received an M.B.A. from Harvard Business School and a BS from the Wharton School at the University of Pennsylvania. Mr. Klessel serves as a director of Guitar Center, Gymboree Corporation and Bob’s Discount Furniture. As a result of these and other professional experiences, Mr. Klessel brings to our Board extensive experience in operating and managing complex organizations, particularly in the retail industry, which strengthen the collective qualifications, skills and experience of our Board.
Mr. Levin is no longer a full-time employee of Bain, but continues to serve as a Senior Advisor for Bain in the private equity business. From 2000 through 2015, Mr. Levin was a Managing Director of Bain. Prior to joining Bain in 1992, Mr. Levin was a consultant at Bain & Company where he consulted in the consumer products and manufacturing industries. Mr. Levin received an M.B.A from Harvard Business School where he was a Baker Scholar, and a B.S. from the University of California Berkeley. Mr. Levin currently serves on the board of directors of Toys “R” Us and Guitar Center, Inc. Mr. Levin’s significant experience in and knowledge of corporate finance and managing companies put him in a position to provide important contributions to our Board.
Mr. Mahoney retired as Vice Chairman of Staples, Inc. in July 2012, having served as Vice Chairman since January 2006. Mr. Mahoney also served as Chief Financial Officer for Staples, Inc. from 1996 through January 2012. Prior to 1996, Mr. Mahoney was a partner at Ernst & Young, LLP. He currently serves on the Board of Directors of Bloomin’ Brands, Inc., Burlington Stores, Inc. and Chico’s FAS, Inc. In addition to serving on the Audit Committees of each of Bloomin’ Brands, Inc. and Chico’s FAS, Inc., Mr. Mahoney also serves on the Nominating & Governance Committee of Burlington Stores, Inc. and the Compensation Committee of Chico’s FAS, Inc. Previously, Mr. Mahoney served on the Board of Directors of Advo, Inc. and Zipcar, Inc. Mr. Mahoney holds an M.B.A. from Northeastern University, as well as an undergraduate degree from the College of the Holy Cross. Mr. Mahoney’s strong financial background and experience as a Vice Chairman and former Chief Financial Officer of a Fortune 500 retail company, enables him to provide valuable counsel to our management and Board.
Mr. Quella retired as a Senior Managing Director, Senior Operating Partner and co‑head of the Portfolio Operations Group at Blackstone in the Private Equity Group in June 2014, having served in these roles since 2003. Mr. Quella received a B.A. in International Studies from the University of Chicago/University of Wisconsin‑ Madison and an M.B.A. with Dean’s Honors from the University of Chicago Graduate School of Business. Mr. Quella serves as a director of Lionbridge Technologies, Inc., Catalent Pharma Solutions, Inc. and DJO Global, Inc., and serves on the Compensation Committees of each company. Mr. Quella was formerly a director of Allied Waste, Columbia House, Celanese Corporation, Freescale Semiconductor, Inc., Graham Packaging Company, L.P., Houghton‑Mifflin Harcourt Company, Intelenet Global Services, The Nielsen Company and Vanguard Health Systems, Inc. Due to contributions that Mr. Quella can provide to our Board resulting from his financial expertise, as well as his significant experience in working with companies transitioning from control by private equity sponsors, he is qualified to be on and is an asset to our Board.
Ms. Raff has been Chief Executive Officer and Chairman of Helzberg Diamond Shops, Inc., a wholly owned subsidiary of Berkshire Hathaway Inc., since April 2009. Prior to joining Helzberg, Ms. Raff served in various management positions at J. C. Penney Company, Inc. since 2001, most recently as Executive Vice President and General Merchandising Manager since September 2005. Prior to joining J.C. Penney, Ms. Raff served as Chairman and CEO of Zale Corporation. Ms. Raff is a director of Helen of Troy, Ltd. and Larry H. Miller Company. Ms. Raff was previously a director of Group 1 Automotive, Inc., Jo‑Ann Stores, Inc., The Make-A-Wish Foundation and Zale Corporation. Ms. Raff received her B.B.A. from Boston University and her M.B.A. from Drexel University. Ms. Raff adds value to our Board through her extensive experience in operating and managing large retail companies, as well as her prior public board service.
Mr. Rubin was named our Chief Executive Officer in March 2013 and Chairman in April 2015. Prior to joining us, Mr. Rubin served as President and Chief Executive Officer of Ulta Salon, Cosmetics & Fragrance, Inc. since September 2010, and served as Chief Operating Officer from April 2010 to September 2010. Prior to joining Ulta, he served as President of the North American Retail division of Office Depot, Inc. beginning in January 2006 and as Executive Vice President, Chief Marketing Officer and Chief Merchandising Officer of Office Depot from 2004 to January 2006. Prior to joining Office Depot, Mr. Rubin spent six years at Accenture Consulting in senior leadership roles including Partner, where he advised clients and led engagements across retail formats and e-commerce businesses. Prior to that, Mr. Rubin held a number of senior merchandising and general management positions in the specialty retail and department store industry including with Federated Department Stores. Since December 2015, he has served as a
Board Expertise and Diversity.
Our Corporate Governance Guidelines provides that the Board shall be committed to a diversified membership, in terms of both the individuals involved as well as their personal backgrounds, various experiences and areas of expertise. We also seek a Board that reflects a range of talents, ages, skills, viewpoints, professional experience, educational background and expertise to provide sound and prudent guidance with respect to our operations and interests. All of our directors are financially literate, and at least one member of our Audit Committee is an audit committee financial expert.
Board Annual Performance Reviews.
Our Corporate Governance Guidelines and Nominating and Governance Committee charter provide that the Nominating and Governance Committee shall be responsible for periodically, and at least annually, conducting an evaluation of the Board as a whole, as well as each of the committees’ performance, on an annual basis using criteria that it has developed and shall report to the Board on its findings.
Board Nominees.
Our Nominating and Governance Committee is responsible for recommending for Board approval the candidates for election to the Board at the Company’s annual meeting of stockholders and for recommending individuals to fill vacancies on the Board that may occur between annual meetings of stockholders. It is the policy of the Nominating and Governance Committee to consider recommendations for director nominees from all sources, including stockholders, and to evaluate all recommendations under the same standards and criteria. Stockholders may recommend a director candidate for the consideration of the Nominating and Governance Committee, by submitting the candidate’s name and biography c/o Office of the Corporate Secretary, The Michaels Companies, Inc., 8000 Bent Branch Drive, Irving, TX 75063. The Corporate Governance Guidelines provide that nominees for director shall be selected on the basis of their character, wisdom, judgment, ability to make independent analytical inquiries, business experiences, understanding of the Company’s industry and business environment, time commitment and acumen. Board members are expected to become and remain informed about the Company, its business and its industry and rigorously prepare for, attend and participate in all Board and applicable committee meetings. The Nominating and Governance Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best perpetuate the success of our business and represent stockholder interests through the exercise of sound judgment using its diversity of experience. In addition, the Nominating and Governance Committee considers, in light of our business, each director nominee’s experience, qualifications, attributes and skills. See “Proposal 1–Election of Directors” for the biographical information of the director nominees. Stockholders may also nominate director candidates for election at an annual meeting of stockholders, according to the procedures set forth in our bylaws, which are posted on our website,
www.michaels.com
. See also “Stockholder Proposals and Director Nominations”.
Board Leadership Structure.
Under our Corporate Governance Guidelines, our Board may select a Chairman of the Board of Directors at any time, who may also be an executive officer of the Company. The Company’s Chief Executive Officer currently also serves as the Chairman of the Board. Mr. Mahoney chairs the executive sessions of the Board that are attended only by our independent directors. The Board currently believes that the combination of the Chairman and Chief Executive Officer roles provides both for strong Board oversight and a very effective link between the Board and management.
Policies Relating to Board Service.
It is our policy that no director shall be nominated who has attained the age of 73 prior to or on the date of his or her election or re‑election. We expect each of our directors to attend the Annual Meeting of Stockholders. Under our Audit Committee Charter, members of the Audit Committee should serve on no more than three separate public company audit committees simultaneously without prior review and determination by the Board that such simultaneous service would not impair the ability of such member to effectively serve on the Committee.
Attendance.
Our Board of Directors held eleven meetings in fiscal 2016. During fiscal 2016, each director attended at least 75% of the Board and committee meetings on which he or she served during the periods that he or she served. Our independent directors also met separately in executive session at four of our regularly scheduled Board meetings during the year.
Code of Business Ethics and Conduct.
We have adopted a written Code of Business Ethics and Conduct (the “Code of Ethics”) that applies to our directors, officers and employees, including our executive officers, and is designed to ensure that our business is conducted with integrity. The Code of Ethics covers professional conduct, conflicts of interest, the protection of confidential information, as well as adherence to laws and regulations applicable to
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
The following Compensation Discussion and Analysis relates to compensation paid to our executive officers named in the Summary Compensation Table for fiscal 2016.
These individuals, referred to as our “Named Executive Officers” are: Carl S. Rubin, Chairman and Chief Executive Officer; Denise A. Paulonis, Chief Financial Officer; Stephen J. Carlotti, Executive Vice President—Marketing; Dennis A. Mullahy, Executive Vice President – Supply Chain and Information Technology; Philo T. Pappas, Executive Vice President – Category Management and Charles M. Sonsteby; Vice Chairman. This Compensation Discussion and Analysis and the executive compensation discussion and tables that immediately follow describe our compensation, objectives, the strategy and elements of our compensation program, and our compensation‑setting process as applied to our Named Executive Officers.
Highlights of Fiscal 2016 Performance
The highlights of our fiscal 2016 performance include the following:
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·
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Net sales increased to $5,197.3 million, a 5.8% improvement over last year’s net sales of $4,912.8 million, primarily driven by the acquisition of Lamrite West, Inc. (“Lamrite West”) and sales from 19 additional stores (net of closures).
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·
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Operating income was $715.3 million, or 13.8% of net sales compared to $720.6 million in fiscal 2015.
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·
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We reported diluted earnings per share of our Common Stock of $1.82, an increase of 5.8% from $1.72 in the prior year.
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Compensation Program
The principal objectives of our compensation program are:
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attracting and retaining highly qualified individuals whose contributions to Michaels result in us meeting or exceeding our financial and strategic goals;
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·
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motivating officers to achieve exceptional levels of operating and financial performance; and
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·
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aligning officer interests with the long‑term goals of our stockholders.
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Currently, the total compensation for our officers at the Vice President level and above, including our Named Executive Officers, consists of three main components: base salary, annual cash incentive bonuses and long‑term equity‑based incentive compensation awards. The strategy of the cash incentive compensation program is to provide higher annual cash incentive compensation for exceptional corporate and business financial performance. We also believe that by placing a significant equity opportunity in the hands of executives who are capable of driving and
sustaining longer‑term growth, our stockholders will benefit along with the executives who helped create stockholder value. The table, immediately below, includes the principal components of our pay‑for‑performance approach.
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Component
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Purpose
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Form
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Pay for Performance
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Base Salary
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Provide sufficient competitive pay to attract and retain experienced and successful executives; reward good performance and business results.
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Cash
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Adjustments to base salary are based on individual performance, contributions to the business, competitive practices and internal comparisons.
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Annual Bonuses
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Provide financial incentives to members of management who can make important contributions to Michaels’ success.
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Cash
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The potential award amount varies with the degree to which we achieve our annual financial objectives, as well as individual job performance.
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Long‑Term Equity‑Based Compensation
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Encourage and reward building long‑term stockholder value; align executives’ and stockholders’ interests; promote retention; and encourage innovation. We currently provide two equity award types to balance specific objectives.
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Stock Options: Reward absolute stock price appreciation.
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Stock Options
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The potential appreciation in our stock price above the option exercise price motivates our Named Executive Officers to build stockholder value. Named Executive Officers may realize value only if our stock price appreciates.
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Restricted Stock Awards (prior to August 2016) and Restricted Stock Units (since August 2016): Promote retention even during periods of short‑term market volatility.
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Restricted Stock Awards / Restricted Stock Units
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Retain Named Executive Officers and align their interests with stockholders’ interests by awarding a fixed number of common shares upon vesting, which creates retention value even during periods of short‑term market volatility.
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Compensation Strategy: Policies and Procedures
Role of Compensation Committee and Chief Executive Officer in Compensation Decisions
The Compensation Committee reviews and recommends to the Board for approval the compensation for all executive officers at the level of Executive Vice President and above. The Board is ultimately responsible for determining the compensation of our executive officers at the level of Executive Vice President and above, which includes our Named Executive Officers. Material changes to the Company’s equity‑based plans must also be approved by a majority of our stockholders. Both the Compensation Committee and the Board receive recommendations with respect to compensation‑related decisions regarding our executive officers, other than the Chief Executive Officer, by senior management, principally the Chief Executive Officer and the Executive Vice President – Human Resources. In determining compensation levels for the executive officers, the Compensation Committee considers the scope of an individual’s responsibilities, the competitive market salary at comparable companies, an individual’s performance and prior experience, the performance of the Company and the attainment of planned financial and strategic initiatives. These factors are evaluated by the Compensation Committee and the Board, with the attainment of planned financial and strategic initiatives given greater weight with respect to executive bonuses. The Compensation Committee considers overall past compensation and incentives in determining the compensation of executive officers and seeks to assure that the executives have appropriate incentives to achieve high levels of Company performance. The Compensation Committee, through its members’ involvement in other companies, has experience regarding compensation programs for executive officers. Approvals by the Compensation Committee and recommendations to the Board by the Compensation Committee are based on a number of factors, including a review of competitive market data (as described below) and executive performance (as described below), the experience of the members of the Compensation Committee and alignment of compensation with the overall strategic direction and goals of the Company.
Competitive market data and use of compensation consultants
As part of the compensation review process, management provides the Compensation Committee with market survey data on executive total compensation levels and general information regarding executive compensation practices in our industry, including information provided by Korn Ferry Hay Group (“The Hay Group”), a compensation consulting firm engaged by the Company. The Hay Group developed, and our Compensation Committee has approved, the following companies as our peer group for fiscal 2016:
Advance Auto Parts Inc.
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Chico’s FAS, Inc.
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Pier 1 Imports, Inc.
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Ascena Retail group Inc.
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Dick’s Sporting Goods, Inc.
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Sally Beauty Holdings, Inc.
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AutoZone, Inc.
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DSW, Inc.
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Signet Jewelers
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Bed Bath & Beyond Inc.
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General Nutrition Corporation
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Tractor Supply Company, Inc.
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Big Lots, Inc.
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O’ Reilly Automotive, Inc.
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William‑Sonoma, Inc.
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Burlington Stores
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The Compensation Committee used our peer group to assess the appropriateness of the following key components of our Chief Executive Officer’s compensation: base salary, annual cash bonuses and long‑term equity incentives. In connection with fiscal 2016 base compensation and bonus targets for our Named Executive Officers, both of which were approved in March 2016, the Compensation Committee did not aim to set total compensation, or any compensation element, at a specified level as compared to our peer group or based on surveys and other data that it reviewed. Rather, it used such data, as well as information gathered through its members’ involvement in other companies, as guidelines for the overall executive compensation program. The Compensation Committee may request that The Hay Group (or another compensation consultant) provide other periodic market data on our peer group of companies.
Compensation Elements
Base Salaries
Base salaries for our executive officers are established based on the scope of their responsibilities, individual performance and prior experience, Michaels’ operating and financial performance and the attainment of planned financial and strategic initiatives, taking into account the knowledge of the members of the Compensation Committee and the advice of The Hay Group regarding competitive market compensation paid by companies for similar positions. The Compensation Committee recommends, and the Board sets, base salaries for officers at the level of Executive Vice President and above at a level designed to attract and retain highly qualified individuals who make contributions that result in Michaels meeting its operating and financial goals. Base salaries are reviewed and adjusted annually as deemed appropriate by the Compensation Committee and the Board, as applicable, based on performance and business results, among other factors.
In March 2016, the Compensation Committee reviewed recommendations regarding 2016 annual base salary rates for the executive officer group based on the criteria set forth under “Compensation Strategy: Policies and Procedures” above. Merit guidelines for fiscal 2016 were determined by reviewing surveys of market data provided by management and The Hay Group, as well as giving consideration to the Company’s overall budget for associate compensation. Based upon this information, the Company set an annual merit rate budget which provided for median merit based increases at 3.0%, for fiscal 2016 for its corporate support center team members, including our Named Executive Officers, except as set forth below.
Annual base salary rates for the Named Executive Officers for fiscal 2016 and 2015, which reflect increases between the two fiscal years, are shown below.
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Name
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2015 Base Salary
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2016 Base Salary
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Carl S. Rubin(1)
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$
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1,167,000
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$
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1,202,000
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Denise A. Paulonis (2)
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$
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354,060
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$
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500,000
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Stephen J. Carlotti
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$
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540,750
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$
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556,973
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Dennis A. Mullahy(3)
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$
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475,000
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$
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475,000
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Philo T. Pappas
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$
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540,750
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$
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563,732
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Charles M. Sonsteby (4)
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$
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754,415
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$
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777,048
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(1)
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Pursuant to Mr. Rubin’s employment agreement, his base salary was set at $1,100,000, subject to increase at the Board’s discretion.
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(2)
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Ms. Paulonis’s base salary for 2015 was in connection with her role as Vice President – Investor Relations, Treasury and Corporate Finance (until November 2015) and Senior Vice President – Finance from November 2015 until August 2016. In connection with her promotion to Senior Vice President – Finance, she received a one-time base salary increase of 4.0% in March 2016. In connection with her promotion to Executive Vice President – Chief Financial Officer in August 2016, she received a one-time base salary increase of 35.8%.
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(3)
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In connection with his promotion to Executive Vice President – Supply Chain and Information Technology in September 2015, Mr. Mullahy received a one-time base salary increase of 13.1%.
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(4)
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Mr. Sonsteby served as Executive Vice President – Chief Administrative Officer and Chief Financial Officer in fiscal 2015 and 2016 until August 2016, when he was appointed to the role of Vice Chairman.
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After reviewing the Company’s fiscal 2016 financial performance in early 2017, the Compensation Committee determined that none of the Named Executive Officers were eligible to receive any merit or other discretionary increase in base salary for fiscal 2017, regardless of individual performance. See “Annual Bonuses – Company Financial Measures” for more information about the financial performance of the Company in fiscal 2016.
Annual Bonuses
In connection with our initial public offering, our Board adopted The Michaels Companies, Inc. Annual Incentive Plan (the “Annual Plan”). Starting with fiscal 2015, annual award opportunities for executive officers, including our Named Executive Officers, and other key team members were granted under the Annual Plan. In March 2016, the Compensation Committee recommended that the Board approve the fiscal 2016 bonus criteria for executive officers, including the Named Executive Officers, under the Annual Plan (such bonus criteria, the “2016 Bonus Plan”), except for Ms. Paulonis, whose bonus criteria was determined following her appointment to the role of Chief Financial Officer in August 2016. The 2016 Bonus Plan provides financial incentives to these individuals and those other members of management who were in positions to make important contributions to Michaels’ success. The Board subsequently approved the 2016 Bonus Plan. The structure of the 2016 Bonus Plan and the specific objectives relating to bonus payments were proposed by the Chief Executive Officer and were reviewed by the Compensation Committee. For each of the Named Executive Officers, the 2016 Bonus Plan tied 80% of bonus opportunity to Michaels’ attainment of a financial objective (earnings before interest and taxes, with certain adjustments, or “EBIT”), and 20% to individual performance. Individual management business objectives for Mr. Rubin were reviewed with the members of the Compensation Committee in the early part of fiscal 2016. Individual management business objectives for Ms. Paulonis and Messrs. Carlotti, Mullahy, Pappas and Sonsteby were also reviewed with the members of the Compensation Committee at such time, and approved by the Chief Executive Officer.
Under the 2016 Bonus Plan, before any business unit or individual performance payout would be earned, the actual results of the financial objective (EBIT) was required to meet the threshold established by the Compensation Committee, which represented approximately 94% of target. Each participating Named Executive Officer was entitled to a bonus equal to a certain percentage of that executive officer’s base salary, depending on the achievement of the threshold, target or maximum performance level. The Compensation Committee set threshold, target and maximum performance levels for all officers of the Company. The final award depended on the actual level of performance
achieved; however, the Compensation Committee retained the right to make adjustments in its sole discretion. The target levels of performance for the bonus goals were set at levels that the Compensation Committee and the Board believed to be reasonably achievable in view of Michaels’ historical annual performance. In the Compensation Committee’s view, taking into account comparative data provided to the Committee by The Hay Group, the compensation payable to the Named Executive Officers upon reaching target levels of performance, when added to their base salaries, creates a level of total cash compensation competitive with that paid by comparable companies for similar positions. Additional information regarding the targets and objectives is set forth below.
For fiscal 2016 annual bonuses, the threshold, target and maximum percentages of base salary, as well as the bonus element weightings, for each of the Named Executive Officers were as follows:
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Carl S.
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Denise A.
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Stephen J.
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Dennis A.
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Philo T.
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Charles M.
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Rubin
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Paulonis
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Carlotti
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Mullahy
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Pappas
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Sonsteby
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Percentage of Base Salary
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Target
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100
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%
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50
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%
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65
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%
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50
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%
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65
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%
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70
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%
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Threshold
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18
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%
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9
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%
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11.7
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%
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9
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%
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11.7
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%
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12.6
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%
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Maximum
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200
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%
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100
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%
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130
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%
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100
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%
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130
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%
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140
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%
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Bonus Element Weightings
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Overall Company Results
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80
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%
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80
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%
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80
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%
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80
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%
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80
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%
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80
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%
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Individual Performance
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20
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%
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20
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%
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20
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%
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20
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%
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20
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%
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20
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%
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Company Financial Measures
At the beginning of fiscal 2016, the Compensation Committee established, and the Board approved, the EBIT threshold for bonuses under the 2016 Bonus Plan at $737.5 million, with a target level of $784.6 million, and a maximum at $863.1 million. In March 2017, the Compensation Committee reviewed the Company’s financial results and determined that for fiscal 2016, the Company achieved financial performance of $736.2 million, which was below the threshold level. As a result, fiscal 2016 bonuses were not earned under the 2016 Bonus Plan.
Individual Performance Measures
Because the financial objective threshold applicable to all Named Executive Officers was not met, none of the Named Executive Officers were eligible to earn a bonus for fiscal 2016, regardless of individual performance. Individual performance was evaluated, however, with respect to whether the Named Executive Officers met their individual management business objectives, which are both quantitative and subjective. These objectives are assessed in the aggregate to determine the individual’s level of performance and bonus achieved (had the threshold EBIT level been met in fiscal 2016). No specified weight is given to a single measure within the group of individual management business objectives, and assessment of achievement reflects a generalized view of overall achievement of the group of measures. In addition, the individual management business objectives for all executives included an assessment of the executive’s job knowledge and skills, communication skills, interpersonal skills, effectiveness of management, judgment and decision‑making, drive and commitment, leadership and customer satisfaction.
For fiscal 2016, Mr. Rubin’s group of individual management business objectives were focused primarily on sales, EBIT, cash flow, solidifying the Company’s succession plans, generation of an acceptable return on capital and improving customer service on a Company‑wide basis. Ms. Paulonis’s group of individual management business objectives were focused primarily on sales, EBIT, cash flow, renegotiating the Company’s credit agreements and credit facilities and generation of an effective return on capital. Mr. Carlotti’s group of individual management business objectives focused primarily on sales, EBIT, cash flow, improving customer service on a Company‑wide basis, diversifying the Company’s marketing message and forms of marketing media, intensifying the Company’s non-promotional marketing messaging and capturing additional market share. Mr. Mullahy’s group of individual management business objectives were primarily sales, EBIT, cash flow, updating the Company’s network strategy, improving the Company’s IT capabilities and improving customer service on a Company‑wide basis. For Mr. Pappas, his group of individual management business objectives focused primarily on sales, EBIT, cash flow, solidifying the Company’s succession plans, improving customer service on a Company‑wide basis, improvement in sourcing product margin growth and capturing additional market share. For Mr. Sonsteby, his group of individual management business
objectives focused primarily on sales, EBIT, cash flow, generation of an acceptable return on capital, transitioning the role of Chief Financial Officer and the growth and continued integration of Lamrite West. The Compensation Committee determined that, had the threshold level been met in fiscal 2016, each of Messrs. Rubin, Carlotti, Pappas, Sonsteby and Ms. Paulonis achieved their individual objectives at 100% of target, and Mr. Mullahy achieved his individual objectives at 50% of target.
Actual Payouts
Due to the Company not meeting its financial measures at the end of fiscal 2016, no bonuses were paid out to Named Executive Officers for fiscal 2016.
Long‑Term Equity‑Based Compensation
On April 10, 2017, our Board approved the Proposed Plan and, following stockholder approval, all equity‑based awards, including to our Named Executive Officers, will be granted under the Proposed Plan. See “Proposal 2 – Approval of Proposed Plan” for additional information with respect to the Proposed Plan.
Equity awards granted by the Company are intended to align the long‑term incentives of our executives and stockholders. The total long‑term equity grant in a given year is based on a multiple calculated on an officer-level basis (director, vice president‑low, vice president‑high, senior vice president, executive vice president, chief financial officer and chief executive officer), based on market data for comparable public companies provided by The Hay Group. The multiple is converted into an award grant based on a set stock price. Beginning in 2013, the Company began issuing a combination of annual option and restricted stock grants that will vest over four years, focusing on an award mix that contains a ratio for each officer of roughly five times the number of shares underlying a stock option grant as a restricted stock grant (5 shares per stock option award to 1 share per restricted stock award) and beginning in fiscal 2017, the award mix was modified to six times the number of shares underlying a stock option grant as a restricted stock unit grant (6 shares per stock option award to 1 share per restricted stock unit award). Beginning in August 2016, the Company began to grant restricted stock units instead of restricted stock awards in the award mix. Annual option and restricted stock unit grant amounts are generally awarded based on the midpoint of the range by officer level, with occasional exceptions based on an individual’s performance. Grants are also typically awarded when an executive is hired and may be awarded for subsequent promotions. New hire grants and promotion‑related grants are generally issued at a multiple of the range midpoint, on a case‑by‑case basis. All stock option grants made in fiscal 2016 were at exercise prices set at or above the grant date fair market value of the underlying stock as determined by our Board. Detail regarding option and grants of restricted stock and restricted stock units made to our Named Executive Officers in fiscal 2016 and awards outstanding at the end of fiscal 2016 is provided, respectively, in the Grants of Plan‑Based Awards for Fiscal 2016 table and the Outstanding Equity Awards at Fiscal Year‑End 2016 table that follow this Compensation Discussion and Analysis.
Stock Ownership Guidelines
In March 2017, Michaels updated its ownership guidelines applicable to all officers, including the Named Executive Officers. The Chief Executive Officer’s ownership is expected to equal five times his base salary. Each of the remaining Named Executive Officer’s ownership is expected to equal three times his or her base salary. For those officers not already meeting the parameters outlined in the guidelines, compliant ownership is to be achieved before their fifth anniversary with Michaels, and they are expected to continuously own sufficient shares to meet the guideline once attained. Individuals who become subject to a greater ownership level due to promotion are expected to meet the applicable guideline no more than five years after first becoming subject to the greater ownership level. Ownership includes shares held outright, unvested restricted shares, unvested restricted stock units, the in‑the‑money value of vested stock options, and shares held in trusts.
Other Benefits and Perquisites
Our Named Executive Officers also receive certain other benefits and perquisites. During fiscal 2016, these benefits included contributions to 401(k) accounts, Company-paid life insurance premiums, relocation benefits, certain Company‑paid medical benefits, car allowances and, in some cases, tax gross‑ups and reimbursement for income taxes on taxable benefits. Our Chief Executive Officer, Mr. Rubin, was also entitled to the use of a Company‑owned or leased
automobile. Additionally, Messrs. Rubin, Pappas and Sonsteby received a one-time cash payment in connection with the vesting of restricted stock awards in fiscal 2016 related to the special dividend issued in July 2013 to our equity holders. The Compensation Committee and the Board believe that these benefits and perquisites are reasonable and consistent with the nature of the executives’ responsibilities, provide a competitive level of total compensation to our executives and serve as an important element in retaining those individuals. The cost to Michaels of these benefits to the Named Executive Officers is set forth in the Summary Compensation Table under the column “All Other Compensation” and detail about each element is set forth in the table presented in footnote 5 to the Summary Compensation Table.
Clawback Policy
In March 2017, the Board approved a Policy for Recovery of Incentive Compensation, which allows the Company to recover incentive compensation from a current or former Named Executive Officer in the event the individual engaged in knowing or intentional fraudulent or illegal conduct that materially contributed to the need for a restatement of the Company’s financial statements. The Policy for Recovery of Incentive Compensation is available on our website at
www.michaels.com
.
Employment and Severance Agreements
We entered into an employment agreement with Mr. Rubin, which became effective on March 18, 2013, the date he commenced employment, which includes certain severance benefits in the event of termination other than for cause or by Mr. Rubin for good reason, as such terms are defined in the agreement. The specific terms of Mr. Rubin’s employment agreement, are discussed in the section entitled “Rubin Employment Agreement” following the Grants of Plan‑Based Awards table and under “Executive Compensation – Potential Payments upon Termination or Change of Control”.
In April 2008, the Board approved the Company’s Officer Severance Pay Plan (the “OSPP”), which was amended in July 2008, May 2014, December 2014 and March 2017. The OSPP was established by the Company to provide certain severance benefits, subject to the terms and conditions of the OSPP, to designated officers (those with a position of Vice President or above, or an equivalent title as approved by the Compensation Committee, and excluding the Chief Executive Officer) in the event that their employment is terminated as a result of a “Qualifying Termination” (as defined in the OSPP and described below). A more detailed description of the OSPP may be found under “Potential Payments upon Termination or Change of Control”.
Tax Considerations
While the Compensation Committee takes into account tax and accounting considerations in structuring the components of the Company’s compensation program, these considerations are secondary to the primary objectives of the program. Section 162(m) of the Code (“Section 162(m)”) disallows a U.S. federal income tax deduction to any publicly held corporation for compensation exceeding $1 million in any taxable year to any of the corporation’s chief executive officer or other three most highly paid named executive officers other than its chief financial officer, except as to compensation that qualifies as performance‑based or is otherwise exempt under Section 162(m). Although the Compensation Committee may take the deductibility limitations of Section 162(m) into account in its compensation decisions, the Compensation Committee may, in its judgment, authorize compensation payments that are not exempt under Section 162(m) when it believes that such payments are appropriate to attract or retain talent.
The Company’s Compensation Policies
and Practices as They Relate to Risk Management
In accordance with the applicable disclosure requirements, to the extent that risks may arise from the Company’s compensation policies and practices that are reasonably likely to have a material adverse effect on the Company, the Company is required to discuss those policies and practices for compensating the employees of the Company (including employees that are not Named Executive Officers) as they relate to the Company’s risk management practices and the possibility of incentivizing risk‑taking.
The Compensation Committee has evaluated the policies and practices of compensating the Company’s employees in light of the relevant factors, including the following:
|
·
|
|
the financial performance targets of the Company’s annual cash incentive program are the budgeted objectives that are reviewed and approved by the Board and/or the Compensation Committee;
|
|
·
|
|
bonus payouts are not based solely on Company performance, but also have achievement of individual performance objectives as a component, provided that Company performance thresholds are met;
|
|
·
|
|
bonus awards generally are not contractual entitlements, but are reviewed by the Compensation Committee and/or the Board and can be modified at their discretion;
|
|
·
|
|
the financial opportunity in the Company’s long‑term equity‑based compensation is best realized through long‑term appreciation of the Company’s stock price, which mitigates excessive short‑term risk‑taking;
|
|
·
|
|
results of the most recent stockholder advisory votes on executive compensation; and
|
|
·
|
|
the allocation of compensation between cash and equity awards and the focus on stock‑based compensation, including options and restricted stock awards generally vesting over a period of years, thereby mitigating against short‑term risk taking.
|
Based on such evaluation, the Compensation Committee has determined that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S‑K with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and be incorporated by reference into our Annual Report on Form 10‑K for the fiscal year ended January 28, 2017.
|
|
|
THE COMPENSATION COMMITTEE
|
|
|
|
Matthew S. Levin, Chair
|
|
James A. Quella
|
|
Beryl B. Raff
|
|
Peter F. Wallace
|
EXECUTIVE AND DIRECTOR COMPENSATION
Summary Compensation Table
The following table and footnotes include specific compensation information for each of the Named Executive Officers previously identified in the Compensation Discussion and Analysis above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Non-Equity
Incentive
Plan
|
|
All Other
|
|
|
|
Name and Principal
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Total
|
|
Position
|
|
Year
|
|
($)(1)
|
|
($)
|
|
($)(2)
|
|
($)(3)
|
|
($)(4)
|
|
($)(5)
|
|
($)
|
|
Carl S. Rubin
|
|
2016
|
|
1,195,269
|
|
—
|
|
1,666,667
|
|
2,172,245
|
|
—
|
|
347,711
|
|
5,381,892
|
|
Chairman and Chief
|
|
2015
|
|
1,160,462
|
|
—
|
|
1,166,666
|
|
1,480,436
|
|
1,473,454
|
|
338,311
|
|
5,619,329
|
|
Executive Officer
|
|
2014
|
|
1,126,654
|
|
—
|
|
—
|
|
—
|
|
1,410,359
|
|
338,982
|
|
2,875,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denise A. Paulonis(6)
Executive Vice President – Chief Financial Officer
|
|
2016
|
|
416,183
|
|
—
|
|
333,342
|
|
411,096
|
|
—
|
|
40,786
|
|
1,201,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen J. Carlotti
|
|
2016
|
|
553,853
|
|
—
|
|
183,337
|
|
229,520
|
|
—
|
|
28,078
|
|
994,788
|
|
Executive Vice President –
|
|
2015
|
|
537,721
|
|
—
|
|
183,345
|
|
232,655
|
|
373,496
|
|
68,034
|
|
1,395,251
|
|
Marketing
|
|
2014
|
|
312,981
|
|
270,000
|
(7)
|
750,044
|
|
889,367
|
|
207,974
|
|
67,381
|
|
2,497,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis A. Mullahy
|
|
2016
|
|
475,000
|
|
—
|
|
183,337
|
|
238,952
|
|
—
|
|
26,688
|
|
923,977
|
|
Executive Vice President –
|
|
2015
|
|
445,823
|
|
—
|
|
333,333
|
|
422,982
|
|
212,923
|
(8)
|
35,432
|
|
1,450,493
|
|
Supply Chain and IT
|
|
2014
|
|
420,000
|
|
—
|
|
74,997
|
|
89,037
|
|
175,518
|
|
311,563
|
|
1,071,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philo T. Pappas
|
|
2016
|
|
559,312
|
|
—
|
|
183,337
|
|
238,952
|
|
—
|
|
56,039
|
|
1,037,640
|
|
Executive Vice President –
|
|
2015
|
|
536,161
|
|
—
|
|
183,345
|
|
232,655
|
|
443,794
|
|
56,639
|
|
1,452,594
|
|
Category Management
|
|
2014
|
|
521,419
|
|
—
|
|
183,330
|
|
217,653
|
|
424,778
|
|
65,420
|
|
1,412,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles M. Sonsteby (9)
|
|
2016
|
|
772,695
|
|
—
|
|
299,993
|
|
390,995
|
|
—
|
|
57,505
|
|
1,521,188
|
|
Vice Chairman
|
|
2015
|
|
750,190
|
|
—
|
|
300,000
|
|
380,684
|
|
666,752
|
|
107,232
|
|
2,204,858
|
|
|
|
2014
|
|
728,339
|
|
—
|
|
300,001
|
|
356,167
|
|
638,250
|
|
104,691
|
|
2,127,448
|
|
|
(1)
|
|
The amounts in this column represent actual base salary paid in fiscal 2016, 2015 and 2014.
|
|
(2)
|
|
Represents the aggregate grant date fair value of the restricted stock awards or restricted stock units on the date of the grant as calculated in accordance with ASC 718. With respect to restricted stock awards granted in fiscal 2014, the underlying valuation assumptions are discussed in Note 8 to the Consolidated Financial Statements for the fiscal year ended January 31, 2015, included in our Annual Report on Form 10‑K for the fiscal year ended January 31, 2015. With respect to restricted stock awards granted in fiscal 2015, the underlying valuation assumptions are discussed in Note 8 to the Consolidated Financial Statements for the fiscal year ended January 30, 2016, included in our Annual Report on Form 10‑K for the fiscal year ended January 30, 2016. With respect to restricted stock awards or restricted stock units granted in fiscal 2016, the underlying valuation assumptions are discussed in Note 10 to the Consolidated Financial Statements for the fiscal year ended January 28, 2017, included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.
|
|
(3)
|
|
Represents the aggregate grant date fair value of the option awards on the date of the grant as calculated in accordance with ASC 718. With respect to option awards granted in fiscal 2014, the underlying valuation assumptions are discussed in Note 8 to the Consolidated Financial Statements for the fiscal year ended January 31, 2015, included in our Annual Report on Form 10‑K for the fiscal year ended January 31, 2015. With respect to option awards granted in fiscal 2015, the underlying valuation assumptions are discussed in Note 8 to the Consolidated Financial Statements for the fiscal year ended January 30, 2016, included in our Annual Report on Form 10‑K for the fiscal year ended January 30, 2016. With respect to option awards granted in fiscal 2016, the underlying valuation assumptions are discussed in Note 10 to the Consolidated Financial Statements for the fiscal year ended January 28, 2017, included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.
|
|
(4)
|
|
The amounts in this column for fiscal 2016 reflect that no cash awards were paid to Named Executive Officers under the 2016 Bonus Plan, which are discussed in further detail in the preceding section “Compensation Discussion and Analysis – Compensation Elements – Annual Bonuses.” The amounts in this column for fiscal 2015 reflect the cash awards paid to Named Executive Officers under the Company’s Annual Plan for executive officers for fiscal
|
2015. The amounts in this column for fiscal 2014 reflect the cash awards paid to Named Executive Officers under the Company’s bonus plan for executive officers for fiscal 2014.
|
|
(5)
|
|
The table below reflects the fiscal 2016 components of this column.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl S.
|
|
Denise A.
|
|
Stephen J.
|
|
Dennis A.
|
|
Philo T.
|
|
Charles M.
|
|
|
|
Rubin
|
|
Paulonis
|
|
Carlotti
|
|
Mullahy
|
|
Pappas
|
|
Sonsteby
|
|
Medical Benefits(a)
|
|
$
|
25,990
|
|
$
|
4,600
|
|
$
|
18,812
|
|
$
|
20,586
|
|
$
|
20,938
|
|
$
|
9,366
|
|
Insurance Premiums
|
|
|
6,613
|
|
|
3,516
|
|
|
4,908
|
|
|
4,468
|
|
|
6,943
|
|
|
9,658
|
|
Company Contributions to 401(k) and Group Universal Life Plan
|
|
|
2,677
|
|
|
2,616
|
|
|
—
|
|
|
—
|
|
|
2,683
|
|
|
2,667
|
|
Tax Reimbursement(b)
|
|
|
1,634
|
|
|
1,629
|
|
|
1,634
|
|
|
1,634
|
|
|
1,634
|
|
|
1,634
|
|
Relocation
|
|
|
—
|
|
|
28,425
|
|
|
2,724
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Car Allowances / Company-Owned/Leased Automobile
|
|
|
17,732
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,200
|
|
|
7,200
|
|
Equity Bonus(c)
|
|
|
293,065
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,641
|
|
|
26,980
|
|
Total Other
|
|
$
|
347,711
|
|
$
|
40,786
|
|
$
|
28,078
|
|
$
|
26,688
|
|
$
|
56,039
|
|
$
|
57,505
|
|
|
(a)
|
|
The amounts in this row for all executive officers include Company‑paid medical benefits, including executive and spouse physicals.
|
|
(b)
|
|
Reimbursement of income taxes is related to relocation, long‑term disability insurance premiums and medical expenses.
|
|
(c)
|
|
The amounts in this row reflect cash dividend equivalent payments made to equity award holders upon vesting of restricted stock awards in fiscal 2016 related to the special dividend issued in July 2013 to our equity holders.
|
|
(6)
|
|
Ms. Paulonis was promoted to Executive Vice President – Chief Financial Officer in August 2016, and as such, became our principal financial officer.
|
|
(7)
|
|
The
amounts in this column include a sign on bonus of $20,000, payable within 30 days of Mr. Carlotti’s start date, and a one-time bonus of $250,000, payable in April 2015, pursuant to the terms of Mr. Carlotti’s offer letter with the Company.
|
|
(8)
|
|
Mr. Mullahy was promoted to Executive Vice President – Supply Chain and Information Technology in September 2015, and as a result his bonus was pro-rated in relation to the length of his fiscal 2015 service at the Senior Vice President level (which has a lower level of bonus payout) and his fiscal 2015 service at the Executive Vice President level.
|
|
(9)
|
|
Mr. Sonsteby served as our principal financial officer in the role of Executive Vice President – Chief Administrative Officer and Chief Financial Officer during fiscal 2014, fiscal 2015 and fiscal 2016 until taking the position of Vice Chairman in August 2016 (in connection with Ms. Paulonis’s appointment noted in footnote 6 above).
|
Grants of Plan‑Based Awards for Fiscal 2016
The following table sets forth the plan‑based awards granted to our Named Executive Officers pursuant to Company plans during fiscal 2016.
Grants of Plan‑Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
Exercise or
|
|
Grant Date
|
|
|
|
|
|
Estimated Future Payouts
|
|
Awards:
|
|
Number of
|
|
Base
|
|
Fair Value
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
Number
|
|
Securities
|
|
Price of
|
|
of Stock
|
|
|
|
|
|
Plan Awards(1)
|
|
Shares of
|
|
Underlying
|
|
Option
|
|
and
|
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Stock
|
|
Options
|
|
Awards
|
|
Option
|
|
Name and Principal Position
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)(2)
|
|
(#)
|
|
($/Sh)(2)
|
|
Awards(3)
|
|
Carl S. Rubin (4)
|
|
N/A
|
|
216,360
|
|
1,202,000
|
|
2,404,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
69,735
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
|
|
348,675
|
|
$
|
23.90
|
|
$
|
3,838,912
|
|
Denise A. Paulonis (5)
|
|
N/A
|
|
45,000
|
|
250,000
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/29/2016
|
|
|
|
|
|
|
|
13,545
|
|
|
|
|
|
|
|
|
|
|
|
8/29/2016
|
|
|
|
|
|
|
|
|
|
67,725
|
|
$
|
24.61
|
|
$
|
744,439
|
|
Stephen J. Carlotti (4)
|
|
N/A
|
|
65,166
|
|
362,032
|
|
724,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
7,671
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
|
|
38,355
|
|
$
|
23.90
|
|
$
|
412,857
|
|
Dennis A. Mullahy (4)
|
|
N/A
|
|
42,750
|
|
237,500
|
|
475,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
7,671
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
|
|
38,355
|
|
$
|
23.90
|
|
$
|
422,289
|
|
Philo T. Pappas (4)
|
|
N/A
|
|
65,957
|
|
366,426
|
|
732,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
7,671
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
|
|
38,355
|
|
$
|
23.90
|
|
$
|
422,289
|
|
Charles M. Sonsteby (4)
|
|
N/A
|
|
97,908
|
|
543,933
|
|
1,087,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
12,552
|
|
|
|
|
|
|
|
|
|
|
|
9/14/2016
|
|
|
|
|
|
|
|
|
|
62,760
|
|
|
23.90
|
|
|
690,988
|
|
|
(1)
|
|
The threshold, target and maximum amounts in these columns show the range of payouts targeted for fiscal 2016 for performance under the 2016 Bonus Plan as discussed in further detail in “Compensation Discussion and Analysis – Compensation Elements – Annual Bonuses.” Bonuses were not paid for performance in fiscal 2016, as reflected in the Summary Compensation Table in the column entitled “Non‑Equity Incentive Plan Compensation.”
|
|
(2)
|
|
All grants of stock options have an exercise price equal to the closing price of our Common Stock on The NASDAQ Global Select Market, on the date of grant.
|
|
(3)
|
|
The amounts in this column represent the aggregate grant date fair value of the restricted stock and stock option awards as calculated in accordance with ASC 718.
|
|
(4)
|
|
Stock options and restricted stock units were granted effective September 14, 2016 vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of the applicable Named Executive Officer’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and the applicable award agreement for such Named Executive Officer). Each applicable Named Executive Officer will receive all dividends and distributions, if any, paid with respect to the shares of vested restricted stock or units he holds, but if any such dividends or distributions are paid in shares of our capital stock, such shares will be subject to the same restrictions on transferability and vesting conditions as are the shares of restricted stock with respect to which they were paid.
|
|
(5)
|
|
Stock options and restricted stock units were granted to Ms. Paulonis effective August 29, 2016 vesting at the rate of 25% per year on each of the first through fourth anniversaries of August 29, 2016, or immediately upon the termination of Ms. Paulonis’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and the applicable award agreement for Ms. Paulonis). Ms. Paulonis will receive all dividends and distributions, if any, paid with respect to the shares of vested restricted stock or units she holds, but if any such dividends or distributions are paid in shares of our capital stock, such shares will be subject to the same restrictions on transferability and vesting conditions as are the shares of restricted stock with respect to which they were paid.
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Employment Agreements with Certain
Named Executive Officers
Rubin employment agreement
We entered into an employment agreement with Mr. Rubin, our current Chairman and Chief Executive Officer, which became effective on March 18, 2013, the date he commenced employment. The agreement provides for an annual base salary of $1,100,000, subject to increase in the Board’s discretion. Mr. Rubin is eligible to earn an annual incentive bonus at a target of 100% of his annual base salary and a maximum bonus of 200% of his annual base salary, based on performance criteria established by the Board for each fiscal year during his employment. Mr. Rubin receives no additional compensation for his service as a director of the Company.
In connection with the commencement of his employment, Mr. Rubin was granted an option to purchase 1,845,000 shares of the Company’s Common Stock at an exercise price of $18.25 (which was adjusted to $13.86 in connection with the payment of a dividend to holders of our Common Stock in July 2013). The option will vest pro rata on each of the first five anniversaries of the date of grant. Mr. Rubin also was granted 334,288 restricted shares of the Company’s Common Stock that will vest pro rata on the first through fifth anniversaries of the date of grant.
For more information about the payments and benefits payable to Mr. Rubin upon a termination of his employment, please see “Executive Compensation – Potential Payments upon Termination or Change of Control” below.
Outstanding Equity Awards at Fiscal Year‑End 2016
The following table sets forth information regarding equity awards held by our Named Executive Officers as of January 28, 2017.
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Option Awards
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Stock Awards
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|
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|
|
|
|
|
|
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|
Value of
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|
|
Number of
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Number of
|
|
|
|
|
|
Number of
|
|
Shares or
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
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Units of
|
|
|
|
Underlying
|
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Underlying
|
|
Option
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|
|
|
Units of
|
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Stock That
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|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
Stock That
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Have Not
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Options (#)
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Options (#)
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|
Price
|
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Expiration
|
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Have Not
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Vested
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Name and Principal Position
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Exercisable
|
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Unexercisable
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($)(1)
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Date(2)
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Vested (#)
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($)(3)
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Carl S. Rubin (4)
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|
|
|
|
|
|
|
|
|
241,331
|
|
4,720,434
|
|
|
|
807,000
|
|
738,000
|
|
13.86
|
|
3/17/2021
|
|
|
|
|
|
|
|
63,131
|
|
189,394
|
|
23.10
|
|
9/29/2025
|
|
|
|
|
|
|
|
—
|
|
348,675
|
|
23.90
|
|
9/13/2026
|
|
|
|
|
|
Denise A. Paulonis (5)
|
|
|
|
|
|
|
|
|
|
23,910
|
|
467,680
|
|
|
|
33,700
|
|
33,700
|
|
22.75
|
|
12/8/2024
|
|
|
|
|
|
|
|
6,043
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|
18,127
|
|
23.10
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|
9/29/2025
|
|
|
|
|
|
|
|
—
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67,725
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24.61
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8/28/2026
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|
|
|
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Stephen J. Carlotti (6)
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|
|
|
|
|
|
|
|
|
37,019
|
|
724,092
|
|
|
|
76,975
|
|
116,975
|
|
16.03
|
|
6/15/2024
|
|
|
|
|
|
|
|
9,921
|
|
29,764
|
|
23.10
|
|
9/29/2025
|
|
|
|
|
|
|
|
—
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38,355
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23.90
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|
9/13/2026
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|
|
|
|
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Dennis A. Mullahy (7)
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|
|
|
|
|
|
|
|
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26,326
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514,937
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|
|
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80,367
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26,790
|
|
15.56
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1/21/2022
|
|
|
|
|
|
|
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12,368
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|
12,367
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|
15.16
|
|
8/11/2024
|
|
|
|
|
|
|
|
18,038
|
|
54,112
|
|
23.10
|
|
9/29/2025
|
|
|
|
|
|
|
|
—
|
|
38,355
|
|
23.90
|
|
9/13/2026
|
|
|
|
|
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Philo T. Pappas (8)
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|
|
|
|
|
|
|
|
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23,467
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|
459,015
|
|
|
|
56,953
|
|
18,987
|
|
13.90
|
|
7/2/2021
|
|
|
|
|
|
|
|
30,233
|
|
30,232
|
|
15.16
|
|
8/11/2024
|
|
|
|
|
|
|
|
9,921
|
|
29,764
|
|
23.10
|
|
9/29/2025
|
|
|
|
|
|
|
|
—
|
|
38,355
|
|
23.90
|
|
9/13/2026
|
|
|
|
|
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Charles M. Sonsteby (9)
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|
|
|
|
|
|
|
|
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38,341
|
|
749,950
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,566
|
|
—
|
|
6.55
|
|
1/4/2019
|
|
|
|
|
|
|
|
215,566
|
|
—
|
|
11.14
|
|
1/4/2019
|
|
|
|
|
|
|
|
92,322
|
|
30,776
|
|
13.90
|
|
7/2/2021
|
|
|
|
|
|
|
|
49,473
|
|
49,472
|
|
15.16
|
|
8/11/2024
|
|
|
|
|
|
|
|
16,234
|
|
48,701
|
|
23.10
|
|
9/29/2025
|
|
|
|
|
|
|
|
—
|
|
62,760
|
|
23.90
|
|
9/13/2026
|
|
|
|
|
|
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(1)
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All stock option awards granted prior to June 27, 2014, our first day of listing on The NASDAQ Global Select Market, have an exercise price determined by us to be equal to or greater than the fair market value of our Common
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Stock on the date of grant. Because prior to June 27, 2014, the Company was privately‑held and there was no public market for our Common Stock, the fair market value of our Common Stock was determined by our Board based on available information that was material to the value of our Common Stock at the time such determination was made, including any third‑party valuation reports, the principal amount of the Company’s indebtedness, the Company’s actual and projected financial results, and fluctuations in the market value of publicly traded companies in the retail industry. All stock option awards granted on or after June 27, 2014 have an exercise price equal to the closing price of our Common Stock on The NASDAQ Global Select Market on the date of grant.
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(2)
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All stock option awards granted prior to the approval of the Omnibus Plan by our stockholders on June 6, 2014, have an eight‑year term, and all stock option awards granted after the approval of the Omnibus Plan have a ten‑year term.
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(3)
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Market values reflect the closing price of our Common Stock on The NASDAQ Global Select Market on January 27, 2017 (the last business day of fiscal 2016), which was $19.56.
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(4)
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Stock options were granted to Mr. Rubin (i) effective March 18, 2013, vesting at the rate of 20% per year on each of the first through fifth anniversaries of March 18, 2013, or immediately upon a Change of Control (as defined in the Stockholders Agreement); (ii) effective September 30, 2015, vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Rubin’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Rubin’s stock option agreement) and (iii) effective September 14, 2016, vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Rubin’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Rubin’s stock option agreement). Mr. Rubin’s restricted stock awards with respect to 133,717 unvested shares of Common Stock vest 20% on each of the first through fifth anniversaries of March 18, 2013 or immediately upon a Change of Control (as defined in the Stockholders Agreement). Mr. Rubin’s restricted stock award with respect to 37,879 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Rubin’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Rubin’s restricted stock award agreement). Mr. Rubin’s restricted stock units award with respect to 69,735 unvested restricted stock units vests 25% on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Rubin’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Rubin’s restricted stock unit award agreement). Mr. Rubin will receive all dividends and distributions, if any, paid with respect to the shares of vested restricted stock or units he holds, but if any such dividends or distributions are paid in shares of our capital stock, such shares will be subject to the same restrictions on transferability and vesting conditions as are the shares of restricted stock with respect to which they were paid.
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(5)
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|
Stock options were granted to Ms. Paulonis (i) effective December 9, 2014, vesting at the rate of 25% per year on each of the first through fourth anniversaries of December 9, 2014, or immediately upon a Change of Control (as defined in the Stockholders Agreement); (ii) effective September 30, 2015, vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Ms. Paulonis’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Ms. Paulonis’s stock option agreement) and (iii) effective August 29, 2016, vesting at the rate of 25% per year on each of the first through fourth anniversaries of August 29, 2016, or immediately upon the termination of Ms. Paulonis’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Ms. Paulonis’s stock option agreement). Ms. Paulonis’s restricted stock awards with respect to 6,740 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of December 9, 2014, or immediately upon a Change of Control (as defined in the Stockholders Agreement). Ms. Paulonis’s restricted stock award with respect to 3,625 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Ms. Paulonis’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Ms. Paulonis’s restricted stock unit award agreement). Ms. Paulonis’s restricted stock units award with respect to 13,545 unvested restricted stock units vests 25% on each of the first through fourth anniversaries of August 29, 2016, or immediately upon the termination of Ms. Paulonis’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Ms. Paulonis’s restricted stock award agreement). Ms. Paulonis will receive all dividends and distributions, if any, paid with respect to the shares of vested restricted stock or units she holds, but if
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any such dividends or distributions are paid in shares of our capital stock, such shares will be subject to the same restrictions on transferability and vesting conditions as are the shares of restricted stock with respect to which they were paid.
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|
(6)
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|
Stock options were granted to Mr. Carlotti (i) effective June 16, 2014 vesting at the rate of 25% per year on each of the first through fourth anniversaries of June 16, 2014, or immediately upon the termination of Mr. Carlotti’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Carlotti’s stock option agreement); (ii) effective September 30, 2015 vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Carlotti’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Carlotti’s stock option agreement) and (iii) effective September 14, 2016, vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Carlotti’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Carlotti’s stock option agreement). Mr. Carlotti’s restricted stock award with respect to 23,395 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of June 16, 2014, or immediately upon the termination of Mr. Carlotti’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Carlotti’s restricted stock award agreement). Mr. Carlotti’s restricted stock award with respect to 5,953 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Carlotti’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Carlotti’s restricted stock award agreement). Mr. Carlotti’s restricted stock units award with respect to 7,671 unvested restricted stock units vests 25% on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Carlotti’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Carlotti’s restricted stock unit award agreement).Mr. Carlotti will receive all dividends and distributions, if any, paid with respect to the shares of vested restricted stock or units he holds, but if any such dividends or distributions are paid in shares of our capital stock, such shares will be subject to the same restrictions on transferability and vesting conditions as are the shares of restricted stock with respect to which they were paid.
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|
(7)
|
|
Stock options were granted to Mr. Mullahy: (i) effective January 22, 2014 vesting at the rate of 25% per year on each of the first through fourth anniversaries of January 22, 2014, or immediately upon a Change of Control (as defined in the Stockholders Agreement); (ii) effective August 12, 2014 vesting at the rate of 25% per year on each of the first through fourth anniversaries of August 12, 2014, or immediately upon the termination of Mr. Mullahy’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Mullahy’s stock option agreement); (iii) effective September 30, 2015 vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Mullahy’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Mullahy’s stock option agreement); and (iv) effective September 14, 2016 vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Mullahy’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Mullahy’s stock option agreement). Mr. Mullahy’s restricted stock award with respect to 5,360 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of January 22, 2014, or immediately upon a Change of Control. Mr. Mullahy’s restricted stock award with respect to 2,473 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of August 12, 2014, or immediately upon the termination of Mr. Mullahy’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Mullahy’s restricted stock award agreement). Mr. Mullahy’s restricted stock award with respect to 10,822 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Mullahy’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Mullahy’s restricted stock award agreement). Mr. Mullahy’s restricted stock unit award with respect to 7,671 unvested restricted stock units vests 25% on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Mullahy’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Mullahy’s restricted stock unit award agreement). Mr. Mullahy will receive all dividends and distributions, if any, paid with respect to the shares of vested restricted stock or units he holds, but if any such dividends or distributions are paid in shares of our capital
|
stock, such shares will be subject to the same restrictions on transferability and vesting conditions as are the shares of restricted stock with respect to which they were paid.
|
|
(8)
|
|
Stock options were granted to Mr. Pappas (i) effective July 3, 2013 vesting at the rate of 25% per year on each of the first through fourth anniversaries of July 3, 2013, or immediately upon a Change of Control (as defined in the Stockholders Agreement); (ii) effective August 12, 2014 vesting at the rate of 25% per year on each of the first through fourth anniversaries of August 12, 2014, or immediately upon the termination of Mr. Pappas’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Pappas’s stock option agreement); (iii) effective September 30, 2015 vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Pappas’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Pappas’s stock option agreement); and (iv) effective September 14, 2016 vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Pappas’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Pappas’s stock option agreement). Mr. Pappas’s restricted stock award with respect to 3,797 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of July 3, 2013, or immediately upon a Change of Control. Mr. Pappas’s restricted stock award with respect to 6,046 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of August 12, 2014, or immediately upon the termination of Mr. Pappas’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Pappas’s restricted stock award agreement). Mr. Pappas’s restricted stock award with respect to 5,953 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Pappas’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Pappas’s restricted stock award agreement). Mr. Pappas’s restricted stock units award with respect to 7,671 unvested restricted stock units vests 25% on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Pappas’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Pappas’s restricted stock unit award agreement). Mr. Pappas will receive all dividends and distributions, if any, paid with respect to the shares of vested restricted stock or units he holds, but if any such dividends or distributions are paid in shares of our capital stock, such shares will be subject to the same restrictions on transferability and vesting conditions as are the shares of restricted stock with respect to which they were paid.
|
|
(9)
|
|
Stock options were granted to Mr. Sonsteby: (i) effective January 5, 2011, vesting at the rate of 20% per year on each of the first through fifth anniversaries of October 4, 2010, or immediately upon a Change of Control (as defined in Stockholders Agreement); (ii) effective July 3, 2013 vesting at the rate of 25% per year on each of the first through fourth anniversaries of July 3, 2013, or immediately upon a Change of Control (as defined in the Stockholders Agreement); (iii) effective August 12, 2014 vesting at the rate of 25% per year on each of the first through fourth anniversaries of August 12, 2014, or immediately upon the termination of Mr. Sonsteby’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Sonsteby’s stock option agreement); (iv) effective September 30, 2015 vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Sonsteby’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Sonsteby’s stock option agreement) and (v) effective September 14, 2016, vesting at the rate of 25% per year on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Sonsteby’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Sonsteby’s stock option agreement). Mr. Sonsteby’s restricted stock award with respect to 6,155 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of July 3, 2013, or immediately upon a Change of Control. Mr. Sonsteby’s restricted stock award with respect to 9,894 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of August 12, 2014, or immediately upon the termination of Mr. Sonsteby’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Sonsteby’s restricted stock award agreement). Mr. Sonsteby’s restricted stock award with respect to 9,740 unvested shares of Common Stock vest 25% on each of the first through fourth anniversaries of September 30, 2015, or immediately upon the termination of Mr. Sonsteby’s employment without cause within 12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Sonsteby’s restricted stock award agreement). Mr. Sonsteby’s restricted stock unit award with respect to 12,552 unvested restricted stock units vests 25% on each of the first through fourth anniversaries of September 14, 2016, or immediately upon the termination of Mr. Sonsteby’s employment without cause within
|
12 months following a Change of Control (as defined in the Omnibus Plan and Mr. Sonsteby’s restricted stock unit award agreement). Mr. Sonsteby will receive all dividends and distributions, if any, paid with respect to the shares of vested restricted stock or units he holds, but if any such dividends or distributions are paid in shares of our capital stock, such shares will be subject to the same restrictions on transferability and vesting conditions as are the shares of restricted stock with respect to which they were paid.
|
Option Exercises and Stock Vested for Fiscal 2016
The following table shows the number of stock options exercised by our Named Executive Officers, and stock awards held by our Named Executive Officers that vested, during fiscal 2016.
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
|
Shares
|
|
|
|
Shares
|
|
Value
|
|
|
|
Acquired on
|
|
Value Realized
|
|
Acquired on
|
|
Realized on
|
|
|
|
Exercise
|
|
on Exercise
|
|
Vesting
|
|
Vesting
|
|
Name
|
|
(#)
|
|
($)(1)
|
|
(#)
|
|
($)
|
|
Carl S. Rubin
|
|
300,000
|
|
4,847,793
|
|
79,483
|
|
2,143,738
|
(2)
|
|
|
|
|
|
|
|
|
|
Denise A. Paulonis
|
|
—
|
|
—
|
|
4,579
|
|
108,518
|
(3)
|
|
|
|
|
|
|
|
|
|
Stephen J. Carlotti
|
|
40,000
|
|
518,800
|
|
13,681
|
|
361,082
|
(4)
|
|
|
|
|
|
|
|
|
|
Dennis A. Mullahy
|
|
—
|
|
—
|
|
10,202
|
|
234,551
|
(5)
|
|
|
|
|
|
|
|
|
|
Philo T. Pappas
|
|
232,775
|
|
4,063,984
|
|
77,685
|
|
1,876,031
|
(6)
|
|
|
|
|
|
|
|
|
|
Charles M. Sonsteby
|
|
185,566
|
|
3,862,757
|
|
14,350
|
|
374,345
|
(7)
|
|
(1)
|
|
Represents the stock price on The NASDAQ Global Select Market at exercise minus the option exercise price, multiplied by the number of shares acquired on exercise.
|
|
(2)
|
|
Represents the fair market value of the shares on the vesting dates, which was $27.50 with respect to 66,857 shares and $24.17 with respect to 12,626 shares, calculated as the closing stock price on The NASDAQ Global Select Market on the vesting dates or business day immediately following the vesting dates multiplied by the number of shares vesting. Mr. Rubin forfeited 28,032 restricted shares to cover his withholding tax obligations due upon vesting of restricted shares in fiscal 2016.
|
|
(3)
|
|
Represents the fair market value of the shares on the vesting dates, which was $23.53 with respect to 3,370 shares, and $24.17 with respect to 1,209 shares, calculated as the closing stock price on The NASDAQ Global Select Market on the vesting dates or business day immediately following the vesting dates multiplied by the number of shares vesting. Ms. Paulonis forfeited 1,324 restricted shares to cover her withholding tax obligations due upon vesting of restricted shares in fiscal 2016.
|
|
(4)
|
|
Represents the fair market value of the shares on the vesting dates, which was $26.77 with respect to 11,697 shares and $24.17 with respect to 1,984 shares, calculated as the closing stock price on The NASDAQ Global Select Market on the vesting dates or business day immediately following the vesting dates multiplied by the number of shares vesting. Mr. Carlotti forfeited 5,664 restricted shares to cover his withholding tax obligations due upon vesting of restricted shares in fiscal 2016.
|
|
(5)
|
|
Represents the fair market value of the shares on the vesting dates, which was $21.64 with respect to 5,357 shares, $25.40 with respect to 1,237 shares and $24.17 with respect to 3,608 shares, calculated as the closing stock price on The NASDAQ Global Select Market on the vesting dates or business day immediately following the vesting dates multiplied by the number of shares vesting. Mr. Mullahy forfeited 2,977 restricted shares to cover his withholding tax obligations due upon vesting of restricted shares in fiscal 2016.
|
|
(6)
|
|
Represents the fair market value of the shares on the vesting dates, which was $27.97 with respect to 24,600 shares, $27.65 with respect to 3,797 shares, $25.40 with respect to 3,024 shares, $24.17 with respect to 1,984 shares and $21.64 with respect to 44,280 shares, calculated as the closing stock price on The NASDAQ Global Select Market on the vesting dates or business day immediately following the vesting dates multiplied by the number of shares vesting. Mr. Pappas forfeited 24,458 restricted shares to cover his withholding tax obligations due upon vesting of restricted shares in fiscal 2016.
|
|
(7)
|
|
Represents the fair market value of the shares on the vesting dates, which was $27.65 with respect to 6,155 shares, $25.40 with respect to 4,948 shares and $24.17 with respect to 3,247 shares, calculated as the closing stock price on The NASDAQ Global Select Market on the vesting dates or business day immediately following the vesting dates multiplied by the number of shares vesting. Mr. Sonsteby forfeited 6,019 restricted shares to cover his withholding tax obligations due upon vesting of restricted shares in fiscal 2016.
|
Deferred Compensation Plan
During fiscal 2016, the Company established a nonqualified deferred compensation plan (the “Deferred Compensation Plan”) for the Named Executive Officers and other highly compensated team members. The Deferred Compensation Plan provides participants with the opportunity to defer up to 75% of their base salary and up to 100% of their annual bonus. Participants are 100% vested in these deferrals and any related investment returns. The Company does not currently make any matching cash contributions to the participant accounts. As of the end of fiscal 2016, none of the Named Executive Officers had contributed to the Deferred Compensation Plan.
Potential Payments upon Termination or Change of Control
Mr. Rubin is entitled under his employment agreement, effective March 18, 2013 (the “Rubin Agreement”), to certain benefits in the event of termination. Ms. Paulonis and Messrs. Carlotti, Mullahy, Pappas and Sonsteby participate in the OSPP (as described below), which provides for severance payments and benefits upon certain terminations of employment.
In addition, in the event of a Change of Control (as defined in the Omnibus Plan), the Omnibus Plan provides for a range of possible actions with respect to outstanding equity awards, including acceleration of vesting. In the event of a transaction that constitutes a Change of Control for awards granted prior to the adoption of the Omnibus Plan on June 6, 2014, each Named Executive Officer, would be entitled to acceleration of his equity awards. In the event of a transaction that constitutes a Change of Control for awards granted following the adoption of the Omnibus Plan on June 6, 2014, each Named Executive Officer, would be entitled to acceleration of his equity awards in the event of a subsequent termination of employment within twelve months following the Change of Control. In addition, our Named Executive Officers may also be entitled to accelerated vesting of their respective equity awards upon a termination of employment, depending on the specific circumstance as set forth below. The payments for which the Named Executive Officers are eligible under various circumstances related to a Change of Control or termination of employment are detailed below.
The Omnibus Plan defines a “Change of Control” as follows (1) whenever used in an Award granted prior to the date of adoption of the Omnibus Plan, a “Change of Control” as defined in Stockholders Agreement, and (2) in every other case, a “Change of Control” means the occurrence of any of the following: (i) any consolidation or merger of the Company with or into any other corporation or other Person, or any other corporate reorganization or transaction (including the acquisition of capital stock of the Company), whether or not the Company is a party thereto, in which the stockholders of the Company immediately prior to such consolidation, merger, reorganization or transaction, own capital stock either (A) representing directly, or indirectly through one or more entities, less than fifty percent (50%) of the economic interests in or voting power of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction or (B) that does not directly, or indirectly through one or more entities, have the power to elect a majority of the entire board of directors of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction; (ii) any stock sale or other transaction or series of related transactions, whether or not the Company is a party thereto, after giving effect to which in excess of fifty percent (50%) of the Company’s voting power is owned directly, or indirectly through one or more entities, by any Person and its “affiliates” or “associates” (as such terms are defined in the rules adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as in effect from time to time), other than the Sponsors and their respective
affiliated funds, excluding, in any case referred to in clause (i) or (ii) an initial public offering or any bona fide primary or secondary public offering following the occurrence of an initial public offering; or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company.
The Stockholders Agreement defines a “Change of Control” as the occurrence of any of the following: (i) any consolidation or merger of the Company with or into any other corporation or other person, or any other corporate reorganization or transaction (including the acquisition of capital stock of the Company), whether or not the Company is a party thereto, in which the stockholders of the Company immediately prior to such consolidation, merger, reorganization or transaction, own capital stock either (A) representing directly, or indirectly through one or more entities, less than fifty percent (50%) of the economic interests in or voting power of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction or (B) that does not directly, or indirectly through one or more entities, have the power to elect a majority of the entire Board of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction; (ii) any stock sale or other transaction or series of related transactions, whether or not the Company is a party thereto, after giving effect to which in excess of fifty percent (50%) of the Company’s voting power is owned directly, or indirectly through one or more entities, by any person and its affiliates or associates, other than the Sponsors and their affiliates and the affiliates of Highfields Capital Management LP, excluding, in any case, the Company’s initial public offering or any bona fide primary or secondary public offering following the occurrence of the initial public offering; or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company.
See “Proposal 2 – Approval of Proposed Plan” for additional information with respect to the Proposed Plan and potential payments upon a termination of employment or a change of control.
Rights and Potential Payments on Termination for Cause, Death, Disability and Voluntary Resignation
Cause.
Each of the Rubin Agreement and the OSPP provides that no payments or benefits are due to a Named Executive Officer in the event of a termination for cause except amounts accrued and payable to such executive through the termination date. Under the 2014 Omnibus Plan, all stock options (whether vested or unvested) will immediately terminate on a termination of employment for cause.
Death.
Each Named Executive Officer is provided a life insurance policy by the Company with a $1,000,000 benefit, which would be payable to the executive’s beneficiaries upon such executive’s death. The Rubin Agreement provides that his beneficiaries would be further entitled to an amount equal to his pro‑rated bonus for the year in which death occurs. Under the 2014 Omnibus Plan, the executive’s permitted transferee has the option within the one‑year period following the executive’s termination of employment (or through the option’s expiration date, if earlier) to exercise any in-the-money vested stock options held by the Named Executive Officer prior to his death. Assuming the executive’s death on January 28, 2017, the last day of our fiscal year, and that the executive’s permitted transferee exercised its option to exercise any vested stock options held by the Named Executive Officer at such time and to sell all of the shares owned by the Named Executive Officer, the estate of each Named Executive Officer would have realized, using a price of $19.56 per share of Common Stock, the closing price of our Common Stock on The NASDAQ Global Select Market on January 27, 2017 (the last business day of fiscal 2016), the following amounts for his or her shares (based on the spread of the fair market value of the Common Stock as of fiscal year end over the value of the applicable exercise prices for the in-the-money vested options): Carl S. Rubin, $4,598,456; Denise A. Paulonis, $0; Stephen J. Carlotti, $271,722; Dennis A. Mullahy, $376,244; Philo T. Pappas, $455,626 and Charles M. Sonsteby, $3,602,658.
Disability.
The Company provides each Named Executive Officer with an executive long‑term disability policy for the benefit of such executive, which would afford such executive a right to disability benefits after 90 days of the executive becoming disabled in the amount of 67% of monthly compensation up to $20,000 per month. This benefit generally continues until the disability is resolved or age 65. Under the Rubin Agreement, Mr. Rubin would be further entitled to an amount equal to his pro‑rated bonus for the year in which his termination due to disability occurs. During the one‑year period following the executive’s termination of employment due to disability (or through the option’s expiration date, if earlier), the executive may exercise any vested stock options held by him prior to his termination. Assuming the executive exercised his or her option to exercise any in-the-money vested stock options held by him or her at such time and to sell all of the shares owned by the Named Executive Officer upon disability on the last day of fiscal 2016, the Named Executive Officer would have received, using a price of $19.56 per share of Common Stock, the closing price of our Common Stock on The NASDAQ Global Select Market on January 27, 2017 (the last business day
of fiscal 2016), the following amounts for his or shares (based on the spread, if any, of the fair market value of the Common Stock as of fiscal year end over the value of the applicable exercise prices for the in-the-money vested options): Carl S. Rubin, $4,598,456; Denise A. Paulonis, $0; Stephen J. Carlotti, $271,722; Dennis A. Mullahy, $376,244; Philo T. Pappas, $455,626 and Charles M. Sonsteby, $3,602,658.
Voluntary resignation.
In the event of a voluntary resignation of any of the Named Executive Officers, there are no payments or benefits that continue beyond what is accrued and payable through the termination date. In the event of a voluntary resignation (as well as any termination for any reason other than a termination of employment for cause) in the case where the executive is (i) at or above age 65 or (ii) at or above age 55 with five years of service to the Company, any vested options held by him will remain exercisable for two years following such resignation (or through the option’s expiration date, if earlier). In the event, the preceding is not applicable, the executive may exercise any vested options held by him prior to his resignation for up to 60 days following termination (or through the option’s expiration date, if earlier).
Rights and Potential Payment upon a Change of Control or Termination without Cause or with Good Reason
Rubin Employment Agreement
Pursuant to the Rubin Agreement, if Mr. Rubin’s employment is terminated by the Company without cause or by Mr. Rubin for good reason, then, for the two‑year period following the date of termination, he would be entitled, subject to signing a release of claims, to receive a severance benefit equal to (i) his base salary at the annual rate in effect on the date of termination, (ii) the amount of his annual target bonus for the year of termination and (iii) continued medical and dental benefits at the Company’s expense. Mr. Rubin’s severance entitlements are also subject to his compliance with certain restrictive covenants, including non‑competition, non‑hire, and non‑solicitation obligations during, and for two years following his employment.
Pursuant to the Rubin Agreement, “cause” means the following events or conditions, as determined by the Board in its reasonable judgment: (i) the willful failure to perform (other than by reason of disability), or gross negligence in the performance of, his material duties and responsibilities to the Company or any of its Affiliates (as defined in the Rubin Agreement), or willful failure to follow or carry out any lawful and reasonable direction of the Board, and the continuance of such willful failure or gross negligence for a period of 25 days after written notice; (ii) the willful material breach of any provision of this Agreement or any other material agreement between Mr. Rubin and the Company or any of its Affiliates and the continuance of such material breach for a period of 25 days after delivery of written notice to the executive; (iii) fraud, embezzlement, theft or other dishonesty with respect to the Company or any of its Affiliates; (iv) the conviction of, or a plea of
nolo contendere
to, any felony or any other crime involving dishonesty or moral turpitude; and (v) any other conduct that involves a willful and material breach of fiduciary obligation.
The term “good reason” means any of the following, if occurring without Mr. Rubin’s consent or other than for tax or other regulatory reasons: (i) removal of Mr. Rubin from the position of Chief Executive Officer or director of the Company (or a successor corporation), or his removal from a director or officer position of an Immediate Affiliate (as defined in the Rubin Agreement); (ii) material diminution in the nature or scope of his responsibilities, duties or authority, including the appointment or election of a Board Chairman who is also an executive officer of the Company, other than Mr. Rubin, a change in his direct reporting to the full Board or a change in reporting relationships resulting from the direct or indirect control of the Company (or a successor corporation) by another corporation or other entity or resulting from an acquisition by a person or entity of at least 50% of the equity, property or other assets of the Company or any of its Affiliates; provided, however, that any material diminution of the business of the Company or any of its Affiliates shall not constitute “good reason”; (iii) the material failure of the Company to provide him the base salary and annual bonus opportunity in accordance with the terms of the Rubin Agreement; or (iv) relocation of Mr. Rubin’s office to an area outside of a 50‑mile radius from the Company’s current headquarters in Irving, Texas. To qualify as a termination for good reason under the Rubin Agreement, notice to the Company must have been given by Mr. Rubin and the Company must have failed to cure the good reason within 30 days of receiving notice.
In addition to the Rubin Agreement, Mr. Rubin entered into agreements providing for his restricted stock grants and his stock option grants. These agreements provide that in the event of a Change of Control (as defined in the
Stockholders Agreement and above under “ – Potential Payments upon Termination or Change of Control”), all of Mr. Rubin’s restricted stock and stock options will immediately vest.
The Rubin Agreement provides no change of control severance benefits.
Officer Severance Pay Plan
In April 2008, the Board approved the OSPP, which was amended in July 2008 and was further amended on May 20, 2014, December 9, 2014 and March 21, 2017. The OSPP was established by the Company to provide certain severance benefits, subject to the terms and conditions of the OSPP, to designated officers (those with a position of Vice President or above, or an equivalent title as approved by the Compensation Committee, and excluding the Chief Executive Officer) in the event that their employment is permanently terminated as a result of a “Qualifying Termination”. For purposes of the OSPP, an executive is subject to a “Qualifying Termination” if:
|
·
|
|
the executive is on active payroll or is on an approved leave of absence with a right to reinstatement at the time his or her employment terminates;
|
|
·
|
|
the executive’s employment is terminated by the Company other than for “Cause” (which includes a refusal or failure to perform, or material negligence in the performance of, the executive’s duties, a material breach of a material agreement between the executive and the Company, fraud, embezzlement, theft, other dishonesty, the conviction of or plea of guilty or
nolo contendere
to a crime involving dishonesty or moral turpitude, breach of a fiduciary duty to the Company or violation of Company policy that could expose the Company to liability or could damage the Company’s business or reputation) and other than a result of death or disability;
|
|
·
|
|
the executive is not offered and has not accepted other employment with (1) an affiliate of the Company, (2) a successor of the Company, or (3) a purchaser of some or all of the assets of the Company, in each case: (a) in a position which the executive is qualified to perform regardless of whether the executive is subject to, among other things, a new job title, different reporting relationships or a modification of the executive’s duties and responsibilities; (b) in a position that, when compared with the executive’s last position with the Company, provides a comparable base salary and bonus opportunity; and (c) where there is no change in the executive’s principal place of employment to a location more than 35 miles from the executive’s principal place of employment immediately prior to the Qualifying Termination; and
|
|
·
|
|
the executive continues employment until the termination date designated by the Company or such earlier date to which the Company agrees, and, during the period from the date the executive receives notice of termination until the termination date, the executive continues to perform to the reasonable satisfaction of the Company.
|
Executives subject to a Qualifying Termination are entitled to the following benefits:
|
·
|
|
severance pay, payable in accordance with the Company’s normal payroll practices, at the following levels: (i) for the position of Vice President with less than two years of service, six months of base salary continuation; (ii) for the position of Vice President with two or more years of service, twelve months of base salary continuation; (iii) for the position of Senior Vice President, Executive Vice President or President with less than two years of service, twelve months of base salary continuation; and (iv) for the position of Senior Vice President, Executive Vice President or President with two or more years of service, eighteen months of base salary continuation;
|
|
·
|
|
a pro‑rated earned annual bonus for the year of termination; and
|
|
·
|
|
cash welfare benefit payments to be paid at a rate equal to (i) the Company‑paid portion of the group medical and dental plan premiums in effect for the executive (and his/her spouse and dependents, as applicable) immediately prior to the termination date, as pro‑rated for each payroll period, multiplied by (ii) 130%.
|
In order to obtain severance benefits under the OSPP, an executive must first execute a severance agreement and release with the Company that includes a waiver and release of any and all claims against the Company and a commitment that, for the greater of twelve months or the severance period, the executive will not solicit or hire any associate or distributor or vendor of the Company or its subsidiaries and will not directly or indirectly compete with, or join an organization that directly or indirectly competes with, the Company. Additionally, an executive officer will not be eligible for benefits under the OSPP if he or she is eligible for severance pay or other termination benefits under any other severance pay plan or under any employment agreement or other agreement with the Company or any of its affiliates.
Estimated Equity Payments
Had a Change of Control occurred on the last day of fiscal 2016 and the employment of each Named Executive Officer was subsequently terminated by the Company without cause, each Named Executive Officer would have realized the following values for their in-the-money unvested options, including those with accelerated vesting, (based on the spread, if any, of $19.56 per share of Common Stock, the closing price of our Common Stock on The NASDAQ Global Select Market on January 27, 2017 (the last business day of fiscal 2016), over the value of the applicable exercise prices for the options): Carl S. Rubin, $4,205,280; Denise A. Paulonis, $0; Stephen J. Carlotti, $412,922; Dennis A. Mullahy, $161,694; Philo T. Pappas, $240,570; and Charles M. Sonsteby, $392,002. Each Named Executive Officer would additionally have realized the following values for their unvested restricted shares and restricted stock units, including those with accelerated vesting: Carl S. Rubin, $4,720,434; Denise A. Paulonis, $467,680; Stephen J. Carlotti, $724,092; Dennis A. Mullahy, $514,937; and Philo T. Pappas, $459,015; and Charles M. Sonsteby, $749,950.
Estimated Separation Payments
The table below reflects the amount of compensation payable in the event of (i) an involuntary termination without cause or resignation for good reason to Mr. Rubin under his employment agreement and (ii) a Qualifying Termination of each of the other Named Executive Officers, under the OSPP described above. The amounts shown in the table for the Named Executive Officers, assume that the executive’s termination was effective as of the last day of the fiscal year, January 28, 2017, and have been determined, where applicable, using a price of $19.56 per share of Common Stock, the closing price of our Common Stock on The NASDAQ Global Select Market on January 27, 2017
(the last business day of fiscal 2016). The actual amounts, or value, to be paid to these Named Executive Officers can only be determined at the time of such executive’s separation from the Company.
|
|
|
|
|
|
Executive Payments
|
|
|
|
and Benefits
|
|
|
|
upon Termination
|
|
|
|
Without Cause
|
|
|
|
or by Executive
|
|
|
|
with Good Reason ($)
|
|
Carl S. Rubin
|
|
|
|
Salary
|
|
2,404,000
|
|
Bonus
|
|
1,202,000
|
|
Welfare Benefits
|
|
35,409
|
(1)
|
Total
|
|
3,641,409
|
|
Denise A. Paulonis
|
|
|
|
Salary
|
|
750,000
|
|
Bonus
|
|
250,000
|
|
Welfare Benefits
|
|
8,853
|
(1)
|
Total
|
|
1,008,853
|
|
Stephen J. Carlotti
|
|
|
|
Salary
|
|
835,459
|
|
Bonus
|
|
362,032
|
|
Welfare Benefits
|
|
26,556
|
(1)
|
Total
|
|
1,224,047
|
|
Dennis A. Mullahy
|
|
|
|
Salary
|
|
712,500
|
|
Bonus
|
|
237,500
|
|
Welfare Benefits
|
|
26,556
|
(1)
|
Total
|
|
976,556
|
|
Philo T. Pappas
|
|
|
|
Salary
|
|
845,598
|
|
Bonus
|
|
366,426
|
|
Welfare Benefits
|
|
26,556
|
(1)
|
Total
|
|
1,238,580
|
|
Charles M. Sonsteby
|
|
|
|
Salary
|
|
1,165,572
|
|
Bonus
|
|
543,933
|
|
Welfare Benefits
|
|
17,529
|
|
Total
|
|
1,727,034
|
(1)
|
|
(1)
|
|
Represents the estimated value of the cash amount that would be payable to the executive in respect of post-termination medical and dental benefits, including related tax gross-ups, under Mr. Rubin’s employment agreement or the OSPP, as applicable.
|
AUDIT COMMITTEE MATTERS
Audit Committee Report
We operate in accordance with a written charter adopted by the Board and reviewed annually by the Committee. We are responsible for overseeing the quality and integrity of the Company’s accounting, auditing and financial reporting practices. In accordance with the rules of the SEC and NASDAQ, the Audit Committee is composed entirely of members who are independent, as defined by the listing standards of the NASDAQ and the Company’s Corporate Governance Guidelines. Further, the Board has determined that one of our members (Mr. Mahoney) is an audit committee financial expert as defined by the rules of the SEC.
The Audit Committee met seven times during fiscal 2016, including four meetings held with Michaels’ Chief Financial Officer, Chief Accounting Officer and Ernst & Young LLP (“E&Y”), the Company’s independent registered public accounting firm, prior to the public release of the Company’s quarterly earnings announcements in order to discuss the financial information contained in the announcements.
We took numerous actions to discharge our oversight responsibility with respect to the audit process. We received the written disclosures and the letter from E&Y required by applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) regarding E&Y’s communications with the Audit Committee concerning independence and discussed with E&Y its independence. We discussed Michaels’ internal control over financial reporting and the internal audit function’s organization, responsibilities, budget and staffing with management, the internal auditors and E&Y. We also reviewed with both E&Y and our internal auditors their audit plans, audit scope and identification of audit risks.
Furthermore, we discussed with E&Y communications required by the Standards of the PCAOB (United States), as described in PCAOB Auditing Standard No. 16, “Communications with Audit Committees,” and, with and without management present, reviewed and discussed the results of E&Y’s examination of Michaels’ financial statements. We also discussed the results of the internal audit examinations with and without management present.
Fees to Independent Registered Public Accounting Firm
The aggregate fees the Company paid for professional services rendered by E&Y for fiscal 2016 and fiscal 2015 were:
|
|
|
|
|
|
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
Audit
|
|
$
|
1,660,231
|
|
$
|
1,323,077
|
|
Audit-Related
|
|
|
46,840
|
|
|
41,300
|
|
Tax
|
|
|
52,401
|
|
|
260,920
|
|
All Other
|
|
|
2,200
|
|
|
2,200
|
|
Total
|
|
$
|
1,761,672
|
|
$
|
1,627,497
|
|
|
·
|
|
Audit fees were for professional services rendered for the audits of Michaels’ consolidated financial statements including financial statement schedules, reviews of interim financial statements, subsidiary audits, assistance with review of documents filed with the SEC (including those related to our secondary offerings), audit work related to our acquisition of Lamrite West and certain of its affiliates and subsidiaries.
|
|
·
|
|
Audit‑related fees were for services related to our employee benefit plans.
|
|
·
|
|
Tax fees were for services related to tax compliance and routine consulting, including assistance with tax audits and appeals and international projects.
|
We pre‑approve all audit services and all permitted non‑audit services by E&Y, including engagement fees and terms. We have delegated the authority to take such action between meetings to the Audit Committee chair, who reports the decisions made to the full Audit Committee at its next scheduled meeting.
Our policies prohibit the Company from engaging E&Y to provide any services relating to bookkeeping or other services related to accounting records or financial statements, financial information system design and implementation, appraisal or valuation services, fairness opinions or contribution‑in‑kind reports, actuarial services, internal audit outsourcing, any management function, legal services or expert services not related to the audit, broker‑dealer, investment adviser, or investment banking services or human resource consulting. In addition, we evaluate whether Michaels’ use of E&Y for permitted non‑audit services is compatible with maintaining E&Y’s independence. We concluded that E&Y’s provision of non‑audit services in fiscal 2016, which we approved in advance, was compatible with its independence.
We reviewed the audited financial statements of the Company as of January 28, 2017 with management and E&Y. Management has the responsibility for the preparation of Michaels’ financial statements, and E&Y has the responsibility for the audit of those statements.
Based on these reviews and discussions with management and E&Y, we resolved that Michaels’ audited financial statements be included in its Annual Report on Form 10‑K for the fiscal year ended January 28, 2017 for filing with the SEC. We also have selected E&Y as the independent registered public accounting firm for fiscal 2017.
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|
|
THE AUDIT COMMITTEE
|
|
|
|
John J. Mahoney, Chair
|
|
Monte E. Ford
Karen Kaplan
|
|
|
PROPOSAL
2
APPROVAL OF AMENDMENT AND RESTATEMENT OF MICHAELS 2014 OMNIBUS LONG-TERM INCENTIVE PLAN
In June 2014, stockholders approved the Michaels 2014 Omnibus Long-Term Incentive Plan (the “Omnibus Plan”). On April 10, 2017, the Board adopted, subject to stockholder approval, the amendment and restatement of the Omnibus Plan (such amendment and restatement, the “Proposed Plan”). Included in the Proposed Plan is an increase by 7,250,000 of the total number of shares that may be granted under the Proposed Plan and re-approval of the material terms of the performance goals for awards under the Proposed Plan that are intended to qualify for the performance-based compensation exemption under Section 162(m) of the Code.
Further, t
he Proposed Plan also amends the Omnibus Plan to better align with certain corporate governance principles and best practices, including the implementation of minimum vesting requirements, removal of certain share recycling provisions and prohibition of dividend equivalent accruals on certain awards. As a NASDAQ-listed company, we are required to seek the approval of our stockholders before increasing the number of shares available for issuance under an equity compensation plan. Further, stockholder approval is required for exemption under Section 162(m) with respect to performance-based compensation.
T
he purpose of any equity compensation plan of the Company is to assist in recruitment and retention of our executives, directors, and other team members, as well as to
align the long-term interests of our stockholders with management and our independent directors. Under the Omnibus Plan, there were, as of April 12, 2017:
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9,086,193 options outstanding with a weighted average exercise price of $19.12 and a weighted average term of 7.18 years;
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816,824 unvested restricted stock awards outstanding;
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1,661,798 unvested restricted stock units outstanding; and
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2,763,737 shares available for issuance (of the 21,303,765 shares authorized for grant or award).
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If we do not obtain stockholder approval of the Proposed Plan, we will eventually have insufficient shares remaining under the Omnibus Plan to continue to provide equity-based compensation to executives and independent directors. The Company may then need to consider using alternative forms of compensation in our compensation packages as recruitment and retention tools.
With the share increase, there
are 10,013,737 shares available for issuance (of the 28,553,765 shares authorized for grant or award) under the
Proposed Plan.
Although the Board has not determined the benefits or amounts that will be received by or allocated to any individuals under the Proposed Plan, we expect the number of shares under the Proposed Plan to be sufficient for award grants for the next three years, based on historical share usage.
Approval of the Proposed Plan will allow the Company to
continue to competitively recruit, retain, compensate and incentivize our executives, directors and other team members.
The Company will not grant any awards pursuant to the Proposed Plan prior to stockholder approval. Any awards granted by the Company prior to the Annual Meeting will be granted pursuant to the Omnibus Plan.
Stockholder re-approval of the performance goals under the Proposed Plan would preserve the Company’s ability to provide performance-based compensation under the Proposed Plan that is exempt from the deduction limitations under Section 162(m). Section 162(m) generally provides that compensation provided by a publicly held corporation to its “covered employees” (the corporation’s chief executive officer or any of its three most highly paid executive officers (other than its chief executive officer or chief financial officer)) is not deductible by the corporation for U.S. federal income tax purposes for any taxable year to the extent it exceeds $1 million. This limitation does not apply to compensation that qualifies as exempt performance-based compensation by meeting certain requirements under Section 162(m), including the requirement that the material terms of the related performance goals be disclosed to and approved by the corporation’s stockholders not less frequently than every five years. Under Section 162(m), the material terms include the class of eligible employees, a description of the business criteria on which the performance goals may be based and the maximum amount that can be paid to any participant for a specified period. These terms are described below for the Proposed Plan. The performance goals set forth in the Proposed Plan were last approved by our
stockholders at the Company’s 2015 Annual Meeting of Stockholders, and there have been no changes to the list of potential performance goals since that time.
We believe that it is in the Company’s and its stockholders’ best interests to approve the material terms of the performance goals under the Proposed Plan, as required for purposes of the performance-based compensation exemption, so that the Company is in a position to maximize corporate deductibility of the Company’s equity compensation to the extent that it is practicable to do so, permissible under Section 162(m), and the Compensation Committee has determined to seek such deduction under Section 162(m). Although stockholder approval is one of the requirements for exemption under Section 162(m), even with stockholder approval, there can be no guarantee that compensation will be treated as exempt performance-based compensation under Section 162(m). Furthermore, the Compensation Committee will continue to have authority to provide compensation that is not exempt from the limits on deductibility under Section 162(m).
It is the judgment of the Board that the approval of the Proposed Plan is in the best interests of the stockholders.
Description of the Proposed Plan
The Proposed Plan permits the grant of options, stock appreciation rights (“SARs”) restricted stock, restricted stock units and other stock-based awards. The following summary of the material features of the Proposed Plan is entirely qualified by reference to the full text of the Proposed Plan, approved by the Board on April 10, 2017, a copy of which is attached hereto as
Appendix A
.
Eligibility and Administration
The “Administrator” of the Proposed Plan is our Compensation Committee. The Compensation Committee may delegate, at its discretion, (i) its duties, powers and responsibilities to one or more of its members (or other members of the Board, including the full Board); (ii) the power to grant awards to the extent permitted by law to one or more officers of the Company; and (iii) certain ministerial tasks to employees or other persons. Key team members, directors and consultants and advisors to the Company and its affiliates may receive awards under the Proposed Plan. Eligibility for incentive stock options is limited to employees of Michaels or its subsidiaries. Eligibility for options other than incentive stock options is limited to individuals providing direct services to Michaels or its subsidiaries.
Effective Date and Expiration
On the condition that we obtain majority stockholder approval of the Proposed Plan at the Annual Meeting, the Proposed Plan will become effective on June 7, 2017. Unless earlier terminated by the Administrator, the Proposed Plan will terminate on May 20, 2024, the 10
th
anniversary of the adoption of the original 2014 Omnibus Long-Term Incentive Plan.
Stock Subject to the Proposed Plan; Share Recycling
As described above, there will be
28,553,765
shares authorized for grant or award under the
Proposed Plan.
The maximum number of shares of Common Stock with respect to which an individual may be granted awards under the Proposed Plan during any calendar year are: 5,000,000 shares underlying stock options; 5,000,000 shares underlying SARS; 5,000,000 shares underlying awards other than stock options SARs or cash awards; and $10,000,000 in cash awards.
Common Stock delivered by the Company under the Proposed Plan may be authorized but unissued Common Stock or previously issued Common Stock acquired by the Company. No fractional shares of Common Stock will be delivered under the Proposed Plan.
Certain share recycling provisions from the Omnibus Plan were excluded from the Proposed Plan. These provisions treated shares withheld by the Company from an award either (i) in payment of the exercise price or (ii) to satisfy tax withholding requirements as not being delivered under the Omnibus Plan.
Dividend Accrual
Under the Proposed Plan, dividends and dividend equivalents will not accrue on stock options or SARs. Dividends and dividend equivalents may accrue on equity awards other than stock options and SARs, but until such award vests, will not be paid by the Company and are subject to forfeiture.
Vesting
The Administrator determines the time or times at which an award will vest or become exercisable. Under the Proposed Plan, the Administrator may at any time accelerate the vesting or exercisability of an award, consistent with the Omnibus Plan. All awards under the Proposed Plan must require that the award be held by the grantee for a period of at least one year prior to vesting, exercisability, settlement, payment or distribution, as applicable. Five percent of the shares reserved for issuance under the Proposed Plan are exempt from this minimum vesting requirement. Under the current Omnibus Plan, minimum vesting is not required.
Taxes
The delivery, vesting and retention of stock, cash or other property under an award are conditioned upon full satisfaction by the individual of all tax withholding requirements with respect to the award. The Administrator may, but need not, hold back shares from an award or permit an individual to tender previously owned shares of stock in satisfaction of tax withholding requirements, not in excess of the minimum withholding required by law.
Covered Transactions
A Covered Transaction (as defined in the Proposed Plan) can include a merger of the Company, a sale of substantially all of the assets or outstanding Common Stock of the Company, or a dissolution or liquidation of the Company. In the event of a Covered Transaction, the Administrator may accelerate award vesting and exercisability, in full or in part, in each case on a basis that gives the holder of the award a reasonable opportunity, as determined by the Administrator, to participate as a stockholder in the Covered Transaction.
Awards under the Proposed Plan
Options
The Proposed Plan authorizes the grant of stock options, entitling the holder to acquire shares of Common Stock upon payment of the exercise price. In addition, the Proposed Plan authorizes the Administrator to grant stock options that are meant to be “incentive stock options” within the meaning of Section 422 of the Code. The exercise of an option permits the participant to purchase shares of Common Stock from Michaels at a specified exercise price per share. The exercise price granted under the Proposed Plan will be no less than the fair market value of the stock on the date of grant, except with respect to substitute awards granted in connection with certain corporate transactions involving the Company. Stock options have a maximum term of 10 years after the date of grant (or five years from the date of grant in the case of an incentive stock option granted to a ten-percent stockholder).
SARs
The Proposed Plan authorizes the grant of SARs, which are rights entitling the holder upon exercise to receive an amount (payable in cash or Common Stock of equal value) equal to the excess of the fair market value of the shares of Common Stock subject to the right over the base value from which appreciation under the SAR is to be measured. The base value granted under the Proposed Plan will be no less than the fair market value of the stock on the date of grant, except with respect to substitute awards granted in connection with certain corporate transactions involving the Company. SARs have a maximum term of 10 years after the date of grant (or five years from the date of grant in the case of an incentive stock option granted to a ten-percent stockholder).
Restricted Stock Awards
and Units
Restricted stock award grants under the Proposed Plan are subject to restrictions requiring that the restricted stock is redelivered or offered for sale to the Company if specified conditions are not satisfied, including performance or other vesting conditions. Holders of restricted stock have voting rights with respect to such restricted stock.
The Proposed Plan also authorizes the grant of Restricted Stock Units. Delivery of Common Stock or cash in lieu of the Restricted Stock Units is subject to the satisfaction of specified performance or other vesting conditions.
Performance Awards
The Proposed Plan authorizes the grant of performance awards, which are any award subject to performance criteria. Performance criteria include Performance Criteria (described below), other than the passing of time or continued employment with Michaels.
Other Awards
The Administrator may grant other forms of awards payable in cash or shares of Common Stock under the Proposed Plan. The terms and conditions of such other form of award shall be specified by the grant.
Performance Criteria
Awards under the Proposed Plan may be made subject to the attainment of an objectively determinable measure or measures of performance (“Performance Criteria”) relating to any or any combination of the following: sales; net sales; comparable store sales; sales by location or store type; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, and/or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; operating efficiencies; operating income; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; buyer contribution; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings. Any Performance Criteria may be measured by reference to an index or indices, or relative to a peer group, and determined either by reviewing the Company as a whole, or business line or subsidiary of the Company.
U.S. Federal Income Tax Consequences under the Proposed Plan
The following is a summary of some of the material U.S. federal income tax consequences associated with the grant and exercise of awards under the Proposed Plan under current U.S. federal tax laws and certain other tax considerations associated with awards under the Proposed Plan as of the date hereof. The summary does not address tax rates or non-U.S. or U.S. state or local tax consequences, nor does it address employment-tax or other U.S. federal tax consequences, except as noted.
ISOs.
In general, a participant realizes no taxable income upon the grant or exercise of an ISO. However, the exercise of an ISO may result in an alternative minimum tax liability to the participant. With some exceptions, a disposition of shares purchased under an ISO within two years from the date of grant or within one year after exercise produces ordinary income to the participant (and generally a tax deduction to the Company) equal to the value of the shares at the time of exercise less the exercise price. Any additional gain recognized in the disposition is treated as a capital gain for which the Company is not entitled to a deduction. If the participant does not dispose of the shares until after the expiration of these one- and two-year holding periods, generally any gain or loss recognized upon a subsequent sale is treated as a long-term capital gain or loss for which the Company is not entitled to a deduction.
NSOs.
In general, a participant has no taxable income upon the grant of an NSO but realizes taxable income in connection with exercise of the option in an amount equal to the excess (at time of exercise) of the fair market value of the shares acquired upon exercise over the exercise price. A corresponding tax deduction is generally available to the Company. Upon a subsequent sale or exchange of the shares, any recognized gain or loss is treated as a capital gain or
loss for which the Company is not entitled to a deduction.
SARs.
The grant of a SAR does not itself result in taxable income to a participant, nor does taxable income result merely because a SAR becomes exercisable. In general, a participant who exercises a SAR for shares of stock or receives payment in cancellation of a SAR will have ordinary income equal to the amount of any cash and the fair market value of any stock or other property received. A corresponding tax deduction is generally available to the Company at that time.
Restricted Stock.
A participant who is awarded or purchases shares subject to a substantial risk of forfeiture generally does not have taxable income until the risk of forfeiture lapses. When the risk of forfeiture lapses, the participant has ordinary income equal to the excess of the fair market value of the shares at that time over the purchase price, if any, and a corresponding tax deduction is generally available to the Company in the same year that the participant recognizes ordinary income. However, a participant may make an election under Section 83(b) of the Code (“83(b) election”) to be taxed on restricted stock when it is acquired rather than later, when the substantial risk of forfeiture lapses. A participant who makes an effective 83(b) election will realize ordinary income equal to the fair market value of the shares as of the time of acquisition less any price paid for the shares. A corresponding tax deduction will generally be available to the Company in the same year that the participant recognizes ordinary income. If a participant makes an effective 83(b) election, no additional income results by reason of the lapsing of the restrictions.
For purposes of determining capital gain or loss on a sale of shares awarded under the Proposed Plan, the holding period in the shares begins just after the participant recognizes taxable income with respect to the transfer. The participant’s tax basis in the shares equals the amount paid for the shares plus any income realized with respect to the transfer. However, if a participant makes an effective 83(b) election and later forfeits the shares, the tax loss realized as a result of the forfeiture is limited to the excess of what the participant paid for the shares (if anything) over the amount (if any) realized in connection with the forfeiture.
Unrestricted Stock.
A participant who purchases or is awarded unrestricted stock generally has ordinary income equal to the excess of the fair market value of the shares at the time of such purchase or award, as applicable, over the purchase price, if any, and a corresponding tax deduction is generally available to the Company in the same year that the participant recognizes ordinary income. A participant who purchases or is awarded restricted stock has income as described in the preceding paragraph.
Restricted Stock Units.
The grant of a restricted stock unit does not itself generally result in taxable income. Participants are generally taxed upon settlement (and a corresponding tax deduction is generally available to the Company) of a restricted stock unit, unless he or she has made a proper election to defer the receipt of the shares (or cash if the award is cash settled) under Section 409A of the Code. If the shares delivered are restricted for tax purposes, the participant will instead be subject to the rules described above for restricted stock.
Section 162(m).
Stock options, SARs and certain performance awards under the Proposed Plan are generally intended to be exempt or eligible for exemption from the deductibility limits of Section 162(m). However, the Committee will have discretionary authority to provide compensation that is not exempt from the limits on deductibility under Section 162(m).
Certain Change of Control Payments.
Under Section 280G of the Code, the vesting or accelerated exercisability of stock options or the vesting and payments of other awards in connection with a change of control of a corporation may be required to be valued and taken into account in determining whether participants have received compensatory payments, contingent on the change in control, in excess of certain limits. If these limits are exceeded, a substantial portion of amounts payable to the participant, including income recognized by reason of the grant, vesting or exercise of awards may be subject to an additional 20% federal tax and may be non-deductible to the Company.
Proposed Plan Benefits
The Compensation Committee has full discretion to determine the number and amount of awards to be granted to participants under the Proposed Plan, subject to certain annual limits described above and the other terms of the Proposed Plan. Therefore, future benefits or amounts that will be issued under the Proposed Plan are not determinable at this time.
Your Board of Directors unanimously recommends a vote FOR Proposal 2, Approval of Amendment and Restatement of Michaels 2014 Omnibus Plan.
PROPOSAL
3
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board of Directors has selected Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending February 3, 2018, and has directed that management submit the selection of that firm to the stockholders for ratification at the Annual Meeting. Representatives of E&Y are expected to attend the Annual Meeting, where they will have the opportunity to make a statement if they wish to do so and will be available to answer appropriate questions from the stockholders.
Stockholder ratification of the selection of E&Y as the Company’s independent registered public accounting firm is not required by the bylaws or otherwise. However, we are submitting the selection of E&Y to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain E&Y. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it is determined that such a change would be in the best interests of the Company and its stockholders.
For information concerning fees paid to E&Y during fiscal 2016 and fiscal 2015, see “Fees to Independent Registered Public Accounting Firm” above.
Your Board of Directors unanimously recommends a vote FOR Proposal 3, Ratification of Selection of Independent Registered Public Accounting Firm.
VOTING REQUIREMENTS AND PROXIE
S
The affirmative vote of the holders of a plurality of votes properly cast by the stockholders entitled to vote at the Annual Meeting is required for the election of directors. All other proposals require the approval by holders of a majority of votes properly cast by the stockholders entitled to vote at the Annual Meeting.
If you vote your shares by mail, telephone or Internet, your shares will be voted in accordance with your directions. If you do not indicate specific choices when you vote by mail, telephone or Internet, your shares will be voted for the election of the director nominees, the approval of the Proposed Plan and for the ratification of the appointment of the independent registered public accounting firm. The persons named as proxies will also be able to vote your shares at postponed or adjourned meetings. If any nominee should become unavailable, your shares will be voted for another nominee selected by the Board or for only the remaining nominees. If your shares are held in the name of a broker or nominee and you do not instruct the broker or nominee how to vote, brokers or nominees are not permitted to vote your shares on any matter other than Proposal 3 (Ratification of the Independent Registered Public Accounting Firm). With respect to the election of directors or the approval of the Proposed Plan, if you do not instruct the broker or nominee how to vote, or if you abstain or withhold authority to vote on any matter, your shares will not be counted as having been voted on that matter, but will be counted as in attendance at the meeting for purposes of a quorum.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
A stockholder who intends to present a proposal at the 2018 Annual Meeting of Stockholders and who wishes the proposal to be included in the proxy materials for that meeting must submit the proposal in writing to us so that it is received by our Corporate Secretary no later than December 25, 2017.
Written proposals may be mailed to us at The Michaels Companies, Inc., 8000 Bent Branch Drive, Irving, TX 75063 Attn: Corporate Secretary. A stockholder who intends to nominate a director or present any other proposal at the 2018 Annual Meeting of Stockholders but does not wish the proposal to be included in the proxy materials for that meeting must provide written notice of the nomination or proposal to us no earlier than February 7, 2018 and no later than March 9, 2018. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. Our bylaws, which are available at
http://investors.michaels.com
, describe the requirements for submitting proposals at the Annual Meeting. The notice must be given in the manner and must include the information and representations required by our bylaws.
OTHER MATTERS
At the time of mailing of this proxy, we do not know of any other matter that may come before the Annual Meeting and do not intend to present any other matter. However, if any other matters properly come before the meeting or any adjournment, the persons named as proxies will have discretionary authority to vote the shares represented by the proxies in accordance with their own judgment, including the authority to vote to adjourn the meeting.
We will bear the cost of solicitation of proxies. Our officers, directors and other team members may assist in soliciting proxies by mail, telephone and personal interview.
APPENDIX A
THE MICHAELS COMPANIES, INC.
SECOND
AMENDED AND RESTATED 2014 OMNIBUS LONG-TERM INCENTIVE PLAN
Exhibit A
, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms.
The Plan is an amendment and restatement of the 2006 Plan, effective as of the Date of Adoption with respect to Awards granted prior to, on or after such date, subject only to Section 9 of the 2006 Plan, and is further amended and restated effective as of the Second Restatement Date; provided, for the avoidance of doubt, that as to Stock Options granted prior to the Date of Adoption, no provision of this amendment and restatement shall have effect to the extent it would result (as determined by the Administrator) in a deemed new grant for purposes of Sections 409A or 422 of the Code. The Plan has been established to advance the interests of the Company by providing for the grant to Participants of Stock-based and other incentive Awards.
The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures relating to the Plan; and otherwise do all things necessary or appropriate to carry out the purposes of the Plan. Determinations of the Administrator made under the Plan will be conclusive and will bind all parties.
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4.
LIMITS ON AWARDS UNDER THE PLAN
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(a)
Number of Shares
.
The maximum number of shares of Stock that may be delivered in satisfaction of Awards under the Plan (including, for the avoidance of doubt, Awards granted prior to, on or after the Second Restatement Date) is 28,553,765. Up to the total number of shares available for Awards to employee Participants may be issued in satisfaction of ISOs, but nothing in this Section 4(a) will be construed as requiring that any, or any fixed number of, ISOs be awarded under the Plan. For purposes of this Section 4(a), the number of shares of Stock delivered in satisfaction of Awards will be determined by treating (i) as not having been delivered any shares of Stock underlying the portion of an Award that is settled in cash or the portion of any Award that expires, terminates or is forfeited prior to the issuance of Stock thereunder, and (ii) as having been delivered any shares of Stock withheld by the Company from any Award in payment of the exercise price of any Award requiring exercise or in satisfaction of the tax withholding requirements with respect to any Award.
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(b)
Type of Shares
.
Stock delivered by the Company under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company. No fractional shares of Stock will be delivered under the Plan.
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(c)
Section 162(m) Limits
.
The following additional limits will apply to Awards of the specified type granted, or in the case of Cash Awards payable, to any person in any calendar year:
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(1)
Stock Options: 5,000,000 shares of Stock.
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(2)
SARs: 5,000,000 shares of Stock.
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(3)
Awards other than Stock Options, SARs or Cash Awards: 5,000,000 shares of Stock.
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(4)
Cash Awards: $10,000,000.
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In applying the foregoing limits, (i) all Awards of the specified type granted to the same person in the same calendar year will be aggregated and made subject to one limit; (ii) the limits applicable to Stock Options and SARs refer to the number of shares of Stock subject to those Awards; (iii) the share limit under clause (3) refers to the maximum number of shares of Stock that may be delivered, or the value of which could be paid in cash or other property, under an Award or Awards of the type specified in clause (3) assuming a maximum payout; and (iv) the dollar limit under clause (4) refers to the maximum dollar amount payable under an Award or Awards of the type specified in clause (4) assuming a maximum payout. The foregoing provisions will be construed in a manner consistent with Section 162(m), including, without limitation, where applicable, the rules under Section 162(m) pertaining to permissible deferrals of exempt awards.
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(d)
Other Limitations
.
(i) No portion of any grant of Restricted Stock may be scheduled to vest prior to the date that is one year following the date the Restricted Stock is granted; (ii) no portion of any grant of a Stock Option or SAR may be scheduled to become exercisable prior to the date that is one year following the date the Stock Option or SAR is granted; (iii) no portion of any grant of a Restricted Stock Unit, Performance Award or Cash Award may be scheduled to vest or be settled, paid or distributed prior to the date that is one year following the date the applicable Restricted Stock Unit, Performance Award or Cash Award is granted; provided, however, that Awards that result in the issuance (as determined in accordance with the rules set forth in Section 4(a)) of an aggregate of up to five percent of the shares of Stock reserved for issuance under Section 4(a) may be granted to eligible persons without regard to the minimum vesting, exercisability, settlement, payment and distribution provisions of this Section 4(d).
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5.
ELIGIBILITY AND PARTICIPATION
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The Administrator will select Participants from among key Employees of, directors of, and consultants and advisors to, the Company and its Affiliates. Eligibility for ISOs is limited to individuals described in the first sentence of this Section 5 who are employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code. Eligibility for Stock Options other than ISOs is limited to individuals described in the first sentence of this Section 5 who are providing direct services on the date of grant of the Stock Option to the Company or to a subsidiary of the Company that would be described in the first sentence of Treas. Regs. §1.409A-1(b)(5)(iii)(E).
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6.
RULES APPLICABLE TO AWARDS
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(1)
Award Provisions
.
The Administrator will determine the terms of all Awards, subject to the terms and limitations provided herein. By accepting (or, under such rules as the Administrator may prescribe, being deemed to have accepted) an Award, the Participant will be deemed to have agreed to the terms of the Award and the Plan. Notwithstanding any provision of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator.
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(2)
Term of Plan
.
No Awards may be made after ten years from the Date of Adoption, but previously granted Awards may continue beyond that date in accordance with their terms.
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(3)
Transferability
.
Neither ISOs nor, except as the Administrator otherwise expressly provides in accordance with the second sentence of this Section 6(a)(3), other Awards may be transferred other than by will or by the laws of descent and distribution. During a Participant’s lifetime, ISOs (and, except as the Administrator otherwise expressly provides in accordance with the second sentence of this Section 6(a)(3), SARs and NSOs) may be exercised only by the Participant. The Administrator may permit the gratuitous transfer (
i.e.
, transfer not for value) of Awards other than ISOs to any transferee eligible to be covered by the provisions of Form S-8 (under the Securities Act of 1933), subject to such limitations and exceptions as the Administrator may impose.
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(4)
Vesting, etc
.
The Administrator will determine the time or times at which an Award will vest or become exercisable and the terms on which a Stock Option or SAR will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any
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adverse or potentially adverse tax or other consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply if a Participant’s Employment ceases:
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(A)
Immediately upon the cessation of the Participant’s Employment and except as provided in (B) and (C) below, each Stock Option and SAR that is then held by the Participant or by the Participant’s permitted transferees, if any, will cease to be exercisable and will terminate and all other Awards that are then held by the Participant or by the Participant’s permitted transferees, if any, to the extent not already vested will be forfeited.
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(B)
Subject to (C) and (D) below, all Stock Options and SARs held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of sixty (60) days or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.
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(C)
All Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the Participant’s death or Disability, to the extent then exercisable, will remain exercisable for the lesser of (i) the one-year period ending with the first anniversary of the Participant’s death or Disability, as the case may be, or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.
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(D)
All Stock Options and SARs (whether or not exercisable) held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation of Employment if the termination is for Cause or occurs in circumstances that in the sole determination of the Administrator would have constituted grounds for the Participant’s Employment to be terminated for Cause.
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(5)
Additional Restrictions
.
The Administrator may cancel, rescind, withhold or otherwise limit or restrict any Award at any time if the Participant is not in compliance with all applicable provisions of the Award agreement and the Plan, or if the Participant breaches any agreement with the Company or its Affiliates with respect to non-competition, non-solicitation or confidentiality. Without limiting the generality of the foregoing, the Administrator may recover Awards made under the Plan and payments under or gain in respect of any Award to the extent required to comply with Section 10D of the Securities Exchange Act of 1934, as amended, or any stock exchange or similar rule adopted under said Section.
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(6)
Taxes
.
The delivery, vesting and retention of Stock, cash or other property under an Award are conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the Award. The Administrator will prescribe such rules for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements (but not in excess of the minimum withholding required by law).
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(7)
Dividend Equivalents, Etc
.
The Administrator may provide for the payment of amounts (on terms and subject to conditions established by the Administrator) in lieu of cash dividends or other cash distributions with respect to Stock subject to an Award whether or not the holder of such Award is otherwise entitled to share in the actual dividend or distribution in respect of such Award;
provided, however
, that (A) dividends or dividend equivalents relating to an Award that, at the dividend payment date, remains unvested or otherwise subject to a risk of forfeiture (whether service-based or performance-based) shall be subject to the same risk of forfeiture as applies to the underlying Award, and (B) no dividends or dividend equivalents shall be payable with respect to Options or SARs. Any entitlement to dividend equivalents or similar entitlements will be established and administered either consistent with an exemption from, or in compliance with, the requirements of Section 409A.
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(8)
Rights Limited
.
Nothing in the Plan will be construed as giving any person the right to continued employment or service with the Company or its Affiliates, or any rights as a stockholder except as to shares of Stock actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of
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damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or any Affiliate to the Participant.
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(9)
Section 162(m)
.
In the case of any Performance Award (other than a Stock Option or SAR) intended to qualify for the performance-based compensation exception under Section 162(m), the Administrator will establish the applicable Performance Criterion or Criteria in writing no later than ninety (90) days after the commencement of the period of service to which the performance relates (or at such earlier time as is required to qualify the Award as performance-based under Section 162(m)) and, prior to the event or occurrence (grant, vesting or payment, as the case may be) that is conditioned on the attainment of such Performance Criterion or Criteria, will certify whether it or they have been attained. The preceding sentence will not apply to an Award eligible (as determined by the Administrator) for exemption from the limitations of Section 162(m) by reason of the post-initial public offering transition relief in Section 1.162-27(f) of the Treasury Regulations.
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(10)
Coordination with Other Plans
.
Awards under the Plan may be granted in tandem with, or in satisfaction of or substitution for, other Awards under the Plan or awards made under other compensatory plans or programs of the Company or its Affiliates. For example, but without limiting the generality of the foregoing, awards under other compensatory plans or programs of the Company or its Affiliates may be settled in Stock (including, without limitation, Unrestricted Stock) if the Administrator so determines, in which case the shares delivered will be treated as awarded under the Plan (and will reduce the number of shares thereafter available under the Plan in accordance with the rules set forth in Section 4). In any case where an award is made under another plan or program of the Company or its Affiliates and such award is intended to qualify for the performance-based compensation exception under Section 162(m), and such award is settled by the delivery of Stock or another Award under the Plan, the applicable Section 162(m) limitations under both the other plan or program and under the Plan will be applied to the Plan as necessary (as determined by the Administrator) to preserve the availability of the Section 162(m) performance-based compensation exception with respect thereto.
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(11)
Section 409A
.
Each Award will contain such terms as the Administrator determines, and will be construed and administered, such that the Award either qualifies for an exemption from the requirements of Section 409A or satisfies such requirements.
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(12)
Fair Market Value
.
In determining the fair market value of any share of Stock under the Plan, the Administrator will make the determination in good faith consistent with the rules of Section 422 and Section 409A to the extent applicable.
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(b)
Stock Options and SARs
.
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(1)
Time And Manner Of Exercise
.
Unless the Administrator expressly provides otherwise, no Stock Option or SAR will be deemed to have been exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator), which may be an electronic notice, signed (including electronic signature in form acceptable to the Administrator) by the appropriate person and accompanied by any payment required under the Award. A Stock Option or SAR exercised by any person other than the Participant will not be deemed to have been exercised until the Administrator has received such evidence as it may require that the person exercising the Award has the right to do so.
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(2)
Exercise Price
.
The exercise price (or the base value from which appreciation is to be measured) of each Award requiring exercise will be no less than 100% (or in the case of an ISO granted to a ten-percent shareholder within the meaning of subsection (b)(6) of Section 422, 110%) of the fair market value of the Stock subject to the Award, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with the grant. Except in connection with a corporate transaction involving the Company (which term shall include, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding Awards may not be amended to reduce the exercise prices of outstanding Stock Options or the base values from which appreciation under outstanding SARs are to be measured, nor may the Company cancel, exchange, substitute, buyout or surrender outstanding Stock Options or SARs in exchange for cash, Stock Options with an exercise price that is less than the exercise price of the original Stock Options, SARs with a base value that is less than the base value of the original SARs, or other Awards, other than in accordance with the stockholder approval requirements of The Nasdaq Global Select
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Market. Fair market value will be determined by the Administrator consistent with the applicable requirements of Section 422 and Section 409A.
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(3)
Payment Of Exercise Price
.
Where the exercise of an Award is to be accompanied by payment, payment of the exercise price will be by cash or check acceptable to the Administrator or by such other legally permissible means, if any, as may be acceptable to the Administrator.
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(4)
Maximum Term
.
Stock Options and SARs will have a maximum term not to exceed ten (10) years from the date of grant (or five (5) years from the date of grant in the case of an ISO granted to a ten-percent shareholder described in Section 6(b)(2) above); provided, however, that, if a Participant still holding an outstanding but unexercised NSO or SAR ten (10) years from the date of grant (or, in the case of an NSO or SAR with a maximum term of less than ten (10) years, such maximum term) is prohibited by applicable law or a written policy of the Company applicable to similarly situated employees from engaging in any open-market sales of Stock, and if at such time the Stock is publicly traded (as determined by the Administrator), the maximum term of such Award will instead be deemed to expire on the thirtieth (30
th
) day following the date the Participant is no longer prohibited from engaging in such open market sales.
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7.
EFFECT OF CERTAIN TRANSACTIONS
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(a)
Mergers,
etc
.
Except as otherwise provided in an Award agreement, the following provisions will apply in the event of a Covered Transaction:
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(1)
Assumption or Substitution
.
If the Covered Transaction is one in which there is an acquiring or surviving entity, the Administrator may (but, for the avoidance of doubt, need not) provide (i) for the assumption or continuation of some or all outstanding Awards or any portion thereof or (ii) for the grant of new awards in substitution therefor by the acquirer or survivor or an affiliate of the acquirer or survivor.
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(2)
Cash-Out of Awards
.
Subject to Section 7(a)(5) below the Administrator may (but, for the avoidance of doubt, need not) provide for payment (a “cash-out”), with respect to some or all Awards or any portion thereof, equal in the case of each affected Award or portion thereof to the excess, if any, of (A) the fair market value of one share of Stock (as determined by the Administrator in its reasonable discretion) times the number of shares of Stock subject to the Award or such portion, over (B) the aggregate exercise or purchase price, if any, under the Award or such portion (in the case of an SAR, the aggregate base value above which appreciation is measured), in each case on such payment terms (which need not be the same as the terms of payment to holders of Stock) and other terms, and subject to such conditions, as the Administrator determines.
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(3)
Acceleration of Certain Awards
.
Subject to Section 7(a)(5) below, the Administrator may (but, for the avoidance of doubt, need not) provide that any Award requiring exercise will become exercisable, in full or in part and/or that the delivery of any shares of Stock remaining deliverable under any outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards to the extent consisting of Stock Units) will be accelerated in full or in part, in each case on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the delivery of the shares, as the case may be, to participate as a stockholder in the Covered Transaction.
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(4)
Termination of Awards Upon Consummation of Covered Transaction
.
Except as the Administrator may otherwise determine in any case, each Award will automatically terminate (and in the case of outstanding shares of Restricted Stock, will automatically be forfeited) upon consummation of the Covered Transaction, other than Awards assumed pursuant to Section 7(a)(1) above.
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(5)
Additional Limitations
.
Any share of Stock and any cash or other property delivered pursuant to Section 7(a)(2) or Section 7(a)(3) above with respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the Award was subject and that did not lapse (and were not satisfied) in connection with the Covered Transaction. For purposes of the immediately preceding sentence, a cash-out under Section 7(a)(2) above or acceleration under Section 7(a)(3) above will not, in and of itself, be treated as the lapsing (or satisfaction) of a performance or other vesting condition. In the case of Restricted Stock that does not vest and is not forfeited in
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connection with the Covered Transaction, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.
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(b)
Changes in and Distributions With Respect to Stock
.
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(1)
Basic Adjustment Provisions
.
In the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure that constitutes an equity restructuring within the meaning of FASB ASC 718, the Administrator will make appropriate adjustments to the maximum number of shares specified in Section 4(a) that may be delivered under the Plan and to the maximum share limits described in Section 4(c), and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change.
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(2)
Certain Other Adjustments
.
The Administrator may also make adjustments of the type described in Section 7(b)(1) above to take into account distributions to stockholders other than those provided for in Section 7(a) and 7(b)(1), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan, having due regard for the qualification of ISOs under Section 422, the requirements of Section 409A, and for the performance-based compensation rules of Section 162(m), where applicable.
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(3)
Continuing Application of Plan Terms
.
References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 7.
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8.
LEGAL CONDITIONS ON DELIVERY OF STOCK
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The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved; (ii) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have been satisfied or waived. The Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of the Securities Act of 1933 or any applicable state or non-U.S. securities law. Any Stock required to be issued to Participants under the Plan will be evidenced in such manner as the Administrator may deem appropriate, including book-entry registration or delivery of stock certificates. In the event that the Administrator determines that Stock certificates will be issued to Participants under the Plan, the Administrator may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions.
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9.
AMENDMENT AND TERMINATION
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The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided, that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect materially and adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time the Award was granted. Any amendments to the Plan will be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange requirements), as determined by the Administrator.
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10.
OTHER COMPENSATION ARRANGEMENTS
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The existence of the Plan or the grant of any Award will not in any way affect the Company’s right to Award a person bonuses or other compensation in addition to Awards under the Plan.
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(a)
Arbitration
.
The Company agrees, and each Participant agrees as a condition to accepting an Award hereunder, to attempt in good faith to resolve any controversy or claim arising out of or relating to this Plan or any Award hereunder promptly by negotiations between themselves or their representatives who have authority to settle the controversy. If the matter has not been resolved within sixty (60) days of the initiation of such procedure, the applicable Participant or the Company may require that the matter be submitted to final and binding arbitration under the Employment Arbitration Rules and Mediation Procedures of American Arbitration Association (the “AAA”). The arbitration shall be held before a single arbitrator mutually agreed upon by the Parties, and if no agreement can be reached within thirty (30) days after names of potential arbitrators have been proposed by the AAA, then before a single arbitrator having reasonable experience in corporate incentive plans of the type provided for in this Plan and who is chosen by the AAA. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1, et seq. (the “FAA”), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Any award of the arbitrator shall be final and binding upon such Parties (subject only to judicial review of the award under and in accordance with the FAA). The place of arbitration shall be Dallas, Texas, or any other location mutually agreed to between the applicable Parties. The arbitrator shall state, in writing, the reasoning on which the award rests. Arbitration under this paragraph shall be the sole and exclusive remedy for any disputes arising out of relating to this Plan or any Award hereunder; provided, however, that this paragraph shall not preclude any Party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary or permanent injunction with respect to the enforcement of obligations of non-competition, non-solicitation, confidentiality and/or similar restrictions. As a condition to accepting an Award hereunder, each Participant expressly waives any rights he or she may have to bring any claim arising out of or relating to this Plan or any Award hereunder to arbitration on a class or collective basis and agrees that an arbitrator will not have the authority to consolidate any such claims in a single proceeding.
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(b)
Limitation of Liability
.
Notwithstanding anything to the contrary in the Plan, neither the Company, nor any Affiliate, nor the Administrator, nor any person acting on behalf of the Company, any Affiliate, or the Administrator, will be liable to any Participant or to the estate or beneficiary of any Participant or to any other holder of an Award by reason of any acceleration of income, or any additional tax (including any interest and penalties), asserted by reason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A or by reason of Section 4999 of the Code, or otherwise asserted with respect to the Award; provided, that nothing in this Section 11(c) will limit the ability of the Administrator or the Company, in its discretion, to provide by separate express written agreement with a Participant for any payment in connection with any such acceleration of income or additional tax.
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12.
ESTABLISHMENT OF SUB-PLANS
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The Administrator may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Administrator will establish such sub-plans by adopting supplements to the Plan setting forth (i) such limitations on the Administrator’s discretion under the Plan as it deems necessary or desirable and (ii) such additional terms and conditions not otherwise inconsistent with the Plan as it deems necessary or desirable. All supplements so established will be deemed to be part of the Plan, but each supplement will apply only to Participants within the affected jurisdiction (as determined by the Administrator).
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(a)
Certain Requirements of Corporate Law
.
Awards will be granted and administered consistent with the requirements of applicable Delaware law relating to the issuance of stock and the consideration to be received therefor, and with the applicable requirements of the stock exchanges or other trading systems on which the Stock is listed or entered for trading, in each case as determined by the Administrator.
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(b)
Other Matters
.
Except as otherwise provided by the express terms of an Award agreement, under a sub-plan described in Section 12 or as provided in Section 13(a) above, the provisions of the Plan and of Awards under the Plan and all claims or disputes arising out of our based upon the Plan or any Award under the Plan or relating to the subject matter hereof or thereof will be governed by and construed in accordance with the domestic substantive laws of the State of Texas without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.
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(c)
Jurisdiction
.
By accepting an Award, each Participant will be deemed to (a) have submitted irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the geographic boundaries of the United States District Court for the Northern District of Texas for the purpose of any suit, action or other proceeding arising out of or based upon the Plan or any Award; (b) agree not to commence any suit, action or other proceeding arising out of or based upon the Plan or an Award, except in the federal and state courts located within the geographic boundaries of the United States District Court for the Northern District of Texas; and (c) waive, and agree not to assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or an Award or the subject matter thereof may not be enforced in or by such court.
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EXHIBIT A
Definition of Terms
The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:
“2006 Plan”:
The Plan (formerly known as The Michaels Stores, Inc. 2006 Equity Incentive Plan and later renamed The Michaels Companies, Inc. Equity Incentive Plan) as in effect from time to time prior to the Date of Adoption.
“Administrator”:
The Compensation Committee, except that the Compensation Committee may delegate (i) to one or more of its members (or one or more other members of the Board (including the full Board)) such of its duties, powers and responsibilities as it may determine; (ii) to one or more officers of the Company the power to grant Awards to the extent permitted by Section 157(c) of the Delaware General Corporation Law; and (iii) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate. In the event of any delegation described in the preceding sentence, the term “Administrator” will include the person or persons so delegated to the extent of such delegation.
“Affiliate”:
Any corporation or other entity that stands in a relationship to the Company that would result in the Company and such corporation or other entity being treated as one employer under Section 414(b) and Section 414(c) of the Code.
“Award”:
Any or a combination of the following:
(i) Stock Options.
(ii) SARs.
(iii) Restricted Stock.
(iv) Unrestricted Stock.
(v) Stock Units, including Restricted Stock Units.
(vi) Performance Awards.
(vii) Cash Awards.
(viii) Awards (other than Awards described in (i) through (vii) above) that are convertible into or otherwise based on Stock.
“Board”:
The Board of Directors of the Company.
“Cash Award”:
An Award denominated in cash.
“Cause”:
With respect to any Participant, the following events or conditions, as determined by the Administrator in its reasonable judgment: (i) the refusal or failure to perform (other than by reason of disability), or material negligence in the performance of such Participant’s duties and responsibilities to the Company or any of its Affiliates, or refusal or failure to follow or carry out any reasonable direction of the Board, and the continuance of such refusal, failure or negligence for a period of 10 days after written notice delivered by the Company to such Participant that specifically identifies the manner in which the Participant has refused or failed to perform, or been negligent in performing, his or her duties; (ii) the material breach by such Participant of any provision of any material agreement between such Participant and the Company or any of its Affiliates; (iii) fraud, embezzlement, theft or other dishonesty by such Participant with respect to the Company or any of its Affiliates; (iv) the conviction of, or a plea of nolo
contendere by, such Participant to any felony or any other crime involving dishonesty or moral turpitude; and (v) any other conduct that involves a breach of fiduciary duty to the Company on the part of such Participant.
“Change of Control”:
(i) Whenever used in an Award granted prior to the Date of Adoption, a “Change of Control” as defined in the Amended and Restated Stockholders Agreement among Michaels Stores, Inc. and Certain Stockholders of Michaels Stores, Inc., originally dated as of October 31, 2006 and as amended from time to time and in effect (unless otherwise defined in the documentation specifying the terms of such Award, in which case such other definition shall control), and (ii) in every other case, a “Change of Control” as defined in the relevant Award documentation.
“Code”:
The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect.
“Compensation Committee”:
The Compensation Committee of the Board.
“Company”:
The Michaels Companies, Inc.
“Covered Transaction”:
Any of (i) a consolidation, merger, or similar transaction or series of related transactions, including a sale or other disposition of stock, in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then outstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially all the Company’s assets, or (iii) a dissolution or liquidation of the Company. Where a Covered Transaction involves a tender offer that is reasonably expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction will be deemed to have occurred upon consummation of the tender offer.
“Date of Adoption”:
May 20, 2014
“Disability”:
In the case of any Participant who is a party to an employment or severance-benefit agreement that contains a definition of “Disability,” (or words with similar or correlative meanings) the definition set forth in such agreement will apply with respect to such Participant under the Plan. In the case of any other Participant, “Disability” will mean a disability that would entitle a Participant to long-term disability benefits under the Company’s long-term disability plan to which the Participant participates. Notwithstanding the foregoing, in any case in which a benefit that constitutes or includes “nonqualified deferred compensation” subject to Section 409A would be payable by reason of Disability, the term “Disability” will mean a disability described in Treas. Regs. Section 1.409A-3(i)(4)(i)(A).
“Employee”:
Any person who is employed by the Company or an Affiliate.
“Employment”:
A Participant’s employment or other service relationship with the Company and its Affiliates. Employment will be deemed to continue, unless the Administrator expressly provides otherwise, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 5 to the Company or an Affiliate. If a Participant’s employment or other service relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant’s Employment will be deemed to have terminated when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates. Notwithstanding the foregoing and the definition of “Affiliate” above, in construing the provisions of any Award relating to the payment of “nonqualified deferred compensation” (subject to Section 409A) upon a termination or cessation of Employment, references to termination or cessation of employment, separation from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations. The Company may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining whether a “separation from service” has occurred. Any such written election will be deemed a part of the Plan.
“ISO”:
A Stock Option intended to be an “incentive stock option” within the meaning of Section 422. Each Stock Option granted pursuant to the Plan will be treated as providing by its terms that it is to be an NSO unless, as of the date of grant, it is expressly designated as an ISO.
“NSO”:
A Stock Option that is not intended to be an “incentive stock option” within the meaning of Section 422.
“Participant”:
A person who is granted an Award under the Plan.
“Performance Award”:
An Award subject to Performance Criteria. The Administrator in its discretion may grant Performance Awards that are intended to qualify for the performance-based compensation exception under Section 162(m) and Performance Awards that are not intended so to qualify.
“Performance Criteria”:
Specified criteria, other than the mere continuation of Employment or the mere passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting, payment or full enjoyment of an Award. For purposes of Awards that are intended to qualify for the performance-based compensation exception under Section 162(m), a Performance Criterion will mean an objectively determinable measure or objectively determinable measures of performance relating to any or any combination of the following (measured absolutely, by reference to an index or indices, or relative to a peer group, and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; net sales; comparable store sales; sales by location or store type; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, and/or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; operating efficiencies; operating income; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; buyer contribution; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings. A Performance Criterion and any targets with respect thereto determined by the Administrator need not be based upon an increase, a positive or improved result or avoidance of loss. To the extent consistent with the requirements for satisfying the performance-based compensation exception under Section 162(m), the Administrator may provide in the case of any Award intended to qualify for such exception that one or more of the Performance Criteria applicable to such Award will be adjusted in an objectively determinable manner to reflect events (for example, but without limitation, acquisitions or dispositions) occurring during the performance period that affect the applicable Performance Criterion or Criteria.
“Plan”:
The Michaels Companies, Inc. 2014 Omnibus Long-Term Incentive Plan as from time to time amended and in effect.
“Restricted Stock”:
Stock subject to restrictions requiring that it be redelivered or offered for sale to the Company if specified conditions are not satisfied.
“Restricted Stock Unit”:
A Stock Unit that is, or as to which the delivery of Stock or cash in lieu of Stock is, subject to the satisfaction of specified performance or other vesting conditions.
“SAR”:
A right entitling the holder upon exercise to receive an amount (payable in cash or in shares of Stock of equivalent value) equal to the excess of the fair market value of the shares of Stock subject to the right over the base value from which appreciation under the SAR is to be measured.
“Second Restatement Date”:
June 7, 2017.
“Section 409A”:
Section 409A of the Code.
“Section 422”:
Section 422 of the Code.
“Section 162(m)”:
Section 162(m) of the Code.
“Stock”:
Common stock of the Company, par value $0.10 per share.
“Stock Option”:
An option entitling the holder to acquire shares of Stock upon payment of the exercise price.
“Stock Unit”:
An unfunded and unsecured promise, denominated in shares of Stock, to deliver Stock or cash measured by the value of Stock in the future.
“Unrestricted Stock”:
Stock not subject to any restrictions under the terms of the Award.
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MMMMMMMMMMMM . Admission Ticket MMMMMMMMMMMMMMM C123456789 000004 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext ENDORSEMENT_LINE______________ SACKPACK_____________ Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Central Time, on June 6, 2017. MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 Vote by Internet • Go to www.envisionreports.com/MIK • Or scan the QR code with your smartphone • Follow the steps outlined on the secure website Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone • Follow the instructions provided by the recorded message Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proposals — The Board of Directors recommends that you vote FOR the following proposals: 1. Election of Directors: 01 - Joshua Bekenstein 04 - Lewis S. Klessel 07 - James A. Quella 10 - Peter F. Wallace 02 - Monte E. Ford 05 - Matthew S. Levin 08 - Beryl B. Raff 03 - Karen Kaplan 06 - John J. Mahoney 09 - Carl S. Rubin + Mark here to vote FOR all nominees Mark here to WITHHOLD vote from all nominees For All EXCEPT - To withhold authority to vote for any nominee(s), write the name(s) of such nominee(s) below. For Against Abstain 2. To approve the amendment and restatement of Michaels 2014 Omnibus Long-Term Incentive Plan, an increase of the shares of common stock available for award under the Plan, and the material terms of the performance goals under the Plan, pursuant to the performance-based compensation exemption requirements of Section 162(m) of the Internal Revenue Code of 1986. 3. To ratify the appointment of Ernst & Young LLP as The Michaels Companies, Inc. independent registered public accounting firm for the current fiscal year ending February 3, 2018. For Against Abstain NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. MMMMMMMC 1234567890 IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. J N T MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND + 1 U P X3 2 7 5 0 0 1 02KD8C MMMMMMMMM B A Annual Meeting Proxy Card1234 5678 9012 345 X IMPORTANT ANNUAL MEETING INFORMATION
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. DIRECTIONS TO THE ANNUAL MEETING The Michaels Companies, Inc. Support Center 8000 Bent Branch Dr. Irving, TX 75063 To attend the Annual Meeting, you must demonstrate that you were a Michaels stockholder as of the close of business on April 12, 2017, or hold a valid proxy for the Annual Meeting from such a stockholder. If you are not a stockholder of record but hold shares through a broker, trustee or nominee, you will need to bring proof of your beneficial ownership as of April 12, 2017, such as a brokerage account statement showing your ownership on that date or similar evidence of such ownership. All stockholders must also present a valid form of government-issued picture identification in order to attend. Please allow additional time for these procedures. From Dallas-Fort Worth International Airport (from the West) • • • • Take the north exit out of the airport. Take the TX-114E exit toward Irving/Downtown Dallas and merge onto TX-114E. Take the Belt Line Road exit and turn left onto N. Belt Line Road. Turn right onto Bent Branch Drive and the Michaels Support Center will be on the right. From the East • • • • Drive West on IH-635. Take the President George Bush Turnpike S exit and merge onto President George Bush Turnpike. Take the DFW Airport/Royal Lane/TX-114 exit and immediately turn right onto Royal Lane. Turn right onto Bent Branch Drive and the Michaels Support Center will be on the right. From the South • • • • • Drive North on I-35E N/ Stemmons Freeway. Keep left at the fork to continue to TX-183W and follow signs for TX-183/TX-114/Irving/DFW Airport. Keep right at the fork to continue on TX-114W and merge onto TX 114W. Take the Belt Line Road exit and turn right onto N. Belt Line Road. Turn right onto Bent Branch Drive and the Michaels Support Center will be on the right. From the North • • • Drive South on President George Bush Turnpike . Take the DFW Airport/Royal Lane/TX-114 exit and immediately turn right onto Royal Lane. Turn right onto Bent Branch Drive and the Michaels Support Center will be on the right. Building Entrance and Parking Michaels Support Center is located at 8000 Bent Branch Drive in Irving, TX 75063. We are in a two story red brick building with the “Michaels” sign located at the main entrance to our facility. The Shareholder meeting will be held in the Michaels Auditorium located inside the building near the intersection of Mesquite Bend Blvd and Bent Branch Drive. Parking will be available at the entrance closest to the Michaels Auditorium. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q PROXY — THE MICHAELS COMPANIES, INC. + Notice of 2017 Annual Meeting of Stockholders The Michaels Companies, Inc. Support Center, 8000 Bent Branch Drive, Irving, TX 75063 Proxy Solicited by the Board of Directors for Annual Meeting — June 7, 2017 Carl S. Rubin, Denise A. Paulonis and Michael J. Veitenheimer, or any of them, each with the power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Annual Meeting of Stockholders of The Michaels Companies, Inc. to be held on June 7, 2017 or at any postponement or adjournment thereof. Shares represented by this proxy will be voted by the stockholder. If no such directions are indicated, the Proxies will have authority to vote FOR THE ELECTION OF ALL DIRECTOR NOMINEES AND FOR PROPOSALS 2 AND 3. The proxies are authorized to vote upon such other business as may properly come before the meeting and any adjournment or postponement. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. (Items to be voted appear on reverse side.) Non-Voting Items Change of Address — Please print your new address below. Comments — Please print your comments below. Meeting Attendance Mark the box to the right if you plan to attend the Annual Meeting. + IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. C
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