Proxy Statement (Form DEF 14A)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed by a party other than the Registrant ☐
Check the appropriate box:
| ☐ | Preliminary Proxy Statement |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☒ | Definitive Proxy Statement |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material under §240.14a-12 |
(
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| ☒ | No fee required |
| ☐ | Fee paid previously with preliminary materials |
| ☐ | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11 |
Dear Shareholder:
We cordially invite you to attend the Annual Meeting of Shareholders to be held at the
The Notice of the Annual Meeting of Shareholders and Proxy Statement are attached. The matters to be acted upon by our shareholders are set forth in the Notice of Annual Meeting of Shareholders and discussed in the Proxy Statement.
Whether or not you expect to attend our shareholders meeting, we urge you to vote your shares. You may vote by phone, via the Internet, or by signing, dating and returning the enclosed proxy card at your earliest convenience.
INTERNET - Access www.voteproxy.comand follow the on screen instructions or scan the QR code with your smartphone. Have your proxy card available when you access the web page.
TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in
Vote online/phone until
MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN PERSON - You may vote your shares in person by attending the Annual Meeting.
Sincerely yours,
Chief Executive Officer
P. O. Box 34216
(704) 554-8510
| NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD |
||
TO THE SHAREHOLDERS OF
Notice is hereby given that the Annual Meeting of Shareholders of
| 1. | To elect as Directors of the Board |
| 2. | To consider and vote upon a proposal to amend and restate |
| 3. | To ratify the selection of |
| 4. | To consider and act upon such other business as may properly come before the Annual Meeting or any adjournment thereof. |
The Board of Directors has fixed the close of business on
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
This Proxy Statement, the accompanying proxy card and The Cato Corporation Annual Report on Form 10-K for the 2024 fiscal year are available at:
www.catofashions.com/info/investor-relations
| By Order of the Board of Directors | |
| Secretary |
Dated:
| SHAREHOLDERS ARE URGED TO SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE OR VOTE ONLINE OR TELEPHONICALLY TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE. |
| PROXY STATEMENT |
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the "Board") of
Only shareholders of record at the close of business on
All proxies properly executed and received prior to the meeting will be voted at the meeting. If a shareholder specifies how the proxy is to be voted on any of the business to come before the meeting, the proxy will be voted in accordance with such specification. If no specification is made, the proxy will be voted FOR the election of nominees
If you plan to attend and vote at the meeting and your shares are held in the name of a broker or other nominee, please bring with you a proxy or letter from the broker or nominee to confirm your ownership of shares.
In accordance with applicable
With regard to the election of directors, votes may either be cast in favor of or withheld and, assuming the presence of a quorum, directors will be elected by a plurality of the votes cast. Votes that are withheld will be excluded entirely from the vote and will have no effect on the outcome of the election. Abstentions and broker non-votes are not counted for purposes of election of directors. The approval of the proposed amendment and restatement of the Employee Stock Purchase Plan and the ratification of
The Company will bear the cost of this solicitation, including the expense of preparing, printing, and mailing these proxy materials to shareholders. The Company will reimburse brokers, dealers, banks, and other custodians, nominees, and fiduciaries for their reasonable expenses in forwarding proxy solicitation materials to beneficial owners of the Company's Class A Stock and Class
The independent election inspector(s) appointed for the Annual Meeting will determine whether or not a quorum is present and will tabulate votes cast by proxy or in person at the Annual Meeting.
These proxy materials are available in PDF and HTML format at www.catofashions.com/info/investor-relationsand will remain posted until the conclusion of the meeting. Information on the Company's website, however, does not form a part of this Proxy Statement.
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SECURITY OWNERSHIP OF CERTAIN
OWNERS AND MANAGEMENT
The following table sets forth, as of
| Shares Beneficially Owned (1) | Percent of Total Voting Power |
|||||||||||||
| Class A Stock | Class |
|||||||||||||
| Number | Percent of Class |
Number | Percent of Class |
|||||||||||
| 1,404,251 | 7.8 | 1,763,652 | 100.0 | 53.3 (2) | ||||||||||
| 52,532 | * | - | - | * | ||||||||||
| 145,852 | * | - | - | * | ||||||||||
| 41,094 | * | - | - | * | ||||||||||
| 37,302 | * | - | - | * | ||||||||||
| 43,106 | * | - | - | * | ||||||||||
| 50,440 | * | - | - | * | ||||||||||
| 26,438 | * | - | - | * | ||||||||||
| 22,809 | * | - | - | * | ||||||||||
| All directors, nominees and executive officers as a group (9 persons) | 1,823,824 | 10.1 | 1,763,652 | 100.0 | 54.5 | |||||||||
| 1,123,131 | 6.2 | - | - | 3.1 | ||||||||||
| 1,188,500 | 6.6 | - | - | 3.3 | ||||||||||
| 926,185 | 5.1 | - | - | 2.6 | ||||||||||
* Less than 1%
| (1) | Includes the vested interest of executive officers in the Company's Employee Stock Ownership Plan and Employee Stock Purchase Plan. The aggregate vested amount credited to their accounts as of |
| (2) | The amount shown for Class A Stock and Class |
| (3) | Based on Schedule 13G filed by this shareholder with the |
| (4) | Based on Schedule 13G filed by this shareholder with the |
| (5) | Based on Schedule 13G filed by this shareholder with the |
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PROPOSAL 1 - ELECTION OF DIRECTORS
The Board of Directors, currently consisting of seven members, is divided into three classes with terms expiring alternately over a three-year period. The terms of two incumbent directors,
It is the intention of the persons named in the proxy to vote for
The directors recommend that shareholders vote FOR the election of
As discussed below under "Corporate Governance Matters - Director Nomination Criteria and Process," the Board believes its directors possess a diverse and extensive background of knowledge and both professional and life experience that can support growth, evaluate risk and provide sufficient oversight to the Company. The members of the Board were selected based on their professional achievements, broad experience, wisdom, character, integrity, ability to make independent, analytical inquiries and intelligent decisions, sound and mature business judgment, ability to understand the business environment and ability to collaborate in an effective manner at the Board level. In addition, individual directors were selected based on many factors including, but not limited to, the following:
| • | Experience at the director and executive level with publicly traded as well as private companies; |
| • | Knowledge of and experience in the development and leasing of commercial real estate; |
| • | Financial expertise, including experience in public accounting; and |
| • | Knowledge of the retail industry. |
In particular, for each director identified below, the Board believes that the sum of the experience, qualifications, attributes and skills described below in such director's biographical information qualifies that director for service on the Board of Directors.
Nominees
Information with respect to each nominee, including biographical data for at least the last five years, is set forth below.
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Continuing Directors
Information with respect to the five continuing members of the Board of Directors, including biographical data for at least the last five years, is set forth below.
Dr.
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The five continuing members of the Board of Directors are divided into two classes with current terms expiring in 2026 and 2027. On the expiration of each director's term, his or her successor in office will be elected for a three-year term. The terms of
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PROPOSAL 2 - APPROVAL OF THE AMENDMENT AND RESTATEMENT OF
We are asking our shareholders to approve an amendment and restatement of
We adopted the ESPP because we believe that it is in the best interests of the Company and its shareholders to offer our employees the opportunity to accumulate Class A Stock at a discounted price and participate in its potential appreciation. We also believe that the ESPP helps align the interests of our employees with those of our shareholders. The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code (the "Code").
The key changes in the amended and restated ESPP include the following:
| • | increasing the number of shares of the Class A Stock authorized for issuance under the ESPP by 250,000 shares, resulting in a total of 750,000 shares authorized for issuance since the ESPP was first established in 2013; |
| • | extending the term of the ESPP for an additional five years until |
| • | other updates and minor changes. |
The proposed increase in the number of shares of the Company's Class A Stock authorized for issuance under the ESPP is intended to allow the Company to continue to offer the ESPP to our employees. The current allotment of 500,000 shares of Class A Stock reserved for issuance under the ESPP is expected to be depleted after the
We believe that offering an employee stock purchase plan enhances our employees' sense of participation in the Company's performance, aligns their interests with those of our shareholders and serves as an important incentive and retention tool by providing eligible employees with a convenient way to acquire an ownership interest in the Company at a discount and through payroll deductions. Without replenishment of shares as proposed in the amended and restated ESPP, we will not have sufficient shares available to continue offering the ESPP after the
Since the ESPP is a broad-based plan generally available to our employees, we also believe that increasing the maximum number of shares available under the ESPP will continue to serve as an enhancement to our employee compensation program.
The following is a summary of the amendment and restatement of the ESPP submitted for shareholder approval. The summary describes the principal features of the ESPP, but it is qualified by reference to the full text of the amendment and restatement of the ESPP, which is included in this Proxy Statement as Appendix A.
Administration
The ESPP is administered by the Compensation Committee. Among other things, the amended and restated ESPP provides that the Compensation Committee has complete authority and discretion to supervise the administration of the ESPP and to control its operations, including to construe and interpret the ESPP; to prescribe, amend and rescind rules, regulations and procedures that it deems necessary for the administration of the ESPP; to determine any and all considerations affecting the eligibility of any employee to become a participant or to remain a participant in the ESPP; to determine the offering periods; to determine which subsidiary corporations of
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the Company shall be participating employers; to decide all claims filed under the ESPP; to employ such brokers, counsel, agents, advisers and other services and service providers as it may deem necessary or appropriate in carrying out the provisions of the ESPP; to delegate administrative responsibilities under the ESPP; and to make all other determinations and take any other actions that may be necessary or advisable for administration of the ESPP.
Shares Available under the ESPP
If the shareholders approve the amended and restated ESPP, the number of shares of Class A Stock available for issuance under the ESPP will increase from 500,000 shares to 750,000 shares. The amended and restated ESPP provides that shares of Class A Stock issuable under the ESPP may consist of authorized but unissued shares, treasury shares, or shares purchased on the open market. If the outstanding shares of Class A Stock are increased, decreased or changed into, or exchanged for, a different number or kind of shares or securities of the Company, with or without receipt of consideration by the Company, through reorganization, merger, acquisition of equity, recapitalization, reclassification, stock split, stock consolidation, stock dividend, or similar event, then an appropriate, equitable and proportionate adjustment shall be made in the number and kind of shares or other securities which may be purchased under the ESPP and the maximum number of shares that may be purchased during an offering period.
Eligibility
Generally, all employees of the Company and its participating subsidiaries designated by the Compensation Committee are eligible to participate in the ESPP. However, the amended and restated ESPP also provides that the Compensation Committee may elect to exclude certain groups of employees from participating in the ESPP or an offering period, such as employees who are customarily employed for no more than twenty hours per week or for no more than five months in a calendar year, employees who have not been employed by the Company or a participating subsidiary for at least two years, and certain other exclusions permitted under Section 423 of the Code, as long as the exclusions are applied in a consistent manner.
In addition, an employee is not eligible to participate if, immediately after the grant of purchase rights under the amended and restated ESPP, the employee would own or hold options or rights to purchase (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any subsidiary.
As of
Offering Periods and Participation
Eligible employees have the option to purchase shares of Class A Stock during six-month offering periods. The six-month offering periods begin each
Eligible employees may elect to participate in the ESPP during a designated enrollment period and elect payroll deductions in whole percentages from 1% to 10% of eligible compensation to be used to purchase shares through the ESPP. The Compensation Committee, in its discretion, may increase and decrease the maximum percentage permitted for payroll deductions, so long as the maximum percentage is a uniform percentage of compensation for all participants. Once enrolled, as long as the employee remains eligible, the employee's participation and payroll deduction election will continue through ensuing offering periods unless the employee timely cancels or changes his or her payroll deduction election. Payroll deduction contributions are held with the general funds of the Company. No interest accrues on any participant contributions under the ESPP.
A participating employee generally may not change the percentage of eligible compensation to be withheld as payroll deductions other than during a designated enrollment period, but a participant may cancel participation in the ESPP. If the employee cancels participation on or before
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period, payroll deductions withheld during that offering period will be refunded to the employee. If a participant cancels participation after
If a participant's employment terminates for any reason on or prior to
Purchase of Class A Stock
At the end of an offering period (e.g., purchase dates of
The number of shares purchased by each participant on the purchase date will be determined by dividing the purchase price into the amount of accumulated payroll deductions for that participant during the offering period. However, the ESPP provides that the maximum number of shares of Class A Stock purchasable by a participant for any offering period is 2,500 shares (subject to adjustment on the same basis as the shares reserved under the amended and restated ESPP, as described above).
No participant shall have rights under the ESPP which, together with rights under any other employee stock purchase plan maintained by the Company or any subsidiary, accrue at a rate which exceeds
By enrolling in the ESPP, each participant also is deemed to authorize the establishment of a brokerage account on his or her behalf at a securities brokerage firm selected by the Company, if the Company so determines. The Company also may provide for ESPP share accounts for each participant to be established by the Company or by an outside entity which is not a brokerage firm. The Company may require that shares be retained in such brokerage or ESPP share account for a designated period of time, and/or may establish procedures to permit tracking of dispositions of shares.
If applicable, cash dividends will be paid on shares Class A Stock purchased under the ESPP on the basis of the full and fractional shares held in the participant's account on the applicable record date for any such dividends. Cash dividend payments for eligible employees will be reinvested to purchase additional shares of Class A Stock under the ESPP (subject to the limits under the ESPP, including the
Shares purchased under the ESPP must be held for a minimum of one year from the date of purchase. However, the one-year holding requirement does not apply to shares of Class A Stock that are purchased under the ESPP through the reinvestment of dividends as described above. In addition, the ESPP provides that the one-year holding period ceases to apply upon a person's death. Subject to the one-year holding period (and any other holding period established by the Compensation Committee under the amended and restated ESPP), a participant may withdraw all or a portion of the whole shares held in the participant's account under the amended and restated ESPP in one of two ways: (a) delivery of the shares being withdrawn by issuance of certificates or by electronic or other means as determined by the Company, the ESPP record keeper and/or the Company's transfer agent, or (b) the shares to be withdrawn may be liquidated in cash. Participants will be responsible for brokerage fees and costs, if any, associated with liquidation. Fractional share amounts will be paid in cash.
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If a participant terminates employment for any reason, including death, disability or retirement, his or her account balance representing partial shares will be paid in cash and whole shares will be transitioned out of the participant's account under the ESPP (either through the issuance of stock certificates or by book entry or other certification with the Company's duly authorized transfer agent); however, such shares remain subject to the one-year holding period (and any other holding period established by the Compensation Committee pursuant to the ESPP) to the extent not yet elapsed.
Amendment, Suspension or Termination of the ESPP
The Compensation Committee has the right to amend, suspend or terminate the ESPP, in whole or in part, in its sole discretion at any time, without the approval of shareholders except as required by Section 423 of the Code or other applicable law or listing requirements. As amended and restated, the ESPP will terminate at
Market Price of Class A Stock
The closing price of a share of the Class A Stock on the
Amended and Restated ESPP Benefits
Participation in the amended and restated ESPP is voluntary and benefits to be received under the amended and restated ESPP will depend on an eligible employee's enrollment and payroll deduction elections, as well as the fair market value of Class A Stock at various future dates. Therefore, it is not possible to determine future benefits or amounts that will be received by executive officers and other employees in the future if the amended and restated ESPP is approved by the shareholders.
Non-employee directors are not eligible to participate in the amended and restated ESPP.
Certain Federal Income Tax Consequences
The following is a summary of the current federal income tax consequences that generally apply with respect to participation in the amended and restated ESPP. Applicable laws and regulations may change in the future. This summary is not intended to be exhaustive and does not describe a number of tax rules, including any foreign, state or local tax consequences, tax withholding requirements or various other rules that could apply to a particular individual or to the Company and its subsidiaries under certain circumstances. (References to the Company in this section include the applicable subsidiary.) This summary is not intended or written to be used (and cannot be used by any taxpayer) to avoid penalties that may be imposed on a taxpayer. Tax implications may vary due to individual circumstances. Participants should consult their personal tax advisors about the tax consequences related to participation in the amended and restated ESPP.
The amended and restated ESPP is intended to meet the requirements of an "employee stock purchase plan" under Section 423 of the Code. There should be no federal income tax consequences to the participant or the Company upon either the grant of a right to purchase Class A Stock under the ESPP or the purchase of such shares. The federal income tax consequences of a sale or disposition of the shares acquired under the ESPP depend in part on how long the shares are held by the participant.
If the participant holds the shares acquired under the amended and restated ESPP for more than two years from the offering date (generally, the first day of the offering period, or in the case of shares purchased through the reinvestment of dividends, the offering date is the same as the purchase date) and more than one year from the purchase date, the participant will recognize ordinary income generally measured as the lesser of (a) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or (b) 15% of the fair market value of the shares on the offering date. Any additional gain or loss realized on the disposition of the shares of Class A Stock should be treated as capital gain or loss. If these holding requirements are met, the Company will not receive a deduction regarding the income recognized by the participant.
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If the participant sells or otherwise disposes of the shares of Class A Stock acquired under the ESPP within two years after the offering date or within one year after the purchase date, the participant will recognize ordinary income generally measured as the excess of fair market value of the shares on the purchase date over the purchase price. Any additional gain or loss realized on the sale or other disposition of the shares of Class A Stock should be treated as capital gain (or loss). The Company generally will be entitled to a deduction equal to the same amount that the participant recognizes as ordinary income.
The payroll deductions withheld from a participant's eligible compensation under the ESPP are treated as taxable income at the time such amounts otherwise would have been paid to the participant.
Although the Company may endeavor to qualify a right to purchase shares under the ESPP for favorable tax treatment under Section 423 of the Code or avoid adverse tax treatment, the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in the ESPP.
The full text of the amendment and restatement of the ESPP can be found in Appendix A of this Proxy Statement.
The directors recommend that shareholders vote FOR adoption of the amendment and restatement of the ESPP.
MEETINGS AND COMMITTEES
During the fiscal year ended
The Board of Directors, pursuant to authority granted in the Company's Bylaws, has established a standing Audit Committee, Compensation Committee and
All directors attended 100% of the scheduled Board of Directors meetings and applicable Committee meetings during fiscal 2024.
Audit Committee
The Board of Directors established the Audit Committee in accordance with Section 3(a) (58) (A) of the Exchange Act. The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities regarding the integrity of the Company's financial statements, the Company's compliance with legal and regulatory requirements, the safeguarding of the Company's assets, the independence, qualifications, and performance of the independent auditors, the performance of the Company's internal audit function, the Company's internal control over financial reporting and such other matters as the Committee deems appropriate or as delegated to the Committee by the Board of Directors from time to time. See "Corporate Governance Matters - Board of Directors Risk Management Oversight" below for the Committee's role in that process. During the fiscal year ended
Ms.
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the Company's website at www.catofashions.com/info/investor-relations. Additional information concerning the Audit Committee is set forth below under "Proposal 3 - Ratification of Independent Registered Public Accounting Firm."
Compensation Committee
The Compensation Committee assesses the Company's overall compensation programs and philosophies. The Committee reviews and approves, on an annual basis, the Company's goals and objectives for compensation of the Chief Executive Officer and evaluates the Chief Executive Officer's performance in light of those goals and objectives at least annually. Based on this evaluation, the Compensation Committee determines and reports to the Board the Chief Executive Officer's compensation, including salary, incentive bonus and performance-based equity compensation.
The Compensation Committee also reviews and approves, on an annual basis, the evaluation process and compensation structure of the Company's other executive officers and evaluates those other officers' performance at least annually. Based on this evaluation, the Compensation Committee determines and reports to the Board the other executive officers' compensation, including salary, incentive bonus and equity compensation. The Compensation Committee also reviews on an annual basis and recommends to the Board the form and amount of director compensation. In addition, the Compensation Committee grants restricted stock and other awards to associates of the Company and its subsidiaries pursuant to the Company's benefit and incentive compensation plans and reports such actions to the Board of Directors. See "Corporate Governance Matters - Board of Directors Risk Management Oversight" below for the Committee's role in that process.
The Compensation Committee has the power to delegate its authority to subcommittees. The chair of any such subcommittee must report regularly to the full Compensation Committee.
Messrs.
The Compensation Committee held three meetings during the fiscal year ended
Messrs.
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CORPORATE GOVERNANCE MATTERS
Corporate Governance Guidelines
In furtherance of its longstanding goal of providing effective governance of the Company's business and affairs for the benefit of shareholders, the Board of Directors has approved Corporate Governance Guidelines for the Company. The Guidelines are available on the Company's website at www.catofashions.com/info/investor-relations.
Director Independence
The Company qualifies for exemption as a "controlled company" from compliance with certain
In order to assist the Board in making determinations of independence, and consistent with NYSE Independence Tests, a director will not be deemed independent if:
| (1) | The director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer of the Company. |
| (2) | The director has received, or an immediate family member has received, during any twelve-month period within the last three years, more than |
| (3) | The director or an immediate family member is a current partner of a firm that is the Company's internal or external auditor; the director is a current employee of such a firm; the director has an immediate family member who is a current employee of such a firm and personally works on the Company's audit; or the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company's audit within that time. |
| (4) | The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company's present executive officers at the same time serves or served on that company's compensation committee. |
| (5) | The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of |
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Additionally, the Board of Directors determines annually and at such time that a director is appointed to the Compensation Committee that the members of the Compensation Committee qualify as "Non-Employee Directors" under Rule 16b-3 of the Exchange Act.
Board Leadership Structure
Mr.
As Lead Independent Director, Mr.
Executive Sessions of Non-Management Directors
Non-management Board members meet without management at regularly scheduled executive sessions. In addition, to the extent that the group of non-management directors includes directors that are not independent, at least once a year there will be scheduled an executive session including only independent directors. The Lead Independent Director presides over meetings of the non-management or independent directors.
Board of Directors Risk Management Oversight
As the Company's principal governing body, the Board of Directors has the ultimate responsibility for overseeing the Company's risk management practices. As part of its oversight function, the Board reviews and monitors financial, strategic and operational risk through annual and periodic reviews with management.
Pursuant to its charter, the Audit Committee has primary responsibility for monitoring financial reporting risk. The Board has also delegated to the Audit Committee primary responsibility for oversight of risk assessment and risk management, including risks related to cybersecurity. As part of its responsibilities, the Committee reviews with management and the independent auditors the Company's policies in regard to risk assessment and management and assesses the steps management has taken to minimize risks to the Company. The Committee regularly meets with the independent auditor and management, as appropriate, to review significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements. The Audit Committee also reviews the effectiveness and integrity of the Company's financial reporting processes and the Company's internal control structure (including both disclosure controls and procedures and internal control over financial reporting).
The Audit Committee as part of its regular meetings reviews the Company's cybersecurity activities, including external assessment results, training results and discussion of cybersecurity risks and resolutions. The Committee meets with key members of management, including the Principal Financial Officer, Principal Accounting Officer and Chief Information Officer to review the Company's cybersecurity framework, as well as plans to mitigate cybersecurity risks and respond to data breaches. The Committee is responsible for elevating significant matters related to cybersecurity to the Board.
As part of its oversight responsibilities, the Board of Directors relies upon the Compensation Committee to monitor and assess the Company's compensation policies and practices as they relate to risk management and risk-taking incentives. On an annual basis, the Committee reviews the Company's compensation policies and practices to determine how it compensates and incentivizes its associates and whether these policies and practices create risks that are reasonably likely to have a material adverse effect on the Company.
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Our Board of Directors maintains oversight responsibility for the work of its various committees by receiving regular reports from the Committee Chairs for committee meetings held outside the cycle of regular Board of Directors' meetings. Additionally, the Board of Directors conducts discussions regarding the Company's results, strategic plan, capital structure, and other business. These discussions include consideration of risks associated with the specific activity under discussion.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs.
Code of Ethics and Code of Business Conduct and Ethics
The Company has adopted a written Code of Ethics (the "Code of Ethics") that applies to the Company's Chief Executive Officer (principal executive officer), Chief Financial Officer (principal financial officer), and Controller (principal accounting officer). The Company has adopted a Code of Business Conduct and Ethics (the "Code of Conduct") that applies to all directors, officers, and associates of the Company. The Code of Ethics and Code of Conduct are available on the Company's website at www.catofashions.com/info/investor-relations, under the "Corporate Governance" link. Any amendments to the Code of Ethics or Code of Conduct with respect to directors or executive officers will be disclosed on the Company's website promptly following the date of such amendment. In addition, any waivers of the Code of Ethics, or waivers of the Code of Conduct with respect to directors or executive officers, will be made only by the Board or a designated committee thereof, and will be disclosed within four business days.
Insider Trading and Hedging Policies
The Company has adoptedinsider trading policies and procedures governing the purchase, sale, and/or other disposition of its securities by directors, officers and employees (the "Insider Trading Policy"). The Company also follows procedures for the repurchase of its securities. The Company believes that its Insider Trading Policy and its repurchase procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations and listing standards applicable to the Company.
The Insider Trading Policy generally prohibits directors, officers and associates who are in possession of material, nonpublic information relating to the Company from purchasing or selling the Company's securities or passing such information to others who might seek to do so. It similarly prohibits these activities with respect to securities of other companies whose material nonpublic information such persons have learned in the course of their association with the Company.
In addition, the Insider Trading Policy prohibits directors, officers and associates of the Company from engaging in transactions from which they may profit from short-term speculative swings in the value of the Company's securities. This prohibition includes "short sales" (selling borrowed securities to profit if the market price of the Company's stock decreases), "put" or "call" options (publicly available rights to sell or buy securities within a certain period of time at a specified price) and hedging or any other type of derivative instrument designed to minimize the risk inherent in owning the Company's stock.
Communications with Directors
The Company provides various means for shareholders and other interested parties to communicate directly with any member or committee of the Board of Directors, or any group of directors. Such persons may write to: Chair of the
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is addressed, attempt to handle the inquiry directly (for example, where it is a request for information about the Company or it is a stock-related matter), or not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic.
Shareholders and other interested parties may also communicate and report matters regarding improper activities by the Company or its associates via telephone or email under the Company's Whistleblower Policy. Instructions and contact information for reporting matters under the Whistleblower Policy are contained in the Whistleblower Policy, a copy of which is available on the Company's website under the "Whistleblower Policy" link, which is accessed through the "Corporate Governance" link at https://www.catofashions.com/info/investor-relations. All such complaints submitted via the Whistleblower Policy are reported to the Audit Committee, which generally determines the action to be taken regarding such complaints, subject to the procedures and exceptions outlined in the Whistleblower Policy. The Company's Executive Vice President, Chief Financial Officer maintains a log of all such complaints, tracking their receipt, investigation, and resolution and prepares periodic summaries for the Board of Directors, and the Audit Committee, as appropriate.
Director Nomination Criteria and Process
Directors may be nominated by the Board of Directors in accordance with the Company's Bylaws or by shareholders in accordance with the procedures specified in Article II, Section 3 of the Company's Bylaws. The Company's
As specified in Article II, Section 3 of the Company's Bylaws, notice of a shareholder nomination for a director nominee to be considered at an Annual Meeting must be in writing and received by the Secretary of the Company at the Company's principal executive offices,
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The Company's current Corporate Governance Guidelines provide that the Board will have a majority of directors who meet the criteria for independence required by the NYSE.
SUSTAINABILITY
We recognize the importance of sustainability issues and promote business practices that benefit our shareholders, associates, customers and communities in which we serve. We aim to promote a workforce comprised of individuals with diverse backgrounds and experiences, provide opportunities for advancement, and treat all of our associates with dignity and respect. We strive to reduce our carbon footprint through initiatives for energy efficiency, sourcing more sustainable products and waste reduction.
Our Board of Directors
Our Board believes that corporate governance benefits from directors who collectively reflect diverse and extensive backgrounds of knowledge and both professional and life experiences that can support growth, evaluate risk and provide sufficient oversight to the Company. Nominees for director are considered based on the diversity of backgrounds, perspectives, skills and experiences they bring to the Board, outstanding achievement in their professional careers, broad experience, wisdom, character, integrity, ability to make independent, analytical inquiries and intelligent decisions, sound mature business judgment, understanding of the business environment, willingness to devote adequate time to Board duties and ability to collaborate effectively at the Board level.
Our Board is made up of 29% female and 71% male Directors. We believe the background, knowledge and experience that these individuals possess broaden the Board's perspective and strengthen the quality of its decision-making.
Our Associates
We have approximately 7,000 associates and endeavor to have an inclusive workplace environment. Over 97% of our associates are female and over 50% of our workforce are ethnically diverse.
We encourage a healthy workplace by offering a supportive and safe work environment and culture. We offer confidential professional services to help our associates improve their quality of life, including counseling and referrals in a variety of areas such as work-related, mental health, family, financial and legal concerns. In our retail stores and distribution facility, we regularly conduct safety audits and training.
We work to maintain an environment and culture in which our associates are treated with fairness and respect and strive to develop our associates and aim to promote from within.
Policies and procedures in place to promote a supportive and safe environment and culture include, but are not limited to:
| • | Our Code of Conduct includes policies on, among other topics, conflict of interest, acceptance of gifts, confidential and proprietary information and protection against retaliation for reporting suspected violations of the Code of Conduct. All associates must review and attest to their acknowledgement of the Code of Conduct. |
| • | Our corporate management and supervisors are provided training regarding discrimination and harassment. |
| • | A Whistleblower Policy that gives guidance to report any improper activities by the Company or any associate. The policy prohibits retaliation against associates who report suspected violations. |
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Despite generally high rates of employee turnover in the retail industry, we believe that our Company culture helps to retain our associates. We have several associates with more than 40 years of service. The Average Years of Service By Position graph is for active associates as of
Social Responsibility
We have policies that require our vendors to conduct business in a socially responsible manner. The Company's Vendor Code of Conduct includes the vendor and also extends to its employees, agents, contractors, factories, and any third party acting on its behalf and requires all vendors to attest to compliance with the following:
| • | Must not use child labor in the manufacturing of the merchandise we purchase and all factories must be in compliance with the laws of the country where our merchandise is produced. |
| • | Must pay factory wages that meet or exceed the minimum requirements. |
| • | Must maintain reasonable work hours in accordance with local laws. |
| • | Must not use forced labor. |
| • | Must provide all employees with safe and healthy work conditions. |
| • | Must promote an environment of dignity and respect, free from abuse or harassment of workers. |
| • | Must recognize and respect lawful rights of freedom of association and the right of employees to seek or not to seek representation from outside third parties for the purposes of collective bargaining under local law. |
Our Customers and Community
The Company has a long history of charitable giving in the communities in which it serves.
The Company has made cash donations of more than
| • | Our Grassroots program allows stores to directly sponsor local charities in the communities they serve. |
| • | We recognize the need for quality healthcare for all and have sponsored scholarships to those seeking their nursing and other allied health professional degrees, as well as the advancement of continuing education and training of current health care professionals. |
| • |
| • | The Cato Scholarship for Education sponsors scholarships for students seeking to become educators. We understand that to have great education for our children, we must have great teachers. |
| • |
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| • | The Cato Award for Faculty Excellence retains high quality faculty in the education field, rewarding excellence in teaching, research and community engagement. |
| • |
We contribute merchandise to local charities in the communities we serve, as well as national charities that provide new clothes to those in need, from school clothes for children to professional clothing for job seekers. Since 2011, we have donated clothing valued at over
Our Environment
We are pursuing a number of initiatives to lower our environmental impact throughout our supply chain, by lowering energy consumption, sourcing more sustainable products, and increasing our recycling program. Our environmental initiatives include, but are not limited to:
| • | Sustainable Product Offerings - We are collaborating with our vendors to offer sustainable merchandise in our stores. Approximately 20% of our denim products include recycled materials. |
| • | LED Lighting Initiative - We continue installing LED lighting in our stores, signs and home office to reduce energy usage. Over 63% of our stores have LED lighting as of the end of 2024. |
| • | Energy |
| • | Packaging Reduction - We are investing in technology and infrastructure to reduce packaging and transportation in an effort to decrease our carbon footprint. |
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EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information regarding the shares of the Company's Class A Stock issuable under all of the Company's equity compensation plans as of
| Plan Category |
(a) Number of securities to |
(b) Weighted-average exercise |
(c) Number of securities |
|||
| Equity compensation plans approved by security holders (1) | - | - | 2,881,975 | |||
| Equity compensation plans not approved by security holders | - | - | - | |||
| Total | - | - | 2,881,975 |
| (1) | This category includes 2,797,601 shares of Class A Stock available for future issuance under |
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2024 EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of
Pay for performance and retention, both at the corporate and individual levels, is the overriding philosophy behind the design of the compensation program for Named Executive Officers ("NEOs" - see "Summary Compensation Table") at
NEOs receive a base salary that recognizes the value of executive talent within the retail marketplace, and these salaries generally increase annually based upon individual and Company performance. The Company also typically provides NEOs with an annual cash incentive opportunity designed to reward achievement of annual business objectives, which the Compensation Committee believes will translate into long-term shareholder value.
The Company typically grants annual equity incentive awards that allow NEOs the opportunity to accumulate long-term capital in the form
The Company maintains a nonqualified deferred compensation plan as a competitive measure that the Company believes will assist in attracting and retaining qualified and high-performing associates and allow associates whose ability to contribute to the Company's 401(k) plan are limited under discrimination testing to defer current compensation. The plan is generally open to associates in management, including NEOs and all members of the Board of Directors. The Company does not make contributions to the plan.
The Company provides its NEOs with the same core benefits that are offered to all full-time salaried associates. NEOs do not have employment or change of control agreements (see "Executive Agreements and Potential Payments on Termination or Change of Control").
Say-on-Pay Results
The Compensation Committee reviewed the results of the non-binding "say-on-pay" proposal in the fiscal 2023 proxy statement, which was the most recent advisory "say-on-pay" vote by the shareholders. The Company also has conversations from time to time with its shareholders, including its larger outside shareholders, about its compensation practices. The Compensation Committee considers this shareholder feedback in assessing the Company's compensation programs, but did not implement changes for fiscal 2024 as a direct result of the vote. The Compensation Committee will continue to review feedback from its shareholders, including the results of the next "say-on-pay" vote at the 2026 Annual Meeting, and will determine if any changes should be made to the compensation program, as a result of the vote or otherwise.
External Benchmarking for Named Executive Officers
In reviewing the NEOs' compensation structure, the Compensation Committee relies on multiple external benchmarking sources, including (1) a customized peer group of competitors and other retail companies within a reasonable revenue range, geography, or store size and (2) web-based data to stay abreast of current compensation practices and to determine geographic cost of living differences.
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In 2024, the Compensation Committee utilized the following peer group:
For 2025, the Compensation Committee assessed and decided to remove two companies from the peer group for 2024:
Competitive Positioning of Named Executive Officers
The CEO is compared to the industry peer group based on compatible title match, while the other NEOs are compared to retail survey matches based upon job content. The Compensation Committee believes annual equity awards allow it to employ a leveraged pay strategy for NEOs. The CEO's base salary in 2024 comprised approximately 26% of his target total direct compensation, while the other NEOs' base salaries ranged from 45% to 47% of their target total direct compensation. The CEO's base salary in 2025 will comprise approximately 26% of his target total direct compensation, while the other NEOs' base salaries will comprise approximately 45% to 46% of their target total direct compensation.
Target total direct compensation is defined as base salary plus target annual cash incentive opportunity plus target annual equity opportunity. For 2024, total direct compensation of NEOs was between the 25th and 75th percentiles of the appropriate market. In 2025, the Compensation Committee also established target total direct compensation of NEOs between the 25th and 75th percentiles of the appropriate market.
Total direct compensation for any particular NEO may fall above or below the percentiles discussed above, depending upon the Company's financial performance and the NEO's individual performance, experience in the function and/or tenure with the Company.
Components of Compensation
Our compensation program is designed around attracting and retaining talented leadership and rewarding them for achieving key strategic and financial metrics. The compensation program provides a base salary, a cash incentive bonus linked to pre-tax, pre-bonus income targets, and a long-term equity program designed to align executives' interests with shareholder interests and the long-term performance of the Company. The following discussion summarizes compensation components, objectives and certain details for fiscal 2024.
Annual Base Salary
The Compensation Committee believes that annual base salaries should be competitive within the retail industry for jobs of similar size and scope in order to attract and retain talented NEOs. Base salaries serve as the foundation for annual cash incentives (discussed below), which express incentive opportunity as a percentage of annual base salary. NEO base salary levels and potential increases are linked to individual performance. Furthermore, Company financial performance is a consideration when determining salary budgets, which determine annual salary increases for the NEOs and other members of management.
The Compensation Committee uses a formal job evaluation methodology to evaluate both the internal and external equity of the NEOs' base salary levels. Internal equity is considered in order to ensure that NEOs are compensated at an appropriate level relative to other members of executive management, while external equity is a measure of how NEO compensation compares to compensation for comparable jobs at similar companies. The Compensation Committee, with the assistance of an outside consultant, intends to periodically review
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the Company's NEO positions to assess the relative size of each position, specifically evaluating scope of responsibilities, complexity of the role, and its impact on the success of the business. Once the jobs are valued independently, the next step is to compare them to determine relative relationships. The final step then relates the job evaluation data to market-based pay opportunities.
Base salary represented 60% of the CEO's total compensation for 2024 (as reported in the Summary Compensation Table), and 81% for the other NEOs.
Annual Benefit / Bonus Programs
The Compensation Committee establishes a consolidated pre-tax, pre-bonus income target as the performance metric for the benefit / bonus pool. Pre-tax, pre-bonus income is calculated by adding back income tax expense and incentive bonus and benefit expense to net income. The targeted benefit / bonus pool varies each year based primarily on the targeted cash incentive bonus payout percentage, which ranges from a 20% to 100% payout of each participant's annual cash incentive opportunity. From this benefit / bonus pool the Company funds its charitable contributions, 401(k) match, profit sharing contributions, and its annual cash incentive bonus. The Compensation Committee also sets percentages that determine any amounts that will be added to the benefit / bonus pool based on achievement of consolidated pre-tax, pre-bonus income in excess of the targeted amounts or subtracted from the pool based on the failure to achieve the targeted amounts. For 2024, percentages were set so that any pre-tax, pre-bonus income in excess of the targeted amounts would result in 50% of such excess being added to the pool and any shortfall would result in 60% of such shortfall being subtracted from the pool.
Once the actual benefit / bonus pool is established based on actual performance, the amounts for the Company's charitable, 401(k) match and profit sharing contributions are calculated. Once the contributions are established, the annual cash incentive bonus is calculated based on the amount remaining in the benefit / bonus pool up to the maximum of 100% of the annual cash incentive target. Any remaining amounts in excess of the annual cash incentive bonus and contribution in the benefit / bonus pool are contributed to the Company's Employee Stock Ownership Plan ("ESOP").
Annual Cash Incentive Program
Pursuant to the Company's 2018 Incentive Compensation Plan (the "Plan"), which allows for a variety of cash and equity-based incentive awards, the Company provides NEOs with annual cash incentive opportunities conditioned upon achievement of consolidated pre-tax, pre-bonus income relative to a pre-established target, provided the Company is profitable. NEOs' annual cash incentives are determined based upon two factors: (1) the degree to which the overall Company's pre-tax, pre-bonus income performance target is achieved, and (2) the NEO's individual performance. The Compensation Committee believes establishing annual consolidated pre-tax, pre-bonus income targets focuses NEOs on achieving profitability through top-line revenue growth and margin improvement coupled with expense management.
NEOs have the opportunity to eaan annual incentive that is a percentage of their base salary. The CEO's 2024 maximum annual incentive opportunity was set at 150% of base salary and other NEOs' was set at 60% to 75% based on pre-defined performance goals. Unlike many of our peer group, we cap NEO annual incentive payout at the top end of these ranges so that achievement
For fiscal 2024, the performance goals established by the Compensation Committee were
For fiscal 2025, the Compensation Committee again established consolidated pre-tax, pre-bonus income goals for determining target, minimum and maximum bonus payouts.
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Employee Stock Ownership Program / Profit Sharing
The Compensation Committee believes that associates should share in the profits and ownership of the Company and has an ESOP/Profit Sharing plan. All associates are automatically enrolled if they are over 21, worked at least 1,000 hours, and are employed on the last day of the plan year. Each year the Company considers a discretionary ESOP contribution of up to 1% of pre-tax, pre-bonus income to the plan, which is contributed to every associate's individual ESOP account. The plan has a 5-year vesting schedule, with 20% vesting each year.
As discussed above with regard to the bonus / benefit pool and the annual incentive program, the Company caps the NEO annual incentive payout at the top end of the incentive bonus ranges, so that achievement
Long-Term Equity Incentives and Ownership Requirements
The Compensation Committee believes that LTI equity awards offer balance among the following goals of the Company's LTI strategy:
| • | Incent creation of long-term shareholder value; |
| • | Promote retention through the five-year vesting schedule and full-value nature of the equity award; |
| • | Promote ownership and long-term capital accumulation with full-value stock awards; and |
| • | Facilitate improved market-competitive total direct compensation by adding an equity component to the NEO target total cash compensation. |
The Compensation Committee at its discretion to grant restricted stock to NEOs other than the CEO with a five-year, time-based vesting requirement, with 33%, 33% and 34% of the grant vesting on the third, fourth and fifth anniversaries of the grant date, respectively, to link NEO compensation with creation of long-term shareholder value, align management focus with shareholder interests and increase retention of key employees. The Compensation Committee believes that relying on meaningful stock ownership requirements with a range of 300% to 600% of base salary (details discussed below), along with time-based vesting (when coupled with the annual cash incentive) that does not begin until the third year, incentivizes performance to increase stock appreciation through higher net income, promotes ownership and long-term capital accumulation and enhances the long-term retention of key associates by increasing the value of shares subject to the time-based vesting requirements. If an NEO terminates employment for any reason, the LTI award is forfeited to the extent it is not vested. Discretionary exceptions to forfeiture may be approved by the Compensation Committee (e.g., upon normal retirement).
To encourage management ownership
The Company's current stock ownership requirements vary depending upon position. The CEO cannot sell vested stock unless he continues to own vested Company stock with a fair market value equal to at least 600% of his then base salary, and the other NEOs cannot sell vested stock unless they continue to own Company stock with a fair market value equal to at least 300% of their then base salary. The single exception to this ownership requirement is that up to 45% of vesting restricted stock may be sold to meet tax liabilities associated with that vesting. Only vested shares, shares owned directly, and shares owned in the Company's Employee Stock Purchase Plan are used to calculate the ownership requirement. In setting these ownership requirements, the Compensation Committee relied upon prevalent market data from its outside compensation consultant. While the Compensation
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Committee chose to set the CEO's ownership requirement higher than what was most prevalent for the general market, the other NEOs' ownership requirements were established based upon the most prevalent multiples in the survey. The CEO has achieved the ownership requirements.
LTI award targets are expressed as a percent of base salary - 140% for the CEO, and range from 50% to 60% for the remaining NEOs. Under the Plan, the number of restricted shares granted to NEOs and other eligible associates are determined using the rolling average 90-day price set within the 30 days prior to the Compensation Committee meeting where the broad-based annual LTI award is approved. This methodology generally mitigates the impact of short-term fluctuations in stock price that could otherwise significantly impact the share calculation.
At its
At its
Equity Award Grant Practices
The grant datefor all broad-based LTI awards occurs on a pre-established future date set by the Compensation Committee. However, within guidelines established by the Compensation Committee, the CEO may make LTI awards in the case of new hires and promotions not involving NEOs, and the Compensation Committee will ratify such awards provided they are consistent with established guidelines. The Company currently does not grant stock options and has not done so for several years. Eligible employees, including our NEOs, subject to certain exceptions, may voluntarily enroll in our ESPP and receive an option to purchase shares at a discount using payroll deductions accumulated during the prior six-month period. Purchase dates under the ESPP are generally the last trading day in March and September.The Compensation Committee did not take material nonpublic informationinto account when determining the timing of equity awards in 2024, and the Company does not time the disclosure of material nonpublic information for the purpose of affecting the valueof executive compensation.
Nonqualified Deferred Compensation
The Company offers certain associates, generally management level and above, including NEOs and all members of the Board of Directors, the opportunity to participate in a nonqualified deferred compensation plan, which is an unsecured nonqualified defined contribution plan. The Deferred Compensation Plan allows participants to defer a maximum of 50% of their base salary and 100% of any bonuses paid, or in regard to Directors, 100% of the fees earned for board and committee services. Elections to participate in the Deferred Compensation Plan and the percentage of compensation to defer are made by participants on an annual basis, prior to the beginning of the year in which the compensation is earned. The Company does not currently make any contributions to the Deferred Compensation Plan.
The aggregate balance of each participant's account consists of amounts that have been deferred by the participant plus earnings (or minus losses). In accordance with tax requirements, the assets of the Deferred Compensation Plan are subject to claims of our creditors. Account balances are deemed invested in accordance with investment elections designated by the participant. Investment option transfers may be made daily. The plan offers investment options similar to those available to participants in the Company's 401(k) plan, including fixed income funds, domestic and international equity funds, blended funds and pre-allocated lifestyle fund investments.
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Earnings and gains or losses on each deemed investment are credited or debited to each participant's account on a monthly basis based on the actual performance of the funds in which the participant is deemed invested. The participants are 100% vested in their contributions and all earnings on those contributions.
A "Rabbi Trust" was established to provide a funding vehicle for the nonqualified obligations to the participants, and this trust holds life insurance policies on some of the plan participants. The Company contributes cash to these life insurance policies in amounts equal to the compensation deferred by plan participants. The cash value of the life insurance policies is allocated among funds that are similar to the funds offered to participants as investments under the plan. Distributions from the plan may be made from the cash surrender value investments or from Company funds.
Deferred account balances are distributed to the plan participants in accordance with elections made by the participant at the time the deferral is made, subject to Section 409A of the Internal Revenue Code (the "Code"). A participant may elect to receive distributions, either in a lump sum or in installments, upon his or her termination of employment with the Company, disability, death, an unforeseeable emergency or a change of control, each of the last two events as defined in Section 409A of the Code. A participant may also elect to receive distributions while still employed by the Company if he or she elects to have in-service or education distributions, made at a date specified by the participant.
Benefits and Perquisites
The Company provides NEOs with core benefits offered to its other full-time associates (e.g., medical, dental, vision care, prescription drugs, basic life insurance, short-term disability, long-term disability, 401(k), profit sharing, employee stock ownership plan, and employee stock purchase plan). The Company does not provide any other perquisites including, for example, country club memberships, airplane usage or car allowances.
The Committee's overall benefits philosophy for NEOs focuses on providing basic core benefits, with NEOs using their own cash compensation to obtain such other services as they individually determine appropriate.
Benefits and perquisites provided to the NEOs are summarized in the Summary Compensation Table. No NEO received perquisites in 2024 with a total value equal to or greater than
Compensation Clawback Policy
We have an executive compensation clawback policy adopted effective as of
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Executive Agreements and Potential Payments on Termination or Change of Control
The Company does not have individual employment agreements with NEOs, and the Compensation Committee does not intend to commence this practice in 2025. No NEO has specific change of control benefits or protection different from any other salaried associate. Change of control treatment for NEOs will follow standard Company policies as outlined in LTI award agreements and the Plan (see "Potential Payments Upon Termination or Change in Control" below).
Tax and Accounting Implications
The Committee, with the assistance of management, has considered other tax and accounting provisions in developing the pay programs for our NEOs, including the CEO. These include the accounting treatment of various types of equity-based compensation under Financial Accounting Standards Board Accounting Standards Codification Topic 718, as well as the overall income tax rules applicable to various forms of compensation. Nevertheless, the focus in the design of the NEO compensation program has been to retain and motivate NEOs, not to achieve potential tax, accounting or other regulatory advantages. Therefore, while the Compensation Committee considers the potential deductibility of awards and accounting considerations as a factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of the Company's executive compensation program even if the awards are not deductible for income tax purposes or do not provide favorable accounting treatment.
Engagement and Use of
The Compensation Committee's charter provides the Compensation Committee with the authority to engage compensation consultants (and other advisors) as it deems appropriate to assist with the performance of its duties.
The Compensation Committee has retained
Role of Executives in Establishing Compensation
Members of management are essential in providing input to the Compensation Committee throughout the year concerning the effectiveness of the executive compensation program, selection of performance criteria, financial performance of the Company, and performance of individual executives. The Chief Executive Officer and Chief Financial Officer are the key members of management who advise the Compensation Committee and supply needed and accurate information. The Compensation Committee regularly invites them to attend Compensation Committee meetings, participate in the presentation of materials, and facilitate discussions concerning management's perceptions of the executive compensation programs and general views concerning a variety of compensation issues. Additional senior members of management participate in meetings as requested by the Committee. However, the Compensation Committee makes final decisions concerning all aspects of NEO compensation, including the design, structure and levels of NEO compensation, including salary increases, performance measures and targets, variable pay targets as a percent of base salaries, determination of annual incentive bonus payouts based upon individual and Company performance, and determination of LTI awards.
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Compensation Committee Report
The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the management of the Company and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Company's Annual Report on Form 10-K for the year ended
Compensation Committee Members:
Dr.
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Summary Compensation Table
| Year | Salary ($) |
Bonus ($) |
Stock Awards ($) (1), (2) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
All Other Compensation ($) (3) |
Total ($) |
||||||||||
| 2024 | 1,453,968 | - | 681,299 | - | - | 266,649 | 2,401,916 | ||||||||||
| Chairman, President & Chief Executive Officer |
2023 | 1,416,816 | - | 1,190,909 | - | - | 337,580 | 2,945,305 | |||||||||
| 2022 | 1,373,925 | - | 1,508,226 | - | - | 307,989 | 3,190,140 | ||||||||||
| 2024 | 487,500 | - | 92,063 | - | - | 22,808 | 602,371 | ||||||||||
| Executive Vice President & Chief Financial Officer |
2023 | 437,500 | - | 147,333 | - | - | 18,625 | 603,458 | |||||||||
| 2022 | 400,000 | - | 193,123 | - | - | 90,254 | 683,377 | ||||||||||
| 2024 | 412,594 | - | 69,049 | - | - | 29,335 | 510,978 | ||||||||||
| Executive Vice President Chief Real Estate & Store Development Officer |
2023 | 400,858 | - | 119,230 | - | - | 39,148 | 559,236 | |||||||||
| 2022 | 385,148 | - | 151,002 | - | - | 39,397 | 575,547 | ||||||||||
| (1) | The amounts shown in this column represent the aggregate grant date fair value of current year grants of restricted shares of Cato Class A Stock, as computed in accordance with FASB ASC Topic 718. Grants were made under the 2018 Incentive Compensation Plan. Grants were not subject to performance criteria but are subject to a five-year vesting schedule. Plan participants have the right to all dividends during the restricted period and current year dividends are included under All Other Compensation. |
| (2) | Assumptions related to the valuation of restricted stock and options are incorporated by reference to the footnotes of the Company's financial statements in its Annual Report on Form 10-K. |
| (3) | The amounts shown in this column represent amounts |
| (4) |
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The amount of each component of All Other Compensation for each Named Executive Officer is as follows:
Fiscal 2024 All Other Compensation
| 401(k) Matching Contributions ($) |
ESOP Contributions ($) |
Term Life Insurance Costs ($) |
Restricted Stock Dividends ($) |
Total All Other Compensation ($) |
|||||||||||||||
| - | - | 2,657 | 263,992 | 266,649 | |||||||||||||||
| - | - | - | 22,808 | 22,808 | |||||||||||||||
| - | - | 2,845 | 26,490 | 29,335 | |||||||||||||||
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Grants of Plan-Based Awards in Fiscal 2024
| Grant Date |
Estimated Possible Payouts Under |
Estimated Future Payouts Under Equity Incentive Plan Awards (2) |
Grant Date Fair Value of Stock and Option Awards ($) (3) |
||||||||||||||
| Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
||||||||||||
| 438,866 | 2,194,332 | 2,194,332 | |||||||||||||||
| -0- | 143,130 | 143,130 | 681,299 | ||||||||||||||
| 60,000 | 300,000 | 300,000 | |||||||||||||||
| -0- | 19,341 | 19,341 | 92,063 | ||||||||||||||
| 62,269 | 311,344 | 311,344 | |||||||||||||||
| -0- | 14,506 | 14,506 | 69,049 | ||||||||||||||
| (1) | The amounts shown constitute the cash Annual Incentive Bonus potential for each Named Executive Officer based on established criteria under the 2018 Incentive Compensation Plan. Because threshold levels were not met, no bonus was paid. |
| (2) | The amounts shown represent Class A restricted stock awards under the 2018 Incentive Compensation Plan. These awards will vest 33% in 2027, 33% in 2028 and 34% in 2029. |
| (3) | The fair market value of the Company's stock on the grant date of |
All restricted stock awards made during fiscal year 2024 were of Class A Stock. All of the awards are subject to a five-year vesting requirement with 33%, 33% and 34% of the grant vesting on the third, fourth and fifth anniversaries of the grant date, respectively. The unvested awards are subject to forfeiture if the named executive terminates employment with the Company. Each grantee is required to own a certain multiple of his base salary before being able to sell the restricted stock. However, each grantee may sell up to 45% of vesting restricted stock to meet associated tax liabilities.
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Outstanding Equity Awards at 2024 Fiscal Year-End
| Stock Awards | |||||
| Number of Shares or Units of Stock That Have Not Vested (#) (1) |
Market Value of Shares or Units of Stock That Have Not Vested ($) (2) |
||||
| J Cato | 525,898 | 1,761,758 | |||
| C Knight | 51,168 | 171,413 | |||
| G Smith | 52,827 | 176,970 | |||
| (1) | All stock awards shown are restricted stock grants and are Class A Stock. The restricted shares vest over five years with 33% of the shares vesting in years three and four and 34% vesting in year five. The expected restricted shares vesting over the next five years is 21% in 2025, 25% in 2026, 26% in 2027, 19% in 2028 and 9% in 2029. |
| (2) | The closing market value of the Company's stock was |
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Option Exercises and Stock Vested in Fiscal 2024
| Stock Awards | |||||
| Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) (1) |
||||
| 118,329 | 563,246 | ||||
| - | - | ||||
| 11,847 | 56,392 | ||||
| (1) | The fair market value of the Company's stock on the vesting date of |
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Nonqualified Deferred Compensation for Fiscal 2024
| Executive Contributions in Last FY ($) (1) |
Company Contributions in Last FY ($) |
Aggregate Earnings in Last FY ($) (2) |
Aggregate Withdrawals / Distributions ($) |
Aggregate Balance at Last FYE ($) |
|||||||||
| - | - | - | - | - | |||||||||
| - | - | - | - | - | |||||||||
| - | - | - | - | - | |||||||||
| (1) | There were no NEO deferrals to the Nonqualified Deferred Compensation Plan for fiscal 2024. When applicable, these amounts are included in the Summary Compensation Table under "Salary" and "Non-Equity Incentive Compensation" or both, as applicable. |
| (2) | These amounts are not reported in the Summary Compensation Table as the earnings included in this column are based on the investment options selected by the NEO, and do not constitute above-market or preferential earnings. |
Please see "Compensation Discussion and Analysis - Nonqualified Deferred Compensation" for a description of the Company's Nonqualified Deferred Compensation Plan.
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Potential Payments Upon Termination or Change in Control
Under the terms of our 2018 Incentive Compensation Plan and 2013 Incentive Compensation Plan, upon any "change in control," all unvested restricted stock awards would immediately vest. For this purpose, any of the following events would be a change in control: (1) any person, entity or group becomes the beneficial owner of more than 50% of the combined voting power of the Company's then outstanding securities (subject to certain exceptions, including an exception for shares acquired directly from the Company); (2) a merger, reorganization, consolidation or sale or other disposition of all or substantially all of the Company's assets occurs, after which our shareholders as a group do not retain at least 50% of the voting power of the surviving entity; (3) the complete liquidation or dissolution of the Company; or (4) a change in the majority of our directors in any two-year period that our directors have not approved. However, in the event any holder of restricted stock is materially affiliated with the person, entity or group that effects the transaction that would otherwise constitute a change in control, that holder's unvested restricted stock awards do not become immediately vested in connection with that transaction. If any change in control had occurred on
| Shares That Would Have Vested Upon a Change in Control # |
Vesting Value ($) |
|||
| 525,898 | 1,761,758 | |||
| 51,168 | 171,413 | |||
| 52,827 | 176,970 |
Chief Executive Officer Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of the
For our fiscal year ended
As additional information, the total compensation of the Company's Chief Executive Officer was approximately 67 times the total compensation of the Company's median full-time employee of
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Pay Versus Performance
In accordance with rules adopted by the
In determining the CAP to our PEO and the CAP to our non-PEO NEOs, we are required to make various adjustments to the total compensation amounts that have been reported in the Summary Compensation Table ("SCT"), as the
The Compensation Discussion and Analysis section above describes our compensation-setting process for our NEOs, which is done independently from determining the disclosure required in this "Pay Versus Performance" section. Accordingly, the Compensation Committee did not consider the pay versus performance disclosure below in making its pay decisions for any of the years shown.
Pay Versus Performance Table
| Value of Initial Fixed Investment Based on: |
||||||||||||||||||||
| Fiscal Year (1) |
Summary Compensation Table Total for PEO ($) |
Compensation Actually Paid to PEO ($) (2) |
Average Summary Compensation Table Total for Non-PEO Named Executive Officers ($) |
Average Compensation Actually Paid to Non-PEO Named Executive Officers ($) (3) |
Total Shareholder Return ($) |
Total Shareholder Return ($) (4) |
Net Income (Loss) ($) (in thousands) |
Pre-tax, Pre-bonus Income (Loss) ($) (in thousands) (5) |
||||||||||||
| 2024 | 2,401,916 | 1,861,698 | 556,674 | 489,776 | 28.14 | 184.45 | (18,057) | (16,113) | ||||||||||||
| 2023 | 2,945,305 | 2,408,141 | 581,347 | 479,421 | 51.47 | 144.65 | (23,941) | (12,351) | ||||||||||||
| 2022 | 3,190,140 | 2,408,943 | 495,217 | 418,992 | 69.39 | 129.27 | 29 | 3,251 | ||||||||||||
| 2021 | 5,466,540 | 6,360,497 | 714,357 | 820,325 | 108.40 | 118.34 | 36,844 | 80,312 | ||||||||||||
| 2020 | 2,814,652 | 2,338,868 | 539,985 | 482,439 | 72.54 | 106.91 | (47,483) | (72,556) | ||||||||||||
| (1) | During 2024 and 2023, our PEO was |
During 2022, our PEO was
During 2021, our PEO was
During 2020, our PEO was
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| (2) | The following table sets forth the adjustments made to arrive at CAP to our PEO during 2024: |
| Adjustments to determine Compensation "Actually Paid" for PEO | 2024 | ||
| Deduction for Amounts Reported under the "Stock Awards" Column in the SCT | (681,299) | ||
| Increase for Fair Value of Awards Granted during year that Remain Unvested as of Year end |
479,486 | ||
| Increase/Deduction for Change in Fair Value from Prior Year-end to current Year-end of Awards Granted Prior to year that were Outstanding and Unvested as of Year-end |
(505,249) | ||
| Increase/Deduction for Change in Fair Value from Prior Year-end to Vesting Date of Awards Granted Prior to year that Vested during year |
166,844 | ||
| Total Adjustments | (540,218) |
| (3) | The following table sets forth the adjustments made to arrive at CAP to our Non-PEO NEOs during 2024: |
| Adjustments to determine Compensation "Actually Paid" for Non-PEO NEOs | 2024 | ||
| Deduction for Amounts Reported under the "Stock Awards" Column in the SCT | (80,556) | ||
| Increase for Fair Value of Awards Granted during year that Remain Unvested as of Year end |
56,694 | ||
| Increase/Deduction for Change in Fair Value from Prior Year-end to current Year-end of Awards Granted Prior to year that were Outstanding and Unvested as of Year-end |
(59,740) | ||
| Increase/Deduction for Change in Fair Value from Prior Year-end to Vesting Date of Awards Granted Prior to year that Vested during year |
16,704 | ||
| Total Adjustments | (66,898) |
| (4) | Total Shareholder Retu("TSR") is determined based on the value of an initial fixed investment of |
| (5) | Pre-tax, Pre-Bonus Income (Loss)is defined as Net income before accrued incentive bonus, benefits, and income tax expense (benefit). |
Financial Performance Measures Used to Link Performance to Executive Compensation
The following financial performance measures are the only financial performance measures the Company used to link CAP (as calculated in accordance with
| • | Pre-Tax, Pre-bonus Income (Loss) | |
| • | Net Income |
Pre-tax, Pre-bonus Income (Loss) is discussed in detail in "2024 Executive Compensation-Compensation Discussion and Analysis" in this proxy statement, including the use of this measure in annual cash incentive compensation awards.
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Graphical Representations of the Relationship of Executive Compensation to Certain Performance Measures:
The following charts present the relationship for the periods presented in the foregoing table between the CAP for the PEO and the average CAP for the Non-PEO NEOs and each of the Company's TSR, peer group TSR, net income and Pre-tax, Pre-bonus Income (Loss).
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39
FISCAL YEAR 2024 DIRECTOR COMPENSATION
| Fees Earned or Paid in Cash ($) |
Stock Awards ($) (1), (2) |
All Other Compensation ($) |
Total ($) |
|||||
| Dr. |
75,000 | 25,895 | - | 100,895 | ||||
| 91,500 | 25,895 | - | 117,395 | |||||
| 82,500 | 25,895 | - | 108,395 | |||||
| 88,500 | 25,895 | - | 114,395 | |||||
| 75,000 | 25,895 | - | 100,895 | |||||
| 81,000 | 25,895 | - | 106,895 |
| (1) | All stock awards shown are stock grants of Class A Stock. |
| (2) | The amount represents the fair market value of 4,298 shares, as computed in accordance with FASB ASC Topic 718, of the Company's stock granted on |
Directors who are not employees of the Company receive a fee for their services of
The Compensation Committee approved stock awards valued at
Directors are reimbursed for reasonable expenses incurred in attending director meetings and committee meetings.
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review, Approval or Ratification of Related Person Transactions
The Company reviews all relationships and transactions in which the Company and its directors, executive officers, nominees or beneficial owners of more than 5% of any class of the Company's stock or their immediate family members have a direct or indirect material interest. The Company's internal controls and related written policies require the Chief Financial Officer to review and approve all such related person transactions. Thereafter, the Company's Audit Committee, in accordance with its charter, reviews all related person transactions required to be disclosed.
Related Person Transactions
During fiscal 2024, there were no transactions between the Company and any related person that met the requirements for disclosure.
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DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who beneficially own more than 10% of a registered class of the Company's equity securities, to file with the
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PROPOSAL 3 - RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has tentatively selected
The directors recommend that shareholders vote FOR the proposal to ratify the selection of
Audit Committee Report
Management is responsible for the Company's system of internal control and the financial reporting process.
In recommending to the Board of Directors the reappointment of
The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibility for safeguarding the Company's assets and for the integrity of the accounting and reporting practices of the Company and such other duties as directed by the Board. As set forth in the Audit Committee Charter, the Audit Committee is not responsible for conducting audits or preparing or determining whether the Company's financial statements are accurate or complete or conform to accounting principles generally accepted in
In the performance of its oversight function and in accordance with its responsibilities under its charter, the Audit Committee has reviewed and discussed the audited financial statements for the year ended
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Based on the reviews and discussions mentioned above, the Audit Committee recommended to the Board of Directors that the audited financial statements for the year ended
Audit Committee Members:
Audit Fees
| Fiscal Year Ended |
Fiscal Year Ended |
|||||||
| Audit Fees (1) | $ | 1,120,000 | $ | 1,111,000 | ||||
| Audit-Related Fees (2) | 0 | 0 | ||||||
| Tax Fees (3) | 97,000 | 59,000 | ||||||
| All Other Fees (4) | 2,000 | 2,000 | ||||||
| $ | 1,219,000 | $ | 1,172,000 | |||||
| (1) | "Audit Fees" represent fees for professional services rendered by |
| (2) | "Audit-Related Fees" represent fees for assurance and related services rendered by |
| (3) | "Tax Fees" represent fees for professional services rendered by |
| (4) | "All Other Fees" represent fees paid to |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by the Independent Registered Public Accounting Firm
The Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent registered public accounting firm. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent registered public accounting firm in order to assure that they do not impair the auditor's independence from the Company. Accordingly, the Audit Committee has adopted procedures and conditions under which services proposed to be performed by the independent registered public accounting firm must be pre-approved.
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Pursuant to this policy, the Audit Committee will consider annually and approve the terms of the audit engagement. Any proposed engagement relating to permissible non-audit services must be presented to the Audit Committee and pre-approved on a case-by-case basis. In addition, particular categories of permissible non-audit services that are recurring may be pre-approved by the Audit Committee subject to pre-set fee limits. If a category of services is so approved, the Audit Committee will be regularly updated regarding the status of those services and the fees incurred. The Audit Committee reviews requests for the provision of audit and non-audit services by the Company's independent registered public accounting firm and determines if they should be approved. Such requests could be approved either at a meeting of the Audit Committee or upon approval of the Chair of the Audit Committee, or another member of the Audit Committee designated by the Chair. If the Chair or her designee approves a permissible non-audit service, that decision is required to be presented at the next meeting of the Audit Committee. Prior to approving any services, the Audit Committee considers whether the provision of such services is consistent with the
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SHAREHOLDER PROPOSALS
Shareholders who intend to present proposals for consideration at next year's Annual Meeting are advised that, pursuant to rules of the
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OTHER MATTERS
The Board of Directors of the Company knows of no matters that will be presented for consideration at the meeting other than those set forth in this Proxy Statement. However, if any other matters are properly presented for action, it is the intention of the persons named in the proxy to vote on them in accordance with their best judgment.
| For the Board of Directors | |
| Secretary |
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Appendix A
2013 EMPLOYEE STOCK PURCHASE PLAN
AMENDED AND RESTATED AS OF
| Article 1 | Purpose of Plan |
The purpose of
| Article 2 | Definitions |
| 2.1 | Board of Directors: The Board of Directors of the Company. |
| 2.2 | Code: Internal Revenue Code of 1986, as amended. Reference to a section of the Code shall be deemed to include reference to applicable regulations or other authoritative guidance thereunder, and any amendments or successor provisions to such section, regulations or guidance. |
| 2.3 | Compensation: Regular base salary or wages, including overtime payments. |
| 2.4 | Compensation Committee or Committee: The Compensation Committee of the Board of Directors or a subcommittee thereof, or such other committee appointed by the Board of Directors to administer the Plan (or in the absence of such appointment, the Board of Directors itself). Members of the Committee shall not be eligible to participate in the Plan and shall be "non-employee directors" within the meaning of Section 16 and Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). |
| 2.5 | Designated Enrollment Period: The period designated by the Company during which Eligible Employees may enroll in the ESPP before the beginning of each offering period (as described in Article 5). |
| 2.6 | Eligible Employee: An Employee of the Company or a Participating Subsidiary, subject to Section 6.6. |
Notwithstanding the foregoing, the Committee may provide on a prospective basis prior to the beginning of an offering period that an Employee shall not be eligible to participate in the offering period if (a) such Employee is customarily employed for twenty (20) or less hours per week (or such lesser number of hours as specified by the Committee in its discretion); (b) such Employee is customarily employed for five (5) months or less in a calendar year (or such lesser period of time as specified by the Committee in its discretion); (c) such Employee has not been employed by the Company or a Participating Subsidiary for at least two (2) years (or such lesser period of time as specified by the Committee in its discretion); (d) such Employee is a citizen or resident of a foreign jurisdiction and the grant of a right to purchase Common Stock under the ESPP would be prohibited under the laws of such jurisdiction or compliance with the laws of the foreign jurisdiction would cause the ESPP to violate the requirements of Section 423 of the Code; or (e) such Employee does not meet such other eligibility requirements for the offering period that the Committee may establish consistent with Section 423 of the Code; provided that
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any such exclusion described in subsection (a), (b), (c), (d) or (e) shall be applied in an identical manner under each offering period to all Employees and in a manner that complies with Treasury Regulation Section 1.423-2(e).
| 2.7 | Employee: An employee of the Company or a Participating Subsidiary. For purposes of the ESPP, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company (or applicable Participating Subsidiary) and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three (3) months and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three (3)-month period. |
| 2.8 | Participating Subsidiary: Each Subsidiary of the Company, unless the Committee has designated that such Subsidiary shall not participate in the Plan or in an offering under the Plan. The Committee may, in its discretion, designate Subsidiaries that shall or shall not be Participating Subsidiaries from time to time, including entities that now exist as Subsidiaries or hereafter become Subsidiaries. |
| 2.9 | Subsidiary: A "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code. |
| Article 3 | Original Effective Date; Restatement |
| 3.1 | The ESPP was adopted by the Committee on |
| 3.2 | This amendment and restatement is a continuation of the ESPP and was adopted by the Committee on |
| Article 4 | Administration |
| 4.1 | The ESPP shall be administered by the Committee. Members of the Committee receive no additional compensation for administering the ESPP. |
| 4.2 | Subject to the provisions of the ESPP and relevant law, the Committee shall have complete authority, in its sole discretion, to supervise the administration of the ESPP and to control its operations including, but not by way of limitation, (a) to specify the purchase price, subject to Article 6 hereof, of shares to be purchased under the ESPP; (b) to construe and interpret the ESPP and to determine any question arising under or in connection with the administration or operation of the ESPP; (c) to prescribe, amend and rescind rules, regulations and procedures that it deems necessary for the administration of the ESPP; (d) to amend the ESPP to conform with relevant law; (e) to correct any defect, supply any omission and reconcile any inconsistency in the ESPP; (f) to determine any and all considerations affecting the eligibility of any Employee to become a participant or to remain a participant in the ESPP; (g) to determine the offering periods; (h) to determine which Subsidiaries shall be Participating Subsidiaries; (i) to decide all claims filed under the Plan; (j) to employ such brokers, counsel, agents, advisers and other services and service providers as it may deem necessary or appropriate in carrying out the provisions of the ESPP; (k) to delegate administrative responsibilities under the Plan; and (l) to make all other determinations and to do all other acts as it may deem necessary or advisable for the administration of the ESPP. |
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The Committee's determination on the foregoing matters shall be conclusive and binding. No member of the Committee or the Board of Directors shall be liable for any action or determination concerning the ESPP made in good faith.
| 4.3 | Without limiting the generality of the foregoing and without regard to whether any participant's purchase rights may be considered adversely affected, the Committee may, from time to time, consistent with the ESPP and the requirements of Section 423 of the Code, establish, change or terminate such rules, guidelines, policies, procedures, limitations, or adjustments as deemed advisable by the Committee, in its discretion, for the proper administration of the Plan, including, without limitation, to (a) establish a minimum contribution amount required for participation in an offering period; (b) amend, suspend, terminate or change the offering periods; (c) establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with contribution amounts; (d) permit contributions greater than or less than the amount designated by a participant in order to adjust for a Participating Subsidiary's delay or mistake in processing or otherwise effecting a participant's election under the ESPP or as advisable to comply with the requirements of Section 423 of the Code; and (e) establish such other limitations or procedures as the Committee determines in its sole discretion advisable that are consistent with the ESPP. |
| Article 5 | Offering Periods and Participation in the Plan |
| 5.1 | Offering Periods |
Each ESPP offering period (the "offering periods" or "offering period") is a six month period, commencing each
The first six-month offering period following adoption of this amendment and restatement of the ESPP shall commence
Shares also may be acquired under the ESPP in accordance with Article 17.
| 5.2 | Participation in the Plan |
| (a) | Enrollment |
Purchase rights under the ESPP may be granted only to Eligible Employees of the Company or a Participating Subsidiary. Each Eligible Employee may elect to participate in the ESPP by completing and submitting an enrollment agreement in such form and in such manner as designated by the Company (which may, at the Company's discretion, include electronic form) during the applicable Designated Enrollment Period for an offering period. An Eligible Employee may elect to allocate from 1% to 10%, in whole percentages, of his or her Compensation to be made through payroll deductions during each offering period to purchase shares through the ESPP. The Committee, in its discretion, may increase or decrease the maximum percentage contemplated by the immediately preceding sentence, without formal amendment of the ESPP, so long as the maximum percentage is a uniform percentage of Compensation for all participants.
Each Eligible Employee who has enrolled as a participant for an offering period shall be granted a right to purchase on the last trading day of such offering period ("Purchase Date") that number of shares of Common Stock (which may include a fractional share) determined by dividing the participant's payroll deduction contributions accumulated (and not withdrawn) as of the end of the offering period by the applicable purchase price determined in accordance with Section 6.2, subject to the limitations set forth in
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Article 6. Unless purchase rights terminate earlier in connection with cancellation or cessation of participation, purchase rights shall terminate as of the end of the offering period to the extent not exercised to purchase shares of Common Stock.
Once enrolled, and providing that the Eligible Employee remains eligible for the ESPP and has not cancelled participation pursuant to the terms of the ESPP, the Eligible Employee's participation and payroll deduction election will continue through ensuing offering periods unless the Eligible Employee cancels or changes such election via the designated change form in accordance with Section 5.2(b) and in such manner designated by the Company.
An Eligible Employee may only enroll within the Designated Enrollment Period. An Employee who becomes an Eligible Employee after a Designated Enrollment Period is closed may enroll only during a subsequent Designated Enrollment Period.
The payroll deductions made for each participant shall be deposited with the general funds of the Company. The Company shall maintain bookkeeping accounts for recordkeeping purposes only that reflects a participant's payroll deductions and the shares purchased under the ESPP. No interest shall accrue on any amounts of whatever nature that are credited to participant accounts under the ESPP unless otherwise required by applicable law.
Notwithstanding the foregoing, by enrolling in the ESPP, each participant also will be deemed to have authorized the establishment of a brokerage account on his or her behalf at a securities brokerage firm selected by the Company, if the Company so determines. The Company also may provide for ESPP share accounts for each participant to be established by the Company or by an outside entity selected which is not a brokerage firm. The Company may require that shares be retained in such brokerage or ESPP share account for a designated period of time, and/or may establish procedures to permit tracking of dispositions of shares.
| (b) | Cancellation |
A participant may cancel his or her participation in the ESPP at any time. If a participant cancels his or her participation on or before
To reinstate his or her participation, the Eligible Employee must re-enroll during any subsequent Designated Enrollment Period.
If, during an offering period, a participant's employment with the Company and the Participating Subsidiaries terminates for any reason and such termination occurs on or prior to
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| (c) | Changes to payroll deduction elections, other than cancellation to the extent noted in Section 5.2(b) above, may be made only during the Designated Enrollment Periods. Such changes will be effective at the beginning of the offering period following such Designated Enrollment Period. |
| (d) | Notwithstanding the foregoing, the Company may suspend a participant's payroll deductions under the ESPP as the Company deems advisable to avoid accumulating contributions in excess of the amount that could reasonably be anticipated to purchase the maximum number of shares of Common Stock permitted for an offering period or otherwise under the ESPP. |
| Article 6 | Number of Shares, Price and Purchase of Common Stock |
| 6.1 | The number of shares of Common Stock available for purchase under the ESPP shall be seven hundred fifty thousand (750,000) shares (consisting of two hundred fifty thousand (250,000) shares as initially approved in 2013, an additional two hundred fifty thousand (250,000) shares as approved in 2021 and an additional two hundred fifty thousand (250,000) shares to be approved in 2025), which shares may be issued over the term of the ESPP. If any right to purchase shares of Common Stock under the ESPP terminates or expires without being exercised, such shares shall again be available for purchase under the ESPP. The number of shares available for issuance under the ESPP is subject to adjustment as described in Section 10.1. The shares of Common Stock issuable under the ESPP may consist of authorized but unissued shares, treasury shares, or shares purchased on the open market. |
| 6.2 | The purchase price at which shares of Common Stock will be sold on each Purchase Date is 85% of the lower of the fair market value at (a) the beginning date of such offering period or (b) Purchase Date. The fair market value of a share of Common Stock on a given date is the closing or last sale price on the |
| 6.3 | On the Purchase Date, the purchase rights of each participant whose participation has not been cancelled or otherwise terminated shall be automatically exercised to purchase shares of Common Stock. The number of shares (whole and fractional) purchased by each participant on the Purchase Date will be determined by dividing the purchase price as determined in accordance with Section 6.2 above into the amount of payroll deductions withheld and accumulated (and not withdrawn) for that participant during the offering period, subject to ESPP limitations detailed elsewhere in this Plan. However, the maximum number of shares of Common Stock purchasable by a participant for any such offering period shall not exceed two thousand five hundred (2,500) shares, subject to adjustment as described in Section 10.1. |
| 6.4 | If the number of shares elected to be purchased by participants for an offering period (based on their accumulated payroll deductions) or pursuant to Article 17 exceeds the aggregate number of shares available under the ESPP for the offering period or otherwise, the Company will reduce, pro rata, the number of shares available to each participant in as uniform a manner as shall be practicable and as it shall determine to be equitable among all participants for whom rights to purchase shares are to be exercised at the end of the offering period (or pursuant to Article 17). Excess payroll deductions will be refunded. |
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| 6.5 | As soon as practicable after the Purchase Date, the Company will credit the recordkeeping account of each participant for the applicable number of whole and fractional shares. Participants will periodically receive statements showing the number of shares (whole and fractional) credited to the account of the participant. Shares purchased pursuant to the ESPP may be evidenced in such manner as the Company may determine. To the extent applicable (for example, the number of shares that the participant may purchase is restricted by the |
Notwithstanding that fractional shares may be credited to a participant under the ESPP, no fractional shares may be issued under the ESPP.
| 6.6 | Notwithstanding any other provisions of this ESPP: |
| (a) | No participant shall have rights to purchase stock under the ESPP which permits his or her rights pursuant to this ESPP or any other plan maintained by the Company or any Subsidiary that constitutes an employee stock purchase plan within the meaning of Section 423 of the Code to accrue at a rate which exceeds |
| (b) | An Employee who is otherwise an Eligible Employee shall not be permitted to participate and shall not have the right to purchase shares under the ESPP, if immediately after the grant of such right, such Employee would own stock and/or hold outstanding options or rights to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary. For this purpose, the attribution rules of Section 424(d) of the Code will apply in determining the stock ownership of any Employee, and stock which such Employee may purchase under all outstanding options (including rights under this ESPP) shall be treated as stock owned by the Employee. |
| 6.7 | A participant may purchase shares under the ESPP only if such participant both is an Eligible Employee on the first day of the offering period and remains an Eligible Employee through |
| 6.8 | The participants in each offering under the ESPP shall have equal rights and privileges within the meaning of Section 423(b)(5) of the Code. Any provision of this ESPP which is inconsistent with Section 423 of the Code will, without further act or amendment by the Company or the Committee, be reformed to comply with the requirements of Section 423 of the Code. |
| Article 7 | Holding Period/Withdrawal of Shares Held in the Plan |
All shares of Common Stock purchased under the ESPP must be held for a minimum of one (1) year from the Purchase Date, including shares resulting from adjustments made pursuant to Section 10.1. However, the foregoing one (1) year period shall not apply to shares of Common Stock that are purchased through the reinvestment of dividends in accordance with Article 17. In addition, the foregoing one (1) year holding period shall cease to apply upon the person's death.
Subject to the one (1) year period described above (and any other holding period established by the Committee pursuant to the ESPP), a participant may withdraw all or any portion of the whole shares held in the participant's account under the Plan by notifying the Company in such form and manner as designated by the Company. A participant may elect withdrawal of a portion or
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all of his or her whole shares held in the Plan in one of two ways: (a) delivery of the number of shares withdrawn may be made by issuance of certificates or by electronic or other means as arranged by the Company and pursuant to such procedures as established by the Company, the ESPP recordkeeper and/or the Company's duly authorized transfer agent, or (b) the shares to be withdrawn may be liquidated in cash. Participants will be responsible for brokerage fees and costs, if any, associated with liquidation. The net proceeds of the sale (the total sales price of all shares of Common Stock sold less the costs of sale) will be distributed to the participant. Fractional shares will not be issued under the ESPP. Fractional share amounts will be paid in cash. Any written notice of withdrawal received after the record date for a cash dividend will not be effective until after the dividend is reinvested under the Plan.
Documentation evidencing shares purchased under the ESPP may contain such legends as the Company deems appropriate to reflect the restrictions of this Article 7.
| Article 8 | No Contract of Employment |
Participation in the ESPP shall neither constitute a contract of employment nor convey to any employee any right to continue in the employment of the Company or any Subsidiary or to continue to be involved in any business in which the Company or any Subsidiary may engage. Neither the ESPP nor participation in the ESPP shall affect any right of the Company or any Participating Subsidiary to terminate the employment of an Employee with or without notice and with or without cause.
| Article 9 | Employment Termination, Death, Disability, Retirement and Leaves of Absence |
| 9.1 | If a participant terminates employment with the Company and its Participating Subsidiaries for any reason, including death, disability or retirement, or no longer meets the eligibility requirements for any reason other than a period of leave of absence during which the participant remains an Eligible Employee, his or her account balance representing partial shares shall be paid in cash and whole shares shall be transitioned out of the participant's account under the ESPP and evidenced by the issuance of stock certificates or by book entry or other certification with the Company's duly authorized transfer agent in accordance with such procedures as established by the Company or the transfer agent; provided that such shares shall remain subject to the one (1) year holding period described in Article 7 (and any other holding period established by the Committee pursuant to the ESPP) to the extent not yet elapsed. |
In accordance with Section 5.2(b), any accumulated payroll deductions for the offering period in which termination of employment occurs shall be returned to the participant (or in the case of the participant's death, to the person or persons entitled thereto under Section 9.3) or applied to purchase shares of Common Stock at the end of such offering period depending on the date of such termination.
| 9.2 | Subject to Section 423 of the Code, to the extent an Eligible Employee who is a participant for an offering period goes on an unpaid approved leave of absence during such offering period remains an Eligible Employee, the participant may remain in the ESPP for that period. |
| 9.3 | A participant may designate, in writing in such form and manner as designated by the Company, a beneficiary under the ESPP. In the event of a participant's death, his or her designated beneficiary shall receive shares and cash in full repayment of the amounts credited to the participant's account and cash for the accumulated payroll deductions, if any, for the current offering period (subject to Section 5.2(b)). In the case of a married participant who resides in a community property state, no party other than the participant's spouse may be named as primary beneficiary without the written consent of the spouse. Such designation of beneficiary may be changed by the participant at any time by filing a new written designation in such form and manner as designed by the Company. A beneficiary designation form shall be valid only if it was filed with the Company at the prescribed location before the participant's death. The Company may rely on the last designation of a beneficiary filed by a participant in accordance with the ESPP. In the absence of |
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a validly designated beneficiary who is living at the time of the participant's death, the account balance of a married participant will be paid to the participant's spouse, and the account balance of an unmarried participant will be paid to the participant's estate or, if no such executor or administrator has been appointed (to the knowledge of the Company), then to any one or more dependents or relatives of the Participant, or if no dependent or relative is known to the Company, then to such other person as the Company may designate.
| 9.4 | Subject to Section 423 of the Code and the ESPP (including without limitation Section 6.8), the Committee shall have the discretion to make decisions about rights of participants and obligations of the ESPP in situations of death, disability, retirement, and leaves of absence and all decisions of the Committee shall be final and binding on all affected parties. |
| Article 10 | Capital Changes |
| 10.1 | If the outstanding shares of Common Stock are increased, decreased or changed into, or exchanged for, a different number or kind of shares or securities of the Company, with or without receipt of consideration by the Company, through reorganization, merger, acquisition of equity, recapitalization, reclassification, stock split, stock consolidation, stock dividend, or similar event, then an appropriate, equitable and proportionate adjustment shall be made in the number and kind of shares or other securities which may be purchased under the ESPP, the maximum number of shares that may be purchased during an offering period, and the purchase price. |
| 10.2 | Adjustments under Section 10.1 hereof shall be made by the Committee, whose determination as to what equitable adjustments shall be made, and the extent thereof, shall be final and conclusive as to all affected parties; provided that no adjustment shall be made to the extent that such adjustment would cause the ESPP to fail to satisfy the requirements of Section 423 of the Code. No fractional shares shall be issued under the Plan on account of any such adjustment but total ownership balance (whole and fractional shares) will be considered for such adjustments. |
| Article 11 | Recordkeeping |
| 11.1 | The Company or the Committee may designate a recordkeeper or agent for the ESPP. All expenses of establishing and administering the ESPP will be paid by the Company without charge to participants, provided that any transfer or similar taxes applicable to a participant's purchase of shares may be charged to the participant's account. All brokerage fees and costs for the sale or transfer of shares by a participant shall be borne by the participant. |
| 11.2 | A statement will be provided to each participant as soon as practicable after the end of each offering period with certain information regarding the offering period, including purchase price and shares purchased. |
| Article 12 | Restrictions on Assignment of Plan Rights |
Rights to purchase shares of Common Stock under the Plan are not transferable by the participant other than, to the extent permitted by the Plan, by will or the laws of descent and distribution, and are exercisable during the participant's lifetime only by the participant. Subject to the provisions hereof, a participant may not sell, pledge or otherwise assign or transfer his or her right to purchase shares under the Plan, his or her account under the Plan, or any cash or shares credited to such account. Amounts payable or shares credited pursuant to the Plan shall be paid or credited only to the participant or, in the event of the participant's death, to the participant's beneficiary pursuant to Section 9.3. A participant who desires to sell, pledge or otherwise assign or transfer shares in his or her account must withdraw such shares, subject to applicable holding periods and as otherwise provided in Article 7.
| Article 13 | Consent of Participants |
Each participant shall be bound by the terms and conditions of the ESPP as such terms and conditions may be amended from time to time.
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| Article 14 | Amendment or Termination of the Plan |
The Committee shall have the right to amend, suspend or terminate the ESPP, in whole or in part, in its sole discretion at any time, without the approval of shareholders except as required by Section 423 of the Code or other applicable law or listing requirements. The ESPP shall terminate at
| Article 15 | Taxation |
Any taxes required by law to be withheld on account of the ESPP shall be deducted and withheld accordingly. A participant may become liable for taxes when she/he disposes of shares acquired through this ESPP. Neither the Company nor any Subsidiary shall be responsible for any effect that the ESPP may have on an individual's taxes.
Although the Company may endeavor to qualify a right to purchase shares for favorable tax treatment under Section 423 of the Code or avoid adverse tax treatment, the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in this ESPP. In addition, the Company will be unconstrained in its corporate activities without regard to the potential negative tax impact on participants under the ESPP.
| Article 16 | Governing Law |
The ESPP shall be construed in accordance with and governed by the laws of the
| Article 17 | Dividends |
Cash dividends will be paid on all shares of Common Stock held in each participant's account under the Plan on the basis of full and fractional shares held in the account on the record dates for such dividends.
Following approval of this amendment and restatement of the ESPP by the Company's shareholders at the Company's 2021 Annual Meeting of Shareholders, cash dividend payments for Eligible Employees will be treated as additional contributions and reinvested to purchase additional shares of Common Stock under the ESPP, subject to Section 6.6, on the dividend payable date as determined by the Board of Directors at a price equal to 85% of the closing or last sale price of the Common Stock on the
| Article 18 | Use of Funds |
All payroll deductions and other amounts held by the Company under the ESPP may be used by the Company for any corporate purpose and the Company shall not be obligated to segregate such amounts unless otherwise required by applicable law. The ESPP is unfunded and shall not create nor be construed to create a trust or separate fund of any kind. Until the shares of Common Stock are purchased and issued, a participant will only have the rights of any unsecured general creditor of the Company and no right to vote or receive dividends or any other rights as a shareholder with respect to such shares of Common Stock.
| Article 19 | Notice of Disposition |
The Company may require that participants promptly notify the Company in writing of any disposition or other transfer of any shares of Common Stock purchased in any offering period pursuant to the ESPP if such disposition occurs within two (2) years from the beginning date of such offering period or within one (1) year from the ending date of such offering period (the "Notice Period"). Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration,
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by the participant in such disposition or other transfer. The Company may, at any time during the Notice Period, place a legend or legends on any certificate or other documentation representing shares acquired pursuant to the ESPP requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates or other documentation.
| Article 20 | Approvals and Listing |
The granting and exercise of purchase rights and the issuance of shares of Common Stock under the Plan shall be subject to compliance with all requirements of applicable law with respect to such securities, including the requirements of any securities exchange or market system upon which the Common Stock may then be listed. In addition, the Company shall not be required to grant or allow the exercise of any purchase rights and the Company shall not be required to issue any shares of Common Stock under the Plan prior to (a) obtaining any required approval from the shareholders of the
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