ARO Liquidation, Inc. DEF 14A 2014
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨ Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to §240.14a-12
112 West 34th Street, 22nd Floor
New York, NY 10120
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 30, 2014
To the Stockholders of Aéropostale, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Aéropostale, Inc., a Delaware corporation (the “Company”), will be held at the Company’s office at 125 Chubb Avenue, 5th Floor, Lyndhurst, New Jersey, 07071, on June 30, 2014 at 8:00 a.m., local time, for the following purposes:
5. To transact such other business as may properly come before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 1, 2014 as the record date for determining stockholders entitled to notice of, and to vote at, the Annual Meeting and at any adjournment thereof.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 30, 2014:
The Proxy Statement, the 2013 Annual Report to Stockholders and the Form 10-K of Aéropostale, Inc. for 2013 are available on the Investor Relations portion of the Company's website at www.aeropostale.com.
Your vote is important. Stockholders of record may submit their proxies in favor of the Board of Directors’ recommendations by calling a toll-free telephone number, by using the Internet or by mailing their signed proxy cards. Whether or not you plan to attend the meeting, please vote by telephone or via the Internet or sign, date and return the enclosed proxy card in the envelope provided. Instructions are included on your proxy card. You may change your vote by submitting a later dated proxy (including a proxy via telephone or the Internet) or by attending the meeting and voting in person.
Help us make a difference by eliminating paper proxy mailings to your home or business: with your consent, we will provide all future proxy voting materials and annual reports to you electronically. Instructions for consenting to electronic delivery can be found on your proxy card. Your consent to receive stockholder materials electronically will remain in effect until canceled.
TABLE OF CONTENTS
112 West 34th Street, 22nd Floor
New York, NY 10120
ANNUAL MEETING OF STOCKHOLDERS
June 30, 2014
Our Board of Directors (or “the Board”) is soliciting proxies for the 2014 Annual Meeting of Stockholders. This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully.
In this Proxy Statement:
Our 2013 Annual Report to Stockholders, which includes our financial statements, is available to review with this Proxy Statement. We are mailing notices of our Annual Meeting (or, for those who request it, a hard copy of this proxy statement, the enclosed form of proxy and our 2013 Annual Report) to our stockholders beginning on or about June 2, 2014.
ABOUT THE MEETING
All shares represented by properly executed proxies received by the Company prior to the meeting will be voted in accordance with the stockholders’ directions.
What is the purpose of the annual meeting?
At our Annual Meeting, the holders of the Company’s common stock, $0.01 par value per share (“common stock”), will act upon the matters outlined in the Notice of meeting, namely, electing eleven (11) directors, approving, on an advisory basis executive compensation, approving the 2014 Omnibus Plan, ratifying the appointment of our independent registered public accounting firm and acting upon any other matter to come properly before the Annual Meeting.
Who is entitled to vote at the meeting?
Only stockholders of record of common stock at the close of business on May 1, 2014, the record date for the Annual Meeting, are entitled to receive notice of and to participate in the Annual Meeting. If you were a stockholder of record on that date, you will be entitled to vote all of the shares that you held on that date at the Annual Meeting or any postponements or adjournments of the Annual Meeting.
What if my shares are held in “Street Name” by a broker?
If you are the beneficial owner of shares held in “street name” by a bank, broker or other nominee, then your bank, broker or other nominee, as the record holder of the shares, must vote those shares in accordance with your instructions. If you do not give instructions to the organization holding your shares, then that organization cannot vote your shares and the shares held by that organization will not be considered as present and entitled to vote on any matter to be considered at the Annual Meeting. Generally, brokers are not permitted to vote your shares with respect to any proposals, other than the ratification of the selection of our independent registered accounting firm at the Annual Meeting, without your instructions as to how to vote. Please instruct your broker how to vote your shares using the voting instruction form provided by your broker. The voting instruction forms provided by your broker or other nominee will also include information about how to vote your shares over the Internet or telephonically, if such options are available. Please return your completed proxy card or voting instruction form to your broker and contact the person responsible for your account or vote by Internet or telephone so that your vote can be counted.
What is the effect of a “broker non-vote” on the proposals to be voted on at the Annual Meeting?
A “broker non-vote” occurs when a beneficial owner of shares held by a bank, broker or other nominee fails to provide the record holder with voting instructions on any “non-routine” matters brought to a vote at a stockholder meeting.
Under NYSE rules, brokers may not vote on “non-routine” matters, which generally include the election of directors, the advisory vote to approve the compensation of named executive officers, and the vote to approve the 2014 Omnibus Incentive Plan, each of which is described in this proxy statement. The proposal to ratify the selection of our independent registered accounting firm is considered “routine,” which means that brokers may vote in their discretion on behalf of beneficial owners who have not provided voting instructions.
If your shares are held of record by a bank, broker or other nominee, we urge you to give instructions to your bank, broker or other nominee as to how you wish your shares to be voted so you may participate in the stockholder voting on these important matters.
What are the voting rights of the holders of Aéropostale’s common stock?
Holders of our common stock are entitled to one (1) vote, for each share held of record, on all matters submitted to a vote of the stockholders, including the election of eleven (11) directors. Stockholders do not have cumulative voting rights.
Who can attend the meeting?
Subject to space availability, all holders of our common stock as of the record date, or their duly appointed proxies, may attend the meeting. Admission to the meeting will be on a first-come, first-serve basis. Registration will begin at 7:30 a.m. If you attend, please note that you may be asked to present valid photo identification, such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the meeting. Please also note that if you hold your shares in “street name” (that is,
through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting.
What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of record of the issued and outstanding shares of capital stock representing a majority of the votes entitled to be cast at the meeting constitutes a quorum, thereby permitting the meeting to conduct its business. As of the record date, May 1, 2014, 78,638,666 shares of our common stock were issued and outstanding. Thus, the presence, in person or by proxy, of the holders of common stock representing at least 39,319,334 votes will be required to establish a quorum.
Proxies received but marked as abstentions and “broker non-votes” will be included in the calculation of the number of votes considered to be present at the meeting for quorum purposes.
What if a quorum is not present at the meeting?
If a quorum is not present at the scheduled time of the Annual Meeting, we may adjourn the Annual Meeting, either with or without a vote of the stockholders. If we propose to have the stockholders vote whether to adjourn the meeting, the people named in the enclosed proxy will vote all shares of our common stock for which they have voting authority in favor of the adjournment. An adjournment will have no effect on the business that may be conducted at the Annual Meeting.
How do I vote?
1. You may vote by mail. If you properly complete and sign the enclosed proxy card and return it in the enclosed envelope, it will be voted in accordance with your instructions. The enclosed envelope requires no additional postage if mailed either in the United States or Canada.
2. You may vote by telephone. If you are a registered stockholder (if you hold your common stock in your own name), you may submit your voting instructions by telephone by following the instructions printed on the proxy card. If you submit your voting instructions by telephone, you do not have to mail in a proxy card.
3. You may vote on the Internet. If you are a registered stockholder (if you hold your common stock in your own name), you may vote on the Internet by following the instructions printed on the proxy card. If you vote on the Internet, you do not have to mail in a proxy card.
If you are a registered stockholder and attend the Annual Meeting, you may deliver your completed proxy card in person or vote in person by ballot at the meeting. If your shares are held in “street name” and you wish to vote at the Annual Meeting, you will need to obtain a proxy form from the institution that holds your shares.
Can I change my vote after I submit my Proxy?
Yes, you may revoke your proxy at any time before it is voted at the Annual Meeting by:
Your attendance at the meeting will not have the effect of revoking your proxy unless you give written notice of revocation to the Secretary of the Company before the polls are closed on the date of the Annual Meeting. Any written notice revoking a proxy should be sent to our Secretary at 112 West 34th Street, 22nd Floor, New York, New York 10120 and must be received before the polls are closed.
How does the Board of Directors recommend I vote on the Proposals?
Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors. The Board’s recommendation is set forth together with the description of each item in this proxy statement. In summary, your Board recommends that you vote:
With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Board of Directors or, if no recommendation is given, in their own discretion.
What are my voting options on each Proposal?
You have several choices on each of the matters to be voted upon at the Annual Meeting. On the election of directors, by checking the appropriate box on your proxy card, you may: (a) vote for all of the director nominees as a group; (b) withhold authority to vote for all director nominees as a group; or (c) vote for all director nominees as a group except those nominees you identify as directors for whom your vote is withheld. On Proposals 2, 3 and 4, by checking the appropriate box, you may: (a) vote “For” the Proposal; (b) vote “Against” the Proposal; or (c) “Abstain” from voting on the Proposal by checking “Abstain”.
How many votes are required to approve the Proposals?
For Proposal 1, pursuant to our bylaws and Delaware law, directors receiving a plurality of the votes represented and entitled to vote at the meeting shall be required. For Proposals 2, 3 and 4, pursuant to our bylaws and Delaware law, an affirmative vote of a majority of shares of common stock represented and entitled to vote at the meeting is required to approve these Proposals. Abstentions will have no effect on the outcome of Proposal 1, but will have the same effect as a vote “Against” Proposals 2, 3 and 4.
What happens if a nominee for Director is unable to stand for election?
If a nominee is unable to stand for election, our Board of Directors may either reduce the number of directors to be elected or select a substitute nominee. If a substitute nominee is selected, the proxy holders will vote your shares for the substitute nominee, unless you have withheld authority.
Where can I find voting results of the meeting?
We will announce preliminary voting results at the meeting and publish final results in a Form 8-K filed with the Securities and Exchange Commission once the final voting results have been tabulated.
Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within Aéropostale or to third parties except as necessary to meet applicable legal requirements, or to allow for the tabulation of votes and certification of the vote, or to facilitate a successful proxy solicitation by our Board of Directors. Occasionally, stockholders provide written comments on their proxy card, which will be forwarded to Aéropostale management, as appropriate.
Who will bear the cost for soliciting votes for the meeting?
The proxies being solicited hereby are being solicited by the Board of Directors of the Company. The cost of preparing and mailing the notice of Annual Meeting, this proxy statement and the accompanying proxy and the cost of solicitation of proxies on behalf of the Board of Directors will be borne by the Company. Solicitations may be made by mail, internet, telephone, fax, town hall meetings, press releases, press interviews and/or through the use of the Company’s investor relations website.
What should I do if I have other questions?
If you have any questions or require any assistance with voting your shares, please contact Susan Lewis, our Vice President, Investor and Media Relations at (646) 364-0215.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
Beneficial Ownership of Common Stock
The following table shows, as of May 1, 2014, certain information with regard to the beneficial ownership of the Company’s Common Stock by: (i) each person known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock; (ii) each of the Company’s current directors and director nominees; (iii) each executive officer named in the summary compensation table below; and (iv) all current directors and executive officers as a group. Unless otherwise stated, the business address of each person listed below is c/o Aéropostale, Inc., 112 W. 34th Street, New York, NY 10120. In connection with the Sycamore Partners Transaction (described below), on May 23, 2014, Aero Investors, LLC, an affiliate of Lemur LLC and Sycamore Partners, acquired 1,000 shares of Series B Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”) of the Company, which is exercisable into up to 5% of the Company’s common stock at an exercise price of $7.25. The following table and the beneficial ownership of Lemur LLC and Stefan Kaluzny do not reflect the number of shares of common stock issuable upon the conversion of the Series B Preferred Stock to Aero Investors LLC.
PLANNED ADOPTION OF MAJORITY VOTING
Effective on the day immediately following our Annual Meeting, the Company will amend its by-laws to adopt a majority voting standard in uncontested director elections. With respect to the majority voting standard, the amendment will provide that a director nominee in an uncontested election is not elected unless he or she receives a majority of votes cast, which means that the number of votes properly cast “for” a nominee exceeds the number of votes properly cast “against” with respect to that nominee. In connection with this amendment, the Company will also amend its Corporate Governance Guidelines to require a director who fails to receive the required number of votes in an uncontested election to tender his or her resignation. An election is considered “uncontested” if the number of director nominees does not exceed the number of directors to be elected. The Corporate Governance Guidelines will provide that the Nominating and Corporate Governance Committee of the Board will assess the appropriateness of such nominee continuing to serve as a director and recommend to the Board the action to be taken with respect to such tendered resignation. The Corporate Governance Guidelines will also provide that Board will act on the tendered resignation and publicly disclose its decision and rationale within 90 days following certification of the stockholder vote.
NON-RENEWAL OF STOCKHOLDER RIGHTS PLAN
On November 26, 2013, we adopted a stockholder rights plan, or the “Rights Plan”, pursuant to which we, among other things, issued one right, or a “Right”, for each share of Company common stock then outstanding. The Rights Plan provides, among other things, that the Rights will expire upon the close of business on the earliest to occur of: (i) November 26, 2014, (ii) the date on which the Rights are redeemed or exchanged by the Company in accordance with the Rights Plan and (iii) the date of the Annual Meeting if requisite stockholder approval of the Rights Plan is not obtained at such meeting. The Board of Directors has determined not to seek stockholder approval of the Rights Plan at the Annual Meeting, such that the Rights will expire on the date of the Annual Meeting.
ELECTION OF DIRECTORS
Recent Board Events
In connection with the Company’s strategic transaction with Sycamore Partners and the related issuance of the Series B Preferred (see Sycamore Partners Transaction for greater detail), the Company granted the Series B Holder (or any member of the Sycamore Group who is a transferee thereof) with the right to designate up to two directors (each a “Series B Director”) to the Company’s Board of Directors. The Series B Holder (or any member of the Sycamore Group who is a transferee thereof) will have the right to designate only one Series B Director at such time as the Sycamore Group beneficially owns a number of shares of Series B Preferred Stock and common stock (on an as if converted basis, assuming the full conversion of the then-outstanding Series B Preferred Stock) less than 66.67% of the aggregate number of shares of common stock (on an as if converted basis, assuming the full conversion of the Series B Preferred Stock) beneficially owned by the Sycamore Group as of May 23, 2014; and has no designation rights when such ownership falls below 33.33% as of the same date. Under the Certificate of Designation of Preferences of Series B Convertible Preferred Stock (the “Certificate of Designation”), following the Annual Meeting the holders of the Series B Preferred have the right to vote, separately as a single class to the exclusion of all other classes, for the Series B Directors designated by the Series B Holder for so long as the Series B Preferred remains outstanding and the Series B Holder has the right to designate Series B Directors to the Board.
In connection with the closing of the transaction with Sycamore Partners, Stefan Kaluzny and Julian Geiger were appointed to Board of Directors, as the Series B Holder’s designees in accordance with the Investor Rights Agreement (the “Investor Rights Agreement”), dated May 23, 2014, between the Company and Series B Holder and the Certificate of Designation. Each will serve as a Series B Director until the 2015 annual meeting of the stockholders of the Company (subject to removal or resignation or the earlier election of their successors in accordance with the Company’s organizational documents). Following such time, the then-holders of the Series B Preferred will have the right to elect, as a separate class, to the exclusion of all other classes and series of the Company’s
capital stock, each designee of the Series B Holder to the Board of Directors. Mr. Kaluzny is a managing director at Sycamore Partners. Mr. Geiger is not employed by Sycamore Partners.
In connection with the transaction, the Board size was increased from 11 to 12 members, Mr. Arthur Rubinfeld resigned from the Board, effective as of May 23, 2014, and Mr. Kaluzny and Mr. Geiger were appointed to the Board of Directors as noted above.
Additionally, in connection with the nomination of Kenneth B. Gilman as a director, the Board of Directors approved the increase of the size of the Board from 12 to 13, effective at the Annual Meeting.
At the meeting, the holders of common stock will be asked to elect eleven (11) directors. The Board has nominated, upon the recommendation of our Nominating and Corporate Governance committee, the following eleven (11) nominees for election as directors:
The Board recommends that you vote on the proxy card or voting instruction form FOR the election of each of the eleven (11) individuals named above.
Proxies solicited by the Board of Directors will, unless otherwise directed, be voted to elect the eleven (11) nominees named above to constitute the eleven (11) members of the Board to be elected at the Annual Meeting. Each nominee shall be elected for a term of one year or until such nominee’s successor is elected and qualified. Pursuant to our bylaws, the Board of Directors has resolved that the size of our Board of Directors shall be fixed, from time to time, by a vote of a majority of the members of the Board of Directors. Information regarding the nominees is set forth below.
The Board seeks independent directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board's deliberations and decisions. Candidates shall have substantial experience with one or more publicly traded national or multinational companies or shall have achieved a high level of distinction in their chosen fields. Board membership should reflect diversity in its broadest sense, including persons diverse in geography, gender, and experience. The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending a group of members that can best support the success of our business and represent our stockholder’s interests through the exercise of sound judgment and utilization of their diverse backgrounds, skill sets and experiences.
Information Regarding Nominees
Ronald R. Beegle, 51, has served as director since August 2003 and is a founder and operating partner of Goode Partners LLC, a private equity firm focused on investments in small to middle market consumer product, retail, and restaurant companies. Prior to forming Goode Partners, from 2004 through 2005, Mr. Beegle was the Chairman of Credit Suisse Group’s Global Consumer/Retail Investors Unit. Previously, Mr. Beegle had been employed by Gap, Inc. from 1996 until 2003 and had most recently served as Chief Operating Officer of the company’s flagship Gap division. While at Gap, Inc., he also served as Senior Vice President of Operations and Finance of Banana Republic and Executive Vice President and General Manager of Gap, Inc. Direct. He is a member of the Audit and Nominating and Corporate Governance Committees of the Board. Mr. Beegle’s qualifications to serve on the Board include his demonstrated leadership and knowledge of financial, operational and strategic issues facing retail companies gained through his experience in private equity and as the Chief Operating Officer of a major retail company. Mr. Beegle also provides a finance and strategic investment perspective and expertise to the Board.
Robert B. Chavez, 59, has served as a director since April 2004 and currently is the President and Chief Executive Officer of Hermes of Paris, Inc., a luxury goods retailer, which he joined in August 2000. Between 1992 and August 2000, Mr. Chavez was the Chief Executive Officer at Etienne Aigner. Mr. Chavez also served as Senior Vice President and General Merchandise Manager of Macy's East from 1986 until 1992. Mr. Chavez is a member of the Compensation and Nominating and Corporate Governance Committees of the Board. Mr. Chavez’s qualifications to serve on the Board include his demonstrated business leadership expertise gained through his service as Chief Executive Officer of a major luxury brand retailer, as well as his brand management expertise, and his financial and operational expertise. In addition, through his years of service in the retail industry, Mr. Chavez is able to provide valuable operational and strategic expertise to the Board.
Michael J. Cunningham, 56, has served as a director since June 2010. Previously, Mr. Cunningham served as President of the Company from December 2010 to March 2013. Prior to that, Mr. Cunningham served as President and Chief Financial Officer from February of 2010, Executive Vice President and Chief Financial Officer from March 2004 to February 2010 and as Senior Vice President and Chief Financial Officer from August 2000 to March 2004. Mr. Cunningham previously served as Chairman and Co-Founder of Compass International Services Corporation from 1997 to 1999. Prior to that, he held various senior executive positions for American Express Company from 1984 to 1997, including Vice President Operations and Vice President Finance. Mr. Cunningham's qualifications to serve on the Board include his years in leadership roles at Aéropostale, as well as his extensive knowledge of our Company, its history and culture. Mr. Cunningham, a retired Certified Public Accountant, also provides extensive business, financial, accounting and operational expertise. As our former Chief Financial Officer, Mr. Cunningham possesses extensive knowledge of financial reporting rules and regulations, evaluating financial results and generally overseeing the financial reporting process of a public company.
Evelyn Dilsaver, 59, has served as a director since October 2007. Ms. Dilsaver was appointed Chairman of the Audit Committee of the Board, effective February 1, 2012. Ms. Dilsaver was formerly a member of The Charles Schwab Corporation from December 1991 through September 2007, and held various senior management positions within the organization including Executive Vice President, The Charles Schwab Corporation and President and Chief Executive Officer of Charles Schwab Investment Management. Prior to becoming President and Chief Executive Officer of Charles Schwab Investment Management, from July 2003 to July 2004, Ms. Dilsaver held the position of Senior Vice President, Asset Management Products and Services. Ms. Dilsaver is a Certified Public Accountant. Ms. Dilsaver is also a member of the board of directors and audit committee of the publicly traded company Tempur-Pedic as well as the board of directors of a privately held corporation. In addition to serving as the Chairman of the Audit Committee of the Board, Ms. Dilsaver is also a member of the Nominating and Corporate Governance Committee of the Board. Ms. Dilsaver’s qualifications to serve on the Board include her finance and brokerage expertise at a major brokerage firm, as well as her financial and
leadership experience gained in those positions. Through her service on the boards of other public and private companies, Ms. Dilsaver also brings valuable finance, accounting and operational expertise to the Board.
Kenneth B. Gilman, 67, is a new nominee to the Board of Directors. Mr. Gilman has served as a director of Zale Corporation since September 23, 2010 and as a director of Kate Spade & Co. since February 2008. Mr. Gilman served as the Chief Executive Officer of Asbury Automotive Group, an automotive retailing and services company, from 2001 to 2007. Previously, from 1976 to 2001, Mr. Gilman was employed in a variety of capacities with L Brands, a specialty apparel retailer, including, most recently, as Chief Executive Officer of Lane Bryant, from 1993 to 2001, as Vice Chairman and Chief Administrative Officer of L Brands, with responsibility for finance, information technology, supply chain management, production, real estate, legal and internal audit, and from 1987 to 1993, Executive Vice President and Chief Financial Officer of L Brands. Mr. Gilman was elected to the board of directors of L Brands in 1990. Mr. Gilman also served as a director of Internet Brands from 2002 through 2010. Mr. Gilman's experience as a Chief Executive Officer, Chief Administrative Officer, Chief Financial Officer and a member of the board of directors of other retail companies will provide the Board of Directors with valuable insight into the retail industry, strategy and business development, finance and operations, as well as the board practices of other major retail corporations.
Janet E. Grove, 63, has served as a director since February 2012. Ms. Grove most recently served as Vice Chairman of Macy's, Inc from February 2003 until her retirement in June 2011. Prior to becoming Vice Chairman of Macy's, Inc., Ms. Grove held various senior management positions for Macy's, Inc., including Division Vice Chairman, Merchandising Private Brand and Product Development, and Division Chairman, Macy’s Merchandising Group Inc. Ms. Grove is also a member of the board of directors of the publicly traded company Safeway, Inc. Ms. Grove is a member of the Audit Committee of the Board. Ms. Grove's qualifications to serve on the Board include her many years of leadership experience at Macy's, as well as her in-depth knowledge of the retail industry, all gained through more than thirty years of service at major retail organizations. With her extensive knowledge of the retail industry, Ms. Grove also provides the Board with broad expertise in merchandising, strategic planning and operational execution.
John N. Haugh, 51, has served as a director since June 2007. Mr. Haugh is currently President of Sun, Luxury and Retail Services for Luxottica Retail North America where he manages Sunglass Hut, Ilori, Optical Shop of Aspen, APEX by Sunglass Hut and several retail services for Luxottica Spa, the leading optical and sunglass wholesaler and retailer in the world. From March 2009 through July 2011, Mr. Haugh was the President and Chief Merchandising Officer for Build-A-Bear Workshop, Inc. From January 2008 through December 2008, he was employed by Gevity in the confectionery retail business. From January 2004 through December 2007, Mr. Haugh served as President of Mars Retail Group, where he led the retail business operations for this subsidiary of Mars, Incorporated as well as managing licensed properties and various direct to consumer businesses. Prior to this he was Chief Marketing Officer and Senior Vice President Worldwide Development for Payless ShoeSource, Inc. Earlier in his career, Mr. Haugh held marketing, operations and sales roles with Universal Studios, Inc., Carlson Companies, Inc. and General Mills, Inc. He was an Advisory Board Member for Archway Marketing Holdings, Inc. Mr. Haugh is Chairman of the Compensation Committee and a member of the Nominating and Corporate Governance Committee of the Board. Mr. Haugh’s qualifications to serve on the Board include his broad executive experience and brand management expertise gained through the various executive positions he has held throughout his career. Mr. Haugh also provides the Board with expertise in brand building and corporate strategy initiatives.
Karin Hirtler-Garvey, 57, has served as a director since August 2005. Ms. Hirtler-Garvey was appointed Chairman of our Board of Directors effective February 1, 2012. From May 2009 through November 2011, Ms. Hirtler-Garvey was the Chief Risk Executive for Ally Financial Inc. Previously, Ms. Hirtler-Garvey was a principal in a start-up real estate development venture based in New Jersey. Prior to that, Ms. Hirtler-Garvey was Chief Operating Officer, Global Markets for Bank of America (formerly NationsBank). Ms. Hirtler-Garvey joined Bank of America in September 1995 and held various senior management positions within the organization until March 2005. Prior to becoming Chief Operating Officer, Global Markets, from April to October 2004, Ms. Hirtler-Garvey held the position of President of Trust and Credit Banking Products. From June 2001 to March 2004, Ms. Hirtler-Garvey held the position
of Chief Financial Officer/Chief Operating Officer for the Wealth and Investment Management division. Ms. Hirtler-Garvey is a Certified Public Accountant. Ms. Hirtler-Garvey is also a member of the board of directors of the publicly traded company Medley Capital Corporation, as well as a director of two privately held corporations, USAA Federal Savings Bank and Western World Insurance Company. Ms. Hirtler-Garvey’s qualifications to serve on the Board include extensive financial accounting knowledge that is critical to our Board. As a former Chief Financial Officer and Chief Operating Officer at global banking organizations, Ms. Hirtler-Garvey has extensive knowledge of financial reporting rules and regulations, evaluating financial results and generally overseeing the financial reporting process of a public company. Ms. Hirtler-Garvey also provides the Board with extensive experience in the area of risk awareness and risk mitigation.
John D. Howard, 61, has served as a director since August 1998. Mr. Howard is currently the Chief Executive Officer of Irving Place Capital, a middle market private equity firm. Previously from 1997 through June of 2008, Mr. Howard served as a Senior Managing Director of Bear, Stearns & Co. Inc. and was the Chief Executive Officer of Bear Stearns Merchant Banking LLC, an affiliate of Bear, Stearns & Co. Inc. Mr. Howard had been the head of the merchant banking department of Bear, Stearns & Co. Inc. since its inception in 1997. Mr. Howard is also a member of the board of directors of the publicly traded company New York & Company, Inc., as well as a director of several privately held corporations. Mr. Howard’s qualifications to serve on the Board include his entrepreneurial and merchant banking experience as well as his expertise in financial and business related matters gained through his years in the merchant banking industry. In addition, through his years of service on the boards of public and private companies, including other apparel retailers, Mr. Howard is able to provide diverse and valuable financial, strategic and operational expertise to the Board.
Thomas P. Johnson, 56, has served as our Chief Executive Officer since December 2010. Previously, Mr. Johnson served as our Co-Chief Executive Officer from February 2010 and as Executive Vice President and Chief Operating Officer from March 2004 to February 2010. Mr. Johnson rejoined us in January 2001 as Senior Vice President — Director of Stores. Mr. Johnson had served as Senior Vice President, Vice President, Regional Manager and District Manager with Federated Specialty Stores from 1989 to 1996. In the interim, he served as Senior Vice President — Director of Stores for David’s Bridal, Inc. in 2000 and as Senior Vice President — Director of Stores for Brooks Brothers, Inc. from 1997 to 2000. Mr. Johnson also held various field positions at Gap, Inc. as Regional Manager for Banana Republic, District Manager and Store Manager for Gap, Inc. from 1981 to 1989. Mr. Johnson has served as a director since August 2008.
David B. Vermylen, 63, has served as a director since May 2003. Mr. Vermylen is Senior Advisor – Member of the Board of Directors for TreeHouse Foods, a food manufacturer servicing primarily the retail grocery and food service distribution channels. From January 2005 through July 2011, he served as President and Chief Operating Officer of TreeHouse Foods, as well as a member of its Board of Directors. Previously, Mr. Vermylen had been employed by Keebler Company from 1996 until 2002 and had served as its Chief Executive Officer and President from 2001. Mr. Vermylen is Chairman of the Nominating and Corporate Governance Committee, as well as a member of the Audit and Compensation Committees of the Board. Mr. Vermylen’s qualifications to serve on the Board include his demonstrated leadership qualities and knowledge of operational and strategic issues gained through his years of experience as a Chief Operating Officer of a public company. Mr. Vermylen provides the Board a diverse background of experiences as well as his corporate governance acumen.
Each of the directors listed above has agreed to serve, if elected, and management has no reason to believe that they will be unavailable to serve. In the event that any of the nominees to the Board of Directors is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who may be designated by the present Board of Directors to fill the vacancy. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the election of each of the eleven (11) nominees listed above. The proxies solicited by this Proxy Statement cannot be voted for a greater number of persons than the number of nominees named.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE
“FOR” THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE.
Information Regarding Series B Director Designees
The following is biographical information of Mr. Geiger and Mr. Kaluzny, who were appointed to the Board by the Board of Directors as the Series B Holder’s designees thereto, in connection with the consummation of the transactions with Sycamore Partners (and in accordance with the Certificate of Designation and Investor Rights Agreement). Each will serve as a Series B Director until the 2015 annual meeting of the stockholders of the Company (subject to removal or resignation or the earlier election of their successors in accordance with the Company’s constitutional documents).
Julian R. Geiger, 68, is a designated Series B Director. From November 2011 through December 2013, Mr. Geiger served as President and CEO of Crumbs Bake Shops, Inc. (“Crumbs”). He served as our Chairman and Chief Executive Officer from August 1998 to February 2010. Mr. Geiger continued to serve as Chairman of our Board of Directors and as a part-time advisor to the Company until February 2012. Mr. Geiger served as a director of Crumbs Bake Shops, Inc. and Crumbs Holdings LLC from August 2011 to April 2014. From 1996 to 1998, he held the position of President and Chief Executive Officer of Federated Specialty Stores, a division of Federated Department Stores, Inc., which included Aéropostale. Before joining Federated, he was President of the Eagle Eye Kids wholesale and retail divisions of Asian American Partners from 1993 to 1996. Prior to that time, Mr. Geiger held a wide range of merchandising positions from 1975 to 1993 at R.H. Macy & Co., Inc., including President of Merchandising for Macy’s East responsible for Young Men’s, Juniors, Misses Coats and Misses Swimwear. Mr. Geiger’s qualifications to serve on the Board include his many years of leadership experience at Aéropostale, his in-depth knowledge of our Company, its history and the retail industry in general, and more than thirty years of service at major retail organizations, including his thirteen years of service as our Chairman and Chief Executive Officer. With his extensive knowledge of the retail industry, Mr. Geiger also provides the Board and our Company with broad expertise in merchandising, strategic planning and operational execution.
Stefan L. Kaluzny, 47, is a designated Series B Director and is a Managing Director of Sycamore Partners, a New York based private equity firm. Prior to Sycamore Partners, Mr. Kaluzny was a Managing Director of Golden Gate Capital. Mr. Kaluzny was with Golden Gate Capital since its inception in 2000 until January 2011. Prior to Golden Gate Capital, Mr. Kaluzny was co-founder and CEO of Delray Farms, a Hispanic specialty food company. Mr. Kaluzny has also held positions at consulting firms Bain & Company and LEK. Mr. Kaluzny serves as a member of the Board of Directors of each of Hot Topic, Inc., Jones Apparel, Kurt Geiger, MGF Sourcing, Nine West Holdings, Inc., Pathlight Capital, Stuart Weitzman and The Talbots, Inc. In addition, Mr. Kaluzny is a member of the Yale University Investment Committee and a member of the Board of Directors of Friends of the High Line. Mr. Kaluzny has an M.B.A. from Harvard Business School (Baker Scholar) and a B.A. in History from Yale University. Mr. Kaluzny’s qualifications to serve on the Board include his experience and governance leadership roles on the board of directors of various other public and private companies, including other apparel retailers. Through his broad array of experience with other major corporations, Mr. Kaluzny provides the Board with a wealth of knowledge in accounting, finance and capital structure, as well as strategic planning and leadership of complex organizations.
During the fiscal year ended February 1, 2014 (“fiscal 2013”), our Board of Directors met formally six (6) times. The Board has a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Our Board and Committees also met, as necessary, on an informal basis numerous times throughout the year. During fiscal 2013, each of the Company's directors participated in at least 75%, in the aggregate, of all Board meetings and Board Committee meetings, upon which such director is or was a member.
We currently separate the roles of our Chief Executive Officer and our Chairman. As specified in our Bylaws, our Chief Executive Officer is responsible for the general management, oversight, supervision and control of the business and affairs of our Company, and ensuring that all orders and resolutions of the Board are carried into effect. Our independent Chairman, on the other hand, is charged with presiding over all meetings of the Board and our stockholders, and providing advice and counsel to our Chief Executive Officer and our Company’s other executive officers regarding our business and operations. In connection with the Board’s annual self-evaluation process, as required by our Corporate Governance Guidelines, the Board evaluates its organization and processes to ensure that the Board is functioning effectively. Currently, we believe that separating the positions of Chief Executive Officer and Chairman is the most appropriate and effective leadership structure for our Company and our stockholders.
The Board’s Role in Risk Oversight
The Audit Committee reviews and discusses with management the Company’s processes and policies with respect to risk assessment and risk management, including the Company’s enterprise-wide risk management program. In addition, the Company’s risk oversight process involves the entire Board receiving information from executive management on a variety of matters, including operations, legal, regulatory, finance and strategy, as well as information regarding any material risks associated with each matter. The full Board (or the appropriate Board committee, if the Board has delegated to a committee responsibility for the oversight of the matter) receives this information through updates from the appropriate members of executive management to enable it to understand and monitor the Company’s risk management practices. When a Board committee receives an update, the chairperson of the relevant Board committee reports on the discussion to the full Board during the Board committee reports portion of the next Board meeting. This enables the Board and the Board committees to coordinate the risk oversight role.
The Board has determined that each of Mr. Beegle, Mr. Chavez, Ms. Dilsaver, Ms. Grove, Ms. Hirtler-Garvey, Mr. Haugh, Mr. Howard, Mr. Gilman and Mr. Vermylen have no material relationship with the Company other than in her or his capacity as a director of the Company and that each is “independent” in accordance with applicable NYSE standards. Following the Annual Meeting, if all director nominees are elected to serve as our directors, independent directors will constitute more than two-thirds of our Board. Mr. Johnson is an executive officer of the Company and Mr. Cunningham is a former executive of the Company. Mr. Geiger served as an advisor to the Company, and was compensated accordingly, until 2012. Therefore, Mr. Johnson, Mr. Cunningham and Mr. Geiger are not “independent” in accordance with applicable NYSE standards. As a result of Mr. Kaluzny’s position as a managing partner at Sycamore Partners and our relationship with Sycamore Partners (see Sycamore Partners Transaction for greater detail), Mr. Kaluzny is not “independent” in accordance with applicable NYSE standards.
In making these determinations, the Board took into account all factors and circumstances that it considered relevant, including, where applicable, the existence of any employment relationship between the director (or nominee) or a member of the director’s (or nominee’s) immediate family and the Company; whether within the past three years the director (or nominee) has served as an executive officer of the Company; whether the director (or nominee) or a member of the director’s (or nominee’s) immediate family has received, during any twelve-month period within the last three years, direct compensation (other than director fees) from the Company in excess of $120,000; whether the director (or nominee) or a member of the director’s (or nominee’s) immediate family has been, within the last three years, a partner or an employee of the Company’s internal or external auditors; and whether the director (or nominee) or a member of the director’s (or nominee’s) immediate family is employed by an entity that is engaged in business dealings
with the Company. The Board has not adopted categorical standards with respect to director independence. The Board believes that it is more appropriate to make independence determinations on a case by case basis in light of all relevant factors.
During fiscal 2013, the Chairman of the Board received an annual retainer of $125,000 and no other retainers for participation on any of the other committees. Each board member receives a base retainer of $50,000. Additionally, members of the Audit, Compensation, and Nominating and Corporate Governance committees receive annual retainers of $20,000, $10,000, and $7,500, respectively. Chairpersons of those committees receive an additional premium of $10,000, $5,000, and $2,500, respectively above their committee retainers. All Board members received an annual grant of restricted stock equal to the value of $105,000; whereas the Chairman of the Board received an annual grant of restricted stock equal to $130,000. New Board members receive a one-time grant of 10,000 stock options and a restricted stock grant equal to $105,000. Restricted stock grants vest 100% on the first anniversary of the grant date. Stock Option grants vest ratably over a four year period. All Board members are reimbursed for travel expenses relating to attending Board, Committee or Company business meetings. Directors who are employees of the Company or are otherwise not considered independent do not receive separate compensation for serving as directors. The Series B Directors will receive the same retainers and other cash compensation and equity compensation for their service on the Board of Directors or any committee thereof, as other non-employee directors on the Board of Directors.
Fiscal 2013 Director Compensation. The following table sets forth compensation earned by the individuals who served as non-associated (independent) directors of the Company during fiscal 2013.
Outstanding Equity Awards at Fiscal Year-End. The following table provides information relating to outstanding awards held by independent directors of the Company as of the fiscal year ended February 1, 2014.
Does the Company have a Code of Ethics?
Our Code of Business Conduct and Ethics is applicable to all our officers, directors and employees, including the principal executive officer, the principal financial officer and the principal accounting officer. The Code is available on the Investor Relations portion of our website (www.aeropostale.com). We intend to post amendments to or waivers from the Code, if any, (to the extent applicable to our chief executive officer, principal financial officer or principal accounting officer or Directors) on our website.
How do stockholders communicate with the Board?
The Board provides a process for interested parties to send communications to the full Board, the independent members of the Board and the members of the Audit Committee. Any director may be contacted by writing to him or her, c/o General Counsel and Secretary, Aéropostale, Inc., 112 West 34th Street, New York, New York 10120 or e-mail at email@example.com to the attention of the General Counsel. Communications that are not related to a director’s duties and responsibilities as a Board member, an independent director or an Audit Committee member may be excluded by the Office of the General Counsel, including, without limitation, solicitations and advertisements; junk mail; product-related communications; job referral materials such as resumes; surveys; and any other material that is determined to be illegal or otherwise inappropriate. The directors to whom such information is addressed are informed that the information has been removed and that it will be made available to such directors upon request. 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. Concerns, if any, relating to accounting, internal controls or auditing matters would be
brought immediately to the attention of the Company’s Chief Financial Officer and/or General Counsel and handled in accordance with procedures established by the Audit Committee with respect to such matters.
Copies of the Company’s code of conduct, corporate governance materials and committee charters
The Company’s code of conduct, corporate governance materials, as well as the charters of the Audit Committee, Compensation Committee and Nominating and Governance Committee of the Board of Directors, are all available on the Company’s website at www.aeropostale.com. Stockholders may also request a printed copy of any of those materials, free of charge by writing to the following: General Counsel and Secretary, Aéropostale, Inc., 112 West 34th Street, New York, New York 10120.
Committees of the Board of Directors
Audit Committee. The Board of Directors maintains an Audit Committee, currently consisting of the following Board members, Ms. Dilsaver (Chairperson), Mr. Beegle, Ms. Grove and Mr. Vermylen. The Board has determined that Ms. Dilsaver, Mr. Beegle, Ms. Grove and Mr. Vermylen are all qualified as financial experts within the meaning of the SEC regulations. The Board has also determined that each member of the Audit Committee possesses the accounting and financial management expertise, within the meaning of the standards of the New York Stock Exchange, to be considered “financially literate”. All members of our Audit Committee have been determined to be independent by our Board of Directors, as that term is defined by SEC regulations relating to audit committee independence, the listing standards of New York Stock Exchange and the Company’s Corporate Governance Guidelines.
The Audit Committee of the Board is instrumental in the Board’s fulfillment of its oversight responsibilities relating to (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with regulatory requirements, (iii) the qualifications, independence and performance of the Company’s independent auditors and (iv) the performance of the Company’s internal audit function. The Audit Committee meets with management and the Company’s independent registered public accounting firm. The Audit Committee met five (5) times during fiscal 2013 and also met informally, either in person or by phone, on a number of other occasions during fiscal 2013. The Committee schedules its meetings to ensure that it devotes appropriate attention to all of its tasks. The Committee’s meetings include, whenever appropriate, executive sessions with the Company’s independent registered public accounting firm without the presence of the Company’s management.
The Audit Committee’s charter is available on the Investor Relations portion of our website at www.aeropostale.com.
In carrying out these responsibilities, the Audit Committee, among other things, appoints, and monitors the performance of, the independent registered public accounting firm; oversees and reviews accounting policies and practices and internal controls; oversees and monitors the Company’s financial statements and audits; oversees matters relating to communications with the independent registered public accounting firm and management; reviews the annual report to be included with the Company’s proxy statement; and oversees, to the extent it deems necessary, matters related to related party transactions, if any.
As part of its oversight of the Company’s financial statements, the Committee reviews and discusses with both management and the Company’s independent registered public accounting firm the Company’s annual financial statements and quarterly operating results prior to their issuance. During fiscal 2013, management advised the Committee that each set of financial statements had been prepared in accordance with generally accepted accounting principles. Management also reviewed significant accounting and disclosure matters with the Committee. These reviews included discussions with the independent registered public accounting firm about matters required to be discussed pursuant to PCAOB AU 380, Communication With Audit Committees, and SEC Rule 2-07, Communication With Audit Committees, of Regulation S-X. The Audit Committee discussed the adoption of, or changes to, the Company’s significant
accounting policies and procedures, if any, and significant internal audit procedures with the independent registered public accounting firm, internal audit and management. The Committee also discussed with our independent registered public accounting firm matters relating to its independence, including a review of audit and non-audit fees and the disclosures made to the Committee pursuant to PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence and the Audit Committee has received a written disclosure letter as required by that standard. The Audit Committee has also received, reviewed and discussed with the Company’s independent registered public accounting firm the report required by section 10A(k) of the Securities Exchange Act of 1934. The Report of the Audit Committee can be found on page 51 of this Proxy Statement.
Compensation Committee. The Board of Directors also has a Compensation Committee, currently consisting of Mr. Haugh (Chairman), Mr. Chavez and Mr. Vermylen. Mr. Rubinfeld served on the Compensation Committee until May 23, 2014.The Compensation Committee of the Board (i) oversees the Company’s compensation and benefits philosophy and policies generally, (ii) evaluates the performance of our chief executive officer and oversees and sets compensation for our chief executive officer, (iii) oversees the evaluation process and compensation structure for other members of the Company’s senior management and (iv) fulfills the other responsibilities set forth in its charter. The Compensation Committee met formally six (6) times during fiscal 2013 and also met informally, either in person or by phone, on a number of other occasions during fiscal 2013. The Board has determined that each of the Compensation Committee members is “independent” in accordance with applicable NYSE standards. The Compensation Discussion and Analysis can be found beginning on page 29 of this Proxy Statement and the Compensation Committee’s Report can be found on page 50 of this Proxy Statement.
Nominating and Corporate Governance Committee. The Board of Directors also has a Nominating and Corporate Governance Committee currently consisting of Mr. Vermylen (Chairman), Mr. Beegle, Mr. Chavez, Ms. Dilsaver and Mr. Haugh. The Nominating and Corporate Governance Committee of the Board identifies and recommends to the Board candidates who are qualified to serve on the Board and its committees. The Nominating and Corporate Governance Committee considers and reviews the qualifications of any individual nominated for election to the Board by stockholders. It also proposes a slate of candidates for election as directors at each Annual Meeting of stockholders. The Nominating and Corporate Governance Committee also develops and recommends to the Board, and reviews from time to time, a director compensation program, as well as establish corporate governance principles for the Company, while also overseeing compliance with those governance principles. The Board has determined that each of the Nominating and Corporate Governance members is “independent” in accordance with applicable NYSE standards.
The Nominating and Corporate Governance Committee will consider candidates for Board membership suggested by its members, other Board members, by management and by stockholders, in all cases applying similar criteria. Stockholders who wish to submit candidates for Board membership must submit all required information, consistent with the below criteria, in writing to the Chairman of the Nominating and Corporate Governance Committee c/o the General Counsel of the Company at 112 West 34th Street, New York, New York 10120.
The Nominating and Corporate Governance Committee, at the direction of the Chairman, makes an initial determination as to whether to conduct a full evaluation of a prospective candidate. This initial determination is based on whatever information is provided to the Committee with the recommendation of the prospective candidate, as well as the Committee’s own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The preliminary determination is based primarily on the need for additional Board members to fill vacancies or expand the size of the Board and the likelihood that the prospective nominee can satisfy the evaluation factors described below. If the Committee determines, in consultation with the other Board members as appropriate, that additional consideration is warranted, it may request that additional information about the prospective nominee’s background and experience be gathered and a report be prepared for the Committee. The Committee then would evaluate the prospective nominee against the standards and qualifications set out in the Company’s Corporate Governance Guidelines, including, independence, integrity, experience, sound judgment in areas relevant to the Company’s businesses
and willingness to commit sufficient time to the Board, all in the context of an assessment of the perceived needs of the Board at that point in time. The Committee will also measure candidates against the criteria it sets, including skills and attributes that reflect the values of the Company. The Nominating and Corporate Governance Committee will also be responsible for reviewing with the Board, on an annual basis, the criteria it believes appropriate for Board membership.
The Committee will also consider such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees. Depending on the needs of the Company at the time, the prospective nominees and such other factors as the Committee deems in its business judgment to be relevant, the Committee will take such other steps as are necessary to evaluate the prospective nominee, including, if warranted, one or more of the members of the Committee interviewing the prospective nominee. After completing this evaluation and other steps of the process the Committee would make a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the Committee.
The Nominating and Corporate Governance Committee recommended to the Board of Directors that the nominees listed in this Proxy Statement stand for election at our 2014 Annual Meeting. The Nominating and Corporate Governance Committee met formally two (2) times during fiscal 2013 and also met informally, either in person or by phone, on a number of other occasions during fiscal 2013.
Meetings of the Company’s Non-Management Directors
The non-management directors meet at scheduled executive sessions of the Board of Directors and our Chairman presides over those meetings.
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010, requires that we provide our stockholders with the opportunity to vote to approve, on an advisory basis, the compensation of our Named Executive Officers. As described in detail under the heading “Compensation Discussion and Analysis,” we believe that executive compensation should be closely linked with our Company financial performance and, to this end, our executive compensation programs are designed to, among other things, reward our Named Executive Officers for their contribution to the achievement of short-term and long-term strategic and operational goals and to align executive compensation and stockholder interests through performance and equity-based plans. Stockholders are urged to read the Compensation Discussion and Analysis, which discusses in detail how our compensation policies and procedures support our compensation philosophy. While we understand our performance has not been at satisfactory levels for us or our shareholders, we believe we have a comprehensive executive compensation program that directly links our executives' compensation with the Company's performance and aligns the executives' interests with yours as our stockholders. For 2013, consistent with financial results and aligned with our pay for performance philosophy, our leadership team forfeited significant portions of their pay. To that end, we believe our pay for performance model works and shareholders should vote in favor of our 2013 executive compensation program.
This advisory vote is not intended to address any specific element of compensation; rather, the vote relates to the overall compensation of our Named Executive Officers. The vote is advisory, which means that the vote is not binding on the Company, our Board of Directors or the Compensation Committee. To the extent there is any significant vote against our executive compensation program as disclosed in this proxy statement, the Compensation Committee will evaluate whether any actions are necessary to address the concerns of our stockholders. Accordingly, we are asking our stockholders to vote on the following resolutions: “RESOLVED, that the overall compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative disclosures set forth in the proxy statement for the 2014 Annual Meeting is APPROVED”.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR”
ADVISORY APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
AS DISCLOSED IN THIS PROXY STATEMENT.
APPROVAL OF 2014 OMNIBUS INCENTIVE PLAN
Our holders of common stock are being asked to approve our 2014 Omnibus Incentive Plan (the “Omnibus Plan”), which is an amendment and restatement of our Second Amended and Restated 2002 Long-Term Incentive Plan, as amended (the “2002 Plan”). On May 8, 2014, the Board unanimously approved the Omnibus Plan, subject to, and to be effective upon, stockholder approval at the Annual Meeting (the date of such approval is referred to below as the “2014 Omnibus Plan Effective Date”). The Omnibus Plan includes the following key modifications, effective upon the 2014 Omnibus Plan Effective Date:
Holders of our common stock are also being requested to approve new Code Section 162(m) performance goals under the Omnibus Plan, so that awards based on the new Code Section 162(m) performance goals, including Cash Performance Awards, granted under the Omnibus Plan to executive officers of the Company may qualify as exempt performance-based compensation under Code Section 162(m). Code Section 162(m) generally disallows a federal income tax deduction to any publicly held corporation for compensation paid in excess of $1 million in any taxable year to the chief executive officer or any of the three other most highly compensated executive officers (other than the chief financial officer) unless the compensation constitutes “performance-based compensation.” In general, to qualify as “performance-based compensation” the material terms of the performance goals must be disclosed to, and approved by, the Company’s common stock holders on or after the first meeting of the Company’s common stock holders that occurs in the fifth year following the year the performance goals were last approved by the common stock holders. The Company’s common stock holders last approved the 2002 Plan’s Code Section 162(m) goals in 2011. If the stockholders do not approve the Omnibus Plan’s Code Section 162(m) goals at the 2014 Annual Meeting, then no Cash Performance Award will be deemed to be performance-based under Code Section 162(m) unless it is granted (i) subject to the approval of, and is approved by, the stockholders at the first stockholder meeting following such grant or (ii) on or following a the date of a subsequent meeting of the stockholders at which the stockholders approve the Plan’s Code Section 162(m) goals or approve other designated performance criteria. Notwithstanding the foregoing, awards of stock options and stock appreciation rights (“SARs”) granted under the Plan at any time qualify as exempt performance-based compensation under Code Section 162(m). The Board believes it is important to have the ability to grant incentive compensation that qualifies as “performance-based” compensation in order to retain the corporate tax deductibility of the payments.
Nonetheless, it retains the discretion to grant awards that will not comply with the “performance-based” compensation exception under Code Section 162(m) if it deems such award to be in the best interest of the Company.
We anticipate filing a Registration Statement on Form S-8 to register the additional amount of new shares of Common Stock to be included in the aggregate share reserve under the Omnibus Plan as soon as practicable following stockholder approval of the Omnibus Plan.
The Omnibus Plan includes key provisions generally designed to protect the interests of stockholders, promote effective corporate governance and reflect use of corporate governance best practices including, but not limited to, the following:
As of May 1, 2014, the closing price of shares of our common stock as reported on the New York Stock Exchange was $4.92 per share. As of February 1, 2014, (i) 377,000 stock options and SARs were outstanding (at an average exercise price of $16.61 per share and a weighted average remaining term of 1.35 years), (ii) 2,477,000 full value shares in aggregate were granted and remained outstanding (consisting of 230,000 restricted stock units, 1,856,000 restricted shares and 319,000 performance shares) and (iii) 1,273,238 shares remained available for future grants.
The affirmative vote of the holders of at least a majority of the outstanding shares of our common stock present or represented by proxy and entitled to vote at the annual meeting is required to approve the Omnibus Plan. The Board of Directors recommends that the holders of common stock vote “for” the approval of the Omnibus Plan.
Description of the Omnibus Plan
The following description of the Omnibus Plan is a summary and is qualified in its entirety by reference to the Omnibus Plan, a copy of which is attached as Annex A to this proxy statement.
The purpose of the Omnibus Plan is to further align the interests of eligible participants with those of our stockholders by providing eligible participants with stock and/or cash based incentive compensation opportunities tied to the performance of the Company and its common stock. The Omnibus Plan is intended to advance the interests of the Company and increase stockholder value by
attracting, retaining and motivating key personnel upon whose judgment, initiative and effort the successful conduct of the Company’s business is largely dependent and to strengthen the mutuality of interests between such individuals and our stockholders.
Administration. The Omnibus Plan is administered by a committee (the “Committee”), which is comprised of no fewer than two members appointed by the Board. To the extent deemed necessary by the Board, each Committee member satisfies the requirements for an “independent director” under any applicable rules adopted by the New York Stock Exchange or other principal exchange on which the common stock is then listed, a “nonemployee director” for purposes of such Rule 16b-3 under the Exchange Act and an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Currently, the Compensation Committee serves as the Committee.
The Committee has all the power and discretion necessary or appropriate to administer the Omnibus Plan and to control its operation, including, in accordance with the terms and conditions of the Omnibus Plan, the power to determine the persons to whom awards will be granted, the restrictions, terms and conditions of all awards, the number of shares to be covered by an award, and to generally exercise such powers and perform such acts as the Committee deems necessary or expedient to promote the best interests of the Company that are not in conflict with the provisions of the Plan.
No awards may be granted under the Omnibus Plan after May 8, 2024. Awards granted prior to such date, however, may extend beyond such date and the provisions of the Omnibus Plan will continue to apply thereto.
Eligibility and Types of Awards. All of our employees, consultants and non-employee directors are eligible to be granted nonqualified stock options, SARs, restricted stock, restricted stock units, cash performance awards and other stock-based awards. In addition, our employees and employees of our affiliates that qualify as subsidiaries or parent corporations (as defined under Section 424 of the Code) are eligible to be granted incentive stock options under the Omnibus Plan. As of April 23, 2014, 17,713 employees and nine (9) non-employee directors were eligible to participate in the Omnibus Plan. The terms and conditions of individual awards will be set forth in written agreements that are consistent with the terms of the Omnibus Plan.
Available Shares. The aggregate number of shares of common stock reserved for issuance under the Omnibus Plan is 6,113,891 shares, which includes 213,891 shares of common stock previously authorized but unissued under the 2002 Plan. Any shares of common stock delivered under the Omnibus Plan will consist of authorized and unissued shares or treasury shares. In general, if an award under the Omnibus Plan is canceled, expired, forfeited, surrendered settled by delivery of fewer shares of common stock than the number underlying the award or otherwise terminated without delivery of the shares of common stock to the participant, the shares covered by such awards will again be available for the grant of awards under the Omnibus Plan. Shares that are withheld from an award or separately surrendered by a participant in payment of the exercise or purchase price or taxes relating to an award, or is not issued or delivered as a result of the net settlement of an outstanding stock option or SAR will be deemed to constitute delivered shares of common stock and will reduce the number of shares of common stock available for future awards under the Omnibus Plan. In addition, cash proceeds received from stock option exercises may not be used to repurchase shares of common stock on the open market for reuse under the Omnibus Plan.
Solely with respect to awards intended to comply with the performance-based exception under Section 162(m) of the Code, the maximum number of shares of common stock that may be subject to stock options, SARs, restricted stock awards for which the grant of the award or the lapse of the restriction period is subject to the attainment of performance goals, restricted stock units for which the grant of the award or the vesting is subject to the attainment of performance goals, and other stock-based awards that are granted to any person who is an employee or consultant during any calendar year will be limited to 2,000,000 shares of common stock for each such award type individually, and the maximum number of shares of common stock for all types of awards granted to any person who is an employee or consultant during any calendar year may not exceed 2,000,000 shares of common stock. The maximum number of shares of common stock that may be subject to stock options, SARs, restricted stock awards, restricted stock units and other stock-
based awards granted to any non-employee director during any calendar year will be limited to 100,000 shares of common stock for all such award types in the aggregate.
The Committee will adjust the above individual maximum share limitations, the aggregate number of shares of common stock available for the grant of awards and the exercise price of an award to reflect certain changes in our capital structure or business by reason of certain corporate transactions or events.
Awards Under the Omnibus Plan. The following types of awards are available under the Omnibus Plan:
Stock Options. The Committee may grant nonqualified stock options and incentive stock options (only to eligible employees) to purchase shares of common stock. The Committee will determine the number of shares of common stock subject to each option, the term of each option (which may not exceed 10 years (or five years in the case of an incentive stock option granted to a 10% stockholder)), the exercise price, the vesting schedule (if any), and the other material terms of each option. No stock option may have an exercise price less than the fair market value of the common stock at the time of grant (or, in the case of an incentive stock option granted to a 10% stockholder, 110% of fair market value).
The Committee will prescribe the time or times at which or the conditions upon which, a stock option or portion thereof will become vested and/or exercisable. Upon the exercise of a stock option, the participant must make payment of the full exercise price, either in cash or by cash equivalent acceptable to the Committee, or, to the extent permitted by the Committee (i) in shares of common stock owned by the participant valued at the fair market value of such shares on the date of exercise, (ii) solely to the extent permitted by applicable law, if the common stock is traded, through an open-market, broker-assisted sales transaction pursuant to which the Company is promptly delivered the amount of proceeds necessary to satisfy the exercise price, (iii) by reducing the number of shares of common stock otherwise deliverable upon the exercise of the stock option by the number of shares of common stock having a fair market value on the date of exercise equal to the exercise price, (iv) by a combination of the methods described above or (v) by such other method as may be approved by the Committee.
Stock Appreciation Rights. The Committee may grant SARs which may be granted on a basis that allows for the exercise of the SAR by the participant or that provides for the automatic payment of the SAR upon a specified date or event. A SAR is a right to receive a payment in common stock, cash or a combination of common stock and cash (as determined by the Committee) for each SAR exercised equal in value to the excess of the fair market value of one share of common stock on the date of exercise or payment of the base price over the base price per share established in connection with the grant of the SAR. The base price per share of common stock subject to a SAR may not be less than fair market value at the time of grant.
Restricted Stock. The Committee may award shares of restricted stock. Except as otherwise provided by the Committee, upon the award of restricted stock, the participant will have the rights of a stockholder with respect to the shares, except that any dividends or distributions with respect to restricted stock awards will be subject to the same restrictions as the underlying restricted stock award. The restrictions imposed on shares granted under a restricted stock award will lapse in accordance with the vesting requirements specified by the Committee in the award agreement.
Restricted Stock Units. The Committee may award restricted stock unit awards. A restricted stock unit is a unit of measurement equivalent to one share of common stock that becomes nonforfeitable upon satisfying certain terms and conditions, as determined by the Committee. A restricted stock unit does not have any of the attendant rights of a stockholder, except it may have certain dividend equivalent rights as specified in the grant. Payment of a restricted stock unit may be made, as approved by the Committee and set forth in the award agreement, in cash or in shares of common stock or in a combination thereof.
Cash Performance Awards. The Committee may make grant of cash performance awards under the Omnibus Plan that are contingent upon the satisfaction of certain pre-established performance criteria that are reached within a specified performance period,
each of which, together with any other terms and conditions, will be determined by the Committee in its sole discretion at the time of grant. The Committee may, in its sole discretion, elect to pay a participant an amount that is less than the participant’s individual target award regardless of the degree of attainment of the performance criteria. The performance criteria for Cash Performance Awards will be based on one or more of the performance goals discussed below. The maximum amount that may become payable to any one participant during any one calendar year under all cash performance awards is limited to $10,000,000.
Other Stock-Based Awards. The Committee may make a grant of such other stock-based awards under the Omnibus Plan that is payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of common stock, including shares of common stock awarded for past services, purely as a bonus, in lieu of bonus or other cash compensation, and not subject to any restrictions or conditions, as directors’ compensation, shares of common stock in payment of the amounts due under an incentive or performance plan sponsored or maintained by the Company, performance units, dividend equivalent units, stock equivalent units, deferred stock units or for any other valid purpose as determined by the Committee in its sole discretion. The Committee will determine the terms and conditions of any such other awards.
Performance Goals. The Committee may grant awards of restricted stock, restricted stock units, cash performance awards and other stock based awards that are intended to qualify as “performance-based compensation” for purposes of Code Section 162(m). Code Section 162(m) requires that performance-based compensation be based upon objective performance measures. If an award is intended to be “performance based” under Code Section 162(m), the performance goals will be based on one or more of the following criteria as determined by the Committee:
In addition, such performance criteria may be based upon performance under one or more of the measures described above relative to the performance of other corporations. To the extent permitted under Section 162(m) of the Code, the Committee may designate additional business criteria on which the performance criteria may be based or adjust, modify or amend the aforementioned business criteria.
Change in Control. Upon the occurrence of a change in control, unless otherwise specifically prohibited under applicable law, or unless otherwise provided in an award agreement, the Committee is authorized (but not obligated) to make adjustments in the terms and conditions of outstanding awards, including without limitation the following (or any combination thereof): (a) continuation or assumption of such outstanding awards by the Company (if it is the surviving company or corporation) or by the surviving company or corporation or its parent; (b) substitution by the surviving company or corporation or its parent of awards with substantially the same terms for outstanding awards (excluding the consideration payable upon settlement of the awards); (c) accelerated exercisability, vesting and/or payment under outstanding awards immediately prior to the occurrence of such event or upon a termination of employment following such event; and (d) if all or substantially all of the Company’s outstanding shares of common stock are transferred or canceled in connection with such change in control: (i) upon written notice, provide that any outstanding stock options and SARs (whether vested or unvested) are exercisable during a reasonable period of time immediately prior to the scheduled consummation of the event or such other reasonable period as determined by the Committee (contingent upon the consummation of the event), and at the end of such period, such stock options and SARs will terminate to the extent not exercised; and (ii) cancel all or any portion of outstanding awards for fair value (which may be zero).
Amendment and Termination. The Board may from time to time and in any respect, amend, modify, suspend or terminate the Omnibus Plan, except that, no amendment, modification, suspension or termination of the Omnibus Plan will adversely affect any award theretofore granted without the consent of the participant, and the approval of our stockholders will be obtained to the extent required by applicable law.
The Omnibus Plan also contains express an prohibition, without the prior approval of stockholders, against the cancellation of a stock option or SAR when the exercise price per share exceeds the fair market value of one share of common stock in exchange for cash or another award (other than in connection with a change in control) or permitting the cancellation, substitution or amendment of a stock option or SAR that would have the effect of reducing the exercise price of such stock option or SAR or otherwise approving any modification to such a stock option or SAR that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements adopted by the New York Stock Exchange or other principal national securities exchange on which the common stock is then listed
Miscellaneous. Awards granted under the Omnibus Plan are generally nontransferable (other than by will or the laws of descent and distribution), except that in the event of the death of a participant, except as otherwise provided by the Committee in an award agreement, an outstanding award may be exercised by or will become payable to the participant’s beneficiary.
Certain U.S. Federal Income Tax Consequences. The rules concerning the federal income tax consequences with respect to options granted and to be granted pursuant to the Omnibus Plan are quite technical. Moreover, the applicable statutory provisions are subject to change (possibly with retroactive effect), as are their interpretations and applications, which may vary in individual circumstances. Therefore, the following is designed to provide a general understanding of the U.S. federal income tax consequences. In addition, the following discussion does not set forth any gift, estate, social security or state or local tax consequences that may be applicable and is limited to the U.S. federal income tax consequences (state, local and other tax consequences are not addressed below) to individuals who are citizens or residents of the U.S., other than those individuals who are taxed on a residence basis in a foreign country.
The U.S. federal income tax law is technical and complex and the discussion below represents only a general summary. The following summary is included for general information only and does not purport to address all the tax considerations that may be relevant. Each recipient of a grant is urged to consult his or her own tax advisor as to the specific tax consequences to such grantee and the disposition of common stock.
Incentive Stock Options. In general, an employee will not realize taxable income upon either the grant or the exercise of an incentive stock option and the Company will not realize an income tax deduction at either such time. In general, however, for
purposes of the alternative minimum tax, the excess of the fair market value of the shares of common stock acquired upon exercise of an incentive stock option (determined at the time of exercise) over the exercise price of the incentive stock option will be considered income. If the recipient was continuously employed on the date of grant until the date three months prior to the date of exercise and such recipient does not sell the common stock received pursuant to the exercise of the incentive stock option within either (i) two years after the date of the grant of the incentive stock option or (ii) one year after the date of exercise, a subsequent sale of the common stock will result in long-term capital gain or loss to the recipient and will not result in a tax deduction to the Company.
To the extent that the aggregate fair market value (determined as of the time of grant) of the common stock with respect to which incentive stock options are exercisable for the first time by an eligible employee during any calendar year under the Omnibus Plan and/or any other stock option Omnibus Plan of the Company, any subsidiary or any parent exceeds $100,000, such options will be treated as nonqualified stock options. In addition, if the recipient is not continuously employed on the date of grant until the date three months prior to the date of exercise or a recipient disposes of the common stock acquired upon exercise of the incentive stock option within either of the above-mentioned time periods, the recipient will generally realize as ordinary income an amount equal to the lesser of (i) the fair market value of the common stock on the date of exercise over the exercise price, or (ii) the amount realized upon disposition over the exercise price. In such event, subject to the limitations under Sections 162(m) and 280G of the Code (as described below), the Company generally will be entitled to an income tax deduction equal to the amount recognized as ordinary income. Any gain in excess of such amount realized by the recipient as ordinary income would be taxed at the rates applicable to short-term or long-term capital gains (depending on the holding period).
Nonqualified Stock Options. A recipient will not realize any taxable income upon the grant of a nonqualified stock option and the Company will not receive a deduction at the time of such grant unless such option has a readily ascertainable fair market value (as determined under applicable tax law) at the time of grant. Upon exercise of a nonqualified stock option, the recipient generally will realize ordinary income in an amount equal to the excess of the fair market value of the common stock on the date of exercise over the exercise price. Upon a subsequent sale of the common stock by the recipient, the recipient will recognize short-term or long-term capital gain or loss depending upon his or her holding period for the common stock. Subject to the limitations under Sections 162(m) and 280G of the Code (as described below), the Company will generally be allowed a deduction equal to the amount recognized by the recipient as ordinary income.
All Options. With regard to both incentive stock options and nonqualified stock options, the following also apply: (i) any of our officers and directors subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act”), may be subject to special tax rules regarding the income tax consequences concerning their stock options; (ii) any entitlement to a tax deduction on the part of the Company is subject to the applicable tax rules (including, without limitation, Section 162(m) of the Code regarding the $1,000,000 limitation on deductible compensation); and (iii) in the event that the payment, exercisability or vesting of any award is accelerated because of a change in ownership (as defined in Code Section 280G(b)(2)), and such payment of an award, either alone or together with any other payments made to certain participants, constitute parachute payments under Code Section 280G, then subject to certain exceptions, a portion of such payments would be nondeductible to the Company and the participant would be subject to a 20% excise tax on such portion of the payment.
In general, Section 162(m) of the Code denies a publicly held corporation a deduction for federal income tax purposes for compensation in excess of $1,000,000 per year per person to its “covered employees” (generally, its chief executive officer and three other executive officers (other than its chief financial officer) whose compensation is disclosed in its proxy statement), subject to certain exceptions. Compensation paid under certain qualified performance-based compensation arrangements, which (among other things) provide for compensation based on pre-established objective performance goals established by a compensation committee that is comprised solely of two or more “outside directors”, is not considered in determining whether a “covered employee’s” compensation exceeds $1,000,000. Options will generally qualify under one of these exceptions if they are granted under a plan that states the maximum number of shares with respect to which options may be granted to any recipient during a specified period of time
and the plan under which the options are granted is approved by stockholders and is administered by a committee comprised of outside directors. Subject to stockholder approval of the Section 162(m) performance goals under the Omnibus Plan, it is intended that certain awards under the Omnibus Plan will satisfy these requirements so that the income recognized in connection with awards will not be included in a “covered employee’s” compensation for the purpose of determining whether such individual’s compensation exceeds $1,000,000.
New Plan Benefits. The issuance of any award under the Omnibus Plan will be at the discretion of the Compensation Committee. Therefore, it is not possible to determine the amount or form of award that will be granted to any individual in the future.
Code Section 409A. Code Section 409A provides that all amounts deferred under a nonqualified deferred compensation plan are includible in a participant’s gross income to the extent such amounts are not subject to a substantial risk of forfeiture, unless certain requirements are satisfied. If the requirements are not satisfied, in addition to current income inclusion, interest at the underpayment rate plus 1% will be imposed on the participant’s underpayments that would have occurred had the deferred compensation been includible in gross income for the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture. The amount required to be included in income is also subject to an additional 20% tax. While most awards under the Omnibus Plan are anticipated to be exempt from the requirements of Code Section 409A, awards that are not exempt are intended to comply with Code Section 409A.
The Omnibus Plan is not subject to any of the requirements of the Employee Retirement Income Security Act of 1974, as amended. The Omnibus Plan is not, nor is it intended to be, qualified under Section 401(a) of the Code.
The foregoing description of certain principal features of the Omnibus Plan is qualified in its entirety by reference to the full text of the Omnibus Plan, which is attached as Exhibit A to this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE APPROVAL OF THE OMNIBUS PLAN
Equity Compensation Plan Information
The following table provides certain information, as of February 1, 2014, about our common stock that may be issued upon the exercise of options as well as the issuance of restricted shares, performance shares and restricted stock units granted to employees or members of our Board of Directors, under our two existing equity compensation plans, the Aéropostale, Inc. 1998 Amended and Restated Stock Option Plan and the Second Amended and Restated Aéropostale, Inc. 2002 Long-Term Incentive Plan, as amended.
1 Includes 1,856,320 restricted shares, 390,954 performance shares and 229,760 restricted stock units under the 2002 Long-Term Incentive Plan that have no purchase price; excluding the restricted shares, performance shares and restricted stock units would result in a weighted-average exercise price of $16.61.
RATIFICATION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP has been the Company’s independent registered public accounting firm since 1998, and has reported on the Company’s consolidated financial statements included in our annual report. The Audit Committee appoints the Company’s independent registered public accounting firm, and the Audit Committee has reappointed Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2014. In the event that the stockholders do not ratify the reappointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm, the Audit Committee will reconsider the selection of the independent registered public accounting firm. A representative of Deloitte & Touche LLP will be present at the Annual Meeting, will have an opportunity to make a statement and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
EXECUTIVE OFFICER COMPENSATION
Biographical Information about Executive Officers
The following is a list of the Company’s executive officers, followed by their biographical information (other than for Mr. Johnson whose biographical information appears in the section of this proxy statement entitled “Election of Directors Nominees”).
Marc D. Miller was promoted to Executive Vice President and Chief Financial Officer in March 2012. Prior to this appointment, Mr. Miller held the position of Senior Vice President and Chief Financial Officer from December 2010 to March 2012, Senior Vice President of Strategic Planning, Business Development and E-Commerce from April 2007 to December 2010, Group Vice President of Strategic Planning, Business Development and E-Commerce from April 2006, and Vice President of Strategic Planning and Business Development from February 2005. Prior to joining Aéropostale, Mr. Miller held executive management positions at Footstar, Inc., and Tradeout, Inc.
Emilia A. Fabricant joined the Company as Executive Vice President of Aéropostale in September of 2012. In August 2013, Ms. Fabricant added responsibilities for merchandising and design for P.S. from Aéropostale. Prior to this appointment, Ms. Fabricant held the position of President of Bebe Stores, Inc. Prior to that, she served as President and Chief Merchandising Officer of Charlotte Russe, Inc. Earlier in her career, Ms. Fabricant founded Cadeau Maternity, also serving as its President and Chief Merchandising Officer after the company was acquired by eStyle, Inc. Ms. Fabricant began her merchandising career with Barneys New York Co Op, where she held a number of executive management positions of increasing responsibility, culminating with Senior Vice President, Divisional Merchandise Manager and Outlet Division.
Mary Jo Pile was promoted to Executive Vice President - Customer Engagement in December 2010. Prior to this appointment, Ms. Pile served as our Senior Vice President and Chief Stores Officer since May 2005. From 2001 to 2005, Ms. Pile held the position of Executive Vice President of Stores for Express/Express Men’s. Prior to that, Ms. Pile held the position of Vice-President of Stores for Express and The Limited from 1997 to 2001. From 1995 to 1997, Ms. Pile led the start-up and launch of Victoria’s Secret Beauty stores as Vice President of Stores — Victoria’s Secret Beauty.
Barbara A. Pindar has served as Senior Vice President of Planning and Allocation since December 2005. Previously, she held the position of Senior Vice President, Inventory Management for the Pottery Barn brand division of Williams-Sonoma. Prior to that, from 1986 to 2002, Ms. Pindar held various senior executive positions for Limited Brands, Inc., including Vice President, Merchandise Planning and Analysis for Victoria’s Secret Direct.
Compensation Discussion and Analysis
This compensation discussion and analysis provides an overview of our compensation program for our named executive officers for fiscal 2013.
During 2013 our Say-on-Pay vote received overwhelming support with approximately 98.5% of shareholders voting in favor of our executive compensation programs and practices. This level of support evidences our strong pay for performance orientation and is a result of our desire to maintain programs that are highly aligned with our shareholders.
As part of our Compensation Committee of the Board of Directors' ongoing process, it undertook a comprehensive review of our variable pay programs for 2013 and approved significant updates, described below.
We continue to navigate through a challenging business and macro-economic environment that contributed to a significant reduction in our overall profitability. We believe these program updates will better position us to execute our key merchandising, operational and financial initiatives to improve our performance by enhancing the link between pay and performance and providing a clear line of sight to business objectives for our employees. The Compensation Committee believes that the program updates reflect continued alignment with our pay for performance philosophy, evidenced below by our financial results and related key compensation outcomes.
Highlights of our 2013 Pay for Performance Program Updates
In addition to the key programmatic updates described above, we recognized the need to motivate and retain the key leadership talent who will be instrumental in driving the future success of our business. To that end, the Compensation Committee took the following actions:
The measures selected for the performance share components of each of the above awards align with the on-going long-term incentive program changes described above, demonstrating our commitment to those objectives we believe are most critical to our Company and our shareholders.
In making compensation determinations, the Committee considers feedback from stockholders in conjunction with our compensation philosophy and business needs. Ultimately, because of our pay-for-performance orientation, it is our performance that drives our executive compensation actions. In 2013, our performance did not meet our expectations or the expectations of our shareholders and this was reflected in the level of compensation delivered to our executives. Given the alignment between pay and performance, we recommend stockholders vote favorably on this year's resolution to approve fiscal 2013 compensation (see Proposal No. 2 Advisory Vote to Approve Executive Compensation).
Executive Compensation Philosophy and Core Principles
Aéropostale’s compensation philosophy is to align our executive compensation programs and practices with the Company’s near term and future performance. It is also intended to provide the type of incentive and rewards needed to attract, retain and engage key leadership talent based on our core principles: pay for performance, pay competitively and pay equitably. These core principles serve as the foundation of our pay philosophy:
The Committee has established a pay mix for executive officers that places emphasis on those elements that are performance-based. The executive compensation programs seek to balance motivation and retention through an emphasis on short- and long-term performance incentives. By following this approach, we strive to effectively balance executive retention while motivating a focus on the business metrics that will produce a high level of Company performance. This relationship is illustrated in the charts below.
Chief Executive Officer Target Pay Mix for Fiscal 2013
Average All Other Named Executive Officers Target Pay Mix for Fiscal 2013
In setting our program design and pay levels, we consider the practices of those companies we consider comparable peers for business and talent.
The Company and the Committee review publicly available data for a peer group consisting of national and regional, specialty and department store retail organizations to benchmark the appropriateness and competitiveness of our compensation program.
Each year, this list of peer companies is reviewed and compiled by the Committee's independent compensation consultant, Towers Watson, in conjunction with input from Company management, and is then approved by the Compensation Committee. Towers Watson reviewed and recommended companies based on the following criteria:
The following set of 18 retailers and mall-based stores provides a well-rounded cross section of Aéropostale's markets for executive talent. The complete peer group used in making fiscal 2013 decisions is as follows:
2013 Components of Compensation
Our 2013 compensation is highly aligned to performance, reflecting the achievement of Company financial and strategic results, and individual contributions.
Although we focus our executive compensation program on performance-based pay, base salary is an important component of our pay program. The Compensation Committee annually reviews and adjusts, where appropriate, the base salaries of the Company's executive officers listed in this Proxy Statement. In determining the appropriate level of base salary compensation, the Compensation Committee considers a number of factors including:
The table below shows 2012 and 2013 base salary levels for each of our Named Executive Officers.
(1) Effective August, 2013, Ms. Fabricant received a base salary increase reflecting her additional responsibilities for merchandising and design for P.S. Aéropostale.
Annual Incentive Plan
As described above, the Compensation Committee made significant changes to our annual incentive program for 2013 with regard to the measures of financial performance, timing of the performance period and the process by which we set our financial goals. These changes were made to provide clear line-of sight to business objectives and provide more direct access for our employees with regard to how their bonus payments are determined. For 2013, the Committee established the following framework for our AIP:
Target AIP Awards: The annual target performance-based incentive is expressed as a percentage of base salary. In establishing the target percentage, the Committee takes into account the role and level of each executive and competitiveness with our peers. For 2013, no adjustments were made to target AIP levels as a percent of base salary.
The following table shows the 2013 AIP targets for each NEO.
Measures and Weights: Our AIP awards annual bonuses are based upon the Company achieving pre-established annual goals in accordance with our financial plan. The Company's annual financial plan is established by management and ratified by our Board at the beginning of each fiscal year. For 2013, the AIP was based on overall Company operating income for our Named Executive Officers.
The AIP contains a tiered payment structure based upon the Company's annual financial performance. Those tiers are Threshold (achieving at least 80% of the Company's annual financial plan), Target (achieving at least 100% of the Company's annual financial plan) and maximum (achieving 120% or greater of the Company's annual financial plan). For 2013, the Company established the following operating income goals for both the Spring and Fall seasons, weighted 33% and 67% respectively.
Actual Results and AIP Payout
The Company's reported pro-forma operating loss was $(53.1) million for the Spring season and $(80.3) for the Fall season. These amounts were below threshold levels and did not yield a payout for either season. The following table shows the target and actual payout under the AIP for 2013 compared to 2012:
The AIP is a cash bonus plan and is determined formulaically, as described above. However, the Company maintains the flexibility to award certain discretionary bonus amounts to selected employees in limited circumstances. Only those executives at the Senior Vice President level and below are eligible for a discretionary bonus.
Other Cash Awards
As part of her promotion to Executive Vice President in April 2010, Ms. Pile received a cash bonus paid out over a two year period in fiscal 2012 and 2013. Ms. Pile received the final payment of $200,000 of this bonus in April 2013. In connection with her employment in September 2012, Ms. Fabricant was provided a guaranteed bonus of $250,000 paid in April 2013.
Equity awards are an important factor in aligning the long-term financial interests of our equity-eligible employees with the interests of our stockholders and increases the likelihood that we will be able to retain top performers. Long-term incentive awards comprise over 50% of target total compensation for our CEO and on average over 30% for our other Named Executive Officers.
Similar to prior years, the 2013 long-term awards for our Named Executive Officers were delivered 50% in performance shares and 50% in time-based restricted shares balancing performance and retention objectives. The table below sets forth the 2013 annual equity
award values for the NEOs and allocation of equity awards between performance shares and restricted stock as approved by the Compensation Committee.
(1) Subsequent to the grant, it was discovered that Mr. Johnson’s, Ms. Pile’s and Ms. Pindar's 2013 restricted stock awards were eligible for immediate vesting upon retirement under a retirement policy adopted by the Company in November 2012. To avoid potential unintended tax consequences associated with such retirement vesting feature, in October 2013, Mr. Johnson’s, Ms. Pile’s and Ms. Pindar's restricted stock awards were unconditionally and irrevocably rescinded in their entirety.
Performance Share Plan Mechanics and Results
2013-2015 Performance Share Cycle
As part of its review for 2013, the Compensation Committee adjusted the measures and timing of our performance shares to provide a clear line-of-sight to business objectives and focus executives on stock price performance further aligning the interests of our executives to that of our shareholders. To that end, the Committee determined that the 2013-2015 cycle would be based on earnings per share performance and relative total shareholder return compared against the S&P Select Retail Index.
Payout levels under each metric range from 50% to 200% of target at threshold and maximum, respectively.
The following provides an illustration of the 2013-2015 performance cycle. The first tranche of EPS performance was forfeited based on actual loss per share of ($1.81) (on a proforma basis, loss per share was ($1.13) compared to $0.69 EPS at target.
2012-2014 Performance Share Cycle
The 2012-2014 performance share cycle is based on three-year cumulative operating income and EPS results. Although the cycle remains in process, it is currently projected to provide no payout to executives for the 2012 grant of performance shares.
2011-2013 Performance Share Cycle Results
The performance share grant awarded in 2011 was measured against three-year cumulative EPS and operating income performance in fiscal 2011, 2012, and 2013. Each measure is separate and distinct and the actual number of shares awarded at the end of the three-year cycle is additive in determining the total number of performance shares issued.
The table below reflects the performance-based equity award Company financial measures and actual performance over the three-year period:
Our performance over the 2011-2013 period was below threshold for both operating income and EPS and did not provide a payout for our executives.
Special, One-Time Equity Awards
We strongly believe the engagement and continuity of our leadership team is critical for positioning our business for future growth and success. In addition, we want to acknowledge that the senior leadership team has foregone bonuses over the past three years and performance share payouts for the last two years. To that end, in March 2013, Mr. Miller, Ms. Pile and Ms. Fabricant were awarded a special, one-time grant that is primarily performance-based and dependent on stock price and internal operating performance. These awards had a grant date target value of $2.0 million for each executive and were delivered as 60% performance shares and 40% restricted stock. The performance measures selected for this award align with the 2013 long-term incentive program changes described above and consistent with the above results, 20% of the performance share component (12% of the total award) was forfeited.
In conjunction with his new employment contract signed on May 3, 2013, the CEO was awarded a special performance-based award with a grant date fair value of approximately $10.1 million. This award was delivered as 45% performance shares and 55% cash settled stock appreciation rights. This blend of award is 100% performance-based and fully aligned with our financial and stock price performance as the performance share component of this award measures EPS and TSR performance over a three-year period and the cash-settled stock appreciation rights only provide value in the event our stock price increases. More details are provided under the section entitled "Employment and Advisory Agreements".
In December 2013, in recognition of their contributions to the efforts to improve the Company’s performance during calendar year 2013, Mr. Johnson, Ms. Pile and Ms. Pindar were granted awards in the form of 110,295, 73,530, and 9,927 restricted stock units, respectively. Each restricted stock unit represents a contingent right to receive one share of our common stock, and any accrued dividends thereon, upon vesting of the unit, which will generally occur as to one-third of the units on December 26, 2015 and two-thirds on April 26, 2016.
Equity Plan Mechanics
All equity awards are granted as shares or units of our common stock under the Aéropostale Second Amended and Restated 2002 Long-Term Incentive Plan. Performance shares represent an unsecured promise by the Company to award common shares to certain executives, contingent upon the Company's achievement of pre-determined three year financial performance goals. The number of performance shares to be awarded to an employee is not finalized until the Company files the Annual Report on Form 10-K.
All equity grants are issued on the date they are approved by the Compensation Committee, except for new hires, whose grant date is the first day of their employment, with all such grants only being made when the Company is not in a trading blackout period. In addition, the Compensation Committee's approval of grants of awards is not conditioned nor linked to the timing of the Company's release of financial information. Restricted stock awarded to executive officers vests at the end of three years of continuous service with us, except for certain grants described in sections of this Proxy Statement entitled “Employment and Advisory Agreements”.
Stock Ownership Guidelines
The Compensation Committee and management believe it is important for executives in key leadership positions to be aligned with Company stockholders. In fiscal 2011, the Compensation Committee implemented the following stock ownership guidelines for the CEO and Executive Vice Presidents.
All Executives have three years to attain 50% of the guideline and five years to attain 100% of the guideline. The measurement date for determining whether or not our executives meet the guideline is April 1st of each fiscal year. As of April 1, 2014, all executives subject to this guideline and Board members meet the guideline criteria.
Other Employment and Retirement Benefits
Our executive officer compensation program also includes other benefits and perquisites. These benefits include annual matching contributions to executive officers' 401(k) plan accounts, an executive medical benefit plan, Company partially-paid medical benefits, group term life insurance coverage and an auto allowance of $8,500 per year. These benefits also include benefit accruals under our supplemental executive retirement plan for the CEO and a long-term deferred compensation program for our other Named Executive Officers. We annually review these other benefits with the Compensation Committee and the compensation consultant, and make adjustments as warranted based on competitive practices and our Company's financial performance.
Post-Termination Compensation and Benefits
Our executive officers are also entitled to post-termination benefits in the event that their employment with us is terminated. For those executive officers who have an employment agreement with us, a description of the termination events that trigger post termination pay and benefits can be found in the section of this Proxy Statement entitled "Employment and Advisory Agreements". In addition, pursuant to Company policy, all Executive Vice Presidents and Senior Vice Presidents of the Company receive one year of post termination pay, defined as base salary, upon involuntary termination without cause.
In 2013, we changed the Company’s termination policy to specify severance in connection with termination following a change-in-control event. In the event of termination following a change-in-control, our Executive Vice Presidents would be eligible to receive two years of base salary plus the current year’s bonus prorated for the time of the termination and the Company’s performance to date. Additionally, Senior Vice Presidents would be eligible to receive one and one-half years of base salary plus the current year’s bonus prorated for the time of the termination and the Company’s performance to date.
Our Compensation Committee, in conjunction with the compensation consultant, has reviewed the severance costs to the Company associated with the Company's severance-eligible employees. Specific information regarding benefits individuals would be eligible to receive upon termination of their employment with the Company is illustrated in the table on page 47.
The Compensation Committee considers, in establishing and reviewing the executive compensation program, whether the program encourages risks which are within reason and not likely to have a material adverse effect on the Company. In light of the Company's broad-based plans, including those which the Named Executive Officers participate in, the Committee determined and the full Board of Directors concurred that our compensation programs are not reasonably likely to have a material adverse effect on the Company and instead encourage behaviors that support sustainable shareholder value creation.
The Compensation Committee noted that the Company does not engage in the practices that aggravate risk and further noted a number of design features of the Company's cash and equity incentive programs reduce the likelihood of excessive risk-taking. With the recent program enhancements, the foundation of our plans did not change and the actual changes serve to mitigate risk if anything by further diversifying the measures and including market based, relative measures.
Impact of Accounting and Tax
The Compensation Committee takes into account the various tax and accounting implications of compensation vehicles employed by us.
When determining amounts of stock incentive plan grants awarded to our executives, employees and Board members, the Compensation Committee examines the accounting cost associated with the grants. Under ASC 718, grants of stock-based compensation result in an accounting charge for us, which is amortized over the requisite service period, or vesting period of the instruments.
Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility of executive compensation paid by a publicly-held company to $1,000,000 per covered employee per year. This limitation generally does not apply to performance-based compensation under a plan that is approved by the stockholders of a company that also meets certain other technical requirements. Our Second Amended and Restated 2002 Long-Term Incentive Plan was re-approved by stockholders on June 16, 2011 and therefore awards under the plan are eligible to be exempt from Section 162(m), assuming those awards meet the other criteria for Section 162(m) deductibility. The Compensation Committee intends to utilize performance-based compensation programs that meet the deductibility requirements under Section 162(m). However, the Compensation Committee may approve compensation that may not be deductible if the Committee determines that such compensation is in the best interests of the Company which may include for example, the payment of certain non-deductible compensation necessary in order to attract and retain individuals with superior talent.
Compensation Governance and Process
Our executive compensation program is overseen by the Compensation Committee of our Board of Directors. Compensation Committee members are appointed by our Board and meet the independence and other requirements of the New York Stock Exchange and other applicable laws and regulations. Compensation Committee members are selected based on their knowledge and experience in compensation matters from their professional roles.
The role of the Compensation Committee and information about its meetings are set forth on page 18 of this Proxy Statement. The Compensation Committee's charter was last amended in early 2014 and is available on the Company's website at www.aeropostale.com.
As provided for in the Compensation Committee Charter, the Compensation Committee retained, for the sixth consecutive fiscal year, Towers Watson (“the consultant” or the “compensation consultant”) as its independent compensation consultant to assist in the evaluation of Chief Executive Officer and other executive officer compensation levels and program design. The Committee, in conjunction with recommendations from management, determines the work to be performed by the consultant and has the ultimate authority to retain and terminate the compensation consultant. The consultant works with management to gather data required in preparing analyses for Committee review.
Towers Watson was directed to review the Company's compensation programs and practices and to provide recommendations and suggestions which are consistent with the Company's compensation philosophy. In fiscal 2013, Towers Watson was engaged by the Committee for the following executive compensation work:
•provided market trend and competitive information,
•reviewed the executive compensation peer group for continued applicability,
•assisted with the development of the Compensation Discussion & Analysis section of this Proxy Statement,
•provided the Committee with legislative and regulatory updates with regard to executive compensation.
Other than the aforementioned engagement, Towers Watson maintains no other direct or indirect business relationship with the Company. All executive compensation services provided by the consultant are conducted under the direction and authority of the Compensation Committee and all work performed by Towers Watson is approved by the Chairman of the Compensation Committee. Management has not engaged a separate compensation consultant. Given these processes and by evaluating Towers Watson against the SEC required factors, the Committee has determined that the engagement of Towers Watson does not raise any conflict of interest concerns. We continue to monitor the performance of our consultant on an annual basis through an internal evaluation process as well as through comparisons of services offered by other major consulting firms in the executive compensation arena.
Company management, including our Senior Vice President of Human Resources, Vice President of Compensation and Benefits, and Senior Vice President General Counsel, prepared the compensation materials and attended our Compensation Committee meetings. The Company's management team, in conjunction with the Company's Chief Executive Officer, President, and Executive Vice President Chief Financial Officer, propose compensation program designs, levels and components and make recommendations on the compensation levels and stock awards for employees, other than for themselves. The Compensation Committee makes the final determination regarding certain proposals including the compensation of our Chief Executive Officer and those executive officers listed in this proxy statement. The Committee also meets in executive session with Towers Watson and without management present in order to review management's proposals.
Executive Compensation Tables
Summary Compensation Table. The following table sets forth information concerning total compensation earned by or paid to our Chief Executive Officer, our Chief Financial Officer and our next three other most highly compensated executive officers who served in such capacity as of February 1, 2014 (the “Named Executive Officers”) for services rendered to us during the three most recent fiscal years.
Grants of Plan-Based Awards. The following table provides information relating to plan-based awards granted to Named Executive Officers during the fiscal year ended February 1, 2014.