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TABLE OF CONTENTS
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 (Amendment No. 1))
Filed by the Registrantý | ||
Filed by a Party other than the Registranto | ||
Check the appropriate box: | ||
ý | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
o | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material under §240.14a-12 |
ETHAN ALLEN INTERIORS INC. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
(4) | Proposed maximum aggregate value of transaction: | |||
(5) | Total fee paid: | |||
o | Fee paid previously with preliminary materials. | |||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | |||
(2) | Form, Schedule or Registration Statement No.: | |||
(3) | Filing Party: | |||
(4) | Date Filed: |
ETHAN ALLEN INTERIORS INC.
Ethan Allen Drive
Danbury, Connecticut 06811
October [ ], 20154, 2016
Dear Stockholder:Fellow Stockholders:
You are cordially invited to attend the 2015 annual meeting of stockholders of Ethan Allen Interiors Inc. The annual2016 Annual Meeting of Stockholders. This meeting will be held at 10 a.m. on Wednesday, November 16, 2016, at the Ethan Allen International Corporate Headquarters on Ethan Allen Drive in Danbury, Connecticut 06811 at 10:00 A.M., Eastern Time, on Tuesday, November 24, 2015.Connecticut.
I am pleased to advise you that we continue to review our organizational documents and proactively update them to a current level of governance best practices. In connection withpreparation for the meeting, we have prepared a noticeNotice of the meeting, our proxy statement,Meeting, Proxy Statement, and our 2015 annual report2016 Annual Report to stockholders, whichStockholders. These materials provide detailed information relating to our activities and operating performance.
This year, we are once again using the meeting and your Company.
TheseInternet as our primary means of furnishing proxy materials are accompanied byto stockholders. Accordingly, most stockholders will not receive paper copies of our proxy materials. We instead will mail to our stockholders aWHITE Notice Regarding the Availability of Proxy Materials. This notice will contain instructions on how to access proxy or voting instruction card and postage-paid return envelope.WHITE proxy or voting instruction cards are being solicited on behalf of your Board of Directors.
Your vote will be especially important at the meeting. As you may have heard, Sandell Asset Management Corp. and certain of its affiliates have notified the Company that Sandell intends to nominate a slate of six nominees for election as directors at the meeting in opposition to nominees recommended by your Board of Directors. You may receive a proxy statement, GOLD proxy or voting instruction card and other solicitation materials from Sandell. The Company is not responsible for the accuracy of any information provided by or relating to Sandell or its nominees contained in solicitation materials filed or disseminated by or on behalf of Sandell or any other statements that Sandell may make.
Your Board of Directors does NOT endorse any of the Sandell nominees and unanimously recommends that you vote FOR the election of each of the nominees proposed by your Board of Directors. Your Board of Directors strongly urges you NOT to sign or return any proxy or voting instruction card sent to you by Sandell. If you have previously submitted a GOLD proxy or voting instruction card sent to you by Sandell, you can revoke that proxy and vote for your Boardvia the Internet. The Notice Regarding the Availability of Directors' nomineesProxy Materials also provides information on how stockholders may obtain paper copies of our proxy materials if they so choose. Electronic delivery will expedite the receipt of materials while lowering costs and onreducing the other matters to be voted at theenvironmental impact of our annual meeting by using the enclosed WHITE proxy or voting instruction card.reducing printing and mailing costs.
If your brokerage firm, bank or other similar organization is the holder of record of your shares (i.e., your shares are held in "street name"), you will receive voting instructions from the holder of record. You must follow these instructions in order for your shares to be voted. Your brokerage firm, bank or similar organization is required to vote those shares in accordance with your instructions.Because of the contested nature of the election of directors, if you do not give instructions to your brokerage firm, bank or similar organization, such brokerage firm, bank or similar organization will not be able to vote your shares. We urge you to instruct your brokerage firm, bank or other similar organization, by following those instructions, to vote your shares as recommended by your Board of Directors on the WHITE proxy or voting instruction card.
Holders of shares as of the close of business on October 5, 2015, the record date for the meeting, are urged to submit a WHITE proxy or voting instruction card, even if your shares were sold after such date.
Your management team expects to provide you with further information during the course of the solicitation and at the meeting. At the meeting, we also will review our progress during the past year and answer your questions.
For more information and up-to-date postings, please go to our special website, . If you have any questions, please contact Georgeson Inc., our proxy solicitor assisting us in connection with the meeting. Stockholders, banks and brokers may call toll free at (866) 277-0928.
You will find information about the matters to be voted on at the meeting in the accompanying noticeformal Notice Regarding the Availability of Proxy Materials and the meeting andProxy Statement.
You may vote via the Internet, by telephone or, if you receive a paper proxy statement.
We encourage youcard in the mail, by mailing the completed proxy card. Your vote is very important to vote your sharesus, and we hope you will be able to attend the meeting. To ensure that your shares are representedrepresentation at the meeting, even if you anticipate attending in person, we urge you to vote by proxy by submitting aWHITE proxy or voting instruction card.proxy. If you attend, you will, of course, be entitled to vote in person.
ThankWhether or not you forplan to attend the Annual Meeting of Stockholders, we encourage you to vote your continued support, interest and investment in Ethan Allen.shares.
Sincerely,
M. Farooq Kathwari
Chairman of the Board,
President and PrincipalChief Executive Officer
ii
PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION
ETHAN ALLEN INTERIORS INC.
NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS
Wednesday, November 16, 2016
10:00 AM EST
Ethan Allen International Corporate Headquarters
Ethan Allen Drive
Danbury, Connecticut 06811NOTICE OF 2015 ANNUAL MEETING OF STOCKHOLDERS
To our Stockholders:
The 2015 annual meeting2016 Annual Meeting of stockholdersStockholders of Ethan Allen Interiors Inc. will be held at the Ethan Allen International Corporate Headquarters on Tuesday, November 24, 2015 at 10:00 A.M., Eastern Time, for the purpose of considering and acting upon the following matters:
Proposal 1. | to elect seven director nominees identified in the following proxy statement to serve until the 2017 Annual Meeting of Stockholders; | |||
Proposal 2. | to approve by-law amendments related to the procedures for stockholders to nominate directors or propose other matters for consideration at stockholder meetings; | |||
Proposal 3. | to approve by-law amendments to implement "proxy access"; | |||
Proposal 4. | to approve by-law amendments to implement majority voting in uncontested director elections; | |||
Proposal 5. | to approve certificate of incorporation and by-law amendments to allow for stockholder removal of directors with or without cause and to delete obsolete provisions from, and effect clarifying changes to, the certificate of incorporation; | |||
Proposal 6. | to approve by a non-binding advisory vote, executive compensation of the Company's Named Executive Officers; | |||
Proposal 7. | to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2017 fiscal year; and |
to the Ethan Allen Interiors Inc. Amended and Restated Certificate of Incorporation to delete Article Fifth and eliminate the requirement that Business Combinations be approved by a majority of the Continuing Directors; and
Your vote will be especially important at the annual meeting. As you may have heard, Sandell Asset Management Corp. and certain of its affiliates (together, "Sandell") have notified the Company that Sandell intends to nominate and solicit proxies to vote in favor of election at the annual meeting of a slate of six director nominees in opposition to the nominees recommended by your Board of Directors. We believe that Sandell, along with its affiliates, Castlerigg Master Investments Ltd., Castlerigg International Limited, Castlerigg International Holdings Limited, Castlerigg Offshore Holdings, Ltd., Castlerigg Active Investment Fund, Ltd., Castlerigg Active Investment Intermediate Fund, L.P., Castlerigg Active Investment Master Fund, Ltd., Castlerigg Equity Event and Arbitrage Fund, Pulteney Street Partners, L.P., and Thomas E. Sandell, are seeking to hand control of your Company over to a group of presumably like-minded nominees, without any disclosed strategy other than incurring debt and selling real estate and no strategy for operating or growing your Company and without paying any control premium to our stockholders. While control premiums are not commonly associated with the election of directors and are not required by law, they are common in connection with acquisitions of a controlling interest in a company. Stockholders are not entitled to appraisal or dissenters' rights if an opposition stockholder takes control of a board of directors through election of its own slate.
Your Board of Directors believes that allowing Sandell to gain control of the Company through the election of their director nominees to your Board of Directors would not be in the best interests of our stockholders. Your Board of Directors does NOT endorse any of the Sandell nominees. You may receive a proxy statement, GOLD proxy card and other solicitation materials from Sandell. The Company is not responsible for the accuracy of any information provided by or relating to Sandell or its nominees contained in solicitation materials filed or disseminated by or on behalf of Sandell or any other statements that Sandell may make.YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF ITS NOMINEES ON THE ENCLOSED WHITE PROXY OR VOTING INSTRUCTION CARD AND URGES YOU NOT TO SIGN OR RETURN OR VOTE ANY PROXY OR VOTING INSTRUCTION CARD SENT TO YOU BY SANDELL. If you have already voted using a
GOLD proxy or voting instruction card sent to you by Sandell, you canREVOKE it by signing and dating the enclosedWHITE proxy or voting instruction card and returning it in the postage-paid envelope provided or by voting via the Internet or by telephone by following the instructions provided on the enclosedWHITE proxy or voting instruction card. Only your last-dated proxy will count, and any proxy may be revoked at any time prior to its exercise at the annual meeting as described in the accompanying proxy statement.
EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING, WE REQUEST THAT YOU READ THE ACCOMPANYING PROXY STATEMENT AND VOTE YOUR SHARES BY SIGNING AND DATING THE ENCLOSED WHITE PROXY OR VOTING INSTRUCTION CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED OR BY VOTING VIA THE INTERNET OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS PROVIDED ON THE ENCLOSED WHITE PROXY OR VOTING INSTRUCTION CARD.
UNLESS YOU PROVIDE SPECIFIC INSTRUCTIONS AS TO HOW TO VOTE, YOUR BROKER WILL NOT VOTE YOUR SHARES.
If your brokerage firm, bank or other similar organization is the holder of record of your shares (i.e., your shares are held in "street name"), you will receive voting instructions from the holder of record. You must follow these instructions in order for your shares to be voted. Your broker is required to vote those shares inIn accordance with your instructions.In the event that Sandell contests the election of directors, the rules of the New York Stock Exchange do not permit brokers to exercise discretionary authority to vote on any proposals to be voted on at the annual meeting, whether routine or not. If you do not give instructions to your broker,("NYSE") rules, your broker will not be able to vote your shares with respect to any non-routine matters if you have not given your broker specific instructions to do so. The only routine matter to be voted on at the Annual Meeting is the ratification of the appointment of our independent registered public accounting firm for the election of directors or anycurrent year (Proposal 7). All other Proposal. Only those votes cast for the election of directorsmatters to be voted upon are used in determining the results of a vote on the election of directors. Only those votes cast for or against Proposals 2 through 6 are used in determining the results of a vote on such Proposals. For purposes of Proposals 1 through 6, abstentions and other shares not voted (whether byconsidered non-routine matters under applicable rules. A broker non-vote or otherwise) will not be counted as votes cast and will have no effect on the result of the vote. We urge you to instruct your brokerage firm, bank or other similar organization, by following thosenominee cannot vote without instructions to vote your shares as recommended by your Board of Directors on the WHITE proxy or voting instruction card.non-routine matters, and therefore broker non-votes may exist in connection with such proposals.
Your The Board of Directors has fixed October 5, 2015September 21, 2016 as the record date for determining stockholders entitled to notice of, and to vote at, the annual meeting.For more information It is important that your shares be represented and up-to-date postings, please go to our special website, .voted at the meeting. If you havereceived the proxy materials by mail, you can vote your shares by completing, signing, dating, and returning your completed proxy card, or you may vote by telephone or over the Internet. If you received the proxy materials over the Internet, a proxy card was not sent to you, and you may vote your shares by telephone or over the Internet. To vote by telephone or Internet, follow the instructions included in the Notice Regarding the Availability of Proxy Materials, the Proxy Statement or on the Internet. You can revoke a proxy at any questions, please contact Georgeson Inc. ourtime prior to its exercise at the meeting by following the instructions in the Proxy Statement.
These proxy solicitor assisting us in connection withmaterials are first being made available on the Internet on or around [October 4, 2016.].
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on November 16, 2016. The proxy statement and the annual meeting. Stockholders, banks and brokers may call toll freereport are available at (866) 277-0928.http://materials.proxyvote.com/297602
October [ ], 2015Ethan Allen Interiors Inc.Ethan Allen DriveDanbury, Connecticut 06811
YOUR VOTE IS IMPORTANT. PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND VOTING INSTRUCTIONS ON THE ENCLOSED WHITE PROXY OR VOTING INSTRUCTION CARD. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE (i) "FOR ALL" OF YOUR BOARD OF DIRECTOR'S SEVEN NOMINEES NAMED IN PROPOSAL 1 IN THE ATTACHED PROXY STATEMENT AND (ii) "FOR" PROPOSALS 2, 3,
Eric D. Koster
Corporate Secretary
October 4, AND 5.2016
iii
ETHAN ALLEN INTERIORS INC.
Ethan Allen Drive, Danbury, Connecticut 06811
PROXY STATEMENT
for Annual Meeting of Stockholders 2015
TABLE OF CONTENTS |
| 1 | |||
BOARD OF DIRECTORS – EXPERIENCE AND SKILLS | 5 | |||
| 6 | |||
BOARD LEADERSHIP STRUCTURE | 6 | |||
Independent Lead Director | 6 | |||
BOARD OF DIRECTORS ROLE IN RISK OVERSIGHT | 6 | |||
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS | 7 | |||
NOMINATIONS/CORPORATE GOVERNANCE COMMITTEE | 8 | |||
| 9 | |||
DIRECTOR NOMINEES FOR ELECTION | 9 | |||
CORPORATE GOVERNANCE | 13 | |||
ADDITIONAL STOCKHOLDER OUTREACH | 15 | |||
| ||||
| 15 | |||
Effect of the Proposed Amendment | 15 | |||
PROPOSAL 3: TO APPROVE BY-LAW AMENDMENTS TO IMPLEMENT "PROXY ACCESS" | 16 | |||
General | 16 | |||
Effect of the Proposed Amendment | 16 | |||
PROPOSAL 4: TO APPROVE BY-LAW AMENDMENT TO IMPLEMENT MAJORITY VOTING IN UNCONTESTED DIRECTOR ELECTIONS | 17 | |||
General | 17 | |||
Effect of the Proposed Amendment | 17 | |||
PROPOSAL 5: TO CERTIFICATE OF INCORPORATION AND BY-LAW AMENDMENTS TO ALLOW FOR STOCKHOLDER REMOVAL OF | 18 | |||
General | 18 | |||
| 18 |
iv
| ||||
| 19 | |||
DIRECTOR COMPENSATION | ||||
Stockholder Communication With Directors | 20 | |||
Policies And Procedures With Respect To Transactions With Related Persons | 20 | |||
Related Party Transactions | 20 | |||
Compensation Committee | ||||
| ||||
| ||||
| 22 | |||
COMPENSATION DISCUSSION AND ANALYSIS | 23 | |||
Executive Summary | 23 | |||
Alignment Of Pay With Performance | 23 | |||
Stock Incentive Plan | ||||
| ||||
| ||||
| ||||
| 35 | |||
2016 Grants of Plan Based Awards | 37 | |||
Outstanding Equity Awards at 2016 Fiscal Year-End | 38 | |||
Option Exercises and Stock Vested in 2016 | 39 | |||
2016 Nonqualified Deferred Compensation | 39 | |||
Change in Control | 40 | |||
PROPOSAL 7: RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 43 | |||
AUDIT COMMITTEE REPORT | 43 | |||
Audit Fees | 44 | |||
Audit and Non-Audit Engagement Pre-Approval Policy | 45 | |||
OTHER MATTERS | 45 | |||
APPENDIX A - AMENDED AND RESTATED CERTIFICATE OF INCORPORATION | A-1 | |||
APPENDIX B - AMENDED AND RESTATED BY-LAWS | B-1 |
iv
PROXY STATEMENT |
ABOUT THE ANNUAL MEETING |
This proxy statement (this "Proxy Statement") and the accompanying WHITE proxy or voting instruction card relate to the 20152016 Annual Meeting of Stockholders (the "Annual Meeting") of Ethan Allen Interiors Inc., a Delaware corporation ("Ethan Allen"). to be held at the Ethan Allen Corporate Headquarters, Ethan Allen Drive, Danbury, Connecticut 06811 at 10:00 A.M., Eastern Time, on Wednesday, November 16, 2016. The Board of Directors of yourthe Company (your(the "Board of Directors" or "Board") is soliciting proxies from stockholders in order to provide every stockholder an opportunity to vote on all matters submitted to a vote of stockholders at the Annual Meeting, whether or not he or shesuch stockholder attends in person. The proxy authorizes a person other than a stockholder, called the "proxyholder," who will be present at the Annual Meeting, to cast the votes that the stockholder would be entitled to cast at the Annual Meeting if the stockholder were present. It is expected that this Proxy Statement and the accompanying WHITE proxy or voting instruction card will be first mailed or delivered to our stockholders beginning on or about October [ ], 2015.[October 4, 2016.]. When used in this Proxy Statement, "we," "us," "our," "Ethan Allen" or yourthe "Company" refers to Ethan Allen and its subsidiaries collectively or, if the context so requires, Ethan Allen individually.
Proposal 1. | to elect seven director nominees identified in the following proxy statement to serve until the 2017 Annual Meeting of Stockholders; | ||
Proposal 2. | to approve by-law amendments related to the procedures for stockholders to nominate directors or propose other matters for consideration at stockholder meetings; | ||
Proposal 3. | to approve by-law amendments to implement "proxy access"; | ||
Proposal 4. | to approve by-law amendments to implement majority voting in uncontested director elections; | ||
Proposal 5. | to approve certificate of incorporation and by-law amendments to allow for stockholder removal of directors with or without cause and to delete obsolete provisions from, and effect clarifying changes to, the certificate of incorporation; | ||
Proposal 6. | to approve, by a non-binding advisory vote, executive compensation of the Company's Named Executive Officers; | ||
Proposal 7. | to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2017 fiscal year; and |
Other than routine or procedural matters,
your shares or, ifshares. If you are a beneficial owner, you must obtain a "legal proxy" from the record holder.holder in order to vote your shares at the Annual Meeting. Your vote at the Annual Meeting will constitute a revocation of your earlier proxy or voting instructions.
| | ||
---|---|---|---|
Corporate Secretary Eric D. Koster PO BOX 1966 Danbury, CT 06813 (203) 743-8508 | Proxy Solicitor Georgeson (866) 277-0928 |
effective upon receipt of a later vote by telephone, Internet, receipt by the Corporate Secretary or inspectors of election of either an instrument revoking the proxy or a duly executed proxy card bearing a later date. Additionally, a stockholder may change or revoke a previously executed proxy by voting in person at the Annual Meeting.
In voting by proxy with regard toeach of the election of directors, stockholders may vote in favor of all nominees, withhold their vote as to all nominees or withhold their vote as to a specific nominee(s).
If you are the registered holder of your shares, which means that your shares of Common Stock are registered in your name with Computershare Investor Services LLC ("Computershare"), our transfer agent, your shares will only be voted if you properly mark, sign date and return a proxy card or you
attend the Annual Meeting to vote them in person. Otherwise, your shares will not be represented at the Annual Meeting and will not count toward the presence of a quorum.
If you hold your shares in street name, which means that your shares are registered in the name of your brokerage firm, bank or similar organization, it may not vote your shares in its discretion if you have not provided voting instructions.
If Sandell proceeds with its previously announced proxy solicitation, we will likely conduct multiple mailings prior to the Annual Meeting date so that stockholders have our latest proxy information and materials to vote. We will send you a new WHITE proxy or voting instruction card with each mailing, regardless of whether you have previously voted. The latest dated proxy you submit will be counted, and, if you wish to vote as recommended by your Board, then you should only submit WHITE proxy or voting instruction cards.
Please do not return any GOLD proxy or voting instruction card you may receive from Sandell or otherwise authorize any proxy other than pursuant to a WHITE proxy or voting instruction card to vote your shares at the Annual Meeting, even as a protest vote. If you return a GOLD proxy or voting instruction card to Sandell or otherwise authorize a proxy to vote your shares at the meeting other than pursuant to a WHITE proxy or voting instruction card, you can change your vote. To revoke your prior proxy and change your vote, simply sign the enclosed WHITE proxy or voting instruction card, date it and return it in the postage-paid envelope provided or follow the instructions located on the WHITE proxy or voting instruction card to vote via Internet or by telephone. Only your latest dated proxy will be counted. Any proxy may be revoked at any time prior to its exercise at the Annual Meeting. If you have any questions or need assistance voting, please contact our proxy solicitor:
Only stockholders and certain other permitted attendees may attend the Annual Meeting. Please note that space limitations make it necessary to limit attendance to stockholders and one guest. Admission to the Annual Meeting will be on a first-come, first-served basis. Proof of Ethan Allen stock ownership as of the record date, along with photo identification, will be required for admission. Stockholders holding stock in an account at a brokerage firm, bank, broker-dealer or other similar organization ("street name" holders) will need to bring a copy of a brokerage statement reflecting their stock ownership as of the record date. No cameras, recording equipment, electronic devices, use of cell phones or other mobile devices, large bags or packages will be permitted at the Annual Meeting.
To reduce the expense of delivering duplicate proxy materials to our stockholders, we are relying on the SEC rules that permit us to deliver only one set of proxy materials to multiple stockholders who share an address unless we receive contrary instructions from any stockholder at that address. This practice, known as "householding," reduces duplicate mailings, thus saving printing and postage costs as well as natural resources. Each stockholder retains a separate right to vote on all matters presented at the Annual Meeting. Once you have received notice from your broker or us that they or we will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you wish to receive a separate copy of the Annual Report or other proxy materials, free of charge, or if you wish to receive separate copies of future annual reports or proxy materials, please mail your request to Ethan Allen Interiors, Inc., PO BOX 1966, Danbury CT 06813-1966, attention: Corporate Secretary, or call us at (203) 743-8000.
BOARD OF DIRECTORS |
Ethan Allen Interiors Inc. is a vertically integrated interior design and home furnishings company, serving consumers around the world. To effectively manage our enterprise requires a strong governance foundation, as well as leadership with an understanding of the diverse needs of our consumers and associates. The composition of the Board reflects an appropriate mix of skill sets, experience, and qualifications that are relevant to the business and governance of the Company. Each individual Director epitomizes the Company's Leadership Principles, possesses the highest ethics and integrity, and demonstrates commitment to representing the long-term interests of the Company's stockholders. Each Director also has individual experiences that provide practical wisdom and foster mature judgment in the boardroom. Collectively, the Directors bring business, international, government, technology, marketing, retail operations, and other experiences that are relevant to the Company's vertical operations. The Board of Directors has general oversight responsibility for the Company's affairs pursuant to the Company's Amended and Restated Articles of Incorporation and By-Laws, and the committee charters, corporate governance guidelines and other policies under which the Company operates. The Board is deeply involved in the Company's strategic planning process, leadership development, succession planning, and oversight of risk management. In exercising its fiduciary duties, the Board represents and acts on behalf of the Company's stockholders and is committed to strong corporate governance, as reflected through its policies and practices.
BOARD OF DIRECTORS – EXPERIENCE AND SKILLS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ethan Allen Board Nominees | | CEO or Senior Executive Level Experience | | Risk Management | | International Experience | | Operating Experience | | Retail and Ecommerce Experience | | Finance Experience | | Real Estate Experience | | Marketing and Brand Building Expertise | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
M. Farooq Kathwari | ü | ü | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| James B Carlson | | ü | | ü | | ü | | | | | | ü | | ü | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John J. Dooner, Jr., | ü | ü | ü | ü | ü | ü | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domenick J. Esposito | | ü | | ü | | | | ü | | | | ü | | | | ü | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mary Garrett | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| James W. Schmotter | | ü | | ü | | ü | | ü | | | | ü | | | | ü | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tara I. Stacom | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BOARD INDEPENDENCE |
YourThe Board of Directors has determined that nominees Clinton A. Clark, James B. Carlson, John J. Dooner, Jr., Domenick J. Esposito, Mary Garrett, James W. Schmotter and Tara I. Stacom (six of the seven nominees for yourthe Board of Directors), as well as Kristin Gamble and Frank G. WisnerClinton A. Clark (the two directorsdirector who havehas announced that they arehe is retiring from yourthe Board of Directors immediately prior to the Annual Meeting), are independent directors within the meaning of the listing standards of the NYSE. In order for a director to be considered "independent" by yourthe Board of Directors, he or she must (i) be free of any relationship that, applying the rules of the NYSE, would preclude a finding of independence and (ii) not have any material relationship (either directly or as a partner, stockholder or officer of an organization) with us or any of our affiliates of any of our executive officers or any of our affiliates' executive officers. In evaluating the materiality of any such relationship, yourthe Board of Directors takes into consideration whether disclosure of the relationship would be required by the disclosure rules under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If disclosure of the relationship is required, yourthe Board of Directors must make a determination that the relationship is not material as a prerequisite to finding that the director is independent.
Snapshot of 2016 Independent Director Nominees |
BOARD LEADERSHIP STRUCTURE |
The Board of Directors recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide independent oversight of management. The Board believes that, given the dynamic and competitive environment in which we operate, the optimal Board leadership structure may vary as circumstances warrant.
At present, the Board of Directors has chosen to continue combining the two roles of Chairman and Chief Executive Officer. The Board believes that the best interests of the Company are served by Mr. Kathwari serving in both roles taking account of his unique long standing tenure with, and investment in, the Company and also the Board's utilization of a strong Lead Independent Director. The Board of Directors believes that this governance structure provides the basis for clear, efficient executive authority in the Company, especially taking into account the Company's flat management structure, while balancing appropriate oversight by the Board of Directors.
The Company defined the role of the Lead Independent Director, a position which rotates annually. The Board expresses its intent that one person serving as both Chief Executive Officer and Chairman evidences sound management as it allows the assertion of unambiguous authority over the operations of the Company. There is no need to separate the roles of Chief Executive Officer and Chairman since the Company has a suitably empowered independent director who is expressly authorized to exert de facto control of the Company by asserting independent leadership of the Board, increasing the Board's independence over management. The Board formally designated John J. Dooner Jr., an independent, non-executive director, as its Lead Independent Director through the Annual Meeting. He organizes and chairs meetings of the independent directors and organizes, facilitates and communicates observations of the independent directors to the Chief Executive Officer, although each director is free to communicate directly with the Chief Executive Officer.
BOARD OF DIRECTORS ROLE IN RISK OVERSIGHT |
While risk management is primarily the responsibility of our management, the Board of Directors provides overall risk oversight focusing on the most significant risks. The Board of Directors oversees an enterprise-wide approach to risk management, designed to identify risk areas and provide oversight of the Company's risk management, to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and to enhance stockholder value. A fundamental part of the Board's risk management is to understand the risks the Company faces and what steps management is taking to mitigate those risks.
The Board of Directors participates in discussions with management concerning the Company's overall level of risk, the Company's business strategy and organizational objectives which are all integral components of its assessment of management's tolerance for risk.
The Company has implemented a Company-wide enterprise risk management process to identify and assess the major risks and develop strategies for controlling, mitigating and monitoring risk. As part of this process, information is gathered throughout the Company to identify and prioritize these major risks. The identified risks and risk mitigation strategies are validated with management and discussed with the Audit Committee on an ongoing basis.
The Audit Committee reviews our risk management programs and reports on these items to the full Board. Our Internal Audit group is responsible for monitoring the enterprise risk management process and in that role reports directly to the Audit Committee. Other members of senior management who have responsibility for designing and implementing various aspects of our risk management process also regularly meet with the Audit Committee. The Audit Committee discusses our identified financial and operational risks with our Chief Executive Officer and Chief Financial Officer and receives reports from other members of senior management with regard to our identified risks.
The Compensation Committee is responsible for overseeing any risks relating to our compensation policies and practices. Specifically, the Compensation Committee oversees the design of incentive compensation arrangements of our executive officers to implement our pay-for-performance philosophy without encouraging or rewarding excessive risk-taking by our executive officers.
Our management regularly conducts additional reviews of risks, as needed, or as requested by the Board or Audit Committee.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS |
During fiscal year 2016, there were four regularly scheduled meetings of the Board of Directors in addition to the 2015 Annual Meeting of Stockholders. Independent directors also met four times in executive session without management present. The Lead Independent Director, currently John J. Dooner Jr., chaired the executive sessions.
All directors are expected to attend all regularly scheduled and special Board of Directors meetings, independent director meetings and committee meetings, as appropriate. The Board of Directors realizes that scheduling conflicts may arise from time to time which prevent a director from attending a particular meeting. However, it is the Board's explicit policy that each director shall give priority to his or her obligations to the Company. All directors who then held office attended the 2015 Annual Meeting of Stockholders. In fiscal year 2016, there was 100% attendance by each director at each of the four regularly scheduled Board of Directors meetings, six regularly scheduled Audit Committee meetings, two regularly scheduled Compensation Committee meetings, and two regularly scheduled Nominations Committee meetings. Our policy is to expect resignation of any director who is absent from more than twenty-five percent of regularly scheduled Board meetings or committee meetings in a fiscal year. In addition to the regularly scheduled meetings, there were five special Board of Directors meetings, one special Compensation Committee meeting and one special Nominations Committee meeting. There was 100% attendance at each of the special meetings.
The Board of Directors has established three standing committees: the Audit Committee; the Compensation Committee; and the Nominations/Corporate Governance HighlightsCommittee. Committee memberships of each nominee and continuing or current director are set forth below:
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Name | | Audit Committee | | Nominations/ Corporate Governance | | Compensation Committee | | Lead Independent Director | | |||||||||||
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Clinton A. Clark (1) | Chairperson | |||||||||||||||||||
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| James B. Carlson | | Member | | | | Chairperson | | | | ||||||||||
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John J. Dooner, Jr | Member | Member | ü | |||||||||||||||||
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| Domenick J. Esposito | | Member | | | | Member | | | | ||||||||||
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Mary Garrett | Member | |||||||||||||||||||
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| James W. Schmotter | | Member | | Chairperson | | | | | | ||||||||||
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Tara I. Stacom | Member | |||||||||||||||||||
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Additionally, the Board of Directors determined that all of the members of the standing committees are (i) independent within the meaning of the listings standards of the NYSE, (ii) non-employee directors (within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act")) and (iii) outside directors (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")). See "Corporate Governance".
NOMINATIONS/CORPORATE GOVERNANCE COMMITTEE |
The duties of the Nominations/Corporate Governance Committee include, but are not limited to, the duty to: (i) develop qualification criteria for the members of the Board of Directors and nominate or recommend to the Board of Directors individuals to serve on the Board of Directors; (ii) review, annually, the qualifications of each member of the Board of Directors; (iii) review and monitor the Company's corporate governance policies and guidelines, including the Company's trading policy for its directors and executive officers; and (iv) make an annual assessment of the Board of Directors' performance and report to the Board of Directors. The Nominations/Corporate Governance Committee follows the procedure concerning nominations or consideration of director candidates recommended by stockholders set forth in the By-Laws. The By-Laws of the Company permit stockholders, as of the Record Date, to nominate director candidates at the Annual Meeting, subject to certain notification requirements. (See "Stockholder Proposals and Nomination of Directors" under "Other Matters" for information on how to submit a proposal or nominate a director.) Each member of the Committee is independent within the meaning of the listing standards of the NYSE. The Committee held two meetings and individual Committee members communicated, when necessary, by telephone or other means during fiscal year 2016.
The Nominations/Corporate Governance Committee seeks candidates who demonstrate a willingness and ability to prepare for, attend and participate in all Board of Directors and committee meetings and whose experience and skill would complement the then existing mix of directors. While the Board has no specific policy on diversity, the Committee considers the diversity of a candidate's background and experience when evaluating a nominee, as well as the diversity of a candidate's perspectives, which may result from diversity in age, gender, ethnicity or national origin. The Committee gathers suggestions as to individuals who may be available to meet the Board of Directors' future needs from a variety of sources, such as past and present directors, stockholders, colleagues and other parties with which a member of the Nominations/Corporate Governance Committee or the Board of Directors has had business dealings, and undertakes a preliminary review of the individuals suggested. Candidates recommended by stockholders will be considered in the same manner as other candidates. At such times as the Committee determines that a relatively near term need exists and the Committee believes that an individual's qualities and skills would complement the then existing mix of directors, the Committee or its Chair will contact the individual. The Chair will, after such contact, discuss the individual with the Committee. Based on the Committee's evaluation of potential nominees and the Company's needs, the Committee determines whether to nominate the individual for election as a director. While the Nominations/Corporate Governance Committee has not, in the past, engaged any third party firm or consultant to identify or evaluate nominees, in accordance with its charter, may do so in the future. The Nominations/Corporate Governance Committee unanimously recommended the nominees named in this Proxy Statement as the individuals with the experience, industry knowledge, integrity, ability to devote time and energy, and commitment to the interests of all stockholders best qualified to execute our strategic plan and create value for all our stockholders.
PROPOSAL 1: ELECTION OF DIRECTORS |
At the Annual Meeting, each of the seven nominees described below will stand for election to serve as directors until the 2017 Annual Meeting of Stockholders and until their successors are duly elected and qualified. The seven nominees were nominated by the Board of Directors in accordance with recommendations by our Nominations/Corporate Governance Committee. Each nominee has consented to being named in this Proxy Statement as a nominee for election as a director and agreed to serve if elected. All of the seven nominees described below are currently members of the Board of Directors. The information set forth below includes, with respect to each nominee for election as director, his or her age, present principal occupation, specific expertise, qualifications and skills along with other business experience, directorships in other publicly held companies, membership on committees of the Board of Directors and period of service as a director of the Company. Also set forth below is a brief discussion of the specific experience, qualifications, attributes or skills that led to his or her nomination as a director, in light of the Company's business.
Under a majority voting standard, each nominee for election to the Board who receives the vote of a majority of the shares present, in person or by proxy and entitled to vote at the Annual Meeting, will be elected as a director. It is the intention of the persons named as proxies in the accompanying proxies submitted by stockholders to vote for the seven nominees described below unless authority to vote for the nominees or any individual nominee is withheld by a stockholder in such stockholder's proxy. If for any reason any nominee becomes unable or unwilling to serve at the time of the Annual Meeting, the persons named as proxies will have discretionary authority to vote for a substitute nominee(s). Alternatively, the Board of Directors may choose to reduce the size of the Board, as permitted by our Amended and Restated By-Laws (the "By-Laws"). It is not anticipated that any nominee will be unavailable or will decline to serve as a director. As a result of Mr. Clark's resignation, the Board has determined to reduce the size of the Board to seven members effective immediately upon Mr. Clark's resignation.
The Board of Directors unanimously recommends to voteFOR each of the Board of Director's seven nominees for director.
DIRECTOR NOMINEES FOR ELECTION |
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| Farooq Kathwari HOME FURNISHINGS INDUSTRY LEADER | | ||||||||
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Mr. Kathwari is the Chairman, President and Principal Executive Officer of Ethan Allen Interiors Inc. He has been President of the Company since 1985 and Chairman and Principal Executive Officer since 1988. He received his B.A. degree from Kashmir University in English Literature and Political Science and an M.B.A. in International Marketing from New York University. | Director since 1985 Age: 72 Board Committees: • Chairman of the Board | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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From 2010 to 2014, Mr. Kathwari served on the President's Advisory Commission on Asian Americans and Pacific Islanders and is currently affiliated with several not-for-profit organizations, including: as Chairman Emeritus and director of Refugees International, director and former Chairman of American Home Furnishings Alliance, director and former Chairman of National Retail Federation (NRF) and on the Board of Overseers of International Rescue Committee. In addition, Mr. Kathwari currently serves on the Advisory Board of the New York Stock Exchange. Mr. Kathwari has received numerous recognitions, including Honorary Doctor of Public Service awarded by Tufts University President on May 20, 2012, the NRF's highest honor Gold Medal Award, a recognition by the U.S. Government as an Outstanding American by Choice and was an inductee into the Furniture Hall of Fame. Mr. Kathwari has extensive experience and knowledge of the history of the Company and the furniture industry as well as extensive experience in growing and managing a business. Mr. Kathwari possesses insight into retailing, marketing, manufacturing, finance and strategic planning from experience with the Company as well as his broad experience with both for-profit and not-for-profit organizations which has given him perspectives from other industries valuable to his service to the Company. | ||||||||||
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| James B. Carlson LEADER IN THE LEGAL AND FINANCIAL INDUSTRIES | | ||||||||
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Mr. Carlson serves as an Adjunct Professor at the New York University School of Law, teaching Securities and Capital Markets Regulation since 1996. From 2009 through 2011, he also taught Derivatives and Changing Regulation at the School of Law, and from 2010 through 2012, he taught Microfinance and Access to Finance for the Global Poor as an Adjunct Professor at the NYU Stern School of Business. | Director since 2013 Age: 61 Board Committees: • Compensation - Chair • Audit | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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Mr. Carlson, who has been practicing law since 1981, currently is a member of the law firm Mayer Brown, LLP, where he has been a partner since 1998. From 1997 through 2004, he was the Partner-in-Charge of the firm's New York Office, and also served as the firm's Global Practice Leader from 2004 through 2008. Mr. Carlson brings extensive knowledge in corporate and financial strategies, and is a highly regarded member of both the legal and business communities. | ||||||||||
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| John J. Dooner, Jr. LEADER IN MARKETING AND STRATEGIC COMMUNICATIONS | | ||||||||
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Mr. Dooner recently established The Dooner Group, a marketing communication consultancy, and serves as Chairman Emeritus of McCann Worldgroup ("McCann"), a company he formed in 1997 and of which he had been Chief Executive Officer from its founding until 2010. | Director since 2011 Age: 68 Board Committees: • Lead Independent Director • Nominations • Compensation | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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Under Mr. Dooner's leadership, McCann grew to be one of the world's largest marketing communications organizations, with operations in over 125 countries with a client roster that includes preeminent global marketers and many of the world's most famous brands. Prior to assuming that position, Mr. Dooner was Chief Executive Officer of McCann Erickson Worldwide, a post he assumed in 1992. Mr. Dooner also serves on several not-for-profit organizations; including Chairman of St. Thomas University based in Miami Florida, Immediate past Chairman of Board of Trustees United Way Worldwide, and remains Trustee and Chairman Brand Platform United Way Worldwide based in Washington, DC. Mr. Dooner brings extensive advertising and branding expertise to the Company. | ||||||||||
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| Domenick J. Esposito LEADER IN THE FINANCIAL SERVICES INDUSTRY | | ||||||||
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Mr. Esposito has been a practicing CPA since 1974, currently is the Chief Executive Officer of ESPOSITO CEO2CEO and a Board member at a privately held valuation services firm. From 2002 to 2016, Mr. Esposito was a senior partner and member of the Executive Board at CohnReznick LLP. From 2001 through 2002, he was Vice Chairman of BDO, and from 1979 through 2001 he served as a member of Grant Thornton, where he became partner in 1981, and the firm's Chief Executive Officer in 1999. | Director since 2015 Age: 69 Board Committees: • Audit • Compensation | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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Prior to 1979, Mr. Esposito served as a member of Price Waterhouse. He has been a member of the NASDAQ Listing and Qualifications Committee and recently served on the NASDAQ Listing and Qualifications Panel. He formerly served as the leader of the New York State Society of CPA's Committee for Large and Medium Sized Firms Practice Management, and was also an Adjunct Professor at C.W. Post / Long Island University. Mr. Esposito's extensive public accounting background strengthens the oversight of our financial controls and reporting. | ||||||||||
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| Mary Garrett LEADER IN TECHNOLOGY AND MARKETING | | ||||||||
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Ms. Garrett retired from IBM in December 2015 after a distinguished 34-year career where she led the development and execution of unique marketing and communication strategies encompassing the Smarter Planet agenda, Big Data, cloud computing, social business and other growth plays in support of IBM clients across both mature and emerging markets. | Director since 2016 Age: 58 Board Committees: • Nominations | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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During Ms. Garrett's career, she most recently served as Vice President, Marketing and Communications for IBM Global Sales and Distribution responsible for leading geography marketing teams as well as global marketing for Industries, Enterprise and Midmarket business, Digital Sales and field enablement. In addition, she was secretary for the IBM Board of Advisors, where she drove ongoing dialog with IBM's largest global CIOs, and the CMO Council, where she facilitated best practice exchanges with the world's leading marketers. Previously, Ms. Garrett led worldwide marketing for IBM Global Technology Services. Ms. Garrett serves on the Board of Directors of the American Marketing Association, a global professional association with more than 30,000 members, where she also serves as Vice President Finance and Secretary, and also is an active mentor in W.O.M.E.N. in America, a professional development group aimed at advancing promising professional women. Her significant technology and marketing experience is a valuable addition to our Board. | ||||||||||
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| Dr. James W. Schmotter LEADER IN HIGHER EDUCATION ADMINISTRATION | | ||||||||
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Dr. Schmotter is President Emeritus of Western Connecticut State University from which he retired on June 30, 2015. He previously served as Western Michigan University's Dean of the Haworth College of Business, the Dean of the College of Business and Economics at Lehigh University in Pennsylvania, as well as Associate Dean and Director of International Studies at the Johnson Graduate School of Management at Cornell University. | Director since 2010 Age: 69 Board Committees: • Nominations - Chair • Audit | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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Dr. Schmotter has consulted for a variety of organizations including IBM, TRW, the Institute for International Education, the Cleveland Foundation, the Graduate Management Admission Council, the Educational Testing Service, United States Agency for International Development, and a number of universities in the U.S., Asia and Europe. He has served as Chairman of the Board of Trustees of the Graduate Management Admission Council, was the founding Vice Chair of the Board of the MBA Enterprise Corps, has been a member of many committees of the Association to Advance Collegiate Schools of Business and has served as a member of the Executive Committee of the NCAA. Since 2011, he has chaired accreditation review teams for three New England universities. Dr. Schmotter served as chair of the board of directors of the United Way of Western Connecticut, as a corporator of the Savings Bank of Danbury, as a director of Fairfield County's Community Foundation and as a director of the Greater Danbury Chamber of Commerce. He is currently a member of the board of directors of the Dunes of Naples II Condominium Association and a member of the Schools Outreach Committee of the Naples Council on World Affairs (both Naples, Florida). Dr. Schmotter's strong leadership, educational and governmental background provides key insight and experience in strategic planning, international/global issues as well as communicating with younger customers which is valuable in his service to the Company. | ||||||||||
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| Tara I. Stacom LEADER IN REAL ESTATE AND FINANCIAL INDUSTRIES | | ||||||||
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Ms. Stacom is an Executive Vice Chairman of Cushman & Wakefield, a worldwide commercial real estate firm with 43,000 employees. During her 35-year career, Ms. Stacom has been responsible for executing in excess of 40 million square feet and some of the largest and most complex leasing, sales, and corporate finance real estate transactions – including, most recently, acting as exclusive leasing agent for One World Trade Center. | Director since 2015 Age: 58 Board Committees: • Nominations | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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Ms. Stacom has been serving on the Board of Trustees at Lehigh University where she earned her Bachelor of Science degree in Finance. She is a founder of ire@l, a real estate minor in the business college at Lehigh University. In recognition of her commitment and many years of service to Lehigh University, as well as Greenwich Academy, Ms. Stacom has received prestigious Alumni Awards from both organizations. Ms. Stacom serves as a Director of the Realty Foundation of New York, and is a Member of the Real Estate Board of New York serving on its Ethics Committee. Ms. Stacom is a "Director's Circle Member" of Girls, Inc. and a Board Member of Right to Dream. She is the recipient of Crain's New York Business 100 Most Influential Women in New York City Business, and is a Realty Foundation of New York honoree. She was awarded "Woman of the Year" of the New York Executives in Real Estate (WX), and Real Estate New York and Real Estate Forum's Women of Influence. She received Northwood University's Distinguished Women's Award in recognition of the enormous contribution she has made to communities, businesses, volunteer agencies, and public and private sector services worldwide. She has also been honored by the Visiting Nurse Service of New York and the New York Police Athletic League. Ms. Stacom was honored with the Real Estate Board of New York's highest achievement....the 2011 Most Ingenious Deal of the Year (First Place Henry Hart Rice Award) for the leasing of One World Trade Center. Ms. Stacom brings extensive knowledge of commercial real estate and finance to the Board. | ||||||||||
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CORPORATE GOVERNANCE |
The Board of Directors believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of its stockholders and to enhance the creation of long-term stockholder value. The Board has adopted corporate governance guidelines (the "Governance Guidelines") that support this belief and comply with the corporate governance requirements imposed by the SEC and the NYSE,NYSE. At the 2015 Annual Meeting of Stockholders, stockholders approved the Company's proposals to enhance our governance policies as follows:
Amended and Restated the Stock Incentive Plan. The Company amended and restated the Company's 1992 Stock Option Plan, and renamed it the Ethan Allen Interiors Inc. Stock Incentive Plan. The plan was modified to remain compliant with the requirements of section 162(m) of the Internal Revenue Code relating to deductibility of performance-based compensation and was updated to reflect changes in doing so, yourcorporate governance best-practices since it was last submitted for stockholder approval.
Updated By-Laws. Stockholders approved the Company's amendment to its Amended and Restated Certificate of Incorporation to delete Article Fifth and eliminate the requirement that Business Combinations be approved by a majority of the Continuing Directors.
Over the past several years, the Company has updated and clarified its corporate governance policies and procedures to conform to emerging trends and best practices. Some of our key policies and practices include the following:
Formal Adoption of Additional Policies
In 2013, we decided to formalize and clarify our best practices in relation to our Board of Directors and executive officers in a Director Policy and Executive Officer Policy which became effective as of the 2013 Annual Meeting of Stockholders. Some of the best practices provided in the Director Policy and Executive Officer Policy (including updates through 2015) include the following:
The Company's stock options and other awards for directors and executive officers under the Stock Incentive Plan will prohibit repricing, extensions or cash buyouts for options.
At the end of his term, a director will resign as a director.
Thesesuch these policies may be waived, updated or modified by any of the Nominations Committee, Compensation Committee or yourthe Board of Directors, upon notice to the Company and yourthe Board of Directors, as applicable. They are accessible under "Corporate Governance Charters and Policies" on our website atwww.ethanallen.com/governance. The charter of each of the committees of the Board is also available on our website atwww.ethanallen.com/governance. You may also request printed copies of the charter(s) by sending a written request to our Corporate Secretary at Ethan Allen Interiors, Inc., PO BOX 1966, Danbury, CT 06813.
ADDITIONAL STOCKHOLDER OUTREACH |
During fiscal years 2015 and 2016, the Board and management made additional outreach to stockholders, investors and stockholder advisory firms and held two investor conferences. This outreach included conversations with stockholders representing 90% of outstanding shares as of June 30, 2016. Based on this outreach and on recent trends and best practices related to good corporate governance, we are proposing further changes to our Certificate of Incorporation and By-Laws at the 2016 Annual Meeting of Stockholders as follows:
PROPOSAL 2: TO APPROVE BY-LAW AMENDMENTS RELATED TO THE PROCEDURES FOR STOCKHOLDERS TO NOMINATE DIRECTORS OR PROPOSE OTHER MATTERS FOR CONSIDERATION AT STOCKHOLDER MEETINGS |
Our by-laws contain provisions governing the ability of stockholders to bring business before any meeting of stockholders of the Company. As part of the Board's ongoing review of corporate governance practices, the Board has adopted, and is recommending that stockholders vote to approve, amendments to Sections 9.1, 9.2, 10 and 13 of Article II of the by-laws relating to the procedures that stockholders must comply with in order to nominate directors and properly bring any business before stockholder meetings, as well as certain related matters. The Board believes that the proposed amendments conform the by-laws, as they have been amended from time to time, to customary standards.
The proposed amendments, among other things, include the following requirements:
The amendments to Sections 9.1, 9.2, 10 and 13 of Article II of the by-laws pertaining to the procedures for stockholders to nominate directors, propose other matters for consideration at a stockholder meeting and certain related matters will automatically become effective if this Proposal 2 is approved by our stockholders. If, however, our stockholders do not approve this Proposal 2, then the by-law amendment to implement proxy access as set forth in Proposal 3 will not take effect even if Proposal 3 is approved by our stockholders.
The discussion above is qualified in its entirety by reference to the full text of the Amended and Restated By-laws marked to show all proposed changes (additions are underlined and deletions are struck through), which is attached hereto as Appendix B - AMENDED & RESTATED BY-LAWS.
The Board of Directors unanimously recommends that you voteFOR the
proposal to amend and restate the Company's by-laws to revise procedures for stockholders to nominate directors or propose other matters for consideration at stockholder meetings.
PROPOSAL 3: TO APPROVE BY-LAW AMENDMENTS TO IMPLEMENT "PROXY ACCESS" |
Our Board recognizes that properly structured "proxy access" tailored to our stockholder makeup and crafted to include appropriate safeguards against potential abuse and opportunism would give our stockholders the ability to include their director nominees in our proxy materials for our annual meetings of stockholders, thereby promoting stockholder ability to participate in director elections while potentially increasing the Board's accountability and responsiveness to stockholders.
Therefore, after careful consideration, the Board has adopted, and is recommending that stockholders vote to approve, amendments to Article II of the by-laws to adopt new Section 9.3 to implement proxy access.
If approved, these provisions would vest eligible stockholders (or a group of up to 20 eligible stockholders) who meet certain conditions, including holding at least 3% of the Company's outstanding capital stock continuously for at least three years, with the right to use the Company's proxy statement to nominate, at each annual meeting, director candidates comprising up to 20% of the Board, but not less than two candidates. The Board believes that this "3/3/20/20" approach is consistent with emerging prevailing market practices regarding proxy access implementation and embodies the most appropriate of proxy access for the Company. For example, the Board believes that a group limitation of up to 20 stockholders will provide reasonable access while limiting the possibility that small stockholders with narrowly defined special interests could become over-represented on the Board. A limitation of 20 stockholders will also prevent the administrative burden and expense that could be incurred in managing and vetting nominations from groups of potentially dozens or hundreds of small stockholders.
In crafting the particulars of the proxy access approach, the Board sought to balance potential benefits of proxy access with appropriate limitations to avoid abuse by investors who wish to promote special interests that may not be aligned with the interests of our other stockholders, or who lack a meaningful long-term interest in the Company. In designing the provisions of this proposal, the Board has been mindful not to impose any undue impediments that may tend to render our proxy access approach impractical or overly burdensome. The Board believes the amendments set out herein are in the best interests of the Company.
Implementation of this Proposal 3 is contingent upon the approval of the amendments to Sections 9.1, 9.2, 10 and 13 of Article II of our by-laws related to the procedures for stockholders to nominate directors or propose other matters for consideration at stockholder meetings set forth in Proposal 2. If approved, this Proposal 3 will become effective only if Proposal 2 is approved by our stockholders.
The discussion above is qualified in its entirety by reference to the full text of the Amended and Restated By-laws marked to show all proposed changes (additions are underlined and deletions are struck through), which is attached hereto as Appendix B - AMENDED & RESTATED BY-LAWS.
The Board of Directors unanimously recommends that you voteFOR the
proposal to amend and restate the Company's by-laws to implement "proxy access."
PROPOSAL 4: TO APPROVE BY-LAW AMENDMENT TO IMPLEMENT MAJORITY VOTING IN UNCONTESTED DIRECTOR ELECTIONS |
Our Board recognizes that many stockholders believe that a majority voting standard increases a board's accountability to stockholders and that many public companies recently have adopted a majority voting standard in uncontested director elections. A majority voting standard requires that the number of votes cast "FOR" a director nominee's election exceed the number of votes cast "against" that nominee in order for the nominee to be elected. Abstentions and broker non-votes have no effect in determining whether the required majority vote had been obtained. By contrast, under a plurality voting standard, a director nominee who receives the highest number of affirmative votes cast is elected, whether or not such "FOR" votes constitute a majority of all votes (including those withheld).
The Company currently has a majority voting standard; however, the provision was adopted in 1995 and lacks important features necessary for its smooth functioning. In particular, the majority voting standard should not apply in the case of a contested election in which case a plurality standard is more customary and practice. In addition, the provision currently fails to include a provision requiring a "holdover" candidate, who would otherwise remain in office until his or her successor is elected and qualified, to tender his or her resignation. Accordingly, after careful consideration, the Board has determined the retention of majority voting standard continues to be in the best interests of the Company and its stockholders, but that it should be limited to uncontested director elections. Therefore, the Board has adopted, and is recommending that stockholders vote to approve, amendments to our by-laws to adopt new Section 2 of Article III to implement majority voting in uncontested director elections.
The majority voting standard would only apply in uncontested elections. Uncontested elections are elections where the number of director nominees does not exceed the number of directors to be elected at the meeting. In a contested election, director nominees would continue to be elected by a plurality vote standard. A contested election is an election where the number of director nominees exceeds the number of directors to be elected at the annual meeting, as determined by the secretary of the company.
Further, the Board shall not nominate for election as director any nominee who has not agreed to offer, promptly following the annual meeting at which he or she is elected as director, an irrevocable resignation that will be effective upon (a) the failure to receive the required number of votes for reelection at the next annual meeting of stockholders at which he or she faces reelection, and (b) acceptance of such offer to resign by the Board. If a director nominee fails to receive the required number of votes for reelection, the Board (excluding the director in question) shall, within 90 days after certification of the election results, decide whether to accept such incumbent director's offer to resign through a process overseen by the Nominations/Corporate Governance Committee (and excluding the director in question from all Board and committee deliberations). In making its determination, the Board may consider any factor it deems relevant.
The amendments to Section 2 Article III of the by-laws to implement majority voting in uncontested director elections will automatically become effective if this Proposal 4 is approved by our stockholders.
The discussion above is qualified in its entirety by reference to the full text of the Amended and Restated By-laws marked to show all proposed changes (additions are underlined and deletions are struck through), which is attached hereto as Appendix B - AMENDED & RESTATED BY-LAWS.
The Board of Directors unanimously recommends that you voteFOR
proposal to amend and restate the Company's by-laws to implement majority voting in uncontested director elections.
Article Sixth of the Company's Amended and Restated Certificate of Incorporation and Section 13 of Article III of the Company's Amended and Restated By-laws each currently provides that the Company's stockholders may remove directors from office at any time for cause by the affirmative vote of the holders of not less than a majority of the outstanding shares of stock generally entitled to vote. In a recent bench ruling on a summary judgment motion, the Delaware Court of Chancery held in December 2015 that a provision of a Delaware Corporation's charter or by-laws could not override the default rule under Delaware law that directors serving on a non-classified board and who are not elected pursuant to cumulative voting may be removed with or without cause by vote of holders of a majority of the outstanding shares entitled to vote in director elections. In light of these developments under Delaware corporate law, in January 2016, the Board adopted an amendment to the Company's Certificate of Incorporation, subject to stockholder approval, and believes it is in the best interests of the Company and its stockholders to approve amendments to the Company's certificate of incorporation and by-laws so that they state that directors can be removed by stockholders with or without cause. Further, the Company's certificate of incorporation currently includes a number of obsolete provisions relating to Class B Common Stock. The proposed amendments are intended to remove such obsolete provisions and to make minor clarifying changes, enhance readability and eliminate redundancies. Accordingly, the Board has adopted, subject to stockholder approval, amendments to the Company's certificate of incorporation and the by-laws to permit the removal of directors by stockholders with or without cause, and, with respect to the certificate of incorporation, to remove certain obsolete provisions and to renumber the remaining provisions.
The amendments to the certificate of incorporation, if adopted, would become effective upon the filing of a certificate of amendment with the Secretary of State of the State of Delaware incorporating the amendments, which we would expect to do as soon as practicable after the amendments are adopted. The amendments to Section 13 of Article III of the by-laws related removal of directors by stockholders will automatically become effective if this Proposal 5 is approved by our stockholders. The effectiveness of these amendments will not impact the rights of stockholders since the amendments reflect rights already granted to stockholders under Delaware law.
The discussion above is qualified in its entirety by reference to the full text of the Amended and Restated Certificate of Incorporation and the Amended and Restated By-laws marked to show all proposed changes (additions are underlined and deletions are struck through), which are attached hereto as Appendix A - AMENDED & RESTATED CERTIFICATE OF INCORPORATION and Appendix B - AMENDED & RESTATED BY-LAWS.
The Board of Directors unanimously recommends that you voteFOR the
proposal to approve amendments to the Company's certificate of incorporation and by-laws to allow for stockholder removal of directors with or without cause and to implement certain clarifying amendments to, and to delete obsolete provisions from, the certificate of incorporation.
CHARTERS, CODE AND GUIDELINES |
The Company's Business Code, Corporate Governance Guidelines and the charters of its Audit Committee, Compensation Committee and Nominations Committee are available on the Company's website atwww.ethanallen.com/governance. Our Business Code requires that each individual deal fairly, honestly and constructively with governmental and regulatory bodies, customers, suppliers and competitors. It prohibits any individual's taking unfair advantage through manipulation, concealment, abuse of privileged information or misrepresentation of material facts. It imposes an express duty to act in the best interests of the Company and to avoid influences, interests or relationships that could give rise to an actual or apparent conflict of interest. Further, it also prohibits directors, officers and employees from competing with us, using Company property or information, or such employee's position, for personal gain, and taking corporate opportunities for personal gain. Waivers of our Business Code must be explicit. Any waiver of the Business Code for directors or executive
officers may only be made by the Nominations Committee, and any waivers or amendments will be disclosed promptly by a posting on our website. We granted no waivers under our Code of Business Conduct and Ethics in fiscal 2016. Stockholders may request a copy of any of these documents by writing to: Ethan Allen Interiors Inc., Ethan Allen Drive, Danbury, CT 06811, Attention: Office of the Secretary.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE |
Section 16(a) of the Exchange Act requires our executive officers, directors and owners of over 10% of our Common Stock to file reports of ownership and changes in ownership with Directorsthe SEC and the NYSE and furnish us with a copy of each report filed. Based solely on our review of copies of such reports furnished to the Company and written representations that all reports were filed or that no reports were required, we are not aware of any instances of noncompliance with the Section 16(a) filing requirements by any executive officer, director or owner of over 10% of our Common Stock during fiscal year 2016.
DIRECTOR COMPENSATION |
For fiscal year 2016, each independent director received $60,000 per annum and an annual stock option award in whole shares determined by dividing the market price of the Company's stock at the grant date into $100,000. Additional fees are paid quarterly to the chairperson of each of the committees as follows: Audit Committee $4,000; Compensation Committee $2,000; and Nominations Committee $2,000. If a committee holds more than four meetings (either in person or telephonically) on days when the full Board does not meet, committee members will be paid an additional $1,000 for each additional meeting beginning with the fifth such meeting. Employee directors do not receive additional compensation for serving on the Board of Directors. Directors serving on committees for part of a year receive a pro-rata share of fees.
| | | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash | | Option Awards (1) | | Total | | |||||||||
| | | | | | | | | | | | | | | | |
James B. Carlson (2) | $ 68,000 | $ 40,128 | $ 108,128 | |||||||||||||
| | | | | | | | | | | | | | | | |
| Clinton A. Clark (3) | | 76,000 | | 40,128 | | 116,128 | | ||||||||
| | | | | | | | | | | | | | | | |
John J. Dooner, Jr. (4) | 60,000 | 40,128 | 100,128 | |||||||||||||
| | | | | | | | | | | | | | | | |
| Domenick J. Esposito (5) | | 56,739 | | 40,128 | | 96,867 | | ||||||||
| | | | | | | | | | | | | | | | |
Kristin Gamble (6) | 23,901 | 40,128 | 64,029 | |||||||||||||
| | | | | | | | | | | | | | | | |
| Mary Garrett (7) | | 30,000 | | - | | 30,000 | | ||||||||
| | | | | | | | | | | | | | | | |
James W. Schmotter (8) | 68,000 | 40,128 | 108,128 | |||||||||||||
| | | | | | | | | | | | | | | | |
| Tara I. Stacom (9) | | 45,326 | | - | | 45,326 | | ||||||||
| | | | | | | | | | | | | | | | |
Frank G. Wisner (10) | 23,901 | 40,128 | 64,029 | |||||||||||||
| | | | | | | | | | | | | | | | |
Stockholders or interested parties may communicate with the full Board of Directors, a full committee, individual committee members or individual directors by sending communications to the Office of the Secretary, Ethan Allen Interiors Inc., Ethan Allen Drive, Danbury, Connecticut 06811 for forwarding to the appropriate director(s). Please specify to whom your correspondence should be directed. The Corporate Secretary has been instructed by yourthe Board of Directors to review and promptly forward all correspondence (except advertising material and ordinary business matters) to the full Board of Directors, full committee, individual director or committee member, as indicated in the correspondence.
Certain Transactions
The Company is party to indemnification agreements with each of the members of your Board of Directors pursuant to which the Company has agreed to indemnify and hold harmless each member of your Board of Directors from liabilities incurred as a result of such director's status as a director of the Company, subject to certain limitations.
The Company recognizes that transactions between the Company and related persons present a potential for actual or perceived conflicts of interest. The Company's general policies with respect to such transactions are included in its Code of Business Conduct and Ethics ("Business Code"), the administration of which is overseen by the Nominations Committee. The Company defines "related party" transaction as any transaction or series of related transactions in excess of $120,000 in which the Company is a party and in which a "related person" had, has or will have direct or indirect material interest. Related persons include (i) any person who is, or at any time since the beginning of our last fiscal year, was, a director or executive officer of us or a nominee to become a director, (ii) any person who is known to be the beneficial owner of more than 5% of any class of our voting securities, (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest. The Company collects information about potential related party transactions in its annual questionnaires completed by directors and officers as well as throughout the year at its quarterly Disclosure Control Committee Meetings, comprised of key management responsible for significant business units, departments or divisions. Potential related party transactions are first reviewed and assessed by our General Counsel to consider the materiality of the transactions and then reported to the The Board, acting through the Robin van Puyenbroeck, No member of the Compensation Committee The following table sets forth, as of Certain Relationships and Related PartyNominationsNominations/Corporate Governance Committee. The NominationsNominations/Corporate Governance Committee reviews and considers all relevant information available to it about each related party transaction and presents the facts to the members of yourthe Board of Directors not associated with the potential related party transaction. A related party transaction is approved or ratified only if such members of yourthe Board of Directors determine that it is not inconsistent with the best interests of the Company and its stockholders. Consistent withCompany's policies, on February 1, 2015,Nominations and the Compensation Committees, believes that the following related person transactions are reasonable and fair to the Company.was hired as the Company's Vice President, Business Development. Mr. van Puyenbroeck is the son-in-lawson in law of Mr. Kathwari, the Company's Chairman, President and Chief Executive Officer.Officer is employed by the Company as the Company's Vice President, Business Development. Mr. van Puyenbroeck reports to the Senior Vice President, Business Development. Drawing on his international business development background and experience, he is responsible for expandingDuring fiscal year 2016, the Company's business through the acquisition of new licensees, especiallyCompany paid approximately $260,000 in international markets, maintaining and improving relationships with existing licensees, as well as identifying and procuring new business partnership and affiliation opportunities for the Company.aggregate compensation to Mr. van Puyenbroeck's totalPuyenbroeck. The compensation was approximately $228,926 including consulting fees,consistent with compensation paid to other employees holding similar positions and was composed of salary bonus and equity incentive compensation in fiscal 2015. The Nominations Committee, the Compensation Committee and your Board of Directors reviewed Mr. van Puyenbroeck's background, prior experience, role and reporting relationships and expectations within the Company, as well as his compensation, and initially structured the Company's relationship with him as a consultant in order to monitor his ability to work with the Company and later approved Mr. van Puyenbroeck's employment and compensation.annual bonus. The Compensation Committee and yourthe Board expects periodically and at each fiscal year end to provide an on-goingongoing review of Mr. van Puyenbroeck's employment with the Company, including in relation to his compensation.Compensation Committee Interlocks The Company is party to indemnification agreements with each of the members of the Board of Directors pursuant to which the Company has agreed to indemnify and hold harmless each member of the Board of Directors from liabilities incurred as a result of such director's status as a director of the Company, subject to certain limitations.was at any timeis, or has ever been, an officer or employee of the Company nor is any member of the Compensation Committee related to any other member of the Compensation Committee, any other member of your Board of Directors or any executive officer of its subsidiaries. In addition, during the Company. No member of your Board of Directors orlast fiscal year, no executive officer of the Company served as a director or member of the compensation or similar committee of another entity whose director(s) or executive officer(s) serve as a member of the Company'sBoard or the Compensation Committee.Charters, Code and Guidelines The Company's Business Code, Corporate Governance Guidelines and the charters of its Audit Committee, Compensation Committee and Nominations Committee are available on the Company's website atwww.ethanallen.com/governance. Any waiver of the Business Code for directors or NEOs may only be made by the Nominations Committee, and any waivers or amendments will be disclosed promptly by a posting on our website. Stockholders may request a copy of any of these documents by writing to: Ethan Allen Interiors Inc., Ethan Allen Drive, Danbury, CT 06811, Attention: Office of the Secretary.Leadership Structure and Board of Directors' Role in Risk Oversight The Company defined the role of the Lead Independent Director, a position which rotates annually. Your Board expresses its intent that one person serving as both Chief Executive Officer and Chairman evidences sound management as it allows the assertion of unambiguous authority over the operations of the Company. There is no need to separate the roles of Chief Executive Officer and Chairman since the Company has a suitably empowered independent director who is expressly authorized to exert de factocontrol of the Company by asserting independent leadership of your Board, increasing your Board's independence over management. Your Board formally designated Dr. Schmotter, an independent, non-executive director, as its Lead Independent Director through the Annual Meeting. He organizes and chairs meetings of the independent directors and organizes, facilitates and communicates observations of the independent directors to the Chief Executive Officer, although each director is free to communicate directly with the Chief Executive Officer. Your Board of Directors believes that the best interests of the Company are served by Mr. Kathwari serving as both Chairman and Chief Executive Officer taking account of his unique long standing stature and investment in the Company and also your Board's utilization of a Lead Independent Director. Your Board of Directors believes that this governance structure provides the basis for clear, efficient executive authority in the Company, especially taking into account the Company's flat management structure, while balancing appropriate oversight by your Board of Directors. Your Board of Directors oversees an enterprise-wide approach to risk management, designed to identify risk areas and provide oversight of the Company's risk management, to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and to enhance stockholder value. A fundamental part of your Board's risk management is to understand the risks the Company faces and what steps management is taking to mitigate those risks. Your Board of Directors participates in discussions with management concerning the Company's overall level of risk, the Company's business strategy and organizational objectives which are all integral components of its assessment of management's tolerance for risk.Meetings and Committees of Your Board of Directors During fiscal year 2015, there were four (4) regularly scheduled meetings of your Board of Directors in addition to the 2014 Annual Meeting of Stockholders. Independent directors also met four (4) times in executive session without management present. The executive sessions were chaired by the Lead Independent Director, currently James W. Schmotter. All directors are expected to attend all regularly scheduled and special Board of Directors meetings, independent director meetings and committee meetings, as appropriate. Your Board of Directors realizes that scheduling conflicts may arise from time to time which prevent a director from attending a particular meeting. However, it is your Board's explicit policy that each director shall give priority to his or her obligations to the Company. All directors who then held office attended the 2014 Annual Meeting of Stockholders. In fiscal year 2015, there was 100% attendance by each director at each of the four regularly scheduled Board of Directors meetings, five regularly scheduled Audit Committee meetings, two regularly scheduled Compensation Committee meetings, and two regularly scheduled Nominations Committee meetings. Our policy is to expect resignation of any director who is absent from more than twenty-five percent of regularly scheduled Board meetings or committee meetings in a fiscal year. In addition to the regularly scheduled meetings, there were three special Audit Committee meetings. Your Board of Directors has established three standing committees: the Audit Committee; the Compensation Committee; and the Nominations Committee. Committee memberships of each nominee and continuing or current director are set forth below:NameAuditCommitteeNominationsCommitteeCompensationCommitteeLead IndependentDirectorClinton A. ClarkChairpersonJames B. CarlsonMemberChairpersonJohn J. Dooner, Jr. MemberMemberDomenick J. EspositoMemberKristin Gamble(1)MemberMemberJames W. SchmotterMemberChairpersonXFrank G. Wisner(1)Member(1)Ms. Gamble and Mr. Wisner have been long-term members of your Board of Directors and have served with distinction, having made substantial contributions to the success of the Company. Both have announced their intent to retire immediately prior to the Annual Meeting and have requested they not be nominated. Additionally, your Board of Directors determined that all of the members of the standing committees are (i) independent within the meaning of the listings standards of the NYSE, (ii) non-employee directors (within the meaning of Rule 16b-3 under the Exchange Act) and (iii) outside directors (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")). See "Corporate Governance".NOMINATIONS/CORPORATE GOVERNANCE COMMITTEE The duties of the Nominations Committee include, but are not limited to, the duty to: (i) develop qualification criteria for the members of your Board of Directors and nominate or recommend to your Board of Directors individuals to serve on your Board of Directors; (ii) review, annually, the qualifications of each member of your Board of Directors; (iii) review and monitor the Company's corporate governance policies and guidelines, including the Company's trading policy for its directors and executive officers; and (iv) make an annual assessment of your Board of Directors' performance and report to your Board of Directors. The Nominations Committee follows the procedure concerning nominations or consideration of director candidates recommended by stockholders set forth in the By-laws. The By-laws of the Company permit stockholders, as of the Record Date, to nominate director candidates at the Annual Meeting, subject to certain notification requirements. (See "Stockholder Proposals and Nomination of Directors" under "Other Matters" for information on how to submit a proposal or nominate a director.) The Nominations Committee believes that as a result of the provisions in the By-laws, any separate policy relating to stockholder proposals or nominations would be duplicative. Each member of the Nominations Committee is independent within the meaning of the listing standards of the NYSE. The Nominations Committee held two (2) meetings and individual committee members communicated, when necessary, by telephone or other means during fiscal year 2015. The Nominations Committee seeks candidates who demonstrate a willingness and ability to prepare for, attend and participate in all Board of Directors and committee meetings and whose experience and skill would complement the then existing mix of directors. The Nominations Committee may consider the diversity of a candidate's background and experience when evaluating a nominee, as well as the diversity of a candidate's perspectives, which may result from diversity in age, gender, ethnicity or national origin. While the Nominations Committee may consider diversity in its evaluation process, the Nominations Committee does not have a formal policy with regard to the consideration of specific categories of human diversity in identifying director nominees. The Nominations Committee gathers suggestions as to individuals who may be available to meet your Board of Directors' future needs from a variety of sources,such as past and present directors, stockholders, colleagues and other parties with which a member of the Nominations Committee or your Board of Directors has had business dealings, and undertakes a preliminary review of the individuals suggested. At such times as the Nominations Committee determines that a relatively near term need exists and the Nominations Committee believes that an individual's qualities and skills would complement the then existing mix of directors, the Nominations Committee or its Chair will contact the individual. The Chair will, after such contact, discuss the individual with the Nominations Committee. Based on the Nominations Committee's evaluation of potential nominees and the Company's needs, the Nominations Committee determines whether to nominate the individual for election as a director. While the Nominations Committee has not, in the past, engaged any third party firm or consultant to identify or evaluate nominees, the Nominations Committee, in accordance with its charter, may do so in the future. Domenick J. Esposito became a director of the Company on July 21, 2015. The Nominations Committee gave consideration to Mr. Esposito's background as a practicing CPA since 1974. In addition to having served as a partner, Chief Operating Officer and Chief Executive Officer of national accounting firms, he served as a member of the NASDAQ Listing and Qualifications Committee to its Board of Directors and an Adjunct Professor at C.W. Post / Long Island University. Tara I. Stacom became a director of the Company on September 29, 2015. The Nominations Committee gave consideration to Ms. Stacom's background, including her extensive knowledge of commercial real estate and finance and lengthy leasing and other experience as executive vice chairman at a worldwide commercial real estate firm, in connection with her becoming a director of the Company. The Company's long-serving directors, Kristin Gamble and Frank G. Wisner, are retiring from your Board of Directors immediately prior to the Annual Meeting, and the Company's long-serving director, Clinton A. Clark, announced his determination, if reelected, to retire immediately prior to the 2016 Annual Meeting of Stockholders. Our Nominations Committee and our Board of Directors regularly meets to consider various potential nominees for election as directors, whether submitted by directors, management, stockholders or others. In addition, our Nominations Committee has periodically engaged independent advisors to assist with identification of potential nominees and assessment of the functioning of your Board of Directors and its committees. In connection with its consideration of nominees to recommend for the Annual Meeting, our Nominations Committee considered many candidates, including our current directors, and the nominees of Sandell, in accordance with its established policies and procedures for considering potential director nominees. Consistent with the qualifications and characteristics expected of all directors of the Company as set forth in the Company's Corporate Governance Guidelines and the Nominations Committee Charter, the Nominations Committee unanimously recommended the nominees named in this Proxy Statement as the individuals with the experience, industry knowledge, integrity, ability to devote time and energy, and commitment to the interests of all stockholders best qualified to execute our strategic plan and create value for all our stockholders.ADDITIONAL BACKGROUND OF THE SOLICITATION In late March 2015, Richard Mansouri, Managing Director of Sandell, contacted the Company and spoke to Corey Whitely, Chief Financial Officer of the Company, and requested a call with the Company's Chief Executive Officer, M. Farooq Kathwari. On April 7, 2015, Mr. Kathwari and Mr. Whitely participated on a conference call with Thomas E. Sandell, Chief Executive Officer of Sandell, and Mr. Mansouri. During the call, Mr. Sandell stated that Sandell planned to become a meaningful shareholder and wished to work with the Company to see how shareholder value could be quickly improved. On April 28, 2015, Mr. Mansouri sent an email to Mr. Whitely informing him that Sandell had increased its ownership position and that Messrs. Sandell and Mansouri wanted to meet in person. On May 20, 2015, a meeting was conducted at the Company's headquarters with Messrs. Sandell and Mansouri. Mr. Kathwari provided a tour of the facility as part of a discussion that outlined how the Company's vertical structure functions and the activities that are handled at its headquarters. Mr. Sandell stated that he had never been in an Ethan Allen design center. He was thus given a tour of the Company's Danbury design center, which is attached to the Company's headquarters. During the meeting, Mr. Sandell stated that he felt that the Company needed to use its real estate to create enhanced stockholder value by using the proceeds from a real estate sale-leaseback for stock repurchases. Messrs. Kathwari and Whitely provided Mr. Sandell their perspectives on the transition that the Company was going through with its real estate. They indicated that they believed that locking into long-term leases under a sale-lease back scenario for its owned properties would not be in the Company's long-term interests. They further stated that the Board would consider and study the matter as well as consider other options to increase stockholder value, but that any action taken must be sensible and recognize that the Company is in a cyclical industry as well as currently transitioning its real estate assets. Mr. Sandell then suggested that Mr. Kathwari should consider buying the Company and taking it private. Mr. Kathwari conveyed the history of the Company's earlier management buy-out which he had led. Mr. Kathwari concluded by suggesting that communications remain open and thanked Mr. Sandell for providing feedback and ideas for the Company to consider. On June 17, 2015, Mr. Mansouri called Mr. Whitely and stated that he read an article purporting to say that the Company's real estate was worth about $280 million. He reiterated that Sandell believed that the Company's manufacturing properties have substantial value locked up and that the Company needs to determine how to unlock that value. He stated he understood that the Company's retail properties are a different situation, but restated his belief that the Company's plants and headquarters potentially have a lot of value. Mr. Whitely advised Mr. Mansouri that, having sold off many manufacturing properties over the years as it consolidated manufacturing operations, the Company had a better understanding of the valuations of its properties. He also stated that the Company believed that engineering long-term high rent leases for its manufacturing operations would not be in the Company's long-term interests. Mr. Whitely advised Mr. Mansouri that several properties, including the Company's headquarters, were mortgaged for the purpose of generating capital in a manner that management believed was sensible and provided flexibility. On July 13, 2015, Mr. Mansouri emailed Mr. Whitely to request a conference and, on July 13, 2015, a call was held among Mr. Mansouri and Mr. Whitely. During the call, Mr. Mansouri commented on the earnings results reported in the Company's most recent earnings announcement, which beat analyst forecasts. He inquired whether the Company took as revenue written customer order deposits to boost gross margin. Mr. Whitely explained that customer deposits were reflected as liabilities on the balance sheet and did not count as sales and, therefore, did not have any impact on gross margin. Mr. Mansouri then asked why the Company had not yet used its real estate in financial engineering to buy back $400 million of shares. Mr. Whitely reiterated the Company's views presented in the meeting described above, including its appreciation of suggestions from its shareholders and its continuing commitment to study and analyze, both independently and with the help of its bankers and other advisors, options to create long-term value to the shareholders and the Company. On July 15, 2015, Mr. Sandell was a presenter at the CNBC Delivering Alpha Conference, during which he announced that Ethan Allen was his best idea for a company that should use financial engineering to monetize its real estate or sell itself to private equity. On August 14, 2015, the Company received a letter from Mr. Sandell addressed to Mr. Kathwari, which expressed Mr. Sandell's opinions regarding certain of the Company's fiscal policies and the Company's performance and disclosed that Sandell had beneficial ownership of approximately 1.6 million shares, or 5.5%, of the Company. In this letter, Mr. Sandell also expressed his intentions to nominate aslate of director candidates at the Annual Meeting unless the Company took steps to effect a recapitalization and monetization of its real estate holdings and/or consider a sale to a private equity firm and to announce the retention of an impartial, nationally-recognized investment banking firm as soon as possible in order to aid the Company in the exploration of these alternatives. The letter also took issue with the announced date of the Annual Meeting, which was approximately four weeks earlier than the prior year's annual meeting of stockholders. On August 14, 2015, in response to Sandell's concerns, the Board changed the date of the Annual Meeting to November 24, 2015 (a date later than the date of the prior year's annual meeting of stockholders) and the Company issued a press release announcing the date change and reiterating the Company's openness to engaging shareholders and ensuring there are no obstacles to shareholder participation. Mr. Whitely also called Mr. Mansouri and advised him of the date change. During the call, they also discussed scheduling a meeting, potentially under a non-disclosure agreement that would allow the Company to further discuss Sandell's concerns and ideas and confidentially share some steps the Company was undertaking to enhance shareholder value. On August 17, 2015, after having reviewed a draft non-disclosure agreement provided by Sandell, which only provided for a short confidentiality period, management consulted with the directors and Mr. Whitely sent an email to Mr. Mansouri that suggested delaying such meeting until after Labor Day. The Company believed that, with its annual investor conference upcoming on September 16, 2015 and announcements anticipated prior thereto, it would be better able (under SEC rules prohibiting selective disclosure) to enter into open discussions with Sandell without the need for or constraints of a short-lived nondisclosure agreement. On August 18, 2015, Sandell filed a Schedule 13-D announcing that it was considering nomination of a slate of directors for election at the Annual Meeting. On August 26, 2015, in response to Mr. Whitely's email of August 17, 2015, Sandell publicly filed a letter to the Company's Board of Directors outlining Sandell's dissatisfaction that the Company's decision not to accede to Sandell's demands and requesting the Company to enter into settlement discussions. On August 31, 2015, the Company invited Sandell, in writing, to attend the annual investor conference scheduled for September 16, 2015. On September 2, 2015, the Board approved and the Company publicly announced its intent to raise up to $250 million of debt financing and to utilize the proceeds for general corporate needs and to further increase shareholder returns, including the possibility of funding a special dividend and share repurchases. On September 8, 2015, Mr. Mansouri responded to the invitation to attend the investor conference by registering in writing that he would attend on behalf of Sandell. The Company intended to utilize his presence, both during the conference and privately thereafter, as an opportunity for further dialogue with Sandell. On September 15, 2015, Sandell, through an affiliate, delivered to the Company a notice of intent to nominate a slate of six nominees for election as directors at the Annual Meeting. On September 16, 2015 the Company held its investor conference. Among the topics discussed, the Company provided further details on the timing of the $250 million of the previously announced debt financing. Despite having expressed an intention to attend, neither Mr. Mansouri nor Mr. Sandell or any other Sandell representative attended the conference. As a result, Sandell did not provide the Company with an opportunity to meet with them at that time to discuss Sandell's concerns. On October 5, 2015, Messrs. Kathwari and Whitely spoke by telephone with Messrs. Sandell and Mansouri. Mr. Kathwari stated that the Board was pleased they were speaking and was reluctant to incur the cost of bankers and other proxy advisers, which can be quite high. Mr. Kathwari discussed the many initiatives that the Company has accomplished and has underway, some of which are also similar to someof Sandell's ideas and suggestions. These included: (a) over the years, the Board has focused on managing the Company's business in the right manner and as a result the Company has produced significant cash, the Company has used that cash as well as debt financing for internal initiatives in manufacturing, retail, technology and other areas and to further increase shareholder value by paying special dividends, increasing regular dividends and buying back shares of which the Company has repurchased about 40% of its shares since going public; (b) the Company has announced its intention to raise $250 million in debt financing, collateralized by its assets including real estate, has been in discussion with JP Morgan about timing and is considering going to the market to raise the financing in the next few weeks, market conditions permitting, and that, once raised, the Board of Directors will decide the use of proceeds; (c) the Board has continued to refresh and strengthen its membership and has added two new directors this year; and (d) the Company has continued to make major enhancements to its business, both for short term and long term, including making a major change to its offerings, strengthening its design center network, accelerating its marketing in both traditional and digital mediums and strengthening its competitive advantage through manufacturing such as deciding to build a new plant in Mexico. On October 6, 2015, following review of the prior day's discussions with the Directors, Mr. Kathwari contacted Mr. Sandell. Mr. Kathwari stated that he was pleased they had exchanged ideas. He reiterated the Board's belief that it would be better to avoid high cost proxy advisers and instead have management talk directly. Mr. Kathwari also made the following points: (a) the parties should continue discussions; (b) the Company recently added two new directors, one with major accounting, audit and financial background and the other a leading real estate and finance executive, and the Company would consider adding on another new director with a leading retail or e-commerce background after the Annual Meeting to allow reasonable time to thoroughly search and vet such a candidate; (c) the Company would formalize periodic arrangements with Sandell and other major shareholders to exchange ideas and perspectives with perhaps the initial sessions focusing on real estate and e-commerce strategies; and (d) the Company was continuing to discuss with its bankers the timing of the launch of its debt offering in light of market volatility. Mr. Kathwari concluded by stating that it would not be appropriate for the Board to appoint three of Sandell's director nominees and empower them to "pursue strategic alternatives" with bankers, advisors and others, as Sandell suggested on the prior day's call. He expressed the concern that those actions would communicate to the market and the home furnishings industry that the Company is "in play" and "for sale", noting that this matter is a Board of Directors decision, not to be taken quickly or lightly, that the Board believes now is not the best time for a sale of the Company and that Sandell's proposed actions would cause tremendous uncertainty and disruption to the Company's business, dealers, business partners, and employees. Also on October 6, 2015, Mr. Sandell transmitted a letter reiterating Sandell's demands, including its demands that: (i) the Board form a "Corporate Planning Committee" in effect to facilitate a private equity sale of the Company and enter into sale-leaseback transactions; and (ii) the Company repeal the special approval requirements for transactions with Interested Stockholders in the Company's Amended and Restated Certificate of Incorporation. On October 8, 2015, Messrs. Kathwari and Whitely spoke by telephone with Messrs. Sandell and Mansouri to explore further not only (1) the proposals previously communicated between the Company and Sandell on October 6, 2015, but also (2) whether there existed sufficient common ground to enable the parties to resolve their differences so as to avoid a protracted and costly proxy solicitation. Mr. Kathwari explained the Board's understanding of the differences between the parties' written proposals. He also stated that the Board recognized that Sandell had asserted plans which sought to enhance shareholder value, but that the Board believed that the plans proposed by Sandell would not accomplish that purpose. He also explained that the Board believed that the plans appeared to have been developed for short term stock gains at the expense of long term stability and performance opportunity. Mr. Kathwari emphasized again that the Company's plans are designed to sensibly increase shareholder value.PROPOSAL 1ELECTION OF DIRECTORS At the Annual Meeting, each of the seven (7) nominees described below will stand for election to serve as directors until the 2016 Annual Meeting of Stockholders and until their successors are duly elected and qualified. The seven nominees were nominated by your Board of Directors in accordance with recommendations by our Nominations Committee. Each nominee has consented to being named in this Proxy Statement as a nominee for election as a director and agreed to serve if elected. All of the seven nominees described below are currently members of your Board of Directors. The information set forth below includes, with respect to each nominee for election as director, his or her age, present principal occupation, specific expertise, qualifications and skills along with other business experience, directorships in other publicly held companies, membership on committees of your Board of Directors and period of service as a director of the Company. Also set forth below is a brief discussion of the specific experience, qualifications, attributes or skills that led to his or her nomination as a director, in light of the Company's business. Of the six independent director nominees, five are new to your Board since 2010. Ms. Stacom and Mr. Esposito became directors in 2015; Mr. Carlson became a director in 2013; Mr. Dooner became a director in 2011 and Dr. Schmotter became a director in 2010. The Company's long-serving director, Clinton A. Clark, has announced his determination to retire immediately prior to the 2016 Annual Meeting of Stockholders and to, if re-elected, during his final year of service as a director, to assist in the transition of the Audit Committee Chairmanship. Under a majority voting standard, the seven nominees for election to your Board who receive the vote of a majority of the shares present, in person or by proxy, will be elected as directors. It is the intention of the persons named as proxies in the accompanying WHITE proxies submitted by stockholders for the seven nominees described below unless authority to vote for the nominees or any individual nominee is withheld by a stockholder in such stockholder's proxy. If for any reason any nominee becomes unable or unwilling to serve at the time of the Annual Meeting, the persons named as proxies will have discretionary authority to vote for a substitute nominee(s). Alternatively, your Board of Directors may choose to reduce the size of your Board, as permitted by our Amended and Restated By-laws (the "By-laws"). It is not anticipated that any nominee will be unavailable or will decline to serve as a director. As you may have heard, Sandell has notified the Company that Sandell intends to nominate and solicit proxies to vote in favor of election at the Annual Meeting of a slate of six director nominees in opposition to the nominees recommended by your Board of Directors. We believe that the nominees proposed by your Board of Directors are the most qualified candidates up for election at the Annual Meeting. As described below under "Nominees for Election," we believe our nominees have the experience, industry knowledge, integrity and commitment necessary to oversee the execution of our strategic plan and create value for all our stockholders. Furthermore, your Board of Directors considers Sandell's proposed takeover of control of the Company with no premium paid to the stockholders of the Company to not be in the best interests of all stockholders. If no nominees, the Company's or Sandell's, receive the necessary majority of votes at the Annual Meeting, then the existing members of the Company's Board of Directors would holdover in accordance with the Company's Certificate of Incorporation, as amended, until another meeting of stockholders could be arranged. Generally, the Company's or Sandell's nominees receiving the requisite votes would constitute the Company's Board of Directors after the Annual Meeting and the Company's existing directors not receiving the requisite votes at the Annual Meeting would resign in accordance with the Company's Director Policy. Your BoardDirectors unanimously recommends submitting the enclosed WHITE proxy or voting instruction card, or following the instructions thereonSeptember 21, 2016, except as otherwise noted, information with respect to vote via the Internet or by telephone, to vote FORbeneficial ownership of Common Stock in respect of: (i) each of your Board of Director's seven nominees for director. Sandell's nominees have NOT been endorsed by your Board of Directors. Your Board of Directors unanimously recommends that you disregard any GOLD proxy or voting instruction card that may be sent to you by Sandell. Voting against Sandell's nominees on its GOLD proxy or voting instruction card is not the same as voting for your Board of Director's nominees, because a vote against Sandell's nominees on its GOLD proxy or voting instruction card will revoke any previous proxy submitted by you. If you have already voted using a GOLD proxy or voting instruction card sent to you by Sandell, you have every right to change it. We urge you to revoke that proxy by voting in favor of your Board of Director's nominees by usingdirector, director nominee and submitting the enclosed WHITE proxy or voting instruction card, or following the instructions thereon to vote via the Internet or by telephone. Only the latest validly executed proxy that you submit will be counted. The election of Sandell's nominees will not result in the acceleration of any payment due, whether for debt or any other obligationNEO (as defined above) of the Company. If you have any questions Company; (ii) all directors and executive officers of the Company as a group; and (iii) based on information available to the Company and a review of statements filed with the SEC pursuant to Section 13(d) and/or need assistance13(g) of the Exchange Act, each person or entity that beneficially owned (directly or together with affiliates) more than 5% of the Common Stock. The Company believes that each individual or entity named has sole investment and voting please call our proxy solicitor:Georgeson Inc.(866) 277-0928 We are not responsiblepower with respect to shares of Common Stock indicated as beneficially owned by them, except as otherwise noted. Unless otherwise noted below, the address for the accuracy or completeness of any information provided by or relating to Sandell contained in any proxy solicitation materials filed or used by, or on behalf of, Sandell or in any other statements that Sandell or any person acting on their behalf may otherwise make.Nominees for ElectionFarooq Kathwari, 71,each listed director and NEO is the Chairman, President and Principal Executive Officer of Ethan Allen Interiors Inc. He has been President, Ethan Allen Drive, Danbury, CT 06810. Name and Address of Beneficial Owner
Directors and Executive Officers Shares
Beneficially
Owned (1) Common Stock
Percentage
Ownership (1) M. Farooq Kathwari (2) 2,970,882 10.5% James B. Carlson (3) 19,441 * Clinton A. Clark (4) 2,757 * John J. Dooner, Jr. (5) 23,388 * Domenick J. Esposito (6) 3,160 * James W. Schmotter (7) 14,988 * Tara I. Stacom (8) 3,300 * Corey Whitely (9) 34,478 * Daniel Grow (10) 8,409 * Tracy Paccione (11) 11,771 * Clifford Thorn (12) 8,367 * Named executive officers and directors as a group 3,100,941 11.0% BlackRock, Inc. (13) 2,973,816 10.5% FMR, LLC (14) 2,209,599 7.8% Royce & Associates, LLC (15) 2,791,617 9.9% T. Rowe Price Associates, Inc. (16) 1,519,710 5.4% The Vanguard Group (17) 1,934,759 6.9% the Company since 1985 and Chairman and Principal Executive Officer since 1988. He received his B.A. degree from Kashmir University in English Literature and Political Science and an M.B.A. in International Marketing from New York University. From 2010 to 2014 Mr. Kathwari served on the President's Advisory Commission on Asian Americans and Pacific Islanders and is currently affiliated with several not-for-profit organizations, including: as directorless than 1% of Refugees International,shares of Common Stockformer ChairmanNEO reflects beneficial share ownership and includes stock-based compensation awards and outstanding options (the "Stock Options") granted under the Stock Option Plan which, as of American Home Furnishings Alliance,September 21, 2016, are currently exercisable or will become exercisable within 60 days by such director or NEO, as applicable.former Chairman(e) options to purchase 400,000 shares of National Retail Federation (NRF) and on your Board of Overseers of International Rescue Committee. In addition, Mr. Kathwari currently serves on the Advisory Board of the New York Stock Exchange. Mr. Kathwari has received numerous recognitions, including Honorary Doctor of Public Service awardedcommon stock.Tufts University President on May 20, 2012, the NRF's highest honor Gold Medal Award, a recognition by the U.S. Government as an Outstanding American by Choice and was an inductee into the Furniture Hall of Fame. Mr. Kathwari has extensive experience and knowledge of the history of the Company and the furniture industry as well as extensive experience in growing and managing a business. Mr. Kathwari possesses insight into retailing, marketing, manufacturing, and strategic planning from experience with the Company as well as his broad experience with both for-profit and not-for-profit organizations which has given him perspectives from other industries valuable to his service to the Company.
James B. Carlson 60, became a director and (b) options to purchase 4,517 shares of the Company on June 10, 2013. Mr. Carlson serves as an Adjunct Professor at the New York University School of Law, teaching Securities and Capital Markets Regulation since 1996. From 2009 through 2011, he also taught Derivatives and Changing Regulation at the School of Law, and from 2010 through 2012, he taught Microfinance and Access to Finance for the Global Poor as an Adjunct Professor at the NYU Stern School of Business. Mr. Carlson, who has been practicing law since 1981, currently is a member of the law firm Mayer Brown, LLP, where he has been a partner since 1998. From 1997 through 2004, he was the Partner-in-Charge of the firm's New York Office, and also served as the firm's Global Practice Leader from 2004 through 2008. Mr. Carlson brings extensivecommon stock.
knowledge in corporate and financial strategies, and is a highly regarded member of both the legal and business communities. Mr. Carlson is the Chairman of the Compensation Committee and a member of the Audit Committee.
Domenick J. Esposito, 68, became a director of the Company on July 21, 2015. Mr. Esposito, who has been a practicing CPA since 1974, currently is a member of the CPA firm CohnReznick LLP, where he has been a partner since 2002. He is currently serving as the National Practice and Growth Director and prior to that served as the firm's Chief Operating Officer. Mr. Esposito will be retiring his position with CohnReznick LLP on January 31, 2016. From 2001 through 2002, he was Vice Chairman of BDO, and from 1979 through 2001 he served as a member of Grant Thornton, where he became partner in 1981, and the firm's Chief Executive Officer in 1999. Prior to 1979 he served as a member of Price Waterhouse. He has been a member of the NASDAQ Listing and Qualifications Committee to the Board of Directors and recently served on the NASDAQ Listing and Qualifications Panel. He formerly served as the leader of the New York State Society of CPA's Committee for Large and Medium Sized Firms Practice Management, and was also an Adjunct Professor at C.W. Post / Long Island University. Mr. Esposito is also a member of the Audit Committee of the Company.
James W. Schmotter, 68, became a director of the Company on April 20, 2010. Dr. Schmotter is President Emeritus of Western Connecticut State University, an institution he led eleven years as president until 2015. He previously served as Western Michigan University's Dean of the Haworth College of Business, the Dean of the College of Business and Economics at Lehigh University in Pennsylvania, as well as Associate Dean and Director of International Studies at the Johnson Graduate School of Management at Cornell University. Dr. Schmotter has consulted for a variety of organizations including IBM, TRW, the Institute for International Education, the Cleveland Foundation, the Graduate Management Admission Council, the Educational Testing Service, United States Agency for International Development, and a number of universities in the U.S., Asia and Europe. He has served as Chairman of the Board of Trustees of the Graduate Management Admission Council, was the founding Vice Chair of the Board of the MBA
Enterprise Corps, has been a member of many committees of the Association to Advance Collegiate Schools of Business and served as a member of the Executive Committee of the NCAA. Dr. Schmotter is currently Chair of the Board of Directors of the United Way of Western Connecticut, and a former director of Fairfield County's Community Foundation and of the Greater Danbury Chamber of Commerce. Dr. Schmotter's strong leadership, educational and governmental background provides key insight and experience in strategic planning, international/global issues as well as communicating with younger customers which is valuable in his service to the Company. He is a member of the Audit Committee and the Chairman of the Nominations Committee.
Tara I. Stacom, 57, became a director of the Company on September 29, 2015. Ms. Stacom has served as an Executive Vice Chairman at Cushman & Wakefield, a worldwide commercial real estate firm, since 2013, and has served in various capacities at Cushman & Wakefield since 1981. During her 32-year career, Ms. Stacom has been responsible for executing in excess of 40 million square feet and some of the largest and most complex leasing, sales and corporate finance transactions, including most recently as exclusive leasing agent for One World Trade Center. Ms. Stacom also serves on the Board of Trustees at Lehigh University, where she earned her Bachelor of Science degree in Finance. She is a founder of ire@l, a real estate minor in the business college at Lehigh University. In recognition of her commitment and years of service to Lehigh University and Greenwich Academy, Ms. Stacom has received prestigious Alumni Awards from both organizations. Ms. Stacom serves as a director of the Realty Foundation of New York, and is a Member of the Real Estate Board of New York serving on its Ethics Committee. Ms. Stacom is a Director's Circle Member of Girls, Inc., and a director of Right to Dream USA. She is the recipient of Crain's New York Business 100 Most Influential Women in New York City Business, and is an honoree of the Realty Foundation of New York. She was awarded "Woman of the Year" of the New York Executives in Real Estate (WX), and Real Estate New York and Real Estate Forum's Women of Influence. She received Northwood University's Distinguished Women's Award for recognition of the contribution she has made to communities, businesses, volunteer agencies and public and private sector services worldwide. She has also been honored by the Visiting Nurse Service of New York and the New York Police Athletic League. Ms. Stacom was honored with the Real Estate Board of New York's highest achievement, the 2011 Most Ingenious Deal of the Year (First Place Henry Hart Rice Award), for the leasing of One World Trade Center. Ms. Stacom's background provides extensive knowledge in commercial real estate and finance, which the Company believes will be valuable to her services to the Company.
The Company's long-serving directors, Kristin Gamble and Frank G. Wisner, are retiring from your Board of Directors immediately prior to the Annual Meeting. To review biographical information for Ms. Gamble and Mr. Wisner, please see the Company's Proxy Statement, filedper their Schedule 13G filing with the SEC on OctoberJanuary 8, 2014.
2016. BlackRock's address is 55 East 52nd Street, New York, NY 10055.
PROPOSAL 6: TO APPROVE, ON AN ADVISORY BASIS, NAMED EXECUTIVE OFFICER COMPENSATION |
Our executive compensation program is designed to facilitate long-term stockholder value creation. Our focus on pay-for-performance and on corporate governance promotes alignment with the interests of the Company's stockholders.
The AuditCompany seeks stockholder approval, on a non-binding basis, of the compensation of our Named Executive Officers, or "NEOs", as disclosed in this Proxy Statement pursuant to Section 14A of the Exchange Act, commonly known as a "Say-on-Pay" vote. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the compensation policies and practices described in this Proxy Statement.
At the Company's 2015 Annual Meeting of Stockholders, our stockholders were asked to approve the Company's fiscal 2014 executive compensation programs. A substantial majority (80%) of the votes cast on the "Say-on-Pay" proposal at that meeting were voted in favor of the proposal. The Compensation Committee assistsbelieves that these results reaffirm our stockholders' support of the Company's approach to executive compensation.
In deciding how to vote on this proposal, the Board encourages you to read the Compensation Discussion and Analysis and Compensation Table sections. The Compensation Committee has made numerous enhancements in recent years to strengthen the link between pay and performance, further link compensation to our business and talent strategies and clearly detail the rationale for pay decisions.
For the reasons outlined above, we believe that our executive compensation program is well designed, appropriately aligns executive pay with Company performance and incentivizes desirable behavior. Accordingly, we are asking our stockholders to endorse our executive compensation program by voting on the following resolution at the Annual Meeting:
"RESOLVED, that the shareowners approve, on an advisory basis, the compensation of the Company's Named Executive Officers, as disclosed in this proxy statement, including the Compensation Discussion and Analysis, the Compensation Tables and the related narrative."
This proposal allows our stockholders to express their opinions regarding the decisions of the Compensation Committee on the prior year's annual compensation to the NEOs. Because your vote is advisory, it will not be binding upon the Board. However, the Board values shareowners' opinions and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. Further, this advisory vote will serve as an additional tool to guide the Board and the Compensation Committee in continuing to improve the alignment of the Company's executive compensation programs with the interests of Ethan Allen and its stockholders, and is consistent with our commitment to high standards of corporate governance.
The Board of Directors in fulfilling its oversight responsibility relating tounanimously recommends a voteFOR the Company's financial statements andapproval of the financial reporting process, the system of internal accounting and financial controls, the internal audit function, and the annual independent auditcompensation of the Company's financial statements. However, management has the primary responsibility for the financial statements and the reporting process, including the system of internal control. The Company's independent registered public accounting firm, KPMG, has the primary responsibility to independently audit the Company's financial statements and its internal controls in accordance with the auditing standards of the Public Company Accounting Oversight Board. The duties of the Audit Committee include, but are not limited to:
In accordance with SEC regulations, the Audit Committee has approved an Audit Committee Charter describing the responsibilities of the Audit Committee (see http://www.ethanallen.com/audit-committee.html). Your Board of Directors has concluded that each member of the Audit Committee is independent within the meaning of the listing standards of the NYSE. See "Corporate Governance". Your Board of Directors has determined that all Audit Committee members, as required by SEC regulations and NYSE rules, are financially literate with accounting or related finance management expertise, as interpreted by your Board of Directors. Your Board of Directors has determined that each member of the Audit Committee is an "audit committee financial expert" as defined under Item 407(d)(5)(ii) of SEC Regulation S-K and independent as contemplated by Rule 10A-3 of the Exchange Act.
In fulfilling its oversight responsibilities, the Audit Committee reviewed, with management and KPMG, the audited financial statements contained within the Annual Report on Form 10-K, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures contained in those financial statements. In addition, in compliance with the Sarbanes-Oxley Act of 2002, the Audit Committee reviewed with management and KPMG, the Company's independent registered public accounting firm, the effectiveness of the Company's system of internal control over financial reporting as of June 30, 2015.
The Audit Committee reviewed with KPMG, who is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, their judgment(s) as to the quality, not just the acceptability, of the Company's accounting principles. The Audit Committee also reviewed such other matters as are required to be discussed under auditing standards of the Public Company Accounting Oversight Board (United States), including Auditing Standards No. 16. In addition, the Audit Committee has received and reviewed with KPMG the written disclosures required by Independence Standards Board Standard No. 1 and has discussed with KPMG the auditors' independence from management and the Company.
The Audit Committee discussed with the Company's internal auditors and KPMG the overall scope and plans for their respective audits. The Audit Committee met independently with the internal auditors and KPMG, with and without management present, to discuss the results of their examinations, their
Table of ContentsNamed Executive Officers.
evaluations of the Company's system of internal control and the overall quality of the Company's financial reporting practices, which included, but were not limited to, the review of the quarterly Form 10-Q filings and annual Form 10-K filing.
In reliance on the reviews and discussions referred to above, the Audit Committee approved the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended June 30, 2015 for filing with the SEC.
COMPENSATION COMMITTEE REPORT |
Audit Fees
The following table represents a summary of professional fees paid to KPMG for services rendered in connection with: (i) the audit for the Company's annual financial statements for the fiscal years ended June 30, 2015 and 2014; and (ii) other matters.
| 2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Audit fees(1) | $ | 1,285,942 | $ | 1,245,003 | |||
Audit-related fees(2) | $ | 44,000 | $ | 44,000 | |||
Tax fees(3) | $ | 8,874 | $ | 27,981 | |||
All other fees(4) | — | — | |||||
| | | | | | | |
Total fees | $ | 1,338,817 | $ | 1,316,984 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Audit Committee has determined that the provision of tax and other services by the independent registered public accounting firm is compatible with maintaining their independence.
Audit and Non-Audit Engagement Pre-Approval Policy
To help assure the independence of the Company's independent registered public accounting firm, the Audit Committee has established a policy whereby all audit and non-audit engagements proposed to be performed by the independent registered public accounting firm must be approved in advance by the Chair of the Audit Committee or, in the Chair's discretion or in the case that any such engagement is more than
$10,000, the entire Audit Committee. All of the service provided to us by KPMG for which we paid Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees, as shown in the table above, were approved by the Audit Committee in accordance with this pre-approval policy.
The affirmative vote of the holders of the majority of the votes represented at the Annual Meeting in person or by proxy is required to ratify the appointment of KPMG as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2016.
PROPOSAL 2RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee selects and hires our independent registered public accounting firm and has appointed KPMG as the independent registered public accounting firm of the Company for the fiscal year ending June 30, 2016. KPMG was the independent registered public accounting firm for the Company for the fiscal year ended June 30, 2015. Representatives of KPMG will be present at the Annual Meeting and will be given the opportunity to make a statement if they so desire. They will also be available to respond to appropriate questions. We are asking you to ratify the appointment of KPMG as our independent registered public accounting firm.
Although ratification is not required by our By-laws, your Board of Directors is submitting the appointment of KPMG to you for ratification as a matter of good corporate practice. If the Audit Committee's appointment is not ratified, it will reconsider the appointment, if appropriate. Even if the appointment is ratified, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the fiscal year if it determines that such a change would be in the best interests of the Company and our stockholders.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF KPMG AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2016.
The Compensation Committee oversees our compensation program for our Named Executive Officers ("NEOs") on behalf of yourthe Board of Directors. In fulfilling its oversight responsibilities, the Compensation Committee reviewshas reviewed and discussesdiscussed with management the Compensation Discussion and Analysis set forth below and recommendsrecommended to yourthe Board that the Compensation Discussion and Analysis be included in this proxy statement and the proxy statements, which are filed with the SEC. For further discussion on the activities of the Compensation Committee see "Compensation Discussion and Analysis."
Independence of the Executive Compensation Consultant
In performing its responsibilities with respect to executive compensation decisions, the Compensation Committee retained Sibson Consulting ("Sibson"). No member of the Compensation Committee or the management of the Company is, or has been, affiliated with Sibson.
The Compensation Committee has concluded that its compensation consultant, Sibson, is independent and does not have a conflict of interest in its engagement by the Compensation Committee. In making this conclusion, the Compensation Committee considered the following factors confirmed to the committee by the compensation consultant:
The Compensation Committee oversees our compensation program for NEOs on behalf of your Board. In fulfilling its oversight responsibilities, the Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth below.
In reliance on the review and discussion referred to above, the Compensation Committee recommended to your Board that the Compensation Discussion and Analysis be included in our Proxy Statement which will be filed with the SEC.Company's Annual Report.
JAMES B. CARLSON, CHAIR JOHN J. DOONER, JR. |
COMPENSATION DISCUSSION AND ANALYSIS |
COMPENSATION DISCUSSION AND ANALYSIS
Overview |
The purpose of this Compensation Discussion and Analysis is to provide material information about the Company's executive compensation objectives and policies for its NEOs and to put into perspective the tabular disclosures and related narratives. ForThe non-binding advisory proposal regarding compensation of the NEOs submitted to stockholders at our 2015 Annual Meeting the Compensation Committee continues to follow and refine, the policies and procedures established at the Company's 2013 Annual Meeting of Stockholders. These policies and procedures resulted in markedly favorable responses from the stockholders to each initiative proposed at the 2013 Annual Meeting of Stockholders with the "Say On Pay" proposal in 2013 receiving approval of 86% of the votes cast and the proposal in 2014 receiving approval of 95%was approved by over 80% of the votes cast. InThe Committee believes this favorable outcome conveyed our prior Compensationstockholders' support of our executive compensation programs and the Committee's decisions. After considering the stockholder vote and other factors in its annual review of our total executive compensation programs, the Committee Reports in connection with the 2013 Annual Meeting of Stockholders and 2014 Annual Meeting of Stockholders, we previously described our improvements andmade further refinements in relationthe structure of our compensation programs. The Committee will continue to consider the outcome of the Company's executivesay-on-pay votes when conducting its regular evaluations of the program and making future compensation policies, practices and expectationsdecisions for the NEOs.
We continue to have strong alignment between our executive compensation and the interests of our stockholders. Fiscal 2016 was a strong year for the Company.
In 2015,2016, the Compensation Committee continued to focus on the alignment of the interests of the NEOs with those of our Company and stockholders, and the Compensation Committee took the following steps for fiscal 2015:2016:
was first put in place, and also considering the views of leading shareholderstockholder advisory services, the Compensation Committee in 2015 initiated, negotiated and, on October 1, 2015, effective July 1, 2015, entered into the 2015 Employment Agreement. Performance-basedAgreement, of which its incentive compensation components of the 2015 Employment Agreement are subject to review and vote of ourwere subsequently approved by stockholders at theour 2015 Annual Meeting.
Chief Executive Officer Employment Agreements, Incentive Bonus Payments and the Incentive and Performance Equity under 2015 Employment Agreement
Background of the 2011 Employment Agreement. In our Compensation Committee Report for fiscal 2014, the Compensation Committee discussed in detail the background of the 2011 Employment Agreement, including the Company's consideration of peer groups in relation to the 2011 Employment Agreement, as well as its compensation, incentive bonus payments and thresholds and long-term equity incentives, and the Compensation Committee's discussions with the Chief Executive Officer leading to his voluntary decision to place a cap or maximum on these bonuses for fiscal 2013 through fiscal 2016 under the 2011 Employment Agreement. The historical background of the 2011 Employment Agreement was provided in our Compensation Committee Report for fiscal 2014 because the Compensation Committee appreciated from its leading shareholders and shareholder advisory firms that additional background of the 2011 Employment Agreement would be informative for them.
Chief Executive Officer Voluntary Bonus Reduction in 2013. After discussions with the Compensation Committee, the Chief Executive Officer voluntarily directed the Company to adjust the fiscal 2013 calculation of his incentive performance bonus under the 2011 Employment Agreement. Pursuant to this adjustment, the Chief Executive Officer shared equally with the Company's employees (i.e. 50/50) the excess earned pursuant to the 2011 Employment Agreement above $1.2 million for fiscal 2013. This sharing effectively reduced his annual performance bonus compensation in fiscal 2013 by $533,000 (or 24%) from what he was entitled under the 2011 Employment Agreement. This voluntary reduction of $533,000 was then shared 70% (or $373,000) with the associates participating in the Company's 401(k) plan and 30% (or $160,000) with key Company management (including and beyond the NEOs) as additional compensation beyond their existing compensation and bonuses. The total compensation of the Chief Executive Officer for fiscal 2013 was 54% lower than his total compensation for fiscal 2012, despite the Company's significantly improved financial performance and operating income.
Chief Executive Officer Voluntary Bonus Reduction in 2014. After discussions with the Compensation Committee, the Chief Executive Officer voluntarily directed the Company to cap his bonus compensation
As part of its ongoing review of the Company's compensation programs and consistent with its commitment to reflect best practices in corporate governance standards and compensation practices, the Company's Stock Incentive Plan was amended and restated following the approval of our stockholders at $1.8 millionthe 2015 Annual Meeting of Stockholders. The Compensation Committee and the Company improved, clarified and updated the Stock Incentive Plan as follows:
Stock Incentive Plan.
In early 2015, the Compensation Committee initiated discussions with the Chief Executive Officer about continuing, modifying or creating a new employment agreement and long-term performance incentives for the Chief Executive Officer. It initiated these discussions despite the 2014 "Say on Pay" vote receiving 95% approval because, under the 2011 Employment Agreement, either the Company or the Chief Executive Officer had the obligation to notify the other by September 30, 2015, if the automatic one year renewal of the employment in the 2011 Employment Agreement would take effect or not as of June 30, 2016. In the view of the Compensation Committee, relying upon this automatic one-year renewal feature was not in the Company's best interests, because an additional one-year term did not provide long-term stability for the Company; during any one-year renewal of the 2011 Employment Agreement, there would be no further long-term equity incentive awards; and during any one-year renewal the previously negotiated voluntary caps on the Chief Executive Officer's annual incentive bonus compensation would have to be revisited and further extended. The Compensation Committee, as well as yourthe Board of Directors, was aware of periodic inquiries from the Company's dealers, distributors, suppliers, business partners and employees about the Chief Executive Officer's long-term commitment to the Company, which the Compensation Committee felt might risk uncertainty and unwarranted disruption in their relationships with the Company. In addition, the Compensation Committee appreciated from its leading shareholdersstockholders and shareholdersstockholder advisory firms, as well as public commentary that executive compensation practices have evolved since the time the 2011 Employment Agreement was initiated, especially in the approach to incentive bonus compensation and long-term performance equity incentives.
WithIn evaluating and finalizing the recognition thatprovisions of the advance renewal notice date under the 20112015 Employment Agreement, was approaching, the Compensation Committee believed the long-term commitment of the Chief Executive Officer needed to be resolved. The Compensation Committee determined that the best interests of the Company and its stockholders would be served by establishing a long-term employment and performance incentive relationship with the Chief Executive Officer. In overall approach, theThe Compensation Committee concluded that the compensation and incentive structure of the 2015 Employment Agreement should focus on Company performance measured against targets approved by the Compensation Committee and yourthe Board of Directors, appreciating the evolving views of executive compensation and the views of leading shareholderstockholder advisory services.
The Compensation Committee retained Sibson Consulting, a leading executive compensation advisory firm who had previously worked with the Compensation Committee in connection with the 2011 Employment Agreement. In approaching the 2015 Employment Agreement, the Compensation Committee recognized that:
Company, its Chief Executive Officer is closely associated with the Company, its iconic brand and long-standing business relationships. The Company's
long-serving, widely known Chief Executive Officer and his reputation and relationships through the Company and its retailers and the furniture industry, as well as his linkage to that brand name, is not, in the view of the Compensation Committee, rivaled by companies within the peer group. For the Compensation Committee, these considerations underscore a unique approach for the Company to the 2015 Employment Agreement that may not be applicable to future chief executive officers or comparable chief executive officers in its peer group.
Base Compensation Under 2015 Employment Agreement. For the 2015 Employment Agreement, the Compensation Committee determined to continue, without increase or guaranteed adjustment, the base
salary under the 2011 Employment Agreement of $1,150,000 per annum, during the five-year term of the 2015 Employment Agreement commencing July 1, 2015.
Non-Equity Incentive Compensation Under 2015 Employment Agreement. For the 2015 Employment Agreement, the Compensation Committee determined to provide that future annual non-equity incentive payments will be based on annual goals set annually by the Company, the Compensation Committee and yourthe Board of Directors based on target earnings results consistent with market practices and the practices after all of the companies in the Company's peer group. More specifically, the annual incentive compensation payments under the 2015 Employment Agreement will provide for a target level of $750,000 (approximately 65% of base salary), based upon an Annual Adjusted Operating Earnings target, set annually by the Compensation Committee or yourthe Board of Directors within 90 days of the beginning of each fiscal year. If the Compensation Committee or yourthe Board of Directors fails to establish a target for a fiscal year, the target will be 5% improvement over the Annual Adjusted Operating Earnings for the preceding fiscal year. Annual Adjusted Operating Income consists of consolidated operating income as set forth in the Company's consolidated statement of comprehensive income, adjusted by (1) nonrecurring, extraordinary or unusual events, (2) annual bonuses, (3) share-based compensation expense and (4) the effects of business combinations. For fiscal 2016 nonrecurring, extraordinary or unusual events consisted of gains and losses on sale
on real estate, and restructuring charges. Incentive compensation payments will be earned according to performance on a directional payout schedule as follows:
Directional Non-Equity Incentive Compensation Payout Schedule
(Linear/Scaled)
Achievement Level | Performance (as Percentage of Adjusted Operating Earnings Target) | Payout Amount | ||||
---|---|---|---|---|---|---|
Threshold | 80 - 85% | $ | 375,000 | |||
Target | 100% | $ | 750,000 | |||
Maximum | 120 - 130% | $ | 1,700,000 |
| | | | | | | | | | | | | |
| Achievement Level | | Performance (as Percentage of Adjusted Operating Earnings Target) | | | Payout Amount | | ||||||
| | | | | | | | | | | | | |
| Threshold | 80 - 85% | $375,000 | ||||||||||
| | | | | | | | | | | | | |
| Target | 100% | $750,000 | ||||||||||
| | | | | | | | | | | | | |
| Maximum | 120 - 130% | $1,700,000 | ||||||||||
| | | | | | | | | | | | | |
The Compensation Committee or Board of Directors has the right to make a discretionary incentive compensation payments in the case of extraordinary economic circumstances, including circumstances when such performance metrics were not satisfied, in the best interests of the Company. In the view of the Compensation Committee, this incentive bonus compensation structure in the 2015 Employment Agreement aligns the incentive compensation incentives of the Chief Executive Officer with the earnings objectives of the Company, as confirmed by the Compensation Committee and Board of Directors, and is consistent with companies within its peer group.
Long TermLong-Term Stock Performance Unit Awards Under the 2015 Employment Agreement. In connection with the 2015 Employment Agreement, the Compensation Committee focused on strong weighting of performance-based equity awards (and not service-based options) that were earned if the Company performed against targets set by the Compensation Committee and Board of Directors and are determined on a per share basis in order to reward capital efficiency.
Accordingly, for the 2015 Employment Agreement, the Compensation Committee determined to revise the structure of long-term stock incentives, such that all of future long-term incentive value would be delivered through performance-based restricted stock, which the Compensation Committee believes is more performance-based than many peers, who deliver meaningfully less in long-term incentive value through performance-based restricted stock awards. In doing so, the Compensation Committee considered whether the long termlong-term equity incentives should be measured by stock price metrics or operating performance metrics. After deliberating with its consultants, the Compensation Committee determined to utilize operating performance metrics because they focused on internal performance, not extrinsic factors that move stock and stock market prices, and because reviews of peer practices did not reflect a widespread focus on stock market returns to compensate their executives.
The 2015 Employment Agreement provides as follows:
Directional Performance Unit Schedule
(Linear/Scaled)
Achievement Level | Performance (as Percentage of 2 or 3 Year Performance Equity Target) | Percentage of Performance Units Earned | Amount of Performance Units Earned (Per Annual Grant) | |||||
---|---|---|---|---|---|---|---|---|
Threshold | 80 - 85% | 50% | 32,500 | |||||
Target | 100% | 100% | 65,000 | |||||
Maximum | 115 - 120% | 125% (i.e., more than target award) | 81,250 |
| | | | | | | | | | | | | | | | |
Achievement Level | | Performance (as Percentage of 2 or 3 Year Performance Equity Target) | | Percentage of Performance Units Earned | | Amount of Performance Units Earned (Per Annual Grant) | | |||||||||
| | | | | | | | | | | | | | | | |
Threshold | 80 - 85% | 50% | 32,500 | |||||||||||||
| | | | | | | | | | | | | | | | |
| Target | | 100% | | 100% | | 65,000 | | ||||||||
| | | | | | | | | | | | | | | | |
Maximum | 115 - 120% | 125% | 81,250 | |||||||||||||
| | | | | | | | | | | | | | | | |
Upon death, disability or retirement,
Total Compensation Level and Mix. The portion of total compensation delivered in the annual incentiveform of base salary and performance-vested restricted stock awards are earned onbenefits is intended to provide a full-year basis, based upon target measurements,competitive foundation and fixed rate of pay for the work being performed by each named executive officer and the optionsassociated level of responsibility and contributions to the Company. The compensation opportunity beyond those pay elements is at risk and must be earned through achievement of annual goals, which represent performance expectations of the Board and management and long-term value creation for stockholder. The Committee believes that the proportion of compensation designed to be delivered in base salary versus variable pay depends on the executive's position and the ability of that position to influence overall Company performance. The more senior the level of the executive, the greater is the percentage of total pay opportunity that is variable. The Compensation Committee believes that the 2015 Employment Agreement does not reflect any increase in total compensation value as compared to the 2011 Employment Agreement, and substantially shifts our Chief Executive Officer's compensation structure to a performance incentive structure, as compared to both the 2011 Employment Agreement and the Company's peers. In considering the overall compensation opportunities provided under the 2015 Employment Agreement, the Compensation Committee recognizes that the targeted total compensation opportunity level places our Chief Executive Officer below the median total compensation level of executives within the Company's peer group, but above the median level of a narrower peer group suggested by the stockholder advisory services. The Compensation Committee believes that this positioning is appropriate given that the median revenue of our peer group is higher than the Company's and the median revenue of the stockholder advisory services' peer group is lower than ours. Also, the Compensation Committee believes that the compensation incentives under the 2015 Employment Agreement are fully earned (subject to adherence to standard existing non-compete, non-solicitationstrongly performance-based, so they provide and non-disclosure agreementsensure strong Chief Executive Officer alignment with long-term stockholder interests.
CEO Compensation Components of the
2015 Employment Agreement
based on Target Values
Overall, the Compensation Committee believes that the performance-based structure of the 2015 Employment Agreement provides a strong alignment with the long-term interests of our Company and its stockholders and a strong statement of confidence by the Chief Executive Officer in our Company's future performance. The Compensation Committee believes that the structure of the 2015 Employment Agreement (especially given the fact that all incentives are performance-based) does not create risks for the Company and is in the casebest long-term interest of retirement).the Company and its stockholders.
Peer Companies Considered Targets and Payouts Under Fiscal 2016 Non-Equity Incentive Compensation Arrangements and Long-Term Incentive Compensation Arrangements. At the beginning of fiscal 2016, in Connectionconnection with the 2015 Employment Agreement.Agreement, the Compensation Committee reviewed with the Board of Directors and the Chief Executive Officer, and established targets, as provided in the 2015 Employment Agreement for fiscal 2016 incentive opportunities.
An Adjusted Operating Earnings fiscal 2016 target for the annual incentive bonus was set at a target of 8% growth over the prior fiscal year Adjusted Operating Earnings.
An Adjusted Operating Earnings Per Share target for the Performance Units equity award to be made in fiscal 2016 were set for fiscal years 2016, 2017, and 2018 at a target of 8%, 5% and 5%, respectively, growth over the prior year in Adjusted Operating Earnings Per Share. See the section "Long-Term Stock Performance Unit Awards Under the 2015 Employment Agreement" for threshold and maximum levels.
For fiscal 2016, each of the Company's Adjusted Operating Earnings and Adjusted Operating Earnings Per Share exceeded the respective maximum performance levels. Accordingly, the Incentive Award earned by Mr. Kathwari for fiscal 2016 was $1,700,000, which corresponds to the payout amount commensurate with the maximum performance level under the non-equity incentive compensation arrangements as set forth in the "Summary Compensation Table" in the "Executive Compensation" section.
Actual amounts of long-term incentive awards granted in fiscal 2016 are disclosed in the "Summary Compensation Table" and the "Grants of Plan-Based Awards" table. The fiscal 2016 Performance Units granted to Mr. Kathwari under the 2015 Employment Agreement, which will not vest until the actual results for the second or third fiscal year period in the three-year performance cycle are
known, were estimated to be earned at the target payout level for purposes of the "Summary Compensation Table" and at the maximum payout level for purposes of the "Outstanding Equity Awards at 2016 Fiscal year End" table in the "Executive Compensation" section.
CEO Compensation Components based on
Actual Fiscal 2016 Performance Results and
as reflected in the Summary Compensation Table
Peer Companies. In connection with the 2015 Employment Agreement, the Compensation Committee discussed the appropriate peer companies for comparison with its executive compensation consultant, Sibson Consulting. The Compensation Committee, in conjunction with Sibson Consulting, established a peer group in considering the 2015 Employment Agreement which, in its judgment, best represented the unique nature of the Company's vertical business model which integrates manufacturing, merchandising and retailing, while eliminating some of the companies with substantially higher revenues.
In developing the peer group, the population of U.S.-based, publicly-traded companies that were considered for evaluating the terms of the 2015 Employment Agreement included:
In considering this peer group, the Compensation Committee reviewed the peer group used in connection with the 2011 Employment Agreement, as well as the peer group included in various industry indices and considered by shareholdersstockholders advisory services, resulting in changes for the peer group considered for purposes of the 2015 Employment Agreement as compared to the peer group used for the 2011 Employment Agreement. In doing so, the Compensation Committee recognized the difficulty of establishing direct peer comparables for the Company and the Chief Executive Officer due to the differences between the Company and its peers (especially the Company's management and operation of a vertically integrated business) and between our Chief Executive Officer and other peer executives, in view of our Chief Executive Officer's unique, long-standing association with our Company and his active engagement at the center of our Company's executive leadership.
In addition to industry, branding and supply chain considerations, the Compensation Committee filtered companies by revenues, number of employees and market capitalization. The Compensation Committee wanted a large enough group, consisting of 15-20 companies, to enable full comparisons to the Company. After this consideration, the Compensation Committee identifiedestablished a peer group
for the 2015 Employment Agreement that reflects 17 companies, with 7 additions and 6 deletions to the peer group utilized in connection with the 2011 Employment Agreement. At the conclusion of the process, a peer group of 17 companies was established for the 2015 Employment Agreement, including (alphabetically)as follows (by revenue): Bassett Furniture, Dixie Group Inc., Flexsteel Industries, Kirkland's Inc., Tumi Holdings, Haverty Furniture, Knoll Inc., Select Comfort, Kate Spade & Co., Kimball International, La-Z-Boy Inc., Restoration Hardware, Pier I Imports, Herman Miller, HNI Corp., Steelcase, Inc., Tempur Sealy International.
| | | | | | | | | | | | | | | | | | | | |
Company | | GICS Sub-Industry | | Revenue ($M) | | Revenue Multiple | | Market Cap ($M) | | |||||||||||
| | | | | | | | | | | | | | | | | | | | |
Bassett Furniture | Home Furnishings | $341 | 0.5 | $267 | ||||||||||||||||
| Dixie Group Inc. | | Home Furnishings | | $407 | | 0.5 | | $140 | | ||||||||||
Flexsteel Industries | Home Furnishings | $439 | 0.6 | $228 | ||||||||||||||||
| Kirkland's Inc. | | Home Furnishing Retail | | $461 | | 0.6 | | $417 | | ||||||||||
Tumi Holdings | Apparel, Accessories & Luxury Goods | $467 | 0.6 | $1,520 | ||||||||||||||||
| Ethan Allen | | Home Furnishings | | $747 | | 1.0 | | $792 | | ||||||||||
Haverty Furniture | Home Furnishing Retail | $768 | 1.0 | $576 | ||||||||||||||||
| Knoll Inc. | | Office Services & Supplies | | $1,050 | | 1.4 | | $1,017 | | ||||||||||
Select Comfort | Home Furnishing Retail | $1,157 | 1.6 | $1,679 | ||||||||||||||||
| Kate Spade & Co | | Apparel, Accessories & Luxury Goods | | $1,265 | | 1.7 | | $4,302 | | ||||||||||
Kimball International | Office Services & Supplies | $1,285 | 1.7 | $361 | ||||||||||||||||
| La-Z-Boy Inc. | | Home Furnishings | | $1,357 | | 1.8 | | $1,298 | | ||||||||||
Restoration Hardware | Home Furnishing Retail | $1,551 | 2.1 | $3,389 | ||||||||||||||||
| Pier 1 Imports | | Home Furnishing Retail | | $1,772 | | 2.4 | | $1,068 | | ||||||||||
Herman Miller | Office Services & Supplies | $1,882 | 2.5 | $1,868 | ||||||||||||||||
| HNI Corp | | Office Services & Supplies | | $2,223 | | 3.0 | | $2,287 | | ||||||||||
Steelcase Inc. | Office Services & Supplies | $2,989 | 4.0 | $2,261 | ||||||||||||||||
| Tempur Sealy International | | Home Furnishings | | $2,990 | | 4.0 | | $3,453 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | |
In reviewing and finalizing the changes to the peer group for the 2015 Employment Agreement, the Compensation Committee noted the following improvements compared to the peer group used in 2011:following:
Total Compensation LevelWe believe that it is appropriate to offer industry-competitive cash and Mix In Connection With the 2015 Employment Agreement. The Compensation Committee believes that the 2015 Employment Agreement does not reflect any increase in totalequity compensation value as comparedpackages to the 2011 Employment Agreement, and substantially shiftsall of our Chief Executive Officer's compensation structure to a performance incentive structure, as compared to both the 2011 Employment Agreement and the Company's peers. In considering the overall compensation opportunities provided under the 2015 Employment Agreement, the Compensation Committee recognizes that the targeted total compensation opportunity level placesNEOs, including our Chief Executive Officer, below the median total compensation level of executives within the Company's peer group, but above the median level of a narrower peer group suggested by the shareholder advisory services. The Compensation Committee believes that this positioning is appropriate given that the median revenue of our peer group is higher than the Company's and the median revenue of the shareholder advisory services' peer group is
lower than ours. Also, the Compensation Committee believes that the compensation incentives under the 2015 Employment Agreement are strongly performance-based, so they provide and ensure strong Chief Executive Officer alignment with long-term stockholder interests.
Overall, the Compensation Committee believes that the performance-based structure of the 2015 Employment Agreement provides a strong alignment with the long-term interests of our Company and its stockholders and a strong statement of confidence by the Chief Executive Officer in our Company's future performance. The Compensation Committee believes that the structure of the 2015 Employment Agreement (especially given the fact that all incentives are performance-based) does not create risks for the Company and is in the best long-term interest of the Company and its shareholders. The Compensation Committee does acknowledge that save for the unique management skills of the Company's Chief Executive Officer and his long-standing relationship to the Company, the compensation for a new chief executive would be evaluated on a different basis.
Targets. In connection with the 2015 Employment Agreement, the Compensation Committee reviewed with your Board of Directors and the Chief Executive Officer, and established targets, as provided in the 2015 Employment Agreement for fiscal 2016 incentive opportunities. An Adjusted Operating Earnings fiscal 2016 target for the annual incentive bonus was set. The fiscal 2016, 2017, and 2018 targets also were set for the performance equity award to be made in fiscal 2016.
Stock Incentive Plan
In 2015, the Compensation Committee reviewed the Stock Incentive Plan, including in connection with the 2015 Employment Agreement, and determined that the Stock Incentive Plan should be amended and restated in order to reflect evolving corporate governance standardsattract and retain top executive talent. The peer group allows us to monitor the compensation practices of appropriate termsour primary competitors for corporate stock option plans. The Compensation Committee and the Companyexecutive talent. However, we do not proposerely on market information to increase the authorizedtarget any specific pay percentile for our executive officers. Instead, we use this information to provide a general overview of market practices and available shares under the Stock Incentive Plan (as of October 5, 2015, 1,347,311 shares remain available for issuance under the Stock Incentive Plan) but rather to improve, clarify and update the Stock Incentive Plan as follows:
Table of Contentsensure that we make informed decisions regarding our executive pay programs.
Compensation Committee Approach for Named Executive Officers Other than the
During fiscal 2015,2016, the Compensation Committee, together with the Chief Executive Officer, reviewed the compensation program for the Company's key management personnel including the NEOs, not includingother than the Chief Executive Officer. The Chief Executive Officer's compensation and incentives are addressed through the 2015 Employment Agreement, as discussed above. The Company's compensation approach for the NEOs is designed to encourage and reward performance that leads to strong financial results and creation of long-term stockholder value. Its balance of short-term and long-term compensation opportunities is intended to retain and motivate the highly talented business leaders we require to successfully execute the Company's business strategy and create value for the Company's stockholders. This compensation approach builds on the policies for the NEOs and executive compensation policies adopted in connection with the 2013 and 2014 Annual Meetings
Table of Stockholders.Contents
stockholders. The following compensation principles guided the design of our compensation program for these NEOs during fiscal 2015,2016, and will also guide the program in fiscal 2016:2017:
Compensation Committee Approval of Named Executive Officer Compensation for 2015
Compensation Committee Approval of Named Executive Officer Compensation for 2016 |
For fiscal 2015,2016, the Compensation Committee discussed with the Chief Executive Officer approaches to incentive compensation, both annual cash bonuses, non-equity incentive compensation and long-term equity grants. The Compensation Committee, togetherWe believe that it is appropriate to offer industry-competitive cash and equity compensation packages to our NEOs in order to attract and retain top executive talent. However, we do not
rely on market information to target any specific pay percentile for our executive officers. Instead, we use this information to provide a general overview of market practices and to ensure that we make informed decisions regarding our executive pay programs.
As is the case with theour Chief Executive Officer, further formalized its practices during fiscal 2014 and fiscal 2015 of confirming certain pre-established, performance objectivesin evaluating compensation packages for our NEOs, the Committee focuses on the total compensation opportunity for the NEOs.executive. Executive compensation packages are structured such that a portion of total compensation delivered in the form of base salary and benefits is intended to provide a competitive foundation and fixed rate of pay for the work being performed by each named executive officer and the associated level of responsibility and contributions to the Company. The compensation opportunity beyond those pay elements is at risk and must be earned through achievement of annual goals, which represent performance expectations of the Board and management and long-term value creation for stockholders. The proportion of compensation designed to be delivered in base salary versus variable pay depends on the executive's position and the ability of that position to influence overall Company performance. The more senior the level of the executive, the greater is the percentage of total pay opportunity that is variable.
The following are the components of the compensation for the NEOs other than the Chief Executive Officer, and the Company's overall approach to each compensation component for fiscal 2015:2016:
The Company establishedOfficer are eligible for each NEO a targetan Incentive Award opportunity expressed aswith a percentage of the NEO's annual base salary rate at the beginning of fiscal 2015,performance-based Non-Equity Incentive Plan Compensation component and a maximum Incentive Award expressed as a percentage of that base salary. Target and maximum Incentive Awards are based upondiscretionary-based Bonus component. Our annual incentive program is designed to promote the recommendation of the Chief Executive Officer and the approval of the Compensation Committee. The target Incentive Award for each of the NEOs was set at 40% of their respective base compensation at the beginning of fiscal 2015 and the maximum Incentive Award for each of the NEOs was set at 60% of their respective base compensation at the beginning of fiscal 2015, subject to revision of the target and the maximum Incentive Award by the Chief Executive Officer and the Compensation Committee during fiscal 2015 in view of circumstances and considerations.
Incentive Awards, if any, are based both upon the performance of the NEO as determined by the Company in view of the circumstances and considerations and also upon the Company's achievement of the performance goal targetannual corporate goals including key financial, operating and strategic goals that, in turn, drive value for the fiscal year, such that 30% of the Incentive Award will be initially determined by reference to the Company's achievement of the performance goal target and 70% will be discretionary, based upon the Company's and the Committee's evaluation of the NEO's performance against its expectations and principles. For fiscal 2015, the
performance goal target for the performance-based component of the Incentive Award was the Company's accomplishment of adjusted operating income as reflected in its annual financial statements for fiscal 2015 reflecting a growth rate of 5% over adjusted operating income for fiscal 2014.
The discretionary-based component of the Incentive Award, if any, is intended to reward key employees based upon both the Company's overall performance and the individual's performance measured against a broad range of performance indicators.
For purposes of the Annual Cash Bonus Incentive Program, overall performance of the Company is assessed based upon the achievement of the Company's financial, strategic and operational budget and objectives, including revenue and income earned by the Company, operating results of each individual division, expansion of market share, minimization of overhead, inventory management, cost savings, cash conservation, customer service improvement and the performance of the Company relative to peers and the market. The Compensation Committee, in conjunction with the Chief Executive Officer, establishes criteria for each NEO annually which is shared with the NEO and their performance is annually reviewed.
In addition,The Company established for each NEO a target Incentive Award opportunity expressed as a percentage of the NEO's annual base salary rate at the beginning of fiscal 2016, and a maximum Incentive Award expressed as a percentage of that base salary. Target and maximum Incentive Awards are based upon the recommendation of the Chief Executive Officer and the approval of the Compensation Committee. For fiscal 2016, the target Incentive Award for each of the NEOs was set at 40% of their respective base salary and the maximum Incentive Award for each of the NEOs was set at 60% of their respective base salary, subject to revision of the target and the maximum Incentive Award by the Chief Executive Officer and the Compensation Committee during fiscal 2016.
Incentive Awards, if any, are based both upon the performance of the NEO as determined by the Company in view of the circumstances and considerations and also upon the Company's achievement of the performance goal target for the relevant fiscal year, such that 70% of the target Incentive Award will be initially determined by reference to the Company's achievement of the performance goal target (the Non-Equity Incentive Plan Compensation component) and 30% of the Incentive Award will be discretionary (the Bonus component), based upon the Company's and the Committee's evaluation of the NEO's performance against its expectations and principles.
The Performance Component payout will be linearly interpolated between 80% and 120% of the Performance Goal Target as follows:
Directional Non-Equity Incentive Compensation Payout Schedule
(Linear/Scaled)
| | | | | | | | | | | | |
| | Performance | | Payout | | |||||||
| | | | | | | | | | | | |
| Adjusted Operating Income Achievement Level | | (as Percentage of Annual Performance Goal Target) | | (as Percentage of target Non-Equity Incentive Plan Compensation Component) | | ||||||
| | | | | | | | | | | | |
Threshold | 80% | 50% | ||||||||||
| | | | | | | | | | | | |
Target | 100% | 100% | ||||||||||
| | | | | | | | | | | | |
Maximum | 120% | 115% | ||||||||||
| | | | | | | | | | | | |
For fiscal 2016, the performance goal target established for the Non-Equity Incentive Plan Compensation component of the Incentive Award was the Company's accomplishment of adjusted operating income as reflected in its annual financial statements for fiscal 2016 reflecting a growth rate of 8% over the adjusted operating income for fiscal 2015.
The discretionary Bonus component of the Incentive Award, if any, is intended to reward key employees based upon both the Company's overall performance and the individual's performance measured against a broad range of performance indicators.
For purposes of the Annual Cashdiscretionary Bonus Incentive Program,component, individual performance is assessed based upon the level of attainment of established responsibilities, goals and objectives for each NEO. Each NEO develops annual business objectives and budgets for their respective areas, which are approved by the Chief Executive Officer and are used for this assessment. Individual performance is also measured by how the executive's actions conform with and exemplify the Company's ten "Leadership Principles" as follows:
Leadership Principles: Good governance is good for profitability—and good for our talented and committed team. As a group we embrace ten key Leadership Principles, which define our commitment to excellence. Living by these principles is paramount. They are the compass that guides us to achieve our full potential, both as individuals within the company and as a major player in the industry.
Leadership: Provide leadership by example.
Change: Understand that change means opportunity and do not be afraid of it.
Accessibility: Be accessible and supportive, and recognize the contributions of others.
Speed: Maintain a competitive advantage by reacting quickly to new opportunities.
Client Focus: Our first responsibility is to our clients. Client service is our highest priority.
Hard Work: Establish a standard of hard work and practice it consistently.
Excellence + Innovation: Have a passion for excellence and innovation.
Priorities: Establish priorities by clearly differentiating between the big issues and the small ones.
Confidence: Have the confidence to empower others to do their best.
Justice: Always make decisions fairly. Justice builds confidence and trust, which in turn encourages motivation and teamwork.
For each NEO, the NEO's impact upon initiatives of their division, department function or organization is considered, as well as their impact on the morale of these groups. Additionally, each executive, whether reporting directly to the Chief Executive Officer or not, completes a self-assessment that is also used as a basis by the Chief Executive Officer and the Compensation Committee for the determination of any Incentive Award. For executives reporting directly to the
Chief Executive Officer, their performance is reviewed by the Chief Executive Officer together with the Executive Vice President,
Administration, who is responsible for the Company's Human Resources functions. For the NEOs other than the Chief Executive Officer, their performance is also reviewed by the Chief Executive Officer with the Compensation Committee.
Historically, the actual Incentive Awards have ranged from 20% to 40% of base salary for eligible executives. The Company retains the discretion to grant no Incentive Awards or to grant Incentive Awards that exceed the target, in each case as the situation warrants, such as unusual, non-recurring, extraordinary or unexpected circumstances or developments, either in relation to the Company or the NEO, including in relation to unusual, non-recurring or extraordinary items in the determination of adjusted operating income that in their discretion do not relate to the future income or values of the Company. As the Incentive Awards look at broad performance indicators, the Company believes that there is no single metric that would lend itself to the risk of manipulation of results by the NEOs to influence any Incentive Award outcome.
The Chief Executive Officer submits For fiscal 2016, the annual Incentive Award recommendationsCompany's Adjusted Operating Earnings exceeded the maximum performance level of 120% of performance target. Accordingly, for the NEOs to the Compensation Committee. The NEOs are not present at the time of the Compensation Committee's deliberations, although the Chief Executive Officer is or may be present. The Compensation Committee considers such recommendationsfiscal 2016, after its review and consistent with the overall compensation philosophy, the duties ofdiscussion, the Compensation Committee and general policies regarding compensation may accept or adjust such recommendations.
For fiscal 2015,approved Incentive Awards for each of the targets for adjusted operating income growth rate were not met. Therefore, there were noNEOs at the payout levels commensurate with maximum performance levels with respect to the performance-based Non-Equity Incentive Plan Compensation Incentive Awards distributed to the NEOs other than the Chief Executive Officer.component. The Compensation Committee considered this shortfall,awarded Incentive Awards totaling $469,530, of which the Non-Equity Incentive Plan Compensation component was $439,530 and the Company's view that the shortfall could be explained by revenue, expense and revenue impacts of the Company's substantial product repositioning in fiscal 2015. The Compensation Committee in consultation with the Chief Executive Officer reviewed the performance of each NEO, especially in light of their contributions to the effective execution of the many initiatives being implemented by the Company.
The Compensation Committee recognized that fiscal 2015discretionary Bonus component was a transition year of ramping up manufacturing capacities, developing and launching new product programs that effectively changed 70% of the products from fall to fall, making major changes to reposition the website and other technology platforms, expanding marketing programs, renovating and continued repositioning of the retail footprint and the expansion and enhancement of the retail management. The Compensation Committee observed that while the disruption to the business due to this rapid transition did not provide for the target adjusted operating income growth rate, the Company nonetheless did generate strong adjusted operating income. The Compensation Committee further considered the relative compensation levels of the NEOs as compared to market comparables and the Chief Executive Officer, and that in fiscal 2015, the Company considered and evaluated various substantial debt and capital return alternatives for its shareholders. The Compensation Committee recognized that such debt financing would subject the Company to higher financial demands and a debt placement process that the Compensation Committee believed would require long-term stability for the executive team of the Company. The Compensation Committee considered these to be unusual, non-recurring issues for the Company and that the Company's best interests would be served by providing appropriate incentive compensation to the NEOs. At the same time, however, the Compensation Committee determined to increase for fiscal 2016 the target increase for adjusted operating income from 5% (applicable to fiscal 2015) to 8% (applicable to fiscal 2016) for purposes of the Annual Cash Bonus Incentive Program. Based upon these considerations, the strong adjusted operating income and the major efforts expended by the NEOs in successfully implementing and leading through the major transition, the Compensation Committee therefore awarded the discretionary Annual Cash Bonus compensation Incentive Award component that was
comprised of $390,000$30,000, to be distributed to the NEOs other than the Chief Executive Officer, in amounts recommended by the Chief Executive Officer. For fiscal 2015, after its review and discussion,Officer as set forth in the "Summary Compensation Committee approved the Incentive Awards for each of the NEOs.Table".
For fiscal year 2016,2017, the Company will continue to maintain this Incentive Award compensation plan, with its performance-based component (Non-Equity Incentive Plan Compensation) and a discretionary-based component (Bonus), for the NEOs of the Company other than the Chief Executive Officer with the same approach as fiscal 2015, except for the increase of the target for improved adjusted operating income from 5% to 8%.2016.
Stock Options - The NEOs and other executives are eligible to receive grants of fiscal 2015, the Company issued stock options under the Amended and Restated 1992 Stock Incentive Plan which contained both performance-based and time-based criteria (see Exhibit 10.(g)-5 to the Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 1, 2014).options. The options have an exercise price of the closing price of our stock on the date of grant, vesting according to both the performance-based and time-based criteria, and a ten-year term. Any stock options not fully vested on the date the employee separates are forfeited.subject to forfeiture. These grants are designed for retention of the executive and to align the executive's compensation with the long-term success of the Company. The Compensation Committee approveddid not approve Company grants of stock options to NEOs in fiscal 2015.2016.
The Compensation Committee approved Company grants of performance stock units to NEOs in fiscal 2016 employing the same methodology as used with the CEO. The grants were subject to a target performance metric of Adjusted Operating Income Per Share increase for fiscal year 2016 over fiscal 2015 and for each of the two immediately following fiscal years (for a total of three fiscal years) with 8% increase for fiscal 2016 and 5% increase for each of fiscal 2017 and 2018. The Performance Units would be earned according to performance on a directional payout schedule as follows:
Directional Performance Unit Schedule
(Linear/Scaled)
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Adjusted Operating Income Per Share Achievement Level | | Performance as Percentage of Cumulative PSU Annual Target for Applicable Two or Three Year Period | | Percentage of Units Earned (Per Grant) | | |||||||
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Threshold | 80% | 50% | ||||||||||
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Target | 100% | 100% | ||||||||||
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If either the two-year or the cumulative three-year target is met, then the percentage of Performance Units vested would be determined by reference to the higher performance accomplishment percentage. Goals for each annual grant are set by the Compensation Committee or the Board within 90 days of the beginning of each fiscal year.
Actual amounts of awards granted in fiscal 2016 are disclosed in the same retirement benefit program we offer"Summary Compensation Table" and the "Grants of Plan-Based Awards" table. The fiscal 2016 Performance Units granted to all employeesour NEOs, which will not vest until the actual results for the second or third fiscal year period in the three-year performance cycle are known, were estimated to be earned at the corporate level. In addition,maximum payout level for purposes of the Company provides perquisites it believes are reasonable"Summary Compensation Table" and consistent with the overall executive compensation program. In 2015, with"Outstanding Equity Awards at 2016 Fiscal year End" table in the exception of Mr. Kathwari, the NEOs did not receive any perquisites.
"Executive Compensation" section.
The Company's plans generally provide that a change in control may occur upon (i) any liquidation or the sale of substantially all of the assets of the Company was investigating various substantial debt and capital return alternatives for its shareholders that required executive stability. In considering the Change in Control Severance Plan for its executives, the Compensation Committee considered market practicesEthan Allen Global, Inc. taken as a whole, or (ii) any merger, or (iii) any person becoming a beneficial owner of its peer companies and the total costmore than 50% of the Change in Control Severance Plan. Consequently in fiscal 2016, the Compensation Committee proposed andthen-outstanding voting stock of the Company adoptedor Ethan Allen Global, Inc.; or (iv) the ChangeCompany's incumbent directors cease to constitute at least a majority of the Board of directors of the Company, except in Control Severance Plan forconnection with the benefitelection or nomination of its officers (not includingdirectors approved by a vote of at least a majority of the Chief Executive Officer). directors then comprising the incumbent board of directors of the Company.
For any benefits to be earned, a change in control must occur and the executive's employment must be terminated within two years following the change in control, either by the Company without cause or the executive for good reason (often called a "double trigger"). The plan does not provide tax gross-ups. Payments and benefits to the executive will be reduced to the extent necessary to result in the executive's retaining a larger after-tax amount, taking into account the income, excise and other taxes imposed on the payments and benefits. For additional information,
see "Potential Payments Upon Termination or Change in Control". Benefits provided under the program include (i) a lump sum cash payment equal to one times the sum of the executive's base salary and the average of the prior three years' annual Incentive Bonus and (ii) a lump sum cash payment equal to the pro-rated portion of the executive's average of the prior three years' annual Incentive Bonus for the year of termination. The Change in Control Severance Plan includes non-solicitation, non-disparagement and confidentiality provisions and waivers of customary claims.
Executive Perquisites/Other Personal Benefits |
We offer a very limited amount of perquisites and other personal benefits to our named executive officers. The Compensation Committee initiated, ledbelieves that these perquisites are reasonable and oversawconsistent with prevailing market practice and the hiringCompany's overall compensation program. Perquisites are not a material part of our compensation program. The Compensation Committee periodically reviews the levels of perquisites and employmentother personal benefits provided to our NEOs. In 2015, with the exception of Mr. Puyenbroeck,Kathwari, the NEOs did not receive any perquisites. Mr. Kathwari received: (1) access to and use of Company cars (including driver, gas, registration, title, insurance and maintenance) and a club membership; (2) reimbursement of life insurance premiums up to $50,000; (3) a retirement contract (described below); (4) dividends and interest on a long-standing restricted stock book account established pursuant to his previous employment agreements; and (5) dividend equivalent payments on stock units awarded pursuant to a prior employment agreement. Mr. Kathwari's use of the Company car and club membership are as described abovea convenience to the Company and are for business purposes. See footnote 7 to the "Summary Compensation Table".
Deductibility Cap on Executive Compensation |
Section 162(m) of the Internal Revenue Code (the "Code") limits deductibility of annual compensation in excess of $1 million paid to the Company's Principal Executive Officer and to each of its next three most highly compensated executive officers (other than the Principal Financial Officer) (for these purposes, the "Named Executives"). However, compensation is exempt from this limit if it qualifies as "performance-based compensation." As part of its role, the Compensation Committee considers the anticipated tax treatment to us and the executive officers in its review and establishment of compensation programs and payments. In general, the Compensation Committee believes that it is in our best interest to receive maximum tax deductions for compensation paid to the Named Executives. In general, we intend to pay performance-based compensation, including equity compensation, in a manner that preserves our ability to deduct the amounts paid to executive officers, although to maintain flexibility in compensating Named Executives in a manner designed to promote varying corporate goals, the Compensation Committee may award compensation that is not fully deductible when it deems such award to be in the best interest of the Company.
In 2015, the Company submitted an amended and restated Stock Incentive Plan to stockholders, to allow awards thereunder to qualify under "Certain Relationships and Related Party Transactions."the "performance-based compensation" requirements, which was approved by stockholders. The Company also submitted the incentive performance bonus provisions of the 2015 Employment Agreement to its stockholders who agreed to have the annual incentive bonuses granted under the 2015 Employment Agreement comply with the "performance-based compensation" requirements under Section 162(m) of the Code.
The 2015 Employment Agreement is intended to permit the Company to pay incentive compensation which qualifies as "performance-based compensation", thereby permitting the Company to receive a federal income tax deduction for the payment of such incentive compensation. If the Compensation Committee or Board of Directors makes a discretionary incentive compensation payment in the case of extraordinary economic circumstances under the 2015 Employment Agreement, such discretionary incentive compensation payment will not be tax-deductible under Section 162(m) of the Code.
Certain Conclusions as to Compensation |
The Compensation Committee believes that long-term stockholder value is enhanced by corporate and individual performance achievements. Through the plans and practices described above, a meaningful portion of the Company's executive compensation is based on competitive pay practices, as well as corporate and individual performance. The Compensation Committee believes equity compensation, in the form of stock options, restricted stock and stock units is vital to the long-term success of the Company. The Compensation Committee remains committed to this policy, recognizing that the competitive market for talented executives and the cyclical nature of the Company's business may result in highly variable compensation for a particular time period.
Compensation Committee Meetings
During fiscal 2015, there were four regularly scheduled meetings of the Compensation Committee, two special meetings of the Compensation Committee, and extensive informal discussions among Compensation Committee members.
Executive Compensation
Set forth below is a description of the business experience of each NEO, other than Mr. Kathwari, whose business experience is described above under "Nominees for Election".
Daniel M. Grow, 69, has served as Vice-President Business Development since joining the Company in February 2009 and since February 1, 2015 has served as Senior Vice-President Business Development. He is responsible for overseeing the Company's independent retail licensee network which include North America, China, Southeast Asia, and the Middle East. Mr. Grow is also responsible for the Company's Contract and Government business. Mr. Grow has more than 30 years of experience in the home furnishings industry. Before joining Ethan Allen he served for 10 years as President and Chief Executive Officer of Drexel Heritage Furnishings and for 10 years with Thomasville Furniture Industries in various executive positions. Prior to his time with Thomasville, Mr. Grow served in various sales and management roles both domestically and internationally with Armstrong World Industries. Mr. Grow is a graduate of Arizona State University earning a BS Degree in Business Administration.
Eric D. Koster, 68, has served as Vice President, General Counsel and Secretary since April, 2013. Prior to joining Ethan Allen, he practiced law for 38 years in New York, most recently as a partner in Kurzman, Eisenberg, Corbin & Lever, LLP. He concentrated his practice in real estate, construction, and general corporate law, including related litigation. For a number of years prior to joining Ethan Allen, Mr. Koster served as the Company's outside counsel. In addition to his practice of law, Mr. Koster served as an arbitrator under the auspices of the American Arbitration Association, having received appointments to the AAA's National Roster of Neutrals for the Commercial, Construction and Real Estate Panels. A graduate of Williams College and the Hofstra University School of Law, he is licensed to practice law in the form of stock options, restricted stock and stock units is vital to the long-term success of the Company. The Compensation Committee remains committed to this policy, recognizing that the competitive market for talented executives and the cyclical nature of the Company's business may result in highly variable compensation for a particular time period.
New York, New Jersey, Connecticut (limited to serving as Authorized House Counsel) and in the federal courts.
Tracy Paccione, 49, has served as Vice President, Merchandising since June 2009. She is responsible for overseeing the Company's merchandising, resourcing, and product development. Ms. Paccione began working for Ethan Allen as a Merchandise Manager in 1997. Prior to her current role, she served as Director of Accents Merchandising and then Vice President of Upholstery and Accents Merchandising. Ms. Paccione has more than 26 years of experience in the home furnishings industry. Before joining Ethan Allen, she was a Home Furnishings Buyer for Bloomingdales in New York City. She holds a B.A. in Art History from Hamilton College in Clinton, New York.
Corey Whitely, 55, was appointed Executive Vice President, Administration, Chief Financial Officer and Treasurer in 2014. Mr. Whitely previously served as Executive Vice President, Operations since October 2007 and Executive Vice President of subsidiary, Ethan Allen Operations, Inc., since 2005. Prior to that, Mr. Whitely served as Vice President Operations from 2003 until October 2007. He is responsible for overseeing the Company's financial activities including accounting, investor relations, tax and treasury and for directing administrative functions of the Company including information technology. He joined the Company in 1988 in the retail division and has held positions of increasing responsibilities including the areas of information technology, logistics, operations and manufacturing. Mr. Whitely also serves on the Board of Directors of the Connecticut Retail Merchants Association, a statewide group representing retailers in Connecticut, where he also serves as Treasurer, and is a member of the National Retail Federation's CIO Council which is the industry's committee of IT leaders.
The following table sets forth compensation information of our Principal Executive Officer, Principal Financial Officer and the three next most highly compensated officers (the "Named Executive Officers")
relating to total compensation paid or accrued for services rendered in all capacities to the Company during the fiscal years indicated.
Name and Principal Position | Year | Salary | Bonus(2) | Option Awards(1) | Non-Equity Incentive Plan Compensation(5) | All Other Compensation(3) | Total | |||||||||||||||
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M. Farooq Kathwari, | 2015 | $ | 1,150,050 | $ | — | $ | — | $ | 1,800,000 | $ | 162,251 | (4) | $ | 3,112,301 | ||||||||
Chairman of the Board, | 2014 | 1,150,050 | — | — | 1,800,000 | 159,885 | 3,109,935 | |||||||||||||||
President and Principal | 2013 | 1,150,050 | — | — | 1,733,000 | 258,266 | 3,141,316 | |||||||||||||||
Executive Officer | ||||||||||||||||||||||
Corey Whitely, | 2015 | 426,923 | 150,000 | 114,191 | — | 1,977 | 693,091 | |||||||||||||||
Executive Vice President, | 2014 | 386,539 | 100,500 | 132,067 | 49,500 | 1,945 | 670,551 | |||||||||||||||
Administration, Principal | 2013 | 371,635 | 125,000 | 63,349 | — | 1,300 | 561,284 | |||||||||||||||
Financial Officer | ||||||||||||||||||||||
Daniel M. Grow | 2015 | 263,269 | 70,000 | 68,515 | — | 1,977 | 403,761 | |||||||||||||||
Senior Vice President, | ||||||||||||||||||||||
Business Development | ||||||||||||||||||||||
Eric D. Koster | 2015 | 250,000 | 85,000 | 57,095 | — | 1,977 | 394,072 | |||||||||||||||
Vice President, General | 2014 | 250,010 | 52,000 | 55,028 | 33,000 | 1,616 | 391,654 | |||||||||||||||
Counsel and Secretary | ||||||||||||||||||||||
Tracy Paccione, | 2015 | 300,000 | 85,000 | 114,191 | — | 1,977 | 501,168 | |||||||||||||||
Vice President, | 2014 | 286,538 | 48,700 | 55,028 | 36,300 | 1,945 | 428,511 | |||||||||||||||
Merchandising | 2013 | 271,635 | 65,000 | 27,150 | — | 1,300 | 365,085 |
reimburse the Company for any incremental costs relating to his personal use of the Company plane and club membership. (See also "Executive Perquisites/Other Personal Benefits" below.)
Life insurance premiums | $ | 46,739 | ||
Retirement contract (change in value) | $ | 5,014 | ||
Restricted stock book account (change in value) | $ | 45,561 | ||
Cash dividends on Stock Units | $ | 57,960 | ||
401(k)—Company match | $ | 1,300 | ||
Personal service of Company staff | $ | 5,000 | ||
Legal fees paid by Company | $ | 0 | ||
Profit sharing contribution | $ | 677 | ||
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Total | $ | 162,251 | ||
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EXECUTIVE COMPENSATION |
The following table sets forth compensation concerning the compensation for services rendered to us during the years indicated by our Principal Executive Officer, Principal Financial Officer and the three next most highly compensated executive officers (the "Named Executive Officers").
2016 Summary Compensation Table
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Name and Principal Position | | | Year | | | Salary | | | Bonus (1) | | | Stock awards (2) | | | Option awards (3) | | | Non-Equity Incentive Plan Compensation (4) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (5) | | | All other compensation (6) | | | Total | | |||||||||||||||||||||
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M. Farooq Kathwari, | 2016 | $ | 1,150,050 | $ | — | $ | 1,557,400 | $ | — | $ | 1,700,000 | $ | — | $ | 53,880 | (7) | $ | 4,461,330 | |||||||||||||||||||||||||||||||
Chairman of the Board, | | 2015 | | | 1,150,050 | | | — | | | — | | | — | | | 1,800,000 | | | 5,014 | | | 53,716 | (7) | | | 3,008,780 | | |||||||||||||||||||||
President and Principal | 2014 | 1,150,050 | — | — | — | 1,800,000 | 4,884 | 53,684 | (7) | 3,008,618 | |||||||||||||||||||||||||||||||||||||||
Executive Officer | |||||||||||||||||||||||||||||||||||||||||||||||||
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Corey Whitely, | 2016 | 472,917 | 30,000 | 92,167 | — | 152,950 | 2,141 | 750,175 | |||||||||||||||||||||||||||||||||||||||||
Executive Vice President, | | 2015 | | | 426,923 | | | 150,000 | | | — | | | 114,191 | | | — | | | | | | 1,977 | | | 693,091 | | ||||||||||||||||||||||
Administration, Principal | 2014 | 386,539 | 100,500 | — | 132,067 | 49,500 | 1,945 | 670,551 | |||||||||||||||||||||||||||||||||||||||||
Financial Officer | |||||||||||||||||||||||||||||||||||||||||||||||||
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Daniel M. Grow | 2016 | 291,667 | — | 73,658 | — | 93,380 | 2,141 | 460,846 | |||||||||||||||||||||||||||||||||||||||||
Senior Vice President, | | 2015 | | | 263,269 | | | 70,000 | | | — | | | 68,515 | | | — | | | | | | 1,977 | | | 403,761 | | ||||||||||||||||||||||
Business Development | |||||||||||||||||||||||||||||||||||||||||||||||||
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Tracy Paccione, | 2016 | 322,917 | — | 73,658 | — | 104,650 | 2,141 | 503,366 | |||||||||||||||||||||||||||||||||||||||||
Vice President, | | 2015 | | | 300,000 | | | 85,000 | | | — | | | 114,191 | | | — | | | | | | 1,977 | | | 501,168 | | ||||||||||||||||||||||
Merchandising | 2014 | 286,538 | 48,700 | — | 55,028 | 36,300 | 1,945 | 428,511 | |||||||||||||||||||||||||||||||||||||||||
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Clifford Thorn | 2016 | 276,667 | — | 53,827 | — | 88,550 | 2,141 | 421,185 | |||||||||||||||||||||||||||||||||||||||||
Vice President, | |||||||||||||||||||||||||||||||||||||||||||||||||
Uphostery Manufacturing | |||||||||||||||||||||||||||||||||||||||||||||||||
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| | | 2016 | | | 2015 | | | 2014 | | |||||||||
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Life insurance premiums | $ | 46,739 | $ | 46,739 | $ | 46,739 | |||||||||||||
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| 401(k) - Company match | | $1,300 | | $1,300 | | $1,300 | | |||||||||||
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Personal service of Company staff | $5,000 | $5,000 | $5,000 | ||||||||||||||||
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| Profit sharing contribution | | $841 | | $677 | | $645 | | |||||||||||
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Total | $ | 53,880 | $ | 53,716 | $ | 53,684 | |||||||||||||
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Bonus |
As discussed in the "Compensation Discussion and Analysis" section, the Compensation Committee considers the bonuses payable to the NEOs other than the Chief Executive Officer to be discretionary bonuses.
Non-Equity Incentive Plan Compensation |
As discussed in the "Compensation Discussion and Analysis" section, the Compensation Committee considers the non-equity incentive plan compensation payable annually to the NEOs to be performance-based bonuses.
Equity Incentives
|
Stock Units and Restricted Stock. We award stock units and restricted stock to align the NEOs with long-term stockholder value and to provide competitive pay packages that serve to attract and retain qualified executives.
In fiscal 2016, the Company awarded 10,800 stock units with performance-based and time-based criteria to NEOs, other than Mr. Kathwari, pursuant to the Stock Incentive Plan. See Note 10 to "Notes to Consolidated Financial Statements" in the Company's Annual Report on Form 10-K for the year ended June 30, 2016 for additional information about share-based compensation. The actual number of performance stock units granted to each NEO in the year ended June 30, 2016 is disclosed in the "Grants of Plan-Based Awards" table below. See "Outstanding Equity Award at Fiscal Year-End" table and the footnotes thereto.
The accounting cost of restricted stock and performance stock unit awards, for which the exercise price is zero, is calculated based on the closing price of a single share of Common Stock on the date of the award for awards with no performance or market conditions. See Note 10 to "Notes to Consolidated Financial Statements" in the Company's Annual Report on Form 10-K for the year ended June 30, 2016 for additional information about share-based compensation. The Company has registered the issuance of the previously granted shares. Dividends are not payable on previously granted shares of unvested restricted stock; however Mr. Kathwari receives dividend-equivalent payments.
Non-Qualified Stock Options. Stock options granted with exercise prices equal to 100% of the underlying Common Stock market value, based on the closing price of a single share of Common Stock on the date of grant, are currently the Company's primary long- term compensation vehicle for executives and managerial staff. The Compensation Committee believes that stock options align the interests of
2016 Grants of Plan Based Awards
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| | | | | Estimated future payouts under non-equity incentive plan awards | | | Estimated future payouts under equity incentive plan awards | | | Grant Date Fair Value of | | |||||||||||||||||||||||||||||||
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Name | | Grant Date | | | Threshhold ($) | | | Target ($) | | | Maximum ($) | | | Threshhold (#) | | | Target (#) | | | Maximum (#) | | | Stock and Option Awards | | |||||||||||||||||||
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M. Farooq Kathwari | 7/1/2015 | $ | 375,000 | $ | 750,000 | $ | 1,700,000 | ||||||||||||||||||||||||||||||||||||
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| M. Farooq Kathwari | | 7/1/2015 | | | | | | | | | | | | 32,500 | | | 65,000 | | | 81,250 | | $ | 1,557,400 | | ||||||||||||||||||
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Corey Whitely, | 7/1/2015 | $ | 66,500 | $ | 133,000 | $ | 199,500 | ||||||||||||||||||||||||||||||||||||
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| Corey Whitely, | | 4/19/2016 | | | | | | | | | | | | 1,850 | | | 3,700 | | | 3,700 | | $ | 92,167 | | ||||||||||||||||||
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Daniel M. Grow | 7/1/2015 | $ | 40,600 | $ | 81,200 | $ | 121,800 | ||||||||||||||||||||||||||||||||||||
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| Daniel M. Grow | | 4/19/2016 | | | | | | | | | | | | 1,300 | | | 2,600 | | | 2,600 | | $ | 73,658 | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tracy Paccione, | 7/1/2015 | $ | 45,500 | $ | 91,000 | $ | 136,500 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tracy Paccione, | | 4/19/2016 | | | | | | | | | | | | 1,300 | | | 2,600 | | | 2,600 | | $ | 73,658 | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Clifford Thorn | 7/1/2015 | $ | 38,500 | $ | 77,000 | $ | 115,500 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Clifford Thorn | | 4/19/2016 | | | | | | | | | | | | 950 | | | 1,900 | | | 1,900 | | $ | 53,827 | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Non-Equity Incentive Plan award payable to Mr. Kathwari is the incentive compensation described in the 2015 Employment Agreement, which is described more fully in the "Compensation Discussion and Analysis" above. Mr. Kathwari is entitled to an incentive bonus based on the Company's adjusted operating income. The goals and objectives applicable to the Incentive Plan awards for NEOs other than Mr. Kathwari are described in detail under "Compensation Committee Approval of Named Executive Officer Compensation for 2016" in the "Compensation Discussion and Analysis".
See "Compensation Discussion and Analysis" for an explanation of the base salary and bonus in proportion to total compensation payable to the NEOs, and "Outstanding Equity Awards at Fiscal Year-End" and the footnotes thereto for additional information regarding expirations and vesting of grants listed above.
Outstanding Equity Awards at 2016 Fiscal Year-End
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | Option Awards | | | Stock Awards | | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | Equity Incentive Plan | | |||||||||||||||||||||||||||||||||
|
| | | | Number of securities underlying | | | | | | | Shares or Units of Stock That | | | Awards: Unearned Shares, | | |||||||||||||||||||||||||||||||||||||
|
| | | | unexercised options | | | | | | | Have Not Vested | | | Units or Other Rights That | | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | Have Not Vested | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Notes | | | (#) Exerciseable | | | (#) Unexerciseable | | | Equity incentive plan awards: unearned (#) | | | Option exercise price ($) | | | Option expiration date | | | Number (#) | | | Market value ($) | | | Number (#) | | | Market or Payout Value ($) | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| M. Farooq Kathwari | (1) | — | — | — | — | — | — | — | 81,250 | 2,684,500 | ||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | — | — | — | — | — | 126,000 | 4,163,040 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 150,000 | — | — | 34.03 | 10/10/2017 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 90,000 | — | — | 24.62 | 7/1/2018 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 40,000 | — | — | 15.93 | 11/11/2018 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 120,000 | — | — | 13.61 | 10/1/2021 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Corey Whitely | | (3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,700 | | | 122,248 | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2,000 | | | — | | | — | | | 36.71 | | | 6/4/2017 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2,000 | | | — | | | — | | | 25.71 | | | 6/20/2018 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 3,000 | | | — | | | — | | | 17.60 | | | 11/5/2018 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 10,000 | | | — | | | — | | | 11.74 | | | 11/12/2019 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 6,000 | | | — | | | — | | | 19.07 | | | 7/26/2021 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (4) | | | 5,250 | | | 1,750 | | | — | | | 20.63 | | | 7/31/2022 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (6) | | | — | | | 12,000 | | | — | | | 25.24 | | | 1/31/2024 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (7) | | | — | | | 3,333 | | | 6,667 | | | 26.19 | | | 6/15/2025 | | | — | | | — | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Daniel M. Grow | (3) | — | — | — | — | — | — | — | 2,600 | 85,904 | ||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1,500 | — | — | 11.74 | 11/12/2019 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1,500 | — | — | 19.07 | 7/26/2021 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (4) | 750 | 250 | — | 20.63 | 7/31/2022 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (5) | 1,125 | 375 | — | 28.67 | 2/8/2023 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (6) | — | 5,000 | — | 25.24 | 1/31/2024 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (7) | — | 2,000 | 4,000 | 26.19 | 6/15/2025 | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tracy Paccione | | (3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,600 | | | 85,904 | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 1,500 | | | — | | | — | | | 36.71 | | | 6/4/2017 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 500 | | | — | | | — | | | 25.71 | | | 6/20/2018 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 500 | | | — | | | — | | | 17.60 | | | 11/5/2018 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2,500 | | | — | | | — | | | 11.74 | | | 11/12/2019 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 3,000 | | | — | | | — | | | 19.07 | | | 7/26/2021 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (4) | | | 2,250 | | | 750 | | | — | | | 20.63 | | | 7/31/2022 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (6) | | | — | | | 5,000 | | | — | | | 25.24 | | | 1/31/2024 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (7) | | | — | | | 3,333 | | | 6,667 | | | 26.19 | | | 6/15/2025 | | | — | | | — | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Clifford Thorn | (3) | — | — | — | — | — | — | — | 1,900 | 62,776 | ||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 750 | — | — | 36.71 | 6/4/2017 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 700 | — | — | 25.71 | 6/20/2018 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 625 | — | — | 11.74 | 11/12/2019 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2,500 | — | — | 19.07 | 7/26/2021 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (4) | 1,125 | 375 | — | 20.63 | 7/31/2022 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (6) | — | 5,000 | — | 25.24 | 1/31/2024 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (7) | — | 1,333 | 2,667 | 26.19 | 6/15/2025 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table sets forth certain information regarding vested stock awards during fiscal year 2016 for NEOs.
Option Exercises and Stock Vested in 2016
| | | | | | | | | | | | | | |
|
| | | Stock Awards | | |||||||||
| | | | | | | | | | | | | | |
| | | | Number of shares acquired on vesting (#) | | | Value realized on vesting ($) | | ||||||
| | | | | | | | | | | | | | |
| M. Farooq Kathwari | 21,000 | 693,840 | |||||||||||
| | | | | | | | | | | | | | |
| Corey Whitely | | | - | | | - | | ||||||
| | | | | | | | | | | | | | |
| Daniel M. Grow | - | - | |||||||||||
| | | | | | | | | | | | | | |
| Tracy Paccione | | | - | | | - | | ||||||
| | | | | | | | | | | | | | |
| Clifford Thorn | - | - | |||||||||||
| | | | | | | | | | | | | | |
management with those of the Company's stockholders, providing appropriate incentive to motivate management, thereby increasing stockholder return.
In fiscal 2015, the Company awarded 195,000 options with performance-based and time-based criteria to purchase shares of Common Stock to executives or employees including NEOs, other than Mr. Kathwari, pursuant to the Option Plan. See Note 10 to "Notes to Consolidated Financial Statements" in the Company's Annual Report on Form 10-K for the year ended June 30, 2015 for additional information about share-based compensation. The Company has registered the issuance of the shares of Common Stock which are issuable upon exercise of such options. The number of shares of options granted to each NEO in the year ended June 30, 2015 is identified in the Grants of Plan-Based Awards table below. Each option agreement contained vesting and other terms as reflected in the "Outstanding Equity Award at Fiscal Year-End" table and the footnotes thereto.
The accounting cost of stock option grants is determined on the date of grant and recognized over the applicable vesting period. We estimate, as of the date of grant, the fair value of stock options granted using the Black-Scholes option-pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including anticipated changes in the underlying stock price (i.e. expected volatility) and option exercise activity (i.e. expected life). Expected volatility is based on the historical volatility of our Common Stock and other contributing factors. The expected life of options previously granted, which represents the period of time that the options are expected to be outstanding, is based, primarily, on historical data.
| | Estimated future payouts under non-equity Incentive plan awards | | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Estimated future payouts under equity incentive plan awards: Target ($) | Exercise or Base Price of Option Awards ($/Sh) | | ||||||||||||||||||
| | Grant Date Fair Value of Stock and Option Awards | ||||||||||||||||||||
Name | Grant Date | Threshhold ($) | Target ($) | Maximum ($) | ||||||||||||||||||
M. Farooq Kathwari | — | $ | 620,000 | $ | 1,800,000 | $ | 1,800,000 | — | $ | — | $ | — | ||||||||||
Daniel M. Grow | 6/15/2015 | 15,000 | 30,000 | 33,000 | 6,000 | $ | 26.19 | $ | 68,515 | |||||||||||||
Tracy Paccione | 6/15/2015 | 18,000 | 36,000 | 39,600 | 10,000 | $ | 26.19 | $ | 114,191 | |||||||||||||
Eric D. Koster | 6/15/2015 | 15,000 | 30,000 | 33,000 | 5,000 | $ | 26.19 | $ | 57,095 | |||||||||||||
Corey Whitely | 6/15/2015 | 24,000 | 48,000 | 52,800 | 10,000 | $ | 26.19 | $ | 114,191 |
The Non-Equity Incentive Plan award payable to Mr. Kathwari is the incentive compensation described in the 2011 Employment Agreement, which is described more fully in the "Compensation Discussion and Analysis" above. Mr. Kathwari is entitled to a bonus based on a percentage of operating income for a fiscal year if the Company's operating income is at least $25 million, increased by $2 million each year of the 2011 Employment Agreement. In the fiscal year ending June 30, 2013, as more fully described under "Chief Executive Officer Voluntary Bonus Reduction in 2013" in "Compensation Discussion and Analysis", Mr. Kathwari decided to cap his bonuses under the 2011 Employment Agreement at a maximum of $1.8 million for the term thereof. The goals and objectives applicable to the Incentive Plan awards for NEOs other than Mr. Kathwari are described in detail under "Compensation Committee Approval of Named Executive Officer Compensation for 2015" in the "Compensation Discussion and Analysis".
See "2011 Employment Agreement" including a description of the annual incentive bonus goals under the 2011 Employment Agreement for a discussion of the material terms of the 2011 Employment Agreement and for an understanding of the information disclosed in the charts above.
See "Compensation Discussion and Analysis" for an explanation of the base salary and bonus in proportion to total compensation payable to the NEOs, and "Outstanding Equity Awards at Fiscal Year-End" and the footnotes thereto for additional information regarding expirations and vesting of grants listed above..
Outstanding Equity Awards at Fiscal Year-End
| Option Awards | Stock Awards | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Number of securities underlying unexercised options | | | | | |||||||||||||||||||
| | | | Number of shares or units of stock that have not vested (#) | Market value of shares or units of stock that have not vested ($) | ||||||||||||||||||||
| Notes | (#) Exerciseable | (#) Unexerciseable | Equity incentive plan awards: unearned (#) | Option exercise price ($) | Option expiration date | |||||||||||||||||||
M. Farooq Kathwari | (1 | ) | — | — | — | — | — | 21,000 | 553,140 | ||||||||||||||||
150,000 | — | — | 34.03 | 10/10/2017 | — | — | |||||||||||||||||||
90,000 | — | — | 24.62 | 7/1/2018 | — | — | |||||||||||||||||||
40,000 | — | — | 15.93 | 11/11/2018 | — | — | |||||||||||||||||||
(2 | ) | 60,000 | 60,000 | — | 13.61 | 10/1/2021 | — | — | |||||||||||||||||
Daniel M. Grow | 1,500 | — | — | 11.74 | 11/12/2019 | — | — | ||||||||||||||||||
(3 | ) | 1,125 | 375 | — | 19.07 | 7/26/2021 | — | — | |||||||||||||||||
(4 | ) | 500 | 500 | — | 20.63 | 7/31/2022 | — | — | |||||||||||||||||
(5 | ) | 750 | 750 | — | 28.67 | 2/8/2023 | — | — | |||||||||||||||||
(6 | ) | — | — | 5,000 | 25.24 | 1/31/2024 | — | — | |||||||||||||||||
(7 | ) | — | — | 6,000 | 26.19 | 6/15/2025 | — | — | |||||||||||||||||
Eric D. Koster | (6 | ) | — | — | 5,000 | 25.24 | 1/31/2024 | — | — | ||||||||||||||||
(7 | ) | — | — | 5,000 | 26.19 | 6/15/2025 | — | — | |||||||||||||||||
Tracy Paccione | 1,000 | — | — | 36.56 | 6/27/2016 | — | — | ||||||||||||||||||
1,500 | — | — | 36.71 | 6/4/2017 | — | — | |||||||||||||||||||
500 | — | — | 25.71 | 6/20/2018 | — | — | |||||||||||||||||||
500 | — | — | 17.60 | 11/5/2018 | — | — | |||||||||||||||||||
2,500 | — | — | 11.74 | 11/12/2019 | — | — | |||||||||||||||||||
(3 | ) | 2,250 | 750 | — | 19.07 | 7/26/2021 | — | — | |||||||||||||||||
(4 | ) | 1,500 | 1,500 | — | 20.63 | 7/31/2022 | — | — | |||||||||||||||||
(6 | ) | — | — | 5,000 | 25.24 | 1/31/2024 | — | — | |||||||||||||||||
(7 | ) | — | — | 10,000 | 26.19 | 6/15/2025 | — | — | |||||||||||||||||
Corey Whitely | 1,000 | — | — | 36.56 | 6/27/2016 | — | — | ||||||||||||||||||
2,000 | — | — | 36.71 | 6/4/2017 | — | — | |||||||||||||||||||
2,000 | — | — | 25.71 | 6/20/2018 | — | — | |||||||||||||||||||
3,000 | — | — | 17.60 | 11/5/2018 | — | — | |||||||||||||||||||
10,000 | — | — | 11.74 | 11/12/2019 | — | — | |||||||||||||||||||
(3 | ) | 4,500 | 1,500 | — | 19.07 | 7/26/2021 | — | — | |||||||||||||||||
(4 | ) | 3,500 | 3,500 | — | 20.63 | 7/31/2022 | — | — | |||||||||||||||||
(6 | ) | — | — | 12,000 | 25.24 | 1/31/2024 | — | — | |||||||||||||||||
(7 | ) | — | — | 10,000 | 26.19 | 6/15/2025 | — | — |
Note: the closing market price per share of the Common Stock on Monday June 30, 2015 was $26.34.
The following table sets forth certain information regarding vested stock awards during fiscal year 2015 for NEOs.
Option Exercises and Stock Vested
| Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of shares acquired on exercise (#) | Value realized on exercise ($) | Number of shares acquired on vesting (#) | Value realized on vesting ($) | |||||||||
M. Farooq Kathwari | 300,000 | (1) | 4,401,100 | 21,000 | 553,140 | ||||||||
Daniel M. Grow | — | — | — | — | |||||||||
Eric D. Koster | — | — | — | — | |||||||||
Tracy Paccione | — | — | — | — | |||||||||
Corey Whitely | — | — | — | — |
Equity Compensation Plan Information
The following table sets forth certain information regarding our equity compensation plans as of June 30, 2015.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders(1) | 1,141,888 | $ | 21.20 | 1,382,400 | ||||||
Equity compensation plans not approved by security holders(2) | — | — | — | |||||||
| | | | | | | | | | |
Total | 1,141,888 | $ | 21.20 | 1,382,400 | ||||||
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Executive Perquisites/Other Personal Benefits
Benefits offered to NEOs are similar to those offered to all employees. In addition, the Company provides perquisites that it believes are reasonable and consistent with the overall executive compensation program. In 2015, with the exception of Mr. Kathwari, the NEOs did not receive any perquisites. Mr. Kathwari received: (1) access to and use of Company cars (including driver, gas, registration, title, insurance and maintenance) and a club membership; (2) reimbursement of life insurance premiums up to $50,000; (3) a retirement contract (described below); (4) dividends and interest on a long-standing restricted stock book account established pursuant to his previous employment agreements; and
(5) dividend equivalent payments on stock units awarded pursuant to a prior employment agreement. Mr. Kathwari's use of the Company car and club membership are as a convenience to the Company and are for business purposes. See footnote 4 to the Summary Compensation Table.
The NEOs are eligible to participate in the same retirement benefit program we offer to all employees at the corporate level. Our current program is a 401(k) plan with a Company-provided match. In addition, Mr. Kathwari is entitled to retirement benefits under an agreement dated September 26, 1983. Pursuant to the terms of the agreement, the Company is required to make monthly retirement payments of a maximum of $1,875 per month, commencing on the month in which his employment with the Company terminates, and shall be paid until the earlier to occur of (i) 120 monthly payments or (ii) the death of Mr. Kathwari. Such retirement payment is subject to cost of living adjustments. In the event Mr. Kathwari shall die before receiving all retirement payments Mr. Kathwari's widow shall be entitled to reduced retirement payments equal to one-half of the retirement payment amount until the earlier to occur of (a) her death or (b) the cumulative payment of 120 monthly payments to Mr. Kathwari and/or his widow.
The Company maintains three nonqualified deferred compensation plans for Mr. Kathwari. (1) The dividend book account holds dividends and accrued interest payable from a restricted stock book account established pursuant to his previous employment agreements. As of each dividend record date for the Common Stock occurring on or after the date of any grant made pursuant to his previous employment agreements, of shares of restricted stock, but prior to the date such shares became vested or forfeited, an account established by the Company for the benefit of Mr. Kathwari was credited with an amount equal to the dividends which would have otherwise been paid with respect to the shares. Amounts credited to the account are credited with interest at the rate of 5% per year until distribution. Mr. Kathwari is fully vested in all amounts credited to the account, which will be distributed to him in cash as soon as practicable after the termination of his employment. (2) The Stock Unit account holds 126,000 stock units issued in connection with Mr. Kathwari's 1997 employment agreement and for which payment has been deferred until termination of employment. Dividends are paid in cash to Mr. Kathwari on these stock units. (3) The retirement contract account entitles Mr. Kathwari to benefits under an agreement dated September 26, 1983 pursuant to which, the Company is required to make monthly retirement payments of a maximum of $1,875 per month, commencing on the month in which his employment with the Company terminates, and shall be paid until the earlier to occur of (i) 120 monthly payments or (ii) the death of Mr. Kathwari. Such retirement payment is subject to cost of living adjustments. In the event Mr. Kathwari shall die before receiving all retirement payments Mr. Kathwari's widow shall be entitled to reduced retirement payments equal to one-half of the retirement payment amount until the earlier to occur of (a) her death or (b) the cumulative payment of 120 monthly payments to Mr. Kathwari and/or his widow.
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| Name | | | Executive Contributions in Last FY ($) | | | Registrant Contributions in Last FY(1) ($) | | | Aggregate Earnings in Last FY(1)(2) ($) | | | Aggregate Withdrawals/ Distributions ($) | | | Aggregate Balance at Last FYE(3) ($) | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| M. Farooq Kathwari | ||||||||||||||||||||||||||||
| Dividend book account | | $ | — | | $ | — | | $ | 39,823 | | $ | — | | $ | 562,643 | | ||||||||||||
| Retirement Contract | — | — | (14,654 | ) | — | 177,719 | ||||||||||||||||||||||
| Stock Units | | | — | | | — | | | 74,340 | | | (74,340 | ) | | | 4,163,040 | | |||||||||||
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The Ethan Allen Retirement Savings Plan |
The Company maintains the Ethan Allen Retirement Savings Plan, which is effective as of July 1, 1994 (the "Retirement Plan"). The Retirement Plan covers all employees, including the NEOs, who have completed at least three months of service.
The 401(k) portion of the Retirement Plan allows participants to defer up to 100% of their compensation, subject to certain statutory limitations. In fiscal 2015, the Company made matching contributions with a maximum contribution of $1,300 per participant. Matching contributions were made dollar for dollar on the first $500 of a participant's before tax contribution and $0.50 on the next $1,600 of a participant's before tax contributions. Participant contributions and employer matching contributions are immediately and fully vested. The Retirement Plan also allows for a profit sharing contribution made by the Company to be distributed to participants. The Company made a $400,000 profit sharing contribution to the Retirement Plan in fiscal 2016.
Investment options currently offered under the Retirement Plan include the Company's Common Stock. Participants direct the investment of their accounts under the Retirement Plan and may choose from some or all of the investment options designated by the Retirement Committee from time to time.
As of the end of fiscal year 2016 we maintained a change in control provision with the Chief Executive Officer as set forth in the 2015 Employment Agreement. We also have change in control provisions with all our NEOs as set forth in restricted stock and stock option agreements. The specific rights of Mr. Kathwari if his employment is terminated by the Company within two years following certain changes in control are described under "2015 Employment Agreement" above. Other officers, as determined by the Compensation Committee, including the NEOs other than Mr. Kathwari, participate in the Change in Control Severance Plan.
Potential payments under the plans and agreements are reflected in the table that follows under Potential Payments upon Termination or Change in Control. The treatment of benefits under each plan or agreement on termination or change in control is detailed in the footnotes to the table.
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If Mr. Kathwari's employment is terminated by the Company without "cause", or by Mr. Kathwari "for good reason" he will receive salary continuation for twenty-four (24) months after the date of termination. Mr. Kathwari was also entitled to a payment equal to the sum of the two highest bonus payments made to Mr. Kathwari prior to the date of termination commencing from fiscal year 2002, not to exceed an aggregate payment of $2 million. However, in 2013, Mr. Kathwari voluntarily directed the Company to permanently cap his bonus compensation at $1.8 million for fiscal years 2014 and thereafter through the duration of his 2011 Employment Agreement, effectively reducing the maximum payout under this provision from $2 million to $1.8 million, a 10% reduction. Mr. Kathwari will also be entitled to one additional year of vesting, from the date of termination, for all outstanding stock options or restricted stock awards granted pursuant to the 2011 Employment Agreement. Mr. Kathwari will also be entitled to life and disability insurance premiums (not to exceed $50,000 per annum) through the date of termination and for a period of twenty-four (24) months thereafter, health and welfare benefits through the date of termination and for a period of twenty-four (24) months thereafter. Mr. Kathwari will also be subject to a twenty-four (24) month "non-compete" restrictive covenant granted by Mr. Kathwari for the benefit of the Company.
If Mr. Kathwari's employment is terminated by the Company within two years following certain changes in control, he will receive salary continuation for twenty-four (24) months from and after the date of termination plus a lump-sum payment equal to the sum of the two highest bonus payments made to Mr. Kathwari prior to the date of termination, commencing from fiscal year 2002, not to exceed an aggregate payment of $2 million. However, as noted above, in 2013, Mr. Kathwari voluntarily directed the Company to permanently cap his bonus compensation at $1.8 million for fiscal years 2014 and thereafter through the duration of his 2011 Employment Agreement, effectively reducing the maximum payout under this provision from $2 million to $1.8 million, a 10% reduction. Mr. Kathwari will also be entitled to immediate vesting of all outstanding stock options or restricted stock awards granted pursuant to the 2011 Employment Agreement. Mr. Kathwari will also be entitled to life and disability premiums (not to exceed $50,000 per annum) through the date of termination and for a period of twenty-four (24) months thereafter, health and welfare benefits through the date of termination and for a period of twenty-four (24) months thereafter. Mr. Kathwari will also be subject to a twenty-four (24) month "non-compete" restrictive covenant granted by Mr. Kathwari for the benefit of the Company. If the payments described in
this paragraph would constitute a "parachute payment" under Section 280G of the Code and subject Mr. Kathwari to an excise tax under Section 4999 of the Code, then the payments will be reduced to the extent necessary such that Mr. Kathwari will not be subject to an excise tax. However, such payments will not be reduced if, without the reduction, Mr. Kathwari would be entitled to receive and retain, on a net after-tax basis, a greater amount than he would be entitled to receive and retain after such reduction.
If Mr. Kathwari's employment is terminated for "cause", Mr. Kathwari will receive payment of all compensation due or unreimbursed expenses as of the date of termination. There is no accelerated vesting of any restricted stock or options and any unvested equity awards will be forfeited. He will receive deferred compensation in accordance with the terms of the applicable arrangement, as well as payment of life and disability insurance premiums (not to exceed $50,000) through the date of termination and such other and customary benefits as the Company provides to it employees upon termination for "cause".
If Mr. Kathwari's employment is terminated as a result of retirement by Mr. Kathwari (i.e., voluntarily by Mr. Kathwari or as a result of the Company's failure to renew the terms of the 2011 Employment Agreement), he will receive his salary to the date of termination plus a prorated annual incentive bonus in respect of the fiscal year in which the date of termination occurs, equal to what such annual incentive bonus would have been for the full fiscal year multiplied by a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination and the denominator of which is 365. There is no accelerated vesting of any restricted stock or options and any unvested equity awards will be forfeited. He will receive deferred compensation in accordance with the terms of the applicable arrangement, as well as payment of life and disability insurance premiums (not to exceed $50,000) through the date of termination, health and welfare benefits through the date of termination and for twenty-four (24) months thereafter, and such other and customary benefits as the Company provides for its employees.
Change in Control
As of the end of fiscal year 2015 we maintained a change in control provision with the Chief Executive Officer as set forth in the 2011 Employment Agreement, and we currently maintain a change in control provision in the 2015 Employment Agreement. We also have change in control provisions with all our NEOs as set forth in restricted stock and stock option agreements. The specific rights of Mr. Kathwari if his employment is terminated by the Company within two years following certain changes in control are described under "2011 Employment Agreement" above. Other officers, as determined by the Compensation Committee, including the NEOs other than Mr. Kathwari, participate in the Change in Control Severance Plan.
As described in the Compensation Discussion and Analysis, the Company adopted the Change in Control Severance Plan for officers of the Company other than Mr. Kathwari. For a description of the plan, see "Compensation Committee Approval of Named Executive Officer Compensation for 2015—Compensation Committee Approval of Change of Control Severance Plan for Executives".
Potential payments under the plans are reflected in the table that follows under Potential Payments upon Termination or Change in Control. The treatment of benefits under each plan on termination or change in control is detailed in the footnotes to the table.
Potential Payments upon Termination or Change in Control
The amount of compensation which would have been payable to the NEOs upon termination of employment, assuming a June 30, 2015 termination date, and for purposes of the last column, a change in control as of the same date, is listed in the following table. A termination of employment is not a requirement for the acceleration of stock options
The amount of compensation which would have been payable to the NEOs upon termination of employment, assuming a June 30, 2016 termination date, and for purposes of the last column, a change in control as of the same date, is listed in the following table. A termination of employment is a requirement for the acceleration of stock option grants and restricted stock awards upon a change in control. Under the 2015 Stock Incentive Plan the compensation committee, may, in its discretion, notwithstanding the grant or award agreement, upon termination without cause, fully vest any and all Ethan Allen common stock awarded pursuant to a restricted stock award or stock option grant, unless the award was granted to a "covered employee" (as defined in the applicable Treasury Regulations) and the award was designed to meet the exception for performance-based compensation under Section 162(m) of the Code. The chief financial officer, Mr. Whitely, is not included as a "covered employee" under the applicable Treasury Regulations. Mr. Kathwari's restricted stock awards are governed by his employment agreement and no assumption is made regarding compensation committee action fully vesting those awards. The amount shown assumes the compensation committee fully vested any and all time-based restricted stock awards and stock option grants and Mr. Whitely's performance-based restricted stock grants under the 2015 Stock Incentive Plan.
If Mr. Kathwari's employment is terminated for any reason, including death, disability or change in control, the value of nonqualified deferred compensation plan accounts would be become immediately payable in accordance with the term of those agreements. See "Nonqualified Deferred Compensation" table for more information on those plans.
2016 Potential Payments upon Termination or Change in Control
| | | | | | | | | | | | | | | | | | | | | | | | |
| For Cause | | Voluntary Termination/ Non-renewal/ Retirement | | Without Cause/ Good Reason/ Termination | | Death or Disability | | Change in Control (10) | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
M. Farooq Kathwari | ||||||||||||||||||||||||
Salary continuation (1) | $ — | $ — | $ 2,300,100 | $ 1,150,050 | $ 2,300,100 | |||||||||||||||||||
Bonus (2) | — | 2,000,000 | 2,000,000 | 2,000,000 | 2,000,000 | |||||||||||||||||||
Life & disability payments (3) | — | — | 100,000 | 50,000 | 50,000 | |||||||||||||||||||
Stock options (4) | — | — | — | — | — | |||||||||||||||||||
Performance unit awards (5) | — | 2,684,500 | — | 2,684,500 | 2,147,600 | |||||||||||||||||||
Health and welfare payments (6) | — | 31,837 | 31,837 | — | 31,837 | |||||||||||||||||||
| Corey Whitely | | | | | | | |||||||||||||||||
| Salary (7) | | | | | | 475,000 | | ||||||||||||||||
| Bonus (8) | | | | | | | | | | 160,983 | | ||||||||||||
| Stock options and stock units (9) | | — | | — | | 138,149 | | 138,149 | | 138,149 | | ||||||||||||
Daniel M. Grow | ||||||||||||||||||||||||
Salary (7) | 300,000 | |||||||||||||||||||||||
Bonus (8) | 77,793 | |||||||||||||||||||||||
Stock options and stock units (9) | — | — | 57,441 | 57,441 | 57,441 | |||||||||||||||||||
| Tracy Paccione | | | | | | | |||||||||||||||||
| Salary (7) | | | | | | 325,000 | | ||||||||||||||||
| Bonus (8) | | | | | | 91,550 | | ||||||||||||||||
| Stock options and stock units (9) | | — | | — | | 71,139 | | 71,139 | | 71,139 | | ||||||||||||
Clifford Thorn | ||||||||||||||||||||||||
Salary (7) | 325,000 | |||||||||||||||||||||||
Bonus (8) | 72,850 | |||||||||||||||||||||||
Stock options stock units (9) | — | — | 52,785 | 52,785 | 52,785 | |||||||||||||||||||
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For purposes of better understanding the foregoing, certain terms are summarized below:
election or nomination of directors approved by a vote of at least a majority of the directors then comprising the incumbent board of directors of the Company.
| For Cause | Voluntary Termination/ Non-renewal/ Retirement | Without Cause/ Good Reason/ Termination | Death or Disability | Change in Control(11) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
M. Farooq Kathwari | ||||||||||||||||
Salary continuation(1) | $ | — | $ | — | $ | 2,300,100 | $ | 1,150,050 | $ | 2,300,100 | ||||||
Bonus(2) | — | 1,800,000 | 1,800,000 | 1,800,000 | 1,800,000 | |||||||||||
Life & disability payments(3) | — | — | 100,000 | 50,000 | 100,000 | |||||||||||
Stock options(4) | — | — | 763,800 | 763,800 | 763,800 | |||||||||||
Stock units(5) | 3,318,840 | 3,318,840 | 3,318,840 | 3,318,840 | 3,318,840 | |||||||||||
Restricted stock awards(6) | — | — | 553,140 | 553,140 | 553,140 | |||||||||||
Health and welfare payments(7) | — | 31,837 | 31,837 | — | 31,837 | |||||||||||
Accrued interest & dividends(8) | 522,820 | 522,820 | 522,820 | 522,820 | 522,820 | |||||||||||
Retirement contract payments(9) | 225,000 | 225,000 | 225,000 | 225,000 | 225,000 | |||||||||||
Daniel M. Grow | ||||||||||||||||
Stock options(10) | — | — | — | — | 11,981 | |||||||||||
Eric D. Koster | ||||||||||||||||
Stock options(10) | — | — | — | — | 6,250 | |||||||||||
Tracy Paccione | ||||||||||||||||
Stock options(10) | — | — | — | — | 21,018 | |||||||||||
Corey Whitely | ||||||||||||||||
Stock options(10) | — | — | — | — | 45,590 |
For purposes of better understanding the foregoing, certain terms are summarized below.
Generally, with respect to Mr. Kathwari, "cause" means (a) the conviction of a felony involving actual dishonesty as against the Company or a subsidiary and any affiliate of the Company, or (b) gross neglect or gross misconduct resulting, in either case, in material economic harm to the Company, a subsidiary and/or affiliate in carrying out his duties that remains uncured.
Generally, a "change in control" (for purposes of the 2011 Employment Agreement) shall be deemed to occur if:
(a) your Board of Directors or the stockholders of the Company or Ethan Allen Global, Inc., approves (i) any liquidation of the Company and Ethan Allen Global, Inc., or the sale of substantially all of the assets of the Company and Ethan Allen Global, Inc. taken as a whole, or (ii) any merger and/or other business combination involving the Company and Ethan Allen Global, Inc. or any combination of any such transactions;
(b) any person becoming a beneficial owner of more than 50% of the then-outstanding voting stock of the Company or Ethan Allen Global, Inc.; or
(c) if the Company engages in any business combination, merger, consolidation or the sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or any substantial part of the assets of the Company with an interested person.
Generally, a "change in control" (for purposes of the Option Plan) shall be deemed to occur if the Company engages in any business combination, merger, consolidation or the sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or any substantial part of the assets of the Company.
Generally, a "change in control" (for purposes of the Change in Control Severance Plan) shall be deemed to occur if:
(a) your Board of Directors or the stockholders of the Company or Ethan Allen Global, Inc., approves (i) any liquidation of the Company and Ethan Allen Global, Inc., or the sale of substantially all of the assets of the Company and Ethan Allen Global, Inc. taken as a whole, or (ii) any merger and/or other business combination involving the Company and Ethan Allen Global, Inc. or any combination of any such transactions; or
(b) any person becoming a beneficial owner of more than 50% of the then outstanding voting stock of the Company or Ethan Allen Global, Inc.; or
(c) if the Company engages in any business combination, merger, consolidation or the sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or any substantial part of the assets of the Company with an interested person; or
(d) the Company's incumbent directors cease to constitute at least a majority of your Board of directors of the Company, except in connection with the election or nomination of directors approved by a vote of at least a majority of the directors then comprising the incumbent board of directors of the Company.
Generally with respect to Mr. Kathwari, "Good Reason" means and shall be deemed to exist if, without Mr. Kathwari's consent: (a) he is assigned any duties or responsibilities materially inconsistent with his titles or positions; (b) his duties, responsibilities or effective authority is reduced; (c) he is not appointed to, or is removed from, his offices or positions (including as a director and Chairman of your Board of Directors and of Ethan Allen Global, Inc.; (d) the Company breaches any material term or provision of the 2011 Employment Agreement or fails to have the agreement assumed by a successor; (e) his compensation is decreased; (f) his office location is changed more than 50 miles from its location in Danbury, Connecticut; (g) the Company attempts to terminate his employment for cause when cause does not exist; or (h) a change in control occurs (under certain conditions).
In connection with his rights under the 2011 Employment Agreement, Mr. Kathwari also has obligations in favor of the Company. Mr. Kathwari is generally required under the 2011 Employment Agreement to not disclose any confidential information, knowledge or data relating to the Company or any affiliate and their respective businesses. In addition, if Mr. Kathwari's employment is terminated (i) by the Company "without" cause or "for good reason" by Mr. Kathwari; or (ii) following a change in control,
then Mr. Kathwari shall not, for the twenty-four (24) month period following termination, compete with the business of the Company or Ethan Allen Global, Inc. The Company may choose to enforce the restriction on competition following a termination of Mr. Kathwari's employment due to "retirement" (as defined in the 2011 Employment Agreement). The application of the restrictions on competition is conditioned upon the Company providing certain entitlements set forth in the 2011 Employment Agreement.
Director Compensation
For fiscal year 2015, each independent director received $60,000 per annum and an annual stock option award in whole shares determined by dividing the market price of the Company's stock at the grant date into $100,000. Additional fees are paid quarterly to the chairperson of each of the committees as follows: Audit Committee $4,000; Compensation Committee $2,000; and Nominations Committee $2,000. If a committee holds more than four (4) meetings (either in person or telephonically) on days when the full Board does not meet, committee members will be paid an additional $1,000 for each additional meeting beginning with the fifth such meeting. Employee directors do not receive additional compensation for serving on your Board of Directors. Directors serving on committees for part of a year receive a pro-rata share of fees.
Name | Fees earned or paid in cash | Option awards(1) | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
James B. Carlson(2) | $ | 68,000 | $ | 45,809 | $ | 113,809 | ||||
Clinton Clark(3) | 76,000 | 45,809 | 121,809 | |||||||
John J. Dooner(4) | 60,000 | 45,809 | 105,809 | |||||||
Kristin Gamble(5) | 60,000 | 45,809 | 105,809 | |||||||
James W. Schmotter(6) | 68,000 | 45,809 | 113,809 | |||||||
Frank G. Wisner(7) | 60,000 | 45,809 | 105,809 |
Tax Policy
Section 162(m) of the Internal Revenue Code limits deductibility of annual compensation in excess of $1 million paid to the Company's Principal Executive Officer and to each of its next three most highly compensated NEOs (other than the Principal Financial Officer). However, compensation is exempt from this limit if it qualifies as "performance-based compensation." In 2007, the Company submitted an amendment to the Option Plan to stockholders, to allow awards thereunder to qualify under the "performance-based compensation" requirements, which was approved by stockholders. The Company submitted the incentive performance bonus provisions of the 2011 Employment Agreement to its stockholders who agreed to have the annual incentive bonuses granted under the 2011 Employment Agreement comply with the "performance-based compensation" requirements under Section 162(m) of the Code.
The 2015 Employment Agreement is intended to permit the Company to pay incentive compensation which qualifies as "performance-based compensation", thereby permitting the Company to receive a federal income tax deduction for the payment of such incentive compensation. If the Compensation Committee or Board of Directors makes a discretionary incentive compensation payment in the case of extraordinary economic circumstances under the 2015 Employment Agreement, such discretionary incentive compensation payment will not be tax-deductible under Section 162(m) of the Code.
PROPOSAL 3SHAREHOLDER APPROVAL BY NON-BINDING VOTE, OF OUR EXECUTIVE COMPENSATION
In accordance with Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act) and the related SEC rules, a resolution will be presented at the Annual Meeting which is subject to stockholder vote, to approve, in a non-binding advisory vote, the compensation of our NEOs. The stockholder vote will not be binding on the Company or your Board of Directors, and it will not be construed as overruling any decision by the Company or your Board of Directors or creating or implying any change to, or additional fiduciary duties for, the Company or your Board of Directors. However, our Board of Directors values the opinions of our stockholders and while this vote is advisory and therefore not binding, it is important and will provide us with information regarding our stockholders' sentiment about our executive compensation philosophy, policies and practices, as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure in this Proxy Statement. Our Compensation Committee as well as your Board of Directors expect to take into account the outcome of the vote when considering future executive compensation decisions, to the extent that they can determine the cause or causes of any significant negative voting results.
This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices, described in this Proxy Statement.
The Compensation Discussion and Analysis describes the Company's executive compensation program, its philosophy and the decisions made by the Compensation Committee in 2015. As described in detail under Compensation Discussion and Analysis and the Executive Compensation section, including the accompanying tables and narrative, our compensation programs are designed to motivate our
executives to achieve superior results for the Company. The Company believes that it is offering compensation packages which are competitive within the industries in which the Company operates, fair and equitable among the executives, and provides incentive for long-term success and performance of the Company; with compensation allocated among base salary, annual discretionary cash incentive compensation and long-term equity incentives.
Accordingly, you may vote on the following resolution at the Annual Meeting:
"RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the Company's Named Executive Officers as disclosed in this Proxy Statement pursuant the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Executive Compensation tables and the narrative discussion."
The affirmative vote of the holders of the majority of the votes represented at the Annual Meeting in person or by proxy is required to approve, on an advisory basis, the compensation of the Company's NEOs and the Company's compensation philosophy, policies and practices as described herein.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE OFFICERS, WHICH IS DESIGNATED AS PROPOSAL NO. 3 ON THE ENCLOSED PROXY CARD.
PROPOSAL 4APPROVAL OF THE ETHAN ALLEN INTERIORS INC. STOCK INCENTIVE PLAN
General
Stockholders of the Company are being asked to approve the Ethan Allen Interiors, Inc. Stock Incentive Plan (the "Stock Incentive Plan"). The purposes of Stock Incentive Plan are to increase stockholder value, to advance the interests of the Company and its subsidiaries and affiliates, to strengthen the Company's ability to attract and retain the services of experienced and knowledgeable independent directors, to enhance the Company's ability to attract, retain and motivate employees, and to provide such directors and employees with an opportunity to acquire an equity interest in the Company. The Stock Incentive Plan was previously known as the 1992 Stock Option Plan, which was amended and restated through January 27, 2015 and, if approved by stockholders, will be further amended and restated as amended in its entirety in one document. The Company is not proposing to increase the current number of authorized and available shares for future issuance under the Stock Incentive Plan. See "Stock Incentive Plan" discussion in the Compensation Discussion and Analysis.
Your Board recommends that stockholders vote FOR the proposal to approve the Ethan Allen Interiors, Inc. Stock Incentive Plan.
Description of the Plan
The following is a summary of the principal features of the Stock Incentive Plan and its operation and is qualified by reference to the full text of the Stock Incentive Plan, a copy of which is attached as Appendix A to this Proxy Statement.
Administration. The Stock Incentive Plan is administered by the Compensation Committee as the administrator of the Stock Incentive Plan. Subject to the terms and conditions of the Stock Incentive Plan, the Compensation Committee has the authority to (a) manage and control the operation of the Stock Incentive Plan, (b) interpret and construe the provisions of the Stock Incentive Plan or the provisions of any award under the Stock Incentive Plan and prescribe, amend and rescind rules and regulations relating to the Stock Incentive Plan, (c) make awards under the Stock Incentive Plan, in such forms and amounts and subject to such restrictions, limitations and conditions as it deems appropriate, including, without limitation, awards which are made in combination with or in tandem with other awards (whether or not
contemporaneously granted), (d) modify the terms of, cancel and reissue, or repurchase outstanding awards, (e) prescribe the form of agreement, certificate or other instrument evidencing any award under the Plan, (f) correct any defect or omission and reconcile any inconsistency in the Plan or in any award hereunder, and (g) make all other determinations and take all other actions as it deems necessary or desirable for the implementation and administration of the Plan;provided, however, the Compensation Committee shall not have the authority to: (i) (a) amend any outstanding stock option or stock appreciation right ("SAR") granted under the Stock Incentive Plan to provide an exercise price per share that is lower than the then current exercise price per share of such outstanding stock option or SAR, (b) cancel any outstanding stock option or SAR granted under the stock Incentive Plan and grant in substitution therefor new awards under the Stock Incentive Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then current exercise price per share of the cancelled stock option or SAR, (c) cancel in exchange for a cash payment any outstanding stock option or SAR with an exercise price per share above the then current fair market value of a share of Common Stock, or (d) take any other action under the Stock Incentive Plan that constitutes a "repricing" within the meaning of the rules of the New York Stock Exchange ("NYSE"); (ii) grant a stock option under the Stock Incentive Plan which contains any provision entitling the Participant (as defined below) to the automatic grant of additional stock options in connection with any exercise of the original stock option; or (iii) grant a SAR under the Stock Incentive Plan which contains any provision entitling the Participant to the automatic grant of additional SARs in connection with any exercise of the original SAR.
Eligibility. Subject to the terms and conditions of the Stock Incentive Plan, the Compensation Committee also has the power to determine and designate from time to time the directors of the Company and employees of Ethan Allen who shall receive awards under the Stock Incentive Plan ("Participants").
Shares Subject to the Stock Incentive Plan. The maximum number of shares of the Company's Common Stock that shall be available for awards granted under the Stock Incentive Plan (including any stock options which are intended to be "incentive stock options") shall be equal to 6,487,867 shares of Common Stock. In the event of the exercise or termination (by reason of forfeiture, expiration, cancellation, surrender or otherwise) of any award under the Stock Incentive Plan, the number of shares of Common Stock that was subject to the award but not delivered shall again be available for awards under the Stock Incentive Plan. The following shares shall not be available for reissuance under the Stock Incentive Plan: (i) shares which are withheld from any award or payment under the Stock Incentive Plan to satisfy tax withholding obligations; (ii) shares which are surrendered to fulfill tax obligations; and (iii) shares which are surrendered in payment of the option price per share upon the exercise of a stock option.
In the event of any merger, consolidation, reorganization, recapitalization, spinoff, split-up, stock dividend, stock split, reverse stock split, repurchase, exchange or other distribution (including, without limitation, any extraordinary dividend) with respect to shares of Common Stock or other change in the corporate structure or capitalization affecting the Common Stock, the type and number of shares, other securities, cash or other property, which are or may be subject to awards under the Stock Incentive Plan and the terms of any outstanding awards (including, so long as it does not cause a stock option to cease to be "Performance-Based Compensation" within the meaning of Section 162(m) of the Code the price at which shares may be issued pursuant to an outstanding award) may be equitably adjusted by the Compensation Committee to preserve the value of benefits awarded or to be awarded to Participants under the Stock Incentive Plan.
The maximum number of shares of Common Stock that may be covered by stock options (including incentive stock options) and SARs granted to any one individual during any fiscal year of the Company shall be 500,000 shares (subject to adjustment in accordance the Stock Incentive Plan). For restricted stock or stock unit awards that are intended to constitute "Performance-Based Compensation" (within the meaning of section 162(m) of the Code), the maximum number of shares of Common Stock that may be
delivered to any one individual with respect to such awards granted during any fiscal year of the Company is 500,000 shares (subject to adjustment in accordance the Stock Incentive Plan).
Amendment and Termination of the Stock Incentive Plan. Your Board may, at any time and in any manner, amend, alter, suspend, discontinue or terminate the Stock Incentive Plan or any award outstanding under the Stock Incentive Plan; provided however, that no such amendment, alteration, suspension, discontinuance or termination shall: (a) increase or decrease the number of shares reserved under the Stock Incentive Plan without stockholder approval (other than increases or decreases resulting from the certain adjustments in accordance with the Stock Incentive Plan); (b) increase or decrease the individual limits provided under the Stock Incentive Plan (other than increases or decreases resulting from certain adjustments in accordance with the Stock Incentive Plan) or the "Performance Criteria" set forth under the Stock Incentive Plan without stockholder approval; (c) be made without stockholder approval to the extent such approval is required by law, agreement or the rules of any exchange or automated quotation system upon which the Common Stock is listed or quoted; (d) alter or impair the rights of Participants with respect to awards previously made under the Stock Incentive Plan without the consent of the holder thereof; or (e) make any change that would disqualify the Stock Incentive Plan, to the extent intended to be so qualified, from the exemption provided by Rule 16b-3.
Transferability. Except as otherwise provided by the Compensation Committee, no award made under the Stock Incentive Plan may be transferred, pledged or assigned by the holder thereof (except to fulfill any tax withholding obligation, in the event of a Change in Control (as defined in the Stock Incentive Plan), in settlement of a divorce, due to hardship of the holder thereof or for other good cause as determined by the Compensation Committee), or, in the event of the holder's death, by will or the laws of descent and distribution) and the Company shall not be required to recognize any attempted assignment of such rights by any Participant. Any permitted transfer, pledge or assignment shall be subject to such requirements and limitations as may be prescribed by the Compensation Committee. During a Participant's lifetime, awards may be exercised only by him or by his guardian or legal representative.
Change in Control. It is expected that upon a "Change in Control," each outstanding award granted under the Stock Incentive Plan (an "Outstanding Award") will, except to the extent that the Outstanding Award is continued, assumed, replaced or adjusted in the form of a Replacement Award (as defined in the Stock Incentive Plan), vest or become immediately exercisable and/or nonforfeitable (A) if the Change in Control occurs less than two years after the date of grant for such Outstanding Award, on a pro-rata basis (i) based on actual service during the vesting period with respect to any time-based Outstanding Award and (ii) based on actual service during the performance period with respect to the greater of the target opportunity or actual results for any performance-based Outstanding Award, and (B) if the Change in Control occurs two years or more after the date of grant for such Outstanding Award, (i) on a pro-rata basis based on actual service during the vesting period with respect to any time-based Outstanding Award and (ii) with respect to 100% of the greater of the target opportunity or actual results for any performance-based Outstanding Award.
If, subsequent to receiving a Replacement Award, the Participant's employment with the Ethan Allen (or its successor in the Change in Control) is terminated within a period of two years after the Change in Control either (a) by the Participant for Good Reason (as defined in the Stock Incentive Plan) or (b) by Ethan Allen (or such successor) other than for Cause (as defined in the Stock Incentive Plan), then the Replacement Award will vest or become immediately exercisable and/or nonforfeitable with respect to 100% of any time-based Replacement Award and with respect to 100% of the greater of the target opportunity or actual results for any performance-based Replacement Award (an "Accelerated Replacement Award"). Notwithstanding the foregoing, to the extent that the applicable award agreement or other applicable agreement provides for a different "double trigger" treatment of awards under the Stock Incentive Plan, the applicable award agreement or other applicable agreement shall govern.
Award Agreements. All awards under the Stock Incentive Plan will be authorized by the Compensation Committee and evidenced by an award agreement setting forth the terms and conditions of such award.
Stock Options. A grant of a stock option entitles a Participant to purchase from the Company a specified number of shares of the Common Stock at a specified price per share. Each stock option awarded under the Stock Incentive Plan shall be a "nonqualified stock option" for purposes of the Code unless the stock option and the grant thereof satisfies all of the requirements of section 422 of the Code and the Compensation Committee designates such stock option as an "incentive stock option." The option price per share (the "Option Price") for any stock option awarded shall not be less than the greater of par value or the fair market value of a share of Common Stock on the date the stock option is awarded. A stock option may be exercised, in whole or in part, by giving written notice to the chief executive officer of the Company (or his or her designee) prior to the date on which the stock option expires; provided, however, that a stock option may only be exercised with respect to whole shares of Common Stock. Such notice shall specify the number of shares of Common Stock to be purchased and shall be accompanied by payment of the Option Price for such shares in such form and manner as the Compensation Committee may from time to time approve. No stock option may be exercisable for more than ten years from the date of grant.
Stock Appreciation Rights (SARs). The grant of an SAR provides the holder with the right to receive a payment in shares of the Common Stock equal to the excess of the fair market value of a specified number of shares of Common Stock on the date the SAR is exercised over a SAR price specified in the applicable award agreement. The SAR price specified in an award agreement must be equal to or greater than the fair market value of the Common Stock on the date of the grant of the SAR. No SAR may be exercisable for more than ten years from the date of grant.
Restricted Stock and Stock Units. Subject to the terms and conditions of the Stock Incentive Plan, Restricted Stock or Stock Units may be awarded under the Stock Incentive Plan. The number and terms of the shares of Restricted Stock to be awarded and, with respect to an award of a Stock Unit, the number of shares of Common Stock covered by and terms of the Stock Unit to be awarded, shall be set forth in the related award agreement. For purposes of the Stock Incentive Plan, "Restricted Stock" is a grant of Common Stock which Common Stock is subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, as determined by the Compensation Committee. For purposes of the Stock Incentive Plan, a "Stock Unit" is a grant of a right to receive a share of Common Stock in the future upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, as determined by the Compensation Committee. Shares of Restricted Stock and Stock Units awarded under the Stock Incentive Plan shall be subject to such conditions, restrictions and contingencies as the Compensation Committee shall determine, including provisions relating to dividend or dividend equivalent rights, and which shall be set forth in the related award agreement.
Dividend Equivalents. An award of Dividend Equivalents may be granted by the Compensation Committee, either alone or in tandem with another award, based on dividends declared or to be declared on the Common Stock, to be credited as of dividend payment dates during the period between the date the Dividend Equivalents are granted to a Participant (or such other date as may be determined by the Compensation Committee) and the date such Dividend Equivalents terminate or expire, as determined by the Compensation Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Compensation Committee. In addition, payments accruing with respect to awards of Dividend Equivalents that are subject to performance-based vesting that are based on dividends paid prior to the vesting of such award shall only be paid out to the Participant to the extent that the performance-based vesting conditions are subsequently satisfied and the award vests. For purposes of the Stock Incentive Plan "Dividend Equivalent" shall mean a right to receive the equivalent value (in cash or shares of Common Stock) of dividends paid on shares of Common Stock.
Performance-Based Awards. The Compensation Committee may designate an award of Restricted Stock or a Stock Unit granted to any Participant as "Performance-Based Compensation." To the extent required by section 162(m) of the Code, any award that is so designated shall be conditioned on the achievement of one or more performance targets as determined by the Compensation Committee. Performance targets established by the Compensation Committee may relate to corporate performance, operating group or sub-group performance, individual company or business unit performance, other group or individual performance, or division performance, and other objective performance criteria set forth in the Stock Incentive Plan that the Compensation Committee believes to be relevant to the Company's business. For purposes of section 162(m) of the Code, approval of the Stock Incentive Plan will also cover approval of performance based compensation made (or required to be made) prior to the date of the Annual Meeting as described elsewhere in this Proxy Statement and is expressly subject to stockholder approval at the Annual Meeting.
Termination of Employment, Death, Disability and Retirement. In the event that a Participant ceases to be an employee of the Company as a result of his or her death, the portion of any stock options or SARs then outstanding and vested as of the date of death may be exercised for 120 days thereafter, and therefore may be exercised by such Participant's estate before the expiration of 120 days thereafter (and shall expire following the expiration of such 120 day period), unless otherwise provided in the terms of the related award agreement. In the event that a Participant, who is an employee, ceases to be an employee of the Company for any reason (other than death), the portion of any stock options or SARs then outstanding and vested as of the date of termination of employment may be exercised for 90 days thereafter, and therefore may be exercised by such Participant before the expiration of 90 days thereafter (and shall expire following the expiration of such 90 day period), unless otherwise provided in the terms of the related award agreement.
U.S. Federal Income Tax Consequences
The following is a general description of the United States federal income tax consequences applicable to grants under the Stock Incentive Plan. Federal tax treatment may change should the Code be amended. State, local and foreign tax treatment, which is not discussed below, may vary from such federal income tax treatment. The following is not to be considered as tax advice to any award holder, and any such persons are advised to consult their own tax counsel. Neither the administrator nor the Company is in a position to assure any particular tax result.
Nonqualified Stock Options and Stock Appreciation Rights. A Participant does not recognize taxable income upon the grant of a nonqualified stock option or SAR. Upon exercise, the option holder recognizes ordinary income equal to the amount the fair market value of the shares underlying the stock option on the date of exercise exceeds the exercise or grant price. Upon subsequent sale of the acquired shares, any additional gain or loss is capital gain or loss.
Incentive Stock Options. An incentive stock option holder does not recognize ordinary taxable income when an incentive stock option is granted or exercised. However, the excess of the fair market value of the underlying shares over the exercise price on the date of exercise is an item of tax preference for alternative minimum tax purposes. If the option holder exercises the option and holds the acquired shares for more than two years following the date of option grant and more than one year after the date of exercise, the difference between the sale price and exercise price is taxed as long-term capital gain or loss. If the option holder sells the acquired shares before the end of the two-year and one-year holding periods, he or she generally recognizes ordinary income at the time of sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option. Any additional gain is capital gain.
Restricted Stock. In general, a restricted stock holder does not recognize taxable income upon the grant of restricted stock. Instead, the restricted stock holder recognizes ordinary income at the time of vesting
equal to the fair market value of the shares (or cash) received minus any purchase price paid for the award. Any subsequent gain or loss is capital gain or loss. However, a restricted stock holder may instead elect to be taxed at the time of grant. If the restricted stock holder makes such an election, upon subsequent sale of the shares, any additional gain or loss is capital gain or loss.
Other Stock-Based Awards. The tax consequences associated with other stock-based awards will vary depending on the specific terms of such awards. Among the relevant factors are whether or not the other stock-based award has a readily ascertainable fair market value, whether or not the award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received under the award and the tax basis for the award. A restricted stock unit holder generally recognizes ordinary income at the time the restricted stock units are settled equal to the fair market value of the shares (or cash) received by the holder minus any purchase price paid for the award.
Section 409A of the Code. Section 409A of the Code, which was enacted in 2004, treats certain awards as "nonqualified deferred compensation." If an award is treated as "nonqualified deferred compensation" and the award does not comply with or is not exempt from Section 409A of the Code, Section 409A may impose additional taxes, interest and penalties on the participant. Neither the administrator nor the Company is obligated to ensure that awards comply with Code Section 409A or to take any actions to ensure such compliance.
Tax Effect for the Company. The Company generally receives a deduction for any ordinary income recognized by a Participant with respect to an award. However, special rules limit the deductibility of compensation paid to certain award holders, including pursuant to Section 162(m) and Section 280G of the Code.
New Stock Incentive Plan Benefits
Because grants of awards under the Stock Incentive Plan are subject to the discretion of the Compensation Committee, the benefits that will be received by executive officers, directors and other employees if the Stock Incentive Plan is approved by stockholders are not currently determinable. Information about awards granted in fiscal year 2015 under the existing plan to the Company's NEOs can be found in this Proxy Statement under the heading "Compensation Discussion and Analysis—Executive Compensation Tables—Grants of Plan-Based Awards".
Equity Compensation |
The following table sets forth certain information regarding our equity compensation plans as of June 30, 2016.
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Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrant and rights | | Weighted Average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | | |||||||||
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Equity compensation plans approved by security holders (1) | 1,125,123 | $19.41 | 1,341,207 | |||||||||||||
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Equity compensation plans not approved by security holders (2) | - | - | - | |||||||||||||
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Total | 1,125,123 | $19.41 | 1,341,207 | |||||||||||||
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Our Compensation Committee regularly conducts risk assessments to determine the extent, if any, to which our compensation practices and programs may create incentives for excessive risk taking. Based on these reviews, we believe that for the substantial majority of our employees the incentive for risk taking is low, because their compensation consists largely of fixed cash salary and a cash bonus that has a capped payout. Furthermore, the majority of these employees do not have the authority to take action on our behalf that could expose us to significant business risks.
In 2015, as part of its assessment, the Compensation Committee reviewed the cash and equity incentive programs for senior executives and concluded that certain aspects of the programs actually reduce the likelihood of excessive risk taking. These aspects include the use of long-term equity awards to create incentives for senior executives to work for long-term growth of the Company, including limited claw-back provisions limiting the incentive to take excessive risk for short-term gains, imposing caps on cash bonuses, requiring compliance with our Code of Business Conduct and Ethics and giving the Compensation Committee the power to reduce discretionary bonuses.
For these reasons, we do not believe that our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on us.
PROPOSAL 7: RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Audit Committee selects and hires our independent registered public accounting firm and has appointed KPMG as the independent registered public accounting firm of the Company for the fiscal year ending June 30, 2017. KPMG was the independent registered public accounting firm for the Company for the fiscal year ended June 30, 2016. Representatives of KPMG will be present at the Annual Meeting and will be given the opportunity to make a statement if they so desire. They will also be available to respond to appropriate questions. We are asking you to ratify the appointment of KPMG as our independent registered public accounting firm.
Although ratification is not required by our By-Laws, the Board of Directors is submitting the appointment of KPMG to you for ratification as a matter of good corporate practice. If the Audit Committee's appointment is not ratified, it will reconsider the appointment, if appropriate. Even if the appointment is ratified, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the fiscal year if it determines that such a change would be in the best interests of the Company and our stockholders.
The affirmative vote of the holders of the majority of the votes present in person or represented by proxy at the Annual Meeting and entitled to vote thereon is required to ratify the appointment of KPMG as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2017.
The Board Of Directors unanimously recommends a voteFOR the ratification of the appointment of KPMG as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2017.
AUDIT COMMITTEE REPORT |
The Audit Committee assists the Board of Directors in fulfilling its oversight responsibility relating to the Company's financial statements and the financial reporting process, the system of internal accounting and financial controls, the internal audit function, and the annual independent audit of the Company's financial statements. However, management has the primary responsibility for the financial statements and the reporting process, including the system of internal control. The Company's independent registered public accounting firm, KPMG, has the primary responsibility to independently audit the Company's financial statements and its internal controls in accordance with the auditing standards of the Public Company Accounting Oversight Board. The duties of the Audit Committee include, but are not limited to:
In accordance with SEC regulations, the Audit Committee has approved an Audit Committee Charter describing the responsibilities of the Audit Committee. The Board of Directors has concluded that each member of the Audit Committee is independent within the meaning of the listing standards of the NYSE and the SEC, including the additional independence requirements applicable to audit committee members. See "Corporate Governance". The Board of Directors has determined that all Audit Committee members, as required by SEC regulations and NYSE rules, are financially literate with accounting or related finance management expertise, as interpreted by the Board of Directors. The Board of Directors has determined that each member of the Audit Committee is an "audit committee financial expert" as defined under Item 407(d)(5)(ii) of SEC Regulation S-K and independent as contemplated by Rule 10A-3 of the Exchange Act.
In fulfilling its oversight responsibilities, the Audit Committee reviewed, with management and KPMG, the audited financial statements contained within the Annual Report on Form 10-K, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures contained in those financial statements. In addition, in compliance with the Sarbanes-Oxley Act of 2002, the Audit Committee reviewed with management and KPMG, the Company's independent registered public accounting firm, the results of management's assessment of the effectiveness of the Company's system of internal control over financial reporting as of June 30, 2016 and KPMG's audit of internal control over financial reporting as of June 30, 2016.
The Audit Committee reviewed with KPMG, who is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, their judgment(s) as to the quality, not just the acceptability, of the Company's accounting principles. The Audit Committee also reviewed such other matters as are required to be discussed under applicable auditing standards of the Public Company Accounting Oversight Board (United States) (the "PCAOB"). The Audit Committee has received and reviewed with KPMG the written disclosures and letter regarding their independence required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence. The Audit Committee also discussed with KPMG their independence from management and the Company, and considered whether the non-audit services provided by KPMG to the Company are compatible with maintaining KPMG's independence.
The Company also has an internal audit department that reports to the Audit Committee. The Audit Committee reviews and approves the internal audit plan once a year and receives updates of internal audit results throughout the year. The Audit Committee discussed with the Company's internal auditors and KPMG the overall scope and plans for their respective audits. The Audit Committee met with the internal auditors and KPMG to discuss the results of their examinations, their evaluations of the Company's internal controls, and the overall quality of the Company's financial reporting.
The Audit Committee discussed with the Company's internal auditors and KPMG the overall scope and plans for their respective audits. The Audit Committee met independently with the internal auditors and KPMG, with and without management present, to discuss the results of their examinations, their evaluations of the Company's system of internal control and the overall quality of the Company's financial reporting practices, which included, but were not limited to, the review of the quarterly Form 10-Q filings and annual Form 10-K filing.
In reliance on the reviews and discussions referred to above, the Audit Committee approved the audited financial statements for the year ended June 30, 2016 be included in the Company's Annual Report on Form 10-K for the fiscal year then ended. The Audit Committee has selected KPMG LLP as our independent registered public accounting firm and has asked the stockholders to ratify the selection.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | |||||||
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Equity compensation plans approved by security holders(1) | 1,148,127 | $ | 21.28 | 1,347,311 | ||||||
Equity compensation plans not approved by security holders(2) | — | — | — | |||||||
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Total | 1,148,127 | $ | 21.28 | 1,347,311 | ||||||
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| CLINTON A. CLARK, CHAIR
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The Report of the Audit Committee does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Report of the Audit Committee by reference therein.
PROPOSAL 5THE APPROVAL OF THE INCENTIVE PERFORMANCE COMPONENTS OF AN EMPLOYMENTAGREEMENT WITH M. FAROOQ KATHWARI FOR PURPOSES OF TAX DEDUCTIBILITY
The Company's stockholders are being asked to approve the incentive performance components (the "Incentive Components") of the 2015 Employment Agreement between the Company and Mr. Kathwari. The Compensation Committee has unanimously approved and the independent members of the Company's Board of Directors have ratified the terms of the 2015 Employment Agreement, subject to stockholder approval of the Incentive Components, to wit, the performance-based bonuses and the performance-based restricted stock units. This Proposal 5 does not purport to summarize the entire 2015 Employment Agreement. For a full description of the 2015 Employment Agreement, see "Compensation Discussion and Analysis—Chief Executive Officer Employment Agreements, Incentive Bonus Payments and the Incentive and Performance Equity under 2015 Employment Agreement" above beginning on page [22].
The Company has had a longstanding practice of linking key employees' compensation to corporate performance. This increases employee motivation to improve stockholder value as the employees' rewards are directly related to the Company's success. A performance-based incentive arrangement rewards key employees for achieving objectives for the financial performance of the Company and/or its business units. The purposes of the Incentive Components in Mr. Kathwari's 2015 Employment Agreement were developed to leverage the substantial ownership interest that Mr. Kathwari maintains in the Company and to maintain superior performance and: (i) to motivate Mr. Kathwari to further improve stockholder value by linking a substantial portion of his compensation to the Company's on-going financial performance; (ii) to reward Mr. Kathwari for greatly improving the Company's financial performance; and (iii) to help retain the services of Mr. Kathwari.
Performance-Based Bonuses
Under the terms of the 2015 Employment Agreement, Mr. Kathwari will be entitled to an annual incentive bonus based upon the Company's Adjusted Operating Income. For purposes of computing Mr. Kathwari's annual incentive bonus, the Adjusted Operating Income for each fiscal year shall be the consolidated operating income of the Company as set forth in the Company's audited consolidated financial statement as of June 30th of each fiscal year adjusted by adding thereto the charges, expenses or accruals, if any, charged against such operating income for (1) non-recurring, extraordinary or unusual events, (2) annual bonuses, both incentive and discretionary, to officers and managers, including the annual incentive bonus, (3) share-based compensation expense recognized in accordance with ASC 718, or otherwise, including in respect of the issuance to the Company's executives, managers, employees, dealers and other business associates of capital stock of the Company, or the issuance or exercise to or by such persons of options, warrants or other rights to acquire capital stock of the Company, stock appreciation rights of the Company or similar equity equivalents, including in respect of restricted stock awards, performance-based stock awards and stock options contemplated by the 2015 Employment Agreement and prior employment agreements between the Company and Mr. Kathwari, and (4) any increased depreciation, amortization or other changes resulting from purchase accounting adjustments by virtue of acquisitions or business combinations by the Company, Ethan Allen Global, Inc. or any affiliate of the Company (provided, however, that no such adjustments will be made under this clause (4) with respect to acquisitions occurring prior to the effective date of the 2015 Employment Agreement) ("Adjusted Operating Income").
For purposes of Mr. Kathwari's annual incentive bonus for each fiscal year, the Compensation Committee of your Board, subject to review and ratification by your Board, will set and establish the target and goal (the "AIB Annual Target") for Adjusted Operating Income for such fiscal year within 90 days following the commencement of that fiscal year, provided, that if the Compensation Committee, subject to
review and ratification of your Board, does not set and establish the AIB Annual Target for any fiscal year for any reason or no reason, then the AIB Annual Target for that fiscal year will automatically be set and established as a five percent (5%) increase and improvement in Adjusted Operating Income as compared to the actual Adjusted Operating Income for the immediately preceding fiscal year. Mr. Kathwari's annual incentive bonus for a given fiscal year will be determined by reference to the achievement of the Company of its Adjusted Operating Income for that fiscal year measured against the AIB Annual Target for that fiscal year as follows:
Adjusted Operating Income Achievement Level | Performance (as Percentage of AIB Annual Target) | Payout (as Percentage of Base Salary) | Annual Incentive Bonus Amount | |||||
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Minimum Threshold | 80 - 85% | 33% | $ | 375,000 | ||||
AIB Annual Target | 100% | 65% | $ | 750,000 | ||||
Maximum | 120 - 130% | 148% (i.e., above target bonus) | $ | 1,700,000 |
Mr. Kathwari will only be entitled to receive the annual incentive bonus with respect to a fiscal year if and to the extent the Adjusted Operating Income performance targets and goals are achieved. For the avoidance of doubt, Mr. Kathwari shall not be entitled to earn or receive an annual incentive bonus for a fiscal year where the actual Adjusted Operating Income Achievement Level is less than 80% of the AIB Annual Target for such fiscal year (but the failure to earn and receive an annual incentive bonus for any fiscal year will not affect the right to receive an annual incentive bonus earned for a subsequent fiscal year).
If the Adjusted Operating Income for a fiscal year is between the Minimum Threshold and the AIB Annual Target, or the AIB Annual Target and the Maximum, the specific amount of the annual incentive bonus for that fiscal year will be linearly interpolated on a straight line basis based on actual performance (as a percentage of the AIB Annual Target), interpolated linearly either between the Minimum Threshold and the AIB Annual Target or between the AIB Annual Target and the Maximum, respectively, and then utilizing that same percentile for the determination of the annual incentive bonus, interpolated linearly either between the Minimum Threshold and the AIB Annual Target or between the AIB Annual Target and the Maximum, respectively.
If the Company effects a major acquisition which acquisition constitutes a change of ownership or control of the Company within the meaning of Treas. Reg. Section 1.162-27(e)(2)(v) during any fiscal year, Mr. Kathwari and the Company shall negotiate in good faith an appropriate revision to the threshold amount to implement the purpose of the annual incentive bonus such that the annual incentive bonus may be payable even if the threshold amount is not achieved with respect to such fiscal year.
As soon as practicable after the end of each fiscal year but before an annual incentive bonus is paid in respect of such fiscal year, the Compensation Committee shall certify in writing whether (and the extent to which) the performance goals have been attained and the amount of the annual incentive bonus payable to Mr. Kathwari in respect of such fiscal year.
Mr. Kathwari's right to receive (or retain) any annual incentive bonus will be subject to "clawback" or similar obligations set forth in Company policies duly approved by your Board and required by applicable laws and regulations (including by any securities exchange) from time to time and applicable to the Company and Mr. Kathwari.
Performance-Based Restricted Stock Units
Under the terms of the 2015 Employment Agreement, Mr. Kathwari will also be entitled to performance-based restricted stock units ("Performance Units") providing a contingent right to receive shares of the Common Stock, conditioned upon the Company's achievement of certain performance targets and goals, and subject to the terms of the 2015 Employment Agreement and a separate performance-based stock unit agreement to be executed by Mr. Kathwari and the Company.
Each fiscal year during the term of Mr. Kathwari's employment under the 2015 Employment Agreement, Mr. Kathwari shall be granted Performance Units entitling Mr. Kathwari to earn 0 to 81,250 shares of the Common Stock, with each such grant to be made within ninety (90) days of the beginning of each fiscal year and earning of such shares of Common Stock to be contingent upon the performance of the Company in accordance with the 2015 Employment Agreement and the applicable performance-based stock unit agreement, such that Performance Units in relation to up to 406,250 shares of Common Stock could be earned during the full term of Mr. Kathwari's employment under the 2015 Employment Agreement.
The number of shares of Common Stock issuable in respect of each Performance Unit as of the date of the 2015 Employment Agreement is one share and the aggregate number of shares of Common Stock issuable with respect to a grant of Performance Units under the 2015 Employment Agreement for any fiscal year is specified as of the date of the 2015 Employment Agreement. Such number or numbers of shares shall be adjusted for stock splits, stock dividends, reclassifications, recapitalizations and similar events in respect of the Common Stock occurring after the date of the 2015 Employment Agreement.
For purposes of the Performance Units to be granted for each fiscal year, the Compensation Committee, subject to review and ratification by your Board, will set and establish the target and goal (the "PSU Annual Target") for Adjusted Operating Income Per Share for such fiscal year and for each of the two immediately following fiscal years (for a total of three fiscal years) within 90 days following the commencement of that initial fiscal year, provided, that if the Compensation Committee, subject to review and ratification of your Board, does not set and establish the PSU Annual Target for any of such fiscal years for any reason or no reason, then the PSU Annual Target will automatically be set and established for each such fiscal year as a five percent (5%) increase and improvement in actual Adjusted Operating Income Per Share as compared to the Adjusted Operating Income Per Share for the immediately preceding year, assuming no change in the number of outstanding shares of Common Stock on a diluted weighted average common share basis as set forth in the Company's audited consolidated financial statements. If there shall have been a change in such number, the PSU Annual Target and such Actual Adjusted Operating Income Per Share shall be correspondingly adjusted by the Compensation Committee. Pursuant to the 2015 Employment Agreement, "Adjusted Operating Income Per Share" means the Adjusted Operating Income divided by the number of outstanding shares of Common Stock on a diluted weighted average common share basis as reflected in the Company's audited consolidated financial statement.
For each grant of Performance Units, the amount of the grant that will be earned and paid will be determined by reference to the achievement of the Company of the PSU Annual Target for each of the two initial fiscal years (on a cumulative basis) and the three fiscal years (on a cumulative basis) applicable to such grant.
Adjusted Operating Income Per Share Achievement Level | Performance as Percentage of Cumulative PSU Annual Target for Applicable Two or Three Year Period | Percentage of Units Earned (Per Grant) | Number of Earned Units (Per Grant) | |||||
---|---|---|---|---|---|---|---|---|
Threshold | 80 - 85% | 50% | 32,500 | |||||
Target | 100% | 100% | 65,000 | |||||
Maximum | 115 - 120% | 125% (i.e., more than target award) | 81,250 |
Performance Units for each grant may be earned over either a two fiscal year or three fiscal year period. Accordingly, if Performance Units with respect to a grant are earned in the first two fiscal years in relation to such grant, then those Performance Units shall be paid. If all of the Performance Units with respect to a grant are earned during such two fiscal years, then no additional Performance Units in relation to that grant shall be earned in the third fiscal year. If less than all of the Performance Units with respect to a grant are earned in the first two fiscal years in relation to that grant (due to shortfalls or otherwise), then any unearned Performance Units in relation to such grant shall be earned in the third fiscal year in relation to that grant to the extent that the number of Performance Units earned during the three fiscal years in relation to such grant exceeds the number of Performance Units earned in relation to such two fiscal years. For illustrative purposes only, if, as a result of the Company's cumulative performance for fiscal year one and two, Mr. Kathwari would earn 65,000 Performance Units (each of which would represent one share of Common Stock unless adjusted pursuant to the 2015 Employment Agreement, the applicable performance-based stock unit agreement and the Option Plan and which would be paid by issuance of such Common Stock after such results are certified by the Compensation Committee) and, as a result of the Company's cumulative performance for fiscal year one, two and three, Mr. Kathwari would earn 70,000 Performance Units, then Mr. Kathwari would earn an additional 5,000 Performance Units for fiscal year three (which would be similarly paid).
If the Adjusted Operating Income Per Share for an applicable two or three fiscal year period is between the Minimum Threshold and the PSU Annual Target, or the PSU Annual Target and the Maximum, the specific amount of the Performance Units earned in relation to a grant for that period will be linearly interpolated on a straight line basis based on actual performance (as a percentage of PSU Annual Target), interpolated linearly either between the Minimum Threshold and the PSU Annual Target or between the PSU Annual Target and the Maximum, respectively, and then utilizing that same percentile for the determination of the number of Performance Units earned, interpolated linearly either between the Minimum Threshold and the PSU Annual Target or between the PSU Annual Target and the Maximum, respectively.
If the Company effects a major acquisition which acquisition constitutes a change of ownership or control of the Company within the meaning of Treas. Reg. Section 1.162-27(e)(2)(v) during any fiscal year, Mr. Kathwari and the Company shall negotiate in good faith an appropriate revision to the threshold amounts set forth above to implement the purpose of the Performance Units such that the Performance Units may be payable even if the threshold amount is not achieved with respect to such fiscal year.
Mr. Kathwari's right to receive (or retain) any Performance Units or benefits for Performance Units is conditional upon the achievement of the PSU Annual Targets.
As soon as practicable after the end of each applicable two or three fiscal year period but before the amount of earned Performance Units is determined in respect of such period, the Compensation Committee shall certify in writing whether (and the extent to which) the performance goals have been attained and the number of Performance Units earned for each grant in respect of such period.
Moreover, Mr. Kathwari's right to receive (or retain) any Performance Units or benefits of the Performance Units will be subject to "clawback" or similar obligations set forth in Company's policies duly
approved by your Board and required by applicable laws and regulations (including by any securities exchange) from time to time applicable to the Company and Mr. Kathwari, and furthermore, will be subject to retention and restriction on sale, hedging, transfer or similar obligations in relation to Company executives set forth in Company policies duly approved by your Board.
Under Section 162(m) of the Code, the federal income tax deductibility of compensation paid to the Company's Chief Executive Officer and to each of its next three most highly compensated NEOs (other than the Principal Financial Officer) may be limited to the extent that it exceeds $1 million in any one year. The Company can deduct compensation in excess of that amount if it qualifies as "performance-based compensation" under Section 162(m) of the Code. For the Incentive Component, to qualify as "performance-based compensation" and to be paid under the 2015 Employment Agreement, the Incentive Components of the 2015 Employment Agreement must be approved by stockholders. The 2015 Employment Agreement is intended to permit the Company to pay incentive compensation which qualifies as "performance-based compensation", thereby permitting the Company to receive a federal income tax deduction for the payment of such incentive compensation. If the Compensation Committee or Board of Directors makes a discretionary incentive compensation payment in the case of extraordinary economic circumstances under the 2015 Employment Agreement, such discretionary incentive compensation payment will not be tax-deductible under Section 162(m) of the Code.
If approved by stockholders, the Incentive Components will be effective for the bonus and Performance Unit performance period commencing July 1, 2015 and ending June 30, 2016 and for the six following fiscal years, assuming the two one-year extensions are exercised, unless the 2015 Employment Agreement is sooner terminated.
THIS SUMMARY OF THE INCENTIVE PROVISIONS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DESCRIPTION OF THE 2015 EMPLOYMENT AGREEMENT LOCATED UNDER "COMPENSATION DISCUSSION AND ANALYSIS—CHIEF EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS, INCENTIVE BONUS PAYMENTS AND THE INCENTIVE AND PERFORMANCE EQUITY UNDER 2015 EMPLOYMENT AGREEMENT" BEGINNING ON PAGE [22].
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE INCENTIVE PERFORMANCE COMPONENTS OF THE 2015 EMPLOYMENT AGREEMENT, WHICH IS DESIGNATED AS PROPOSAL NO. 5 ON THE ENCLOSED PROXY CARD.
The following table represents a summary of professional fees paid to KPMG for services rendered in connection with: (i) the audit for the Company's annual financial statements for the fiscal years ended June 30, 2016 and 2015; and (ii) other matters.
| | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | | |||||||
| | | | | | | | | | | | | | |
Audit fees (1) | 1,350,000 | 1,285,942 | ||||||||||||
| | | | | | | | | | | | | | |
| Audit-related fees (2) | | | 9,500 | | | 44,000 | | ||||||
| | | | | | | | | | | | | | |
Tax fees (3) | 12,884 | 8,874 | ||||||||||||
| | | | | | | | | | | | | | |
| All other fees (4) | | | — | | | — | | ||||||
| | | | | | | | | | | | | | |
Total fees | 1,372,384 | 1,338,817 | ||||||||||||
| | | | | | | | | | | | | | |
The Audit Committee has determined that the provision of tax and other services by the independent registered public accounting firm is compatible with maintaining their independence.
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To help assure the independence of the Company's independent registered public accounting firm, the Audit Committee has established a policy whereby all audit and non-audit engagements proposed to be performed by the independent registered public accounting firm must be approved in advance by the Chair of the Audit Committee or, in the Chair's discretion or in the case that any such engagement is more than $10,000, the entire Audit Committee. All of the service provided to us by KPMG for which we paid Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees, as shown in the table above, were approved by the Audit Committee in accordance with this pre-approval policy.
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Section 16(a) of the Exchange Act requires our executive officers and directors, owners of over 10% of our Common Stock, and some persons who formerly were executive officers or directors, to file reports of ownership and changes in ownership with the SEC and the NYSE and furnish us with a copy of each report filed. Based solely on our review of copies of the reports by some of those persons and written representations from others that all reports were filed or that no reports were required, we believe that during fiscal year 2015 all Section 16(a) filing requirements were complied with in a timely fashion.
Security Ownership of Common Stock of Certain Owners and Management
The following table sets forth, as of October 5, 2015, except as otherwise noted, information with respect to beneficial ownership of the Common Stock in respect of: (i) each director and NEO (as defined above) of the Company; (ii) all directors and NEOs of the Company as a group; and (iii) based on information available to the Company and a review of statements filed with the SEC pursuant to Section 13(d) and/or 13(g) of the Exchange Act, each person or entity that beneficially owned (directly or together with affiliates) more than 5% of the Common Stock. The Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common Stock indicated
as beneficially owned by them, except as otherwise noted. Unless otherwise noted below, the address for each listed director and NEO is Ethan Allen Interiors Inc., Ethan Allen Drive, Danbury, CT 06810.
Name and Address of Beneficial Owner | | Shares Beneficially Owned(1) | Common Stock Percentage Ownership(1) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Directors and Executive Officers: | ||||||||||
M. Farooq Kathwari | (2 | ) | 3,265,085 | 11.3 | % | |||||
James B. Carlson | (3 | ) | 13,700 | * | ||||||
Clinton A. Clark | (4 | ) | 11,533 | * | ||||||
John J. Dooner, Jr | (5 | ) | 9,547 | * | ||||||
Dominick J. Esposito | (6 | ) | 1,000 | * | ||||||
Kristin Gamble | (7 | ) | 36,547 | * | ||||||
James W. Schmotter | (8 | ) | 11,247 | * | ||||||
Tara I. Statcom | — | * | ||||||||
Frank G. Wisner | (9 | ) | 17,647 | * | ||||||
Daniel Grow | (10 | ) | 7,720 | * | ||||||
Eric D. Koster | — | * | ||||||||
Tracy Paccione | (11 | ) | 12,021 | * | ||||||
Corey Whitely | (12 | ) | 33,720 | * | ||||||
| | | | | | | | | | |
Named executive officers and directors as a group | 3,419,767 | 11.8 | % | |||||||
| | | | | | | | | | |
Other Principal Stockholders: | ||||||||||
Royce & Associates, LLC | (13 | ) | 3,176,940 | 11.0 | % | |||||
BlackRock, Inc | (14 | ) | 3,017,310 | 10.5 | % | |||||
Odey Asset Management Group LTD | (15 | ) | 2,010,000 | 7.0 | % | |||||
The Vanguard Group | (16 | ) | 1,707,545 | 5.9 | % | |||||
FMR, LLC | (17 | ) | 1,655,149 | 5.7 | % | |||||
Sandell Asset Management Corp | (18 | ) | 1,563,854 | 5.4 | % | |||||
T. Rowe Price Associates, Inc | (19 | ) | 1,480,410 | 5.1 | % |
Common Stock as per their Schedule 13G filing with the SEC on February 17, 2015. T. Rowe Price's address is 100 E. Pratt Street, Baltimore, MD 21202.
The only known purchases or sales of shares of Common Stock within the past two years by a "participant" (as defined in Instruction 3 to Item 4 of Schedule 14A) in this solicitation are:
No participant in this solicitation is party to any contract, arrangement, or understanding with any person with respect to any securities of the Company, other than related to any securities the participant may be entitled to acquire pursuant to the Stock Incentive Plan. Except for Mr. Kathwari, who is party to the 2011 Employment Agreement and the 2015 Employment Agreement with the Company, no participant or any associates of any participant has any arrangement or understanding with any person with respect to any future employment by the Company or its affiliates or with respect to any future transactions to which the Company or any of its affiliates will or may be party.
Proxy Solicitation Expense |
The expense of the proxy solicitation will be paid by the Company. In addition to the solicitation of proxies by use of the mail, solicitation also may be made by telephone, telegraph or personal interview by directors, officers and regular employees of the Company, none of whom will receive additional compensation for any such solicitation. The Company has engaged Georgeson LLC ("Georgeson") located at 1290 Avenue of the Americas, New York, New York 10104, a professional proxy solicitation firm, to provide customary solicitation services for a fee of $7,500 plus out-of-pocket expenses. The Company does not anticipate that the proxy solicitation will be paid by the Company. In addition to the solicitation of proxies by use of the mail, solicitation also may be made by telephone, telegraph or personal interview by directors, officers and regular employees of the Company, none of whom will receive additional compensation for any such solicitation. As a result of the proxy solicitation by Sandell, we may incur additional costs in connection with our solicitation of proxies. We have hired Georgeson Inc. ("Georgeson") located at 1290 Avenue of the Americas, New York, New York 10104, to assist us in the solicitation of proxies for a fee of up to $80,000.00 plus out-of-pocket expenses. Georgeson expects that approximately 45 of its employees will assist in the solicitation. Our expenses related to the solicitation of proxies from stockholders this year will significantly exceed those normally spent for an Annual Meeting. Such costs are expected to aggregate approximately $300,000, exclusive of any potential litigation costs and expenses incurred in connection with this proxy solicitation will exceed those normally expended for a proxy solicitation for those matters to be voted on at the Annual Meeting. These additional solicitation costs are expected to include the fee payable to our proxy solicitor; fees of outside counsel and financial and other advisors to advise the Company in connection with a contested solicitation of proxies; increased mailing costs, such as the costs of additional mailings of solicitation material to stockholders, including printing costs, mailing costs and the reimbursement of reasonable expenses of banks, brokerage houses and other agents incurred in forwarding solicitation materials to beneficial owners of our Common Stock, as described above; and possibly the costs of retaining an independent inspector of election. To date, we have incurred approximately $110,000 of these solicitation costs.
Stockholder Proposals
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Nominations of persons for election to the Board of Directors along with stockholder proposals may be made at any annual meeting of stockholders by any stockholder of the Company: (i) who is a stockholder of record on the date of the giving of the notice and on the Record Date, and (ii) who complies with the notice procedures.
For the nomination or proposal to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Corporate Secretary of the Company.
Pursuant to our by-laws and applicable SEC rules and regulations, in order for any business not included in the proxy statement for the 2017 Annual Meeting of Stockholders to be brought before the meeting by a stockholder entitled to vote at the meeting, the stockholder must give timely written notice of that business to our Corporate Secretary. To be timely, a stockholder's notice to the Corporate Secretary must be delivered to or mailed and received at the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the date of the annual meeting; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs1. The notice must contain the information required by our by-laws. The foregoing by-law provisions do not affect a stockholder's ability to request inclusion of a proposal in our proxy statement within the procedures and deadlines set forth in Rule 14a-8 of the SEC's proxy rules and referred to in the paragraph above. A copy of our by-laws is available upon request to: Ethan Allen Interiors, Inc., PO BOX 1966, Danbury, CT 06813, Attention: Corporate Secretary. The officer presiding at the meeting may exclude matters that are not properly presented in accordance with these requirements.
Availability of Annual Report |
The 2016 Annual Report is being mailed with this proxy statement to those stockholders that received a copy of the proxy materials in the mail. For those stockholders that received the Notice of Internet Availability of Proxy Materials, this proxy statement and our 2016 Annual Report are available at our website at ethanallen.com/investors. Additionally, and in accordance with SEC rules, you may
1 Please note that in the event that the stockholders approve amendments to the Company's By-laws as set forth in Proposals 2, 3, 4, and 5, then the time frame for a nomination or other proposal to be properly brought before an annual meeting by a stockholder ("Stockholder Notice" in case of nominations or "Notice of Business" in the case of other proposals, collectively "Notice") will be altered. In summary, to be timely, such Notice to the Secretary must be delivered to or mailed and received at the principal offices of the Company not less ninety (90) days nor more than one hundred (120) days prior the anniversary date of the immediately preceding annual meeting; provided, however that in the event that less than one hundred (100) days' notice or prior Public Announcement of the date of the annual meeting is given or made to stockholders, the Notice must be received by the Company's Secretary by not later than the close of business on the tenth (10th) day following the day on which such notice of the date the annual meeting was mailed. Please see Article II, Section 9.1 and Section 10 of the proposed Amended and Restated By-Laws of the Company for the full text of the amended provisions regarding Notice.
access our proxy statement atwww.proxyvote.com.Upon written request by any stockholder to Office of the Corporate Secretary, Ethan Allen Interiors Inc., Ethan Allen Drive, Danbury, Connecticut 06811, we will furnish, without charge, a copy of the 2016 Annual Report, including the financial statements and the related footnotes. The Company's copying costs will be charged if exhibits to the 2016 Annual Report on Form 10-K are requested. We will send you a copy of our Annual Report on Form 10-K for the fiscal year ended June 30, 2015 without charge if you send a written request to Office of the Corporate Secretary, Ethan Allen Interiors Inc., Ethan Allen Drive, Danbury, Connecticut 06811. You can also obtain copies of our Form 10-K and any other reports we file with the SEC through the SEC's website atwww.sec.gov or on our website atwww.ethanallen.com/investors.
Other Business |
As of the date of this proxy statement, we do not know of any other matters that may be presented for action at the meeting. Should any other business properly come before the meeting, the persons named on the enclosed proxy will, as stated therein, have discretionary authority to vote the shares represented by such proxy in accordance with their best judgment.
| Corporate Secretary October 4, 2016
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AMENDED ANDRESTATED CERTIFICATE OF INCORPORATION
OF
ETHAN ALLEN INTERIORS INC.
* * * * *
ETHAN ALLEN INTERIORS INC., a Delaware corporation (the "Corporation") hereby certifies as follows:
1. The name of the Corporation is Ethan Allen Interiors Inc. and the name under which the Corporation was originally incorporated was Green Mountain Holding Corporation. The date of the filing of its original Certificate of Incorporation with the Secretary of State was May 25, 1989.
2. The Corporation previously amended and restated its Certificate of Incorporation by filing a Restated Certificate of Incorporation with the Secretary of State of Delaware on each of June 28, 1989, June 29,1989 and1989, March 19, 1991,and March 23, 1993,and by filing a Certificate of Amendment oneach ofJanuary 27,1993.1993, August 5, 1997, March 27, 1998, April 28, 1999, December 6, 2013, and December 11, 2015.
3. ThisAmended andRestated Certificate of Incorporation was duly adopted in accordance with Section 242 and Section 245 of the Delaware General Corporation Law (the "Delaware Law").4. The Corporation's Board of Directors has duly adopted this Restated Certificate of Incorporation in accordance with the provisions of Section 245 of the Delaware Law. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Corporation's Certificate of Incorporation, as theretofore amended or supplemented or restated, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.
5.4. The text of the corporation's Certificate of Incorporation, as heretofore amended or supplemented or restated, is hereby amended and restated to readin its entirety as follows: .as herein set forth in full:
FIRST: The name of the Corporation is Ethan Allen Interiors Inc.
SECOND: The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (the "Delaware Law").
FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is151,655,000151,055,000 shares, consisting of150,000.000150,000,000 shares of Common Stock, par value4.01$0.01 per share (the "Plan") are to increase stockholder value, to advance the interests of Ethan Allen Interiors, Inc. (the "Company"), its wholly owned subsidiary, Ethan Allen Global, Inc. ("Global"), and its other subsidiaries and affiliates (collectively with Global, the "Subsidiaries" and, together with the Company, "Ethan Allen"), to strengthen Ethan Allen's ability to attract and retain the services of experienced and knowledgeable independent directors, to enhance Ethan Allen's ability to attract, retain and motivate employees, and to provide such directors and employees with an opportunity to acquire an equity interest in the Company. The Plan was previously known as the 1992 Stock Option Plan, which was amended and stated through January 27, 2015 and is hereby further amended as of September 30, 2015 and restated as amended in its entirety in one document.
2. Administration.
2.1 Administration, Generally. Subject to the terms and conditions of the Plan, the Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Board") or by such other committee of the Board as the Board may determine (the "Committee"). If no such Committee exists, references herein to the Committee shall be deemed to be references to the Board.
2.2 Authority. Subject to the terms and conditions of the Plan, the Committee shall have the authority to (a) manage and control the operation of the Plan, (b) interpret and construe the provisions of the Plan or the provisions of any award under the Plan and prescribe, amend and rescind rules and regulations relating to the Plan, (c) make awards under the Plan, in such forms and amounts and subject to such restrictions, limitations and conditions as it deems appropriate, including, without limitation, awards which are made in combination with or in tandem with other awards (whether or not contemporaneously granted), (d) modify the terms of, cancel and reissue, or repurchase outstanding awards, (e) prescribe the form of agreement, certificate or other instrument evidencing any award under the Plan, (f) correct any defect or omission and reconcile any inconsistency in the Plan or in any award hereunder, and (g) make all other determinations and take all other actions as it deems necessary or desirable for the implementation and administration of the Plan;provided, however, the Committee shall not have the authority to: (i) (a) amend any outstanding Stock Option (as defined in subsection 6.1) or SAR (as defined in subsection 6.1) granted under the Plan to provide an exercise price per share that is lower than the then current exercise price per share of such outstanding Stock Option or SAR, (b) cancel any outstanding Stock Option or SAR granted under the Plan and grant in substitution therefor new awards under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then current exercise price per share of the cancelled Stock Option or SAR, (c) cancel in exchange for a cash payment any outstanding Stock Option or SAR with an exercise price per share above the then current Fair Market Value (as defined in subsection 9.12) of a share of Common Stock (as defined in subsection 4.1), or (d) take any other action under the Plan that constitutes a "repricing" within the meaning of the rules of the New York Stock Exchange ("NYSE"); (ii) grant a Stock Option under the Plan which contains any provision entitling the Participant to the automatic grant of additional Stock Options in connection with any exercise of the original Stock Option; or (iii) grant a SAR under the Plan which contains any provision entitling the Participant to the automatic grant of additional SARs in connection with any exercise of the original SAR.
Notwithstanding the foregoing provisions of this subsection 2.2, the Chief Executive Officer ("CEO") of the Company shall submit his recommendation for awards under the Plan to the Committee. The Committee shall duly consider the recommendations of the CEO, and shall have the authority to accept, modify or reject the CEO's recommendation or to request the CEO to reconsider such recommendation. The determination of the Committee on matters within its authority shall be conclusive and binding on the Company and all other persons.
3. Participation. Subject to the terms and conditions of Section 2 and the remainder of the Plan, the Committee shall determine and designate from time to time the directors of the Company and employees of Ethan Allen who shall receive awards under the Plan ("Participants"). The granting of awards, if any, and the size of such awards are purely discretionary, and, no employee or director shall have any right or privilege to be considered as a Participant, and no Participant shall have any right or privilege to receive, or be deemed to have an expectation of being recommended for, an award.
4. Shares Subject to the Plan.
4.1 Number of Shares Reserved. Shares of common stock, $.01 par value, of the Company ("Common Stock"),600,000 shares of Class B Common Stock, par value $.01 per share (the "Class B Common Stock"), and 1.055,000and 1,055,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock").
The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be availablestated and expressed in the resolution or resolutions adopted by the Board of Directors providing for awards under the Plan. Toissuance of such class or series and as may be permitted by the extent provided by resolutionGeneral Corporation Law of the Board,State of Delaware, including, without limitation, the authority to provide that any such sharesclass or series may be uncertificated. Subject(i) subject to redemption at such time or times and at such price or prices and upon such terms and conditions; (ii) entitle to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, or debt or obligations, of the Corporation at such price or prices or at such rates of exchange and with such adjustments and upon such terms and conditions; all as may be stated in accordance with subsections 4.2 and 4.3 for events occurring after October 10, 2007, the aggregate number ofsuch resolution or resolutions.
Except as herein otherwise expressly provided, all shares of Common Stock available for awards under the Plan (including anyand Class B Common Stock Options which are intended(collectively referred to be Incentiveherein as "All Common Stock Options)") shall be equal to 6,487,867.(1)
4.2 Reusage of Shares.
(a) Inidentical and shall entitle the event of the exercise or termination (by reason of forfeiture, expiration, cancellation, surrender or otherwise) of any award under the Plan, the number of shares of Common Stock that was subjectholders thereof to the award but not delivered shall again be available for awards under the Plan.
(b) Notwithstanding the provisions of subsection 4.2(a), the following shares shall not be available for reissuance under the Plan: (i) shares which are withheld from any award or payment under the Plan to satisfy tax withholding obligations (as described in subsection 9.6(e)); (ii) shares which are surrendered to fulfill tax obligations (as described in subsection 9.6(e));same rights and (iii) shares which are surrendered in payment of the Option Price (as defined in subsection 6.1) upon the exercise of a Stock Option.
4.3 Adjustments to Shares. In the event of any merger, consolidation, reorganization, recapitalization, spinoff, split-up, stock dividend, stock split, reverse stock split, repurchase, exchange or other distribution (including, without limitation, any extraordinary dividend) with respect to shares of Common Stock or other change in the corporate structure or capitalization affecting the Common Stock, the type and number of shares, other securities, cash or other property, which are or may be subject to awards under the Plan and the terms of any outstanding awards (including, so long as it does not cause a Stock Option to cease to be Performance-Based Compensation of Section 162(m) of the Code (as defined below)) the price at which shares may be issued pursuant to an outstanding award) shall be equitably adjusted by the Committee, in its sole discretion, to preserve the value of benefits awarded or to be awarded to Participants under the Plan. References herein to "shares" and "Common Stock" shall include any shares, other securities, cash or other property which becomes subject to outstanding awards or as to which awards may be subsequently granted pursuant to this subsection 4.3.privileges.
4.4 Individual Limits. The maximum number of shares of Common Stock that may be covered by Stock Options (including ISOs (as defined below)) and SARs granted to any one individual during any fiscal year of the Company shall be 500,000 shares (subject to adjustment in accordance with subsection 4.3). For Restricted Stock or Stock Unit awards that are intended to constitute "Performance-Based Compensation" (within the meaning of section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations thereunder), the maximum number of shares of Common Stock that may be delivered to any one individual with respect to such awards granted during any fiscal year of the Company shall be 500,000 shares (subject to adjustment in accordance with subsection 4.3).
5. 1.Restricted Stock and Stock Units Dividends..
5.1 Awards. Subject to the termspreferences and conditionsother rights of any class or series of Preferred Stock then outstanding, the Board of Directors of the Plan, thereCorporation may cause dividends to be paid to the holders of shares of All Common Stock out of funds legally available for the payment of dividends by declaring an amount per share as a dividend. When and as dividends are declared, whether payable in cash, in property or in shares of stock of the Corporation, the holders of All Common Stock shall be designated the Participantsentitled to whomshare equally, share for share, in such dividends.No dividends shall be declared or paid in shares of RestrictedAll Common Stock, or options, warrants, or rights to acquire such stock or securities convertible into or exchangeable for shares of All Common Stock, Units areexcept dividends payable ratably according to the number of shares of the class (Common Stock or Class B Common Stock) of All Common Stock held by such holders, in shares of, or securities convertible into or exchangeable for, the class of All Common Stock (Common Stock or Class B Common Stock) as is held by that holder, be it Common Stock or Class B Common Stock. Neither the Common Stock nor the Class B Common Stock may be subdivided, split, consolidated or reclassified unless the other is ratably subdivided, split, consolidated or reclassified.
2. Liquidation Rights. Subject to the preferences and other rights of any class or series of Preferred Stock then outstanding, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of All Common Stock shall be entitled, to share, ratably according to the number of shares of All Common Stock held by them, in all remaining assets of the Corporation available for distribution to its stockholders.
3. Voting Rights. Except as otherwise provided in this Certificate of Incorporation (including, without limitation, any amendments to, restatements of or designations regarding any series or class of Preferred Stock) or by applicable law, only the holders of Common Stock shall be entitled to vote on each matter on which the stockholders of the Corporation shall be entitled to vote, and each holder of Common Stock shall be entitled to one vote for each share of Common Stock held by him;provided, however, (i) the holders of Class B Common Stock shall have no right to vote on any matters to be awardedvoted on by the stockholders of the Corporation and (ii) the Class B Common Stock shall not be included in determining the number of shares voting or entitled to vote on such matters.
4.Conversion of Class B Common Stock; Reservation of Shares.
a. Subject to and upon compliance with the provisions of thisparagraph 4, each record holder of Class B Common Stock may convert the number of shares of his Class B Common Stock specified in the followingclauses (i) and(ii) into the same number of shares of Common Stock if such shares of Common Stock are concurrently, or immediately thereafter, sold in accordance with the following:
(i) such shares of Common Stock are sold by such holder in a public offering pursuant to an effective registration statement filed by the Corporation under the Plan,Securities Act of 1933, as amended (the "1933 Act"), provided that the number and terms of the shares of RestrictedClass B Common Stock to be awarded to each of them and, with respect to an award of a Stock Unit,so converted does not exceed the number of shares of Common Stock coveredactually sold by and terms of the Stock Unitsuch holder pursuant to be awarded to each of them. For purposes of the Plan, "Restricted Stock" is a grant of Common Stock which Common Stock is subject to a risk of forfeituresuch registration statement; or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, as determined by the Committee. For purposes of the Plan, a "Stock Unit" is a grant of a right to receive a share of Common Stock in the future upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, as determined by the Committee.
5.2 Restrictions. Shares of Restricted Stock and Stock Units awarded under the Plan shall be subject to(ii) such conditions, restrictions and contingencies as the Committee shall determine, including provisions relating to dividend or dividend equivalent rights.
5.3 Performance-Based Compensation. The Committee may designate an award of Restricted Stock or a Stock Unit granted to any Participant as Performance-Based Compensation. To the extent required by section 162(m) of the Code, any award that is so designated shall be conditioned on the achievement of one or more performance targets as determined by the Committee. The performance targets established by the Committee may be with respect to corporate performance, operating group or sub-group performance, individual company or business unit performance, other group or individual performance, or division performance, and shall be based on one or more of the Performance Criteria (described in subsection 5.4). At the time of grant, the Committee shall designate whether an award of Restricted Stock or an award of a Stock Unit is intended to constitute Performance-Based Compensation.
5.4 Performance Criteria and Targets. For purposes of the Plan, "Performance Criteria" shall mean performance targets based on one or more of the following criteria: (a) earnings (including operating income, earnings before or after taxes, or earnings before or after interest, depreciation, amortization, or special, extraordinary or non-recurring items) or book value per share (which may exclude nonrecurring items) or net earnings; (b) pre-tax income or after-tax income; (c) earnings per share (basic or diluted); (d) operating profit; (e) revenue, revenue growth or rate of revenue growth; (f) return on assets (gross or net), return on investment (including cash flow return on investment), return on capital (including return on total capital or return on invested capital), or return on equity; (g) returns on sales or revenues; (h) operating expenses; (i) stock price appreciation; (j) cash flow (before or after dividends), free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, cash flow in excess of cost of capital or cash flow per share (before or after dividends); (k) implementation or completion of critical projects or processes; (l) economic value created; (m) cumulative or compound earnings per share growth; (n) operating margin or profit margin; (o) stock price or total stockholder return; (p) cost targets, reductions and savings, productivity or efficiencies; (q) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, or information technology goals, or goals relating to acquisitions, divestitures, joint ventures and similar transactions, or budget comparisons; (r) personal professional objectives, including any of the foregoing performance targets, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, or the completion of other corporate transactions; (s) funds from operations (FFO) or funds available for distribution (FAD); (t) economic value added (or an equivalent metric); (u) stock price performance; (v) improvement in or attainment of expense levels or working capital levels; or (w) any combination of, or a specified increase in, any of the foregoing. Where applicable, the performance targets
may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company, a Subsidiary or a division, operating group or sub-group or business unit of Ethan Allen or an individual or group, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The performance targets may include a threshold level of performance below which no vesting will occur, levels of performance at which specified vesting will occurs, and a maximum level of performance above which full vesting will occur. Each of the foregoing performance targets shall be determined in accordance with generally accepted accounting principles (to the extent applicable to the particular target) and shall be subject to certification by the Committee; provided, that the Committee shall have the authority to exclude the impact of impairments, recapitalizations, refinancings, restructurings, discontinued operations, extraordinary items, acquisitions, divestitures, and other unusual or non-recurring events (including, without duplication, events for which an adjustment may be made under subsection 4.3), and the cumulative effects of changes in tax laws or accounting principles that are identified in financial statements, notes to financial statements, management's discussion and analysis or other SEC filings.
6. Stock Options.
6.1 Awards. Subject to the terms and conditions of the Plan, there shall be designated the Participants to whom options to purchase shares of Common Stock ("Stock Options") are sold by such holder pursuant to be awardedRule 144 (or any successor rule) promulgated under the Plan and1933 Act, provided that the number of shares of Class B Common Stock so converted does not exceed the number of shares of Common Stock coveredshown in the Form 144 filed by and type and termssuch holder in connection with such sale.
b. Each conversion of shares of Class B Common Stock into Common Stock shall be effected by the surrender of the certificate or certificates representing shares of Class B Common Stock Options to be awarded to each of them; provided however, that each Stock Option shall expire onconverted at the earlierprincipal office of the date provided by the termsCorporation (or such other office or agency of the Stock Option grantsCorporation as the Corporation may designate by notice in writing to the holder or holders of Class B Common Stock) at any time during its usual business hours, which notice shall also state the datename or names (with addresses) and denominations in which is 10 years after the date of grant. The option price per share (the "Option Price")certificate or certificates for any Stock Option awarded shall not be less than the greater of par value or the Fair Market Value of a share of Common Stock on the date the Stock Option is awarded. Each Stock Option awarded under the Plan shall be a "nonqualifiedissued and shall include instructions for delivery thereof. Such stock option" for purposescertificate and notice shall be accompanied by, if the conversion is made pursuant toclause (ii) ofsubparagraph a, an executed copy of the Code unlessnotice on Form 144 required to be filed by such holder with the Stock OptionSecurities and Exchange Commission. Promptly after such surrender and the grant thereof satisfies allreceipt of such written notice, the Corporation shall issue and deliver in accordance with such instructions the certificate or certificates for the Common Stock issuable upon such conversion. To the extent permitted by law, such conversion shall be deemed to have been effected as of the requirementsclose of section 422 of the Code and the Committee designates such Stock Option as an "incentive stock option" (an "ISO").
6.2 Manner of Exercise. A Stock Option may be exercised, in whole or in part, by giving written notice to the CEO (or his or her designee) prior tobusiness on the date on which the Stock Option expires; provided, however, that a Stock Option may only be exercised with respect to whole shares of Common Stock. Suchsuch certificate or certificates shall have been surrendered and such notice, if required hereunder, shall specify the number of shares of Common Stock to be purchased and shall be accompanied by payment of the Option Price for such shares in such form and manner as the Committee may from time to time approve.
7. Stock Appreciation Rights.
7.1 Awards. Subject to the terms and conditions of the Plan, there shall be designated the Participants to whom stock appreciation rights ("SARs") are to be awarded under the Plan and the number of shares of Common Stock covered by and terms of the SARs to be awarded to each of them; provided, however, that each SAR shall expire on the earlier of the date provided by the terms of the SAR grant or the date which is 10 years after the date of grant.have been received.
7.2 Payment. Subject to the termsc. The Corporation shall at all times reserve and conditionskeep available out of the Plan, upon exercise of an SAR,its authorized but unissued shares or in treasury a Participant shall be entitled to receive that number of shares of Common Stock having a Fair Market Value (as of the date of exercise) of a share of Common Stock equal to the product of:
(a) thesufficient number of shares of Common Stock as to whichmay be required, solely for the SAR is exercised; and
(b)purpose of issue upon the excessconversion of the Fair Market Value (asoutstanding shares of the date of exercise) of a share ofClass B Common Stock over the exercise price of the SAR;
as provided however,in thisparagraph 4. The Corporation covenants that in lieu of fractionalall shares of Common Stock a Participantwhich shall be entitled to receive an appropriate cash payment;so issuable shall, when issued, be duly and provided further that the Committee, in its sole discretion, may
elect to settle the SAR (or any portion thereof) in cash equal to the Fair Market Value on the exercise datevalidly issued, fully paid and non-assessable, free of any orpreemptive rights. The Corporation will use reasonable efforts to take all of thesuch action as may be necessary to assure that all such shares of Common Stock that would otherwise be issuable upon exercise.
7.3 Manner of Exercise. An SAR may be exercised, in wholeso issued without violation of any applicable law or in part, by giving written notice to the CEO (or hisregulation or her designee) prior to the date onany requirements of any domestic stock exchange upon which the SAR expires. Such notice shall specify the number of shares with respect to which the SAR is exercised. As soon as practicable after receipt of such notice, the Company shall deliver to the Participant certificates for the shares of Common Stock or cash, or both, to which the Participant is entitled pursuant to subsection 7.2.
8. Dividend Equivalents. An award of Dividend Equivalents (as defined below) may be granted by the Committee, either alone or in tandem with another award, based on dividends declared or to be declared on the Common Stock, to be credited aslisted.d. The issuance of dividend payment dates during the period between the date the Dividend Equivalents are granted to a Participant (or such other date as may be determined by the Committee) and the date such Dividend Equivalents terminate or expire, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additionalcertificates for shares of Common Stock byupon conversion of shares of Class B Common Stock shall be made without charge to the holders of such formula and at such time and subject to such limitations as may be determinedshares of Class B Common Stock for any issuance tax in respect thereof, or other cost incurred by the Committee. In addition, payments accruing with respect to awards of Dividend Equivalents that are subject to performance-based vesting that are based on dividends paid prior to the vesting of such award shall only be paid out to the Participant to the extent that the performance-based vesting conditions are subsequently satisfied and the award vests. For purposes of this Section 8, "Dividend Equivalent" shall mean a right to receive the equivalent value (in cash or shares of Common Stock) of dividends paid on shares of Common Stock.
9. General.
9.1 Effective Date. The Plan shall be effective as of March 23, 1993.
9.2 Duration. The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any awards under it are outstanding.
9.3 Vesting. Subject to the other provisions of this Section 9 and except in the case of new hires, death, termination without cause or for good reason, disability or other good cause as determined by the Committee at the time of grant, no awards under the Plan shall vest sooner than one year from the date of grant and vesting shall occur, in full or in installments, upon satisfaction of the conditions specified by the Committee.
9.4 Non-transferability of Awards; Other Agreements. Except as otherwise provided by the Committee, no award made under the Plan may be transferred, pledged or assigned by the holder thereof (except to fulfill any tax withholding obligation, in the event of a Change in Control (as defined below), in settlement of a divorce, due to hardship of the holder thereof or for other good cause as determined by the Committee), or, in the event of the holder's death, by will or the laws of descent and distribution) and the Company shall not be required to recognize any attempted assignment of such rights by any Participant. Any permitted transfer, pledge or assignment shall be subject to such requirements and limitations as may be prescribed by the Committee. During a Participant's lifetime, awards may be exercised only by him or by his guardian or legal representative. Awards under the Plan, including any Stock Options, SARs, Restricted Stock, Stock Units and Common Stock issuedCorporation in connection with Stock Options, SARs, Stock Units or otherwise, will also be subject to any other agreements entered into, from time to time, by the Participantsuch conversion and the Company.
9.5 Effect of Termination of Employment or Death. In the event that a Participant ceases to be an employee of Ethan Allen as a result of his or her death, the portion of any Stock Options or SARs then outstanding and vested as of the date of death may be exercised for 120 days thereafter, and therefore may be exercised by such Participant's estate before the expiration of 120 days thereafter (and shall expire following the expiration of such 120 day period), unless otherwise provided in the terms of the award. In the event that a Participant, who is an employee, ceases to be an employee of Ethan Allen for any reason (other than death), the portion of any Stock Options or SARs then outstanding and vested as of the date of termination of employment may be exercised for 90 days
thereafter, and therefore may be exercised by such Participant before the expiration of 90 days thereafter (and shall expire following the expiration of such 90 day period), unless otherwise provided in the terms of the award.
9.6 Compliance with Applicable Law and Withholding.
(a) Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue any shares of Common Stock under the Plan if such issuance would violate any applicable law or any applicable regulation or requirement of any securities exchange or similar entity.
(b) Prior to the issuance of any shares of Common Stock under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares and will not dispose of them in violation of the registration requirements of the Securities Act of 1933.
(c) With respect to any person who is subject to section 16(a) of the Securities Exchange Act of 1934, the Committee may, at any time, add such conditions and limitations to any award under the Plan that it deems necessary or desirable to comply with the requirements of Rule 16b-3 thereunder.
(d) If, at any time, the Company, in its sole discretion, determines that the listing, registration or qualification of any award (or of any document related thereto), or the shares of Common Stock issuable pursuant thereto, is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, any award or the issuance of shares of Common Stock, pursuant to any award, such awardprovided that the Corporation shall not be maderequired to pay any such tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Class B Common Stock converted. The Corporation will not take any action which would cause the total number of shares of Common Stock shall not be issued and any restrictions applicable thereto shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company.
(e) All awards and payments under the Plan which are made to employeesissuable upon conversion of the Company are subject to withholdingClass B Common Stock then outstanding, together with the total number of all applicable taxes and the Company shall have the right to withhold from any such award under the Plan or to collect as a condition of any payment under the Plan, as applicable, any taxes required by law to be withheld. To the extent provided by the Committee, a Participant may elect to have any delivery or payment otherwise required to be made under the Plan to be withheld or to surrender to the Company shares of Common Stock already owned bythen outstanding and the Participant to fulfill any tax withholding obligation.
9.7 No Continued Employment. The Plan does not constitute a contracttotal number of employment or continued service, and participation in the Plan will not give any employee or Participant the right to be retained in the employ of Ethan Allen or the right to continue as a director of the Company or any right or claim to any benefit under the Plan unless such right or claim has specifically accrued under the terms of the Plan or the terms of any award under the Plan.
9.8 Treatment as a Stockholder. Any award to a Participant under the Plan shall not create any rights in such Participant as a stockholder of the Company until shares of Common Stock are registered in the namereserved for issuance upon conversion of the Participant.
9.9 Recoupment, Clawback and Other Company Policies. All awards granted underPreferred Stock or for any other purpose, to exceed the Plan, and all shares, other securities, cash and other property delivered or paid under the Plan, shall be subject to clawback or recoupment pursuant to the applicable published policies of the Company adopted by the Board, as in effect from time to time, as well as all other applicable Company policies.
9.10 Amendment and Termination of the Plan. The Board may, at any time and in any manner, amend, alter, suspend, discontinue or terminate the Plan or any award outstanding under the Plan; provided however, that no such amendment, alteration, suspension, discontinuance or termination shall:
(a) increase or decrease thetotal number of shares reserved under subsection 4.1 without stockholder approval (other than increases or decreases resulting from the application of subsection 4.3);
(b) increase or decrease the individual limits under subsection 4.4 (other than increases or decreases resulting from the application of subsection 4.3) or the Performance Criteria set forth in subsection 5.4 without stockholder approval;
(c) be made without stockholder approval to the extent such approval is required by law, agreement or the rules of any exchange or automated quotation system upon which the Common Stock is listed or quoted;
(d) alter or impair the rights of Participants with respect to awards previously made under the Plan without the consent of the holder thereof; or
(e) make any change that would disqualify the Plan, to the extent intended to be so qualified, from the exemption provided by Rule 16b-3.
9.11 Acceleration Upon a Change in Control.
(a) Single Trigger Treatment. Upon a Change in Control, each outstanding award granted under the Plan (an "Outstanding Award") will, except to the extent that the Outstanding Award is continued, assumed, replaced or adjusted in the form of a Replacement Award (as defined below), vest or become immediately exercisable and/or nonforfeitable (A) if the Change in Control occurs less than two years after the date of grant for such Outstanding Award, on a pro-rata basis (i) based on actual service during the vesting period with respect to any time-based Outstanding Award and (ii) based on actual service during the performance period with respect to the greater of the target opportunity or actual results for any performance-based Outstanding Award, and (B) if the Change in Control occurs two years or more after the date of grant for such Outstanding Award, (i) on a pro-rata basis based on actual service during the vesting period with respect to any time-based Outstanding Award and (ii) with respect to 100% of the greater of the target opportunity or actual results for any performance-based Outstanding Award.
(b) Double Trigger Treatment. If, subsequent to receiving a Replacement Award in accordance with Section 9.12(a), the Participant's employment with the Ethan Allen (or its successor in the Change in Control) is terminated within a period of two years after the Change in Control either (a)then authorized by the Participant for Good Reason (as defined below) or (b) by Ethan Allen (or such successor) other than for Cause (as defined below), then the Replacement Award will vest or become immediately exercisable and/or nonforfeitable with respect to 100% of any time-based Replacement Award and with respect to 100% of the greater of the target opportunity or actual results for any performance-based Replacement Award (an "Accelerated Replacement Award"). Notwithstanding the foregoing, to the extent that the applicable award agreement or other applicable agreement provides for a different "double trigger" treatment of awards under the Plan, the applicable award agreement or other applicable agreement shall govern.
(c) For purposes of this Section 9.11, "Replacement Award," "Good Reason" and "Cause" will be used as defined in the applicable award agreement. Outstanding Awards and Accelerated Replacement Awards shall become payable at such time as specified under the terms and conditions of the applicable award agreement(or, if sooner, under the applicable departure agreements, if any, relating to such Change in Control approved by the Board prior to such Change in Control) (or agreement for such Accelerated Replacement Awards) except that, to the extent that such Outstanding Awards or Accelerated Replacement Awards are exempt from Section 409A of the Code under the "short-term deferral rule," payment for such Outstanding Awards or Accelerated Replacement Awards shall be made not later than 2-1/2 months after the year in which they are no longer subject to substantial risk of forfeiture.
(d) For purposes of the Plan, a "Change in Control" shall have occurred if:
(i) the Board or the stockholders of the Company or Global, either or both, as may be required to authorize the same, shall approve a Business Combination(2) (as defined in Article Fifth of the Company's RestatedCorporation's Certificate of Incorporation as inIncorporation. The Corporation will not take any action which has the purpose or effect onof delaying or hindering the date
(i) any merger or consolidation of the Corporation or any subsidiary of the Corporation with or into any other corporation or entity (other than such a merger or consolidation solely with a wholly-owned subsidiary of the Corporation);
(ii) any sale, lease, exchange, mortgage, pledge,timely transfer or other disposition, in one or more transactions, whether as part of a dissolution or otherwise, of all or any substantial part of the assets of the Corporation and its subsidiaries on a consolidated basis (other than solely (a) in connection with any (1) customer, consumer or dealer credit card, revolving debt or other purchase finance program, or (2) lending, leasing or other credit or financing arrangement involving an Interested Person (b) in connection with any refinancing, replacement, restatement or substitution of any obligations or liabilities of the Company or any subsidiary of the Company, or (c) to a wholly-owned subsidiary of the Corporation);
(iii) any transaction with an Interested Person which results in the issuance or transfer by the Corporation or any Subsidiary of the Corporation of beneficial ownership of any stock of the Corporation or the subsidiary to that Interested Person (other than solely by reason of
(a) any exercise, exchange or conversion of securities exercisableany share of Class B Common Stock or exchangeable forof any share of Common Stock issued or convertible into such stock, which securities were beneficially owned by that Interested Person or authorized byissuable upon the Company to be issued to that Interested Person either (1) as of April 1, 1993, or (2) prior to the time that person became an Interested Person,
(b) any dividend, distribution, exchange or conversion of securities which does not result in an increase in the proportionate share beneficially owned by that Interested Person of the stock of any class or series or of the voting stock of the Corporation or that subsidiary,
(c) any issuance ofsuch shares of stock by the Corporation or any subsidiary of the Corporation to any dealers or distributors, executives, managers or employees of the Company and/or any subsidiary of the Corporation, or any plan or program for their benefit or in which they are participants,
(d) any issuance of shares of stock to an Interested Person acting as an underwriter, in connection with an underwritten public offering of stock,
(e) any issuance or transfer of shares of any class or series of stock, in one or a series of related transactions, involving an Interested Person, which results in such Interested Person acquiring the beneficial ownership of no more than an additional 5% of the outstanding shares of that class or series on a fully-diluted basis, or
(f) any issuance by the Corporation or any subsidiary of the Corporation of any shares of stock that are not shares of stock generally entitled to vote); or
(iii) any transaction involving the Corporation or a subsidiary of the Corporation which has the effect of increasing the proportionate share beneficially owned by an Interested Person of the stock of any class or series or the voting stock, or the securities exercisable or exchangeable for or convertible into the stock of any class or series or the voting stock, of the Corporation or any subsidiary thereof (other than solely by reason of (a) transactions excluded from Business Combinations underclause (iii)(a) through(f) above, or (b) as a result of immaterial changes due to fractional share adjustments or as a result of purchase or redemption of stock not caused by the Interested Person or any of its affiliates or associates).
A Business Combination shall be deemed to be a "Business Combination with an Interested Person" if, in the case of a Business Combination described in clause (i) or (ii) of this subparagraph, it is a transaction with an Interested Person or any of its affiliates or associates or a transaction with another person which is caused by an Interested Person or any of its affiliates or associates or if it is a transaction described in clause (iii) or (iv) of this subparagraph.
FIFTH:Reserved.
SIXTH:
1. Directors. The business and affairs of the Corporation shall be managed by or record), otherunder the direction of a Board of Directors consisting of not more than nine directors, the exact number of members to be fixed from time to time by resolution of the Board of Directors, except as may be provided by the resolution or resolutions adopted by the Board of Directors in respect of Preferred Stock adopted pursuant to Article FOURTH hereof.Beginning with the first annual meeting of stockholders held after the date of this amendment, theThe entire Board of Directors shall be elected annually at each annual meeting of stockholders for a one year term expiring at the next succeeding annual meeting of stockholders. The directors shall hold office until their respective successors are elected and shall qualify, subject, however, to prior death, resignation or removal from office.
2. No Written Ballot. Election of directors need not be by written ballot unless thebylawsBy-Laws of the Corporation so provide.
3. Vacancies. Vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office, even if less than a quorum, or by the sole remaining director.
4. Removal.NoA director may be removed from office by thestockholders except for cause with theaffirmative vote of the holders of not less than a majority of the outstanding shares of stock generally entitled to vote.
5. Preferred Stock Directors. Notwithstanding the foregoing, whenever the holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the resolution or resolutions adopted by the Board of Directors pursuant to ARTICLE FOURTH applicable thereto, and each director so elected shall not be subject to the provisions of this ARTICLESIXTHFIFTH unless otherwise provided therein.
SEVENTHSIXTH: Subject toArticle Thirteenth, TheARTICLE TWELFTH, the Board of Directors shall have the power to adopt, amend or repeal the By-lawsLaws of the Corporation.
EIGHTHSEVENTH: Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with the Delaware Law, as amended from time to time, and may not be taken by written consent of stockholders without a meeting, except with regard to election, removed and filling of vacancies of directors by holders of Preferred Stock, voting separately, as and if so provided by the terms of the resolution or resolutions adopted by the Board of Directors pursuant to Article Fourth applicable thereto. At all meetings of stockholders, each stockholder shall be entitled to vote, in person or by proxy, the shares owned by such stockholders of record on the record date for the meeting. When a quorum is present or represented at any meeting, the vote of the holders of a majority of those of theoutstandingshares of stock generally entitled to vote and represented, in person or proxy, at the meetingand entitled to voteon any matter, question or proposal properly brought before such meeting shall decide such question, unless the question is one upon which, by express provision of law, this Certificate of Incorporation or the By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question.
NINTHEIGHTH: Meetings of the stockholders shall only be called by the Secretary of the Corporation upon written request signed by either (a) stockholders holding at least 20% of those of the outstanding shares of stock generally entitled to vote or (b) by a majority of the Board of Directors, or (c) the Chairman of the Board of Directors, or (d) the President of the Corporation, and may not be called by any other person. Notwithstanding the foregoing, whenever holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, such holders may call, pursuant to the terms of the resolution or resolutions adopted by the Board of Directors pursuant to ARTICLE FOURTH hereto, special meetings of holders of such Preferred Stock. Any call for a special meeting of the stockholders must specify the matters to be acted upon at such meeting; only those matters set forth in such notice may be considered or acted upon at the meeting, unless otherwise provided by law.
TENTH:NINTH:
1. Limits on Director Liability. A director of the Corporation shall not be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent now or hereafter permitted by Delaware Law.
2. Indemnification. Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent now or hereafter permitted by Delaware Law. The right to indemnification and the right to the advancement to expenses by the Corporation conferred in this ARTICLETENTHNINTH shall also include the right to be paid by the Corporation the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent now or hereafter authorized by Delaware Law. The rights to indemnification and to advancement of expenses conferred in this ARTICLETENTHNINTH shall be contract rights.
3. Additional Indemnification. The Corporation may, by action of its Board of Directors, provide indemnification to such of the directors, officers, employees and agents of the Corporation to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law.
4. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under Delaware Law.
5. Other Rights. The rights and authority conferred in this ARTICLETENTHNINTH shall not be exclusive of any other right which any person may otherwise have or hereafter acquire.
6. Effect of Amendments. Neither the amendment, change, alteration nor repeal of this ARTICLETENTHNINTH, nor the adoption of any provision of this Certificate of Incorporation or theby-lawsBy-Laws of the Corporation, nor, to the fullest extent permitted by Delaware Law, any modification of law, shall eliminate or reduce the effect of this ARTICLETENTHNINTH or the rights or any protections afforded under this ARTICLETENTHNINTH in respect of any acts or omissions occurring prior to such amendment, repeal, adoption or modification.
ELEVENTHTENTH: In addition to any other considerations which the Board of Directors may lawfully take into account, in determining whether to take or to refrain from taking corporate action on any matter, including any Business Combination (A) involving only the Company and the Subsidiary or (B) immediately after whichproposing any matter to the stockholders of the Corporation, the Board of Directors may take into account the long-term as well as short-term interests of the Corporation and its stockholders (including the possibility that these interests may be best served by the continued independence of the Corporation), dealers, customers, managers, employees, suppliers and other constituencies of the Corporation and its subsidiaries, including the effect upon communities in which the Corporation and its subsidiaries do business.
TWELFTHELEVENTH: The Corporation will be subject to Section 203 of the Delaware Law.
THIRTEENTHTWELFTH: The Corporation reserves the right to amend this Certificate of Incorporation in any manner permitted by the Delaware Law and all rights and powers conferred upon stockholders, directors and officers herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in ARTICLES FIFTH,SIXTHNINTH, TENTH,andELEVENTH andTWELFTH andthis ARTICLETHIRTEENTHTWELFTH of this Certificate of Incorporation, and Articles II, III and V of the By-Laws of the Corporation, may not be repealed or amended in any respect, and no other provision may be adopted, amended or repealed which would have the effect of modifying or permitting the circumvention of the provisions set forth in ARTICLES FIFTH,SIXTHNINTH, TENTH,andELEVENTH andTWELFTH andthis ARTICLETHIRTEENTHTWELFTH of this Certificate of Incorporation, and Articles II, III and V of the By-Laws of the Corporation, unless such action is approved by the affirmative vote of the holders of not less than 662/3 percent ofthose ofthe outstanding shares of capital stock, generally entitled to vote (and, in the case of any such repeal or amendment of or in respect of ARTICLE FIFTH proposed by or on behalf of any Interested Person in respect of any Business Combination with or involving such Interested Person, of not less than 662/3 percent of those of the outstanding shares of stock generally entitled to vote, excluding any shares beneficially owned by such Interested Person) entitled to vote thereon.
IN WITNESS WHEREOF, said Ethan Allen Interiors Inc. has caused this certificate to be signed by M. Farooq Kathwari, its Chairman of the Board of Directors, President and Chief Executive Officer and attested by Sharon Blinkoff, its Secretary, this23rd day ofMarch,1993.2016.
By: | M. Farooq Kathwari, Chairman of the Board of Directors, President and Chief Executive Officer | |||
AMENDED AND RESTATED BY-LAWS
OF
ETHAN ALLEN INTERIORS INC.
Section 1. Registered Office. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
Section 3. Books. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time may be determined from time to time by the Board of Directors, the Chairman or otherwise in accordance with the Certificate of Incorporation.
Section 2. Annual Meetings. Annual meetings of stockholders, commencing with the year 1994, shall be held to elect the Board of Directors and transact such other business may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of stockholders shall be called by the Secretary of the Corporation upon written request signed by stockholders holding at least 20% of the shares of stock generally entitled to vote, or by a majority of the Board of Directors, the President, the Chairman or otherwise in accordance with the Certificate of Incorporation Notwithstanding the foregoing, whenever holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, such holders may call, pursuant to the terms of the resolution or resolutions adopted by the Board of Directors in connection with issuing such Preferred Stock pursuant to the Certificate of Incorporation, special meetings of holders of such Preferred Stock.
Section 4. Notice of Meetings and Adjourned Meetings: waivers of Notice. (a) Whenever stockholders are required or permitted to take any action at a meeting, the Corporation will provide a written notice of the meeting shall be given, which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Business transacted at any special meeting of stockholders shall be limited to the purpose or purposes for which the meeting is called. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Unless otherwise provided by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended ("Delaware Law"), such notice shall be given not less than 10 nor more than 60 days before the date of the annual meeting, and not less than 30 nor more than 60 days before the date of any special meeting, to each stockholder of record entitled to vote at such meeting. Unless these By-Laws otherwise require, when a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting in not lawfully called or convened.
Section 5. Quorum. Unless otherwise provided by the Certificate of Incorporation or these By-Laws subject to Delaware Law, the presence, in person or by proxy, of the holders of at least one-third of the shares of stock generally entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business.
Section 6. Voting. Each stockholder entitled to vote at a meeting of stockholders or to express consent to or dissent from a corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.
Section 7. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected (or in his absence or if one shall not have been elected, the Chief Executive Officer or the President) shall act as chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof.
Section 8. Order of Business. Subject to Delaware Law and the provisions of the Certificate of Incorporation, the rules of order for the conduct of annual and special meetings and agenda of business at all such meetings of stockholders shall be as determined by the chairman of the meeting.
Section 9. Nomination of Directors.
Section 9.1Procedure.
Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of theCompanyCorporation, except as may be otherwise provided in the Certificate of Incorporation of theCompanyCorporation with respect to the right of holders of Preferred Stock of theCompanyCorporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, (ai) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (bii) by any stockholder of theCompany (iCorporation (A) who wereis a stockholder of record on the date of the giving of the notice provided for in this Section 9 and on the record date for the determination of stockholders immediatelyentitled to vote at such annual meeting, and (iiB) who complies with the notice procedures set forth in this Section 9.
In addition to any other applicable requirements, forFor a nomination to bemadeproperly brought before an annual meeting by a stockholder, such stockholder must have given(i)timely notice thereof in proper written form to the Secretary of theCompanyCorporation ("Shareholder Notice"), (ii) have provided any updates or supplements to such Shareholder Notice at the times and in the forms required by these By-Laws, and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by these By-Laws.
To be timely, astockholder's noticeShareholder Notice to the Secretary must be delivered to or mailed and received at the principal executive offices of theCompanyCorporation not less thansixty (60) days nor more thanninety (90) days' nor more than one hundred twenty (120) days prior to theanniversarydate of the immediately preceding annual meeting;provided,however, that intheevent that less thanseventy (70one hundred (100) days' notice or priorpublic disclosurePublic Announcement (as defined below) of the date of the annual meeting is given or made to stockholders,notice bythestockholderShareholder Notice in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such Business Combination continuenotice of the date of the annual meeting was mailed orsuch public disclosurePublic Announcement of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, astockholder's notice to Shareholder Notice to the Secretary of the Corporation must set forth the following information:ownthe Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other fillings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as director if elected.
(a) (x) As to each person whom the stockholder proposes to nominate for election or reelection as a director ("Proposed Nominee") (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the Proposed Nominee, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person, (iv) any other information relating to the Proposed Nominee that would be required to be disclosed in a proxy statement or other fillings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder (v) a written consent of each Proposed Nominee to being named as a nominee and to serve as director if elected, and (iv) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to nominate the Proposed Nominees named in the Shareholder Notice; (y) as to the stockholder giving the Shareholder
Notice (i) the name and record address of such stockholder and the names and addresses of any other Proposing Persons (as defined below) and (ii) as to each Proposing Person, the following information: (A) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares of any class or series of capital stock of the Corporation as to which such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act) has a right to acquire beneficial ownership at any time in the future, (B) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and disclosure, for each such Synthetic Equity Interest, as to (1) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in substantially similar proportionssuch shares to thosesuch Proposing Person, (2) whether or not such Synthetic Equity Interest is required to be, or capable of being, settled through delivery of such shares and (3) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest, (C) any proxy (other than a revocable proxy given in effect immediatelyresponse to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act and the rules and regulations promulgated thereunder), agreement, arrangement understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation, (D) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, and (E) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (A) through (E) are referred to, collectively, as "Material Ownership Interests"), and (iii) a description of the material terms of all arrangements, agreements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation.
(b) A description of all agreements, arrangements or understandings by and among any of the Proposed Nominees, or by and among any Proposing Persons and any other person (including with any Proposed Nominee(s)), pertaining to the nomination(s) to be brought before the annual meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations, and to the extent known the class and number of all shares of the Corporation's capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s).
(c) A statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the "Solicitation Statement").
(d) A stockholder providing such Shareholder Notice shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such Shareholder Notice pursuant to this By-Law shall be true and correct as of the record date for the annual meeting and as of the date that is ten (10) business days prior to such annual meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the annual meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eight (8th) business day prior to the date of the annual meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the annual meeting).
Section 9.2General.
For purposes of this Section 9 and Section 10, the term "Proposing Person" shall mean the following persons: (i) the stockholder of record providing the Shareholder Notice or Notice of Business, Combinationand (ii) the beneficial owner(s), if different, on whose behalf the Shareholder Notice or Notice of Business is being made.
For purposes of this Section 9 and Section 10, the term "Synthetic Equity Interest" shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called "stock borrowing" agreement or arrangement, the purpose or effect of which is to, directly or indirectly, (i) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (ii) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any share of any class or series of capital stock of the Corporation, (iii) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (iv) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.
For purposes of this Section 9 and Section 10 of this Article the term "Public Announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Notwithstanding anything in this Section 9 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and no Public Announcement is made naming all of the nominees for directors or specifying the size of the increased Board of Directors made by the Corporation at least ten (10) business days before the last day a stockholder may deliver such Shareholder Notice, such Shareholder Notice also shall be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary not later than the close of business on the tenth (10th) day following the day on which such Public Announcement is first made by the Corporation.
No person shall be eligible for election as a director of theCompanyCorporation unless nominated in accordance with the procedures set forth in this Section 9. If theChairmanchairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, theChairmanchairman of the meeting shall declare to theannualmeeting that the nomination was defective and such defective nomination shall be disregarded.
Except as otherwise provided for in these By-Laws or required by law, nothing in this Section 9 shall obligate the Corporation to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director.
This Section 9 will not be applicable to the election of directors by the holders of Preferred Stock, if any, of the Corporation, voting separately as a single class of stock, if and as provided in the Certificate of Incorporation (including any Certificate of Designation for any class or series of Preferred Stock).
Section 9.3Proxy Access
(a) Whenever the Board of Directors solicits proxies with respect to the election of Directors at an annual meeting of stockholders, subject to the provisions of this Section 9.3, the Corporation shall include in its proxy statement for such annual meeting, (i) as a nominee, in addition to any persons nominated for election by the Board of Directors or any committee thereof, any person nominated for election (the "Stockholder Nominee") to the Board of Directors by a stockholder, or group of not more than 50%twenty (20) stockholders, that satisfies the requirements of this Section 9.3 (the "Eligible Stockholder") and that timely submits the notice required by this Section 9.3 (the "Notice of Proxy Access Nomination") requesting to have its nominee included in the Corporation's proxy materials for such annual meeting pursuant to this Section 9.3 and (ii) the Required Information (defined below) concerning such person. No person or entity may be a member of more than one group of stockholders constituting an Eligible Stockholder with respect to any annual meeting. For purposes of this Section 9.3, the "Required Information" that the Corporation will include in its proxy statement is the information provided to the Secretary of the then outstanding voting securitiesCorporation by the Eligible Stockholder concerning the Stockholder Nominee and the Eligible Stockholder that is required to be disclosed in the Corporation's proxy statement by the rules and regulations promulgated under the Exchange Act, and if the Eligible Stockholder so elects, a written statement, not to exceed 500 words, in support of the CompanyStockholder Nominee's candidacy (the "Statement"). Notwithstanding anything to the contrary contained in this Section 9.3, the Corporation may omit from its proxy materials any information or Statement (or portion thereof) that it, in good faith, believes would violate any applicable law or regulation.
(b) To be timely, the Notice of Proxy Access Nomination must be delivered to, or mailed to and received by, the Secretary of the Corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such Public Announcement of the date of the annual meeting was made, whichever first occurs.
(c) The maximum number of Stockholder Nominees nominated by all Eligible Stockholders that will be included in the Corporation's proxy materials with respect to an annual meeting of stockholders (the "Nominee Limit") shall not exceed twenty percent (20%) of the total number of Directors in office as of the last day on which a Notice of Proxy Access Nomination may be delivered pursuant to and in accordance with this Section 9.3 (the "Final Proxy Access Nomination Date") or if such amount is not a whole number, the closest whole number below twenty percent (20%), but not less than two (2). In the event that one or more vacancies for any reason occurs on the Board of Directors after the Final Proxy Access Nomination Date but before the date of the annual meeting and the Board of Directors resolves to reduce the size of the board in connection therewith, the Nominee Limit shall be calculated based on the number of Directors in office as so reduced. Any individual nominated by an Eligible Stockholder for inclusion in the Corporation's proxy materials pursuant to this Section 9.3 whom the Board of Directors decides to nominate as a nominee of the Board of Directors shall further reduce the Nominee Limit. Any Eligible Stockholder submitting more than one Stockholder Nominee for inclusion in the Corporation's proxy materials pursuant to this Section 9.3 shall rank such Stockholder Nominees based on the order that the Eligible Stockholder desires such Stockholder Nominees to be selected for inclusion in the Corporation's proxy statement in the event that the total number of Stockholder Nominees submitted by the Eligible Stockholders pursuant to this Section 9.3 exceeds the maximum number of nominees provided for in this Section 9.3. In the event that the number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 9.3 exceeds the maximum number of nominees provided for in this Section 9.3, the highest ranking Stockholder Nominee who meets the requirements
of this Section 9.3 from each Eligible Stockholder will be selected for inclusion in the Corporation's proxy materials until the maximum number is reached, going in order of the number (largest to smallest) of shares of common stock of the Corporation each Eligible Stockholder disclosed as owned in its respective Notice of Proxy Access Nomination submitted to the Corporation. If the maximum number is not reached after the highest ranking Stockholder Nominee who meets the requirements of this Section 9.3 from each Eligible Stockholder has been selected, this process will continue with the next highest ranked nominees as many times as necessary, following the same order each time, until the maximum number is reached. Notwithstanding anything to the contrary contained in this Section 9.3, if the Corporation receives a Shareholder Notice pursuant to this Section 9 that a stockholder intends to nominate for election at such annual meeting a number of Proposed Nominees greater than or equal to a majority of the total number of Directors to be elected at such meeting, no Stockholder Nominees will be included in the Corporation's proxy materials with respect to such annual meeting pursuant to this Section 9.3.
(d) If the Stockholder Nominee or an Eligible Stockholder fails to continue to meet the requirements of this Section 9.3 or if a Stockholder Nominee withdraws, dies, becomes disabled or is otherwise disqualified from being nominated for election or serving as a Director prior to the annual meeting: (1) the Corporation may, to the extent feasible, remove the name of the Stockholder Nominee and the Statement from its proxy statement, remove the name of the Stockholder Nominee from its form of proxy and/or otherwise communicate to its stockholders that the Stockholder Nominee will not be eligible for nomination at the annual meeting; and (2) the Eligible Stockholder may not name another Stockholder Nominee or, subsequent to the last day on which a Stockholder's Notice of Proxy Access Nomination would be timely, otherwise cure in any way any defect preventing the nomination of the Stockholder Nominee identified in the Notice of Proxy Access Nomination provided pursuant to this Section 9.3.
(e) For purposes of this Section 9.3, an Eligible Stockholder shall be deemed to "own" only those outstanding shares of common stock of the Corporation as to which the stockholder possesses both (i) the full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit from and risk of loss on) such shares; provided that the number of shares is calculated in accordance with clauses (i) and (ii) shall not include any shares (x) sold by such stockholder or any of its affiliates in any transaction that has not been settled or closed, (y) borrowed by such stockholder or any of its affiliates for any purposes or purchased by such stockholder or any of its affiliates pursuant to an agreement to resell or (z) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such stockholder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of shares of common stock of the Corporation, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such stockholder's or its affiliate's full right to vote or direct the voting of any such shares, and/or (2) hedging, offsetting or altering to any degree any gain or loss realized or realizable from maintaining the full economic ownership of such shares by such stockholder or affiliate. A stockholder shall "own" shares held in the name of a nominee or other intermediary so long as the stockholder retains the right to instruct how the shares are voted with respect to the election of Directors and possesses the full economic and interest in the shares. A stockholder's ownership of shares shall be deemed to continue during any period in which the stockholder has delegated any voting power by means of a proxy, power of attorney or other instrument or arrangement which is revocable at any time by the stockholder. A stockholder's ownership of shares shall be deemed to continue during any period in which the stockholder has loaned such shares provided that the stockholder has the power to recall such loaned shares on three (3) business days' notice and has recalled such loaned shares as of the date the Notice of Proxy Access Nomination is delivered to, or mailed to and received by, the Secretary of the Corporation in accordance with this Section 9.3 and holds such shares through the date of the annual meeting. The terms "owned," "owning" and other variations of the word "own" shall have correlative meanings. Whether outstanding shares of common stock of the Corporation are "owned" for these purposes shall be determined by the Board of Directors or any committee thereof, which determination shall be conclusive and binding. For purposes of this Section 9.3, the term "affiliate" or "affiliates" shall have the meaning ascribed thereto in Rule 12b-2 promulgated under the Exchange Act.
(f) In order to make a nomination pursuant to this Section 9.3, an Eligible Stockholder must have owned (as defined above) the Required Ownership Percentage (as defined below) of the Corporation's outstanding capital stock (the "Required Shares") continuously for the Minimum Holding Period (as defined below) as of both the date the Notice of Proxy Access Nomination is delivered to, or mailed to and received by, the Secretary of the Corporation in accordance with this Section 9.3 and the record date for determining the stockholders entitled to vote at the annual meeting and must continue to own the Required Shares through the meeting date. For purposes of this Section 9.3, the "Required Ownership Percentage" is three percent (3%) or more, and the "Minimum Holding Period" is three (3) years. For the avoidance of doubt, if a group of shareholder aggregates ownership of shares to satisfy the Required Ownership Percentage, all shares held by each stockholder constituting their contribution to satisfy the Required Ownership Percentage must be held by that stockholder continuously for at least three (3) years. A group of two or more funds that are (A) under common management and investment control, or (B) publicly offered and part of the same family of funds (as defined herein), or (C) under common management and funded primarily by a single employer shall be treated as one stockholder or person to satisfy the Required Ownership Percentage. The term "family of funds" shall mean two or more investment companies or funds (whether organized in the U.S. or outside the U.S.) that hold themselves out to investors as related companies for purposes of investment and investor services.
(g) Within the time period specified in this Section 9.3 for delivering the Notice of Proxy Access Nomination, an Eligible Stockholder must provide the following in writing to the Secretary of the Corporation: (i) one or more written statements from the record holder of the shares owned by the Eligible Stockholder (and from each intermediary through which the shares are or have been held during the Minimum Holding Period) verifying that, as of a date within seven calendar days prior to the date the Notice of Proxy Access
Nomination is delivered to, or mailed to and received by, the Secretary of the Corporation, the Eligible Stockholder owns, and has owned continuously for the Minimum Holding Period, the Required Shares, and the Eligible Stockholder's agreement to provide, within five (5) business days after the record date for the annual meeting, written statements from the record holder and intermediaries verifying the Eligible Stockholder's continuous ownership of the Required Shares through the record date; (ii) a copy of the Schedule 14N that has been filed with the Securities and Exchange Commission as required by Rule 14a-18 under the Exchange Act; (iii) the information, representations and agreements that are the same as those that would be required to be set forth in a Shareholder Notice pursuant to Section 9.1; (v) a representation and agreement of the Eligible Stockholder that the Eligible Stockholder (including each member of any group of stockholders that together is an Eligible Stockholder hereunder) (A) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and does not presently have such intent, (B) presently intends to maintain qualifying ownership of the Required Shares through the date of the annual meeting, (C) has not engaged and will not engage in any, and has not and will not be a "participant" in another person's, "solicitation" within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a Director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the Board of Directors, (D) agrees not to distribute to any stockholder any form of proxy for the annual meeting other than the form distributed by the Corporation, (E) agrees to comply with all applicable laws and regulations applicable to the use, if any, of soliciting material and to file any such soliciting material with the Securities and Exchange Commission regardless of whether such filing is required under Regulation 14A under the Exchange Act, and (F) will provide facts and other information in all communications with the Corporation and its stockholders that are or will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; (vii) a written consent to provide any information that the Board of Directors reasonably requests to determine that the Stockholder Nominee (A) would qualify as "independent" for the purposes of the audit committee membership under the listing standards of each principal U.S. exchange upon which the common stock of the Corporation is listed, any applicable rules of the Securities and Exchange Commission and any publicly disclosed standards used by the Board of Directors in determining and disclosing independence of Directors, (B) is a "non-employee director" for the purposes of Rule 16b-3 under the Exchange Act (or any successor rule), (C) is an "outside director" for the purposes of Section 162(m) of the Internal Revenue Code (or any successor provision) and (D) is not and has not been subject to any event specified in Item 401(f) of Regulation S-K (or any successor rule), without reference to whether the event is material to an evaluation of the ability or integrity of the Stockholder Nominee or whether the event occurred in the ten-year time period referenced in such Item; (viii) a written consent to provide, at the reasonable request of the Board of Directors, any details of the position of the Stockholder Nominee as an officer or director of any competitor (that is, any entity that produces products or provides services that compete with or are alternatives to the products produced or services provided by the Corporation or its affiliates) of the Corporation, within the three (3) years preceding the submission of the Nomination Notice information; (ix) an undertaking that the Eligible Stockholder agrees to (A) assume all liability stemming from any legal or regulatory violation arising out of the Eligible Stockholder's communications with the stockholders or out of the information that the Eligible Stockholder provided to the Corporation and (B) indemnify and hold harmless (jointly with all other group members, in the case of a group member) the Corporation and each of its Directors, officers and employees individually against any and all liabilities, losses, damages, expenses or other costs (including attorneys' fees) incurred in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its Directors, officers or employees arising out of any nomination, solicitation or other activity by the Eligible Stockholder in connection with its efforts to elect the Stockholder Nominee pursuant to this Section 9.3; and (x) in the case of a nomination by a group of stockholders, the designation by all group members of one group member that is authorized to act on behalf of all group members with respect to matters relating to the nomination, including withdrawal of the nomination.
(h) Within the time period specified in this Section 9.3 for delivering the Notice of Proxy Access Nomination, each Eligible Stockholder and Stockholder Nominee must deliver or cause to be delivered to the Secretary of the Corporation:
(i) a written representation and agreement of the Stockholder Nominee that such person (A) consents to being named in the proxy statement as a nominee and to serving as a Director if elected, (B) understands his or her duties as a Director under the DGCL and agrees to act in accordance with those duties while serving as a Director, (C) is not or will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such nominee, if elected as a Director, will act or vote as a Director on any issue or question to be decided by the Board of Directors, (D) if elected as a Director, will comply with all applicable laws and stock exchange listing standards and the Corporation's policies and guidelines applicable to Directors, and (E) will provide facts and other information in all communications with the Corporation and its stockholders that are or will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;
(ii) with respect to each Stockholder Nominee, all completed and signed questionnaires required of Directors, and such additional information as the Corporation may determine necessary to permit the Board of Directors to make the determinations set forth in subparagraph (g)(vii) and (viii) of this Section 9.3; and
(iii) with respect to each Stockholder Nominee who consents to stand for election, an irrevocable resignation of such Stockholder Nominee in advance of the meeting for the election of Directors, providing that such resignation shall become effective upon a determination by the Board of Directors or any committee thereof that (A) the information provided to the Corporation by such individual pursuant to this Section 9.3 was untrue in any material respect or omitted to state a material fact
necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading or (B) such individual, or the survivor,Eligible Stockholder who nominated such individual, failed to comply with any obligation owed to or breached any representation made under or pursuant to these By-Laws.
(i) In the event that any information or communication provided by the Eligible Stockholder or the Stockholder Nominee to the Corporation or its stockholders ceases to be true and correct in any material respect or omits a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, such Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the Secretary of the Corporation of such defect in such previously provided information or communication and of the information that is required to correct any such defect.
(j) The Corporation shall not be required to include, pursuant to this Section 9.3, a Stockholder Nominee in its proxy materials for any meeting of stockholders (i) for which the Secretary of the Corporation receives a Shareholder Notice that a stockholder has nominated such Stockholder Nominee for election to the Board of Directors pursuant to the advance notice requirements for Proposed Nominees set forth in Section 9.1 and Section 9.2, (ii) who is not independent for the purposes of the audit committee under the listing standards of each principal U.S. exchange upon which the common stock of the Corporation is listed, any applicable rules of the Securities and Exchange Commission and any publicly disclosed standards used by the Board of Directors in determining and disclosing independence of Directors, in each case as determined by the Board of Directors, (iv) who is not a "non-employee director" for the purposes of Rule 16b-3 under the Exchange Act (or any successor rule), (v) who is not an "outside director" for the purposes of Section 162(m) of the Internal Revenue Code (or any successor provision), (vi) whose election as a member of the Board of Directors would cause the Corporation to be in violation of these By-Laws, the Corporation's Certificate of Incorporation, the rules and listing standards of any exchange upon which the common stock of the Corporation is listed, or any applicable state or federal law, rule or regulation, (vii) who is or has been, within the past three (3) years, an officer or director of any competitor (that is, any entity that produces products or provides services that compete with or are alternatives to the products produced or services provided by the Corporation or its affiliates) of the Corporation, (viii) who is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in such a criminal proceeding within the past ten (10) years or (ix) if such Stockholder Nominee or the Eligible Stockholder (or any member of any group of stockholders that together is such Eligible Stockholder) nominating such Stockholder Nominee fails to comply with any of its obligations or breaches any of its representations made under or pursuant to these By-Laws.
(k) Notwithstanding anything to the contrary set forth herein, the Corporation may omit from its proxy statement, or may supplement or correct, any information, including all or any portion of the statement in support of the Stockholder Nominee included in the Notice of Proxy Access Nomination, if the Board of Directors in good faith determines that (i) such information is not true in all material respects or omits a material statement necessary to make the statements made not misleading; (ii) such information directly or indirectly impugns character, integrity or personal reputation of, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation, with respect to, any person; or (iii) the inclusion of such information in the proxy statement would otherwise violate the applicable rules of the Securities and Exchange Commission or any other applicable law, rule or regulation.
(l) Notwithstanding anything to the contrary set forth herein, the Board of Directors or the chairman of the meeting of stockholders shall declare a nomination of a Stockholder Nominee by an Eligible Stockholder to be invalid, and such nomination shall be disregarded notwithstanding that proxies in respect of the vote of stockholders of such annual meeting may have been received by the Corporation, if (i) the Stockholder Nominee and/or the nominating Eligible Stockholder (or any member of any group of stockholders that together is such Eligible Stockholder) shall have failed to comply with any of its or their obligations or breached any of its or their representations under or pursuant to these By-Laws, as determined by the Board of Directors or the chairman of the meeting or (ii) the nominating Eligible Stockholder (or a qualified representative thereof) does not appear at the meeting of stockholders to present the nomination of such Stockholder Nominee pursuant to this Section 9.3.
(m) Any Stockholder Nominee who is included in the Corporation's proxy materials for a particular annual meeting of stockholders but either (i) withdraws from or becomes ineligible or unavailable for election at such annual meeting, or (ii) does not receive votes cast in favor of such Stockholder Nominee's election equal to at least 25% of the number of shares voted in such election, will be ineligible to be a Stockholder Nominee pursuant to this Section 9.3 for the next two (2) annual meetings. For the avoidance of doubt, this Section 9.3 shall not prevent any stockholder from nominating any person to the Board of Directors pursuant to and in accordance with Section 9.1.
Section 10. Notice of Business.
.At anyannualmeeting of the stockholders, only such business shall be conducted as shall have been broughtproperlybefore the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section10,10 ("Notice of Business"), who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 10. For business to be properly brought beforea stockholderan annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, astockholder's noticeNotice of Business shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than60ninety (90) days nor more than90one hundred twenty (120) days prior to the annual meeting; provided, however, that in the event that less than70one hundred (100) days' notice or priorpublic disclosurePublic Announcement of the date of
the annual meeting is given or made to stockholders,noticea Notice of Business by the stockholder to be timely must be so received not later than the close of business on thetenth (10th) day following the day on which such notice of the date of theannualmeeting or suchpublic disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder as of the date of notice and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a stockholder meeting except in accordance with the procedures set forth in this Section 10. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of the By-Laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing, provisions of this Section 10, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder with respect to the matters set forth in this Section 10.Public Announcement was made.
(a) A Notice of Business to the Secretary shall set forth as to each matter of business the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) (A) the name and record address of such stockholder and the names and addresses of any other Proposing Persons (as defined in Section 9.2) and (B) as to each Proposing Person, information as to any Material Ownership Interests, and (C) a description of the material terms of all arrangements, agreements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation, (iii) a description of all agreements, arrangements or understandings by and among any Proposing Persons and any other person, pertaining to the business to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), (iv) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such business proposal(s), and to the extent known the class and number of all shares of the Corporation's capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s), and (v) A statement whether or not the stockholder giving the Notice of Business and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to approve the proposal (such statement, the "Business Proposal Solicitation Statement").
(b) A stockholder providing such Notice of Business shall further update and supplement such notice if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such Notice of Business pursuant to this By-Law shall be true and correct as of the record date for the annual meeting and as of the date that is ten (10) business days prior to such meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eight (8th) business day prior to the date of the meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).
(c) Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a stockholder meeting except in accordance with the procedures set forth in this Section 10. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of the By-Laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing, provisions of this Section 10, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder with respect to the matters set forth in this Section 10.
Section 11. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books and records as the owner of shares to receive dividends and distributions and to vote, and except as required by law, shall not be required to recognize any equitable or other claim or interest in such shares by any other person, irrespective of any notice thereof.
Section 12. Inspectors of Election. At all elections of directors and when otherwise required by law, the chairman of the meeting shall appoint two inspectors of election. The inspectors shall be responsible for receiving, tabulating and reporting the results of the votes taken. The chairman of the meeting shall open and close the polls.
Section 13.Rule 14a-8.Nothing contained in Section 9 or Section 10 of this Article II shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 1. General Powers. Except as otherwise provided in Delaware Law or the Certificate of Incorporation, the business, property and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such
power of the Corporation and do all such lawful acts and thing as are not by applicable law or the Certificate of Incorporation or these By-Laws directed or required to be exercised or done by the Stockholders.
Section 2.Election of Directors.
Each director shall be elected by the vote of a majority of the votes cast with respect to the director at an annual meeting for the election of directors at which a quorum is present; provided, however, that in the case of a salecontested election, the directors shall be elected by the vote of assets, merger, combinationa plurality of the stock present in person or represented by proxy at any such meeting and entitled to vote on the election of directors. For purposes of this Section 2, a majority of the votes cast means, with respect to each director, the number of shares voted "for" a director exceeds the number of votes cast "against" that director's election (with "abstentions" and "broker nonvotes" not counted as a vote cast either "for" or "against" that director's election). For purposes of this Section 2, a "contested election" shall mean an election of directors where (i) the Secretary of the Corporation receives proper notice under Section 9.1 of Article II that a stockholder intends to make a nomination at such meeting, (ii) the number of nominated individuals including the Proposed Nominees (as defined inSection 9.2 of Article II) nominee(s) would exceed the number of directors to be elected, and (iii) the notice has not been withdrawn by the tenth (10th) day following the day on which the Corporation first mails notice of the meeting for such election or the day when a Public Announcement (as defined in Section 9.2 of Article II) thereof was made.
The Board of Directors shall not nominate for election as director any nominee who has not agreed to offer, promptly following the annual meeting at which he or she is elected as director, an irrevocable resignation that will be effective upon (a) the failure to receive the required number of votes for reelection at the next annual meeting of stockholders at which he or she faces reelection, and (b) acceptance of such offer to resign by the Board of Directors. In addition, the Board of Directors shall not fill a director vacancy or newly created directorship with any candidate who has not agreed to offer, promptly following his or her appointment to the Board of Directors, the same form of resignation.
If a nominee fails to receive the required number of votes for reelection (the "Incumbent Director"), the Board of Directors (excluding the director in question) shall, within ninety (90) days after certification of the election results, decide whether to accept the Incumbent Director's offer to resign through a process overseen by the Corporate Governance/Nominations Committee (and excluding the director in question from all Board of Directors and committee deliberations). The Board of Directors in making its determination may consider any factor it deems relevant.
Notwithstanding the foregoing, if, following an election of directors, each Director of the Corporation fails to receive the required number of votes for reelection, then, in such event, each Incumbent Director shall continue to serve until such Incumbent Director's successor is duly elected and qualified, or until such Incumbent Director's earlier resignation pursuant to Section 11 of this Article III or removal pursuant to Section 13 of this Article III.
Section 3.Section 2.Quorum and manner of Acting and Organization. Unless the Certificate of Incorporation or these By-Laws require a greater number, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the directors present at meetings at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 4.Section 3.Time and place of Meetings. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined form time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). The Chairman of the Board shall preside at all meetings of the Board of Directors (or in the absence of the Chairman of the Board, such member as may be designated by the Chairman of the Board).
Section 5.Section 4.Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting of stockholders is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice.
Section 6.Section 5.Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given.
Section 7.Section 6.Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, Chief Executive Officer or Secretary on the written request of any four of the directors. Notice of special meetings of the Board of Directors shall be given to each director at least three days before the date of the meeting in such manner as is determined by the Board of Directors.
Section 8.Section 7.Committees.
(a) The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board of Directors may designate two or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of the committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to actatthe meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required.
(b) The Board of Directors shall, by resolution or resolutions, passed by a majority of the whole Board of Directors designate an Audit committee to consist of three or more non employee directors of the Corporation free from any relationship that in the opinion of the Board of Directors, would interfere with the exercise of independent judgment as a committee member. Any director who is a former employee of the Corporation may not serve on the audit committee. The members of the Audit committee shall be appointed by and hold office at the pleasure of the Board of Directors. A majority of the members of the Audit committee will constitute a quorum for the transaction of business. It shall be the duty of the Audit committee (i) to recommend to the Board of Directors a firm of independent accountants to perform the examinations of the annual financial statements of the Corporation; (ii) to review with the independent accountants and with the Chief Financial Officer the proposed scope of the annual audit, past audit experience, the Corporation's internal audit program, recently completed internal audits and other matters bearing upon the scope of the audit; (iii) to review with the independent accountants and with the Chief Financial Officer significant matters revealed in the course of the audit of the annual financial statements of the Corporation; (iv) to review with the Chief Financial Officer any suggestions and recommendations of the independent accountants concerning the internal control standards and the accounting procedures of the Corporation; (v) to report its activities and actions to the Board of Directors at least once each fiscal year.
(c) The Board of Directors shall, by resolution or resolutions, passed by a majority of the whole Board of Directors, designate a Compensation committee to consist of three or more non-employee directors of the Corporation free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment as a committee member. The members of the Compensation committee shall be appointed and hold office at the pleasure of the Board of Directors. A majority of the members of the Compensation committee will constitute a quorum for the transaction of business. It shall be the duty of the Compensation committee to (i) review and make determinations with regard to the employment arrangements, compensation, bonuses, awards and other amounts and matters for the Chief Executive Officer, President and Chief Financial Officer or Treasurer, (ii) duly consider the recommendations of the Chief Executive Officer, and accept, modify or reject the Chief Executive Officer's recommendations as to bonuses, options and other similar awards to executives and employees.
Section 9.Section 8.Action by Consent. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.
Section 10.Section 9.Telephonic Meetings. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
Section 11.Section 10.Resignation. Any director may resign at any time by giving written notice to the Board of Directors or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 12.Section 11.Vacancies. Unless otherwise provided in the Certificate of Incorporation, vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled by a majority of the directors then in office (although less than a quorum) or by the sole remaining director. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the Certificate of Incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. Each director elected in accordance with the provisions of this Section shall hold office for a term that shall coincide with the term of the Class to which such director shall have been elected.
Section 13.Section 12.Removal.NoA director may be removed from office by thestockholders except for cause with theaffirmative vote of the holders of not less than a majority ofthose ofthe outstanding shares of stock generally entitled to vote.
Section 14.Section 13.Compensation. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursement of expenses.
Section 15.Section 14.Preferred Directors. Notwithstanding anything else contained herein, whenever the holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filing of vacancies, removal and other features of such directorships shall be governed by the terms of the resolutions applicable thereto adopted by the Board of Directors pursuant to the Certificate of Incorporation, and such directors so elected shall not be subject to the provisions of Sections 11 and 12 of this Article III unless otherwise provided therein.
Section 1. Principal Officers. The principal officers of the Corporation shall be a Chairman of the Board, a President, a Chief Financial Officer or Treasurer, a secretary, and such other officers as may be appointed in accordance with these By-Laws. The Secretary and Chief Financial Officer or Treasurer may be the same person, or a Vice President may hold at the same time the office of Secretary, Treasurer, or Controller.
Section 2. Election, Term of Office and Renumeration. The principal officers of the Corporation shall be chosen by the Board of Directors. Such officers shall hold office until a successor shall have been duly chosen and shall have been qualified or until the death or retirement of the officer or until the officer shall resign or shall have been removed in the manner hereinafter provided. The Chairman of the Board shall be chosen from among the directors.
Section 3. Chairman or Chief Executive Officer. The Board of Directors may appoint such other subordinate officers, committees or agents, as the business of the Corporation may require, including one or more Assistant Treasurers and one or more Assistant Secretaries, each of whom shall hold office for such period, and have such authority and perform such duties as are provided in these By-Laws or as the Chairman or Chief Executive Officer may from time to time determine. The Chairman or Chief Executive Officer may appoint and remove any such subordinate officer or agent.
Section 4. Removal. Subject to the provisions of any written agreement, any officer may be removed, either with or without cause, by a vote of the majority of the whole Board of Directors at a regular meeting or a special meeting called for the purpose.
Section 5. Resignations. Subject to the provisions of any written agreement, any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 6. Inability to Perform. Except as otherwise provided in these By-Laws, in the event any officer shall be unable to perform the duties of the office held, whether by reason of absence, disability or otherwise, the Chairman of the Board may designate another officer of the Corporation to assume the duties of the officer who is unable to carry out the duties of the office; in the event the Chairman of the Board shall be absent and unable to perform the duties of the office of Chairman of the Board, the Chairman of the Board shall designate another officer to assume the duties of the Chairman of the Board; if another officer has not been designated by the Chairman of the Board then the Board of Directors shall designate another officer to assume the duties of the Chairman of the Board; in the event the Chairman of the Board shall be disabled and unable to perform the duties of the office of Chairman of the Board, then the Board of Directors shall designate another officer to assume the duties of the Chairman of the Board. Any officer shall have all the powers of and be subject to all the restrictions imposed upon the officer whose duties have been assumed.
Section 7. Vacancy. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by these By-Laws for the regular appointment for election to such office.
Section 8. Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation and shall have general supervision of the business and operations of the Corporation, subject, however, to the authority of the Board of Directors. The Chairman of the Board shall preside at all meetings of the shareholders and of the board of Directors. The Chairman of the Board shall perform all of the duties usually incumbent upon a chief executive officer of a corporation and incident to the office of the Chairman of the Board. The Chairman of the Board shall also have such powers and perform such duties as are assigned by these By-Laws and shall have such other powers and perform such other duties, not inconsistent with these By-Laws, as may from time to time be assigned by the Board of Directions.
Section 9. President. The President shall have such powers and perform such duties as are assigned by these By-Laws and shall have such other powers and perform such other duties, not inconsistent with these By-Laws, as from time to time may be assigned by the Board of Directions or the Chairman of the Board.
Section 10. Vice President. Each Vice President shall have such powers and perform such duties as are assigned by these By-Laws and shall have such other powers and perform such other duties, not inconsistent with these By-Laws, as from time to time may be assigned by the Board of Directions or the Chairman of the Board.
Section 11. Chief Financial Officer or Treasurer. The Chief Financial Officer or Treasurer shall have charge and custody of, and be responsible for, all funds of the Corporation. The Chief Financial Officer or Treasurer shall regularly enter or cause to be entered in books to be kept by the Chief Financial Officer Treasurer or under his direction for this purpose full and adequate account of all moneys received or paid by the Chief Financial Officer or Treasurer for the account of the Corporation. The Chief Financial Officer or Treasurer shall exhibit such books of account and records to any of the directions of the Corporation where such books and records shall be kept, and have such powers and perform such duties as are assigned the Chief Financial Officer or Treasurer by these By-Laws and shall have such of the powers and perform such other duties, not inconsistent with these By-Laws, as from time to time may be assigned by the Board of Direction.
Section 12. Secretary. It shall be the duty of the Secretary to act as Secretary of all meetings of the Board of Directions and of the Stockholders of the Corporation, and to keep the minutes of all such meetings in the proper book or books to be provided for that purpose. The Secretary shall see that all notices required to be given by or for the Corporation or the Board of Directions or any committee are duty given and served; the Secretary shall be custodian of the seal of the Corporation, and shall affix the seal, or cause it to be affixed, to all documents, the execution of which on behalf of the Corporation, under its seal shall have been duly authorized in accordance with under its seal have been duly authorized in accordance with the provisions of these By-Laws. The secretary shall have charge of the share records and such of the other books, records, and papers of the Corporation relating to its organization and Management as a corporation and shall see that the reports, statements and other documents required by law are properly kept and filed; and shall in general perform all the duties usually incident to the office of Secretary. The Secretary shall also have such powers and perform such duties as are assigned by these By-Laws, and shall have such other powers and perform such other duties, not inconsistent with these By-Laws, as from time to time may be assigned by the Board of Directors.
Section 13. Controller. The Controller shall perform the usual duties pertaining to the office of the Controller. The Controller shall have charge of the supervision of the accounting system of the Corporation, and shall also have such other powers and perform such duties, not inconsistent with these By-Laws, as from time to time may be assigned by the Board of Directors.
Section 14. Assistants. The Assistant Treasurers and the Assistant Secretaries shall have such powers and perform such duties as are assigned to them by these By-Laws and shall have such other powers and perform such other duties, not inconsistent with these By-Laws, as from time to time may be assigned to them by the Treasurer or the Secretary, respectively, or by the Board of Directors.
Section 15. Compensation. Subject to any agreements, the compensation of the Chairman of the Board, President, Chief Financial Officer or Treasurer shall be fixed by the Board of Directors upon the recommendation of the Compensation Committee. The compensation of such other officers as may be appointed in accordance with the provisions of these By-Laws may be fixed by the Chairman of the Board or the Chief Executive Officer in accordance with these By-Laws. No officer shall be prevented from receiving such compensation by reason of also being a director of the Corporation.
Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article V, the Corporation shall indemnify, to the fullest extent permitted by applicable law, now or hereafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was a director of officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other business combination withinenterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the meaningbest interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea ofnola contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnity in Actions, Suit or Proceedings by or in the Right of the Corporation. Subject to Section 3of this Article V, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was director of officer of Corporation, or is or was a director or officer of the Corporation serving at the employee or agent of another corporation, partnership joint venture trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under this Article V (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or section 2 of this Article V, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a Business Combination,quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a Changequorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in Controla written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article V, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have been triggered untilmet the applicable standard of conduct set forth in Sections 1 or 2 of this Article V, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article V, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article V. The basis of such Business Combinationindemnification by a court shall have been consummated;be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Section 1 or 2 of this Article V, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article V nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
(ii) any person Section 6. Expenses Payable in Advance. Expenses incurred by a director or groupofficer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of related persons whichthe final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not a person or entity controlling, controlledentitled to be indemnified by the Corporation as authorized in this Article V.
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under common control withany By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the Companydirection (howsoever embodied) of any court of competent jurisdiction or Globalotherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Effective Date shall beneficially own, directly or indirectly, more than 50%Corporation that indemnification of the then outstanding voting securitiespersons specified in Sections 1 and 2 of this Article V shall be made to the Company or Global; or
(iii) the Board or the Company shall authorize, approve or engage in any Business Combination with an Interested Person (as defined infullest extent permitted by law. The provisions of this Article Fifth of such Restated Certificate of Incorporation), provided, that a Change in ControlVIII shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article V but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article V.
Section 9. Certain Definitions. For purposes of this Article V, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article V, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article V.
Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding anything contained in this Article V to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article V to directors and officers of the Corporation.
Section 1. Certificates and Transfer of Shares. (a) Certificates for shares of the Corporation shall be in such form as shall be approved by the Board of Directors. Such certificates shall be numbered and registered in the order in which they are issued an shall be signed by the Chairman of the Board, the President or Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Where any such certificate is countersigned by a transfer agent, other than the Corporation or its employee, or by a registrar, other than the Corporation or its employee, any other signature on such certificate may be a facsimile, engraved, stamped or printed. In the event that an officer whose facsimile signature appears on such certificate ceases for any reason to hold the office indicated and the Corporation or its transfer agent has on hand a supply of share certificates bearing such officer's facsimile signature, such certificates may continue to be issued and registered until such supply is exhausted.
(b) Transfers of shares of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by the holder's attorney thereunto duly authorized an on surrender of the certificate or certificates for such shares properly endorsed. Every certificate surrendered to the Corporation shall be marked "Cancelled," with the date of Cancellation. Except as hereinafter provided, no new certificate shall be issued in exchange for one previously issued until the old certificate has been surrendered and cancelled.
(c) The holder of any shares of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefor and the Corporation may issue a new certificate in the place of any certificate therefore issued by it alleged to have been triggered untillost, destroyed or mutilated. The Board of Directors may, in its discretion, as conditions to the issue of any such Business Combination shallnew certificate, require the owner of the lost or destroyed certificate or the owner's legal representatives to make proof satisfactory to the Board of Directors of the loss or destruction thereof and to give the Corporation a bond in such form, in such sum and with such surely or sureties as the Board of Directors may direct, to indemnify the Corporation against any claim that may be made against it on account of any such certificate so alleged to have been consummated.lost or destroyed.
9.12 Section 2.Definition Fiscal Year. The fiscal year of Fair Market Value. Except asthe Corporation shall commence on July 1 and end on June 30 of each year, unless otherwise determined by the Committee,Board of Directors.
Section 3. Corporate Seal. The corporate seal shall have inscribed thereon the "Fair Market Value"name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a sharefacsimile thereof to be impressed, affixed or otherwise reproduced.
Section 4. Voting of Common Stock asOwned by the Corporation. The Board of Directors or a person designated by the Board is authorized, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any date shall be equalcorporation (except this Corporation) in which the Corporation may hold stock.
Section 5. Amendments. Subject to the closing sale priceCertificate of a shareIncorporation, these By-Laws or any of Common Stock as reported onthem, may be altered, amended or repealed, or new By-Laws may be made, by the principal marketstockholders entitled to vote thereon at any annual or exchange on whichspecial meeting thereof or by the Common Stock is then listed or traded on the applicable date or, if no salesBoard of Common Stock are reported on such date, the closing sale price of a share of Common Stock on the date on which a sale was last reported on such exchange or market.Directors.
9.13 Section 6.Other Agreements Transfer and Registry Agents.. All Stock Options, SARS, Restricted Stock, Stock Units The Corporation may from time to time maintain one or more transfers officers or agencies and sharesregistry officers or agencies at such place or places as may be determined from time to time by the Board of Common Stock issued in respect thereofDirectors.
ARTICLE VII
SUBJECT TO CERTIFICATE OF INCORPORATION
These By-Laws will be subject to the Certificate of Incorporation, and in the event of any other agreements, if any,conflict between these By-Laws and the CompanyCertificate of Incorporation, the provisions of the Certificate of Incorporation will supersede and a Participant that is issued awards hereunder.take precedence.
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on November 15, 2016. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ETHAN ALLEN INTERIORS INC. ETHAN ALLEN DRIVE P.O. BOX 1966 DANBURY, CT 06811-1966 ATTN: ERIC D. KOSTER ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on November 15, 2016. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E13433-P81818 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. ETHAN ALLEN INTERIORS INC. The Board of Directors recommends you vote FOR each listed nominee: 1. To elect seven director nominees identified in the proxy statement to serve until the 2017 Annual Meeting of Stockholders; Election of Directors The Board of Directors recommends you vote FOR proposals 2, 3, 4, 5, 6 and 7. Nominees: For Against Abstain For Against Abstain 2. To approve by-law amendments related to the procedures for stockholders to nominate directors or propose other matters for consideration at stockholder meetings; To approve by-law amendments to implement “proxy access”; To approve by-law amendments to implement majority voting in uncontested director elections; To approve certificate of incorporation and by-law amendments to allow for stockholder removal of directors with or without cause and to delete obsolete provisions from, and effect clarifying changes to, the certificate of incorporation; To approve, by a non-binding advisory vote, executive compensation of the Company's Named Executive Officers; ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 1a. M. Farooq Kathwari 3. 1b. James B. Carlson 4. 1c. John J. Dooner, Jr. 5. 1d. Domenick J. Esposito 1e. Mary Garrett 6. ! ! ! ! ! ! 1f. James W. Schmotter 7. To ratify the appointment of KPMG LLP as the Company's independent registered public accounting firm for the 2017 fiscal year; and 1g. Tara I. Stacom For address changes and/or comments, please check this box and write them on the back where indicated. NOTE: To transact such other business as may properly come before the meeting. ! Yes ! No Please indicate if you plan to attend this meeting. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
EVERY VOTE IS IMPORTANT
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Please detachImportant Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report and Notice and Proxy Statement are available at perforation before mailing.
PRELIMINARY PROXY CARD – SUBJECT TO COMPLETION
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.www.proxyvote.com. E13434-P81818 ETHAN ALLEN INTERIORS INC. Annual Meeting of Stockholders November 16, 2016, 10:00 A.M. This proxy is solicited by the Board of Directors The undersigned stockholder of Ethan Allen Interiors Inc., a Delaware corporation (the "Company") hereby appoints Eric D. Koster and Corey Whitely as proxies for the undersigned, and each of them, with full power of substitution in each of them to attend the annual meetingAnnual Meeting of stockholdersStockholders to be held at the Ethan Allen Interiors Inc. International Corporate Headquarters at Ethan Allen Drive, Danbury, CT.CT 06811 on Tuesday,Wednesday, November 24, 2015,16, 2016, at 10:00 A.M., local time, or any adjournment or postponement thereof, to cast on behalf of the undersigned all votes that the undersigned is entitled to cast at such meeting and otherwise to represent the undersigned at the meeting with all powers possessed by the undersigned if personally present at the meeting. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement and revokes any proxy heretofore given with respect to such meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS EXECUTED BUT NO INSTRUCTION IS GIVEN, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST (i) "FOR" EACH OF THE NOMINEES FOR DIRECTOR, (ii) "FOR" THE RATIFICATIONELECTION OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2016 FISCAL YEAR, (iii)EACH NOMINEE LISTED IN PROPOSAL 1 AND "FOR" THE PROPOSAL TO APPROVE, BY NON-BINDING VOTE, EXECUTIVE COMPENSATION, (iv) "FOR" THE PROPOSAL TO APPROVE THE ADOPTION OF THE STOCK INCENTIVE PLAN, (v) “FOR” THE PROPOSAL TO APPROVE THE INCENTIVE PERFORMANCE COMPONENTS OF THE 2015 EMPLOYMENT AGREEMENT, (vi) "FOR" THE PROPOSAL TO APPROVE THE AMENDMENT TO THE ETHAN ALLEN INTERIORS INC. AMENDEDPROPOSALS 2, 3, 4, 5, 6 AND RESTATED CERTIFICATE OF INCORPORATION TO DELETE ARTICLE FIFTH THEREOF,7, AND IN THE DISCRETION OF THE PROXY HOLDER ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
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EVERY VOTE IS IMPORTANT
Important Notice Regarding the Availability of Proxy Materials for the
Annual Stockholder Meeting to Be Held on November 24, 2015.
The Notice and Proxy Statement and Annual Report for this meeting are available at:
https://www.ethanallen.com/investors
IF YOU VOTE BY TELEPHONE OR INTERNET,PLEASE DO NOT MAIL YOUR CARD
Please detach at perforation before mailing.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK. EXAMPLE:
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1. | Election of Directors | FOR | WITHHOLD | FOR ALL | ||||
| Nominees: | ALL | ALL | EXCEPT | ||||
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| 01. | M. Farooq Kathwari | 05. | Domenick J. Esposito | o | o | o | |
| 02. | James B. Carlson | 06. | James W. Schmotter |
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| 03. | Clinton A. Clark | 07. | Tara I. Stacom |
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| 04. | John J. Dooner, Jr. |
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| The Board of Directors recommends you vote FOR proposals 2, 3, 4, 5 and 6. | FOR | AGAINST | ABSTAIN | ||||
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2. | Proposal to ratify KPMG LLP as our independent registered public accounting firm for the 2016 fiscal year. | o | o | o | ||||
3. | Proposal to approve, by non-binding vote, Executive Compensation. | o | o | o | ||||
4. | Proposal to approve the adoption of the Stock Incentive Plan. | o | o | o | ||||
5. | Proposal to approve the incentive performance components of the 2015 Employment Agreement. | o | o | o | ||||
6. | Proposal to approve the amendment to the Ethan Allen Interiors Inc. Amended and Restated Certificate of Incorporation to delete Article Fifth thereof. | o | o | o | ||||
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give fulladd your title as such. Joint owners should each sign personally. All holdersWhen signing as joint tenants, all parties in the joint tenancy must sign. If a signer is corporation, or partnership, please sign in full corporate or partnership name by a duly authorized officerofficer. (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side. Address Changes/Comments:
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