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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 (Amendment No.          )

Filed by the Registrant

 

Filed by a Party other than the Registrant

 

Check the appropriate box:

 

Preliminary Proxy Statement

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

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a‑12

 

Papa John’s International, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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Notice of Annual Meeting of Stockholders

 

 

Thursday, April 23, 2020
11:00 a.m. Eastern Time

Virtual Meeting Site :

www.virtualshareholdermeeting.com/PZZA2020 

 

 

Items of Business

·

Election of the ten directors nominated by the Board of Directors named in the attached Proxy Statement;

·

Ratification of the selection of Ernst & Young LLP as the Company’s independent auditors for 2020;

·

Advisory approval of the Company’s executive compensation; and

·

Such other business as may properly come before the meeting or any adjournment or postponement thereof.

Record Date    February 24, 2020

A Proxy Statement describing matters to be considered at the Annual Meeting is attached to this Notice. Only stockholders of record at the close of business on February 24, 2020 are entitled to receive notice of and to vote at the meeting or any adjournment or postponement thereof.

Stockholders are cordially invited to participate in the meeting virtually via our live webcast. Following the formal items of business to be brought before the meeting, we will discuss our 2019 results and answer your questions.

Thank you for your continued support of Papa John’s.

By Order of the Board of Directors,

 

 

 

 

 

 

 

 

 

Jeffrey C. Smith

 

Chairman

March 20, 2020

 

Internet

    

Telephone

    

Mail

    

Webcast

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Visit the Web site noted on
your proxy card to vote via the
Internet.

 

Use the toll‑free telephone
number on your proxy card to
vote by telephone.

 

Sign, date and return your
proxy card in the enclosed
envelope to vote by mail.

 

Participate in the meeting and vote at www.virtualshareholdermeeting.com/PZZA2020

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on April 23, 2020 — this Proxy Statement and the Papa John’s 2019 Annual Report are available at www.papajohns.com/investor.

 

 

 

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To Fellow Stockholders:

 

I made a large investment in Papa John’s in 2019 and joined the board as Chairman. Papa John’s is my favorite pizza in the category with a truly differentiated Better Ingredients. Better Pizza.® position. The company, however, was having an acute challenge with a need for a catalyst to jump start its re-invigoration. Thanks to the incredible passion, talent, and partnership of our team members and franchisees, we are moving further and faster than we could have expected.

 

When I joined the board in 2019, we needed to strengthen and diversify the company’s leadership. The company added five new directors to the board in 2019, who bring talent and perspective from different backgrounds. A significant milestone for Papa John’s is our partnership with Shaquille O’Neal, who has joined as a brand ambassador, franchisee, and member of our board of directors. The positive impact across our franchise system and on our stakeholders has been remarkable.

 

Leadership is critical for any company and even more so for a company in transition. We were fortunate to identify and recruit a proven restaurant industry leader and transformational CEO in Rob Lynch. Rob has the right brand, marketing, business experience, and track record for Papa John’s. Most notably, Rob has experience in his prior role as a key architect of the turnaround of Arby’s. He is having an immediate and positive impact on our brand, our products, our team members, our franchisees, and our customers.

 

Under Rob’s leadership, we have strengthened and streamlined the management team. We are rebuilding our culture, refocusing on the profitability of our restaurants, reinforcing the quality of our pizza and using innovation to engage customers and drive sales.  I am passionate and excited about this innovation. Our fresh, never-frozen original dough, made from six simple ingredients, is amazing. We are just beginning to innovate on this dough to create tasty product extensions that increase our menu variety without adding operational complexity. Our product roadmap is exciting and delicious.

 

As you can tell, I am excited about our positioning and excited about the future. Papa John’s is a great brand, with amazing products, fantastic team members and franchisee partners, and a delicious plan for the future. We are beginning 2020 ready to deliver continued progress. Looking beyond and considering the key trends driving growth in the global food and restaurant industry – quality, convenience, service – I believe Papa John’s is well positioned.

 

On behalf of the Papa John’s Board and management team, I thank you for your continued support.

 

Sincerely,

 

 

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Jeffrey C. Smith

Chairman of the Board

 

 

 

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To Our Stockholders, Team Members, Franchisees and Customers:

 

Last August I was asked to join the Papa John’s team as CEO and President, an opportunity I accepted with great excitement and humility. Leading a company with a history of delivering high-quality pizza and creating tremendous stakeholder value is a dream come true for me.

I have a passion for pizza. Besides being delicious, convenient, and a great value, pizza is a food that is shared with friends and family. Pizza brings people together  and Papa John’s delivers Better Ingredients. Better Pizza. – with fresh, never-frozen original dough and fresh toppings.

Building on this history, I believe Papa John’s can be the best pizza delivery company in the world for the benefit of all of our stakeholders – our team members, customers, franchisees and stockholders. Here’s what we’re doing to achieve this:

First, we are building a culture of leaders who believe in diversity, inclusivity and winning. A culture where everyone belongs helps us attract and retain talent in a highly competitive environment. It encourages innovation that reflects the increasing diversity of our customers, domestically and globally. It allows team members at all levels in the organization to take pride and ownership in their contributions and step forward to do the right thing.

We have initiated multiple major corporate initiatives over the past year to continue improving the culture at Papa John’s. Some examples are our partnership with Purdue University Global to give employees free or reduced college tuition and our affordable healthcare plans for hourly team members; the launch of The Papa John’s Foundation for Building Community; our inaugural Day of Service with Boys and Girls Clubs of America; and the creation of multiple Employee Resource Groups.

As a result of the leadership and hard work of our LGBTQ Employee Resource Group, Papa John’s recently earned a 90% score on the 2020 Corporate Equality Index for LGBTQ workplace equality. This was the first year Papa John’s was ranked in the survey, and we scored higher than our competitors in the pizza category and higher than many in the restaurant industry.

Second, Papa John’s is returning to what made the brand great.  All pizza is not created equal. In a sea of pizza sameness, we have BETTER INGREDIENTS. BETTER PIZZA. To realize this differentiated opportunity, we have begun thinking differently and holistically about our products, menus, marketing, apps and digital channels. This is already having an impact on sales and results.

Since arriving at the company, my mandate for Papa John’s product and marketing teams has been simple:  innovate and share our story with the many pizza lovers of the world in a unique and compelling way.

Our team is delivering. Last November, we launched Garlic Parmesan Crust – our first-ever innovation on our signature fresh dough – followed this February by Papadias – a toasted, hand-held alternative to sandwiches, and an entirely new product

    

platform for the company. Both new products were introduced with fresh advertising that brings the quality of our food to life and establishes a new voice for the brand.

In today’s marketplace, high-quality products require high-quality service, another reason for our commitment to a culture that inspires our team members to deliver great service to our customers.

Third, we have committed ourselves to achieving top-tier unit-level economics by driving restaurants’ sales growth and taking cost and complexity out of their operations. In 2019, we began to see improvements and there’s still much more opportunity. This is critical because the Papa John’s brand will succeed and grow in the long term only if our franchisees succeed too.

Fourth, we are committed to driving long-term earnings growth for the benefit of our stockholders. We had the highest total stockholder return amongst our peer group (as defined in the attached proxy statement) in 2019 and we will continue to get better.

Papa John’s has multiple opportunities to improve productivity and drive operating leverage for faster earnings growth. We are now in the process of building a multi-year roadmap to guide this journey.

I’m optimistic about the future of Papa John’s, with a more inclusive culture, a path to a more differentiated brand, improving unit economics and an outlook for strong long-term earnings growth.

Due to the coronavirus outbreak, we are holding a virtual annual meeting.  That being said, we want our shareholders to know that our delivery and carryout business model positions us to continue to serve our communities as we all navigate this difficult situation, and we will continue protocols to provide for the safety of employees and our customers.

Thank you for your continued support.

Sincerely,

 

 

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Rob Lynch,

President and CEO

 

 

 

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TABLE OF CONTENTS

VIRTUAL STOCKHOLDER MEETING

1

CORPORATE GOVERNANCE 

2

Majority Voting Standard for Director Elections 

2

Code of Ethics and Business Conduct 

2

Director Independence 

2

Hedging and Pledging Policy 

3

Board Leadership Structure and Risk Management 

3

Stockholder Engagement in 2019 

4

Independent Chairman of the Board 

4

Meetings of the Board of Directors 

4

Committees of the Board of Directors 

5

Sustainability, Environmental and Social 

6

Communications with the Board 

7

Nominations for Directors 

8

ITEM 1. ELECTION OF DIRECTORS 

10

Nominees for Election to the Board 

10

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 

16

EXECUTIVE COMPENSATION — COMPENSATION DISCUSSION AND ANALYSIS 

20

Summary Compensation Table 

31

Grants of Plan‑Based Awards 

33

Outstanding Equity Awards at Fiscal Year‑End 

34

Option Exercises and Stock Vested 

35

Nonqualified Deferred Compensation 

36

Change in Control and Termination Payments 

37

CEO Pay Ratio 

39

Director Compensation 

40

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 

43

Compensation Committee Interlocks and Insider Participation 

43

Approval of Related Person Transactions 

43

Transactions with Related Persons 

43

AUDIT COMMITTEE REPORT 

45

ITEM 2. RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS 

47

ITEM 3. ADVISORY APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION 

49

 

 

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING 

50

Who is entitled to vote at the Annual Meeting?

50

What are my voting rights?

50

How many shares must be present to hold the Annual Meeting?

50

What is the difference between a stockholder of record and a “street name” holder?

50

How can I submit my proxy?

50

How can I submit voting instructions to my broker?

51

How do I vote if I hold shares in the Papa John’s International, Inc. 401(k) Plan?

51

What does it mean if I receive more than one set of proxy materials?

51

Participating in the Annual Meeting 

51

How does the Board recommend that I vote?

51

What if I do not specify how I want my shares voted?

51

Can I change my vote after submitting my proxy?

52

What vote is required to approve each item of business included in the Notice of Annual Meeting?

52

What is householding?

52

Who pays for the cost of proxy preparation and solicitation?

53

OTHER MATTERS 

53

Delinquent Section 16(a) Reports 

53

Stockholder Proposals for the 2021 Annual Meeting 

53

Other Business 

53

Annual Report 

53

ANNEX A 

A-1

Reconciliation of Non-GAAP Financial Measures 

A-1

ANNEX  B 

B-1

Forward Looking Statements 

B-1

 

 

 

 

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Proxy Statement

The Board of Directors (the “Board”) of Papa John’s International, Inc. (the “Company”) is soliciting proxies for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held virtually at 11:00 a.m. Eastern Time on April 23, 2020, and at any adjournment or postponement of the meeting. We have adopted a virtual format for our Annual Meeting to provide a consistent experience to all shareholders regardless of location, and to support the health and well-being of our employees and stockholders due to the emerging public health impact of the coronavirus outbreak (COVID-19) . We will provide a live webcast of the Annual Meeting at www.virtualshareholdermeeting.com/PZZA2020. An audio recording of the entire Annual Meeting will be available on the Papa John’s Investor Relations website after the meeting. This Proxy Statement and the enclosed proxy card are first being mailed or given to stockholders on or about March 20, 2020.

At the Annual Meeting, stockholders will be asked to vote on the matters outlined in the Notice of Annual Meeting of Stockholders. These include the election of ten directors to the Board; the ratification of the selection of Ernst & Young LLP (“EY”) as the Company’s independent auditors for 2020; and an advisory approval of the Company’s executive compensation.

 

Virtual Stockholder Meeting

This year's Annual Meeting will be a completely virtual meeting of stockholders, which will be conducted via live webcast. You are entitled to participate in the Annual Meeting only if you were a stockholder as of the close of business on February 24, 2020 or if you hold a valid proxy for the Annual Meeting.

You will be able to participate in the Annual Meeting online and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/PZZA2020. You also will be able to vote your shares electronically at the annual meeting (other than shares held through the Papa John’s International, Inc. 401(k) Plan, which must be voted at least three days prior to the meeting).

To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials.

The meeting webcast will begin promptly at 11:00 a.m. Eastern Time on April 23, 2020. Online access will begin at 10:45 a.m. Eastern Time, and we encourage you to access the meeting prior to the start time.

We will also make the Annual Meeting accessible to anyone who is interested, including team members and other constituents, by visiting the same link at www.virtualshareholdermeeting.com/PZZA2020. Non-stockholder guests will not be permitted to vote or submit questions at the Annual Meeting.

Submitting questions at the Annual Meeting

You can submit questions electronically at the Annual Meeting during the webcast. During the live Q&A session of the meeting, members of our executive leadership team and our Chairman of the Board will answer questions as they come in, as time permits. To ensure the meeting is conducted in a manner that is fair to all stockholders, the Chairman (or such other person designated by our Board) may exercise broad discretion in recognizing stockholders who wish to participate, the order in which questions are asked and the amount of time devoted to any one question. However, we reserve the right to edit or reject questions we deem profane or otherwise inappropriate. Detailed guidelines for submitting written questions during the meeting are available at www.virtualshareholdermeeting.com/PZZA2020.

If you have technical difficulties or trouble accessing the virtual meeting

We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting or during the meeting time, please call:

800-586-1548 (toll-free)

303-562-9288 (international)

 

 

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Corporate Governance

Principles of corporate governance that guide the Company are set forth in the Company’s Board committee charters, the Company’s Corporate Governance Guidelines and the Company’s Code of Ethics and Business Conduct, all of which are available on our website at www.papajohns.com by first clicking “Investor Relations” and then “Corporate Governance.” (The information on the Company’s website is not part of this Proxy Statement and is not soliciting material.) The principles set forth in those governance documents were adopted by the Board to ensure that the Board is independent from management, that the Board adequately oversees management, and to help ensure that the interests of the Board and management align with the interests of the stockholders. The Board annually reviews its corporate governance documents.

Majority Voting Standard for Director Elections

Our Amended and Restated By-laws (the “By-laws”) provide for a majority voting standard for uncontested director elections and a mechanism for consideration of the resignation of an incumbent director who does not receive a majority of the votes cast in an uncontested election. Under the majority voting standard, a majority of the votes cast means that the number of shares voted “FOR” a director nominee must exceed the number of votes cast “AGAINST” that director nominee. In contested elections where the number of nominees exceeds the number of directors to be elected, the vote standard will be a plurality of votes represented in person or by proxy and entitled to vote on the election of directors. In addition, if an incumbent director is nominated in an uncontested election, the director nominee is required, as a condition of the director’s nomination, to submit an irrevocable letter of resignation to the Chairman of the Board. If an incumbent director nominee does not receive a majority of the votes cast, the Corporate Governance and Nominating Committee will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind the decision within 90 days from the date of certification of the election results. The director whose resignation is being considered will not participate in the recommendation of the Committee or the Board’s decision.

Code of Ethics and Business Conduct

The Company’s Code of Ethics and Business Conduct, which is the Company’s code of ethics applicable to all directors, officers and employees worldwide, embodies the Company’s global principles and practices relating to the ethical conduct of the Company’s business and its longstanding commitment to honesty, fair dealing and full compliance with all laws affecting the Company’s business.

The Board has established procedures for any person, including a team member, to submit confidential and anonymous reports of suspected or actual violations of the Company’s Code of Ethics and Business Conduct relating, among other things, to:

·

violations of the federal securities laws;

·

fraud or error in the Company’s accounting, audit or internal controls, financial statements and records; or

·

misconduct by any member of the Company’s senior management.

The procedures for reporting issues and concerns may be found on our website at www.papajohns.com, by first clicking “Investor Relations” and then “Corporate Governance.”

Director Independence

The Board has determined that eight of the Company’s ten current directors are “independent” as defined by applicable law and NASDAQ listing standards, as follows: Christopher L. Coleman, Michael R. Dubin, Olivia F. Kirtley, Laurette T. Koellner, Jocelyn C. Mangan, Sonya E. Medina, Anthony M. Sanfilippo and Jeffrey C. Smith. Each of our Audit, Compensation, and Corporate Governance and Nominating committees is comprised only of independent directors, as identified below under the heading “Committees of the Board of Directors.”

Robert M. Lynch is not independent because he serves as President and Chief Executive Officer of the Company. Shaquille O’Neal is not an independent director because he is a franchisee of the Company and a brand ambassador of the Company as described under “Transactions with Related Persons” below.

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Ms. Kirtley is a member of the board of directors of U.S. Bancorp. We have a banking relationship with U.S. Bancorp that predates Ms. Kirtley’s appointment to the U.S. Bancorp board of directors. Ms. Kirtley is also a member of the board of directors of Delta Dental, the Company’s dental insurance carrier. The Board reviewed these relationships and determined that they do not impact Ms. Kirtley’s independence or her business judgment.

Hedging and Pledging Policy

Pursuant to our Insider Trading Compliance Policy, we prohibit employees, officers and directors from pledging any Company securities as collateral for a loan, or from holding any Company securities in a margin account. This policy also prohibits employees, officers and directors from entering into hedging transactions involving Company securities, including purchasing financial instruments such as prepaid variable forwards, equity swaps, collars, exchange funds and similar transactions. Hedging transactions means any transaction that hedges or offsets, or is designed to hedge or offset, any decrease in the market value of Company securities. Notwithstanding this restriction, pursuant to the terms of the Securities Purchase Agreement, dated as of February 3, 2019 (the “Securities Purchase Agreement”), by and among the Company and certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), Starboard is expressly permitted to pledge Company securities acquired under the Securities Purchase Agreement. As Chief Executive Officer of Starboard Value LP, our Chairman, Jeffrey C. Smith, may be deemed to beneficially own the securities owned by Starboard. Mr. Smith expressly disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.

Board Leadership Structure and Risk Management

Under our Corporate Governance Guidelines, our Board elects a Chairman of the Board with the duties set forth in our By-laws. When the position of Chairman of the Board is not held by an independent director, the independent directors will elect a Lead Independent Director. Jeffrey C. Smith, our current Chairman, is independent; accordingly, we do not currently have a Lead Independent Director.

Our Board has three standing committees — the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee. In addition, the Board had two other committees during a part of 2019 that have since been dissolved. A Special Committee of the Board consisting solely of independent directors was formed in July 2018 with various responsibilities related to the evaluation of a range of strategic options for the Company, among other matters. The Special Committee was dissolved on April 30, 2019 following the conclusion of its work. A Marketing Committee was formed on April 11, 2019 to assist the Board in overseeing the Company’s marketing activity. Michael Dubin served as Chairman with Jocelyn Mangan and Shaquille O’Neal sitting as members. It was dissolved as of the end of the 2019 fiscal year. Each of the current Board committees is comprised solely of independent directors, with each of the committees having a separate chairman. See “Committees of the Board of Directors” below for a description of each of these Board committees and its members. The key responsibilities of the Board include developing the strategic direction for the Company and providing oversight for the execution of that strategy by management. The Board has an active role, as a whole and also at the committee level, in overseeing management of the Company’s risks. The Board regularly reviews information regarding the Company’s financial, strategic and operational issues, as well as the risks associated with each, and that oversight includes a thorough and comprehensive annual review of the Company’s strategic plan. At the committee level, risks are reviewed and addressed as follows:

·

The Audit Committee oversees management of financial risks, legal and regulatory risks, food safety, information technology and cyber security risks, as well as the Company’s Enterprise Risk Management program, reporting on such matters to the full Board. The Audit Committee’s agendas include discussions of individual and emerging risk areas throughout the year, and through its oversight of our Enterprise Risk Management program, the Audit Committee monitors management’s responsibility to identify, assess, manage and mitigate risks. Our Enterprise Risk Management program is comprised of a cross-functional, management-level Enterprise Risk Management team that helps establish a culture of managing and mitigating risk and coordination of risk management between our executive team and the Board.

·

The Compensation Committee is responsible for overseeing the management of risks relating to the Company’s compensation plans and arrangements and also oversees succession planning. The Compensation Committee reviews our compensation policies and practices to determine whether they subject us to unnecessary or excessive risk. As a result of that evaluation, including a review of the plan design and governance aspects of our compensation programs discussed below in the Compensation Discussion and Analysis, the Compensation Committee concluded that the risks arising from those policies and practices are not reasonably likely to have a material adverse effect on the Company.

·

The Corporate Governance and Nominating Committee manages risks associated with potential conflicts of interest and reviews governance and compliance issues with a view to managing associated risks, including oversight of our

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compliance program with respect to our Code of Ethics and Business Conduct and monitoring of risks associated with workplace discrimination and harassment. The Corporate Governance and Nominating Committee also oversees the Company’s initiatives on sustainability and environmental, social and governance matters.

While each committee is responsible for evaluating and overseeing the management of such risks, the Board is regularly informed through committee reports about such risks. In addition, the Board and the committees receive regular reports from the President and Chief Executive Officer, Chief Financial Officer, Chief Legal and Risk Officer, and other Company officers with roles in managing risks.

Stockholder Engagement in 2019

Our Board of Directors and our management believe it is important to proactively engage with stockholders. In 2019, we  requested meetings with and spoke with stockholders collectively holding over a majority of our outstanding common stock. This engagement was conducted by senior decision-makers at the Company, including the Chairman of the Board, the CEO and other members of management.

Areas of particular focus of the engagement included Board composition, CEO succession, human capital and diversity initiatives, sustainability and corporate social responsibility, and business strategy and financial performance. Of note, stockholder engagement contributed to the preparation of our first full sustainability report which will be published during the second quarter 2020.  

In addition, we have engaged constructively with the Los Angeles City Employees Retirement System and its counsel at the Los Angeles City Attorney’s Office in response to concerns raised regarding human resources and workplace culture matters.  As a result of that engagement, we agreed to enhance our workplace training program related to anti-harassment, anti-discrimination and diversity and inclusion.  We also agreed to engage a third party consultant to help us identify ways to further improve our culture of diversity and inclusion. Beginning next year, we will prepare a report regarding our workplace culture and our diversity and inclusion initiatives, which we intend to make available on our website as part of our annual sustainability reporting. We also committed to implement enhancements to our Code of Ethics, Corporate Governance Guidelines, Corporate Governance and Nominating Committee Charter and certain other human resources policies and procedures, designed to further strengthen our anti-discrimination, anti-harassment, and anti-retaliation policies, and otherwise improve our human resources compliance program.

Feedback from stockholders is shared with the Board and the applicable Committees on a regular basis.

Independent Chairman of the Board

Jeffrey C. Smith serves as our independent Chairman of the Board. Our Board believes an independent Chairman provides a strong leadership structure and sound governance in the best interests of the Company and its stockholders, working with the Board, the Company’s Chief Executive Officer and management to establish and further the Company’s strategic objectives.  When the position of Chairman of the Board is not held by an independent director, the independent directors will elect a Lead Independent Director, with the duties described in the Company’s Corporate Governance Guidelines.

Meetings of the Board of Directors

The Board held sixteen meetings in 2019. Each director attended at least 75% of the meetings of the Board and the Board committees on which he or she served during the period of service in 2019, except for Shaquille O’Neal, who was unable to attend several board meetings due to prior business and broadcasting commitments made prior to Mr. O’Neal’s appointment to the Board, which could not be rescheduled. The Company and Mr. O’Neal do not expect these scheduling conflicts to recur in 2020.

Meetings of the Independent Directors

At both the Board and committee levels, the Company’s independent directors meet in regular executive sessions in which members of management do not participate. These sessions typically occur in conjunction with regularly scheduled Board or committee meetings. The Chairman of the Board currently chairs executive sessions of the Board. If the position of Chairman is not held by an independent director, the Lead Independent Director will chair such executive sessions.

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Annual Meetings of Stockholders

The Company does not have a policy regarding director attendance at the Annual Meeting, but we encourage each of our directors to attend each Annual Meeting of the Company’s stockholders whenever attendance does not unreasonably conflict with the director’s other business and personal commitments. Ten directors attended the 2019 Annual Meeting.

Committees of the Board of Directors

The Board has three standing committees to facilitate and assist the Board in the execution of its responsibilities: the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee. In accordance with NASDAQ listing standards, all of the standing committees are comprised solely of independent directors. Charters for each of our standing committees are available on the Company’s website at www.papajohns.com by first clicking on “Investor Relations” and then “Corporate Governance.” The charter of each standing committee is also available in print to any stockholder who requests it.

Audit Committee

 

 

 

Members:

Laurette T. Koellner (Chairman)

Olivia F. Kirtley

Jocelyn C. Mangan

Meetings in Fiscal 2019: 12

  

The Audit Committee’s purpose is to assist the Board in fulfilling its oversight responsibilities for the accounting, financial reporting and internal control functions of the Company and its subsidiaries. The Audit Committee is responsible for the appointment, compensation and retention of the independent auditors and oversees the performance of the internal auditing function and the Company’s compliance program with respect to legal and regulatory requirements and risk management. The Audit Committee meets with management and the independent auditors to review and discuss the annual audited and quarterly unaudited financial statements, reviews the integrity of our accounting and financial reporting processes and audits of our financial statements, and prepares the Audit Committee Report included in this Proxy Statement. The responsibilities of the Audit Committee are more fully described in the Audit Committee’s Charter.

Each member of the Audit Committee is independent as determined by the Board, based upon applicable laws and regulations and NASDAQ listing standards. In addition, the Board has determined that each of Ms. Koellner and Ms. Kirtley is an “audit committee financial expert” as defined by Securities and Exchange Commission (“SEC”) rules.

 

Compensation Committee

 

 

 

Members:

Anthony M. Sanfilippo (Chairman)

Christopher L. Coleman

Sonya E. Medina

Meetings in Fiscal 2019: 13

 

The Compensation Committee oversees the Company’s compensation programs and is responsible for overseeing and making recommendations to the Board regarding the Company’s overall compensation strategies and succession planning. Specifically, the Compensation Committee reviews and approves annually the compensation of the Company’s executive officers, including the executive officers named in the Summary Compensation Table below (our “named executive officers” or “NEOs”). The Committee has the authority to administer our equity plans and is responsible for all determinations with respect to participation, the form, amount and timing of any awards to be granted to any such participants, and the payment of any such awards. In addition, the Committee is responsible for recommending stock ownership guidelines for the executive officers and directors, for recommending the compensation and benefits to be provided to non-employee directors, and for reviewing and approving the establishment of broad-based incentive compensation, equity based, and retirement or other material employee benefit plans. The Committee also reviews risks, if any, created by the Company’s compensation policies and practices and provides recommendations to the Board on compensation related proposals to be considered at the Annual Meeting.

 

 

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CORPORATE GOVERNANCE

 

 

  

The Committee has the authority to retain compensation consultants, outside counsel and other advisers. The Committee has engaged Frederick W. Cook & Company (“FW Cook”) to advise it and to prepare market studies of the competitiveness of components of the Company’s compensation program for its senior executive officers, including the named executive officers. FW Cook does not provide any other services to the Company. The Committee performed an assessment of FW Cook’s independence to determine whether the consultant is independent and, based on that assessment, determined that the firm’s work has not raised any conflict of interest and the firm is independent. See “Compensation Discussion and Analysis” for a further description of the Compensation Committee’s use of FW Cook during 2019, as well as the role of our executive officers in determining or recommending the amount or form of compensation paid to our named executive officers during 2019, and the Committee’s process in setting compensation.

The responsibilities of the Compensation Committee are more fully described in the Committee’s Charter.

 

Corporate Governance and Nominating Committee

 

 

 

Members:

Christopher L. Coleman (Chairman)

Sonya E. Medina

Anthony M. Sanfilippo

Meetings in Fiscal 2019: 14

 

The Corporate Governance and Nominating Committee assists the Board in identifying qualified individuals for service as directors of the Company and as Board committee members, evaluates incumbent directors before recommending renomination, and recommends all such approved candidates to the Board for appointment or nomination to the Company’s stockholders. The Corporate Governance and Nominating Committee selects as candidates for appointment or nomination individuals of high personal and professional integrity and ability who can contribute to the Board’s effectiveness in serving the interests of the Company’s stockholders. The Corporate Governance and Nominating Committee recommended the nomination of ten directors for election to the Board at the Annual Meeting.

In addition, the Committee develops and monitors the process for evaluating Board effectiveness, oversees the development and administration of the Company’s corporate governance policies and the Company’s compliance program with respect to the Company’s Code of Ethics and Business Conduct. It also reviews and approves matters pertaining to possible conflicts of interest and related person transactions. See the discussion under “Approval of Related Person Transactions” below. The Committee oversees the Company’s commitment to corporate values of diversity, equity and inclusion, the Company’s human resources compliance programs, including policies and procedures, for monitoring discrimination and harassment, and the Company’s initiatives on sustainability and environmental, social and governance matters.

The responsibilities of the Corporate Governance and Nominating Committee are more fully described in the Committee’s Charter.

Sustainability, Environmental and Social

At Papa John’s, we believe that people are our most important ingredient, and we are dedicated stewards of our communities and the environment. As noted above, the Corporate Governance and Nominating Committee has been tasked with overseeing the Company’s commitment to corporate values of diversity, equity and inclusion and the Company’s initiatives on sustainability and environmental, social and governance matters.

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CORPORATE GOVERNANCE

Diversity, Equity and Inclusion

Our Papa John's family includes 120,000 corporate and franchise team members around the globe, representing all walks of life. We are in communities large and small and are proud to serve customers from all backgrounds, reflecting our Company value of “Everyone Belongs.” Our commitment to diversity, equity and inclusion is rooted in our belief that having a Papa John's family that fully reflects and celebrates the global nature of our brand is the right way to do business.

How we look at our culture is how we create a high-performing Company. We are building a culture of leaders who believe in inclusivity, diversity and winning. Our efforts, led by our Chief People and Diversity Officer, embed our culture in our day-to-day practices through performance, recognition, and innovation.

We are building diversity, equity and inclusion capabilities that integrate our culture and values in daily work and critical processes;  improve recruiting and retention capabilities; and enhance training, development and succession planning of talent. 

Workplace Health and Safety

As part of the Company’s enterprise-wide safety management system, Papa John’s is investing in training, technology and people to get to zero -- zero injuries and zero accidents -- starting with its newly expanded Global Safety Team.  

All Papa John’s team members– from those at our corporate headquarters to those working in our warehouses and restaurants – receive annual safety training based on the requirements of their roles. Both Quality Control Centers and restaurant operations undergo annual safety audits, as well as random observations by regional safety managers and field safety coordinators. 

Human Rights

We strive for the highest standards of integrity and human rights in all of our business activities, including our supply chain. Our standard agreements with key suppliers mandate that each product sold to Papa John's will meet good manufacturing practices requirements applicable wherever the product is manufactured, produced, distributed, transported or stored. In addition to these requirements, which include supplier audits, and as part of our ongoing efforts to achieve and improve our standards of high quality and community responsibility throughout our business, we are incorporating into our standard supply agreements specific prohibitions against suppliers' use of forced labor or facilitation of slavery and human trafficking, including certification, verification and audit procedures, and we strive to ensure Company representatives receive training to support those efforts. Our commitment to human rights is also demonstrated in our Code of Ethics.

Sustainability

Papa John’s is committed to being a good steward of the environment. We have undertaken numerous initiatives related to environmental sustainability, including in the areas of energy savings and recycling. Papa John’s is investing in new technologies and processes to improve the efficiency of our restaurants and commercial operations in several ways. In doing so, we are also lowering our greenhouse gas emissions. Specifically, we have taken the following actions at our Quality Control Centers, restaurants, and corporate headquarters. We have made progress in saving energy throughout our operations, including through the use of installing LED lighting at our restaurants, outfitting power-saving technology in our pizza ovens, and reducing hot water and natural gas use in our Quality Control Centers. We transport our fresh pizza dough from our Quality Control Centers to our restaurants in reusable dough trays. When no longer fit for use, we grind and repurpose the trays, helping to divert more than 80,000 trays – nearly 250,000 pounds – from landfills in 2019. 

Communications with the Board

Stockholders of the Company may communicate with the Board in writing addressed to:

Board of Directors
c/o Corporate Secretary
Papa John’s International, Inc.
P.O. Box 99900
Louisville, Kentucky 40269‑0900

The Secretary will review each stockholder communication. The Secretary will forward to the entire Board (or to members of a Board committee, if the communication relates to a subject matter clearly within that committee’s area of responsibility) each communication that (a) relates to the Company’s business or governance, (b) is not offensive and is legible in form and reasonably understandable in content, and (c) does not merely relate to a personal grievance against the Company or a team member or further a personal interest not shared by the other stockholders generally.

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CORPORATE GOVERNANCE

Nominations for Directors

Identifying Qualified Candidates

The Corporate Governance and Nominating Committee assists the Board in identifying qualified persons to serve as directors of the Company. The Committee evaluates all proposed director nominees, evaluates incumbent directors before recommending renomination, and recommends all approved candidates to the Board for appointment or nomination to the Company’s stockholders.

The Corporate Governance and Nominating Committee expects qualified candidates will have high personal and professional integrity and ability and will be able to contribute to the Board’s effectiveness in serving the interests of the Company’s stockholders. The Committee considers diversity in its nomination of directors to the Board, and in its assessment of the effectiveness of the Board and its committees. In considering diversity, the Corporate Governance and Nominating Committee looks at a range of different personal factors in light of the business, customers, suppliers and employees of the Company. The range of factors includes diversity of race, ethnicity, gender, age, cultural background and personal background. The Committee considers skills and experience, such as prior board service, financial expertise, international experience, industry experience, technology experience and leadership skills, including prior management experience. In addition, the Committee also considers qualifications that include: independence, judgment, integrity, the ability to commit sufficient time and attention to Board activities, and the absence of potential conflicts with the Company’s interests. The Committee considers these criteria in the context of the perceived needs of the Board as a whole and seeks to achieve and maintain the diversity of the Board. Although the Board does not establish specific goals with respect to diversity, the overall diversity of the Board is a significant consideration in the nomination process. Half of our Board nominees for election at the Annual Meeting are diverse based on gender or ethnicity, and the Board’s collective experience covers a range of experience across different countries and industries. The Corporate Governance and Nominating Committee also considers the length of service of the Company’s Board members, balancing the value of long-standing Board service with the perspective of directors more recently joining the Board.

The charts below illustrate the composition of our nominees by gender and tenure:

 

 

 

 

Picture 2

Picture 4

 

The Corporate Governance and Nominating Committee reports regularly to the full Board on its assessment of the composition and functioning of the Board. The Company has focused on assembling a group of Board members who collectively possess the skills and experience necessary to oversee the business of the Company, structure and oversee implementation of the Company’s strategic plan and maximize stockholder value in a highly competitive environment. The Board undertook a significant refreshment process leading up to the 2019 Annual Meeting to enhance the skills and capabilities of the Board, which resulted in the addition of four new independent directors and Mr. O’Neal to the Board during 2019

The Corporate Governance and Nominating Committee will consider candidates for election to the Board recommended by a stockholder in accordance with the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and will do so in the same manner as the Committee evaluates any other properly recommended nominee. Any nomination by a stockholder of a person for election to the Board at an annual meeting of stockholders, or a special meeting of stockholders called by the Board for the purpose of electing directors, must be received at the Company’s principal offices not less than 60 days nor more than 90 days prior to the scheduled date of the meeting and must comply with certain other requirements set forth in the Company’s Certificate of Incorporation. However, if less than 70 days’ notice of the date of the annual meeting is given, notice by the stockholder must be received no later than 10 days following the earlier of (i) the day on which such notice of the date of the meeting was mailed or (ii) the day on which public disclosure of the date of the meeting was made by the Company.

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CORPORATE GOVERNANCE

Nominations must be addressed to the Chairman of the Corporate Governance and Nominating Committee in care of the Secretary of the Company at the Company’s headquarters address listed below and must be received on a timely basis in order to be considered for the next annual election of directors:

Chairman of the Corporate Governance and Nominating Committee
c/o Corporate Secretary
Papa John’s International, Inc.
P.O. Box 99900
Louisville, Kentucky 40269‑0900

Contractual Rights of Starboard to Designate Nominees

In September 2018, the Company, led by the Special Committee, began a process to evaluate a wide range of strategic options with the goal of maximizing value for all stockholders and serving the best interests of the Company’s stakeholders. As a result of this strategic review, on February 3, 2019, the Company entered into the Securities Purchase Agreement with Starboard pursuant to which Starboard made a $250 million strategic investment in the Company’s newly designated Series B Convertible Preferred Stock (the “Series B Preferred Stock”).

As part of that investment, the Board granted to Starboard certain rights related to the Company’s corporate governance, including director designation rights. Pursuant to the Governance Agreement, dated as of February 4, 2019 and amended on March 4, 2019, by and among the Company and Starboard (the “Governance Agreement”), so long as certain criteria are satisfied, including that Starboard satisfies a minimum ownership threshold, the Board has agreed to nominate, recommend, support and solicit proxies for two directors appointed by Starboard (currently Mr. Smith and Mr. Sanfilippo) for election at the Annual Meeting.

The Company also agreed to appoint Mr. Smith as Chairman of the Board pursuant to the Governance Agreement, and agreed that Mr. Sanfilippo would be a member of the Compensation Committee and the Corporate Governance and Nominating Committee.

In addition, during the Standstill Period (as defined below), Starboard has agreed not to (i) nominate or recommend for nomination any person for election as a director at any stockholder meeting, (ii) submit any stockholder proposals for consideration at, or bring any business before, any stockholder meeting or (iii) initiate, encourage or participate in any “vote no,” “withhold” or similar campaign with respect to the Company’s common stock.

Starboard has agreed, from the date of the Governance Agreement until the earlier of (i) the date that is 15 days prior to the deadline for the submission of stockholder nominations for the 2021 annual meeting of stockholders pursuant to the Company’s organizational documents and (ii) the date that is 100 days prior to the anniversary of the Annual Meeting (the “Standstill Period”), to customary standstill restrictions. Such deadlines are the result of Starboard exercising its option in January 2020 to extend its original Standstill Period under the Governance Agreement for one year, and Starboard has one remaining option to continue the Standstill Period for another year. If Mr. Smith is removed as Chairman of the Board during the Standstill Period for any reason other than due to the occurrence of a resignation event (as defined in the Governance Agreement) or his resignation as Chairman of the Board or as a director of the Company, Starboard will have the right to terminate the Standstill Period. The Governance Agreement terminates upon the expiration of the Standstill Period.

 

 

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Item 1. Election of Directors

Our By-laws provide that the Board is authorized to fix from time to time the number of directors within the range of three to fifteen members, and currently the Board size is set at ten members. Directors are elected annually to one-year terms and each director nominee has consented to being named in this Proxy Statement and has agreed to serve if elected.

We believe the nominees set forth below possess an appropriate mix of skills, experience, and leadership designed to drive board performance and properly oversee the interests of the Company, including our long-term corporate strategy. Our nominees include eight independent directors (80%), four female directors (40%), and a broad range of professional experience. The nominees also reflect a balanced approach to tenure that will allow the Board to benefit from a mix of newer directors who bring fresh perspectives and seasoned directors who bring continuity and a deep understanding of our complex business.

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE NOMINEES FOR DIRECTOR.

Set forth below is information concerning the nominees for election, including their principal occupations, business experience, background, key skills and qualifications, and ages as of the date of this Proxy Statement. The key skills and qualifications are not intended to be an exhaustive list of each nominee’s skills or contributions to the Board, but rather the specific skills and qualifications that led to the conclusion that the person should serve as a director for the Company.

Nominees for Election to the Board

 

 

 

Christopher L. Coleman

 

 

https://cdn.kscope.io/024aedf0784db8e86a60c1a71b8dc1e5-Coleman, Christopher L.-1474.jpg

Age:  51

Director since 2012

Committees:  Compensation, Corporate Governance & Nominating (Chairman)

 

Key Experience and Skills

Mr. Coleman’s extensive financial experience and international business acumen provide insight and expertise to the Board in these key areas.

Professional Experience

Mr. Coleman is based in the UK, where he is Group Head of Banking at Rothschild & Co. He is a Global Partner of Rothschild & Co, Chairman of Rothschild & Co Bank International and also serves on a number of other boards and committees of the Rothschild & Co Group, which he joined in 1989.

Mr. Coleman currently serves as a non-executive director of Barrick Gold Corporation (and is a member of its compensation committee and its corporate governance and nominating committee). Mr. Coleman was previously non-executive Chairman of Randgold Resources until the Barrick Gold-Randgold merger on January 1, 2019.

 

 

 

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ITEM 1. ELECTION OF DIRECTORS

Michael R. Dubin

 

 

Picture 23

Age:  41

Director since 2019

 

Key Experience and Skills

Mr. Dubin brings extensive marketing, media, digital commerce and business operations experience to the Board.

Professional Experience

Mr. Dubin currently serves as CEO of Dollar Shave Club, a position he has held since 2011. Dollar Shave Club was acquired by Unilever in 2016. Prior to founding Dollar Shave Club, Mr. Dubin built a career spanning marketing, advertising, media and digital commerce, holding positions at NBC, MSNBC, Time Inc. and two marketing agencies.

Mr. Dubin also currently serves on the board of Stance Socks, a privately held company, as well as two non-profit organizations.

 

 

 

Olivia F. Kirtley

 

 

https://cdn.kscope.io/024aedf0784db8e86a60c1a71b8dc1e5-Kirtley, Olivia F.-1692.jpg

Age:  69

Director since 2003

Committees: Audit

 

Key Experience and Skills

Ms. Kirtley brings extensive experience, expertise and insight to our Board in the areas of audit, risk management and public company corporate governance and compensation. In addition to her expertise in audit and tax issues developed in part as a senior manager at a predecessor to Ernst & Young LLP (“Ernst & Young”), Ms. Kirtley also brings corporate management experience from her tenure at Vermont American Corporation, including the positions of Treasurer, Vice President Finance and Chief Financial Officer at that company.

Professional Experience

Ms. Kirtley, a certified public accountant, is a business consultant on strategic and corporate governance issues. She is a former chief financial officer and former senior manager at a predecessor to the accounting firm Ernst & Young. From 2014 to 2016, she served as President and Board Chairman of the International Federation of Accountants. She has also served as Chairman of the American Institute of Certified Public Accountants and Chairman of the AICPA Board of Examiners.

Ms. Kirtley has served as a director of U.S. Bancorp since 2006 (currently serving on its risk, compensation and governance committees), as a director of ResCare, Inc. from 1998 to 2019 (including service as the chairman of its audit committee and member of its governance committee), and as a director of Randgold Resources from 2017 until the Barrick Gold-Randgold merger on January 1, 2019 (including service as a member of its audit and remuneration committees).

 

 

 

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ITEM 1. ELECTION OF DIRECTORS

Laurette T. Koellner

 

 

https://cdn.kscope.io/024aedf0784db8e86a60c1a71b8dc1e5-Koellner, Laurette_outline.jpg

Age:  65

Director since 2014

Committees:  Audit (Chairman)

 

Key Experience and Skills

As a former executive of a publicly traded company, Ms. Koellner brings extensive experience to the Board in the areas of complex business operations, finance and accounting, and international business. In addition, she brings extensive corporate governance and compensation experience and insight as a director of other public companies.

Professional Experience

Ms. Koellner most recently served as Executive Chairman of International Lease Finance Corporation, a subsidiary of American International Group, Inc. (“AIG”) from June 2012 until its May 2014 sale to AerCap Holdings N.V. Ms. Koellner served as President of Boeing International, a division of The Boeing Company, where she held a variety of financial and business leadership roles from 1997 until 2008, including as a member of the Office of the Chairman and Boeing’s Chief Administration and Human Resources Officer. Prior to her time with Boeing, Ms. Koellner spent 19 years at McDonnell Douglas Corp., which merged with The Boeing Company in 1997.

Ms. Koellner served as an independent director of Hillshire Brands, Inc. from 2001 to 2014, at which time it was sold to Tyson Foods. She served as an independent director of AIG from 2009 to 2012. She currently serves on the board of directors of Celestica, Inc. (including service as the chairman of its audit committee, and member of its compensation and corporate governance and nominating committees), The Goodyear Tire & Rubber Company (including service as Lead Director and as a member of its compensation and finance committees) and Nucor Corporation (including service as chairman of its audit committee and member of its compensation and corporate governance and nominating committees).

 

 

 

Robert M. Lynch

 

 

Picture 6

Age:  43

Director since 2019

 

Key Experience and Skills

Mr. Lynch brings to the board extensive restaurant industry and marketing experience, leading purpose-driven organizations and high performing teams and growing successful consumer brands.

Professional Experience

Mr. Lynch was appointed as President and Chief Executive Officer in August 2019.  He joined Papa John’s from Arby’s Restaurant Group where he served as President from August 2017, and served as Brand President and Chief Marketing Officer from August 2013 to August 2017.  During his time at Arby’s, he led the brand’s dramatic turn-around to strong growth and profitability.  Prior to Arby’s, Mr. Lynch served as Vice President of Marketing at Taco Bell. He has more than 20 years combined experience in the quick service restaurant and consumer packaged goods industries, and also held senior roles at HJ Heinz Company and Procter & Gamble.

 

 

 

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ITEM 1. ELECTION OF DIRECTORS

Jocelyn C. Mangan

 

 

Picture 22

Age:  48

Director since 2019

Committees: Audit

 

Key Experience and Skills

Ms. Mangan’s extensive experience with technology and product strategy  provides insight and expertise to the Board in these key areas.

Professional Experience

Ms. Mangan is the CEO and Founder of Him For Her, a social enterprise whose aim is to change for-profit boards of directors to include the world’s most talented women. She has served in this capacity since May 2018. Prior to that, Ms. Mangan held positions at Snagajob, serving as its COO from February 2017 to April 2018 and its Chief Product and Marketing Officer from May 2016 to February 2017. From May 2014 to October 2015, Ms. Mangan was SVP of Product at OpenTable.

Ms. Mangan currently serves on the board of ChowNow, an online food ordering system and marketing platform.

 

 

 

Sonya E. Medina

 

 

Picture 15

Age:  44

Director since 2015

Committees:  Compensation, Corporate Governance & Nominating

 

Key Experience and Skills

Ms. Medina has extensive experience in the area of brand management and communications, multi-cultural communities, corporate social responsibility, and diversity, equity, and inclusion.

Professional Experience

Ms. Medina is a public affairs and communications strategist. Prior to becoming a consultant, she served as Vice President of Community and External Affairs for Silver Eagle Distributors, the nation’s largest distributor of Anheuser-Busch products from 2009 to 2013. Ms. Medina served as a White House commission officer in the capacity of Deputy Assistant to the President for Domestic Policy and Director of Projects to the First Lady from 2001 to 2006 and again in 2008, and as Director of the AT&T Global Foundation from 2006 to 2008.

She is active in community and civic affairs, specifically in the area of collaborative partnerships and women and girl leadership issues.  She currently serves on the Next Gen Board Leaders Advisory Council.

 

 

 

Shaquille R. O’Neal

 

 

Picture 24

Age:  48

Director since 2019

 

Key Experience and Skills

Mr. O’Neal brings an entrepreneurial background and creative marketing skills to the Board.

Professional Experience

Mr. O’Neal’s business career includes success in broadcasting, endorsements, music, television and gaming.  He has served as an analyst on Inside the NBA since 2011.  He has been an investor in franchised and other restaurants since 2010, and actively operates Big Chicken, a fast casual fried chicken restaurant in Las Vegas and Shaquille’s, a fine dining restaurant in Los Angeles.  Mr. O’Neal is considered to be one of the most dominant basketball players in NBA history, drafted by the Orlando Magic with the first overall pick in the 1992 NBA draft. His NBA career spanned from 1992 until 2011.

He serves on the national board of directors of Communities In Schools, a non-profit devoted to empowering students to stay in school and achieve in life.

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ITEM 1. ELECTION OF DIRECTORS

 

 

 

Anthony M. Sanfilippo

 

 

Picture 21

Age:  61

Director since 2019

Committees:  Compensation (Chairman), Corporate Governance & Nominating

 

Key Experience and Skills

Mr. Sanfilippo brings extensive operational, strategic and senior leadership experience in the hospitality industry, including casinos, hotels, restaurants and entertainment businesses. 

Professional Experience

Mr. Sanfilippo is the co-founder of Sorelle Capital, Sorelle Entertainment and Sorelle Hospitality, a series of firms focused on investing in and helping entrepreneurs grow companies in hospitality sectors and related real estate ventures.

Mr. Sanfilippo most recently served as Chief Executive Officer and a member of the board of directors of Pinnacle Entertainment, Inc., a publicly traded gaming hospitality company with 16 casino locations in ten states across the U.S. from March 2010 until its October 2018 sale to Penn National Gaming. He served as Pinnacle’s chairman of the board from May 2017 until its sale. Prior to joining Pinnacle, Mr. Sanfilippo served as president, Chief Executive Officer and a board member of Multimedia Games Inc., a publicly traded creator and supplier of comprehensive technology systems, content and electronic gaming devices for various segments of the gaming industry. Prior to joining Multimedia Games, he served as division president at Harrah's Entertainment, Inc., currently known as Caesars Entertainment, Inc., including serving as president and chief operating officer for Harrah’s New Orleans and a board member of Jazz Casino Corporation. Mr. Sanfilippo also serves on the board of Tivity Health, Inc.

Mr. Sanfilippo was initially appointed to the Board, and has been selected as a director nominee, pursuant to the Governance Agreement.

 

 

 

 

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ITEM 1. ELECTION OF DIRECTORS

Jeffrey C. Smith

 

 

Picture 7

Age:  47

Director since 2019

Chairman of the Board

 

Key Experience and Skills

Mr. Smith brings extensive experience to the Board as an active change agent investor, having worked with more than 50 different public companies to improve operations, strategy and corporate governance for the benefit of stockholders, including oversight of successful restaurant turnaround and board transformation.

Professional Experience

Mr. Smith is a Managing Member, Chief Executive Officer and Chief Investment Officer of Starboard Value LP, a New York-based investment adviser with a focused and fundamental approach to investing primarily in publicly traded U.S. companies, which he founded in April 2011, with a spin-off of the existing Value and Opportunity Fund. He currently serves as Chairman of our Board of Directors.  From January 1998 to April 2011, Mr. Smith was at Ramius LLC, a subsidiary of the Cowen Group, Inc., where he was a Partner and Managing Director and the Chief Investment Officer of the funds that comprised the Value and Opportunity investment platform. Prior to joining Ramius LLC in January 1998, he served as Vice President of Strategic Development and a director of The Fresh Juice Company, Inc. Mr. Smith began his career in the Mergers and Acquisitions department at Société Générale.

Mr. Smith has served as chairman of the board of Advance Auto Parts, Inc. since May 2016. Mr. Smith previously served as chairman of the board of Darden Restaurants, Inc. from October 2014 to April 2016.  Mr. Smith was formerly on the boards of Perrigo Company plc from February 2017 to August 2019; Yahoo! Inc from April 2016 to June 2017; Quantum Corporation from May 2013 to May 2015; Office Depot, Inc. from August 2013 to September 2014; Regis Corporation from October 2011 until October 2013; and Surmodics, Inc. from January 2011 to August 2012. Mr. Smith also previously served as chairman of the board of directors of Phoenix Technologies Ltd.; and as a director of Zoran Corporation, Actel Corporation, S1 Corporation, Kensey Nash Corporation, and the Fresh Juice Company, Inc.

Mr. Smith was initially appointed to the Board, and has been selected as a director nominee, pursuant to the Governance Agreement.

There are no family relationships among the Company’s directors and executive officers.

 

 

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of February 24, 2020 (except as noted otherwise), with respect to the beneficial ownership of our capital stock by (i) each of the named executive officers identified in the Summary Compensation Table in this Proxy Statement, (ii) each director or nominee for director of the Company, (iii) all directors and current executive officers as a group and (iv) each person known to the Company to be the beneficial owner of more than five percent of the outstanding common stock or Series B Preferred Stock.

 

 

 

 

 

 

 

    

 

    

Percent of

 

 

 

Amount and Nature of

 

Common Stock

 

 Name of Beneficial Owner

 

Beneficial Ownership(1)(2)

 

Outstanding

 

Marvin Boakye

 

4,519

(3)

*

 

Christopher L. Coleman

 

35,063

 

*

 

Michael R. Dubin

 

2,587

 

*

 

Olivia F. Kirtley

 

206,295

(4)

*

 

Laurette T. Koellner

 

29,220

(5)

*

 

Robert M. Lynch

 

68,461

 

*

 

Jocelyn C. Mangan

 

2,587

 

*

 

Sonya E. Medina

 

17,551

 

*

 

Michael R. Nettles

 

7,546

(6)

*

 

Shaquille R. O'Neal

 

2,587

(7)

*

 

Caroline Miller Oyler

 

67,434

(8)

*

 

Steven M. Ritchie

 

209,185

(9)

*

 

Anthony M. Sanfilippo

 

7,856

(10)

*

 

Jeffrey C. Smith

 

5,002,369

(11)

9.99(15)

%

Joseph H. Smith

 

35,746

(12)

*

 

C. Max Wetzel

 

6,696

 

*

 

All 18 directors and current executive officers as a group

 

5,744,327

(13)

17.58

%

*Represents less than one percent of class.

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Beneficially Owned

 

Series B Preferred Stock Beneficially Owned

 

 

Amount and Nature of

 

Percent

 

 

Amount and Nature of

 

Percent

 

 Other 5% Beneficial Owners

    

Beneficial Ownership(1)

    

Outstanding

 

   

Beneficial Ownership(1)

   

Outstanding

 

Starboard Value LP(14)

 

 

 

 

 

 

 

 

 

 

777 Third Avenue, 18th Floor

 

 

 

 

 

 

 

 

 

 

New York, NY 10017

 

4,995,003

(14)

9.99(15)

%

 

250,000

 

99.0

%

AllianceBernstein L.P.(16)

 

 

 

 

 

 

 

 

 

 

1345 Avenue of the Americas

 

 

 

 

 

 

 

 

 

 

New York, NY  10105

 

3,423,576

 

10.7

%

 

 

 

 

 

T. Rowe Price Associates, Inc.(17)

 

 

 

 

 

 

 

 

 

 

100 E. Pratt Street

 

 

 

 

 

 

 

 

 

 

Baltimore, MD  21202

 

3,272,257

 

10.2

%

 

 

 

 

 

BlackRock, Inc.(18)

 

 

 

 

 

 

 

 

 

 

55 East 52nd Street

 

 

 

 

 

 

 

 

 

 

New York, NY 10055

 

2,574,707

 

8.1

%

 

 

 

 

 

Jackson Square Partners, LLC(19)

 

 

 

 

 

 

 

 

 

 

101 California Street, Suite 3750

 

 

 

 

 

 

 

 

 

 

San Francisco, CA   94111

 

2,587,767

 

8.1

%

 

 

 

 

 

The Vanguard Group(20)

 

 

 

 

 

 

 

 

 

 

100 Vanguard Blvd.

 

 

 

 

 

 

 

 

 

 

Malvern, PA 19355

 

2,177,946

 

6.8

%

 

 

 

 

 

John H. Schnatter(21)

 

 

 

 

 

 

 

 

 

 

11411 Park Road

 

 

 

 

 

 

 

 

 

 

Anchorage, KY  40223

 

1,946,106

 

6.1

%

 

 

 

 

 

(1)

Based upon information furnished to the Company by the named persons and information contained in filings with the SEC. Under SEC rules, a person is deemed to beneficially own shares over which the person has or shares voting or

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

investment power or of which the person has the right to acquire beneficial ownership within 60 days. Unless otherwise indicated, the named persons have sole voting and investment power with respect to their shares and such shares are not subject to any pledge.

(2)

Includes the following shares subject to options exercisable within 60 days after February 24, 2020,  and time‑based restricted stock,  over which the named persons have sole voting power, and deferred stock units.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Options

    

 

 

Director

    

 

    

Options

    

 

 

Director

 

 

 

exercisable

 

Restricted

 

Deferred

 

 

 

exercisable

 

Restricted

 

Deferred

 

Name

 

within 60 days

 

Stock

 

Stock Units

 

Name

 

within 60 days

 

Stock

 

Stock Units

 

Marvin Boakye

    

2,517

 

2,002

 

 —

    

Michael R. Nettles

 

7,546

 

 —

 

 —

 

Christopher L. Coleman

 

24,819

 

694

 

2,787

 

Shaquille R. O'Neal

 

 —

 

 —

 

2,587

 

Michael R. Dubin

 

 —

 

 —

 

2,587

 

Caroline Miller Oyler

 

37,559

 

19,606

 

 —

 

Olivia F. Kirtley

 

35,316

 

972

 

2,787

 

Steven M. Ritchie

 

161,981

 

32,739

 

 —

 

Laurette T. Koellner

 

16,867

 

694

 

2,787

 

Anthony M. Sanfilippo

 

 —

 

 —

 

2,985

 

Robert M. Lynch

 

 —

 

68,461

 

 —

 

Jeffrey C. Smith

 

 —

 

 —

 

4,777

 

Jocelyn C. Mangan

 

 —

 

 —

 

2,587

 

Joseph H. Smith

 

12,599

 

20,975

 

 —

 

Sonya E. Medina

 

11,556

 

694

 

2,787

 

C. Max Wetzel

 

 —

 

6,696

 

 —

 

(3)

Mr. Boakye also holds units deemed invested in 56 shares of common stock through a deferred compensation plan provided by the Company, which are not included in the shares reported.

(4)

Ms. Kirtley also holds units deemed invested in 74,109 shares of common stock through a deferred compensation plan provided by the Company, 50,206 of which are distributable in an equivalent number of shares of common stock within 60 days of termination of service on the Board and are included in the shares reported, and 23,903 of which are not included in the shares reported.

(5)

Ms. Koellner also holds units deemed invested in 3,508 shares of common stock through a deferred compensation plan provided by the Company, all of which are distributable in an equivalent number of shares of common stock within 60 days of termination of service on the Board and are included in the shares reported.

(6)

Mr. Nettles’ last day of employment with the Company was November 30, 2019.

(7)

Mr. O’Neal also received a grant of 87,136 restricted stock units (“RSUs”) pursuant to his March 15, 2019 Endorsement Agreement as set forth in the Transactions with Related Persons section of this Proxy Statement. Mr. O’Neal received such RSUs as an agent of ABG-Shaq, LLC (“ABG-Shaq”), an entity affiliated with him, and has an obligation to deliver to ABG-Shaq any common stock issuable upon vesting of the RSUs. Mr. O’Neal disclaims any direct or indirect beneficial ownership of the RSUs and underlying common stock.

(8)

Includes 609 shares held in the Company’s 401(k) Plan.

(9)

Mr. Ritchie’s last day of employment with the Company was August 27, 2019.

(10)

Includes 3,000 shares held in a family trust over which Mr. Sanfilippo and his wife serve as trustees. Mr. Sanfilippo also holds units deemed invested in 2,181 shares of common stock through a deferred compensation plan provided by the Company, 1,871 of which are distributable in an equivalent number of shares of common stock within 60 days of termination of service on the Board and are included in the shares reported, and 310 of which are not included in the shares reported.

(11)

Includes shares of our common stock issuable upon conversion of 250,000 shares of Series B Preferred Stock directly held by Starboard Value and Opportunity Master Fund Ltd, (“Starboard V&O Fund”), Starboard Value and Opportunity S LLC (“Starboard S LLC”), Starboard Value and Opportunity C LP (“Starboard C LP”), Starboard P Fund LP (“Starboard P LP”), Starboard Value and Opportunity Master Fund L LP (“Starboard L Master”) and Starboard Value LP through a managed account (the “Starboard Value LP Account”, and all such entities collectively, the “Starboard Entities”). Mr. Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP LLC ("Starboard Value GP"), the general partner of the investment manager of Starboard V&O Fund, and as a member and member of the Management Committee of Starboard Principal Co GP LLC ("Principal GP"), the general partner of the member of Starboard Value GP, may be deemed to beneficially own the securities directly and beneficially owned by Starboard V&O Fund. Mr. Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of the manager of Starboard S LLC, and as a member and member of the Management Committee of Principal GP, the general partner of the member of Starboard Value GP, may be deemed to beneficially own the securities beneficially owned by Starboard S LLC. Mr. Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of the investment manager of Starboard C LP, and as a member and member of the Management Committee of Principal GP, the general partner of the member of Starboard Value GP, may be deemed to beneficially own the securities beneficially owned by Starboard

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C LP. Mr. Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of the investment manager of Starboard P LP, may be deemed to beneficially own the securities directly and beneficially owned by Starboard P LP. Mr. Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of the investment manager of Starboard L Master, and as a member and member of the Management Committee of Principal GP, the general partner of the member of Starboard Value GP, may be deemed to beneficially own the securities beneficially owned by Starboard L Master. Mr. Smith, solely by virtue of his position as a member of the Management Committee of Starboard Value GP, the general partner of Starboard Value LP, and as a member and member of the Management Committee of Principal GP, the general partner of the member of Starboard Value GP, may be deemed to beneficially own the securities held in the Starboard Value LP Account. Mr. Smith expressly disclaims beneficial ownership of the 250,000 shares of Series B Preferred Stock in total, except to the extent of his pecuniary interest therein. All information regarding the Starboard Entities is based on the Schedule 13D/A filed with the SEC on January 15, 2020.

Mr. Smith also holds units deemed invested in 2,585 shares of common stock through a deferred compensation plan provided by the Company, all of which are distributable in an equivalent number of shares of common stock within 60 days of termination of service on the Board and are included in the shares reported.

(12)

Includes 1,113 shares held in the Company’s 401(k) Plan. Joseph Smith also holds units deemed invested in 19,160 shares of common stock through a deferred compensation plan provided by the Company, which are not included in the shares reported. Mr. Smith’s last day of employment with the Company was March 9, 2020.

(13)

Includes 331,126 shares subject to options exercisable within 60 days, 4,994,007 shares issuable upon conversion of Series B Convertible Preferred Stock, 171,539 shares of unvested restricted stock, 26,671 director deferred stock units and 58,170 shares which may be acquired within 60 days of termination of service under the deferred compensation plan, held by all directors and executive officers. Holders of director deferred stock units or units deemed invested in common stock under the deferred compensation plan have no voting or investment power over any of the shares represented by these units.

(14)

All information regarding Starboard Value LP is based on the Schedule 13D/A filed with the SEC on January 15, 2020. Starboard Value LP reported that it may be deemed to beneficially own 4,995,003 shares of common stock, over which it has sole dispositive and voting power. The Starboard Entities directly hold 250,000 shares of our Series B Preferred Stock that, as of February 24, 2020, were convertible into 4,994,007 shares of our common stock. According to the Schedule 13D/A, the beneficial ownership of our common stock by the Starboard Entities is as follows: (i) Starboard V&O Fund has sole voting and dispositive power over 2,581,902 shares; (ii) Starboard S LLC has sole voting and dispositive power over 423,731 shares; (iii) Starboard C LP has sole voting and dispositive power over 239,592 shares; (iv) Starboard P LP has sole voting and dispositive power over 777,786 shares; (v) Starboard Value P GP LLC has sole voting and dispositive power over 777,786 shares; (vi) Starboard L Master has sole voting and dispositive power over 225,928 shares; (vii) Starboard Value L LP has sole voting and dispositive power over 225,928 shares; (viii) Starboard Value R LP has sole voting and dispositive power over 1,017,378 shares; (ix) Starboard Value R GP LLC has sole voting and dispositive power over 1,243,306 shares; (x) Starboard Value GP has sole voting and dispositive power over 4,995,003 shares; (xi) Starboard Principal Co LP has sole voting and dispositive power over 4,995,003 shares; (xii) Principal GP has sole voting and dispositive power over 4,995,003 shares; (xiii) Jeffrey C. Smith has sole voting and dispositive power over 2,190.05 shares and shared voting and dispositive power over 4,995,003 shares; and (xiv) Peter A. Feld has shared voting and dispositive power over 4,995,003 shares. Each of the Starboard Entities and Messrs. Smith and Feld disclaim beneficial ownership of such shares except to the extent of its or his pecuniary interest therein.

(15)

Reflects a conversion limitation of 9.99% as set forth under the Certificate of Designation of Series B Convertible Preferred Stock, as filed with the Office of the Secretary of the State of Delaware on February 4, 2019. The 250,000 shares of Series B Preferred Stock held by certain funds affiliated with, or managed by, Starboard Value LP represent approximately 13.50% of the outstanding voting power on an as-converted basis.

(16)

All information regarding AllianceBernstein L.P. is based on an Amendment No. 1 to Schedule 13G filed with the SEC on February 18, 2020 by AllianceBernstein L.P. AllianceBernstein L.P. has sole power to vote 2,937,091 shares, sole dispositive power over 3,399,270 shares and shared dispositive power over 24,306 shares.

(17)

All information regarding T. Rowe Price Associates, Inc. is based on an Amendment No. 2 to Schedule 13G filed with the SEC on February 14, 2020 by T. Rowe Price Associates, Inc. T. Rowe Price Associates, Inc. has sole power to vote 769,215 shares and sole dispositive power over 3,272,257 shares.

(18)

All information regarding BlackRock Inc. and its affiliates is based on an Amendment to Schedule 13G filed with the SEC on February 5, 2020 by BlackRock, Inc. BlackRock has sole power to vote 2,529,496 shares and has sole dispositive power over 2,574,707 shares.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(19)

All information regarding Jackson Square Partners, LLC is based on a Schedule 13G filed with the SEC on February 14, 2020 by Jackson Square Partners, LLC.  Jackson Square Partners has sole voting power over 1,988,406 shares, shared voting power over 272,540 shares, and sole dispositive power over 2,587,767 shares. 

(20)

All information regarding The Vanguard Group is based on an Amendment No. 4 to Schedule 13G filed with the SEC on February 12, 2020.  The Vanguard Group has sole voting power over 43,133 shares, shared voting power over 3,200 shares, sole dispositive power of 2,133,913 shares, and shared dispositive power of 44,033 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 40,833 shares or 0.12% of the common stock outstanding of the Company as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 5,500 shares or 0.01% of the common stock outstanding of the Company as a result of its serving as investment manager of Australian investment offerings.

(21)

All information regarding John H. Schnatter is based on an Amendment No. 37 to Schedule 13D/A filed with the SEC on February 13, 2020.  John H. Schnatter has sole voting power over 1,946,106 shares and sole dispositive power over 1,946,106 shares. The shares reported include 64,500 shares held in the John H. Schnatter Family Foundation in which Mr. Schnatter has voting power but no pecuniary interest. 

 

 

2020 Proxy Statement     19

Table of Contents

 

s

 

Executive Compensation —
Compensation Discussion and Analysis

Introduction

This discussion and analysis explains the Company’s philosophy and program for compensating its executive officers as well as the compensation paid to its named executive officers (“NEOs”) for fiscal year 2019. The NEOs are:

·

Robert M. Lynch, President and Chief Executive Officer;

·

C. Max Wetzel, Chief Commercial and Marketing Officer;

·

Caroline Miller Oyler, Chief Legal and Risk Officer;

·

Marvin Boakye, Chief People and Diversity Officer;

·

Steven M. Ritchie, Former President and Chief Executive Officer;

·

Joseph H. Smith, Former Chief Financial Officer;1 and

·

Michael R. Nettles, Former Executive Vice President, Chief Operating and Growth Officer.

1Mr. Smith departed the Company on March 9, 2020, and served as the Company’s Chief Financial Officer as of December 29, 2019.

Executive Summary

Our executive compensation program is focused on financial, strategic and operational goals established by the Board of Directors, with the objective of creating value for our stockholders. Our guiding compensation principle is to pay for performance, supporting our goal of growing stockholder value by delivering on our Better Ingredients. Better Pizza. brand promise. Our compensation program is designed to motivate, measure, and reward the achievement of our strategic goals without encouraging excessive or unnecessary risk taking.

The Company incurred significant challenges in 2018 and 2019. A turnaround, through changes in management and a focus on innovation began in 2019. Progress in the turnaround is evidenced by positive comparable sales results in the third and fourth quarters of 2019, reversing a declining sales trend since the fourth quarter of 2017. We also began to strengthen our senior management team and streamline general and administrative expenses. Major changes to our executive compensation program supporting the new leadership structure are intended to align our leadership with stockholders, with a focus on delivering long-term stockholder value. 

·

Executive Leadership Changes. 2019 saw significant strategic changes in our leadership team:

o

Mr. Lynch became the Company’s President and Chief Executive Officer in August 2019;

o

Mr. Boakye became the Company’s first Chief People Officer in January 2019, and Mr. Wetzel was named the Company’s first Chief Commercial and Marketing Officer in November 2019, along with other key changes to strengthen the Company’s senior management (“Executive Leadership Team”);

o

We began a search for a new Chief Financial Officer in late 2019.

We believe the quality and experience of the new leaders who have joined us, along with the direction provided to longer term leaders, will position us to build a culture throughout the Company with a focus on operational excellence in all that we do. We also believe the leaders we have in place will enhance our culture through actions that will reflect an inclusive and diverse team at Papa John’s. We will continue to focus on improving unit-level profitability; establishing our pizza and other food products as high quality in the marketplace via commercial platforms; and leveraging our technology infrastructure to position our business operations for success.  

·

Below-target and forfeited incentive payouts. We performed below-target on each of the annual performance goals of our annual cash incentive plan, which we refer to as our Management Incentive Plan (“MIP”).  The MIP results on the operating income and sales metrics were between threshold and target performance, as described

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EXECUTIVE COMPENSATION — COMPENSATION DISCUSSION AND ANALYSIS

further below, reflecting the rigor of our plan and also progress on our operational and financial goals, and yielding an overall payout on the MIP of 40.5% of target.

Our performance-based restricted stock units (“performance-based units”) for the three-year period ending at 2019 fiscal year end were forfeited due to a failure to achieve the threshold performance metric under these awards.

·

Improvements to 2019 pay. Beginning in 2019, we increased the proportion of performance-based awards in our annual long-term equity incentive grants to 50% of the award, and changed the performance criteria of these awards to relative total stockholder return (“TSR”). This strengthens the performance basis of our pay and further aligns the interests of our executives with those of our stockholders. For 2020, 60% of the long-term annual equity incentive for our Executive Leadership Team will be performance-based, and we capped our MIP payouts at 200%.

Elements and Analysis of 2019 Executive Compensation

In 2019, the Compensation Committee continued its practice of providing to its NEOs the following components of executive compensation, collectively referred to as “total direct compensation”:

Pay Component

    

Description

    

2019 Actions and Payments

Base Salary

 

Fixed cash compensation. The smallest component of total direct compensation.

 

Salaries for Mr. Lynch, Mr. Wetzel and Mr. Boakye were set by the Compensation Committee when each executive joined the Company in 2019.  No other NEO received a compensation increase in 2019.

Annual Cash Incentive Compensation (Under MIP)

 

Provides an annual cash payout to the NEOs and others within the Company based upon achievement of pre‑established performance goals.

 

2019 NEO payouts under the MIP were 30% of base salary, other than for Mr. Lynch, whose 2019 cash incentive payment was set at a floor of 110% of base salary under his employment agreement.

Long-term Compensation

  Stock Options – 25%

  Restricted Stock – 25%

  Performance-based units -50%

 

Time-based Restricted Stock: 3- Year Ratable Vesting

Performance-based units earned based on relative TSR over three years.

 

Performance-based units granted in 2017 were forfeited due to below-threshold performance for the 2017-2019 period.

Governance Aspects of Our Executive Compensation Program

Consistent with stockholder interests and market best practices, our executive compensation program includes the following sound governance features:

·

Discontinued the use of employment agreements for all executives other than the CEO.

·

No “single trigger” change of control payments.

·

No guaranteed bonus or base pay increases, other than sign-on payments and inducements for newly recruited executives.

·

No repricing or cash buyouts of underwater stock options or granting of discount-priced stock options. 

·

Multi-year vesting and performance periods for annual equity grants.

·

“Claw back” of certain performance-based compensation in the event the Company is required to prepare an accounting restatement to the extent that the restatement indicates that the performance goals were not achieved.

·

Risk mitigation features including robust stock ownership requirements, multiple performance metrics to deter excessive focus on a singular performance goal in the annual MIP, as well as an annual risk assessment by the Compensation Committee.

·

The Compensation Committee engages an independent compensation consultant, which provides no other services to the Company. The Committee received advice from its independent consultant in structuring pay packages for new executives in 2019, including the CEO, that reflect the Company’s pay-for-performance philosophy.

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EXECUTIVE COMPENSATION — COMPENSATION DISCUSSION AND ANALYSIS

·

No dividends or dividend equivalent rights paid out on unexercised stock options or unearned performance-based units.

·

No hedging or pledging of Company stock by executive officers or directors.

·

Limited perquisites.

Tying Pay to Performance

The Compensation Committee aligns the majority of NEO compensation to short- and long-term performance objectives.  While salary is a fixed element of compensation, increases in salary are not guaranteed, and all other elements of compensation are tied to Papa John’s overall performance.

In 2019, the Committee applied our pay-for-performance philosophy by:

·

Setting rigorous, objective performance goals under the annual cash incentive award, the MIP.

·

Granting performance-based units that are tied to meaningful performance drivers measured over a three-year period. Payouts under these awards are also subject to a threshold achievement of relative TSR based on a comparator group of 23 companies in the S&P 1500 restaurant category.

·

The performance-based units granted for the three-year period ending at 2019 fiscal year end were forfeited due to below-threshold performance.

·

Granting stock option and restricted stock awards that typically vest over three years, tying executive compensation to long-term service and the creation of long-term stockholder value. Award levels are tied to individual performance and individual success in driving results.

Consistent with our pay-for-performance compensation philosophy, executives with the greatest potential to impact the Company’s success by achieving the Company’s strategic and performance objectives receive a greater proportion of “at-risk” or variable compensation. Eighty-three percent of Mr. Lynch’s compensation at target (without consideration of sign-on awards) and 62% of our other current NEOs’ compensation was tied to specific performance objectives or appreciation in our stock price.

 

 

 

 

Picture 9

Picture 10

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EXECUTIVE COMPENSATION — COMPENSATION DISCUSSION AND ANALYSIS

Focus on our Long Term Success

Stock ownership by our executive officers is a key consideration of our executive compensation philosophy. We believe that executive ownership of our stock demonstrates to investors that our executives have a significant stake in the Company and its future and mitigates risks associated with equity compensation programs.

The ownership guidelines for our current NEOs are:

 

 

 

 

 

 

 

 

 

 

Ownership Guideline

 

Executive Officer

    

as a Multiple of Base Salary (x)

 

Chief Executive Officer

 

5.0x

 

All other Executive Officers

 

3.0x

 

NEOs have five years after becoming subject to the ownership requirement to achieve the ownership level. In 2019, we strengthened our equity ownership program by instituting an additional equity holding requirement. The equity holding requirement applies when ownership requirements have not been met, in which case all equity acquired upon vesting of awards, net of taxes, must be held until the executive achieves the applicable ownership level.

Ownership levels at any particular time are calculated based on the purchase price of shares owned or the actual price on the measurement date, whichever is higher. Sources of ownership for measurement purposes include:

·

stock personally or otherwise beneficially owned directly or indirectly;

·

stock equivalent units held in our nonqualified deferred compensation plan;

·

stock held in a 401(k) account or other qualified retirement account, such as an IRA; and

·

unvested restricted stock (excluding performance-based units).

The Compensation Committee reviews the Stock Ownership Guidelines on an annual basis. As of December 29, 2019, all current NEOs were in compliance with the guidelines.

Compensation of Chief Executive Officer and Other NEOs

Chief Executive Officer Appointment

The Compensation Committee structured Mr. Lynch’s compensation to create alignment between our strategic goals and stockholder interests. The compensation for Mr. Lynch was structured based on a competitive compensation analysis of CEO pay for Papa John’s peer group (as discussed in “Competitive Compensation,” below). In connection with his appointment as Chief Executive Officer, the Company entered into an employment agreement with Mr. Lynch on August 26, 2019 (the “Employment Agreement”). The Employment Agreement has a three-year term and automatically renews for successive one-year terms thereafter unless either party elects not to renew by providing written notice to the other party at least 180 days prior to expiration.

Performance-based compensation.  Most of Mr. Lynch’s total direct compensation package is performance-based, tied to specific performance objectives or the value of our stock price.  The Employment Agreement provides for a minimum annual base salary of $900,000, an annual short-term cash incentive opportunity with a target set at 110% of base salary (which was fixed at 100% of target for 2019), and annual equity awards opportunities applicable to the Company’s other executive officers. During the term of the Employment Agreement, base salary increases, and the amount, performance criteria and terms of bonus awards and equity awards are at the discretion of the Compensation Committee. The Employment Agreement set Mr. Lynch’s initial annual equity awards to be granted in fiscal year 2020 under the Company’s long-term incentive program at a target grant-date fair value of $3.4 million, made in the same allocation of grant types as awarded to other executive officers of the Company. For 2020, Mr. Lynch’s equity awards will consist of 60% performance-based units and 40% time-based restricted stock.

Sign-on and make-whole awards.  As part of his Employment Agreement, Mr. Lynch was granted sign-on compensation intended to partially replace the value of his equity awards and other compensation forfeited from his prior employer, consisting of (i) a $3 million sign-on cash bonus, which is subject to claw-back provisions, and (ii) restricted stock with a grant-date fair value of $3 million, one-third of which will vest on the second anniversary of the grant date, and two-thirds of which will vest on the third anniversary of the grant date. Mr. Lynch is also entitled to relocation benefits consistent with Company policy for executive officers, plus an additional $165,000 payment to cover relocation and moving expenses. Relocation benefits will be “grossed-up” to cover applicable taxes.

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EXECUTIVE COMPENSATION — COMPENSATION DISCUSSION AND ANALYSIS

Former Chief Executive Officer.  Mr. Ritchie’s compensation was unchanged during his period as Chief Executive Officer during 2019.

Compensation of Other NEOs

The members of the Company’s Executive Leadership Team did not receive compensation increases in 2019.

New Executive Leadership

On November 6, 2019, the Company appointed Mr. Wetzel to serve as its first Chief Commercial and Marketing Officer. The Compensation Committee approved an annual base salary of $500,000 for Mr. Wetzel, an annual short-term cash incentive target of 75% of base salary, and the value of annual long-term incentive of $475,000 commencing with the Company’s 2020 long term incentive grant. In addition, Mr. Wetzel was granted sign-on compensation intended to partially replace the value of his equity awards and other compensation forfeited from his prior employer, consisting of (i) a $400,000 sign-on cash bonus, paid on November 29, 2019, which is subject to claw-back provisions, and (ii) restricted stock with a grant-date fair value of $400,000, granted on Mr. Wetzel’s first day of employment on November 18, 2019, one-third of which will vest on the first anniversary of the grant date, and two-thirds of which will vest on the second anniversary of the grant date. Mr. Wetzel also received an initial $25,000 relocation lump sum in December 2019 plus relocation benefits consistent with Company policy for executive officers.

On January 19, 2019, the Company appointed Mr. Boakye to serve as Chief People Officer. The Compensation Committee approved an annual base salary of $375,000 for Mr. Boakye, an annual short-term incentive target of 75% of base salary, and the value of annual long-term incentive of $350,000.

Management Transitions and Separation Arrangements

On September 6, 2019, Mr. Ritchie and the Company entered into an Agreement and Release (the “Release”) relating to his separation from the Company. Under the terms of the Release and subject to Mr. Ritchie’s continued compliance with, among other things, his confidentiality and non-competition requirements and a general release of claims in favor of the Company, Mr. Ritchie is entitled to severance benefits consistent with a termination without cause under his employment agreement with the Company, including continuation of his base salary for a period of eighteen (18) months; payment of a pro-rated portion of his annual bonus under the MIP for the period from December 31, 2018 through the date of Mr. Ritchie’s separation based on the achievement of the applicable performance metrics; six (6) months of additional service credit for time-based equity awards from and after the end of service with the Company; payment for credited and unused vacation days under the Company’s existing policies; and executive outplacement services.  In addition, on September 6, 2019, the Company and Mr. Ritchie entered into a consulting agreement pursuant to which Mr. Ritchie will be available to provide consulting services in order to assist with transition matters through April 30, 2020, related to his former role in the Company and to assist with franchisee relations and other matters as requested by the Board or the Company. Mr. Ritchie is paid a retainer of $1,000 per month plus $250 per hour for services performed under the arrangement, and during the term of the consulting agreement Mr. Ritchie will be deemed to continue in service with the Company for purposes of the vesting of his existing equity awards.

On November 6, 2019, the Company also announced the departure of Mr. Nettles, Executive Vice President, Chief Operating and Growth Officer, following the Company’s elimination of the position of Chief Operating and Growth Officer. The Compensation Committee determined to treat Mr. Nettles’ departure as a termination without cause under his employment agreement, dated as of February 1, 2017. As a condition to his receipt of the benefits under his employment agreement, Mr. Nettles signed the Company’s standard form of separation agreement, which includes a waiver and full release of claims against the Company. Mr. Nettles received severance benefits consistent with a termination without cause under his employment agreement with the Company, including continuation of his base salary for a period of nine (9) months; payment of a pro-rated portion of his annual incentive cash opportunity under the MIP for the period from December 31, 2018 through his date of separation based on the achievement of the applicable performance metrics; six (6) months of additional service credit for time-based equity awards from and after the end of service with the Company; payment for credited and unused vacation days under the Company’s existing policies; and executive outplacement services.

On November 6, 2019, the Company announced the departure of Joseph H. Smith, IV, Chief Financial Officer of the Company. Mr. Smith’s last day with the Company was March 9, 2020. Mr. Smith had served in his current role since April 2018, and has been with the Company since 2000. The Compensation Committee determined to treat Mr. Smith’s departure as a termination without cause under his employment agreement, dated as of May 3, 2018. As a condition to his receipt of the benefits under his employment agreement, Mr. Smith signed the Company’s standard form of separation agreement, which includes a waiver and full release of claims against the Company. Mr. Smith will receive severance benefits consistent with a termination without cause under his employment agreement with the Company, including continuation of his base salary for a period of nine (9) months; payment of a pro-rated portion of his annual incentive cash opportunity under the MIP

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for the period from December 30, 2019 through his date of separation, subject to the achievement of the applicable performance metrics; pro-rated vesting of his 2019 performance-based unit award, subject to the achievement of the applicable performance metrics at the end of the performance period; six (6) months of additional service credit for time-based equity awards from and after the end of service with the Company; payment for credited and unused vacation days under the Company’s existing policies; and executive outplacement services.

Stockholder Input/Say‑on‑Pay Vote

The Company considers input from stockholders, including the results of the annual advisory vote on executive compensation (“say‑on-pay proposal”), in determining compensation for our NEOs. At our 2019 annual meeting of stockholders, approximately 97% of the votes cast on the say-on-pay proposal were in favor. Stockholders’ overwhelming support of our executive compensation program was one of many factors the Committee considered in determining compensation for our NEOs. The Compensation Committee will continue to consider the outcome of the Company’s say‑on‑pay votes when making future compensation decisions for the NEOs.

We also engaged broadly with our stockholders since last year’s annual meeting of stockholders. This engagement has covered a range of topics, including the significant challenges facing our business, governance and board composition.  We are committed to continuing to seek feedback from stockholders.

Competitive Compensation

Market pay levels and practices, including those of a self-selected peer group, are among many factors the Compensation Committee considers in making compensation decisions. The market review is intended to provide an external framework on the range and reasonableness of compensation and to ensure we can provide competitive compensation needed to attract and retain the caliber of leadership critical to success. The Compensation Committee reviews market data for all pay elements but does not target NEO compensation with respect to a specific benchmark, such as “median” or “50th percentile.” The Compensation Committee believes that dependence solely on benchmark data can detract from the focus on the performance of the individual NEO and his or her relation to Company performance.

The Compensation Committee periodically reviews compensation practices of its self-selected peer group, developed in consultation with FW Cook, its independent compensation consultant. This peer group, listed below, was used in 2019 compensation decisions. In 2019, the Compensation Committee added one additional company, Bloomin’ Brands, to the peer group. The Committee believes the companies in the peer group share many characteristics with the Company, including a common industry, similar market capitalization and other financial criteria, and are an appropriate group of comparable companies with which we compete for executive talent.

 

 

 

 

 

COMPETITIVE PEER GROUP

BJ's Restaurants, Inc.

 

Cracker Barrel Old Country Store, Inc.

 

Jack in the Box Inc.

Bloomin' Brands

 

Denny’s Corp.

 

Red Robin Gourmet Burgers, Inc.

Brinker International, Inc.

 

Dine Brands Global, Inc.

 

Sonic Corp.

The Cheesecake Factory, Inc.

 

Domino’s Pizza, Inc.

 

Texas Roadhouse, Inc.

Chipotle Mexican Grill, Inc.

 

Dunkin' Brands Group, Inc.

 

The Wendy’s Company

Role of Compensation Consultant

The Compensation Committee directly retained FW Cook as its independent compensation consultant. FW Cook reports directly to the Compensation Committee and does not provide any other services to the Company. The Compensation Committee regularly reviews and assesses FW Cook’s independence pursuant to SEC and NASDAQ rules and has determined that the firm is independent and has no conflicts of interest with the Company. The Committee seeks input from FW Cook on compensation trends, appropriate peer group companies and market survey data, and specific compensation decisions as discussed in this Compensation Discussion and Analysis.

Role of the CEO in Compensation Decisions

In making 2019 compensation decisions, the Compensation Committee requested input from the CEO, who reviewed the performance of the NEOs and other executives (other than himself), provided recommendations to the Committee on NEO and other executives’ compensation, and provided perspective on the performance of the management team (other than himself). Our former Chief Financial Officer also supported the Compensation Committee’s executive compensation process

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in 2019 and regularly attended portions of Committee meetings at the invitation of the Committee. The Committee reviews and discusses pay decisions related to the CEO in executive session without the CEO present, and in accordance with NASDAQ rules, neither Mr. Lynch nor Mr. Ritchie was present when his compensation was being discussed or approved.

The Committee’s determination of each NEO’s compensation was based on a qualitative and quantitative review and assessment of many factors, including the individual’s performance, experience, scope of responsibilities, leadership and leadership development, and the importance of the NEO to the successful execution of our strategies.

The Compensation Committee believes NEO compensation is appropriate given the Company’s business and relative size.  Actual total cash compensation paid was dependent on the achievement of specific performance goals, discussed in detail below.  The ultimate value of long‑term equity awards will depend on future stock performance, and in the case of performance‑based units, the achievement of performance goals.

The Role of Cash Compensation

Base Salary

Annual base salary increases are typically considered each year and upon organizational changes that may occur throughout the year. No executive officer has a guaranteed salary increase. The analysis for adjustments to base salary compensation takes into account all of the factors described under “Elements and Analysis of 2019 Executive Compensation” above. Adjustments to base salary typically occur during the first quarter each year. Base salaries for Mr. Lynch, Mr. Boakye and Mr. Wetzel were set by the Compensation Committee when they joined Papa John’s in 2019. There were no other NEO salary adjustments in 2019.

Short-Term Cash Incentive Compensation

In 2019, our short‑term incentive program consisted of the MIP, which provides an annual cash payout to the NEOs and others within the Company based upon achievement of pre‑established performance goals. Similar to prior years, we again included a 150% of target award limit on our non‑income metrics, which were net unit development (North America and International) and comparable sales (North America and International) (in each case, as defined and calculated in the table below). The Company believes the plan design with built‑in limits prevents paying excessive awards when our post-MIP operating income does not meet our objectives for the full year, and is an important element in mitigating risk of focusing on short‑term performance. For 2019, all payments on our non-income metrics were below the 150% threshold; therefore, no amounts were retained in the pool for additional award payments to the NEOs or any other participant.

Overall payout under the 2019 MIP was capped at an individual level of 300% of annual base salary. For 2020, the MIP will be capped at 200% of target.

In 2019, performance metrics and the target and actual results of the MIP included:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

   

 

 

    

 

 

 

 

    

Actual

 

  

 

    

 

 

 

 

 

 

 

 

 

 

 

 

Payout

 

 

 

 

 

Metric

 

Definition

 

Target

 

2019 Budget

Actual Results

 

Percentage

 

 

Weighting

 

 

Post-MIP Operating Income

 

Consolidated corporate operating income net of non-controlling interests.

 

$

92,300,000

(1)

$

83,800,000

$

79,822,000

 

59

%

 

45

%  

 

Net Development

 

Global system-wide store openings less store closings.

 

 

164 units

(1)

 

151 units

 

92 units

(1)

0

%

 

20

%  

 

North America Comparable Sales

 

North America system-wide comparable sales (average same-store, year-over-year sales), an industry standard used to measure company growth.

 

 

3.00

%

 

(1.00)

 

(2.18)

%

47

%

 

25

%

 

International Comparable Sales

 

International system-wide comparable sales (average same-store, year-over-year sales), an industry standard used to measure company growth.

 

 

4.10

%

 

3.20

 

1.09

%

23

%

 

10

%

 

(1)

Any payout under the MIP is subject to threshold levels in each performance metric. For 2019, the threshold levels were: Post-MIP Operating Income,  $67.0 million; Global Net Development,  104 units;  North America Comparable Sales, -4.0% and International Comparable Sales, 0.2%.

Performance targets for each performance metric were set by the Committee with consideration of stockholder value creation as well as the Company’s targets contained in the annual budget and operating plan. As shown in the table above, performance at levels above those set in the Company’s 2019 budget would have been necessary to achieve target payout.

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In 2019, in recognition of challenges facing the Company’s business, the Committee set the “Post-MIP Operating Income” performance target excluding certain special charges of $30 million, and the Compensation Committee approved the exclusion of these items from the MIP payout, along with other special items to be identified in the earnings press release at year-end, such as refranchising gains or losses. Actual special charges excluded from the calculation of the Post-MIP Operating Income metric, net of excluded refranchising gains, totaled $56.1 million, including: incremental royalty relief,  additional contributions to our National Marketing Fund, professional fees and legal costs that culminated in the Starboard investment, a one-time mark-to-market adjustment related to the increase in the fair value of the Starboard option to purchase Series B preferred stock in late March 2019, severance costs for our former CEO and the cost of termination of a license agreement for intellectual property no longer being utilized, and gains associated with the refranchising of 46 restaurants, primarily located in Georgia and South Florida. Post-MIP Operating Income excluding special charges is a non-GAAP financial measure that excludes or has otherwise been adjusted for the impact of special charges and refranchising gains. See Annex A to this Proxy Statement for a reconciliation of non-GAAP financial measures to our results as reported under GAAP.

In 2019, the MIP awards (expressed as a percentage of base salary and an actual dollar amount) for each current NEO were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Target

    

 

    

    

 

    

    

 

 

 

 

 

 

Short-Term

 

Target

 

Actual

 

 

 

 

 

 

 

Incentive

 

Short-Term

 

Short-Term

 

Actual

 

 

 

 

 

Award

 

Incentive

 

Incentive

 

Award

 

 

 

 

 

(% of Base

 

Award

 

Award

 

(% of 2019

 

 Named Executive Officer

 

Title

 

Salary)

    

$
(1)

 

$

    

Base Salary)

  

Robert M. Lynch

 

President and Chief Executive Officer

 

110

%  

 

990,000

 

 

990,000

 (1)

110

%(1)

Joseph H. Smith

    

Former Chief Financial Officer

    

75

%  

 

333,750

 

 

135,236

 

30

%

Caroline Miller Oyler

 

Chief Legal and Risk Officer

 

75

%

 

318,750

 

 

129,158

 

30

%

C. Max Wetzel

 

Chief Commercial and Marketing Officer

 

75

%

 

375,000

 

 

17,533

 (2)

30

%(2)

Marvin Boakye

 

Chief People and Diversity Officer

 

75

%

 

281,250

 

 

106,762

 (2)

30

%(2)

Steven M. Ritchie

 

Former President and Chief Executive Officer

 

75

%

 

675,000

 

 

179,585

 (2)

30

%(2)

Michael R. Nettles

 

Former EVP and Chief Operating and Growth Officer

 

75

%

 

450,000

 

 

167,312

 (2)

30

%(2)

(1)

Mr. Lynch’s Employment Agreement provides for a MIP target of 110% of base salary (which was fixed, for 2019 only, at a minimum of 100% of target).

(2)

Reflects pro‑rated annualized incentive for period of service during 2019.

Except for Mr. Lynch  (as agreed to as an incentive in the hiring of Mr. Lynch for 2019 only), each NEO’s actual annual incentive award payment in the table above is determined by formula based on the Company’s achievement of the pre‑established performance targets derived from the Board‑approved annual budget and operating plan. By tying the targets to the budget and operating plan, we believe that the plan rewards performance, and payments will generally correlate to our operating results in a given year. Actual 2019 results for all metrics produced an aggregate payout of 40.5% of target.

The Role of Equity Awards

Our long‑term incentive compensation program for executive officers consists of stock options, time‑vested restricted stock and performance‑based units. For 2020, the program will no longer include stock options.

Stock Options and Time‑Vested Restricted Stock. We awarded stock options in 2019 because they provided a performance‑based element, as their value only increases if the market price of our common stock increases over time. In addition, stock options and restricted stock provide long‑term compensation to our NEOs in the form of additional equity, helping to build a culture of ownership. Finally, we believed the stock options and restricted stock awards were a strong executive retention tool and align the interests of our executives with the interests of stockholders. The options and time-vested restricted stock awarded in 2019 have a three‑year graded vesting schedule (i.e., one‑third vests per year), and the stock options have a ten‑year term.

The determination of the annual grant value levels is a function of a number of factors considered by the Compensation Committee, including market competitiveness, level of position within the organization, significance of the individual to the Company’s strategy and success, and the level of “total direct compensation” deemed to be appropriate for the NEO.

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In February 2019, our Compensation Committee approved the annual grant of stock options and time‑based restricted stock to each NEO then employed by the Company in accordance with our equity grant practices policy, with the effective date of grant and the exercise price of each stock option awarded at the closing price of our common stock on the NASDAQ Stock Market on February 28, 2019, two days after the release of our fourth quarter and full‑year 2018 earnings.

Total Shareholder Return Plan and Awards. Beginning in February 2019, the Compensation Committee determined that it was appropriate to change the performance goals embedded in the Company’s performance-based units to more directly align our NEO’s performance incentives with the returns experienced by our stockholders. Accordingly, the Committee adopted a new Total Shareholder Return Plan (“TSRP”), for the Company’s long-term, performance-based restricted stock incentive. The perfomance-based unit awards made under the TSRP in 2019 had new underlying performance goals, replacing the goals of the performance-based units that the Compensation Committee had awarded in previous years. We believe this plan drives our long-term strategic and financial priorities.

Description of TSRP

The TSRP measures the TSR (which is generally the change in the trading price of a share of common stock plus dividends paid) on our common stock from February 28, 2019 to January 31, 2022 (the “Performance Period”) relative to the TSR of a group of publicly traded companies deemed comparable by the Compensation Committee (the “TSR Peer Group”) over the same Performance Period.    

As of the beginning of the Performance Period, participants are awarded performance-based units denominated in the number of shares earned if target performance is achieved (“Target TSR Shares”). The number of Target TSR Shares received by the NEOs were as follows: Ms. Oyler, 4,243 shares, Mr. Boakye, 3,960 shares, Mr. Ritchie, 19,514 shares, Mr. Smith, 5,374 shares and Mr. Nettles, 7,919 shares. If an executive is terminated without cause prior to the end of the Performance Period, the executive receives a pro rata payout based upon achievement of the award’s performance element, provided at least twelve months of service have been provided during the Performance Period. The grant for Mr. Nettles was forfeited because he had not provided the minimum 12 months of service during the Performance Period when his service terminated. Neither Mr. Lynch nor Mr. Wetzel received a grant under this plan during 2019 due to the timing of the commencement of their employment with the Company. No dividends paid by the Company on its common stock during the Performance Period will be paid to or be accrued for holders of Target TSR Shares but will result in the delivery of additional shares to holders of Target TSR Shares only and to the extent an award is earned. The increase in shares will be determined using the dollar value of the dividends paid on Company common stock and the trading price of Company common stock on the ex-dividend date.

Target TSR Shares will vest and be converted into shares of our common stock at the end of the Performance Period if the TSR of our common stock is equal to the 55th percentile of the TSR of the TSR Peer Group. If the TSR of our common stock is less than the 25th percentile of the TSR of the TSR Peer Group, all Target TSR Shares will be forfeited. If the TSR of our common stock is equal to or greater than the 80th percentile of the TSR Peer Group, 150% of the Target TSR Shares will be earned. No more than 150% of the Target TSR Shares will be earned even if the TSR on our common stock exceeds the 80th percentile of the TSR of the TSR Peer Group. If the relative TSR of our common stock is between the 25th and 80th percentiles, the number of shares of common stock earned will be determined using straight-line interpolation.

Individuals who are awarded Target TSR Shares are subject to the Company’s claw-back provisions as well as certain restrictive covenants that survive the Performance Period.

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The TSR Peer Group

The TSR Peer Group group is comprised of 23 companies, listed below, and includes all of the companies listed in the S&P 1500 Restaurants Sub-Industry GICS code. The TSR Peer Group represents a broader group outside our immediate peer group in which we compete for business and investment capital as well as executive talent:

 

 

 

 

 

TSR PEER GROUP

BJ's Restaurants, Inc.

 

Domino’s Pizza, Inc.

 

Shake Shack

Brinker International, Inc.

 

Dunkin' Brands Group, Inc.

 

Starbucks Corporation

Chipotle Mexican Grill, Inc.

 

El Pollo Loco Holdings

 

Texas Roadhouse, Inc.

Chuy's Holdings

 

Fiesta Restaurant Group

 

The Cheesecake Factory, Inc.

Cracker Barrel Old Country Store, Inc.

 

Jack in the Box Inc.

 

The Wendy’s Company

Darden Restaurants

 

McDonald's Corporation

 

Wingstop Inc.

Dave & Buster's Entertainment

 

Red Robin Gourmet Burgers, Inc.

 

YUM! Brands, Inc.

Dine Brands Global, Inc.

 

Ruth's Hospitality Group

 

 

Performance‑based Units.  Prior to the 2019 equity grant, we utilized performance‑based units based on differing performance criteria to encourage focus on the Company’s long‑term strategic goals, motivate and retain our Executive Leadership Team and align interests with the Company’s stockholders. For each grant of performance-based units in 2017 and 2018, a compounded annual EPS growth rate is required over the applicable three‑year period and a threshold level with respect to achievement of each other performance goal must be attained for the performance-based units to vest. Achievement of these metrics beyond the targets established by the Compensation Committee results in increasing payouts above the target award (calculated on a straight-line basis).

In February 2018, the Committee approved a grant of performance‑based units to Mr. Ritchie and Mr. Nettles with the grant date value of $100,000, to Ms. Oyler of $50,000, and to Mr. Smith of $40,000, in each case, covering the three‑year performance period (2018-2020) that will cliff vest on March 1, 2021 if the performance targets are achieved at the end of the three‑year period. In May 2018, the Committee approved a grant of additional performance-based units to Ms. Oyler of $50,000 and to Mr. Smith of $60,000 that will vest if the pre-established performance targets are achieved at the end of the three-year period. If targets are achieved at the end of the performance period, Mr. Ritchie’s and Mr. Smith’s awards will be prorated based upon actual performance and period of service.

The 2018 target performance metrics and the two-year results as of fiscal year‑end 2019 included:

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

2-Year

    

 

 

 

 

 

 

 

 

Results at

 

 

 

 Metric

 

Definition

 

Target

 

FYE 2019

 

Weighting

 3-Year Cumulative North America Comparable Sales

 

3-year cumulative North America same-store, year-over-year sales, an industry standard to measure company growth

 

6.5

%  

(2.2)

%  

30

%

 3-Year Cumulative International Comparable Sales

 

3-year cumulative international same-store, year-over-year sales, an industry standard to measure company growth

 

15.0

%  

1.1

%  

20

%

 Number of Global Units at End of 2020

 

North America and international system-wide store openings less store closings

 

6,000

units

5,395

units

50

%

The 2018 performance-based units have a three-year compounded annual EPS growth rate target of 10%. The two-year compounded annual EPS growth rate was -38% at fiscal year-end 2019. As a result, at fiscal year-end 2019, the 2018 performance-based units were tracking below threshold.

In February 2017, the Committee approved a grant of performance‑based units to Mr. Ritchie and Mr. Nettles with the grant date value of $100,000 and to Ms. Oyler with the grant date value of $50,000, covering the three‑year performance period (2017‑2019) that were scheduled to vest in February 2020. However, the performance targets were not achieved at the end of the three-year period, and the 2017 performance-based units yielded no award payout and were forfeited.  Actual

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achievement of the following performance metrics against the pre-established Company performance targets for the three-year period was:

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

3-Year

    

 

 

 

 

 

 

 

 

Results at

 

 

 

 Metric

 

Definition

 

Target

 

FYE 2019

 

Weighting

 3-Year Cumulative North America Comparable Sales

 

3-year cumulative North America same-store, year-over-year sales, an industry standard to measure company growth

 

11.0

%  

(9.4)

%  

30

%

 3-Year Cumulative International Comparable Sales

 

3-year cumulative international same-store, year-over-year sales, an industry standard to measure company growth

 

17.3

%

3.8

%

20

%

 Number of Global Units at End of 2019

 

North America and international system-wide store openings less store closings

 

5,951

units

5,395

units

50

%

The 2017 performance-based units also had a three-year compounded annual EPS growth rate target of 4%. The three-year compounded annual EPS growth rate was -144% at fiscal year-end 2019. As a result, at fiscal year-end 2019, the 2017 performance-based units were tracking below threshold.

Tax and Accounting Policies

Deductibility of compensation expense under Code Section 162(m) of the Internal Revenue Code has not been a material consideration for our Compensation Committee based on the levels and types of compensation we pay. Code Section 162(m) limits the U.S. federal income tax deduction for compensation paid to our NEOs. Commencing with our 2018 fiscal year, the maximum U.S. federal income tax deduction that we may receive for annual compensation paid to any officer covered by Code Section 162(m) is $1,000,000 per officer. For years prior to 2018, we also were permitted to receive a tax deduction for “performance-based” compensation as defined under Code Section 162(m) without regard to the $1,000,000 limitation. However, U.S. tax legislation enacted in December, 2017 eliminated the performance-based exception. These new rules became effective starting in 2018 for us, except that certain equity awards (such as stock options) that we granted in 2017 and earlier may still be able to qualify as performance-based compensation. To the extent that in 2018 or any later year, the aggregate amount of any covered officer’s salary, bonus, and amount realized from option exercises and vesting of restricted stock, performance based units or other equity awards, and certain other compensation amounts that are recognized as taxable income by the officer exceeds $1,000,000 in any year, we will not be entitled to a U.S. federal income tax deduction for the amount over $1,000,000 in that year. The Committee will continue to consider tax implications in making compensation decisions and, when believed to be in the best long-term interests of our stockholders, we may provide compensation that is not fully deductible.

We expense the cost of employee stock‑based compensation in accordance with the fair value method contained in the Financial Accounting Standards Board Accounting Standards Codification “Compensation — Stock Compensation” (which we refer to as the ASC Stock Compensation Topic). We recorded stock‑based compensation expense of $15.3 million in 2019, $9.9 million in 2018, and $10.4 million in 2017. As a result, the expense related to equity compensation has been and will continue to be a material consideration in our overall compensation program design.

Compensation Committee Report

The Compensation Committee of the Board has reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. In reliance on the review and discussions referred to above, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10‑K for the year ended December 29, 2019 and in this Proxy Statement.

COMPENSATION COMMITTEE

Anthony M. Sanfilippo, Chairman

Christopher L. Coleman

Sonya E. Medina

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such acts.

 

 

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Summary Compensation Table

The table below summarizes the total compensation paid or earned by the NEOs for each of the last three fiscal years during which the officer was a named executive officer.