Pottery Barn 2005 Annual Report Download - page 98

PROPOSAL 2
AMENDMENT AND RESTATEMENT OF OUR 2001 LONG-TERM INCENTIVE PLAN
What is this proposal?
This is a proposal to amend and restate our 2001 Long-Term Incentive Plan, so that we can use it to attract and
retain employees to achieve our goals and also receive a federal income tax deduction for certain compensation
paid under the plan. 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, 2006, our Board approved the amended and restated plan, subject to approval from our
shareholders at the Annual Meeting. Our named executive officers and directors have an interest in this proposal.
What changes are being made to the current plan?
The amended and restated plan includes a number of changes. The term of the amended and restated plan has
been extended to March 15, 2016, which is ten years from the date our Board adopted the amendment and
restatement, unless the plan is terminated earlier by the Board. The amended and restated plan will also increase
the number of authorized shares of our common stock available for grant by 6,000,000 shares to 14,500,000
shares and will provide that any shares that remain available for issuance in our 1993 Stock Option Plan and our
2000 Nonqualified Stock Option Plan as of March 15, 2006 up to a maximum of 705,743 shares, and any shares
subject to outstanding options under these plans that subsequently expire unexercised, up to a maximum of
754,160 shares, will instead be added to the pool of available shares under the 2001 Long-Term Incentive Plan.
The 1993 Stock Option Plan and the 2000 Nonqualified Stock Option Plan will no longer be used to grant future
awards.
The amended and restated plan no longer will provide that no more than 30% of the shares available under the
plan may be issued as restricted stock or deferred stock awards. Instead, the shares now available for issuance
under the plan will be reduced by one and nine-tenths shares for every one share issued subject to a restricted
stock, restricted stock unit or deferred stock award that is granted with a purchase or exercise price of less than
100% of the fair market value after the date of this amendment and restatement. Currently, issuances of these
awards reduce the pool of shares available for future issuance by only one share for each share subject to the
award.
The plan previously was amended to clarify that awards of restricted stock units and stock-settled stock
appreciation rights may be granted under the plan. However, the amended and restated plan is additionally
amended to permit us to grant dividend equivalents. The per person limits on stock options that may be granted
in one calendar year now will represent a joint per person limit on stock options and stock-settled stock
appreciation rights. When a stock appreciation right is exercised, the amended and restated plan requires that all
shares subject to the exercised portion of the stock appreciation right (and not just the number of shares paid out
under the award) will reduce the reserve of shares available for future issuance under the plan on a one to one
basis. The per person limits on restricted stock, restricted stock units and deferred stock awards that may be
granted in one calendar year now will represent a joint per person limit on restricted stock, restricted stock units
and deferred stock awards, and will be increased from 200,000 to 400,000.
The amended and restated plan also now requires that future awards of restricted stock, restricted stock units and
deferred stock awards have minimum vesting schedules: if the award vests upon the achievement of performance
objectives, the minimum period in which the award could vest in full will be one year; if the award vests upon
the recipient’s continued service to us, then the award may not vest in full in less than three years, except that the
vesting of any award can be accelerated as a result of a merger or similar corporate event. In addition, to avoid
potentially adverse accounting consequences to us, the amended and restated plan provides that no award may be
cashed out in the event of a merger or similar corporate event and that, other than dividend equivalents, no
awards may be paid out in cash.
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