Item 1.01 Entry into a Material Definitive Agreement.
On March 29, 2022, G-III Apparel Group, Ltd. (the “Company”) entered into (1) an amendment to the Employment Agreement, dated February 1, 1994, as amended, between the Company and Morris Goldfarb, its Chief Executive Officer, and (2) an amendment of the Employment Agreement, dated July 11, 2005, as amended, between the Company and Sammy Aaron, its Vice Chairman and President (collectively, the “Employment Agreements”). Each of Mr. Goldfarb and Mr. Aaron voluntarily agreed to amend his employment agreement with the Company to reduce the amount of the contractual annual cash bonus earned by him for the fiscal year ended January 31, 2022 that is paid in cash and to receive stock pursuant to the Company’s 2015 Long-Term Incentive Plan (the “2015 Plan”) in lieu of the payment of the portion of his fiscal 2022 cash bonus owed to him in excess of a specified capped amount. This shift in the mix of cash and stock compensation paid to these executives responded to concerns raised by stockholders during the Company’s outreach campaign about the structure of their compensation arrangements.
Accordingly, pursuant to the amendments to the Employment Agreements, Mr. Goldfarb’s contractual annual cash bonus of $17,168,681 was capped at $7,500,000, resulting in a 56% reduction in his annual cash bonus. Mr. Aaron’s contractual annual cash bonus of $11,207,333 was capped at $7,250,000, resulting in a 35% reduction in his annual cash bonus. Mr. Goldfarb was granted 415,704 shares of the Company’s common stock instead of the cash owed to him that exceeded $7,500,000. Mr. Aaron was granted 152,235 shares of the Company’s common stock instead of the cash owed to him that exceeded $7,250,000.
Both executives agreed that they would hold the net after-tax shares of the common stock for specified restriction periods extending for three years for Mr. Goldfarb and for one year for Mr. Aaron. During the restriction periods, the executives agreed not to sell or otherwise transfer or dispose of, directly or indirectly, any of the net after-tax shares or enter into any arrangement that transfers any of the economic consequences of ownership of the net after-tax shares. The restriction periods will only lapse upon the executive’s death, disability or if a Change in Control (as defined in the 2015 Plan, as amended) occurs.
These amendments reduce the cash compensation paid to these executives and increase the portion paid in stock. The restriction periods further align the executives’ compensation with stockholder interests and respond to stockholder concerns expressed during the Company’s outreach.
The foregoing description of the amendments to the Employment Agreements does not purport to be complete and are qualified in its entirety by reference to the complete texts, filed herewith as Exhibit 10.1 and 10.2, respectively, which are incorporated herein by reference.
Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
The information with respect to the amendments of the Employment Agreements set forth in Item 1.01 of this Current Report on Form 8-K is incorporated by reference herein.
Item 8.01 Other Events.
The Company’s Chief Executive Officer and Vice Chairman and President are parties to long-standing employment agreements with the Company that provide for annual cash bonuses equal to pre-defined percentages of pre-tax income. We have conducted shareholder outreach to discuss our executive compensation practices and other corporate governance matters with a majority of our stockholders. During this outreach, our stockholders indicated that they were concerned about the size of these cash bonuses and would prefer to see more compensation delivered in stock rather than cash.
In response to our stockholder outreach, the Compensation Committee of the Board of Directors (the “Board”) negotiated amendments to the Employment Agreements with these executives pursuant to which they voluntarily agreed to substantially reduce their cash bonus awards and receive stock awards instead of the contractual cash bonuses in excess of specified caps on the amount of cash to be paid to them. The amendments to the Employment Agreements are described above in Item 1.01-Entry into a Material Definitive Agreement.
The executives will be taxed on the value of the common stock at the date of the amendment to the employment agreements. The 2015 Plan contains a one-year minimum vesting requirement that would prevent the
