Pottery Barn 2004 Annual Report Download - page 87

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PROPOSAL 2
AMENDMENT AND RESTATEMENT OF OUR 2001 INCENTIVE BONUS PLAN
What is this proposal?
This is a proposal asking shareholders to approve the amended and restated 2001 Incentive Bonus Plan, to be
effective as of January 25, 2006, so that we may continue to use the 2001 Incentive Bonus Plan to achieve the
company’s goals and continue to receive a federal income tax deduction for certain compensation paid under the
2001 Incentive Bonus Plan. Shareholders approved the 2001 Incentive Bonus Plan in 2001. In order for the
company to continue to receive federal income tax deductions for all compensation paid under the 2001 Incentive
Bonus Plan after the current plan expires, we must obtain new shareholder approval before bonuses that are
earned in fiscal year 2006 are paid out in fiscal year 2007. The amended and restated plan is attached to this
Proxy Statement as Exhibit A.
Has our Board approved the amended and restated plan?
On March 15, 2005, the Compensation Committee of our Board of Directors approved the amended and restated
2001 Incentive Bonus Plan, subject to approval from our shareholders at the Annual Meeting. If shareholders do
not approve the amended and restated 2001 Incentive Bonus Plan, the current 2001 Incentive Bonus Plan will
continue in effect as currently in place through fiscal year 2005 and will terminate pursuant to its terms. Also, if
shareholders do not approve the amended and restated 2001 Incentive Bonus Plan, the company may not be
entitled to a deduction for certain incentive compensation paid to our Chief Executive Officer and four other
most highly compensated executive officers after the current 2001 Incentive Bonus Plan expires. Our named
executive officers have an interest in this proposal.
What changes are being made to the current plan?
The current plan has been changed to add to the performance goals available under the plan. The performance
goals available under the amended and restated 2001 Incentive Bonus Plan, the achievement of which determines
the bonuses paid under the plan, will closely reflect those available under the company’s 2001 Long-Term
Incentive Plan. The amended and restated 2001 Incentive Bonus Plan also allows the Compensation Committee
to adjust any of the performance goals applicable to an award to reflect extraordinary expenses or changes in
accounting rules. In addition, the maximum award available under the plan has been increased to the lesser of
$3,000,000 or 300% of each participant’s annual base salary in effect on the first day of the first fiscal year in the
award period, multiplied by the number of complete or partial fiscal years in the award period. The plan has also
been changed to remove language particular to the participation of Dale Hilpert, the company’s former Chief
Executive Officer and to remove language relating to non-executive officers, as non-executive officers will not
participate in the amended and restated 2001 Incentive Bonus Plan, but will receive bonuses pursuant to separate
arrangements. Lastly, the term of the amended and restated 2001 Incentive Bonus Plan has been extended so that
it will continue in place until the first company shareholder meeting held in 2010, unless it is re-approved by the
company’s shareholders at or before such meeting or is earlier terminated by the Board of Directors.
SUMMARY OF THE AMENDED AND RESTATED PLAN
The following questions and answers provide a summary of the principal features of the amended and restated
2001 Incentive Bonus Plan and its operation. This summary is qualified in its entirety by the amended and
restated 2001 Incentive Bonus Plan attached hereto as Exhibit A.
What is the purpose of the plan?
The 2001 Incentive Bonus Plan is intended to motivate and reward participants by making a significant portion of
their cash compensation directly dependent upon achieving the company’s objectives. The 2001 Incentive Bonus
Plan accomplishes this by providing additional compensation to the company’s executive officers as an incentive
to attain the company’s goals. The 2001 Incentive Bonus Plan also functions as a retention tool, helping to ensure
the continued availability of the services of the executive officers to the company.
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