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 (Amendment No. )
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Rocky Brands, Inc.
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ROCKY BRANDS, INC.
39 East Canal Street
Nelsonville, Ohio 45764
April 9, 2012
8, 2013
Dear Shareholder:
I am pleased to invite you to the Annual Meeting of Shareholders of Rocky Brands, Inc. to be held on Tuesday,Wednesday, May 9, 2012,8, 2013, at 3:00 p.m., at Stuarts Opera House, located at 52 Public Square, Nelsonville, Ohio. Parking is available in Nelsonville at Rocky Brands, Inc., at 39 East Canal Street. We look forward to meeting all of our shareholders who are able to attend.
At the annual meeting, you will be asked to (i) elect J. Patrick Campbell, MichaelMike Brooks, Glenn E. Corlett, Harley E. Rouda, Jr., and James L. Finn, G. Courtney Haning, Curtis A. Loveland, and David N. SharpStewart for two-year terms as Class III Directors, (ii) recommend, by nonbinding vote, the frequency of voting on the compensation of our named executive officers; (iii) approve, on an advisory nonbinding basis, the compensation of our named executive officers; (iii) approve the Company’s 2012 Incentive Compensation Plan; (iv) ratify the selection of Schneider Downs & Co., Inc. as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012,2013, and (v)(iv) transact any other business which may properly come before the meeting or any adjournment thereof. A copy of the proxy statement and the proxy card are enclosed.
It is very important that your shares are represented and voted at the meeting whether or not you plan to attend. Accordingly, please sign, date, and return your proxy card in the enclosed envelope at your earliest convenience. You may vote over the Internet, by telephone or by submitting your proxy by mail. If you are a shareholder of record and attend the meeting, you may vote in person if you wish, and your proxy will not be used.
Your interest and participation in the affairs of the Company are greatly appreciated. Thank you for your continued support.
Sincerely,
Mike Brooks
Chairman of the Board
Sincerely, | |
Mike Brooks | |
Chairman of the Board |
ROCKY BRANDS, INC.
39 East Canal Street
Nelsonville, Ohio 45764
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 9, 20128, 2013
To Our Shareholders:
The Annual Meeting of Shareholders of Rocky Brands, Inc. will be held at Stuarts Opera House, located at 52 Public Square, Nelsonville, Ohio, on Tuesday,Wednesday, May 9, 2012,8, 2013, at 3:00 p.m. local time, for the following purposes:
(1) | To elect |
(2) | To hold an advisory vote |
To ratify the selection of Schneider Downs & Co., Inc. as the Company’s independent registered public accounting firm for the fiscal year ending December 31, |
To transact any other business which may properly come before the meeting or any adjournment thereof. |
Owners of record of common stock of the Company at the close of business on March 28, 2012,20, 2013, will be entitled to vote at the meeting.
You will be most welcome at the meeting, and we hope you can attend. Shareholders may obtain directions to the annual meeting by visiting the Company’s website:www.rockybrands.com. Directors and officers of the Company and representatives of its independent registered public accounting firm will be present to answer your questions and to discuss its business.
We urge you to execute and return the enclosed proxy, or vote electronically over the Internet or by telephone, as soon as possible so that your shares may be voted in accordance with your wishes. Please refer to the proxy card enclosed for information on voting electronically or by telephone. If you attend the meeting, you may vote in person if you are a shareholder of record or authorized by a shareholder of record, and your proxy will not be used.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on May 9, 2012:8, 2013: The proxy statement and annual report to security holders are available atwww.edocumentview.com/RCKY.
By Order of the Board of Directors,
Curtis A. Loveland
Secretary
By Order of the Board of Directors, | |
Curtis A. Loveland | |
Secretary |
Rocky Brands, Inc.
39 East Canal Street
Nelsonville, Ohio 45764
_____________________________
PROXY STATEMENT
_____________________________
ANNUAL MEETING OF SHAREHOLDERS
May 9, 20128, 2013
_____________________________
This proxy statement is furnished to the shareholders of Rocky Brands, Inc. (throughout the proxy statement the terms “Company,” “we” and “our” refer to Rocky Brands, Inc.) in connection with the solicitation of proxies to be used in voting at the Annual Meeting of Shareholders to be held on May 9, 2012,8, 2013, and at any adjournment thereof. The enclosed proxy is solicited by the Board of Directors of the Company. We began mailing this proxy statement to the Company’s shareholders on approximately April 9, 2012.8, 2013.
The Company will bear the cost of the solicitation of proxies, including the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of stock. Representatives of the Company may solicit proxies by mail, telegram, telephone, or personal interview.
All shares represented by a properly submitted proxy will be voted as directed if the proxy is received by the Company before the meeting or, in the absence of specific instructions to the contrary, will be voted in accordance with the unanimous recommendations of the boardBoard of directors,Directors, which are:
· | FOR the election of |
· | FORthe approval, on an advisory nonbinding basis, of the compensation of the Company’s named executive officers; |
· | FORthe |
· | at the discretion of the persons acting under the proxy, to transact such other business as may properly come before the meeting or any adjournment thereof. |
Any shareholder giving a proxy has the power to revoke it at any time before it is exercised by filing a written notice with the Secretary of the Company prior to the meeting. Shareholders of record who attend the meeting may vote in person, and their proxies will not be used.
Holders of record of common stock of the Company at the close of business on March 28, 2012,20, 2013, the record date for the annual meeting, will be entitled to vote at the annual meeting. At that time, the Company had 7,489,9957,516,448 shares of common stock outstanding and entitled to vote. Each share of common stock outstanding on the record date entitles the holder to one vote on each matter submitted at the annual meeting.
The presence, in person or by proxy, of a majority of the outstanding shares of common stock of the Company is necessary to constitute a quorum for the transaction of business at the annual meeting. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum. Broker non-votes occur when brokers, who hold their customers’ shares in street name, sign and submit proxies for such shares and vote such shares on some matters, but not others. Typically, this would occur when brokers have not received any instructions from their customers, in which case the brokers, as the holders of record, are permitted to vote on “routine” matters.
The election of each director nominee requires the favorable vote of a plurality of all votes cast by the holders of common stock at a meeting at which a quorum is present. Proxies that are marked “Withhold Authority” and broker non-votes will not be counted toward such nominee’s achievement of a plurality and thus will have no effect.
Approval of the proposalsproposal relating to the compensation of our named executive officers and the frequency of the vote on compensation requires the affirmative vote of a majority of the shares of our common stock represented in person or by proxy at the annual meeting. Abstentions will be counted as represented and entitled to vote and will therefore have the effect of a vote against the proposal. Broker non-votes are disregarded and will have no effect.
The proposal to approve the Company’s 2012 Incentive Compensation Plan requires the affirmative vote of holders of a majority of shares of common stock present and entitled to vote at the meeting. As a result, abstentions will have the same effect as a vote cast against the proposal, but broker non-votes will have no effect on the outcome of this proposal.
The ratification of Schneider Downs & Co., Inc. as the Company’s independent registered public accounting firm requires the affirmative vote of the holders of a majority of the common stock present and entitled to vote on the matter. Broker non-votes will not be counted as being in favor or against the ratification of Schneider Downs & Co., Inc., while abstentions will be counted and will have the effect of a vote against the ratification of Schneider Downs & Co., Inc.
Proposal 1 – Election of Directors
The Company’s Code of Regulations provides for a classified board of directors with two classes. Each class of directors consists, as nearly as practical, of one-half of the total number of directors. The total number of authorized directors has been fixed by the Board of Directors at nine. The Board of Directors proposes the re-election of the fivefour incumbent Class III Directors to continue their service as Class III Directors at the 20122013 Annual Meeting of Shareholders. The fourfive incumbent Class III Directors will continue in office until the 20132014 Annual Meeting of Shareholders.
J. Patrick Campbell, MichaelMike Brooks, Glenn E. Corlett, Harley E. Rouda, Jr., and James L. Finn, G. Courtney Haning, Curtis A. Loveland, and David N. SharpStewart are currently Class III Directors of the Company and are being nominated by the Board of Directors for re-election as Class III Directors.
It is intended that, unless otherwise directed, the shares represented by the enclosed proxy will be voted FOR the election of Messrs. Campbell, Finn, Haning, Loveland,Brooks, Corlett, Rouda, and SharpStewart as Class III Directors. In the event that any of the nominees for director should become unavailable, the number of directors of the Company may be decreased pursuant to the Company’s Code of Regulations, or the Board of Directors may designate a substitute nominee, in which event the shares represented by the enclosed proxy will be voted for such substitute nominee.
The Board of Directors recommends that the shareholders vote FOR the election of each of the nominees for Director.
The following table sets forth for each nominee and each continuing director of the Company, such person’s name, age, the year in which he became a director of the Company, and his position with the Company and the Company’s subsidiaries, Five Star Enterprises Ltd. (“Five Star”); Lifestyle Footwear, Inc. (“Lifestyle”); Rocky Canada, Inc. (“Rocky Canada”); Rocky Brands Wholesale LLC (“Wholesale”); Rocky Brands International, LLC (“International”); Lehigh Outfitters LLC, (“Lehigh”); and EJ Asia Limited (collectively, the “Subsidiaries”).
Class I Directors
(Nominees – Terms Expire in 2013)
Name | Age | Director Since | Position | |||
Mike Brooks | 66 | 1992 | Director and Chairman of the Company | |||
Glenn E. Corlett | 69 | 2000 | Director of the Company | |||
Harley E. Rouda, Jr. | 51 | 2003 | Director of the Company | |||
James L. Stewart | 79 | 1996 | Director of the Company |
Class II Directors
(Nominees - Terms Expire in 2014)
Name | Age | Director Since | Position | |||
J. Patrick Campbell | 63 | 2004 | Director of the Company | |||
Michael L. Finn | 68 | 2004 | Director of the Company | |||
G. Courtney Haning | 63 | 2004 | Director of the Company | |||
Curtis A. Loveland | 65 | 1993 | Director of the Company and Secretary of the Company and Subsidiaries | |||
David N. Sharp | 56 | 2010 | Director, President, and Chief Executive Officer of the Company and Subsidiaries |
Name | Age | Director Since | Position | |||
J. Patrick Campbell | 64 | 2004 | Director of the Company | |||
Michael L. Finn | 69 | 2004 | Director of the Company | |||
G. Courtney Haning | 64 | 2004 | Director of the Company | |||
Curtis A. Loveland | 66 | 1993 | Director of the Company and Secretary of the Company and Subsidiaries | |||
David N. Sharp | 57 | 2010 | Director, President, and Chief Executive Officer of the Company and Subsidiaries |
Class I Directors
(Terms Expire in 2013)
Name | Age | Director Since | Position | |||
Mike Brooks | 65 | 1992 | Director and Chairman of the Company | |||
Glenn E. Corlett | 68 | 2000 | Director of the Company | |||
Harley E. Rouda, Jr. | 50 | 2003 | Director of the Company | |||
James L. Stewart | 78 | 1996 | Director of the Company |
3 |
The following information is provided for each director and each person nominated for election as a director, and includes descriptions of each individual’s specific experience, qualifications, attributes, and skills that led to the conclusion that he should serve on the Board of Directors.
J. Patrick Campbell has served as the Executive Chairman of the Board of Universal Companies since October 2011, and before that served as the Chief Executive Officer of Universal Companies from January 2009 until October 2011. Universal Companies is a leading international distributor of products, equipment, and supplies to spas, skincare professionals, and resort and destination properties. Mr. Campbell serves on the board of directors of Universal Companies. From 2005 to 2008, Mr. Campbell served as the President and Chief Operating Officer of Grantham Education Corporation. From 2002 to 2005, Mr. Campbell acted as a consultant to various financial institutions and a variety of corporations. Mr. Campbell also serves on the boards of directors of various privately held corporations. Mr. Campbell retired as the President of Nasdaq U.S. Markets in December 2001. From January 1997 to December 2001, he held various executive positions at the Nasdaq Stock Market, including Chief Operating Officer for Nasdaq Inc. and Chairman of Nasdaq Investment Products. Prior to joining Nasdaq, Mr. Campbell worked as a Senior Executive Vice President for The Ohio Company from 1971 to 1996 and served as a member of their board of directors from 1991 to 1996. Mr. Campbell’s board member experience, business operations and management experience in retail and distribution, and the skills and knowledge he acquired with respect to finance and investments as President of Nasdaq U.S. Markets, qualify him to continue serving as a member of the Board of Directors.
Michael L. Finn has served as President of Central Power Systems, a wholesale distributor of outdoor power equipment in Columbus, Ohio, since 1985, and President of Chesapeake Realty Co., a real estate development and management company in Columbus, Ohio, since 1970. Mr. Finn has also served as Chairman of the Board of Directors of Power Source Canada, a Canadian corporation, since 2004, and as Chairman of the Board of Directors of Integrated Distributors Network, LLC, a Wisconsin corporation, since 2004, both of which market and distribute outdoor power equipment. Mr. Finn’s board member experience, operations and management experience in retail and distribution, and business management experience, including his service as a president of both a distribution company and real estate development company, qualify him to continue serving as a member of the Board of Directors.
G. Courtney Haning has served as Chairman, President and Chief Executive Officer of Peoples National Bank, a community bank in New Lexington, Ohio, since January 1991. Mr. Haning’s business management experience in finance, corporate credit, and community relations, including his service as a chief executive officer, qualify him to continue serving as a member of the Board of Directors.
Curtis A. Loveland has served as Secretary of the Company since October 1992, of Five Star and Lifestyle since December 1992, of Rocky Canada since July 2003, of Wholesale and Lehigh since January 2005, and of International since October 2008. Mr. Loveland has been a practicing attorney for 39 years and has been a partner in the law firm of Porter Wright Morris & Arthurllp, Columbus, Ohio since 1979. He has served as a board member, secretary, or counsel for numerous public and private companies in a variety of industries, including technology, medical devices, retailing, and telecommunications. Mr. Loveland’s board member experience and knowledge and skills with respect to corporate governance, public company regulation, and general business law qualify him to continue serving as a member of the Board of Directors.
David N. Sharp has served as President and Chief Executive Officer of the Company and its Subsidiaries since July 2011 and before that as President and Chief Operating Officer of the Company and its Subsidiaries from January 2005, and of International from October 2008, until July 2011. Prior to that, he served as Executive Vice President and Chief Operating Officer of the Company from March 2002 until January 2005. He served as Senior Vice President – Sales and Operations from June 2001 until March 2002, as Vice President of Sales and Marketing from October 2000 until June 2001, and as Vice President of Manufacturing Operations and Marketing from June 2000 until October 2000. Mr. Sharp served as Executive Vice President and Chief Operating Officer of Five Star and Lifestyle from August 2003 until January 2005 and of Rocky Canada from July 2003 until January 2005. Prior to that time, he served as Senior Vice President – Sales and Operations of Five Star and Lifestyle from February 2002 until August 2003. Prior to joining the Company, from September 1994 until October 1999, Mr. Sharp served in various capacities, including Vice President and General Manager of an operating division of H.H. Brown, Inc., a wholly owned subsidiary of Berkshire-Hathaway, Inc., engaged in the footwear business. Mr. Sharp also held various senior sales and marketing positions at Acme Boot Co., Inc. and Converse, Inc. from June 1991 until September 1994. Mr. Sharp’s experience in the footwear industry qualifies him to continue serving as a member of the Board of Directors.
Mike Brooks has served as Chairman of the Company since January 2005 and before that served as Chief Executive Officer of the Company and its Subsidiaries from January 2005, and of International from October 2008, until July 2011. Prior to that he served as Chairman, President, and Chief Executive Officer of the Company from August 1991 to January 2005. Mr. Brooks also has served Lifestyle as President since November 1988 and as Chairman and Chief Executive Officer since December 1992, and Five Star as President since March 1987, as Chairman since August 1991, and as Chief Executive Officer since December 1992 until July 2011. Mr. Brooks is a pattern engineering and shoe design graduate of the Ars Sutoria in Milan, Italy. After employment with U.S. Shoe Corporation and various tanning companies, Mr. Brooks returned to the family shoe business in Nelsonville, Ohio, in 1975, serving first as Manager of Product Development and a national salesman and then, in 1984, becoming President. He has been a director of American Apparel and Footwear Association (formerly Footwear Industries of America) since April 1986 and currently serves on the Executive Board. Mr. Brooks’ education with respect to shoe design and business management experience in product development and strategy development, including decades of service in the footwear industry, qualify him to continue serving as a member of the Board of Directors.
Glenn E. Corlett was a professor of accounting of the College of Business at Ohio University, Athens, Ohio, from July 1997 until July 2009, and was Dean of the College from that date until he retired on June 30, 2007. From 1993 to 1996, Mr. Corlett was Executive Vice President and Chief Operating Officer of N.W. Ayer & Partners, an international advertising agency, headquartered in New York, New York. Mr. Corlett also served as Chief Financial Officer of N.W. Ayer & Partners from 1990 to 1995. Prior to joining N.W. Ayer & Partners, Mr. Corlett had a long history with PricewaterhouseCoopers where he was partner-in-charge for mergers and acquisitions in New York from 1988 to 1990; tax partner-in-charge in Denver from 1984 to 1988 and in Cleveland from 1979 to 1984; and held partner and staff positions from 1971 to 1979. Mr. Corlett also serves on the board of directors of Preformed Line Products Company, an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for energy, communications and broadband network companies. Mr. Corlett’s education and business management experience in the areas of marketing, finance, treasury, accounting, and tax, including the skills and knowledge he developed as an accounting practitioner and educator, qualify him to continue serving as a member of the Board of Directors.
Harley E. Rouda, Jr. has served as Chief Executive Officer of Trident Holdings, Inc., an independently-owned real estate brokerage and related services firm headquartered in Columbus, Ohio, since February 2002. He also servesFrom November 2009 until October 2012, he served as President of Real Living Real Estate, a national franchisor of real estate services headquartered in Columbus, Ohio and Chicago, Illinois, since November 2009.Illinois. He has also served as Chief Executive Officer and General Counsel of HER Realtors, a Columbus based real estate firm, since May 1999 and May 1997, respectively. Prior to serving as Chief Executive Officer, Mr. Rouda served as President of HER Realtors from May 1996 until May 1999. Mr. Rouda’s business management experience in marketing and operations, including his service as a chief executive officer, qualify him to continue serving as a member of the Board of Directors.
James L. Stewart has served as the proprietor of Rising Wolf Ranch, Inc., East Glacier, Montana, a summer resort and a winter rehabilitation center for teenage boys involved with drug abuse. Mr. Stewart also consults for various retail and catalog companies. Between 1984 and 1991, Mr. Stewart served as the President and Chief Executive Officer of Dunns Inc. and as the Vice President and General Manager of Gander Mountain Inc. Before that time, he served Sears Roebuck & Co. for 28 years in various management capacities. Mr. Stewart’s business management experience in retail sales and marketing, process management, and corporate leadership qualify him to continue serving as a member of the Board of Directors.
J. Patrick Campbell has served as the Executive Chairman of the Board of Universal Companies since October 2011, and before that served as the Chief Executive Officer of Universal Companies from January 2009 until October 2011. Universal Companies is a leading international distributor of products, equipment, and supplies to spas, skincare professionals, and resort and destination properties. Mr. Campbell serves on the board of directors of Universal Companies. From 2005 to 2008, Mr. Campbell served as the President and Chief Operating Officer of Grantham Education Corporation. From 2002 to 2005, Mr. Campbell acted as a consultant to various financial institutions and a variety of corporations. Mr. Campbell also serves on the boards of directors of various privately held corporations. Mr. Campbell retired as the President of Nasdaq U.S. Markets in December 2001. From January 1997 to December 2001, he held various executive positions at the Nasdaq Stock Market, including Chief Operating Officer for Nasdaq Inc. and Chairman of Nasdaq Investment Products. Prior to joining Nasdaq, Mr. Campbell worked as a Senior Executive Vice President for The Ohio Company from 1971 to 1996 and served as a member of their board of directors from 1991 to 1996. Mr. Campbell’s board member experience, business operations and management experience in retail and distribution, and the skills and knowledge he acquired with respect to finance and investments as President of Nasdaq U.S. Markets, qualify him to continue serving as a member of the Board of Directors.
Michael L. Finn has served as President of Central Power Systems, a wholesale distributor of outdoor power equipment in Columbus, Ohio, since 1985, and President of Chesapeake Realty Co., a real estate development and management company in Columbus, Ohio, since 1970. Mr. Finn has also served as Chairman of the Board of Directors of Power Source Canada, a Canadian corporation, since 2004, and as Chairman of the Board of Directors of Integrated Distributors Network, LLC, a Wisconsin corporation, since 2004, both of which market and distribute outdoor power equipment. Mr. Finn has also served as Chairman of the Board of Directors of Power Distributors, LLC, an Ohio limited liability company, since 2012, which is a distributor of outdoor power equipment and related products. Mr. Finn’s board member experience, operations and management experience in retail and distribution, and business management experience, including his service as a president of both a distribution company and real estate development company, qualify him to continue serving as a member of the Board of Directors.
G. Courtney Haning has served as Chairman, President and Chief Executive Officer of Peoples National Bank, a community bank in New Lexington, Ohio, since January 1991. Mr. Haning’s business management experience in finance, corporate credit, and community relations, including his service as a chief executive officer, qualify him to continue serving as a member of the Board of Directors.
Curtis A. Loveland has served as Secretary of the Company since October 1992, of Five Star and Lifestyle since December 1992, of Rocky Canada since July 2003, of Wholesale and Lehigh since January 2005, and of International since October 2008. Mr. Loveland has been a practicing attorney for 39 years and has been a partner in the law firm of Porter Wright Morris & Arthurllp, Columbus, Ohio since 1979. He has served as a board member, secretary, or counsel for numerous public and private companies in a variety of industries, including technology, medical devices, retailing, and telecommunications. Mr. Loveland’s board member experience and knowledge and skills with respect to corporate governance, public company regulation, and general business law qualify him to continue serving as a member of the Board of Directors.
David N. Sharp has served as President and Chief Executive Officer of the Company and its Subsidiaries since July 2011 and before that as President and Chief Operating Officer of the Company and its Subsidiaries from January 2005, and of International from October 2008, until July 2011. Prior to that, he served as Executive Vice President and Chief Operating Officer of the Company from March 2002 until January 2005. He served as Senior Vice President – Sales and Operations from June 2001 until March 2002, as Vice President of Sales and Marketing from October 2000 until June 2001, and as Vice President of Manufacturing Operations and Marketing from June 2000 until October 2000. Mr. Sharp served as Executive Vice President and Chief Operating Officer of Five Star and Lifestyle from August 2003 until January 2005 and of Rocky Canada from July 2003 until January 2005. Prior to that time, he served as Senior Vice President – Sales and Operations of Five Star and Lifestyle from February 2002 until August 2003. Prior to joining the Company, from September 1994 until October 1999, Mr. Sharp served in various capacities, including Vice President and General Manager of an operating division of H.H. Brown, Inc., a wholly owned subsidiary of Berkshire-Hathaway, Inc., engaged in the footwear business. Mr. Sharp also held various senior sales and marketing positions at Acme Boot Co., Inc. and Converse, Inc. from June 1991 until September 1994. Mr. Sharp’s experience in the footwear industry qualifies him to continue serving as a member of the Board of Directors.
Proposal 2 – Advisory Vote on the Frequency of Voting on the Compensation of
Paid to Named Executive Officers
Section 14A of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), requires the Company to include in its proxy statement an advisory vote on named executive officer compensation this year and, going forward, at least once every three years. Section 14A also requires the Company to include in its proxy statement this year and, going forward, at least every six years aan advisory vote regarding named executive officer compensation. Last year a plurality of shares represented at the frequency with which2012 annual meeting in person or by proxy were voted, on an advisory non-binding basis, in favor of holding the vote on named executive officer compensation should be held.every year. While the Company will continue to monitor developments in this area, the Board of Directors currently plans to seekagain seeks an advisory vote on executive compensation every thirdthis year. The Board of Directors believes this approach would align more closely with the interests of shareholders by giving shareholders the opportunity to vote on the compensation decisions made by the Compensation Committee every third year. We believe investor feedback would be more useful if the success of a compensation program and management’s performance is judged over an extended period of time. Our compensation incentives are designed to promote long-term, sustainable results, which generally are not realizable within a short period of time. The Company asks that you indicate your support for holding the advisory vote on executive compensation every third year. Because your vote is advisory, it will not be binding on the Board of Directors. However, the Board of Directors will review the voting results and take them into consideration when making future decisions regarding the frequency with which the advisory vote on executive compensation will be held.
The Board of Directors recommends that shareholders vote FOR holding an advisory vote on executive compensation every third year.
Proposal 3 – Advisory Vote on the Compensation Paid to Named Executive Officers
As noted above, Section 14A of the Exchange Act requires the Company to include in its proxy statement this year an advisory vote regarding named executive officer compensation. The Company asks that you indicate your approval of the compensation paid to our named executive officers as described in this proxy statement under the heading “Executive Compensation,” which includes compensation tables and narratives included elsewhere in this proxy statement.
Because your vote is advisory, it will not be binding on the Board of Directors. However, the Board of Directors and the Compensation Committee will review the voting results and take them into consideration when making future decisions regarding executive compensation. The Compensation Committee has structured its executive compensation programs primarily to motivate executives to achieve the business goals established by the Company and reward executives for meeting business goals and delivering superior performance as measured against those business goals.
For the reasons discussed above and in this proxy statement under the heading “Executive Compensation,” the Board of Directors recommends that shareholders vote to approve the following resolution:
“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.”
The Board of Directors recommends that shareholders vote FOR the approval of the resolution relating to the compensation of named executive officers.
Proposal 4 – Approval of the 2012 Incentive Compensation Plan
Introduction
At the annual meeting, our shareholders will be requested to consider and act upon a proposal to approve the 2012 Incentive Compensation Performance Plan (the “IC Plan”). While we have utilized non-equity incentive compensation in the past, we believe that we should have a plan that complies with Section 162(m) of the Internal Revenue Code (the “Code”) in order to protect the deductibility of compensation that could potentially be paid in excess of $1 million per year to any Covered Officer (as defined below). Please see “Non-Equity Incentive Compensation” under the Compensation Discussion & Analysis on page 22 for a discussion of our 2011 non-equity incentive compensation plan.
This summary of the principal features of the IC Plan is qualified in its entirety by the full text of the IC Plan, which we have attached to this proxy statement as Appendix A and which we incorporate herein by reference. A vote in favor of adopting the IC Plan will constitute approval of all terms of the IC Plan, including the adoption of all performance goals and other terms applicable to “Covered Officers” (those participants who are members of the group of “covered employees” as defined in the regulations under Section 162(m) of the Internal Revenue Code of 1986, or any successor statute (the “Code”)).
Purpose
The purpose of the IC Plan is to optimize the growth and profitability of our company by providing to key employees incentives that encourage, recognize and reward exceptional levels of corporate, business unit, or individual performance. Through the IC Plan, we intend to use award dollars as a clear communication vehicle linking the interests of eligible key employees with the interests of our company by establishing a direct link between performance and incentive payments.
Administration of the 2012 Incentive Plan
The IC Plan will be administered by the Compensation Committee of our Board of Directors. The Compensation Committee shall have the full power to:
For purposes of granting, administering and certifying awards to Covered Officers, the Compensation Committee shall be composed of two or more directors, each of whom is an "outside director" within the meaning of Section 162(m) of the Code. Any Compensation Committee member who is not an "outside director" within the meaning of Section 162(m) of the Code will abstain from participating in any decision to grant, administer, or certify awards to Covered Officers. For each performance period, the Compensation Committee will designate which participants are Covered Officers within 90 days after the beginning of the performance period (or, if the performance period is less than one year, before completion of 25% of the performance period). In the event that the Compensation Committee does not make such a designation for a performance period, all participants shall be treated as Covered Officers.
Eligibility to Receive Awards
All persons deemed by the Compensation Committee to be key employees are eligible to be granted awards under the IC Plan. Persons who become key employees of our company after the date of the Compensation Committee’s initial grant of awards but prior to the end of the performance period, whether due to promotion, transfer or initial commencement of employment with us, may be granted awards by the Compensation Committee on a partial performance period basis. In each case, the Compensation Committee shall specify the terms and conditions of such award, including any pro rata allocations of the performance measurements to such partial performance period participants.
Awards
The Compensation Committee will establish written performance goals based on any one or more of the following objective performance measures, or any combination thereof:
Each performance goal shall have a minimum performance standard below which no payments will be made. The performance goals may be based on an analysis of historical performance and growth expectations, financial results of other comparable businesses, and progress toward achieving our long-range strategic plan for the business. The performance goals and determination of results shall be based entirely on objective measures for all Covered Officers under the IC Plan.
The Compensation Committee may include or exclude extraordinary events in establishing the performance goals based on the performance measures and shall use any extraordinary event indentified in the first 90 days of a performance period (or, if the performance period is less than one year, before completion of 25% of the performance period) in determining whether the performance goals have been achieved. The Compensation Committee may not increase the amount of an award that would otherwise be due to a participant who is a Covered Officer based on such Covered Officer's pre-established performance goals (including adjustments for pre-established extraordinary events). Such unusual or non-recurring extraordinary events shall include the following:
Performance goals based on the pre-established measures and the potential awards that will be payable upon attainment of those performance goals will be established in writing by the Compensation Committee not later than 90 days after the commencement of the period to which the goals relate and, for performance periods shorter than one year, prior to the completion of 25% of such period. The target incentive compensation percentage for each selected participant will be based on the level and functional responsibility of his or her position, size of the business for which the participant is responsible, and competitive practices. Performance goals may differ for awards granted to any one participant or to different participants. The Compensation Committee may determine that any award shall be based on more than one performance measure. The Compensation Committee may increase or decrease individual awards based upon extraordinary circumstances; provided, however, the Compensation Committee may not use any discretion to increase or otherwise modify award results for Covered Officers except as permitted under Section 162(m) of the Code.
Unless payment is deferred in accordance with the provisions of the IC Plan, awards will be payable in cash or shares of our common stock, after the date our financial statements have been reviewed by our independent public accountants for the relevant fiscal period of computation; provided that awards will be paid to Covered Officers only after the Compensation Committee has certified in writing in the minutes of a committee meeting or otherwise that the performance goals applicable to Covered Officers and any other material terms of the IC Plan have been satisfied. No award will be paid to any participant who is not employed by us on the last day of the period to which the award relates except as determined by the Compensation Committee or in certain circumstances involving a change of control or the death or disability of a participant, each circumstance as more fully described in the IC Plan; provided, however, the Compensation Committee may not use its discretion to increase or otherwise modify award results for Covered Officers except as permitted under Section 162(m) of the Code. Awards are subject to income and other payroll tax withholding by our company.
The award, or awards, payable to any participant under the IC Plan shall not exceed$2 million in a fiscal year. The Compensation Committee may permit a participant to defer his or her receipt of payment of an award that would otherwise be due to the participant.
The Compensation Committee may adjust the terms and conditions of, and the criteria included in, awards in recognition of unusual or non-recurring events (including, without limitation, acquisitions or dispositions of assets or businesses) affecting our company or our financial statements or of changes in applicable laws, regulations, or accounting principles, whenever the Compensation Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the IC Plan; provided, however, the Compensation Committee may not use any discretion to increase or otherwise modify award results for Covered Officers except as permitted under Section 162(m) of the Code.
The Board of Directors may amend the IC Plan at any time.
Awards to be Granted to Certain Individuals and Groups
As described above, the Compensation Committee has discretion to determine the number and type of awards to be granted to participants. Accordingly, the actual number and type of awards to be granted in the future under the IC Plan cannot be determined at this time.
The Board of Directors recommends a vote FOR the approval of the 2012 Incentive Compensation Plan.
Information Concerning the Board of Directors and Corporate Governance
The Board of Directors of the Company held a total of four meetings during 2011.2012. During 2011,2012, each of the directors attended 75% or more of the total number of (i) meetings of the Board, and (ii) meetings of committees of the Board on which such director served.
Upon consideration of the criteria and requirements regarding director independence set forth in the Marketplace Rules of the NASDAQ Stock Market, the Board of Directors has determined that a majority of its members are independent. Specifically, the Board has determined that each of Messrs. Campbell, Corlett, Finn, Haning, Loveland, Rouda, and Stewart, meet the standards of independence established by Marketplace Rule 5605(a)(2).
The Company has a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The members of the Audit Committee are Messrs. Corlett (Chairman), Campbell, and Haning. The Board of Directors has determined that each of Messrs. Corlett, Campbell, and Haning are independent as independence is defined in Marketplace Rule 5605(a)(2) and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended, and that the Audit Committee meets the composition requirements of Marketplace Rule 5605(c)(2). The Board of Directors has determined that Mr. Corlett meets the requirements of an “audit committee financial expert” as set forth in Section 407(d)(5) of Regulation S-K promulgated by the Securities and Exchange Commission (“SEC”).
The Audit Committee met eightninetimesduring 2011.2012. The Audit Committee oversees and monitors management’s and the independent registered public accounting firm’s participation in the accounting and financial reporting processes and the audits of the financial statements of the Company. The Audit Committee has the responsibility to appoint, compensate, retain and oversee the work of the independent registered public accounting firm and to consult with the independent registered public accounting firm on matters relating to the scope of the audit, any non-audit assignments and related fees, the accounting principles used by the Company in financial reporting, internal financial auditing procedures, and the adequacy of the Company’s internal control procedures. The Audit Committee is governed by an Amended and Restated Audit Committee Charter, which is posted on the Company’s website atwww.rockybrands.com. The Audit Committee Report relating to the 20112012 fiscal year appears on pages 4237 and 43.38.
The members of the Compensation Committee are Messrs. Rouda (Chairman), Stewart, and Finn. The Board of Directors has determined that each of Messrs. Rouda, Stewart, and Finn are independent as independence is defined in Marketplace Rule 5605(a)(2). The Compensation Committee is governed by an Amended and Restated Compensation Committee Charter, which is posted on the Company’s website atwww.rockybrands.com. The Compensation Committee met sixnine times during 2011.2012. This Committee administers the 2004 Stock Incentive Plan, the 2012 Incentive Compensation Plan, and approves compensation for the Company’s executive officers. The Compensation Committee report relating to the 20112012 fiscal year appears on page 41.36. For more information on the Compensation Committee, please refer to “Executive Compensation – Compensation Discussion and Analysis – The Compensation Committee,” beginning on page 19.14.
TheAs of January 1, 2013, the members of the Nominating and Corporate Governance Committee are Messrs. LovelandFinn (Chairman), Corlett, and Finn.Campbell. The Board of Directors has determined that each of Messrs. Loveland,Finn, Corlett, and FinnCampbell are independent as independence is defined in Marketplace Rule 5605(a)(2). The Nominating and Corporate Governance Committee Charter is posted on the Company’s website atwww.rockybrands.com. The Nominating and Corporate Governance Committee met three timestwice during 2011.2012. During 2012, the members of the Nominating and Corporate Governance Committee were Messrs. Loveland (Chairman), Corlett, and Finn. The Nominating and Corporate Governance Committee oversees the director nomination process and reviews related party transactions. The Nominating and Corporate Governance Committee has the responsibility to identify and recommend individuals qualified to become directors.
When considering potential candidates, the Nominating and Corporate Governance Committee reviews the candidate’s character, judgment, and skills, including financial literacy, and experience in the context of the needs of the Board of Directors. Neither the Nominating and Corporate Governance Committee nor the Board of Directors has a formal policy with regard to the consideration of diversity in identifying director nominees; however, how a specific nominee contributes to the diversity of the Board of Directors is considered by both the Nominating and Corporate Governance Committee and the Board of Directors in determining candidates for the Board. The Committee and the Board consider diversity by identifying a nominee’s experience and background and determining how such experience and background will complement the overall makeup of the Board. The Committee and the Board prefer nominees who will contribute to a board that is diverse in terms of business training, experience across a range of industries, leadership, background, and education. The Company generally does not pay any third parties to identify or evaluate, or assist in identifying or evaluating, potential nominees.
The Nominating and Corporate Governance Committee considers the recommendations of shareholders regarding potential director candidates. In order for shareholder recommendations regarding possible director candidates to be considered by the Nominating and Corporate Governance Committee:
· | such recommendations must be provided to the Nominating and Corporate Governance Committee c/o Rocky Brands, Inc., 39 East Canal Street, Nelsonville, Ohio 45764, in writing at least 120 days prior to the date of the next scheduled annual meeting; |
· | the nominating shareholder must meet the eligibility requirements to submit a valid shareholder proposal under Rule 14a-8 of the Securities Exchange Act of 1934, as amended; and |
· | the nominating shareholder must describe the qualifications, attributes, skills, or other qualities of the recommended director candidate. |
The Nominating and Corporate Governance Committee also has the responsibility to develop and recommend to the Board of Directors a set of corporate governance principles applicable to the Company and to administer and oversee the Company’s Code of Business Conduct and Ethics.
Mr. Sharp serves as the Chief Executive Officer, and Mr. Brooks serves as the Chairman of the Board of Directors. Although the Board does not have a lead independent director position, the Board believes that each incumbent director’s knowledge of the Company and industry as a result of his years of service on the Board, and the fact that each of the directors other than Mr. Brooks and Mr. Sharp is independent, allows the independent directors to provide appropriate independent oversight of management and to hold management accountable for the execution of strategy. The Board has determined that its leadership structure, including each of the committees of the Board, is appropriate because it allows for beneficial communication between the outside directors and the management of the Company and effective management of the oversight tasks required of the Board.
Our Chief Executive Officer is responsible for providing day-to-day leadership and establishing the Company’s course of action for achieving performance goals, while the other independent directors provide strategic guidance. The Board of Directors believes that this structure helps facilitate the role of the independent directors in the oversight of the Company and the active participation of the independent directors in setting agendas and establishing priorities and procedures that work for the Board of Directors. The Chairman acts as a key liaison between the Board of Directors and management.
Our Chief Executive Officer and senior management are responsible for the day-to-day management of the risks we face. Our Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management, including general oversight of (i) the financial exposure of the Company, (ii) risk exposure as related to the overall Company portfolio and impact on earnings, (iii), oversight of information technology security and risk, and (iv) all systems, processes, and organizational structures and people responsible for finance and risk functions. Certain risks are overseen by committees of the Board of Directors and these committees make reports to the full Board of Directors, including reports on noteworthy risk management issues. Financial risks are overseen by the Audit Committee which meets with management to review the Company’s major financial risk exposure and the steps management has taken to monitor and control such exposures. Compensation risks are overseen by the Compensation Committee.
Members of the Company’s senior management report to the full Board of Directors about their areas of responsibility, including reports regarding risk within such areas of responsibility and the steps management has taken to monitor and control such exposures. Additional review or reporting of risks is conducted as needed or as requested by the Board of Directors or its committees.
We believe that our board leadership structure promotes effective oversight of the Company’s risk management by providing unified leadership through a single person, while allowing for contributions from our independent Board members, all of whom are fully engaged in Board deliberations and decisions.
The Company’s Board of Directors welcomes communications from shareholders. Shareholders may send communications to the Board of Directors, or to any director in particular, c/o Rocky Brands, Inc., 39 East Canal Street, Nelsonville, Ohio 45764. Any correspondence addressed to the Board of Directors, or to any one of the Company’s directors in care of our offices is forwarded to the addressee without review by management.
It is the Company’s expectation that all members of the Board of Directors attend the Annual Meeting of Shareholders. AllEight of the nine members of the Company’s Board of Directors were present at the Company’s 20112012 Annual Meeting of Shareholders.
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Information Concerning Executive Officers
Executive Officers
In addition to Mike Brooks and David N. Sharp, the following individuals are executive officers of the Company:
James E. McDonald, 51,52, has served as Executive Vice President, Chief Financial Officer, and Treasurer of the Company and its Subsidiaries since January 2005 and of International since October 2008. Prior to that, he served as Vice President and Chief Financial Officer of the Company from June 2001 and as Treasurer from August 2003 until January 2005. Mr. McDonald served as Vice President and Chief Financial Officer of Five Star and Lifestyle from February 2002 until January 2005 and of Rocky Canada from July 2003 until January 2005. He served as Treasurer of Five Star and Lifestyle from August 2003 until January 2005 and Rocky Canada from July 2003 until January 2005. Prior to joining the Company, from July 1996 until June 2001, Mr. McDonald served as Chief Financial Officer for two operating divisions of H.H. Brown, Inc., a wholly owned subsidiary of Berkshire-Hathaway, Inc., engaged in the footwear business. Mr. McDonald also served as Controller of Wright’s Knitwear Corporation, a privately held manufacturer of apparel.
Gary Adam, 5051 has served as President, International Sales, of the Company since March 2011. Prior to that, he served as the Senior Vice President and General Manager of Rocky Canada from March 2007 until March 2011 and of International from October 2008 until March 2011. From May 2006 until March 2007, Mr. Adam served as the General Manager of Rocky Canada. Mr. Adam previously held positions with the Canadian companies, Gredico Footwear, Baffin Footwear, and Kaufman Footwear.
Jason Brooks, 40,41, has served as President, U.S. Wholesale Sales, of the Company since March 2011. Prior to that, he served as the Senior Vice President, U.S. Wholesale from August 2010 until March 2011. From September 2001 until August 2010, Mr. Brooks held various Vice President of Sales positions within the Company. He began his career with the Company in 1997 as an independent sales representative. Jason Brooks is the son of Mike Brooks.
Richard Simms, 38,39, has served as President, Retail Sales, of the Company since March 2011. Prior to that, he served as Senior Vice President and General Manager of Lehigh from February 2007 until March 2011, as Senior Vice President, Sales of Lehigh from May 2006 until February 2007, and as Vice President, Key Accounts of Lehigh from October 2005 until May 2006. Mr. Simms began his career with Lehigh in 1994 and held various sales and operations positions with Lehigh until his appointment as Vice President, Key Accounts in October 2005.
Officers are elected annually by the Board of Directors and serve at its discretion. There are no family relationships among directors and executive officers of the Company, except as disclosed above.
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Principal Holders of Voting Securities
Ownership of Common Stock by Principal Shareholders
The following table sets forth information relating to the beneficial ownership of common stock by each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock:
Name of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned(1) | Percent of Class(2) | ||||||
FMR LLC 82 Devonshire Street Boston, Massachusetts 02109 | 638,825 | (3) | 8.5 | % | ||||
Dimensional Fund Advisors LP Palisades West, Building One 6300 Bee Cave Road Austin, Texas 78746 | 508,364 | (4) | 6.9 | % | ||||
Coliseum Capital Management, LLC Metro Center, 1 Station Place, 7th Floor South Stamford, Connecticut 06902 | 394,795 | (5) | 5.3 | % |
______________________
(1) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities. |
(2) | “Percent of Class” is calculated by dividing the number of shares beneficially owned by the total number of outstanding shares of the Company, plus the number of shares such person has the right to acquire within 60 days. |
(3) | Based on information filed on Schedule 13G/A with the Securities and Exchange Commission on February 14, |
(4) | Based on information filed on Schedule 13G/A with the Securities and Exchange Commission on February |
(5) | Based on information filed on Schedule 13G with the Securities and Exchange Commission on |
Ownership of Common Stock by Management
The following table sets forth information regarding beneficial ownership of the Company’s common stock by each nominee for director, each director, each of the Company’s executive officers named in the Summary Compensation Table, and the directors and executive officers of the Company as a group as of February 29, 2012:28, 2013:
Name | Number of Shares Beneficially Owned(1) | Percent of Class(1) | Number of Shares Beneficially Owned(1) | Percent of Class(1) | |||||||||
Gary Adam | 0 | * | 0 | * | |||||||||
Jason Brooks | 10,700 | (2) | * | 10,700 | (2) | * | |||||||
Mike Brooks | 347,832 | 4.6% | 347,832 | 4.6 | % | ||||||||
J. Patrick Campbell | 35,205 | * | 37,045 | * | |||||||||
Glenn E. Corlett | 20,531 | * | 24,071 | * | |||||||||
Michael L. Finn | 25,482 | * | 27,322 | * | |||||||||
G. Courtney Haning | 15,482 | * | 17,322 | * | |||||||||
Curtis A. Loveland | 107,881 | 1.4% | 109,721 | 1.4 | % | ||||||||
James E. McDonald | 47,550 | * | 50,050 | * | |||||||||
Harley E. Rouda, Jr. | 21,661 | * | 29,601 | * | |||||||||
David N. Sharp | 54,281 | * | 56,281 | * | |||||||||
Richard Simms | 2,000 | * | 2,000 | * | |||||||||
James L. Stewart | 21,531 | * | 23,371 | * | |||||||||
All directors and executive officers as a group (13 persons) | 710,136 | 9.5% | 735,316 | 10.8 | % |
* indicates less than 1%
* | indicates less than 1% |
(1) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities. Except as otherwise noted, none of the named individuals shares with another person either voting or investment power as to the shares reported. “Percent of Class” is calculated by dividing the number of shares beneficially owned by the total number of outstanding shares of the Company on February |
(2) | Includes 1,000 shares of common stock for Mr. J. Brooks which could be acquired under stock options exercisable within 60 days of February |
Executive Compensation
The following information provides discussion, analysis and data tables regarding the compensation of our named executive officers (“NEOs”), who are those officers listed in our Summary Compensation Table on page 24.21.
Compensation Discussion and Analysis
We have prepared this Compensation Discussion and Analysis (“CD&A”) to provide you with our perspective on executive compensation so that you may understand our compensation policies and our decisions regarding compensation for our NEOs. We recommend that you review the various executive compensation tables below in conjunction with this CD&A. Unless otherwise noted, the policies, plans and other information in this CD&A apply to all of our NEOs. Our CD&A covers the following topics:
· | the role of the Compensation Committee in setting executive compensation; |
· | our compensation philosophy and its underlying principles – including the objectives of our executive compensation program and what it is designed to reward; |
· | our process for setting executive compensation; and |
· | the elements of our executive compensation program – including a discussion of why we choose to pay each element of compensation, how we determine the amount of such element, and how each element fits into our overall compensation objectives and “total compensation” for our NEOs. |
The Compensation Committee
The Compensation Committee (referred to in this CD&A as the “Committee”) was appointed by our Board of Directors and is governed by a written charter that is available in the corporate governance section of our website,www.rockybrands.com. The Committee members are Harley E. Rouda, Jr., Chairman, Michael L. Finn, and James L. Stewart. Our Board of Directors has determined that each of the Committee members is independent under the standards of independence established by Marketplace Rule 5605(a)(2). In addition, each of the Committee members is a “non-employee” director as defined by Rule 16b-3 under the Securities Exchange of 1934 and an “outside director” as defined by the Internal Revenue Code.
Pursuant to its charter, the Committee has the authority and responsibility to:
· | discharge the Board’s responsibilities relating to executive compensation, including the review and approval of our executive compensation philosophy and policies and the application of such policies to the compensation of our executive officers; |
· | review and approve on an annual basis the corporate goals and objectives with respect to the chief executive officer, evaluate the chief executive officer’s performance in light of such goals and objectives at least once a year, and, based on such evaluation, set the chief executive officer’s annual compensation, including salary, bonus, incentive and equity compensation; |
· | review and approve on an annual basis the evaluation process and compensation structure for our other executive officers and to evaluate and approve the annual compensation for such executive officers, including salary, bonus, incentive and equity compensation; |
· | administer and review our compensation programs and plans, including, but not limited to, our incentive compensation, equity, and qualified and non-qualified benefit plans; |
· | establish and periodically review policies for the administration of our executive compensation program; |
· | approve employment arrangements with new executives; |
· | review recommendations to create, amend or terminate certain compensation and benefit plans and to make a decision whether or not to approve of such recommendations; and |
· | recommend to the Board the compensation arrangements with non-employee directors. |
The Committee has the sole authority, to the extent it deems necessary or appropriate, to retain any compensation consultant to assist in the evaluation of executive compensation and has the sole authority to approve any such firm’s fees. The Committee also has the authority to obtain the advice of and assistance from internal or external legal, accounting or other advisors, and may request any officer or employee of our Company, our outside counsel or independent registered public accounting firm to attend a meeting of the Committee or meet with any member of, or consultants to, the Committee.
The Committee meets as often as its members deem necessary to discharge its duties and responsibilities and held sixnine meetings during fiscal 2011.2012. Mr. Rouda works in conjunction with our Chairman, Chief Executive Officer and Chief Financial Officer to establish the meeting agenda. The Committee typically meets with the Chairman, Chief Executive Officer, Chief Financial Officer and outside legal advisors and, where appropriate, other executive officers of our Company. In addition, the Committee regularly meets in executive session without management. Generally, the Committee receives and reviews materials in advance of each meeting. These materials include information that management believes will be helpful to the Committee as well as materials that the Committee has specifically requested.
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Compensation Philosophy
The philosophy of the Committee is to make compensation decisions based on an executive compensation program that is designed to meet the following objectives:
· | to attract and retain qualified executives; |
· | to reward current and past individual performance; |
· | to provide short-term and long-term incentives for superior future performance; |
· | to align compensation policies to further shareholder value; and |
· | to relate total compensation to individual performance and performance of our Company. |
The Committee believes that an executive compensation program designed with these objectives in mind has a direct impact on the success of the business by helping to ensure we have qualified executive talent in the right positions at the right time. Our executive compensation program helps ensure that our leadership group is focused on performing effectively to deliver results and build long-term shareholder value.
The Committee periodically reviews the compensation programs and policies that apply to all of our employees and has determined that such programs and policies are not reasonably likely to have a material adverse effect on us. Additionally, in establishing and reviewing the executive compensation programs, the Committee considers whether the programs encourage unnecessary or excessive risk taking and has determined that they do not. The Committee also considered the result of the 2012 advisory, non-binding “say-on-pay” vote in connection with the discharge of its responsibilities. Because over 86 percent of the votes cast approved the compensation for our NEOs described in our 2012 proxy statement, the Committee determined that no changes to our compensation programs were warranted as a result of the shareholder advisory vote.
Compensation Tax Philosophy
Internal Revenue Code Section 162(m) bars a deduction to any publicly held corporation for compensation paid to a “covered employee” in excess of $1 million per year unless objective performance criteria are set by the Committee prior to or within 90 days after the beginning of a performance period but in no event after 25% of the performance period has elapsed (or such earlier or later date as is permitted by Section 162(m)). Generally, we intend that compensation paid to NEOs shall be deductible to the fullest extent permitted by law. We may make payments that are not fully deductible if, in our judgment, such payments are necessary to achieve our compensation objectives and to protect shareholder interests.
Compensation Committee Process for Determining Executive Compensation
A substantial amount of the Committee’s annual cycle of work relates to the determination of compensation for our executive officers, including our Chief Executive Officer. Generally, during or prior to the first quarter of our fiscal year, the Committee makes determinations of base cash compensation, incentive compensation percentages for the year, and equity grants for executive officers, including our Chief Executive Officer. For a discussion of each individual element of compensation and how it is specifically determined, refer to “Compensation Program Elements” below.
Although many compensation decisions are made near the beginning of the first quarter of the fiscal year, our compensation planning process is not a rigid yearly process with fixed beginning and end points. Rather, compensation decisions are designed to promote our compensation philosophy and principles throughout the year. The Committee believes that evaluation of executive performance, business and succession planning, and consideration of our business environment are year-round processes, and the Committee members monitor these as such.
Our Chief Executive Officer is not permitted to be present during deliberations or voting on his compensation. During this process, the Committee reviews and approves any new corporate goals and objectives with respect to compensation for our Chief Executive Officer. In light of the established goals and objectives, the Committee evaluates the performance of the Chief Executive Officer and, based upon these evaluations, sets the Chief Executive Officer’s compensation. The Compensation Committee also reviews and approves on an annual basis the evaluation and compensation structure for the Company’s other executive officers, including approval of salary, bonus, incentive, and equity compensation. Our Chief Executive Officer is present and provides input at the meetings and deliberations on the compensation of the Company’s other executive officers but is not permitted to be present at the vote.
Compensation Consultant
In 2012, the Committee engaged Buck Consultants, an independent consulting firm, to provide advisory services related to executive and director compensation. The Committee asked the compensation consultant to generally review the elements of our executive and director compensation programs. The compensation consultant did not make any determinations or recommendations as to the amount of any compensation, but provided suggestions relating to methods of compensation in general terms. The compensation consultant did not provide any other services. The Committee has assessed the independence of the compensation consultant pursuant to SEC rules and concluded that no conflict of interest exists that would prevent the compensation consultant from serving as an independent consultant to the Committee.
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Compensation Program Elements
In fiscal 2011,2012, our NEOs received the following elements of compensation:
· | salary; |
· | non-equity incentive compensation; |
· | retirement benefits; and |
· | health and welfare benefits. |
The Committee carefully considered and chose each compensation program element as a critical component in a comprehensive “total compensation” package. Each element is intended to reward and motivate executives in different ways consistent with our overall compensation principles and philosophy. Each of the elements has a critical relationship with one another with each focusing on and rewarding different areas. These elements are necessary for us to achieve our compensation program objectives.
(1)Salary:
(1) | Salary: |
Salary is utilized to compensate our executive officers for services rendered during the fiscal year. The Committee annually reviews and approves the compensation package of each NEO, including salary. The Committee considers an individual’s qualifications and experience in setting an executive’s salary. In determining salary increases, the Committee considers the size and responsibility of the individual’s position and the individual’s overall performance and future potential. The Committee considers these factors subjectively in the aggregate. Because the Committee believes that each of the factors is significant, the Committee does not assign a formula weight to any single factor in determining a salary increase.
Please refer to the “Salary” column in the Summary Compensation Table on page 2521 for more information on each NEO’s salary for fiscal 2011.2012.
(2)Non-Equity Incentive Compensation:
(2) | Non-Equity Incentive Compensation: |
Non-equity incentive compensation (“IC”) for our NEOs is determined under an annual incentive compensation plan (the “IC Plan”) that is designed and approved by the Committee. Our IC Plan is designed to provide a competitive cash compensation program for recruiting and retaining executive talent and a short-term incentive and reward program that aligns pay with performance and motivates our executives to achieve results. The IC Plan pays cash awards based upon the achievement of key corporate objectives. In December 2010,2011, the Committee designed and approved an IC Plan for the fiscal year ending December 31, 20112012 (the “2011“2012 Plan”).
When setting IC, the Committee considers individual and corporate performance, levels of responsibility, prior experience, breadth of knowledge and competitive pay practices. The Committee considers these factors subjectively in the aggregate. IC is based on base salary and a corresponding percentage of all IC payouts if Company performance goals are met. Payment of IC is prorated based on the performance level achieved. The Committee establishes the financial performance goals under the IC Plan for the fiscal year. These goals are generally determined near the beginning of the year and are based on an analysis of historical performance and growth expectations for our business, expectations of the public markets, and progress toward achieving our long-range strategic plan for the business. The Committee determined that the performance criterion under the 20112012 Plan would be the average of the previous five years EBITDA, excluding the highest and lowest EBITDA for the previous five years, and excluding (i) IC payouts, (ii) capital expenditures, and (iii) gains or losses or charges or adjustments resulting from unusual one-time events, such as intangible assets or goodwill impairment charges and charges or gains resulting from changes in accounting policies, as determined by the Committee (“Adjusted EBITDA”). The threshold amount for IC payouts under the 20112012 Plan was set at 85% of the Adjusted EBITDA, provided, however, that the threshold amount was not permitted to be less than was necessary to cover all financial covenants and debt obligations (the “Threshold Amount”). Next, 30% of the Adjusted EBITDA in excess of the Threshold Amount was pooled to be allocated among the participants (the “IC Pool”). The IC Pool was allocated among participants based on the relative base compensation of the participant times an assigned base compensation multiplier (the “Multiplier Salary”), which product for each participant would then be compared to and calculated as a percentage of the total of the Multiplier Salary for all participants in the 20112012 Plan. The Committee approved the following payout opportunities based on the specified Adjusted EBITDA:
Payout Opportunities as a Percentage of IC Pool | ||||
at Threshold/Target | ||||
David N. Sharp | 23.00 | % | ||
James E. McDonald | 12.05 | % | ||
Mike Brooks | 4.30 | % | ||
Jason Brooks | 4.43 | % | ||
Richard Simms | 4.30 | % | ||
Gary Adam | 4.11 | % |
No IC was earned under the 2012 Plan.
The NEOs earned IC under the 2011 Plan as set forth below:
Payouts Under 2011 Plan | |||||
Mike Brooks | $ | 311,974 | |||
David N. Sharp | 250,400 | ||||
James E. McDonald | 140,114 | ||||
Jason Brooks | 43,786 | ||||
Richard Simms | 41,596 | ||||
Gary Adam | 40,502 |
(3)All Other Compensation:
(3) | All Other Compensation: |
The “All Other Compensation” column in our Summary Compensation Table on page 2521 primarily consists of these items:
· | annual employer contributions into the retirement/401(k) plan; and |
· | employer-paid premiums for life insurance. |
(a)Retirement and 401(k) Plan:
(a) | Retirement and 401(k) Plan: |
We sponsor a qualified retirement and 401(k) plan for eligible employees (the “Retirement Plan”). The Retirement Plan allows NEOs to defer a portion of their total cash compensation (up to IRS limits) into this retirement account on a pre-tax basis. Our NEOs do not receive a Company match on any money they defer into the Retirement Plan. We make an annual contribution into the Retirement Plan for eligible employees, including NEOs, of three percent of applicable salary.
These annual employer contribution amounts to NEOs are included in the Summary Compensation Table’s “All Other Compensation” column on page 25.21 below.
(b)Employer-Paid Premiums for Life Insurance:
(b) | Employer-Paid Premiums for Life Insurance: |
We provide each of our NEOs with basic group term life insurance with a death benefit of $150,000. This is a relatively inexpensive benefit that we offer to our executives. This element of compensation, though relatively small, provides one additional item to the overall compensation package which strengthens our ability to recruit and retain talented executives.
We also provide Messrs. Brooks, Sharp, and McDonald with individual term life insurance policies that have death benefits of $1,000,000, $500,000 and $500,000, respectively, to be paid to each individual’s beneficiary in the event of his death.
We also provide Mr. Brooks with compensation to cover the premiums under an insurance policy that was previously a split-dollar arrangement. The split-dollar arrangement was terminated in 2002. We have agreed to pay Mr. Brooks $80,000 per year through 2014 in order to restore the cash value of the insurance policy to what it would have been if the split-dollar arrangement had not been terminated.
For specific premium amounts paid, please refer to the Summary Compensation Table’s “All Other Compensation” column and footnotes below on page 25.21.
(c) | Employment Agreements: |
We have entered into employment agreements with each of Messrs. Brooks, Sharp, and McDonald. For a discussion of these agreements, please refer to “Agreements with NEOs and Potential Payments upon Termination or Change in Control” beginning on page 25 below.
We have entered into employment agreements with each of Messrs. Brooks, Sharp, and McDonald. For a discussion of these agreements, please refer to “Agreements with NEOs and Potential Payments upon Termination or Change in Control” beginning on page 30.
(4) | Health and Welfare Benefits:
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In addition to the compensation and benefits programs discussed in this proxy statement, we offer our employees, including our NEOs, a comprehensive benefits program. This program is designed to provide the employees and their families with competitive coverage at competitive rates. We strive to provide the employees with appropriate health benefits (medical, pharmacy, dental, and vision) to help protect the physical, mental, and financial health of our employees and their immediate families.
20 |
Summary Compensation Table
The following table sets forth certain information regarding compensation paid during the Company’s last complete fiscal year to the Company’s named executive officers (“NEOs”) for the 2012 fiscal year and Gary Adam. For a discussion of the various elements of compensation provided in the table below, please refer to the discussion of our various compensation elements in our Compensation Discussion & Analysis under the heading “Compensation Program Elements” beginning on page 18 above.
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2011
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(1) | All Other Compensation ($)(2) | Total ($) | |||||||||||||||||||||||||||
Mike Brooks | 2011 | 475,000 | -- | -- | -- | 311,974 | 1,119,624 | 84,584 | 1,991,182 | |||||||||||||||||||||||||||
Executive | 2010 | 475,000 | -- | -- | -- | 441,763 | -- | 104,648 | 1,021,411 | |||||||||||||||||||||||||||
Chairman(3) | 2009 | 475,000 | -- | -- | -- | -- | -- | 86,339 | 561,339 | |||||||||||||||||||||||||||
David Sharp | 2011 | 457,500 | -- | -- | -- | 250,400 | 114,657 | 37,013 | 859,570 | |||||||||||||||||||||||||||
President and Chief | 2010 | 398,100 | -- | -- | -- | 308,537 | -- | 34,412 | 741,049 | |||||||||||||||||||||||||||
Executive Officer(3) | 2009 | 398,100 | -- | -- | -- | -- | -- | 34,225 | 432,325 | |||||||||||||||||||||||||||
James E. McDonald | 2011 | 320,000 | --- | -- | -- | 140,114 | 67,353 | 35,285 | 562,752 | |||||||||||||||||||||||||||
Executive Vice | 2010 | 289,900 | -- | -- | -- | 179,743 | -- | 35,862 | 505,505 | |||||||||||||||||||||||||||
President, Chief Financial Officer, and Treasurer | 2009 | 289,900 | -- | -- | -- | -- | -- | 35,769 | 325,669 | |||||||||||||||||||||||||||
Jason Brooks(4) | 2011 | 200,000 | -- | -- | -- | 43,786 | 25,156 | 9,173 | 278,115 | |||||||||||||||||||||||||||
President, U.S. | 2010 | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||||||||||
Wholesale Sales | 2009 | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
Richard Simms(4) | 2011 | 190,000 | -- | -- | -- | 41,596 | -- | 9,133 | 240,729 | |||||||||||||||||||||||||||
President, Retail | 2010 | -- | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||||||||
Sales | 2009 | -- | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||||||||
Gary Adam(4) | 2011 | 187,903 | -- | -- | �� | -- | 40,502 | -- | 3,083 | 231,488 | ||||||||||||||||||||||||||
President, | 2010 | -- | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||||||||
International Sales | 2009 | -- | -- | -- | -- | -- | -- | -- | -- |
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2012
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in |
All Other | Total ($) | |||||||||||||||||||||||||||
Mike Brooks | 2012 | 200,000 | — | — | — | — | — | 88,620 | 288,620 | |||||||||||||||||||||||||||
Executive | 2011 | 475,000 | — | — | — | 311,974 | 1,119,624 | 84,584 | 1,991,182 | |||||||||||||||||||||||||||
Chairman(3) | 2010 | 475,000 | — | — | — | 441,763 | — | 104,648 | 1,021,411 | |||||||||||||||||||||||||||
David Sharp | 2012 | 475,000 | — | — | — | — | — | 36,032 | 511,032 | |||||||||||||||||||||||||||
President and Chief | 2011 | 475,000 | — | — | — | 250,400 | 114,657 | 37,013 | 859,570 | |||||||||||||||||||||||||||
Executive Officer(3) | 2010 | 398,100 | — | — | — | 308,537 | — | 34,412 | 741,049 | |||||||||||||||||||||||||||
James E. McDonald | 2012 | 320,000 | — | — | — | — | — | 35,397 | 355,397 | |||||||||||||||||||||||||||
Executive Vice | 2011 | 320,000 | — | — | — | 140,114 | 67,353 | 35,285 | 562,752 | |||||||||||||||||||||||||||
President, Chief | 2010 | 289,900 | — | — | — | 179,743 | — | 35,862 | 505,505 | |||||||||||||||||||||||||||
Financial Officer, and Treasurer | ||||||||||||||||||||||||||||||||||||
Jason Brooks(4) | 2012 | 206,000 | — | — | — | — | — | 9,173 | 215,173 | |||||||||||||||||||||||||||
President, U.S. | 2011 | 200,000 | — | — | — | 43,786 | 25,156 | 9,173 | 278,115 | |||||||||||||||||||||||||||
Wholesale Sales | 2010 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Richard Simms(4) | 2012 | 200,000 | — | — | — | — | — | 9,248 | 209,248 | |||||||||||||||||||||||||||
President, Retail | 2011 | 190,000 | — | — | — | 41,596 | — | 9,133 | 240,729 | |||||||||||||||||||||||||||
Sales | 2010 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Gary Adam(4) | 2012 | 191,000 | — | — | — | — | — | 9,260 | 200,260 | |||||||||||||||||||||||||||
President, | 2011 | 187,903 | — | — | — | 40,502 | — | 50,777 | 279,182 | |||||||||||||||||||||||||||
International Sales | 2010 | — | — | — | — | — | — | — | — |
(1) | At the end of 2011, the Company made a decision to fully fund and terminate its Restated Retirement Plan for Non-Union Employees. As a result, all participants with a vested balance in the plan were paid their accrued balance due from the plan before December 31, 2011. The amounts shown for Messrs. M. Brooks, Sharp, McDonald and J. Brooks are a result of this termination. Messrs. Simms and Adam did not have an accrued benefit under this plan. |
(2) | The amounts shown under “All Other Compensation” for Messrs. M. Brooks, Sharp, McDonald, J. Brooks, Simms, and Adam include the following payments: |
2010: $94,923, $26,233, $26,096, $0, $0, and $0, respectively, reflecting life insurance premiums paid by the Company and $9,725, $8,179, $9,766, respectively for Messrs. M. Brooks, Sharp, and McDonald, |
2011: $80,000, $26,028, $26,096, $0, $0 and $0, respectively, reflecting life insurance premiums paid by the Company and $4,584, $10,985, $9,189, $9,173 $9,133, and $3,083, respectively, reflecting employer contributions to the 401(k) retirement plan. Mr. Adam’s 2011 amount reflected $47,694 in moving expenses paid on his behalf. |
2012: $78,000, $26,028, $26,096, $0, $0 and $0, respectively, reflecting life insurance premiums paid by the Company and $10,620, $10,004, $9,301, $9,173 $9,248, and $9,260, respectively, reflecting employer contributions to the 401(k) retirement plan.
(3) | Mr. Brooks retired as chief executive officer on July 1, 2011. Mr. Sharp served as chief operating officer until replacing Mr. Brooks as chief executive officer on July 1, 2011. |
(4) | Messrs. J. Brooks, Simms, and Adam became executive officers of the Company in March 2011. |
Grants of Plan-Based Awards for Fiscal Year 201122
Grants of Plan-Based Awards for Fiscal Year 2012
The following table provides certain information concerning each grant of an award made to the listed officers in the last completed fiscal year under any plan:
GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2011
Name |
Grant Date |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | |||||||
Threshold ($)(1) |
Target ($)(2) |
Maximum ($)(3) | |||||||
Mike Brooks
|
n/a |
0 |
453,247 |
n/a | |||||
David N. Sharp
|
n/a |
0 |
363,790 |
n/a | |||||
James E. McDonald
|
n/a |
0 |
203,563 |
n/a | |||||
Jason Brooks
|
n/a |
0 |
63,614 |
n/a | |||||
Richard Simms
|
n/a |
0 |
60,433 |
n/a | |||||
Gary Adam
|
n/a |
0 |
58,843 |
n/a |
The following table provides certain information concerning each grant of an award made to the listed officers in the last completed fiscal year under any plan:
GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2012
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | ||||||||||||||||
Name | Grant Date | Threshold ($)(1) | Target ($)(2) | Maximum ($)(3) | ||||||||||||
Mike Brooks | n/a | 0 | 155,995 | n/a | ||||||||||||
David Sharp | n/a | 0 | 833,600 | n/a | ||||||||||||
James E. McDonald | n/a | 0 | 436,787 | n/a | ||||||||||||
Jason Brooks | n/a | 0 | 160,675 | n/a | ||||||||||||
Richard Simms | n/a | 0 | 155,995 | n/a | ||||||||||||
Gary Adam | n/a | 0 | 148,976 | n/a |
(1) | If the threshold amount is not exceeded, the award is 0. |
(2) | Represents the compensation that would be paid if the Company achieved the EBITDA budgeted for the
Outstanding Equity Awards at Fiscal 2012 Year-End
The following table provides information concerning unexercised options, stock that has not vested, and equity incentive plan awards outstanding as of the end of the fiscal year: OUTSTANDING EQUITY AWARDS AT FISCAL 2012 YEAR-END TABLE
Option Exercises and Stock Vested for Fiscal Year 2012 The following table provides certain information concerning each exercise of stock options, and each vesting of stock, including restricted stock, during the last completed fiscal year: OPTION EXERCISES AND STOCK VESTED TABLE FOR FISCAL YEAR 2012
Agreements with NEOs and Potential Payments Upon Termination or Change in Control
On June 12, 2009, we entered into an employment agreement with each of Mike Brooks, then Chief Executive Officer, David Sharp, then President and Chief Operating Officer, and James E. McDonald, Executive Vice President, Chief Financial Officer, and Treasurer (collectively, the “Executives”). Jason Brooks, Richard Simms, and Gary Adam do not have employment agreements.
Mr. M. Brooks’ employment agreement replaced a prior amended and restated employment agreement, effective December 22, 2008.
Each Executive’s employment is at will, which means that subject to the terms of his employment agreement, either the Company or the Executive may terminate the Executive’s employment at any time for any reason or for no reason.
In exchange for performing the duties and responsibilities customarily performed by persons employed in a similar executive capacity, Messrs. M. Brooks, Sharp, and McDonald are entitled to a minimum annual base salary, which may be decreased up to 20%, or increased, subject to the approval of the Board of Directors. Each Executive is also entitled to participate in additional compensation and employee benefit plans as are made available to similarly situated executives. The Executives agree to maintain the confidential information of the Company and to assign all inventions to the Company, and the Executives will not compete with the Company or solicit the employees of the Company for 12 months following termination of employment for any reason.
In the event of termination of an Executive by the Company for cause or due to the Executive’s death or disability (as defined in each employment agreement), or by the Executive for any reason, the Company will pay the Executive only the earned but unpaid portion of his base salary through the termination date.
Cause is defined in each employment agreement to include:
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