10-K/A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1)

 

(Mark One)

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

For the fiscal year ended January 29, 2022 (Fiscal 2021)

OR

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

Commission File Number 01-34219

 

DESTINATION XL GROUP, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

04-2623104

( State or other jurisdiction of incorporation or organization)

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

 

555 Turnpike Street, Canton, MA

02021

(Address of principal executive offices)

(Zip Code)

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

 

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

Title of each class

Trading Symbols(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

DXLG

The Nasdaq Stock Market LLC

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

none.

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

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

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

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

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

As of July 30, 2021, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $199.9 million, based on the last reported sale price on that date. Shares of Common Stock held by each executive officer and director and by certain persons who own 10% or more of the outstanding Common Stock have been excluded on the basis that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily determinative for other purposes.

The registrant had 63,646,745 shares of Common Stock, $0.01 par value, outstanding as of May 13, 2022.

Documents Incorporated by Reference: None.

Auditor Name: KPMG, LLC

Auditor Location: Boston, Massachusetts

Auditor Firm ID: 185

 

 

 


 

EXPLANATORY NOTE

 

We are filing this Amendment No. 1 to our Annual Report on Form 10−K for the fiscal year ended January 29, 2022 (this “Form 10-K/A”) pursuant to General Instruction G(3) to Form 10−K for the purposes of filing the information required to be disclosed pursuant to Part III of Form 10−K.

 

Except for the amendments described above, this Form 10−K/A does not modify or update the disclosure in our Annual Report on Form 10−K for the fiscal year ended January 29, 2022 filed with the Securities and Exchange Commission on March 17, 2022.

 

 

TABLE OF CONTENTS

 

 

 

 

PAGE

PART III

 

 

 

ITEM 10.

Directors, Executive Officers and Corporate Governance

 

3

ITEM 11.

Executive Compensation

 

7

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

31

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

 

34

ITEM 14.

Principal Accountant Fees and Services

 

34

PART IV

 

 

 

ITEM 15.

Exhibits and Financial Statement Schedules

 

35

SIGNATURES

 

36

 

 

 

 

 

2


 

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

 

Set forth below is certain information regarding our current directors, including information furnished by them as to their principal occupations and business experience for the past five years, certain directorships held by each director within the past five years, their respective ages as of May 13, 2022, current committee membership, and the year in which each became a director of our Company:

 

Name

 

Age

 

Director
Since

 

Audit

 

Compensation

 

Nominating and
Corporate
Governance
 (2)

 

Cybersecurity
 and
Data Privacy
 (2)

Lionel F. Conacher, Chairman of the Board and Director

 

59

 

2018

 

C

 

X

 

 

 

 

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

 

60

 

2019

 

 

 

 

 

 

 

 

Carmen Bauza, Director (1)

 

60

 

2021

 

 

 

 

 

X

 

X

Jack Boyle, Director

 

54

 

2017

 

 

 

X

 

C

 

 

Willem Mesdag, Director

 

68

 

2014

 

X

 

C

 

 

 

 

Ivy Ross, Director

 

66

 

2013

 

X

 

 

 

 

 

C

Elaine Rubin, Director

 

59

 

2021

 

 

 

 

 

X

 

X

C= current member and committee chairperson

X= current member of the committee

 

(1)
On December 17, 2021, the Board of Directors expanded the size of the Board to seven members and appointed Ms. Bauza as a director.
(2)
On February 9, 2022, Ms. Rubin replaced Ms. Ross as a member of the Nominating and Corporate Governance Committee. Ms. Bauza replaced Mr. Boyle as a member of the Cybersecurity and Data Privacy Committee and was added as a member of the Nominating and Corporate Governance Committee.

Lionel F. Conacher has been a director since June 2018 and became Chairman of the Board on August 12, 2020. Since November 2021, Mr. Conacher has served as a member of the board of directors and as a member of the audit committee for Better Choice Company, a publicly-traded company. Mr. Conacher was a managing partner of Next Ventures, GP from August 2018 until February 2021. From January 2011 to June 2018, Mr. Conacher was a senior advisor for Altamont Capital Partners LLC (“ACP”), a private equity firm. 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 previously served 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.

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 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. 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. 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.

Carmen R. Bauza was appointed a director of the Company in December 2021. In May 2022, Ms. Bauza joined the board of directors of Zumiez, Inc., a publicly-traded company, and serves as a member of its audit committee. Ms. Bauza also serves as a member of the board of managers of Claire’s Holdings LLC. which she joined in October 2018. Most recently, Ms. Bauza served as the Chief Merchandising Officer at Fanatics, Inc. from January 2019 until April 2021. Prior to that, she was the Chief Merchandising Officer at HSN from November 2016 until December 2017 and the Senior Vice President, General Merchandise Manager Consumables, Health

3


 

and Wellness at Walmart from June 2007 to October 2016. She previously held roles at Bath & Body Works, Five Below and The Walt Disney Company. Ms. Bauza currently serves as a member of the board of trustees at Seton Hill University and as a member of the advisory board of RoundTable Healthcare Partners Council. Ms. Bauza brings extensive retail and merchandising experience to the Board.

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.

Elaine K. Rubin has been a director since 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 and experience of 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.

Current Non-Director Executive Officers

Peter H. Stratton, Jr., 50, has been our Executive Vice President, Chief Financial Officer and Treasurer since November 2017. Prior to that, Mr. Stratton served as our Senior Vice President, Chief Financial Officer and Treasurer from June 2014 to November 2017. From August 2009 to June 2014, Mr. Stratton was our Senior Vice President of Finance, Corporate Controller and Chief Accounting Officer. Mr. Stratton joined the Company in June 2009 as Vice President of Finance. Prior to joining the Company, Mr. Stratton served as the senior director of corporate accounting at BearingPoint, Inc. from May 2007 to June 2009. Prior to May 2007, Mr. Stratton held various finance and accounting leadership positions at Legal Sea Foods, Inc., Shaw’s Supermarkets, Inc. and Cintas Corporation.

Francis C. Chane, 59, has been our Senior Vice President of Supply Chain and Customer Fulfillment since June 2011. Mr. Chane joined the Company in June 2008 as our Vice President of Distribution & Logistics. Prior to joining our Company, Mr. Chane was the

4


 

vice president operations & facilities for Redcats USA, a division of the French multi-national company PPR, from 1999 to June 2008. Prior to that, Mr. Chane held various leadership positions with WearGuard Corporation, a division of Aramark Corporation.

John F. Cooney, 39, has been our Senior Vice President, Corporate Controller and Chief Accounting Officer since March 2022. Prior to that, Mr. Cooney was the Vice President of Finance and Managing Director, Corporate Controller and Chief Accounting Officer from May 2018 until March 2022 and was our Vice President of Finance, Corporate Controller and Chief Accounting Officer from May 2015 until May 2018 and our Vice President of Finance and Corporate Controller from June 2014 until May 2015. From November 2010 until June 2014, Mr. Cooney was our Director of Financial Accounting and Reporting. Prior to joining the Company, Mr. Cooney was an audit manager with PricewaterhouseCoopers LLP, which he joined in August 2004.

Ujjwal Dhoot, 38, joined the Company in December 2019 as our Chief Digital Officer and in August 2020 was promoted to Chief Marketing Officer. Prior to joining our Company, Mr. Dhoot was the chief marketing officer and chief product officer for Health E-Commerce, a hyper growth healthcare e-Commerce company, from January 2018 to December 2019. Prior to that, Mr. Dhoot was the vice president of marketing for Charming Charlie from March 2017 until April 2017 and their vice president of marketing and e-commerce from April 2017 until January 2018. From June 2013 until March 2016, Mr. Dhoot was the chief marketing officer of FSAstore.com. Prior to that, Mr. Dhoot held vice president of marketing positions at Jen Beckman Project, Inc. and PetCareRx, Inc.

Anthony J. Gaeta, 52, has been our Chief Stores Officer since March 2022. From November 2017 until March 2022, Mr. Gaeta was the Senior Vice President of Store Sales and Operations. Prior to that, Mr. Gaeta was the Vice President of Store Operations and Training from November 2013 until November 2017 and a Zone Vice President from April 2010 until November 2013. Prior to joining the Company, Mr. Gaeta was a regional manager for Men’s Wearhouse from September 2007 until April 2010 and, prior to that, a regional vice president for After Hours Formalwear from March 2006 until September 2007.

Stacey A. Jones, 51, has been our Chief Human Resources Officer since February 2021. From May 2018 until February 2021, she served as Vice President, Managing Director of Human Resources. Prior to that, from April 2013 to April 2018, Ms. Jones was Vice President, Human Resources Operations. Ms. Jones joined the Company in October 2001 and has held a variety of positions in both Retail Operations and Human Resources. Prior to joining the Company, she held leadership positions with Converse, Inc., Jet Apparel and T.A.C. Group, Inc.

Robert S. Molloy, 62, has been our General Counsel since February 2008 and Secretary of the Company since May 2014. From May 2018 until February 2021, Mr. Molloy also served as Chief Administrative Officer. Prior to joining the Company, Mr. Molloy served as the vice president, assistant general counsel at Staples, Inc. from May 1999 to February 2008. Prior to May 1999, Mr. Molloy was a trial attorney.

Allison Surette, 41, has been our Chief Merchandising Officer since March 2022. Prior to that, Ms. Surette was the Senior Vice President, General Merchandise Manager from May 2018 to March 2022 and Vice President, Merchandise Manager of Private Label, Active, Young Men’s and Outerwear from September 2016 to May 2018. Ms. Surette joined the Company in May 2006 as an Associate Planner and in June 2008, she transitioned into Merchandising as an Associate Buyer for Branded Collections. From October 2010 to January 2014, she served as a Buyer of Traditional Branded Collections and Buyer of Private Label Sportshirts and Outerwear. From January 2014 to September 2016, she was the Senior Buyer of Private Label Sportshirts and Outerwear. Prior to joining the Company, Ms. Surette was a planner for TJX from June 2003 until May 2006.

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

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities (collectively, the “Reporting Persons”), to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”). The Reporting Persons are required to furnish us with copies of all Section 16(a) reports they file. Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us by our officers and directors during fiscal 2021, we believe that the Reporting Persons complied with all applicable Section 16(a) reporting requirements and that all required reports were filed in a timely manner.

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.

5


 

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 Ross. Each of the members of the Audit Committee is independent, as independence for Audit Committee members is defined under the rules of Nasdaq. Messrs. Conacher and Mesdag each qualify as an audit committee financial expert under the rules of the Securities Exchange Commission (the “SEC”).

Director Nominations

No material changes have been made to the procedures by which security holders may recommend nominees to our Board from those that were described in our Definitive Proxy Statement for our 2021 Annual Meeting of Stockholders that was filed with the SEC on July 2, 2021.

 

6


 

Item 11. Executive Compensation

Compensation Discussion and Analysis

Executive Summary

This Compensation Discussion and Analysis provides a summary of our executive compensation philosophy and programs, and discusses the compensation paid to our Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”) and certain of our other executive officers who served in fiscal 2021 (collectively, our “Named Executive Officers”).

Our Named Executive Officers for fiscal 2021 were:

 

Harvey S. Kanter, President, CEO and Director
Peter H. Stratton, Jr., Executive Vice President, CFO and Treasurer
Ujjwal Dhoot, Chief Marketing Officer
Robert S. Molloy, General Counsel and Secretary
Anthony J. Gaeta, Chief Stores Officer

Fiscal 2021 Financial and Executive Compensation Highlights

Our financial plan for fiscal 2021 assumed that vaccines against the COVID-19 virus would be widely available and administered by the end of Spring 2021 and that the demand for apparel would gradually improve during fiscal 2021 as our customers were expected to begin to socialize and gather in groups outside the home. However, as early as the first quarter of fiscal 2021, we saw an acceleration in sales that continued throughout fiscal 2021 and, for the first time in the Company's history, sales exceeded $500 million. This sales growth, combined with improvements in gross margin, a restructured lease portfolio and lower operating expenses resulted in an adjusted EBITDA margin in excess of 15%, or $76.9 million, and earnings of $0.83 per diluted share. We also generated over $70 million in free cash flow during fiscal 2021, which enabled us to retire our long-term debt, pay off our revolver and renegotiate our credit facility on more favorable terms.

We believe that our management team successfully executed on our key business objectives to drive new customer acquisition, improve customer retention, increase lifetime customer value, transform our digital business and reshape our store portfolio for future growth. Our management team also successfully managed inventory levels throughout fiscal 2021 by taking proactive measures to manage the significant and ongoing disruptions in the global supply chain. We ended fiscal 2021 with a strong balance sheet and sufficient liquidity to invest in the future growth of our business and return capital to shareholders through a stock repurchase program that was approved in April 2022.

The compensation earned by our Named Executive Officers in fiscal 2021 was directly tied to our fiscal 2021 financial results. The increase in compensation earned by our Named Executive Officers in fiscal 2021 as compared to fiscal 2020 was primarily due to an increase in the payout under our 2021 annual incentive plan (AIP) as we exceeded the maximum payout thresholds on each of the plan's two financial metrics. In addition, the increase in compensation in fiscal 2021 as compared to fiscal 2020 reflected an increase in cash awards that vested during fiscal 2021 under the Company's Long-Term Incentive Plan and the restoration of base salaries, which had been temporarily curtailed in fiscal 2020 in connection with the Company's crisis management during the pandemic.

In March 2021, we also made a discretionary grant to then-active members of the 2018-2020 LTIP and to Mr. Kanter. Despite management's successfully navigating the pandemic, the 2018-2020 LTIP metrics were not achieved. The Compensation Committee felt strongly that a modest award should be granted to retain and motivate key employees beyond the pandemic. The aggregate grant-date fair value of the stock options awarded was $198,258 and was determined by the same calculation that would have been made had the 2018-2020 LTIP achieved a 12.5% achievement of its performance metric.

Subsequent to the end of fiscal 2021, the Compensation Committee approved a discretionary cash bonus to each participant in the AIP equal to 10% of their earned salary in fiscal 2021. The Compensation Committee granted these discretionary bonuses, which were made to 74 participants and totaled $1.2 million, to recognize the extraordinary financial performance of the Company in fiscal 2021 and the substantially increased workload of the Company's management team during the year and the contributions of other employees to the Company’s financial performance. The Compensation Committee believed it was in the best interests of the Company and its stockholders to approve these discretionary bonuses. In addition, for those associates in the corporate office, distribution center and customer call center, who were not participants in the AIP, the Company paid each associate a discretionary bonus equal to one-month's salaries/wages.

7


 

The following table shows total compensation earned and total realized pay for each of the Named Executive Officers (NEOs) in fiscal 2021 as compared to fiscal 2020:

 

 

Total Compensation(1)

 

 

Total Realized Pay (2)

 

Named Executive Officer

 

Fiscal 2021

 

 

Fiscal 2020

 

 

% Change

 

 

Fiscal 2021

 

 

Fiscal 2020

 

 

% Change

 

Harvey S. Kanter

 

$

3,616,278

 

 

$

2,110,929

 

 

 

71.3

%

 

$

8,410,773

 

 

$

1,710,074

 

 

 

391.8

%

Peter H. Stratton, Jr.

 

$

1,068,604

 

 

$

656,025

 

 

 

62.9

%

 

$

1,040,363

 

 

$

609,771

 

 

 

70.6

%

Ujjwal Dhoot

 

$

864,689

 

 

$

614,812

 

 

 

40.6

%

 

$

793,907

 

 

$

606,122

 

 

 

31.0

%

Robert S. Molloy

 

$

980,419

 

 

$

592,925

 

 

 

65.4

%

 

$

947,702

 

 

$

549,184

 

 

 

72.6

%

Anthony Gaeta

 

$

725,294

 

 

$

455,561

 

 

 

59.2

%

 

$

633,061

 

 

$

421,087

 

 

 

50.3

%

(1)
Total compensation reflects amounts as reported in the “Summary Compensation Table.” The increase in total compensation in fiscal 2021 as compared to fiscal 2020 is primarily due to performance-based compensation associated with the Company exceeding its targets under the 2021 AIP and the 2019-2021 LTIP.
(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 and “Option 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. Mr. Kanter's realized pay for fiscal 2021 includes 480,000 PSUs that vested during fiscal 2021 as a result of the Company's common stock achieving the related performance metric, which was a volume-weighted average closing price of $4.00 and $6.00 per share. The PSUs were granted to Mr. Kanter when he was hired in February 2019.

Executive Compensation Philosophy and Objectives

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

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

Attract, retain and engage the executive talent the Company requires to perform in line with the Board’s expectations;
Recognize and reward the achievement of specific annual and long-term performance goals through a combination of cash and stock-based compensation; and
Align the Company’s executives’ interests with those of its stockholders.

When reviewing compensation, the Compensation Committee emphasizes Direct Compensation. Direct Compensation consists of total cash compensation (base salary and annual performance-based cash incentive awards) plus long-term incentive awards, which, prior to the pandemic, were primarily equity awards. Every year, we assess the effectiveness of our compensation plans with the goal of strengthening our overall compensation program as appropriate, including by setting 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

 

 

 

 

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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 the Segal Group ("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 February 2022, the Compensation Committee engaged Segal to review Mr. Kanter's base salary and total direct compensation in connection with the amendment of Mr. Kanter’s employment agreement with the Company, as further described below under “Amended Employment Agreement with Mr. Kanter.” Based on market insights from Segal, including information derived from published surveys on CEO compensation in retail companies with annual revenues of up to $500 million and trends in CEO compensation, the Compensation Committee approved an increase in Mr. Kanter's annual base salary from $735,000 to $850,000.

Fiscal 2021 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 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 recommending 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 Segal reported that such compensation was within the median (or 50% percentile) of the Company’s then proxy peer group. See “Compensation Components and Fiscal 2021 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 2021 peer group were:

 

 

Boot Barn Holding, Inc.

 

J.Jill, Inc.

 

Tilly’s Inc.

 

 

 

 

 

 

 

Build-A-Bear Workshop, Inc.

 

Kaspien Holding, Inc.

 

Vera Bradley

 

 

 

 

 

 

 

Cato Group

 

Kirkland’s, Inc.

 

Vince Holding Corp.

 

 

 

 

 

 

 

Citi Trends

 

Movado Group

 

Zumiez, Inc.

 

 

 

 

 

 

 

Delta Apparel, Inc.

 

Sportsman’s Warehouse

 

 

 

 

 

 

 

 

 

Duluth Holding, Inc.

 

Tile Shop Holdings

 

 

 

 

 

 

 

 

For fiscal 2021, we updated our peer group to remove Christopher & Banks, Francesca's Holding Corp. and Retailwinds, Inc. due to the bankruptcy of each of these companies, and to add Delta Apparel, Inc., J.Jill, Inc., and Kaspien Holding, Inc.

9


 

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 2021 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 2021 Annual Meeting, stockholders had an opportunity to cast a non-binding advisory vote on executive compensation as disclosed in the 2021 Proxy Statement. Of the votes cast on the say-on-pay proposal, 99.5% voted in favor of the proposal. The Compensation Committee considered the results of the 2021 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 2021 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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https://cdn.kscope.io/edf9992afe8c22a662fdc7751f5ad0b6-img231920900_0.jpghttps://cdn.kscope.io/edf9992afe8c22a662fdc7751f5ad0b6-img231920900_1.jpg 

 

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.

There were no adjustments to the base salaries of our other Named Executive Officers during fiscal 2021. In March 2022, Mr. Gaeta was promoted to Chief Stores Officer and his base salary was increased from $295,000 to $325,000. In addition, Messrs. Stratton, Dhoot and Molloy each received a 3% merit increase for fiscal 2022. As mentioned above, Mr. Kanter's salary for fiscal 2022 was increased in accordance with the terms of his amended and restated employment agreement, discussed below.

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.

In fiscal 2021, the Company's management engaged Korn Ferry to review every position within the Company, except for store positions, and develop a job level classification with a range of compensation for each of those positions in the Company. The completed review by Korn Ferry resulted in the Compensation Committee's expanding the participation in the Company's Annual Incentive Plan.

Accordingly, subsequent to the end of fiscal 2021, the Compensation Committee approved the Fifth Amended and Restated Annual Incentive Plan, which will be effective with the 2022 AIP. The AIP was amended, among other things, to change the definition of employees eligible to participate in the AIP from 'director level and above' to a 'Job Level classification of 15 or above', which is consistent with the implementation of job level classification noted above and will result in increased participation in the AIP. The Compensation Committee decided to expand participation in the AIP due to the Compensation Committee’s confidence in the successful implementation of the plan and that it works effectively to motivate and retain associates. The Compensation Committee determined that it would be appropriate and in the best interest of shareholders to include more associates in that demonstrated success.

 

11


 

2021 AIP

On April 1, 2021, the Compensation Committee established the performance metrics for the 2021 AIP. For fiscal 2021, Mr. Kanter’s target participation in the AIP was at 100% of his earned salary, Mr. Stratton participated at 55% of his earned salary, Messrs. Dhoot and Molloy participated at 50% of their respective earned salary, and Mr. Gaeta participated at 40% of his earned salary.

The performance metrics and potential payout levels were derived from the Company’s annual operating plan for fiscal 2021. The Compensation Committee believed it was necessary, due to the continued uncertainty regarding the impact and duration of the pandemic, to focus on two key financial metrics for fiscal 2021 (Sales and Adjusted EBITDA) and added specific metrics to include functional departmental targets for Store Operations, Marketing & Digital, and Merchandise/Planning and Allocation, and personal goals. For Messrs. Kanter, Stratton and Molloy, the financial metrics represented 80% of their AIP, and for Messrs. Dhoot and Gaeta, these financial metrics represented 40% and their respective departmental metrics represented 40% of their AIP. The remaining 20% for each of the Named Executive Officers was attributable to the achievement of pre-defined personal goals. See footnote 3 to the below table for a discussion of these personal goals. The 2021 AIP metrics were intended to be achievable, with an approximate 50% probability of achievement; however, given the uncertainty surrounding the duration of the pandemic, the rollout of vaccines and its impact on our financial results, there was an inherent risk that these metrics might not be attainable.

The Company's annual operating plan for fiscal 2021 assumed that vaccines against the COVID-19 virus would be widely available and administered by the end of Spring 2021 and that demand for apparel would gradually improve in fiscal 2021 and while the Company expected to see improvement from fiscal 2020, the Company did not expect a return to pre-pandemic performance due to the continuing impact of the pandemic, including its impact on the global supply chain. The actual financial results for fiscal 2021 far exceeded the Company's expectations as the Company saw an earlier-than-expected acceleration in sales that continued through the remainder of fiscal 2021. As a result, in addition to the payouts earned under the AIP for fiscal 2021, the Compensation Committee approved a discretionary cash bonus to participants in the AIP program as described below under “Discretionary Cash and Equity Awards.”

 

12


 

The 2021 AIP performance metrics and actual results against these metrics were as follows:

 

 

Metric

 

Award %
Weight

for Metric other than Messrs. Dhoot and Gaeta

 

 

 

 

Award %

Weight of Metric for

Mr. Dhoot

 

 

 

 

 

Award %

Weight of

Metric

for

Mr. Gaeta

 

Minimum/Maximum

Potential Payout

 

2021 Target

2021 Actual

Payout % earned

Corporate

Target 1

 

Sales

 

40.0%

20%

20%

 

100% payout at target, with 50% payout at 95.7% of target and 150% payout at 104.3% of target, with the exception of Mr. Kanter who was eligible for maximum payout of 200% at 104.3% of target.

 

 

$402.0 million

$505.0 million

150.0% (200% for

Mr. Kanter)

Corporate

Target 2

 

Adjusted EBITDA(1)

 

40.0%

20%

20%

 

100% payout at target, with 50% payout at 64.5% of target and 150% payout at 135.5% of target, with the exception of Mr. Kanter who was eligible for a maximum payout of 200% at 135.5% of target.

 

 

$18.3 million

$76.9 million

150.0%

(200% for Mr. Kanter)

Department Goals, if applicable

 

Marketing & Digital

 

--

20%

--

 

Total direct comparable sales

 

$136.3 million

$150.3 million

150.0%

 

 

 

10%

 

 

Promotional markdown rate

 

(2)

(2)

150.0%

 

 

 

10%

 

 

Advertising sales ratio target

 

(2)

(2)

107.8%

 

 

 

Store Operations

--

--

15%

 

Store conversion

 

(2)

(2)

150.0%

 

 

 

 

15%

 

Payroll

 

(2)

(2)

150.0%

 

 

 

 

10%

 

Net promoter score (NPS)

 

73

74

125.0%

 

Personal Target 3

 

Discretionary – Personal Goals

 

20.0%

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 was 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%. (3)

 

Varies by NEO

Varies by NEO

20.0%-30.0%

(40.0% for Mr. Kanter)

(1)
As permitted under the AIP and approved by the Compensation Committee, fiscal 2021 actual results were adjusted to exclude the impairment (gain) of assets.
(2)
The Company does not publicly disclose its promotional markdown rates or its store conversion rates. Any discussion of promotional markdowns and conversion rates are limited to percentage increase or decrease over a comparable period. The same is true for store payroll; the Company does not publicly disclose its store payroll as a percentage of sales. Any discussion regarding store payroll is limited to the dollar increase or decrease over a comparable period. No external information regarding the Company's advertising sales ratio is publicly provided.
(3)
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” (specific, measurable, achievable, relevant and time-bound) goals, each containing a quantifiable measure, which are approved by the CEO. The personal goals for Messrs. Dhoot, Molloy and Gaeta consisted of a combination of quantifiable goals specific to their respective corporate function. Mr. Dhoot’s personal goals were tied to the success in developing segmentation and personalization across marketing initiatives, continued improvement on the customer web experience and effectively managing markdowns as a result of promotions. Mr. Molloy’s personal goals were tied to ensuring strong corporate governance, legal and ethical compliance, and legal support and guidance throughout the organization. Mr. Gaeta’s personal goals were directly tied to the Company's stores achieving their metrics as well as team development. The personal goals for our CFO were quantifiable and were tied directly to the Company's performance, as well as team development and professional development of staff. Our CEO’s personal goals were tied to the Company's current performance as well as to develop a long-term strategy plan.

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As a result of achieving the performance targets for fiscal 2021 pursuant to the 2021 AIP, as shown above, in March 2022 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 %

 

 

Total Cash Payout

 

Harvey S. Kanter

 

$

735,000

 

 

 

200

%

 

$

1,470,000

 

Peter H. Stratton, Jr.

 

$

217,250

 

 

 

150

%

 

$

325,875

 

Ujjwal Dhoot

 

$

192,500

 

 

 

136

%

 

$

261,376

 

Robert S. Molloy

 

$

187,500

 

 

 

145

%

 

$

271,875

 

Anthony J. Gaeta

 

$

118,000

 

 

 

143

%

 

$

168,149

 

 

2022 AIP

 

Subsequent to the end of fiscal 2021, the Compensation Committee approved the Fifth Amended and Restated Annual Incentive Plan, which will be effective with the 2022 AIP. The AIP was amended, among other things, to change the definition of employees eligible to participate in the AIP from 'director-level and above' to a 'Job Level classification of 15 or above', which will result in increased participation in the AIP. The Compensation Committee decided to expand participation in the AIP due to the Compensation Committee’s belief that it will continue to effectively motivate and retain associates. The Compensation Committee determined that it would be appropriate and in the best interest of the Company’s stockholders to include more associates in that demonstrated success of the AIP. On April 9, 2022, the Compensation Committee established the financial and operating metrics for the 2022 AIP. The metrics for the 2022 AIP are consistent with the 2021 AIP and include Sales and Adjusted EBITDA as the Company's financial metrics with departmental targets for Store Operations, Marketing & Digital, and Merchandise/Planning and Allocation.

The Company’s financial performance metrics 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% for the Named Executive Officers.

 

The 2022 AIP performance metrics approved by the Compensation Committee are as follows:

 

 

 

Metric

 

Award %
Attributable to Metric, other than Messrs. Dhoot and
Gaeta

 

Award % Attributable to Metric for Mr. Dhoot

Award % Attributable to Metric for Mr. Gaeta

Minimum/Maximum

Potential Payout

 

Corporate

Target 1

 

Sales

 

40.0%

 

20.0%

20.0%

100% payout at target, with 50% payout at 96.2% of target and 150% payout at 101.9% of target, with the exception of Mr. Kanter who is eligible for maximum payout of 200% at 101.9% of target.

 

 

Corporate

Target 2

 

Adjusted EBITDA

 

40.0%

 

20.0%

20.0%

100% payout at target, with 50% payout at 94.3% of target and 150% payout at 103.9% of target, with the exception of Mr. Kanter who is eligible for a maximum payout of 200% at 103.9% of target.

 

 

Personal Target

 

Discretionary- Personal Goals

 

20.0%

 

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 are eligible to receive a discretionary award up to 30%, with the exception of Mr. Kanter who is eligible to receive a discretionary award up to 40%.

 

Departmental Goals, if applicable

 

Marketing & Digital

 

-

 

40.0%

-

Includes total direct sales target, promotional markdown rate target and advertising sales ratio % target.

 

 

 

Store Operations

 

-

 

-

40.0%

Includes payroll as a percentage of sales target, net promoter score target and store conversion target.

 

 

14


 

The above targets for each metric are derived from the Company’s annual operating plan and budget for the 2022 fiscal year, and are intended to be achievable, with an approximate 50% probability of achievement. The likelihood of achieving the 2022 targets reflects the challenges inherent in achieving the goals and objectives of an ambitious operating plan, given the continuing uncertainty with respect to global supply chain disruptions, inflation, labor shortages, COVID-19 pandemic and geopolitical instability from Russia's invasion of Ukraine.

For fiscal 2022, Mr. Kanter will participate at 100% of his salary and Messrs. Dhoot and Molloy will continue to participate at 50% of their respective salaries. Effective March 6, 2022, Mr. Stratton's participation rate increased from 55% to 60% and Mr. Gaeta's participation rate increased from 40% to 50% and therefore will result in a blended participation rate for both of them. Messrs. Stratton and Gaeta’s increases were a result of their respective job classifications.

 

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.

 

The performance period for the Company’s 2019-2021 LTIP ended on January 29, 2022. The performance targets, which were established by the Compensation Committee on August 7, 2019, and the actual performance achieved were as follows:

2019-2021 LTIP Performance Period

Metric

 

Weight of each target

 

Potential Payout

 

Target

 

Actual

 

Payout %

 

Three-year Adjusted EBITDA margin

 

50.0%

 

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

 

5.6%

 

5.9%

 

 

133.8

%

Three-year Stacked Retail Comp

 

50.0%

 

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

 

7.80%

 

36.0%

 

 

150.0

%

 

 

 

 

Blended payout

 

 

 

 

 

 

141.9

%

 

The targets under the 2019-2021 LTIP were set prior to the COVID-19 pandemic and were not modified to carve-out or exclude any results as a result of the pandemic. As a result of the exceptional performance in fiscal 2021, the Company exceeded the target set for each metric. Based on that achievement, subsequent to the end of fiscal 2021, on March 15, 2022, the Compensation Committee approved a total performance award of $2.7 million, to be awarded in a combination of 50% cash and 50% RSUs. All awards are subject to further vesting through August 31, 2022. Approximately $1.5 million of the $2.7 million of the award was awarded to the Named Executive Officers.

The following is a summary of the awards granted to our Named Executive Officers on March 15, 2022 as a result of achieving the performance metrics under the 2019-2021 LTIP:

Name

 

RSUs

 

 

Cash

 

 

Total Award

 

Harvey S. Kanter

 

$

443,260

 

 

$

443,260

 

 

$

886,520

 

Peter H. Stratton, Jr.

 

$

98,088

 

 

$

98,088

 

 

$

196,176

 

Ujjwal Dhoot

 

$

52,940

 

 

$

52,940

 

 

$

105,880

 

Robert S. Molloy

 

$

93,122

 

 

$

93,122

 

 

$

186,244

 

Anthony J. Gaeta

 

$

73,256

 

 

$

73,256

 

 

$

146,512

 

 

 

15


 

The following is a summary of the 2020-2022 LTIP and 2021-2023 LTIP in effect, but not completed, during fiscal 2021:

 

Summary of LTIPs

 

2020-2022

 

2021-2023

Effective date

 

June 11, 2020

 

March 8, 2021

Performance period

 

3yrs

 

3yrs

End of Performance Period

 

January 28, 2023

 

February 3, 2024

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% Options
50% Cash

RSUs, Cash or a combination thereof, when earned

 

at effective date:
25% Options
75% Cash

RSUs, Cash or a combination thereof, when earned

Vesting period

 

25% June 11, 2021
25% April 1, 2022
25% April 1, 2023
25% April 1, 2024

any award earned subject to additional vesting through August 31, 2023

 

25% April 1, 2022
25% April 1, 2023
25% April 1, 2024
25% April 1, 2025

any award earned subject to additional vesting through August 31, 2024

 

 

 

 

 

 

 

Performance Targets (1):

 

Target:

Min/Max Payout:

 

Target:

Min/Max Payout:

 

 

3-yr. relative total shareholder return as compared to 2020 disclosed proxy peers (2)
(100% weight)

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

 

3-yr. relative total shareholder return as compared to 2021 disclosed proxy peers (3)
(100% weight)

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

 

(1)
At the time that the 2020-2022 LTIP and 2021-2023 LTIP were each approved, there remained continued uncertainty regarding the COVID-19 pandemic and the short-term and long-term impact it may have on consumer spending. As such, the Compensation Committee established just one performance metric, “Three-Year Relative Total Shareholder Return”, for both LTIPs. The Compensation Committee believed this performance metric and the issuance of stock options (as opposed to restricted stock units) under the time-based portion of the LTIPs, appropriately aligned management with the interests of our stockholders. The use of stock options also helped to preserve share availability under the 2016 Plan given the depressed stock price at the time these LTIPs were approved. The issuance of only 25% Options in connection with the 2021-2023 LTIP was a direct result of the then-share price and share availability.
(2)
For the Company and each of its 2020 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 January 31, 2020 and January 27, 2023, adjusted for any dividends paid.
(3)
For the Company and each of its 2021 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 January 29, 2021 and February 2, 2024, adjusted for any dividends paid.

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.

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

 

2021

 

2022

 

2023

 

2024

 

2025

 

6/11/2020

 

2020-2022 LTIP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time-Based Awards, vests April 1 (1), subject to forfeiture

 

50%

 

25%

 

25%

 

25%

 

25%

 

 

 

 

 

Performance-Based Awards- vests August 31, if achieved

 

50%

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3/8/2021

 

2021-2023 LTIP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time-Based Awards, vests April 1 (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 April 1 following the end of the first year of the performance period or one year from the date of grant, whichever is later.

2022-2024 LTIP

Subsequent to the end of fiscal 2021, on March 30, 2022, the Compensation Committee approved the Fourth Amended and Restated Long-Term Incentive Plan (the "amended LTIP"), which will be effective beginning with the 2022-2024 LTIP. The LTIP was amended to, among other things, add a definition for "Structured Retirement" and the related vesting of both time-based and performance-based awards under such Structured Retirement. The addition of Structured Retirement provides an opportunity for greater vesting upon retirement where the participant assists the Company in ensuring the succession of the participant’s position with the Company prior to the participant’s retirement. In order to be eligible to terminate in a Structured Retirement, the participant must terminate employment after meeting the age and service requirements set forth in the amended LTIP, the Compensation Committee must confirm through proper corporate action that the participant has

16


 

met all of the succession planning objectives set by the Compensation Committee for the participant, the participant must continue to work until the date required by the Compensation Committee (which may not be more than 60 days after the Compensation Committee confirms that the objectives have been met), and the participant must execute a release of claims in favor of the Company. The final determination as to whether the requirements of a Structured Retirement have been met is in the sole discretion of the Compensation Committee.

On April 9, 2022, the Compensation Committee established and approved the metric for the 2022-2024 LTIP. Consistent with the 2020-2022 LTIP and 2021-2023 LTIP, because of the continuing uncertainty with respect to global supply chain disruptions, inflation, labor shortages, COVID-19 and geopolitical instability from the Russian invasion of Ukraine, the Compensation Committee did not establish specific financial goals and again established a 3-year relative total shareholder return as the only metric under the 2022-2024 LTIP. The Compensation Committee believes that, given such uncertainties and the resulting complication attempting to set financial targets for the Company over a three-year period, the selection of a relative TSR against the Company’s peers aligns the interests of the LTIP participants with the interests of the Company’s stockholders. The Compensation Committee granted the time-based awards for the 2022-2024 LTIP in a combination of 50% restricted stock units and 50% cash.

Discretionary Cash and Equity Awards

On March 9, 2021, the Compensation Committee approved the discretionary grant of stock options to Mr. Kanter and all then-active associates who were participants in the 2018-2020 LTIP, including our other Named Executive Officers. The Compensation Committee considered various factors in making awards, including the need to ensure that the Company retained and motivated key employees to successfully drive its business forward beyond the pandemic to create additional long-term stockholder value. The calculation of the stock option award was determined upon the same calculation that would have been made had the 2018-2020 LTIP achieved a 12.5% achievement of its performance metric. Accordingly, the Compensation Committee approved a discretionary grant 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 dollar value of the total awards was $198,258. The stock options vest ratably over three years, with the first tranche vesting on March 9, 2022. See “Option Awards” below for information on the discretionary stock option awards made to our Named Executive Officers.

In light of the extraordinary financial performance of the Company in fiscal year 2021 and the substantially increased workload of the Company's management team during the year and the contributions of other employees to the Company’s financial performance, the Compensation Committee determined that it was appropriate and in the best interests of the Company and its stockholders to approve a discretionary cash award in addition to the award under the 2021 AIP. Accordingly, on March 15, 2022, in addition to the payouts earned under the AIP for achieving the financial metrics for fiscal 2021 as described above, each participant in the 2021 AIP, including our Named Executive Officers, also received an additional discretionary cash bonus equal to 10% of the participant's fiscal 2021 earned salary. In aggregate, these additional cash bonuses were made to 74 participants and totaled $1.2 million. The table below reflects the discretionary cash bonus made to each of our Named Executive Officers.

 

Named Executive Officer

 

 

 

Discretionary Bonus

 

 

Harvey S. Kanter

 

 

 

$

73,500

 

 

Peter H. Stratton, Jr.

 

 

 

$

39,500

 

 

Ujjwal Dhoot

 

 

 

$

38,500

 

 

Robert S. Molloy

 

 

 

$

37,500

 

 

Anthony J. Gaeta

 

 

 

$

29,500

 

 

Other Compensation

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 that 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. For the 2021 plan year, the Company suspended its QACA ("Qualified Automatic Contribution Arrangement") safe harbor and, while not required, the Company made a discretionary employer match for 2021. The Company has resumed its QACA safe harbor status for fiscal 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

17


 

and incentive programs, as they relate to terminations, are discussed in detail below in the section “Employment Agreements” following the “Summary Compensation Table.” Our employment agreements do not contain any tax gross-ups pursuant to Section 280(g) of the Internal Revenue Code.

Tax Implications

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

 

 

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COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on this review and discussion, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K/A.

 

 The Compensation Committee

 

 Willem Mesdag, Chair

 Jack Boyle

 Lionel F. Conacher

 

 

 

 

 

 

 

 

 

19


 

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 2021.

SUMMARY COMPENSATION TABLE

Name and Principal Position

 

Year

 

Salary ($)

 

 

Bonus ($)(1)

 

 

Stock
Awards
($) (2) (3)

 

 

Option
Awards
($) (2) (3)

 

 

Non-Equity
Incentive Plan
Compensation
($)(4)

 

 

All Other
Compensation
($)(5)

 

 

Total ($)

 

Harvey S. Kanter

 

2021

 

$

735,000

 

 

$

73,500

 

 

$

443,260

 

 

$

207,035

 

 

$

2,069,448

 

 

$

88,035

 

 

$

3,616,278

 

President and Chief Executive

 

2020

 

$

686,942

 

 

 

 

 

 

 

 

$

436,880

 

 

$

902,425

 

 

$

84,682

 

 

$

2,110,929

 

Officer

 

2019

 

$

671,923

 

 

 

 

 

$

1,941,974

 

 

 

 

 

$

435,346

 

 

$

114,824

 

 

$

3,164,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peter H. Stratton, Jr.

 

2021

 

$

395,000

 

 

$

39,500

 

 

$

98,088

 

 

$

51,844

 

 

$

458,525

 

 

$

25,647

 

 

$

1,068,604

 

Executive Vice President, Chief

 

2020

 

$

369,173

 

 

 

 

 

 

 

 

$

61,358

 

 

$

200,022

 

 

$

25,472

 

 

$

656,025

 

Financial Officer and Treasurer

 

2019

 

$

395,000

 

 

 

 

 

$

69,123

 

 

 

 

 

$

108,625

 

 

$

15,497

 

 

$

588,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ujjwal Dhoot

 

2021

 

$

385,000

 

 

$

38,500

 

 

$

52,940

 

 

$

38,639

 

 

$

336,767

 

 

$

12,843

 

 

$

864,689

 

Chief Marketing Officer

 

2020

 

$

322,885

 

 

$

100,000

 

 

 

 

 

$

46,601

 

 

$

135,351

 

 

$

9,975

 

 

$

614,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert S. Molloy

 

2021

 

$

375,000

 

 

$

37,500

 

 

$

93,122

 

 

$

49,218

 

 

$

397,809

 

 

$

27,770

 

 

$

980,419

 

General Counsel and Secretary

 

2020

 

$

350,481

 

 

 

 

 

 

 

 

$

58,251

 

 

$

156,598

 

 

$

27,595

 

 

$

592,925

 

 

 

2019

 

$

375,000

 

 

 

 

 

$

65,625

 

 

 

 

 

$

75,000

 

 

$

17,620

 

 

$

533,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anthony J. Gaeta

 

2021

 

$

295,000

 

 

$

29,500

 

 

$

73,256

 

 

$

38,281

 

 

$

267,217

 

 

$

22,040

 

 

$

725,294

 

Chief Stores Officer

 

2020

 

$

275,711

 

 

 

 

 

 

 

 

$

45,824

 

 

$

112,162

 

 

$

21,864

 

 

$

455,561

 

 

 

2019

 

$

291,730

 

 

$

10,000

 

 

$

51,625

 

 

 

 

 

$

43,176

 

 

$

11,874

 

 

$

408,405

 

 

(1)
The cash bonuses in fiscal 2021 represent the discretionary cash award granted to all members of the 2021 AIP, see "Compensation Discussion and Analysis - Compensation Components and Fiscal 2021 Compensation Decisions - Discretionary Cash and Equity Awards" for a discussion of the award.
(2)
The amounts reflect the fair value, as of grant date, of awards computed in accordance with FASB ASC Topic 718, and not the actual amounts paid to or realized by the Named Executive Officers during the applicable fiscal year. The fair value of stock option awards were estimated as of the date of grant using a Black-Scholes valuation model. For fiscal 2019, the fair value of performance-based awards to Mr. Kanter, which were based on a market condition, was determined as of the date of grant using a Monte-Carlo valuation model. Additional information regarding the assumptions used to estimate the fair value of all awards is included in Note A and Note I to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
(3)
The amounts reflected under "Stock Awards" represent the grant of restricted stock units on March 15, 2022 as a result of the Company's achieving its performance targets under the 2019-2021 LTIP. The potential value of the award at threshold, target and maximum was previously reported in the "2019 Grants of Plan-Based Awards" under "Estimated Future Payouts Under Equity Incentive Plan Awards."

See table “Option Awards” below for a breakdown of 2021 amounts reflected in this column.

The fair value associated with the performance-based component of the equity awards under the 2021-2023 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 2021-2023 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 2021-2023 LTIP assuming the highest level of performance conditions will be achieved for each of the Named Executive Officers:

Harvey S. Kanter

$

468,563

 

Peter H. Stratton, Jr.

$

103,688

 

Ujjwal Dhoot

$

101,063

 

Robert S. Molloy

$

98,438

 

Anthony J. Gaeta

$

77,438

 

(4)
Represents cash awards earned under the 2021 AIP, cash earned under the performance-based component of the 2019-2021 LTIP, the second tranche of time-vested cash of the 2019-2020 LTIP and the first tranche of time-vested cash of the 2020-2022 LTIP. See table “2021 Non-Equity (Cash) Incentive Plan Compensation” below for additional detail.
(5)
See table “All Other Compensation” below for a breakdown of 2021 amounts reflected in this column.

 

20


 

The following table provides a breakdown of the amounts in fiscal 2021 in the “Option Awards” column of the Summary Compensation Table above:

Name

 

2021-2023 LTIP (1)

 

 

Discretionary Grant of Stock Options (2)

 

 

Total Stock Option
Awards

 

Harvey S. Kanter

 

$

156,188

 

 

$

50,847

 

 

$

207,035

 

Peter H. Stratton, Jr.

 

$

34,563

 

 

$

17,281

 

 

$

51,844

 

Ujjwal Dhoot

 

$

33,687

 

 

$

4,952

 

 

$

38,639

 

Robert S. Molloy

 

$

32,812

 

 

$

16,406

 

 

$

49,218

 

Anthony J. Gaeta

 

$

25,812

 

 

$

12,469

 

 

$

38,281

 

(1)
Represents the grant-date fair value of time-based stock options issued under the 2021-2023 LTIP, which vest in four tranches with the first 25% vesting on April 1, 2022 and the remaining tranches vesting on April 1, 2023, April 1, 2024 and April 1, 2025.
(2)
Represents the grant-date fair value of a discretionary grant of stock options on March 9, 2021. See Compensation Discussion and Analysis - Compensation Components and Fiscal 2021 Compensation Decisions - Discretionary Cash and Equity Awards" for additional information regarding the award. The stock options vest in three equal installments, with the first tranche vesting on March 9, 2022, the second tranche on March 9, 2023 and remaining tranche on March 9, 2024.

The following table provides a breakdown of the amounts for fiscal 2021 in the “2021 Non-Equity (Cash) Incentive Plan Compensation” column of the Summary Compensation Table above:

Name

 

Annual Incentive
Plan (1)

 

 

2019-2021 LTIP
 Performance-Based(2)

 

 

2019-2021 LTIP
 Time-Based(3)

 

 

2020-2022 LTIP
Time-Based (3)

 

 

Total Non-
Equity (Cash)

 

Harvey S. Kanter

 

$

1,470,000

 

 

$

443,260

 

 

$

78,094

 

 

$

78,094

 

 

$

2,069,448

 

Peter H. Stratton, Jr.

 

$

325,875

 

 

$

98,088

 

 

$

17,281

 

 

$

17,281

 

 

$

458,525

 

Ujjwal Dhoot

 

$

261,376

 

 

$

52,940

 

 

$

9,326

 

 

$

13,125

 

 

$

336,767

 

Robert S. Molloy

 

$

271,875

 

 

$

93,122

 

 

$

16,406

 

 

$

16,406

 

 

$

397,809

 

Anthony J. Gaeta

 

$

168,149

 

 

$

73,256

 

 

$

12,906

 

 

$

12,906

 

 

$

267,217

 

(1)
Each Named Executive Officer earned a cash bonus under the 2021 AIP. See “Compensation, Discussion and Analysis-Compensation Components and Fiscal 2021 Compensation Decisions, Performance-based annual incentive plan and Long-term incentive plans” for more information about the payouts under the 2021 AIP.
(2)
Represents the cash portion of the award earned under the performance-based component of the 2019-2021 LTIP that was granted on March 15, 2022, with additional vesting through August 31, 2022.
(3)
Represents the vesting of the second tranche of the time-based cash award granted in August 2019 under the 2019-2021 LTIP and the first tranche of the time-based cash award granted in June 2020 under the 2020-2022 LTIP. See “Compensation, Discussion and Analysis-Compensation Components and Fiscal 2021 Compensation Decisions, Performance-based annual incentive plan and Long-term incentive plans” for more information about the payouts under the 2019-2021 LTIP and the 2020-2022 LTIP.

The following table provides a breakdown of the amounts for fiscal 2021 in the “All Other Compensation” of the Summary Compensation Table above:

Name

 

Auto
Allowance

 

 

401(k)

 

 

Long-Term
Healthcare
Premiums

 

 

Supplemental
Disability
Insurance

 

 

Relocation Costs

 

 

Total
Other
Compensation

 

Harvey S. Kanter

 

$

10,000

 

 

$

10,150

 

 

$

12,876