ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS
On June 7, 2017, the Board of Directors (the Board) of The Cheesecake Factory Incorporated (the Company) approved an employment agreement with Matthew E. Clark, in the form of Exhibit 99.1 attached hereto (the Employment Agreement).
The Employment Agreement has an initial term beginning July 7, 2017 and ending on March 31, 2019, and will be extended automatically for one additional year on each March 31
st
thereafter, unless either of the parties gives timely notice not to extend. The Employment Agreement also provides that Mr. Clark is eligible to participate in the Companys non-equity performance incentive plan(s), and equitably with other executive officers, in any other plans relating to pension, profit sharing, life, medical, dental and vision care insurance, disability income insurance, automobile, education, or other retirement or employee benefits, to the extent eligible thereunder by virtue of his position, tenure and salary. The Compensation Committee of the Board determines any future adjustments to base salary under the Employment Agreement.
In addition, the Employment Agreement provides for certain benefits upon a termination of employment as a result of death or Permanent Disability, a termination by the Company without Cause, or a Constructive Termination, including a Constructive Termination within 18 months of a Change in Control (as such capitalized terms are defined in the Employment Agreement), including an acceleration of vesting of equity awards which would have vested within 24 months of the termination, provided that any award that is Company performance-based, will vest only if, as and when the performance objective is achieved. The Employment Agreement does not contain any severance payment tax gross-up for excise taxes imposed under Section 280G of the Internal Revenue Code. The foregoing description of the terms and conditions of the Employment Agreement is qualified in its entirety by the full text of the form of the Employment Agreement attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by this reference.
On June 7, 2017, the Compensation Committee of the Board (the Compensation Committee) approved grants of options to purchase the Companys common stock to Mr. Clark under the terms of the Companys stockholder-approved 2010 Stock Incentive Plan, dated February 25, 2010, as amended effective May 28, 2015 and June 8, 2017 (the 2010 Stock Incentive Plan), as follows:
Name
|
|
Number of
Shares Subject
to
Stock Options
|
|
Matthew E. Clark
|
|
4,820
|
|
These options to purchase the Companys common stock were granted at an exercise price of $57.30 per share, which was the closing price per share for the Companys common stock on June 7, 2017, the date of grant, and incrementally vest as to 20% of the shares on each of July 7, 2018, July 7, 2019, July 7, 2020, and July 7, 2021.
On June 7, 2017, the Compensation Committee also approved grants of stock units covering the Companys common stock to Mr. Clark under the terms of the 2010 Stock Incentive Plan, as follows:
Name
|
|
Number of Stock Units
Awarded at Target-
EPS Performance
Condition
|
|
Number of Stock Units
Awarded-EBITDA
Performance Condition
|
|
Matthew E. Clark
|
|
1,425
|
|
1,425
|
|
These stock units, each representing the equivalent of one share of the Companys common stock, were granted subject to achievement of a performance condition (Performance Condition) based upon either (i) cumulative fully diluted earnings per share (EPS) over a three year fiscal period, or (ii) income from operations, before interest, taxes, depreciation and amortization, less impairments or other accounting related charges (EBITDA), both of which Performance Conditions were approved by stockholders under the 2010 Stock Incentive Plan.
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The EBITDA Performance Condition provides that vesting of this award is subject to the Company achieving a cumulative EBITDA being equal to or greater than a specified dollar amount for fiscal years 2017 and 2018, or being equal to or greater than a specified dollar amount for fiscal years 2017, 2018 and 2019, whichever occurs earlier. If the EBITDA Performance Condition is satisfied, these stock units are then subject to time-based vesting at the rate of 60% of the shares on March 2, 2020 and 20% of the shares on each of March 2, 2021 and March 2, 2022.
The EPS Performance Condition provides that the vesting of this award is subject to the Company achieving a cumulative fully diluted EPS over fiscal years 2017, 2018, and 2019 of at least a specified dollar amount, with the formula providing a threshold, target and a maximum cumulative fully diluted EPS dollar amount for purposes of determining the number of stock units eligible to vest. If at least 82% and up to 122% (or more) of the EPS Performance Condition is achieved, a number of stock units shall be eligible to vest, the exact number of which will be determined by multiplying a predetermined payout percentage (between 60% to 140%, based upon the level of achievement of the EPS Performance Condition), by the number of stock units granted at the Target amount shown above. Such shares then shall be subject to time-based vesting at the rate of 60% of the shares on March 2, 2020 and 20% of the shares on each of March 2, 2021 and March 2, 2022.
These grants were made pursuant to the terms and conditions of a Notice of Grant and Stock Option Agreement and/or Stock Unit Agreement for executive officers previously approved by the Compensation Committee and filed under Form 8-K with the U.S. Securities Exchange Commission on March 4, 2016.
On June 7, 2017, the Compensation Committee also approved Mr. Clarks participation in the Companys 2015 Amended and Restated Performance Incentive Plan for executive officers of the Company (the Performance Incentive Plan). Under the Performance Incentive Plan for fiscal 2017, 75% of Mr. Clarks award will be based upon achievement of a Company consolidated operating income objective and 25% of his award will be based on achievement of both a Company threshold consolidated operating income objective and additional strategic objectives. The performance incentive objective was selected from a stockholder-approved list of performance incentive objectives under the Performance Incentive Plan approved by the Companys stockholders at the May 28, 2015 annual meeting of stockholders. Mr. Clark will have an opportunity to earn an award ranging from 0% to 175% of a performance incentive target range, calculated as a percentage of his salary for fiscal 2017. Payment of the award is in the discretion of the Compensation Committee and is subject to the Companys ability to accrue for such award and to the Compensation Committees determination that the specified strategic and operational objectives were satisfied. The performance incentive target as a percentage of base salary payable to him (if achieved at 100% of the established goals), and the maximum award as a percentage of base salary payable to him (if achieved at the maximum level exceeding 100% of the established goals), under the Performance Incentive Plan for fiscal 2017, are as follows:
Name
|
|
Performance Incentive
Target
as a
Percentage of Salary
|
|
Maximum Potential Award as
a Percentage of Salary
|
|
Adjusted
Performance Incentive
Target
as a
Percentage of Salary*
|
|
Adjusted
Maximum Potential
Award as a
Percentage of
Salary*
|
|
Matthew E. Clark
|
|
65
|
%
|
113.75
|
%
|
54.89
|
%
|
96.06
|
%
|
* Adjusted Performance Incentive Target as a percentage of base salary prorated as of July 7, 2017.
Awards which may be made for fiscal 2017 will be calculated under the foregoing formulae based upon Mr. Clarks base salary actually earned for fiscal 2017, and will take into account any adjustments to base salary for fiscal 2017 made as a result of his promotion to Executive Vice President and Chief Financial Officer, effective July 7, 2017. The maximum award payable in any fiscal year to any executive officer under the Performance Incentive Plan is $2.5 million, and accordingly, the maximum potential Award that would be due and payable to Mr. Clark for fiscal 2017 would be the lesser of (i) $2.5 million or (ii) the product of the maximum potential award percentage shown in the above table multiplied by his earned base salary for fiscal 2017.
There is no assurance that the Company will achieve the performance incentive targets and objectives established by the Compensation Committee in any fiscal year.
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