Pottery Barn 2005 Annual Report Download - page 103

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What is a deferred stock award?
A deferred stock award is an award of a right to receive shares of common stock at the end of a specified deferral
period determined by the committee or the participant. The committee may determine that the right to the award
vests based on continued service to us or on the achievement of specific performance goals established by the
committee. The committee determines the vesting schedule of deferred stock awards. However, the amended and
restated plan requires that future grants of deferred stock awards will vest no earlier than three years from the
award grant date if the award will vest based solely on continued service to us, and no earlier than one year from
the award grant date if the award will not vest based solely on continued service to us. Subject to the minimum
vesting requirements, the committee generally has the authority to accelerate the vesting of any award. However,
regardless of the minimum vesting requirement, the vesting of any award can be accelerated as a result of a
merger or similar corporate event.
The participant may defer receipt of the shares beyond vesting (for instance, until termination of employment or
other specified time). Deferred stock awards may allow participants to defer income tax until the receipt of the
shares (please refer to the questions and answers below dealing with tax consequences of deferred stock awards).
The shares available for issuance under the plan will be reduced by one and nine-tenths shares for every share
issued subject to a deferred stock award, and if the award is forfeited, canceled or otherwise terminated, the
reserve of shares available for future awards will be replenished as to one and nine-tenths shares for every one
share subject to the forfeited, canceled or terminated portion of the award.
The committee will determine the number of shares of deferred stock awards granted to any participant, but no
participant may be granted more than an aggregate of 400,000 shares covered by awards of deferred stock
awards, restricted stock or restricted stock units during any calendar year.
May a participant elect to further defer shares covered by a deferred stock award?
If the committee permits it, a participant may elect to further defer receipt of the shares payable under a deferred
stock award for an additional specified period or until a specified event, if the election is made in accordance
with the requirements of Section 409A of the Internal Revenue Code.
What are performance goals?
We have designed the plan so that it permits us to pay compensation that qualifies as performance-based under
Section 162(m) of the Internal Revenue Code. This allows the committee to make performance goals applicable
to a participant with respect to an award. At the committee’s discretion, one or more of the following
performance goals may apply: (i) annual revenue; (ii) cash position; (iii) earnings per share; (iv) net income;
(v) operating cash flow; (vi) operating income; (vii) return on assets; (viii) return on equity; (ix) return on sales;
and (x) total shareholder return. Except for total shareholder return, these performance goals may apply to either
the company, one of our business units, a product line or specific markets. The committee’s evaluation of
performance goals, shall be appropriately adjusted to exclude any extraordinary non-recurring items or the effect
of any changes in accounting principles affecting our (or the applicable business unit’s) reported results.
What happens to awards that expire or are forfeited?
If an award expires or is canceled or otherwise terminated without having been fully exercised or vested, the
unvested, expired, canceled or otherwise terminated shares generally will be returned to the available pool of
shares reserved for issuance under the plan. However, the available pool of shares reserved for issuance under
the plan will be reduced by one and nine-tenths shares for every share issued subject to an award of restricted
stock, restricted stock units or deferred stock, so if such an award expires or is canceled or otherwise terminated
without vesting, the reserve of shares available for future awards will be replenished as to one and nine-tenths
shares for every one share subject to the expired, canceled or terminated portion of the award.
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