dxlg-10ka_20190202.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1)

 

(Mark One)

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

For the fiscal year ended February 2, 2019 (Fiscal 2018)

OR

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

Commission File Number 01-34219

 

DESTINATION XL GROUP, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

04-2623104

( State or other jurisdiction of

incorporation or organization)

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

 

555 Turnpike Street, Canton, MA

02021

(Address of principal executive offices)

(Zip Code)

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

 

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.01 Per Share

DXLG

NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

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

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

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

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

As of August 3, 2018, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $71.2 million, based on the last reported sale price on that date. Shares of Common Stock held by each executive officer and director and by certain persons who own 10% or more of the outstanding Common Stock have been excluded on the basis that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily determinative for other purposes.

The registrant had 49,865,550 shares of Common Stock, $0.01 par value, outstanding as of May 15, 2019.

Documents Incorporated by Reference: None.  

 

 

 

 

 

 


 

EXPLANATORY NOTE

 

We are filing this Amendment No. 1 to our Annual Report on Form 10−K for the fiscal year ended February 2, 2019 (this “Form 10-K/A”) pursuant to General Instruction G(3) to Form 10−K for the purposes of filing the information required to be disclosed pursuant to Part III of Form 10−K.

 

Except for the amendments described above, this Form 10−K/A does not modify or update the disclosure in our Annual Report on Form 10−K for the fiscal year ended February 2, 2019 filed with the Securities and Exchange Commission on March 22, 2019.

 

 

TABLE OF CONTENTS

 

 

 

 

PAGE

PART III

 

 

 

ITEM 10.

Directors, Executive Officers and Corporate Governance

 

2

ITEM 11.

Executive Compensation

 

6

ITEM 12.

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

 

30

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

 

34

ITEM 14.

Principal Accountant Fees and Services

 

35

PART IV

 

 

 

ITEM 15.

Exhibits, Financial Statement Schedules

 

36

SIGNATURES

 

37

 

 

 

 

 

1

 


 

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

 

In March 2018, we announced that David A. Levin, our President, Chief Executive Officer and a director of our Company, would be stepping down after a 19-year career with the Company.  Effective January 1, 2019, Mr. Levin resigned as President, Chief Executive Officer and a director of the Company but continued to serve as the Company’s Acting Chief Executive Officer (“Acting CEO”) from January 1, 2019 until April 1, 2019.  Mr. Levin will remain an employee of the Company until December 31, 2019, the effective date of his retirement.  

 

On February 19, 2019, the Company announced that Harvey S. Kanter had been appointed President, Chief Executive Officer and a director of the Company, effective April 1, 2019.

 

Set forth below is certain information regarding our current directors, including information furnished by them as to their principal occupations and business experience for the past five years, certain directorships held by each director within the past five years, their respective ages as of May 15, 2019, current committee membership, and the year in which each became a director of our Company:

Name (1)

 

Age

 

Director

Since

 

Audit (2)

 

Compensation (3)

 

Nominating and

Corporate

Governance

 

Cybersecurity

and

Data Privacy (4)

 

John Kyees, Chairman of the Board and Director

 

72

 

2010

 

X

 

 

 

 

 

C

 

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

 

57

 

2019

 

 

 

 

 

 

 

 

 

Jack Boyle, Director

 

51

 

2017

 

 

 

 

 

X

 

X

 

Lionel F. Conacher, Director

 

56

 

2018

 

X

 

X

 

 

 

 

 

Seymour Holtzman, Director

 

83

 

2000

 

 

 

 

 

 

 

 

 

Willem Mesdag, Director

 

65

 

2014

 

X

 

C

 

 

 

 

 

Ward K. Mooney, Director

 

70

 

2006

 

C

 

X

 

 

 

 

 

Mitchell S. Presser, Director

 

54

 

2007

 

 

 

X

 

C

 

 

 

Ivy Ross, Director

 

63

 

2013

 

 

 

 

 

X

 

X

 

C= current member and committee chairperson

X= current member of the committee

 

 

(1)

The Marketing Strategy Committee, formed by the Board of Directors (the “Board”) on August 3, 2017, was dissolved on February 7, 2019.

 

(2)

On August 9, 2018, Mr. Conacher was appointed to the Audit Committee, expanding the committee to four members.

 

(3)

On August 9, 2018, Mr. Conacher was appointed to the Compensation Committee, expanding the committee to four members.

 

(4)

On May 9, 2019, Mr. Boyle was appointed to the Cybersecurity and Data Privacy committee.

John E. Kyees has been a director since May 2010 and was appointed Chairman of the Board in January 2019.  From February 2017 through January 2019, Mr. Kyees served as the Company's Lead Independent Director.  From February 2014 until May 2014, Mr. Kyees served as Interim Chief Financial Officer of the Company.  In 2010, Mr. Kyees retired as the chief investor relations officer from Urban Outfitters, Inc., a retail chain, after serving as chief financial officer from 2003 to 2010. Mr. Kyees serves as lead independent director and chairman of the audit committee of Vera Bradley, Inc., a publicly-traded company. Mr. Kyees is also a director and chairman of the audit committee of Arhaus Furniture, a privately-held retailer. Mr. Kyees served as Interim Chief Financial Officer for Arhaus Furniture from November 2015 to March 2016.  Mr. Kyees previously served as a director and member of the audit committee of Rackwise, Inc., a publicly-traded company.  Mr. Kyees brings to the Board extensive executive-level retail experience having served as chief financial officer for several prominent retailers.  His insight with respect to merchandising, operational activities and finance is an asset to our Board.

Harvey S. Kanter is the President, Chief Executive Officer and a director of the Company.  Mr. Kanter joined the Company in February 2019 in a transition role as Advisor to the Acting CEO and assumed the role of President and Chief Executive Officer and a director of the Company in April 2019. Mr. Kanter has over 30 years of business experience, with an extensive background in the retail industry having served from March 2012 until June 2017 as the president and chief executive officer of Blue Nile, Inc., a leading online retailer of high-quality diamonds and fine jewelry. Since March 2012, Mr. Kanter has also served as a member of the board of directors of Blue Nile, Inc. and, since January 2014, he has served as its chairman.  From January 2009 to March 2012, Mr. Kanter was the chief executive officer and president of Moosejaw Mountaineering and Backcountry Travel, Inc., a leading multi-channel retailer of premium outdoor apparel and gear.  From April 2003 to June 2008, Mr. Kanter served in various executive positions at Michaels Stores, Inc. Mr. Kanter served as a director and a member of the compensation committee of Potbelly Corporation, a publicly-traded company, from August 2015 until May 2019. He is also a brand ambassador for the Fred Hutch

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Cancer Research Institute, and is an advisory board member to the Seattle University Executive MBA Program. Mr. Kanter brings an extensive knowledge of omni-channel retailing, with strong strategic and operational expertise.

Jack Boyle has been a director since August 2017.  Since February 2019, Mr. Boyle has been the co-president of direct to consumer/omni channel for Fanatics, Inc., a market leader for officially licensed sports merchandise. Prior to that, from December 2017 to February 2019, Mr. Boyle was the co-president of North America direct to consumer/omni channel.  He originally joined the company as president of merchandising in June 2012. From February 2005 to June 2012, Mr. Boyle was the executive vice president, general merchandising manager of women’s apparel, intimate, cosmetics and accessories for Kohl’s Corporation. From October 2003 to February 2005, he served as senior vice president, divisional merchandise manager of women’s apparel for Kohl’s Corporation, vice president of junior sportswear from July 2000 to October 2003 and vice president of planning/allocation for women's apparel from December 1999 to July 2000.  From June 1990 to December 1999, Mr. Boyle held various merchandise positions, including divisional merchandise manager of women’s at May Company.  Mr. Boyle brings to the board extensive experience in merchandising, brand management and omni-channel leadership.

Lionel F. Conacher has been a director since June 2018. From January 2011 to June 2018, Mr. Conacher was a senior advisor for Altamont Capital Partners LLC (“ACP”), a private equity firm.  Mr. Conacher left ACP on June 30, 2018 to pursue the development of a new venture capital fund, Next Ventures, LP.  Mr. Conacher became managing partner of Next Ventures, L.P. in August 2018. Prior to joining ACP, from April 2008 until July 2010, Mr. Conacher was the president and chief operating officer of Thomas Weisel Partners, an investment bank. Additionally, Mr. Conacher served as the chairman of Wunderlich Securities, an investee company of ACP, from December 2013 until July 2017.  He currently is a member of the board of directors of Dakine, a designer and manufacturer of sportswear and sports equipment for the snowboard, ski, surf, skate, bike, kite, and wind communities, and Mervin Manufacturing, a leading designer and manufacturer of snow boards and other board sports equipment.  Mr. Conacher brings extensive financial and operational experience to the Board.

Seymour Holtzman has been a director since April 2000.  From August 2014 to January 2019, Mr. Holtzman served as our Executive Chairman of the Board and from April 2000 to August 2014 as Chairman of the Board.  Mr. Holtzman has been involved in the retail business for over 40 years. For many years, he has been the president and chief executive officer of Jewelcor, Incorporated, a former New York Stock Exchange listed company that operated a chain of retail stores. From 1986 to 1988, Mr. Holtzman was chairman of the board and also chief executive officer of Gruen Marketing Corporation, an American Stock Exchange listed company involved in the nationwide distribution of watches. For at least the last five years Mr. Holtzman has served as chairman and chief executive officer of Jewelcor Management, Inc., a company primarily involved in investment and management services.  Mr. Holtzman is the chief executive officer and an indirect owner of C.D. Peacock, Inc., a Chicago, Illinois retail jewelry establishment, and is the managing member of Luxury Swiss, LLC, a retail Rolex watch establishment. Mr. Holtzman was formerly an officer of Homeclick LLC, which is currently the subject of an assignment for the benefit of creditors insolvency proceeding. Mr. Holtzman is a successful entrepreneur with extensive experience working with public companies and provides valuable insight to the Board with respect to strategic planning.

Willem Mesdag has been a director since January 2014.  Since January 2005, Mr. Mesdag has been the managing partner of Red Mountain Capital Partners LLC, an investment management firm. Prior to founding Red Mountain in 2005, Mr. Mesdag was a partner and managing director of Goldman Sachs & Co., which he joined in 1981. Prior to Goldman Sachs, he was a securities lawyer at Ballard, Spahr, Andrews & Ingersoll, which he joined in 1978. He also serves on the board of Heidrick & Struggles International, Inc., a publicly-traded company.  He previously served on the boards of 3i Group plc, Encore Capital Group, Inc., Nature’s Sunshine Products, Inc. and Yuma Energy, Inc., all of which are publicly-traded companies. Having had an extensive career in international investment banking and finance and having served on domestic and international public-company boards, Mr. Mesdag brings to the Board significant knowledge and experience related to business and financial issues and corporate governance.

Ward K. Mooney has been a director since July 2006. Mr. Mooney was a co-founder of Crystal Financial LLC, formerly Crystal Capital, and served as its CEO from April 2010 until his retirement in December 2017.  From April 2006 to April 2010, Mr. Mooney was the Senior Managing Partner of Crystal Capital.  Prior to April 2006, Mr. Mooney was the president of Bank of America Retail Finance Group and managing partner of Back Bay Capital, which Mr. Mooney co-founded and both of which were formerly Bank of Boston businesses.  Mr. Mooney provides the Board with valuable insight with respect to his extensive experience as a lender in the retail industry.  

Mitchell S. Presser has been a director since May 2007.  Since July 2014, Mr. Presser has been a partner and the head of U.S. Global Transactions at Freshfields Bruckhaus Deringer LLP.  From January 2014 until July 2014, Mr. Presser was a senior advisor to Paine Schwartz Partners (formerly Paine & Partners, LLC), a private equity firm.  From November 2006 to December 2013, Mr. Presser was a founding partner of Paine & Partners, LLC.  Prior to that, Mr. Presser was a partner with the law firm of Wachtell, Lipton, Rosen & Katz, specializing in mergers & acquisitions.  Mr. Presser has served as a director on the boards of several privately-held companies.  Mr. Presser’s extensive experience in private equity and strategic planning provides valuable insight to the Board.

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Ivy Ross has been a director since January 2013.  In May 2014, Ms. Ross joined Google as head of Glass and is currently a vice president, design for hardware products at Google.  From July 2011 until April 2014, Ms. Ross was the chief marketing officer of Art.com from where she oversaw the company's marketing, branding, merchandising and user-experience functions. Prior to Art.com, from June 2008 to June 2011, Ms. Ross was EVP of marketing for the Gap brand, and also acted as the creative catalyst for all brands within Gap, Inc. Ms. Ross also has held senior creative and product design positions at Disney Stores North America, Mattel, Calvin Klein, Coach, Liz Claiborne, Swatch Watch and Avon. She also has served on Proctor and Gamble’s design board since its inception.  With her industry insight and marketing expertise, Ms. Ross provides a valuable perspective to the Board as we continue to build our DXL brand.

All directors hold office until the next Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified or until their earlier death, resignation or removal.

Current Non-Director Executive Officers

Peter H. Stratton, Jr., 47, has been our Executive Vice President, Chief Financial Officer and Treasurer since November 2017.  Prior to that, Mr. Stratton served as our Senior Vice President, Chief Financial Officer and Treasurer from June 2014 to November 2017.  From August 2009 to June 2014, Mr. Stratton was our Senior Vice President of Finance, Corporate Controller and Chief Accounting Officer.  Mr. Stratton joined the Company in June 2009 as Vice President of Finance. Prior to joining the Company, Mr. Stratton served as the senior director of corporate accounting at BearingPoint, Inc. from May 2007 to June 2009.  Prior to May 2007, Mr. Stratton held various finance and accounting leadership positions at Legal Sea Foods, Inc., Shaw’s Supermarkets, Inc. and Cintas Corporation.

Brian S. Reaves, 58, has been our Executive Vice President and Chief Operating Officer since October 2018.  From November 2017 to October 2018, Mr. Reaves served as our Executive Vice President and Chief Customer Officer.  Prior to that, Mr. Reaves served as our Senior Vice President and Chief Sales Officer since November 2014.  From May 2010 until November 2014, Mr. Reaves was our Senior Vice President of Store Sales and Operations.  Prior to joining our Company, Mr. Reaves was the vice president – outreach and group sales for David’s Bridal from 2007 to 2009.  Before that, Mr. Reaves was the senior vice president of sales for The Bridal Group from 2004 to 2007.

James S. Davey, 54, has been our Executive Vice President and Chief Marketing Officer since March 2018. Prior to joining the Company, Mr. Davey was vice-president of global marketing for Timberland, a VF Corporation brand.  From August 2009 to March 2012, Mr. Davey oversaw global brand marketing, communications, digital marketing, and creative services for Timberland’s footwear and apparel businesses and from March 2012 to March 2018, was additionally responsible for all Timberland’s North American wholesale, retail, and e-commerce marketing. Prior to joining Timberland, Mr. Davey was senior vice-president of marketing and retail development for Nickelodeon & Viacom Consumer Products and served as their vice-president of hard lines from 2001 to 2009.   Prior to 2001, he held senior marketing positions with Polaroid and LEGO Systems, Inc.  Mr. Davey has over 25 years of experience building lifestyle brands in categories from toys to entertainment to footwear and apparel.  

Francis C. Chane, 56, has been our Senior Vice President of Supply Chain and Customer Fulfillment since June 2011.  Mr. Chane joined the Company in June 2008 as our Vice President of Distribution & Logistics. Prior to joining our Company, Mr. Chane was the vice president operations & facilities for Redcats USA, a division of the French multi-national company PPR, from 1999 to June 2008.  Prior to that, Mr. Chane held various leadership positions with WearGuard Corporation, a division of Aramark Corporation.

John F. Cooney, 36, has been our Vice President of Finance and Managing Director, Corporate Controller and Chief Accounting Officer since May 2018 and was our Vice President of Finance, Corporate Controller and Chief Accounting Officer since May 2015 and our Vice President of Finance and Corporate Controller since June 2014.  From November 2010 until June 2014, Mr. Cooney was our Director of Financial Accounting and Reporting.  Prior to joining the Company, Mr. Cooney was an audit manager with PricewaterhouseCoopers LLP, which he joined in August 2004.

Anthony J. Gaeta, 49, has been our Senior Vice President of Store Sales and Operations since November 2017. Mr. Gaeta joined the Company in April 2010 as a Zone Vice President and was promoted to Vice President of Store Operations and Training in November 2013 before being named to his current position. Prior to joining the Company, Mr. Gaeta was a regional manager for Men’s Wearhouse from September 2007 until April 2011 and, prior to that, a regional vice president for After Hours Formalwear from March 2006 until September 2007. 

Robert S. Molloy, 59, has been our Senior Vice President, Chief Administrative Officer, General Counsel and Secretary since May 2018, having previously served as the Company’s Senior Vice President, General Counsel since April 2010 and Secretary of the Company since May 2014.  From February 2008 until April 2010, Mr. Molloy was our Vice President and General Counsel. Prior to joining the Company, Mr. Molloy served as the vice president, assistant general counsel at Staples, Inc. from May 1999 to February 2008.  Prior to May 1999, Mr. Molloy was a trial attorney.

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Allison Surette, 38, has been our Senior Vice President General Merchandise Manager since May 2018.  Prior to that, Ms. Surette was Vice President Merchandise Manager of Private Label, Active, Young Men’s and Outerwear since September 2016.  Ms. Surette joined the Company in May 2006 as an Associate Planner and in June 2008, she transitioned into Merchandising as an Associate Buyer for Branded Collections.  From October 2010 to January 2014, she served as a Buyer of Traditional Branded Collections and Buyer of Private Label Sportshirts and Outerwear. From January 2014 to September 2016, she was the Senior Buyer of Private Label Sportshirts and Outerwear. Prior to joining the Company, Ms. Surette was a planner for TJX from June 2003 until May 2006.

Former CEO

David A. Levin, 68, served as our President, Chief Executive Officer and a director from April 2000 until December 2018. From January 2019 to March 2019, Mr. Levin served in a transition role as Acting CEO.  Prior to joining the Company, from 1999 to 2000, he served as the executive vice president of eOutlet.com and served as president of Camp Coleman, a division of The Coleman Company, from 1998 to 1999.  Prior to that, Mr. Levin was president of Parade of Shoes, a division of J. Baker, Inc., from 1995 to 1997. Mr. Levin was also president of Prestige Fragrance & Cosmetics, a division of Revlon, Inc., from 1991 to 1995.  In May 2017, Mr. Levin joined the board of directors of Lumber Liquidators, a publicly-traded company. Mr. Levin previously served on the board of directors of Christopher & Banks Corporation, a publicly-traded company.

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

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities (collectively, the “Reporting Persons”), to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”). The Reporting Persons are required to furnish us with copies of all Section 16(a) reports they file.  Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us by our officers and directors during fiscal 2018, we believe that the Reporting Persons complied with all applicable Section 16(a) reporting requirements and that all required reports were filed in a timely manner, except that (1) a Form 4 filing for each of Messrs. Levin, Stratton, Reaves, Davey, Molloy, Chane, Cooney, Gaeta and Ms. Surette to report awards granted on October 24, 2018 were filed late, and (ii) a Form 3 for Mr. Conacher to report his initial equity grant on June 11, 2018 was filed late.

Code of Ethics

We have adopted a Code of Ethics for Directors, Officers and Financial Professionals (the “Code of Ethics”). The full text of the Code of Ethics can be found under “Corporate Governance –Charters & Policies” on the Investor Relations page of the our corporate web site, which is at https://investor.dxl.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or waiver from, a provision of our Code of Ethics by posting such information on our website.  We also have a Code of Ethics for all of our associates.  Annually, our directors and associates, including our officers, are asked to certify that they have read and are in compliance with our Code of Ethics.

Audit Committee

We have a separately-designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act.  The Audit Committee is currently comprised of Messrs. Mooney, Conacher, Kyees and Mesdag.  Each of the members of the Audit Committee is independent, as independence for Audit Committee members is defined under the rules of Nasdaq. Messrs. Conacher, Mesdag, Mooney and Kyees each qualify as an audit committee financial expert under the rules of the SEC.

The Audit Committee operates under a written charter, which can be found under “Corporate Governance - Charters & Policies” on the Investor Relations page of our website at https://investor.dxl.com.

Director Nominations

No material changes have been made to the procedures by which security holders may recommend nominees to our Board from those that were described in our Definitive Proxy Statement for our 2018 Annual Meeting of Stockholders that was filed with the SEC on July 13, 2018.


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Item 11.  Executive Compensation

Compensation Discussion and Analysis

Executive Summary

This Compensation Discussion and Analysis provides a summary of our executive compensation philosophy and programs, and discusses the compensation paid to our former Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”) and other executive officers for fiscal 2018 (collectively, our “Named Executive Officers”).  

Our Named Executive Officers for fiscal 2018 were:

 

 

David A. Levin, Former President and Chief Executive Officer and Former Acting Chief Executive Officer (“Acting CEO”)

 

Peter H. Stratton, Jr., Executive Vice President, Chief Financial Officer and Treasurer

 

Brian S. Reaves, Executive Vice President and Chief Operating Officer

 

James S. Davey, Executive Vice President and Chief Marketing Officer

 

Robert S. Molloy, Senior Vice President, Chief Administrative Officer, General Counsel and Secretary

 

CEO Transition

In March 2018, we announced Mr. Levin’s plan to retire as President, Chief Executive Officer and a director of our Company. In connection with the announcement, we entered into a Transition Agreement with Mr. Levin, which modified and supplemented certain terms of Mr. Levin’s existing employment agreement.  See “Employment Agreements- David A. Levin, Former Chief Executive Officer and Former Acting CEO” below for a detailed discussion of the transition and Mr. Levin’s compensation. Effective January 1, 2019, Mr. Levin resigned as President, Chief Executive Officer and a director of the Company.  Because no successor CEO had been hired as of that date, pursuant to a Letter Agreement dated November 27, 2018, Mr. Levin assumed the role of Acting CEO, effective January 1, 2019.  

Subsequent to the end of fiscal 2018, Harvey S. Kanter was appointed President, CEO and a director of the Company, effective April 1, 2019.  Accordingly, Mr. Levin resigned as Acting CEO on April 1, 2019.  The terms of employment with Mr. Kanter are discussed below under “Employment Agreements – New Chief Executive Officer – Harvey S. Kanter.

Fiscal 2018 Financial Highlights

Fiscal 2018 was a pivotal year for our Company as we addressed several foundational issues in the business and also launched a number of growth and development initiatives.  In an effort to accelerate our path to profitability, during fiscal 2018, we reduced our corporate headcount by 15%, which resulted in cost savings of approximately $6.0 million in fiscal 2018 and amended our $125.0 million revolving credit facility with Bank of America to extend the facility to May 2023 and to include a $15.0 million “first-in, last-out” (FILO) loan that enabled us to retire our existing long-term debt and reduce overall interest costs.  

From an operational perspective, we:

 

launched a new wholesale segment, focused on product development and distribution relationships with key retailers, which includes both private-label and co-branded big & tall men’s clothing lines.  This included entering into an agreement with Amazon to provide men’s big & tall sizes for its Amazon Private Brand, Amazon Essentials, under the name “Amazon Essentials Fit by DXL”;

 

launched our new website in the third quarter of fiscal 2018, and subsequently acquired the domain name “dxl.com” in the fourth quarter of fiscal 2018;

 

completed a six-month customer segmentation study with over 4,000 customers that will be the foundation as we begin to tailor our marketing with a more targeted, personalized and data driven model; and,

 

successfully rebranded three existing Casual Male XL stores to DXL stores, opening up the opportunity to stay in current markets with limited capital investment.

 

Many of these initiatives contributed to our financial improvement in fiscal 2018, with comparable sales growth of 3.0%.  Our net loss for fiscal 2018, was $(13.5) million, or $(0.28) per diluted share, compared to a net loss of $(18.8) million, or $(0.39) per diluted share, in fiscal 2017.  Results for fiscal 2018 included $2.4 million of costs associated with the CEO transition, $1.9 million of corporate restructuring costs and asset impairment charges of $4.6 million. Excluding these items and assuming a normalized tax rate, the adjusted net loss for fiscal 2018 was $(3.5) million, or $(0.07) per diluted share, compared to an adjusted net loss of $(12.8) million, or $(0.26) per diluted share, in fiscal 2017.  Adjusted EBITDA for fiscal 2018, improved $10.3 million to $27.4 million from

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$17.1 million in fiscal 2018. Adjusted net loss, adjusted net loss per diluted share and Adjusted EBITDA are non-GAAP measures.  Please see “Non-GAAP Financial Measures” below for a reconciliation of adjusted net loss, adjusted net loss per diluted share and adjusted EBITDA to their GAAP measures.

Fiscal 2018 Executive Compensation Highlights

We believe that the compensation of our Named Executive Officers should be aligned with the performance of the Company.  The Company’s financial performance in fiscal 2018 improved from fiscal 2017 and the management team accomplished many key initiatives during the year to put the Company on the path to profitability. As a result, total compensation earned by our Named Executive Officers in fiscal 2018 increased from fiscal 2017, primarily due to an increase in performance-based compensation. The following table shows total compensation earned for each Named Executive Officer for fiscal 2018, compared to fiscal 2017.

Named Executive Officer

 

 

Fiscal 2018 (1)

 

 

Fiscal 2017

 

 

%  Change

 

David A. Levin

 

 

$

2,443,789

 

 

$

1,665,320

 

 

 

46.7

%

Peter H. Stratton, Jr.

 

 

$

821,669

 

 

$

620,253

 

 

 

32.5

%

Brian S. Reaves

 

 

$

988,989

 

 

$

530,112

 

 

 

86.6

%

James S. Davey

 

 

$

1,083,607

 

 

$

-

 

 

-

 

Robert S. Molloy

 

 

$

711,069

 

 

$

579,696

 

 

 

22.7

%

 

(1)

Mr. Reaves received a salary increase in October 2018 in connection with his promotion to Executive Vice President and Chief Operating Officer.  Mr. Molloy received a salary increase in May 2018 in connection with his promotion and the added responsibilities of Chief Administrative Officer. Mr. Davey’s compensation for fiscal 2018 includes an aggregate fair value of $0.2 million associated with the grant of equity awards in connection with his hiring.

Realized Pay of CEO

The following chart shows the Company’s Adjusted EBITDA over the past five years in relation to Mr. Levin’s compensation on both a Total Direct Compensation (“TDC”) basis, as reported in the Summary Compensation Table, and also on a Realized Pay basis.  Realized Pay reflects base salary, cash-based annual incentive compensation paid and cash-based long-term incentive earned, plus the value realized upon the exercise of options and the vesting of any restricted stock or restricted stock units.  We believe that Mr. Levin’s TDC and Realized Pay correlate to the Company’s financial performance.

 


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Executive Compensation Philosophy and Objectives

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

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

 

Attract, retain and engage the executive talent the Company requires to perform in line with the Board’s expectations;

 

Recognize and reward the achievement of specific annual and long-term performance goals through a combination of cash and stock-based compensation; and

 

Align the Company’s executives’ interests with those of its stockholders.

When reviewing compensation, the Compensation Committee emphasizes TDC.  TDC consists of total cash compensation (base salary and annual performance-based cash incentive awards) plus long-term incentive awards, which are primarily stock-based, and other compensation.  Every year, we assess the effectiveness of our compensation plans and are continually working to strengthen our overall compensation program by adjusting performance metrics to ensure that compensation is aligned with performance that drives stockholder value.  We also compare our performance metrics to those used by our peers, and take into consideration the recommendations of proxy advisory services.

Key Features of Our Executive Compensation Program

 

We believe that the Company’s executive compensation program includes key features that align the compensation for the Named Executive Officers with the interests of our stockholders.

 

What We Do

What We Don’t Do

   Focus on performance-based pay

   No re-pricing of underwater options

   Balance short-term and long-term incentives

   No hedging of Company stock

   Use multiple targets for performance awards

   No tax gross-up on severance payments

   Provide executives with very limited perquisites

   No active supplemental executive retirement plan

   Require “double-trigger” change-in-control provisions

 

   Maintain a “clawback” policy, adopted in August 2018 covering incentive cash and equity programs

 

   Seek to mitigate undue risk in compensation plans

 

   Utilize an independent compensation consultant

 

 

 

Use of Compensation Consultants

The Compensation Committee has the authority to retain compensation consultants and other outside advisors to assist in carrying out its duties, including the compensation of our Named Executive Officers. The Compensation Committee may accept, reject or modify any recommendations by compensation consultants or other outside advisors.

The Compensation Committee periodically consults with Sibson Consulting (“Sibson”), an independent firm that specializes in benefits and compensation, with respect to the structure and competitiveness of the Company’s executive compensation program compared to its proxy peer group. The Compensation Committee has assessed Sibson’s independence, and has concluded that no conflict of interest exists with respect to the services that it performs.  In early fiscal 2018, the Compensation Committee engaged Sibson to evaluate the compensation of our CEO in comparison to the fiscal 2018 proxy peer group and in early 2019 to evaluate the compensation of our other NEOs in comparison to the same proxy peer group.

Fiscal 2018 Target Compensation

CEO Compensation.  The Compensation Committee is responsible for determining the target compensation of our CEO.  Working with Sibson, the Compensation Committee compared each element of the CEO’s compensation (base salary, annual and long-term incentive compensation (“Direct Compensation”)) to published survey data and data from its proxy peer groups.  Based on the review

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completed by Sibson in early 2018, using 2017 compensation data, Mr. Levin’s target Direct Compensation was below median, at 91% of the median of the Company’s 2018 proxy peer group.  Mr. Levin’s actual Direct Compensation was at 61% of the median target compensation of that peer group.

Other Named Executive Officers.  Our CEO is primarily responsible for determining the compensation paid to our other Named Executive Officers, subject to the review and approval of the Compensation Committee.  Our other Named Executive Officers are provided with a competitive base salary and an opportunity to earn performance awards each year, which are driven by our overall financial targets.  In early 2019, Sibson reviewed the compensation paid to our other Named Executive Officers, and concluded that it was within the median (or 50% percentile) of the 2018 proxy peer group. See “Compensation Components and Fiscal 2018 Compensation Decisions

Our Peers

When determining peer companies for use in reviewing and establishing compensation for our Named Executive Officers, we focus primarily on public companies within the specialty retail apparel business with similar revenue and/or market capitalization.  The companies in the fiscal 2018 peer group were:

 

Boot Barn Holding, Inc.

Francesca’s Holding Corp.

Trans World Entertainment

 

 

 

 

 

 

Build-A-Bear Workshop, Inc.

Kirkland’s, Inc.

Vera Bradley

 

 

 

 

 

 

Cato Group

Movado Group

Vince Holding Corp.

 

 

 

 

 

 

Christopher & Banks

Sportsman’s Warehouse

Zumiez, Inc.

 

 

 

 

 

 

Citi Trends

Tile Shop Holdings

 

 

 

 

 

 

 

 

Destination Maternity

Tilly’s Inc.

 

 

 

 

 

 

 

 

For fiscal 2019, we updated our peer group to remove Trans World Entertainment and add Duluth Holding, Inc.

In order to develop an appropriate peer group, we consider companies with a range of revenues and market capitalizations that may differ from those included by independent analysts such as Institutional Shareholder Services (ISS).  We do so because we believe that companies doing business in specialty retail markets with omni-channel distribution models provide a better benchmark for total shareholder return.  An independent analyst may include a company that falls within the same Standard & Poor’s GICS code with similar revenue and market capitalization but with a different business model, business risks, geographic locations, customer base and industry traffic trends and which, consequently, may have nothing in common with our Company.  For example, a company that owns automotive dealerships is within the same GICS code as our Company, but clearly has a distinctively different business model and is not affected by the same trends that affect specialty retail apparel.  

Say-on-Pay

At our 2017 Annual Meeting, stockholders voted on a non-binding advisory proposal as to the frequency with which we should conduct an advisory vote on executive compensation (a "say-on-pay proposal").  At that meeting, and in accordance with the recommendation of our Board, 95.6% of votes cast voted for the “one-year” frequency for advisory votes on executive compensation.  We intend to hold such vote every year, until the next “say-on-pay” frequency vote, which will not be until our 2023 Annual Meeting.  

At our 2018 Annual Meeting, stockholders had an opportunity to cast a non-binding advisory vote on executive compensation as disclosed in the 2018 Proxy Statement.  Of the votes cast on the say-on-pay proposal, 87.3% voted in favor of the proposal.  The Compensation Committee considered the results of the 2018 advisory vote and believes that it affirms support of our stockholders for our approach to executive compensation, namely to align short- and long-term incentives with the Company’s financial performance.  We will continue to consider the outcome of subsequent say-on-pay votes when making future compensation decisions for our executive officers.

Risk Assessment/Clawback

We believe that our compensation programs do not provide incentives for unnecessary risk taking by our employees. Our employment agreements with each of our Named Executive Officers include a “clawback” provision that permits us to demand full repayment of certain amounts paid to the executive in the event we learn, after the executive’s termination, that the executive could have been terminated for “justifiable cause.”  In addition, in August 2018, our Compensation Committee approved the Executive

9

 


 

Incentive Pay Clawback Policy (“Clawback Policy”) that would allow the Company to recover all Excess Incentive-Based Compensation, as defined in the Clawback Policy, from each Executive who willfully committed an act of fraud, dishonesty, or recklessness that contributed to any error or noncompliance that results in a financial restatement. Incentive-Based Compensation includes all cash and equity awards.

Our emphasis on performance-based annual and long-term incentive awards is also designed to align executives with preserving and enhancing shareholder value. Based on these considerations, among others, we do not believe that our compensation policies and practices create risks that are likely to have a material adverse effect on our Company.

Compensation Components and Fiscal 2018 Compensation Decisions

We believe that our executive compensation policies and practices appropriately align the interests of our executives with those of our stockholders and emphasize the shared responsibility of our executive officers for the Company’s financial performance. Accordingly, the compensation of our Named Executive Officers is heavily weighted toward “at-risk” performance-based compensation.

The primary components of compensation for our Named Executive Officers include base salary (“fixed compensation”), annual performance-based cash incentives and long-term incentives (“at-risk compensation”). The annual weight of each component leads to the following allocation of potential compensation that each executive can earn.

    

 

The components of executive compensation are as follows:

 

Base salary

Base salary represents the fixed component of an executive’s annual compensation.  In order to attract and retain top executive talent, we believe that it is important that our base salary be competitive, generally at or near the median of our industry peers.

Base salaries are reviewed annually and adjustments are influenced by the Company’s performance in the previous fiscal year and the executive’s contribution to that performance. The executive’s performance is measured by various factors, including, but not limited to, achievement of specific individual and department goals.  Additionally, adjustments may consider an individual’s promotion that may have occurred during the fiscal year, and any modifications in the individual's level of responsibility.

The Compensation Committee expects the CEO’s base salary to be at or near the peer group median, and to be approximately one-third of his target Direct Compensation.  Our CEO determines the base salary of our other Named Executive Officers, subject to the review and approval of the Compensation Committee.  The target for such compensation is the median of the peer group and published industry compensation surveys.

For fiscal 2018, Mr. Levin’s base salary remained unchanged. During fiscal 2017, Mr. Stratton received a 6.8% increase in base salary, to $395,000, to bring him in line with external peers and in connection with his promotion to Executive Vice President. Mr. Reaves received an increase in base salary in November 2017 to $400,000, in connection with his promotion to Executive Vice President and Chief Sales Officer and in October 2018, he received an additional increase of 25% to $500,000, in connection with his promotion to Executive Vice President and Chief Operating Officer.  In May 2018, Mr. Molloy received an 8.7% increase in base salary, to $375,000, in connection with his promotion to Chief Administrative Officer. 

  

 

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Performance-based Annual Incentive Plan

The Compensation Committee believes that a substantial portion of each Named Executive Officer’s compensation should tie directly to our Company’s financial performance.  Our Annual Incentive Plan (“AIP”) provides for an annual performance-based cash incentive for all executives as well as certain non-executive employees.  

For fiscal 2018, Mr. Levin’s target participation in the AIP was at 100% of his annual salary, whereas our Executive Vice Presidents were at 55% of their respective salaries and Senior Vice Presidents were at 40% of their respective salaries.

For fiscal 2018, the Compensation Committee modified the 2018 AIP performance metrics in keeping with the Board’s objective to drive profitability and free cash flow through revenue growth at acceptable margins. Our targets for the 2018 AIP, as compared to fiscal 2017, reflect the fact that fiscal 2018 was a 52-week period as compared to fiscal 2017, which was a 53-week year and therefore included an additional week of sales, earnings and cash flow. In addition to overall financial and operating performance metrics, there were specific departmental metrics for our marketing, digital, store operations and merchandising/planning & allocation business units, as well as a discretionary component based on individual performance targets.  As described in the table below, the overall financial and operating performance metrics represented 80% and individual performance represented 20% of the AIP for Messrs. Levin, Stratton, Reaves and Molloy.  For Mr. Davey, overall financial and operating performance metrics represented 60%, departmental metrics represented 20%, and individual performance represented 20% of the AIP.  We believe that these modifications better aligned the compensation of our employees with their contribution to our business results.  

The performance metrics approved by the Compensation Committee and actual results against these metrics were as follows:

2018 Annual Incentive Plan

 

 

Metric

 

Award %
Attributable to Target for NEOs except Mr. Davey

Award %
Attributable to Target for

Mr. Davey

 

Minimum/Maximum

Potential Payout

 

2018 Target

2018 Actual**

Payout %

Target 1

 

Sales

 

25.0%

20.0%

 

100% payout at target, with 50% payout at 98.5% of target and 150% payout at 102.1% of target.

 

 

$470.0 million

$470.9 million

104.6%

Target 2

 

Adjusted EBITDA

 

25.0%

20.0%

 

100% payout at target, with 50% payout at 86.0% of target and 150% payout at 120.0% of target.

 

 

$25.0 million

$ 28.5 million

134.8%

Target 3

 

Gross Margin Dollars

 

15.0%

10.0%

 

100% payout at target, with 50% payout at 96.9% of target and 150% payout at 103.1% of target.

 

 

$211.5 million

$ 210.9 million

95.2%

Target 4

 

Free Cash Flow

 

15.0%

10.0%

 

100% payout at target, with 50% payout at 76.9% of target and 150% payout at 123.1% of target.

 

 

$13.0 million

$12.1 million

85.1%

Target 5

 

Discretionary – Personal Goals

 

20.0%

20.0%

 

Discretionary, based upon individual performance, as evaluated by the CEO (except with respect to the CEO whose individual performance will be evaluated by the Compensation Committee). ***

 

Varies by NEO

Varies by NEO

20.0%

Departmental Goals, if applicable

 

Marketing Goals

 

-

20.0%

 

10% Customer Count Goal and 10% DXL Store Traffic Goal

 

1,560,000 customers;

1.0% store traffic

1,530,297 customers;

(1.6%) store traffic

No payout

**For purposes of the 2018 AIP, fiscal 2018 actual results were adjusted to exclude certain revenues, expenses and cash flows, which were not considered in the establishment of the Company’s 2018 targets, including its wholesale business.

 

*** The personal goals for Messrs. Reaves, Davey and Molloy consisted of a combination of subjective and quantifiable goals specific to their respective corporate function.  The personal goals for our CFO were quantifiable and were primarily tied to managing debt levels and the execution of the corporate restructuring.  Our CEO’s personal goals were primarily tied to the overall financial performance of the Company, the CEO transition and the launch of the wholesale business.  

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The performance targets were derived from the Company’s operating plan for fiscal 2018, and the Compensation Committee believed that it was possible, with an approximate 50% probability, to meet or exceed each of the targets.  As a result of achieving the performance targets for fiscal 2018, as shown above, on March 19, 2019 the Compensation Committee approved cash bonus payouts ranging from 80.9% to 114.5%.  Messrs. Levin, Stratton, Reaves and Molloy each received a cash bonus payout of 106.9% and Mr. Davey received a cash bonus payout of 85.9%. The total cash award paid to 98 participants was approximately $3.9 million, with $1.7 million of that amount being paid to the Named Executive Officers.  

2019 Annual Incentive Plan

 

On May 1, 2019, the Compensation Committee approved the Company’s Fourth Amended and Restated Annual Incentive Plan.  The AIP was amended, among other things, to:

 

allow the Compensation Committee to set a participant’s maximum payout above 150% of target;

 

provide that employees, who are hired during the plan year, are eligible to participate in the AIP on a pro-rated basis, so long as they are hired prior to the first day of the fourth quarter of the fiscal year;

 

modify provisions regarding eligibility to receive an award upon certain qualifying termination events to clarify the methodology for making pro-rata payments to eligible participants and the time of payment;

 

clarify the Compensation Committee’s ability to exclude from the performance metrics the impact of:  (i) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (ii) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management, (iii) a change in accounting standards required by generally accepted accounting principles, or (iv) any other item or event specified by the Compensation Committee at the time the goals are set; and,

 

eliminate the default provision indicating that awards made to Covered Employees are intended to qualify as “performance-based compensation” that is exempt from the deduction limitations imposed by Section 162(m) of the Internal Revenue Code as such exemption for performance-based compensation was eliminated by the Tax Cuts and Jobs Act of 2017.

 

On May 1, 2019, the Compensation Committee established the financial and operating performance metrics for the 2019 AIP.  Similar to fiscal 2018, the performance targets were expanded to include departmental targets for Store Operations, Marketing & Digital, and Merchandise/Planning and Allocation, as well as discretionary personal goals.  

 

The Company’s financial performance metrics for the 2019 AIP include Sales and Adjusted EBITDA and represent 80% of the AIP for Messrs. Kanter, Stratton, Reaves and Molloy and 40% of the AIP for Mr. Davey.  With the recent appointment of Mr. Kanter to President and CEO, the Compensation Committee felt it was necessary to decrease the number of financial targets for fiscal 2019 and focus on Sales and Adjusted EBITDA to allow Mr. Kanter the flexibility to implement or modify any business initiatives without making other targets under the 2019 AIP irrelevant.  Given that, these two financial targets support the Company’s primary business objective of driving top-line growth and improved profitability.  Mr. Davey’s performance metrics include specific marketing and digital targets, and represent 40% of his AIP.  Discretionary personal goals represent the remaining 20%.  These discretionary goals are pre-established and are an important component to the success of our strategic goals.  Pursuant to the terms of the Transition Agreement, Mr. Levin will receive a payout based on the actual performance achieved under the 2019 AIP, see “Employment Agreements - Estimated Potential Payments to Mr. Levin under the Transition Agreement.”

 

The 2019 AIP performance metrics approved by the Compensation Committee are as follows:

 

 

 

Metric

 

Award %
Attributable to
Target for NEO’s other than Mr. Davey and Mr. Levin

Award % Attributable to Target for Mr. Davey

 

Minimum/Maximum

Potential Payout

Target 1

 

Sales

 

40.0%

20.0%

 

100% payout at target, with 50% payout at 97.9% of target and 150% payout at 102.1% of target, with the exception of Mr. Kanter who is eligible for maximum payout of 200% at 102.1% of target.

 

Target 2

 

Adjusted EBITDA

 

40.0%

20.0%

 

100% payout at target, with 50% payout at 81.4% of target and 150% payout at 118.6% of target, with the exception of Mr. Kanter who is eligible for a maximum payout of 200% at 118.6% of target.

 

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Target 3

 

Discretionary – Personal Goals

 

20.0%

20.0%

 

Discretionary, at target, based upon individual performance, as evaluated by the CEO (except with respect to the CEO whose individual performance will be

evaluated by the Compensation Committee).  Participants are eligible to receive a discretionary award up to 30%, with the exception of Mr. Kanter who is eligible to receive a discretionary award up to 40%.

 

Departmental

Targets

 

Marketing & Digital

 

-

40.0%

 

Includes several marketing statistics, including traffic, customer counts, POS markdown percentage, advertising sales ratio, online conversion and web traffic.  The Company does not publicly disclose many of these statistics.

 

The target levels for each performance metric are derived from the Company’s annual operating plan and budget for the fiscal year, and are intended to be achievable, with an approximate 50% probability.  The likelihood of achieving the 2019 targets reflects the challenges inherent in achieving the goals and objectives of an ambitious operating plan and budget.  

For fiscal 2019, Mr. Kanter, as President and CEO, will participate at 100% of his salary; Messrs. Stratton, Reaves and Davey, as Executive Vice Presidents, will participate at 55% of their respective salaries; and Mr. Molloy, as a Senior Vice President, will participate at 40% of his salary.  

 

 

Long-term incentive plans

 

The Company’s long-term incentive plans are designed to ensure that the interests of our executives are aligned with those of our stockholders to create sustainable shareholder value and to promote executive retention.  

 

In March 2016, the Compensation Committee approved the Destination XL Group, Inc. Long-Term Incentive Plan, as amended (the “LTIP”). Under the outstanding LTIPs, each participant in the plan is entitled to receive an award based on that participant’s “Target Cash Value” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her LTIP percentage, which is 100% for the CEO and 70% for the other Named Executive Officers.  For each participant, 50% of the Target Cash Value is subject to time-based vesting and 50% is subject to performance-based vesting.  The LTIP is a dollar-denominated plan and, therefore, no awards for the performance-based compensation are granted unless the performance metrics are achieved.

 

Under the original LTIP, the performance period was two years.  However, the LTIP was amended in June 2018 by executing the Second Amended and Restated LTIP, as further amended in October 2018, which among other things, extended the performance period to three years, beginning with grants in fiscal 2018. The following is a summary of the two LTIPs in effect during fiscal 2018 with a separate discussion of each plan’s respective performance period below:

 

Summary of LTIPs:

 

2017-2018

 

 

2018-2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective date

 

March 31, 2017

 

 

October 24, 2018

 

Performance period

 

2 years

 

 

3 years

 

End of Performance Period

 

February 2, 2019

 

 

January 30, 2021

 

Target cash value

 

Annual Salary * Participation Rate

 

 

Annual Salary * Participation Rate

 

 

 

Time-Based

 

Performance-Based

 

 

Time-Based

 

Performance-Based

 

Allocation of Target Cash Value

 

50%

 

50%

 

 

50%

 

50%

 

Award type

 

RSUs at effective date

 

RSUs, when earned, metrics discussed below

 

 

RSUs at effective date

 

RSUs, when earned, metrics discussed below

 

Vesting period

 

50% April 1, 2019

50% April 1, 2020

 

 

any award earned subject to additional vesting through August 31, 2019

 

 

25% October 24, 2019

25% April 1, 2020

25% April 1, 2021

25% April 1, 2022

 

any award earned subject to additional vesting through August 31, 2021

 

 

 


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2017-2018 Performance Period

On March 31, 2017, the Compensation Committee established two performance targets for the 2017-2018 Performance Period under the LTIP (the “2017-2018 LTIP”), each weighted 50%, and further approved that all awards would be issued in restricted stock units (“RSUs”).  The following is a summary of the performance targets under the 2017-2018 Performance Period and actual performance achieved:

 

 

 

Metric

 

Award %
Attributable to Target

 

Minimum/Maximum

Potential Payout

 

2018 Target

2018 Actual

Payout %

Target 1

 

Total Comparable Sales*

 

50.0%

 

100% payout at target, with 50% payout at 60.6% of target and 150% payout at 136.4% of target.

 

 

6.6%

4.0%

50.0%

Target 2

 

Modified ROIC**

 

50.0%

 

100% payout out at target, with 50% payout at 31.3% of target and 150% payout at 171.9% of target.

 

 

3.2%

(9.1)%

 

* Total Comparable Sales is defined as two-year stack, which is the sum of total Company comparable sales for fiscal 2017 and fiscal 2018, with an annual minimum comp requirement of 2.0% in fiscal 2018.

** Modified ROIC is defined as operating income divided by invested capital (defined as total debt plus stockholders’ equity and excludes any deduction of cash).

 

The minimum threshold for the Modified ROIC target was not achieved, but the Company did achieve, at threshold, its Total Comparable Sales target, resulting in a blended payout of performance-based compensation of 25.0% of target.  Accordingly, subsequent to the end of fiscal 2018, on March 19, 2019, the Compensation Committee approved the grant of RSU awards totaling $0.5 million, with a grant date of March 19, 2019, with $0.2 million of that amount being awarded to the Named Executive Officers.  The awards are subject to further vesting through August 31, 2019.

 

2018-2020 Performance Period

On October 24, 2018, the Compensation Committee established two performance targets under the 2018-2020 LTIP and further approved that all awards would be issued in RSUs. The performance targets for the 2018-2020 Performance Period are:

 

 

 

Metric

 

Award %
Attributable to Target

 

Minimum/Maximum

Potential Payout

 

 

 

 

Target 1

 

Three-year average Adjusted EBITDA margin

 

 

75.0%

 

100% payout at target, with 50% payout at 85.7% of target and 150% payout at 114.3% of target.

 

 

 

 

 

Target 2

 

Three-year relative total shareholder return as compared to the Company’s 2018 disclosed proxy peer group*

 

25.0%

 

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

 

 

 

 

 

*For the Company and each of its 2018 disclosed proxy peers, the three-year relative total shareholder return will be calculated as the percentage change in the 30-day trailing volume-weighted average closing stock price at February 2, 2018 and January 29, 2021, adjusted for any dividends received.  

For the 2018-2020 Performance Period, the metrics reflect the Company’s primary objective of returning to profitability and driving shareholder return.  As with our 2018 AIP and 2017-2018 LTIP, we will disclose our targets under the 2018-2020 LTIP once the performance period has ended.


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The following table illustrates the components of the LTIP with the respective vesting dates, illustrating that the time-based portion of the LTIP acts as a retention tool:

 

 

 

 

 

 

 

 

 

Vesting of Awards by Fiscal Year:

 

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

 

 

 

Approval date

 

Performance Period

 

total award

 

 

2018

 

 2019

 

 2020

 

 2021

 

 2022

 

3/31/2017

 

2017-2018 LTIP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time-Based Awards - vest April 1, subject to forfeiture

 

 

50

%

 

 

 

 

50

%

 

50

%

 

 

 

 

 

 

Performance-Based Awards - vest August 31, if achieved

 

 

50

%

 

 

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10/24/2018

 

2018-2020 LTIP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

50

%

 

 

 

 

25

%

 

25

%

 

25

%

 

25

%

 

 

Performance-Based Awards - vest August 31, if achieved

 

 

50

%

 

 

 

 

 

 

 

 

100

%

 

 

 

 

(1)

The first tranche of time-based awards vest on the later of April 1 following the end of the first year of the performance period or one year from the date of grant.

 

 

Discretionary Cash and Equity Awards

In particular circumstances, we may utilize cash signing bonuses and equity-based awards when certain employees join the Company.  

With the exception of the grant of equity awards to Mr. Davey in connection with his hiring, there were no discretionary cash or equity awards granted to our Named Executive Officers in fiscal 2018.

 

Other Compensation

In addition to our life insurance programs available to all of our employees, we also paid the insurance premium for an additional $2.0 million life insurance policy for Mr. Levin to the benefit of his designated beneficiaries.  

We offer our senior executives, including our Named Executive Officers, supplemental disability insurance and long-term care and pay a portion of the premiums, which we do not do for our other employees.

Our Named Executive Officers also receive benefits under certain group health, long-term disability and life insurance plans, which are generally available to all of our eligible employees.

After six months of service with us, all of our employees, including our Named Executive Officers, are eligible to participate in our 401(k) Plan, and after one year of employment are eligible for a Company match.  Historically, our employees have been eligible to receive a Company match, which matched 100% of the first 1% of deferred compensation and 50% of the next 5% (with a maximum contribution of 3.5% of eligible compensation).  In May 2018, in connection with our cost reduction initiatives, the Board of Directors ratified and approved the recommendation of our management team to suspend any further employer contributions to the 401(k) Plan, effective July 1, 2018, until the end of calendar year 2019 at the latest.  

We have employment agreements with our CEO and all of our other Named Executive Officers.  Upon termination of employment, each executive is entitled to receive severance payments under his or her employment agreement(s) and under the Company’s incentive programs in the event of a termination without justifiable cause.  These employment agreements and incentive programs, as they relate to terminations, are discussed in detail below in the section “Employment Agreements” following the “Summary Compensation Table.”  Our employment agreements do not contain any tax gross-ups pursuant to Section 280(g) of the Internal Revenue Code.

 

Tax Implications

Prior to the passage of the Tax Cut and Jobs Act of 2017 (“Tax Act”), Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallowed a tax deduction for compensation in excess of $1.0 million a year to certain officers, including the Chief Executive Officer, unless such excess compensation qualified as “performance-based compensation.” The Tax Act, among other things, repealed the performance-based compensation exemption with respect to taxable years beginning after December 31, 2017, subject to certain transition rules. In addition, the Tax Act expanded the group of officers whose compensation is subject to the Section 162(m) deduction limitations. Accordingly, other than with respect to certain grandfathered compensation, the $1.0 million deduction limitation now applies to (i) anyone serving as the Company’s Chief Executive Officer or Chief Financial Officer at any time during the taxable year, (ii) the top three other highest compensated executive officers of the Company serving at the end of the taxable year and (iii) any individual who had been a covered employee for any taxable year of the Company that started after December 31, 2016. We previously

15

 


 

considered the effect of Section 162(m) when structuring our executive compensation and, when feasible, complied with exemptions in Section 162(m) so that the compensation remained tax deductible to us.


16

 


 

Non-GAAP Financial Measures

Adjusted net loss, adjusted net loss per diluted share and Adjusted EBITDA are non-GAAP measures.  These non-GAAP measures are not presented in accordance with GAAP and should not be considered superior to or as a substitute for net loss or cash flows from operating activities or any other measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the non-GAAP measures presented in this Quarterly Report may not be comparable to similar measures used by other companies. We believe that inclusion of these non-GAAP measures helps investors gain a better understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements. Reconciliations of these non-GAAP measures are presented in the following tables (certain columns may not foot due to rounding):

 

Adjusted net loss and adjusted net loss per diluted share. Adjusted net loss and adjusted net loss per share reflect an adjustment assuming a normal tax rate of 26% and the add-back of CEO transition, corporate restructuring costs and impairment of assets. We have fully reserved against our deferred tax assets and, therefore, net loss is not reflective of earnings assuming a “normal” tax position.  Adjusted net loss provides investors with a useful indication of the financial performance of the business, on a comparative basis, assuming a normalized tax rate of 26%. The following table is a reconciliation of net loss and net loss per diluted share (on a GAAP basis) to adjusted net loss and adjusted net loss per diluted share (on a non-GAAP basis) (certain amounts may not foot due to rounding):

 

 

Fiscal 2018

 

 

Fiscal 2017

 

(in thousands, except per share data)

 

$

 

 

Per diluted

share

 

 

$

 

 

Per diluted

share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before tax provision, on a GAAP basis

 

$

(13,581

)

 

$

(0.28

)

 

$

(21,398

)

 

$

(0.44

)

Provision (benefit) for income taxes

 

$

(50

)

 

$

(0.00

)

 

$

(2,572

)

 

$

(0.05

)

Net loss, on a GAAP basis

 

$

(13,531

)

 

$

(0.28

)

 

$

(18,826

)

 

$

(0.39

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment of assets

 

$

4,579

 

 

$

0.09

 

 

$

4,095

 

 

$

0.08

 

Corporate restructuring

 

 

1,904

 

 

$

0.04

 

 

 

 

 

 

 

CEO transition costs

 

 

2,404

 

 

$

0.05

 

 

 

 

 

 

 

Actual benefit for income taxes

 

 

(50

)

 

$

(0.00

)

 

 

(2,572

)

 

$

(0.05

)

Adjusted loss before income taxes

 

$

(4,694

)

 

$

(0.10

)

 

$

(17,303

)

 

$

(0.35

)

Income tax benefit, assuming a normalized tax rate of 26%, with no AMT Benefit in 2017

 

$

(1,220

)

 

$

(0.02

)

 

$

(4,499

)

 

$

(0.09

)

Adjusted net loss, non-GAAP basis

 

$

(3,474

)

 

$

(0.07

)

 

$

(12,804

)

 

$

(0.26

)

 

Adjusted EBITDA. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and is before CEO transition costs, restructuring charges and any impairment of assets.  We believe that adjusted EBITDA is useful to investors in evaluating our performance.  With the significant capital investment we have made over the past several years in connection with DXL store openings, we have had increased levels of depreciation and interest, and therefore, management uses adjusted EBITDA as a key metric to measure profitability and economic productivity.  The following table is a reconciliation of net loss to adjusted EBITDA:

 

The following is a reconciliation of Adjusted EBITDA and EBITDA from Net Loss, on a GAAP basis:

 

(in millions)

 

Fiscal 2018

 

 

Fiscal 2017

 

 

Fiscal 2016

 

 

Fiscal 2015

 

 

Fiscal 2014

 

Net loss, on a GAAP basis

 

$

(13.5

)

 

$

(18.8

)

 

$

(2.3

)

 

$

(8.4

)

 

$

(12.3

)

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit (provision) for income taxes

 

 

0.1

 

 

 

2.6

 

 

 

(0.2

)

 

 

(0.3

)

 

 

(0.2

)

Interest Expense

 

 

(3.5

)

 

 

(3.4

)

 

 

(3.1

)

 

 

(3.0

)

 

 

(2.1

)

Depreciation and amortization

 

 

(28.7

)

 

 

(31.1

)

 

 

(30.2

)

 

 

(28.4

)

 

 

(23.7

)

EBITDA

 

 

18.5

 

 

 

13.0

 

 

 

31.2

 

 

 

23.3

 

 

 

13.8

 

Deduct: Income (loss) from discontinuing operations

 

-

 

 

 

 

 

 

 

 

 

 

 

 

(1.1

)

EBITDA from continuing operations

 

$

18.5

 

 

$

13.0

 

 

$

31.2

 

 

$

23.3

 

 

$

14.9

 

Add back: Corporate restructuring

 

 

1.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back: CEO transition costs

 

 

2.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back: Impairment charges

 

 

4.6

 

 

 

4.1

 

 

 

0.4

 

 

 

 

 

 

0.3

 

Adjusted EBITDA

 

$

27.4

 

 

$

17.1

 

 

$

31.6

 

 

$

23.3

 

 

$

15.2

 

 

 


17

 


 

COMPENSATION COMMITTEE REPORT

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

 

 

The Compensation Committee

 

 

Willem Mesdag, Chairman

 

 

Lionel Conacher

 

Mitchell Presser

 

Ward K. Mooney

 

 

 

 

 

 

 

 

 

 

 


18

 


 

Summary Compensation Table.  The following Summary Compensation Table sets forth certain information regarding compensation paid or accrued by us with respect to our Named Executive Officers for fiscal 2018.

Name and Principal Position

 

Year

 

Salary ($)

 

 

Bonus ($)

 

 

Stock

Awards

($) (1) (2)

 

 

Option

Awards

($) (1) (2)

 

 

Non-Equity

Incentive Plan

Compensation

($)(3)

 

 

All Other

Compensation

($)(4)

 

 

Total ($)

 

 

David A. Levin

 

2018

 

$

811,200

 

 

 

 

 

$

506,998

 

 

 

 

 

$

867,173

 

 

$

258,418

 

 

$

2,443,789

 

 

Former President and Chief Executive

 

2017

 

$

826,800

 

 

 

 

 

$

515,923

 

 

 

 

 

$

285,246

 

 

$

37,351

 

 

$

1,665,320

 

 

Officer and former Acting CEO

 

2016

 

$

811,200

 

 

 

 

 

$

610,834

 

 

 

 

 

$

670,052

 

 

$

39,915

 

 

$

2,132,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peter H. Stratton, Jr.

 

2018

 

$

395,000

 

 

 

 

 

$

169,307

 

 

 

 

 

$

232,240

 

 

$

25,122

 

 

$

821,669

 

 

Executive Vice President, Chief

 

2017

(5)

$

384,038

 

 

 

 

 

$

158,496

 

 

 

 

 

$

52,997

 

 

$

24,722

 

 

$

620,253

 

 

Financial Officer and Treasurer

 

2016

 

$

333,462

 

 

 

 

 

$

157,649

 

 

 

 

 

$

113,574

 

 

$

25,305

 

 

$

629,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brian S. Reaves

 

2018

 

$

432,692

 

 

 

 

 

$

201,248

 

 

 

 

 

$

254,401

 

 

$

100,648

 

 

$

988,989

 

 

Executive Vice President and

 

2017

(5)

$

325,000

 

 

 

 

 

$

133,560

 

 

 

 

 

$

44,850

 

 

$

26,702

 

 

$

530,112

 

 

Chief Operating Officer

 

2016

 

$

300,000

 

 

 

 

 

$

153,703

 

 

 

 

 

$

131,963

 

 

$

27,452

 

 

$

613,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James S. Davey

 

2018

 

$

403,269

 

 

 

 

 

$

328,147

 

 

$

150,000

 

 

$

190,303

 

 

$

11,888

 

 

$

1,083,607

 

 

Executive Vice President and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chief Marketing Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert S. Molloy

 

2018

 

$

366,346

 

 

 

 

 

$

161,434

 

 

 

 

 

$

156,650

 

 

$

26,639

 

 

$

711,069

 

 

Senior Vice President, Chief Administrative

 

2017

(5)

$

351,635

 

 

 

 

 

$

152,642

 

 

 

 

 

$

48,526

 

 

$

26,893

 

 

$

579,696

 

 

Officer, General Counsel and Secretary

 

2016

 

$

341,923

 

 

 

 

 

$

174,808

 

 

 

 

 

$

154,130

 

 

$

27,661

 

 

$

698,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amounts reflect the fair value, as of grant date, of awards computed in accordance with FASB ASC Topic 718, and not the actual amounts paid to or realized by the Named Executive Officers during the applicable fiscal year.  The fair value of each stock option award is estimated as of the date of grant using a Black-Scholes valuation model. Additional information regarding the assumptions used to estimate the fair value of all awards is included in Note A to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019.

 

(2)

The amounts shown in the Stock Award column for fiscal 2018 represent the fair value, as of grant date, of (a) time-based restricted stock units (RSUs) granted pursuant to the 2018-2020 LTIP and (b) RSUs earned for the partial achievement of performance targets under the 2017-2018 LTIP. The amount for Mr. Davey also includes a grant of time-based restricted stock pursuant to the 2017-2018 LTIP and a sign-on grant of restricted stock. See below for a breakdown of stock awards.  

The amount shown in the Option Award column for fiscal 2018 represents the fair value, as of grant date, of a sign-on grant of stock options to Mr. Davey.  See “Grants of Plan-Based Awards” for more information regarding equity awards granted in fiscal 2018.

The fair value associated with the performance-based component of the equity awards under the 2018-2020 LTIP was determined based on the probable outcome of the performance conditions as of the service-inception date.  Because the achievement of the performance targets under the 2018-2020 LTIP was not deemed probable as of the service-inception date, no value was attributed to the performance-based portion of these awards.  The following reflects the fair values of the performance-based portion of the 2018-2020 LTIP assuming the highest level of performance conditions will be achieved for each of the Named Executive Officers:

 

 

 

David A. Levin

$

608,400

 

Peter H. Stratton, Jr.

$

207,375

 

Brian S. Reaves

$

262,500

 

James S. Davey

$

236,250

 

Robert S. Molloy

$

196,875

 

 

(3)

Represents cash awards earned under the Company’s AIPs for each respective year.  Fiscal 2016 also included the cash awards earned under the Company’s 2013-2016 LTIP and its 2016 Wrap-Around Plan.

 

(4)

See table “All Other Compensation” below for a breakdown of 2018 amounts reflected in this column

 

(5)

In our 2017 proxy statement, the annual salary amounts were understated for Messrs. Stratton, Reaves and Molloy of $9,134, $11,538 and $6,635, respectively, therefore the amounts in the “Salary” and “Total” columns in our 2017 proxy statement were understated.  These amounts for 2017 have been corrected in this Summary Compensation Table.

 


19

 


 

The following table provides a breakdown of the amounts in 2018 in the “Stock Awardscolumn of the Summary Compensation Table above:

Name

 

2017-2018

LTIP (1)

 

 

2017-2018

LTIP (2)

 

 

2018-2020

LTIP (3)

 

 

Sign-on

Award (4)

 

 

Total Stock

Awards

 

David A. Levin

 

$

101,398

 

 

$

 

 

$

405,600

 

 

$

 

 

$

506,998

 

Peter H. Stratton, Jr.

 

$

31,060

 

 

$

 

 

$

138,247

 

 

$

 

 

$

169,307

 

Brian S. Reaves

 

$

26,249

 

 

$

 

 

$

174,999

 

 

$

 

 

$

201,248

 

James S. Davey

 

$

19,128

 

 

$

76,520

 

 

$

157,499

 

 

$

75,000

 

 

$

328,147

 

Robert S. Molloy

 

$

30,186

 

 

$

 

 

$

131,248

 

 

$

 

 

$

161,434

 

 

(1)

Represents RSUs earned for performance achieved under the 2017-2018 LTIP that were granted in March 2019.  The potential value of this award at threshold, target and maximum was previously reported in the “2017 Grants of Plan-Based Awards” under “Estimated Future Payouts Under Equity Incentive Plan Awards” as of the service inception date of March 31, 2017.  Mr. Davey’s award was based on his pro-rated participation in the 2017-2018 LTIP.

 

(2)

Represents the grant of time-based RSUs issued, on a pro-rated basis, to Mr. Davey.  The RSUs will vest in two tranches with the first 50% vesting on April 1, 2019 and the remaining 50% vesting on April 1, 2020.

 

(3)

Represents the grant of time-based RSUs issued under the 2018-2020 LTIP, which will vest in four tranches with the first 25% vesting on October 24, 2019, the remaining tranches vest on April 1, 2020, April 1, 2021 and April 1, 2022.  

 

(4)

Represents the grant of 30,000 unvested RSAs that vest ratably over three years, with the first one-third vesting on March 14, 2019.  

The following table provides a breakdown of the amounts for 2018 in the “All Other Compensation” of the Summary Compensation Table above:

Name

 

Auto

Allowance

 

 

401(k)

Match

 

 

Life

Insurance

Premiums

 

 

Long-Term

Healthcare

Premiums

 

 

Supplemental

Disability

Insurance

 

 

Consulting Fees

 

 

Relocation and Commuting Costs

 

 

Total

Other

Compensation

 

David A. Levin

 

$

10,000

 

 

$

9,625

 

 

$

4,880

 

 

$

6,033

 

 

$

6,340

 

 

$

221,540

 

 

$

 

 

$

258,418

 

Peter H. Stratton, Jr.

 

$

8,400

 

 

$

9,625

 

 

$

 

 

$

4,034

 

 

$

3,063

 

 

$

 

 

$

 

 

$

25,122

 

Brian S. Reaves

 

$

8,400

 

 

$

9,625

 

 

$

 

 

$

4,715

 

 

$

4,344

 

 

$

 

 

$

73,564

 

 

$

100,648

 

James S. Davey

 

$

7,592

 

 

$