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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: | ||
Preliminary Proxy Statement | ||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
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 DriveDanbury, Connecticut 06811
October [ ], 20152, 2017
Dear Stockholder:Fellow Stockholders:
You are cordially invited to attend the 2015 annual meeting of stockholders of Ethan Allen Interiors Inc. The annual2017 Annual Meeting of Stockholders. This meeting will be held at 10:00 a.m. on Wednesday, November 15, 2017, at the Ethan Allen International Corporate Headquarters, Ethan Allen Drive,25 Lake Avenue Extension, Danbury, Connecticut 06811 at 10:00 A.M., Eastern Time, on Tuesday, November 24, 2015.06811.
In connection withpreparation for the meeting,2017 Annual Meeting of Stockholders, we have prepared a noticeNotice of the meeting, our proxy statement,2017 Annual Meeting of Stockholders, Proxy Statement, and our 2015 annual report2017 Annual Report to stockholders,Stockholders, which provideprovides detailed information relating to the meetingour activities and your Company.
These materials are accompanied by aWHITE 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 responsibleoperating performance for the accuracyyear ended June 30, 2017.
This year, we are once again using the Internet as our primary means of any information provided by or relatingfurnishing proxy materials to Sandell or its nominees contained in solicitationstockholders. Accordingly, most stockholders will not receive paper copies of our proxy materials. We instead will mail to our stockholders a Notice Regarding the Availability of Proxy Materials. This notice will contain instructions on how to access proxy 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' nominees andProxy Materials also provides information on the other matters to be voted at the meeting by using the enclosed WHITE proxy or voting instruction card.
If your brokerage firm, bank or other similar organization is the holderhow stockholders may obtain paper copies 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 withmaterials if they so choose. Electronic delivery will expedite the meeting.receipt of materials while lowering costs and reducing the environmental impact of our 2017 Annual Meeting of Stockholders banksby reducing printing and brokers may call toll free at (866) 277-0928.mailing costs.
You will find information about the matters to be voted on at the meeting2017 Annual Meeting of Stockholders 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.2017 Annual Meeting of Stockholders. To ensure that your shares are representedrepresentation at the meeting,2017 Annual Meeting of Stockholders, 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 2017 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
PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION
ETHAN ALLEN INTERIORS INC.
Ethan Allen DriveDanbury, Connecticut 06811
NOTICE OF 20152017 ANNUAL MEETING OF STOCKHOLDERS
Wednesday, November 15, 2017
10:00 AM EST
Ethan Allen International Corporate Headquarters
25 Lake Avenue Extension
Danbury, Connecticut 06811-5286
To our Stockholders:
The 2015 annual meeting2017 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 2018 Annual Meeting of Stockholders; | |||
Proposal 2. | to approve by a non-binding advisory vote, Named Executive Officer compensation; | |||
Proposal 3. | to approve, by a non-binding advisory vote, the frequency of future advisory votes to approve Named Executive Officer compensation; | |||
Proposal 4. | to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2018 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 2017 Annual Meeting of Stockholders is the ratification of the appointment of our independent registered public accounting firm for the election of directors or anycurrent year (Proposal 4). 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 18, 2017 as the record date for determining stockholders entitled to notice of, and to vote at, the annual meeting.For more information2017 Annual Meeting of Stockholders. It is important that your shares be represented and up-to-date postings, please go to our special website, .voted at the 2017 Annual Meeting of Stockholders. 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 2017 Annual Meeting of Stockholders by following the instructions in the Proxy Statement.
These proxy solicitor assisting us in connection withmaterials are first being made available on the annual meeting.Internet on or around October 2, 2017.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders banksto be held on November 15, 2017. The Notice of the 2017 Annual Meeting of Stockholders,the proxy statement and brokers may call toll freethe 2017 Annual Report to Stockholdersare 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
Eric D. Koster
Corporate Secretary
October 2, 3, 4 AND 5.2017
ETHAN ALLEN INTERIORS INC.Ethan Allen Drive,25 Lake Avenue Ext., Danbury, Connecticut 06811
PROXY STATEMENT
for Annual Meeting of Stockholders 2015
TABLE OF CONTENTS |
| 1 | |||
ABOUT THE ANNUAL MEETING | 1 | |||
| 6 | |||
BOARD INDEPENDENCE | 6 | |||
BOARD LEADERSHIP STRUCTURE | 7 | |||
Independent Lead Director | 7 | |||
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| 8 | |||
NOMINATIONS/CORPORATE GOVERNANCE COMMITTEE | 9 | |||
PROPOSAL 1: ELECTION OF DIRECTORS | 10 | |||
DIRECTOR NOMINEES FOR ELECTION | 10 | |||
CORPORATE GOVERNANCE | 14 | |||
STOCKHOLDER OUTREACH & COMMUNICATION WITH DIRECTORS | 16 | |||
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| 17 | |||
Related Party Transactions | ||||
Compensation Committee | ||||
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| 21 |
i
COMPENSATION DISCUSSION AND ANALYSIS | 22 | |||
Executive Summary | 22 | |||
Alignment Of Pay With Performance | 22 | |||
Stock Incentive Plan | ||||
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| 33 | |||
2017 Summary Compensation Table | ||||
2017 Grants of Plan Based Awards | 34 | |||
Outstanding Equity Awards at 2017 Fiscal Year-End | 35 | |||
Option Exercises and Stock Vested in 2017 | 36 | |||
2017 Nonqualified Deferred Compensation | 36 | |||
Change in Control | 37 | |||
PROPOSAL 4: RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 40 | |||
AUDIT COMMITTEE REPORT | 40 | |||
Audit Fees | 42 | |||
Audit and Non-Audit Engagement Pre-Approval Policy | 42 | |||
OTHER MATTERS | 42 |
iii
PROXY STATEMENT |
ABOUT THE ANNUAL MEETING |
This proxy statement (this "Proxy Statement") and the accompanying WHITE proxy or voting instruction card relate to the 20152017 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, 25 Lake Avenue Extension, Danbury, Connecticut 06811 at 10:00 a.m., Eastern Time, on Wednesday, November 15, 2017. The Board of Directors of yourthe Company (your(the "Board of Directors" or the "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. TheA 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.present in person. 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 [ ], 2015.2, 2017. 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 2018 Annual Meeting of Stockholders; | ||
Proposal 2. | to approve, by a non-binding advisory vote, Named Executive Officer compensation; | ||
Proposal 3. | to approve, by a non-binding advisory vote, the frequency of future advisory votes to approve Named Executive Officer compensation; | ||
Proposal 4. | to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the 2018 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
Stockholders will be asked to vote for nominees for all director seats on yourthe Board of Directors as of the Annual Meeting. The term of office for directors elected at the Annual Meeting will continue until the 20162018 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified or until their earlier removal, resignation or death. YourThe Board of Directors' nominees for election are: M. Farooq Kathwari, James B. Carlson, Clinton A. Clark, John J. Dooner, Jr., Domenick J. Esposito, Mary Garrett, James W. Schmotter and Tara I. Stacom.
Other than routine or procedural matters,As of the date of this Proxy Statement, we dohave not expectreceived notice of any other business willthat may be properly proposed at the Annual Meeting, but if any other business is properly proposed, the proxyholders named in the WHITE proxy or voting instruction card will have authority to vote as recommended by yourthe Board of Directors.
This Proxy Statement and the accompanying WHITE proxy or voting instruction card is furnished in connection with the solicitation by yourthe Board of Directors, of proxies for use at the Annual Meeting to be held on Tuesday,Wednesday, November 24, 201515, 2017 at the Ethan Allen International Corporate Headquarters, Ethan Allen Drive,25 Lake Avenue Ext., Danbury, Connecticut 06811 at 10:00 A.M., Eastern Time, or any adjournment thereof. ThisThe Notice Regarding the Availability of Proxy Materials, this Proxy Statement and our 20152017 annual report to Stockholders ("Annual Report") are first being mailedmade available to stockholders on or about October 23, 2015.2, 2017.
The Notice provides you with instructions regarding how to:
Choosing to receive future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our annual meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
If you vote by proxy, your shares will be voted at the Annual Meeting in the manner you indicate. If your shares are held in your name (but(i.e., not in "street name" through a broker) and if you sign your WHITE proxy or voting instruction card, but do not specify how you want your shares to be voted, they will be voted as yourthe Board of Directors recommends.
Your vote is important. YourThe Board urges you to submit a proxy for your shares as soon as possible by following the instructions provided on the enclosed WHITE proxy or voting instruction card you receive from your brokerage firm, bank or other similar organization. Internet and telephone submission of proxies is available 24 hours a day, and, if you use one of those methods, you do not need to return a proxy or voting instruction card. Unless you are planning to vote at the Annual Meeting in person, your proxy must be received by 11:59 p.m., Eastern Time, on Monday,Tuesday, November 23, 2015.14, 2017. Even if you submit your proxy or voting instructions by one of the methods listed above, you still may vote at the Annual Meeting in person if you are the record holder of 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.
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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 proxyvotes cast. This means that the number of votes cast "FOR" a director nominee's election must exceed 50 percent of the number of votes cast with regardrespect to the election of directors,that nominee in order for the nominee to be elected. Our bylaws provide that 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. If a nominee fails to receive the required number of votes for reelection, the Board of Directors (excluding the director in question) shall, within ninety (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 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.
If you do not instruct your broker how to vote with respect to this item, your broker may not vote with respect to this proposal. For your vote to be counted, you must submit your voting instructions to your broker or custodian. Abstentions and broker non-votes will not be counted as votes cast and therefore will have no effect in favor of all nominees, withhold theirdetermining whether the required majority vote as to all nominees or withhold their vote as to a specific nominee(s).has been attained.
ApprovalProposal 2: the approval, by non-binding advisory vote, of executive compensation of the compensation of ourCompany's Named Executive Officers (collectively, the "NEOs") is; Proposal 3: the approval, by a non-binding advisory vote, of the frequency of the future advisory vote to approve NEO compensation, and; Proposal 4: the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the 2018 fiscal year.
If you do not instruct your broker how to vote with respect to Proposals 2 and 3, your broker may not vote with respect to these proposals. For your vote to be counted, you must submit your voting instructions to your broker or custodian. Abstentions will be counted as present for the purposes of the vote on Proposals 2 and 3, and therefore will have the same effect as a vote against such proposals. Broker non-votes will not be counted as present and are not entitled to vote on Proposals 2 and 3. Abstentions and broker non-votes will be counted as present and entitled to vote for the purposes of the vote on Proposal 4, and therefore will have the same effect as a vote against the proposal.
Approval of the Proposals 2 and 3 regarding compensation of our NEOs and the frequency of future votes to approve NEO compensation are advisory and will not be binding on yourthe Board of Directors or the Company. However, yourthe Board of Directors will review the voting results on this Proposalof these proposals and take them into consideration when making future decisions regarding executive compensation.
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 your shares are held in street name, there are special procedures that you must follow to revoke a proxy submitted via the Internet or by telephone or by marking, signing and returning a vote instruction card.
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 |
YourEthan 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 | | ||||||||||||||||||
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Mary Garrett | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||
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| James W. Schmotter | | ü | | ü | | ü | | ü | | | | ü | | | | ü | | ||||||||||||||||||
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Tara I. Stacom | ü | ü | ü | ü | ü | |||||||||||||||||||||||||||||||
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BOARD INDEPENDENCE |
The 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. Wisner (the two directors who have announced that they are retiring from your 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 2017 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.
Independent Lead Director |
Our Corporate Governance HighlightsGuidelines provide that if the Chairman is not an independent director, the Board shall select a Lead Independent Director from among the members of the Board who are determined by the Board to be independent. The selection of the Lead Independent Director occurs at the annual planning meeting of the Board of Directors. The Lead Independent Director has such clearly delineated duties and responsibilities as set forth in our Corporate Governance Guidelines. While the Board has chosen to continue combining the two roles of Chairman and Chief Executive Officer, it believes that a suitably empowered Lead independent director who is expressly authorized to exert de facto control of the Company by asserting independent leadership of the Board, further promotes the Board's independence from 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.
WeThe 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 2017, there were four regularly scheduled meetings of the Board of Directors including the 2016 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 2016 Annual Meeting of Stockholders. In fiscal year 2017, there was 100% attendance by each director at each of the four regularly scheduled Board of Directors meetings, four regularly scheduled Audit Committee meetings, two regularly scheduled Compensation Committee meetings, and two regularly scheduled Nominations Committee meetings. As set forth in our Corporate Governance Guidelines, the Company's policy is to expect the 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.
The Board of Directors has established three standing committees: the Audit Committee; the Compensation Committee; and the Nominations/Corporate Governance Committee. Committee memberships of each nominee and continuing or current director are set forth below:
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Name | | Audit Committee | | Nominations Committee | | Compensation Committee | | Lead Independent Director | | |||||||||||
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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 | Chairperson | 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 each of the members of the standing committees is (i) independent within the meaning of the listings standards of the NYSE, including (for the Audit Committee and the Compensation Committee members), the additional requirements applicable to members of the audit and compensation committees, as applicable, (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 2017.
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 2018 Annual Meeting of Stockholders and until their respective 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.
Each director is elected annually by a majority of the votes cast. This means that the number of votes cast "FOR" a director nominee's election must exceed 50 percent of the number of votes cast with respect to the election of that nominee in order for the nominee to be elected. 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.
The Board of Directors unanimously recommends that you voteFOR each of the seven nominees.
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. He is also the recipient of three honorary doctorate degrees. | Director since 1985 Age: 73 Board Committees: • Chairman of the Board | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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Mr. Kathwari serves in numerous capacities at several nonprofit organizations including as an advisory member of the New York Stock Exchange; a director and former chairman of the National Retail Federation; Director Emeritus and former chairman and president of the American Home Furnishings Alliance; a member of the Board of Overseers of the International Rescue Committee; Chairman Emeritus of Refugees International and he served as a member of the President's Advisory Commission on Asian Americans and Pacific Islanders from 2010 to 2014. He is also a member of the Council on Foreign Relations; a member of the International Advisory Council of the United States Institute of Peace; a member of the advisory board of the Center for Strategic and International Studies; a director of the Institute for the Study of Diplomacy at Georgetown University and serves on the board of the Western Connecticut State University Foundation. Among his recognitions, Mr. Kathwari has been inducted into the American Furniture Hall of Fame. He has been recognized as an Outstanding American by Choice by the U.S. government. He has received the Eleanor Roosevelt Val-Kill Medal; the National Human Relations Award from the American Jewish Committee; the National Retail Federation Gold Medal; the International First Freedom Award from the Council for America's First Freedom; Ernst & Young's Entrepreneur of the Year Award; the Anti-Defamation League's Humanitarian Award; City of Hope's International Home Furnishings Industry Spirit of Life® Award; and the Entrepreneurial Excellence Award from the National Association of Asian MBAs. He has also been recognized by Worth magazine as one of the 50 Best CEOs in the United States. 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: 62 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 2011. | Director since 2011 Age: 69 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, 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 two privately held valuation services firms. 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: 70 Board Committees: • Audit - Chair • 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 with positions in marketing, sales and engineering. In her most recent position at IBM, as VP of Marketing and Communications for Sales and Distribution, she led the development and execution of unique marketing and communication strategies encompassing cloud computing, cognitive/data analytics and cybersecurity in 170 countries around the world. | Director since 2016 Age: 58 Board Committees: • Audit | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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Previously, Ms. Garrett led global marketing for IBM Global Technology Services and also held P&L responsibility for the $6B enterprise segment for that business. She has earned a patent for her work in speech recognition as an engineer in IBM's research division. Ms. Garrett also serves on the Board at Hill-Rom Corporation (NYSE:HRC), a global medical technology company where she is also a member of the audit committee. Ms. Garrett is the Chairperson of the Board for the American Marketing Association and an active mentor in W.O.M.E.N. in America, a professional development group aimed at advancing promising professional women. Recently, she joined the strategic planning committee and the technology committee of the Western Connecticut Health Network. Ms. Garrett's 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: 70 Board Committees: • Nominations - Chair • Audit | |||||||||
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Specific Qualifications, Attributes, Skills and Experience: | ||||||||||
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Dr. Schmotter has served as a managing director of the Southwest Michigan Innovation Center, 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 and the Latino Scholarship Fund (Connecticut). He is currently a consultant with CBT University Consulting, as well as a member of the board of directors of the Dunes of Naples II Condominium Association and the Schools Outreach Committee of the Naples Council on World Affairs (Florida). A recipient of the Walter F. Brady, Jr. Award for the Advancement of Higher Education in Connecticut, he has since 2011 chaired accreditation review teams for three New England universities. 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: 59 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 since 2003 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 that support this belief and comply with the corporate governance requirements imposed by the SEC and the NYSE,NYSE. At the 2016 Annual Meeting of Stockholders, stockholders approved the Company's proposals to implement a number of enhancements to our governance policies as follows:
Enhanced by-laws. Enhanced the advance notice by-law provisions which enable our stockholders to nominate directors or propose other matters for consideration at stockholder meetings.
Proxy Access. Updated the Company's by-laws to establish provisions that give our eligible stockholders the ability to include their director nominees in our proxy materials for our annual meetings of stockholders.
Majority Voting in Uncontested Director Elections. Implemented majority voting provision in uncontested director elections with a plurality voting provision for contested elections.
Stockholder Removal of Directors. Updated the Certificate of Incorporation to clarify that directors may be removed from office by a requisite stockholder vote with or without cause.
Furthermore, Over the past several years, the Company has updated and in doing so, your Board of Directors adoptedclarified its corporate governance guidelines (the "Governance Guidelines"). Many featurespolicies and procedures to conform to emerging trends and best practices. Some of our corporate governance principles are discussed in other sections of this Proxy Statement, but some ofkey policies and practices include the highlights are:following:
Company's Change of Control Severance Plan, see "Compensation Committee Report", which agreements and plan include "double trigger" conditions upon change in control and do not contain excise tax gross-ups.
Formal Adoption of Additional Policies
STOCKHOLDER OUTREACH & COMMUNICATION WITH DIRECTORS |
In 2013, we decidedDuring the past year, the Board and management held two investor conferences to formalizeallow direct interaction 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:
At the end of his term, a director will resign as a director.
These policies may be waived, updated or modified by any of the Nominations Committee, Compensation Committee or your Board of Directors, upon notice to the Company and your Board of Directors, as applicable. They are accessible under "Corporate Governance Charters and Policies" on our website atwww.ethanallen.com/governance.
Stockholder Communication with Directors
investment community. Stockholders or interested parties may communicate with the Chairman, the Lead Independent Director, 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,PO BOX 1966, Danbury, Connecticut 0681106813-1966 for forwarding to the appropriate director(s). Please specify to whom your correspondence should be directed.directed and the nature of your interest in the Company. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company's internal audit department and handled in accordance with procedures established by the Audit Committee with respect to such matters.
The Secretary shall review any such correspondence and forward to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or committees thereof or that the Secretary otherwise determines requires their attention. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Typically, the Secretary would not forward to the Board communications of a personal nature or not related to the duties and responsibilities of the Board, including junk mail, mass mailings, advertisements, magazines, solicitations, job inquiries, opinion surveys or polls.
Additional investor information is available atwww.ethanallen.com/investors.
Stockholders may also electronically submit their communications to the following e-mail address: ETHBoard@ethanallen.com.
COMMITTEE CHARTERS, BUSINESS CODE AND CORPORATE GOVERNANCE 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. 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 06813-1966.
The Corporate Secretary has been instructedGovernance Guidelines cover, among other things, the duties and responsibilities of and independence standards applicable to our directors. The Corporate Governance Guidelines also cover the Board's role in overseeing executive compensation, compensation and expenses of non-management directors, communications between stockholders and directors, and Board committee structures and assignments.
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 yourthe Nominations Committee, and any waivers or amendments will be publicly communicated, as appropriate, including by a posting on our website within four business days. We granted no waivers under our Code of Business Conduct and Ethics in fiscal 2017. Stockholders may request a copy of any of these documents by writing to: Ethan Allen Interiors Inc., PO Box 1966, Danbury, CT 06813-1966, 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 the 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 2017.
DIRECTOR COMPENSATION |
For fiscal year 2017, each independent director received $60,000 per annum and an annual stock option award. The number of stock options awarded was 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.
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Name | | Fees Earned or Paid in Cash | | Option Awards (1) | | Total | | |||||||||
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James B. Carlson (2) | $ 68,000 | $ 27,076 | $ 95,076 | |||||||||||||
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| Clinton A. Clark (3) | | 28,707 | | $ 54,134 | | 82,841 | | ||||||||
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John J. Dooner, Jr. (4) | 60,000 | $ 27,076 | 87,076 | |||||||||||||
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| Domenick J. Esposito (5) | | 70,000 | | $ 27,076 | | 97,076 | | ||||||||
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Mary Garrett (6) | 60,000 | $ 27,076 | 87,076 | |||||||||||||
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| James W. Schmotter (7) | | 68,000 | | $ 27,076 | | 95,076 | | ||||||||
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Tara I. Stacom (8) | 60,000 | $ 27,076 | 87,076 | |||||||||||||
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Certain Transactions
The Company is party to indemnification agreements with eachfirst anniversary of the membersdate of your Boardgrant. As of Directors pursuant toJune 30, 2017, Mr. Dooner held 18,950 options, of which 12,288 were vested.
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 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 PartyDisclosure Control Committee Meetings,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 NominationsAudit Committee. The NominationsAudit Committee reviews and considers all relevant information available to it about each related party transaction and upon its approval 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. The Audit Committee then oversees any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K) and any other potential conflict of interest situations on an ongoing basis in accordance with Company policies and procedures. 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-law of Mr. Kathwari, the Company's Chairman, President and Chief Executive Officer.Officer, is employed by the Company as 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 2017, the Company's business through the acquisition of new licensees, especiallyCompany paid approximately $270,000 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 18, 2017, 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; (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; and (iv) all of our executive officers and directors serving as of September 18, 2017, as a group. 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, 25 Lake Avenue Ext., Danbury, CT 06811. Name and Address of Beneficial Owner
Directors and Executive Officers Shares
Beneficially
Owned (1) Common Stock
Percentage
Ownership (1) M. Farooq Kathwari (2) 2,801,780 10.1% James B. Carlson (3) 23,024 * John J. Dooner, Jr. (4) 26,971 * Domenick J. Esposito (5) 6,121 * Mary Garrett (6) 1,160 * James W. Schmotter (7) 18,571 * Tara I. Stacom (8) 4,260 * Corey Whitely (9) 16,435 * Daniel Grow (10) 10,450 * Tracy Paccione (11) 11,937 * Clifford Thorn (12) 9,283 * All executive officers and directors as a group (11) persons 2,929,992 10.5% BlackRock, Inc. (13) 3,227,320 11.6% Vanguard Group Inc. (14) 2,376,673 8.6% Royce & Associates, LLC (15) 2,225,836 8.0% FMR LLC (16) 1,932,514 7.0% Dimensional Fund Advisors LP (17) 1,523,925 5.5% Company since 1985Stock Option Plan which, as of September 21, 2016, are currently exercisable or will become exercisable within 60 days by such director or NEO, as applicable.Chairman(e) options to purchase 250,000 shares of common stock.Principal Executive Officer since 1988. He received his B.A. degree from Kashmir University(b) options to purchase 6,940 shares of common stock.English Literaturethe Ethan Allen Retirement Savings Plan and Political Science(c) options to purchase 4,000 shares of common stock.an M.B.A.(c) options to purchase 7,166 shares of common stock.International Marketing fromthe Ethan Allen Retirement Savings Plan and (c) options to purchase 11,166 shares of common stock.University. From 2010NY 10055.2014 Mr. Kathwari servedtheir Schedule 13G filed with the SEC on February 9, 2017. Vanguard's address is 100 Vanguard Blvd., Malvern, PA 19355.President's Advisory CommissionSEC on Asian Americans and Pacific Islanders andJanuary 9, 2017. Royce's address is currently affiliated with several not-for-profit organizations, including: as director of Refugees International, director and former Chairman of American Home Furnishings Alliance, director and former Chairman 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 the745 Fifth Avenue, New York, NY 10151.Exchange. Mr. Kathwari has received numerous recognitions, including Honorary Doctorand sole dispositive power over 1,932,514 shares 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, and strategic planning from experienceCommon Stock, according to their Schedule 13G filed with the CompanySEC on February 14, 2017. FMR, LLC's address is 245 Summer Street, Boston, MA 02210.well as his broad experienceper their Schedule 13G filed 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 of the CompanySEC 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, currentlyFebruary 9, 2017. Dimensional Fund Advisors address 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 extensive6300 Bee Cave Road, Austin, Texas, 78746.
PROPOSAL 2: 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 and financial strategies, and is a highly regarded member of bothgovernance promotes alignment with the legal and business communities. Mr. Carlson is the Chairman of the Compensation Committee and a member of the Audit Committee.
Clinton A. Clark, 73, became a director of the Company on June 30, 1989. He and a partner are sole Members of Clark Quality Construction, LLC, a residential development company. Prior to founding Clark Quality Construction, Mr. Clark was Chairman, President and Chief Executive Officer of Long John Silver's Restaurants, Inc. from 1990 through September 1993 and prior thereto was President and Chief Executive Officer of The Children's Place, a retail children's apparel chain he founded in 1968. Mr. Clark has also been an investor and director of several private companies. Mr. Clark's experience managing publicly traded companies, experience as an executive, and knowledge of the history of the Company has provided the Company with a wealth of knowledge in strategic planning, corporate finance, compensation, and sales and marketing in consumer related industries. He has the necessary skills to fulfill his role as Chairmaninterests of the Company's Audit Committee. Mr. Clark has informedstockholders.
The Company seeks stockholder approval, on a non-binding basis, of the Companycompensation of his intentour Named Executive Officers, or "NEOs", as disclosed in this Proxy Statement pursuant to retire immediately priorSection 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 2016 Annual Meeting of Stockholders, andour stockholders were asked to during his final year of service as a director, assist inapprove the transitionCompany's fiscal 2016 executive compensation programs. A substantial majority (95%) of the Audit Committee Chairmanship.
John J. Dooner, Jr., 67, became a directorvotes cast on the "say-on-pay" proposal at the meeting were voted in favor of the Company on January 26, 2011. He recently establishedproposal. 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. 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 rosterCompensation Committee believes 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. He is a memberthese 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 Nominations Committee as well asperformance, further link compensation to our business and talent strategies and clearly detail the Lead Independent Director in 2014.rationale for pay decisions.
Domenick J. Esposito, 68, became a directorFor 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 on July 21, 2015. Mr. Esposito, who has been a practicing CPA since 1974, currently is a memberCompany'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 CPA firm CohnReznick LLP, where he has been a partner since 2002. HeCompensation Committee on the prior year's annual compensation to the NEOs. Because your vote is currently serving asadvisory, it will not be binding upon the National Practice and Growth Director and prior to that served asBoard. However, 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,Board values shareowners' opinions and the firm's Chief Executive Officer in 1999. Prior to 1979 he served as a member of Price Waterhouse. He has been a memberCompensation Committee will take into account the outcome of the NASDAQ Listingadvisory vote when considering future executive compensation decisions. Further, this advisory vote will serve as an additional tool to guide the Board and Qualificationsthe 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 and recently served onunanimously recommends a voteFOR the NASDAQ Listing and Qualifications Panel. He formerly served as the leaderapproval 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 membercompensation 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 theCompany's Named 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, filed with the SEC on October 8, 2014.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR NAMED ABOVE.Officers.
PROPOSAL 3: TO APPROVE, ON AN ADVISORY BASIS, THE FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION |
As required by Section 14A of the Securities Exchange Act, this proposal provides stockholders with the opportunity to vote on how frequently they would like to cast an advisory vote on the compensation of our named executive officers. The Audit Committee assists yourprevious advisory vote on the frequency of shareholder votes on named executive compensation was conducted in connection with the 2011 Annual Meeting of Stockholders. The Board of Directors in fulfilling its oversight responsibility relating to the Company's financial statementsrecommended, our stockholders agreed, and the financial reporting process,Board subsequently determined that we will hold an advisory vote on executive compensation annually.
After carefully considering the systembenefits and potential consequences 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 responsibilityeach option for the financial statements andfrequency of submitting the reporting process, includingadvisory vote on the systemcompensation of internal control. The Company's independent registered public accounting firm, KPMG, hasour named executive officers to stockholders, 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 holding such advisory vote every "1 YEAR" continues to be the most appropriate policy for the Company at this time. In formulating this recommendation, the Board recognized that an annual advisory say-on-pay vote would provide the highest level of accountability and promote direct and immediate feedback by enabling the non-binding say-on-pay vote to correspond with the most recent named executive officer compensation information presented in our proxy statement. While the Company's executive compensation programs are designed to promote a long-term connection between pay and performance, executive compensation disclosures are made annually and the Board believes that an annual advisory vote on executive compensation is consistent with the Company's practice of seeking timely input and engaging in frequent dialogue with our stockholders on corporate governance matters (including our practice of having all directors elected annually and annually providing stockholders the opportunity to ratify the Audit Committee members,Committee's selection of independent auditors) and our executive compensation philosophy, policies and practices. Stockholders should consider the value of having the opportunity every year to voice their opinion on the Company's executive compensation through an advisory vote, weighing that against the additional burden and expense to the Company and stockholders of preparing and responding to proposals annually, as requiredwell as the other means available to stockholders to provide input on executive compensation. We welcome stockholder input and anticipate that the value of an annual vote will likely outweigh the burden of preparing annual proposals.
Stockholders may indicate whether they would prefer an advisory vote every one, two, or three years, or whether they wish to abstain. The option that receives the highest number of votes cast by SEC regulations and NYSE rules,our stockholders will be the frequency for the advisory vote on executive compensation that has been selected.
Stockholders are financially literate with accountingnot voting to approve or related finance management expertise, as interpreted by yourdisapprove the Board's recommendation. Because this is an advisory vote, it will not be binding upon the Board of Directors. YourHowever, the Board will take into account the outcome of the vote when making future decisions on the frequency of say-on-pay votes and may decide, based on factors such as discussions with stockholders and the adoption of material changes to compensation programs, that it is in the best interest of our stockholders to hold a say-on-pay vote more or less frequently than the option approved by our stockholders.
The Board of Directors has determinedunanimously recommends that each memberstockholders select1 YEAR with respect to how frequently a non-binding stockholder vote to approve the compensation of our Named Executive Officers should occur in 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, theirfuture.
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 DISCUSSION AND ANALYSIS |
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 | |||
| | | | | | | |
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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 your Board of Directors. In fulfilling its oversight responsibilities, the Compensation Committee reviews and discusses with management the Compensation Discussion and Analysis set forth below and recommends to your Board that the Compensation Discussion and Analysis be included in 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.
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 2016 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 ofwas approved by over 95% of the votes cast. In our priorThe Compensation Committee Reports in connection withbelieves this favorable outcome conveyed our stockholders' support of our executive compensation programs and the 2013 Annual MeetingCompensation Committee's decisions. The Compensation Committee will continue to consider the outcome of Stockholders and 2014 Annual Meeting of Stockholders, we previously described our improvements and refinements in relation to 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.
Executive Summary |
We continue to have strong alignment between our executive compensation and the interests of our stockholders. Fiscal 2017 was a year of action for the Company. Despite challenging socioeconomic conditions many major initiatives were accomplished during the year that position the Company in line with its long-term growth strategies, including the completion of the major transformation of our product programs, the launch of our Disney collaboration, securing a blanket purchase agreement under the Department of State World-Wide Packaged Home Program, entering into a collaboration with Amazon and expanding our digital mediums.
Alignment Of Pay With Performance |
The Compensation Committee continued to focusis focused on the alignment of the interests of the NEOs with those of our Company and stockholders and the Compensation Committee tookhas taken the following steps for fiscal 2015:to further promote this alignment:
and also considering the views of leading shareholder 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-based incentive components of the 2015 Employment Agreement are subject to review and vote of our stockholders at the 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
at $1.8 million for fiscal year 2014 despite his bonus entitlement under his 2011 Employment Agreement. This voluntary cap effectively reduced his annual incentive bonus compensation in fiscal 2014 by $622,656 (or 26%) from what he was entitled under the 2011 Employment Agreement.
Chief Executive Officer Voluntary Bonus Reduction in 2015. After discussions with the Compensation Committee, the Chief Executive Officer voluntarily directed the Company to continue the cap on his bonus compensation at $1.8 million, despite bonus entitlement under his 2011 Employment Agreement. This voluntary directive from the Chief Executive Officer effectively reduced his annual incentive bonus compensation in fiscal 2015 by $525,204 (or 23%) from what he was entitled under the 2011 Employment Agreement.
Background for 2015 Employment Agreement. 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 your 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 shareholders and shareholders 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.
With the recognition that the advance renewal notice date under the 2011 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, the 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 your Board of Directors, appreciating the evolving views of executive compensation and the views of leading shareholder 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.
Incentive Compensation Under 2015 Employment Agreement. For the 2015 Employment Agreement, the Compensation Committee determined to provide that future annual incentive payments will be based on annual goals set annually by the Company, the Compensation Committee and your 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 your Board of Directors within 90 days of the beginning of each fiscal year. If the Compensation Committee or your 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. Incentive compensation payments will be earned according to performance on a directional payout schedule as follows:
Directional 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 |
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 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 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 |
Upon death, disability or retirement, the annual incentive and performance-vested restricted stock awards are earned on a full-year basis, based upon target measurements, and the options are fully earned (subject to adherence to standard existing non-compete, non-solicitation and non-disclosure agreements in the case of retirement).
Peer Companies Considered in Connection with the 2015 Employment Agreement. 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 shareholders 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 identified 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): 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.
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:
Total Compensation Level and Mix In Connection With the 2015 Employment Agreement. 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 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
|
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 the 2015 Annual Meeting of Stockholders. The Compensation Committee and the Company improved, clarified and updated the Stock Incentive Plan as follows:
Chief Executive Officer's Compensation |
The Compensation Committee in 2015 initiated, negotiated and, on October 1, 2015, effective July 1, 2015, entered into the 2015 Employment Agreement, of which its incentive compensation components were subsequently approved by stockholders at our 2015 Annual Meeting of Stockholders.
In evaluating and finalizing the provisions of the 2015 Employment Agreement, 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. The 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 the Board of Directors, appreciating the evolving views of executive compensation and the views of leading stockholder advisory services.
Base Compensation Under 2015 Employment Agreement. Pursuant to the 2015 Employment Agreement, Mr. Kathwari is entitled to base salary of $1,150,000 per annum, during the five-year term of the 2015 Employment Agreement commencing July 1, 2015, without increase or guaranteed adjustment.
Non-Equity Incentive Compensation Under 2015 Employment Agreement. Pursuant to the 2015 Employment Agreement, annual non-equity incentive payments are based on annual goals set annually by the Company, the Compensation Committee and the 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 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 the Board of Directors within 90 days of the beginning of each fiscal year. If the Compensation Committee or the 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 2017 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 | ||||||||||
| | | | | | | | | | | | | |
The Compensation Committee or Board of Directors has the right to make a discretionary incentive compensation payment in the case of extraordinary economic circumstances, including circumstances when such performance metrics were not satisfied. 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-Term Stock Performance Unit Awards Under the 2015 Employment Agreement. Under the 2015 Employment Agreement, all future long-term incentive compensation would be delivered through performance-based restricted stock. 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% | 81,250 | |||||||||||||
| | | | | | | | | | | | | | | | |
Total Compensation Level and Mix. The 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 stockholder. The Compensation 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 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 performance-based, so they provide and ensure 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 best long-term interest of the Company and its stockholders.
Targets and Payouts Under Fiscal 2017 Non-Equity Incentive Compensation Arrangements and Long-Term Incentive Compensation Arrangements. At the beginning of fiscal 2017, in connection with the 2015 Employment 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 2017 incentive opportunities.
An Adjusted Operating Earnings fiscal 2017 target for the annual incentive bonus was set at a target of 5% 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 2017 were set for fiscal years 2017, 2018, and 2019 at a target of 5%, 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 2017, each of the Company's Adjusted Operating Earnings and Adjusted Operating Earnings Per Share did not meet the threshold performance levels. Accordingly, there was no Incentive Award earned by Mr. Kathwari for fiscal 2017 as set forth in the "Summary Compensation Table" in the "Executive Compensation" section. This compares to an Incentive Award of $1,700,000 in the prior fiscal year. The Compensation Committee recognized that the Company accomplished many initiatives in fiscal 2017 that positioned the Company for its long-term strategic objectives, as detailed above. The Compensation Committee has the discretion to award discretionary Incentive Awards and discussed this with Mr. Kathwari. However, as a matter of leadership of the Company, Mr. Kathwari felt he should not accept a discretionary award. Respecting that leadership by Mr. Kathwari, the Committee did not grant Mr. Kathwari a discretionary Incentive Award for fiscal 2017. In contrast, the Compensation Committee did determine to award discretionary Incentive Awards to other NEOs, as described below, taking into account the accomplishment of these initiatives and the individual executives.
Actual amounts of long-term incentive awards granted in fiscal 2017 are disclosed in the "Summary Compensation Table" and the "Grants of Plan-Based Awards" table. The fiscal 2017 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 2017 Fiscal year End" table in the "Executive Compensation" section.
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 stockholders 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 established 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, as follows (by revenue):
| | | | | | | | | | | | | | | | | | | | |
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:
We believe that it is appropriate to offer industry-competitive cash and equity compensation packages to all of our NEOs, including our Chief Executive Officer, in order to attract and retain top executive talent. The peer group allows us to monitor the compensation practices of our primary competitors for 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. The Compensation Committee made no changes to the peer group for fiscal 2017.
During fiscal 2017, the Compensation Committee, together with the Chief Executive Officer, reviewed the compensation program for the Company's key management personnel including the NEOs, other than the Chief Executive Officer. 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. The following compensation principles guided the design of our compensation program for these NEOs during fiscal 2017, and continue to guide the program in fiscal 2018:
unexpected circumstances or developments, either in relation to the Company or the NEOs, 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. Such actions are expected to take into account the current and long-term interests of our stockholders and the Company, notwithstanding the extent to which earlier specified goals are achieved.
For fiscal 2017, the Compensation Committee discussed with the Chief Executive Officer approaches to incentive compensation, annual cash bonuses, non-equity incentive compensation and long-term equity grants. We 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 our Chief Executive Officer, in evaluating compensation packages for our NEOs, the Compensation Committee focuses on the total compensation opportunity for the 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 2017:
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.
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 2017, 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 2017, 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 2017.
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 Compensation 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 2017, 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 2017 reflecting a growth rate of 5% over the adjusted operating income for fiscal 2016.
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 discretionary Bonus 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.
For fiscal 2017, the Company's Adjusted Operating Earnings did not meet the threshold performance level of 80% of the performance target. Accordingly, for fiscal 2017, after its review and discussion, the Compensation Committee did not approve any payments under the performance-based Non-Equity Incentive Plan Compensation component of the Incentive Awards for the NEOs. The Compensation Committee reviewed and discussed multiple major initiatives that were accomplished during the fiscal year that positioned the Company for its long-term strategic objectives. The Compensation Committee also discussed the extraordinary increase in the Company's Adjusted Operating Earnings achieved in the prior fiscal year that was used as the base for the targeted increase this fiscal year. Based on these considerations and the Company's strong relative performance, the Compensation Committee approved payments under the discretionary Bonus component of the Incentive Awards totaling $250,000 to be distributed to the NEOs other than the Chief Executive Officer, in amounts recommended by the Chief Executive Officer as set forth in the "Summary Compensation Table". These discretionary bonuses were appropriate, in the view of the Compensation Committee, in light of the Company's many initiatives and the NEO's leadership with those initiatives that position the Company for its long-term strategic objectives.
For fiscal year 2018, 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 2017.
Stock Options - The NEOs and other executives are eligible to receive grants of stock 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 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 did not approve Company grants of stock options to NEOs in fiscal 2017.
Performance Stock Units - The NEOs and other executives are eligible to receive grants of performance stock units. The performance stock units have both service vesting and performance vesting criteria by reference to performance goals set for each award based on the Adjusted Operating Earnings Per Share target for each of the upcoming two fiscal years and cumulatively for the upcoming three fiscal years and to the extent performance condition is satisfied, service conditions vest over a period of three years. These grants are designed to promote retention and to align executive compensation with the long-term success of the Company.
The Compensation Committee approved Company grants of performance stock units to NEOs in fiscal 2017 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 2018 over fiscal 2017 and for each of the two immediately following fiscal years (for a total of three fiscal years) with 5% increase for fiscal 2018 and 5% increase for each of fiscal 2019 and 2020. 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 2017 are disclosed in the "Summary Compensation Table" and the "Grants of Plan-Based Awards" table. The fiscal 2017 Performance Units granted to our 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 maximum payout level for purposes of the "Summary Compensation Table" and the "Outstanding Equity Awards at 2017 Fiscal Year End" table in the "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 and Ethan Allen Global, Inc. taken as a whole, or (ii) any merger, or (iii) 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 (iv) the Company's incumbent directors cease to constitute at least a majority of the 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.
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 |
We offer a very limited amount of perquisites and other personal benefits to our named executive officers. The Compensation Committee believes that these perquisites are reasonable and consistent with prevailing market practice and the Company's overall compensation program. Perquisites are not a material part of our compensation program. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to our NEOs. In fiscal 2017, 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 7 to the "Summary Compensation Table".
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.
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.
|
The Compensation Committee oversees our compensation program for our Named Executive Officers ("NEOs") on behalf of the Board of Directors. In fulfilling its oversight responsibilities, the Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis and recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and the Company's Annual Report.
JAMES B. CARLSON, CHAIR | ||
JOHN J. DOONER, JR. | ||
DOMENICK J. ESPOSITO |
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The following table sets forth information 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") serving during the year ended June 30, 2017.
2017 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, | 2017 | $ | 1,150,050 | $ | — | $ | 1,944,800 | $ | — | $ | — | $ | 4,756 | $ | 53,854 | (7) | $ | 3,153,460 | |||||||||||||||||||||||||||||||
Chairman of the Board, | | 2016 | | | 1,150,050 | | | — | | | 1,557,400 | | | — | | | 1,700,000 | | | — | | | 53,880 | (7) | | | 4,461,330 | | |||||||||||||||||||||
President and Principal | 2015 | 1,150,050 | — | — | — | 1,800,000 | 5,014 | 53,716 | (7) | 3,008,780 | |||||||||||||||||||||||||||||||||||||||
Executive Officer | |||||||||||||||||||||||||||||||||||||||||||||||||
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Corey Whitely, | 2017 | $ | 482,981 | $ | 100,000 | $ | 88,981 | $ | — | $ | — | $ | 2,115 | $ | 674,077 | ||||||||||||||||||||||||||||||||||
Executive Vice President, | | 2016 | | | 472,917 | | | 30,000 | | | 92,167 | | | — | | | 152,950 | | | | | | 2,141 | | | 750,175 | | ||||||||||||||||||||||
Administration, Principal | 2015 | 426,923 | 150,000 | — | 114,191 | — | 1,977 | 693,091 | |||||||||||||||||||||||||||||||||||||||||
Financial Officer | |||||||||||||||||||||||||||||||||||||||||||||||||
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Daniel M. Grow | 2017 | $ | 315,962 | $ | 55,000 | $ | 49,434 | $ | — | $ | — | $ | 2,115 | $ | 422,511 | ||||||||||||||||||||||||||||||||||
Senior Vice President, | | 2016 | | | 291,667 | | | — | | | 73,658 | | | — | | | 93,380 | | | | | | 2,141 | | | 460,846 | | ||||||||||||||||||||||
Business Development | 2015 | 263,269 | 70,000 | — | 68,515 | — | 1,977 | 403,761 | |||||||||||||||||||||||||||||||||||||||||
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Tracy Paccione, | 2017 | $ | 329,788 | $ | 55,000 | $ | 49,434 | $ | — | $ | — | $ | 2,115 | $ | 436,337 | ||||||||||||||||||||||||||||||||||
Vice President, | | 2016 | | | 322,917 | | | — | | | 73,658 | | | — | | | 104,650 | | | | | | 2,141 | | | 503,366 | | ||||||||||||||||||||||
Merchandising | 2015 | 300,000 | 85,000 | — | 114,191 | — | 1,977 | 501,168 | |||||||||||||||||||||||||||||||||||||||||
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Clifford Thorn | 2017 | $ | 275,000 | $ | 40,000 | $ | 24,717 | $ | — | $ | — | $ | 2,115 | $ | 341,832 | ||||||||||||||||||||||||||||||||||
Vice President, | 2016 | 276,667 | — | 53,827 | — | 88,550 | 2,141 | 421,185 | |||||||||||||||||||||||||||||||||||||||||
Uphostery Manufacturing | |||||||||||||||||||||||||||||||||||||||||||||||||
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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
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 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 |
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| | | 2017 | | | 2016 | | | 2015 | | |||||||||
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Life insurance premiums | $46,739 | $46,739 | $46,739 | ||||||||||||||||
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| Ethan Allen Retirement Savings Plan | | $2,115 | | $2,141 | | $1,977 | | |||||||||||
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Personal service of | $5,000 | $5,000 | $5,000 | ||||||||||||||||
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| Total | | $53,854 | | $53,880 | | $53,716 | ||||||||||||
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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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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.
Stock Units and Restricted Stock. We award stock units and restricted stock to align the interests of our NEOs with those of our stockholders and to provide competitive pay packages that serve to attract and retain qualified executives.
In fiscal 2017, the Company awarded 9,030 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, 2017 for additional information about share-based compensation. The actual number of performance stock units granted to each NEO in the year ended June 30, 2017 is disclosed in the "Grants of Plan-Based Awards" table below. See also "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, 2017 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.
2017 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 | 7/1/2016 | $ | 375,000 | $ | 750,000 | $ | 1,700,000 | ||||||||||||||||||||||||||||||||||||
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| M. Farooq Kathwari | | 7/1/2016 | | | | | | | | | | | | 32,500 | | | 65,000 | | | 81,250 | | $ | 1,944,800 | | ||||||||||||||||||
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Corey Whitely, | 7/1/2015 | $ | 70,000 | $ | 140,000 | $ | 210,000 | ||||||||||||||||||||||||||||||||||||
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| Corey Whitely, | | 4/27/2017 | | | | | | | | | | | | 1,890 | | | 3,780 | | | 3,780 | | $ | 88,981 | | ||||||||||||||||||
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Daniel M. Grow | 7/1/2015 | $ | 49,000 | $ | 98,000 | $ | 147,000 | ||||||||||||||||||||||||||||||||||||
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| Daniel M. Grow | | 4/27/2017 | | | | | | | | | | | | 1,050 | | | 2,100 | | | 2,100 | | $ | 49,434 | | ||||||||||||||||||
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Tracy Paccione, | 7/1/2015 | $ | 47,600 | $ | 95,200 | $ | 142,800 | ||||||||||||||||||||||||||||||||||||
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| Tracy Paccione, | | 4/27/2017 | | | | | | | | | | | | 1,050 | | | 2,100 | | | 2,100 | | $ | 49,434 | | ||||||||||||||||||
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Clifford Thorn | 7/1/2015 | $ | 38,500 | $ | 77,000 | $ | 115,500 | ||||||||||||||||||||||||||||||||||||
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| Clifford Thorn | | 4/27/2017 | | | | | | | | | | | | 525 | | | 1,050 | | | 1,050 | | $ | 24,717 | | ||||||||||||||||||
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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 2017" 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 expiration dates and vesting schedules of equity grants listed above.
Outstanding Equity Awards at 2017 Fiscal Year-End
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| | | | Option Awards | | | Stock Awards | | |||||||||||||||||||||||||||||||||||||||
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| | | | Number of securities | | | | | | | | | | | Equity Incentive Plan | | |||||||||||||||||||||||||||||||
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| | | | underlying | | | | | | | Shares or Units of Stock That | | | Awards: Unearned Shares, | | ||||||||||||||||||||||||||||||||
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| | | | unexercised options | | | | | | | Have Not Vested | | | Units or Other Rights That | | ||||||||||||||||||||||||||||||||
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| | | | | | | | | | | | | | | | Have Not Vested | | ||||||||||||||||||||||||||||||
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| | | Notes | | | (#) Exerciseable | | | (#) Unexerciseable | | | Option exercise price ($) | | | Option expiration date | | | Number (#) | | | Market value ($) | | | Number (#) | | | Market or Payout Value ($) | | ||||||||||||||||||||
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| M. Farooq Kathwari | (1) | — | — | — | — | 59,211 | 1,912,515 | 22,039 | 711,860 | ||||||||||||||||||||||||||||||||||||||
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| (2) | — | — | — | — | — | — | 32,500 | 1,049,750 | |||||||||||||||||||||||||||||||||||||||
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| (3) | — | — | — | — | 126,000 | 4,069,800 | — | — | |||||||||||||||||||||||||||||||||||||||
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| 150,000 | — | 34.03 | 10/10/2017 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 90,000 | — | 24.62 | 7/1/2018 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 40,000 | — | 15.93 | 11/11/2018 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 120,000 | — | 13.61 | 10/1/2021 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| Corey Whitely | | (4) | | | — | | | — | | | — | | | — | | | 3,453 | | | 111,532 | | | 247 | | | 7,978 | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (5) | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,890 | | | 61,047 | | ||||||||||||||||||||
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| | | (6) | | | — | | | 12,000 | | | 25.24 | | | 1/31/2024 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (7) | | | — | | | 3,333 | | | 26.19 | | | 6/15/2025 | | | — | | | — | | | | | | | | ||||||||||||||||||||
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| Daniel M. Grow | (4) | — | — | — | — | 2,427 | 78,392 | 173 | 5,588 | ||||||||||||||||||||||||||||||||||||||
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| (5) | — | — | — | — | — | — | 1,050 | 33,915 | |||||||||||||||||||||||||||||||||||||||
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| 1,500 | — | 11.74 | 11/12/2019 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 1,500 | — | 19.07 | 7/26/2021 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 1,000 | — | 20.63 | 7/31/2022 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 1,500 | — | 28.67 | 2/8/2023 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| (6) | — | 5,000 | 25.24 | 1/31/2024 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
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| (7) | — | 2,000 | 26.19 | 6/15/2025 | — | — | |||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tracy Paccione | | (4) | | | — | | | — | | | — | | | — | | | 2,427 | | | 78,392 | | | 173 | | | 5,588 | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (5) | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,050 | | | 33,915 | | ||||||||||||||||||||
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| | | | | | 500 | | | — | | | 25.71 | | | 6/20/2018 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||
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| | | | | | 500 | | | — | | | 17.60 | | | 11/5/2018 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||
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| | | | | | 2,500 | | | — | | | 11.74 | | | 11/12/2019 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||
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| | | | | | 3,000 | | | — | | | 19.07 | | | 7/26/2021 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||
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| | | | | | 3,000 | | | — | | | 20.63 | | | 7/31/2022 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||
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| | | (6) | | | — | | | 5,000 | | | 25.24 | | | 1/31/2024 | | | — | | | — | | | — | | | — | | ||||||||||||||||||||
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| | | (7) | | | — | | | 3,333 | | | 26.19 | | | 6/15/2025 | | | — | | | — | | | | | | | | ||||||||||||||||||||
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| Clifford Thorn | (4) | — | — | — | — | 1,774 | 57,300 | 126 | 4,070 | ||||||||||||||||||||||||||||||||||||||
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| (5) | — | — | — | — | — | — | 525 | 16,958 | |||||||||||||||||||||||||||||||||||||||
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| 700 | — | 25.71 | 6/20/2018 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 625 | — | 11.74 | 11/12/2019 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 2,500 | — | 19.07 | 7/26/2021 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| 1,500 | — | 20.63 | 7/31/2022 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
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| (6) | — | 5,000 | 25.24 | 1/31/2024 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
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| (7) | — | 1,333 | 26.19 | 6/15/2025 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
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The following table sets forth certain information regarding vested stock awards during fiscal year 2017 for NEOs.
Option Exercises and Stock Vested in 2017
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| | | Option Awards | | | Stock Awards | | ||||||||||||||||
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| | | | Number of shares acquired on exercise (#) | | | Value realized on exercise ($) | | | Number of shares acquired on vesting (#) | | | Value realized on vesting ($) | | ||||||||||
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| M. Farooq Kathwari | — | — | — | — | |||||||||||||||||||
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| Corey Whitely | | | 28,000 | | | 470,230 | | | — | | | — | | ||||||||||
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| Daniel M. Grow | — | — | — | — | |||||||||||||||||||
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| Tracy Paccione | | | — | | | — | | | — | | | — | | ||||||||||
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| Clifford Thorn | — | — | — | — | |||||||||||||||||||
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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 and profit sharing contribution. 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.
2017 Nonqualified Deferred Compensation |
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.
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 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 2015.
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.
2011 Employment Agreement
As of September 27, 2011, the Company's Compensation Committee approved and on September 30, 2011 the independent members of the Company Board of Directors ratified, subject to the approval of the incentive components by stockholders, the terms of the 2011 Employment Agreement between the Company and Mr. Kathwari. Pursuant to the 2011 Employment Agreement, effective as of October 1, 2011, the Company agreed to continue to employ Mr. Kathwari and Mr. Kathwari agreed to remain as Chairman, President and Principal Executive Officer of the Company and Ethan Allen Global, Inc., for a period of approximately five years, expiring June 30, 2016 with two automatic one-year extensions commencing on each of July 1, 2016 and July 1, 2017 (each a "New Anniversary Date") unless notice is given by either Mr. Kathwari or the Company, not later than nine (9) months prior to a New Anniversary Date. Pursuant to the terms of the 2011 Employment Agreement, Mr. Kathwari will receive a base salary of $1,150,050 per year throughout the term of the 2011 Employment Agreement.
Mr. Kathwari will be entitled to an annual incentive bonus based upon the Company's Operating Income. Mr. Kathwari's incentive bonus for a given fiscal year will be based upon the amount by which the
Company's Operating Income for the fiscal year exceeds the applicable threshold amount specified below (each a "New Threshold").
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Mr. Kathwari will receive an incentive bonus if the Company's Operating Income equals or exceeds $25 million. Thus, by way of example, if the Company's Operating Income for the fiscal year ending June 30, 2012 is $60 million, Mr. Kathwari would be entitled to an incentive bonus for the fiscal year ending June 30, 2012 in the sum of $1.975 million ($500,000 [$25 million × 2%] + $1,125,000 [($50 million – $25 million) × 4.5%] + $350,000 [($60 million – $50 million) × 3.5%]).
Recognizing the views which became apparent through the Company's outreach program, in 2013, 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 above $1.2 million. This sharing effectively reduced the Chief Executive Officer's annual performance bonus compensation in 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 participants 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 Compensation Committee recognized that the Chief Executive Officer's voluntary reduction arose from the Chief Executive Officer's personal views as to the appropriate approach to executive compensation within the Company, its industry, and the U.S. economy.
The Chief Executive Officer 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, notwithstanding any increase in operating income and bonus entitlement under his 2011 Employment Agreement. The Compensation Committee recognized that this voluntary cap is about 11% below the highest level of cash bonuses paid by the Company to the Chief Executive Officer in prior years. The Compensation Committee further recognized that if the Company's operating income recovered to its pre-recessionary height of $143 million in fiscal 2006, the Chief Executive Officer would be effectively forfeiting and therefore contributing to the Company approximately $1.2 million per annum of his bonus under the 2011 Employment Agreement. This voluntary directive from the Chief Executive Officer, also reduces the bonus payout under the termination provision and the change in control provision of the 2011 Employment Agreement from a maximum of $2 million to $1.8 million, a 10% reduction. The Compensation Committee recognized that the Chief Executive Officer voluntary reduction arose from the Chief Executive Officer's personal views as to the appropriate approach to executive compensation within the Company, its industry, and the U.S. economy.
The annual incentive bonus for each fiscal year following the fiscal year ending June 30, 2012 included the voluntary amendment made by the Chief Executive Officer in 2013 as noted above; provided, however that the Operating Income thresholds shall each be increased by $2 million in each fiscal year following the fiscal year ending June 30, 2012. Pursuant to the 2011 Employment Agreement, as amended, Mr. Kathwari received an incentive bonus of $1.8 million for fiscal year 2015.
Pursuant to the 2011 Employment Agreement, Mr. Kathwari was granted the following options under the Option Plan: (i) as of October 1, 2011, ten-year stock options to purchase 300,000 shares of Common Stock, at an exercise price of $13.61 per share (the price of a share of Common Stock on the New York Stock Exchange as of the close of business on September 30, 2011 as the date of grant was a Saturday), which vests at a rate of 60,000 stock options on each June 30, up to and including June 30, 2016; and (ii) as of October 1, 2011, 105,000 shares of Restricted Stock, which vests at a rate of 21,000 shares per year over the initial five (5) year term of the 2011 Employment Agreement. The estimated fair value of these five-year grants was fully reflected in Mr. Kathwari's total compensation for 2012 in the Summary Compensation Table included in the Company's 2014 proxy statement.
As of each dividend record date for the Common Stock occurring on or after the date of any grant of shares of restricted stock, but prior to the date such shares become vested or are forfeited, an account established by the Company for the benefit of Mr. Kathwari shall be credited with an amount equal to the dividends which would have otherwise been paid with respect to the shares. Amounts credited to the account will be credited with interest at the rate of 5% per year until distribution. Mr. Kathwari will be fully vested and all amounts credited to the account, regardless of the subsequent vesting or forfeiture of the shares. A balance credited to Mr. Kathwari's account will be distributed to him in cash as soon as practicable after the termination of his employment.
In the event Mr. Kathwari's employment with the Company is terminated by reason of his death or disability, under the 2011 Employment Agreement he (or his estate) will receive salary continuation for twelve (12) months from and, after the date of termination, an annual incentive bonus in respect of the full fiscal year in which the date of termination occurs, accelerated vesting, as of the date of termination, of all restricted stock and options awarded and granted under the 2011 Employment Agreement, deferred compensation along with any reimbursement expenses not yet paid to Mr. Kathwari, payment of life and disability insurance premiums through the date of termination and for a period of twelve (12) months from and after the date of termination such other and customary benefits as the Company provides to it
employees. Mr. Kathwari shall be eligible for the following under the termination scenarios set forth below:
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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 $50,000) through the date of termination, health and welfare benefits through the date of termination and for twenty-four (24) months thereafter, and such other and customary benefits as the Company provides for its employees.
Change in Control
As of the end of fiscal year 2015 we maintained a change in control provision with the Chief Executive Officer as set forth in the 2011 Employment Agreement, and we currently maintain a change in control provision in the 2015 Employment Agreement. We also have change in control provisions with all our NEOs as set forth in restricted stock and stock option agreements. The specific rights of Mr. Kathwari if his employment is terminated by the Company within two years following certain changes in control are described under "2011 Employment Agreement" above. Other officers, as determined by the Compensation Committee, including the NEOs other than Mr. Kathwari, participate in the Change in Control Severance Plan.
As described in the Compensation Discussion and Analysis, the Company adopted the Change in Control Severance Plan for officers of the Company other than Mr. Kathwari. For a description of the plan, see "Compensation Committee Approval of Named Executive Officer Compensation for 2015—Compensation Committee Approval of Change of Control Severance Plan for Executives".
Potential payments under the plans are reflected in the table that follows under Potential Payments upon Termination or Change in Control. The treatment of benefits under each plan on termination or change in control is detailed in the footnotes to the table.
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| Name | | | Executive Contributions in Last FY ($) | | | 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 | | $ | — | | $ | — | | $ | 29,070 | | $ | — | | $ | 562,643 | | ||||||||||||
| Retirement Contract | — | — | 4,756 | — | 182,476 | |||||||||||||||||||||||
| Stock Units | | | — | | | — | | | 90,720 | | | (90,720 | ) | | | 4,069,800 | | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 2017, 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 $495,000 profit sharing contribution to the Retirement Plan in fiscal 2017.
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.
Change in Control |
As of the end of fiscal year 2017 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.
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, 2017 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.
2017 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) | — | 3,336,235 | — | 3,336,235 | 2,286,485 | |||||||||||||||||||
Health and welfare payments (6) | — | 31,210 | 31,210 | — | 31,210 | |||||||||||||||||||
| Corey Whitely | | | | | | | |||||||||||||||||
| Salary (7) | | — | | — | | — | | — | | 500,000 | | ||||||||||||
| Bonus (8) | | — | | — | | — | | — | | 144,317 | | ||||||||||||
| Stock options and stock units (9) | | — | | — | | 105,085 | | 105,085 | | 105,085 | | ||||||||||||
Daniel M. Grow | ||||||||||||||||||||||||
Salary (7) | — | — | — | — | 350,000 | |||||||||||||||||||
Bonus (8) | — | — | — | — | 72,793 | |||||||||||||||||||
Stock options and stock units (9) | — | — | 47,520 | 47,520 | 47,520 | |||||||||||||||||||
| Tracy Paccione | | | | | | | |||||||||||||||||
| Salary (7) | | — | | — | | — | | — | | 340,000 | | ||||||||||||
| Bonus (8) | | — | | — | | — | | — | | 81,550 | | ||||||||||||
| Stock options and stock units (9) | | — | | — | | 55,665 | | 55,665 | | 55,665 | | ||||||||||||
Clifford Thorn | ||||||||||||||||||||||||
Salary (7) | — | — | — | — | 275,000 | |||||||||||||||||||
Bonus (8) | — | — | — | — | 66,183 | |||||||||||||||||||
Stock options and stock units (9) | — | — | 43,445 | 43,445 | 43,445 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
For purposes of better understanding the foregoing, certain terms are summarized below:
| 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
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The following table sets forth certain information regarding our equity compensation plans as of June 30, 2017
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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) | 1,144,350 | $17.90 | 1,263,530 | |||||||||||||
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Equity compensation plans not approved by security holders (2) | - | - | - | |||||||||||||
| | | | | | | | | | | | | | | | |
Total | 1,144,350 | $17.90 | 1,263,530 | |||||||||||||
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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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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 2017, the Compensation Committee reviewed the cash and equity incentive programs for senior executives and concluded that certain aspects of the programs 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 4: RATIFICATION OF THE |
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, 2018. In executing its responsibilities, the Audit Committee engages in an annual evaluation of KPMG's qualifications, performance and independence, and considers whether continued retention of KPMG as the Company's independent registered public accounting firm is in the best interest of the Company. The Audit Committee is also involved in the selection of KPMG's lead engagement partner.
While KPMG was the independent registered public accounting firm for the Company for the fiscal year ended June 30, 2017 and has been retained as the Company's independent registered public accounting firm continuously since 1989, in accordance with SEC rules and KPMG policies, the firm's lead engagement partner rotates every five years. In assessing independence, the Audit Committee reviews the fees paid, including those related to non-audit services. As a result of its evaluation of KPMG's qualifications, performance and independence, the Audit Committee and the Board of Directors believe that the continued retention of KPMG to serve as the Company's independent registered public accounting firm for the year ending June 30, 2018 is in the best interests of the Company and its stockholders. 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 Audit Committee's 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, upon the recommendation of the Audit Committee. 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.
Unless contrary instructions are given, shares represented by proxies solicited by the Board will be voted for the ratification of the selection of KPMG as our independent registered public accounting firm for the year ending June 30, 2018. 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, 2018.
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, 2018.
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.
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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 three members of the Audit Committee are 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, 2017 and KPMG's audit of internal control over financial reporting as of June 30, 2017.
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, 2017 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.
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) | |||||
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Threshold | 80 - 85% | 50% | 32,500 | |||||
Target | 100% | 100% | 65,000 | |||||
Maximum | 115 - 120% | 125% (i.e., more than target award) | 81,250 |
DOMENICK J. ESPOSITO, CHAIR JAMES B. CARLSON MARY GARRETT JAMES W. SCHMOTTER |
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.
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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, 2017 and 2016 and (ii) other matters.
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| | 2017 | | | 2016 | | ||||||||
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Audit fees (1) | 1,420,568 | 1,350,000 | ||||||||||||
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| Audit-related fees (2) | | | — | | | 9,500 | | ||||||
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Tax fees (3) | 163,212 | 12,884 | ||||||||||||
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| All other fees (4) | | | — | | | — | | ||||||
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Total fees | 1,583,780 | 1,372,384 | ||||||||||||
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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
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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) | |||||||
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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 | * | ||||||
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Named executive officers and directors as a group | 3,419,767 | 11.8 | % | |||||||
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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 $7,000 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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Stockholder proposals intended to be included in our proxy statement and voted on at our 2018 Annual Meeting of Stockholders must be received at our corporate headquarters at PO BOX 1966, Danbury, CT 06813-1966, Attention: Corporate Secretary, on or before June 4, 2018. Applicable SEC rules and regulations govern the submission of shareholder proposals and our consideration of them for inclusion in the 2018 notice of Annual Meeting of Stockholders and the 2018 proxy statement.
Pursuant to our by-laws and applicable SEC rules and regulations, in order for any business not included in the proxy statement for the 2018 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 earlier than July 18, 2018 (120 days prior to November 15, 2018, the one year anniversary of the Annual Meeting), nor later than August 17, 2018 (90 days prior to November 15, 2018); 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. 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 2017 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 2017 Annual Report are available at our website atethanallen.com/investors. Additionally, and in accordance with SEC rules, you may access our proxy statement atwww.proxyvote.com.Upon written request by any stockholder to Office of the Corporate Secretary, Ethan Allen Interiors Inc., PO BOX 1966, Danbury, Connecticut 06813-1966, we will furnish, without charge, a copy of the 2017 Annual Report, including the financial statements and the related footnotes. The Company's copying costs will be charged if exhibits to the 2017 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.
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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 14, 2017. 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. 25 LAKE AVENUE EXT. DANBURY, CT 06811-5286 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 14, 2017. 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: E33410-P97478 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 2018 Annual Meeting of Stockholders; Election of Directors The Board of Directors recommends you vote FOR the following proposal: Nominees: For Against Abstain For Against Abstain ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 2 Years ! 3 Years ! Abstain 1a. M. Farooq Kathwari 2. To approve, by a non-binding advisory vote, executive compensation of the Company's Named Executive Officers. The Board of Directors recommends you vote 1 Year 1b. James B. Carlson 1 year on the following proposal: ! ! For ! Against ! Abstain 3. To approve, by a non-binding advisory vote, the frequency of holding the advisory vote to approve Named Executive Officer compensation. 1c. John J. Dooner, Jr. 1d. Domenick J. Esposito The Board of Directors recommends you vote FOR the following proposal: ! ! ! 1e. Mary Garrett 4. Proposal to ratify KPMG LLP as our independent registered public accounting firm for the 2018 fiscal year. 1f. James W. Schmotter NOTE: To transact such other business as may properly come before the meeting. 1g. Tara I. Stacom For address changes and/or comments, please check this box and write them on the back where indicated. ! 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 | |||
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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:
| The Board of Directors recommends you vote FOR the following: |
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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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| INSTRUCTIONS: To withhold authority to vote for any individual director nominee(s), mark the “FOR ALL EXCEPT” box and write the name of the nominee(s) on the following line. |
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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 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
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report and Notice and Proxy Statement are available at www.proxyvote.com. E33411-P97478 ETHAN ALLEN INTERIORS INC. Annual Meeting of Stockholders November 15, 2017, 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 Meeting of Stockholders to be held at the Ethan Allen Interiors Inc. International Corporate Headquarters at 25 Lake Avenue Ext., Danbury, CT 06811 on Wednesday, November 15, 2017, 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 "FOR" THE ELECTION OF EACH NOMINEE LISTED IN PROPOSAL 1, "FOR" PROPOSAL 2, "1 YEAR" FOR PROPOSAL 3 AND "FOR" PROPOSAL 4, 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. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please add your title as such. When signing as joint tenants, all parties in the joint tenancy must sign. If a signer is corporation, please sign in full corporate name by a duly authorized officer. (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: