dxlg-def14a_20200812.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

 

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Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

DESTINATION XL GROUP, INC.

(Name of Registrant as Specified In Its Charter)

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

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DESTINATION XL GROUP, INC.

Notice of Annual Meeting of Stockholders

to be held on August 12, 2020

Notice is hereby given that the 2020 Annual Meeting of Stockholders of Destination XL Group, Inc. (the “Company”) will be held at the corporate offices of the Company, 555 Turnpike Street, Canton, Massachusetts 02021 at 11:30 A.M., local time, on Wednesday, August 12, 2020 for the following purposes:

 

1.

To elect six directors to serve until the next Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified.

 

2.

To approve, on an advisory basis, named executive officer compensation.  

 

3.

To approve an amendment to the Company’s Restated Certificate of Incorporation, as amended to effect a reverse stock split of the Company’s issued and outstanding common stock at a ratio of not less than 1-for-2 and not more than 1-for-15, such ratio, and the implementation and timing of such reverse stock split, to be determined in the sole discretion of the Company’s Board of Directors.

 

4.

To approve amendments to our 2016 Incentive Compensation Plan to increase the total number of shares of common stock authorized for issuance under the plan by 1,740,000 shares.

 

5.

To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending January 30, 2021.

 

6.

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

These proposals are more fully described in the Proxy Statement following this Notice.

The Board of Directors recommends that you vote FOR the election of all six nominees to serve as directors of the Company and FOR the approval of all other Proposals being presented at the Annual Meeting.

Along with the attached Proxy Statement, we are sending you a copy of our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.

The Board of Directors has fixed the close of business on June 19, 2020 as the record date for the determination of the stockholders entitled to notice of, and to vote at, the Annual Meeting.  Accordingly, only stockholders of record at the close of business on that date will be entitled to vote at the Annual Meeting.  A list of the stockholders of record as of the close of business on June 19, 2020 will be available for inspection by any of our stockholders for any purpose germane to the Annual Meeting during normal business hours at our principal executive offices, 555 Turnpike Street, Canton, Massachusetts 02021, beginning on July 31, 2020 and at the Annual Meeting.

Stockholders are cordially invited to attend the Annual Meeting in person.  Regardless of whether you plan to attend the Annual Meeting, please mark, date, sign and return the enclosed proxy to ensure that your shares are represented at the Annual Meeting.

Special Note Regarding COVID-19: Given the public health and safety concerns related to COVID-19, we ask that each stockholder evaluate the relative benefits to them personally of in-person attendance at the Annual Meeting and take advantage of the ability to vote by proxy, as instructed on the proxy card or voting instructions that have been provided to you. If you elect to attend the Annual Meeting in person, we ask that you follow recommended guidance, mandates, and applicable executive orders from federal and state authorities, particularly as they relate to social distancing and attendance at public gatherings. If you are not feeling well or think you may have been exposed to COVID-19, we ask that you vote by proxy for the meeting. Please be advised that the Company will monitor any further developments with COVID-19 and the impact on the Annual Meeting. If the Company determines that it is not advisable to hold the Annual Meeting in person, the Company will, as promptly as possible, announce details on changes to the Annual Meeting, including by issuing a press release and posting such information on our website.

By order of the Board of Directors,

/s/ ROBERT S. MOLLOY

ROBERT S. MOLLOY

Secretary

Canton, Massachusetts

July 2, 2020

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on August 12, 2020: The Proxy Statement and 2020 Annual Report to Stockholders are available at:

https://investor.dxl.com/financial-information/annual-reports

 


 

TABLE OF CONTENTS

 

 

 

Page

Information About the Annual Meeting and Voting

 

1

Proposal 1: Election of Directors

 

3

Corporate Governance

 

6

Director Compensation

 

11

Compensation Discussion and Analysis

 

14

Compensation Committee Report

 

24

Summary Compensation Table

 

25

2019 Grants of Plan-Based Awards

 

31

2019 Outstanding Equity Awards at Fiscal Year End

 

33

2019 Option Exercises and Stock Vested

 

34

Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation

 

36

Proposal 3: Approval of Amendment to Certificate of Incorporation to Effect a Reverse Stock Split

 

37

Proposal 4: Approval of Amendments to the 2016 Incentive Compensation Plan

 

42

Proposal 5: Ratification of Appointment of Independent Registered Public Accounting Firm

 

55

Report of the Audit Committee

 

56

Security Ownership of Certain Beneficial Owners

 

57

Security Ownership of Management

 

59

Where You Can Find More Information

 

61

Solicitation

 

61

Delivery of Documents to Stockholders Sharing an Address

 

61

Stockholder Proposals

 

61

Stockholder Communications with the Board of Directors

 

62

Other Matters

 

62

Appendix A – Certificate of Amendment to Restated Certificate of Incorporation

 

A-1

Appendix B – 2016 Incentive Compensation Plan, as proposed to be amended

 

B-1

Appendix C – Non-GAAP Financial Measure

 

C-1

 

 

 

 


 

DESTINATION XL GROUP, INC.

555 Turnpike Street

Canton, Massachusetts 02021

(781) 828-9300

Proxy Statement

Annual Meeting of Stockholders

August 12, 2020

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

Purpose and Distribution of Proxy Materials

This Proxy Statement and the enclosed form of proxy are being mailed to our stockholders on or about July 2, 2020, in connection with the solicitation by the Board of Directors (the “Board”) of Destination XL Group, Inc. (the “Company”) of proxies to be used at the Annual Meeting of Stockholders, to be held at the Company’s corporate headquarters located at 555 Turnpike Street, Canton, Massachusetts 02021 at 11:30 A.M., local time, on Wednesday, August 12, 2020 and at any and all adjournments thereof (the “Annual Meeting”). This Proxy Statement describes the matters to be voted on at the Annual Meeting and contains other required information.

Stockholders Entitled to Vote

Only holders of record of our common stock, par value $0.01 per share, at the close of business on June 19, 2020, the record date for the Annual Meeting, will be entitled to notice of, and to vote at, the Annual Meeting.  On that date, there were 51,077,856 shares of common stock issued and outstanding.  Each share is entitled to one vote at the Annual Meeting.

How to Vote

Stockholders of record may vote by mail or in person at the meeting.  If you choose to vote by mail, please complete and mail the enclosed proxy card in the enclosed postage prepaid envelope.  If your shares are held in a stock brokerage account or by a bank, you must follow the voting procedures of your broker or bank.

Voting Instructions

When a proxy is returned properly executed, the shares represented will be voted in accordance with the stockholder’s instructions.

Stockholders are encouraged to vote on the matters to be considered. If no instructions have been specified by a stockholder, however, the shares covered by an executed proxy will be voted (i) FOR the election of all six nominees to serve as directors of the Company, (ii) FOR the approval of all other Proposals described in this Proxy Statement and being presented at the Annual Meeting, and (iii) in the discretion of the proxies serving at the Annual Meeting with respect to any other matters properly brought before the Annual Meeting. We are not aware of any other matter that may be properly presented at the Annual Meeting.

If your shares are held in a stock brokerage account or by a bank, you must follow the voting procedures of your broker or bank.  If you do not give voting instructions to your broker or bank, your broker or bank does not have discretion to vote your shares on the proposals in this Proxy Statement, except for Proposal 3 to approve an amendment to our certificate of incorporation to effect a reverse stock split and Proposal 5 to ratify the appointment of our independent registered public accounting firm, each of which is considered a “routine” proposal. A broker “non-vote” occurs when the broker or bank who is the record holder of the shares does not vote on a particular proposal, either because it does not have discretionary voting power to vote the shares or has not received voting instructions from the beneficial owner.

As a result, if you are not the record holder of your shares, it is critical that you provide instructions to your broker or bank if you want your vote to count.


1


 

Revoking Your Proxy or Changing Your Vote

You may revoke your proxy at any time before it has been exercised as follows:

 

by attending the Annual Meeting and voting in person; or

 

by filing with the Secretary of the Company, c/o the Company at 555 Turnpike Street, Canton, Massachusetts 02021, either an instrument in writing revoking the proxy or another duly executed proxy bearing a later date.

If you are not a record holder and your shares are held by your broker or bank, you must contact your broker or bank to change your vote or obtain a legal proxy to vote your shares if you wish to cast your vote in person at the Annual Meeting.

Quorum Requirements

In order to carry on the business of the Annual Meeting, we must have a quorum. This means at least a majority of the outstanding shares of common stock eligible to vote must be represented at the Annual Meeting, either by proxy or in person. Abstentions and broker non-votes will be counted as present or represented at the Annual Meeting for purposes of determining the presence or absence of a quorum.

Approval of a Proposal

A majority of the votes properly cast “FOR” a matter is required for approval of all matters except Proposal 3 to approve an amendment to our certificate of incorporation to effect a reverse stock split.  With respect to Proposal 3, to be approved a majority of the shares of common stock outstanding on the record date must vote “FOR” the proposal.  In addition, as described in more detail in Proposal 2 below, Proposal 2 is an advisory vote and non-binding.

Votes cast means the votes actually cast “FOR” or “AGAINST” a particular proposal, whether in person or by proxy.  With respect to all matters presented at the Annual Meeting except Proposal 3, abstentions and non-votes will not be deemed to be votes “cast” with respect to such matters and will not count as votes “FOR” or “AGAINST” such matter. With respect to Proposal 3, abstentions and non-votes will have the effect of an “AGAINST” vote with respect to that proposal.  Votes will be tabulated by our transfer agent subject to the supervision of the person designated by the Board of Directors as an inspector.

 

Special Note Regarding COVID-19: Given the public health and safety concerns related to COVID-19, we ask that each stockholder evaluate the relative benefits to them personally of in-person attendance at the Annual Meeting and take advantage of the ability to vote by proxy, as instructed on the proxy card or voting instructions that have been provided to you. If you elect to attend the Annual Meeting in person, we ask that you follow recommended guidance, mandates, and applicable executive orders from federal and state authorities, particularly as they relate to social distancing and attendance at public gatherings. If you are not feeling well or think you may have been exposed to COVID-19, we ask that you vote by proxy for the meeting. Please be advised that the Company will monitor any further developments with COVID-19 and the impact on the Annual Meeting. If the Company determines that it is not advisable to hold the Annual Meeting in person, the Company will, as promptly as possible, announce details on changes to the Annual Meeting, including by issuing a press release and posting such information on our website.

 

2


 

PROPOSAL 1

ELECTION OF DIRECTORS

In February 2020, in accordance with our Fourth Amended and Restated By-Laws (the “By-Laws”), our Board of Directors (“Board”) voted to reduce the number of members of our Board to no more than seven directors at the next annual meeting. In May 2020, the Board of Directors, at the recommendation of the Nominating and Corporate Governance Committee, set the board size to six, effective as of the Annual Meeting.

At the Annual Meeting, six nominees will be elected to serve on the Board until the 2021 Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified.  Accordingly, the Nominating and Corporate Governance Committee has recommended, and our Board has nominated, Harvey S. Kanter, Jack Boyle, Lionel F. Conacher, Willem Mesdag, Mitchell S. Presser and Ivy Ross as nominees, all of whom currently serve as members of our Board.  Effective immediately following the Annual Meeting, the terms of Messrs. Kyees, Holtzman and Mooney as directors will expire.  The Company gratefully acknowledges and thanks each of them for their years of service and dedication to our Board and to our Company.

Unless a proxy shall specify that it is not to be voted for a nominee, it is intended that the shares represented by each duly executed and returned proxy will be voted in favor of the election as directors of Harvey S. Kanter, Jack Boyle, Lionel F. Conacher, Willem Mesdag, Mitchell S. Presser and Ivy Ross.  Although management expects all nominees to serve if elected, proxies will be voted for a substitute if a nominee is unable or unwilling to accept nomination or election.  Cumulative voting is not permitted.

Vote Needed for Approval

The affirmative vote of a majority of the shares of common stock properly cast at the Annual Meeting, in person or by proxy, is required for the election of each of the nominees.

Recommendation

Our Board recommends that you vote “FOR”

the election of the six individuals named above as directors of our Company.

The following table sets forth the names, ages as of June 19, 2020, and certain other information for each of our current directors, all terms expiring at the Annual Meeting.

 

Name (1)

 

Age

 

Director

Since

 

Audit

 

Compensation

 

Nominating and

Corporate

Governance

 

Cybersecurity

and

Data Privacy

John Kyees, Chairman of the Board and Director

 

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

 

58

 

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

 

 

(1)

As a result of the decrease in the size of the Board, the terms of Messrs. Kyees, Holtzman and Mooney as directors will end at the Annual Meeting. Immediately after the Annual Meeting, the size of the Audit Committee will be reduced to three directors and the Board will appoint a new Chairperson and a new member.  The Compensation Committee will also be reduced to three directors.  The Board will also appoint a new Non-Executive Chairperson of the Board and Chairperson for the Cybersecurity and Data Privacy Committee immediately after the Annual Meeting.

3


 

Current Board Nominees

Set forth below is certain information regarding our current board members being nominated for re-election at the Annual Meeting, and includes information furnished by them as to their principal occupations and business experience for the past five years and certain directorships held by each director within the past five years:

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.

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.

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, Cost Plus, Inc., Encore Capital Group, Inc., Nature’s Sunshine Products, Inc. and Yuma Energy, Inc., all of which are or were 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.

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.

4


 

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.

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

5


 

CORPORATE GOVERNANCE

Board of Directors

Our Board is currently comprised of nine members. In May 2020, at the recommendation of the Nominating and Corporate Governance Committee, the Board set the board size to six, effective as of the Annual Meeting, and nominated six of our current directors to serve as directors.  

Our Board met six times during our fiscal year ended February 1, 2020 (“fiscal 2019”). All directors attended at least 75% of the Board meetings and meetings of the committees of the Board on which each director served. We believe that it is important for the members of the Board to attend our annual stockholder meetings. All members of the Board then in office attended our 2019 Annual Meeting of Stockholders.

Corporate Governance Highlights

We comply with the corporate governance requirements imposed by the Sarbanes-Oxley Act of 2002, the SEC and Nasdaq. To assist the Board in fulfilling its responsibilities, we have adopted certain Corporate Governance Guidelines (the "Governance Guidelines"). Many features of our corporate governance principles are discussed in other sections of this proxy statement, but some of the highlights are:

 

Annual Election of Directors.  Our directors are elected annually for a term of office to expire at the next Annual Meeting (subject to the election and qualification of their successors).

 

Board Size.  In February 2020, the Board determined that it would be in the best interests of the Company and its shareholders to reduce the size of the Board to no more than seven directors effective with the 2020 annual meeting of stockholders.

 

Majority Vote for Uncontested Director Elections.  Under our By-Laws, in an uncontested election, a majority of the votes properly cast is required for the election of our directors.  In the case of a contested election, a plurality vote will be required for the election of directors.  If a nominee for director does not receive the approval of a majority of the votes properly cast in an uncontested election, our By-Laws provide that the director will promptly tender to the Board his or her offer of resignation. The Nominating and Corporate Governance Committee of the Board will then consider the resignation offer and make a recommendation to the Board whether to accept or reject the resignation.

 

Independent Board and Committees.  The majority of our Board is comprised of independent directors. All members of our Board’s Audit, Compensation and Nominating and Corporate Governance committees are independent directors, and none receives compensation from us other than for service on our Board or its committees.

 

Independent Chairperson/Independent Lead Director. From February 2, 2017 until January 24, 2019, Mr. Kyees served as our Lead Independent Director.  On January 24, 2019, Mr. Kyees was appointed Non-Executive Chairman of the Board, replacing our Executive Chairman.  Mr. Kyees will continue to serve in that position until our Annual Meeting, at which time Mr. Kyees with retire and the Board will select a new Non-Executive Chairperson immediately after the Annual Meeting.  

 

Independent Executive Sessions.  Our Board holds independent executive sessions on at least a semi-annual basis, where independent directors meet. In addition to the independent executive sessions, periodically throughout 2019, the full Board, including the Chief Executive Officer and the former Executive Chairman, would meet without management participation.

 

Stock Ownership Guidelines.  Each non-employee director is required to receive at least 50% of his or her retainer in equity, in the form of options, shares or deferred stock or any combination thereof.  The directors may also elect to receive any or all of the other 50% of his or her compensation in equity as described in this paragraph.  Pursuant to the Company’s Fourth Amended and Restated Non-Employee Director Compensation Plan, effective December 31, 2018, a director may not sell any equity received under the plan while each director is still serving on the Board without the approval of the Board.  We encourage our senior management to have meaningful ownership in our Company.  However, given that management ownership is typically measured as a multiple of salary and our current low stock price, we do not currently have any required stock ownership guidelines for members of senior management.

 

COVID-19 Measures. Due to the impact of the COVID-19 pandemic, which included temporarily closing all of our stores on March 17, 2020, in March all of our independent directors elected to suspend their director compensation for the second quarter.  

 

No Hedging of Company Securities.  Our Insider Trading Policy prohibits our directors, officers and employees from engaging in various hedging activities with Company securities, including short sales and any transaction involving a publicly traded option, such as a put, call or other derivative security.

6


 

 

No Stockholder Rights Plan.  We do not currently have a stockholder rights plan in effect and are not currently considering adopting one.

 

Vote Required for Merger or Business Combination.  A majority vote of the outstanding shares entitled to vote is needed for the stockholders to approve a merger or business combination.

 

Clawback Policy.  Our employment agreements with members of our senior management and our long-term incentive plans contain claw-back provisions that provide for remedies in the event we learn, after the senior executive is terminated by us other than for “justifiable cause,” that the senior executive could have been terminated for “justifiable cause.”  Since August 2018, we have had an Executive Incentive Pay Clawback Policy (“Clawback Policy”) that permits the Company to recover incentive-based compensation (cash and/or equity) in certain circumstances.

 

Directors Overboarding Policy. No director can serve on more than five public company boards. In addition, no director who is a named executive officer can serve on more than one public company board besides that of our Company.

Shareholder Engagement

Members of our Board and senior management regularly engage with our shareholders throughout the year and welcome their feedback on our practices and policies.  

Independent Directors

A majority of the members of the Board are “independent” under the rules of the Nasdaq Global Select Market (“Nasdaq”).  The Board has determined that the following current directors are independent: Messrs. Kyees, Boyle, Conacher, Mesdag, Mooney, Presser and Ross.  

Committees of the Board

Our Board has four standing committees: the Nominating and Corporate Governance Committee, the Audit Committee, the Compensation Committee and the Cybersecurity and Data Privacy Committee.  Each committee is comprised of directors who are “independent” under the rules of Nasdaq.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee (the “Nominating Committee”) has a written charter, which can be found under “Corporate Governance– Charters & Policies” on the Investor Relations page of our website at https://investor.dxl.com. The Nominating Committee was established to perform functions related to governance of our Company, including, but not limited to, planning for the succession of our CEO and such other officers as the Nominating Committee shall determine from time to time, recommending to the Board individuals to stand for election as directors, overseeing and recommending the selection and composition of committees of the Board, and developing and recommending to the Board a set of corporate governance principles applicable to our Company. The Nominating Committee has the authority to retain independent advisors, with all fees and expenses to be paid by the Company.  The current members of the Nominating Committee are Messrs. Presser and Boyle and Ms. Ross, each of whom is “independent” under the rules of Nasdaq.  The Nominating Committee met five times during fiscal 2019.  

The Board's current policy with regard to the consideration of director candidates recommended by stockholders is that the Nominating Committee will review and consider any director candidates who have been recommended by stockholders in compliance with the procedures established from time to time by the Nominating Committee, and conduct inquiries it deems appropriate.  The Nominating Committee will consider for nomination any such proposed director candidate who is deemed qualified by the Nominating Committee in light of the minimum qualifications and other criteria for Board membership approved by the Nominating Committee from time to time.

While the Nominating Committee does not have a formal diversity policy for Board membership and identifies qualified candidates without regard to race, color, disability, gender, national origin, religion or creed, it does seek to ensure the fair representation of all stockholder interests on the Board.  In that regard, in considering candidates for the Board, the Nominating Committee considers, among other factors, diversity with respect to viewpoint, skills and experience.  The Board believes that the use of these general criteria, along with the minimum qualifications listed below, will result in nominees who represent a mix of backgrounds and experiences that will enhance the quality of the Board.

7


 

At a minimum, the Nominating Committee must be satisfied that each nominee, both those recommended by the Nominating Committee and those recommended by stockholders, meets the following minimum qualifications:

 

The nominee should have a reputation for integrity, honesty and adherence to high ethical standards.

 

The nominee should have demonstrated business acumen, experience and ability to exercise sound judgments in matters that relate to our current and long-term objectives and should be willing and able to contribute positively to our decision-making process.

 

The nominee should have a commitment to understand our Company and our industry and to regularly attend and participate in meetings of the Board and its committees.

 

The nominee should have the interest and ability to understand the sometimes conflicting interests of the various constituencies of ours, which includes stockholders, employees, customers, governmental units, creditors and the general public, and to act in the interests of all of our stakeholders.

 

The nominee should not have, nor appear to have, a conflict of interest that would impair the nominee's ability to represent the interests of all of our stockholders and to fulfill the responsibilities of a director.

The current procedures to be followed by stockholders in submitting recommendations for director candidates can be found in Section 4.15 of our By-Laws.

The Nominating Committee is responsible for identifying and evaluating individuals, including nominees recommended by stockholders, believed to be qualified to become Board members and recommending to the Board the persons to be nominated by the Board for election as directors at any annual or special meeting of stockholders and the persons to be elected by the Board to fill any vacancies on the Board. The Nominating Committee may solicit recommendations from any or all of the following sources: non-management directors, the CEO, other executive officers, third-party search firms or any other source it deems appropriate.  The Nominating Committee will review and evaluate the qualifications of any such proposed director candidate, and conduct inquiries it deems appropriate.  The Nominating Committee will evaluate all such proposed director candidates in the same manner, with no regard to the source of the initial recommendation of such proposed director candidate.  Accordingly, there are no differences in the manner in which the Nominating Committee evaluates director nominees recommended by stockholders.  In identifying and evaluating candidates for membership on the Board, the Nominating Committee will take into account all factors it considers appropriate, which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity, and the extent to which the candidate would fill a present need on the Board.

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. Mooney, Conacher, Kyees and Mesdag each qualifies as an audit committee financial expert under the rules of the SEC.  With the retirement of Messrs. Mooney and Kyees, immediately following the Annual Meeting, the Board is expected to reduce the size of the audit committee to three directors and will add a new member and appoint a Chairperson of the committee.

The Audit Committee operates under a written charter, which can be found under “Corporate Governance- Charters & Policies” on the Investor Relations page of our website at https://investor.dxl.com.

The purpose of the Audit Committee is to (i) assist the Board in fulfilling its oversight responsibilities to the shareholders, potential shareholders and the investment community; (ii) oversee the audits of our financial statements and our relationship with our independent registered public accounting firm; (iii) promote and further the integrity of our financial statements and oversee the qualifications, independence and performance of our independent registered public accounting firm (including being solely responsible for appointing, determining the scope of, evaluating and, when necessary, terminating the relationship with the independent registered public accounting firm); and (iv) provide the Board and the independent registered public accounting firm, unfiltered access to each other on a regular basis. The Audit Committee has the authority to retain independent advisors, with all fees and expenses to be paid by the Company.  The Audit Committee meets at least quarterly and as often as it deems necessary in order to perform its responsibilities. During fiscal 2019, the Audit Committee met eight times.

For additional information regarding the Audit Committee, see the “Report of the Audit Committee” included elsewhere in this Proxy Statement.

8


 

Compensation Committee

The primary purpose of the Compensation Committee is to discharge the Board’s responsibilities relating to executive compensation.  The Compensation Committee also reviews and independently approves, or makes recommendations to the full Board, all stock-based compensation awards to our executive officers under our equity incentive plans.  The Compensation Committee has the authority to retain independent advisors, with all fees and expenses to be paid by the Company.  The Compensation Committee met eight times during fiscal 2019.  The current members of the Compensation Committee are Messrs. Mesdag, Conacher, Mooney and Presser, each of whom is “independent” under the rules of the Nasdaq. With the retirement of Mr. Mooney, the size of the Compensation Committee will be reduced to three members immediately after the Annual Meeting.

The Compensation Committee operates under a written charter, which can be found under “Corporate Governance – Charters & Policies” on the Investor Relations page of our website at https://investor.dxl.com.

The Compensation Discussion and Analysis recommended by the Compensation Committee to be included in the Proxy Statement is included in this Proxy Statement.  Among other things, the Compensation Discussion and Analysis describes in greater detail the Compensation Committee’s role in the executive compensation process.

Cybersecurity and Data Privacy Committee

The Cybersecurity and Data Privacy Committee (the “Cybersecurity Committee”) oversees the monitoring and management of cyber risk and data privacy in the Company.  The Cybersecurity Committee has the authority to retain independent advisors, with all fees and expenses to be paid by the Company.   The current members of the Cybersecurity Committee are Messrs. Kyees and Boyle and Ms. Ross. The Cybersecurity Committee met four times during fiscal 2019.  

The Cybersecurity Committee operates under a written charter, which can be found under “Corporate Governance –Charters & Policies” on the Investor Relations page of our website at https://investor.dxl.com.

Board Leadership Structure

The Board believes that the Company and its stockholders are best served by maintaining flexibility to have any director serve as Chairperson of the Board.  Under our Corporate Governance Guidelines, if the Chairperson is not independent, the Board appoints an independent Lead Director.

In January 2019, the Board voted to implement an independent Chairperson and elected Mr. Kyees, who had previously served as independent Lead Director, and replaced Mr. Holtzman, who served as our Executive Chairman from August 2014 and as our Chairman since April 2000.  With the retirement of Mr. Kyees from the Board at the Annual Meeting, the Board is expected to appoint a new independent Chairperson immediately following the Annual Meeting.

Our Board delegates substantial responsibility to its committees, including as described below. We believe that the independent committees of our Board and their chairpersons are an important aspect of the leadership structure of our Board.

Risk Oversight

Our Board, as a whole and through its committees, has responsibility for the oversight of enterprise risk management. With the oversight of our full Board, our executive officers are responsible for the day-to-day management of the material risks we face. The involvement of the full Board in setting our business strategy is a key part of its oversight of risk management and in determining what constitutes an appropriate level of risk for us. The full Board receives updates from our executive officers and outside advisors regarding certain risks our Company faces, including various operating risks and corporate governance best practices. At least annually, our senior management team meets to review our identified risks and compensating controls as well as any potential new risks and, when appropriate, presents to the full Board.

In addition, our Board committees each oversee certain aspects of risk management. Our Audit Committee is responsible for overseeing the management of risks associated with the Company’s financial reporting, accounting and auditing matters; our Compensation Committee oversees risks associated with our compensation policies and programs; our Cybersecurity Committee oversees the management of risks associated with cyber risk and data privacy issues; and our Nominating Committee oversees the management of risks associated with director independence, conflicts of interest, composition and organization of our Board, and director succession planning. Our Board committees report their findings to the full Board.

9


 

Corporate Social Responsibility

At DXL, Corporate Social Compliance and Responsibility has been a focus for many years. We recognize the importance of environmental, social and governance (ES&G) issues and are diligently working to enhance and develop a platform that we can share with our stakeholders and consumers.  Our board is directly involved in the oversight of these initiatives.  

Human Capital Management

Our associates are our greatest asset and we are committed to providing them a safe and healthy work environment. We are committed to inclusivity, acceptance, and equality. Since 2017, we have had a diversity and inclusion initiative called “Normalizing the Brand.” The program brings awareness to unconscious bias and focuses on ensuring the composition of our organization looks and feels like the world we live in and serve. We have policies and training in place with respect to anti-discrimination and anti-harassment, among others, and provide our associates with access to an anonymous hot-line for reporting any concerns.

Each associate is required to sign a set of policies that include, among other policies, the code of ethics, anti-harassment and procedures for raising a complaint.  Our policies also contain protection of human rights and prohibit, among other things, the use of child labor or forced, bonded or indentured labor. We aim to provide a healthy-work environment for our associates.  Our corporate office is equipped with a gym and an on-site cafeteria.

Perhaps most importantly, we promote professional and career development and mentorship programs. In 2014, our Associate Engagement & Development Committee implemented the DXLG Mentor Program, which pairs up to 20 mentees with mentors for one-year periods. In April 2016, the DXL Women’s Leadership Group was formed with a mission of “Women supporting, educating and empowering each other @ DXLG”. It started as a pilot program and quickly expanded to now include 43 female leaders, all people managers, in the corporate office and field.  In addition, for the past two years, we have presented Leadercast, a platform for leadership development content (held annually in May) and Leadercast Women (held annually in October) as a host site at our corporate headquarters.  

Responsible Sourcing

We expect our values and principles to be maintained throughout our business, including our supply chain.  Our Vendor Code of Conduct defines our expectations of our suppliers, and all of our suppliers are required to agree to this code of conduct to do business with us.

With the addition of our Wholesale Business and the increase in demand on our supply chain, in fiscal 2019 we became a member of Sedex Global, a leading ethical trade service provider, to increase our social, environmental and ethical sustainability.  In fiscal 2019, we started to participate in the Sedex Ethical Trade Audit, which evaluates suppliers against a common set of Corporate Social Responsibility standards and, by the end of fiscal 2020, we expect the majority of our suppliers to have completed the audit. In addition, we are requiring our vendors to move from a “Pillar 2” audit to a “Pillar 4” level audit.  Pillar 4 audits add more extensive environmental management and business practice requirements to the existing audit.

Community Involvement

Community engagement is a key part of our culture. Since 2005, we have been a partner with St. Jude and have raised over $13 million through their Thanks and Giving program, the St. Jude Walk/Run to End Childhood Cancer as well as other campaigns that run throughout the year.   We consistently support the families of St. Jude year-round as we help St. Jude fund the “Light Microscopy Center presented by DXL”, a shared resource lab on the St. Jude campus that allows doctors and researchers to study cells within an extremely close view.

Our Workplace Environment and Community Outreach Committee administers our Volunteer Service Program and sponsors the events throughout the year, such as, clothing drives, food drives, electronics recycling event, Earth Day event. For the past 20 years, we have supported a local center for the prevention of child abuse and neglect by running an annual holiday toy drive.

Every year, we offer paid internships in our corporate office to college students providing them relevant work experience in their chosen career paths. Unfortunately, due to the COVID-19 pandemic, we had to suspend this program for the summer of 2020 but look forward to offering it again in 2021.

10


 

Environment

We seek to minimize the impact on the environment by reducing the waste we produce in connection with the manufacture, distribution and sale of our products to our customers.  We also look for ways in which our stores and our corporate office can operate in a more environmentally friendly way.  In fiscal 2019, we completed the conversion of all lighting in our corporate headquarters and distribution center to dimmable LED fixtures.  We recycle metal, plastic and white paper and approximately 95% of our corrugated material is recycled as well.  Miscellaneous trash is hauled to a “trash to energy” plant located near our corporate office.  As we replace aging HVAC or other motor-driven equipment, such as conveyors, we install energy-efficient equipment, equipped with variable frequency drives.  

In addition, our two largest freight providers have implemented proactive environmental policy initiatives.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines, which set forth our governance principles relating to, among other things, director independence, director qualifications and responsibilities, board structure and meetings, and management succession.

A copy of the Governance Guidelines can be found under “Corporate Governance –Charters & Policies” on the Investor Relations page of our corporate website, which is at https://investor.dxl.com.

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.  

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee who served on the Compensation Committee during fiscal 2019 was at any time during fiscal 2019 or at any other time an officer or employee of our Company.  During fiscal 2019, none of our executive officers served as a member of the board of directors or compensation committee of any other entity that had one or more executive officers serving as a member of our Board or Compensation Committee.

DIRECTOR COMPENSATION

The Compensation Committee is responsible for reviewing and making recommendations to our Board with respect to the compensation paid to our non-employee directors.  Pursuant to the Company’s Fourth Amended and Restated Non-Employee Director Compensation Plan (the “Non-Employee Director Compensation Plan”), non-employee directors are compensated as follows:

 

each independent director receives a quarterly retainer of $30,000;

 

the Chairperson of the Board or Lead Director, as applicable, will receive a quarterly retainer of $5,000;

 

the Chairperson of the Audit Committee will receive a quarterly retainer of $2,500; and

 

the Chairperson of each other Board committee will receive a quarterly retainer of $1,250.

Directors will be required to hold equity until their termination from board service, unless an extenuating circumstance exists and the Board, in its sole discretion, approves the sale of such equity.  

In January 2010, the Company established a Non-Employee Director Stock Purchase Plan to provide a convenient method for its non-employee directors to acquire shares of the Company’s common stock at fair market value by voluntarily electing to receive shares of common stock in lieu of cash for service as a director.  The substance of this plan is now encompassed within the Non-Employee Director Compensation Plan. There are 500,000 shares authorized for issuance under this plan for the sole purpose of satisfying elections to receive shares of common stock in lieu of cash for service as a director, of which 187,897 shares remain available for future issuances at February 1, 2020.  The Non-Employee Director Compensation Plan is a stand-alone plan and is not a sub-plan under our 2016 Incentive Compensation Plan (the “2016 Plan”).  Accordingly, shares issued under this plan do not reduce the shares available for issuance under the 2016 Plan.

11


 

Each non-employee director is required to receive 50% of his or her annual retainer in equity, in the form of stock options, stock or deferred shares.  Because the Non-Employee Director Compensation Plan is not a shareholder-approved plan and the acquisition of equity must be voluntary under Nasdaq rules, we cannot utilize shares under this plan to satisfy this mandated election.  Therefore, in fiscal 2019 any grants of equity to satisfy this required election were issued from the 2016 Plan.  Any voluntary election of shares, above this 50% retainer requirement, was issued from the Non-Employee Director Compensation Plan. Stock options and deferred shares were issued from the 2016 Plan.

We believe that our Non-Employee Director Compensation Plan will support our ongoing efforts to attract and retain exceptional directors to provide strategic guidance to our Company.  We believe that the total compensation that our non-employee directors receive is in line with our current peer group.

In connection with the COVID-19 pandemic, in March 2020, all non-employee directors agreed temporarily to suspend all compensation for the second quarter of fiscal 2020.

Director Compensation Table

The following table sets forth the compensation paid to our directors during fiscal 2019.  Harvey S. Kanter is not included in the following table as he is a Named Executive Officer and, accordingly, received no compensation for his services as a director.  Compensation earned by Mr. Kanter is included below in the “Summary Compensation Table.

2019 DIRECTOR COMPENSATION TABLE

 

Name

 

Fees Earned or

Paid in Cash

($)(1)

 

 

Stock

Awards

($)(2)

 

 

Option

Awards

($)(3)

 

 

All Other

Compensation

($)(4)

 

 

Total

($)

 

John E. Kyees, Chairman

 

$

72,500

 

 

$

72,491

 

 

$

 

 

$

 

 

$

144,991

 

Jack Boyle

 

$

60,000

 

 

$

59,997

 

 

$

 

 

$

 

 

$

119,997

 

Lionel F. Conacher

 

$

60,000

 

 

$

59,997

 

 

$

 

 

$

 

 

$

119,997

 

Seymour Holtzman, former Executive Chairman

 

$

 

 

$

 

 

$

 

 

$

200,000

 

 

$

200,000

 

Willem Mesdag

 

$

 

 

$

124,992

 

 

$

 

 

$

 

 

$

124,992

 

Ward K. Mooney

 

$

65,000

 

 

$

64,993

 

 

$

 

 

$

 

 

$

129,993

 

Mitchell S. Presser

 

$

 

 

$

124,992

 

 

$

 

 

$

 

 

$

124,992

 

Ivy Ross

 

$

61,250

 

 

$

59,997

 

 

$

 

 

$

 

 

$

121,247

 

 

 

(1)

All non-employee directors are required to receive at least 50% of their annual retainer in the form of equity. For fiscal 2019, Mr. Presser elected to receive all compensation, including his retainer and chair fees, in unrestricted shares of our common stock and Mr. Mesdag elected to receive all compensation, including his retainer and chair fees, in deferred stock.  Mr. Kyees elected to receive his compensation, including his retainer, Chairman of the Board and chair fees, in a combination of 50% deferred stock and 50% cash. Messrs. Boyle, Conacher, Mooney and Ms. Ross elected to receive 50% of their retainer in unrestricted shares of our common stock and 50% in cash.  With respect to chairperson fees, Ms. Ross elected cash and Mr. Mooney elected a combination of 50% cash and 50% unrestricted shares.  The number of shares issued as payment for an earned director fee is determined by taking the director fee earned and dividing by the consolidated closing price of our common stock on the grant date.  Payments are made at the beginning of each quarter, with the grant date being the first business day of each respective quarter.  

 

(2)

Represents the portion of each director’s compensation that was paid in the form of equity.  

 

(3)

There were no stock option grants to any of the directors in fiscal 2019.  Each director had the following number of stock options outstanding at February 1, 2020:  Mr. Kyees: 43,648; Mr. Boyle: 15,000; Mr. Conacher: 15,000; Mr. Mesdag: 15,000; Ms. Ross: 15,000.

 

(4)

Mr. Holtzman received compensation from us pursuant to the Employment and Chairman Compensation Agreement.  See “Former Executive Chairman Compensation” below for additional information.

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Former Executive Chairman Compensation

Since August 7, 2014, Mr. Holtzman has been compensated for his services pursuant to an Employment and Chairman Compensation Agreement (“Compensation Agreement”).  Pursuant to that agreement, Mr. Holtzman has served as both an employee of the Company, reporting to the Board, and as Executive Chairman, with the duties of the Chairperson of the Board set forth in the Company’s Fourth Amended and Restated By-Laws.  The initial term of the agreement was for two years and was automatically extended for additional one-year terms.  

Pursuant to the agreement, initially Mr. Holtzman was entitled to receive an annual base salary of $24,000 for his employment services and an annual compensation of $372,750 for his services as Executive Chairman.  The agreement was amended on May 25, 2017 to reduce his Executive Chairman compensation to $200,000.  On August 9, 2018, the agreement was further amended to reduce his Executive Chairman compensation to $176,000 and to provide written notification to Mr. Holtzman that the Company would not be extending the term of the agreement and, as a result, the agreement will terminate on August 7, 2020.  

On January 24, 2019, the Board voted to adopt an independent Board chairperson structure and elected John Kyees as the Company’s new independent, non-executive Chairman, replacing Mr. Holtzman. Mr. Holtzman continues to serve as a director of the Company and will continue to receive his annual compensation of $176,000 as a director and an annual base salary of $24,000 for his services as an employee of the Company through August 7, 2020.

If we engage Mr. Holtzman’s services to assist us in a specific and significant corporate transaction or event, the Compensation Committee, at its discretion, has the right to grant Mr. Holtzman a bonus for his additional services.  No such bonus was granted during fiscal 2019.  


13


 

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.  Because of the COVID-19 pandemic, the closure of all of our stores on March 17, 2020 and the uncertainty regarding the recovery period, the Compensation Committee has not yet established an AIP for fiscal 2020.  The Compensation Committee has not made any adjustments to any existing targets under the 2018-2020 LTIP or 2019-2021 LTIP.

In June 2020, the Compensation Committee approved the 2020-2022 LTIP and granted time-based compensation in a combination of 50% cash and 50% stock options, to be earned through April 1, 2024.  Given the continued uncertainty regarding the COVID-19 pandemic and the short-term and long-term impact it may have on consumer spending, the Compensation Committee established one performance metric for the 2020-2022 LTIP: “Three-Year Relative Total Shareholder Return” as compared to the Company’s 2020 proxy peer group as discussed below.  The Compensation Committee believes this performance metric, which is consistent with our 2018-2020 LTIP, and the issuance of stock options under the time-based portion of the 2020-2022 LTIP, appropriately aligns management with the interests of our stockholders.  The Compensation Committee also granted Mr. Kanter a stock option to purchase up to 450,000 shares of common stock, at an exercise price of $0.64 per share, which will vest in three equal installments, with the first tranche vesting on June 10, 2021, the second tranche on April 1, 2022 and remaining tranche on April 1, 2023. In approving the award, the Compensation Committee, in consultation with Segal Consulting, determined that it was important to preserve continuity of leadership through the COVID-19 pandemic and the uncertain recovery period, and accordingly to provide Mr. Kanter with a long-term equity incentive that aligns his interests with those of our stockholders. 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 met telephonically with management on a weekly basis as we continued to navigate through this pandemic.  As of June, these meetings have transitioned to bi-weekly.

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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. Adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation and amortization, impairment charges, exit costs associated with London operations, CEO transition costs and corporate restructuring, was $23.5 million in fiscal 2019 as compared to $27.4 million in fiscal 2018.  

Please see “Appendix C -Non-GAAP Financial Measure” for a reconciliation of adjusted EBITDA to its GAAP measure.

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 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.  

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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.

 

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.

16


 

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.

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.

17


 

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.

 

* 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.


18


 

 

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 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.  

19


 

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 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.  

20


 

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.


21


 

 

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:

 

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:

50% RSUs

50% Cash

 

RSUs, when earned

 

 

at effective date:

100% RSUs

 

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.

 


22


 

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:

 

 

 

 

 

 

% of

 

 

Vesting of Awards by Fiscal Year:

 

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 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.

23


 

COMPENSATION COMMITTEE REPORT

The Compensation Committee 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 Proxy Statement.

 

 

The Compensation Committee

 

 

Willem Mesdag, Chairman

 

 

Lionel F. Conacher

 

Mitchell S. Presser

 

 

 

Ward K. Mooney

 

 

 

24


 

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.

SUMMARY COMPENSATION TABLE

 

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