6dbfdcd5a7c444c

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

 

Filed by the Registrant [X]
Filed by a Party other than the Registrant [   ]

Check the appropriate box:
[X]  Preliminary Proxy Statement                 

[   ]  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[   ]  Definitive Proxy Statement
[   ]  Definitive Additional Materials

[   ]  Soliciting Material Under Rule 14a-12

 

O’Reilly Automotive, Inc.

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.


[   ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1)

Title of each class of securities to which transaction applies: ____________________________________________________________________________________________________________________________________________                                    

 

2)

Aggregate number of securities to which transaction applies:______________________________________________________________________________________________________________________________________________                                                            

 

3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it was determined):

                                                

 

4)

Proposed maximum aggregate value of transactions:_____________________________________________________________________________________________________________________________________________________________                                                                        

 

5)

Total fee paid:_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________                                                                                                                        

 

[   ] Fee paid previously with preliminary materials.


[  ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

1)

Amount previously paid:________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

2)

Form, Schedule or Registration Statement No.:________________________________________________________________________________________________________________________________________________________________________

 

3)

Filing Party:_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

4)

Date Filed:____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

 


 

 

PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION

 

Picture 5

 

 

 

 

 

 

 

 

 

March [  ], 2013

 

Dear Shareholder:

 

You are cordially invited to attend the 2013 Annual Meeting of Shareholders of O’Reilly Automotive, Inc. to be held at the Doubletree Hotel Springfield, 2431 North Glenstone Avenue, Springfield, Missouri 65803, on Tuesday, May 7, 2013, at 10:00 a.m. central time.

 

Details of the business to be conducted at the Annual Meeting are given in the attached Notice of Annual Meeting of Shareholders and Proxy Statement.

 

In addition to the specific matters to be acted upon, there will be a report on the progress of the Company and an opportunity for questions of general interest to the shareholders.

 

It is important that your shares be represented at the meeting.  Whether or not you plan to attend in person, please complete, sign, date and return the enclosed proxy card in the envelope provided at your earliest convenience or vote via telephone or Internet using the instructions on the proxy card.  If you attend the meeting, you may vote your shares in person even if you have previously signed and returned your proxy.

 

In order to assist us in preparing for the Annual Meeting, please let us know if you plan to attend by contacting Tricia Headley, our Corporate Secretary, at 233 South Patterson Avenue, Springfield, Missouri 65802, (417) 874-7161.

 

We look forward to seeing you at the Annual Meeting.

 

 

                                                                                                                                                            

David O’Reilly

Chairman of the Board

 

 

 


 

 

PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION

 

O’REILLY AUTOMOTIVE, INC.

233 South Patterson Avenue

Springfield, Missouri 65802

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To be held on May 7, 2013

 

 

Springfield, Missouri

March [  ], 2013

 

The Annual Meeting of Shareholders (“Annual Meeting”) of O’Reilly Automotive, Inc. (the “Company”), will be held on Tuesday, May 7, 2013, at 10:00 a.m. central time, at the Doubletree Hotel Springfield, 2431 North Glenstone Avenue, Springfield, Missouri 65803.

 

The Annual Meeting is being held for the following purposes:

 

(1)

To elect as Directors, the three nominees named in the attached proxy statement;

(2)

To consider and act upon a proposal to amend the Company’s Articles of Incorporation, as amended, to eliminate the classified structure of the Board of Directors and to provide for the annual election of Directors;  

(3)

To consider and act upon a proposal to amend the Company’s Articles of Incorporation, as amended, to grant shareholders owning not less than 25% of the voting power of all outstanding shares of the Company’s common stock to require the Company to call a special meeting of shareholders;

(4)

To consider and act upon a proposal to amend the Company’s Articles of Incorporation, as amended, to eliminate unnecessary and outdated provisions and to make minor revisions to conform to current state laws and clarify;

(5)

To conduct an advisory (non-binding) vote on executive compensation;

(6)

To ratify the appointment of Ernst & Young, LLP, as independent auditors for the fiscal year ending December 31, 2013; and

(7)

To transact such other business as may properly come before the meeting or any adjournments thereof.

 

The Board of Directors has fixed the close of business on February 28, 2013, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof.  A list of all shareholders entitled to vote at the Annual Meeting, arranged in alphabetical order and showing the address of and number of shares held by each shareholder, will be available during usual business hours at the office of the Corporate Secretary, Tricia Headley, at 2831 South Ingram Mill Road, Springfield, Missouri 65804, to be examined by any shareholder for any purpose reasonably related to the Annual Meeting for ten days prior to the date thereof.  The list will also be available for examination throughout the course of the meeting.

 

Your vote is important to ensure a quorum at the meeting.  Even if you own only a few shares, and whether or not you expect to be present at the meeting, we request you mark, date, sign and mail the enclosed proxy card in the postage-paid envelope provided or vote your shares by telephone or Internet as directed on the enclosed proxy card.  Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day and will close on Monday, May 6, 2013, at 11:59 p.m. eastern time.

 

A copy of the Company’s Annual Shareholders’ Report for fiscal year 2012 accompanies this notice.

 

By Order of the Board of Directors,

Tricia Headley

Secretary

 

 

 


 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

Page

 

 

Proxy Statement

3

General Information about the Meeting and Voting

3

Security Ownership of Certain Beneficial Owners

7

Security Ownership of Directors and Management

7

Proposal 1 - Election of Directors

10

Information Concerning the Company's Board of Directors

12

Compensation of Executive Officers

20

Compensation Committee Report

25

Executive Compensation Tables

26

Audit Committee Report

33

Proposal 2 - Amendment to the Company's Articles of Incorporation to eliminate the classified structure of the Board of Directors and to provide of the annual election of Directors

34

Proposal 3 - Amendment to the Company's Articles of Incorporation to grant shareholders owning not less than 25% of the voting power of all outstanding shares of the Company's common stock to require the Company to call a special meeting of shareholders

35

Proposal 4 - Amendment to the Company's Articles of Incorporation to eliminate unnecessary and outdated provisions and to make minor revisions to conform to current state laws and clarify

37

Proposal 5 - Advisory Vote on Executive Compensation

38

Proposal 6 - Ratification of Selection of Independent Auditors

39

Annual Shareholders' Report

40

Future Proposal of Shareholders

40

Other Business

40

Miscellaneous

40

Communication with the Board of Directors

40

Householding of Materials

41

Additional Information

41

 

 

2

 


 

 

O’REILLY AUTOMOTIVE, INC.

233 South Patterson Avenue

Springfield, Missouri 65802

 

 

PROXY STATEMENT

 

The enclosed proxy is solicited by the Board of Directors (the “Board”) of O’Reilly Automotive, Inc. (the “Company” or “O’Reilly”), for use at our Annual Meeting of Shareholders (“Annual Meeting”) to be held at the Doubletree Hotel Springfield, 2431 North Glenstone Avenue, Springfield, Missouri 65803, on Tuesday, May 7, 2013, at 10:00 a.m., central time, and at any adjournments thereof.  Whether or not you expect to attend the meeting in person, please return your executed proxy card in the enclosed postage-paid envelope or vote via telephone or Internet, using the instructions discussed below and on the proxy card, and the shares represented thereby will be voted in accordance with your instructions.  This proxy statement and the accompanying proxy card are first being mailed to shareholders on or about March [  ], 2013.

 

Solicitation of proxies is being made by us and may be made by mail, electronic mail, telephone or fax.  The cost of solicitation of proxies will be borne by us and will also include reimbursement paid to brokerage firms and others for their reasonable out-of-pocket expenses of forwarding solicitation materials to their principals.

 

GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

 

What is the purpose of the Annual Meeting?

At our Annual Meeting, shareholders will act upon the matters described in the accompanying notice of meeting.  In addition, our management will report on the Company’s performance during fiscal 2012 and respond to questions from shareholders.

 

When and where will the 2013 Annual Meeting be held?

The 2013 Annual Meeting will be held at the Doubletree Hotel Springfield, 2431 North Glenstone Avenue, Springfield, Missouri 65803, on Tuesday, May 7, 2013, at 10:00 a.m. central time.

 

Who may vote?

      Any shareholder of record, as of the record date, is entitled to receive this notice and vote their shares at the Annual Meeting.

 

What is a “shareholder of record”?

A shareholder of record is a shareholder whose ownership of our common stock is reflected directly on the books and records of our transfer agent, Computershare Trust Company, N.A. 

What is the record date for the Annual Meeting?

The record date is February 28, 2013.  Shareholders of record at the close of business on February 28, 2013, will be entitled to vote at the Annual Meeting.  Each share of common stock will have one vote on each matter to be voted upon.

 

Which O’Reilly shares are included in the proxy card I received?

The proxy card you received covers the number of common shares to be voted in your account as of the record date.

 

What is the difference between holding shares as a registered shareholder and as a beneficial owner?

A registered shareholder owns shares that are registered directly in their name with the Company’s transfer agent, Computershare.  A beneficial owner owns shares held in a stock brokerage account or by a bank.

 

Why would I receive more than one proxy card?

You may receive more than one proxy card if you owned shares in more than one account.  You should vote the shares on each of your proxy cards.

           

What matters will be voted on at the Annual Meeting?

At the Annual Meeting, shareholders will be asked to vote on the following proposals, all of which were solicited by the Board:

1)

To elect as Directors, the three nominees named in this proxy statement;  

2)

To consider and act upon a proposal to amend the Company’s Articles of Incorporation, as amended, to eliminate the classified structure of the Board of Directors and to provide for the annual election of Directors;

3)

To consider and act upon a proposal to amend the Company’s Articles of Incorporation, as amended, to grant shareholders owning not less than 25% of the voting power of all outstanding shares of the Company’s common stock to require the Company to call a special meeting of shareholders;

3

 


 

 

4)

To consider and act upon a proposal to amend the Company’s Articles of Incorporation, as amended, to eliminate unnecessary and outdated provisions and to make minor revisions to conform to current state laws and clarify;

5)

To conduct an advisory (non-binding) vote on executive compensation; and

6)

To ratify the appointment of Ernst & Young, LLP, as independent auditors for the fiscal year ending December 31, 2013.

   

May I vote with my proxy card in person at the Annual Meeting?

If you wish to vote your shares in person at the Annual Meeting, you may bring a signed proxy card with your choices specified by marking the appropriate boxes on the card. 

 

May I vote without attending the Annual Meeting?

If you do not plan to attend the Annual Meeting, you have three additional options to vote your shares:

 

(1)

Via Mail:  You may vote by properly completing and signing the enclosed proxy card and returning the card in the enclosed, postage-paid envelope.  Please specify your choices on the proxy card by marking the appropriate boxes.  Shares will be voted in accordance with your written instructions; however, it is not necessary to mark any boxes if you wish to vote in accordance with the Board’s recommendations, outlined further below.  Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or send it to O’Reilly Automotive, Inc. Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

(2)

Via the Internet:  You may vote on the Internet by visiting www.proxyvote.com.  Have your proxy card in hand when you access the website and follow the instructions to obtain your records and create an electronic voting instruction form.

(3)

Via Telephone:  Using any touch-tone telephone, you may vote your shares by dialing toll-free to 1-800-690-6903.    Have your proxy card in hand when calling and follow the instructions.

 

If you choose to vote on the Internet or by telephone, please note the voting will close at 11:59 PM eastern time, on Monday, May 6, 2013. 

            

If you do not attend the Annual Meeting, your shares cannot be voted unless a signed proxy card is returned, shares are voted using the Internet or the telephone, or other specific arrangements have been made to have your shares represented.  Whether or not you attend the meeting, we encourage you to vote your shares promptly. 

 

May I change my vote after I submit my proxy?

You may change your vote after submitting a proxy card.  If, after sending in your proxy, you decide to vote in person or desire to revoke your proxy for any other reason, you may do so by notifying the Secretary of the Company in writing at our principal office at any time prior to the voting of the proxy.  Our principal executive office is located at 233 South Patterson Avenue, Springfield, Missouri 65802.

 

Are my votes confidential?

All shareholder meeting proxies, ballots and tabulations that identify the vote of a particular shareholder will be kept confidential, except as necessary to allow the inspectors of election to certify the voting results or to meet legal requirements.  Representatives of Broadridge Financial Solutions (“Broadridge”) will act as the inspector of election and will count the votes.

 

How will my vote be counted?

All votes will be tabulated by Broadridge.  All properly executed proxies received by the Board pursuant to this solicitation will be voted in accordance with the shareholder’s directions specified in the proxy card.  If no such directions have been specified by marking the appropriate squares in the signed and returned proxy card, the shares will be voted by the persons named in the enclosed proxy card as follows:

 

(1)

FOR the election as Directors, the three nominees named in this proxy statement;  

(2)

FOR the approval of the amendment to the Company’s Articles of Incorporation, as amended, to eliminate the classified structure of the Board of Directors and to provide for the annual election of Directors;

(3)

FOR the approval of the amendment to the Company’s Articles of Incorporation, as amended, to grant shareholders owning not less than 25% of the voting power of all outstanding shares of the Company’s common stock to require the Company to call a special meeting of shareholders;

(4)

FOR the approval of the amendment to the Company’s Articles of Incorporation, as amended, to eliminate unnecessary and outdated provisions and to make minor revisions to conform to current state laws and clarify;

(5)

FOR the approval, by an advisory (non-binding) vote, of the 2012 compensation of our Named Executive Officers; and

4

 


 

 

(6)

FOR the ratification of the selection of Ernst & Young, LLP, as our independent auditors for the fiscal year ending December 31, 2013.

 

The Board is not aware of any matter to be presented for action at the Annual Meeting other than the matters set forth herein.  Our shareholders have no dissenter’s or appraisal rights in connection with any of the proposals described herein.

 

No nominee has indicated that he or she would be unable or unwilling to serve as a Director, if elected.  However, should any nominee become unable or unwilling to serve for any reason, it is intended that the persons named in the proxy will vote for the election of such other persons in their stead as may be designated by the Board.  The Board is not aware of any reason that might cause any nominee to be unavailable to serve as a Director.

 

How does the Board recommend I vote?

  The Board recommends a vote “FOR” each of the nominees for Director named in this proxy statement.  The Board recommends a vote “FOR” the approval of the amendment to the Company’s’ Articles of Incorporation, as amended, (the “Articles of Incorporation”), to eliminate the classified structure of the Board and to provide for the annual election of DirectorsThe Board recommends a vote “FOR” the approval of the amendment to the Company’s Articles of Incorporation to grant shareholders owning not less than 25% of the voting power of all outstanding shares of the Company’s common stock to require the Company to call a special meeting of shareholders.  The Board recommends a vote “FOR” the approval of the amendment to the Company’s Articles of Incorporation to eliminate unnecessary and outdated provisions and to make minor revisions to conform to current state laws and clarifyThe Board recommends a vote “FOR” the approval, by an advisory (non-binding) vote, of the 2012 compensation of our Named Executive Officers.  The Board recommends a vote “FOR” the ratification of the selection of Ernst & Young, LLP, as our independent auditors for the year ending December 31, 2013. 

 

What constitutes a quorum?

On February 28, 2013, there were 111,337,049 shares of common stock outstanding, which constitutes all of the outstanding shares of our voting capital stock.  A majority of the outstanding shares entitled to vote at the Annual Meeting, represented in person or by proxy, will constitute a quorum at the meeting. 

 

What votes are required?

The affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote is required to elect each person nominated for Director.  There is no cumulative voting for directors.  Shares present at the meeting, but which are represented by proxies that are marked "WITHHOLD AUTHORITY'' with respect to the election of all persons or any person to serve on the Board or for which no direction is given, will be considered in determining whether the requisite number of affirmative votes are cast on such matter.  Proxies marked "WITHHOLD AUTHORITY" will have the same effect as a vote against the nominee as to which such direction applies.  Shares not present at the meeting will not affect the election of Directors.

 

The affirmative vote of a majority of the outstanding shares of common stock entitled to vote thereon is required to approve Proposals 2, 3 and 4.  Shares represented by a proxy which directs that the shares abstain from voting, shall be deemed to be represented at the meeting as to such matter and will have the same effect as a vote against such Proposals.

 

The vote required for the other proposals described in this proxy statement and for any other matter properly brought before the meeting will be the affirmative vote of the majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on the proposal, so long as a quorum is present, unless Missouri law or the Company’s Articles of Incorporation and Amended and Restated Bylaws (the “Bylaws”) require a greater vote.  Shares represented by a proxy which directs that the shares abstain from voting shall be deemed to be represented at the meeting as to such matter and will have the same effect as a vote against such matter.

 

While counted for quorum purposes, shares represented by a proxy as to which there is a “broker non-vote” (for example, where a broker does not have discretionary authority to vote the shares) as to one or more matters to be voted on shall not be deemed represented at the meeting for purposes of such matter or matters and, therefore, will have no effect thereon.    However, for Proposals 2, 3 and 4, which require the approval of a majority of the outstanding shares of common stock entitled to vote, “broker non-votes” will have the same effect as a vote against such Proposals.  Brokers cannot vote your shares on any proposals described in this proxy statement, other than Ratification of Selection of Independent Auditors, without your specific instructions.

 

Are the Notice, proxy statement and Annual Report available on the Internet?

The Notice, proxy statement and Annual Report are available at www.proxyvote.com.  The required control number can be found on your proxy card in the box next to the arrow.  

 

Where may I find the voting results of the Annual Meeting?

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       We plan to announce the preliminary voting results at the Annual Meeting.  We plan to publish the final results in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission within four business days following the Annual Meeting, if final voting results are available at that time.  If the final voting results are not available within that time, we will report preliminary results in a Current Report on Form 8-K within four business days following the Annual Meeting and will report final voting results in an amended Current Report on Form 8-K when available.

 

Will a proxy solicitor be used?

       Yes, the Company has engaged Georgeson to assist in the solicitation of proxies for the Annual Meeting and estimates it will pay Georgeson a fee of approximately $15,000.  The Company has also agreed to reimburse Georgeson for reasonable administrative and out-of-pocket expenses incurred in connection with the proxy solicitation and indemnify Georgeson against certain losses, costs and expenses.

 

What are the deadlines for consideration of stockholder proposals or director nominations for the 2014 Annual Meeting of Shareholders?

Shareholder proposals intended to be presented at the 2014 Annual Meeting of Shareholders and included in the Company’s proxy statement and form of proxy relating to that meeting pursuant to Rule 14a-8 under the Exchange Act must be received by the Company at the Company’s principal executive offices by November 22, 2013.  The Company’s Bylaws require that shareholder proposals made outside of Rule 14a-8 be submitted not later than March 8, 2014, and not earlier than February 6, 2014.

 

6

 


 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

The following table summarizes information as of December 31, 2012, with respect to each person or other entity (other than management) known to the Company to be the beneficial owner of more than five percent (5%) of its outstanding shares of common stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class of Stock

Name and Address of Beneficial Owner

 

Amount and Nature of Beneficial Ownership

 

Percent of Class

Common Stock

The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, Pennsylvania 19355

 

7,468,481 (1)

 

6.5%

Common Stock

T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland  21202

 

7,108,025 (2)

 

6.2%

Common Stock

BlackRock, Inc.
40 East 52nd Street
New York, New York 10022

 

6,093,227 (3)

 

5.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

As reflected on such beneficial owner’s Schedule 13G/A dated February 7, 2013, provided to the Company in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act").  Of the 7,468,481 shares reported, The Vanguard Group, Inc. (“Vanguard”) claimed sole voting power of 204,593 shares, no shared voting power, sole dispositive power of 7,275,988 shares and shared dispositive power of 192,493 shares.  Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, is the beneficial owner of 7,468,481 shares of the Company’s common stock as a result of acting as investment manager to collective trust accounts and directs the voting of such shares.

(2)

As reflected on such beneficial owner’s Schedule 13G/A dated February 14, 2013, provided to the Company in accordance with the Exchange Act.  These securities are owned by various individual and institutional investors, which T. Rowe Price Associates, Inc. (“Price Associates”) serves as investment advisor with power to direct investments and/or sole power to vote the securities.  For purposes of the reporting requirements of the Exchange Act, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.  Of the 7,108,025 shares reported, Price Associates claimed sole voting power of 1,955,435 shares, no shared voting power, sole dispositive power of 7,108,025 shares and no shared dispositive power.

(3)

As reflected on such beneficial owner’s Schedule 13G/A dated February 4, 2013, provided to the Company in accordance with the Exchange Act.  Of the 6,093,227 shares reported, BlackRock, Inc. claimed sole voting power of 6,093,227 shares, no shared voting power, sole dispositive power of 6,093,227 shares and no shared dispositive power.

 

SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT

 

The following table summarizes, as of February 28, 2013, the beneficial ownership of the Company’s outstanding shares of common stock for each current Director (including Directors standing for reelection at the 2013 Annual Meeting) of the Board, each of the Company’s Named Executive Officers and all Directors and executive officers as a group.  Unless otherwise indicated, the Company believes that the beneficial owners set forth in the following table have sole voting and dispositive power.

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

Direct Ownership

Indirect Ownership

Currently Exercisable Options (a)

Total Ownership

Percent of Class

David O'Reilly (b)

289,374 
1,190,643 
268,750 
1,748,767 

1.55%

Charlie O'Reilly (c)

138,410 
195,430 
5,000 
338,840 

*

Larry O’Reilly (d)

257,858 
111,157 
5,000 
374,015 

*

Rosalie O'Reilly-Wooten (e)

331,056 
397,428 
5,000 
733,484 

*

Jay D. Burchfield (f)

10,337 
16,193 
15,000 
41,530 

*

Thomas T. Hendrickson (g)

2,654 

 -

5,000 
7,654 

*

Paul R. Lederer (h)

10,654 
6,600 
15,000 
32,254 

*

John R. Murphy (g)

3,654 

 -

 -

3,654 

*

Ronald Rashkow (g)

2,795 

 -

15,000 
17,795 

*

Greg Henslee (i)

18,556 
24,859 
385,656 
429,071 

*

Ted F. Wise (j)

40,264 
211,213 
328,389 
579,866 

*

Thomas McFall (k)

4,264 
424 
139,345 
144,033 

*

Jeff Shaw (l)

23,782 
5,442 
44,996 
74,220 

*

All Directors and executive officers as a group (18 persons)

1,162,434 
2,179,021 
1,425,120 
4,766,575 

4.23%

 

 

 

 

 

 

* denotes less than 1.0%

 

 

 

 

 

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(a)

With respect to each person, assumes the exercise of all stock options held by such person that were exercisable within 60 days of February 28, 2013.

(b)

The stated number of directly owned shares includes 9,540 restricted shares awarded under the Company’s long-term incentive based compensation plan.  The stated number of indirectly owned shares includes 1,146,302 shares controlled by David O’Reilly as trustee of a trust for the benefit of his children, 36,750 shares held in a Grantor Retained Annuity Trust (“GRAT”) and 7,591 shares held in the O’Reilly Employee Savings Plus Plan with T. Rowe Price Investment Services, Inc. ("T. Rowe") as trustee.  The beneficially owned shares controlled by Mr. O’Reilly, as trustee of a trust for the benefit of his children, are partially pledged as collateral for a loan.

(c)

The stated number of indirectly owned shares includes 61,510 shares owned by Charlie O'Reilly’s spouse, 73,620 shares held in a GRAT and 60,300 shares controlled by Mr. O’Reilly as trustee of a trust for the benefit of his step-mother.  A portion of Mr. O’Reilly’s directly owned shares and a portion of Mr. O’Reilly’s indirectly owned shares held by Mr. O’Reilly’s spouse are pledged against a line of credit.

(d)

The stated number of indirectly owned shares is held in a GRAT.  A portion of Mr. O’Reilly’s directly owned shares are pledged against a line of credit.

(e)

The stated number of indirectly owned shares is held in a GRAT.

(f)

The stated number of directly owned shares includes 2,095 restricted shares awarded under the Company’s Director Stock Plan.  The stated number of indirectly owned shares is held in a family limited partnership in which Jay D. Burchfield acts as general manager.

(g)

The stated number of directly owned shares includes 2,095 restricted shares awarded under the Company’s Director Stock Plan.

(h)

The stated number of directly owned shares includes 2,095 restricted shares awarded under the Company’s Director Stock Plan.  The stated number of indirectly owned shares are owned by Mr. Lederer's spouse.

(i)

The stated number of directly owned shares is held in the O'Reilly Employee Stock Purchase Plan.  The stated number of indirectly owned shares includes 19,820 shares held in a GRAT and 5,039 shares held in the O'Reilly Employee Savings Plus Plan with T. Rowe as trustee.

(j)

The stated number of indirectly owned shares includes 90,548 shares held by a revocable trust of which Ted F. Wise’s spouse, as the sole trustee, has sole voting and dispositive power, 139,971 shares held in a GRAT,  7,557 shares controlled by Ted F. Wise as trustee of a trust for the benefit of his child and 9,137 shares held in the O’Reilly Employee Savings Plus Plan with T. Rowe Price as trustee.

(k)

The stated number of directly owned shares includes 2,177 shares held in the O’Reilly Employee Stock Purchase Plan.  The stated number of indirectly owned shares is held in the O’Reilly Employee Savings Plus Plan with T. Rowe as trustee.

(l)

The stated number of directly owned shares includes 249 restricted shares awarded under the Company's long-term incentive based compensation plan and 2,496 shares held in the O’Reilly Employee Stock Purchase Plan.  The stated number of indirectly owned shares is held in the O’Reilly Employee Savings Plus Plan with T. Rowe as trustee.

 

Officer and Director Stock Ownership Guidelines

 

The Board adopted stock ownership requirements for the Company’s independent Directors, executive officers and senior vice presidents to further align their interests with those of the Company’s shareholders.  The Compensation Committee reviews the stock ownership guidelines and reviews progress toward meeting ownership requirements quarterly.  The Compensation Committee may waive these guidelines at its discretion.  

 

The Company’s independent Directors are required to own shares of the Company’s common stock valued at a minimum of $50,000 within five years of the date they first become a Director.  For purposes of the guidelines, common stock ownership includes shares owned by the Director directly or indirectly and vested stock options granted to the Director under the Company’s Director Stock Plan.  As of December 31, 2012, each independent Director’s total holdings in the Company’s stock satisfied their respective stock ownership requirement. 

 

The Company’s executive officers and senior vice presidents are required to own shares of the Company’s common stock valued at the minimum of a specified multiple of their base salary within five years of first assuming their respective positions.  For purposes of the guidelines, common stock ownership includes shares owned by the officer directly, shares held by the officer in the Company’s Employee Stock Purchase Plan, shares held by the officer in the Company’s Profit Sharing and Savings Plan and the officer’s vested stock options granted under the Company’s incentive plans.  Individuals who do not achieve the required level of ownership within the prescribed period of time may, at the discretion of the Compensation Committee, be required to hold 50% of net after-tax shares issued upon the exercise of any of their stock options and may not be allowed to sell any other shares of the Company which they may own.  The stock ownership requirement does not apply after the executive officer or senior vice president reaches age 62.  The Compensation Committee may waive these guidelines at its discretion.  As of December 31, 2012, each of the Company’s executive officers’ and senior vice presidents’ total holdings in the Company’s stock satisfied their respective stock ownership requirement. 

 

The following table identifies the executive officers’ and senior vice presidents’ ownership requirement as of December 31, 2012:

 

 

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Position

Minimum Ownership Requirement
Multiple of Salary

Chief Executive Officer

5x

Chief Operating Officer

3x

Chief Financial Officer

3x

Senior Vice Presidents

2x

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PROPOSAL 1–ELECTION OF DIRECTORS

 

Information about the Director Nominees and the Directors Continuing in Office

 

The Company’s Bylaws and Articles of Incorporation currently provide for three classes of Directors, each class serving a three-year term expiring one year after expiration of the term of the preceding class, so that the term of one class will expire each year.  The terms of the current Class III and Class I Directors expire in 2014 and 2015, respectively.  The Board has nominated Larry O’Reilly, Rosalie O’Reilly-Wooten and Thomas T. Hendrickson as Class II Directors for a three-year term expiring at the Company’s 2016 Annual Meeting of Shareholders.

 

As explained in further detail in Proposal 2 of this proxy statement, the Board is proposing to amend the Company’s Articles of Incorporation and the Company’s Bylaws to eliminate the classified structure of the Board as the existing terms of the Directors expire and to provide for the annual election of all Directors beginning at the Company’s 2015 Annual Meeting of Shareholders.  This action cannot take place, however, until approved by the shareholders.  Accordingly, if the proposed amendment in Proposal 2 is not approved by the shareholders, the three Class II nominees will be nominated to a three-year term expiring at the Company’s 2016 Annual Meeting of Shareholders.  If the shareholders approve Proposal 2 to amend the Company’s Articles of Incorporation to eliminate the classified structure of the Board and to provide for the annual election of Directors, then the Class II nominees are nominated for a one-year term expiring at the Company’s 2014 Annual Meeting of Shareholders.

 

The following table identifies (i) the business experience and principal occupation for at least the last five years of each of the nominees and the present Directors continuing in office, (ii) his or her present positions and offices with the Company, if applicable, (iii) the year in which he or she was first elected or appointed a Director (each serving continuously since first elected or appointed, unless otherwise stated), (iv) his or her age, (v) his or her directorships for at least the last five years in any company with a class of securities registered pursuant to Section 12 or subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, or in any company registered as an investment company under the Investment Company Act of 1940 (as specifically noted), as applicable and (vi) the qualifications and skills, which the Director possesses, that qualify him or her for service on the Company’s Board.

 

 

 

 

 

 

 

Nominees for Director - Class II

(To Be Elected to Serve a Three-Year Term Expiring in 2016)

Larry O’Reilly
Affiliated Director and Vice Chairman of the Board
Director since 1969
Age:  66
Class II Director - Term Expiring in 2013

 

Mr. O'Reilly retired from active Company management in February 2003; Vice-Chairman of the Board from February 2005 to current; Co-Chairman of the Board from August 1999 to February 2005; Chief Operating Officer from March 1993 to February 2003; President from March 1993 to August 1999; Vice President of the Company from 1975 to March 1993.  Chairman and Director of Mercy Hospital Springfield since January 2000; Board Member of the Missouri Sports Hall of Fame since January 2003; and Trustee of the Lance Armstrong Endowment Board since December of 2005.  Mr. O’Reilly was last re-nominated as a Director because, among his other qualifications, he possesses 43 years of experience and expertise in the Company’s operations, in the automotive aftermarket industry and strategic business development.

Rosalie O’Reilly-Wooten
Affiliated Director
Director since 1980
Age:  71
Class II Director - Term Expiring in 2013

 

Mrs. O'Reilly-Wooten retired from active Company management in February 2002 and served as a member of the Board since that time.  Executive Vice President of the Company from March 1993 to February 2002 where she managed Telecommunications, Risk Management and Human Resources.  Currently serving on the Ozarks Greenways Board of Directors, CASA Advisory Board, Breast Cancer Foundation of the Ozarks Advisory Board and Drury University Board of Trustees.   Ms. Wooten was last re-nominated as a Director because, among her other qualifications, she possesses 31 years of experience and expertise in the Company’s operations, in the automotive aftermarket industry and experience in leadership development, risk management and human resources.

Thomas T. Hendrickson
Independent Director
Director since 2010
Age:  58
Class II Director - Term Expiring in 2013

 

Mr. Hendrickson is the Chief Administrative Officer, Chief Financial Officer and Treasurer for The Sports Authority, Inc., the parent of retailer “Sports Authority”, since 2003; Director of Sports Authority since 2006.  From 1998 to 2003, Mr. Hendrickson held the positions of Executive Vice President and Chief Financial Officer, and Treasurer of Gart Sports Company until its merger with Sports Authority in 2003.  He was Vice President of Finance, Senior Vice President, and Executive Vice President and Chief Financial Officer of Sportmart, Inc. from 1993 to 1997.   From 1987 to 1993, Mr. Hendrickson was employed as a Divisional Vice President and Controller of Miller’s Outpost Stores, a retailer specializing in apparel to young consumers.  Mr. Hendrickson is a Certified Public Accountant and has over 29 years of retail business experience.  Mr. Hendrickson was last nominated as a Director because, among his other qualifications, he possesses experience and expertise in the retail industry, risk assessment and in the accounting and finance areas including experience as a chief financial officer.

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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE CLASS II NOMINEES.

 

 

 

 

 

 

 

 

Directors Continuing in Office

David O’Reilly
Affiliated Director and Chairman of the Board
Director since 1972
Age: 63
Class III Director - Term Expiring in 2014

 

Mr. O'Reilly has served as Chairman of the Board from February 2005 to current; Co-Chairman of the Board from August 1999 to February 2005; Chief Executive Officer from March 1993 to February 2005; President of the Company from March 1993 to August 1999; Vice President of the Company from 1975 to March 1993.  Mr. O’Reilly was last re-nominated as a Director because, among his other qualifications, he possesses over 40 years of experience and expertise in the Company’s operations and strategic business development, and has held leadership roles in numerous aftermarket industry organizations and associations.

Charlie O’Reilly
Affiliated Director and Vice Chairman of the Board
Director since 1966
Age:  73
Class I Director - Term Expiring in 2015

 

Mr. O'Reilly retired from active Company management in February 2002; Vice-Chairman of the Board since August 1999; Chairman of the Board from March 1993 to August 1999; President and Chief Executive Officer of the Company from 1975 to March 1993.  Mr. O’Reilly is being re-nominated as a Director because, among his other qualifications, he possesses 54 years of experience and expertise in the Company’s operations and in the automotive aftermarket industry, as well as experience in strategic business development, real estate investment and risk management and assessment. 

Jay D. Burchfield
Independent Director
Director since 1997
Age:  66
Class III Director - Term Expiring in 2014

 

Mr. Burchfield has served as Chairman of the Board and Director of Trust Company of the Ozarks since April 1998; Director of Banyan Group, Inc., a clinical research organization, since January 1998; Director of Quest Capital Alliance, a venture capital organization since January 2002; Director of Quest Commercial finance, a corporate finance organization since January 2004; Director of Heart of America Beverage, a Miller/Coors distributor in Missouri, Oklahoma and Arkansas, since January 2003; Director of Intuitive Medical Software, an electronic medical records provider, since January 2008; Director of Primary Care Education, a company providing continued medical education for doctors, since January 2009; Director and Treasurer of the I-470 Community Improvement District, a tax increment financing plan to develop road infrastructure in Lee’s Summit, MO, since January 2009.  Mr. Burchfield’s career has spanned more than 40 years in the banking and financial services industry.  Mr. Burchfield was last re-nominated as a Director because, among his other qualifications, he possesses experience and expertise in the banking industry, strategic business development, executive compensation and leadership development.

Paul R. Lederer
Independent Director
Director since 2001
Age:  73
Class III Director - Term Expiring in 2014

 

Mr. Lederer has served as Lead Director from 2002 to current; retired in October 1998; Executive Vice President of Worldwide Aftermarket of Federal-Mogul Corporation February 1998 to October 1998; President and Chief Operating Officer of Fel-Pro from November 1994 to February 1998, when it was acquired by Federal-Mogul Corporation; presently a Director of MAXIMUS and Dorman Products; previously served as director of UCI, Inc. (ceased directorship in early 2011).  Mr. Lederer had been a Director of the Company from April 1993 to July 1997 and was appointed again as a Director in 2001.  Mr. Lederer was last re-nominated as a Director because, among his other qualifications, he possesses over 40 years of experience and expertise in the automotive aftermarket industry, as well as experience in operations and governance as a chief executive officer and has served as a director on over 15 boards.

John R. Murphy
Independent Director
Director since 2003
Age:  62
Class I Director - Term Expiring in 2015

 

Mr. Murphy is currently serving as the Interim Chief Financial Officer (since January of 2013) for Summit Materials, LLC.  He is also a director and chairman of their audit committee.  Mr. Murphy is also a director and audit committee chairman for DJO Global.  In 2012, he served as a director, audit committee and special committee member of Graham Packaging, Inc. until it was sold in September of that year.  Mr. Murphy served as Senior Vice President and Chief Financial Officer of Smurfit-Stone Container Corporation, a leading manufacturer of paperboard and paper-based packaging products, from 2009 to 2010 and led the financial restructuring of the company during Chapter 11 reorganization.  Mr. Murphy was President and Chief Executive Officer of Accuride Corporation and a member of its Board of Directors until 2008.  Accuride Corporation filed Chapter 11 bankruptcy in October of 2009, emerging in 2010.  He served as Accuride’s President and Chief Operating Officer from January 2007 to October 2007.  He served as President and Chief Financial Officer from February 2006 to December 2006, and as Executive Vice President and Chief Financial Officer of Accuride from March 1998 to January 2006.  Mr. Murphy holds a Bachelor of Science in Accounting from Pennsylvania State University and a Master of Business Administration from University of Colorado, and is a Certified Public Accountant.  Mr. Murphy is being re-nominated as a Director because, among his other qualifications, he possesses experience and expertise in the automotive aftermarket industry and in the accounting and finance areas including experience as a chief financial officer.  Mr. Murphy also possesses experience in enterprise risk management and assessment, as well as experience in restructuring and mergers and acquisitions.

Ronald Rashkow
Independent Director
Director since 2003
Age:  72
Class I Director - Term Expiring in 2015

 

Mr. Rashkow was Founder, CEO, and chairman of Handy Andy Home Improvement Centers, a retail chain of home improvement centers in the Midwest.  Mr. Rashkow currently is CEO and Principal of RPMS, Inc. a strategic consulting enterprise.  Mr. Rashkow currently serves on advisory boards for Hilco Trading, among the largest asset liquidation companies in the country, and RTC a specialty retail fixturing and merchandising company.  Mr. Rashkow is currently chairman of the Knapp Entrepreneurial Center advisory board at the University of IIT.  Additional activities include substantial interests in retail commercial shopping center investments and development.  Mr. Rashkow is being re-nominated as a Director because, among his other qualifications, he possesses experience and expertise in the retail industry, executive compensation, risk management, operations as a chief executive officer and advisory services to retail companies and private equity groups focused on retail companies.

11

 


 

 

 

 

 

 

INFORMATION CONCERNING THE BOARD OF DIRECTORS

                                                

Director Independence

 

Rules of the Nasdaq Stock Market (the “Nasdaq”) require that a majority of the Board be “independent”.  Under the Nasdaq rules, a director is independent if he or she is not an officer or employee of the Company and does not have any relationship with the Company which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.  The Board has reviewed the independence of its Directors under the Nasdaq rules.  During this review, the Board considered transactions and relationships between each Director or any member of his or her family and the Company during 2012.  Consistent with these considerations, the Board has determined that Messrs. Burchfield, Hendrickson, Lederer, Murphy and Rashkow (“independent Directors”) are independent under the Nasdaq rules.

 

Family Relationships

 

Charlie O’Reilly, David O’Reilly, Larry O’Reilly and Rosalie O’Reilly-Wooten, Directors of the Board, are siblings.

 

Leadership Structure

 

The Company’s leadership structure, within its Board, consists of a Chairman of the Board, two Vice Chairmen of the Board, a Lead Director, an Audit Committee, a Corporate Governance/Nominating Committee and a Compensation Committee.  The Lead Director also serves on the Audit Committee, the Compensation Committee and as Chairman of the Corporate Governance/Nominating Committee.  All Committee members are independent Directors, under the Nasdaq rules.  The Company’s Bylaws, as amended, permit the positions of Chairman of the Board and Chief Executive Officer to be held by the same person.  However, the Board

12

 


 

 

believes these roles and their attendant responsibilities should be separate and fulfilled by two separate individuals.  The Company believes having separate roles allows its Board to effectively provide guidance to and oversight of its management.  In 2005, the Corporate Governance/Nominating Committee recommended and the Board approved the appointment of David O’Reilly to serve in the role of Chairman of the Board of the Company.  The appointment was made in recognition of the substantial role Mr. O’Reilly plays in the development of the Company’s strategic initiatives.  The appointment of Mr. O’Reilly as Chairman of the Board did not alter Greg Henslee’s duties and responsibilities as Chief Executive Officer of the Company.  

 

Lead Director

 

In the interest of sound corporate governance, the Board has adopted a practice of appointing a Lead Director who is charged with acting as a liaison among other Directors, with management and between Board committees and the Board.  The Lead Director could also preside at Board meetings in the absence of the Chairman.  This position improves the functionality of the Board and its Committees and aids in the fiduciary obligations each Director has to the Company and its shareholders.  Paul R. Lederer has served as Director, Executive Vice President and Chief Operating Officer within the automotive aftermarket industry and has over 40 years of experience in this industry.  Based upon Mr. Lederer’s experience, qualifications and skills, in 2002, the Corporate Governance/Nominating Committee nominated, and the Board approved, Mr. Lederer to serve as Lead Director.

 

Meeting Attendance

 

During 2012, four regularly scheduled meetings of the Board were held.  During such year, each Director attended (i) 100% of the total number of meetings of the Board and (ii) 100% of the total number of meetings held by all committees of the Board for which he served, with the exception of Ronald Rashkow, who was not present for one telephonic Audit Committee meeting during the year.    

 

Committees of the Board

 

The Board has three standing committees, the Audit Committee, the Compensation Committee and the Corporate Governance/Nominating Committee.  Each committee is governed by a written charter and is comprised solely of independent Directors in accordance with the Nasdaq Listing Qualifications.  Charters for each committee are available on the Company’s website at www.oreillyauto.com, and can be obtained free of charge by written request to the attention of the Secretary at the Company’s address appearing on the first page of this proxy statement or by telephone at (417) 874-7161.

 

 

As explained above, Charlie O’Reilly, David O’Reilly, Larry O’Reilly and Rosalie O’Reilly-Wooten do not qualify as independent Directors; therefore, they do not participate on any committee of the Board.

13

 


 

 

 

 

 

 

 

Audit Committee

 

Number of Members:

Five

Members:

John R. Murphy (Chairman), Jay D. Burchfield, Paul R. Lederer, Ronald Rashkow, Thomas T. Hendrickson

Number of Meetings During the Year Ended December 31, 2012:

Eight

Purpose and Functions:

The Company’s standing Audit Committee was established in accordance with Section (3)(a)(58)(A) of the Exchange Act.  The Audit Committee is responsible for reviewing reports of the Company’s financial results, audits and internal controls, including the Company’s Internal Audit Department, and communicating the results of these evaluations to management.  The Audit Committee recommends the engagement of independent auditors, confers with the external auditors regarding the adequacy of the Company’s financial controls and fiscal policy in accordance with generally accepted auditing standards and directs changes to financial policies or procedures as appropriate.  The Committee also reviews the procedure of the independent registered public accounting firm for ensuring its independence with respect to the services performed for the Company.


The Board has determined that each member of the Audit Committee is “independent” pursuant to the Nasdaq rules, as well as the independence requirements for audit committee members under Rule 10A-3 promulgated under the Exchange Act.  In addition, the Board has determined that Mr. Murphy and Mr. Hendrickson, members of the Audit Committee, are both qualified as an audit committee financial expert, as that term is defined in the rules of the Securities and Exchange Commission (“SEC”).  During 2012, eight Audit Committee meetings were held.  The Company’s Audit Committee Charter may be viewed on its website at www.oreillyauto.com.


 

 

Compensation Committee

 

Number of Members:

Three

Members:

Jay D. Burchfield (Chairman), Paul R. Lederer, Ronald Rashkow

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Number of Meetings During the Year Ended December 31, 2012:

Four

Purpose and Functions:

The purpose of the Compensation Committee is to act on behalf of the Board with respect to the establishment and administration of the policies which govern the annual compensation of the Company’s executive officers.  The Committee has responsibility for defining and articulating the Company’s overall executive compensation philosophy, and administering and approving all elements of compensation for elected executive officers.  The Committee is directly responsible for reviewing and approving the corporate goals and objectives relevant to the Chairman and CEO’s compensation, evaluating his performance based on those goals and objectives, and determining and approving the Chairman and CEO’s compensation level based on this evaluation.  The Company’s Human Resources Department works directly with the Compensation Committee to assist in making recommendations to the Committee for the Chairman and CEO’s total compensation.  The Compensation Committee also oversees the grants and related actions under the Company’s various equity plans.


Because the Company's executive leadership is of critical importance to the Company's success, the succession planning process is led by the Compensation Committee.  This committee reviews the Company's succession planning practices and procedures and makes recommendations to the Board concerning succession developments, while ensuring the appropriate succession plans are in place for key executive positions.


The Committee has the authority to retain consultants and advisors as it may deem appropriate in its discretion.  The Committee has, from time to time, historically utilized third party compensation survey data and/or outside consultant advisors in order to achieve its goal of attracting and retaining executive officers who contribute to the long-term success of the Company.  During 2012, the Company did not engage an outside consultant advisor for compensation advisory services.  During 2012, four Compensation Committee meetings were held.  The Company’s Compensation Committee Charter may be viewed on its website at www.oreillyauto.com.

 

 

Corporate Governance/Nominating Committee

 

Number of Members:

Three

Members:

Paul R. Lederer (Chairman), Jay D. Burchfield, John R. Murphy

Number of Meetings During the Year Ended December 31, 2012:

Four

Purpose and Functions:

The principal purposes of the Corporate Governance/Nominating Committee are: (i) to establish criteria for the selection of Directors and to recommend to the Board the nominees for Director in connection with the Company’s Annual Meeting of our shareholders; (ii) to take a leadership role in shaping the Company’s corporate governance policies and to issue and implement the Corporate Governance Principles of the Company; (iii) to develop and coordinate annual evaluations of the Board, its committees and its members; and (iv) to adhere to all legal standards required by the SEC and Nasdaq.  During 2012, four Corporate Governance/Nominating Committee meetings were held.  The Company’s Corporate Governance Principles may be viewed along with the Corporate Governance/Nominating Committee Charter on its website at www.oreillyauto.com.


The Corporate Governance/Nominating Committee does not have a written policy on the consideration of Director candidates recommended by shareholders.  It is the view of the Board that all candidates, whether recommended by a shareholder or the Corporate Governance/Nominating Committee, shall be evaluated based on the same established criteria for persons to be nominated for election to the Board and its committees.  The established criteria for persons to be nominated for election to the Board and its committees, taking into account the composition of the Board as a whole, at a minimum, includes (a) a candidate’s qualification as “independent” under the federal securities laws and the rules and regulations of the SEC and Nasdaq applicable to the Board and each of its committees; (b) depth and breadth of experience within the Company’s industry and otherwise; (c) outside time commitments; (d) special areas of expertise; (e) accounting and financial knowledge; (f) business judgment; (g) leadership ability; (h) experience in developing and assessing business strategies; (i) corporate governance expertise; (j) risk management skills; and (k) for incumbent members of the Board, the past performance of the incumbent director.  The Corporate Governance/Nominating Committee’s methods for identifying candidates for election to the Company’s Board include the solicitation of possible candidates from a number of sources, including from members of its Board, its executives, individuals personally known to the members of its Board and other research.  The Board believes it is best qualified to evaluate candidates based on its knowledge of the Company’s business structure and the Corporate Governance/Nominating Committee may retain one or more third-party search firms to identify suitable candidates.


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The Company’s independent directors held four closed-session meetings during the year ended December 31, 2012, and each independent director attended all four meetings.

 

Shareholder Nominations

 

A shareholder who desires to nominate one or more persons for election as director(s) shall deliver “timely notice” (as defined in Section 12, Article II of the Company’s Bylaws) of the shareholder’s intent to make such nomination or nominations, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company at the Company’s address appearing on the first page of this proxy statement.  In accordance with Section 13, Article II of the Bylaws, such notice shall set forth (i) the name and address of record of the shareholder who intends to make the nomination; (ii) the class and number of shares of the capital stock that are beneficially owned by the shareholder on the date of such notice; (iii) the name, age, business and residential addresses, and principal occupation or employment of each proposed nominee; (iv) a description of all arrangements or understandings between the shareholder and each nominee, and other arrangements or understandings known to the shareholder, pursuant to which the nomination or nominations are to be made by the shareholder; (v) any other information regarding each proposed nominee that would be required to be included in a proxy statement filed with the SEC; and (vi) the written consent of each proposed nominee being so named to serve as a Director of the Company.  The presiding officer of a meeting may, if the facts warrant, determine at the meeting that a nomination was not made in accordance with the foregoing procedure, and if he or she should make that determination, he or she shall so declare at the Annual Meeting, and the defective nomination shall be disregarded.

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Director Attendance at Annual Meeting

 

The Company encourages, but does not require, the members of its Board attend the Annual Meeting.  Each member of the Board attended the Company’s 2012 Annual Meeting, with the exception of Charlie O’Reilly.

 

Risk Oversight

 

It is management’s responsibility to manage risk and bring to the Board’s attention the most material risks to the Company.  The Board has oversight responsibility of the processes established to report and monitor systems for material risks applicable to the Company.  In its oversight role, the Board annually reviews the Company’s strategic plan, which addresses, among other things, the risks and opportunities facing the Company.  A quarterly risk overview is provided to the Board by the Company’s General Counsel and by the Company’s Vice President of Treasury and Risk Management, which details the Company’s current litigation and current and potential self insurance risks and risk exposures.  The Board has delegated certain risk management oversight responsibility to the Board committees.  As part of its responsibilities as set forth in its charter, the Audit Committee is responsible for discussing with management the Company’s major financial risk exposures and the steps management has taken to monitor and control those exposures, including the Company’s risk assessment and risk management policies.  The Audit Committee reviews, with management, the Company’s financial performance and financing arrangements and meets with the Company’s external auditors to review the Company’s compliance with all applicable financial reporting and Sarbanes-Oxley requirements.  The Corporate Governance/Nominating Committee reviews the Company’s corporate governance guidelines and their implementation and reviews the Corporate Risk Assessment and Management Status Report.  This report identifies the material business risks (including strategic and operational) for the Company as a whole and identifies the controls that respond to and mitigate those risks.  The Corporate Governance/Nominating Committee also receives a Fraud Risk Assessment report from management which reviews the Company’s Code of Conduct and Ethics program compliance as well as the Company’s TIPS Hotline and Corporate policies and procedures.  The Compensation Committee has overall responsibility for executive officer succession planning and reviews succession plans each year.  The Compensation Committee also reviews total compensation for the Company’s management and executives including base salary, incentive compensation, benefits, and perquisites to ensure they are market competitive and consistent with the Company’s performance goals and ensures that the compensation plans and arrangements do not create inappropriate risks.  Each committee regularly reports to the full Board.

 

Board Diversity

 

The Board believes that while diversity and variety of experiences and viewpoints represented on the Board should always be considered, a Director nominee should not be chosen, nor excluded, solely or largely because of race, color, religion, disability, age, gender, national origin or sexual orientation or identity.  In selecting a Director nominee, the Corporate Governance/Nominating Committee focuses on skills, viewpoints, expertise and background that would complement the existing Board.  The Corporate Governance/Nominating Committee will also consider diversity in market knowledge, experience, employment, and other factors.  Decisions by the Board regarding continued service of Directors are made based on expected contributions to the Board in furtherance of the interests of shareholders, not based on race, color, gender or other demographic orientation or identity.  The Board does not have a formal policy on Board diversity as it relates to the selection of nominees for the Board. 

 

Compensation of Directors

 

Independent Directors

Independent Directors are paid an annual fee and meeting fees for attendance at each Board and Committee meeting, with the Lead Director receiving an additional annual fee for service on the Board.  Each Committee Chairman is paid an additional fee for service as chairman of each respective Committee.  As an incentive for recruiting and retaining qualified Directors, the Company also maintains a Director Stock Plan.  This plan provides for an annual award to each independent Director of restricted shares that vest equally over a three-year period and/or the grant of non-qualified stock options to purchase shares of the Company’s common stock at a per share exercise price equal to the fair market value of the Company’s common stock on the date the option is granted, which fully vest after six months and have a life of seven years.  Upon resignation from the Board for any reason other than retirement, death or disability, all outstanding stock awards are immediately forfeited.  The Board makes an annual determination of the number of restricted shares and/or the grant of a number of stock options to be awarded to every independent Director under the Director Stock Plan. 

 

The following table summarizes the compensation paid to the independent Directors, including stock awards, for the year ended December, 31, 2012:

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Annual fee

$40,000

Annual Lead Director fee

$10,000

Committee Chairman fees

$10,000: Audit Committee

 

$7,500: Compensation Committee

 

$5,500: Corporate Governance/Nominating Committee

Board of Director meeting fees

$2,500 for attendance at each quarterly meeting of the Board

Special meeting fees

$1,000 for attendance at each special meeting of the Board

Restricted stock

In fiscal 2012, each independent Director was awarded a number of restricted shares valued at $100,000.  The restricted shares vest in equal annual installments over a three-year period commencing on the first anniversary of the award.  Each independent Director received 977 restricted shares awarded at a price of $102.39 per share.

Non-qualified stock  options

No stock option awards were granted during 2012.

 

Independent Director fees in the aggregate amount of $302,000 were paid during 2012.

 

Affiliated Directors

The Affiliated Director Compensation Plan provides for an annual cash retainer of $160,000 and quarterly meeting fees of $2,500 for attendance at each Board meeting to each of the affiliated Directors (Charlie O’Reilly, Larry O’Reilly and Rosalie O’Reilly-Wooten).

 

The Company does not pay additional fees, over and above his annual salary, to David O’Reilly for his service to the Board.

 

The following table summarizes the compensation paid to all Directors, other than David O’Reilly, for the year ended December 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIRECTOR COMPENSATION

Name

Fees Earned or Paid In Cash
($)

 

Stock Awards
($)

Option Awards
($)(a)

Non-Equity Incentive Plan Compensation
($)

Change in Pension Value and Nonqualified Deferred Compensation Earnings

All Other Compensation
($)(b)

 

Total
($)

Charlie O’Reilly

 -

 

 -

 -

 -

 -

170,000 

 

170,000 

Larry O’Reilly

 -

 

 -

 -

 -

 -

170,000 

 

170,000 

Rosalie O’Reilly-Wooten

 -

 

 -

 -

 -

 -

170,000 

 

170,000 

Jay D. Burchfield

61,500 

 

100,035 

 -

 -

 -

 -

 

161,535 

Thomas T. Hendrickson

54,000 

 

100,035 

 -

 -

 -

 -

 

154,035 

Paul R. Lederer

69,500 

 

100,035 

 -

 -

 -

 -

 

169,535 

John R. Murphy

64,000 

 

100,035 

 -

 -

 -

 -

 

164,035 

Ronald Rashkow

53,000 

 

100,035 

 -

 -

 -

 -

 

153,035 

 

(a)

Option awards granted to the Directors become 100% exercisable with respect to the covered shares six months from the date of grant and expire after seven years.  The table below summarizes the Directors’ outstanding stock option awards as of December 31, 2012:

 

 

 

 

 

 

 

 

Name

Number of Securities Underlying Unexercised Options
(#)
Exercisable

Number of Securities Underlying Unexercised Options
(#)
Unexercisable

Charlie O'Reilly, Jr.

5,000 

 -

Larry O'Reilly

5,000 

 -

Rosalie O'Reilly-Wooten

5,000 

 -

Jay D. Burchfield

15,000 

 -

Thomas T. Hendrickson

5,000 

 -

Paul R. Lederer

15,000 

 -

John R. Murphy

3,000 

 -

Ronald Rashkow

15,000 

 -

18

 


 

 

 

(b)

The All Other Compensation column represents amounts during 2012 paid under the Affiliated Director Compensation Plan (discussed in detail above in the Compensation of Directors – Affiliated Directors section of this report).

 

In addition, all Directors are reimbursed for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at Board meetings.

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Compensation Committee is now, nor has ever been, an officer or an employee of the Company or any of its subsidiaries.

19

 


 

 

COMPENSATION OF EXECUTIVE OFFICERS

 

Compensation Discussion and Analysis

 

This section describes the compensation packages of the Company’s principal executive officer, principal financial officer, two other most highly compensated executive officers and the most highly compensated Senior Vice President who were employed by the Company on December 31, 2012 (we refer to such individuals as the “Named Executive Officers” or “NEOs” in this proxy statement).  The Company’s NEOs and their positions are identified below:

 

·

David O’Reilly – Chairman of the Board

·

Greg Henslee – Chief Executive Officer and Co-President (Chief Executive Officer and President as of January 1, 2013)

·

Ted F. Wise – Chief Operating Officer and Co-President (Executive Vice President of Expansion as of January 1, 2013)

·

Thomas McFall – Chief Financial Officer and Executive Vice-President of Finance

·

Jeff ShawSenior Vice-President of Store Operations and Sales (Executive Vice-President of Store Operations and Sales as of January 1, 2013)

 

Executive summary

The Compensation Committee of the Company’s Board is responsible for reviewing the performance of both the Company’s NEOs and the broader Senior Vice President group (together, its “executive officers”), recommending to the Board compensation packages and specific compensation levels for its executive officers and other management team members, establishing policies and guidelines for other benefit programs and administering the award of stock options and other stock-based incentives under the Company’s incentive plans.

 

At our 2012 Annual Meeting, over 93% of the votes cast in the advisory vote on executive compensation, which were present and entitled to vote on the matter, were in favor of the compensation of our NEOs as disclosed in our 2012 proxy statement.  We believe that the outcome of this proposal evidences the commitment of our Compensation Committee to open dialogue with our shareholders regarding our executive compensation program, and the Compensation Committee has and will continue to consider these voting results and shareholder sentiments generally as it formulates and implements an executive compensation program designed to align the long-term interests of our executive officers with our shareholders.

 

The policies and procedures of the Compensation Committee are designed to assist the Company’s Board in its oversight of the implementation and effectiveness of its policies and strategies regarding the investment in the Company’s largest asset, its employees (whom the Company refers to as “Team Members”).  These strategies and policies include, but are not limited to:

 

·

recruiting and retaining qualified Team Members;

·

the career development and progression of Team Members;

·

management succession, in conjunction with the Company’s Corporate Governance/Nominating Committee; and

·

employment practices.

 

Compensation objectives and philosophy

The main objective of the Company’s compensation philosophy is to provide its executive officers and management with a total compensation package that is competitive and equitable, and which encourages and rewards performance based in part upon the Company’s performance in terms of increases in shareholder value.  The Company’s compensation objectives include both long-term, share-based incentives and short-term, cash incentives.  The Company believes that aligning the interests of its executives and management with those of its shareholders further promotes the success of not only the Company, but also its Team Members.

 

Risk assessment of compensation programs

The Compensation Committee has reviewed the potential effects of the various components of the Company’s executive officers’ compensation and benefits programs on individual and collective behavior and, ultimately, on its risk profile and overall approach to risk management.  During its review, the Committee focused on the Company’s short-term incentives, long-term incentives, and change-in-control benefits as having the greatest potential to create incentives for individual or collective risk taking.  Following a thorough review of these and the other components of the Company’s compensation and benefits programs, the Committee has determined that the programs do not create any incentives with respect to individual or collective behavior that are likely to have a material adverse effect upon either its risk profile or overall approach to risk management.

 

Additionally, the Company’s non-executive officer and management compensation policies and practices do not excessively incentivize or create need for inappropriate risk-taking by its Team Members and therefore, it is not reasonably likely that current compensation policies and practices would have a material adverse effect on the Company.

20

 


 

 

Overview of compensation programs

The key elements of the compensation packages for the Company’s executive officers are base salary, annual cash incentive compensation and long-term, share-based incentives.  In determining the composition of elements in each compensation package, the Compensation Committee looks to create a balanced set of rewards, utilizing market-driven influences and external compensation benchmarks, as well as current cash considerations.  To ensure that the Company thrives in the competitive talent market, the Compensation Committee reviews industry resources, references and other benchmark reports to determine competitive market ranges and reasonable levels of compensation.  The Company did not engage a compensation consultant for fiscal 2012.

 

In reviewing the compensation packages of each of the Company’s executive officers and management, the Compensation Committee tallies the corresponding dollar value of each element of an individual’s compensation, including salary, incentive compensation, accumulated realized and unrealized share-based compensation gains, the dollar value to such individual and cost to the Company of all perquisites and other personal benefits, the earnings and accumulated benefits under the Company’s non-qualified deferred compensation program and the potential impact of several potential severance and change-in-control scenarios.  For new appointments to executive management, the Company’s management presents compensation recommendations to the Committee for consideration. 

 

Competitive assessments

The Company’s Human Resources Department provides the Committee with industry benchmark information and compensation survey data.  The Committee considers the Company’s relative performance compared with an established group of peer companies in the automotive aftermarket industry and other specialty retailers. 

 

The Compensation Committee reviews the Company’s peer group, as necessary, to ensure that the comparisons are meaningful.  The Committee evaluates peers which conduct business outside of the automotive aftermarket industry based on criteria such as revenue, operating margin, profit margin and market capitalization.  The Committee also considers broad-based survey data, compiled by Equilar, of total compensation for top management at companies with total revenues comparable to the total revenues of the Company.  The Committee uses the industry and market survey data as a context in reviewing the overall compensation levels and maintaining a reasonable and competitive compensation program.  The Committee does not use this data to set specific compensation benchmarks for a position.  Rather, the Committee evaluates the overall performance of the Company and the individual performance of management to set compensation at reasonable and competitive levels. 

 

The companies comprising the 2012 peer group for the Company are identified in the table below and include companies with a market capitalization ranging from $0.2 billion to $31 billion.  As of December 31, 2012, the median market capitalization of the Company’s 2012 peer group was $8 billion and the Company’s market capitalization was $10 billion.

 

 

 

 

 

 

Peer Name

Peer Ticker Symbol (if applicable)

Advance Auto Parts, Inc.

AAP

AutoNation, Inc.

AN

AUTOZONE, Inc.

AZO

Bed Bath & Beyond, Inc.

BBBY

Dick's Sporting Goods, Inc.

DKS

Dollar Tree, Inc.

DLTR

Fastenal Company

FAST

Foot Locker, Inc.

FL

Genuine Parts Company

GPC

W.W. Grainger, Inc.

GWW

The Pep Boys - Manny, Moe & Jack

PBY

PetSmart, Inc.

PETM

RadioShack Corporation

RSH

The Sherwin-Williams Company

SHW

Tractor Supply Company

TSCO

YUM! Brands, Inc.

YUM

BJ's Wholesale Club, Inc.

 

Collective Brands, Inc.

 

 

Base salary

21

 


 

 

In determining annual base salary, it is the Compensation Committee’s goal to bring the salaries of the Company’s executive officers and management in line with base compensation being paid by its peer group.  The Compensation Committee specifically reviews compensation information for other publicly traded automotive aftermarket companies and compensation surveys and data for other specialty retailers.  The Compensation Committee believes that the Company’s principal competitors for its executive officers are not necessarily the same companies that would be included in a peer group compiled for purposes of comparing shareholder returns.  Consequently, the companies that are reviewed for such compensation purposes, as noted in “Overview of Compensation Programs,” may not be the same as the companies comprising the Nasdaq Retail Trade Stocks Total Return Index, Nasdaq United States Stock Market Total Returns Index or the Standard and Poor’s 500 Index included in the Annual Shareholders’ Report of the Company for 2012 that accompanies this proxy statement.  The Compensation Committee established increased base salary levels in 2012 for the Company’s NEOs to maintain compensation at competitive levels and to reflect its performance and the individual performance of each of its NEOs.

 

Incentive compensation plan

The Compensation Committee has established an incentive compensation plan for the Company’s executive officers based upon certain objective performance goals.  At the beginning of each year, a comprehensive operating plan is developed which contains estimates for the Company’s projected performance for the year.  The operating plan is compiled by reviewing the Company’s historical performance, trends in the automotive aftermarket and retail industry and the performance of industry peers and other comparable companies.  The targets for incentive compensation plans set by the Compensation Committee generally correspond to this operating plan – the comprehensive operating plan for the 2012 fiscal year was approved by the Company’s Board of Directors in February of 2012, and reflects the projected results for the 2012 fiscal year.  The Company financial performance metrics utilized by the Compensation Committee include sales performance, operating income performance and financial returns, as well as various balance sheet measures – the metrics used for the year ended December 31, 2012, are identified in the table below: 

 

 

 

 

 

 

 

 

 

Performance Metric

Weight of Performance Metric - Target

Comparable store sales (1)

30% 

Operating income as a percentage of sales

30% 

Inventory turnover, net of payables (2)

20% 

Free cash flow (3)

20% 

 

 

 

(1)

Calculated based on the change in sales of stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members.

(2)

Calculated as cost of goods sold for the last 12 months divided by average net inventory.  Average net inventory is calculated as the average of inventory less accounts payable for the trailing four quarters used in determining the denominator.

(3)

Calculated as net cash provided by operating activities less capital expenditures for the period.

 

The Company’s actual performance in each of these areas is compared to the individual targets predetermined by the Committee, in order to determine the incentive amount, if any, achieved by each executive officer.  Upon achievement of such performance goals, executive officers receive incentive compensation based upon a percentage of their respective base salaries for the attainment of a defined performance goal.  The overall potential value varies depending upon the executive’s position; however, under the Company’s 2012 Incentive Award Plan, the maximum aggregate amount of cash compensation which may be paid to any one participant in any year in respect of all awards that are intended to constitute performance-based compensation is $10,000,000.    For 2012, the Company’s Chief Executive Officer had a cumulative target of 100% of his base salary, its Chief Operating Officer and Chief Financial Officer each had cumulative targets of 80% of their respective base salaries and its Senior Vice Presidents each had cumulative targets of 50% of their respective base salaries. 

 

The targets for the Company’s executive officers are highly confidential and competitively sensitive.  The Company believes that if it were to publish its targets, it would allow competitors to recreate its internal forecasts and gain valuable insight on its business strategies.  Such public disclosure could materially harm the Company’s competitive position within its industry.  Because the targets are confidential, the Company believes that the best indication of its performance against target is its track record with respect to incentive payouts.  The Company sets target achievement levels for its executives with respect to these performance metrics based on the Board-approved operating plan, which reflects projected Company performance for the upcoming fiscal year, and the targets are calibrated such that they are challenging enough to require strong and consistent effort by the executives in order to be achieved.  The Company’s actual performance above projections would result in payouts above target levels and would likely also result in an increase in total shareholder value.  Due to the Company’s strong financial performance over the past five years, annual incentive payouts under the executive plan have exceeded target each year and have ranged from 150% to 403% of target.

 

22

 


 

 

The following table summarizes the 2012 performance incentive compensation plan targets and payouts for each of the Company’s NEOs who participated in the plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officer

Base Salary
($)

Target
(%)

Target
($)

Incentive Achieved
(%)

Incentive Achieved
($)

Chief Executive Officer

985,000 
100 
985,000 
185 
1,827,065 

Chief Operating Officer

655,000 
80 
524,000 
185 
971,961 

Chief Financial Officer

575,000 
80 
460,000 
185 
853,248 

Senior Vice President of Store Operations and Sales

250,000 
50 
125,000 
185 
231,861 

 

Long-term, stock-based incentives

The Company offers long-term incentives for executive officers and management in the form of stock option and restricted stock awards.  Stock options and restricted stock may be awarded to the Company’s NEOs, upper- and middle-managers and other key personnel.

 

The Company believes that its stock-based incentive award programs are an important component of compensation as an incentive for long-term corporate performance.  The Compensation Committee has determined that the annual award of restricted stock or grant of stock options to the Company’s executive officers is a key component of each executive officer’s total compensation package based on his duties.  The amounts of such restricted stock awards and/or stock option grants are determined by the Compensation Committee annually in conjunction with performance reviews and salary adjustments during the February Compensation Committee meeting.  In determining whether and how many restricted stock awards and/or stock options should be granted, the Compensation Committee considers the responsibilities and seniority of each of the executive officers, as well as the Company’s financial performance and other factors as it deems appropriate, consistent with its compensation philosophy and policies.  The restricted stock awards and stock options awarded by the Compensation Committee in 2012, as reflected in the Grants of Plan Based Awards table, include an annual award of restricted stock or grant of stock options, as the case may be, determined by the Compensation Committee in consideration of the factors described above.

 

In the past, the Compensation Committee has reviewed and considered using other equity-based incentives for the long-term compensation component.  After a thorough analysis, including the use prior to 2012 of a national consulting firm, stock options and restricted stock awards were determined to be the most effective methods of aligning management interests with those of the Company’s shareholders. 

 

The Compensation Committee has also established specific stock option awards to be granted upon the achievement of certain defined positions of employment.  These are automatic grants that occur on the date of promotion or appointment to such positions with an option price equal to the fair market value of the common stock underlying the option on such date.  It is the Company’s belief that these position-related grants provide additional incentive to its executives, management and other Team Members to set personal long-term employment goals.  In furtherance of this belief, the Company also has a Team Member stock purchase plan that enables Team Members to purchase its common stock at a discount through payroll deductions and a 401(k) plan under which Team Members can invest in its common stock.  In addition, the Compensation Committee may grant stock option awards in connection with a material business event, such as a large acquisition.  The Compensation Committee believes that these special stock option awards provide additional incentive to the Company’s executive officers, management and other Team Members to ensure these material acquisitions are integrated effectively and efficiently.  During 2012,  Jeff Shaw, Senior Vice President of Store Operations and Sales received a position-level stock option award upon his promotion to Executive Vice President of Store Operations and Sales.  Other than this position-level stock option award, no other position-level stock option awards, or other special stock option awards in connection with a material business event, were granted during 2012 for NEOs.  

 

Other

The Company sponsors a 401(k) Profit Sharing and Savings Plan (the “401(k) Plan”) that allows Team Members to make plan contributions on a pre-tax basis.  The Company matches 100% of the first 2% of the Team Member’s compensation, and 25% of the next 4% of the Team Member’s compensation.  Although executive officers are eligible to participate in the 401(k) plan, the application of the annual limitations on contributions under Section 401(a)(17) of the Internal Revenue Code prevents highly compensated employees, as defined by the Internal Revenue Code, from participating at the same levels as non-highly compensated employees.  The O’Reilly Automotive Deferred Compensation Plan (the “Deferred Compensation Plan”) provides executive officers who participate in the 401(k) Plan with the opportunity to defer up to the full 6% of covered compensation by making contributions to the Deferred Compensation Plan that are then matched by the Company as if they had been made under the 401(k) Plan.  The Deferred Compensation Plan is solely intended to restore contributions lost because of the application of the annual limitations under the

23

 


 

 

Internal Revenue Code that are applicable to the 401(k) Plan.  This benefit, which assists executive officers in accumulating funds for retirement, is consistent with observed competitive practices of similarly situated companies.

 

Section 162(m) of the Internal Revenue Code disallows a tax deduction to publicly-held companies for compensation paid to certain executive officers, to the extent that compensation exceeds $1 million per officer in any year.  The limitation applies only to compensation which is not considered to be performance-based, within the meaning of Section 162(m).  The Compensation 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, and not the sole governing factor.  Accordingly, the Compensation Committee may provide one or more executive officers with the opportunity to earn incentive compensation, whether through cash incentive based compensation programs tied to the Company’s financial performance or share-based awards in the form of restricted stock or restricted stock units, which may be in excess of the amount deductible by reason of Section 162(m) or other provisions of the Internal Revenue Code.  The Company believes it is important to maintain incentive compensation at the requisite level to attract and retain the executive officers essential to the Company’s financial success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.

 

In addition, the Company provides its executive officers with certain perquisites which the Compensation Committee believes are reasonable and consistent with the objectives of attracting and retaining superior Team Members, as well as maintaining a competitive total compensation package for the executive officers.  Perquisites can include personal use of a Company automobile, reimbursement for health and country club memberships and reimbursements under the Company’s Executive Management Medical Reimbursement Benefit Plan.  Perquisite amounts for the Company’s NEOs are included in the below Summary Compensation Table in the column “All Other Compensation.”

 

Compensation mix

The following table summarizes the Company’s 2012 compensation mix, which includes base salary, equity and non-equity incentive compensation and/or restricted stock awards or stock options, for each of its NEOs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officer

Base Salary

 

Equity Incentive Compensation

 

Stock Options

 

Non-Equity Incentive Compensation

 

Other Benefits

 

Total Compensation

Chairman of the Board

64% 

 

33% 

 

0% 

 

0% 

 

3% 

 

100% 

Chief Executive Officer

25% 

 

0% 

 

26% 

 

48% 

 

1% 

 

100% 

Chief Operating Officer

30% 

 

0% 

 

23% 

 

45% 

 

2% 

 

100% 

Chief Financial Officer

28% 

 

0% 

 

28% 

 

42% 

 

2% 

 

100% 

Senior Vice President of Store Operations and Sales

24% 

 

0% 

 

51% 

 

23% 

 

2% 

 

100% 

 

24

 


 

 

 

 

COMPENSATION COMMITTEE REPORT

 

We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management.  Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in O’Reilly Automotive, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012.                                                                                                                                    

                                                                        Respectfully submitted,

 

THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF O’REILLY AUTOMOTIVE, INC.

 

Jay D. Burchfield

Chairman of the Compensation Committee

 

Paul R. Lederer

Member of the Compensation Committee

Ronald Rashkow

                                                                        Member of the Compensation Committee

 

25

 


 

 

EXECUTIVE COMPENSATION TABLES

 

The following table summarizes the annual compensation paid to or earned by the Company’s NEOs for the fiscal years ended December 31, 2012, 2011 and 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUMMARY COMPENSATION TABLE

Name And Principal Position

Year

 

Salary
($)(a)

 

Bonus
($)

 

Stock Awards
($)(b)

 

Option Awards
($)(c)

 

Non-Equity Incentive Plan Compensation
($)(d)

 

Change in Pension Value and Nonqualified Deferred Compensation Earnings
($)

 

All Other Compensation
($)

 

Total
($)

David O’Reilly

2012 

 

546,154 

 

-

 

275,034 

 

 -

 

 -

 

 -

 

28,517 

(e)

849,705 

Chairman of the Board

2011 

 

525,000 

 

 -

 

262,527 

 

 -

 

 -

 

 -

 

27,097 

(f)

814,624 

 

2010 

 

520,192 

 

 -

 

 -

 

288,750 

 

 -

 

 -

 

27,619 

(g)

836,561 

Greg Henslee

2012 

 

971,923 

 

 -

 

 -

 

984,604 

 

1,827,065 

 

 -

 

54,445 

(e)

3,838,037 

Chief Executive Officer and

2011 

 

892,308 

 

 -

 

 -

 

956,145 

 

1,797,265 

 

 -

 

50,534 

(f)

3,696,252 

Co-President

2010 

 

842,308 

 

 -

 

 -

 

577,500 

 

3,429,089 

 

 -

 

47,799 

(g)

4,896,696 

Ted F. Wise

2012 

 

650,923 

 

 -

 

 -

 

491,051 

 

971,961 

 

 -

 

43,767 

(e)

2,157,702 

Chief Operating Officer and

2011 

 

625,654 

 

 -

 

 -

 

500,783 

 

1,004,072 

 

 -

 

93,691 

(f)

2,224,200 

Co-President

2010 

 

605,385 

 

 -

 

 -

 

404,250 

 

1,968,700 

 

 -

 

33,732 

(g)

3,012,067 

Thomas McFall

2012 

 

567,308 

 

 -

 

 -

 

574,765 

 

853,248 

 

 -

 

34,739 

(e)

2,030,060 

Chief Financial Officer and Executive

2011 

 

513,461 

 

 -

 

 -

 

557,748 

 

838,723 

 

 -

 

32,704 

(f)

1,942,636 

Vice-President of Finance

2010 

 

434,616 

 

 -

 

 -

 

346,500 

 

1,452,320 

 

 -

 

31,333 

(g)

2,264,769 

Jeff Shaw

2012 

 

246,154 

 

 -

 

 -

 

526,008 

 

231,861 

 

 -

 

20,013 

(e)

1,024,036 

Senior Vice-President of Store

2011 

 

221,923 

 

 -

 

 -

 

71,702 

 

224,658 

 

 -

 

18,938 

(f)

537,221 

Operations and Sales

2010 

 

202,692 

 

 -

 

41,252 

 

 -

 

82,517 

 

 -

 

15,547 

(g)

342,008 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The Salary column includes the portion of salary deferred at NEO’s election under the Company’s Profit Sharing and Savings Plan and/or Deferred Compensation Plan.

(b)

The Stock Awards column refers to restricted share awards granted in 2010, 2011 and 2012, as further discussed in the Incentive compensation plan and Long-term stock-based incentives sections of the Compensation Discussion and Analysis portion of this report.  All restricted shares awarded vest in equal installments over a three-year period commencing on the first anniversary of the award.

(c)

The Option Awards column refers to the option awards granted to the NEOs, which become exercisable with respect to 25% of the covered shares one year from the date of grant; 50% exercisable two years from the date of grant; 75% exercisable three years from the date of grant and the remainder become exercisable four years from the date of grant.  The option awards granted to Mr. O’Reilly and Mr. Wise are eligible for immediate vesting upon their retirement provided that they provide notice of their intent to retire one year prior to their retirement date.  The amounts recognized in the above table reflect the grant date fair value of stock option awards granted during 2010, 2011 and 2012.  During the fiscal years ended December 31, 2012, 2011 and 2010, no option awards were forfeited by the named executives.  The grant date fair value of option awards was determined using the Black-Scholes option-pricing model.  The Black-Scholes model requires the use of assumptions, including expected volatility, expected life, the risk free rate and the expected dividend yield.  Please see the footnotes to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012, for further discussion of these assumptions.

(d)

The Non-Equity Incentive Plan Compensation column refers to the cash payouts under the Company’s annual performance incentive plans, which are paid in the year following the plan year.  Detailed descriptions of the annual performance incentive plans can be found in the Incentive compensation plan section of the Compensation Discussion and Analysis portion of this report.

(e)

Includes Company contributions of $16,385, $29,158, $27,058, $17,019 and $9,069 to its Profit Sharing and Savings Plan and/or Deferred Compensation Plan made on behalf of David O’Reilly, Greg Henslee, Ted F. Wise, Thomas McFall and Jeff Shaw, respectively.

(f)

Includes Company contributions of $15,750, $26,769, $77,831, $16,096 and $9,133 to its Profit Sharing and Savings Plan and/or Deferred Compensation Plan made on behalf of David O’Reilly, Greg Henslee, Ted F. Wise, Thomas McFall and Jeff Shaw, respectively.

(g)

Includes Company contributions of $15,577, $25,269, $18,162, $17,384 and $6,057 to its Profit Sharing and Savings Plan and/or Deferred Compensation Plan made on behalf of David O’Reilly, Greg Henslee, Ted F. Wise, Thomas McFall and Jeff Shaw, respectively.

 

26

 


 

 

 

 

The following table summarizes all awards granted during the year ended December 31, 2012, to each of the NEOs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GRANTS OF PLAN-BASED AWARDS

 

 

Estimated Future Payouts Under Non-Equity Incentive Plan Awards

(a)

Estimated Future Payouts Under Equity Incentive Plan Awards

 

 

 

 

Name

Grant Date

Threshold

($)

Target

($)

Max

($)

Threshold

(#)

Target

(#)

Max

(#)

All Other Stock Awards: Number of Shares of Stock or Units

(#)(b)

All Other Option Awards: Number of Securities Underlying Options

(#)(c)

Exercise or Base Price of Options Awards

($/Sh)

Grant Date Fair Value of Stock and Option Awards

($)

David O’Reilly

2/2/2012

 -

 -

 -

 -

 -

 -

3,373 

 -

 -

275,034 

Greg Henslee

2/2/2012

 -

985,000 

 -

 -

 -

 -

 -

36,214 
81.54 
984,604 

Ted F. Wise

2/2/2012

 -

524,000 

 -

 -

 -

 -

 -

18,061 
81.54 
491,051 

Thomas McFall

2/2/2012

 -

460,000 

 -

 -

 -

 -

 -

21,140 
81.54 
574,765 

Jeff Shaw

2/2/2012

 -

125,000 

 -

 -

 -

 -

 -

2,758 
81.54 
74,986 

Jeff Shaw

12/13/2012

 -

 -

 -

 -

 -

 -

 -

15,000 
90.79 
451,022 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The Estimated Future Payouts Under Non-Equity Incentive Plan Awards - Target column refers to the potential cash payouts under the Company’s annual performance incentive plans for 2012, which would be paid during 2013.  The Compensation Committee approved the goals for the 2012 incentive plans in February of 2012.  The payout amounts for each NEO for 2012 were reviewed and approved by the Compensation Committee and the Board in January of 2013, upon completion of the consolidated financial statements for the fiscal year ended December 31, 2012.  The Summary Compensation Table details amounts actually paid under the 2012 annual performance incentive plans in the Non-Equity Incentive Plan Compensation column, which was paid in the year following the plan year.  Detailed descriptions of the annual performance incentive plans can be found in the Incentive compensation plan and Long-term stock-based incentives sections of the Compensation Discussion and Analysis portion of this report.

(b)

The All Other Stock Awards: Number of Shares of Stock or Units column refers to restricted shares granted to NEOs, which vest in three equal installments on February 2, 2013, 2014 and 2015. 

(c)

The All Other Option Awards: Number of Securities Underlying Options column refers to stock option awards granted to the NEOs, which become exercisable with respect to 25% of the covered shares one year from the date of grant; 50% exercisable two years from the date of grant; 75% exercisable three years from the date of grant, while the remainder become exercisable four years from the date of grant.  The award granted to Mr. Wise in 2012 is eligible for immediate vesting upon his retirement provided that he provides notice of his intent to retire one year prior to his retirement date. 

 

27

 


 

 

 

The following table identifies information concerning unexercised stock options, stock options that have not vested and stock awards that have not vested for each of the NEOs as of December 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END TABLE

 

Option Awards

 

Stock Awards

Name

Number of Securities Underlying Unexercised Options
(#)
Exercisable

Number of Securities Underlying Unexercised Options
(#)
Unexercisable

 

Equity Incentive Plan Awards:  Number of Securities Underlying Unexercised Unearned Options
(#)

Option Exercise Price
($)

 

Option Expiration Date

 

Number of Shares or Units of Stock That Have Not Vested
(#)

Market Value of Shares or Units of Stock That Have Not Vested
($)

Equity Incentive Plan Awards:  Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)

Equity Incentive Plan Awards:  Number of Unearned Shares, Units or Other Rights That Have Not Vested
($)

David O’Reilly

80,000 

 -

 

 -

23.20 

 

02/03/2015

 

 -

 -

 -

 -

 

15,000 

 -

 

 -

24.84 

 

04/06/2015

 

 -

 -

 -

 -

 

45,000 

 -

 

 -

32.78 

 

02/09/2016

 

 -

 -

 -

 -

 

35,000 

 -

 

 -

34.71 

 

02/15/2017

 

 -

 -

 -

 -

 

25,000 

 -

 

 -

28.70 

 

02/14/2018

 

 -

 -

 -

 -

 

25,000 

 -

 

 -

22.65 

 

07/11/2018

 

 -

 -

 -

 -

 

18,750 
6,250 

(a)

 -

28.69 

 

02/10/2019

 

 -

 -

 -

 -

 

12,500 
12,500 

(b)

 -

39.52 

 

02/11/2020

 

 -

 -

 -

 -

 

 -

 -

 

 -

 -

 

-

 

6,379 (c)

570,410 

 -

 -

Greg Henslee

15,000 

 -

 

 -

24.84 

 

04/06/2015

 

 -

 -

 -

 -

 

50,000 

 -

 

 -

32.78 

 

02/09/2016

 

 -

 -

 -

 -

 

50,000 

 -

 

 -

34.71 

 

02/15/2017

 

 -

 -

 -

 -

 

50,000 

 -

 

 -

28.70 

 

02/14/2018

 

 -

 -

 -

 -

 

100,000 

 -

 

 -

22.65 

 

07/11/2018

 

 -

 -

 -

 -

 

37,500 
12,500 

(a)

 -

28.69 

 

02/10/2019

 

 -

 -

 -

 -

 

25,000 
25,000 

(b)

 -

39.52 

 

02/11/2020

 

 -

 -

 -

 -

 

12,052 
36,154 

(d)

 -

58.21 

 

02/08/2021

 

 -

 -

 -

 -

 

 -

36,214 

(e)

 -

81.54 

 

02/02/2022

 

 -

 -

 -

 -

Ted F. Wise

30,000 

 -

 

 -

23.20 

 

02/03/2015

 

 -

 -

 -

 -

 

15,000 

 -

 

 -

24.84 

 

04/06/2015

 

 -

 -

 -

 -

 

45,000 

 -

 

 -

32.78 

 

02/09/2016

 

 -

 -

 -

 -

 

45,000 

 -

 

 -

34.71 

 

02/15/2017

 

 -

 -

 -

 -

 

35,000 

 -

 

 -

28.70 

 

02/14/2018

 

 -

 -

 -

 -

 

10,000 

 -

 

 -

27.99 

 

02/20/2018

 

 -

 -

 -

 -

 

75,000 

 -

 

 -

22.65 

 

07/11/2018

 

 -

 -

 -

 -

 

33,750 
11,250 

(a)

 -

28.69 

 

02/10/2019

 

 -

 -

 -

 -

 

17,500 
17,500 

(b)

 -

39.52 

 

02/11/2020

 

 -

 -

 -

 -

 

6,312 
18,936 

(d)

 -

58.21 

 

02/08/2021

 

 -

 -

 -

 -

 

 -

18,061 

(e)

 -

81.54 

 

02/02/2022

 

 -

 -

 -

 -

Thomas McFall

25,000 

 -

 

 -

31.69 

 

05/31/2016

 

 -

 -

 -

 -

 

15,000 

 -

 

 -

32.06 

 

12/31/2016

 

 -

 -

 -

 -

 

10,000 

 -

 

 -

34.71 

 

02/15/2017

 

 -

 -

 -

 -

 

15,000 

 -

 

 -

28.70 

 

02/14/2018

 

 -

 -

 -

 -

 

15,000 

 -

 

 -

28.70 

 

02/14/2018

 

 -

 -

 -

 -

 

22,500 
7,500 

(a)

 -

28.69 

 

02/10/2019

 

 -

 -

 -

 -

 

15,000 
15,000 

(b)

 -

39.52 

 

02/11/2020

 

 -

 -

 -

 -

 

7,030 
21,090 

(d)

 -

58.21 

 

02/08/2021

 

 -

 -

 -

 -

 

 -

21,140 

(e)

 -

81.54 

 

02/02/2022

 

 -

 -

 -

 -

Jeff Shaw

7,500 

 -

 

 -

24.84 

 

04/06/2015

 

 -

 -

 -

 -

 

35,000 

 -

 

 -

22.65 

 

07/11/2018

 

 -

 -

 -

 -

 

904 
2,711 

(d)

 -

58.21 

 

02/08/2021

 

 -

 -

 -

 -

 

 -

2,758 

(e)

 -

81.54 

 

02/02/2022

 

 -

 -

 -

 -

 

 -

15,000 

(f)

 -

90.79 

 

12/13/2022

 

 -

 -

 -

 -

 

 -

 -

 

 -

 -

 

 -

 

249 (g)

22,266 

 -

 -

28

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Represents stock options granted on February 10, 2009, which become exercisable in four equal installments on February 10, 2010, 2011, 2012 and 2013.

(b)

Represents stock options granted on February 11, 2010, which become exercisable in four equal installments on February 11, 2011, 2012, 2013 and 2014.

(c)

Represents restricted shares granted on February 8, 2011, and February 2, 2012.  The restricted shares granted on February 8, 2011, vest in two installments of 1,503 shares on February 8, 2013, and 1,503 shares on February 8, 2014.  The restricted shares granted on February 2, 2012, vest in three installments of 1,125 shares on February 2, 2013, 1,124 shares on February 2, 2014, and 1,124 shares on February 2, 2015.

(d)

Represents stock options granted on February 8, 2011, which become exercisable in four equal installments on February 8, 2012, 2013, 2014 and 2015.

(e)

Represents stock options granted on February 2, 2012, which become exercisable in four equal installments on February 2, 2013, 2014, 2015 and 2016.

(f)

Represents stock options granted on December 13, 2012, which become exercisable in four equal installments on December 13, 2013, 2014, 2015 and 2016.

(g)

Represents restricted shares granted on December 31, 2010, which vest one installment of 249 shares on December 31, 2013.

 

The following table summarizes option awards exercised and shares of restricted stock awards, which vested during the year ended December 31, 2012, and the aggregate dollar values realized upon such exercise or vesting for each of the NEOs:

 

 

 

 

 

 

 

 

 

 

 

 

 

OPTION EXERCISES AND STOCK VESTED

 

OPTION AWARDS

STOCK AWARDS

Name

Number of Shares Acquired On Exercise
(#)

Value Realized On Exercise
($)

Number of Shares Acquired On Vesting
(#)(a)

Value Realized On Vesting
($)

David O’Reilly

157,500 
12,784,846 
1,504 
125,494 

Greg Henslee

91,100 
6,788,514 

 -

 -

Ted F. Wise

41,100 
2,709,757 

 -

 -

Thomas McFall

62,500 
3,899,772 

 -

 -

Jeff Shaw

20,000 
1,404,894 
547 
48,913 

 

 

 

 

 

 

 

 

 

 

 

(a)

Reflects the vesting of restricted stock awards granted in 2009, 2010 and 2011.  All restricted shares awarded vest in equal installments over a three-year period commencing on the first anniversary of the award. 

The following table identifies information regarding the contributions by each NEO and the Company under the O’Reilly Automotive, Inc. Deferred Compensation Plan for the year ended December 31, 2012, as well as information on aggregate earnings, withdrawals and balances for each NEO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONQUALIFIED DEFERRED COMPENSATION

Name

Executive Contributions In Last Fiscal Year
($)(a)

Registrant Contributions In Last Fiscal Year
($)(b)

Aggregate Earnings In Last Fiscal Year
($)

Aggregate Withdrawals / Distributions
($)

Aggregate Balance At Last Fiscal Year End
($)

David O’Reilly

28,317 
11,327 
81,482 

 -

596,676 

Greg Henslee

100,697 
30,196 
95,326 

 -

799,700 

Ted F. Wise

351,814 
21,033 
320,094 

 -

2,752,269 

Thomas McFall

52,471 
11,750 
32,871 

 -

263,104 

Jeff Shaw

183,587 
4,233 
75,191 

 -

813,595 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

All NEO contribution amounts have been included in the Salary column of the Summary Compensation Table.

(b)

All Company contribution amounts have been included in the All Other Compensation column of the Summary Compensation Table.

 

The Deferred Compensation Plan provides executive officers who participate in the 401(k) Plan with the opportunity to defer up to the full 6% of covered compensation, including salary and incentive based compensation, by making contributions to the Deferred Compensation Plan that are then matched by the Company as if they had been made under the 401(k) Plan.  The Deferred

29

 


 

 

Compensation Plan is solely intended to restore contributions lost because of the application of the annual limitations under the Internal Revenue Code that are applicable to the 401(k) Plan.  Executive officers may elect to defer their base compensation, incentive compensation and/or bonuses to the Deferred Compensation Plan.  Executive officers can elect to allocate their contributions, as well as the Company matching contributions, to various equity, bond or fixed income funds, or a combination thereof, and all interest and/or earnings which may be credited to the executive officer’s account are based on the applicable fund’s market performance.  Executive officers may elect to receive distributions at retirement or starting in a specific future year before or after anticipated retirement and may elect to receive the distribution in a lump sum or in periodic payments.

 

Potential Payments on Termination or Change in Control

   

Change in Control Agreements

 

The Company has entered into change in control agreements with certain NEOs, which become effective only upon a Change in Control (as defined in such agreements).  In addition, under the Company's Incentive Plans there is acceleration of vesting with respect to options and restricted stock upon a Change in Control (as defined in the applicable Incentive Plan).

 

With respect to the change in control agreements, if upon or within six months after a Change in Control, any of the NEOs with a valid change in control agreement terminates his employment for “Good Reason” or such executive’s employment is terminated by the Company without cause or by reason of death or disability, then the executive will be entitled to:

 

·

An amount equal to one times the executive’s annual salary;

·

Immediate vesting and exercisability of all outstanding stock options, restricted stock or other equity or equity-based awards;

·

All accrued but unpaid incentive compensation including any unpaid annual incentive compensation earned in previous years and a prorated portion of current year target incentive compensation;

·

Continuation of insurance coverage for 18 months;

·

A gross-up payment for excise taxes, if applicable; and

·

All legal fees and expenses incurred in disputing the termination of the executive’s employment.

The following table shows the amounts that those NEOs who have entered into change in control agreements would have received if their employment had been terminated due to a Change in Control on December 31, 2012.  Based on the calculations as of such date, no gross-up payment for excise taxes would be due to any NEO.  The unvested option grants and unvested restricted share awards vest pursuant to the terms of the Incentive Plans upon a Change in Control irrespective of a termination of employment.  This table does not include amounts related to the NEOs’ vested benefits under the Company’s deferred compensation plan or pursuant to stock option grants or restricted share awards, which are described in the tables above.