UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1)

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 1, 2020 (Fiscal 2019)

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number 01-34219

 

DESTINATION XL GROUP, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

04-2623104

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

555 Turnpike Street, Canton, MA

02021

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (781) 828-9300

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.01 Per Share

DXLG

NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

As of August 2, 2019, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $53.6 million, based on the last reported sale price on that date. Shares of Common Stock held by each executive officer and director and by certain persons who own 10% or more of the outstanding Common Stock have been excluded on the basis that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily determinative for other purposes.

The registrant had 51,077,397 shares of Common Stock, $0.01 par value, outstanding as of May 15, 2020.

Documents Incorporated by Reference: None.  

 

 

 

 

 

 


 

EXPLANATORY NOTE

 

We are filing this Amendment No. 1 to our Annual Report on Form 10−K for the fiscal year ended February 1, 2020 (this “Form 10-K/A”) pursuant to General Instruction G(3) to Form 10−K for the purposes of filing the information required to be disclosed pursuant to Part III of Form 10−K.

 

Except for the amendments described above, this Form 10−K/A does not modify or update the disclosure in our Annual Report on Form 10−K for the fiscal year ended February 1, 2020 filed with the Securities and Exchange Commission on March 19, 2020.

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

1

 


 

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

 

Set forth below is certain information regarding our current directors, including information furnished by them as to their principal occupations and business experience for the past five years, certain directorships held by each director within the past five years, their respective ages as of May 15, 2020, current committee membership, and the year in which each became a director of our Company:

 

Name

 

Age

 

Director

Since

 

Audit

 

Compensation

 

Nominating and

Corporate

Governance

 

Cybersecurity

and

Data Privacy

John Kyees, Chairman of the Board

 

73

 

2010

 

X

 

 

 

 

 

C

Harvey S. Kanter,  President and Chief Executive Officer and Director

 

58

 

2019

 

 

 

 

 

 

 

 

Jack Boyle, Director

 

52

 

2017

 

 

 

 

 

X

 

X

Lionel F. Conacher, Director

 

57

 

2018

 

X

 

X

 

 

 

 

Seymour Holtzman, Director

 

84

 

2000

 

 

 

 

 

 

 

 

Willem Mesdag, Director

 

66

 

2014

 

X

 

C

 

 

 

 

Ward K. Mooney, Director

 

71

 

2006

 

C

 

X

 

 

 

 

Mitchell S. Presser, Director

 

55

 

2007

 

 

 

X

 

C

 

 

Ivy Ross, Director

 

64

 

2013

 

 

 

 

 

X

 

X

C= current member and committee chairperson

X= current member of the committee

 

John E. Kyees has been a director since May 2010 and was appointed Chairman of the Board in January 2019.  From February 2017 through January 2019, Mr. Kyees served as the Company's Lead Independent Director.  From February 2014 until May 2014, Mr. Kyees served as Interim Chief Financial Officer of the Company.  In 2010, Mr. Kyees retired as the chief investor relations officer from Urban Outfitters, Inc., a retail chain, after serving as chief financial officer from 2003 to 2010. Mr. Kyees serves as lead independent director and chairman of the audit committee of Vera Bradley, Inc., a publicly-traded company. Mr. Kyees is also a director and chairman of the audit committee of Arhaus Furniture, a privately-held retailer. Mr. Kyees served as Interim Chief Financial Officer for Arhaus Furniture from November 2015 to March 2016.  Mr. Kyees previously served as a director and member of the audit committee of Rackwise, Inc., a publicly-traded company.  Mr. Kyees brings to the Board extensive executive-level retail experience having served as chief financial officer for several prominent retailers.  His insight with respect to merchandising, operational activities and finance is an asset to our Board.  

Harvey S. Kanter is the President, Chief Executive Officer and a director of the Company.  Mr. Kanter joined the Company in February 2019 in a transition role as Advisor to the Acting CEO and assumed the role of President and Chief Executive Officer and a director of the Company in April 2019. Mr. Kanter has over 30 years of business experience, with an extensive background in the retail industry having served from March 2012 until June 2017 as the president and chief executive officer of Blue Nile, Inc., a leading online retailer of high-quality diamonds and fine jewelry. From March 2012 until February 2020, Mr. Kanter also served as a member of the board of directors of Blue Nile, Inc. and, from January 2014 until February 2020 as its chairman.  From January 2009 to March 2012, Mr. Kanter was the chief executive officer and president of Moosejaw Mountaineering and Backcountry Travel, Inc., a leading multi-channel retailer of premium outdoor apparel and gear.  From April 2003 to June 2008, Mr. Kanter served in various executive positions at Michaels Stores, Inc. Mr. Kanter served as a director and a member of the compensation committee of Potbelly Corporation, a publicly-traded company, from August 2015 until May 2019. He is also a brand ambassador for the Fred Hutch Cancer Research Institute, and is an advisory member to the Seattle University Executive MBA Program. Mr. Kanter brings an extensive knowledge of omni-channel retailing, with strong strategic and operational expertise.

Jack Boyle has been a director since August 2017.  Since February 2019, Mr. Boyle has been the global co-president of direct to consumer/omni channel for Fanatics, Inc., a market leader for officially licensed sports merchandise. Prior to that, from December 2017 to February 2019, Mr. Boyle was the co-president of North America direct to consumer/omni channel.  He originally joined the company as president of merchandising in June 2012. From February 2005 to June 2012, Mr. Boyle was the executive vice president, general merchandising manager of women’s apparel, intimate, cosmetics and accessories for Kohl’s Corporation. From October 2003 to February 2005, he served as senior vice president, divisional merchandise manager of women’s apparel for Kohl’s Corporation, vice president of junior sportswear from July 2000 to October 2003 and vice president of planning/allocation for women's apparel from December 1999 to July 2000.  From June 1990 to December 1999, Mr. Boyle held various merchandise positions, including divisional merchandise manager of women’s at May Company.  Mr. Boyle brings to the Board extensive experience in merchandising, brand management and omni-channel leadership.

2

 


 

Lionel F. Conacher has been a director since June 2018. From January 2011 to June 2018, Mr. Conacher was a senior advisor for Altamont Capital Partners LLC (“ACP”), a private equity firm.  Mr. Conacher left ACP on June 30, 2018 to pursue the development of a new venture capital fund, Next Ventures Management, LLC.  Mr. Conacher became managing partner of Next Ventures, GP in August 2018. Prior to joining ACP, from April 2008 until July 2010, Mr. Conacher was the president and chief operating officer of Thomas Weisel Partners, an investment bank. Additionally, Mr. Conacher served as the chairman of Wunderlich Securities, an investee company of ACP, from December 2013 until July 2017.  Mr. Conacher currently serves as a member of the board of directors for AmpHP Inc., a venture-backed human performance company.  He formerly served as a member of the board of directors of Mervin Manufacturing, a leading designer and manufacturer of snow boards and other board sports equipment and PowerDot, Inc., a consumer electronics company that markets a muscle recovery and performance tool. Mr. Conacher brings extensive financial and operational experience to the Board.

Seymour Holtzman has been a director since April 2000.  From August 2014 to January 2019, Mr. Holtzman served as our Executive Chairman of the Board and from April 2000 to August 2014 as Chairman of the Board.  Mr. Holtzman has been involved in the retail business for over 40 years. For many years, he has been the president and chief executive officer of Jewelcor, Incorporated, a former New York Stock Exchange listed company that operated a chain of retail stores. From 1986 to 1988, Mr. Holtzman was chairman of the board and also chief executive officer of Gruen Marketing Corporation, an American Stock Exchange listed company involved in the nationwide distribution of watches. For at least the last five years Mr. Holtzman has served as chairman and chief executive officer of Jewelcor Management, Inc., a company primarily involved in investment and management services.  Mr. Holtzman is the chief executive officer and an indirect owner of C.D. Peacock, Inc., a Chicago, Illinois retail jewelry establishment, and is the managing member of Luxury Swiss, LLC, a retail Rolex watch establishment. Mr. Holtzman was formerly an officer of Homeclick LLC, which is currently the subject of an assignment for the benefit of creditors insolvency proceeding. Mr. Holtzman is a successful entrepreneur with extensive experience working with public companies and provides valuable insight to the Board with respect to strategic planning.

Willem Mesdag has been a director since January 2014.  Since January 2005, Mr. Mesdag has been the managing partner of Red Mountain Capital Partners LLC, an investment management firm. Prior to founding Red Mountain in 2005, Mr. Mesdag was a partner and managing director of Goldman Sachs & Co., which he joined in 1981. Prior to Goldman Sachs, he was a securities lawyer at Ballard, Spahr, Andrews & Ingersoll, which he joined in 1978. He also serves on the board of Heidrick & Struggles International, Inc., a publicly-traded company.  He previously served on the boards of 3i Group plc, Encore Capital Group, Inc., Nature’s Sunshine Products, Inc. and Yuma Energy, Inc., all of which are publicly-traded companies. Having had an extensive career in international investment banking and finance and having served on domestic and international public-company boards, Mr. Mesdag brings to the Board significant knowledge and experience related to business and financial issues and corporate governance.

Ward K. Mooney has been a director since July 2006. Mr. Mooney was a co-founder of Crystal Financial LLC, formerly Crystal Capital, and served as its CEO from April 2010 until his retirement in December 2017.  From April 2006 to April 2010, Mr. Mooney was the Senior Managing Partner of Crystal Capital.  Prior to April 2006, Mr. Mooney was the president of Bank of America Retail Finance Group and managing partner of Back Bay Capital, which Mr. Mooney co-founded and both of which were formerly Bank of Boston businesses.  Mr. Mooney provides the Board with valuable insight with respect to his extensive experience as a lender in the retail industry.  

Mitchell S. Presser has been a director since May 2007. Since April 2020, Mr. Presser has been a partner of Mergers + Acquisitions and Private Equity Investments at Morrison & Foerster and also serves as co-chair of the firm’s Global Corporate Department. From July 2014 until April 2020, Mr. Presser was a partner and the head of U.S. Global Transactions at Freshfields Bruckhaus Deringer LLP.  From January 2014 until July 2014, Mr. Presser was a senior advisor to Paine Schwartz Partners (formerly Paine & Partners, LLC), a private equity firm.  From November 2006 to December 2013, Mr. Presser was a founding partner of Paine & Partners, LLC.  Prior to that, Mr. Presser was a partner with the law firm of Wachtell, Lipton, Rosen & Katz, specializing in mergers & acquisitions.  Mr. Presser’s extensive experience in private equity and strategic planning provides valuable insight to the Board.

Ivy Ross has been a director since January 2013.  In May 2014, Ms. Ross joined Google as head of Glass and is currently a vice president, design for hardware products at Google.  From July 2011 until April 2014, Ms. Ross was the chief marketing officer of Art.com from where she oversaw the company's marketing, branding, merchandising and user-experience functions. Prior to Art.com, from June 2008 to June 2011, Ms. Ross was EVP of marketing for the Gap brand, and also acted as the creative catalyst for all brands within Gap, Inc. Ms. Ross also has held senior creative and product design positions at Disney Stores North America, Mattel, Calvin Klein, Coach, Liz Claiborne, Swatch Watch and Avon. She also has served on Proctor and Gamble’s design board since its inception.  With her industry insight and marketing expertise, Ms. Ross provides a valuable perspective to the Board as we continue to build our DXL brand.

All directors hold office until the next Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified or until their earlier death, resignation or removal.

3

 


 

Current Non-Director Executive Officers

Peter H. Stratton, Jr., 48, has been our Executive Vice President, Chief Financial Officer and Treasurer since November 2017.  Prior to that, Mr. Stratton served as our Senior Vice President, Chief Financial Officer and Treasurer from June 2014 to November 2017.  From August 2009 to June 2014, Mr. Stratton was our Senior Vice President of Finance, Corporate Controller and Chief Accounting Officer.  Mr. Stratton joined the Company in June 2009 as Vice President of Finance. Prior to joining the Company, Mr. Stratton served as the senior director of corporate accounting at BearingPoint, Inc. from May 2007 to June 2009.  Prior to May 2007, Mr. Stratton held various finance and accounting leadership positions at Legal Sea Foods, Inc., Shaw’s Supermarkets, Inc. and Cintas Corporation.

Francis C. Chane, 57, has been our Senior Vice President of Supply Chain and Customer Fulfillment since June 2011.  Mr. Chane joined the Company in June 2008 as our Vice President of Distribution & Logistics. Prior to joining our Company, Mr. Chane was the vice president operations & facilities for Redcats USA, a division of the French multi-national company PPR, from 1999 to June 2008.  Prior to that, Mr. Chane held various leadership positions with WearGuard Corporation, a division of Aramark Corporation.

John F. Cooney, 37, has been our Vice President of Finance and Managing Director, Corporate Controller and Chief Accounting Officer since May 2018 and was our Vice President of Finance, Corporate Controller and Chief Accounting Officer since May 2015 and our Vice President of Finance and Corporate Controller since June 2014.  From November 2010 until June 2014, Mr. Cooney was our Director of Financial Accounting and Reporting.  Prior to joining the Company, Mr. Cooney was an audit manager with PricewaterhouseCoopers LLP, which he joined in August 2004.

Ujjwal Dhoot, 36, has been our Chief Digital Officer since December 2019 and an officer of the Company since May 2020.  Prior to joining our Company, Mr. Dhoot was the chief marketing officer and chief product officer for Health E-Commerce, a hyper growth healthcare e-Commerce company, from January 2018 to December 2019.  Prior to that, Mr. Dhoot was the vice president of marketing for Charming Charlie from March 2017 until April 2017 and their vice president of marketing and e-commerce from April 2017 until January 2018.  From June 2013 until March 2016, Mr. Dhoot was the chief marketing officer of FSAstore.com. Prior to that, Mr. Dhoot held vice president of marketing positions at Jen Beckman Project, Inc. and PetCareRx, Inc.

Anthony J. Gaeta, 50, has been our Senior Vice President of Store Sales and Operations since November 2017. Mr. Gaeta joined the Company in April 2010 as a Zone Vice President and was promoted to Vice President of Store Operations and Training in November 2013 before being named to his current position. Prior to joining the Company, Mr. Gaeta was a regional manager for Men’s Wearhouse from September 2007 until April 2011 and, prior to that, a regional vice president for After Hours Formalwear from March 2006 until September 2007. 

Robert S. Molloy, 60, has been our Chief Administrative Officer, General Counsel and Secretary since May 2018, having previously served as the Company’s Senior Vice President, General Counsel since April 2010 and Secretary of the Company since May 2014.  From February 2008 until April 2010, Mr. Molloy was our Vice President and General Counsel. Prior to joining the Company, Mr. Molloy served as the vice president, assistant general counsel at Staples, Inc. from May 1999 to February 2008.  Prior to May 1999, Mr. Molloy was a trial attorney.

Allison Surette, 39, has been our Senior Vice President General Merchandise Manager since May 2018.  Prior to that, Ms. Surette was Vice President Merchandise Manager of Private Label, Active, Young Men’s and Outerwear since September 2016.  Ms. Surette joined the Company in May 2006 as an Associate Planner and in June 2008, she transitioned into Merchandising as an Associate Buyer for Branded Collections.  From October 2010 to January 2014, she served as a Buyer of Traditional Branded Collections and Buyer of Private Label Sportshirts and Outerwear. From January 2014 to September 2016, she was the Senior Buyer of Private Label Sportshirts and Outerwear. Prior to joining the Company, Ms. Surette was a planner for TJX from June 2003 until May 2006.

There are no family relationships between any of our directors and executive officers.

Code of Ethics

We have adopted a Code of Ethics for Directors, Officers and Financial Professionals (the “Code of Ethics”). The full text of the Code of Ethics can be found under “Corporate Governance –Charters & Policies” on the Investor Relations page of our corporate web site, which is at https://investor.dxl.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or waiver from, a provision of our Code of Ethics by posting such information on our website.  We also have a Code of Ethics for all of our associates.  Annually, our directors and associates, including our officers, certify that they have read and are in compliance with our Code of Ethics.  

4

 


 

Audit Committee

We have a separately-designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act.  The Audit Committee is currently comprised of Messrs. Mooney, Conacher, Kyees and Mesdag.  Each of the members of the Audit Committee is independent, as independence for Audit Committee members is defined under the rules of Nasdaq. Messrs. Conacher, Mesdag, Mooney and Kyees each qualify as an audit committee financial expert under the rules of the Securities Exchange Commission (the “SEC”).

Director Nominations

No material changes have been made to the procedures by which security holders may recommend nominees to our Board from those that were described in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders that was filed with the SEC on July 2, 2019.


5

 


 

Item 11.  Executive Compensation

Compensation Discussion and Analysis

Executive Summary

This Compensation Discussion and Analysis provides a summary of our executive compensation philosophy and programs, and discusses the compensation paid to our Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”) and other current and former executive officers who served in fiscal 2019 (collectively, our “Named Executive Officers”).  

Our Named Executive Officers for fiscal 2019 were:

 

 

Harvey S. Kanter, President, CEO and Director

 

David A. Levin, former Acting CEO

 

Peter H. Stratton, Jr., Executive Vice President, CFO and Treasurer

 

Robert S. Molloy, Chief Administrative Officer, General Counsel and Secretary

 

Francis C. Chane, Senior Vice President, Supply Chain and Customer Fulfillment

 

Anthony J. Gaeta, Senior Vice President of Store Sales and Operations

 

Brian S. Reaves, former Executive Vice President and Chief Operating Officer

 

James S. Davey, former Executive Vice President and Chief Marketing Officer

 

Management Changes in 2019

Our CEO was initially hired on February 19, 2019 in a transition role as Advisor to the Acting CEO, and was appointed President, CEO and a director of the Company on April 1, 2019.  Prior to Mr. Kanter’s appointment, Mr. Levin served as Acting CEO from January 1, 2019 until April 1, 2019.  See “Employment Agreements” below for discussion regarding Mr. Kanter’s employment agreement and the terms of Mr. Levin’s service as Acting CEO.

 

COVID-19 Update

While this CD&A discussion primarily relates to compensation paid to our executives during fiscal 2019, the COVID-19 pandemic has impacted recent decision-making by the Compensation Committee.  As part of our commitment to cost containment in mitigation of the COVID-19 pandemic impact on our business, in April 2020, Messrs. Kanter, Stratton, Molloy, Chane and Gaeta each took a temporary 20% reduction in their respective base salaries. Each of the other members of the management team, down to the director level, took a temporary reduction in their base salaries ranging from 10% to 20%.  The Compensation Committee approved the payout of awards in March 2020 for amounts earned under the 2019 AIP, but because of the uncertainty surrounding the COVID-19 pandemic, has not established an AIP for fiscal 2020.  Similarly, with respect to our long-term incentive plans, no long-term incentive plan for the 2020-2022 performance period has been established, and the Compensation Committee has not made any adjustments to any existing targets under the 2018-2020 LTIP or 2019-2021 LTIP. The Compensation Committee will continue to evaluate the impact of COVID-19 in relation to the financial performance of the Company and therefore on executive compensation, during this unprecedented time.  

In addition, in March 2020, the non-employee directors suspended their compensation for the second quarter of fiscal 2020.  The Board of Directors is meeting telephonically with management on a weekly basis as we continue to navigate through this pandemic.

Fiscal 2019 Financial Highlights

Fiscal 2019 was a year of significant transformation for the Company.  The Company realigned its management team and exited an unprofitable line of business with the closure of the Company’s Rochester division.  The Company also completed its first full year with our new wholesale business, invested in new CRM and data analytics capabilities, and converted 14 Casual Male stores to the DXL format.

The Company’s performance in fiscal 2019 resulted in an improved balance sheet, with reduced inventory and a reduction in our total debt. Total sales for fiscal 2019 increased slightly to $474.0 million, principally driven by the growth from the Company’s wholesale business.  Our retail segment had a comparable sales increase of 0.1%, driven primarily by the growth in our direct business, and offset by a decrease in store sales from a decline in traffic as well as from the closing of our Rochester Clothing stores.  

Although our total sales from our retail segment were less than expected during fiscal 2019, we effectively managed our gross margin and reduced our selling, general and administrative (SG&A) expenses, which contributed to our improved operating results.  Our net loss for fiscal 2019 was $(0.16) per diluted share as compared to a net loss of $(0.28) per diluted share in fiscal 2018.

6

 


 

Fiscal 2019 Executive Compensation Highlights

We believe that the compensation earned by our Named Executive Officers in fiscal 2019 is aligned with the performance of the Company, and reflects that, although there was improvement in the financial results of the Company, overall results for the year were below expectations.  As a result, total compensation earned by our Named Executive Officers in fiscal 2019 decreased when compared to fiscal 2018.  The decrease in compensation reflects a reduced payout under the Company’s 2019 AIP and a shift in the time-based compensation under the 2019-2021 LTIP from 100% equity to a combination of 50% equity and 50% cash.  In addition, because of the switch in fiscal 2018 from a two-year LTIP to a three-year LTIP, there was no opportunity in fiscal 2019 to receive any performance-based LTIP payouts.  

The following table shows total compensation earned for those Named Executive Officers who were serving at the end of fiscal 2019 as compared to fiscal 2018, as applicable:

  

 

Total Compensation(1)

 

Total Realized Pay (2)

 

Named Executive Officer

 

Fiscal 2019

 

 

Fiscal 2018 (3)

 

 

%  Change

 

Fiscal 2019

 

 

Fiscal 2018 (3)

 

 

%  Change

 

Harvey S. Kanter

 

$

3,164,067

 

 

$

-

 

 

-

 

$

1,222,093

 

 

$

-

 

 

-

 

Peter H. Stratton, Jr.

 

$

588,245

 

 

$

821,669

 

 

 

(28.4

)%

$

639,910

 

 

$

728,432

 

 

 

(12.2

)%

Robert S. Molloy

 

$

533,245

 

 

$

711,069

 

 

 

(25.0

)%

$

583,951

 

 

$

622,366

 

 

 

(6.2

)%

Francis C. Chane

 

$

419,423

 

 

$

-

 

 

-

 

$

452,612

 

 

$

-

 

 

-

 

Anthony J. Gaeta

 

$

408,405

 

 

$

-

 

 

-

 

$

433,128

 

 

$

-

 

 

-

 

 

(1)

Total compensation reflects amounts as reported in the “Summary Compensation Table”, which for Mr. Kanter includes the fair value of $1.6 million for one-time, sign-on awards granted in connection with his hiring.

 

(2)

Total realized pay is calculated as total compensation per the “Summary Compensation Table” minus the value of equity awards granted, as reported in the “Stock Awards” column of that table, plus the value of any options exercised or stock awards that vested, as reflected in the “Option Exercises and Stock Vested” table for each of the respective years. For fiscal 2019 realized pay, the vested stock awards which are included related to the 2016-2017 LTIP, 2017-2018 LTIP and 2018-2020 LTIP.

 

(3)

Mr. Kanter joined the Company on February 19, 2019 and therefore had no fiscal 2018 compensation. There is no comparable salary information for Messrs. Chane and Gaeta because they only became named executive officers in fiscal 2019.

Executive Compensation Philosophy and Objectives

Our Compensation Committee is responsible for establishing, implementing and monitoring adherence to the Board’s compensation philosophy, which is to ensure that executive compensation is fair, reasonable, competitive and consistent with the interests of the Company’s stockholders.  

The Compensation Committee believes that an effective executive compensation program will:

 

Attract, retain and engage the executive talent the Company requires to perform in line with the Board’s expectations;

 

Recognize and reward the achievement of specific annual and long-term performance goals through a combination of cash and stock-based compensation; and

 

Align the Company’s executives’ interests with those of its stockholders.

When reviewing compensation, the Compensation Committee emphasizes Direct Compensation.  Direct Compensation consists of total cash compensation (base salary and annual performance-based cash incentive awards) plus long-term incentive awards, which are primarily stock-based.  Every year, we assess the effectiveness of our compensation plans with the goal of strengthening our overall compensation program as appropriate, including by adjusting performance metrics to ensure that compensation is aligned with performance that drives stockholder value.  We also compare our performance metrics to those used by our peers, and take into consideration the recommendations of proxy advisory services.

Key Features of Our Executive Compensation Program

 

We believe that the Company’s executive compensation program includes key features that align the compensation for our executive officers with the interests of our stockholders.

 

7

 


 

What We Do

What We Don’t Do

   Focus on performance-based pay

   No re-pricing of underwater options

   Balance short-term and long-term incentives

   No hedging of Company stock

   Use multiple targets for performance awards

   No tax gross-up on severance payments

   Provide executives with very limited perquisites

   No active supplemental executive retirement plan

   Require “double-trigger” change-in-control provisions

 

   Maintain a “clawback” policy covering incentive cash and equity programs

 

   Seek to mitigate undue risk in compensation plans

 

   Utilize an independent compensation consultant

 

 

 

Use of Compensation Consultants

The Compensation Committee has the authority to retain compensation consultants and other outside advisors to assist in carrying out its duties, including the review of compensation of our Named Executive Officers. The Compensation Committee may accept, reject or modify any recommendations by compensation consultants or other outside advisors.

The Compensation Committee periodically consults with Segal, formerly Sibson Consulting, an independent firm that specializes in benefits and compensation, with respect to the structure and competitiveness of the Company’s executive compensation program compared to its proxy peer group. The Compensation Committee has assessed Segal’s independence, and has concluded that no conflict of interest exists with respect to the services that it performs.  In early fiscal 2018, the Compensation Committee engaged Segal to evaluate CEO compensation in connection with its search for a new CEO and in early 2019 to evaluate the compensation of our other NEOs in comparison to the same proxy peer group.  The Compensation Committee also consulted with Segal in August 2019 to evaluate the Company’s long-term incentive program, including its mix of equity and cash.

Fiscal 2019 Target Compensation

CEO Compensation.  The Compensation Committee is responsible for determining the target compensation of our CEO.  Working with Segal, the Compensation Committee compared each element of the CEO’s Direct Compensation (base salary, annual incentive plan and long-term incentive compensation) to published survey data and data from the Company’s peer group. The Compensation Committee’s objective is that total target compensation should approximate the median target compensation of the Company’s peer group.  In developing the compensation package for our current CEO, the Compensation Committee placed additional weight on the performance pay, by increasing the participation rate in the long-term incentive plan, and, as part of his compensation package, Mr. Kanter received a significant, sign-on performance stock unit award (“PSU”) tied directly to the Company’s stock price.

Other Named Executive Officers.  Our CEO is primarily responsible for determining the compensation paid to our other Named Executive Officers, subject to the review and approval of the Compensation Committee.  Our other Named Executive Officers are provided with a competitive base salary and an opportunity to earn performance awards each year, which are driven by our overall financial targets.  In May 2019, Segal completed a review of the compensation paid to our other Named Executive Officers, and reported that compensation was within the median (or 50% percentile) of the Company’s 2018 proxy peer group. See “Compensation Components and Fiscal 2019 Compensation Decisions”.

Our Peers

When determining peer companies for use in reviewing and establishing compensation for our Named Executive Officers, we focus primarily on public companies within the specialty retail apparel business with similar revenue and/or market capitalization.  The companies in the fiscal 2019 peer group were:

 

Boot Barn Holding, Inc.

Duluth Holding, Inc.

Tilly’s Inc.

 

 

 

 

 

 

Build-A-Bear Workshop, Inc.

Francesca’s Holding Corp.

Vera Bradley

 

 

 

 

 

 

Cato Group

Kirkland’s, Inc.

Vince Holding Corp.

 

 

 

 

 

 

Christopher & Banks

Movado Group

Zumiez, Inc.

 

 

 

 

 

 

8

 


 

Citi Trends

Sportsman’s Warehouse

 

 

 

 

 

 

 

 

Destination Maternity

Tile Shop Holdings

 

 

 

 

 

 

 

 

For fiscal 2020, we updated our peer group to remove Destination Maternity, due to bankruptcy, and add Retailwinds, Inc.

In order to develop an appropriate peer group, we consider companies with a range of revenues, assets and market capitalizations that may differ from those included by independent analysts such as Institutional Shareholder Services (ISS).  When we reviewed our 2019 peers, we fell just below the median of the revenues and assets of our peer group.  Our market capitalization was considered in developing our peer group, but due to the fact that our stock is so thinly traded, more weight was given to the revenue and assets. We do so because we believe that companies doing business in specialty retail markets with omni-channel distribution models provide a better benchmark for total shareholder return.  An independent analyst may include a company that falls within the same Standard & Poor’s GICS code with similar revenue and market capitalization but with a different business model, business risks, geographic locations, customer base and industry traffic trends and which, consequently, may have nothing in common with our Company.  For example, a company that owns automotive dealerships is within the same GICS code as our Company, but clearly has a distinctively different business model and is not affected by the same trends that affect specialty retail apparel.    

Say-on-Pay

At our 2017 Annual Meeting, stockholders voted on a non-binding advisory proposal as to the frequency with which we should conduct an advisory vote on executive compensation (a "say-on-pay proposal").  At that meeting, and in accordance with the recommendation of our Board, 95.6% of votes cast voted for the “one-year” frequency for advisory votes on executive compensation.  We intend to hold such vote every year, until the next “say-on-pay” frequency vote, which will not be until our 2023 Annual Meeting.  

At our 2019 Annual Meeting, stockholders had an opportunity to cast a non-binding advisory vote on executive compensation as disclosed in the 2019 Proxy Statement.  Of the votes cast on the say-on-pay proposal, 91.7% voted in favor of the proposal. The Compensation Committee considered the results of the 2019 advisory vote and believes that it affirms support of our stockholders for our approach to executive compensation, namely to align short- and long-term incentives with the Company’s financial performance.  We will continue to consider the outcome of subsequent say-on-pay votes when making future compensation decisions for our executive officers.

Risk Assessment/Clawback

We believe that our compensation programs do not provide incentives for unnecessary risk taking by our employees. Our employment agreements with each of our Named Executive Officers include a “clawback” provision that permits us to demand full repayment of certain amounts paid to the executive in the event we learn, after the executive’s termination, that the executive could have been terminated for “justifiable cause.”  In addition, in August 2018, our Compensation Committee approved the Executive Incentive Pay Clawback Policy (“Clawback Policy”) that would allow the Company to recover all Excess Incentive-Based Compensation, as defined in the Clawback Policy, from each Executive who willfully committed an act of fraud, dishonesty, or recklessness that contributed to any error or noncompliance that results in a financial restatement. Incentive-Based Compensation includes all cash and equity awards.

Our emphasis on performance-based annual and long-term incentive awards is also designed to align executives with preserving and enhancing shareholder value. Based on these considerations, among others, we do not believe that our compensation policies and practices create risks that are likely to have a material adverse effect on our Company.

Compensation Components and Fiscal 2019 Compensation Decisions

We believe that our executive compensation policies and practices appropriately align the interests of our executives with those of our stockholders and emphasize the shared responsibility of our executive officers for the Company’s financial performance. Accordingly, the compensation of our Named Executive Officers is heavily weighted toward “at-risk” performance-based compensation.

The primary components of compensation for our Named Executive Officers include base salary (“fixed compensation”), annual performance-based cash incentives and long-term incentives (“at-risk compensation”). The annual weight of each component leads to the following allocation of potential compensation that each executive can earn.

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* The above target compensation for the CEO does not reflect the value of Mr. Kanter’s sign-on awards granted in connection with his hiring, which included a PSU award aligned with long-term stockholder growth.

The components of executive compensation are as follows:

 

Base salary

Base salary represents the fixed component of an executive’s annual compensation.  In order to attract and retain top executive talent, we believe that it is important that our base salary be competitive, generally at or near the median of our industry peers.

Base salaries are reviewed annually and adjustments are influenced by the Company’s performance in the previous fiscal year and the executive’s contribution to that performance. The executive’s performance is measured by various factors, including, but not limited to, achievement of specific individual and department goals.  Additionally, adjustments may consider an individual’s promotion that may have occurred during the fiscal year, and any modifications in the individual's level of responsibility.

The Compensation Committee expects the CEO’s base salary to be at or near the peer group median, and to approximate 25%-33% of his target Direct Compensation.  Our CEO determines the base salary of our other Named Executive Officers, subject to the review and approval of the Compensation Committee, and targets the median of the peer group and published industry compensation surveys.

For fiscal 2019, Messrs. Chane and Gaeta received merit increases of 1.8% and 3.5%, respectively, to bring their base salaries to $290,000 and $295,000, respectively.  There were no other adjustments to the base salaries of our other Named Executive Officers.  Our CEO’s base salary was negotiated as part of his employment agreement.

 

Performance-based Annual Incentive Plan

The Compensation Committee believes that a substantial portion of each Named Executive Officer’s compensation should tie directly to our Company’s financial performance.  Our Fourth Amended and Restated Annual Incentive Plan (“AIP”) provides for an annual performance-based cash incentive for all executives as well as certain non-executive employees.

 

2019 AIP

 

On May 1, 2019, the Compensation Committee established financial and operating performance metrics for grants under the 2019 AIP.  The performance targets included Corporate targets (Sales and Adjusted EBITDA), departmental targets for Store Operations, Marketing & Digital, and Merchandise/Planning and Allocation, as well as discretionary personal goals.  Because Mr. Kanter had only recently assumed the position of President and CEO, the Compensation Committee felt it was necessary to decrease the number of Corporate targets for fiscal 2019 as compared to previous years and to focus on Sales and Adjusted EBITDA to allow Mr. Kanter the flexibility to implement or modify any business initiatives without rendering other targets under the 2019 AIP irrelevant.  

 

Shortly after assuming his position as President and CEO, Mr. Kanter, working with senior management, evaluated and developed a strategic plan, specifically focused on our marketing and digital platforms in driving greater customer engagement. Senior Management began to implement many initiatives, which included a realignment of the marketing team and a shift in our marketing and digital strategy, expecting much of the benefit of the restructuring to be recognized long-term. In light of the strategic plan developed by Mr. Kanter and the subsequent approval by the Board in August 2019 of the revised strategic plan, the Compensation Committee reconsidered the 2019 AIP and approved modifications to the

10

 


 

previously-established targets to align with the revised strategic plan but did not change any of the metrics. In doing so, the Compensation Committee considered the Company’s performance through the end of the second quarter in relation to the previously-established targets and determined that, as of that date, no payout under the previously-established targets was probable.  The Compensation Committee also modified the threshold and maximum limits in which the achievement of the financial metric targets would be met.  In addition, because the 2019 AIP was being modified in August, the Compensation Committee determined that, solely with respect to the portion of any payout earned for achievement of the Corporate targets under the plan, including departmental goals, such portions of the payout would be reduced by 50%. The Compensation Committee believed that it was possible, with an approximate 50% probability, to meet or exceed each of the adjusted targets.

The Company’s Corporate metrics for the 2019 AIP included Sales and Adjusted EBITDA and represented 80% of the AIP for Messrs. Kanter, Stratton, Molloy, Chane, Levin and Reaves, and 40% of the AIP for Messrs. Gaeta and Davey. Messrs. Gaeta and Davey had specific departmental goals representing 40%.  Discretionary personal goals represented the remaining 20% for each Named Executive Officer.  These discretionary goals were pre-established and were an important component to the success of our strategic goals.  For fiscal 2019, Mr. Kanter’s target participation in the AIP was at 100% of his annual salary, on a prorated basis, Messrs. Stratton, Reaves and Davey participated at 55% of their respective salaries, and Messrs. Molloy, Chane and Gaeta participated at 40% of their respective salaries.  

The 2019 AIP performance metrics and actual results against these metrics were as follows:

 

 

 

Metric

 

Award %
Attributable to Target for NEOs except Mr. Gaeta

Award %
Attributable to Target for

Mr. Gaeta

 

Minimum/Maximum

Potential Payout

 

2019 Target

2019 Actual (1)

Payout % earned(2)

Corporate

Target 1

 

Sales (excludes wholesale segment)

 

40.0%

20.0%

 

100% payout at target, with 50% payout at 99.0% of target and 150% payout at 100.8% of target, with the exception of Mr. Kanter who was eligible for maximum payout of 200% at 100.8% of target.

 

 

$466.8 million (3)

$461.5 million

-

Corporate

Target 2

 

Adjusted EBITDA

 

40.0%

20.0%

 

100% payout at target, with 50% payout at 96.0% of target and 150% payout at 102.2% of target, with the exception of Mr. Kanter who was eligible for a maximum payout of 200% at 102.2% of target.

 

 

$22.4 million (4)

$23.5 million

30.0%

(40% for Mr. Kanter and 15% for Mr. Gaeta)

Personal Target 3

 

Discretionary – Personal Goals

 

20.0%

20.0%

 

Discretionary, at target, based upon individual performance, as evaluated by the CEO (except with respect to the CEO whose individual performance will be evaluated by the Compensation Committee).  Participants were eligible to receive a discretionary award up to 30%, with the exception of Mr. Kanter who was eligible to receive a discretionary award up to 40%. (5)

 

Varies by NEO

Varies by NEO

15.0%-30.0%

Departmental Goals, if applicable

 

Store Operations

 

-

40.0%

 

Includes 10% for DXL store productivity spread; 10% for universe comparable %, 10% for capture rates and 10% for customer counts.  Except for customer counts, the Company does not publicly disclose many of these statistics.

 

Not publicly disclosed:

Capture rate

Store productivity Universe comp

 

Customer counts:

1,655,000

Customer counts:

1,541,113

Capture rate: 7.0%

 

 

 

No other metrics achieved

 

(1)

As permitted under the AIP and approved by the Compensation Committee, fiscal 2019 actual results were adjusted to exclude certain revenues, expenses and cash flows, which were not considered in the establishment of the Company’s 2019 targets, including its wholesale business, exit costs associated with London operations, CEO transition costs and any impairment of assets.

 

(2)

As discussed above, the payouts earned for the achievement of the Corporate metrics and the departmental goals were reduced by 50% to reflect the mid-year adjustment in the 2019 AIP.

 

(3)

The sales target for fiscal 2019 was lower than the actual sales of $470.9 million for fiscal 2018 because it reflected our intention to exit all of the Rochester Clothing stores during fiscal 2019 and also reflected the decrease, and trend, in sales experienced in the first half of fiscal 2019.

 

(4)

The Adjusted EBITDA target for fiscal 2019 was lower than the actual Adjusted EBITDA target for fiscal 2018 because it reflected: the decrease in Adjusted EBITDA that was experienced in the first half of fiscal 2019; a decrease related to the annual gain previously

11

 


 

 

recognized from the sale-leaseback that was eliminated due to the adoption of ASC 842, Leases and additional expenses approved by the Board in August 2019 related to the change in strategy.

 

(5)

Personal goals are part of the Company’s annual performance review.  At the start of the fiscal year, each associate, including each of our Named Executive Officers, develops his/her “SMART” goals, each containing a quantifiable measure, which are approved by the CEO. The discretionary component of the 2019 AIP was awarded based on the achievement of these goals.  The personal goals for Messrs. Molloy, Chane and Gaeta consisted of a combination of quantifiable goals specific to their respective corporate function.  The personal goals for our CFO were quantifiable and were primarily tied to managing and reducing selling, general and administrative expenses and managing EBITDA performance.  Our CEO’s personal goals were primarily tied to the overall financial performance of the Company, realigning the management team and infrastructure to achieve identified initiatives.  

As a result of achieving certain performance targets for fiscal 2019, as shown above, in March 2020 the Compensation Committee approved, subject to the completion of the audited financial statements, cash bonus payouts to our NEOs as follows:

Named Executive Officer

 

Payout at Target

 

 

Total Payout %

 

 

Payout $

 

Harvey S. Kanter (1)

 

$

621,923

 

 

 

70

%

 

$

435,346

 

Peter H. Stratton, Jr.

 

$

217,250

 

 

 

50

%

 

$

108,625

 

Robert S. Molloy

 

$

150,000

 

 

 

50

%

 

$

75,000

 

Francis C. Chane

 

$

115,346

 

 

 

55

%

 

$

63,440

 

Anthony J. Gaeta

 

$

116,692

 

 

 

37

%

 

$

43,176

 

 

(1)

Mr. Kanter participated in the 2019 AIP on a pro-rated basis, with an effective date of participation date of April 1, 2019, when he was appointed President and CEO.

Pursuant to the transition agreement with Mr. Levin, he was entitled to participate in the 2019 AIP at 100% of his annual salary based on the actual achievement of the Corporate goals. Upon Messrs. Reaves and Davey’s respective terminations of employment, pursuant to the AIP, each received as part of their severance a pro-rated payout of the 2019 AIP based on their earnings and the Company’s then-current estimate of the achievement of the respective performance targets as of their termination date.  According Messrs. Levin, Reaves and Davey received the following cash payouts under the terms of the 2019 AIP:

 

Named Executive Officer

 

Payout $

 

David A. Levin

 

$

243,360

 

Brian S. Reaves (1)

 

$

38,214

 

James S. Davey (2)

 

$

10,374

 

 

(1)

Mr. Reaves received a pro-rated cash payout of his 2019 AIP based on his actual earnings through the date of his termination and the then estimated achievement of achieving the Corporate goals.

 

(2)

Mr. Davey’s termination occurred prior to the approval of the adjusted AIP targets in August 2019, and therefore, his pro-rated cash payout was based on his actual earnings through the date of his termination and the then-estimated achievement of achieving the original Corporate and departmental goals.

 

 

Long-term incentive plans

 

The Company’s long-term incentive plans are designed to ensure that the interests of our executives are aligned with those of our stockholders to create sustainable shareholder value and to promote executive retention.  

 

In 2018, the Compensation Committee approved the Second Amended and Restated Long-Term Incentive Plan, as further amended in October 2018, which among other things, extended the performance period to three years, beginning with grants in fiscal 2018. Due to the change in the LTIP from two to three years, there was no opportunity to earn performance awards during fiscal 2019.  The following is a summary of the two LTIPs in effect during fiscal 2019:

 

12

 


 

Summary of LTIPs:

 

2018-2020

 

 

2019-2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective date

 

October 24, 2018

 

 

August 7, 2019

 

Performance period

 

3yrs

 

 

3yrs

 

End of Performance Period

 

January 30, 2021

 

 

January 29, 2022

 

Target cash value

 

Annual Salary * Participation Rate

 

 

Annual Salary * Participation Rate

 

 

 

Time-Based

 

Performance-Based

 

 

Time-Based

 

Performance-Based

 

Allocation of Target Cash Value

 

50%

 

50%

 

 

50%

 

50%

 

Award type

 

at effective date:

100% RSUs

 

 

RSUs, when earned

 

 

at effective date:

50% RSUs

50% Cash

 

RSUs, Cash or a combination thereof, when earned

 

Vesting period

 

25% October 24, 2019

25% April 1, 2020

25% April 1, 2021

25% April 1, 2022

 

any award earned subject to additional vesting through August 31, 2021

 

 

25% August 7, 2020

25% April 1, 2021

25% April 1, 2022

25% April 1, 2023

 

any award earned subject to additional vesting through August 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Targets:

 

Target:

 

Min/Max Payout:

 

 

Target:

 

Min/Max Payout:

 

Target 1

 

3-yr. average Adjusted EBITDA margin

(75% weight) (1)

 

100%  payout at target, with 50% payout at 85.7% of target and 150% payout at 114.3% of target

 

 

3-yr. average Adjusted EBITDA margin

(50% weight) (1)

 

100%  payout at target, with 50% payout at 94.6% of target and 150% payout at 107.1% of target

 

Target 2

 

3-yr. relative total shareholder return as compared to 2018 disclosed proxy peers

(25% weight) (2)

 

100% payout at target (2nd quartile), with 50% payout (3rd quartile) and 150% (1st quartile). No payout in the 4th quartile.

 

 

3-yr. stacked retail comp

(50% weight)

 

100%  payout at target, with 50% payout at 74.4% of target and 150% payout at 138.5% of target

 

 

 

(1)

EBITDA will be adjusted to exclude certain revenues, expenses and cash flows, which were not considered in the establishment of the Company’s targets, including its wholesale business (“Adjusted EBITDA”).  Adjusted EBITDA margin will then be calculated by taking the Adjusted EBITDA for the three-year performance period and dividing by the Company’s total sales over the three-year performance period.  While Adjusted EBITDA is also a metric used in our AIP, we believe that Adjusted EBITDA is the best measure of both our annual and long-term results.

 

(2)

For the Company and each of its 2018 disclosed proxy peers, the three-year relative total shareholder return will be calculated as the percentage change in the 30-day trailing volume-weighted average closing stock price at February 2, 2018 and January 29, 2021, adjusted for any dividends received.  

At the time of establishing the performance targets, the Compensation Committee believed that the above metrics reflected the Company’s primary objective of returning to profitability and driving shareholder return.  We will disclose our targets under the LTIPs once the respective performance periods have ended.  In light of the COVID-19 pandemic, the ability to achieve the performance metrics under both of these LTIPs has been significantly impacted. If appropriate, the Compensation Committee may determine in the future to modify or amend the targets to take into consideration the business interruption caused by COVID-19.  However, no changes are currently anticipated until the Company can better quantify the impact of COVID-19 on the Company’s business as well as the U.S. economy.

 

The following table illustrates the components of the LTIPs with the respective vesting dates, illustrating that the time-based portion of the LTIP acts as a retention tool:

 

 

 

 

 

 

 

 

 

Vesting of Awards by Fiscal Year:

 

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

 

 

 

Approval date

 

Performance Period

 

total award

 

 

Fiscal 2019

 

Fiscal 2020

 

Fiscal 2021

 

Fiscal 2022

 

Fiscal 2023

 

10/24/2018

 

2018-2020 LTIP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time-Based Awards, vests April 1*, subject to forfeiture

 

 

50

%

 

 

25

%

 

25

%

 

25

%

 

25

%

 

 

 

 

Performance-Based Awards- vests August 31, if achieved

 

 

50

%

 

 

 

 

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8/7/2019

 

2019-2021 LTIP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time-Based Awards, vests April 1*, subject to forfeiture

 

 

50

%

 

 

 

 

25

%

 

25

%

 

25

%

 

25

%

 

 

Performance-Based Awards- vests August 31, if achieved

 

 

50

%

 

 

 

 

 

 

 

 

100

%

 

 

 

(1)

The first tranche of time-based awards vest on the later of April 1 following the end of the first year of the performance period or one year from the date of grant, whichever is later.

 

 

Discretionary Cash and Equity Awards

In particular circumstances, we may utilize cash signing bonuses and equity-based awards when certain employees join the Company.  

In connection with his hiring, Mr. Kanter was awarded two sign-on awards: (1) a grant of 720,000 PSUs, with a grant-date fair value of $1.0 million, and (2) a grant of 240,000 RSUs, with a grant-date fair value of $0.6 million.  The PSUs vest in

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installments when the following milestones are met: one-third of the PSUs vest when the trailing 90-day VWAP is $4.00, one-third of the PSUs vest when the VWAP is $6.00 and one-third when the VWAP is $8.00.  All PSUs will expire on April 1, 2023 if no performance metric is achieved.  The RSUs are time-based awards that vest ratably over four years, with the first tranche vesting on April 1, 2020.  

With the exception of the grant of equity awards to Mr. Kanter in connection with his hiring and a $10,000 bonus to Mr. Gaeta related to the successful roll-out of our “Save the Sale” initiative, there were no discretionary cash or equity awards granted to our Named Executive Officers in fiscal 2019.

 

Other Compensation

In addition to our life insurance programs available to all of our employees, we paid the insurance premium for an additional $2.0 million life insurance policy for Mr. Levin to the benefit of his designated beneficiaries.  That policy was surrendered on January 15, 2020.

We offer our senior executives, including our Named Executive Officers, supplemental disability insurance and long-term care and pay a portion of the premiums, which we do not do for our other employees.

Our Named Executive Officers also receive benefits under certain group health, long-term disability and life insurance plans, which are generally available to all of our eligible employees.

After six months of service with us, all of our employees, including our Named Executive Officers, are eligible to participate in our 401(k) Plan, and after one year of employment are eligible for a Company match.  In May 2018, in connection with our cost reduction initiatives, employer contributions to the 401(k) Plan were suspended, effective July 1, 2018 until December 31, 2019.  As a result, there were no employer contributions to the 401(k) in fiscal 2019.

We have employment agreements with our CEO and all of our other Named Executive Officers.  Upon termination of employment, each executive is entitled to receive severance payments under his or her employment agreement(s) and under the Company’s incentive programs in the event of a termination without justifiable cause.  These employment agreements and incentive programs, as they relate to terminations, are discussed in detail below in the section “Employment Agreements” following the “Summary Compensation Table.”  Our employment agreements do not contain any tax gross-ups pursuant to Section 280(g) of the Internal Revenue Code.

 

Tax Implications

The Tax Cut and Jobs Act of 2017 (“Tax Act”), among other things, repealed the performance-based compensation exemption under Section 162(m) of the Internal Revenue Code of 1986, as amended.  In addition, the Tax Act expanded the group of officers whose compensation is subject to the Section 162(m) deduction limitations. Accordingly, the $1.0 million deduction limitation now applies to (i) anyone serving as the Company’s Chief Executive Officer or Chief Financial Officer at any time during the taxable year, (ii) the top three other highest compensated executive officers of the Company serving at the end of the taxable year and (iii) any individual who had been a covered employee for any taxable year of the Company that started after December 31, 2016.

 


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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 this review and discussion, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K/A.

 

 

The Compensation Committee

 

 

Willem Mesdag, Chairman

 

 

Lionel F. Conacher

 

Mitchell S. Presser

 

Ward K. Mooney

 

 

 

 

 

 

 

 

 

 

 

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Summary Compensation Table.  The following Summary Compensation Table sets forth certain information regarding compensation paid or accrued by us with respect to our Named Executive Officers for fiscal 2019.

Name and Principal Position

 

Year

 

Salary ($)

 

 

Bonus ($)

 

 

Stock

Awards

($) (1) (2)

 

 

Option

Awards

($) (1) (2)

 

 

Non-Equity

Incentive Plan

Compensation

($)(3)

 

 

All Other

Compensation

($)(4)

 

 

Total ($)

 

 

Harvey S. Kanter

 

2019

 

$

671,923

 

 

 

 

 

$

1,941,974

 

 

 

 

 

$

435,346

 

 

$

114,824

 

 

$

3,164,067

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David A. Levin

 

2019

 

$

739,440

 

 

 

 

 

 

 

 

 

 

 

$

243,360

 

 

$

594,043

 

 

$

1,576,843

 

 

Former President and Chief Executive

 

2018

 

$

811,200

 

 

 

 

 

$

506,998

 

 

 

 

 

$

867,173

 

 

$

258,418

 

 

$

2,443,789

 

 

Officer and former Acting CEO

 

2017

 

$

826,800

 

 

 

 

 

$

515,923

 

 

 

 

 

$

285,246

 

 

$

37,351

 

 

$

1,665,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peter H. Stratton, Jr.

 

2019

 

$

395,000

 

 

 

 

 

$

69,123

 

 

 

 

 

$

108,625

 

 

$

15,497

 

 

$

588,245

 

 

Executive Vice President, Chief

 

2018

 

$

395,000

 

 

 

 

 

$

169,307

 

 

 

 

 

$

232,240

 

 

$

25,122

 

 

$

821,669

 

 

Financial Officer and Treasurer

 

2017

 

$

384,038

 

 

 

 

 

$

158,496

 

 

 

 

 

$

52,997

 

 

$

24,722

 

 

$

620,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert S. Molloy

 

2019

 

$

375,000

 

 

 

 

 

$

65,625

 

 

 

 

 

$

75,000

 

 

$

17,620

 

 

$

533,245

 

 

Chief Administrative Officer,

 

2018

 

$

366,346

 

 

 

 

 

$

161,434

 

 

 

 

 

$

156,650

 

 

$

26,639

 

 

$

711,069

 

 

General Counsel and Secretary

 

2017

 

$

351,635

 

 

 

 

 

$

152,642

 

 

 

 

 

$

48,526

 

 

$

26,893

 

 

$

579,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Francis C. Chane

 

2019

 

$

288,365

 

 

 

 

 

$

50,749

 

 

 

 

 

 

$

63,440

 

 

$

16,869

 

 

$

419,423

 

 

Senior Vice President, Supply Chain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Customer Fulfillment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anthony J. Gaeta

 

2019

 

$

291,730

 

 

$

10,000

 

 

$

51,625

 

 

 

 

 

 

$

43,176

 

 

$

11,874

 

 

$

408,405

 

 

Senior Vice President,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Store Sales and Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brian S. Reaves

 

2019

 

$

375,000

 

 

 

 

 

 

$

87,499

 

 

 

 

 

 

 

 

 

$

301,605

 

 

$

764,104

 

 

Former Executive Vice President and

 

2018

 

$

432,692

 

 

 

 

 

$

201,248

 

 

 

 

 

$

254,401

 

 

$

100,648

 

 

$

988,989

 

 

Chief Operating Officer

 

2017

 

$

325,000

 

 

 

 

 

$

133,560

 

 

 

 

 

$

44,850

 

 

$

26,702

 

 

$

530,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James S. Davey

 

2019

 

$

233,654

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

$

282,029

 

 

$

515,683

 

 

Former Executive Vice President and

 

2018

 

$

403,269

 

 

 

 

 

$

328,147

 

 

$

150,000

 

 

$

190,303

 

 

$

11,888

 

 

$

1,083,607

 

 

Chief Marketing Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amounts reflect the fair value, as of grant date, of awards computed in accordance with FASB ASC Topic 718, and not the actual amounts paid to or realized by the Named Executive Officers during the applicable fiscal year.  The fair value of performance-based awards, based on a market condition, was determined as of the date of grant using a Monte-Carlo valuation model and the fair value of stock option awards were estimated as of the date of grant using a Black-Scholes valuation model. Additional information regarding the assumptions used to estimate the fair value of all awards is included in Note A and Note I to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.

 

(2)

See table “Stock Awards” below for a breakdown of 2019 amounts reflected in this column.

The fair value associated with the performance-based component of the equity awards under the 2019-2021 LTIP was determined based on the probable outcome of the performance conditions as of the service-inception date.  Because the achievement of the performance targets under the 2019-2021 LTIP was not deemed probable as of the service-inception date, no value was attributed to the performance-based portion of these awards.  Mr. Levin was not eligible to participate in the 2019-2021 LTIP and Mr. Davey was not employed by the Company when the plan was approved. The following reflects the fair values of the performance-based equity portion of the 2019-2021 LTIP assuming the highest level of performance conditions will be achieved for each of the Named Executive Officers:

 

Harvey S. Kanter

$

468,563

 

David A. Levin

$

 

Peter H. Stratton, Jr.

$

103,688

 

Robert S. Molloy

$

98,438

 

Francis C. Chane

$

76,125

 

Anthony J. Gaeta

$

77,438

 

Brian S. Reaves

$

131,250

 

James S. Davey

$

 

The amount shown in the Option Award column for fiscal 2018 represents the fair value, as of grant date, of a sign-on award of stock options to Mr. Davey, which were forfeited in connection with his termination of employment.

 

(3)

Represents cash awards earned under the Company’s AIPs for each respective year.

16

 


 

 

(4)

See table “All Other Compensation” below for a breakdown of 2019 amounts reflected in this column

 

The following table provides a breakdown of the amounts in 2019 in the “Stock Awards” column of the Summary Compensation Table above:

Name

 

2019-2021 LTIP (1)

 

 

Sign-on Performance-Based Award (2)

 

 

Sign-on

Time-Based Award (3)

 

 

Total Stock

Awards

 

Harvey S. Kanter

 

$

312,374

 

 

$

1,029,600

 

 

$

600,000

 

 

$

1,941,974

 

David A. Levin

 

$

 

 

$

 

 

$

 

 

$

 

Peter H. Stratton, Jr.

 

$

69,123

 

 

$

 

 

$

 

 

$

69,123

 

Robert S. Molloy

 

$

65,625

 

 

$

 

 

$

 

 

$

65,625

 

Francis C. Chane

 

$

50,749

 

 

$

 

 

$

 

 

$

50,749

 

Anthony J. Gaeta

 

$

51,625

 

 

$

 

 

$

 

 

$

51,625

 

Brian S. Reaves

 

$

87,499

 

 

$

 

 

$

 

 

$

87,499

 

James S. Davey

 

$

 

 

$

 

 

$

 

 

$

 

 

(1)

Represents the grant of time-based RSUs issued under the 2019-2021 LTIP, which will vest in four tranches with the first 25% vesting on August 7, 2020 and the remaining tranches vesting on April 1, 2021, April 1, 2022 and April 1, 2023.  The award to Mr. Reaves was forfeited in connection with his termination of employment.

 

(2)

Represents the grant-date fair value of the sign-on grant of PSUs to Mr. Kanter. The PSUs vest in installments when the following milestones are met: one-third of the PSUs vest when the trailing 90-day volume-weighted average closing stock price (“VWAP”) is $4.00, one-third of the PSUs vest when the VWAP is $6.00 and one-third when the VWAP is $8.00.  All PSUs will expire on April 1, 2023 if no performance metric is achieved.  

 

(3)

Represents the sign-on grant of time-based RSUs that vest ratably over four years with the first one-fourth having vested on April 1, 2020.  

The following table provides a breakdown of the amounts for 2019 in the “All Other Compensation” of the Summary Compensation Table above:

Name

 

Auto

Allowance

 

 

Severance and accrued benefits (1)

 

 

Life

Insurance

Premiums

 

 

Long-Term

Healthcare

Premiums

 

 

Supplemental

Disability

Insurance

 

 

Consulting Fees (2)

 

 

Relocation and Commuting Costs

 

 

Total

Other

Compensation

 

Harvey S. Kanter

 

$

8,462

 

 

$

 

 

$

 

 

$

2,188

 

 

$

4,174

 

 

$

-

 

 

$

100,000

 

 

$

114,824

 

David A. Levin

 

$

9,039

 

 

$

 

 

$

1,354

 

 

$

5,531

 

 

$

5,811

 

 

$

572,308

 

 

$

 

 

$

594,043

 

Peter H. Stratton, Jr.

 

$

8,400

 

 

$

 

 

$

 

 

$

4,034

 

 

$

3,063

 

 

$