def14a.htm




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A INFORMATION
 
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.   )
 
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Filed by a Party other than the Registrant  o
   
Check the appropriate box:
o Preliminary Proxy Statement
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x Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
 
American Woodmark Corporation
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the registrant)
 
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3102 Shawnee Drive
Winchester, Virginia 22601

Notice of Annual Meeting of Shareholders

TO THE SHAREHOLDERS OF
AMERICAN WOODMARK CORPORATION:

The Annual Meeting of Shareholders (“Annual Meeting”) of American Woodmark Corporation (the “Company”) will be held at the Holiday Inn, 333 Front Royal Pike, Winchester, Virginia, on Thursday, August 22, 2013, at 9:00 a.m., Eastern Daylight Time, for the following purposes:

 
1.
To elect as directors the nine nominees listed in the attached proxy statement to serve a one-year term on the Company’s Board of Directors;
 
 
2.
To ratify the selection by the Audit Committee of the Board of Directors of KPMG LLP as the independent registered public accounting firm of the Company for the fiscal year ending April 30, 2014;
 
 
3.
To approve certain amendments to the Company’s Amended and Restated 2004 Stock Incentive Plan for Employees;
 
 
4.
To approve on an advisory basis the Company’s executive compensation; and
 
 
5.
To transact such other business as may properly come before the Annual Meeting or any adjournments thereof.

Only shareholders of record of shares of the Company’s common stock at the close of business on June 17, 2013 will be entitled to vote at the Annual Meeting or any adjournments thereof.

Whether or not you plan to attend the Annual Meeting, please mark, sign and date the enclosed proxy and promptly return it in the enclosed envelope.  If for any reason you desire to revoke your proxy, you may do so at any time before it is voted.

All shareholders are cordially invited to attend the Annual Meeting.

   
 
By Order of the Board of Directors
   
 
Jonathan H. Wolk
 
Secretary


June 28, 2013

 
 

 


AMERICAN WOODMARK CORPORATION
3102 Shawnee Drive
Winchester, Virginia 22601

Proxy Statement
Voting Rights, Procedures and Solicitation

Proxy Solicitation

This Proxy Statement, mailed to shareholders of American Woodmark Corporation (the “Company”) on or about June 28, 2013, is furnished in connection with the solicitation of proxies by the Company’s Board of Directors in the accompanying form for use at the Annual Meeting of Shareholders (the “Annual Meeting”) to be held at the Holiday Inn, 333 Front Royal Pike, Winchester, Virginia, on Thursday, August 22, 2013, at 9:00 a.m., Eastern Daylight Time, and at any adjournments thereof.  A copy of the annual report of the Company for the fiscal year ended April 30, 2013, is being mailed to you with this Proxy Statement.

In addition to the solicitation of proxies by mail, the Company’s officers and other employees, without additional compensation, may solicit proxies by telephone, facsimile, and personal interview.  The Company will bear the cost of all solicitation efforts.  The Company also will request brokerage houses and other custodians, nominees, and fiduciaries to forward soliciting material to the beneficial owners of the Company’s common stock held as of the record date by those parties and will reimburse those parties for their expenses in forwarding soliciting material.

Record Date and Voting Rights

On June 17, 2013, the record date for determining the shareholders entitled to receive notice of and to vote at the Annual Meeting, there were 14,923,930 shares of common stock of the Company outstanding and entitled to vote.  Each such share of common stock entitles the owner to one vote.

Revocability and Voting of Proxy

A form of proxy for use at the Annual Meeting and a return envelope for the proxy are enclosed.  Any shareholder who provides a proxy may revoke such proxy at any time before it is voted.  Proxies may be revoked by:

 
 
filing with the Secretary of the Company written notice of revocation which bears a later date than the date of the proxy;
 
 
 
duly executing and filing with the Secretary of the Company a later dated proxy relating to the same shares; or
 
 
 
attending the Annual Meeting and voting in person.

Votes will be tabulated by one or more inspectors of election.  A proxy, if properly executed and not revoked, will be voted as specified by the shareholder.  If the shareholder does not specify his or her choice, the shares will be voted as follows:

 
 
“FOR” the election of the nine nominees for director named herein;
 
 
 
“FOR” the ratification of KPMG LLP as the independent registered public accounting firm of the Company for fiscal year 2014;
 
 
 
“FOR” the approval of the amendments to the Company’s Amended and Restated 2004 Stock Incentive Plan for Employees;
 
 
 
“FOR” the approval on an advisory basis of the compensation of the Company’s named executive officers as disclosed in this Proxy Statement; and
 
 
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In the proxies’ discretion on any other matters coming before the Annual Meeting or any adjournment thereof.
 
A majority of the total outstanding shares of the Company entitled to vote on matters to be considered at the Annual Meeting, represented in person or by proxy, constitutes a quorum.  Once a share is represented for any purpose at the Annual Meeting, it is deemed to be present for quorum purposes for the remainder of the meeting.  Abstentions and shares held of record by a broker or its nominee (“Broker Shares”) that are voted on any matter are included in determining the number of votes present or represented at the Annual Meeting.  However, Broker Shares that are not voted on any matter at the Annual Meeting will not be included in determining whether a quorum is present at the meeting.

The Company’s bylaws require that, in uncontested elections, each director receive a majority of the votes cast with respect to that director (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee).  Actions on all other matters to come before the meeting will be approved if the votes cast “for” that action exceed the votes cast “against” it.  Abstentions and Broker Shares that are not voted on a particular matter are not considered votes cast and, therefore, will have no effect on the outcome of the election of directors or any other matter.

Participants in the American Woodmark Corporation Investment Savings Stock Ownership Plan will receive a proxy packet from the Company’s transfer agent and registrar, Registrar and Transfer Company, enabling them to provide instructions for voting the shares of the Company’s common stock held in their plan accounts.  The Newport Group, the plan’s administrator, will determine the number of shares beneficially owned by each participant and communicate that information to the transfer agent.  Each participant’s voting instructions must be properly executed and returned in the envelope provided in order for the participant’s shares to be voted.  If a participant does not return voting instructions, then the shares held in the participant’s account will not be voted.

ITEM 1 – ELECTION OF DIRECTORS

The Board is currently comprised of nine members, each of whom has been nominated for election by the Company.  Unless otherwise specified, the enclosed proxy will be voted for the persons named below to serve until the next Annual Meeting and until their successors are elected and duly qualified.  Each of the nominees listed below is presently a director of the Company and was elected by shareholders at the last Annual Meeting for a term expiring at the upcoming Annual Meeting.

The Board believes the Company’s directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of its shareholders.  When searching for new directors, the Governance Committee considers a candidate’s managerial experience, as well as business judgment, background, integrity, ethics and conflicts of interest.  The Governance Committee does not have a formal policy with respect to diversity; however, the Board and the Governance Committee believe it is essential that the Company’s Board members represent diverse viewpoints.  The Governance Committee considers issues such as diversity of professional experience, skills, viewpoints, education, gender, race and national origin.  In considering candidates for the Board, the Governance Committee considers the entirety of each candidate’s credentials in the context of these criteria.  With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered.

Each nominee listed below has consented to serve as a director, and the Company anticipates all of the nominees named below will be able to serve, if elected. If at the time of the Annual Meeting any nominees are unable or unwilling to serve, then shares represented by properly executed proxies will be voted at the discretion of the persons named therein for such other person or persons as the Board of Directors may designate.

If shareholders do not elect a nominee who is serving as a director, Virginia law provides that the director would continue to serve on the Board as a “holdover director.” Under the Company’s bylaws, each incumbent director submits an advance, contingent, irrevocable offer of resignation that the Board may accept if shareholders do not elect the director at the Annual Meeting. In that situation, the Board’s Governance Committee would make a recommendation to the Board about whether to accept or reject the offer of resignation. The Board would act on the Governance Committee’s recommendation within 90 days after the date that the election results were certified and, promptly, would publicly disclose its decision and, if applicable, the rationale for rejecting the offer of resignation.

 
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Information Regarding Nominees

The names and ages of the Company’s nominees, their principal occupations or employment, and other information regarding each nominee are set forth below.

 
Name
 
Age
 
Principal Occupation(s) During the Last Five Years and Directorship(s) in Public Companies
 
Director of Company Since
 
William F. Brandt, Jr.
67
Retired; Company Chairman and Chief Executive Officer from 1996 to 2004.  Mr. Brandt has served continuously as director since he founded the Company in 1980.  Mr. Brandt previously served as both Chairman and Chief Executive Officer of the Company and remains extremely knowledgeable about the Company and its operations.  Mr. Brandt remains the Company’s largest shareholder.
 
1980
Martha M. Dally
62
Retired from her role as Vice President Customer Development, Sara Lee Corporation (a public company and manufacturer and marketer of consumer products) in 2006.  Ms. Dally’s experience with marketing, business development and customer relationships during her 30-year career in the consumer products industry provides the Board with an important perspective on customer issues and opportunities.
 
1995
Kent B. Guichard
57
Company Chairman from August 2009 to present and Company President and Chief Executive Officer from August 2007 to present.  Mr. Guichard’s 30-year career in industry has been highlighted with leadership roles in finance and operations.  Mr. Guichard’s role as the Company’s Chief Executive Officer provides to the Board the Company’s strategic vision and intimate knowledge of its operational performance.
 
1997
Kent J. Hussey
67
Retired; Chairman, Spectrum Brands, Inc. (a publicly traded manufacturer of consumer products) from August 2009 to June 2010; President and Chief Executive Officer, Spectrum Brands, Inc. from May 2007 to April 2010; Director, Spectrum Brands, Inc. from October 1996 to June 2010  (Spectrum Brands, Inc. emerged from bankruptcy protection in August, 2009); Director, Furniture Brands International, Inc. (a publicly traded designer, manufacturer, wholesaler and retailer of home furnishings) from May 2012 to present.  Mr. Hussey’s 40-year career in the consumer products industry has been highlighted with leadership roles in finance and operations.  Mr. Hussey’s experience as Chief Executive Officer of a publicly traded manufacturing company that sells products to large retailers provides the Board with an important perspective.
 
1999
James G. Davis, Jr.
54
President and Chief Executive Officer, James G. Davis Construction Corporation (a private commercial general contractor) from 1979 to present; Director, Provident Bankshares Corporation (a public company and financial institution) from October 2006 to July 2009.  Mr. Davis’ career in the construction industry has been highlighted with leadership roles in operations.  Mr. Davis’ experience as Chief Executive Officer of a construction company provides the Board with an important perspective.
 
2002
Daniel T. Hendrix
58
Chairman and Chief Executive Officer, Interface, Inc. (a public company and manufacturer of industrial carpet products) from October 2011 to present; President and Chief Executive Officer, from July 2001 to October 2011; Director, Interface, Inc. from 1996 to present.  Mr. Hendrix’ 30-year career in the building supplies industry has been highlighted with leadership roles in finance and operations.  Mr. Hendrix’ experience as a Chief Executive Officer of a publicly traded company in the building supplies industry provides the Board with an important perspective.
 
 
 
2005
 
 
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Name
 
 
Age
 
Principal Occupation(s) During the Last Five Years and Directorship(s) in Public Companies
 
Director of Company Since
 
Carol B. Moerdyk
63
Retired; Senior Vice President, International, OfficeMax Incorporated (a public company and office products retailer) from August 2004 to September 2007; Director, Libbey, Inc. (a public company and manufacturer of tableware) from 1998 to present.  Ms. Moerdyk’s 30-year career in industry has been highlighted with leadership roles in finance and operations.  Ms. Moerdyk’s experience as a financial executive enables her to serve as the chair of the Company’s Audit Committee and to provide the Board with a valuable perspective.
 
2005
Andrew B. Cogan
50
Chief Executive Officer, Knoll, Inc. (a public company and manufacturer of furnishings, textiles and fine leathers) from April 2001 to present; Director, Knoll, Inc. from 1996 to present.  Director, Interface, Inc. from 2013 to present.  Mr. Cogan’s 25-year career in industry has been highlighted with leadership roles in design and marketing.  Mr. Cogan’s experience as a Chief Executive Officer of a publicly traded company provides the Board with a valuable perspective.
 
2009
Vance W. Tang
46
Retired; President and Chief Executive Officer of the U.S. subsidiary of KONE Corporation (a Finnish public company and a leading global provider of elevators and escalators) and Executive Vice President of KONE Corporation from 2007 to 2012; Director, Comfort Systems USA (a publicly traded provider of commercial and industrial heating, ventilation and air conditioning and building automation services) from December 2012 to present.  Mr. Tang’s 20-year career in industry has been highlighted with leadership roles in operations.  Mr. Tang’s experience as a Chief Executive Officer in the construction industry provides the Board with a valuable perspective.
2009

CORPORATE GOVERNANCE

Codes of Business Conduct and Ethics

Code of Business Conduct and Ethics

The Board of Directors has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees of the Company. This code sets forth important Company policies and procedures in conducting the Company’s business in a legal, ethical, and responsible manner. The Code of Business Conduct and Ethics encompasses policies addressing employee conduct, conflicts of interest, insider trading and the protection of confidential information, and requires all employees to respect and obey all applicable laws and regulations when conducting the Company’s business.

Code of Ethics for the Chief Executive Officer and Senior Financial Officers

The Board has also adopted an additional Code of Ethics for the Chief Executive Officer and all Senior Financial Officers, including the Chief Financial Officer, Treasurer, and Controller of the Company. This code sets forth Company policies and procedures for ensuring that disclosures in the Company’s financial reports and documents that the Company files or furnishes to the Securities and Exchange Commission (“SEC”) and in other public communications are full, fair, accurate, timely, and understandable. Additionally, the Chief Executive Officer and Senior Financial Officers are required to report to the Audit Committee any material information that affects financial disclosures, significant deficiencies concerning internal controls, fraud, violations of the Company’s Code of Business Conduct and Ethics and Code of Ethics for the Chief Executive Officer and Senior Financial Officers, and violations of securities or other laws or rules and regulations applicable to the operation of the business.

Both of these codes can be found on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm. Any amendments to, or waivers from, any code provisions that apply to the Company’s directors or executive officers, including the Company’s Chief Executive Officer, Chief Financial Officer, Controller, and Treasurer, will be promptly posted on the Corporate Governance page of the Company’s web site. No amendments or waivers were requested or granted during the fiscal year ended April 30, 2013.

 
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Board Structure

The Company’s Board consists of nine directors, all of whom are subject to annual shareholder elections to one-year terms of service. The Company’s independent directors sit on at least one of the three Board committees, which include the Audit Committee, the Compensation Committee and the Governance Committee.

Mr. Guichard serves as both the Company’s Chairman and its Chief Executive Officer and the Board has not designated a lead independent director.  The Board believes that currently there are a number of important advantages for the Company having the positions of Chairman and Chief Executive Officer held by the same person. The Chief Executive Officer is the director most familiar with the Company’s business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and management have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight and expertise from outside the Company and its industry, while the Chief Executive Officer brings Company-specific experience and expertise. The Board believes that the combined role of Chairman and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.

The Company’s independent directors meet in regularly scheduled executive sessions at each of the Company’s Board meetings, without management present. During fiscal year 2013, the independent directors met four times to discuss certain Board policies, processes and practices, the performance and compensation of the Company’s Chief Executive Officer, management succession and other matters relating to the Company and the functioning of the Board.

Risk Management Oversight

The Board, both directly and through its committees, has an active role in overseeing management of the Company’s risks. The Board regularly reviews information concerning the Company’s operations, liquidity and competitive position and personnel, as well as the risks associated with each. The Company’s Compensation Committee is responsible for overseeing the Company’s management of its risks relating to the Company’s executive and long-term compensation plans and risks related to employee compensation in general. The Audit Committee oversees the Company’s management of its risks pertaining to internal controls, adherence to generally accepted accounting principles and financial reporting. The Governance Committee oversees the Company’s management of its risks pertaining to potential conflicts of interest and independence of board members. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks.

Director Independence

The Board of Directors of the Company is composed of a majority of directors who are independent directors as defined under the NASDAQ Marketplace Rules. The Board’s Audit Committee members also meet additional independence requirements pursuant to the NASDAQ Marketplace Rules and SEC rules.

To be independent under the NASDAQ Marketplace Rules, the Board must determine that a director has no relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ Marketplace Rules specify certain persons who cannot be considered independent. The Board reviews the independence of all directors at least annually.

Based upon this review, the Board affirmatively determined that seven of its nine directors are independent as defined by the NASDAQ Marketplace Rules. The independent directors are: Mr. Cogan, Ms. Dally, Mr. Davis, Mr. Hendrix, Mr. Hussey, Ms. Moerdyk, and Mr. Tang, each of whom is standing for re-election at the Annual Meeting. In addition, all of the members presiding on the Audit Committee, the Compensation Committee, and the Governance Committee are independent. The members of the Audit Committee also meet the additional independence requirements applicable to them under the NASDAQ Marketplace Rules and SEC rules.

 
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Communicating Concerns to the Board of Directors

The Audit Committee and the independent non-management directors have established procedures to enable any shareholder or employee who has a concern about the Company’s conduct or policies, or any employee who has a concern about the Company’s accounting, internal accounting controls or auditing matters, to communicate that concern directly to the Board, to the independent directors, or to the Audit Committee. Such communications may be confidential or anonymous. Such communications may be submitted in writing by sending a letter, along with a self-addressed, stamped envelope to:

Audit Committee
c/o Manager, Internal Audit
American Woodmark Corporation
P.O. Box 2252
Winchester, Virginia 22604

The Company’s Manager, Internal Audit reviews all such written correspondence and forwards to the Audit Committee a summary of all correspondence received. The Audit Committee will review this information and determine a course of action as appropriate based on the information received.

The Audit Committee reviews and regularly provides the Board of Directors with a summary of all communications received from shareholders and employees and the actions taken or recommended to be taken if an action requires approval of the full Board as a result of such communications. Directors may, at any time, review a log of all correspondence received by the Company which is addressed to the Board, members of the Board or the Audit Committee and may request copies of any such correspondence.

Board of Directors and Committees

The Company’s Board of Directors presently consists of nine directors. The Board held four meetings during the fiscal year ended April 30, 2013. All of the directors attended at least 75% of the total number of Board meetings and meetings of all committees of the Board held during periods when they were members of the Board or such committees.  The Board of Directors believes that attendance at the Company’s Annual Meeting demonstrates a commitment to the Company, responsibility and accountability to the shareholders, and support of management and employees. Therefore, it is a policy of the Board that all members attend the Annual Meeting of Shareholders. All members of the Board attended last year’s Annual Meeting.

The Company’s bylaws specifically allow for the Board to create one or more committees and to appoint members of the Board to serve on them.  Under such authority, the Board created the Audit Committee, the Compensation Committee, and the Governance Committee and appointed individuals from among its independent members to serve on these three committees. Each committee operates under a written charter adopted by the Board, as amended from time to time. On an annual basis, each committee reviews and reassesses the adequacy of its committee charter. The Audit Committee is scheduled to meet quarterly and the Compensation and Governance Committees meet as required. The committees may hold special meetings as necessary. These committees report regularly to the Board of Directors with respect to their fulfillment of the responsibilities and duties outlined in their respective charters. These charters can be found on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm.

Audit Committee

The Audit Committee consists of Ms. Moerdyk, who chairs the Committee, Mr. Davis, Mr. Hussey and Mr. Cogan. All members have been determined by the Board of Directors to be “independent” as defined under the NASDAQ Marketplace Rules and SEC rules. The Board of Directors has determined that all of the current members of the Audit Committee are “audit committee financial experts” as defined under SEC rules.

Purpose and Duties.  The Audit Committee provides oversight for the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independence and qualifications of the Company’s independent registered public accounting firm, the performance of the internal audit function and

 
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independent registered public accounting firm, and the adequacy and competency of the Company’s finance and accounting staff.
 
The Audit Committee’s duties include but are not limited to: (1) selecting and overseeing the performance of the Company’s independent registered public accounting firm, (2) reviewing the scope of the audits to be conducted by them, as well as the results of their audits, (3) overseeing the Company’s financial reporting activities, including the Company’s financial statements included in the Company’s Annual Report on Form 10-K, and the accounting standards and principles that are followed, (4) approving audit and non-audit services provided to the Company by the Company’s independent registered public accounting firm, (5) reviewing the organization and scope of the Company’s internal audit function and internal controls, (6) reviewing and approving or ratifying transactions with related persons required to be disclosed under SEC rules, and (7) conducting other reviews relating to compliance by employees with Company policies and applicable laws.

The Audit Committee met six times during fiscal year 2013. The Audit Committee is governed by a written charter approved by the Board of Directors, which can be viewed on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance/cfm. The Report of the Audit Committee is found beginning on page 32.

Compensation Committee

The Compensation Committee is composed of Mr. Hendrix, who chairs the Committee, Ms. Dally and Mr. Tang. All members have been determined by the Board of Directors to be “independent” as defined under the NASDAQ Marketplace Rules.

Purpose and Duties.  The Compensation Committee is primarily concerned with designing and managing competitive compensation programs to facilitate the attraction and retention of talented senior executives and directors. The activities of the Compensation Committee include reviewing, evaluating, and approving senior executive compensation plans and evaluating and recommending director compensation plans for approval by the Board. The Compensation Committee also provides oversight for all of the Company’s employee benefit plans. The Compensation Committee delegates certain aspects of implementation and day-to-day management of compensation administration to officers of the Company.

The Compensation Committee’s duties include but are not limited to: (1) reviewing, evaluating, and approving corporate goals and objectives relevant to the Chief Executive Officer’s and other senior executive officers’ compensation, (2) evaluating the Chief Executive Officer’s and other senior executive officers’ performance in light of those goals and objectives, (3) determining and approving the Chief Executive Officer’s and other senior executive officers’ compensation levels based on this evaluation, and (4) overseeing the compensation and benefit plans, policies, and programs of the Company.

The Compensation Committee determines the Chief Executive Officer’s compensation after reviewing his performance with the independent directors of the Board and without members of management being present, and shares this information with the full Board. The Compensation Committee determines the compensation of the other senior executives after considering the recommendation from the Chief Executive Officer. The Compensation Committee does not delegate its authority with regard to executive compensation decisions.

The Compensation Committee administers and approves awards under the Amended and Restated 2004 Stock Incentive Plan for Employees, as amended, and the Company’s 2011 Non-Employee Director Equity Ownership Plan.

The Compensation Committee met four times during fiscal year 2013. The Compensation Committee’s charter can be viewed on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm. Additional information on the Company’s philosophy and policies pertaining to executive compensation are addressed in the Compensation Discussion and Analysis beginning on page 9.  The Report of the Compensation Committee is contained on page 27.


 
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Governance Committee

The Governance Committee is composed of Ms. Dally, who chairs the Committee, Mr. Hussey, Ms. Moerdyk and Mr. Davis. All members have been determined by the Board of Directors to be “independent” as defined under the NASDAQ Marketplace Rules.

Purpose and Duties. The Governance Committee is responsible for identifying and recommending to the Board new director nominees for the Board, recommending directors for appointment to committees and chairs, and ensuring that the size, composition, and practices of the Board best serve the Company and its shareholders. From time to time, the Committee may engage an independent firm to assist in identifying potential candidates.

In evaluating candidates for election to the Board, the Governance Committee will assess the candidate’s character and professional ethics, judgment, business experience, independence, understanding of the Company’s or other related industries, and other factors deemed pertinent in light of the current needs of the Board. Specific qualities and skills established by the Committee for directors, which are included in the Governance Committee charter, include:

 
 
each candidate will be recommended without regard to gender, race, age, religion or national origin;
 
 
 
each candidate must be an individual that has consistently demonstrated the highest character and integrity;
 
 
 
each candidate must have demonstrated professional and managerial proficiency, an openness to new and unfamiliar experiences and the ability to work in a team environment;
 
 
 
each candidate must be free of any conflicts of interest which would violate applicable law or regulation or interfere with the proper performance of the responsibilities of a director;
 
 
 
each candidate should possess substantial and significant experience which would be of particular relevance to the Company and its shareholders in the performance of the duties of a director; and
 
 
 
each candidate must demonstrate commitment to the responsibilities of being a director, including the investment of the time, energy and focus required to carry out the duties of a director.

The Governance Committee’s responsibilities also include, but are not limited to: (1) regularly assessing the effectiveness of the Board; (2) annually reviewing the performance of each director; (3) determining whether any director conflicts of interest exist; (4) reviewing any director related party transactions; and (5) periodically reviewing the Company’s corporate governance policies. The Governance Committee met four times during fiscal year 2013. The Governance Committee’s charter can be viewed on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm.

Procedures for Shareholder Nominations of Directors

The Governance Committee will consider a director nominated by a shareholder of record for the fiscal year 2014 Annual Meeting if the nomination is submitted in writing to the Secretary of the Company in accordance with the Company’s bylaws and is received in the Company’s principal executive offices on or before April 24, 2014. The nomination must include the name and address of the director nominee and a description of the director nominee’s qualifications for serving as a director and the following information:

 
 
the name and address of the shareholder making the nomination;
 
 
 
a representation that the shareholder is a record holder of the Company’s common stock entitled to vote at the meeting and, if necessary, would appear in person or by proxy at the meeting to nominate the person or persons specified in the nomination;
 
 
8

 
 
 
 
a description of all arrangements or understandings between the shareholder and the nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder;
 
 
 
such other information regarding the director nominee as would be required to be included in a proxy statement filed under the proxy rules of the SEC, if the director nominee were to be nominated by the Board of Directors;
 
 
 
information regarding the director nominee’s  independence as defined by applicable NASDAQ listing standards; and
 
 
 
the consent of the director nominee to serve as a director of the Company if nominated and elected.

The Governance Committee may subsequently request additional information regarding the director nominee or the shareholder making the nomination. Nominations by shareholders made in accordance with these procedures will receive due consideration by the Governance Committee. However, the Chair of the Governance Committee may refuse to acknowledge the nomination of any person not made in compliance with these procedures.  The Governance Committee also considers director nominees recommended by current members of the Board of Directors and members of management. From time to time, the Governance Committee may engage an independent firm to assist in identifying potential director nominees.  The Governance Committee evaluates all director nominees in the same manner regardless of the source of the recommendation.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Company’s Compensation Program Goal

The goal of the Company’s compensation program, as administered by the Compensation Committee, is to facilitate the creation of long-term value for its shareholders by attracting, motivating, and retaining qualified senior management. To this end, the Company has designed and administered the Company’s compensation program to appropriately reward its executives for sustained financial and operating performance, to align their interests with those of the Company’s shareholders, and to encourage them to remain with the Company for long and productive careers. To achieve alignment with shareholder interests, the Company’s compensation program provides significant, but appropriate, rewards for outstanding performance, as well as clear financial consequences for underperformance. The majority of the Company’s senior executives’ compensation is “at risk” in the form of annual and long-term incentive awards that are paid, if at all, based upon Company performance. While a significant portion of compensation may fluctuate with annual results, the total program is structured to emphasize long-term performance and sustained growth in shareholder value.

Key Considerations in Setting Pay

The following is a summary of the key considerations affecting the determination of compensation by the Compensation Committee for the Company’s named executive officers. The Company’s named executive officers for fiscal year 2013 were Mr. Guichard, Chairman and Chief Executive Officer, S. Cary Dunston, Executive Vice President, Operations, Jonathan H. Wolk, Senior Vice President and Chief Financial Officer, and Bradley S. Boyer, Senior Vice President, Sales and Marketing Remodel.

Performance-based Compensation.  Every employee in the Company has an opportunity to earn an annual bonus, most of which is based upon the Company’s attainment of goals related to its operating profitability and other operational performance goals. Free cash flow was also utilized as a Company-wide goal from fiscal years 2010 through 2012, given the importance of this metric during the difficult economic environment that adversely impacted the Company’s industry during this same time period. During fiscal year 2013, free cash flow was removed from the Company-wide goals due to the improvement in the housing market and the expectation that the Company would return to profitability. Bonuses are only payable to employees if the Company earns an operating profit in excess of specified threshold levels during its fiscal year. The majority of the targeted total compensation

 
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for the Company’s named executive officers is performance-based, to achieve alignment with shareholder interests. The Company strives to establish challenging Company-wide targets that are appropriate given the expected level of performance, as well as current and anticipated market conditions.

Balance of Future Pay Opportunity versus Current Pay Opportunity.  The Compensation Committee strives to provide an optimal balance between current and long-term compensation, and cash versus equity compensation for the Company’s executive officers. Current compensation is paid in cash in the form of a base salary and an annual bonus, primarily as a reward for recent performance, while long-term compensation is primarily equity-based, to encourage the Company’s executive officers to deliver excellent results over a longer period of time and to serve as a retention tool. The Compensation Committee has targeted the mix of performance-based compensation for the Company’s senior executive officers to be an equal amount of current year bonus and long-term compensation.

Providing shareholders with a high level of return on their investment is an important objective of the Company, the Board, and the Compensation Committee. As a result, performance that rewards the Company’s shareholders factors prominently in the Compensation Committee’s decisions about the type and amount of long-term compensation paid to the Company’s executive officers.

Discretionary Nature of Compensation Programs.  The Compensation Committee does not use formulas in determining the amount and mix of compensation to be paid to the Company’s executives. The Compensation Committee believes that using only quantitative performance measures would not create the appropriate balance of incentives to build long-term shareholder value. The Compensation Committee uses a broad range of quantitative and qualitative factors to determine compensation. Quantitative factors are determined annually based upon the Company’s overall goals and objectives. In general, qualitative factors include the executives’ ability to lead the Company’s attainment of its CITE principles of customer satisfaction, integrity, teamwork and excellence. Additional qualitative factors considered by the Compensation Committee include the executives’ contribution to achieving the Company’s overall vision, the evaluation of the executives’ performance against their stated objectives, their experience, skill sets and the breadth, and scope of their responsibilities.

Significance of Company Results.  The Compensation Committee believes that the named executive officers’ contributions to the Company’s overall performance are more important than their individual performance. Accordingly, all of the annual bonus opportunity for Messrs. Guichard, Dunston, Wolk, and Boyer is dependent upon the Company’s performance in relation to its operating profitability goals.

Consideration of Compensation Risk. The Company’s compensation programs are discretionary, balanced and focused on the long-term. Under this structure, the highest amount of compensation can be achieved through consistent superior performance over sustained periods of time. This provides strong incentives to manage the Company for the long term, while avoiding excessive risk in the short term. The elements of the Company’s variable compensation program are balanced among current cash payments and longer-term equity awards.  The Company uses a balanced mix of quantitative and qualitative performance measures to assess achievement for its performance-based restricted stock unit awards to avoid placing excessive weight on a single performance measure.  The Company has also adopted stock ownership guidelines under which its named executive officers are expected to hold a significant amount of Company stock on an ongoing basis, which the Compensation Committee believes helps mitigate compensation-related risk by focusing the officers’ attention and efforts on the long-term stock performance of the Company.

Use of Compensation Consultants and Peer Group Data. The Company, at the direction of the Compensation Committee, retains an independent compensation consultant every three to four years to assist the Compensation Committee by collecting compensation data regarding peer group companies, which is used by the Compensation Committee in reviewing and establishing executive compensation guidelines. The Compensation Committee considers this data, among other factors, when it determines the components and amounts of total compensation that are appropriate for the Company’s named executive officers. In its most recent compensation review in 2013, the Company retained Pearl Meyer & Partners (Pearl Meyer) to evaluate the competitiveness of the Company’s executive compensation program, the alignment of executive compensation and Company performance and update the Company’s Competitive Peer Group for use in the evaluation of the Company’s compensation practices.  Pearl Meyer performs no other services for the Company other than those described in this section.  The Compensation Committee has examined Pearl Meyer’s relationship with the Compensation Committee members,

 
10

 

the Company and the Company’s management and has determined that Pearl Meyer’s work has not raised any conflict of interest.

The Company’s Competitive Peer Group was updated at the recommendation of Pearl Meyer and consists primarily of similar-sized companies in the furniture and building products industries that may compete with the Company for executive talent and which investors may consider as investment alternatives to the Company. For purposes of Pearl Meyer’s 2013 analysis, the Company’s Competitive Peer Group included: Bassett Furniture Industries, Inc., Builders FirstSource, Inc., Dixie Group Inc., Ethan Allen Interiors Inc., Flexsteel Industries, Inc., Furniture Brands International Inc., Gibraltar Industries, Inc., Hooker Furniture Corporation, Kimball International, Inc., La-Z-Boy Inc., Omnova Solutions Inc., Patrick Industries, Inc., School Specialty, Inc., Sealy Corp, Select Comfort Corporation, Simpson Manufacturing Co., Inc., and Trex Company, Inc.

In its 2013 update, Pearl Meyer evaluated the competitiveness of compensation programs using proxy information from the companies included as part of the Company’s Competitive Peer Group, and also considered data compiled from published surveys of executive compensation for other comparably-sized companies within the durable goods manufacturing sector. Pearl Meyer’s findings were that both the Company’s targeted annual cash compensation and long-term compensation levels fell within a range between the 25th percentile to the 50th percentile of median market compensation for the companies included as part of the Company’s Competitive Peer Group and for comparably-sized companies in comparable industries. These findings were consistent with the Compensation Committee’s compensation objective.

Results of 2012 Say on Pay Vote.  At the Company’s Annual Meeting of Shareholders held on August 23, 2012, 97.5% of votes cast by its shareholders (excluding abstentions and broker non-votes) approved on an advisory basis the Company’s executive compensation program as disclosed in its 2012 proxy statement.  The Compensation Committee considered the results of the 2012 say-on-pay vote in formulating the Company’s executive compensation program for fiscal year 2013 and, in light of the overwhelming support that the 2012 say-on-pay proposal received, did not make any specific changes to the fiscal year 2013 executive compensation program in response to the vote.

Stock Ownership Guidelines. The Company has adopted guidelines for share ownership by its named executive officers. The Company expects that its named executive officers will retain Company shares after either exercising stock options or receiving shares from RSU award grants, so that a minimum ownership of Company stock is achieved. For Mr. Guichard, the stock ownership guideline is equivalent to three times his base salary, and for Messrs. Dunston, Wolk and Boyer, the stock ownership guideline is equivalent to their respective base salaries.

Elements of Compensation

The compensation program for executive officers for fiscal year 2013 consisted of the following elements:

Elements available to substantially all salaried employees:

 
 
base salary;
 
 
annual performance-based cash bonus;
 
 
annual employee profit sharing; and
 
 
retirement and health and welfare benefits.

Elements available to the Company’s key managers and selected employees:

 
 
long-term incentive awards (restricted stock units only, or restricted stock units plus stock options).

Elements available only to named executive officers:

 
 
other benefits.


 
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These compensation elements are described below:

Base Salary.  Base salary is intended to compensate the Company’s executives for:

 
 
the scope of their responsibilities;
 
 
the complexity of the tasks associated with their position within the Company;
 
 
their skill set; and
 
 
their performance.

Base salaries for all executives have been competitively established based on salaries paid for like positions in comparably-sized companies. The companies used for comparison of base salaries may include additional companies from those used in the Company’s Competitive Peer Group where other competitive factors or local market conditions warrant. These salaries are obtained by management periodically and reviewed by the Compensation Committee to assure continued competitiveness and are adjusted when necessary. Based upon national surveys available to the Compensation Committee and information provided by Pearl Meyer in 2013, the Compensation Committee believes executive management, both individually and as a group, have base salaries of approximately the average market rate for comparably-sized companies.

While the other named executive officers received a salary increase ranging from approximately 3-5% for fiscal year 2013, Mr. Dunston’s base salary for fiscal year 2013 was increased by approximately 10%, from $336,900 to $370,000, in recognition of his promotion to Executive Vice President, Operations and his expanded responsibilities in that new role.

Annual Cash Bonus.  Annual cash bonus incentive awards are provided as an incentive to executives to achieve the Company’s annual financial goals, and reflect the Compensation Committee’s belief that a significant portion of the annual compensation of senior executives and other key employees should be contingent upon the financial performance of the Company. Annual bonus levels are established as a percentage of base salary. Jobs with greater spans of control and impact upon the Company’s results have higher bonus percentages. For fiscal year 2013, Mr. Guichard was eligible for a maximum potential bonus opportunity equal to 150% of his base salary; and Messrs. Dunston, Wolk, and Boyer were eligible for maximum potential bonus opportunities equal to 100% of their respective base salaries.

Most key managers and senior executives have two components to their annual bonus: one component that is tied to the Company’s performance for the fiscal year, and one component that is tied to individual performance. For fiscal year 2013, operating income was utilized to measure Company performance for nearly every employee in the Company, due to its ease of understanding as a simple, consistent and important indicator of the Company’s annual performance. Individual performance is assessed by each employee’s manager based on agreed-upon goals established at the onset of the fiscal year.  No portion of an employee’s individual goal bonus is paid unless the Company achieves operating profitability.

All of the annual cash bonus opportunity for Messrs. Guichard, Dunston, Wolk, and Boyer during fiscal year 2013 was dependent upon the Company’s performance with respect to its operating income performance measure.

Company Goals. On an annual basis, the Compensation Committee establishes bonus goals for Company performance based upon a variety of factors including progress achieved towards critical elements of the Company’s long-term strategy, prior year performance, and the external economic environment. As a result, Company-wide performance targets vary from fiscal year to fiscal year. The annual performance goals for each of the fiscal years listed below represented the expected range across the following three levels of performance:

 
 
“Threshold” representing the minimum level of achievement in order to qualify for payment;
 
 
 
“Target” representing performance consistent with demanding expectations to qualify for a payout of 60% of the maximum; and
 
 
 
“Superior” representing outstanding performance against demanding expectations to achieve 100% of the maximum.


 
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Company performance falling between each performance level results in an interpolated percentage payout based upon a predetermined scale. No annual bonuses are paid if the Company’s performance is below the predetermined operating profitability threshold.

Company performance targets are set sufficiently high to require excellent performance. In the last ten years, the Company has achieved superior performance one time, and achieved target performance four times. Annual performance goals for Company performance at the threshold, target and superior performance levels for fiscal year 2013, as well as the actual operating income achieved, are presented in the table below.

(in millions)
 
   
Operating Income
 
   
Operating Income Goals
   
Actual
 
   
Threshold
   
Target
   
Superior
       
2013
  $ 0.0     $ 16.9     $ 33.6     $ 17.2  

The Company’s actual performance for fiscal year 2013 slightly exceeded its targeted operating income goal.  Accordingly, this performance resulted in a Company performance percentage based upon the predetermined bonus scale of 62.5%. Accordingly, Mr. Guichard earned an annual bonus during fiscal year 2013 of 93.75% (62.5% of 150%) of his year-end base salary. Bonuses for Messrs. Dunston, Wolk, and Boyer represented 62.5% (62.5% of 100%) of their respective year-end base salaries.

Long-Term Incentive Awards.  The Compensation Committee has established long-term incentive awards for the Company’s executives and key managers with the objective of advancing the longer-term interests of the Company and its shareholders by directly aligning executive compensation with increases in the Company’s stock price. These awards compliment cash incentives tied to annual performance by providing incentives for executives to increase shareholder value over time. The Company’s long-term incentive compensation program utilizes two types of awards: restricted stock units (“RSUs”) and stock options.  Both stock options and RSUs are intended to focus the attention of executives on the achievement of the Company’s long-term performance objectives, to align executive management’s interests with those of shareholders, and to facilitate executives’ accumulation of sustained ownership of Company stock.

Consistent with previous years, the Company awarded its long-term incentive awards to its executives following its annual earnings release in June, and all stock options issued included a strike price equal to the closing price of the Company’s stock on the third business day following this earnings release. All long-term incentive awards were approved by the Compensation Committee.

In line with recommendations from Pearl Meyer, the Company’s named executive officers are targeted to receive long-term incentive awards valued at approximately 150% of base salary for Mr. Guichard and 100% for Messrs. Dunston, Wolk, and Boyer.  The value of RSU awards was slightly more than the value of stock option awards made to the named executive officers.

Stock Options. Non-statutory stock options were granted to certain senior executives of the Company (including Messrs. Guichard, Dunston, Wolk and Boyer) on the third business day after the Company’s announcement of its annual results in June 2012. All stock options have exercise prices equal to the closing price of the Company’s stock upon the date of grant, have ten-year lives and vest ratably over the initial three years of the grant. Stock options only result in value realized by the Company’s employees to the extent that the price of Company stock on the date of exercise exceeds the strike price, and thus are an effective compensation element only if the stock price grows over the term of the award. The Compensation Committee believes that stock options are a motivational tool for the Company’s senior executives, and also serve as a retention incentive. The Company has never backdated or re-priced its stock option grants.

Restricted Stock Units.  The RSUs granted during fiscal year 2013 to Messrs. Guichard, Dunston, Wolk and Boyer include RSUs that vest upon the satisfaction of both service and performance criteria. The performance-based RSUs comprised 75% of the total RSUs awarded, while RSUs vesting upon meeting a three-year service criterion comprised 25% of the RSUs awarded. Subject to satisfying the associated vesting conditions, each RSU represents the right to receive one share of the Company’s common stock. The Compensation Committee believes that the RSU grants provide a form of long-term compensation that aids retention, encourages long-term value creation and

 
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aligns financial interests with the Company’s shareholders, while entailing a lower number of Company shares to be issued to employees than stock options and therefore entailing less dilution.

In order to receive the shares of Company stock corresponding to the RSU award, the award recipients must remain in the Company’s continuous employ through the three-year anniversary date of the RSU grant. Employees who leave the Company’s employ for any reason other than death, disability or retirement completely forfeit their awards. If the employee terminates employment due to his or her death, disability or retirement, a pro-rata portion of the earned RSUs will vest based upon the executive’s service from the grant date to the termination date. If the employee terminates employment for any reason, including death, disability or retirement, prior to the end of the applicable performance period with respect to performance-based RSUs, the performance-based RSUs are forfeited in their entirety. The vesting of the RSU awards is accelerated and the earned RSUs are paid in full if a change in control occurs and, based on the terms of the awards as amended by the Compensation Committee at its May 2013 meeting as described on page 16, either the named executive officer is involuntarily terminated without cause or the named executive officer terminates employment with the Company for good reason prior to the end of the three-year service period. If the change in control occurs prior to the end of the applicable performance period with respect to performance-based RSUs, all of the performance-based RSUs are treated as earned.

The Company-wide performance criteria upon which the performance-based RSU awards are based are established annually by the Compensation Committee. For the performance-based RSU grants awarded in June 2012, the Compensation Committee determined the Company-wide performance period as the fiscal year in which the grant was awarded. The Compensation Committee determined three groups of Company-wide performance goals for fiscal year 2013, including income statement achievement (40% weighting), balance sheet and cash flow achievement (40% weighting) and organizational development (20% weighting).  Specific criteria and the Company’s performance against these criteria were as follows:

(dollar amounts in millions)
 
Goals
   
Actual
 
   
Threshold
   
Target
   
Maximum
   
Performance
 
Income Statement Achievement
                   
Net Sales
  $ 518     $ 545     $ 572     $ 630  
Gross Margin
  $ 81     $ 89     $ 97     $ 103  
Gross Margin %
    15.7 %     16.4 %     17.0 %     16.3 %
Operating Expenses %
    15.3 %     14.8 %     14.4 %     13.6 %
Operating Income
  $ 2     $ 8     $ 15     $ 17.2  
                                 
Balance Sheet and Cash Flow Achievement
                         
Operating Cash Flow
  $ 8     $ 13     $ 18     $ 24.5  
Free Cash Flow*
  $ (2 )   $ 4     $ 10     $ 18.4  
Debt to Capital Ratio
    15.6 %     15.2 %     14.8 %     13.9 %
Accounts Receivable Turnover
    16.2       17.2       18.2       17.6  
Inventory Turnover
    18.5       19.5       20.5       20.4  
                                 
*Defined as operating cash flow less cash used for investing activities.
 

The Compensation Committee assessed the Company’s overall achievement of its Income Statement goals to be approximately 87% and of its Balance Sheet and Cash Flow goals to be 77%.  In addition to the Income Statement and Balance Sheet and Cash Flow goals, Company-wide performance was also assessed based upon a total of five organizational development goals (weighted 20% in total), including (i) employee turnover, (ii) employee retention, (iii) compliance with training goals, (iv) succession planning, and (v) cultural development.  The Compensation Committee assessed the Company’s achievements of these organizational goals at attainment of 78%.

The Compensation Committee assessed the Company’s achievement against overall performance goals in May 2013 to be 81%.  Based upon the Compensation Committee’s performance assessment, if the Company’s named executive officers remain continuously employed by the Company through June 2015, they will vest in and receive 86% of their total RSU award, as calculated below:

 
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Performance Attainment
 
Weighting Factor
 
Weighted Performance
Income Statement Goals
 
87%
X
40%
=
35%
Balance Sheet and Cash Flow Goals
 
77%
X
40%
=
31%
Organizational Goals
 
78%
X
20%
=
15%
Total Performance
         
81%
             
Potential Earned and Vested
Performance-Based RSUs
 
 
81%
 
X
 
75%
 
=
 
61%
Potential Vested Service-Based RSUs
 
N/A
     
25%
Total Potential Vested Portion of RSU Award
         
86%

During fiscal year 2013, Mr. Guichard was awarded 27,000 RSUs, Mr. Dunston was awarded 10,000 RSUs, Mr. Wolk was awarded 8,000 RSUs and Mr. Boyer was awarded 7,500 RSUs. If each named executive officer remains in the Company’s continuous employ through the three-year anniversary of the RSU grant in June 2015, the number of shares of the Company’s stock that each can expect to receive is as follows: Mr. Guichard, 23,220 shares (27,000 multiplied by 86%); Mr. Dunston, 8,600 shares (10,000 multiplied by 86%); Mr. Wolk, 6,880 shares (8,000 multiplied by 86%); and Mr. Boyer 6,450 shares (7,500 multiplied by 86%).

Pension and Savings Plans

The Company maintains a non-contributory, funded and tax-qualified defined benefit pension plan (the “Salaried Pension Plan”), which was frozen effective April 30, 2012. The Salaried Pension Plan covers many of the Company’s employees hired prior to April 30, 2012, including the named executive officers, who are compensated on the basis of a salary and/or a commission, and who meet certain age and service requirements. Funding is determined on an actuarial basis. Benefits are based on 1.25% of a participant’s average cash compensation, including bonuses, for the five calendar years in the ten calendar years prior to the earlier of the participant’s retirement or the freeze date, that produce the highest average compensation, multiplied by the participant’s years of credited service through the earlier of retirement or the freeze date. The annual earnings taken into account in this formula may not exceed an IRS-prescribed limit applicable to tax-qualified plans. These limits are indexed each year, so the ultimate amount of benefit actually paid will depend on the year of retirement. For calendar year 2013, the maximum annual compensation that may be taken into account is $255,000, and the maximum annual benefit that may be paid in the form of single life annuity is $205,000. The Salaried Pension Plan is a continuation of a pension plan that was in effect for employees of the Company who were employed by the Company when it was owned by Boise Cascade Corporation prior to 1980.

Substantially all employees, including the named executive officers, also participate in the Company’s profit-sharing plan, whereby (for fiscal year 2013) 3% of the Company’s net income is contributed and divided equally among employee 401(k) accounts. In addition, effective January 1, 2013, all employees may contribute up to 100% of their pay to 401(k) accounts on a pre-tax basis. For fiscal year 2013, the Company’s Investment Savings Stock Ownership Plan provided matching contributions in Company stock of 100% up to the first 4% of pay. This is a tax-qualified plan and is subject to IRS compensation and other limitations. Company contributions to these plans to the named executive officers for fiscal year 2013 are included in the All Other Compensation column in the Summary Compensation Table.

Because the Internal Revenue Code of 1986, as amended (the “Code”), limits the maximum annual benefit that may be accrued under and paid from a tax-qualified plan such as the Company’s Salaried Pension Plan and profit-sharing plan, the Company established a non-tax qualified, non-contributory defined contribution plan (the “Pension Restoration Plan”, or “PRP”) to allow the Company to provide benefits that would restore the level of Company benefits provided to approximately the levels they would have attained had the Code limit not been established. For fiscal year 2013, the PRP participants consist of the named executive officers. Each participant has an account under the PRP to which the Compensation Committee may, in its discretion, approve Company contributions. The obligation of the Company to make payments under the PRP  is an unsecured promise and any property of the Company set aside for the payment of benefits remains subject to the claims of creditors in the unlikely event of the Company’s insolvency until such benefits are distributed to the Plan participants under the provisions of the PRP. There were no Company contributions to the PRP during fiscal year 2013 for Messrs.

 
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Guichard, Dunston, Wolk, and Boyer.  The Company will not make future contributions to the PRP while its pension plans are frozen.
 
Other Benefits

Messrs. Guichard, Dunston, Wolk and Boyer are eligible to purchase the Company’s products at a discounted price.

The Company places a priority on enabling its employees to take advantage of preventive health care. To this end, the Company provides subsidized medical benefits to substantially all of its employees, as well as the ability to take advantage of annual physical exams at low or no cost. Messrs. Guichard, Dunston, Wolk and Boyer are eligible to receive more extensive annual medical exams from a nationally recognized medical clinic at no cost to them.

Severance and Change in Control Agreements

The Company has a long standing practice of entering into severance and change in control agreements with its named executive officers. The Company believes these agreements are necessary in order to ensure the continuity of management and to allow executive officers to focus on serving the Company in a change in control situation without the distraction of concern for their employment. These agreements generally provide for severance benefits in the event of involuntary termination of employment without cause or termination by the executive for good reason within a certain period following a change of control. No payments are made if employment is terminated due to death, disability or cause. As a result of the changes made by the Compensation Committee at its May 2013 meeting as described below, all of these agreements now call for all unvested stock awards to become fully vested upon both a change in control and either involuntary termination of employment without cause or termination by the executive for good reason in connection with a change of control.

In developing the parameters for these agreements, the Compensation Committee utilized an independent compensation consultant and an analysis of peer companies. The Compensation Committee established these agreements with a goal of providing terms that are representative of the competitive market for like positions. Mr. Guichard’s employment agreement includes a longer severance period and a greater bonus payment percentage due to the greater span of control, accountability and ability to impact the Company’s performance inherent in Mr. Guichard’s role as Chief Executive Officer.

At its May 2013 meeting, the Compensation Committee approved amendments to the employment agreements for Messrs. Guichard, Dunston and Wolk that (i) eliminate “single-trigger” vesting of the outstanding equity awards held by each named executive officer upon a change in control; and (ii) eliminate the tax gross-up for any excise tax owed by each named executive officer on any golden parachute payments under Sections 280G and 4999 of the Internal Revenue Code triggered by a change in control. In lieu of “single-trigger” vesting upon a change in control, vesting of these named executive officers’ outstanding equity awards will be accelerated only if the named executive officer’s employment is terminated without cause, or the named executive officer terminates employment for good reason, in anticipation of or following a change in control (i.e. “double-trigger” vesting). In lieu of receiving a tax gross-up, any golden parachute payments to these named executive officers will be reduced until the excise tax no longer applies (unless the named executive officer would be in a better net after-tax position after paying the excise tax, in which case the payments would not be reduced, but the named executive officer still would not receive any gross-up). At this meeting, the Committee also approved a change to “double-trigger” vesting for any future equity awards to the named executive officers.

At its May 2013 meeting, the Compensation Committee also approved an employment agreement for Mr. Boyer, with substantially the same terms and conditions as the employment agreements with Messrs. Dunston and Wolk (as amended as described above).

Further information regarding the terms and conditions of these agreements is found beginning on page 22, under the heading “Employment Agreements and Post-Employment Compensation Agreements”.


 
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Deductible Compensation of Executive Officers

The Company is subject to Section 162(m) of the Code, which imposes a $1.0 million limit on the amount of compensation that may be deducted by the Company for a taxable year with respect to the Chief Executive Officer and the next three most highly compensated officers of the Company (excluding the CFO). Performance-based compensation that meets certain requirements is not subject to the deduction limit.  The Company’s intent generally is to design and administer executive compensation programs in a manner that will preserve its flexibility and recognize a full range of performance criteria important to the Company’s success, even where the compensation paid under such programs may not be deductible under Section 162(m).

Summary Compensation Table

The following table sets forth for fiscal years 2013, 2012, and 2011 the compensation for the Company’s Chief Executive Officer, Chief Financial Officer and the Company’s two other executive officers (each a “named executive officer” and collectively, the “named executive officers”). The Company did not have any other named executive officers during fiscal year 2013.

 
 
 
 
Name & Principal Position
 
 
 
Fiscal Year
 
 
 
 
Salary
   
 
 
 
Bonus
   
 
Stock Awards
1
   
 
Option Awards 
2
   
Non-equity Incentive Plan Compensation
3
   
Change in Pension Value
 4
   
 
All Other Compensation
5
   
 
 
 
Total
 
Kent B. Guichard
2013
  $ 636,346     $ 0     $ 409,136     $ 443,196     $ 609,375     $ 57,115     $ 12,865     $ 2,168,033  
Chairman and
2012
    625,000       0       392,216       325,620       468,750       121,586       54,527       1,987,699  
Chief Executive Officer
2011
    625,000       0       374,409       532,320       60,000       55,143       71,990       1,718,862  
S. Cary Dunston
2013
    356,633       0       151,532       147,732       231,250       14,660       17,143       918,950  
Executive Vice President,
2012
    337,000       0       145,265       108,540       168,450       36,215       41,308       836,778  
Operations
2011
    336,900       0       138,670       177,440       21,562       15,341       31,104       721,017  
Jonathan H. Wolk
2013
    300,323       0       121,226       147,732       189,925       20,835       12,804       792,845  
Senior Vice President and
2012
    293,604       0       116,212       108,540       146,802       50,104       21,358       736,620  
Chief Financial Officer
2011
    293,604       0       110,936       177,440       18,791       22,675       24,152       647,598  
Bradley S. Boyer
2013
    258,173       0       113,649       110,799       164,063       49,442       11,473       707,599  
Senior Vice President
2012
    250,000       0       108,949       81,405       125,000       104,865       18,305       688,524  
Sales & Marketing Remodel
2011
    241,175       0       55,468       44,360       57,550       45,535       9,739       453,827  

  1  
This column represents the grant date fair value of restricted stock unit awards calculated in accordance with FASB ASC Topic 718.  For a discussion of the terms of the restricted stock units granted in fiscal year 2013, see Restricted Stock Units beginning on page 13.  Of the amounts reported in this column for fiscal year 2013, $290,201 for Mr. Guichard, $107,482 for Mr. Dunston, $85,986 for Mr. Wolk, and $80,612 for Mr. Boyer are attributable to performance-based RSU awards.  These awards are reported based on the probable outcome of the performance conditions.  The value of these awards at the grant date, assuming the highest level of performance had been achieved, was: $356,805 for Mr. Guichard; $132,150 for Mr. Dunston; $105,720 for Mr. Wolk; and $99,113 for Mr. Boyer.  For information on the valuation assumptions with respect to the restricted stock unit grants for fiscal year 2013, refer to Note G – Stock-Based Compensation in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended April 30, 2013.
 
  2  
This column represents the aggregate grant date fair value of stock options calculated in accordance with FASB ASC Topic 718.  For a discussion of the terms of the stock options granted in fiscal year 2013, see Stock Options on page 13.  These values reflect the Company’s accounting expense and do not necessarily correspond to the actual value that will be realized by the named executives.  For information on the valuation assumptions with respect to the stock option grants for fiscal year 2013, refer to Note G – Stock-Based Compensation in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended April 30, 2013.
 
  3  
Amounts in this column reflect the annual cash incentive compensation paid to the Company’s named executive officers for fiscal years 2013, 2012 and 2011.
 
 
 
17

 
 
  4  
This column represents the change in the present value of accumulated benefits under the Salaried Pension Plan during fiscal year 2013 (from May 1, 2012 to April 30, 2013), fiscal year 2012 (from May 1, 2011 to April 30, 2012), and fiscal year 2011 (from May 1, 2010 to April 30, 2011).  See the Pension Plan Benefits table on page 22 for additional information.  The Company does not provide any above-market or preferential earnings on nonqualified deferred compensation under the Pension Restoration Plan.
 
  5  
See the All Other Compensation table below for additional information.

All Other Compensation

The following table describes each component of the amounts listed for fiscal year 2013 in the All Other Compensation column in the Summary Compensation Table.

   
Company Contributions to Investment Savings Stock Ownership Plan
1
   
 
Value of Discount on Cabinet Purchases
2
   
Other
3
   
Total
 
Kent B. Guichard
  $ 7,436     $ 3,975     $ 1,454     $ 12,865  
S. Cary Dunston
    6,181       0       10,962       17,143  
Jonathan H. Wolk
    5,770       0       7,034       12,804  
Bradley S. Boyer
    5,589       0       5,884       11,473  
 
  1  
These amounts represent matching 401(k) and profit-sharing contributions made to the named executive officers’ respective Investment Savings Stock Ownership Plan accounts.
 
  2  
This amount reflects the discount Mr. Guichard received on the purchase of Company products.
 
  3  
These amounts reflect payments of insurance premiums paid for supplemental and spousal life insurance and costs associated with medical exams from a nationally recognized medical clinic. For Mr. Dunston, $591 represents insurance premiums paid for supplemental and spousal life insurance and $10,371 represents costs associated with medical exams. For Mr. Wolk, $746 represents insurance premiums paid for supplemental and spousal life insurance and $6,288 represents costs associated with medical exams. For Mr. Boyer, $821 represents insurance premiums paid for supplemental and spousal life insurance and $5,063 represents costs associated with medical exams.
 

Grants of Plan-Based Awards in Fiscal Year 2013

The following table provides information about all equity and non-equity awards granted to the named executive officers in fiscal year 2013: (1) the grant date, (2) the potential payout under the Annual Cash Bonus Incentive Plan, (3) the potential number of  shares of the Company’s common stock that could be issued under performance-based RSUs granted in fiscal year 2013, (4) the number of service-based RSUs granted in fiscal year 2013, (5) the number of shares underlying stock options awarded, (6) the exercise price of the stock option awards, which reflects the closing price of the Company’s stock on the date of grant, and (7) the grant date fair value of each equity award computed according to FASB ASC Topic 718.

 
18

 

     
Grant Date
   
Estimated Possible Payout Under Non-Equity Incentive Plan Awards
1
   
Estimated Possible Payouts Under Performance-Based Restricted Stock Units (# of Shares)
2
   
All Other Awards: Number of Restricted Stock Units
3
   
Stock Option Awards:
No. of
Securities Underlying Options
4
   
Price of Option Award
5
   
Grant Date Fair Value of Restricted Stock Unit and Option Awards
6
           
Threshold
   
Target
   
Maximum
   
Threshold
   
Target
   
Maximum
                       
Kent B.
      n/a     $ 0     $ 585,000     $ 975,000                                          
Guichard
   
06/08/12
                              0       12,150       20,250       6,750                 $ 409,136  
     
06/08/12
                                                              60,000     $ 17.62       443,196  
                                                                                             
S. Cary
      n/a       0       222,000       370,000                                                            
Dunston
   
06/08/12
                              0       4,500       7,500       2,500                       151,532  
     
06/08/12
                                                              20,000     $ 17.62       147,732  
                                                                                             
Jonathan H.
      n/a       0       182,328       303,880                                                            
Wolk
   
06/08/12
                              0       3,600       6,000       2,000                       121,226  
     
06/08/12
                                                              20,000     $ 17.62       147,732  
                                                                                             
Bradley S.
      n/a       0       157,500       262,500                                                            
Boyer
   
06/08/12
                              0       3,375       5,625       1,875                       113,649  
     
06/08/12
                                                              15,000     $ 17.62       110,799  
                                                                                             
  1    
The amounts displayed in these columns reflect the target, threshold, and maximum payouts under the fiscal year 2013 Annual Cash Bonus program described in the Compensation Discussion and Analysis based upon annual salary rates as of the last day of fiscal year 2013. The amounts actually paid under this program for fiscal year 2013 are reflected in the Summary Compensation Table. Attainment of Company-wide goals for operating income was the only determinant of the amount of bonus paid. Mr. Guichard’s potential bonus payment ranged from 0% to 150% of his ending fiscal year 2013 annual base salary, with a target of 90%. Messrs. Dunston, Wolk, and Boyer had potential bonus payments of 0% to 100% of their respective base salaries, with a target of 60%. The Company’s specific operating income goals for fiscal year 2013 are described in the Compensation Discussion and Analysis beginning on page 12, under the heading “Company Goals”.
   
  2    
These columns reflect the target, threshold and maximum potential number of shares of the Company’s common stock that could be issued under performance-based RSUs that each named executive officer received during fiscal year 2013. Based upon Company performance for fiscal year 2013, the actual numbers of shares that the named executive officers may earn under the performance-based RSUs if they remain continuously employed through June 8, 2015 are: 16,470 for Mr. Guichard, 6,100 for Mr. Dunston, 4,880 for Mr. Wolk and 4,575 for Mr. Boyer. If the executive terminates employment prior to the vesting date due to retirement, death or disability, the executive receives a pro rata portion of the award based upon the executive’s service from the grant date to the date of termination. At the time the grants are made, the potential payouts are performance-driven and, therefore, completely at risk. The Plan measurements for determining the number of earned RSUs are described in the Compensation Discussion and Analysis under the heading “Restricted Stock Units” beginning on page 13.
   
  3    
This column reflects the number of RSUs granted to each named executive during fiscal year 2013 that were subject to service-based vesting conditions alone. These RSUs are payable on June 8, 2015 if the named executive remains continuously employed through that date. If the executive terminates employment prior to the vesting date due to retirement, death or disability, the executive receives a pro rata portion of the award based upon the executive’s service from the grant date to the date of termination.
   
  4    
This column reflects the number of stock options granted in fiscal year 2013 to the named executive officers. These options vest ratably over three years. The stock option awards granted to Messrs. Guichard, Dunston, Wolk and Boyer were approved by the Compensation Committee on May 29, 2012, for issuance on June 8, 2012.
   
  5    
This column reflects the exercise price for the stock options granted, which was the closing price of the Company stock on the date of grant.
   
  6    
This column reflects the full grant date fair value of the RSUs and stock options granted in fiscal year 2013 computed in accordance with FASB ASC Topic 718. The grant date fair value of the RSUs subject to performance-based vesting is calculated based upon the probable outcome of the performance conditions as of the date of grant.
   

 
19

 

Outstanding Equity Awards at 2013 Fiscal Year-End

 The following table provides information on the holdings, as of April 30, 2013, of stock options and RSUs awarded to the named executive officers. This table includes all unexercised and unvested option awards and all unvested RSUs. Each equity grant is shown separately for each named executive officer. All unvested awards shown in the table below are scheduled to vest on the third anniversary of the applicable grant date for each award. For additional information about the stock option and RSU awards, see the description of long-term incentive awards in the Compensation Discussion and Analysis on page 13.

Name
Grant Date
   
Number of Securities Underlying Unexercised Options Exercisable
   
Number of Securities Underlying Unexercised Options Unexercisable
   
Stock Option Exercise Price
 
Stock Option Expiration Date
 
Number of Restricted Stock Units that have Not Yet Vested
   
Market Value of Restricted Stock Units that have Not Yet Vested
2
 
Kent B.
06/08/12
                          23,220     $ 781,353  
Guichard
06/08/12
      0       60,000     $ 17.62  
06/08/22
               
 
06/08/11
                                22,950     $ 772,268  
 
06/08/11
      0       40,000       18.16  
06/08/21
               
 
06/09/10
                                18,900     $ 635,985  
 
06/09/10
      5,000       20,000       20.87  
06/09/20
               
 
06/10/09
      60,000       0       24.73  
06/10/19
               
 
06/09/08
      66,000       0       23.96  
06/09/18
               
 
06/08/07
      41,000       0       34.11  
06/08/17
               
 
06/12/06
      36,000       0       32.76  
06/12/16
               
 
06/10/05
      30,000       0       28.97  
06/10/15
               
 
06/15/04
      45,000       0       26.85  
06/15/14
               
                                               
S. Cary
06/08/12
                                8,600     $ 289,390  
Dunston
06/08/12
      0       20,000       17.62  
06/08/22
               
 
06/08/11
                                8,500     $ 286,025  
 
06/08/11
      6,666       13,334       18.16  
06/08/21
               
 
06/09/10
                                7,000     $ 235,550  
 
06/09/10
      13,333       6,667       20.87  
06/09/20
               
 
06/10/09
      20,000       0       24.73  
06/10/19
               
 
06/09/08
      23,000       0       23.96  
06/09/18
               
 
06/08/07
      22,000       0       34.11  
06/08/17
               
 
10/16/06
1
    24,000       0       34.63  
10/16/16
               
                                               

 
20

 

Name
Grant Date
       
Number of Securities Underlying Unexercised Options Exercisable
   
Number of Securities Underlying Unexercised Options Unexercisable
   
Stock Option Exercise Price
 
Stock Option Expiration Date
 
Number of Restricted Stock Units that have Not Yet Vested
   
Market Value of Restricted Stock Units that have Not Yet Vested
2
 
Jonathan H.
06/08/12
                              6,880     $ 231,512  
Wolk
06/08/12
          0       20,000      $ 17.62  
06/08/22
               
 
06/08/11
                                    6,800     $ 228,820  
 
06/08/11
          6,666       13,334       18.16  
06/08/21
               
 
06/09/10
                                    5,600     $ 188,440  
 
06/09/10
          13,333       6,667       20.87  
06/09/20
               
 
06/10/09
          20,000       0       24.73  
06/10/19
               
 
06/09/08
          22,000       0       23.96  
06/09/18
               
 
06/08/07
          22,000       0       34.11  
06/08/17
               
 
06/12/06
          21,000       0       32.76  
06/12/16
               
 
06/10/05
          20,000       0       28.97  
06/10/15
               
 
12/13/04
 1           20,000       0       42.17  
12/13/14
               
                                                     
Bradley S.
06/08/12
                                      6,450     $ 217,043  
Boyer
06/08/12
            0       15,000       17.62  
06/08/22
               
 
06/08/11
                                      6,375     $ 214,519  
 
06/08/11
            0       10,000       18.16  
06/08/21
               
 
06/09/10
                                      2,800     $ 94,220  
 
06/09/10
            3,333       1,667       20.87  
06/09/20
               
 
06/10/09
            4,900       0       24.73  
06/10/19
               
 
06/08/07
            10,000       0       34.11  
06/08/17
               
 
06/12/06
            10,000       0       32.76  
06/12/16
               
 
06/10/05
            4,000       0       28.97  
06/10/15
               
 
06/15/04
            2,000       0       26.85  
06/15/14
               
                                                     
1
These stock option grants were issued to Messrs. Dunston and Wolk upon their initial dates of employment with the Company.
 
2
Based on the closing price per share of the Company’s common stock on the last day of the Company fiscal year 2013, April 30, 2013, which was $33.65.
 

Option Exercises and RSUs Vested in Fiscal Year 2013

   
Option Awards
   
Stock Awards
 
   
Number of Shares Acquired on Exercise
1
   
Value Realized on Exercise
2
   
Number of Shares Acquired on Vesting
3
   
Value Realized on Vesting
4
 
Kent B. Guichard
    75,000     $ 795,766       12,000     $ 201,720  
S. Cary Dunston
    0       0       4,800       80,688  
Jonathan H. Wolk
    0       0       4,500       75,645  
Bradley S. Boyer
    15,100       176,906       2,400       40,344  
 
  1  
This column represents the number of securities for which the options were exercised under 10b5-1 plans. There were no shares withheld for payment of taxes.
 
  2  
This column represents the difference between the market price of the underlying securities at exercise less the exercise price.
 
 
 
21

 
 
  3  
This column represents the gross number of shares of RSUs that vested.
 
  4  
This column represents the value of the RSUs that vested on the date the shares were transferred, which was the closing price of the Company stock on the transfer date.
 

Pension Plan Benefits

The following table reports the present value of the accumulated plan benefit at April 30, 2013, for the named executive officers under the Salaried Pension Plan based upon the assumptions described below in Note 1. No pension benefit payments were made to any of the named executive officers during fiscal year 2013. See “Pension and Savings Plans” beginning on page 15 for a discussion of pension and savings plan benefits.

 
Pension Plan Name
 
Number of Years Credited Service
   
Present Value of Accumulated Benefit
1
 
Kent B. Guichard
Salaried Pension Plan
    18.7     $ 490,195  
S. Cary Dunston
Salaried Pension Plan
    5.5       98,200  
Jonathan H. Wolk
Salaried Pension Plan
    7.4       153,998  
Bradley S. Boyer
Salaried Pension Plan
    16.8       397,598  

1
The accumulated benefit is based on service and earnings (base salary and bonus, as described above) considered by the Salaried Pension Plan for the period through April 30, 2013.  The present value of accumulated benefit has been calculated assuming the named executive officers begin receiving their benefits at age 65.  As described in Note H – Employee Benefit and Retirement Plans in the Notes to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended April 30, 2013, the interest assumption is 4.21%.  The post-retirement mortality assumption is based on the RP-2000 PPA Combined Healthy Mortality Table.

Nonqualified Deferred Compensation

The amounts reported in the table below represent the change in value in the accounts of the named executive officers under the Company’s non-tax qualified, non-contributory defined contribution supplemental Pension Restoration Plan (PRP) from May 1, 2012 through April 30, 2013, as well as their aggregate balances as of April 30, 2013.  The Company discontinued contributions to the PRP effective May 1, 2012.

   
Nonqualified Deferred Compensation
 
   
Company Contributions in FY 2013
   
Aggregate Earnings in FY 2013
1
   
Withdrawals/ Distribution in
FY 2013
   
Aggregate Balance at April 30, 2013
 
Kent B. Guichard
  $ 0     $ 47,607     $ 0     $ 580,106  
S. Cary Dunston
    0       12,686       0       141,442  
Jonathan H. Wolk
    0       13,742       0       142,898  
Bradley S. Boyer
    0       1,405       0       14,986  

1
Earnings were credited to the accounts of the named executive officers based upon their respective investment choices.  These earnings were not included in the Summary Compensation Table.

Employment Agreements and Post-Employment Compensation Arrangements

As of April 30, 2013, the Company had entered into employment agreements with Messrs. Guichard, Dunston and Wolk as described below.   These employment agreements were amended in May 2013 to eliminate “single trigger” vesting of outstanding equity awards and the tax gross-up for any golden parachute excise taxes, as described on page 16. Since these amendments were not made until after the end of fiscal year 2013, the discussion below is based on the terms of these agreements before the amendments. This discussion also does not address the new employment agreement for Mr. Boyer, as described on page 16, which was entered into after the end of fiscal year 2013.

 
22

 

Mr. Guichard, Mr. Dunston and Mr. Wolk each has an employment agreement with the Company to fulfill the duties of each executive’s respective position. The respective agreements specify the base salary for Mr. Guichard of at least $550,000 per year, for Mr. Dunston a base salary of at least $294,250 per year, and for Mr. Wolk a base salary of at least $278,100 per year, each subject to annual upward adjustments as the Company shall deem appropriate from time to time and as approved within general practice and authority levels required by the Board’s Compensation Committee.

Further, the three executives are entitled to participate in the Company’s annual incentive program with a bonus opportunity of between 0% and 150% of Mr. Guichard’s then current base salary, and between 0% to 100% of Messrs. Dunston’s and Wolk’s then current base salaries. In each case, the actual amount of the bonus paid will be related to achievement of certain performance objectives set by the Compensation Committee at the beginning of each fiscal year. The agreements for Messrs. Guichard, Dunston and Wolk are for one-year terms that end on December 31 of each year and provide for an automatic one-year extension, unless either party to the agreement gives notice on or before November 1 of the preceding year.

Under these agreements, each executive is entitled to severance pay should his employment be terminated by the Company without cause. Mr. Guichard would be entitled to severance pay for a period of 24 months, and Messrs. Dunston and Wolk are each entitled to severance pay for a period of 12 months. The length of Mr. Guichard’s severance pay period is longer than that of Messrs. Dunston and Wolk, due to the greater span of control, accountability and ability to impact the Company’s performance inherent in Mr. Guichard’s role as Chief Executive Officer. In addition, Mr. Guichard would be entitled to a bonus payment of 90% of his base salary. The executives would also be entitled to receive subsidized COBRA coverage, and a tax gross-up with respect to such coverage, from the Company following their termination of employment, for a period of up to 18 months for Mr. Guichard and up to 12 months for Messrs. Dunston and Wolk. The employment agreements define “cause” as neglect of duty that is not corrected after 90 days’ written notice, misconduct, malfeasance, fraud or dishonesty which materially and adversely impacts the Company or its reputation, or conviction or entering a plea of nolo contendere to a felony or crime involving moral turpitude. Severance payments would be made in accordance with the Company’s usual payroll practices for salaried personnel, subject to the “six-month delay” timing requirements of Section 409A of the Code. Under the terms of these agreements, each executive has agreed to not compete with the Company both while they are employed and during the time they receive severance pay, and not to solicit its employees for a period of 12 months after the expiration of the agreements for Messrs. Guichard, Dunston and Wolk.

The employment agreements for Messrs. Guichard, Dunston and Wolk provide certain benefits upon a change in control of the Company. The employment agreements define “change in control” as an acquisition by a third party of 30% or more of the outstanding Company stock; a change in the Company’s Board of Directors, such that the current members and their approved successors cease to be a majority; a merger or other business combination following which the Company’s pre-transaction shareholders cease to hold more than 50% of the Company’s stock; or complete liquidation or dissolution of the Company or the sale or other disposition of substantially all of its assets. The Company cannot terminate these agreements for 24 months after a change in control. Upon a change in control of the Company, Mr. Guichard can terminate his employment for any reason at any time during the two-year period following the change in control. If Mr. Guichard chooses to exercise this right under these circumstances, or if the Company terminates Mr. Guichard’s employment without cause within 3 months before or 2 years after a change in control, then he would receive a single lump sum payment equal to 2.99 times the sum of:

 
 
the greater of his annual base salary at the time of termination or the largest base salary in effect during the term of his agreement, and
 
 
 
an amount equal to 90% of Mr. Guichard’s base salary.

In addition, Mr. Guichard would be entitled to receive an amount equal to any excise tax under Section 4999 of the Code owed by him in connection with payments (including the lump-sum payment described above) made to him in connection with a change in control, and any federal and state income tax, FICA and Medicare taxes due on such additional payment.  As noted previously, this tax gross-up provision was eliminated in May 2013.

 If either Mr. Dunston or Mr. Wolk terminates his employment for good reason within one year after a change in control, or if the Company terminates either Messrs. Dunston’s or Wolk’s employment without cause

 
23

 

within three months before or one year after a change in control, then he would be entitled to a lump sum payment equal to two times the sum of:

 
 
the greater of his annual base salary at the time of termination, a change in control, or his largest base salary in effect during the term of his agreement, and
 
 
 
an amount equal to the greater of the average of bonuses paid for the three preceding fiscal years or 60% of his maximum eligible annual cash bonuses for the year of termination.

In addition, Messrs. Dunston and Wolk would be entitled to receive an amount equal to any excise tax under Section 4999 of the Code owed by them in connection with payments (including the lump-sum payment described above) made to them in connection with a change in control, and any federal and state income tax, FICA and Medicare taxes due on such additional payment.  As noted previously, this tax gross-up provision was eliminated in May 2013.

Either Messrs. Dunston or Wolk would have good reason to terminate his employment if:

 
 
his base salary is reduced,
 
 
 
he is not in good faith considered for a bonus,
 
 
 
he is not in good faith considered for other executive compensation benefits,
 
 
 
his place of employment is relocated to a location further than 50 miles from his current place of employment, or
 
 
 
his working conditions or management responsibilities are substantially diminished (other than on account of disability).

As of April 30, 2013, pursuant to the terms of their award agreements with the Company, the named executive officers would have vested in all unvested stock options and all unvested RSUs in the event of a change in control. As noted previously, in May 2013, the Compensation Committee approved amendments to the employment agreements to provide for “double-trigger” instead of “single-trigger” vesting of the executives’ outstanding equity awards, and changes to the form of equity award agreements to provide for “double-trigger” vesting of any future equity awards as well. If any of the named executive officers were to die or were to terminate employment with the Company due to disability, any vested and exercisable stock options previously awarded would remain exercisable for a period of one year following the death or disability. If one of the named executive officers were to terminate employment prior to the vesting date due to retirement, death or disability, the executive would vest in and receive a prorated portion of their RSU awards based upon the executive’s total service from the grant date through the date of termination.

As of April 30, 2013, the Company had not entered into an employment agreement with Mr. Boyer and Mr. Boyer would not have been entitled to any cash severance payments upon his termination of employment of the Company for any reason, in connection with a change in control or otherwise.  However, Mr. Boyer would have been entitled to accelerated vesting of his RSUs and stock options pursuant to the terms of his award agreements as described in the immediately preceding paragraph.  As noted previously, in May 2013, the Compensation Committee approved an employment agreement for Mr. Boyer on substantially the same terms and conditions as the employment agreements for Messrs. Dunston and Wolk, as amended as described above.


 
24

 

The following table represents the payments that would have been made or value of benefits provided to Mr. Guichard upon termination of his employment under various scenarios or a change in control, if that event had occurred on April 30, 2013.

   
Termination Event
 
Payment Type
 
Retirement
   
Change In Control
1
   
Termination by Company Without Cause (No Change In Control)
   
Death or Disability
   
Voluntary Termination (No Change In Control)
 
Base Salary
  $ 0     $ 1,943,500     $ 1,300,000     $ 0     $ 0  
Annual Bonus
    0       1,749,150       1,170,000       0       0  
COBRA Reimbursement
    0       14,522       14,522       0       0  
Tax Gross Up2
    0       3,179,443       0       0       0  
Accelerated Restricted Stock Units Vesting
    1,289,636       2,189,606       0       1,289,636       0  
Accelerated Stock Options Vesting
    0       1,837,000       0       0       0  
Total
  $ 1,289,636     $ 10,913,221     $ 2,484,522     $ 1,289,636     $ 0  

1
The lump-sum payments would be triggered by voluntary termination of employment by Mr. Guichard for any reason during the two-year period following a change in control or termination of his employment by the Company without cause within three months before or two years after a change in control.  Mr. Guichard’s stock options and RSUs will fully vest upon any change in control.  As noted previously, Mr. Guichard’s employment agreement was amended in May 2013 to provide for “double trigger” instead of “single trigger” vesting of outstanding equity awards in connection with a change in control.
 
2
As noted previously, the tax gross-up provision in Mr. Guichard’s employment agreement was eliminated in May 2013.

The following table represents the payments that would have been made or value of benefits provided to Mr. Dunston upon termination of his employment under various scenarios or a change in control, if that event had occurred on April 30, 2013.
 
 
   
Termination Event
 
Payment Type
 
Retirement
   
Change In Control
1
   
Termination by Company Without Cause (No Change In Control)
   
Death or Disability
   
Voluntary Termination (No Change In Control)
 
Base Salary
  $ 0     $ 740,000     $ 370,000     $ 0     $ 0  
Annual Bonus
    0       444,000       0       0       0  
COBRA Reimbursement
    0       11,239       11,239       0       0  
Tax Gross Up2
    0       1,020,839       0       0       0  
Accelerated Restricted Stock Units Vesting
    477,643       810,965       0       477,643       0  
Accelerated Stock Options Vesting
    0       612,348       0       0       0  
Total
  $ 477,643     $ 3,639,391     $ 381,239     $ 477,643     $ 0  

1
The lump-sum payments would be triggered by termination of employment by Mr. Dunston for good reason within the one-year period after a change in control or termination of his employment by the Company without cause within three months before or one year after a change in control.  Mr. Dunston’s stock options and RSUs will fully vest upon any change in control.  As noted previously, Mr. Dunston’s employment agreement was amended in May 2013 to provide for “double trigger” instead of “single trigger” vesting of outstanding equity awards in connection with a change in control.
 
2
As noted previously, the tax gross up in Mr. Dunston’s employment agreement was eliminated in May 2013.


 
25

 

The following table represents the payments that would have been made or value of benefits provided to Mr. Wolk upon termination of his employment under various scenarios or a change in control, if that event had occurred on April 30, 2013.

   
Termination Event
 
Payment Type
 
Retirement
   
Change In Control
1
   
Termination by Company Without Cause (No Change In Control)
   
Death or Disability
   
Voluntary Termination (No Change In Control)
 
Base Salary
  $ 0     $ 607,760     $ 303,880     $ 0     $ 0  
Annual Bonus
    0       364,656       0       0       0  
COBRA Reimbursement
    0       12,319       12,319       0       0  
Tax Gross Up2
    0       838,777       0       0       0  
Accelerated Restricted Stock Units Vesting
    382,114       648,772       0       382,114       0  
Accelerated Stock Options Vesting
    0       612,348       0       0       0  
Total
  $ 382,114     $ 3,084,632     $ 316,199     $ 382,114     $ 0  

1
The lump-sum payments would be triggered by termination of employment by Mr. Wolk for good reason within the one-year period after a change in control or termination of his employment by the Company without cause within three months before or one year after a change in control.  Mr. Wolk’s stock options and RSUs will fully vest upon any change in control.  As noted previously, Mr. Wolk’s employment agreement was amended in May 2013 to provide for “double trigger” instead of “single trigger” vesting of outstanding equity awards in connection with a change in control.
 
2
As noted previously, the tax gross up in Mr. Wolk’s employment agreement was eliminated in May 2013.

The following table represents the payments that would have been made or value of benefits provided to Mr. Boyer upon termination of his employment under various scenarios or a change in control, if that event had occurred on April 30, 2013.

   
Termination Event
 
Payment Type
 
Retirement
   
Change In Control
1
   
Termination by Company Without Cause (No Change In Control)
   
Death or Disability
   
Voluntary Termination (No Change In Control)
 
Base Salary
  $ 0     $ 0     $ 0     $ 0     $ 0  
Annual Bonus
    0       0       0       0       0  
COBRA Reimbursement
    0       0       0       0       0  
Tax Gross Up
    0       0       0       0       0  
Accelerated Restricted Stock Units Vesting
    280,370       525,781       0       280,370       0  
Accelerated Stock Options Vesting
    0       416,654       0       0       0  
Total
  $ 280,370     $ 942,435     $ 0     $ 280,370     $ 0  

1
Mr. Boyer’s stock options and RSUs will fully vest upon any change in control.  As noted previously, the Company entered into a new employment agreement with Mr. Boyer in May 2013 which provides for “double trigger” instead of “single trigger” vesting of outstanding equity awards.



 
26

 

REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed that analysis with management. Based upon its review and discussions with management, the Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2013.  This report is provided by the following independent directors, who comprise the Compensation Committee:

   
 
Daniel T. Hendrix, Chair
 
Martha M. Dally
 
Vance W. Tang
   
COMPANY’S COMPENSATION POLICIES AND PRACTICES RELATING TO RISK MANAGEMENT

The Compensation Committee oversees management’s evaluation of whether the Company’s employee compensation policies and practices pose any risks that are reasonably likely to have a material adverse effect on the Company. In conducting this evaluation, management reviews the Company’s overall compensation structure and may take into account such factors as the overall mix of compensation, the performance metrics that are used under the Company’s employee incentive programs, the length of the performance periods under such programs, and the overall business risk of the Company. Management undertakes such a review periodically at the Compensation Committee’s direction and reports to the Compensation Committee any finding that a risk related to the Company’s compensation structure may exist, as well as any factors which may mitigate the risk posed by the particular compensation policy or practice. The Company has determined that there are currently no risks arising from its compensation policies and practices that are reasonably likely to have a material adverse effect on the Company.

NON-MANAGEMENT DIRECTORS’ COMPENSATION

The Company’s non-management director compensation program has the following objectives:

 
 
compensation should fairly pay non-management directors for work required for the Company’s size and scope,
 
 
compensation should align non-management directors’ interests with the long-term interests of shareholders, and
 
 
 
the structure of the compensation should be simple, transparent, and easy for shareholders to understand.

Non-management directors’ compensation includes the following compensation elements:
 
Director Fees. The annual retainer paid to non-management directors was increased from $36,000 per year to $40,000 per year, effective March 1, 2013. In addition, directors receive committee attendance fees of $1,000 per in-person meeting and $500 per telephonic meeting. The Audit Committee Chair receives an additional annual retainer of $8,000 per year, while the Compensation Committee and the Governance Committee Chairs each receive an additional annual retainer of $4,000 per year. Directors who are also employees of the Company receive no additional compensation for their services on the Board. All directors are reimbursed for out-of-pocket costs incurred for travel and other expenses incurred for attending Board and committee meetings.

Stock Compensation. The Company’s goal is to provide its non-management directors with annual equity compensation valued at approximately $50,000 per year. Under the 2011 Non-Employee Directors Equity Ownership Plan (the “2011 Directors Plan”), the forms of stock compensation granted to non-management directors can include stock options, stock appreciation rights, restricted stock awards and restricted stock units.

During fiscal year 2013, non-employee directors were each awarded 2,500 restricted stock units (“Director RSUs”). Under the terms of the Director RSUs, granted August 23, 2012, if the recipients continuously serve as directors of the Company through August 15, 2014, then they will receive 2,500 shares of the Company’s stock.  If a

 
27

 

director leaves the Board for any reason prior to August 15, 2014, he or she will receive a pro-rata number of shares based on his or her days of service.  Upon a change of control of the Company, each non-employee director will receive the full number of shares issuable under the RSUs if he or she continues to serve until the date of the change of control.

Most of the Company’s non-management directors continue to have previously awarded stock options outstanding. The Compensation Committee does not expect to issue these types of awards in the future.

As with the Company’s Amended and Restated 2004 Stock Incentive Plan for Employees, the strike prices for all stock options granted to directors must be set at 100% of the fair value of the underlying common stock at the date of the grant. Stock options previously granted under the 2006 Non-Employee Directors Equity Ownership Plan have terms of ten years and are exercisable as to one-third of the shares on the first anniversary of the date of grant and as to an additional one-third on each succeeding anniversary of the date of grant until fully vested.

The following table sets forth the compensation earned by or paid to the Company’s non-management directors during fiscal year 2013.

Director Summary Compensation Table

Name of Director
 
Director Fees Paid In Cash
1
   
Director RSUs
2
   
Total
 
William F. Brandt, Jr.
  $ 37,000     $ 47,350     $ 84,350  
Andrew B. Cogan
    40,500       47,350       87,850  
Martha M. Dally
    49,000       47,350       96,350  
James G. Davis, Jr.
    43,500       47,350       90,850  
Daniel T. Hendrix
    45,000       47,350       92,350  
Kent J. Hussey
    45,000       47,350       92,350  
Carol B. Moerdyk
    54,000       47,350       101,350  
Vance W. Tang
    41,000       47,350       88,350  

  1  
This column reflects the amount of cash compensation earned during fiscal year 2013 for Board and committee service.
 
  2  
This column represents the dollar amounts of the aggregate grant date fair value of the Director RSUs granted during fiscal year 2013 in accordance with FASB ASC Topic 718.  These grants were all made on August 23, 2012, and the grant date fair value at the time of the grant is the number of Director RSUs multiplied by the closing price of the Company’s stock on the date of grant, which was $18.94.  Each of the directors had 5,000 Director RSUs outstanding as of April 30, 2013.  The following directors had outstanding stock option awards as of April 30, 2013: Mr. Brandt 15,000; Ms. Dally 10,000; Mr. Davis 15,000; Mr. Hendrix 15,000; Mr. Hussey 15,000; Ms. Moerdyk 15,000.


 
28

 

SECURITY OWNERSHIP

Share Ownership of Directors and Executive Officers

The following table sets forth information regarding shares of the Company’s common stock beneficially owned as of June 17, 2013, by (1) each director and director nominee of the Company, (2) each of the Company’s named executive officers (as identified in the “Summary Compensation Table”), and (3) the Company’s directors and executive officers as a group. Unless otherwise noted, and to the best knowledge of the Company, each of the shareholders listed below has sole voting power and sole investment power with respect to the number of shares set forth opposite the shareholder’s name.  

Name
 
Number of Shares Beneficially Owned
   
Aggregate Percent of Class
 
William F. Brandt, Jr. (1)
    2,970,029       19.9 %
Kent B. Guichard (2)
    377,594       2.5 %
Jonathan H. Wolk (3)
    181,382       1.2  
S. Cary Dunston (4)
    142,263       1.0  
Bradley S. Boyer (5)
    16,040       *  
Martha M. Dally (6)
    38,500       *  
Kent J. Hussey (7)
    31,000       *  
James G. Davis, Jr. (8)
    26,520       *  
Carol B. Moerdyk (9)
    22,700       *  
Daniel T. Hendrix (10)
    22,500       *  
Vance W. Tang (11)
    9,600       *  
Andrew B. Cogan (12)
    12,500       *  
All directors and executive officers as a group (12 persons) (13)
    3,850,628       25.8 %

*
Indicates less than 1%.
 
(1)
Includes 3,948 shares held by the Brandt Family Foundation and 140,000 shares owned by Mrs. Elaine Brandt, for which Mr. Brandt disclaims voting or dispositive power, stock options exercisable on June 17, 2013 or within 60 days thereafter by Mr. Brandt for 15,000 shares, and 2,500 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if Mr. Brandt continuously serves on the board of directors through the maturity date for the RSUs.
 
(2)
Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Mr. Guichard for 343,000 shares.
 
(3)
Includes 3,826 shares held jointly by Mr. Wolk and his spouse, for which Mr. Wolk has shared voting and dispositive power.  Includes 1,000 shares held by Mr. Wolk’s children, for which Mr. Wolk has indirect ownership.  Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Mr. Wolk for 164,999 shares.
 
(4)
Includes 3,254 shares held jointly by Mr. Dunston and his spouse, for which Mr. Dunston has shared voting and dispositive power.  Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Mr. Dunston for 128,999 shares.
 
(5)
Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Mr. Boyer for 10,580 shares.
 
(6)
Includes 500 shares held by Ms. Dally as Trustee for the R. Dally Family Trust, for which Ms. Dally has shared voting and dispositive power.  Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Ms. Dally for 7,500 shares and 2,500 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if Ms. Dally continuously serves on the board of directors through the maturity date for the RSUs.
 
 
 
29

 
 
(7)
Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Mr. Hussey for 15,000 shares and 2,500 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if Mr. Hussey continuously serves on the board of directors through the maturity date for the RSUs.
 
(8)
Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Mr. Davis for 15,000 shares and 2,500 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if Mr. Davis continuously serves on the board of directors through the maturity date for the RSUs.
 
(9)
Includes 200 shares held by Ms. Moerdyk as Trustee for the Greene-Moerdyk Revocable Trust, for which Ms. Moerdyk has shared voting and dispositive power.  Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Ms. Moerdyk for 15,000 shares and 2,500 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if Ms. Moerdyk continuously serves on the board of directors through the maturity date for the RSUs.
 
(10)
Includes stock options exercisable on June 17, 2013 or within 60 days thereafter by Mr. Hendrix for 15,000 shares and 2,500 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if Mr. Hendrix continuously serves on the board of directors through the maturity date for the RSUs.
 
(11)
Includes 2,500 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if Mr. Tang continuously serves on the board of directors through the maturity date for the RSUs.
 
(12)
Includes 2,500 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if Mr. Cogan continuously serves on the board of directors through the maturity date for the RSUs.
 
(13)
Includes stock options exercisable on June 17, 2013 or within 60 days thereafter for an aggregate of 730,078 shares and 20,000 shares that may be acquired upon the conversion of RSUs within 60 days after June 17, 2013 if the director continuously serves on the board of directors through the maturity date for their respective RSUs.

Share Ownership of Principal Beneficial Owners

The following table sets forth information regarding shares of the Company’s common stock beneficially owned by each non-management shareholder the Company believes to own more than 5% of the Company’s outstanding common stock. This data is based upon Schedules 13G filed with the SEC. Unless otherwise noted, and to the best knowledge of the Company, each of the shareholders listed below has sole voting power and sole investment power with respect to the number of shares set forth opposite the shareholder’s name.

Name
 
Number of Shares Beneficially Owned
   
Aggregate Percent of Class
 
             
Royce & Associates, LLC (1)
    1,256,569       8.6 %
745 Fifth Avenue
               
New York, NY  10151
               
                 
FMR LLC (2)
    976,777       6.7 %
82 Devonshire Street
               
Boston, MA  02109
               
                 
S.A.C. Capital Advisors, L.P. (3)
    745,802       5.1 %
72 Cummings Point Road
               
Stamford, CT 06902
               

 
30

 

(1)
The beneficial ownership information for Royce & Associates, LLC is based upon the Schedule 13G/A filed with the SEC on January 3, 2013, which also indicated that Royce & Associates, LLC has sole voting and sole dispositive power for all 1,256,569 shares.
 
(2)
The beneficial ownership information for FMR LLC is based upon the Schedule 13G filed with the SEC on February 14, 2013.  The Schedule 13G indicated that Fidelity Management & Research Company, a wholly-owned subsidiary of FMR LLC and a registered investment adviser (“Fidelity”), is the beneficial owner of 976,777 shares of the Company’s common stock, and that Edward C. Johnson III (Chairman of FRM LLC) and FMR LLC, through its control of Fidelity, and the funds each has sole dispositive power for all 976,777 shares. Members of the family of Edward C. Johnson III are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders' voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. The principal business address for Fidelity is 82 Devonshire Street, Boston, MA 02109.
 
(3)
The beneficial ownership information for S.A.C. Capital Advisors, L.P. is based upon the Schedule 13G filed with the SEC on April 11, 2013, which also indicated that S.A.C. Capital Advisors, L.P., S.A.C. Capital Advisors, Inc. and Steven A. Cohen have shared voting and shared dispositive power for all 745,802 shares, and that S.A.C. Capital Associates, LLC has shared voting and shared dispositive power for 740,000 shares.  The principal business address for S.A.C. Capital Advisors, Inc. and Mr. Cohen is 72 Cummings Point Road, Stamford, CT 06902, and for S.A.C. Capital Associates, LLC is Mitchell House, The Valley, Anguilla, British West Indies.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s directors and officers, and persons who beneficially own more than 10% of the Company’s common stock to file with the SEC reports of initial ownership and changes in ownership of the Company’s common stock.

Based upon the Company’s review of Forms 3, 4, and 5 (and amendments thereto) filed with the SEC during or with respect to the Company’s fiscal year ended April 30, 2013, and written representations from the Company’s directors and executive officers that no Forms 5 were required to be filed by those persons for that fiscal year, the Company is not aware that any director, executive officer, or 10% shareholder failed to file in a timely fashion any such reports, except for (1) late Forms 4 reporting the achievement of performance conditions applicable to performance-based restricted stock units on May 30, 2012 for: Mr. Guichard in the amount of 16,200 shares; Mr. Dunston in the amount of 6,000 shares; Mr. Wolk in the amount of 4,800 shares; Mr. Boyer in the amount of 4,500 shares; and Mr. Glenn Eanes in the amount of 1,440 shares, due to an inadvertent administrative error on the Company’s part, which was subsequently reported on Forms 4 filed June 8, 2012; and (2) a late Form 4 filed on March 7, 2013 for Mr. Eanes regarding the exercise of stock options for 413 shares and the subsequent sale of those shares on March 4, 2013.

CERTAIN RELATED PARTY TRANSACTIONS

The Company has written policies concerning related party transactions and potential conflicts of interests. These policies describe the types of transactions and relationships that may be in conflict with these policies. All officers and directors, as well as employees who exercise substantial discretionary authority in the performance of their duties are required to complete an annual questionnaire describing any potential conflicts of interest and certify their compliance with the Company’s policies. These responses are reviewed by the Audit Committee. As required by their respective charters, both the Audit Committee and the Governance Committee have the responsibility to review all related party transactions. The Audit Committee is responsible for the review and approval of all related party transactions and the Governance Committee must review and approve related party transactions involving directors. In addition, the Governance Committee also is responsible for the review of any potential conflicts of interest involving employees, officers or directors as defined in the Company’s Code of Business Conduct and

 
31

 

Ethics and Code of Ethics for the Chief Executive Officer and Senior Financial Officers, which are maintained on the Corporate Governance page of the Company’s web site at http://investor.shareholder.com/amwd/governance.cfm.

The Company leases its headquarters from Amwood Associates, a partnership that includes Mr. Brandt, a director and beneficial owner of 19.9% of the Company’s common stock, and Mary Jo Stout, who in fiscal year 2013 had been, but currently is no longer, a beneficial owner of more than 5% of the Company’s common stock. During fiscal year 2013, Mr. Brandt and Ms. Stout had partnership interests in Amwood Associates of 38.6% and 20%, respectively. The original lease commenced on March 18, 1986, and ended on March 17, 2001. The Company has elected to renew this lease three times in accordance with Company policy and procedures, which included approval by all the Company’s independent directors for the current five-year term which expires in 2016. In considering the renewal of this lease, the Company assesses the lease terms in relation to market terms for comparable properties. Based upon this review, the Company believes that the rent under the lease is in line with market rates that could be obtained at arm’s length from unaffiliated third parties. Current rental payments are $39,095 per month and are scheduled for annual increases equal to 2% each April 1 for the remainder of the lease term. During the fiscal year ended April 30, 2013, the Company made aggregate payments under the lease in the amount of $461,478.  As of April 30, 2013, the aggregate remaining lease payments due under this lease until its expiration were $1,396,673.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2013 with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

The Audit Committee reviewed and discussed the Company’s unaudited quarterly financial statements and the audited annual financial statements for the fiscal year ended April 30, 2013, with management and KPMG LLP, the Company’s independent registered public accounting firm, who is responsible for expressing its opinions on the conformity of those audited financial statements with U.S. generally accepted accounting principles, and the effectiveness of the Company’s internal control over financial reporting. The Audit Committee has discussed with KPMG LLP the matters required to be discussed by Statement of Auditing Standards No. 61 “Communications with Audit Committees,” as amended, as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. In addition, the Audit Committee has discussed with KPMG LLP the firm’s independence from management and the Company, including matters in the written disclosures and letter from KPMG LLP to the Committee required by the PCAOB.
 
The Committee discussed and approved the audit scopes and plans of the Company’s internal auditor and KPMG LLP for their respective audits. The Audit Committee met with the Company’s internal auditor and the independent registered public accounting firm, with and without management present, to discuss the results of their audits, the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements as of and for the fiscal year ended April 30, 2013, be included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2013. The Audit Committee has selected KPMG LLP as the Company’s independent registered public accounting firm to audit the Company’s financial statements for fiscal year 2014 and the Board of Directors has submitted the selection of KPMG LLP for ratification by the shareholders at the Annual Meeting.

   
 
Carol B. Moerdyk, Chair
 
Kent J. Hussey
 
James G. Davis, Jr.
 
Andrew Cogan


 
32

 

Independent Auditor Fee Information

Fees for professional services provided by KPMG LLP, the Company’s independent registered public accounting firm, in each of the last two fiscal years in each of the following categories are:

   
2013
   
2012
 
Audit Fees
  $ 500,000     $ 460,000  
Audit-Related Fees
    44,500       44,500  
Tax Fees
    5,500       5,500  
All Other Fees
    0       0  
Total
  $ 550,000     $ 510,000  

Audit Fees include fees associated with the annual audit of the Company’s financial statements, and internal control over financial reporting, as well as reviews of the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Audit-Related Fees are incurred for employee benefit plan financial statement audits.

Tax Fees include fees pertaining to tax compliance, tax advice and tax planning.

Pre-Approval Policies and Procedures

The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax, and other services performed for the Company by any independent registered public accounting firm. The policy permits the Audit Committee to pre-approve specifically defined audit and non-audit services. Unless a specific service has been pre-approved with respect to a certain fiscal year, the Audit Committee must approve each permitted service before KPMG LLP or another independent registered public accounting firm is engaged. The Audit Committee has delegated to the Chair of the Audit Committee authority to pre-approve permitted services, provided that the Chair reports those approvals to the Audit Committee at its next scheduled meeting. During fiscal year 2013 all audit fees, audit-related fees, tax fees, and other fees were pre-approved by the Audit Committee.

ITEM 2—RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board of Directors has selected KPMG LLP as the independent registered public accounting firm to audit the financial statements of the Company for fiscal year 2014, and the Board of Directors has directed a vote of shareholders to be taken to ascertain their approval or disapproval of that selection. If the shareholders do not ratify the selection of KPMG LLP, the Audit Committee of the Board of Directors will reconsider the selection of the independent registered public accounting firm.

Representatives of KPMG LLP will be present at the Company’s Annual Meeting. They will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

The Board of Directors unanimously recommends that shareholders vote “FOR” the ratification of KPMG LLP as the independent registered public accounting firm of the Company for fiscal year 2013.

ITEM 3—APPROVAL OF AMENDMENTS TO AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN FOR EMPLOYEES

 
Subject to shareholder approval, the Board of Directors has unanimously approved certain amendments to the Amended and Restated 2004 Incentive Plan for Employees (the 2004 Plan), to be effective as of the date of the 2013 Annual Meeting. The Board of Directors is requesting that shareholders approve the 2004 Plan as amended as proposed herein. The principal features of the 2004 Plan, as amended as proposed herein, are summarized below. Shareholders should read the full text of the 2004 Plan as amended as proposed herein, provided in Appendix A to this Proxy Statement for a complete description of its legal terms and conditions.

 
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Proposed Amendments
 
The proposed amendments to the 2004 Plan (i) authorize a new type of award, “performance grants,” for the purpose of allowing the Company’s existing annual bonus program and other cash-based performance awards to qualify for the “performance-based compensation” exemption to the $1 million deduction limitation for certain executive officers under Section 162(m) of the Internal Revenue Code, and (ii) expand the types of performance criteria that may be used for performance grants and other performance-based awards under the 2004 Plan. The proposed amendments are not intended or expected to increase management’s compensation and do not make any change to the number of shares of the Company’s common stock previously authorized for issuance under the 2004 Plan.
 
The Board of Directors unanimously recommends a vote “FOR” approval of the 2004 Plan, as amended as proposed herein.
 
Summary of the 2004 Plan, as Amended as Proposed Herein
 
The following summary of the 2004 Plan, as amended as proposed herein, is qualified in its entirety by the terms of the 2004 Plan, as amended as proposed herein, a copy of which is attached to this proxy as Appendix A.
 
Authorized Shares. A total of 3,000,000 shares of common stock of the Company (“Company Stock”) are reserved for issuance under the 2004 Plan. Shares of Company Stock allocated to awards under the 2004 Plan or portions thereof that expire, are forfeited or otherwise terminate unexercised may again be made subject to an award under the 2004 Plan; however, shares of Company Stock tendered by a participant, or withheld by the Company, to pay the exercise price of an option or applicable withholding taxes in connection with an award may not be used for future awards under the 2004 Plan. No more than 100,000 shares of Company Stock may be allocated to the awards that are granted to a Participant in any single taxable year. Adjustments will be made in the number and kind of shares of stock or Company securities which may be issued under the 2004 Plan in the event of a stock dividend, stock split, recapitalization, merger or similar change in the outstanding shares of Company Stock or the creation or issuance to shareholders generally of rights, options or warrants for the purchase of Company Stock or preferred stock.
 
Eligibility. All present and future employees of the Company or a subsidiary whom the Compensation Committee determines have contributed or who can be expected to contribute significantly to the Company or subsidiary are eligible to be granted awards under the 2004 Plan. The Company estimates that it has approximately 60 employees who would currently be eligible to receive awards under the 2004 Plan (4 of whom are named executive officers).
 
Administration. The 2004 Plan is administered by the Compensation Committee or a subcommittee of the Compensation Committee. The Compensation Committee has the power and complete discretion to select eligible employees to receive awards, and to determine the type, terms and conditions of the awards, including without limitation any performance goals applicable to awards.
 
Stock Options. Options to purchase shares of Company Stock granted under the 2004 Plan may only be non-statutory options. Non-statutory options do not qualify for favorable individual income tax treatment under Code Section 422. The purchase price of Company Stock covered by a non-statutory option may not be and may never become less than 100% of the fair market value of such shares on the date of grant. Options may only be exercised at such times as may be specified by the Compensation Committee in the option agreement, but no option may be exercised more than 10 years after the grant date. The Committee may grant options with a provision that an option that is not otherwise exercisable will become exercisable upon a change in control. “Reload” options are prohibited. The repricing of options or SARs under the 2004 Plan, including the exchange of underwater options or SARs for other awards or cash, is expressly prohibited without shareholder consent.
 
Restricted Stock. When a grant of Company Stock is made in the form of restricted stock, the grantee may not sell, assign, or otherwise dispose of the Company Stock until the restrictions on the shares set forth in the award agreement have lapsed or been removed. In making a grant of restricted stock, the Compensation Committee will

 
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establish as to each award the terms and conditions upon which these restrictions lapse. The minimum restriction period for an award of service-based restricted stock is three years, and the minimum restriction period for an award of performance-based restricted stock is one year. The restrictions may also lapse as a result of the disability, retirement or death of the Participant or the occurrence of a change in control. Restricted stock awards convey common shareholder rights to the award recipients, including the right to receive dividends or other distributions with respect to Company Stock. Dividends or other distributions on unvested shares of restricted stock are subject to the same restrictions as the underlying shares, and are paid to the award recipient only if and when those restrictions lapse or are removed.
 
Restricted Stock Units. The 2004 Plan authorizes the grant of restricted stock units, which are rights to receive a share of Company Stock in the future, subject to vesting conditions as determined by the Compensation Committee and set forth in the applicable award agreement. Restricted stock units may be paid in cash or in shares of Company Stock or any combination thereof. The minimum vesting period for an award of service-based restricted stock units is three years, and the minimum vesting period for an award of performance-based restricted stock units is one year. Vesting may also occur as a result of the disability, retirement or death of the Participant or the occurrence of a change in control. Restricted stock units do not convey any shareholder rights with respect to Company Stock, however the Compensation Committee may provide for dividend equivalents in connection with a restricted stock unit award, which entitle the participant to receive the same dividends and other distributions with respect to his or her restricted stock units as though he or she were an owner of Company Stock. The payment of any dividend equivalents on unvested restricted stock units is subject to the same vesting conditions as the underlying restricted stock units, and dividend equivalents are paid to the award recipient only if and when those conditions are satisfied. The Company has not previously granted any dividend equivalents with respect to restricted stock units it has awarded under the 2004 Plan.
 
Stock Appreciation Rights (SARs). The 2004 Plan authorizes the grant of SARs, which are rights to receive the appreciation in value of a share of Company Stock in the future, subject to vesting conditions as determined by the Compensation Committee and set forth in the applicable award agreement. SARs may be paid in cash or in shares of Company Stock or in any combination thereof. SARs may be granted separately from or in tandem with an award of stock options under the 2004 Plan. A participant upon exercise of a SAR will be entitled to receive an amount of cash or shares equal to the excess of the fair market value per share of Company Stock on the date of exercise of the SAR over the fair market value per share of Company Stock on the date of grant of the SAR. A participant has no rights as a shareholder with respect to any shares of Company Stock in which a SAR may be payable until the date of payment of the shares. Tandem SARs must be granted at the same time as the related options, can be exercised only if the related options are also exercisable, and, once the tandem SARs are exercised, the related options will be cancelled and the shares underlying the options will not be available for additional awards under the 2004 Plan. The Company has not previously granted any SARs under the 2004 Plan.
 
Performance Grants. Subject to shareholder approval of the proposed amendments, the 2004 Plan will authorize performance grants, which are rights to receive an amount denominated in cash, which may be payable in cash or shares of Company stock, subject to the achievement of performance goals designed to comply with the performance-based compensation exemption to the $1 million deduction limitation under Code Section 162(m). The aggregate maximum cash amount payable under performance grants or other awards under the 2004 Plan to any participant in any taxable year of the Company may not exceed $2,000,000. The Compensation Committee establishes the performance goals for performance grants, which may be contained in the Company’s annual bonus plan or other similar document, based on the performance criteria described below. The Compensation Committee may not increase the amount payable under a performance grant, but may exercise “negative discretion” to reduce or eliminate a payment as provided in the grant.
 
Performance Criteria for Performance Grants and Other Performance-Based Awards. In addition to performance grants, restricted stock and restricted stock unit awards under the 2004 Plan may also be designed to qualify as performance-based compensation for purposes of Code Section 162(m), in which case the restrictions on the award will lapse, or the award will vest, upon the achievement of a performance goal or goals relating to one or more performance criteria. Subject to shareholder approval of the proposed amendments, performance criteria for purposes of performance grants or performance-based restricted stock or restricted stock unit awards under the 2004 Plan may include any of the following: (i) combined net worth; (ii) debt to equity ratio; (iii) earnings (before or after

 
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interest, taxes, deductions, depreciation and/or amortization); (iv) revenues; (v) income (before or after taxes); (vi) cash flow, including free cash flow; (vii) return on total or invested capital, equity, revenue or assets; (viii) cost containment or reduction; (ix) stock price or stock price appreciation; (x) total stockholder return; (xi) sales; (xii) margin or margin percentage; (xiii) expense or expense ratio; (xiv) turnover in accounts receivable, inventory or employees; (xv) employee retention; (xvi) training compliance; and (xvii) safety or safety compliance. The financial metrics identified above may be measured on an as reported (GAAP), gross, net, operating or pension adjusted basis, on a total or continuing basis, on an annual or cumulatively over a defined period of time basis, and may be measured on an absolute, relative, growth or per-share basis.  The metrics may be set on a consolidated, segment, sector, subsidiary, division, or plant basis.  The metrics may be measured including or excluding extraordinary items such as restructuring charges, casual losses, insurance recoveries, and other one-time, non-recurring items. Any of these metrics also may be based on peer comparisons.
 
Nontransferability of Awards. In general, awards made under the 2004 Plan, by their terms, are not transferable by the participant except by will or by the laws of descent and distribution. Options and SARs are exercisable, during the participant’s lifetime, only by the participant or by his guardian or legal representative.
 
Termination and Modification of the 2004 Plan. The board of directors of the Company may amend or terminate the 2004 Plan as it deems advisable. The 2004 Plan will automatically terminate on July 31, 2016 unless earlier terminated by the board. No awards will be made under the 2004 Plan after its termination. Shareholders must approve any amendments to the 2004 Plan that would: (i) increase the number of shares of Company Stock that are reserved and available for issuance, (ii) materially change the requirements for eligibility to participate, or (iii) materially increase the benefits that eligible employees may receive. The board may amend the 2004 Plan and outstanding awards under the 2004 Plan as necessary to ensure that the 2004 Plan meets the requirements of the Internal Revenue Code, federal and state securities laws and other applicable regulations.
 
Federal Income Tax Consequences of the 2004 Plan, as Amended as Proposed Herein
 
The following discussion summarizes the material federal income tax consequences of participation in the 2004 Plan. This discussion is general in nature and does not purport to be a complete summary of the federal income tax considerations relevant to awards granted under the 2004 Plan. In addition, the consequences under state, local or foreign law may differ from the consequences under federal income tax law.
 
Non-statutory Stock Options. No taxable income will result to a recipient upon the grant of a non-statutory option under the 2004 Plan, nor will there be any tax effect on the Company. Upon the exercise of an option, a recipient will generally have ordinary income of an amount equal to the difference between the fair market value of the shares purchased and the exercise price of the option. The Company will generally be entitled to a business expense deduction at the time and in the amount that the recipient has ordinary income with respect to the option.
 
Restricted Stock. Except as described below, a recipient generally will not realize taxable income at the time of grant of restricted stock. Upon the lapse or removal of the restrictions on the shares of restricted stock, the recipient will realize ordinary income in an amount equal to the excess of the fair market value of such shares at such time over the amount paid by the recipient, if any. The recipient of a restricted stock award may, by filing an election with the Internal Revenue Service within 30 days after the date of grant of the restricted shares, elect to be taxed at the time of grant of the award on the excess of the then fair market value of the shares of Company Stock over the amount paid by the recipient, if any, in which case there will be no additional income inclusion to the recipient when the restrictions lapse. The Company will be entitled to a deduction equal to the amount of ordinary income realized by the recipient in the taxable year in which the amount is included in the recipient’s income.
 
Restricted Stock Units. No income will be recognized by a recipient in connection with the grant of a restricted stock unit. When a restricted stock unit vests and is paid, the recipient will generally be required to include as taxable ordinary income in the year of payment an amount equal to the amount of cash received and the fair market value of any Company Stock received on the payment. The Company will be entitled to a tax deduction at the same time and in the same amount.

 
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Stock Appreciation Rights (SARs). No income will be recognized by a recipient in connection with the grant of a SAR. When a SAR is exercised, the recipient will generally be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any Company Stock received on the exercise. The Company will be entitled to a tax deduction at the same time and in the same amount.
 
Performance Grants. No income will be recognized by a recipient in connection with the grant of a performance grant. If and when a performance grant is paid, the recipient will generally be required to include as taxable ordinary income in the year of payment an amount equal to the amount of cash received and the fair market value of any Company Stock received on the payment. The Company will generally be entitled to a tax deduction at the same time and in the same amount. The Company may be entitled to a tax deduction for the year in which the performance grant is earned (rather than the year of payment) if, by the end of such year, all events have occurred that fix the right to receive the income and the amount thereof can be determined with reasonable accuracy and the performance grant is paid within 2.5 months following the end of such year.
 
Code Section 162(m). The prior discussion of the Company’s tax deductions is subject to compliance with Code Section 162(m). Code Section 162(m) imposes a $1,000,000 limit on the amount of the annual compensation deduction allowable to a publicly-held company with respect to its chief executive officer and each of its other three most highly compensated officers (excluding its chief financial officer). An exception to this limit is provided for performance-based compensation if certain requirements are met. The 2004 Plan permits the Compensation Committee to grant awards that will qualify for this exception from the deduction limit, including performance grants if the proposed amendments are approved by the Company’s shareholders.

Code Section 409A. The prior discussion of the tax consequences to participants is subject to the tax doctrines of constructive receipt and assignment of income and to compliance with the requirements of Code Section 409A. Code Section 409A is effective in general for any compensation deferred under a nonqualified deferred compensation plan on or after January 1, 2005.