tile20170329_def14a.htm Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A 

(RULE 14a-101)

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. _____)

 

Filed by the Registrant ☒

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))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

 

Interface, Inc.

(Name of Registrant as Specified in Its Charter)

  

  

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

(1)

Title of each class of securities to which transaction applies: 

______________________________________________________  

 

(2)

Aggregate number of securities to which transaction applies: 

______________________________________________________  

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

______________________________________________________  

 

(4)

Proposed maximum aggregate value of transaction: 

______________________________________________________  

 

(5)

Total fee paid: 

______________________________________________________  

 

Fee paid previously with preliminary materials.

 

 

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing

 

for which the offsetting fee was paid previously. Identify the previous filing by registration statement number,

 

or the Form or Schedule and the date of its filing:

 

 

(1)

Amount previously paid: 

______________________________________________________  

 

(2)

Form, Schedule or Registration Statement No.: 

______________________________________________________  

 

(3)

Filing party: 

______________________________________________________  

 

(4)

Date Filed: 

______________________________________________________  

 

 
 

Table of Contents
 

 

TABLE OF CONTENTS

 

 

Page

 

 

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS

1

GENERAL INFORMATION

1

NOMINATION AND ELECTION OF DIRECTORS (ITEM 1)

2

NOMINEES

2

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

5

PRINCIPAL SHAREHOLDERS AND MANAGEMENT STOCK OWNERSHIP

8

COMPENSATION DISCUSSION AND ANALYSIS

10

COMPENSATION COMMITTEE REPORT

18

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

18

EXECUTIVE COMPENSATION AND RELATED ITEMS

19

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

27

DIRECTOR INDEPENDENCE

27

EQUITY COMPENSATION PLAN INFORMATION

28

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

28

APPROVAL OF EXECUTIVE COMPENSATION (ITEM 2)

34

ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION (ITEM 3) 34

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (ITEM 4)

35

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

36

AUDIT COMMITTEE REPORT

36

SHAREHOLDER PROPOSALS

37

COMMUNICATING WITH THE BOARD

37

“HOUSEHOLDING” OF PROXY MATERIALS

38

OTHER MATTERS THAT MAY COME BEFORE THE MEETING

38

 

 
 

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 Interface, Inc.

2859 Paces Ferry Road, Suite 2000

Atlanta, Georgia 30339

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

The annual meeting of shareholders of Interface, Inc. (the “Company”) will be held on Tuesday, May 16, 2017, at 3:00 p.m. Eastern Time, at the Overlook III Conference Center located at 2859 Paces Ferry Road, Atlanta, Georgia. The purposes of the meeting are:

 

 

 

Item

 

Recommended

     Vote     

       

1.

To elect ten members of the Board of Directors.

 

FOR

       

2.

To approve, on an advisory basis, executive compensation, often referred to as a “say on pay”.

 

FOR

       

3.

To hold an advisory vote on the frequency of future advisory votes on executive compensation, often referred to as a “say on frequency”.

 

EVERY YEAR

       

4.

To ratify the appointment of BDO USA, LLP as independent auditors for 2017.

 

FOR

       

5.

Such other matters as may properly come before the meeting and at any adjournments of the meeting.

   

 

The Board of Directors set March 10, 2017 as the record date for the meeting. This means that only shareholders of record at the close of business on March 10, 2017 will be entitled to receive notice of and to vote at the meeting or any adjournments of the meeting.

 

The Board of Directors is using the attached Proxy Statement to solicit Proxies from shareholders. Please promptly complete and return a Proxy Card or use telephone or Internet voting at your earliest convenience. Voting your Proxy in a timely manner will assure your representation at the annual meeting. You may change or withdraw your Proxy at any time prior to the voting at the meeting.

 

 

By order of the Board of Directors

 

 

  /s/ David B. Foshee                                                                   
  David B. Foshee
  Secretary

 

March 31, 2017

 

 

 

PLEASE PROMPTLY COMPLETE AND RETURN A PROXY CARD

OR USE TELEPHONE OR INTERNET VOTING PRIOR TO THE MEETING SO THAT YOUR VOTE

MAY BE RECORDED AT THE MEETING IF YOU DO NOT ATTEND PERSONALLY.

 

 
 

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Interface, Inc.

 

2859 Paces Ferry Road, Suite 2000

Atlanta, Georgia 30339

_______________

 

PROXY STATEMENT

FOR ANNUAL MEETING OF SHAREHOLDERS

_______________

 

GENERAL INFORMATION

 

The Board of Directors of Interface, Inc. (the “Company”) is furnishing this Proxy Statement to solicit Proxies for the Company’s common stock, $0.10 par value per share (“Common Stock”) to be voted at the annual meeting of shareholders of the Company. The meeting will be held at 3:00 p.m. Eastern Time on May 16, 2017. The Proxies also may be voted at any adjournments of the meeting. It is anticipated that this Proxy Statement will first be sent or given to shareholders on or about April 5, 2017.

 

The record of shareholders entitled to vote at the annual meeting was taken as of the close of business on March 10, 2017. On that date, the Company had outstanding and entitled to vote 64,362,009 shares of Common Stock.

 

Each Proxy for Common Stock (“Proxy”) that is properly completed (whether executed in writing or submitted by telephone or Internet) by a shareholder will be voted as specified by the shareholder in the Proxy. If no specification is made, the Proxy will be voted (i) for the election of the nominees listed in this Proxy Statement under the caption “Nomination and Election of Directors,” (ii) for the resolution approving, on an advisory basis, executive compensation, (iii) to hold an advisory vote on executive compensation every year, and (iv) for the ratification of the appointment of BDO USA, LLP as independent auditors for 2017. A Proxy given pursuant to this solicitation may be revoked by a shareholder who attends the meeting and gives notice of his or her election to vote in person, without compliance with any other formalities. In addition, a Proxy given pursuant to this solicitation may be revoked prior to the meeting by delivering to the Secretary of the Company either an instrument revoking it or a duly executed Proxy for the same shares bearing a later date.

 

An automated system administered by the Company’s transfer agent tabulates the votes. Abstentions and broker non-votes are included in the determination of the number of shares present and entitled to vote for the purpose of establishing a quorum. A broker non-vote occurs when a broker or other nominee who holds shares for a customer does not have authority to vote on certain matters without instructions from their customer, such customer has not provided any voting instructions on the matter and the broker or other nominee returns a Proxy (or otherwise informs the transfer agent) that they are not voting on the matter for the foregoing reasons. Neither broker non-votes nor abstentions will affect the outcome of the vote on any matter expected to be voted upon at the annual meeting.

 

If your shares of Common Stock are held by a broker, bank or other nominee (e.g., in “street name”), you should receive instructions from your nominee, which you must follow in order to have your shares voted – the instructions may appear on a special proxy card provided to you by your nominee (also called a “voting instruction form”). Your nominee may offer you different methods of voting than those available to record holders. If you do hold your shares in “street name” and plan on attending the annual meeting of shareholders, you should request a proxy from your broker or other nominee holding your shares in record name on your behalf in order to attend the annual meeting and vote at that time (your broker or other nominee may refer to it as a “legal” proxy).

 

The expense of this solicitation, including the cost of preparing and mailing this Proxy Statement, will be paid by the Company. Copies of solicitation material may be furnished to banks, brokerage houses and other custodians, nominees and fiduciaries for forwarding to the beneficial owners of shares of the Company’s Common Stock, and normal handling charges may be paid for the forwarding service. In addition to solicitations by mail, directors and employees of the Company may solicit Proxies in person or by telephone, fax or e-mail. The Company also has retained Georgeson LLC, a proxy solicitation firm, to assist in soliciting Proxies from record and beneficial owners of shares of the Company’s Common Stock. The fee paid by the Company for such assistance is expected to be $8,000 (plus expenses).

 

 
 

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NOMINATION AND ELECTION OF DIRECTORS

(ITEM 1)

 

The Bylaws of the Company provide that the Board of Directors shall consist of a maximum of 15 directors, with the exact number of directors being established by action of the Board taken from time to time. The Board of Directors has set the number of directors at 10. The term of office for each director continues until the next annual meeting of shareholders and until his or her successor, if there is to be one, has been elected and has qualified.

 

In the event that any nominee for director withdraws or for any reason is not able to serve as a director, each Proxy that is properly executed and returned will be voted for such other person as may be designated as a substitute nominee by the Board of Directors. Each nominee is an incumbent director standing for re-election, and each nominee has consented to being named herein and to serve or continue serving as a director if elected or re-elected.

 

Certain information relating to each nominee proposed by the Board is set forth below. Directors are required to submit an offer of resignation upon experiencing a job change.

 

NOMINEES

 

Name (Age) Information
   

John P. Burke (55)

Mr. Burke was elected as a director in July 2013. Since 1997, Mr. Burke has been Chief Executive Officer of Trek Bicycle Corporation, one of the world’s largest manufacturers of bicycles, and a company with a mission to help the world use the bicycle as a simple solution to complex problems. He served as chairman of President George W. Bush’s President’s Council on Physical Fitness & Sports, and is a founding board member of the Bikes Belong Coalition. Mr. Burke also serves on the board of Trek Bicycle Corporation. Mr. Burke brings to the Board extensive executive level business experience at a manufacturing company that is focused primarily on sales in the consumer channel and with an emphasis on sustainability and innovation.

   

Andrew B. Cogan (54)

Mr. Cogan was elected to the Board in January 2013. Since 2001, Mr. Cogan has been the Chief Executive Officer of Knoll, Inc., a leading designer and manufacturer of branded office furniture products and textiles recognized for innovation and modern design. He previously served as Chief Operating Officer of Knoll and held several positions in Knoll’s design and marketing group worldwide, including Executive Vice President - Marketing and Product Development and Senior Vice President. Mr. Cogan is a director of Knoll and cabinet manufacturer American Woodmark Corporation, as well as two nonprofit organizations. He brings to the Board executive level experience at an international manufacturing company in the commercial interiors industry, and an extensive background in design and marketing.

   

Carl I. Gable (77)

Mr. Gable was elected as a director in March 1984. He practiced business, securities and international law for 26 years, most recently with the Atlanta-based law firm of Troutman Sanders LLP from 1996 until his retirement in 1998. Mr. Gable now is a private investor. His prior experience includes service as the Vice Chairman and Chief Financial Officer of Intermet Corporation, which was a publicly traded company that manufactured components for automotive and industrial applications. Mr. Gable brings to the Board substantial expertise and executive level experience in matters such as strategic planning, corporate finance and accounting, capital markets, risk management, corporate governance and international business. He has extensive knowledge of the Company’s business, and his tenure also provides consistent leadership to the Board.

 

 
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Jay D. Gould (57)

Mr. Gould was elected as a director in May 2016. He joined the Company as Executive Vice President and Chief Operating Officer in January 2015, was promoted to President and Chief Operating Officer in January 2016, and was promoted to Chief Executive Officer in March 2017. From 2012 to January 2015, Mr. Gould was the Chief Executive Officer of American Standard Brands, a kitchen and bath products company. Prior to his employment with American Standard Brands, Mr. Gould held senior executive roles at Newell Rubbermaid Inc., a global marketer of consumer and commercial products, serving as President of its Home & Family business group from 2008 to 2012 and President of its Parenting Essentials business group from 2006 to 2008. He also previously held executive level positions at The Campbell Soup Company (2002-2006) and The Coca-Cola Company (1995-2002). Mr. Gould brings to the Board a broad range of executive level experience at international companies with distribution into both the commercial and consumer channels, with particular expertise in sales, marketing, brand management, strategy and operations.

   

Daniel T. Hendrix (62)

Mr. Hendrix joined the Company in 1983 after having worked previously for a national accounting firm. He was promoted to Treasurer of the Company in 1984, Chief Financial Officer in 1985, Vice President-Finance in 1986, Senior Vice President-Finance in 1995, Executive Vice President in 2000, and President and Chief Executive Officer in July 2001. He was elected to the Board in October 1996, and was elected Chairman of the Board in October 2011. In March 2017, Mr. Hendrix retired from the role of Chief Executive Officer, but continues to serve as non-executive Chairman. Mr. Hendrix served as a director of office technology solutions provider Global Imaging Systems, Inc. from 2003 to 2007, and has served as a director of American Woodmark Corporation since May 2005. With more than 30 years of service at the Company, Mr. Hendrix brings to the Board a unique understanding of our strategies and operations. His experience extends to virtually all aspects of the Company’s business, but with a particular emphasis on strategic planning and financial matters. His tenure provides consistent leadership to the Board, and facilitates the interrelationship between the Board and the Company’s executive leadership team.

   

Christopher G. Kennedy (53)

 

Mr. Kennedy was elected as a director in May 2000. He is the Chairman of Joseph P. Kennedy Enterprises, Inc., a real estate development company, and currently is running as a Democratic candidate for governor of Illinois. He was the President of MMPI (Merchandise Mart Properties, Inc., a subsidiary of Vornado Realty Trust based in Chicago, Illinois) from 2000 to 2012. He has served on the board of trustees of Ariel Mutual Funds since 1994, and has served on the board of directors of Knoll, Inc. since November 2014. Mr. Kennedy also serves on the boards of two nonprofit organizations, one charitable foundation, and three private companies, and is active in several educational and civic organizations. From 2009 to January 2015, Mr. Kennedy served on the board of trustees of the University of Illinois. Mr. Kennedy also currently serves as the Lead Independent Director of the Board. Mr. Kennedy brings to the Board substantial executive level experience that is particularly beneficial to our strategies and sales and marketing efforts in the corporate office and retail market segments. His insight into governmental and economic affairs and his civic involvement also are valuable to the Board.

 

 
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K. David Kohler (50)

Mr. Kohler was elected as a director in October 2006. Since April 2015, he has served as the President and Chief Executive Officer for Kohler Co., a global leader in the manufacture of kitchen and bath products, interior furnishings, engines and power generation systems, and an owner and operator of golf and resort destinations. His previous positions at Kohler include President and Chief Operating Officer (2009 to 2015), Executive Vice President (2007 to 2009) and Group President of the Kitchen and Bath Group (1999 to 2007). Mr. Kohler was formerly a chairman of the National Kitchen and Bath Association’s Board of Governors of Manufacturing. He has served as a member of the board of Kohler Co. since 1999, and also is a director of ceramic tile and natural stone manufacturer and distributor Internacional de Cerámica, S.A.B. de C.V., a public company traded on the Mexican Stock Market. Mr. Kohler brings to the Board extensive business experience from his service in executive positions at a manufacturing company with international operations and distribution into both commercial and consumer channels.

   

Erin A. Matts (40)

Ms. Matts was elected as a director in October 2016. Since February 2016, she has served as the North America Chief Executive Officer of Annalect, Inc., a provider of data driven marketing strategy. (Annalect, Inc. is the data and digital media division of Omnicom Media Group, which in turn is a division of Omnicom Group Inc.) Ms. Matts previously held leadership roles in agency, publishing and branding at global companies, including prior service as Senior Vice President and Chief Marketing Officer at Glam Media and global director of digital connections at Anheuser-Busch InBev. Ms. Matts brings to the board a sophisticated view on data as a driver of business-to-business marketing, as well as experience in marketing, advertising, and translating market data into growth opportunities.

   

James B. Miller, Jr. (76)

Mr. Miller was elected as a director in May 2000. Since 1979, Mr. Miller has served as Chairman and Chief Executive Officer of Fidelity Southern Corporation, the holding company for Fidelity Bank. He also has served in various capacities at Fidelity Southern Corporation’s affiliated companies, including as Chief Executive Officer of Fidelity Bank from 1977 to 1997 and from 2003 to 2004, Chairman of Fidelity Bank from 1998 to the present, and Chairman of LionMark Insurance Company since 2004. Prior to his banking experience, Mr. Miller practiced law. Mr. Miller has served on the board of supply chain management and enterprise software solutions provider American Software, Inc. since 2002, and currently serves on the boards of three private companies and five nonprofit organizations. Mr. Miller brings to the Board extensive executive level experience at a publicly traded company, particularly in the areas of banking, capital markets, corporate finance and accounting.

   

Sheryl D. Palmer (55)

 

 

 

 

 

 

Ms. Palmer was elected as a director in October 2015. Since 2007, Ms. Palmer has served as President and Chief Executive Officer of Taylor Morrison Home Corporation, a publicly traded leading North American home builder and developer, after previously serving as Executive Vice President for the West Region of Morrison Homes. Her previous experience includes senior leadership roles at Blackhawk Corp. and Pulte Homes/Del Webb Corporation, each homebuilders and developers of retirement communities, where she last held the title of Nevada Area President at Pulte/Del Webb Corporation. Ms. Palmer also currently serves on the board of directors of one nonprofit organization. She brings to the Board extensive executive level experience in the residential building industry, including leadership in the areas of sales and marketing, building development, strategy and operations management.

 

 
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Vote Required and Recommendation of Board

 

Under the Company’s Bylaws, election of each of the nominees requires a plurality of the votes cast by the Company’s outstanding Common Stock entitled to vote and represented (in person or by proxy) at the meeting. As noted below, however, in an uncontested election, any nominee who does not receive a majority affirmative vote must submit a resignation (which may be conditional) to the Board or its Chair. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE, AND PROXIES EXECUTED AND RETURNED OR VOTED BY TELEPHONE OR INTERNET WILL BE VOTED FOR EACH OF THE NOMINEES UNLESS CONTRARY INSTRUCTIONS ARE INDICATED.

 

Majority Vote Resignation Policy for Director Elections

 

Pursuant to governing law and documents, including the Company’s Bylaws as noted above, in most cases the Company's directors are elected by a plurality of the votes cast. Although nominees who receive the most votes for the available positions will generally continue to be duly elected, on February 22, 2017, the Board of Directors adopted a resignation policy applicable to nominees who fail to receive the affirmative vote of a majority of the votes cast in an uncontested election for directors. (The adoption of this policy does not alter the applicable legal standards.) The policy requires that a nominee who does not receive a majority affirmative vote in an uncontested election promptly will tender, to the Board or its Chair, their resignation from the Board and committees on which the director serves. The resignation may be conditioned upon Board acceptance. If it is not so conditioned, the resignation must specify that it is effective immediately on delivery.

 

A “majority affirmative vote” means that the votes cast “for” a nominee’s election exceed those voted "withhold", with abstentions and broker non votes not being considered “votes cast.” In your proxy card, you have been provided with options to vote “for” or “withhold” from each Director nominee. However, neither a “withhold” vote nor an abstention affects whether a director nominee in an uncontested election is legally elected under the plurality vote standard (provided such nominee receives at least one “for” vote). But a “withhold” vote is considered in determining whether a director who is legally elected has received a “majority affirmative vote” for purposes of the resignation policy (as noted above, an abstention does not affect the resignation policy-related determination).

 

The Nominating & Governance Committee of the Board will consider any resignation conditioned upon Board acceptance, including any information provided by the Director, and within 60 days of the shareholder meeting at which the Director failed to receive a majority affirmative vote, will recommend to the full Board what action to take on the director’s resignation. The Nominating & Governance Committee may recommend, among other things, acceptance or rejection of the resignation, delayed acceptance pending the recruitment and election of a new director or rejection of the resignation in order to address the underlying reasons for the Director’s failure to receive the majority affirmative vote of the shareholders. The policy provides for the Board to act on the Nominating & Governance Committee’s recommendation within 90 days following the shareholder meeting.

 

In considering a conditional resignation, the Nominating & Governance Committee and the Board may consider those factors it deems relevant to its recommendation, including but not limited to the underlying reasons for the failure of the Director to receive a majority affirmative vote, the tenure and qualifications of the Director, the Director’s past and expected future contributions, other policies and the overall composition of the Board, including whether accepting the resignation would cause the Company to fail to meet legal or stock market requirements.

 

Following the Board’s decision, the Company will publicly announce the Board’s decision regarding any conditional resignation. A resigning Director cannot participate in committee or Board decisions regarding their resignations, except in certain cases where multiple directors have failed to receive majority affirmative votes, which circumstances are described in the full policy posted in the Investor Relations section of our web site at www.interfaceglobal.com. The preceding summary of the policy is qualified in its entirety by reference to the full policy.

 

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

 

The Board of Directors held seven meetings during 2016. All of the incumbent directors attended at least 75% of the total number of meetings of the Board and any committees of which he or she was a member.

 

 
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Board Leadership Structure and Role in Risk Management

 

We currently have a Lead Independent Director, and, as of March 3, 2017, a separate Chairman and Chief Executive Officer. Mr. Kennedy serves as Lead Independent Director, Mr. Hendrix serves as Chairman, and Mr. Gould serves as Chief Executive Officer. Because each of our Chairman and Chief Executive Officer is an employee of the Company and therefore not considered “independent” under applicable standards (see “Director Independence” below), the Board has appointed Mr. Kennedy to serve as Lead Independent Director. The Board considers it to be useful and appropriate at the current time to have an independent director serve in a lead capacity to promote corporate governance, coordinate the activities of the other independent directors, and perform such other duties and responsibilities as the Board may determine. The specific responsibilities of the Lead Independent Director are as follows:

 

 

Preside at Executive Sessions. Presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors.

 

Call Meetings of Independent Directors. Has the authority to call meetings of the independent directors.

 

Function as Liaison with the Chairman. Serves as the principal liaison on Board-wide issues between the independent directors, the Chairman and the Chief Executive Officer.

 

Participate in Flow of Information to the Board such as Board Meeting Agendas and Schedules. Provides the Chairman and Chief Executive Officer with input as to meeting agenda items, advises the Chairman and Chief Executive Officer as to the quality, quantity and timeliness of information sent to the Board, and approves meeting schedules to assure there is sufficient time for discussion of all agenda items.

 

Recommends Outside Advisors and Consultants. Recommends the retention of outside advisors and consultants who report directly to the Board.

 

Shareholder Communication. Ensures that he is available, if requested by shareholders and when appropriate, for consultation and direct communication.

 

The Board of Directors has the following standing committees that assist the Board in carrying out its duties: the Executive Committee, the Audit Committee, the Compensation Committee, and the Nominating & Governance Committee. The following table lists the current members of each committee:

 

Executive Committee

Audit Committee

Compensation Committee

Nominating &

Governance Committee

       

Daniel T. Hendrix (Chair)

Carl I. Gable (Chair)

Andrew B. Cogan (Chair)

Christopher G. Kennedy (Chair)

Carl I. Gable

James B. Miller, Jr.

Sheryl D. Palmer

K. David Kohler

James B. Miller, Jr.

Sheryl D. Palmer

 

John P. Burke

 

Executive Committee. The Executive Committee met one time and acted by unanimous written consent once during 2016. Except for duties reserved to the other Board committees and for certain other exceptions, the Executive Committee may exercise all the power and authority of the Board of Directors in the management of the business and affairs of the Company.

 

Audit Committee. The Audit Committee met four times and acted by unanimous written consent once during 2016. The function of the Audit Committee is to (i) serve as an independent and objective party to review the Company’s financial statements, financial reporting process and internal control system, (ii) review and evaluate the performance of the Company’s independent auditors and internal financial management, and (iii) provide an open avenue of communication among the Company’s independent auditors, management (including internal financial management) and the Board. The Board of Directors has determined that all three members of the Audit Committee are “independent” in accordance with applicable law, including the rules and regulations of the Securities and Exchange Commission and the rules of the Nasdaq Stock Market, and that each of Ms. Palmer and Messrs. Gable and Miller is an “audit committee financial expert” as defined by the rules and regulations of the Securities and Exchange Commission. The Audit Committee operates pursuant to an Audit Committee Charter which was adopted by the Board of Directors. The Audit Committee Charter may be viewed on the Company’s website, www.interfaceglobal.com/Investor-Relations/Corporate-Governance/Audit-Committee-Charter.aspx.

 

Compensation Committee. The Compensation Committee met one time and acted by unanimous written consent four times during 2016. The function of the Compensation Committee is to (i) evaluate the performance of the Company’s Chief Executive Officer and other senior executives, (ii) determine compensation arrangements for such executives, (iii) administer the Company’s stock and other incentive plans for key employees, and (iv) review the administration of the Company’s employee benefit plans. The Board of Directors has determined that each member of the Compensation Committee is “independent” in accordance with applicable law, including the rules and regulations of the Securities and Exchange Commission and the rules of the Nasdaq Stock Market. The Compensation Committee operates pursuant to a Compensation Committee Charter that was adopted by the Board of Directors. The Compensation Committee Charter may be viewed on the Company’s website, www.interfaceglobal.com/Investor-Relations/Corporate-Governance/Compensation-Committee-Charter.aspx. The Compensation Committee’s policies and philosophy are described in more detail below in this Proxy Statement under the heading “Compensation Discussion and Analysis.”

 

 
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Nominating & Governance Committee. The Nominating & Governance Committee met twice in 2016. The Nominating & Governance Committee assists the Board in establishing qualifications for Board membership and in identifying, evaluating and selecting qualified candidates to be nominated for election to the Board. The Nominating & Governance Committee also assists the Board in reviewing and analyzing, and makes recommendations regarding, corporate governance matters, and it also recommends committee assignments for Board members.

 

In the event of a vacancy on the Board, the Nominating & Governance Committee develops a pool of potential director candidates for consideration. The Nominating & Governance Committee seeks candidates for election and appointment with excellent decision-making ability, valuable and varied business experience and knowledge, and impeccable personal integrity and reputations. The Committee does not have a specific diversity policy, but considers diversity of race, ethnicity, gender, age, cultural background and professional experience in evaluating candidates for Board membership, in an effort to obtain a variety of viewpoints in the Board’s proceedings. The Nominating & Governance Committee considers whether candidates are free of constraints or conflicts which might interfere with the exercise of independent judgment regarding the types of matters likely to come before the Board, and have the time required for preparation, participation and attendance at Board and committee meetings. Other factors considered by the Nominating & Governance Committee in identifying and selecting candidates include the needs of the Company and the range of talent and experience already represented on the Board. The Nominating & Governance Committee solicits suggestions from other members of the Board regarding persons to be considered as possible nominees. Shareholders who wish the Nominating & Governance Committee to consider their recommendations for director candidates should submit their recommendations in writing to the Nominating & Governance Committee, in care of the office of the Chairman of the Board, Interface, Inc., 2859 Paces Ferry Road, Suite 2000, Atlanta, GA 30339. Recommendations should include the information which would be required for a “Shareholder Proposal” as set forth in Article II, Section 9 of the Company’s Bylaws. Director candidates who are recommended by shareholders in accordance with these procedures will be evaluated by the Nominating & Governance Committee in the same manner as director candidates recommended by the Company’s directors.

 

The Board of Directors has determined that each member of the Nominating & Governance Committee is “independent” in accordance with applicable law, including the rules and regulations of the Securities and Exchange Commission and the rules of the Nasdaq Stock Market. The Nominating & Governance Committee operates pursuant to a Nominating & Governance Committee Charter that was adopted by the Board of Directors. The Nominating & Governance Committee Charter may be viewed on the Company’s website, www.interfaceglobal.com/Investor-Relations/Corporate-Governance/Nominating---Governance-Charter-(1).aspx.

 

Risk Management

 

The Board receives quarterly reports on elements of risk that may potentially affect the Company, as identified and presented by management. The Board also assists in the Company’s risk oversight through its various committees described above. For example, the Audit Committee assists in overseeing risk as it relates to the Company’s financial statements, financial reporting process and internal control system. In that regard, the Company’s Director of Internal Audit and outside auditors report directly to the Audit Committee. The Nominating & Governance Committee assists in overseeing risk related to the Company’s corporate governance practices as well as the performance of individual Board members and committees, while the Compensation Committee assists in overseeing risk as it relates to the Company’s executive compensation program and practices.

 

 
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PRINCIPAL SHAREHOLDERS AND MANAGEMENT STOCK OWNERSHIP

 

The following table sets forth, as of March 1, 2017 (unless otherwise indicated), beneficial ownership of the Company’s Common Stock by: (i) each person, including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, known by the Company to be the beneficial owner of more than 5% of any class of the Company’s voting securities, (ii) each director and nominee for director, (iii) the Company’s Principal Executive Officer, Principal Financial Officer, and next three most highly compensated executive officers during 2016 (the “Named Executive Officers”), and (iv) all executive officers and directors of the Company as a group. Due to the nature of the awards, performance shares awarded to the Company’s executive officers are not included in beneficial ownership of Common Stock.

 

Beneficial Owner (and Business Address of 5% Owners)

Title

of Class

Amount and Nature of

Beneficial Ownership

Percent of

Class(1)

         

BlackRock, Inc.

55 East 52nd Street

New York, New York 10022

Common Stock

7,417,574(2)(3)

 

11.5%

         

The Vanguard Group, Inc.

100 Vanguard Boulevard

Malvern, Pennsylvania 19355

Common Stock

5,517,281(2)(4)

 

 

8.6%

 

          

John P. Burke

Common Stock

18,184(5)

 

*

          

Andrew B. Cogan

Common Stock

20,184(6)

 

*

         

Robert A. Coombs

Common Stock

134,092(7)

 

*

         

Carl I. Gable

Common Stock

86,450(8)

 

*

         

Jay D. Gould

Common Stock

157,322(9)

 

*

          

Daniel T. Hendrix

Common Stock

253,971(10)

 

*

         

Christopher G. Kennedy

Common Stock

108,407(11)

 

*

         

K. David Kohler

Common Stock

44,184(12)

 

*

         

Patrick C. Lynch

Common Stock

166,825(13)

 

*

         

Erin A. Matts

Common Stock

4,398(14)

 

*

         

James B. Miller, Jr.

Common Stock

58,184(15)

 

*

         

Sheryl D. Palmer

Common Stock

9,134(16)

 

*

         

Raymond S. Willoch.

Common Stock

41,663(17)

 

*

         

All executive officers and directors (18 persons)

Common Stock

1,246,619(18)

 

1.9%

__________

 

*

Less than 1%.

 

 

(1)

Percent of class is based on 64,362,009 shares outstanding on March 1, 2017 and is calculated assuming that the beneficial owner or group of beneficial owners has exercised any conversion rights, options or other rights to subscribe held by such beneficial owner that are exercisable within 60 days of March 1, 2017, and that no other conversion rights, options or rights to subscribe have been exercised by anyone else.

 

 

(2)

Based upon information included in statements as of December 31, 2016 provided to the Company and filed with the Securities and Exchange Commission by such beneficial owners.

 

 

(3)

According to BlackRock, various persons have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of such shares, and no one person’s interests in such shares exceeds 5% of the total outstanding shares of Common Stock. It states that it has sole voting power with respect to 7,259,729 of such shares, and sole dispositive power with respect to all of such shares.

 

 
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(4)

The Vanguard Group, Inc. is an investment advisor, and states that it has sole voting power with respect to 123,496 of such shares, shared voting power with respect to 7,600 of such shares, sole dispositive power with respect to 5,389,609 of such shares, and shared dispositive power with respect to 127,672 of such shares.

 

 

(5)

Includes 6,766 restricted shares.

 

 

(6)

Includes 6,766 restricted shares.

 

 

(7)

Includes 19,804 restricted shares.

 

 

(8)

Includes 6,766 restricted shares, and 5,000 shares that may be acquired by Mr. Gable pursuant to exercisable stock options.

 

 

(9)

Includes 64,258 restricted shares.

 

 

(10)

Includes 43,039 restricted shares, 4,655 shares held indirectly through the Company’s 401(k) plan, and 35,072 shares held indirectly by family trusts.

 

 

(11)

Includes 6,766 restricted shares, and 5,000 shares that may be acquired by Mr. Kennedy pursuant to exercisable stock options. Mr. Kennedy serves on the Board of Trustees of Ariel Mutual Funds, for which Ariel Investments, LLC serves as investment advisor and performs services which include buying and selling securities on behalf of the Ariel Mutual Funds. Mr. Kennedy disclaims beneficial ownership of all shares held by Ariel Investments, LLC as investment advisor for Ariel Mutual Funds.

 

 

(12)

Includes 6,766 restricted shares.

     
  (13) Based on beneficial ownership as of December 15, 2016, which was Mr. Lynch’s last day of employment with the Company. Includes 29,294 restricted shares.

 

 

(14)

All are restricted shares.

 

 

(15)

Includes 6,766 restricted shares, and 5,000 shares that may be acquired by Mr. Miller pursuant to exercisable stock options.

 

 

(16)

Includes 6,766 restricted shares.

     
  (17) Based on beneficial ownership as of January 1, 2017, which was Mr. Willoch’s last day of employment with the Company. Includes 26,663 restricted shares.

 

 

(18)

Includes 317,444 restricted shares, and 25,000 shares that may be acquired by all executive officers and directors as a group pursuant to exercisable stock options.

 

 
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COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis describes the compensation program for the Company’s Named Executive Officers. For 2016, these individuals were:

 

 

Daniel T. Hendrix, the Company’s Chairman and former Chief Executive Officer, who retired from the role of Chief Executive Officer effective March 3, 2017 and who has also served as the Company’s interim principal financial officer since December 15, 2016;

 

 

Patrick C. Lynch, the Company’s former Senior Vice President and Chief Financial Officer, who departed the Company on December 15, 2016;

 

 

Jay D. Gould, the Company’s Chief Executive Officer, who served as the Company's President and Chief Operating Officer during 2016 and until March 3, 2017;

 

 

Raymond S. Willoch, the Company’s former Senior Vice President and General Counsel, who retired from the Company effective January 1, 2017; and

 

 

Robert A. Coombs, the Company’s Senior Vice President (Division President – Asia-Pacific).

 

Overall Philosophy and Objectives

 

The Company’s compensation program is designed in a manner intended to both attract and retain a highly-qualified, motivated and engaged management team whose focus is on enhancing shareholder value. The Company believes a straightforward program that is readily understood and endorsed by its participants best serves these goals, and has constructed a program that contains (1) multiple financial elements, (2) clear and definitive targets, (3) challenging but attainable objectives, and (4) specified performance metrics. More specifically, the objectives of the Company’s management compensation program include:

 

 

Establishing strong links between the Company’s performance and total compensation earned – i.e., “paying for performance”;

 

 

Providing incentives for executives to achieve specific performance objectives;

 

 

Promoting and facilitating management stock ownership, and thereby motivating management to think and act as owners;

 

 

Emphasizing the Company’s mid and long-term performance, thus enhancing shareholder value; and

 

 

Offering market competitive total compensation opportunities to attract and retain talented executives.

 

 
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Program Design and Administration

 

The Compensation Committee of the Board of Directors, which is composed entirely of independent directors, has developed and administers the Company’s executive pay program to provide compensation commensurate with the level of financial performance achieved, the responsibilities undertaken by the executives, and the compensation packages offered by comparable companies. The program currently consists of four principal components, each of which is designed to drive a specific behavioral focus, which in turn helps to provide specific benefits to the Company:

 

Program Component

___________________________

 

Behavioral Focus

_______________________________

 

Ultimate Benefit to Company

__________________________________

         

Competitive base salary

 

Rewards individual competencies, performance and level of experience

 

Assists with attraction and retention of highly-qualified executives, and promotes management stability

         

Annual cash bonuses based on achievement of established goals

 

Rewards operational results of specific business units and Company as a whole 

 

Aligns individual interests with overall short term (typically annual) objectives, and reinforces “pay for performance” program goals

         

Long-term incentives

 

Rewards engagement, longevity, sustained performance and actions designed to enhance overall shareholder value

 

Aligns individual interests with the long-term investment interests of shareholders, and assists with retention of highly-qualified executives

         

Other elements such as special incentives, retirement benefits and elective deferred compensation

 

Rewards targeted operational results, engagement and longevity, and sustained performance

 

Focuses enhanced efforts on a particular key objective (e.g., debt reduction), aligns individual interests with the long-term investment interests of shareholders, assists with the attraction and retention of highly-qualified executives, and promotes management stability

 

The Company strives to structure various elements of these program components so that a large portion of executive compensation is directly linked to advancing the Company’s financial performance and the interests of shareholders.

 

The Committee establishes base salaries for the executive officers, including the Named Executive Officers listed in the “Summary Compensation Table” included in this Proxy Statement. The Committee also administers the annual bonus program, the long-term incentive program, retirement benefits, deferred compensation arrangements, and, when applicable, special incentive programs.

 

The Committee has directly engaged Pearl Meyer & Partners, a nationally recognized, independent compensation consultant, to provide input on compensation matters. The services performed by Pearl Meyer may vary according to the particular needs of the engagement, but typically will consist of providing a market or peer group overview of compensation elements, including salary, bonus, long-term incentives and special incentives. For 2016, the corporate peer group included: Acuity Brands, Inc.; Albany International Corp.; Apogee Enterprises, Inc.; Armstrong World Industries, Inc.; BE Aerospace, Inc.; The Dixie Group, Inc.; Herman Miller, Inc.; HNI Corporation; Kimball International, Inc.; Knoll, Inc.; Mohawk Industries, Inc.; Steelcase, Inc.; Unifi, Inc.; and USG Corp. Pearl Meyer also periodically conducts a business performance review of our Company compared with other companies, to assist the Committee in making its compensation decisions. The work of Pearl Meyer to date has not raised any conflict of interest.

 

The Committee also seeks compensation input from the Company’s Chairman, Chief Executive Officer, Chief Human Resources Officer, and General Counsel. In addition, the Committee takes into account publicly available data relating to the compensation practices and policies of other companies within and outside the Company’s industry. Furthermore, the policies and programs described below are subject to change as the Committee deems necessary from time to time to respond to economic conditions, meet competitive standards and serve the objectives of the Company and its shareholders.

 

The Board, in conjunction with management, has reviewed our compensation policies and practices as generally applicable to our employees and determined that they do not encourage excessive risk or unnecessary risk taking and do not otherwise create risks that are reasonably likely to have a material adverse effect on the Company.

 

Discussion of Principal Elements of Compensation Program

 

Base Salaries

 

The Committee generally strives to set base salaries at the market median (50th percentile) of salaries offered by other employers in our industry and other publicly traded companies with characteristics similar to the Company (size, growth rate, etc.), based, by and large, on information provided by our independent compensation consultant while also considering internal equalization policies of the Company. Some of the companies considered from time to time are included in the list of companies comprising the “self-determined peer group” index used by our independent compensation consultant and used to create the stock performance graph included in the Company’s Annual Report on Form 10-K for the year ended January 1, 2017.

 

 
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In addition, the Committee may consider other factors when setting individual salary levels, which may result in salaries somewhat above or below the targeted amount. These factors include the executive’s level of responsibility, achievement of goals and objectives, tenure with the Company, and specific background or experience, as well as external factors such as the availability of talent, the recruiting requirements of the particular situation, and general economic conditions and rates of inflation.

 

Base salary adjustments for executive officers generally are made (if at all) annually and are dependent on the factors described above. In 2016, Mr. Gould received a base salary increase of 6.7% and each of the other Named Executive Officers (other than Mr. Coombs, who did not receive any increase) received a base salary increase of 3%, representing an aggregate increase of approximately $105,411 for those four Named Executive Officers.

 

Please see the “Summary Compensation Table” included in this Proxy Statement for the salaries paid to the Named Executive Officers in 2016.

 

Annual Bonuses

 

The Committee administers the shareholder-approved Executive Bonus Plan, which provides bonus opportunities for Company executives. The bonus opportunities provide an incentive for executives to earn compensation based on the achievement of important corporate or business unit (division or subsidiary) financial performance. In determining the appropriate bonus opportunities, the Committee seeks to establish potential awards that, when combined with annual salary, place the total overall cash compensation opportunity for the Company’s executives at the market 50th percentile for comparable companies, provided that the performance objectives are substantially achieved.

 

2016 Annual Bonus Structure

 

For 2016, each executive officer of the Company, including the Chief Executive Officer, was assigned a bonus potential, and a personalized set of annual financial objectives. The Chief Executive Officer’s bonus potential was 130% of base salary, the Chief Operating Officer’s bonus potential was 115% of base salary, and the bonus potential for the other Named Executive Officers was 90% of base salary. Actual awards could range from 0% to 150% of the bonus potential, depending on the degree to which the established financial objectives were achieved, and were paid on an annual basis approximately 60 days following the end of the year

 

In 2016, 100% of the bonus potential for the Chief Executive Officer, Chief Financial Officer and each of the other Named Executive Officers was based on measurable financial objectives. For Messrs. Hendrix, Lynch, Gould and Willoch, these objectives consisted of operating income and cash flow, and the relative weights assigned to these financial objectives were 75% and 25%, respectively. For Mr. Coombs (who manages the Company’s Asia-Pacific division), the objectives and relative weights assigned were divisional operating income (40%), consolidated operating income (25%), divisional cash flow (15%), and divisional gross profit (20%). In addition, if at least one of the Company’s three principal operating divisions (Americas, Europe or Asia-Pacific) paid a bonus under the formula applicable to that division, the corporate level executives (Messrs. Hendrix, Lynch, Gould and Willoch) were eligible to receive a pro rata bonus based on the percentage that the successful division’s (or divisions’) revenues bears to consolidated revenue.

 

For each financial objective, the Committee establishes a threshold amount, a goal amount, and a maximum amount. The threshold amount must be achieved in order for any bonus amount to be earned with respect to that objective (and no bonus is payable whatsoever if the threshold amount for operating income is not exceeded). A pro rata bonus amount is earned based upon (i) the degree to which the threshold amount (resulting in a “cut in” payout equal to 25% of the bonus potential for that criterion) is exceeded, up to the goal amount (resulting in a payout equal to 100% of the bonus potential for that criterion), or (ii) the degree to which the goal amount (resulting in a payout equal to 100% of the bonus potential for that criterion) is exceeded, up to the maximum amount (resulting in a payout equal to 150% of the bonus potential for that criterion). The approach to goal setting involves a process of reviewing, among other things, our prior year’s financial performance, our annual operating plan, and our short-term and long-term strategic objectives. We also take into account the need for setting goals that are challenging yet reasonably achievable so as to provide a competitive pay package necessary for the retention of our talent. With respect to cash flow in particular, the Committee sets the targets, in its discretion, taking into account anticipated growth initiatives, capital expenditures, research and development costs, debt maturities, and other cash uses that the Committee deems relevant. Given this methodology, the Committee believes that the threshold level, while challenging, is reasonably likely to be achieved in normalized market conditions, the goal amount is achievable with strong management performance, and the maximum amount would encourage and reward outstanding performance.

 

 
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For example, the 2016 annual thresholds, goals and maximums that were applicable for our Chief Executive Officer, excluding accruals for bonuses and restructuring charges, were as follows:

 

Criteria

Threshold

Goal

Maximum

Operating Income

$104,000,000

$144,000,000

$154,000,000

Cash Flow

$30,000,000

$45,000,000

$60,000,000

 

For 2016, each of the Named Executive Officers received a bonus, which appears in the “Summary Compensation Table” included in this Proxy Statement, as their respective performance objectives were determined to have been achieved, in part, during the year. For Messrs. Hendrix, Gould, Lynch and Willoch, the actual achievement was approximately 76% of bonus opportunity, and for Mr. Coombs, the actual achievement was approximately 118% of bonus opportunity.

 

2017 Annual Bonus Structure

 

The annual incentive awards for fiscal year 2017 are structured in a manner similar to the annual incentive awards in 2016, except that (i) the performance objectives and relative weights for divisional presidents (such as Mr. Coombs) have been changed to divisional operating income (50%), consolidated operating income (25%) and divisional cash flow (25%), and (ii) the corporate level executives’ pro rata bonus opportunity based on divisional achievement has been eliminated.

 

Long-Term Incentives

 

The Committee administers the shareholder-approved Interface, Inc. Omnibus Stock Incentive Plan (the “Omnibus Stock Plan”), which is an equity-based plan that allows for long-term incentive awards such as restricted stock, performance shares and stock options. The Omnibus Stock Plan provides for the grant to key employees and directors of the Company and its subsidiaries of restricted stock, incentive stock options (which qualify for certain favorable tax treatment), nonqualified stock options, stock appreciation rights, deferred shares, performance shares and performance units. The size of the awards made to individual officers is based on an evaluation of several factors, including the officer’s level of responsibility, the officer’s base salary and the Company’s overall compensation objectives. The amount and nature of prior equity incentive awards also are generally considered in determining new Omnibus Stock Plan awards for executive officers.

 

Long-term incentives are intended to attract and retain outstanding executive talent, create a direct link between shareholder and executive interests by focusing executive attention on increasing shareholder value, and motivate executives to achieve specific performance objectives. For instance, stock options (when granted) have an exercise price equal to at least 100% of the market price of the underlying Common Stock on the date of grant. Thus, the stock options only have value if the market price of the Company’s stock rises after the grant date. Additionally, restricted stock and performance share awards generally vest, in whole or in part, over a period of multiple years (three years for grants made in recent years), giving the executive an incentive to remain employed with the Company for a significant time period to have the opportunity to vest in an award. Moreover, awards of restricted stock and performance shares may vest earlier if specific performance criteria designed to drive shareholder value are met. All equity awards (whether restricted stock, performance shares or otherwise) will have a minimum vesting period or minimum performance period of at least one year.

 

Description of Available Awards

 

Restricted Shares 

 

Awards of restricted shares under the Omnibus Stock Plan generally vest over a period of multiple years following the date of award. The Committee may, in its discretion, also establish performance criteria for these awards, and the restricted shares may vest earlier if such performance criteria are satisfied. Unvested awards are also subject to forfeiture under certain circumstances. All restricted shares awarded to date have been made without consideration from the participant (although the Omnibus Stock Plan authorizes the Committee, in connection with any award, to require payment by the participant of consideration, which can be less than the fair market value of the award on the date of grant). Awards of restricted stock generally will not be transferable by the participant other than by will or applicable laws of descent and distribution.

 

Performance Shares 

 

Performance shares are awards reflected in a bookkeeping entry that records the equivalent of one share of Common Stock that may subsequently be earned and payable (and issued) to the participant if specified performance criteria established by the Committee are satisfied. Awards of performance shares may be settled in Common Stock, cash, or a combination thereof, at the Company’s election. Grants of performance shares may provide for the payment to the participant of dividend equivalents on a current, deferred or contingent basis. Awards of performance shares generally will not be transferable by the participant other than by will or applicable laws of descent and distribution.

 

 
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Stock Options

 

Options granted under the Omnibus Stock Plan may be incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986, as amended), nonqualified stock options or a combination of the foregoing, although only employees are eligible to receive incentive stock options. All options under the Omnibus Stock Plan will be granted at an exercise price per share equal to not less than 100% of the fair market value of the Common Stock on the date the option is granted. Options may be structured to vest over a period of multiple years. Options granted under the Omnibus Stock Plan expire following a pre-determined period of time after the date of grant (which may not be more than 10 years after the grant date), and generally will terminate on the date three months following the date that a participant’s employment with the Company terminates.

 

The Company receives no consideration upon the granting of an option. Full payment of the option exercise price must be made when an option is exercised. The exercise price may be paid in cash or in such other form as the Committee may approve, including shares of Common Stock valued at their fair market value on the date of option exercise. Options generally will not be transferable by the holder thereof other than by will or applicable laws of descent and distribution.

 

The Committee has not granted stock options to any executive officer in the past three years.

 

Other Potential Awards

 

The Omnibus Stock Plan also provides for the award of stock appreciation rights, deferred shares and performance units. Through the end of 2016, the Committee had not granted any of these types of awards.

 

Recent Omnibus Stock Plan Awards to Named Executive Officers

 

In January 2015, each of the Named Executive Officers received an award of restricted stock. These awards are eligible to performance vest to the extent that the Company’s earnings per share plus dividends reaches or exceeds specified levels during the three-year performance period of 2015 to 2017 (the goal was approximately 15% compound annual growth for 2015 and 10% compound annual growth thereafter). Half of the award became eligible to vest based on results in the first year of the performance period, and all of the award was eligible to vest based on results in the second or third year. Fifty percent of any unvested shares (i.e., shares that had not performance vested) from the 2015 award would vest on the third anniversary of the grant date if the executive remained employed by the Company at that time. In February 2016, the first half of these awards vested based on the Company’s level of earnings per share plus dividends achieved in 2015. The second half of these awards vested in February 2017 based on the Company’s level of earnings per share plus dividends achieved in 2016. (Mr. Gould also had a time-based award of restricted stock that vested half in January 2016 and half in January 2017.)

 

For 2016, the Committee modified the equity award program and divided each executive’s award into three equal subparts.

 

The first subpart of each 2016 award was granted as restricted stock, and the shares will vest 100% on the third anniversary of the grant date, if the executive remains employed with the Company until that date. The executive also has the right to receive any cash dividends paid on the restricted stock, throughout the three-year term.

 

The second subpart of the 2016 award was granted as performance shares, with an opportunity for part of the award to vest based on the Company’s earnings per share (“EPS”) in each of the years 2016 and 2017, and any shares that have not previously vested have the opportunity to vest based on the Company’s EPS in 2018. The amount of performance shares that vest will be determined pro rata based upon (i) the degree to which an applicable EPS threshold level is achieved (at which point 25% of the performance shares would vest) or exceeded up to an applicable EPS target level (at which point 100% of the performance shares would vest), or (ii) the degree to which the applicable EPS target level is exceeded up to an applicable EPS maximum level (at which point two times the nominal performance shares would vest). There is no “time vesting” opportunity for this subpart. “Dividend equivalents” will accrue on these awards of performance shares and be paid only if and when the related performance shares vest.

 

The third subpart of the 2016 award also was granted as performance shares, with an opportunity for the award to vest based on the Company’s cumulative operating income during the three-year performance period of 2016-2018. The pro rata vesting structure and dividend equivalent provisions are essentially the same as those described for the second subpart above.

 

None of the 2016 awards have vested for any of the Named Executive Officers, except that Mr. Lynch vested in a pro rata (1/3) amount of his 2016 awards based upon his termination without cause in December 2016.

 

 
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The 2017 equity awards are structured in a manner similar to the 2016 awards. One-third of the 2017 awards was granted as restricted stock with the same vesting and dividend provisions described above. The other two-thirds were granted in a single award of performance shares with two separate, independent vesting criteria. The first vesting criterion is the Company’s EPS during the years 2017 to 2019, structured in the same way described above with respect to the 2016 awards. The second vesting criterion is based on the Company’s total shareholder return (“TSR”) compared with its peer group during the three-year performance period of 2017 to 2019 with the following vesting opportunities (less any shares vested under the EPS criteria described above):

 

 

TSR Percentile 2017-2019

 

Amount Vests (% of Nominal Award)

   
 

Less than 50th

    0%    
 

50th to 75th

    Pro rata 50% to 100%    
 

Greater than 75th

    100%    

 

The 2017 awards also include a “double trigger” change-in-control vesting provision whereas the 2016 and earlier awards included “single trigger” change-in-control vesting provisions. In other words, the 2017 awards would not vest based solely on the occurrence of a change in control alone; rather, there must be “second trigger” of either (i) an involuntary separation from service or (ii) a separation from service for “Good Reason” (essentially, resignation in the face of negative changes in executive’s employment relationship with the Company).

 

Stock Ownership and Retention Guidelines

 

To further tie the financial interests of Company executives to those of shareholders, the Committee has established stock ownership and retention guidelines. For 2016, the Committee increased the stock ownership and retention guidelines, so that executives are now expected to accumulate a number of shares (unrestricted) of the Company’s Common Stock having a value equaling three times base salary in the case of the Chief Executive Officer and two times base salary in the case of the other executive officers (based on salaries and the stock price at the time the new guidelines were adopted). The expectation is for executives to reach this ownership level by March 2020. As of the end of 2016, Messrs. Hendrix and Coombs already had met this new target. Mr. Gould remained in compliance with the prior guideline and substantially increased his ownership towards reaching the new target by 2020. (Messrs. Lynch and Willoch are no longer employees of the Company.) To facilitate accomplishing the ownership targets, executive officers generally are expected to retain at least one-half of the net after-tax shares (i.e., the net shares remaining after first selling sufficient shares to cover the anticipated tax liability and, in the case of stock options, the exercise price) obtained upon the vesting of restricted stock and the exercise of stock options.

 

Directors also are subject to stock ownership requirements. Directors are required to hold 2,000 unrestricted shares. Any new director is required to accumulate these shares by the second anniversary of his or her election. All current directors have met this stock ownership standard, except Ms. Matts (who was elected as a director in October 2016). As a guideline, non-employee directors also are expected to retain during their tenure all of the net after-tax shares obtained upon the vesting of restricted stock and at least one-half of the net after-tax shares obtained upon the exercise of stock options.

 

The Company has a policy that generally prohibits all of its employees, officers and directors from engaging in short sales or trading in puts, calls and other options or derivatives with respect to the securities of the Company.

 

Other Elements of Compensation Program

 

In addition to the principal compensation program elements described above, the Company has adopted a number of other elements to further its compensation program goals. They are as follows:

 

●    401(k) Plan and Other Defined Contribution Plans

●    Severance Agreements

   

●    Elective Deferred Compensation Program

●    Perquisites

   

●    Pension/Salary Continuation Programs

●    Special Incentive Programs

 

401(k) Plan and Other Defined Contribution Plans

 

The Company maintains the Interface, Inc. Savings and Investment Plan (the “401(k) Plan”), a tax-qualified 401(k) plan which provides its U.S.-based employees a convenient and tax-advantaged opportunity to save for retirement. The Company’s Named Executive Officers who are based in the United States are eligible to participate in the 401(k) Plan on the same terms as other executive and non-executive employees based in the United States, and receive the same benefits afforded all other participants. Under the 401(k) Plan, all participating employees are eligible to receive matching contributions that are subject to vesting over time. The Company periodically evaluates the level of matching contributions afforded participant employees to ensure competitiveness in the marketplace. The Company matches 50% of the first 6% of the employee’s eligible compensation (capped by statutory limitations) that the employee contributed to the 401(k) Plan.

 

 
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Mr. Coombs participates in a defined contribution plan in Australia called a “superannuation plan”. Pursuant to this plan, the Company contributed $17,993 to Mr. Coombs’s account in 2016.

 

Elective Deferred Compensation Program

 

The Company also maintains the Interface, Inc. Nonqualified Savings Plan (the “Nonqualified Plan”) for certain U.S.-based “highly compensated employees” (as such term is defined in applicable IRS regulations), including the Named Executive Officers who are based in the United States. The compensation level required to participate in the Nonqualified Plan was $120,000 in total annual compensation, and the Company had 103 participants in the plan (including both current and former employees) at the end of 2016. As with the Company’s 401(k) Plan, the Named Executive Officers who are based in the United States are eligible to participate in the Nonqualified Plan on the same terms as other executive and non-executive eligible employees based in the United States, and receive the same benefits afforded all other participants. Under the Nonqualified Plan, all eligible employees can elect to defer, on a pre-tax basis, a portion of their salary and/or annual bonus compensation. The Company matches 50% of the first 6% of the employee’s eligible salary and bonus that was deferred, less any potential Company matching amounts under the 401(k) Plan.

 

The Nonqualified Plan also contains a “Key Employee Retirement Savings Benefit” feature to permit discretionary contributions to certain key employees’ accounts (in a separately tracked sub-account) to enhance retirement savings and to couple such contributions with vesting structures that will promote the retention of such key employees. In each of the years 2014 and 2015, the Compensation Committee made a Key Employee Retirement Savings Benefit contribution of $50,000 to the Nonqualified Plan account of Mr. Lynch (no contribution was made in 2016). This contribution would vest 50% upon his reaching age 50 and 50% upon his reaching age 55, assuming continuous service with the Company until such ages, or would vest in the event of a termination without cause.

 

Please see the “Non-Qualified Deferred Compensation” table included in this Proxy Statement for further details regarding the Nonqualified Plan, as well as the Company’s Named Executive Officers’ contributions, earnings and account balances applicable to the Nonqualified Plan for fiscal year 2016.

 

Pension/Salary Continuation Programs

 

Foreign Defined Benefit Plans

 

The Company has trustee-administered defined benefit retirement plans (“Pension Plans”) which cover certain of its overseas employees. The benefits are generally based on years of service and the employee’s average monthly compensation. As determined by their respective trustees, the investment objectives of the Pension Plans are to maximize the return on the investments without exceeding the limits of prudent pension fund investment and to ensure that the assets ultimately will be sufficient to exceed minimum funding requirements. The goal is to optimize the long-term return on plan assets at a moderate level of risk, by balancing higher-returning assets, such as equity securities, with less volatile assets, such as fixed income securities. The assets are managed by professional investment firms and performance is evaluated periodically against specific benchmarks. The Pension Plans’ net assets did not include any shares of the Company’s own stock at January 1, 2017. None of our Named Executive Officers are participants.

 

Salary Continuation Plan

 

Historically, the Company has maintained a nonqualified Salary Continuation Plan designed to induce selected employees of the Company to remain in the employ of the Company by providing them with retirement, disability and death benefits in addition to those that they may receive under the Company’s other benefit programs. As of the end of 2016, Messrs. Hendrix and Willoch were the only employees participating in the Salary Continuation Plan, and the Committee has determined that the plan is closed to new participants.

 

 
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The Salary Continuation Plan entitles participants to (i) retirement benefits upon normal retirement from the Company at age 65 (or early retirement as early as age 55) after completing at least 15 years of service with the Company (unless otherwise provided in the plan), payable for the remainder of their lives (or, if elected by a participant, a reduced benefit is payable for the remainder of the participant’s life and any surviving spouse’s life) and in no event for less than 10 years under the death benefit feature; (ii) disability benefits payable for the period of any pre-retirement total disability; and (iii) death benefits payable to the designated beneficiary of the executive for a period of up to 10 years. The annual retirement benefit for retirement at age 65 is 50% of the executive’s final average earnings (defined as the average of the salary and bonus paid by the Company for the four individual calendar years of the executive’s highest compensation during the last eight full calendar years of the executive’s employment with the Company ending on or prior to the effective date of the executive’s retirement), which decreases proportionately to 30% of final average earnings for early retirement at age 55. The annual disability benefit is structured to essentially equate to 66% of current pay (salary and bonus) at the time of disability. The annual death benefit, for the 10-year payment period, is 50% of final average earnings, for a pre-retirement death, or a continuation of the actual retirement payments for the balance of the 10-year period (if any) for a post-retirement death (assuming no election of spousal survival benefits). The Company’s obligations under the Salary Continuation Plan are currently unfunded (although the Company uses insurance instruments in an irrevocable grantor (“rabbi”) trust to hedge its exposure thereunder); however, the Company is required to contribute the full present value of its obligations thereunder to a rabbi trust in the event of a “Change in Control” (as such term is defined in the Salary Continuation Plan) of the Company.

 

Pursuant to the Salary Continuation Plan, the Company has maintained Salary Continuation Agreements with each of Named Executive Officers Hendrix and Willoch since 1986 and 1996, respectively. (The Company most recently amended and restated the Salary Continuation Agreements with Messrs. Hendrix and Willoch in January 2008, primarily to comply with Section 409A of the Internal Revenue Code of 1986, as amended. The benefits under their amended and restated agreements are substantially similar to those under their respective prior agreements.) The individual Salary Continuation Agreements contain essentially all of the benefit terms and conditions, and those agreements control in the event of any conflict with the Salary Continuation Plan document. Please see the “Pension Benefits” table included in this Proxy Statement for information about the Salary Continuation Plan benefits applicable to Messrs. Hendrix and Willoch.

 

Severance Agreements

 

The Company has Employment and Change in Control Agreements in effect with each of the Named Executive Officers. These agreements generally provide for certain benefits (salary, bonus, medical benefits, etc.) in the event of a Named Executive Officer’s termination of employment without “cause” (as defined in the agreements), as well as certain benefits upon his resignation, death or disability. These agreements also contain provisions placing restrictions on a Named Executive Officer’s ability to compete with the Company, or solicit its customers or employees, for a specified period of time following termination of employment. These agreements also provide for certain benefits in the event of a termination of employment in connection with a “Change in Control” (as defined in the agreements) of the Company.

 

Please see the further discussion below in the “Potential Payments Upon Termination or Change of Control” section of this Proxy Statement regarding the respective employment and change in control agreements of the Company’s Named Executive Officers.

 

Perquisites

 

In order to provide a market competitive total compensation package to certain of the Company’s executive officers, including the Named Executive Officers, the Company provides those limited perquisites that it believes enable its Named Executive Officers to perform their responsibilities efficiently and with minimal distractions. The perquisites provided to one or more Named Executive Officers in 2016 included the following:

 

●    Company-provided automobile/allowance

●    Long-term care and life insurance

   

●    Tax return preparation services 

●    Split dollar insurance agreement (for Mr. Hendrix only)

   

●    Company-provided telephone

 

 

Please see the “Summary Compensation Table” included in this Proxy Statement (and the notes thereto) for a more detailed discussion of these perquisites and their valuation.

 

 
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Special Incentive Programs

 

From time to time, in its discretion, the Committee may implement special incentive programs which provide executives an opportunity to earn additional compensation if specific performance objectives are met. Special incentive programs are used when the Committee recognizes a need or desire for the Company to achieve one or more targeted strategic or financial objectives (such as stock price appreciation, debt reduction, cash accumulation, or attainment of a specified financial ratio), in addition to those objectives generally covered by annual bonuses and long-term incentives. The time period for achievement of the objectives may vary from less than a year to a multiple-year period. In each case, the performance objectives are designed to represent challenging but achievable targets that will serve to align the interests of executives with the interests of shareholders, and encourage executives to think and act as owners.

 

No special incentive programs were applicable during 2014-2016.

 

Compensation Deductibility

 

An income tax deduction under federal law will be generally available for annual compensation in excess of $1 million paid to the chief executive officer and the named executive officers of a public corporation only if that compensation is “performance-based” and complies with certain other tax law requirements. Executive compensation under the Company’s Executive Bonus Plan, described above, meets these requirements and therefore qualifies for an income tax deduction under federal law.

 

Although the Committee considers deductibility issues when approving executive compensation elements, the Company and the Committee believe that other compensation objectives, such as attracting, retaining and providing incentives to qualified managers, are important and may supersede the goal of maintaining deductibility. Consequently, the Company and the Committee may make compensation decisions without regard to deductibility when it is deemed to be in the best interests of the Company and its shareholders to do so.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee of the Board of Directors has reviewed and discussed with management the “Compensation Discussion and Analysis” section of this Proxy Statement. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” section be included in this 2017 Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended January 1, 2017, filed with the Securities and Exchange Commission.

 

 

THE COMPENSATION COMMITTEE

 

 

 

Andrew B. Cogan (Chair)

  Sheryl D. Palmer

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

None of the executive officers of the Company served as either (1) a member of the Compensation Committee or (2) a director of any entity of which any member of the Compensation Committee is an executive officer. In addition, none of the executive officers of the Company served as a member of the compensation committee of any entity of which any member of the Board of Directors is an executive officer.

 

 
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EXECUTIVE COMPENSATION AND RELATED ITEMS

 

Summary Compensation Table

 

The following table provides information about the compensation paid by the Company and its subsidiaries to the Company’s Named Executive Officers for each of the past three fiscal years.

 

Name and Principal Position

(a)

 

Year

(b)

 

Salary

($)

(c)

   

Bonus

($)

(d)(1)

   

Stock Awards

($)

(e)(2)

   

Option Awards

($)

(f)

   

Non-Equity Incentive

Plan Compensation

($)

(g)(3)

   

Change in Pension Value and Nonqualified Deferred

Compensation Earnings

($)

(h)(4)

   

All Other Compensation

($)

(i)(5)

   

Total

($)

(j)(6)

 

 

 

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Daniel T. Hendrix,

 

2016

    1,011,000       --       2,223,395       --       992,297       1,617,135       185,493       6,029,320  

Chairman and Former

 

2015

    981,300       --       1,635,000       --       1,912,897       1,404,405       232,887       6,166,489  

CEO

 

2014

    952,752       --       1,873,520       --       368,477       1,040,484       204,061       4,439,294  
                                                                     

Patrick C. Lynch,

 

2016

    456,000       --       516,600       --       345,800       --       55,874       1,374,274  

Former Senior Vice

 

2015

    443,200       --       490,500       --       598,121       --       117,645       1,649,466  

President and CFO

 

2014

    430,300       --       558,863       --       124,895       --       112,869       1,226,927  
                                                                     

Jay D. Gould,

 

2016

    800,000       --       1,189,523       --       694,600       --       68,863       2,752,986  

President and

 

2015

    701,923       --       1,366,762       --       1,067,375       --       61,031       3,197,091  

CEO

                                                                   
                                                                     

Raymond S. Willoch,

 

2016

    456,000       --       602,511       --       309,852       471,931       55,964       1,896,258  

Former Senior VP

 

2015

    443,200       --       490,500       --       598,121       268,007       64,461       1,864,289  

and General Counsel

 

2014

    430,300       --       558,863       --       124,895       448,200       60,763       1,623,021  
                                                                     

Robert A. Coombs

 

2016

    348,324       --       496,608       --       368,659       --       124,820       1,338,411  

Senior Vice President

 

2015

    353,309       --       408,750       --       417,115       --       129,230       1,308,404  

(Division President)*

 

2014

    380,609       --       425,800       --       52,319       --       131,257       989,985  

______

 

 

*

Mr. Coombs is paid in Australian dollars. In calculating the U.S. dollar equivalent for disclosure purposes, the Company has converted each payment in Australian dollars into U.S. dollars based on the exchange rate in effect as of the end of the year (AUS$1 to $0.72 for 2016, AUS$1 to $0.73 for 2015, and AUS$1 to $0.81 for 2014).

 

 

(1)

The Company paid no discretionary bonuses, or bonuses based on performance metrics that were not pre-established and communicated to the Named Executive Officers. All cash bonus awards were performance-based. These payments, which were made under the Company’s Executive Bonus Plan, are reported in the “Non-Equity Incentive Plan Compensation” column (column (g)).

 

 

(2)

The amounts reported in the “Stock Awards” column are computed based upon the grant date fair values as of the respective grant dates. See the Note entitled “Shareholders’ Equity” to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended January 1, 2017, regarding assumptions underlying valuation of equity awards. See the “Grants of Plan-Based Awards” table included in this Proxy Statement for additional information about equity awards granted in 2016, and the “Outstanding Equity Awards at Fiscal Year-End” table included in this Proxy Statement for information with respect to awards outstanding at year-end 2016. The ultimate payout value with respect to the “Stock Awards” included in column (e) may be significantly less than the amounts shown, and possibly zero, depending on the Company’s financial performance at the end of the performance or restricted period and the recipient’s tenure of employment. For a description of the performance criteria, please see the discussion contained in the “Compensation Discussion and Analysis” section herein.

 

 

(3)

The amounts reported in the “Non-Equity Incentive Plan Compensation” column reflect the amounts earned by and paid to each Named Executive Officer under the Company’s Executive Bonus Plan. The material provisions of the Executive Bonus Plan are more fully described in the “Compensation Discussion and Analysis” section included herein.

 

 

(4)

The amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column represent aggregate changes in the actuarial present value of the Named Executive Officers’ accumulated benefit under the Company’s Salary Continuation Plan (for Messrs. Hendrix and Willoch). Messrs. Lynch, Gould and Coombs do not participate in a Pension Plan or the Salary Continuation Plan. The Company does not pay any above-market interest (or any guaranteed interest rate) on its Nonqualified Plan. See the “Pension Benefits” table of this Proxy Statement for information about these benefits afforded each of the Company’s Named Executive Officers.

 

 

(5)

The amounts reported in the “All Other Compensation” column reflect, for each Named Executive Officer, the sum of (i) the incremental cost to the Company of all perquisites and other personal benefits, and (ii) amounts contributed by the Company to the 401(k) Plan, Nonqualified Plan or superannuation plan (collectively, the “Company Retirement Plans”). The material provisions of the Company Retirement Plans are contained in the “Compensation Discussion and Analysis” section herein.

 

 
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The following table outlines those perquisites and all other compensation required by SEC rules to be separately quantified that were provided to the Company’s Named Executive Officers during 2016.

 

Name

 

 

Automobile

 

($)

   

Telephone

 

($)

   

Long-Term

Care and Life Insurance Premiums

 

($)

   

Split Dollar Insurance Premiums

 

($)

   

Other

 

($) 

   

Dividends

on Restricted

Stock

 

($) 

   

Company Contributions to Retirement Plans

 

($) 

 
                                           
                                                         

Daniel T. Hendrix

    15,022       4,456       2,742       72,032       4,500       20,469       66,272  

Patrick C. Lynch

    19,015       2,682       1,924       --       1,600       6,445       24,208  

Jay D. Gould

    15,000       3,676       2,476       --       --       14,261       33,450  

Raymond S. Willoch

    18,258       2,102       2,467       --       2,250       5,866       25,021  

Robert A. Coombs

    --       14,993       --       --       86,969       4,865       17,993  

 

 

Automobile/Automobile Allowance. Each of the Named Executive Officers except Mr. Coombs were provided with use of a company-provided automobile or an automobile allowance, plus fuel and maintenance.

 

Telephone. The Company paid certain fees associated with the Named Executive Officers’ use of company-provided cellular telephones.

 

Long-Term Care and Life Insurance. The Company paid certain premiums associated with long-term care and life insurance policies covering Messrs. Hendrix, Lynch, Gould and Willoch.

 

Split Dollar Insurance Agreement with Daniel T. Hendrix. The Company is a party to a split dollar insurance agreement (the “Hendrix Split Dollar Agreement”) with Mr. Hendrix. Pursuant to the Hendrix Split Dollar Agreement, Mr. Hendrix has obtained an insurance policy on his life, and the Company pays the premiums on such policy as an additional employment benefit for Mr. Hendrix. The annual premium is $72,032. Mr. Hendrix is the owner of the policy, and has assigned to the Company a portion of the death benefit that is equal to the greater of (i) the total amount of the unreimbursed premiums paid by the Company with respect to the policy, or (ii) the death benefit under the policy in excess of $2,000,000. The Company’s portion totaled $2,606,444 as of January 1, 2017. The balance of the death benefits ($2,000,000) will be payable to the beneficiaries of the policy designated by Mr. Hendrix.

 

Other. The Company paid certain fees or costs associated with tax return preparation on behalf of Messrs. Hendrix, Lynch and Willoch. For Mr. Coombs, the amount represents reimbursement of housing expenses.

 

Dividends on Restricted Stock. In 2016, the Company paid on all outstanding Common Stock of the Company (including restricted stock) dividends of $0.05 per share in each of the first two quarters and $0.06 per share in each of the last two quarters. The amounts in the “Dividends on Restricted Stock” column reflect dividends on the restricted shares of each Named Executive Officer in 2016.

 

 
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Contributions to Retirement Plans. The Company makes matching contributions, on the same terms and using the same formulas as for other participating employees, to each U.S.-based Named Executive Officer’s account under the 401(k) Plan and the Nonqualified Plan, as applicable.

 

The amounts reflected below represent the contributions by the Company:

 

Name

___________________

 

Year

 

 

Company Contribution

To 401(k) Plan

($)

 

   

Company Contribution

To Nonqualified Plan

($)

 

 
                     

Daniel T. Hendrix

 

2016

    7,950       58,322  
   

2015

    7,950       50,726  
   

2014

    6,500       47,587  

Patrick C. Lynch

 

2016

    7,950       16,258  
   

2015

    7,950       64,580  
   

2014

    7,800       63,763  

Jay D. Gould

 

2016

    7,950       25,500  
   

2015

    7,950       --  

Raymond S. Willoch

 

2016

    7,950       17,071  
   

2015

    7,950       14,580  
   

2014

    7,800       13,763  

 

The Company’s contributions to the Nonqualified Plan of Mr. Lynch included a $50,000 discretionary contribution under the Key Employee Retirement Savings Benefit in years 2014 and 2015 and each is subject to vesting criteria as described in the “Compensation Discussion and Analysis” section included herein. As a non-U.S. employee, Mr. Coombs is ineligible to participate in the 401(k) Plan and the Nonqualified Plan. Mr. Coombs does participate in a defined contribution plan in Australia, where the company’s contribution to his plan account was $17,993 in 2016, $18,250 in 2015, and $20,250 in 2014.

 

 

(6)

In 2016, salary as a percentage of total compensation (excluding change in pension value) for each of Messrs. Hendrix, Lynch, Gould, Willoch and Coombs was 22.9%, 33.2%, 29.1%, 32.0%, and 26.0%, respectively. In 2015, this percentage for each of Messrs. Hendrix, Lynch, Gould, Willoch and Coombs was 20.6%, 26.9%, 22.0%, 27.8%, and 27.0%, respectively. In 2014, this percentage for each of Messrs. Hendrix, Lynch, Willoch and Coombs was 28.0%, 35.1%, 36.6% and 38.4%, respectively. As reflected in column (d), the Company paid no discretionary bonuses.

 

 
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Grants of Plan-Based Awards in 2016

 

The following table provides information about awards granted to the Company’s Named Executive Officers in 2016, as well as potential future payments associated therewith.

 

           

Estimated Future Payouts

Under Non-Equity Incentive

Plan Awards (1)

   

Estimated Future Payouts

Under Equity Incentive

Plan Awards

         
                             
           

 

   

 

         

Name

 

(a)

 

Grant Date

 

 

(b)

   

Threshold

($)

 

(c)

   

Target

($)

 

(d)

   

Maximum

($)

 

(e)

   

Threshold

(#)

 

(f)

   

Target

(#)

 

(g)(2)

   

Maximum

(#)

 

(h)

   

Grant Date Fair Value of Stock and Option Awards

($)

(l) (3)

 

Daniel T. Hendrix

    01-13-16       328,575       1,314,300       1,971,450       21,520       86,078       172,156       1,482,263  
      01-13-16       --       --       --       --       43,039       43,039       741,132  

Patrick C. Lynch

    01-13-16       102,600       410,400       615,600       5,832       23,326       46,652       401,674  
      01-13-16       --       --       --       --       14,294       14,294       246,143  

Jay D. Gould

    01-13-16       230,000       920,000       1,380,000       11,513       46,052       92,104       793,015  
      01-13-16       --       --       --       --       23,026       23,026       396,508  

Raymond S. Willoch

    01-13-16       102,600       410,400       615,600       5,832       23,326       46,652       401,674  
      01-13-16       --       --       --       --       11,663       11,663       200,837  

Robert A. Coombs*

    01-13-16       78,373       313,492       470,237       4,807       19,226       38,452       331,072  
      01-13-16       --       --       --       --       9,613       9,613       165,536  

 

*

Estimated potential payments under Non-Equity Incentive Plan Awards for Mr. Coombs are converted into U.S. dollars based on the exchange rate as of the end of fiscal year 2016.

 

(1)

The payment amounts reflected in columns (c), (d) and (e) represent amounts associated with awards potentially earned for fiscal 2016 by the Company’s Named Executive Officers under the Company’s Executive Bonus Plan. The total bonus opportunity under the Executive Bonus Plan (expressed as a percentage of 2016 base salary) was 130% for Mr. Hendrix, 115% for Mr. Gould, and 90% for the other Named Executive Officers, and up to 150% of the bonus opportunity may be earned for maximum achievement. Certain additional material provisions of the Executive Bonus Plan are more fully described in the “Compensation Discussion and Analysis” section included herein.

 

(2)

The amounts reflected in column (g) represent the number of shares of restricted stock and performance shares granted to the executives in January 2016 under the Omnibus Stock Plan. See the Compensation Discussion and Analysis herein for additional information on these awards. These shares of restricted stock and performance share are included in the “Stock Awards” column (column (e)) of the Summary Compensation Table.

 

(3)

The amounts reflected in column (l) represent the dollar value of restricted stock and performance shares awarded to the executives, calculated by multiplying the number of shares (assuming target payout) awarded by the closing price of the Company’s Common Stock as reported by the Nasdaq Stock Market on the trading date immediately preceding the date of grant.

 

 
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Outstanding Equity Awards at 2016 Fiscal Year-End

 

The following table provides information about the number of shares covered by exercisable and unexercisable options and unvested restricted stock awards outstanding and held by the Company’s Named Executive Officers as of January 1, 2017.

 

 

   

Option Awards

   

Stock Awards

 
             
                                                                         

Name

 

(a)

 

Number of Securities Underlying Unexercised Options

 

(#)

 

Exercisable

 

(b)

   

Number of Securities Underlying Unexercised Options

 

(#)

 

Unexercisable

 

(c)

   

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

 

(#)

 

(d)

   

Option

Exercise

Price

 

($)

 

(e)

   

Option

Expiration

Date

 

 

 

(f)

   

Number of

Shares or

Units of

Stock That

Have Not

Vested

 

(#)

 

(g)(1)

   

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested

 

($)

 

(h)(2)

   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units

or Other

Rights

That

Have

Not

Vested

 

(#)

 

(i)

   

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

 Units or

Other

Rights

That Have

Not

Vested

 

($)

 

(j)

 
   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Daniel T. Hendrix

    --       --       --       --       --       93,039       1,725,873       86,078       1,596,747  

Patrick C. Lynch

    --       --       --       --       --       --       --       --       --  

Jay D. Gould

    --       --       --       --       --       64,823       1,202,467       46,052       854,265  

Raymond S. Willoch

    --       --       --       --       --       26,663       494,599       23,326       432,697  

Robert A. Coombs

    --       --       --       --       --       22,113       410,196       19,226       356,642  

______

 

 

(1)

Restricted stock awards that have not yet vested are subject to forfeiture by the Named Executive Officers under certain circumstances. For a description of the related performance criteria, please see the discussion contained in the “Compensation Discussion and Analysis” section herein. The restricted stock vesting dates for each Named Executive Officer range from 2016-2018.

 

 

(2)

The market value referenced above is based on the closing price of $18.55 per share of the Company’s Common Stock on December 30, 2016 (the last trading day of the Company’s 2016 fiscal year), as reported by the Nasdaq Stock Market.

 

 
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Option Exercises and Stock Vested in 2016

 

The following table provides information about the number and corresponding value realized during 2016 with respect to (i) the exercise of stock options, and (ii) the vesting of restricted stock for each of the Company’s Named Executive Officers.

 

   

Option Awards

   

Stock Awards

 
             
   

 

   

 

 

Name

 

(a)

 

Number of Shares

Acquired on Exercise

 

(#)

 

(b)

   

Value Realized

on Exercise

 

($)

 

(c)

   

Number of Shares

Acquired on Vesting

 

(#)

 

(d)

   

Value Realized

on Vesting

 

($)

 

(e)(1)

 

Daniel T. Hendrix

    --       --       188,000       3,175,320  

Patrick C. Lynch

    --       --       86,290       1,485,839  

Jay D. Gould

    --       --       41,797       690,662  

Raymond S. Willoch

    --       --       57,250       966,953  

Robert A. Coombs

    --       --       48,500       819,165  

______

 

 

(1)

The dollar amount is determined by multiplying (i) the number of shares vested by (ii) the closing price of our Common Stock on the Nasdaq Stock Market on the day preceding the vesting date.

 

 

2016 Pension Benefits

 

The following table provides information about the pension benefits for each of the Company’s Named Executive Officers.

 

Name

 

(a)

 

Plan Name

 

(b)(1)

   

Number of Years Credited

Service

 

(#)

 

(c)

   

Present Value of

Accumulated

Benefit

 

($)

 

(d)

   

Payments During Last

Fiscal Year

 

($)

 

(e)

 

 

 

 

   

 

   

 

   

 

 

Daniel T. Hendrix

 

Salary Continuation Plan

   

More than 15

      12,723,258       --  

Patrick C. Lynch

    --       --       --       --  

Jay D. Gould

    --       --       --       --  

Raymond S. Willoch

 

Salary Continuation Plan

   

More than 15

      4,399,917       --  

Robert A. Coombs

    --       --       --       --  

______

 

 

(1)

The benefits under the Salary Continuation Plan vest upon 15 years of service and attainment of the age of 55, with maximum benefit accruing at age 65. Messrs. Hendrix and Willoch are the only Named Executive Officers participating in the Salary Continuation Plan, and each has reached age 55. The above values assume commencement of payment of the maximum benefit at age 65. All other assumptions are the same as are used for financial reporting purposes under generally accepted accounting principles. The Compensation Committee has determined that the Salary Continuation Plan is closed to any new participants.

 

 
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2016 Non-Qualified Deferred Compensation

 

The following table provides information about the contributions, earnings and account balances of the Company’s applicable deferred compensation plans for each of the Company’s Named Executive Officers.

 

Name

 

(a)(1)

 

Executive

Contributions

in Last FY

 

($)

 

(b)

   

Company

Contributions

in Last FY

 

($)

 

(c)(2)

   

Aggregate Earnings

in Last FY

 

($)

 

(d)

   

Aggregate Withdrawals/

Distributions

 

($)

 

(e)

   

Aggregate Balance

at Last FYE

 

($)

 

(f)(3)

 

 

 

 

   

 

   

 

   

 

   

 

 
                                         

Daniel T. Hendrix

    493,115       50,725       41,477       --       1,496,308  

Patrick C. Lynch

    48,415       30,837       69,533       --       1,159,377  

Jay D. Gould

    48,900       --       2,376       --       51,276  

Raymond S. Willoch

    50,043       14,580       470       (77,622)       28,062  

Robert A. Coombs

    --       --       --       --       --  

______

 

 

(1)

The Company maintains the Nonqualified Plan for certain U.S.-based “highly compensated employees” (as such term is defined in applicable IRS regulations), including each of the Named Executive Officers. As with the Company’s 401(k) Plan, the Named Executive Officers are eligible to participate in the Nonqualified Plan on the same terms as other eligible executive and non-executive employees based in the United States, and receive the same benefits afforded all other participants.

     
    Under the Nonqualified Plan, all eligible employees can elect to defer, on a pre-tax basis, a portion of their salary and/or annual bonus compensation. Each participant elects when the deferred amounts will be paid out, which can be during or after employment, subject to the provisions of Section 409A of the Internal Revenue Code. The employee earns a deferred return based on deemed investments in mutual funds selected by the employee from a list provided by the Company. The investment risk is borne entirely by the employee participant. Gains and losses are credited based on the participant’s election of a variety of deemed investment choices. Participants’ accounts may or may not appreciate, and may even depreciate, depending on the performance of their deemed investment choices. None of the deemed investment choices provide interest at above-market rates (or any guaranteed interest rate). The Company has established an irrevocable grantor (“rabbi”) trust to hold, invest and reinvest deferrals and contributions under the Nonqualified Plan, and all deferrals are paid out in cash upon distribution.

 

 

(2)

The amounts reported in column (c) reflect, for each Named Executive Officer (as applicable), the actual amounts contributed by the Company to the Nonqualified Plan during fiscal year 2016 (including contributions in 2016 with respect to compensation deferrals in 2015).

 

 

(3)

The amounts reported in column (d) were not reported as compensation to the Named Executive Officers in the Company’s Summary Compensation Table. However, the Company’s matching contributions reported in column (c) are included in the “All Other Compensation” column of the Company’s Summary Compensation Table.

 

 
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2016 Director Compensation

 

The following table provides information about the compensation paid to the Company’s directors in 2016 (excluding Messrs. Hendrix and Gould, each of whom is a Named Executive Officer and does not receive additional compensation for Board or Committee service and whose compensation is presented in the Summary Compensation Table included herein).

 

Name

 

(a)

 

Fees Earned

or Paid

in Cash

 

($)

 

(b)(1)

   

Stock Awards

 

($)

 

(c)(2)

   

Option

Awards

 

($)

 

(d)(3)

   

Non-Equity

Incentive Plan

Compensation

 

($)

 

(e)

   

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

 

($)

 

(f)

   

All Other

Compensation

 

($)

 

(g)(4)

   

Total

 

($)

 

(h)

 

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

 

John P. Burke

    85,000       79,911       --       --       --       1,454       166,365  

Edward C. Callaway

    45,000       79,911       --       --       --          661       125,572  

Andrew B. Cogan

    87,500       79,911       --       --       --       1,454       168,865  

Carl I. Gable

    95,000       79,911       --       --       --       1,454       176,365  

Christopher G. Kennedy

    95,000       79,911       --       --       --       1,454       176,365  

K. David Kohler

    85,000       79,911       --       --       --       1,454       166,365  

Erin A. Matts

    20,000       --       --       --       --          --        20,000  

James B. Miller, Jr.

    85,000       79,911       --       --       --       1,454       166,365  

Harold M. Paisner

    42,500       79,911       --       --       --          661       123,072  
Sheryl D. Palmer     87,500       79,911       --       --       --       1,042       168,453  

 

______

 

 

(1)

For fiscal year 2016, the Company’s non-employee directors (“outside directors”) were paid an annual director’s fee of $80,000. Outside directors who serve on the Audit Committee, the Compensation Committee and the Nominating & Governance Committee were paid an additional $5,000 per year, except that the respective Chairpersons of the Audit Committee, Compensation Committee and Nominating & Governance Committee were paid an additional $10,000 per year (rather than $5,000). In addition, the lead independent director of the Board was paid an incremental $10,000 per year. Directors also were reimbursed for expenses in connection with attending Board and Committee meetings.

 

 

(2)

The amounts reported in the “Stock Awards” column are computed based upon the aggregate grant date fair value of the respective awards. See the Note entitled “Shareholder’s Equity” to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended January 1, 2017, regarding assumptions underlying valuation of equity awards. The ultimate payout value may be significantly less than the amounts shown, and possibly zero, depending on the recipient’s tenure as a director. In 2016, each of the directors listed in the table received an award of 4,736 shares of restricted stock having a grant date fair value of $16.89 per share. As of January 1, 2017, each of these directors held an aggregate of 6,611 shares of restricted stock that had not vested, except that (i) Ms. Palmer held 4,736 shares of restricted stock, and (ii) Ms. Matts held no restricted stock.

 

 

(3)

Any amounts reported in the “Option Awards” column would have been computed based upon the aggregate grant date fair value of the respective awards. However, no stock options were granted to directors in 2016. As of January 1, 2017, each of Messrs. Gable, Kennedy and Miller held 5,000 outstanding options. The other directors held no stock options as of January 1, 2017.

 

 

(4)

In 2016, the Company paid on all outstanding Common Stock of the Company (including restricted stock) dividends of $0.05 per share in each of the first two quarters and $0.06 per share in each of the last two quarters. The amounts in this column reflect dividends on the restricted shares of each director in 2016.

 

 
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 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The Board of Directors of the Company recognizes that transactions with related persons can present a heightened risk of conflict of interests and/or improper valuation (or the perception thereof). Accordingly, as a general matter, it is the Company’s preference to avoid transactions with related persons. Nevertheless, there are circumstances where the Company may obtain products or services (i) of a nature, quantity or quality that are not readily available from alternative sources, (ii) on terms comparable to those provided by other, unrelated parties, or (iii) when the Company provides products or services on an arm’s length basis on terms comparable to those provided to unrelated third parties or on terms provided to employees generally.

 

Policy Regarding Review, Approval or Ratification of Transactions Involving Related Persons

 

The Company has adopted a written policy (the “Related Transactions Policy”) with respect to the review, approval or ratification of transactions with related persons involving the Company (or its subsidiaries or controlled affiliates). In evaluating potential transactions with related persons, the Related Transactions Policy incorporates and applies the contents of Item 404(a) of Regulation S-K (including but not limited to the definitions of “related persons” and “transaction”, as well as the threshold for “direct or indirect material interest” contained therein).

 

Prior to entering into a transaction with the Company, the related person is required to advise a Company-designated “Compliance Officer” (currently the Company’s General Counsel), who shall determine whether the proposed transaction is a transaction with a related person under this policy. If the Compliance Officer determines that the proposed transaction is a transaction with a related person, the transaction is required to be submitted to the Audit Committee of the Board of Directors for consideration at its next meeting or, in those instances in which it is not practicable or desirable for the Company to wait until the next Audit Committee meeting, to the Chair of the Audit Committee (who possesses delegated authority to act between committee meetings). The Audit Committee (or where submitted to the Chair, the Chair) shall consider all of the available relevant facts and circumstances, including (if applicable) but not limited to: (i) the benefits to the Company; (ii) the impact on a director’s independence in the event the related person is a director, an immediate family member of a director, or an entity in which the director is a partner, equity holder or executive officer; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to or from unrelated third parties or employees generally, as the case may be. After review, the Audit Committee or Chair either approves or disapproves the proposed transaction and advises the Compliance Officer, who in turn conveys the decision to the appropriate persons within the Company. No member of the Audit Committee is permitted to participate in any review, consideration, or approval of any potential transaction with a related person with respect to which such member or any of his or her immediate family members is a related person.

 

The Related Transactions Policy also provides for the review of (i) transactions involving related persons entered into by the Company not previously approved or ratified under this policy, as well as (ii) any previously approved or ratified transactions with related persons that remain ongoing and have a remaining term of more than six months or remaining amounts payable to or receivable from the Company of more than $120,000. The policy also explicitly requires disclosure of all transactions that are required to be disclosed under the Securities Act of 1933, the Securities Exchange Act of 1934 and related rules and regulations.

 

Transactions Involving Related Persons 

 

Since the beginning of fiscal year 2016, the Company has not been a participant in any transaction involving an amount exceeding $120,000 in which any related person had or is expected to have a direct or indirect material interest, and no such transaction is currently proposed.

 

DIRECTOR INDEPENDENCE

 

For each director, the Board makes a determination of whether the director is “independent” under the criteria established by the Nasdaq Stock Market and other governing laws and regulations. In its review of director independence, the Board considers all commercial, banking, consulting, legal, accounting, charitable or other business relationships any director may have with the Company. The current directors are John P. Burke, Andrew B. Cogan, Carl I. Gable, Jay D. Gould, Daniel T. Hendrix, Christopher G. Kennedy, K. David Kohler, Erin A. Matts, James B. Miller, Jr., and Sheryl D. Palmer. As a result of its review, the Board has determined that all of the current directors, with the exceptions of Daniel T. Hendrix and Jay D. Gould (who are employees), are independent.

 

The independent directors meet in regularly scheduled executive sessions without Mr. Hendrix or other members of management present. In 2016, the independent directors met six times in executive session.

 

 
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EQUITY COMPENSATION PLAN INFORMATION

 

The following table sets forth information concerning the Company’s equity compensation plans as of January 1, 2017.

 

 

Plan Category(1)

 

Number of Securities to be Issued

upon Exercise of Outstanding

Options, Warrants and Rights

   

Weighted-Average Exercise

Price of Outstanding Options,

Warrants and Rights

   

Number of Securities Remaining

Available for Future Issuance

under Equity Compensation

Plans (Excluding Securities

Reflected in Column (a))

 
   

(a)

   

(b)

   

(c)

 
   

 

   

 

   

 

 

Equity Compensation Plan Approved by Security Holders:

                       

Omnibus Stock Plan (2)

    476,976 (3)       $8.75       4,079,532(3)  

 

 

(1)

The Company does not have shares authorized for issuance under any compensation plan not approved by shareholders.

 

(2)

Each share issued under the Omnibus Stock Plan pursuant to an award other than a stock option will reduce the number of remaining shares available by 1.33 shares.

  (3) Assumes target level (100%) achievement of 389,476 unearned and unvested performance share awards outstanding as of January 1, 2017.

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

The Company is generally obligated to provide its Named Executive Officers with certain payments or other forms of compensation when their employment with the Company is terminated. The actual amount of compensation due each of the Named Executive Officers, as well as the duration of any periodic payments, depends on both the circumstances surrounding the termination, as well as the particulars of any employment-related agreements to which the Company and the Named Executive Officer are party.

 

Employment and Change in Control Agreements

 

The Company has with each of Messrs. Hendrix and Coombs (and had with each of Messrs. Lynch and Willoch) Employment and Change in Control Agreements, which generally describe the benefits payable at, following, or in connection with various termination scenarios. (The agreements have been in place since 1997 for Messrs. Hendrix and Willoch, since 2005 for Mr. Lynch, and since 2015 for Mr. Coombs, with the primary substantive changes since execution being those necessary to bring the agreements into compliance with Section 409A of the Internal Revenue Code of 1986, as amended.) Each Employment and Change in Control Agreement is for a rolling two-year term, such that the remaining term is always two years (until a specified retirement age). The Company may terminate any of such agreements at any time, with or without cause, and each executive may voluntarily terminate his respective employment upon 90 days notice. The agreements provide for certain benefits in the event of various termination scenarios, including termination without cause, termination with cause, voluntary retirement or resignation, termination due to death or disability, and termination in connection with a “change in control” (as defined in the agreements) of the Company. The agreements for Messrs. Hendrix and Willoch also provide for these executives to receive a tax “gross up” payment to cover the amount of any excise taxes imposed on the benefits payable in the event of a termination in connection with a “change in control.” (The tax gross up provision has been included in these agreements, without substantive change, since January 1999.) Each agreement also contains provisions placing restrictions on the executive’s ability to compete with the Company for a period of two years following the termination of his employment.

 

Mr. Gould has an Employment and Change in Control Agreement with the Company that is similar to those of the other Named Executive Officers as described above, except that Mr. Gould’s agreement was entered into on January 9, 2015, has a rolling one-year term, has no tax “gross up” provision, and has a one-year post-termination restriction on competition against the Company. As with Mr. Gould, any new employment and change in control agreements entered into by the Company going forward will not contain a tax “gross up” provision.

 

Payments to Named Executive Officers Upon Termination or Change in Control

 

In the event that any of the Named Executive Officers (i) retired or voluntarily resigned, (ii) died or was terminated in connection with a disability, (iii) was terminated by the Company (x) with “cause”, (y) without “cause” or (z) experienced certain terminations (without cause) in connection with a “change in control” (as applicable, and as such terms are defined in the respective agreements) on December 30, 2016 (the last business day of fiscal year 2016), they would have been entitled to receive the following types of payments and benefits, and would have been subject to the various restrictive covenants, described below.

 

 
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 Upon Retirement or Voluntary Resignation:

 

Payment, Benefit or

 Restrictive Covenant

 

 

 

Entitled to Receive

 

Base Salary

 

Executive would be entitled to receive his then-current base salary through the effective date of retirement or resignation.

     

Bonus

 

Executive would be entitled to receive a prorated portion of his annual bonus opportunity calculated based on the date of retirement or resignation (e.g., a June 30 retirement or resignation would entitle executive to 50% of the bonus otherwise payable).

     

Stock Options

 

Executive would forfeit any unvested stock options; all previously-vested options would terminate over the period of time specified in the applicable stock option agreements (typically 12 to 24 months).

     

Equity Awards

 

Executive would forfeit any unvested restricted stock and performance share awards, except that upon retirement at age 65 or thereafter executive would immediately vest in a percentage of all unvested restricted stock and performance share awards as specified in the applicable award agreement(s).  

     

Salary Continuation Plan

 

 

Salary Continuation Plan participant (Messrs. Hendrix and Willoch) would receive full benefits upon retirement at age 65 after completing at least 15 years of service, payable for the remainder of his life (or, if elected, a reduced benefit for the remainder of his life and any surviving spouse’s life). A reduced benefit is available to participant beginning at age 55. Upon retirement or voluntary resignation prior to age 55, Salary Continuation Plan participants would receive no benefit. Participant is prohibited from competing with the Company while receiving benefits.

     

Other Employee Retirement Plans

 

No additional benefit beyond those to which the executive normally would be entitled under the Company’s 401(k) Plan and Nonqualified Plan following termination of employment.

 

     

Health, Life and Other Insurance Coverages

 

No additional benefits are received beyond those to which the executive normally would be entitled under the terms of the respective medical and/or insurance plans. Mr. Hendrix has a Split Dollar Insurance Policy as described in footnote 5 to the 2016 Summary Compensation Table.

     

Restrictive Covenants

 

Executive would be prohibited from competing with the Company, or soliciting its customers or employees, for a two-year period (or, for Mr. Gould, a one-year period) following retirement or resignation. 

 

 

Upon Death/Disability:

 

 

Payment, Benefit or

Restrictive Covenant

 

 

 

Entitled to Receive

 

Base Salary

 

Executive would be entitled to receive his then-current base salary through the date of termination due to death/disability. 

     

Bonus

 

 

Executive would be entitled to receive a prorated portion of his annual bonus opportunity calculated based on the date of termination due to death/disability (e.g., a June 30 termination due to death/disability would entitle executive to 50% of the bonus otherwise payable).

     

Stock Options

 

Executive would forfeit any unvested stock options; all previously-vested options would terminate over the period of time specified in the applicable stock option agreements (typically 12 to 24 months following termination due to disability and 24 months following termination due to death).

     

Equity Awards

 

Executive would immediately vest in a percentage of all unvested restricted stock and performance share awards, as specified in the applicable award agreement(s).

     

Salary Continuation Plan

 

 

 

Upon Salary Continuation Plan participant’s death, he would receive a 10 year certain payout of an annual benefit level as if he were eligible for full benefits (e.g., age 65). Upon a participant’s disability, he would receive a payout at an annual benefit level that when combined with all other Company-sponsored disability security and salary continuation payments being paid, equals 66 2/3% of average salary and bonus during the preceding 1-3 years. The annual benefit level would continue for as long as the participant remains disabled, up to age 65, at which point the benefit would be reduced to the annual salary continuation benefit he would have received upon early retirement at age 55 (or such greater age at the time of becoming disabled). Participant is prohibited from competing with the Company while receiving benefits.

     

Other Employee Retirement Plans

 

No additional benefit beyond those to which the executive would be normally entitled under the Company’s 401(k) Plan and Nonqualified Plan following termination of employment. 

     

Health, Life and Other Insurance Coverages

 

No additional benefits are received beyond those to which the executive would be normally entitled under the terms of the respective medical and/or insurance plans. Mr. Hendrix has a Split Dollar Insurance Policy as described in footnote 5 to the 2016 Summary Compensation Table.

     

Restrictive Covenants

 

Executive would be prohibited from competing with the Company, or soliciting its customers or employees, for a two-year period (or, for Mr. Gould, a one-year period) following any termination due to disability. 

 

 

 
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Upon Termination With “Cause”:

 

 

Payment, Benefit or

Restrictive Covenant

 

 

 

Entitled to Receive

 

Base Salary

 

Executive would be entitled to receive his then-current base salary through the effective date of termination.

     

Bonus

 

No benefit.

     

Stock Options

 

Executive would forfeit any unvested stock options; all previously-vested options would terminate three months following termination.

     

Equity Awards

 

Executive would forfeit any unvested restricted stock and performance share awards.

     

Salary Continuation Plan

 

 

Salary Continuation Plan participant would receive no benefit (unless he had already attained age 55 after completing at least 15 years of service, in which case a reduced benefit would be payable for the remainder of his life, or, if elected, a further reduced benefit for the remainder of his life and any surviving spouse’s life).

     

Other Employee Retirement Plans

 

No additional benefit beyond those to which the executive would be normally entitled under the Company’s 401(k) Plan and Nonqualified Plan following termination of employment.

     

Health, Life and Other Insurance Coverages

 

No additional benefits are received beyond those to which the executive would be normally entitled under the terms of the respective medical and/or insurance plans. Mr. Hendrix has a Split Dollar Insurance Policy as described in footnote 5 to the 2016 Summary Compensation Table.

     

Restrictive Covenants

 

Executive would be prohibited from competing with the Company, or soliciting its customers or employees, for a two-year period (or, for Gould, a one-year period) following termination. 

 

 

 

Upon Termination Without “Cause”:

 

Payment, Benefit or 

Restrictive Covenant

 

 

Entitled to Receive

 

Base Salary

 

Executive would be entitled to receive his then-current base salary for two years (or, for Mr. Gould, a one-year period).

     

Bonus

 

 

 

Executive would be entitled to receive bonus payments for two years as well as a prorated bonus for the year in which employment terminates, each calculated based on the average bonus (excluding special incentive plan bonuses) received by the executive during the two years prior to the effective termination date. 

     

Stock Options

 

Executive would immediately vest in all unvested options. The options could be subsequently exercised over the period of time specified in the applicable stock option agreements (typically 12 to 24 months).

     

Equity Awards

 

Executive would immediately vest in a percentage of all unvested restricted stock and performance share awards, as specified in the applicable award agreement(s).

     

Salary Continuation Plan

 

 

 

If Salary Continuation Plan participant already had attained age 55 after completing at least 15 years of service, he would receive a reduced benefit for the remainder of his life (or, if elected, a further reduced benefit for the remainder of his and any surviving spouse’s life). If Salary Continuation Plan participant had not already attained age 55 after completing at least 15 years of service, Salary Continuation Plan participant would remain eligible for participation in the plan as if he were to remain employed, and would receive a reduced benefit beginning at age 55 after completing at least 15 years of service, payable for the remainder of his life (or, if elected, a further reduced benefit for the remainder of his and any surviving spouse’s life). Participant is prohibited from competing with the Company while receiving benefits.

     

Other Employee Retirement Plans

 

Executive would be entitled to an amount equal to the matching contribution he would have received under the Company’s 401(k) Plan for the two-year period following termination.

     

Health, Life and Other Insurance Coverages

 

Executive would be entitled to continue coverages for two years, with the Company paying the associated premiums.

     

Restrictive Covenants

 

Executive would be prohibited from competing with the Company, or soliciting its customers or employees, for a two-year period (or, for Mr. Gould, a one-year period) following termination. 

 

 

 
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Upon Termination Following “Change in Control”:

 

Payment, Benefit or 

Restrictive Covenant

 

 

 

Entitled to Receive

Base Salary

 

 

Executive would be entitled to receive his base salary in its then-current amount for two years. Such amount would be paid in a lump sum within 30 days after separation from service.

     

Bonus

 

 

Executive would receive bonus payments for two years as well as a prorated bonus for the year in which employment terminates, each calculated based on the average bonus (including any special incentive plan bonuses) received by the executive during the two years prior to the effective termination date. Such amount would be paid in a lump sum within 30 days after separation from service.

     

Stock Options

 

Executive would immediately vest in all unvested options. The options could be subsequently exercised over the period of time specified in the applicable stock option agreements (typically 12 to 24 months).

     

Equity Awards

 

Executive would immediately vest in all unvested restricted stock and performance share awards.

     

Salary Continuation Plan

 

 

If Salary Continuation Plan participant already had attained age 55 after completing at least 15 years of service, he would receive a reduced benefit for the remainder of his life (or, if elected, a further reduced benefit for the remainder of his and any surviving spouse’s life). If Salary Continuation Plan participant had not already attained age 55 after completing at least 15 years of service, Salary Continuation Plan participant would remain eligible for participation in the plan as if he were to remain employed, and would receive a reduced benefit beginning at age 55 after completing at least 15 years of service, payable for the remainder of his life (or, if elected, a further reduced benefit for the remainder of his and any surviving spouse’s life). Participant would also receive the benefit of a cost of living adjustment calculated with reference to a specified consumer price index on each participant’s annual benefit amount (such adjustment accruing from the date of termination until such date that the participant begins to receive benefits, and not thereafter). Participant is prohibited from competing with the Company while receiving benefits.

     

Other Employee Retirement Plans

 

Executive would be entitled to an amount equal to the matching contribution he would have received under the Company’s 401(k) Plan for the two-year period following termination.

     

Health, Life and Other Insurance Coverages

 

Executive would be entitled to continue coverages for two years with the Company paying the associated premiums.

     

Restrictive Covenants

 

Executive would be prohibited from competing with the Company, or soliciting its customers or employees, for a two year period following termination.

     

 

The following tables summarize the benefits payable to each of the Named Executive Officers under his employment and change in control agreement (or the terms of his individual equity award agreements) in effect on December 30, 2016 (the last business day of the Company’s 2016 fiscal year). The tables do not include amounts payable under employee benefit plans in which Company associates are eligible to participate on a non-discriminatory basis. The amounts shown in the tables below assume that a Named Executive Officer’s employment terminated as of December 30, 2016, and that the fair market value of the Company’s Common Stock was $18.55 per share. As previously noted, Mr. Hendrix resigned from his role as Chief Executive Officer of the Company subsequent to December 30, 2016, but remains a non-executive employee and Chairman of the Board. In addition, Mr. Willoch retired from the Company subsequent to December 30, 2016.

 

Daniel T. Hendrix

 

   

Retirement or

Resignation

   

Death/Disability

   

Termination with

Just Cause

   

Termination without

Just Cause

 

Termination

Following Change in

Control(1)

   

 

         

 

   

 

   

 

 
                                         

Compensation:

    ($)       ($)       ($)       ($)       ($)  

Base salary

    --       --       --       2,022,000       2,022,000  

Bonus

    986,845       986,845       --       3,415,793       3,415,793  

Stock options

    --       --       --       --       --  

Equity awards(2)

    --       1,416,701       --       1,416,701       3,322,620  
                                         

Benefits and Perquisites:

                                       

Salary continuation(3)

    860,294    

977,606 / 1,929,563

      --       860,294 (6)     860,294 (6)

Retirement plans(4)

    --       --       --       15,900       15,900  

Health, life and other insurance(5)

    --       --