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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

Filed by the Registrant     ý                        Filed by a Party other than the Registrant     o

Check the appropriate box:

o   Preliminary Proxy Statement

o

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

ý

 

Definitive Proxy Statement

o

 

Definitive Additional Materials.

o

 

Soliciting Material Pursuant to Section 240.14a-12

 

HD SUPPLY HOLDINGS, INC.

(Name of Registrant as Specified in Its Charter)

Payment of Filing Fee (Check the appropriate box):

ý

 

No fee required.

o

 

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:

  

    (4)   Proposed maximum aggregate value of transaction:

 

    (5)   Total fee paid:

  


o

 

Fee paid previously with preliminary materials.

o

 

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:

  


Table of Contents

LOGO

3400 Cumberland Boulevard, Atlanta, Georgia 30339

March 30, 2018

Dear Stockholder:

          It is my pleasure to invite you to attend HD Supply Holdings, Inc.'s annual meeting of stockholders to be held at 11:00 a.m. (Eastern Daylight Time) on May 17, 2018. The meeting will be held at HD Supply's headquarters, located at 3400 Cumberland Boulevard, Atlanta, Georgia 30339.

          The accompanying notice of meeting and proxy statement contain important information, including a description of the business that will be acted upon at the meeting, as well as the voting procedures and general information about the meeting. At the meeting, management will be available to respond to any questions you may have regarding the Company's performance and operations or to other questions you may have.

          Your vote is important. Whether you plan to attend the annual meeting or not, you may access electronic voting via the Internet, which is described on your enclosed proxy card, or, if you received a proxy card by mail, you may sign, date and return the proxy card in the envelope provided. If you plan to attend the annual meeting you may vote in person. Returning the proxy does not deprive you of your right to attend the annual meeting and vote your shares in person for the matters acted on at the meeting.

          Registration and seating will begin at 10:00 a.m. (Eastern Daylight Time). Each stockholder will be asked to present an admittance ticket (the Notice of Internet Availability that you received by mail) and valid government-issued picture identification. Stockholders holding stock in brokerage accounts will need to bring a copy of a brokerage statement reflecting stock ownership as of the March 21, 2018 record date. Cameras and recording devices are not permitted at the meeting. All bags, briefcases, and packages will be held at registration and will not be allowed in the meeting.

          Thank you for your support of HD Supply. We look forward to seeing you at the annual meeting.

    Sincerely,

 

 

/s/ JOSEPH J. DEANGELO  

 

 

Joseph J. DeAngelo
Chairman, President and
Chief Executive Officer

Table of Contents

LOGO

3400 Cumberland Boulevard, Atlanta, Georgia 30339

NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS

Date and Time:   Thursday, May 17, 2018, at 11:00 a.m. Eastern Daylight Time.

Place:

 

HD Supply's headquarters, located at 3400 Cumberland Boulevard, Atlanta, Georgia 30339 (the reception desk will provide directions to the Annual Meeting room when you register).

Record Date:

 

March 21, 2018.

Who May Vote:

 

Stockholders as of the close of business on March 21, 2018 are entitled to one vote per share at the 2018 annual meeting of stockholders (the "Annual Meeting").

Items of Business:

 

1.

 

To approve an amendment to our Certificate of Incorporation and Bylaws to declassify our board and provide for the annual election of directors;

 

 

2.

 

To elect as directors the four persons nominated by the board and named in this proxy statement;

 

 

3.

 

To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending February 3, 2019; and

 

 

4.

 

To transact any other business as may properly come before the Annual Meeting.

 

 

A copy of this proxy statement and our annual report on Form 10-K for our fiscal year ended January 28, 2018 are available free of charge at http://www.astproxyportal.com/ast/18392/. Directions for attending the Annual Meeting are also available at that website.

 

 

To attend the meeting in person, please bring your admittance ticket (the Notice of Internet Availability of Proxy Materials that you received by mail), proof of your share ownership as of the record date (such as a brokerage statement), and government-issued photo identification (such as a driver's license).

Annual Meeting Materials:

 

A Notice of Internet Availability of Proxy Materials or this proxy statement is first being mailed to stockholders on or about April 5, 2018.

Date of Mailing:

 

March 30, 2018.

          Your vote is important. Please vote as soon as possible via the Internet or, if you received a proxy card by mail, by signing and returning the proxy card. Instructions for your voting options are described on the proxy card.

    By Order of the Board of Directors

 

 

/s/ DAN S. MCDEVITT  

 

 

Dan S. McDevitt
General Counsel and Corporate Secretary

Atlanta, Georgia
March 30, 2018


Table of Contents

Table of Contents

GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING

  1

OUR EXECUTIVE OFFICERS

  13

OUR BOARD OF DIRECTORS

  16

GOVERNANCE OF OUR COMPANY

  22

Selecting Nominees for Director

  22

Board Refreshment

  23

Director Independence

  23

Executive Sessions of our Non-Management Directors

  24

Board Self-Evaluation Process

  24

Board Leadership Structure

  24

Board's Role in Risk Oversight

  25

Corporate Governance Guidelines, Committee Charters and Code of Business Conduct and Ethics

  26

Committees of the Board of Directors

  26

Compensation Committee Interlocks and Insider Participation

  28

Compensation Practices and Risk Management

  28

Meetings of the Board of Directors and Attendance at the Annual Meeting

  28

Succession Planning and Management Development

  29

Policies and Procedures for Related Person Transactions

  29

Related Person Transactions

  29

Communicating with our Board of Directors

  30

Policy Regarding Certain Transactions in Company Securities

  31

OWNERSHIP OF SECURITIES

  32

DIRECTOR COMPENSATION

  34

2017 Director Compensation

  34

2017 Stock Awards

  35

Narrative Discussion

  35

EXECUTIVE COMPENSATION

  38

Compensation Discussion and Analysis

  38

Summary Compensation Table

  53

Pay Ratio Disclosure

  55

Grants of Plan-Based Awards Table

  56

Outstanding Equity Awards Table

  58

Option Exercises and Stock Vested Table

  59

Pension Benefits and Nonqualified Deferred Compensation

  59

Potential Payments Upon Termination or Change in Control

  59

COMPENSATION COMMITTEE REPORT

  63

AUDIT COMMITTEE REPORT

  64

AUDIT MATTERS

  66

Principal Accounting Firm Fees

  66

PROPOSAL 1 — AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS TO DECLASSIFY BOARD OF DIRECTORS

  67

PROPOSAL 2 — ELECTION OF DIRECTORS

  69

PROPOSAL 3 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  71

OTHER INFORMATION FOR STOCKHOLDERS

  72

Section 16(a) Beneficial Ownership Reporting Compliance

  72

Solicitation of Proxies

  72

Stockholder Proposals or Stockholder Nominations for Director at 2019 Annual Meeting

  72

2017 Annual Report on Form 10-K

  72

Other Business

  73

Table of Contents

GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING

           HD SUPPLY HOLDINGS, INC.

3400 Cumberland Boulevard, Atlanta, Georgia 30339

          This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

2018 Annual Meeting Information:

Date:   Thursday, May 17, 2018
Time:   11:00 a.m. Eastern Daylight Time

Location:

 

HD Supply's headquarters, located at 3400 Cumberland Boulevard, Atlanta, Georgia 30339 (the reception desk will provide directions to the Annual Meeting room when you register)

Record Date:

 

March 21, 2018

Admission:

 

To attend the meeting in person, you will need your admittance ticket (the Notice of Internet Availability of Proxy Materials that you received by mail), proof of your share ownership as of the record date (such as a brokerage statement), and government-issued photo identification (such as a driver's license).

Items of Business:

Proposals
  Board Vote
Recommendation

  Page Reference
(for more
information)

 
1.   Approve an amendment to our Certificate of Incorporation and Bylaws to declassify our board and provide for the annual election of directors   FOR   4, 10, 12, 67-68
2.   Elect four directors nominated by the board   FOR ALL   4-5, 10-12, 69-70
3.   Ratify the appointment of our independent registered public accounting firm   FOR   6, 10-12, 71

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 1


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GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

2017 Company Performance Results

          Despite a challenging year, HD Supply Holdings, Inc. (the "Company") achieved the following results in fiscal 2017:

          In addition to the above performance highlights, the Company accomplished significant debt reduction and ongoing interest savings objectives during the year. In December 2017, we reduced the U.S. borrowing capacity on our Senior ABL Facility by $500 million. In September 2017, we used a portion of the net proceeds from the sale of our Waterworks business to redeem all of the outstanding $1,250 million aggregate principal of our 5.25% Senior Secured First Priority Notes due 2021. In April 2017, we used cash and available borrowings under the Senior ABL Facility to repay $100 million aggregate principal of our Term B-1 Loans. Debt refinancing activities in fiscal 2017 will reduce cash interest payments by approximately $75 million annually.

          The Company supplements its reporting of net income with non-GAAP measurements, including adjusted EBITDA, adjusted net income (loss), adjusted net income per diluted share and net debt. This supplemental information should not be considered in isolation or as a substitute for the GAAP measurements. Additional information regarding adjusted EBITDA, adjusted net income and adjusted net income per diluted share referred to herein, including a reconciliation, if available, to the most comparable GAAP measure, is included under Management's Discussion and Analysis of Financial Condition and Results of Operations – Key Business Metrics – Adjusted EBITDA and Adjusted Net Income (Loss) in the annual report on Form 10-K filed by the Company on March 13, 2018.

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 2

 

 

Table of Contents

GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

Corporate Governance Highlights

 
   
Board Independence  

Eight of our nine directors are independent; all director nominees are independent.

Independent Lead Director  

Our independent directors regularly meet in private executive sessions without management.

We have an independent lead director, who serves as the presiding director at the executive sessions of the independent directors.

All committees of the board are comprised exclusively of independent directors.

Board Oversight

 

The board regularly devotes substantial time to the Company's strategic priorities, focusing on assessing the Company's progress to date, as well as on strategic initiatives and risks over the short and long term. The board believes that although short-term performance is important, it should be assessed in the context of the Company's long-term goals.

Risk Oversight

 

The board has overall responsibility for the oversight of the Company's risk management and reviews our major financial, operational, compliance, reputational and strategic risks, including steps to monitor, manage and mitigate such risks.

Each board committee is responsible for oversight of risk management practices for categories of risks relevant to its functions.

Annual Board Assessments

 

The board and each board committee conducts an annual assessment of their effectiveness as a group.

Board Refreshment

 

The board continues to recruit new directors to bring fresh perspectives and new ideas into our boardroom. During fiscal 2017, pursuant to our age 75 mandatory retirement policy, John W. Alden retired from board service at the end of his current term expiring at the 2017 annual meeting. Peter Dorsman and Lauren Taylor Wolfe joined the board in March 2017, Lionel Nowell in May 2017, and Scott Ostfeld in September 2017. Peter Leav and Lionel Nowell resigned from board service during 2017.

Mr. Dorsman (age 62) has extensive experience in leading large supply chain and customer service organizations. Ms. Taylor Wolfe (age 39) has expertise in capital allocation, capital markets and financial analysis and experience across various industries including information technology, consumer, industrials, and business services. Mr. Ostfeld (age 41) has extensive experience investing in companies and engaging with them to help improve stockholder value, as well as with capital allocation, strategy and governance. Their collective knowledge and experience brings valuable insight to our board. The age, gender and thought diversity that Ms. Taylor Wolfe and Messrs. Dorsman and Ostfeld bring to the board will further enhance the diversity of experience, backgrounds and opinions represented on the board. Additional qualifications, experience, and other information about our directors is provided on pages 17-21.

Stockholder Outreach

 

Company management has in the past engaged in wide-ranging dialogue with our major institutional investors. Both the Company and the board benefit greatly from the insights, experiences and ideas exchanged during these engagements. We are committed to continuing this dialogue with our stockholders in the future.

Board Declassification – Annual Elections

 

The board evaluates on an ongoing basis our corporate governance policies. It recently evaluated the current need for a classified board structure and determined that declassification would be in the best interests of the Company and its stockholders. At the Annual Meeting, we are asking our stockholders to approve an amendment to our Certificate of Incorporation and Bylaws to declassify our board and provide for the annual election of directors.

Stock Ownership Guidelines and Holding Period Requirements

 

We amended our stock ownership guidelines for our independent directors in 2017 to increase the required ownership from three to five times the annual cash board retainer. Our independent directors must now own at least $450,000 of our common stock within five years of joining the board. All directors, other than the directors who joined the board during 2017, satisfied the prior guidelines of three times the annual cash board retainer as of the May 2017 annual meeting date. Assuming a stock price of at least $34.50, all directors, other than the directors who joined the board during 2017, will satisfy the increased ownership guidelines of five times the annual cash board retainer by the 2018 annual meeting date.

Our CEO must own at least five times, our CFO and each of our executive officers who is in charge of a principal business unit must own three times, and each other executive officer must own one times, his or her annual base salary in our common stock within the later of five years from the 2013 effective date of the policy or the date he or she becomes an executive officer. All of our named executive officers currently satisfy the stock ownership guidelines.

Our directors and executives must hold 50% of their vested awards until the ownership guidelines are satisfied and, once satisfied, must hold sufficient shares to satisfy the guidelines at all times.

Compensation Clawback

 

In the event of a significant restatement of financial results, the board may recoup cash incentive bonuses and equity awards granted to our executive officers.

Director Orientation and Continuing Education

 

We provide orientation for new directors, and provide our directors with materials or briefing sessions on subjects that we believe will assist them in discharging their duties. We also engage third parties to provide either in-boardroom or dinner meeting education to our directors. To supplement the education we provide, we encourage our directors to attend external programs and reimburse up to $5,000 annually for the costs of attending such programs.

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 3

Table of Contents

GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

Proposal 1 – Amendment to Certificate of Incorporation and Bylaws to Declassify the Board of Directors

          The board is asking you to approve an amendment to the Company's Second Amended and Restated Certificate of Incorporation ("Certificate of Incorporation") and the Company's Third Amended and Restated By-Laws (the "Bylaws") to declassify our board and allow for the annual election of directors. For more information see pages 67-68.

Proposal 2 – Director Election

General

          The Company currently has nine directors divided into three classes: two directors in Class I, four directors in Class II, and three directors in Class III. The term of office of the Class II directors expires at the Annual Meeting. The Nominating and Corporate Governance Committee reviewed the qualifications, performance and circumstances of each incumbent Class II director. After completing its review, the Committee proposed all incumbent Class II directors for re-election. The board approved the Committee's recommendation regarding the Class II incumbent directors. The education and professional history of the four Class II nominees are provided below.

Class II Election

          The four nominees for election as Class II directors are listed below. If our stockholders approve the proposed amendment of our Certificate of Incorporation and Bylaws (see Proposal 1 on pages 67-68) by the requisite vote at the Annual Meeting, then the proposed amendment will become effective immediately upon the filing of the proposed amendment with the office of the Secretary of State of the State of Delaware, which we intend to do during the course of the Annual Meeting, and will apply to the election of directors at the Annual Meeting. If the proposed amendment is approved:

          If the proposed amendment is not approved by the stockholders of the Company by the requisite vote at the Annual Meeting, the Company will continue to have a classified board as currently provided for in the Company's Certificate of Incorporation and Bylaws, and, if elected, the nominees will serve for a three-year term and until their successors are elected and qualify.

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 4


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GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

          If you sign and return the accompanying proxy card, your shares will be voted for the election of the three Class II nominees recommended by the board unless you choose to withhold from voting for any of the nominees. If for any reason any nominee is unable to serve or will not serve, such proxies may be voted for a substitute nominee designated by the board as the proxy holder may determine. The board is not aware of any nominee who will be unable to or will not serve as a director. There is no cumulative voting.

Class II Nominees

          A nominee must receive the vote of a plurality of the votes validly cast at the Annual Meeting represented either in person or by proxy at the Annual Meeting to be elected. Therefore, the four nominees who receive the most "FOR" votes (among votes properly cast in person, electronically or by proxy) will be elected. Notwithstanding such election, each of the four nominees for election as Class II directors has agreed to tender to the board his or her resignation as a director promptly following the certification of election results in the event such nominee receives a greater number of votes "withheld" from his or her election than votes "for" his or her election (see "Majority Voting Policy – Director Nominees" below for details regarding the board's majority voting policy). Proxies cannot be voted for a greater number of persons than the number of nominees named. The Class II nominees are as follows:

Name
  Age
  Director
Since

  Occupation
  Board
Committees

  Other Public
Company Boards

  Independent

Betsy S. Atkins

  64   2013   CEO, Baja Corporation   Chair N&CG   3   Yes

Scott D. Ostfeld

  41   2017   Partner, JANA Partners   Compensation   0   Yes

James A. Rubright

  71   2014   Retired CEO, Rock-Tenn   Audit; N&CG   0   Yes

Lauren Taylor Wolfe

  39   2017   Founding Partner, Impactive Capital*   Audit; N&CG   0   Yes
*
Effective April 2018

          Additional qualifications, experience, and other information about the four director nominees, as well as the current members of the board who will continue to serve after the Annual Meeting, is provided on pages 17-21. There are no agreements or arrangements between third parties and any of our directors, including the nominees, which provide for compensation or other payment in connection with the director's candidacy or service as a director.

Majority Voting Policy – Director Nominees

          The full text of the board's majority voting policy for director nominees is set forth in the Company's Corporate Governance Guidelines, available on the corporate governance section of our investor relations website at http://ir.hdsupply.com/governance.cfm.

          Each of the four nominees for election as Class II directors has agreed to tender to the board his or her resignation as a director promptly following the certification of election results in the event such nominee receives a greater number of votes "withheld" from his or election than votes "for" his or her election (a "Majority Withheld Vote"). Neither abstentions nor broker non-votes are deemed to be votes for or withheld from a director's election. The Nominating and Corporate Governance Committee will consider any tendered resignation and recommend to the board whether to accept or reject it. The board will act on each tendered resignation, taking into account the Nominating and Corporate Governance Committee's recommendation, at its next regularly scheduled board meeting following the certification of the election results. The Nominating and Corporate Governance

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 5


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GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

Committee, when making its recommendation, and the board, when making its decision, may consider any factors or other information that it considers appropriate, including, without limitation, the reasons (if any) given by stockholders as to why they withheld their votes, the qualifications of the tendering director, his or her contributions to the board and the Company, and the results of the most recent evaluation of the tendering director's performance by the Nominating and Corporate Governance Committee and other board members.

          The board will promptly and publicly disclose (1) its decision whether to accept or reject the director's tendered resignation, and (2) if rejected by the board, the board's reasons for rejecting the tendered resignation. Any director who tenders his or her resignation will not participate in the Nominating and Corporate Governance Committee recommendation or board action regarding whether to accept or reject the tendered resignation. If a director's tendered resignation is rejected by the board, the director will continue to serve for the remainder of his or her term and until his or her successor is duly elected, or his or her earlier death, resignation or removal. If a director's tendered resignation is accepted by the board, then the board, in its sole discretion, may fill any resulting vacancy or may decrease the number of directors comprising the board, in each case pursuant to the provisions of, and to the extent permitted by, the Bylaws.

          The board will consider as candidates for nomination for election or reelection to the board, or to fill vacancies and new directorships on the board, only those individuals who agree to tender, promptly following their election, reelection or appointment, an irrevocable resignation that will be effective upon (i) the occurrence of a Majority Withheld Vote for that director and (ii) acceptance of the tendered resignation by the board. Each of the Class II director nominees have signed such an irrevocable resignation.

Proposal 3 – Ratification of the Appointment of the Independent Registered Public Accounting Firm

          The board is asking you to ratify its appointment of PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm for the 2018 fiscal year ending February 3, 2019. PricewaterhouseCoopers LLP has served as our independent registered public accounting firm since 2008. Set forth below is summary information with respect to the fees billed to us by PricewaterhouseCoopers LLP for services provided to us during the fiscal years ended January 28, 2018 and January 29, 2017. For more information, see pages 64-66 and page 71.

Fees Billed
  FYE2018
(Fiscal 2017)

  FYE2017
(Fiscal 2016)

Audit Fees

  $3.1 million   $3.2 million

Audit-Related Fees

    $1.8 million     $0.0 million

Tax Fees

  $0.5 million   $0.5 million

All Other Fees

       

TOTAL

  $5.4 million   $3.7 million

2019 Annual Meeting

          Pursuant to Rule 14a-8 under the Exchange Act, stockholder proposals submitted for inclusion in the proxy statement for our annual meeting of stockholders expected to be held in May 2019 must be received by us by November 30, 2018. For more information, see page 72.

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 6

 

 


Table of Contents

GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

Why am I receiving these proxy materials?

          The accompanying proxy materials have been furnished to you because the Company is soliciting your proxy to vote your shares at the Annual Meeting. This proxy statement describes issues on which we would like you to vote at our Annual Meeting. It also gives you information on these issues so that you can make an informed decision.

          The proxy materials include the notice and proxy statement for the Annual Meeting, our annual report on Form 10-K for the fiscal year ended January 28, 2018, the proxy card for the Annual Meeting, and directions on attending the Annual Meeting. The Company has made these proxy materials available to you by Internet or, upon your request, has delivered printed versions of these materials to you by mail, because you owned shares of Company common stock at the close of business on the March 21, 2018 record date.

          When you vote via the Internet, or by signing and returning the proxy card, you appoint Dan S. McDevitt and James F. Brumsey as your representatives at the Annual Meeting, with full power of substitution. They will vote your shares at the Annual Meeting as you have instructed them or, if an issue that is not on the proxy card comes up for vote, in accordance with their best judgment, and as permitted by applicable law. This way, your shares will be voted whether or not you attend the Annual Meeting. Even if you plan to attend the Annual Meeting, we encourage you to vote in advance via Internet, or if you received your proxy card by mail, by signing and returning your proxy card. If you vote via Internet, you do not need to return your proxy card.

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

          In accordance with rules adopted by the U.S. Securities and Exchange Commission, the Company uses the Internet as the primary means of furnishing proxy materials to stockholders. Accordingly, the Company is sending a Notice of Internet Availability of Proxy Materials (the "Notice") to the Company's stockholders. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or how to request a printed copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. The Company encourages stockholders to take advantage of the availability of the proxy materials on the Internet to help reduce the environmental impact of its annual meetings and reduce the cost to the Company of physically printing and mailing materials.

Who is entitled to vote?

          Holders of our common stock at the close of business on March 21, 2018 are entitled to vote. March 21, 2018 is referred to as the record date. In accordance with Delaware law, a list of stockholders entitled to vote at the Annual Meeting will be available in electronic form at the place of the Annual Meeting on May 17, 2018 and will be accessible in electronic form for ten days before the meeting at our principal place of business, 3400 Cumberland Boulevard, Atlanta, Georgia 30339 between the hours of 9:00 a.m. and 5:00 p.m. Eastern Daylight Time.

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 7

Table of Contents

GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

Each share of common stock is entitled to how many votes?

          Holders of common stock are entitled to one vote per share. On the record date, there were 185,538,412 shares of our common stock outstanding and entitled to vote.

How do I vote?

          If you are a registered stockholder, which means you hold your shares (including any restricted shares) in certificate form or through an account with our transfer agent, American Stock Transfer & Trust Company, LLC, you have the following options for voting before the Annual Meeting:

          If you are a beneficial holder, meaning you hold your shares in "street name" through an account with a bank or broker, your ability to vote via the Internet or by telephone depends on the voting procedures of your bank or broker. Please follow the directions on the voting instruction form that your bank or broker provides.

          Stockholders may also attend the Annual Meeting and vote in person. The method you use to vote will not limit your right to vote at the Annual Meeting if you decide to attend in person. Written ballots will be passed out to anyone who wants to vote at the Annual Meeting. If you hold your shares in "street name," you must obtain a proxy, executed in your favor, from the holder of record to be able to vote in person at the Annual Meeting. Please refer to the notice and voting instruction form, or other information forwarded by your bank or broker, for details on how to request a proxy.

Is my vote confidential?

          Confidential voting applies to individual stockholders but not to corporate and institutional stockholders. Our confidential voting policy is set forth in our Corporate Governance Guidelines available at http://ir.hdsupply.com/governance.cfm.

What if I change my mind after I return my proxy?

          You may revoke your proxy and change your vote at any time before the polls close at the Annual Meeting. Registered stockholders may do this by:

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 8


Table of Contents

GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

          If you hold shares through a bank or broker, please refer to your voting instruction form, or other information forwarded by your bank or broker, to see how you can revoke your proxy and change your vote.

          Attendance at the Annual Meeting will not, by itself, revoke a proxy.

How many votes do you need to hold the Annual Meeting?

          The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast at the Annual Meeting will constitute a quorum. A quorum must be present to conduct business at the Annual Meeting.

On what items am I voting?

          You are being asked to vote on two items:

          No cumulative voting rights are authorized, and dissenters' rights are not applicable to these matters.

How does the board of directors recommend that I vote?

          The board recommends that you vote:

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 9


Table of Contents

GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

How may I vote for the proposal to amend the Certificate of Incorporation and Bylaws to declassify the board and provide for the annual elections of directors?

          With respect to this proposal, you may:

          In order to pass, the proposal must receive the affirmative vote of at least 75% of the voting power of the outstanding shares as of the record date. If you abstain from voting on the proposal, it will have the same effect as a vote against the proposal.

How may I vote in the election of directors, and how many votes must the nominees receive to be elected?

          With respect to the election of directors, you may:

          The Company's Bylaws provide for the election of directors by a plurality of the votes cast. This means that the four individuals nominated for election to the board who receive the most "FOR" votes (among votes properly cast in person, electronically or by proxy) will be elected. Notwithstanding such election, each of the four nominees for election as Class II directors has agreed to tender to the board his or her resignation as a director promptly following the certification of election results if he or she receives a greater number of votes "withheld" from his or her election than votes "for" his or her election (see "Majority Voting Policy – Director Nominees" on pages 5-6 for details regarding the board's majority voting policy).

What happens if a nominee is unable to stand for election?

          If a nominee is unable to stand for election, the board may either:

          If the board designates a substitute nominee, shares represented by proxies voted for the nominee who is unable to stand for election will be voted for the substitute nominee.

How may I vote for the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, and how many votes must this proposal receive to pass?

          With respect to this proposal, you may:

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GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

          In order to pass, the proposal must receive the affirmative vote of a majority in voting power of the shares entitled to vote at the Annual Meeting by the shares present in person, electronically, or by proxy and entitled to vote. If you abstain from voting on the proposal, it will have the same effect as a vote against the proposal.

Will my shares be voted if I do not vote via the Internet, telephone, by signing and returning my proxy card, or by attending the Annual Meeting and voting in person?

          If you do not vote via the Internet, by telephone (certain beneficial stockholders), by signing and returning your proxy card, or by attending the Annual Meeting and voting in person, then your shares will not be voted and will not count in deciding the matters presented for stockholder consideration at the Annual Meeting.

          Under certain circumstances and in accordance with NASDAQ rules that govern banks and brokers, if your shares are held in street name through a bank or broker, your bank or broker may vote your shares if you do not provide voting instructions before the Annual Meeting. These circumstances include voting your shares on "routine matters," such as the ratification of the appointment of our independent registered public accounting firm described in this proxy statement. With respect to this proposal, therefore, if you do not vote your shares, your bank or broker may vote your shares on your behalf or leave your shares unvoted.

          The remaining proposals, namely amendment of our Certificate of Incorporation and Bylaws and the election of director nominees, are not considered routine matters under NASDAQ rules relating to voting by banks and brokers. When a proposal is not a routine matter and the brokerage firm has not received voting instructions from the beneficial owner of the shares with respect to that proposal, the brokerage firm cannot vote the shares on that proposal. This is called a "broker non-vote." Broker non-votes at the Annual Meeting will be counted for purposes of establishing a quorum, but will have no effect on the outcome of the proposals being voted on at the Annual Meeting.

          We encourage you to provide instructions to your bank or brokerage firm by voting your proxy. This action ensures your shares will be voted at the meeting in accordance with your wishes.

What is the vote required for each proposal to pass, and what is the effect of abstentions and uninstructed shares on the proposals?

          For the proposal to amend our Certificate of Incorporation and Bylaws to declassify the board and provide for the annual elections of directors, the proposal must receive the affirmative vote of at least 75% of the voting power of the outstanding shares as of the record date. Our Bylaws provide for the election of directors by a plurality of the votes cast. This means that the four individuals nominated for election to the board who receive the most "FOR" votes (among votes properly cast in person, electronically or by proxy) will be elected. Notwithstanding such election, each of the four nominees for election has agreed to tender his or her resignation as a director to the board promptly following the certification of election results if he or she receives a greater number of votes "withheld" from his or her election than votes "for" his or her election (see "Majority Voting Policy – Director Nominees" on pages 5-6 for details regarding the board's majority voting policy). For the proposal to ratify our independent registered public accounting firm to pass in accordance with our Bylaws, the proposal must receive the affirmative vote of a majority of the votes that could be cast at the Annual Meeting by the shares present in person, electronically, or by proxy at the Annual Meeting and entitled to vote. The

 

 

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GENERAL INFORMATION ABOUT THE 2018 ANNUAL MEETING (continued)

following table summarizes the board's recommendation on each proposal, the vote required for each proposal to pass, and the effect abstentions or uninstructed shares (proxy card returned, but voting instructions not provided) have on each proposal.

  Proposal Number
  Item
  Board Voting
Recommendation

  Votes Required for
Approval

  Abstentions
  Broker Non-
Votes

  Uninstructed
Shares

  1   Amendment of Certificate of Incorporation and Bylaws   FOR   75% of the voting power of the outstanding shares as of the record date   Count as votes against   No effect   Count as votes FOR
  2   Election of Directors   FOR   The four nominees who receive the most FOR votes properly cast in person, electronically, or by proxy and entitled to vote will be elected. See Majority Voting Policy – Director Nominees on pages 5-6 for details regarding director resignation where "withhold" vote is greater than "for" vote.   Not applicable   No effect   For all board nominees
  3   Ratification of independent registered public accounting firm   FOR   Majority of the voting power of the shares present in person, electronically, or by proxy and entitled to vote   Count as votes against   Not applicable   Count as votes for ratification

What do I need to attend the Annual Meeting in person?

          You must bring your admittance ticket (the Notice of Internet Availability of Proxy Materials that you received in the mail), proof of your share ownership as of March 21, 2018 (such as a brokerage statement or letter from your broker), and government-issued photo identification (such as a driver's license). If you do not have an admittance ticket, proof of ownership, or a valid photo identification, you will not be admitted to the Annual Meeting. Cameras and recording devices are not permitted at the meeting. All bags, briefcases, and packages will be held at registration and will not be allowed in the meeting.

Can I receive future proxy materials and annual reports electronically?

          Yes. This proxy statement and our annual report on Form 10-K for our fiscal 2017 year ended January 28, 2018 are available by accessing the website located at http://www.astproxyportal.com/ast/18392/. Instead of receiving paper copies in the mail, stockholders can elect to receive an email that provides a link to our future annual reports and proxy materials on the Internet. Opting to receive your proxy materials electronically will save us the cost of producing and mailing documents to your home or business, will reduce the environmental impact of our annual meetings, and will give you an automatic link to the proxy voting site.

          If you are a stockholder of record and wish to enroll in the electronic proxy delivery service for future meetings, you may do so by going to http://www.astproxyportal.com/ast/18392/ and following the prompts. If you hold shares through a bank or broker, please refer to the notice and voting instruction form, or other information forwarded by your bank or broker, to see how you can enroll for electronic proxy delivery for future meetings.

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Table of Contents

OUR EXECUTIVE OFFICERS

Executive Officers

          The following table sets forth certain information concerning our executive officers. The respective age of each individual in the table below is as of March 30, 2018.

Name
  Age
  Position

Joseph J. DeAngelo

  56   Chairman, President and Chief Executive Officer

Evan J. Levitt

    48   Senior Vice President, Chief Financial Officer and Chief Administrative Officer

Dan S. McDevitt

  50   General Counsel and Corporate Secretary

John A. Stegeman

    57   Executive President, HD Supply; President, HD Supply Construction & Industrial - White Cap

William P. Stengel II

  40   President and Chief Executive Officer, HD Supply Facilities Maintenance

Stephen O. LeClair

    49   Former President, HD Supply Waterworks (through August 1, 2017 divestiture of Waterworks business)

          Joseph J. DeAngelo has served as Chairman, President and Chief Executive Officer since March 2015, President and Chief Executive Officer since January 2005, and has been a member of our board since August 2007. Mr. DeAngelo served as Executive Vice President and Chief Operating Officer of The Home Depot from January 2007 through August 2007. From August 2005 to December 2006, he served as Executive Vice President — HD Supply. From January 2005 to August 2005, Mr. DeAngelo served as Senior Vice President — Home Depot Supply, Pro Business and Tool Rental, and from April 2004 through January 2005, he served as Senior Vice President — Pro Business and Tool Rental. Mr. DeAngelo previously served as Executive Vice President of The Stanley Works, a tool manufacturing company, from March 2003 through April 2004. From 1986 until April 2003, Mr. DeAngelo held various positions with General Electric ("GE"). His final position with GE was President and Chief Executive Officer of General Electric TIP/Modular Space, a division of General Electric Capital. Mr. DeAngelo holds a bachelor's degree in accounting and economics from the State University of New York at Albany. Mr. DeAngelo serves on the board of trustees of the Shepherd Center Foundation, the Advisory Board of Combat Marine Outdoors, and the CEO Advisory Council of the Cristo Rey Atlanta Jesuit High School.

          Evan J. Levitt has served as Senior Vice President, Chief Financial Officer since December 2013 and as Chief Administrative Officer since January 2017. Prior to his appointment as Chief Financial Officer, he served as Vice President and Corporate Controller of HD Supply since 2007 when he joined the Company from The Home Depot, where he was the Assistant Controller and Director of Financial Reporting from 2004 to 2007. He also served in various management roles at Payless ShoeSource from 1999-2004, including Vice President of Accounting and Reporting. Prior to Payless ShoeSource, he held the role of Audit Manager with Arthur Andersen. Mr. Levitt has a bachelor of science in business administration from Washington University and is a Certified Public Accountant.

          Dan S. McDevitt has served as General Counsel and Corporate Secretary since January 2015. He joined HD Supply's legal department in 2010 and was promoted to Vice President in 2012. Prior to joining HD Supply, Mr. McDevitt was a partner at the law firm King & Spalding, where he practiced law for thirteen years, primarily focused on securities and corporate governance litigation and related investigations. Before joining King & Spalding, Mr. McDevitt served as a judicial clerk for the Honorable G. Ernest Tidwell on the United States District Court, Northern District of Georgia, and before then was an associate at Sullivan, Hall, Booth, & Smith. Mr. McDevitt received a B.B.A. degree in finance from the University of Notre Dame and a J.D. and LL.M. from the University of Notre Dame Law School.

 

 

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OUR EXECUTIVE OFFICERS (continued)

          John A. Stegeman joined HD Supply in April 2010 as Executive President and focused on building the specialty construction and safety business as the President of HD Supply Construction & Industrial – White Cap. Prior to joining HD Supply, Mr. Stegeman was President and Chief Executive Officer of Ferguson Enterprises, headquartered in Newport News, Virginia from 2005 to 2009. He began his career with Ferguson in 1985 as a management trainee and advanced through the company holding various management positions in three of Ferguson's five business groups: Waterworks, Plumbing, and Heating and Air Conditioning. As part of the Ferguson Waterworks business group, Mr. Stegeman served as Senior Vice President before being named Chief Operating Officer of Ferguson in May 2005. Mr. Stegeman received a bachelor's degree from Virginia Tech and has attended advanced management programs at Wharton School of Business, IMD, Duke University's Fuqua School of Business, University of Virginia Darden School of Business, and Columbia University.

          William P. Stengel has served as President and Chief Executive Officer of HD Supply Facilities Maintenance since June 2017. He served as Chief Operating Officer for HD Supply Facilities Maintenance from August 2016 to June 2017; as Senior Vice President, Chief Commercial Officer of HD Supply Facilities Maintenance from January 2016 to August 2016; as Senior Vice President, Strategic Business Development and Investor Relations of HD Supply from July 2013 through January 2016; and as Vice President, Strategic Business Development from June 2010 to July 2013. Prior to joining HD Supply in 2005, Mr. Stengel worked for Stonebridge Associates, an investment banking firm focused on merger and acquisition and strategic financial advisory services to middle-market companies across a range of consumer, technology, and industrial sectors. He also worked in corporate and investment banking with Bank of America Merrill Lynch. Mr. Stengel holds a bachelor's degree in economics from Trinity College (CT) and an M.B.A. degree with a concentration in strategy and finance from Vanderbilt University's Owen Graduate School of Management.

          Stephen O. LeClair served as President, HD Supply Waterworks from August 2011 through the Company's August 2017 divestiture of its HD Supply Waterworks business, and currently serves as Chief Executive Officer of Core & Main. He served as Chief Operating Officer, HD Supply Waterworks from March 2008 through August 2011. He served as President of HD Supply Lumber and Building Materials from April 2007 until its divestiture in March 2008. Mr. LeClair joined the HD Supply team in October 2005 as Senior Director of Operations and served in that role through April 2007. Before joining HD Supply, he served as Senior Vice President at GE Equipment Services. He also held various roles at GE Appliances and Power Generation in distribution, manufacturing and sales. Mr. LeClair is a graduate of GE Power Generation's Manufacturing Management Program. He is a member of the Saint Louis University's International Business School Advisory Board. He holds a bachelor's degree in Mechanical Engineering from Union College and an M.B.A. degree from the University of Louisville. Mr. LeClair serves on the board of directors of AAON, Inc.

Significant Employees

          Anna Stevens, age 45, is Vice President, Human Resources and Chief People Officer for HD Supply. In her role as Chief People Officer, she oversees all of our human resources professionals across the organization and in multiple functional areas including benefits, recruiting, compensation, organizational development and learning, talent management, strategy, project management, mergers and acquisitions, human resources systems and technologies, payroll and community affairs. With nearly 20 years of experience in human resources management, Ms. Stevens has extensive expertise in communications and change management, human resources strategic planning, staffing, development and succession planning, coaching and performance management. She joined HD Supply in 2008,

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OUR EXECUTIVE OFFICERS (continued)

working in the areas of organizational development, learning and communications before being promoted to Vice President, HR Strategy, Marketing and Communications in 2012 and Vice President, HR Planning and Operations in 2014. Prior to joining HD Supply, Ms. Stevens served in various roles of increasing responsibility for AT&T, Inc. Preceding AT&T, Ms. Stevens held human resources management roles at Progressive, Inc., Bell South and Aerotek Inc. Ms. Stevens holds a bachelor's degree in international relations from Lynchburg College and a master's degree in organizational leadership from Gonzaga University.

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 15

Table of Contents

OUR BOARD OF DIRECTORS

          The Company's Certificate of Incorporation provides that the board shall consist of not fewer than three nor more than 21 directors, with the exact number to be fixed by the board. The board has fixed the current number of directors at nine, and the Company currently has nine directors.

          The Company's Certificate of Incorporation divides the board into three classes, as nearly equal in number as possible, with the terms of office of the directors of each class ending in different years. Class I currently has two directors, Class II has four directors, and Class III has three directors. The terms of directors in Classes I, II, and III end at the annual meetings in 2020, 2018, and 2019, respectively.

Director
  Class
Kathleen J. Affeldt   Class I   – Expiring 2020 Annual Meeting
Peter A. Dorsman   Class I   – Expiring 2020 Annual Meeting
Betsy S. Atkins   Class II   – Expiring 2018 Annual Meeting
Scott D. Ostfeld   Class II   – Expiring 2018 Annual Meeting
James A. Rubright   Class II   – Expiring 2018 Annual Meeting
Lauren Taylor Wolfe   Class II   – Expiring 2018 Annual Meeting
Joseph J. DeAngelo   Class III   – Expiring 2019 Annual Meeting
Patrick R. McNamee   Class III   – Expiring 2019 Annual Meeting
Charles W. Peffer   Class III   – Expiring 2019 Annual Meeting

          At each annual meeting of the stockholders, the successors of the directors whose term expires at that meeting are elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The board is therefore asking you to elect the four nominees for director whose term expires at the Annual Meeting. Betsy S. Atkins, Scott D. Ostfeld, Lauren Taylor Wolfe, and James A. Rubright, our Class II directors, have been nominated by the board for reelection at the Annual Meeting. See "Proposal 2 — Election of Directors" on pages 69-70.

          If our stockholders approve the proposed amendment of our Certificate of Incorporation and Bylaws (see Proposal 1 on pages 67-68) by the requisite vote at the Annual Meeting, then the proposed amendment will become effective immediately upon the filing of the proposed amendment with the office of the Secretary of State of the State of Delaware, which we intend to do during the course of the Annual Meeting, and will apply to the election of directors at the Annual Meeting. If the proposed amendment is approved:

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OUR BOARD OF DIRECTORS (continued)

          The proposed amendment also provides that any director elected to fill a vacancy will hold office for the term that remains for that director, and any director elected to fill a vacancy that resulted from an increase in the size of the board will be elected to serve until the next annual meeting.

          Directors are elected by a plurality. Therefore, the four nominees who receive the most "FOR" votes will be elected. Notwithstanding such election, each of the four nominees for election as Class II directors has agreed to tender to the board his or her resignation as a director promptly following the certification of election results if he or she receives a greater number of votes "withheld" from his or her election than votes "for" his or her election (see "Majority Voting Policy – Director Nominees" on pages 5-6 for details regarding the board's majority voting policy).

          Proxies cannot be voted for a greater number of persons than the number of nominees named. There is no cumulative voting. If you sign and return the accompanying proxy card, your shares will be voted for the election of the four nominees recommended by the board unless you choose to withhold from voting for any of the nominees. If a nominee is unable to serve or will not serve for any reason, proxies may be voted for such substitute nominee as the proxy holder may determine. The Company is not aware of any nominee who will be unable to or will not serve as a director.

          Set forth below is biographical information as well as background information relating to each nominee's and continuing director's business experience, qualifications, attributes, and skills and why the board and Nominating and Corporate Governance Committee believe each individual is a valuable member of our board. The persons who have been nominated for election and are to be voted upon at the Annual Meeting are listed first, with continuing directors following thereafter.


 

 

 

 

 

 

 

 

 

Nominees:

 

 

 

 

 

 

 

 

Betsy S. AtkinsChief Executive
Officer, Baja Corporation

 

Age 64

 

Class II — term expiring at 2018 Annual Meeting Committees: N&CG (Chair)

 

Director since 2013

 

 

Background: Ms. Atkins has served as chief executive officer of Baja Corporation since 1991. She served as chairperson of APX Labs, LLC (now Upskill), a Google Glass/Smart Glass enterprise software company from 2013 to 2016. She served as president and chief executive officer of Baja Ventures, an independent venture capital firm focused on the technology, renewable energy, and life sciences industry, from 1991 through 2008. From 2008 through 2009, Ms. Atkins served as chief executive officer and chairperson of Clear Standards, Inc., which developed enterprise level energy management and sustainability software, prior to its sale to SAP AG. She previously served as chairperson and chief executive officer of NCI, Inc., a food manufacturer creating Nutraceutical and Functional Food products, from 1991 through 1993. Ms. Atkins co-founded Ascend Communications, a manufacturer of communications equipment, in 1989, where she was also a member of the board of directors until its acquisition by Lucent Technologies in 1999. Ms. Atkins currently serves on the board of directors of Schneider Electric, SA (April 2011 – present), SL Green Realty Corp (April 2015 – present), and Cognizant Technology Solutions Corporation (April 2017 – present). She also serves on the board of directors of a number of private companies, including Volvo Car Corporation (January 2016 – present). She has extensive public board experience, including most recently, Polycom, Inc. (1999-2016), Darden Restaurants, Inc. (2014-2015), Ciber, Inc. (2014), Wix.com Ltd. (2013-2014); and Chico's FAS,  Inc. (2004-2013). She holds a bachelor's degree from the University of Massachusetts.

 

 

Director Qualifications: Ms. Atkins has significant entrepreneurial, senior management, and operational experience, with deep technology expertise in cyber, mobile, social, and digital transformation. She also brings to the board extensive knowledge in the areas of executive compensation and corporate governance.

 

 

 

 

 

 

 

 

 

 

 

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OUR BOARD OF DIRECTORS (continued)


 

 

 

 

 

 

 

 

 

 

 

Scott D. Ostfeld, Partner,
JANA Partners

 

Age 41

 

Class II — term expiring at 2018 Annual Meeting
Committees: Compensation

 

Director since 2017

 

 

Background: Mr. Ostfeld is a partner of JANA Partners where he is co-portfolio manager of the JANA Strategic Investments Fund and is responsible for special situations investments, including active stockholder engagement. Prior to joining JANA in 2006, Mr. Ostfeld was with GSC Partners in their distressed debt private equity group focused on acquiring companies through the bankruptcy restructuring process and enhancing value as an active equity owner. Prior to GSC Partners, Mr. Ostfeld was an investment banker at Credit Suisse First Boston where he worked on a variety of M&A and capital raising assignments. Mr. Ostfeld was a member of the board of directors of Team Health Holdings, Inc. from March 2016 to February 2017. He serves on the nonprofit boards for Columbia University's Richman Center for Business, Law, and Public Policy and The Opportunity Network Mr. Ostfeld received a J.D. from Columbia Law School, an M.B.A. from Columbia Business School and a B.A. from Columbia University.

 

 

Director Qualifications: Mr. Ostfeld has extensive experience investing in companies and engaging with them to help improve stockholder value, as well as with capital allocation, strategy and governance. His knowledge and experience brings valuable insight to the board. The age diversity that Mr. Ostfeld brings to the board also further enhances the diversity of experience, backgrounds and opinions represented on the board.

 

 

 

 

 

 

 

 

 

 

 

James A. Rubright,Retired CEO,
Rock-Tenn Co.

 

Age 71

 

Class II — term expiring at 2018 Annual Meeting Committees: Audit; N&CG

 

Director since 2014

 

 

Background: Mr. Rubright served as chief executive officer of Rock-Tenn Co. from 1999 until his retirement in October 2013, and served as an executive officer of Sonat, Inc. from 1994 to 1999 in various capacities, including head of Sonat's interstate natural gas pipeline group and energy marketing businesses. Prior to 1994, he was a partner in the law firm of King & Spalding. Mr. Rubright has served as a member of the board of directors of Southern Company Gas, an energy services holding company, since 2016. He previously served as a member of the board of directors of Forestar Group, Inc., a real estate and natural resources company, from 2007 until 2017; AGL Resources, Inc., from 2001 to 2016; Avondale, Incorporated, the parent company of Avondale Mills, Inc., from 2003 to 2008, and as chairman of Rock-Tenn's board from 2000 until his retirement in October 2013. He holds a bachelor of arts degree from Yale College and a juris doctor degree from the University of Virginia Law School.

 

 

Director Qualifications: Mr. Rubright has significant experience in public company management and board leadership, and a deep understanding of operations, strategy, and risk management that provides valuable insight to our board.

 

 

 

 

 

 

 

 

 

 

 

Lauren Taylor Wolfe, Founding
Partner, Impactive Capital

 

Age 39

 

Class II — term expiring at 2018 Annual Meeting Committees: Audit; N&CG

 

Director since 2017

 

 

Background: Ms. Taylor Wolfe is the founding partner of Impactive Capital, an impact-oriented investing firm, effective April 2018. She served as a managing director and investing partner of Blue Harbour Group, an activist investment firm that engages collaboratively with management teams and boards to enhance stockholder value, from December 2007 through January 2018. Prior to joining Blue Harbour Group in 2007, she was a portfolio manager and analyst at SIAR Capital where she invested in small capitalization public and private companies. From 2000 to 2003, Lauren worked at Diamond Technology Partners, a strategic technology consulting firm. She received a master's degree in business administration from The Wharton School at University of Pennsylvania in 2006 and a bachelor of science degree from Cornell University in 2000.

 

 

Director Qualifications: Ms. Taylor Wolfe has expertise in capital allocation, capital markets and financial analysis and experience across various industries including information technology, consumer, industrials, and business services. Her diverse knowledge and experience across various industry verticals and expertise in capital allocation and long-term value investing brings valuable insight to the board. The age and gender diversity that Ms. Taylor Wolfe brings to the board also further enhances the diversity of experience, backgrounds and opinions represented on the board.

 

 

 

 

 

 

 

 

 

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OUR BOARD OF DIRECTORS (continued)


 

 

 

 

 

 

 

 

 

Continuing Directors:

 

 

 

 

Kathleen J. Affeldt, Retired,
Former Vice President, Human Resources, Lexmark International

 

Age 69

 

Class I — term expiring at 2020 Annual Meeting Independent Lead Director Committees: Compensation (Chair)

 

Director since 2014

 

 

Background: Ms. Affeldt began her career at IBM in 1969, specializing in sales of supply chain systems. She later held a number of human resources management positions at IBM and joined Lexmark as a director of human resources in 1991 when it was formed as a result of a buy-out from IBM. Ms. Affeldt previously served on the board, and as chair of the compensation committee, of SIRVA, Inc. from August 2002 to May 2007 and Sally Beauty Holdings, Inc. from November 2006 to November 2013. She also served on the board of Whole Health, Inc. from 2004 to 2006. Ms. Affeldt currently serves on the board, and as chair of the compensation committee, of NCI Building Systems, Inc. since November 2009, and as chair of the board of BTE Technologies, Inc. since May 2004. Ms. Affeldt majored in business administration at the State University of New York and Hunter College. She has also participated in numerous technical and leadership development programs, as well as the executive education program at Williams College.

 

 

Director Qualifications: Ms. Affeldt's board leadership and expertise in the human resources field and executive compensation, coupled with her operations history, strong business acumen, and public company experience, provides valuable insight to the board.

 

 

 

 

 

 

 

 

 

 

 

Peter A. Dorsman, Retired,
Former EVP, Global Services, NCR Corporation

 

Age 62

 

Class I — nominee for election at 2020 Annual Meeting Committees: Audit; Compensation

 

Director since 2017

 

 

Background: Mr. Dorsman retired from NCR Corporation, a global technology company, in April 2014. As executive vice president, global services since July 2012, Mr. Dorsman led NCR Services, a leading global provider of outsourced and managed service offerings. He was also responsible for customer experience, continuous improvement, and quality throughout NCR, serving as chief quality officer during this period. He served as NCR's executive vice president, industry solutions group and global operations from November 2011 to July 2012, and, before then, senior vice president, global operations. Prior to rejoining NCR, Dorsman was executive vice president and chief operating officer of Standard Register, a provider of information solutions, where he was responsible for the day-to-day operations of the company. Before his role at Standard Register, Mr. Dorsman previously served for nearly 20 years at NCR in various global marketing and sales leadership roles including vice president of worldwide industry marketing. Mr. Dorsman currently serves on the board of directors for Applied Industrial Technologies, a global industrial distributor. During his tenure as a director since July 2002, he has been lead independent director, chairman of the corporate governance committee, and currently is chairman of the executive organization and compensation committee and member of the audit committee. Mr. Dorsman is also currently a member of the board of directors for IDEAL Industries, a diversified manufacturer (August 2016 – present), and nfrastructure (a Zones subsidiary), a global information technology solutions provider (October 2016 – present). He earned a bachelor of science degree from Syracuse University in 1977.

 

 

Director Qualifications: Mr. Dorsman is an experienced board member and brings extensive experience in leading large supply chain and customer service organizations. He has broad distribution expertise as both a senior executive and as a board member.

 

 

 

 

 

 

 

 

 

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 19

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OUR BOARD OF DIRECTORS (continued)


 

 

 

 

 

 

 

 

 

 

 

Joseph J. DeAngelo, Chairman,
President and Chief Executive Officer, HD Supply

 

Age 56

 

Class III — term expiring at 2019 annual meeting Board Chairman

 

Director since 2007

 

 

Background: Mr. DeAngelo has served as chairman of the board, president and chief executive officer since March 2015, president and chief executive officer since January 2005, and has been a member of our board since August 2007. Mr. DeAngelo served as executive vice president and chief operating officer of The Home Depot from January 2007 through August 2007. From August 2005 to December 2006, he served as executive vice president, HD Supply. From January 2005 to August 2005, Mr. DeAngelo served as senior vice president, Home Depot Supply, Pro Business and Tool Rental and from April 2004 through January 2005, he served as senior vice president, Pro Business and Tool Rental. Mr. DeAngelo previously served as executive vice president of The Stanley Works, a tool manufacturing company, from March 2003 through April 2004. From 1986 until April 2003, Mr. DeAngelo held various positions with GE. His final position with GE was president and chief executive officer of General Electric TIP/Modular Space, a division of General Electric Capital. Mr. DeAngelo holds a bachelor's degree in accounting and economics from the State University of New York at Albany. Mr. DeAngelo serves on the board of trustees of the Shepherd Center Foundation, the Advisory Board of the Combat Marine Outdoors, and the CEO Advisory Council of the Cristo Rey Atlanta Jesuit High School. Mr. DeAngelo served on the board of directors of Owens-Illinois, Inc. from May 2016-July 2017.

 

 

Director Qualifications: As our chief executive officer, Mr. DeAngelo possesses in-depth knowledge of the issues, opportunities, and challenges facing the Company. His extensive experience identifying strategic priorities, leading critical discussions, and executing the Company's strategy and business plans provides valuable insight and leadership to our board. He led the transformation of our Company through severe economic downturn by streamlining and simplifying our business model, divesting non-core businesses and products, and achieving significant debt reduction and cost control. He has demonstrated leadership qualities, management capability, knowledge of our business and industry, and a long-term strategic perspective. He has over 34 years of global operating experience, including over 17 years in various leadership roles at General Electric Company and The Home Depot.

 

 

 

 

 

 

 

 

 

 

 

Patrick R. McNameeFormer
Chief Executive Officer, Health Insurance Innovations, Inc.

 

Age 58

 

Class III — term expiring at 2019 annual meeting Committees: Compensation

 

Director since 2013

 

 

Background: Mr. McNamee has served as executive advisor to Beecken Petty O'Keefe & Company, a Chicago-based private equity management firm, since March 2015. He served as chief executive officer and member of the board of directors of Health Insurance Innovations, Inc. from November 2015 through December 2016 and as president from June 2015 through December 2016. Prior to joining Health Insurance Innovations, Mr. McNamee served as executive vice president and chief operating officer of Express Scripts Holding Company, a pharmacy benefit management company until March 2014. He joined Express Scripts in 2005 as senior vice president and chief information officer, expanding his role to executive vice president-chief operating officer in 2007. Prior to joining Express Scripts, Mr. McNamee was a key executive of Misys Healthcare Systems, a healthcare technology company, serving as president and chief executive officer, physician systems, from September 2003 to February 2005. Mr. McNamee was employed by various subsidiaries of General Electric Corporation from July 1989 to September 2003, including as president and chief executive officer, GE surgery, GE medical systems, from July 2002 to September 2003; chief information officer and chief quality officer, NBC, from March 2001 to July 2002; and chief information officer and general manager of e-Business, GE transportation systems, from March 1999 to March 2001; chief information officer, GE power plants, from March 1997 to March 1999; and global product manager, radiology information systems, GE medical, from 1993 through 1997. He currently serves on the board of directors of Maxor National Pharmacy Services, LLC (August 2017 – present) and Zenith American, LLC (January 2017 – present). He holds a bachelor's degree in biomedical engineering and a master's degree in electrical engineering from Marquette University.

 

 

Director Qualifications: Mr. McNamee brings public company CEO experience, as well as strategic and operational expertise to the board, with a unique combination of business savvy, service and product development, information technology innovation, and supply chain management across a variety of industries.

 

 

 

 

 

 

 

 

 

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OUR BOARD OF DIRECTORS (continued)


 

 

 

 

 

 

 

 

 

 

 

Charles W. Peffer, Retired
Partner of KPMG LLP

 

Age 70

 

Class III — term expiring at 2019 annual meeting Financial Expert

 

Director since 2013
            Committees: Audit (Chair)    

 

 

Background: Mr. Peffer retired as a partner of KPMG LLP in 2002 after 32 years with KPMG in its Kansas City office. He served as partner in charge of audit from 1986 to 1993, with overall responsibility for audits of financial statements from 1979 to 2002. He was managing partner of the Kansas City office from 1993 to 2000. He currently serves as the audit committee chairman on the board of directors of Garmin Ltd., Sensata Technologies Holding N.V., and the Commerce Funds, a family of eight mutual funds. He served on the board of directors of NPC International from 2006 through 2017. Mr. Peffer holds a bachelor's degree in business administration from the University of Kansas and a master's degree in business administration from Northwestern University.

 

 

Director Qualifications: Mr. Peffer brings to the board extensive practical and management experience in public accounting and corporate finance, including significant experience with KPMG and its predecessor firms dealing with generally accepted accounting principles, auditing standards, internal controls, preparation of financial statements, financial reporting rules and evaluating financial results, and financial reporting processes of large companies. Mr. Peffer also brings leadership expertise through his directorship roles in other public companies, including service on audit committees.

 

 

 

 

 

 

 

 

 

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 21

Table of Contents

GOVERNANCE OF OUR COMPANY

          The following sections provide an overview of our corporate governance structure and processes. Among other topics, we describe how we select directors, how we consider the independence of our directors, and key aspects of our board operations.

Selecting Nominees for Director

          Our board has delegated to the Nominating and Corporate Governance Committee the responsibility for reviewing and recommending nominees for director to the board. In accordance with our Corporate Governance Guidelines, and on recommendation of the Nominating and Corporate Governance Committee, our board has adopted criteria for the selection of new directors based on the strategic needs of the Company and the board. The Nominating and Corporate Governance Committee will periodically review the criteria adopted by the board and, if deemed desirable, recommend changes to the criteria.

          Pursuant to the criteria adopted by our board, the board seeks members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. Individuals are considered for nomination to the board based on their business and professional experience, judgment, oversight roles held, age, skills, and background. The board also considers the candidate's availability, absence of conflicts, and any applicable independence or experience requirements. The Nominating and Corporate Governance Committee considers diversity in identifying nominees for director, including personal characteristics such as race and gender, as well as diversity in experience and skills relevant to the board's performance of its responsibilities in the oversight of the business. For each of the nominees to the board, the biographies shown above highlight the experiences and qualifications that were among the most important to the Nominating and Corporate Governance Committee in concluding that the nominee should serve as a director of the Company.

          The Nominating and Corporate Governance Committee is responsible for recommending to the board nominees for election to the board at each annual meeting of stockholders and for identifying one or more candidates to fill any vacancies that may occur on the board. New candidates may be identified through recommendations from independent directors or members of management, search firms, discussions with other persons who may know of suitable candidates to serve on the board, and stockholder recommendations. Evaluations of prospective candidates typically include a review of the candidate's background and qualifications by the Nominating and Corporate Governance Committee, interviews with the committee as a whole, one or more members of the committee, or one or more other board members, and discussions of the committee and the full board. The committee then recommends candidates to the full board, with the full board selecting the candidates to be nominated for election by the stockholders or to be elected by the board to fill a vacancy.

          In accordance with the board's majority voting policy, the board will consider as candidates for nomination for election or reelection to the board, or to fill vacancies and new directorships on the board, only those individuals who agree to tender, promptly following their election, reelection or appointment, an irrevocable resignation that will be effective upon (i) the occurrence of the nominee receiving a greater number of votes "withheld" from his or her election to the board than votes "for" his or her election and (ii) acceptance of the tendered resignation by the board (see "Majority Voting Policy — Director Nominees" on pages 5-6 for details regarding the board's majority voting policy).

          The Nominating and Corporate Governance Committee will consider director candidates proposed by stockholders on the same basis as recommendations from other sources. Any stockholder

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GOVERNANCE OF OUR COMPANY (continued)

who wishes to recommend a prospective candidate for the board for consideration by the Nominating and Corporate Governance Committee may do so by submitting the name and qualifications of the prospective candidate in writing to the following address: Dan S. McDevitt, General Counsel and Corporate Secretary, HD Supply Holdings, Inc., 3400 Cumberland Boulevard, Atlanta, Georgia 30339. Any such submission should also describe the experience, qualifications, attributes and skills that make the prospective candidate a suitable nominee for the board. Our Bylaws set forth the requirements for director nomination by a stockholder of persons for election to the board. These requirements are described under "Other Information for Stockholders" on page 72 of this proxy statement.

          There are no agreements or arrangements between third parties and any of our directors, including the nominees, which provide for compensation or other payment in connection with the director's candidacy or service as a director.

Board Refreshment

          The Nominating and Corporate Governance Committee periodically assesses the composition of our board, including whether any vacancies are expected on our board due to retirement or otherwise. In connection with this review in fiscal 2017, four new independent directors, Peter A. Dorsman, Lionel Nowell, Scott D. Ostfeld and Lauren Taylor Wolfe, joined our board in 2017, bringing fresh and diverse perspectives. Mr. Dorsman brings extensive experience in leading large supply chain and customer service organizations. Mr. Nowell's extensive financial background brought knowledge to the board in the areas of corporate finance, credit and treasury, financial reporting, accounting and controls and risk oversight. Mr. Ostfeld brings extensive experience investing in companies and engaging with them to help improve stockholder value, as well as with capital allocation strategy and governance. Ms. Taylor Wolfe's diverse knowledge and experience across various industry verticals and expertise in capital allocation and long-term value investing brings valuable insight to the board. The age, gender, and thought diversity that these new independent directors bring to the board also further enhances the diversity of experience, backgrounds and opinions represented on the board. We believe the addition of these new directors, combined with our directors who have experience with us, provides a strong balance of deep, historical understanding of our Company and new perspectives, resulting in strong guidance and oversight to our executive management team.

          Pursuant to our age 75 mandatory retirement policy, John W. Alden retired from board service in May 2017. Peter Leav and Lionel Nowell resigned from board service in July and September 2017, respectively.

Director Independence

          The board reviewed director independence during fiscal 2017 and considered whether there were any relationships between each director or any member of his or her immediate family and the Company. The board also examined whether there were any relationships between an organization of which a director is a partner, stockholder or executive officer and the Company. The purpose of this review was to determine whether any such relationships were inconsistent with a determination that a director is independent. No director is deemed independent unless the board has made an affirmative determination that such director has no relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. When conducting its analysis, the board specifically considered all transactions discussed in "Related Person Transactions" on pages 29-30 of this proxy statement. As a result of this review, the board affirmatively determined that

 

 

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GOVERNANCE OF OUR COMPANY (continued)

all of its non-employee directors are independent, and all directors serving on the standing committees of the board satisfy the independence requirements of NASDAQ and the U.S. Securities and Exchange Commission (the "SEC") relating to directors and Audit, Compensation and Nominating and Corporate Governance Committee members.

Executive Sessions of our Non-Management Directors

          The chairman of the board, or the independent lead director if the chairman is not independent, and the full board separately, have authority to require the board to meet in executive sessions outside the presence of management. The independent directors meet at regularly scheduled executive sessions without management at least twice per year. In the absence of an independent chairman, the independent lead director will act as chair at such meetings, and if no lead director has been appointed or if the lead director also is not present, the Nominating and Corporate Governance Committee chairperson shall preside over executive sessions and other meetings of the independent directors. The independent directors met in executive session outside the presence of management five times during fiscal 2017.

Board Self-Evaluation Process

          The Nominating and Corporate Governance Committee leads the annual board and board committee self-evaluation. For fiscal 2017, the process was conducted by survey at the May meetings, with each director completing a detailed questionnaire providing for quantitative ratings in key areas such as overseeing personnel development and succession plans, financials, strategy, risk and governance issues and board dynamics, and seeking subjective comment in each of those areas, to determine their effectiveness and opportunities for improvement. The survey feedback is discussed with the chairman, independent lead director, and the chair of each board committee to ensure that actionable items are appropriately handled. In addition, our independent lead director led a discussion regarding the feedback with the full board. The committee periodically reviews the self-evaluation process in an effort to continually improve board effectiveness.

Board Leadership Structure

          As noted in our Corporate Governance Guidelines, the board has no policy with respect to the separation of the offices of chairman of the board and chief executive officer. The board believes that it is important to retain its flexibility to allocate the responsibilities of the offices of the chairman and chief executive officer in any way that is in the best interests of the Company at a given point in time. As part of its annual self-evaluation process, the board evaluates whether the board leadership structure provides the optimal structure for the Company.

          Currently, our chief executive officer, Joseph J. DeAngelo, serves as chairman of the board, and Kathleen J. Affeldt serves as the independent lead director of the board. Our board believes that having a combined chairman/chief executive officer, independent members and chairs for each of our board committees, and an independent lead director currently provides the best board leadership structure for the Company. This structure, together with our other corporate governance practices, provides strong independent oversight of management while ensuring clear strategic alignment throughout the Company. Our lead director is an independent, non-employee director who is appointed by the independent directors of the board.

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GOVERNANCE OF OUR COMPANY (continued)

          Our board appointed Mr. DeAngelo to serve as chairman of the board based on the leadership qualities, management capability, knowledge of the business and industry, and long-term, strategic perspective he has demonstrated as our chief executive officer. The independent directors supported the appointment of Ms. Affeldt as our independent lead director, as she possesses the characteristics and qualities critical for an independent lead director. Having served as chairman of the board of BTE Technologies and as chair of the compensation of public companies, and having significant public board experience, Ms. Affeldt has the qualities and experience desired for an independent lead director — high personal integrity, significant board leadership experience, strong business acumen and operations history, and public company experience.

          Our Corporate Governance Guidelines require the chairman either to be independent or, if not, to be complemented by an independent lead director. A critical element for our board in supporting the current board leadership structure is the simultaneous adoption of robust and transparent duties for the independent lead director. These duties help facilitate our board's independent, objective, effective, and efficient oversight of our Company. Our board believes that an executive chairman working with an independent lead director who has strong, well-defined duties gives our board a strong leadership and corporate governance structure that best serves the needs of the Company today. The respective roles and responsibilities of the chairman of the board and independent lead director are set forth in the Company's Corporate Governance Guidelines, available on the corporate governance section of our investor relations website at http://ir.hdsupply.com/governance.cfm.

Board's Role in Risk Oversight

          Our board has overall responsibility for overseeing our risk management. Under its charter, the Audit Committee is responsible for reviewing and discussing the Company's risk management practices, including the effectiveness of the systems and policies for risk assessment and risk management, the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures, any unusual material transactions and management, internal auditor and independent auditor reviews of the Company's Foreign Corrupt Practices Act policies, procedures and monitoring. The Audit Committee also oversees our corporate compliance and ethics programs, as well as the internal audit function. The board's other committees oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee oversees the potential risks associated with our compensation policies and practices.

          In addition to the committees' work in overseeing risk management, our full board regularly engages in discussions of the most significant risks that the Company is facing and how these risks are being managed. The board also receives reports on risk management from senior officers of the Company and from the committee chairs. The board reviews periodic assessments from the Company's ongoing enterprise risk management process that are designed to identify potential events that may affect the achievement of the Company's objectives.

          The Company's general counsel reports directly to our chief executive officer, providing him with visibility into the Company's risk profile. The Company's internal audit staff regularly reports to the Audit Committee, and our general counsel and our vice president of internal audit, have regularly scheduled private sessions with the Audit Committee. The board believes that the work undertaken by the committees of the board, together with the work of the full board and our chief executive officer, enables the board to oversee effectively the Company's risk management function.

 

 

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GOVERNANCE OF OUR COMPANY (continued)

Corporate Governance Guidelines, Committee Charters, and Codes of Business Conduct and Ethics

          Our Corporate Governance Guidelines are available on the corporate governance section of our investor relations website at http://ir.hdsupply.com/governance.cfm. The charters for each of the Audit, Compensation, and Nominating and Corporate Governance Committees are also available on our investor relations website.

          We have a long-standing commitment to conduct our business in accordance with the highest ethical principles. Our Code of Business Conduct and Ethics is applicable to all the representatives of our enterprise, including our executive officers and all other employees and agents of our Company and our subsidiary companies, as well as to our directors. A copy of our code is available on the corporate governance section of our investor relations website. Under this code of ethics, our associates are encouraged to talk to supervisors, managers, or other appropriate personnel when in doubt about the best course of action in a particular situation. Any violation will be subject to appropriate discipline, up to and including dismissal from the Company or prosecution under the law.

          Our Code of Ethics for Senior Executive and Financial Officers, also available on our investor relations website, applies to our chief executive officer, chief financial officer, chief accounting officer, and any other senior executive or financial officer performing similar functions. Under this code of ethics, our executives are required, among other things, to act with honesty and integrity, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; to provide full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC, and in other public communications made by the Company; to comply with applicable laws, governmental rules and regulations, including insider trading laws; and to promote the prompt internal reporting of potential violations or other concerns related to the code of ethics to the chair of the Audit Committee. We have also adopted a policy providing procedures by which our in-house and outside attorneys are to report material violations of applicable U.S. federal or state laws, or a material breach of a fiduciary duty, as required by SEC rules.

Committees of the Board of Directors

          Our board has three committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance ("N&CG") Committee. Each current board committee has adopted a charter, available on the corporate governance section of our investor relations website at http://ir.hdsupply.com/governance.cfm.

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GOVERNANCE OF OUR COMPANY (continued)

          The following table shows the current members of each committee and the number of meetings held during fiscal 2017. Mr. DeAngelo is chairman of the board but does not serve on any board committee.

Director
  Board
  Audit
  Compensation
  N&CG

Kathleen J. Affeldt

  ü**     ü*  

Betsy S. Atkins

  ü               ü*

Joseph J. DeAngelo

  ü*        

Peter A. Dorsman

  ü       ü     ü      

Scott D. Ostfeld

  ü         ü    

Patrick R. McNamee

  ü           ü      

Charles W. Peffer

  ü       ü*    

James A. Rubright

  ü       ü         ü  

Lauren Taylor Wolfe

  ü       ü       ü  

Number of Meetings

  8       8     4     5  

ü = current board/committee member; * = chair; ** = independent lead director;

          Audit Committee.    The Audit Committee has oversight responsibility for, among other things, assisting the board in reviewing our financial reporting and other internal control processes, our financial statements, the independent auditors' qualifications and independence, the performance of our internal audit function and independent auditors, and our compliance with legal and regulatory requirements and our code of business conduct and ethics.

          During fiscal 2017, the Audit Committee held eight meetings. Each member of our Audit Committee meets the independence requirements of NASDAQ and the SEC, and each is financially literate. Our board has determined that Charles W. Peffer is an audit committee financial expert as defined by the SEC.

          Compensation Committee.    The Compensation Committee has oversight responsibility for, among other things, executive succession planning, the compensation of our executive officers and directors, approving equity grants and other incentive arrangements, and authorizing employment-related agreements for our executive officers.

          During fiscal 2017, the Compensation Committee held four meetings. All directors serving on the Compensation Committee meet NASDAQ independence requirements, the "non-employee director" requirements of SEC Rule 16b-3, and were outside directors under Section 162(m) during fiscal 2017 (which will not be not applicable after 2017 under the Tax Cuts and Jobs Act). For additional information about the Compensation Committee's processes and the role of executive officers and compensation consultants in determining compensation, see "Compensation Discussion and Analysis" beginning on page 38 of this proxy statement.

          Nominating and Corporate Governance Committee.    The Nominating and Corporate Governance Committee has the responsibility for identifying and recommending candidates for election to the board, reviewing the composition of the board and its committees, developing and recommending to the board corporate governance guidelines that are applicable to us, and overseeing board evaluations.

          During fiscal 2017, the Nominating and Corporate Governance Committee held five meetings. All directors serving on the Nominating and Corporate Governance Committee meet NASDAQ independence requirements for nominating and corporate governance committees.

 

 

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GOVERNANCE OF OUR COMPANY (continued)

Compensation Committee Interlocks and Insider Participation

          Kathleen J. Affeldt, John W. Alden (before his retirement in May 2017), Betsy S. Atkins (through September 2017), Peter A. Dorsman (from March 2017), Scott D. Ostfeld (from September 2017), and Patrick R. McNamee were members of the Compensation Committee of our board during fiscal 2017. None of these directors is or was an employee or former employee of the Company.

          None of our executive officers serves as a member of a board or compensation committee of any entity that has one or more executive officers who serve on the board or Compensation Committee.

Compensation Practices and Risk Management

          During fiscal 2017, management and the Compensation Committee conducted a comprehensive assessment and evaluation of the potential risks associated with our compensation policies and practices with respect to both executive compensation and compensation generally. Based on our approach of compensating our associates for the financial success of the Company as a whole and other elements of our compensation program, we concluded that our compensation policies and practices do not encourage undue risk-taking and do not create any risk that is reasonably likely to have a material adverse effect on the Company. We believe that our compensation practices provide a balanced mix of cash and equity, annual and longer-term incentives, and performance metrics that mitigate excessive risk-taking that could diminish our value.

Meetings of the Board of Directors and Attendance at the Annual Meeting

          The board held eight meetings during fiscal 2017. Each of our directors, other than Mr. Alden, attended 75% or more of the total number of meetings of the board during fiscal 2017. Mr. Alden missed one of the two board meetings held before his retirement in May 2017 due to a scheduling conflict. All directors attended all meetings of the committees of which he or she was a member during fiscal 2017, other than Mr. McNamee, who missed one Audit Committee meeting, Mr. Leav who missed one Nominating and Corporate Governance Committee meeting, and Mr. Alden who missed

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GOVERNANCE OF OUR COMPANY (continued)

one Compensation Committee meeting, all due to scheduling conflicts. Directors are encouraged to attend our annual meetings and seven of the nine individuals who were directors at the time attended the 2017 annual meeting.

Succession Planning and Management Development

          We are focused on talent development at all levels within our organization. Among the Compensation Committee's key responsibilities is the responsibility to ensure that management establishes and the committee oversees an effective executive succession process. The board regularly reviews the succession plans that support our overall business strategy, with a focus on key positions at the senior officer level. The board recognizes that succession planning and talent management are closely connected to risk management. Potential leaders are given exposure and visibility to board members through formal presentations and informal events. More broadly, the board is regularly updated on key talent indicators for the overall workforce, including through diversity, recruiting, and development programs.

Policies and Procedures for Related Person Transactions

          We have adopted a written related person transactions policy under which related persons, namely our executives, directors, and principal stockholders, and each of their immediate family members, are not permitted to enter into certain transactions, or materially modify or amend an ongoing transaction, with the Company in an amount exceeding $120,000, without the consent of our Audit Committee or a designated member of the Audit Committee. Any request for us to enter into or materially modify or amend such transactions is required to be presented to our Audit Committee for review, consideration, and approval. All of our directors and executive officers are required to report to our Audit Committee any such related person transaction. In approving or rejecting the proposed transaction, our Audit Committee will take into account, among other factors it deems appropriate, whether the proposed related person transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the related person's interest in the transaction, and, if applicable, the impact on a director's independence. Under the policy, if we should discover related person transactions that have not been approved, our Audit Committee will be notified and will determine the appropriate action, including ratification, rescission, or amendment of the transaction.

Related Person Transactions

Indemnification Agreements

          We have entered into an indemnification agreement with each of our directors. The indemnification agreements provide our directors with contractual rights to the indemnification and expense advancement rights provided under our Bylaws, as well as contractual rights to additional indemnification as provided in the indemnification agreement.

Agreements with Home Depot

          On August 30, 2007, investment funds associated with Clayton, Dubilier & Rice, LLC, The Carlyle Group and Bain Capital Partners, LLC entered into a stock purchase agreement with The Home Depot, Inc. ("Home Depot") pursuant to which Home Depot agreed to sell to the Company, or

 

 

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GOVERNANCE OF OUR COMPANY (continued)

to a wholly-owned subsidiary of the Company, certain intellectual property and all of the outstanding common stock of HD Supply, Inc., our primary operating company and a wholly-owned subsidiary of the Company ("HDS") and a Canadian subsidiary, CND Holdings, Inc. On August 30, 2007, through a series of transactions, the Company's direct wholly-owned subsidiary, HDS Holding Corporation, acquired direct control of HDS and the Canadian subsidiary, CND Holdings, Inc. (the "2007 Transaction").

          Certain guarantees, surety bonds and letters of credit that Home Depot and/or its affiliates entered into prior to the closing of the 2007 Transaction (other than HDS, HD Supply Canada, Inc. and their respective affiliates) relate to our and our subsidiaries' obligations to landlords, customers and suppliers, and remained in place immediately after the closing of the 2007 Transaction. The Company agreed in the purchase and sale agreement to fully indemnify Home Depot and its affiliates from any losses that arise out of these obligations. The Company also agreed to use its reasonable best efforts to cause itself and/or HD Supply to be substituted for Home Depot and/or its affiliates and to have Home Depot and its affiliates released in respect of certain such obligations.

Transactions with Other Related Parties

          In May 2015, James A. Rubright, an independent director, acquired a 24.5% interest in MPC Partnership Holdings, LLC (d/b/a Carroll Organization), which is the managing member of, and owns a minority interest in, affiliated apartment community owners. The Company had a preexisting relationship with the Carroll Organization pursuant to which its affiliated apartment community owners purchased products from the Company. On a consolidated basis, the Carroll Organization's affiliated apartment community owners purchased products from the Company of $3.14 million in fiscal 2017, $3.71 million in fiscal 2016, and $3.67 million in fiscal 2015. These transactions were conducted in the ordinary course of business on an arm's-length basis on terms and at prices management believes an unrelated third party would pay.

          Gail T. DeAngelo, who is the sister of our chief executive officer, was a senior business manager for the Company from January 2008 through her December 2017 termination date. During fiscal 2017, Ms. DeAngelo received an aggregate of $113,391 in base compensation, as well as customary employee benefits. As a senior manager, Ms. DeAngelo was not eligible to participate in our equity compensation plan, but was a participant in our associate stock purchase plan, which provides a 5% discount on purchased stock ($179 benefit for fiscal 2017). In connection with closing our Schenectady, New York office and related termination of Ms. DeAngelo's employment with the Company, the Audit Committee approved severance payments of $44,259 for Ms. DeAngelo, representing 12 weeks of base compensation and a prorated fiscal 2017 bonus payment, in exchange for a release of claims, confidentiality and noncompetition covenants. Ms. DeAngelo's compensation and severance payments are within the established range paid to our senior managers.

Communicating with our Board of Directors

          Any stockholder or interested party who wishes to communicate directly with our board, or with any individual director of our board, may do so by writing to Dan S. McDevitt, General Counsel and Corporate Secretary, HD Supply Holdings, Inc., 3400 Cumberland Boulevard, Atlanta, Georgia 30339 or by email at boardcommunications@hdsupply.com. Please specify to whom your letter should be directed. Once the communication is received and reviewed by the Corporate Secretary, it will be promptly forwarded to the addressee, as appropriate. Communications that are not related to the

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GOVERNANCE OF OUR COMPANY (continued)

duties and responsibilities of the board, including advertisements, junk mail and mass mailings, solicitations for business, routine customer service complaints, new product or service suggestions, opinion survey pools, requests for employment, requests for contributions, or other inappropriate material will not be forwarded to our directors. Any communication alleging legal, ethical, or compliance issues by management or any other matter deemed by the General Counsel and Corporate Secretary to be potentially material to the Company will be promptly forwarded to the chairman of the Audit Committee.

Policy Regarding Certain Transactions in Company Securities

          We prohibit our directors, officers and employees from engaging in short sales of the Company's securities, and prohibit transactions in puts, calls or other derivative securities with respect to Company securities. We strongly discourage, but do not prohibit, our directors, officers and employees from engaging in short-term trading of Company securities or from hedging their ownership of Company stock. Any such transaction must be pre-cleared with our general counsel and, to date, no transactions of that kind have been approved.

 

 

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OWNERSHIP OF SECURITIES

Securities Ownership of Certain Beneficial Owners and Management

          The following tables set forth information as of March 15, 2018 with respect to the beneficial ownership of our common stock by (i) each person known to own beneficially more than five percent of our common stock; (ii) each director; (iii) each of the named executive officers; and (iv) all directors and executive officers as a group. We are not aware of any pledges of our common stock which may at a subsequent date result in a change in control of the Company.

          The amounts and percentages of shares beneficially owned are reported on the basis of SEC rules and regulations governing the determination of beneficial ownership of securities. Under those rules and regulations, a person is deemed to be a "beneficial owner" of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days of the determination date, which in the case of the following table is May 14, 2018. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person's ownership percentage, but not for purposes of computing any other person's percentage. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

          The percentage of beneficial ownership is based on 185,530,038 shares of our common stock outstanding as of March 15, 2018.

          Except as otherwise indicated in the footnotes to this table, each of the beneficial owners listed has, to our knowledge, sole voting and investment power with respect to the indicated shares of common stock.

          The following table sets forth information with respect to any person known to us to be the beneficial owner of more than five percent of our common stock, based on information in Schedule 13Gs filed with the SEC and Company records:

Name
  Number of Shares
Beneficially Owned

  Percent

FMR LLC(1)

  19,200,526   10.35

The VanGuard Group, Inc.(2)

  14,627,627   7.88

T. Rowe Price Associates, Inc.(3)

  12,616,378   6.8
(1)
FMR LLC ("FMR"), a parent holding company, filing on behalf of FIAM LLC, Fidelity Institutional Asset Management Trust Company, Fidelity Management Research Company, FMR Co., Inc. and Strategic Advisers, Inc. It has sole power to vote or direct to vote 259,117 shares and sole power to dispose of or to direct the disposition of 19,200,526 shares. Various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares, but no one other person's interest in the shares is more than five percent of total outstanding shares. FMR Co., Inc. beneficially owns five percent or greater of total outstanding shares. Abigail P. Johnson is a director, the chairman and the chief executive officer of FMR. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR, representing 49% of the voting power of FMR. The Johnson family group and all Series B shareholders have entered into a shareholders' voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership or voting common shares and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR. Neither FMR nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 32

 

 

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OWNERSHIP OF SECURITIES (continued)

(2)
The VanGuard Group, Inc. ("VanGuard") beneficially owns 14,627,627 shares. It has sole power to vote or direct to vote 147,909 shares, shared power to vote 40,804 shares, sole power to dispose of or to direct the disposition of 14,441,414 shares and shared power to dispose or to direct the disposition of 186,213 shares. Vanguard Fiduciary Trust Company, a VanGuard wholly-owned subsidiary, is the beneficial owner of 90,109 shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a VanGuard wholly-owned subsidiary, is the beneficial owner of 153,904 shares as a result of its serving as investment manager of Australian investment offerings. VanGuard's address is 100 Vanguard Blvd., Malvern, PA 19355.

(3)
T. Rowe Price Associates, Inc. ("T. Rowe Price") beneficially owns 12,616,378 shares. It has sole voting power with respect to 4,033,145 shares and sole dispositive power with respect to 12,616,378 shares. Any discretionary authority delegated to T. Rowe Price may be revoked at any time. The ultimate power to direct the receipt of dividends paid with respect to, and the proceeds from the sale of, the shares is vested in the individual and institutional clients that T. Rowe Price serves as investment adviser. Not more than five percent of the shares is owned by any one client subject to T. Rowe Price's investment advice. T. Rowe Price's address is 100 East Pratt Street, Baltimore, MD 21202.

          The following table sets forth the beneficial ownership of our common stock as of March 15, 2018 by our current directors and nominees and named executive officers, calculated in accordance with SEC rules and regulations, and all of our directors and executive officers as a group. Unless otherwise indicated, the address for each individual listed below is c/o HD Supply Holdings, Inc., 3400 Cumberland Boulevard, Atlanta, Georgia 30339.

  Directors and Executive Officers
  Shares
Owned
Directly

  Stock Options
Exercisable
Within 60 Days

  Vested Deferred
Stock Units(1)

  Total Shares
Beneficially
Owned

  Percent
  Kathleen J. Affeldt       9,794   9,794   *
  Betsy S. Atkins   7,480     3,686   11,166   *
  Peter A. Dorsman       3,991   3,991   *
  Patrick R. McNamee   21,762       21,762   *
  Scott D. Ostfeld           *
  Charles W. Peffer   17,725       17,725   *
  James A. Rubright   12,150       12,150   *
  Lauren Taylor Wolfe       4,009   4,009   *
  Joseph J. DeAngelo   382,618   205,093     587,711   *
  Evan J. Levitt   51,452   147,495     198,947   *
  Stephen O. LeClair(2)   19,807       19,807   *
  Dan S. McDevitt   8,697   62,961     71,658   *
  John A. Stegeman   66,368   128,256     194,624   *
  William P. Stengel II   32,112   147,222     179,334   *
         
  Shares held by all directors and executive officers as a group (14 persons)   620,171   691,027   21,480   1,332,678   0.72%
*
Less than 1%

(1)
Each deferred stock unit represents the right to receive one share of our common stock, par value $0.01 per share, in accordance with the director's election to defer the receipt of vested restricted stock units or to convert cash fees to our common stock. The deferred stock units are fully vested and will be settled upon termination of the director's board service.

(2)
Mr. LeClair's address is Core & Main, 1830 Craig Park Court, St. Louis, MO 63146.

 

 

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 33

Table of Contents

DIRECTOR COMPENSATION

2017 Director Compensation

          The following table sets forth the compensation earned or paid to our non-employee directors in fiscal 2017.

Name
  Fees earned or
paid in cash(1)
($)

  Stock
Awards(2)
($)

  Total
($)

 

Kathleen J. Affeldt

  108,542   129,988   238,530  

John W. Alden

    27,708         27,708  

Betsy S. Atkins

  182,083   189,964   372,047  

Peter A. Dorsman

    120,660     155,096     275,756  

Peter A. Leav

  43,750   129,988   173,738  

Patrick R. McNamee

    102,188     129,988     232,176  

Lionel L. Nowell

  35,590   129,609   165,199  

Scott D. Ostfeld

    34,445     82,123     116,568  

Charles W. Peffer

  113,542   129,988   243,530  

James A. Rubright

    111,146     129,988     241,134  

Lauren Taylor Wolfe

  120,812   155,096   275,908  
(1)
The values for the fees earned or paid in cash column represent fees earned for services performed during fiscal 2017. John W. Alden retired from board service on May 17, 2017. Ms. Taylor Wolfe and Mr. Dorsman joined the board on March 1, 2017, Mr. Nowell on May 18, 2017 and Mr. Ostfeld on September 28, 2017. Messrs. Leav and Nowell resigned from board service on July 14, 2017 and September 20, 2017, respectively. Mr. Ostfeld has assigned his board compensation to JANA Partners, LLC. Ms. Taylor Wolfe and Messrs. Dorsman and Nowell elected to convert their cash fees to company common stock to be settled on termination of their board service.

(2)
The values for stock awards in this column represent the grant date fair value of the restricted stock units granted in fiscal 2017, computed in accordance with FASB ASC Topic 718. Information about the assumptions used to value these awards can be found in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results Of Operations, Critical accounting policies, Stock-Based Compensation, and Note 8 — Stock-Based Compensation and Employee Benefit Plans to our audited consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended January 28, 2018. The stock award value for Mr. Dorsman and Ms. Taylor Wolfe includes $25,108 of grant date fair value for 578 restricted stock units granted on the date of their appointment to the board on March 1, 2017, which is their pro rata grant for the 2016 compensation year that vested on May 17, 2017 and, pursuant to the director's election, will be settled in our common stock on termination of board service. The stock awards for the 2017 compensation year vest and will be settled in our common stock on May 17, 2018, with the exception that Ms. Affeldt, Ms. Taylor Wolfe and Mr. Dorsman have elected to defer settlement of their vested stock awards until termination of board service. Messrs. Leav and Nowell forfeited their 2017 stock awards on resignation from board service on July 14, 2017 and September 20, 2017, respectively.

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DIRECTOR COMPENSATION (continued)

2017 Stock Awards

          The aggregate number of stock awards made under our Board of Directors Compensation Policy and outstanding as of January 28, 2018 for each of our non-employee directors in fiscal 2017 are set forth below.

Name
  Restricted Stock Units
(#)

 

Kathleen J. Affeldt

  3,290  

Betsy S. Atkins

    4,808  

Peter A. Dorsman(1)

  3,868  

Patrick R. McNamee

    3,290  

Scott D. Ostfeld

  2,273  

Charles W. Peffer

    3,290  

James A. Rubright

  3,290  

Lauren Taylor Wolfe(1)

    3,868  
(1)
Mr. Dorsman and Ms. Taylor Wolfe received a grant of 578 restricted stock units at the time of their appointment to the board on March 1, 2017, which is their pro rata grant for the 2016 compensation year; they received a grant of 3,290 restricted stock units for the 2017 compensation year.

Narrative Discussion

          The following is a narrative discussion of the material factors we believe are necessary to understand the information disclosed in the director compensation table.

          The Compensation Committee is responsible for reviewing and recommending to the board the compensation of our non-employee directors. Our board establishes non-employee director compensation after considering recommendations made by the Compensation Committee. The Compensation Committee and the board review the compensation level of our non-employee directors on a biennial basis. Since 2009, the Company has engaged Pearl Meyer to provide input with respect to our non-employee director compensation, including a market review of the competitiveness of total compensation. For further information, see "Compensation Consultant and Use of Comparator Data" on pages 44-45. During fiscal 2017, based on Pearl Meyer's input and peer group benchmarking, the Compensation Committee recommended, and the board approved, a $5,000 increase to the annual cash retainer and a $10,000 increase in the annual equity retainer effective May 17, 2017. We believe that the compensation paid to our non-employee directors is reasonable and appropriate, in line with market practice, and is in the best interests of the Company and our stockholders because it allows us to attract and retain highly qualified non-employee directors which is critical to our long-term success.

          Director compensation is provided pursuant to our Board of Directors Compensation Policy. Mr. DeAngelo, Chairman, President and Chief Executive Officer, does not receive any compensation for service as a director. The director compensation year runs from the date of each annual stockholders meeting. As a matter of good corporate governance, the Omnibus Incentive Plan approved by our stockholders in May 2017 provides a maximum limit of $750,000 on director compensation (both cash and equity awards) for any board compensation year. The elements of our director compensation program are discussed in more detail below.

 

 

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DIRECTOR COMPENSATION (continued)

Equity Compensation

          Each non-employee director receives an annual equity award in the form of restricted stock units under the Company's Omnibus Incentive Plan. The number of restricted stock units is determined by dividing $130,000 ($190,000 for the independent lead director) by the closing stock price of a share of our common stock on the grant date, which is the date of our annual stockholders meeting. Each restricted stock unit represents the contingent right to receive one share of our common stock, par value $0.01 per share. The restricted stock units vest on the earliest of: (1) the one-year anniversary of the grant date, (2) the Company's next annual stockholders meeting, or (3) a change in control, and will be settled upon vesting unless the director elects to defer settlement until termination of board service. A pro rata portion of the award vests upon termination of the director's service due to death, disability, or age 75 retirement based on the number of days of service during the year of termination. Equity compensation is prorated for directors who serve less than the full compensation year. Except as described above for terminations due to death, disability, or age 75 retirement, restricted stock units are forfeited on termination of board service before the awards have vested.

Cash Compensation

          Each non-employee director is paid an annual cash fee for board service of $90,000, payable in installments at each quarterly board meeting. In addition, each non-employee director appointed to serve as a member of a standing board committee receives an annual cash retainer as follows: $12,500 for Audit Committee members; $10,000 for Compensation Committee members; and $7,500 for Nominating and Corporate Governance Committee members. Committee chairs are not eligible to receive the committee retainer, but instead receive a committee chair retainer as follows: $25,000 for the Audit Committee chair; $20,000 for the Compensation Committee chair and $15,000 for the Nominating and Corporate Governance Committee chair. Any non-employee board chairman would receive an annual cash retainer of $25,000, and the independent lead director receives an annual cash retainer of $75,000, in each case, that is in addition to the other cash retainers. Cash fees are prorated for directors who serve less than the full compensation year.

          Directors may elect to convert their cash fees into Company stock in the form of deferred stock units. Each deferred stock unit represents the right to receive one share of our common stock, par value $0.01 per share. The deferred stock units are fully vested and will be settled upon termination of the director's board service.

Travel Expense Reimbursements

          Directors are reimbursed for their reasonable expenses related to board membership, including first-class airfare on a commercial airline for travel to board meetings or for other Company business.

Stock Ownership Guidelines and Holding Period Requirements

          We amended our Stock Ownership Guidelines in 2017 to increase the required ownership level for our independent directors from three to five times the annual cash board retainer. Our independent directors are now expected to own shares of our common stock valued at five times the annual cash board retainer (or $450,000) within five years of their appointment or election to the board, under the terms of the Stock Ownership Guidelines adopted by the Compensation Committee. Directors are required to hold 50% of their vested stock awards until the ownership guidelines are satisfied. Certain

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DIRECTOR COMPENSATION (continued)

directors have elected to defer settlement of their vested restricted stock units and deferred stock units until termination of board service. These deferred vested stock units are deemed owned for purposes of the stock ownership guidelines.

          All directors, other than the directors who joined the board during 2017, satisfied the prior guidelines of three times the annual cash board retainer as of the May 2017 annual meeting date. Assuming a stock price of at least $34.50, all directors, other than the directors who joined the board during 2017, will satisfy the increased ownership guidelines of five times the annual cash board retainer by the 2018 annual meeting date.

Director Orientation and Continuing Education

          We provide orientation for new directors, and provide our directors with materials or briefing sessions on subjects that we believe will assist them in discharging their duties. We also engage third parties to provide either in-boardroom or dinner meeting education to our directors. To supplement the education we provide, we encourage our directors to attend external programs and reimburse up to $5,000 annually for the costs of attending such programs.

 

 

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EXECUTIVE COMPENSATION

          The following Compensation Discussion and Analysis provides information regarding the material elements of our fiscal 2017 compensation program for our "named executive officers," also referred to as our "NEOs." The named executive officers for fiscal 2017 are as follows:

          The Compensation Committee (for purposes of this Compensation Discussion and Analysis, the "Committee"), pursuant to its charter, is responsible for establishing, implementing, and reviewing on an annual basis our compensation programs and the compensation paid to our NEOs.

Executive Summary

2017 Executive Compensation Changes

          In 2017, 97.23%, of the say-on-pay votes cast were in favor of our executive compensation program. During fiscal 2017, with input from the Committee's independent consultant, and taking into consideration the Company's say-on-pay vote outcome, the Committee approved the following primary changes for fiscal 2017.

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EXECUTIVE COMPENSATION (continued)

          After giving effect to these changes, the following charts reflect the target pay mix for the CEO and the other NEOs for fiscal 2017:

CEO 2017 TARGET TOTAL DIRECT
COMPENSATION MIX
  OTHER NEOs 2017 TARGET TOTAL DIRECT
COMPENSATION MIX


GRAPHIC

 


GRAPHIC

2017 Company Performance Results

          Despite a challenging year, the Company achieved the following results in fiscal 2017:

          In addition to the above performance highlights, the Company accomplished significant debt reduction and ongoing interest savings objectives during the year. In December 2017, we reduced the U.S. borrowing capacity on our Senior ABL Facility by $500 million. In September 2017, we used a portion of the net proceeds from the sale of our Waterworks business to redeem all of the outstanding

 

 

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EXECUTIVE COMPENSATION (continued)

$1,250 million aggregate principal of our 5.25% Senior Secured First Priority Notes due 2021. In April 2017, we used cash and available borrowings under the Senior ABL Facility to repay $100 million aggregate principal of our Term B-1 Loans. Debt refinancing activities in fiscal 2017 will reduce cash interest payments by approximately $75 million annually.

          The Company supplements its reporting of net income with non-GAAP measurements, including adjusted EBITDA, adjusted net income (loss), adjusted net income per diluted share and net debt. This supplemental information should not be considered in isolation or as a substitute for the GAAP measurements. Additional information regarding adjusted EBITDA, adjusted net income and adjusted net income per diluted share referred to herein, including a reconciliation, if available, to the most comparable GAAP measurement, is included under Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Adjusted EBITDA and Adjusted Net Income (Loss) in the annual report on Form 10-K filed by the Company on March 13, 2018.

2017 Executive Compensation and Pay-for-Performance Results

          Our fiscal 2017 financial results led to the following executive compensation and pay-for-performance results with respect to fiscal 2017:

          With respect to CEO pay, the following illustrates target versus realizable pay for fiscal 2017:


CEO 2017 Target vs. Realizable Compensation

GRAPHIC

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Table of Contents

EXECUTIVE COMPENSATION (continued)

          The following definitions were used for realizable pay:

          None of the equity value shown in the chart above was vested as of year-end, which the Committee believes provides strong ongoing performance and retention strength.

          In evaluating fiscal 2017 performance and pay results, the Committee believes it reflects strong alignment between pay and performance, while also allowing the Company to attract and retain talent. The Committee also believes that the Company has sound overall governance processes, practices, and policies, as evidenced by the following:

What We Do (Best Practices)    What We Don't Do or Allow 

executive sessions without management

independent compensation consultant

review of total compensation tally sheets

annual compensation risk assessment

significant amount of pay "at risk"

significant use of equity-based pay

four year vesting on equity awards

capped incentive opportunities

clawback policy upon a restatement

robust stock ownership requirements

performance award added for 2018

 

excessive severance

single trigger equity acceleration on a change in control where awards honored or assumed

parachute excise tax gross-ups

option repricing or buyouts

Addition of Performance Award to Grant Mix For 2018

          During 2017, the Committee, with the assistance of its independent compensation consultant, conducted a thorough review of the Company's short-term and long-term incentive plans. Based on this review, the Committee approved a change to the long-term incentive program for 2018. The primary change was to add performance award stock units to the annual grant mix for the named executive officers, with the grant mix for 2018 being 50% stock options, 25% restricted stock, and 25% performance award. The performance award is tied to cumulative adjusted earnings per share and free cash flow over a three-year period (fiscal 2018-fiscal 2020), with a payout opportunity ranging from 50% to 200% of target assuming a threshold level of performance is achieved. The Committee believes that this change increases the pay-for-performance nature of the long-term incentive program while creating additional focus and accountability for achieving and sustaining long-term adjusted earnings per share and free cash flow growth. The Committee will continue to evaluate the long-term incentive plan design each year to ensure alignment with business priorities and market practices, and may approve further changes to the plan design in subsequent years.

 

 

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EXECUTIVE COMPENSATION (continued)

Determining Executive Compensation

          The Committee oversees and directs our executive compensation process and plan designs. Working under the guidance and direction of the Committee and its independent compensation consultant, our human resources team develops and implements programs that we believe are aligned with the strategies and philsophies embraced by the Committee and our Company. Our finance team heavily supports the process by providing financial analysis and input and review of program design. Except with respect to his own compensation, our CEO has final management-level review of any compensation program before it is sent to the Committee for consideration and approval. The Committee has the task of evaluating and approving our material compensation programs, including our equity compensation program. Management frequently consults with the Committee during the design process to obtain its direction and feedback on how the design of our executive compensation programs support the overall strategy of the Company. As described below, data from outside consultants are also used during the design process to obtain further insight into the features of our compensation program.

          We consider the cost (including aggregate share usage and dilution) of the various components of our compensation program in evaluating the overall balance and reasonableness of our executives' total direct compensation packages. We review total compensation levels for executive officers at least annually through the use of tally sheets that quantify each element of direct and indirect compensation provided to individual executives and the portion of the executive's total compensation represented by each element of compensation. This annual review of tally sheets also includes information on the value of executives' unexercised stock options (if any) and outstanding stock awards, as well as an evaluation of the payments and benefits that would be paid to executive officers in the event of termination of employment, including retirement or following a change in control of the Company. While providing additional context to us in making compensation decisions, the information from the tally sheets regarding unexercised stock options (if any), outstanding stock awards and termination payments and benefits generally does not affect our compensation decisions for the NEOs. This reflects our view that an executive's compensation level should be based on the Company's performance, the executive's performance, and the executive's contribution to the Company's performance.

          Our CEO provides the Committee with a performance assessment for each of the other current NEOs. Our CEO, chief financial officer, chief people officer, and general counsel generally attend regularly scheduled quarterly Committee meetings, but are not present for the executive sessions or for any discussion of his or her own compensation. The Committee approves the amount and form of each element of compensation (including base salary, annual cash incentive compensation, equity-based incentive compensation, benefits and perquisites) for the CEO and approves each element of compensation for our other executive officers after considering performance assessments and compensation recommendations made by management. The Committee may not delegate its authority for approval of executive officer compensation.

          Since 2009, the Company has engaged Pearl Meyer, a leading executive compensation advisor, to provide input with respect to our executive compensation programs, including a market review of the competitiveness of total compensation of our executives and a review of our equity program. A representative from Pearl Meyer attends our Committee meetings. For further information, see "Compensation Consultant and Use of Comparator Data" on pages 44-45

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EXECUTIVE COMPENSATION (continued)

Philosophy and Objectives

          Our Company and our aspiration to be "First Choice" are built on the mission of "One Team, Driving Customer Success and Value Creation," a philosophy we believe is best embodied by our SPIRIT values:

Service:   Help our customers succeed by delivering exceptional service and the best total value experience
Performance:   Exceed our commitments every day to our team, customers, suppliers, stockholders and communities
Integrity:   Always do the right thing and always take the high road
Respect:   Treat team members the way you would like you and your family to be treated
Innovation:   Seek new and creative ways to build a reliable, effective and efficient chain of execution for our customers
Teamwork:   Win together by creating an environment where every individual puts the team first

          The Committee and our management believe that fostering these values requires a performance culture geared toward customer success and sustainable, long-term profitability. The Company's compensation programs are designed to reward achievement of these goals, thereby attracting and retaining talent that will contribute to such a culture. In particular, our executive compensation programs are intended to meet the following objectives:

          In addition, we intend that our compensation programs will be aligned with:

 

 

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EXECUTIVE COMPENSATION (continued)

Compensation Consultant and Use of Comparator Data

          During fiscal 2017, the Company requested and received information from Pearl Meyer with respect to potential conflicts of interest, including the following factors: (1) other services provided to us by the consultant; (2) fees paid by us as a percentage of the consulting firm's total revenue; (3) policies and procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (4) any business or personal relationships between the individual consultants involved in the engagement and a member of the Committee; (5) any Company stock owned by the individual consultants involved in the engagement; (6) any business or personal relationships between our executive officers and the consulting firm or the individual consultants involved in the engagement. Based on an assessment of these factors, including information gathered from directors and executive officers addressing business or personal relationships with the consulting firm or the individual consultants, the Compensation Committee concluded that the work of Pearl Meyer did not raise any conflict of interest.

          In general, neither the Company nor the Committee has exclusively relied on any of the data or advice received from Pearl Meyer as to the amount of any particular item of compensation. Pearl Meyer provides input which the Company and Committee take into consideration, as the case may be, on the particular element of compensation under consideration.

          The Committee reviews compensation levels and practices at comparator companies in setting the compensation of our NEOs and when reviewing or establishing the Company's compensation programs for other associates. The information is used to help the Committee better understand the competitive market and how executives are compensated at other companies that are similar in size or industry or with whom we compete for talent.

          We seek comparators that share a similar industrial distribution model or are a direct competitor to a specific business unit. Companies are, therefore, included in the comparator group because they (1) operate in the same business as the Company or one of our business units (industrial distribution of building supplies), (2) operate in a similar business (distribution of any product), or (3) operate in a similar business model (business to business). The comparator group was developed by management and the Committee, with input from Pearl Meyer, and has been used to provide input into both the value of total compensation for executives as well as the relative value of each component of compensation. We do not rely on percentile rankings of compensation within the comparator group to determine specific compensation amounts for the NEOs; rather, the comparator group is used to identify programs and levels of pay which management and the Committee consider when evaluating our own programs.

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Table of Contents

EXECUTIVE COMPENSATION (continued)

          For fiscal 2017 compensation decisions, the following comparator group has been used, consisting of companies in the same or similar business or having a similar business model:

Components of Compensation

          The Company believes that the compensation programs it maintains are important in achieving the compensation goals described above. For fiscal 2017, the principal components of compensation for the NEOs were base salary, annual cash incentives, annual equity incentives, and benefits and perquisites.

          While our NEOs do not have employment agreements with the Company, each of our NEOs is party to an at-will employment offer letter which may contain certain employment arrangements, including severance payments. Each of our NEOs is also party to a change in control agreement. These arrangements are discussed more fully under "Potential Payments upon Termination or Change in Control" on pages 59-62

 

 

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Table of Contents

EXECUTIVE COMPENSATION (continued)

          The design of each component of compensation fits into the overall executive pay program and supports the philosophy and objectives previously discussed in the following manner:

Pay Component
  Objective of Pay Component
  Key Measures
Base salary  

Provides competitive pay while managing fixed costs

Rewards an executive for exemplary achievements against non-financial goals

 

Individual performance and contribution

Scope of responsibilities

Experience

Achievement of non-financial goals

Annual cash incentives  

Focuses on short-term operational metrics that drive and support our long-term strategy

Where applicable, creates incentives for performance based on performance of individual NEO's business unit

 

Achievement of agreed upon operating plan goals in profitability and working capital

Achievement of agreed upon performance goals of individual business unit

Annual equity incentives  

Aligns executive interests to stockholder interests by rewarding long-term focus on profitability and value creation for the enterprise

Assists in the retention of key talent

Creates an "ownership culture"

 

Growth in stock value

Employment retention through the vesting period of equity awards

Benefits and perquisites  

Benefits provide a safety net of protection in the case of illness, disability, or death

Perquisites generally enable the executive to perform their duties efficiently and minimize distractions

 

Benefits are provided to executives on the same basis as provided to our salaried associates

Perquisites are valued by our executives at minimal cost to us

Change in control benefits  

Focuses management on acting in the best interests of our stockholders in a change in control context

 

Double trigger — benefits paid upon occurrence of a change in control and involuntary or constructive termination

          Each of the components of compensation for the NEOs is discussed below, including a discussion of the factors considered in determining the applicable amount payable or achievable under each component.

Base Salary

          Base salaries are established at levels designed to attract and retain top executive talent while managing fixed costs at an appropriate level. The determination of any particular executive's base salary is based on personal performance and contribution, experience in the role, changes to the scope of responsibilities, market rates of pay, and internal equity. The fiscal 2017 salary increases were based on these factors, but were primarily focused on bringing base salary closer to market rates of pay based on peer group benchmarking for the position. Mr. Stegeman did not receive a merit increase for fiscal 2017 since his salary was determined to be market competitive for his position. Mr. Stengel received a 10% merit increase effective in March and an additional 11% increase in June in connection with his appointment as President and Chief Executive Officer of HD Supply Facilities Maintenance based on peer group benchmarking for the new position. Our CEO declined to receive a merit increase for fiscal 2017. Each year, our CEO, with input from human resources, proposes base salary increases, if any, for all NEOs, excluding himself, based on the foregoing factors and the Company's merit increase budget prepared by management. His proposal is subject to review and approval (with or without

HDS Notice of Annual Meeting and 2018 Proxy Statement – Page 46

 

 


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EXECUTIVE COMPENSATION (continued)

modifications) by the Committee after consideration of these factors. Our Human Resources team works directly with the Committee with respect to any changes to Mr. DeAngelo's base salary, and any changes are approved by the Committee, after the board conducts our CEO's annual performance review. Our CEO is not present during voting or deliberations on his compensation.

          The following summarizes the salary increases for fiscal 2017 for each NEO:

Name
  2016
  2017
  $ Increase
  % Increase

Joseph J. DeAngelo (CEO)

  1,000,000   1,000,000   0   0

Evan J. Levitt (CFO)

  475,001   522,501   47,500   10

Dan S. McDevitt

  330,000   351,450   21,450   6.5

John A. Stegeman

  792,227   792,227   0   0

William P. Stengel, II

  410,063   500,000   89,937   22

Stephen O. LeClair

  450,000   463,500   13,500   3

          The salary increase is effective for the 12-month period beginning in March of each year; the salary reported in the Summary Compensation Table on page 53 is base salary earned for the relevant fiscal year.

Annual Cash Incentives

          Annual cash incentives are designed to focus the NEOs on producing superior results against key financial metrics relevant to the Company as a whole or to the individual business unit(s) that the NEO leads. By tying a significant portion of the executive's total annual cash compensation to annual variable pay, we reinforce our "pay for performance" culture and focus our executives on critical short-term financial and operational objectives which also support our long-term financial goals.

          All of our NEOs participate in the AIP, which provides cash-based incentives dependent on annual results against the key financial metrics described below. AIP target payouts to our NEOs are expressed as a percentage of base salary. Annually, these percentage targets are reviewed against comparator data and adjusted, if necessary, based on the Committee's estimation of what level of targeted payouts is necessary to retain, motivate and reward our executives.

          For fiscal 2017, the AIP performance payout weighting was based on an 80% adjusted earnings before interest, taxes, depreciation, and amortization target ("Adjusted EBITDA") and on a 20% average working capital as a percentage of sales target ("AIP-Working Capital"). Adjusted EBITDA for the fiscal 2017 AIP performance payout is Adjusted EBITDA as defined in the Company's fiscal 2017 annual report on Form 10-K. Additional information regarding Adjusted EBITDA referred to herein is included under Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Adjusted EBITDA and Adjusted Net Income (Loss) in the annual report on Form 10-K filed by the Company on March 13, 2018. AIP-Working Capital is computed by averaging the ending gross working capital at the end of each fiscal month divided by the fiscal year sales. Gross working capital was selected to focus on operational working capital and to mitigate any incentive to alter results through adjustments to accruals or reserves.

          For fiscal 2017, we viewed Adjusted EBITDA as the key operating metric that would drive business profitability. The AIP-Working Capital measure is intended to increase the focus on cash management across the Company, to avoid creating disincentives for investment in growth, and to

 

 

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EXECUTIVE COMPENSATION (continued)

reward teams for incremental annual improvements in working capital while continuing to grow EBITDA.

          These results were measured at various levels for each NEO based on their role and responsibilities, as follows:

          The following are the performance and payout scales that were approved by the Committee in February 2017, and adjusted in August 2017 to reflect the divestiture of the Company's Waterworks business, for the fiscal 2017 annual cash incentives for NEOs, as well as the actual performance results for 2017. The AIP targets for the GSC were adjusted by the Committee to reflect the divestiture by the Company's of its Waterworks business unit in August 2017 and related loss of EBITDA and working capital for the remainder of the fiscal year after closing the transaction.

 
  Adjusted EBITDA(80% Weight)    
   
  AIP-Working Capital % of Sales
(20% Weight)
   
   
($ in millions)
  GSC
($)

  C&I
White Cap
($)

  C&I
Canada
(CAN$)

  Facilities
Maintenance
($)

  HIS
($)

  Payout
% of
Target

  GSC
(%)

  C&I
White Cap
(%)

  C&I
Canada
(%)

  Facilities
Maintenance
%

  HIS
(%)

  Payout
% of
Target

Threshold

  804.9   196.7   12.9   522.53   27.1   25   17.7   19.5   24.2   18.9   12.3   50

Target

  884.5   218.6   14.3   564.2   28.6   100   16.7   18.4   22.9   17.8   11.6   100

Stretch

  919.0   240.5   15.7   586.2   30.6   150   15.7   17.3   21.5   16.7   10.9   150

Maximum

  946.4   256.6   21.4   603.7   32.9   200   14.7   16.2   20.1   15.7   10.2   200

Actual Performance

  846.7   214.0   14.8   534.9   29.0     16.7   18.3   21.2   17.9   12.4  

Payout % of Target

  64.40   84.17   116.20   47.33   110.31       99.98   106.30   160.71   97.40   0    

          Based on the pre-approved goals and payout ranges, and actual results, the following summarizes the actual amounts earned by each NEO under the fiscal 2017 AIP:

 
   
  Target AIP
Opportunity
   
   
 
   
  Weighted Avg
Payout % of
Target

   
Name
  Base Salary
  % Salary
  $ Value
  Actual AIP
Award(1)

Joseph J. DeAngelo (CEO)

  1,000,000   150   1,500,000   71.52   1,072,770

Evan J. Levitt (CFO)

  522,501   75   391,876   71.52   280,261

Dan S. McDevitt

  351,450   50   175,725   71.52   125,675

John A. Stegeman

  792,227   100   792,227   90.39   716,066

William P. Stengel, II

  500,000   75   362,303   57.34   207,759
(1)
Mr. LeClair was not eligible to receive any AIP bonus for fiscal 2017 due to his separation from service in August 2017 in connection with the Company's divestiture of its Waterworks business unit.

Annual Equity Incentives

          Our NEOs participate in the Company's long-term incentive plan, which provides annual equity grants to our NEOs under the Company's Omnibus Incentive Plan that was approved by our stockholders in May 2017 (the "Omnibus Plan"). The Omnibus Plan is an amendment and restatement of the Company's 2013 Omnibus Stock Incentive Plan (the "2013 Plan"), which replaced and succeeded the HDS Investment Holding, Inc. Stock Incentive Plan ("Prior Plan") that was adopted by the board

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EXECUTIVE COMPENSATION (continued)

shortly following our separation from Home Depot in 2007 (collectively, the Omnibus Plan, 2013 Plan and the Prior Plan are referred to as the "Stock Plan"). Upon adoption of the 2013 Plan, the Prior Plan terminated and no future awards may be made under that plan. However, awards previously granted under the Prior Plan are unaffected by its termination.

          The Company believes that granting equity awards under the Stock Plan is an effective way to align executive performance to our key goal of increasing value for the Company's stockholders. The view of the Committee is that, assuming that our management is successful in increasing the value of the Company, equity awards under the Stock Plan will have a high potential value for all participants as a percentage of total compensation. The vesting component is intended to maximize the retentive effect of the equity grants.

          The Committee made an annual equity grant to NEOs in February 2017 in the form of nonqualified stock options (75% of grant value, 50% of value for Mr. McDevitt) and restricted stock awards (25% of grant value, 50% of grant value for Mr. McDevitt) that vest in four equal annual installments on each of the first through fourth anniversaries of the grant date. The grants in February 2017 were based on the following percentages of each NEO's 2016 fiscal year end base salary.

Name
  % of Base
Salary at
2016 FYE

Joseph J. DeAngelo (CEO)

  425

Evan J. Levitt (CFO)

  300

Dan S. McDevitt

  75

John A. Stegeman

  100

William P. Stengel

  300

Stephen O. LeClair

  100

          Seventy-five percent of this amount (50% for Mr. McDevitt) was then divided by the per option Black-Scholes value on the grant date to determine the number of nonqualified stock options granted, and 25% of this amount (50% for Mr. McDevitt) was then divided by the per share closing stock price on the grant date to determine the number of restricted shares granted. The percentage of base salary amount and the allocation percentage between restricted stock and stock options was determined based on benchmarking data for equity grants and total compensation, using the compensation comparator group set forth on page 45, and prorated for time in the position. The benchmarking data serves as a general guideline for managing overall pay decisions relative to market benchmarks, with actual pay decisions also based on experience, performance, long-term potential, internal pay equity, tenure, and retention value.

          The addition of stock options to the annual grant mix in fiscal 2016 was intended to significantly enhance the pay-for-performance orientation of the long-term incentive plan and to create even stronger stockholder alignment. This is accomplished by having a component of the annual equity grant that will only deliver value to executives if value is delivered to stockholders through stock price appreciation. Although the Committee reviewed and considered various means of strengthening performance linkage, including the use of performance shares, stock options were believed to be the best choice at the time given the challenges associated with creating appropriate performance measures for multi-year performance periods in light of recent significant divestitures and related business model changes.

          However, the Committee is committed to periodically reviewing the equity award mix to ensure that it remains aligned with the objectives of the program going forward. During 2017, the Committee,

 

 

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EXECUTIVE COMPENSATION (continued)

with the assistance of its independent compensation consultant, conducted a thorough review of the Company's short-term and long-term incentive plans. Based on this review, the Committee approved a change to the long-term incentive program for 2018. The primary change was to add performance award stock units to the annual grant mix for the named executive officers, with the grant mix for 2018 being 50% stock options, 25% restricted stock, and 25% performance award. The performance award is tied to cumulative adjusted earnings per share and free cash flow over a three-year period (fiscal 2018-fiscal 2020), with a payout opportunity ranging from 50% to 200% of target assuming a threshold level of performance is achieved. The Committee believes that this change increases the pay-for-performance nature of the long-term incentive program while creating additional focus and accountability for achieving and sustaining long-term adjusted earnings per share and free cash flow growth. The Committee will continue to evaluate the long-term incentive plan design each year to ensure alignment with business priorities and market practices, and may approve further changes to the plan design in subsequent years.

Benefits and Perquisites

          The benefits provided to our NEOs are the same as those generally provided to our other salaried associates and include medical, dental and vision insurance, basic life insurance and accidental death and dismemberment insurance, short and long-term disability insurance, and a 401(k) plan. Our NEOs are also eligible to participate in the Company's broad-based employee stock purchase plan, which provides a 5% discount off the market price of Company stock at the time of purchase.

          Our executives participate in a limited number of perquisite programs. We maintain these programs because they are valued by our NEOs but impose relatively little cost to us. Based on Pearl Meyer's input and peer group benchmarking, the cost of the perquisites provided to our CEO is positioned below the median of our peers.

          All of the NEOs participate in the executive basic life insurance plan. Under this plan, the beneficiary of a participant who dies while employed by us is entitled to a lump sum payment of $500,000. The participant owns the insurance policy, and the Company pays the premium on his or her behalf. The value of the premium for fiscal 2017 ranged from $600 to $2,580 and was taxable to the executive. For fiscal 2017, one NEO was eligible to purchase a 20-year term supplemental life insurance policy that is owned by the participant. The Company pays the premiums on the participant's behalf. The participant's financial planning benefit is reduced by the amount of premiums paid for supplemental life insurance. The value of the premium for supplemental life insurance for fiscal 2017 was $2,290 and was taxable to the executive. At the end of the year, each participant receives an additional payment equal to the gross amount of taxes paid on any life insurance benefit. This additional payment is also taxable to the executive and is grossed up. The supplemental life insurance benefit has been discontinued and no officers are eligible for this benefit going forward.

          Other benefits provided to our NEOs include use of a company car, the purchase of a company car for less than market value, and reimbursement for financial planning services. The value of providing company cars and reimbursement for financial planning services is taxable to the executive and is grossed up to avoid reducing the value of the benefits. Each of our NEOs received a financial planning services benefit for fiscal 2017 ranging from $12,710 to $18,000. Our NEOs received a company car benefit for fiscal 2017 ranging from $5,269 to $32,410. At the end of the year, each participant receives an additional payment equal to the gross amount of taxes paid on the financial planning and car benefits. This additional payment is also taxable to the executive and is grossed up.

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EXECUTIVE COMPENSATION (continued)

          Because the Company's business continuity is best facilitated by avoiding any prolonged or unexpected absences by members of its senior management team, all NEOs are strongly encouraged to take advantage of comprehensive executive physical examinations paid for by the Company. The value of executive physical examinations for our NEOs for fiscal 2017 ranged from $0 to $3,546.

          One officer received an $502 benefit for passport renewal and expediting fees that were required for business purposes but that also had a potential personal benefit. Another officer received an $836 benefit for spousal air travel to attend a Company business event.

          The tax gross-up perquisite received by our NEOs for fiscal 2017 ranged from $13,761 to $39,386.

          Based on Pearl Meyer's input and peer group benchmarking, the cost of the perquisites provided to our CEO is positioned below the median of our peers.

Change in Control Agreements

          To focus management on acting in the best interests of our stockholders in a change in control context, consistent with peer benchmarking with respect to executive level change in control agreements, the Committee approved agreements for our executive officers that generally provide for a lump sum cash payment to the executive equal to two times the executive's base salary and target bonus opportunity and $100,000 in lieu of continued healthcare and other benefits. Payout is triggered on an involuntary or constructive termination of the executive's employment within two years of a change in control, other than a termination for death, disability, or cause (as defined in the agreement). We believe that providing this protection to our senior executives aids retention and minimizes any disincentive to pursue a transaction that would be good for our stockholders but potentially bad for individual executives due to job loss. Benefits are predicated upon a "double trigger" (employment termination and consummation of a change in control) and no excise tax gross-ups are provided to the executives, thereby protecting the interests of our stockholders. See "Potential Payments Upon Termination or Change in Control" on pages 59-62 for a summary of the material provisions of these agreements.

Other Policies and Practices

Risk Assessment

          During fiscal 2017, management and the Committee conducted a comprehensive assessment and evaluation of the potential risks associated with our compensation policies and practices with respect to both executive compensation and compensation generally. Based on our approach of compensating our associates for the financial success of the Company as a whole and other elements of our compensation system, we concluded that our compensation policies and practices do not encourage undue risk-taking and do not create any risk that is reasonably likely to have a material adverse effect on the Company. See page 28 for additional details.

Policy on Recovering Incentive Compensation in the Event of a Restatement

          The board adopted a clawback policy that provides us with the ability to require reimbursement or cancellation of any bonus or other incentive-based compensation, including stock-based compensation, awarded or paid to any current or former executive officer of the Company during the three-year period prior to a restatement if the incentive compensation was predicated upon the

 

 

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EXECUTIVE COMPENSATION (continued)

achievement of financial results that were subsequently the subject of restatement, the executive officer engaged in fraud or intentional misconduct that was a substantial contributing cause to the need for the restatement, and a lower award would have been made to the executive officer based upon the restated financial results. The policy applies to incentive compensation awarded, vesting, or paid to an executive officer after the effective date of the policy on July 2, 2013. The policy is in addition to the requirements of applicable law and other legal remedies available to the Company.

Stock Ownership Guidelines and Holding Period Requirements

          Our CEO (Mr. DeAngelo) is required to own shares having a value equal to five times base salary, three times base salary for our chief financial officer (Mr. Levitt) and business unit leaders (Messrs. Stegeman and Stengel), and one times base salary for our functional leaders (Mr. McDevitt), within the later of five years from the 2013 effective date of the policy or the date he or she becomes an executive officer. Our NEOs must hold 50% of vested shares (except for shares withheld or sold to pay required tax withholding and the exercise price for options) until they are in compliance with the guidelines. Our stock ownership guidelines count the following types of ownership: shares owned outright; shares owned directly by a spouse, domestic partner, or minor child; shares owned indirectly through beneficial trust ownership; vested shares or vested stock units held in any Company plan; and the in-the-money value of vested stock option awards. Compliance is evaluated annually by the Committee as of the end of each fiscal year, using a thirty-day closing stock price average to mitigate the impact of short-term price variations. The guidelines further our core philosophy that our NEOs should also be owners of our Company. The guidelines are based on our expectation that each NEO will maintain a targeted level of investment in our stock so that the interests of our NEOs and our stockholders are closely aligned, and our NEOs have a strong incentive to provide effective management. All of our NEOs satisfied the targeted ownership guidelines as of the end of fiscal 2017.

Policy Regarding Certain Transactions in Company Securities

          We prohibit our directors, officers and employees from engaging in short sales of the Company's securities, and prohibit transactions in puts, calls or other derivative securities with respect to Company securities. We strongly discourage, but do not prohibit, our directors, officers and employees from engaging in short-term trading of Company securities or from hedging their ownership of Company stock. Any such transaction must be pre-cleared with our general counsel and, to date, no transactions of that kind have been approved.

Deductibility of Compensation

          Section 162(m) of the Internal Revenue Code imposes a $1 million limit on the amount of compensation that we may deduct in any one year with respect to certain "covered employees." Beginning in 2018, the Tax Cuts and Jobs Act repealed the performance-based compensation exception to Section 162(m), making previously deductible performance-based compensation now subject to the $1 million limit. In making its compensation decisions, the Committee considers the impact of Section 162(m), along with other relevant factors (see foregoing Compensation Discussion and Analysis discussion), and provides compensation that it believes is consistent with the best interests of the Company and its stockholders. Such compensation may not be tax deductible.

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EXECUTIVE COMPENSATION (continued)

Summary Compensation Table for Fiscal 2017

          The following table sets forth the compensation of our chief executive officer, chief financial officer, and the three other most highly compensated executive officers for fiscal 2017.

Name and Principal
Position

  Year
  Salary
($)

  Bonus
($)(1)

  Stock
Awards
($)(2)

  Option
Awards
($)(3)

  Non-Equity
Incentive Plan
Compensation
($)(4)

  All Other
Compensation
($)(5)

  Total
($)

 

Joseph J. DeAngelo

  2017   1,000,000     1,062,487   3,187,488   1,072,770   47,601   6,370,346  

Chief Executive Officer

  2016   1,000,000     1,062,479   3,187,499     55,263   5,305,241  

  2015   1,000,000     3,999,976     1,361,280   43,799   6,405,055  

Evan J. Levitt

    2017     515,193         356,212     1,068,745     280,261     64,250     2,284,661  

Chief Financial Officer

    2016     461,778         356,223     1,068,745     236,607     57,553     2,180,906  

    2015     383,861         710,597         211,844     56,464     1,362,766  

Dan S. McDevitt

  2017   348,150     123,711   123,739   125,675   73,745   795,020  

General Counsel and Corporate Secretary

  2016   325,385     123,731   123,744   109,586   36,729   719,175  

  2015   300,000     194,972     136,128   14,389   645,489  

John A. Stegeman

    2017     792,227         198,015     594,158     716,066     54,653     2,355,119  

President, Construction & Industrial

    2016     788,677         297,061     891,251     1,133,660     141,224     3,251,873  

    2015     765,706         1,120,113         1,185,882     51,138     3,122,839  

William P. Stengel

  2017   476,753     307,536   922,630   207,759   94,651   2,009,329  

President and CEO, Facilities Maintenance

  2016   396,593     432,515   1,297,558   204,261   57,214   2,388,141  

  2015   333,275     609,892     185,145   61,384   1,189,695  

Stephen O. LeClair

    2017     229,673     675,000     112,488     337,488         46,852     1,401,501  

Former President, Waterworks

    2016     442,280         168,730     506,246     232,747     56,455     1,406,458  

    2015     398,612         587,963         162,310     60,919     1,209,804  
(1)
The amount set forth in the Bonus column for Mr. LeClair represents a transaction incentive bonus paid in connection with the Company's divestiture of its HD Supply Waterworks business on August 1, 2017.

(2)
Amounts set forth in the Stock Awards column represent the aggregate grant date fair value of the awards computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("FASB ASC Topic 718"). Information about the assumptions used to value these awards can be found in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results Of Operations, Critical accounting policies, Stock-Based Compensation, and Note 8—Stock-Based Compensation and Employee Benefit Plans to our audited consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended January 28, 2018. Mr. LeClair forfeited all unvested stock awards on his August 2017 separation date in connection with the Company's divestiture of its HD Supply Waterworks business, including 100% of his fiscal 2017 stock awards.

(3)
Amounts set forth in the Option Awards column represent the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718. Information about the assumptions used to value these awards can be found Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results Of Operations, Critical accounting policies, Stock-Based Compensation, and Note 8—Stock-Based Compensation and Employee Benefit Plans to our audited consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended January 28, 2018. Mr. LeClair forfeited all unvested options awards on his August 2017 separation date in connection with the Company's divestiture of its HD Supply Waterworks business, including 100% of his fiscal 2017 option awards.

(4)
Non-equity incentive plan compensation reflects amounts earned for fiscal 2017 under the Company's Annual Incentive Plan for Executive Officers ("AIP"). See "Compensation Discussion and Analysis — Components of Compensation — Annual Cash Incentives" beginning on page 47 for a discussion of the AIP in fiscal 2017. Mr. LeClair was not eligible to receive any AIP payout due to his August 2017 separation from service in connection with the Company's divestiture of its HD Supply Waterworks business.

(5)
The All Other Compensation column for fiscal 2017 is made up of a 401(k) plan company matching contribution (available to all employees participating in our 401(k) plan), executive physical, life insurance, use of a Company car, purchase of Company car for less than fair market value, financial planning and tax gross-ups on perquisites. Other personal benefits are an $502 benefit for passport renewal fees that were required for business purposes but that also had a potential personal benefit, and an $836 benefit for spousal air travel to attend a Company business event. The incremental cost of personal use of a Company car is based on the taxable value used to impute taxable income to the NEOs in accordance with Internal Revenue Service regulations. The incremental

 

 

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EXECUTIVE COMPENSATION (continued)

    cost of other perquisites and personal benefits is based on actual cost to the Company. The following perquisites and other personal benefits were provided in fiscal 2017.

Name
  Car
($)

  Financial
Planning
($)

  Life
Insurance
($)

  Executive
Physical
($)

  401(k)
Match
($)

  Tax
Gross-Up
($)

  Other
($)

  TOTAL
($)

 

Joseph J. DeAngelo

  5,269   18,000   2,580   3,491   4,500   13,761     47,601  

Evan J. Levitt

    16,397     15,000     900     2,686     4,582     24,685         64,250  

Dan S. McDevitt

  28,843   15,000   900     4,537   23,963   502   73,745  

John A. Stegeman

    11,002     15,000     2,580     2,821     4,500     17,914     836     54,653  

William P. Stengel

  32,410   15,000   600   3,546   3,709   39,386     94,651  

Stephen O. LeClair

    9,511     12,710     3,190         3,721     17,720         46,852  

    Based on Pearl Meyer's input and peer group benchmarking, the cost of the perquisites provided to our CEO is positioned below the median of our peers.

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EXECUTIVE COMPENSATION (continued)

Pay Ratio Disclosure

Principal Position
  Year
  Salary
($)

  Bonus
($)

  Stock
Awards
($)

  Option
Awards
($)

  Non-Equity
Incentive Plan
Compensation
($)

  All Other
Compensation
($)

  Total
($)

 

Chief Executive Officer

  2017   1,000,000     1,062,487   3,187,488   1,072,770   47,601   6,370,346  

Median Employee

    2017     46,674                 827     516     48,017  

RATIO OF CEO TO MEDIAN EMPLOYEE TOTAL COMPENSATION: 133:1

 

          Our CEO's annual total compensation is 133 times that of the median of the annual total compensation of all our U.S. employees. The pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u). We used the following methodology in calculating the ratio:

 

 

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EXECUTIVE COMPENSATION (continued)

Grants of Plan-Based Awards for Fiscal 2017

          The following table provides information concerning awards granted to our NEOs in fiscal 2017 under any plan.

   
   
   
   
   
   
   
  All other
option
awards:
Number
of
securities
underlying
options(2)
(#)

   
   
 
   
   
  Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(1)
  All other
stock awards:
Number of
shares of
stock or units(2)
(#)

   
  Grant date
fair value of
stock and
option
awards
($)

 
   
   
  Exercise or
base price
of options
awards
($/Sh)

 
  Name
  Grant
Date

  Threshold
($)

  Target
($)

  150%
($)

  Maximum
($)

 
 

Joseph J. DeAngelo

                                     
 

2017 AIP (EBITDA)

  02/28/2017   300,000   1,200,000   1,800,000   2,400,000          
 

2017 AIP (Working Capital)

  02/28/2017   150,000   300,000   450,000   600,000          
 

Omnibus Incentive Plan

  02/28/2017           24,709   219,524   43.00   4,249,975  
 

Evan J. Levitt

                                                       
 

2017 AIP (EBITDA)

    02/28/2017     78,375     313,500     470,250     627,001                  
 

2017 AIP (Working Capital)

    02/28/2017     39,188     78,375     117,563     156,750                  
 

Omnibus Incentive Plan

    02/28/2017                     8,284     73,605     43.00     1,424,957  
 

Dan S. McDevitt

                                     
 

2017 AIP (EBITDA)

  02/28/2017   35,145   140,580   210,870   281,160          
 

2017 AIP (Working Capital)

  02/28/2017   17,573   35,145   52,718   70,290          
 

Omnibus Incentive Plan

  02/28/2017           2,877   8,522   43.00   247,450  
 

John A. Stegeman

                                                       
 

2017 AIP (EBITDA)

    02/28/2017     158,445     633,782     950,672     1,267,563                  
 

2017 AIP (Working Capital)

    02/28/2017     79,223     158,445     237,668     316,891                  
 

Omnibus Incentive Plan

    02/28/2017                     4,605     40,920     43.00     792,173  
 

William P. Stengel

                                     
 

2017 AIP (EBITDA)

  02/28/2017   72,461   289,842