Pottery Barn 2004 Annual Report Download - page 89

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an award. At the Committee’s discretion, one or more of the following performance goals may apply to an
award: (i) annual revenue; (ii) cash position; (iii) earnings per share; (iv) earnings per share prior to accounting
for the payment of annual bonuses; (v) earnings before interest, taxes, depreciation and amortization; (vi) net
profits (before-tax or after-tax); (vii) operating cash flow; (viii) return on assets; (ix) return on equity; (x) return
on sales; and (xi) total shareholder return. Except for total shareholder return, these performance goals may apply
to company performance or to the performance of a business unit, product lines or specific markets. Performance
goals may be different from participant to participant, within or between award periods and from award to award.
The amended and restated 2001 Incentive Bonus Plan also allows the Committee to adjust any of the
performance goals applicable to an award to reflect extraordinary expenses or changes in accounting rules.
How are awards under the plan paid out?
Before awards are paid under the plan, the Committee must certify that the performance goal for the award has
been satisfied. Awards under the plan are paid in cash, reasonably promptly following the conclusion of the
award period and the Committee’s certification that the applicable performance goals have been satisfied. In no
event are the awards paid later than three months after the conclusion of the fiscal year of the company in which
the award period ends.
What happens if a participant terminates employment before an award is paid?
A participant in the plan may not receive an award if he or she is not employed with the company on the last day
of an award period, unless the Committee specified at the time of grant that the award would be paid in full or on
a prorated basis if the participant terminated employment for reasons the Committee had specified. If the award
is paid on a prorated basis in such an event, it will not constitute performance-based compensation for purposes
of Section 162(m).
How can we amend or terminate the plan?
The Board generally may amend, suspend or terminate the plan at any time and for any reason. Amendments will
be contingent on shareholder approval if the amendment raises the maximum award limit under the plan or if
required by applicable law or to continue to allow awards to qualify as performance-based compensation under
Section 162(m). By its terms, the amended and restated 2001 Incentive Bonus Plan will continue in place until
the fifth anniversary of the effective date of the amendment and restatement, unless it is re-approved by the
company’s shareholders at or before such meeting or is earlier terminated by the Board of Directors.
What are the awards to be granted to certain individuals and groups?
Awards under the 2001 Incentive Bonus Plan are determined based on actual future performance, so future actual
awards cannot now be determined. Because our executive officers are eligible to receive awards under the 2001
Incentive Bonus Plan, our executive officers have an interest in this proposal. Awards were paid to our named
executive officers under the 2001 Incentive Bonus Plan for fiscal 2004 in the amounts listed in the Compensation
Committee Report (see page 21). No directors are eligible to participate in the plan. The Committee may pay
bonuses outside of the amended and restated 2001 Incentive Bonus Plan for the accomplishment of strategic or
other individual goals, and it chose to do so for fiscal 2004.
Why do we recommend that the 2001 Incentive Bonus Plan be amended and restated?
We believe that the amended and restated plan is essential to our continued success. Our employees are our most
valuable asset. Cash bonuses provided under the plan will substantially assist us in continuing to attract and
retain key employees. Such awards also are crucial to our ability to motivate employees to achieve our goals. As
noted above, 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 January 24, 2006 and will
terminate pursuant to its terms.
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