On March 7, 2013, the Company held its Annual Meeting of Shareholders of the Company. As of the Record Date of January 11, 2013, there were 148,742,100 shares outstanding and entitled to notice of and to vote at the Annual Meeting. The matters voted upon at the Annual Meeting and the results of the voting are set forth below.
Proposal I ‘ Election of Directors
Shareholders approved the election of Barbara D. Carlini, Hinda Miller and Norman H. Wesley as Class II directors to serve a three-year term to expire at the Company’ s Annual Meeting in 2016.
For
Withheld
Broker non-votes
Barbara D. Carlini
113,717,284
2,749,935
19,609,718
Hinda Miller
100,150,194
16,317,025
19,609,718
Norman H. Wesley
116,031,952
435,267
19,609,718
Proposal II ‘ Advisory Vote on Executive Compensation of Named Executive Officers
Shareholders approved, on an advisory basis, the Company’ s compensation of the named executive officers, as disclosed in the Compensation Discussion and Analysis section of the Company’ s definitive proxy statement dated January 22, 2013.
For
Against
Abstain
Broker non-votes
114,460,953
1,802,286
203,980
19,609,718
Proposal III ‘ Ratification of Independent Registered Public Accountants for Fiscal Year 2013
At the Annual Meeting, shareholders ratified the appointment of PricewaterhouseCoopers LLP to serve as the Company’ s independent registered public accountants for its 2013 fiscal year.
For
Against
Abstain
134,516,713
1,120,727
439,497
Compensation of Our New Chief Executive Officer
After the close of fiscal 2012, Mr. Blanford resigned from his position as our President and Chief Executive Officer and Mr. Brian P. Kelley became our new President and Chief Executive Officer. Mr. Kelley’ s annual base salary is $900,000 and he will have the opportunity to earn an annual performance-based incentive bonus with a target of 100% of his annual base salary, with the actual amount of the bonus earned to be based on the achievement of certain financial performance goals to be established by the Board or Committee. Mr. Kelley also received a one-time sign-on bonus of $600,000 related to the bonus opportunity forfeited as a result of his resignation from his prior employer, which is subject to repayment if Mr. Kelley resigns without good reason during his first year of employment. In order to defray the expense of Mr. Kelley’ s relocation, he received a payment of $500,000, 50% of which was paid to him when he commenced employment, and 50% of which will be paid to him within 30 days following the date he sells his current primary home. He also received $75,000 to assist with travel expenses associated with the first month of his relocation and legal expenses associated with the drafting and negotiation of his employment agreement.
As partial replacement of the equity that Mr. Kelley forfeited when he resigned from his prior employer, Mr. Kelley received a one-time grant of performance shares having a grant date value equal to approximately $3,500,000, and a one-time grant of restricted stock units having a grant date value equal to approximately $3,500,000. The Committee granted performance shares because it wanted to further tie Mr. Kelley’ s compensation to the achievement of certain pre-established goals. The Committee chose adjusted earnings per share as the performance goal for this award because it believed that, over a multi-year period, this measure would effectively correlate the Company’ s performance with its stock price and therefore provide an appropriate incentive to Mr. Kelley. Eighty percent of the performance shares will be earned if the threshold level of performance is achieved, 100% of the performance shares will be earned if the target level of performance is achieved and 120% will be earned if the maximum level of performance is achieved. To the extent earned, 50% of the performance shares will vest following the end of fiscal 2014 and 50% will vest on the one-year anniversary of the initial vesting date. The restricted stock units will vest in two equal annual installments on the second and third anniversaries of the date of grant.
In lieu of an annual grant of equity-based compensation at the time other executives receive a grant in March 2013, Mr. Kelley was granted a stock option award having a grant date value equal to approximately $2,800,000 and restricted stock units having a grant date value equal to approximately $700,000. These stock options and restricted stock units will vest in four equal annual installments on each anniversary of the date of grant. Mr. Kelley’ s next grant of equity-based compensation will not occur until December 2013 and will be made at the same time awards are granted to other Named Executive Officers for fiscal 2014. The value of the annual grant portion of Mr. Kelley’ s compensation ($3,500,000) and value of the aggregate of Mr. Kelley’ s hiring package ($11,675,000) was based on a review of the Industry Peer Group and the Published Survey Data. Mr. Kelley’ s special, hiring transition compensation is also consistent with Industry Peer Group companies and the Published Survey Data, based on a review of recent chief executive officer external hires conducted for the Committee by Pay Governance.
Performance-Based Compensation and Risk
The Committee considers risk as well as motivation when establishing performance criteria. During fiscal 2012, the Committee reviewed all of the Company’ s incentive compensation plans to determine whether the Company’ s compensation policies and practices foster risk taking above the level of risk associated with the Company’ s business model. In the course of its examination, the Committee evaluated:
· The balance of performance-based compensation and the quality and sustainability of performance;
· The relative proportions of annual and long-term incentives;
· The relationship between performance criteria for annual and long-term incentive awards;
· Competitive practices; and
· Share retention requirements.
On the basis of this review, the Committee determined that the Company’ s incentive compensation plans are appropriately structured and do not create risks that are reasonably likely to have a material adverse effect on the Company.
Performance-Based Compensation - Section 162(m)
Pursuant to Section 162(m) of the Code, compensation paid to certain executive officers, other than a company’ s chief financial officer, in excess of $1,000,000 is not deductible unless it qualifies as ‘ performance-based compensation.’ The Committee annually reviews and considers the tax deductibility of the compensation paid to our Named Executive Officers (other than our CFO), under Section 162(m). The Committee believes that in establishing the cash and equity incentive compensation programs for the Company’ s executive officers, the potential deductibility of the compensation payable under those programs should be only one of a number of relevant factors taken into consideration. The compensation paid pursuant to our cash-based annual and our long-term incentive programs is generally designed to qualify as ‘ performance-based compensation’ for purposes of Section 162(m). Base salaries and time-based restricted stock units do not qualify as ‘ performance-based compensation’ pursuant to the requirements of Section 162(m). The performance shares granted to Mr. Kelley were not structured to meet the requirements of such ‘ performance-based compensation.’ From time to time, the Committee may and has, and reserves the right to, award or approve compensation that is not deductible under Section 162(m) in order to provide competitive levels of total compensation for our executive officers.
For fiscal 2012, compensation, other than ‘ performance-based compensation,’ for Mr. Blanford exceeded the Section 162(m) limitation due primarily to base salary.
Stock Ownership Guidelines for Our Named Executive Officers
We believe our executive officers should be invested in the success of the organization they lead, and thus the Committee adopted stock ownership guidelines for the Named Executive Officers in September 2011, which became effective in March 2012. In June 2012, the Committee reviewed our stock ownership guidelines as compared to those of the Industry Peer Group companies. A majority of the Industry Peer Group companies set stock ownership guidelines based on a multiple of base salary similar to ours. Based upon its review, the Committee concluded that no changes were necessary to the previously established guidelines, which are as follows:
Brian P. Kelley
5.0x
Lawrence J. Blanford
5.0x
Frances G. Rathke
3.0x
Gerard Geoffrion
2.0x
(1)
R. Scott McCreary
3.0x
Michelle Stacy
3.0x
(1) Presidents who were not Named Executive Officer have an ownership guideline of 2.0x. Mr. Geoffrion was not previously a Named Executive Officer.
Stock owned by an executive officer for purposes of these guidelines includes common stock allocated to the officer’ s 401(k) plan/GMCR Canada Retirement Savings Plan account as well as other stock which is beneficially owned, directly or indirectly, by the officer, shares underlying in-the money unvested and vested but unexercised options and unvested restricted stock units. All executive officers have five years from their appointment as an executive officer to meet these guidelines, and their stock ownership is reviewed annually by the Committee. Based on the closing price of our common stock on December 30, 2012, the annual measurement date in our guidelines, all of our Named Executive Officers satisfy the guidelines.
COMPENSATION AND ORGANIZATIONAL DEVELOPMENT COMMITTEE REPORT
The Committee has reviewed and discussed the Compensation Discussion and Analysis set forth below with management. Based on these reviews and discussions, the Board approved our recommendation that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation and Organizational Development
Committee
David E. Moran, Chairman
Michael J. Mardy
Hinda Miller
Norman H. Wesley
EXECUTIVE COMPENSATION TABLES
The following tables provide information concerning compensation for the Company’ s Chief Executive Officer, Chief Financial Officer, and the three other most highly-paid executive officers as of September 29, 2012, the last day of fiscal 2012.
SUMMARY COMPENSATION TABLE
Name and Principal Position
Fiscal
year
Salary
($)
Stock
awards
($)(1)
Option
awards
($)(2)
Non-Equity
Incentive Plan
Compensation
($)(3)
All Other
Compensation
($)(4)
Total
($)
Lawrence J. Blanford,
2012
927,885
2,999,980
0
7,500
3,935,365
President and Chief Executive
2011
767,692
1,889,708
932,000
5,996
3,595,396
Officer (5)
2010
660,096
1,151,208
571,200
23,703
2,406,207
Frances G. Rathke,
2012
442,500
134,975
548,241
0
6,763
1,132,479
Chief Financial Officer and
2011
375,192
500,692
272,610
6,736
1,155,230
Treasurer
2010
328,365
321,948
154,770
7,348
812,431
Gerard Geoffrion,
2012
399,747
93,573
380,110
0
51,616
925,046
President, International Business Development (6)
R. Scott McCreary,
2012
392,116
93,573
380,110
0
7,500
873,299
President, Specialty Coffee
2011
357,885
419,935
258,630
7,586
1,044,036
Business Unit
2010
318,365
312,192
150,150
8,859
789,566
Michelle Stacy,
2012
392,116
93,573
380,110
0
7,500
873,299
President, Keurig,
2011
364,616
419,935
258,630
7,350
1,050,531
Incorporated
2010
346,019
336,582
161,700
8,509
852,811
(1) This column reflects the grant date fair value of the restricted stock award for Mr. Blanford and restricted stock units for Mses. Rathke and Stacy and Messrs. Geoffrion and McCreary, determined in accordance with FASB ASC Topic 718 and based on a grant date fair value of a share of our common stock equal to $54.12, which was the fair market value on the date such awards were granted. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.
(2) This column represents the grant date fair value of option awards made during each of fiscal 2012, 2011, and 2010 as calculated pursuant to FASB ASC Topic 718 and using the Black-Scholes model. The underlying valuation assumptions for option awards are further disclosed in notes 2 and 16 to our audited financial statements filed with our Annual Report on Form 10-K for fiscal 2011 and 2010 and notes 2 and 15 to our audited financial statements filed with our Annual Report on Form 10-K for 2012. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.
(3) Reflects the total amounts earned for the relevant fiscal year under the STIP.
(4) The table following these footnotes below provides the details for the ‘ All Other Compensation’ column.
(5) Mr. Blanford resigned as President and Chief Executive Officer of the Company effective December 3, 2012 and will retire as an employee of the Company on March 4, 2013.
(6) Mr. Geoffrion joined the Company in December 2010 in connection with its acquisition of LVJH Holdings and did not become a Named Executive Officer until fiscal 2012. All dollar amounts reflect Canadian Dollars-to-United Stated Dollars conversion, in each case using the exchange rate on the last day of the fiscal year.
The following table provides details for the ‘ All Other Compensation’ column in the table above for fiscal 2012.
Name
401(k)/GMCR
Canada
Retirement
Savings
match
($)
Perquisites
($)
Total
($)
Lawrence J. Blanford (1)
7,500
0
7,500
Gerard Geoffrion(2)
6,109
45,507
51,616
R. Scott McCreary
7,500
0
7,500
Frances G. Rathke
6,763
0
6,763
Michelle Stacy
7,500
0
7,500
(1) Mr. Blanford resigned as President and Chief Executive Officer of the Company effective December 3, 2012, and will retire as an employee of the Company on March 4, 2013.
(2) Mr. Geoffrion perquisites include his received car allowance payments of $4,728 and a one-time pay out of his remaining car allowance benefit in the amount of $40,779. All dollar amounts reflect Canadian Dollars-to-United Stated Dollars conversion, using the exchange rate on the last day of 2012.
GRANTS OF PLAN-BASED AWARDS IN 2012
The following table provides information on potential payouts under our non-equity incentive plan (STIP) and equity-based awards (stock options, restricted stock units and restricted stock under the 2006 Plan) to our Named Executive Officers with respect to awards or grants made in fiscal 2012.
All other
All other
Exercise
stock
option
or Base
Grant Date
awards:
awards:
Price of
Fair Value
Number of
Number of
Options
of Stock
Estimated payouts under
Shares of Stock
Securities
Awards
and Option
Grant
non-equity incentive plan
or Units
Underlying
($ per
Awards
Name of Executive
date
Threshold(1)
Target
Maximum
(#)(2)
Options (#)(2)
share)(3)
($)(4)
Lawrence J. Blanford (5)
3/22/2012
190,000
950,000
1,425,000
55,432
‘
54.12
2,999,980
Frances G. Rathke
3/22/2012
58,500
292,500
438,750
2,494
16,630
54.12
683,216
Gerard Geoffrion(6)
3/22/2012
47,711
238,556
357,834
1,729
11,530
54.12
473,683
R. Scott McCreary
3/22/2012
46,800
234,000
351,000
1,729
11,530
54.12
473,683
Michelle Stacy
3/22/2012
46,800
234,000
351,000
1,729
11,530
54.12
473,683
(1) These figures represent threshold, target and maximum annual bonus opportunities under the STIP. The actual amount of the bonus earned by each Named Executive Officer for fiscal 2012 is reported in the summary compensation table. For a description of the performance targets relating to the annual bonuses, please refer to the section titled ‘ Compensation Discussion and Analysis’ Elements of Compensation of Our Named Executive Officers ‘ Annual Cash Incentive Compensation’ above.
(2) All restricted stock unit, restricted stock and option grants in fiscal 2012 were made under the 2006 Plan. Stock options are scheduled to vest and become exercisable ratably in four equal annual installments beginning on the first anniversary of the grant date. Restricted stock units are scheduled to vest, for employees in the United States, 25% on each of the first four anniversaries of the grant date and, for employees in Canada, 25% on each of the first and second anniversaries of the grant date and 50% on the third anniversary. The options remain exercisable for 10 years from the grant date. Upon retirement, any vested options remain exercisable for four years from the date of retirement (or, if earlier, the original expiration date). For the first two years post-retirement, all unvested options and restricted stock units continue to vest according to their normal schedule. Any options that vest during this two-year period will then be exercisable for four years from the date of retirement (or, if earlier, the original expiration date). At the end of the two-year period post-retirement, all then unvested options and restricted stock units automatically vest; and those options remain exercisable for two years from the date they automatically vested (or, if earlier, the original expiration date). Upon an involuntary termination of employment without cause, a pro rata number of the then unvested options and restricted stock units automatically vest; and the options remain exercisable for 12 months from the date of termination of employment (or, if earlier, the original expiration date). Notwithstanding the foregoing, if the Named Executive Officer’ s employment terminates as the result of Named Executive Officer’ s involuntary termination without cause during the two-year period immediately following Mr. Kelley’ s commencement of employment as President and Chief Executive Officer of the Company (and such employee is not otherwise eligible for retirement), the options vest and are exercisable as described above upon a retirement and all then unvested restricted stock units automatically vest upon such termination of employment. Upon death or disability, any unvested options and restricted stock units automatically vest; and the options remain exercisable for 12 months from the date of death or disability, as applicable (or, if earlier, the original expiration date). Mr. Blanford’ s restricted stock will vest in full on the earliest of (i) his retirement date, (ii) a termination of employment due to death, disability, for good reason or other than for cause and (iii) December 31, 2013.
(3) The exercise price of each option is the closing price of a share of common stock on the date the stock option was granted.
(4) This column shows the grant date value of stock options, restricted stock units and restricted stock as calculated pursuant to FASB ASC Topic 718 and using the Black-Scholes model (in the case of options) and the fair market value of a share of common stock on the grant date ( in the case of restricted stock units and restricted stock). For information on the valuation assumptions, please refer to notes 2 and 15 of the Company’ s financial statements in the form 10-K for the year ended September 29, 2012. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.
(5) Mr. Blanford resigned as President and Chief Executive Officer of the Company effective December 3, 2012 and will retire as an employee of the Company on March 4, 2013.
(6) All dollar amounts reflect Canadian Dollars-to-United States Dollars conversion, in each case, using the exchange rate on the last day of the fiscal year.
OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END
The following table provides information on the holdings of stock options, restricted stock units and restricted stock by the Named Executive Officers as of September 29, 2012, the last day of fiscal 2012.
Name of executive
Grant date
Number of securities
underlying
unexercised
options (#)
Exercisable
Number of securities
underlying
unexercised
options (#)
Unexercisable (1)
Option
exercise
price ($)
Option
expiration
date
Number of shares or
units of stock that
have not vested(#)(3)
Market value of
shares or units of
stock that have not
vested ($)(4)
Lawrence J. Blanford(2)
5/04/2007
810,000
‘
5.24
5/04/2017
3/13/2008
72,789
‘
6.09
3/13/2018
3/12/2009
149,175
49,725
9.14
3/12/2019
3/11/2010
35,400
35,400
30.79
3/11/2020
3/10/2011
14,625
43,875
61.71
3/10/2021
55,432
1,315,955
3/22/2012
‘
‘
‘
‘
Fr Frances G. Rathke
5/03/2006
252,450
‘
2.95
5/03/2016
6/14/2007
94,500
‘
5.32
6/14/2017
3/13/2008
77,400
‘
6.09
3/13/2018
3/12/2009
40,836
13,614
9.14
3/12/2019
3/11/2010
9,900
9,900
30.79
3/11/2020
3/10/2011
3,875
11,625
61.71
3/10/2021
3/22/2012
‘
16,630
54.12
3/22/2022
2,494
59,207
Gerard Geoffrion
12/17/2010
8,750
26,250
31.84
12/17/2020
1,729
41,046
3/22/2012
‘
11,530
54.12
03/22/2022
R. Scott McCreary
9/25/2004
185,000
‘
1.47
9/25/2014
4/01/2006
1,350
‘
2.95
4/01/2016
5/03/2006
135,000
‘
2.95
5/03/2016
6/14/2007
82,350
‘
5.32
6/14/2017
3/13/2008
69,750
‘
6.09
3/13/2018
3/12/2009
39,486
13,164
9.14
3/12/2019
3/11/2010
9,600
9,600
30.79
3/11/2020
3/10/2011
3,250
9,750
61.71
3/10/2021
3/22/2012
‘
11,530
54.12
3/22/2022
1,729
41,046
Michelle Stacy
11/3/2008
39,375
39,375
6.20
11/3/2018
3/12/2009
12,375
6,189
9.14
3/12/2019
3/11/2010
10,350
10,350
30.79
3/11/2020
3/10/2011
3,250
9,750
61.71
3/10/2021
3/22/2012
‘
11,530
54.12
3/22/2022
1,729
41,046
(1) All options vest and become exercisable ratably in four equal annual installments beginning on the first anniversary of the grant date, with the exception of the award granted to Mr. Blanford on May 4, 2007, which was an inducement award that vests in five equal annual installments, beginning on the first anniversary of the grant date.
(2) Mr. Blanford resigned as President and Chief Executive Officer of the Company effective December 3, 2012 and will retire as an employee of the Company on March 4, 2013.
(3) All restricted stock units are scheduled to vest, for employees in the United States, 25% on each of the first four anniversaries of the grant date and, for employees in Canada, 25% on each of the first and second anniversaries of the grant date and 50% on the third anniversary. Mr. Blanford’ s restricted stock will vest in full on the earliest of (i) his retirement date, (ii) a termination of employment due to death, disability, for good reason or other than for cause and (iii) December 31, 2013.
(4) Market value is determined by multiplying the number of restricted shares or restricted stock units, as applicable, by $23.74, the closing price of a share of our common stock on September 28, 2012, the last trading day of fiscal 2012.
OPTION EXERCISES IN FISCAL 2012
The following table provides information for the Named Executive Officers set forth in such table with respect to stock option exercises made during fiscal 2012 by such officer.
Name of the executive
Number of
shares acquired
upon exercise
Value realized
on exercise ($)
Lawrence J. Blanford
99,002
6,631,902
Frances G. Rathke (1)
55,350
2,805,098
R. Scott McCreary (2)
50,000
1,840,800
(1) Of the 55,350 shares exercised, 55,350 continue to be held by Ms. Rathke.
(2) Of the 50,000 shares exercised, 50,000 continue to be held by Mr. McCreary.
RETIREMENT OF MR. BLANFORD
On November 20, 2012, the Company announced that in connection with the appointment of Mr. Kelley as its new President and Chief Executive Officer, Mr. Blanford had tendered his resignation as the Company’ s President and Chief Executive Officer effective December 3, 3012 and will retire as an employee of the Company on March 4, 2013.
Mr. Blanford’ s employment agreement, effective February 1, 2012, provides that, for his services during a transition period between December 3, 2012 and March 4, 2013, he will continue to receive his current salary and coverage under the Company’ s group health insurance plan. He will also be entitled to his annual cash bonus under the STIP, in the full amount that would have been earned but for his retirement, to be determined following the Company’ s 2013 fiscal year and paid in accordance with the terms of the plan. Further, upon his retirement, all options that are vested on the date of his retirement shall remain exercisable for the two-year period following retirement and all unvested equity-based awards, other than the restricted stock award described below, shall continue to vest according to their normal schedule over the two-year period following retirement, and then, if exercisable, remain exercisable for the following two years. At the end of the two-year period following retirement, all then unvested options will automatically vest and the options will remain exercisable for the following two years. Pursuant to Mr. Blanford’ s employment agreement, his restricted stock award granted in March 2012 will vest in full on his retirement.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
We have employment agreements with Mr. Blanford and Ms. Rathke that provide for payments in certain circumstances in connection with such officer’ s termination of employment, including in connection with a change of control. Mr. Geoffrion, Mr. McCreary and Ms. Stacy participate in our 2008 Change-in-Control Severance Benefit Plan which provides payments upon termination of employment in certain circumstances in connection with a change of control. Mr. Geoffrion, Mr. McCreary and Ms. Stacy also have offer letters that provide for payments upon termination of their employment under certain other circumstances. The following narrative and accompanying tables set forth triggering event(s) for these payments and the estimated aggregate payment obligations to each of our Named Executive Officers.
In calculating the payments in the tables below, we have used the following assumptions:
· The event or events triggering the payment obligation occurred on September 28, 2012, the last business day of our most recently completed fiscal year.
· Stock options are assumed to have cashed out on September 28, 2012, the last business day of the fiscal year, and were valued using the difference between the closing price of our stock on that day, which was $23.74 per share, and the exercise price of the option, multiplied by the number of shares outstanding.
· The same assumptions were used for valuing health care benefits that we use for our financial reporting under GAAP.
Mr. Blanford
As described above, Mr. Blanford resigned as President and Chief Executive Officer of the Company effective December 3, 2012 and will retire as an employee on March 4, 2013 (the ‘ Transition Period’ ). During the Transition Period, Mr. Blanford will not be entitled to any payments upon termination of employment or a change of control, other than those amounts payable upon retirement, but the following information is provided for the benefit of stockholders in accordance with SEC rules.
For more information about the foregoing proposals, see the Company’ s definitive proxy statement dated January 22, 2013.http://investor.gmcr.com/secfiling.cfm?filingID=1104659-13-3568
Source: GMCR. 3.8.2013