gold.   On January 31, 2005, GSI entered into an offer letter with Mr. Gold to serve as GSI’s executive vice president, chief information officer and corporate chief technology officer, which was amended on July 31, 2009. Under this letter, Mr. Gold is entitled to (i) receive an annual base salary of $325,000 to be increased to $350,0000 beginning January 1, 2006, subject to review annually, (ii) participate in the annual bonus plan available to GSI’s similarly situated employees, (iii) eligible to earn an additional bonus of up to 50% of his annual base salary based on the achievement of individual and developmental goals (“Additional Bonus”), (iv) receive a housing allowance of $2,500 per month, less payroll deductions and all required withholdings, for the duration of his employment and (v) other benefits similar to those provided to GSI’s other officers. Mr. Gold agreed to repay any Additional Bonus to GSI if, within nine months after receiving the bonus, he resigns from GSI for any reason or GSI terminates his employment for “cause” as defined in the offer letter. See also “— Potential Payments Upon Termination of Employment or Change in Control.” Mr. Gold will receive an annual base salary of $404,000 in fiscal 2010.

 

J. Scott Hardy.   On March 26, 2007, GSI entered into an offer letter with Mr. Hardy to serve as its executive vice president, business management. Under this letter, Mr. Hardy is entitled to (i) receive an annual base salary of $400,000; (ii) participate in the annual bonus plan available to similarly situated employees at GSI; and (iii) participate in all employee benefit plans or programs provided to similarly situated employees at GSI. Mr. Hardy and GSI may terminate Mr. Hardy’s employment at any time and for any reason. See also “— Potential Payments Upon Termination of Employment or Change in Control.” Mr. Hardy will receive an annual base salary of $415,000 in fiscal 2010.

 

Damon Mintzer.   GSI does not have an employment agreement with Damon Mintzer, GSI’s executive vice president, sales. Mr. Mintzer will receive an annual base salary of $444,158 in fiscal 2010 and is entitled to participate in GSI’s bonus and equity award plans. In addition, Mr. Mintzer may earn an additional bonus of up to 37.5% of his fiscal 2010 base salary for his performance during fiscal 2010 as determined by the Compensation Committee.

 

2009 Leadership Bonus Plan

 

On March 10, 2009, GSI’s Compensation Committee approved the 2009 leadership bonus plan for certain management-level employees, including the Named Officers. Under the 2009 leadership bonus plan, Named Officers, would receive an annual incentive cash bonus targeted at 50% of base salary if: (i) GSI achieved certain non-GAAP income from operations (income from operations excluding the effects of stock-based compensation, depreciation and amortization expenses, transaction and due diligence expenses relating to acquisitions, and excluding any one time significant gains or losses on assets or equity sales or any other extraordinary, non-operating revenue or expense, net of bonus payments under the 2009 leadership bonus plan) targets as determined by GSI’s Compensation Committee; and (ii) the eligible employee performed at an acceptable level as determined by Mr. Rubin. In addition, the amount of bonus that a participant would actually receive may be adjusted upward, downward or eliminated, based on that individual’s performance during the year. Each eligible participant’s bonus will be funded from a fixed pool.

 

See “Compensation Discussion and Analysis” for a discussion regarding the amount of salary and bonus in proportion to the total compensation of the Named Officers as well as the targets under the 2009 Leadership Bonus Plan.