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

Check the appropriate box:

DESTINATION XL GROUP, INC.

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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DESTINATION XL GROUP, INC.

Notice of Annual Meeting of Stockholders

to be held on August 5, 2021

Notice is hereby given that the 2021 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 Thursday, August 5, 2021 for the following purposes:

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 January 30, 2021.

The Board of Directors has fixed the close of business on June 8, 2021 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 8, 2021 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 26, 2021 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:  We are following evolving guidance and protocols issued by Centers for Disease Control. If you elect to attend the Annual Meeting in person, we ask that you follow the COVID-19 protocols that we may have in place.

By order of the Board of Directors,

/s/ ROBERT S. MOLLOY

ROBERT S. MOLLOY

Secretary

Canton, Massachusetts

July 2, 2021

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on August 5, 2021: The Proxy Statement and 2021 Annual Report to Stockholders are available at:

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

 

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TABLE OF CONTENTS

 

 

 

 

 

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DESTINATION XL GROUP, INC.

555 Turnpike Street

Canton, Massachusetts 02021

(781) 828-9300

Proxy Statement

Annual Meeting of Stockholders

August 5, 2021

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, 2021, 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 Thursday, August 5, 2021 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 8, 2021, 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 63,526,601 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 increase the authorized number of shares of our common stock 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.

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Revoking Your Proxy or Changing Your Vote

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

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 increase the authorized number of shares of our common stock.  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: If you elect to attend the Annual Meeting in person, we ask that you follow the COVID-19 protocols that we have instituted in our corporate office.  If you are not feeling well or think you may have been exposed to COVID-19, we ask that you vote by proxy.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

In June 2021, in accordance with our Fourth Amended and Restated By-Laws (the “By-Laws”), our Board of Directors (“Board”), at the recommendation of the Nominating and Corporate Governance Committee, voted to 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 2022 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, Ivy Ross and Elaine Rubin as nominees, all of whom currently serve as members of our Board. Mitchell Presser, who has served on our Board since 2007, will step off of the Board when his term of service ends at the Annual Meeting.  The Company gratefully acknowledges and thanks Mr. Presser for his many 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, Ivy Ross and Elaine Rubin.  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 8, 2021, and certain other information for each of our current directors, all terms expiring at the Annual Meeting.

C= current member and committee chairperson

X= current member of the committee

 

 

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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:

Lionel F. Conacher has been a director since June 2018 and became Chairman of the Board on August 12, 2020. Mr. Conacher was co-founder and managing partner of Next Ventures, GP from July 2018 until February 2021.  From January 2011 to June 2018, Mr. Conacher was a senior advisor and operating partner for Altamont Capital Partners LLC (“ACP”), a private equity firm.  Additionally, Mr. Conacher served as the chairman of Wunderlich Securities, and as a director for Mervin Manufacturing and Dakine Inc., investee companies of ACP, from December 2013 until July 2018.  Prior to joining ACP, from January 2008 until July 2010, Mr. Conacher was the president and chief operating officer of Thomas Weisel Partners, a Nasdaq-listed investment bank.  Mr. Conacher also previously served as a member of the board of directors for PowerDot Inc., AmpHP Inc., SteadyMD Inc. and Kinetyx Sciences Inc.  Mr. Conacher brings extensive financial and operational experience to the Board.

Harvey S. Kanter is the President, Chief Executive Officer and a director of the Company.  Mr. Kanter joined the Company in February 2019 in a transition role as Advisor to the Acting CEO and assumed the role of President and Chief Executive Officer and a director of the Company in April 2019. Mr. Kanter has over 30 years of business experience, with an extensive background in the retail industry having served from March 2012 until June 2017 as the president and chief executive officer of Blue Nile, Inc., a leading online retailer of high-quality diamonds and fine jewelry and formerly a publicly-traded company. 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 currently serves as a non-executive co-chair, Seattle University Center for Leadership Formation, Albers School of Business and Economics.  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 was a former brand ambassador for the Fred Hutch Cancer Research Institute, and previously served as 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. Mr. Boyle originally joined Fanatics as president of merchandising in June 2012, and from December 2017 to February 2019, served as co-president of North America direct to consumer/omni-channel.  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.

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.

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 of hardware design 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.

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Elaine Rubin was appointed a director of the Company in April 2021. Since January 2010, Ms. Rubin has been the founder and president of Digital Prophets Network, LLC, a consulting, advisory and placement firm with a network of digital commerce experts that supports the growth of retail and direct-to-consumer businesses. Since October 2013, she has also served as an advisor to Hint, Inc., which produces fruit-infused water. Prior to that, Ms. Rubin previously held leadership positions at 1800flowers.com, iVillage.com and amazon.com. She previously served on the boards of Smart & Final Stores, Inc. and Blue Nile, Inc., both which were formerly publicly-traded companies. Ms. Rubin co-founded shop.org in February 1996 and served as its elected chair of the board of directors from February 1996 to October 2007 and served on the board of the National Retail Federation (NRF) from 2001 until 2010.  Ms. Rubin brings extensive knowledge of, and experience in, digital commerce business and will provide a valuable insight to the Board as it continues to grow its direct business.

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.

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CORPORATE GOVERNANCE

Board of Directors

Our Board is currently comprised of seven members. In June 2021, 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 33 times during our fiscal year ended January 30, 2021 (“fiscal 2020”). During fiscal 2020, our full board met with management regularly to discuss the business decisions that were being made, given the impact of the COVID-19 pandemic on the business. 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 2020 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 OTCQX tier of the OTC Markets (“OTCQX”), and, with respect to the independence of our directors, the corporate governance requirements of the Nasdaq Stock Market (“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:

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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

While our common stock currently trades on the OTCQX, we have chosen to continue to comply with the definition of “independence” as set forth in the corporate governance rules of Nasdaq.  A majority of the members of the Board are “independent” under the rules of Nasdaq and the corporate governance requirements of the OTCQX.  The Board has determined that the following current directors are independent: Messrs. Boyle, Conacher, Mesdag, Presser, Ross and Rubin.

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”.

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 and the OTCQX.  The Nominating Committee met four times during fiscal 2020.  Immediately following the Annual Meeting, the Board will add a new member and appoint a Chairperson to the Nominating Committee.  

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.

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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 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. Conacher, Mesdag and Presser.  Each of the members of the Audit Committee is independent, as independence for Audit Committee members is defined under the rules of Nasdaq and the OTCQX.  Messrs. Conacher and Mesdag each qualifies as an audit committee financial expert under the rules of the SEC.

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 2020, the Audit Committee met six times.

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

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

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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 seven times during fiscal 2020.  The current members of the Compensation Committee are Messrs. Mesdag, Boyle and Conacher, each of whom is “independent” under the rules of Nasdaq and the OTCQX.

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 Mr. Boyle, Ms. Ross and Ms. Rubin. The Cybersecurity Committee met three times during fiscal 2020.  

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.

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 human capital and 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.

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.  In May 2021, the Company formed the Corporate Social Responsibility Committee, comprising a cross-discipline of corporate management, with a dedicated focus on the Company’s policies and practices including the development of our communication of such initiatives to our stakeholders.  The committee will report to the senior management team of the Company, with our full board 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 that the composition of our organization looks and feels

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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.  In early 2021, we joined with CEO Action for Diversity & Inclusion, a growing coalition pledging to advance diversity and inclusion in the workplace. Nearly 2,000 CEOs have come together and we have committed to this effort. By signing on to this commitment, we have pledged to take action to cultivate a workplace where diverse perspectives and experiences are welcomed and respected, and where employees feel encouraged to discuss diversity and inclusion without retribution.

An Advisory Council, personally headed up by the CEO, was created in 2020 to give cross-functional associates an opportunity to provide input on issues affecting the Company’s workforce and the employer-associate relationship.  The purpose of the Advisory Council is to facilitate networking, exchange ideas, and suggest ways to enhance staff satisfaction and work effectiveness.

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 over 40 female leaders, both people and process managers, in the corporate office and field.  In addition, for the past three 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. In 2020, the programs were made available via an online platform.

Our benefits are designed to help employees and their families stay healthy and help them balance their work and personal lives. These benefits include health and wellness, paid time off, employee assistance, competitive pay, career growth opportunities, paid volunteer time, product discounts, and a culture of recognition. The challenges created by the global pandemic brought mental health awareness to the forefront.  We began a pilot program with CALM, an app that provides our home office associates an opportunity to incorporate meditation and other mindfulness activities into their daily routines as well as BurnAlong, a free online health, wellness and fitness platform available to all associates.

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, and we participate in their Ethical Trade Audit platform.  In 2020, we retained Elevate, a global leader in supply chain assessment, and instituted 4-Pillar audits of our supply chain factories. Through collaboration with Elevate, we are pursuing what we call a “5-Pillar Audit”, which includes traceability of both raw materials and the equipment used to produce finished goods. We take seriously the US Customs Border Protection (“CBP”) Withhold Release Order on Products Made in Xinjiang region of China released on January 13, 2021 and will be responsive to any inquiries. In response to the problems in Xinjiang, we developed a Compliance Certificate of Traceability for our cotton vendors.

Our merchandise offering includes a growing selection of merchandise that is sustainable and consciously-manufactured.  Our customers can easily find our product selection under “sustainable styles” on dxl.com.

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 $14.2 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 in order understand what is happening within cells and ultimately help find cures.

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, and an 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 and 2021 but look forward to offering it again in 2022.

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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 2020 was at any time during fiscal 2020 or at any other time an officer or employee of our Company.  During fiscal 2020, 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 Compensation Plan (the “Non-Employee Director Compensation Plan”), non-employee directors are compensated as follows:  

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 were 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.  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.

For fiscal 2020, each non-employee director was 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 (which applied to us through December 20, 2020), we could not utilize shares under this plan to satisfy this mandated election.  Therefore, in fiscal 2020 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.

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

In November 2020, the directors approved the Fifth Amended and Restated Non-Employee Director Compensation Plan.  The plan was amended, among other things, to increase the number of shares available for grant under the plan by an additional 1,000,000 shares, limit the number of shares that can be issued each quarter to 250,000 shares (with any shortfall satisfied in cash), remove the requirement for directors to take 50% of their annual retainer in equity and remove the ability for directors to elect deferred stock. The change to remove the requirement for directors to take 50% of their annual retainer in equity was made to preserve the shares available for grant under the 2016 Plan, which is used to support the Company’s employee incentive programs.  At January 30, 2021, there were 1,000,000 shares that remained available for future issuances.  

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.

Director Compensation Table

The following table sets forth the compensation paid to our directors during fiscal 2020.  Ms. Rubin is not included in the following table because she did not become a director until April 14, 2021.  Mr. 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.”

2020 DIRECTOR COMPENSATION TABLE

 

 

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Former Executive Chairman Compensation

Since August 7, 2014, Mr. Holtzman was compensated for his services pursuant to an Employment and Chairman Compensation Agreement (“Compensation Agreement”).  Mr. Holtzman served as the Company’s Executive Chairman of the Board from August 2014 through January 2019.  Pursuant to the Compensation Agreement, Mr. Holtzman served as both an employee of the Company, reporting to the Board, and as Executive Chairman, with the duties of the Chairman 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.  On August 9, 2018, Mr. Holtzman was provided written notification that the Company would not be extending the term of the agreement and, as a result, the agreement terminated on August 7, 2020.  

Pursuant to the agreement, as most recently amended on August 9, 2018, Mr. Holtzman was entitled to receive an annual base salary of $24,000 for his employment services and an annual compensation of $176,000.  Accordingly, for fiscal 2020, Mr. Holtzman was compensated through August 7, 2020 when the agreement terminated and received total compensation of $100,000.  

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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 executive officers who served in fiscal 2020 (collectively, our “Named Executive Officers”).  

Our Named Executive Officers for fiscal 2020 were:

 

Fiscal 2020 Financial and Executive Compensation Highlights

The COVID-19 pandemic had an adverse impact on our revenues and, as a result, our earnings in fiscal 2020.  Our retail stores were closed on March 17, 2020.  Even after all of our stores were reopened by June 2020, they were operating at reduced hours and some store locations experienced subsequent temporary closures in response to the pandemic and individual state/county/city mandates.  While comparable store sales were down 47.1%, our direct business, specifically our DXL.com website, which experienced a sales increase of 38.6% over the prior year, provided us with the ability to navigate through this unprecedented time.

In June 2020, the Compensation Committee set metrics for the 2020 Annual Incentive Plan, with performance metrics and potential payout levels derived from the Company’s revised annual operating plan and budget for fiscal 2020 taking into account the adverse impact of the pandemic on the Company’s operations.  We believed that achievement of the 2020 Annual Incentive Plan would be an indication that management had successfully navigated through fiscal 2020 and protected the future viability of the Company, and that any compensation earned by our Named Executive Officers in fiscal 2020 would reward management’s effective response to the pandemic.  

In response to the pandemic, we took decisive steps in fiscal 2020 to pivot our business model and reposition ourselves for recovery with significantly more operating leverage in fiscal 2021.  Our primary focus in fiscal 2020 was managing liquidity to weather the impact of the pandemic, which we believe our management team successfully accomplished.  While total sales decreased by $155.1 million in fiscal 2020, we maintained sufficient liquidity to support operations while our total debt, net of cash, increased by only $5.6 million over the prior year.  Management took several steps to preserve liquidity, which among other things included: (i) canceling approximately $148.0 million, at retail, of on-order inventory early, (ii) eliminating substantially all capital spending, (iii) drawing approximately $30.0 million under the credit facility and renegotiating the credit facility to increase availability, (iv) working with landlords on rent deferments and abatements while stores were closed and renegotiating existing lease terms, (v) negotiating extended payment terms with vendors including entering into a few short-term promissory notes, (vi) implementing cost savings initiatives to reduce expenses, (vii) pursuing all opportunities available under the CARES Act, (viii) furloughing the majority of the organization while the stores were closed, (ix) suspending merit increases, and (x) instituting a temporary reduction in pay for management (director-level and above) and suspending Board compensation for the second quarter. During fiscal 2020, we reduced our field organization by approximately 54% and our corporate workforce by 29%. While difficult, this was necessary to align our cost structure with sales trends given the uncertainty regarding the duration of the pandemic.  We believe that our management team successfully navigated through the pandemic and the adverse impact that it has had on our business.

Consequently, for fiscal 2020, the compensation earned by our Named Executive Officers, except for Mr. Kanter, increased from fiscal 2019, due primarily to an increase in the earned payout under the annual incentive plan in fiscal 2020 (as discussed below) as compared to fiscal 2019, partially offset by the temporary reduction in salary. Mr. Kanter’s compensation in fiscal 2020 decreased due primarily to the fact that his compensation in fiscal 2019 included his sign-on awards in connection with his hiring.  Also in June 2020, the Board, at the recommendation of the Compensation Committee, 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, 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.  With respect to the Company’s long-term incentive plan for the 2020-2022 performance period, due to the limited share availability under the Company’s 2016 Incentive Compensation Plan and the low stock price, the Compensation Committee shifted to the use of stock options as opposed to the historical use of restricted stock units.  

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The following table shows total compensation earned for those Named Executive Officers (NEOs) who were serving at the end of fiscal 2020 as compared to fiscal 2019, as applicable:

Executive Compensation Philosophy and Objectives

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

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

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 equity-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.

 

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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.  Segal was initially engaged in fiscal 2018 to evaluate CEO compensation in connection with the Company’s search for a new CEO.  In fiscal 2020, the Compensation Committee engaged Segal to evaluate a potential incremental grant to the CEO given the pandemic and the need to ensure retention.  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 2020 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 emphasis on performance pay by increasing the participation rate in the long-term incentive plan.  In addition, as part of his compensation package in fiscal 2019 when he joined the Company, Mr. Kanter received a sign-on performance stock unit award (“PSU”) tied directly to the Company’s stock price.

Other Named Executive Officers.  Our CEO is primarily responsible for determining the compensation paid to our other Named Executive Officers, subject to the review and approval of the Compensation Committee.  Our other Named Executive Officers are provided with a competitive base salary and an opportunity to earn performance awards each year, which are driven by our overall financial targets.  Compensation to our other Named Executive Officers was most recently reviewed by Segal in May 2019, at which time they reported that such compensation was within the median (or 50% percentile) of the Company’s then proxy peer group. See “Compensation Components and Fiscal 2020 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 2020 peer group were:

 

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For fiscal 2021, we updated our peer group to remove Christopher & Banks, Francesca’s Holding Corp. and Retailwinds, Inc. due to bankruptcy, and to add Delta Apparel, Inc., J.Jill, Inc., and Kaspien Holding, 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).  With respect to our fiscal 2020 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 2020 Annual Meeting, stockholders had an opportunity to cast a non-binding advisory vote on executive compensation as disclosed in the 2020 Proxy Statement.  Of the votes cast on the say-on-pay proposal, 80.5% voted in favor of the proposal.  The Compensation Committee considered the results of the 2020 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 resulted in a financial restatement. Incentive-Based Compensation includes all cash and equity awards.

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

Compensation Components and Fiscal 2020 Compensation Decisions

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

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

 

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* The above target compensation for the CEO does not reflect the value of Mr. Kanter’s discretionary grant of stock options on June 10, 2020.

The components of executive compensation are as follows:

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.

Each of our Named Executive Officers took a temporary salary reduction of 20% for the period April 5, 2020 through August 2, 2020.  In August 2020, Mr. Dhoot received a salary increase of $85,000 to $385,000 in connection with his promotion from Chief Digital Officer to Chief Marketing Officer. There were no other adjustments to the base salaries of our other Named Executive Officers.  

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.

 

2020 AIP

On June 23, 2020, the Compensation Committee established the performance metrics for the 2020 AIP.  The potential payout for each performance metric was based on full-year results for fiscal 2020. A participant’s payout under the AIP was based on earned wages, accordingly, each participant’s earned wages for fiscal 2020 reflected a reduction in normal earnings due to either: (i) furlough or (ii) temporary pay reductions, ranging from 10% to 20%. Each of our Named Executive Officers took a temporary salary reduction of 20% for the period April 5, 2020 through August 2, 2020.

The performance metrics and potential payouts levels were derived from the Company’s revised annual operating plan for fiscal 2020.  The revised annual operating plan included the potential impact that the COVID-19 pandemic would have on operations and the objectives that management needed to accomplish in order for the Company to preserve liquidity, weather the negative impact of the pandemic and be positioned to successfully emerge from the pandemic.  The Compensation Committee believed it was necessary, due to the uncertainty regarding the impact and duration of the pandemic, to focus on two key financial metrics for fiscal 2020 (Sales and Adjusted EBITDA), removing departmental goals from the AIP for fiscal 2020.  Each of these financial metrics were weighted 40%, with the remaining 20% attributable to the achievement of what had been pre-defined personal goals for the fiscal year prior to the advent of the pandemic and the closure of all of our stores beginning on March 17, 2020.  See footnote 2 to the below table for a more detailed discussion of these personal goals.  These metrics were intended to be achievable, with an approximate 50% probability; however, given the uncertainty

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surrounding the COVID-19 pandemic and its impact on our financial results, there was an inherent risk that these metrics might not be attainable.

For fiscal 2020, Mr. Kanter’s target participation in the AIP was at 100% of his earned salary, Mr. Stratton participated at 55% of his earned salary, Mr. Molloy participated at 50% of his earned salary, and Mr. Gaeta participated at 40% of his earned salary. As a result of his promotion, Mr. Dhoot participated at a blended rate of 45.9% of his earned salary.

The 2020 AIP performance metrics and actual results against these metrics were as follows:

 

As a result of achieving certain performance targets for fiscal 2020, as shown above, in March 2021 the Compensation Committee approved, subject to the completion of the audited financial statements, cash bonus payouts to our NEOs as follows:

 

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2021 AIP

 

On April 1, 2021, the Compensation Committee established the financial and operating metrics for the 2021 AIP.  The 2021 AIP metrics were expanded from the 2020 AIP to include functional departmental targets for Store Operations, Marketing & Digital, and Merchandise/Planning and Allocation.  

The Company’s financial performance metrics for the 2021 AIP include Sales and Adjusted EBITDA and represent 80% of the AIP for Messrs. Kanter, Stratton and Molloy and 40% for Messrs. Dhoot and Gaeta.  Messrs. Dhoot and Gaeta’s performance metrics include specific marketing and store operation targets, respectively, and represent 40% of their respective AIP.  Discretionary personal goals represent the remaining 20%.  The performance targets for fiscal 2020 were set after the start of the pandemic and as a result were based on the expectation that Adjusted EBITDA would be negative.  For the 2021 AIP, the performance targets assume that Adjusted EBITDA will be positive for fiscal 2021, although still below historical levels, which, given initial fiscal 2021 performance, still implied meaningful volatility and uncertainty with respect to the pandemic.

 

The 2021 AIP performance metrics approved by the Compensation Committee are as follows:

 

The above targets for each metric are derived from the Company’s annual operating plan and budget for the 2021 fiscal year, and are intended to be achievable, with an approximate 50% probability.  The likelihood of achieving the 2021 targets reflects the challenges inherent in achieving the goals and objectives of an ambitious operating plan and budget, given the continued uncertainty of the COVID-19 pandemic.

 

For fiscal 2021, Mr. Kanter will participate at 100% of his salary, Mr. Stratton will participate at 55% of his salary, Messrs. Dhoot and Molloy will participate at 50% of their respective salaries and Mr. Gaeta will participate at 40% of his salary.

 

 

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.  

 

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The performance period for the Company’s 2018-2020 LTIP ended on January 30, 2021.  The performance targets, which were established by the Compensation Committee on October 24, 2018, and the actual performance achieved were as follows:  

2018-2020 LTIP Performance Period

 

 

The targets under the 2018-2020 LTIP were set prior to the COVID-19 pandemic, which had a material impact on the Company’s financial results in fiscal 2020 but the targets were not modified to reflect the effects of the pandemic. The minimum thresholds for the two metrics were not achieved and, as a result, there was no performance-based payout under the 2018-2020 LTIP.  

However, given the unprecedented impact of the pandemic, on March 9, 2021, the Committee approved the discretionary grant of stock options to Mr. Kanter and all active members of management who were participants in the 2018-2020 LTIP.  The Committee considered various factors in making the awards, including the need to ensure that the Company retains and motivates key employees to successfully drive its business forward beyond the pandemic to create additional long-term stockholder value. The calculation of the stock option awards was determined upon the same calculation as would have been made had the 2018-2020 LTIP achieved a 12.5% achievement of the performance-based metric.  Accordingly, after the end of fiscal 2020, on March 9, 2021, the Committee approved a discretionary grant to all current participants in the LTIP of stock options to purchase up to an aggregate of 414,337 shares of common stock, at an exercise price of $0.75 per share.  The total dollar value of the award was $198,258.  All stock options will vest ratably over three years, with the first tranche vesting on March 9, 2022.  Of the total 414,337 shares granted pursuant to the stock options, 77,516 shares are subject to shareholder approval within one-year from date of grant.  If such shares are not approved by shareholders, the awards will be settled in cash.  

 

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The following is a summary of the two other LTIPs in effect, but not completed, during fiscal 2020:

 

 

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.

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:

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2021-2023 Performance Period

Subsequent to the end of fiscal 2020, on March 8, 2021, the Compensation Committee established and approved the metric for the 2021-2023 performance period under the LTIP.  Consistent with the 2020-2022 LTIP, because of the uncertainty regarding the duration of the pandemic and the timetable for economic recovery, the Compensation Committee did not establish financial goals and instead established a 3-year relative total shareholder return (similar to the 2020-2022 LTIP) as the only metric under the 2021-2023 LTIP. In addition, because of the Company’s low stock price and the limited availability of shares under the 2016 Plan, the Compensation Committee granted the time-based awards for this LTIP in a combination of 25% stock options and 75% cash.  The use of stock options allows for less usage of shares under the 2016 Plan and aligns with the interests of our shareholders.

 

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

In June 2020, the Board, at the recommendation of the Compensation Committee, 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, 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. 

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 the second quarter of fiscal 2018, the Board ratified and approved the recommendation of the Company’s management team to suspend employer contributions to the 401(k) Plan, for the period from July 1, 2018 until December 31, 2019. Effective January 1, 2020, the 401(k) Plan resumed its qualified automatic contribution arrangement (“QACA”) status, and accordingly an employer match was earned in fiscal 2020. However, for the 2021 plan year, the Company has suspended its QACA safe harbor and, while the Company has the discretion to make an employer match for 2021, it will not be required.  The Company has the option to resume its QACA status in 2022.

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.

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

 

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COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on this review and discussion, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

 

 

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Summary Compensation Table.  The following Summary Compensation Table sets forth certain information regarding compensation paid or accrued by us with respect to our "Named Executive Officers" for fiscal 2020.

SUMMARY COMPENSATION TABLE

 

The fair value associated with the performance-based component of the equity awards under the 2020-2022 LTIP was determined based on the probable outcome of the performance conditions as of the service-inception date.  Because the achievement of the performance targets under the 2020-2022 LTIP was not deemed probable as of the service-inception date, no value was attributed to the performance-based portion of these awards.  The following reflects the fair values of the performance-based equity portion of the 2020-2022 LTIP assuming the highest level of performance conditions will be achieved for each of the Named Executive Officers:

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The following table provides a breakdown of the amounts in fiscal 2020 in the “Option Awards” column of the Summary Compensation Table above:

 

The following table provides a breakdown of the amounts for fiscal 2020 in the “2020 Non-Equity (Cash) Incentive Plan Compensation” column of the Summary Compensation Table above: