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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 pursuant to §240.14a-12

Sprouts Farmers Market, Inc.

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

 

   No fee required.
   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
   (1)   

Title of each class of securities to which transaction applies:

 

   (2)   

Aggregate number of securities to which transaction applies:

 

   (3)   

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

 

   (4)   

Proposed maximum aggregate value of transaction:

 

   (5)   

Total fee paid:

 

   Fee paid previously with preliminary materials.
   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
   (1)   

Amount Previously Paid:

 

   (2)   

Form, Schedule or Registration Statement No.:

 

   (3)   

Filing Party:

 

   (4)   

Date Filed:

 

 

 

 


Table of Contents

 

LOGO

Proxy Statement for

2020 Annual Meeting of Stockholders


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LOGO   

 

March 16, 2020

 

Dear Sprouts Stockholders:

 

You are cordially invited to attend the 2020 Annual Meeting of
Stockholders of Sprouts Farmers Market, Inc., which will be held
at the Sprouts Farmers Market Store Support Office, 5455 East
High Street, Suite 111, Phoenix, Arizona 85054, on Tuesday,
April 28, 2020 at 8:00 a.m., local time.

 

Proxy Voting

At the Annual Meeting, we will ask you to elect three members of
our board of directors; vote on a non-binding advisory
resolution to approve the compensation paid to our named
executive officers for fiscal 2019 (commonly referred to as
“say-on-pay”); vote on a non-binding advisory proposal on the
frequency of future say-on-pay votes (commonly referred to as
“say-on-frequency”); and ratify the appointment of
PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the 2020 fiscal year.

 

Proxy Materials and Availability

 

LOGO

We have elected to provide access to proxy materials over the Internet under the Securities and Exchange Commission’s “notice and access” rules to reduce the environmental impact and cost of our Annual Meeting. However, if you prefer to receive paper copies of our proxy materials, please follow the instructions included in the Notice of Internet Availability.

How to Vote

Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the meeting. Therefore, we urge you to promptly vote and submit your proxy via the Internet, by telephone, or by mail, in accordance with the instructions included in the proxy statement.

On behalf of our board of directors, we would like to thank you for your continued interest and investment in Sprouts Farmers Market.

Sincerely,

 

LOGO

Jack Sinclair

Director and Chief Executive Officer


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SPROUTS FARMERS MARKET, INC.

NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS

 

Time and Date:

Tuesday, April 28, 2020 at 8:00 a.m. local time.

 

Place:

Sprouts Farmers Market Store Support Office, 5455 East High Street, Suite 111, Phoenix, Arizona 85054.

 

Items of Business:

  (1)

To elect three Class I directors to serve until the 2023 annual meeting of stockholders or until their successors are duly elected and qualified;

 

    (2)

To vote on a non-binding advisory resolution to approve the compensation paid to our named executive officers for fiscal 2019 (“say-on-pay”);

 

    (3)

To vote on a non-binding advisory proposal on the frequency of future say-on-pay votes (“say-on-frequency”);

 

    (4)

To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 3, 2021; and

 

    (5)

To consider such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

Adjournments and Postponements:

Any action on the items of business described above may be considered at the Annual Meeting at the time and on the date specified above or at any time and date to which the Annual Meeting may be properly adjourned or postponed.

 

Record Date:

Holders of record of our common stock as of the close of business on March 2, 2020 are entitled to notice of, and to vote at, the Annual Meeting.

 

Voting:

Your vote is very important. To ensure your representation at the Annual Meeting, we urge you to vote by proxy as promptly as possible over the Internet or by phone as instructed in the Notice of Internet Availability of Proxy Materials or, if you receive paper copies of the proxy materials by mail, you can also vote by mail by following the instructions on the proxy card. All stockholders as of the record date are invited to attend the Annual Meeting. You may vote in person at the Annual Meeting even if you have previously returned a proxy.

By Order of the Board of Directors,

 

 

LOGO

Brandon F. Lombardi

Chief Human Resources and Legal Officer and Corporate Secretary

This notice of Annual Meeting and proxy statement and form of proxy are being distributed and made available on or about March 16, 2020.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held

on April 28, 2020.

This proxy statement and our 2019 Annual Report to Stockholders, which includes our Annual Report on Form 10-K for the fiscal year ended December 29, 2019, are available at www.proxyvote.com and at investors.sprouts.com.


Table of Contents

TABLE OF CONTENTS

 

Proxy Statement Summary

     1  

Business Summary

     2  

General Information

     3  

Corporate Governance

     8  

Our Board

     8  

Board Diversity

     12  

Board Structure

     12  

Board Leadership Structure

     13  

The Board’s Role in Risk Oversight

     13  

Board Participation

     13  

Board Committees

     14  

Board Evaluations

     16  

Identifying and Evaluating Director Candidates

     16  

Sustainability and Social Responsibility

     16  

Availability of Corporate Governance Information

     17  

Communications with our Board of Directors

     17  

Proxy Access

     17  

Proposal 1: Election of Directors

     18  

Director Compensation

     19  

Executive Officers

     21  

Executive Compensation

     23  

Compensation Discussion and Analysis

     23  

Section One – Overview and Executive Summary

     23  

Section Two – Elements of our Compensation Program

     26  

Section Three – How Executive Pay is Established

     29  

Section Four – 2019 Named Executive Officer Pay Actions

     31  

Section Five – Executive Compensation Governance

     33  

Compensation Committee Report

     35  

Compensation Committee Interlocks and Insider Participation

     35  

Summary Compensation Table

     36  

Grant of Plan-Based Awards

     38  

Outstanding Equity Awards at Fiscal Year-End

     40  

Option Exercises and Stock Vested

     41  

Employment Agreements

     41  

Potential Payments Upon Termination or Change in Control

     42  

Pension Benefits and Nonqualified Deferred Compensation

     45  

Team Member Benefit and Stock Plans

     45  

CEO Pay Ratio

     45  

Equity Compensation Plan Information

     47  

Report of the Audit Committee

     48  

Proposal 2: Advisory Vote on Executive Compensation (“Say-on-Pay”)

     50  

Proposal 3: Advisory Vote on Determining the Frequency of Say-on-Pay Votes (“Say-on-Frequency”)

     52  

Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm

     53  

Security Ownership of Certain Beneficial Owners and Management

     54  

Certain Relationships and Related Party Transactions

     56  

Deadline for Receipt of Stockholder Proposals

     56  

Director Nominations for Inclusion in our 2021 Proxy Materials (Proxy Access)

     57  

Other Matters

     57  

Appendix A

     A-1  
 


Table of Contents

Proxy Statement Summary  

 

PROXY STATEMENT SUMMARY

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

Annual Meeting of Stockholders

 

Date:

Tuesday, April 28, 2020

Time:

8:00 a.m., local time

Location:

Sprouts Farmers Market Store Support Office, 5455 East High Street, Suite 111, Phoenix, Arizona 85054

Record Date:

March 2, 2020

Voting:

Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote.

Proposals and Voting Recommendations

 

      Board
Recommendation
   Page

Election of Directors

       

Joel D. Anderson

   For    18

Terri Funk Graham

   For    18

Doug G. Rauch

   For    18

Advisory vote on the compensation paid to our named executive officers for fiscal 2019

   For    50

Advisory vote on the frequency of future votes on executive compensation

   One Year    52

Ratification of our independent registered public accounting firm

   For    53

Voting Methods

You can vote in one of four ways:

 

     LOGO

   Visit www.proxyvote.com to vote VIA THE INTERNET

     LOGO

   Call 1-800-690-6903 to vote BY TELEPHONE

     LOGO

   Sign, date and return your proxy card in the prepaid enclosed envelope to vote BY MAIL

     LOGO

   Attend the meeting to vote IN PERSON

To reduce our administrative and postage costs and the environmental impact of the Annual Meeting, we encourage stockholders to vote via the Internet or by telephone, both of which are available 24 hours a day, seven days a week, until 11:59 p.m. Eastern Time on April 27, 2020. Stockholders may revoke their proxies at the times and in the manners described on page 5 of this proxy statement.

If your shares are held in “street name” through a bank, broker or other holder of record, you will receive voting instructions from the holder of record that you must follow in order for your shares to be voted. If you wish to vote in person at the meeting, you must obtain a legal proxy from the bank, broker or other holder of record that holds your shares.

As used in this proxy statement, unless the context otherwise requires, references to the “company,” “Sprouts,” “we,” “us” and “our” refer to Sprouts Farmers Market, Inc. and, where appropriate, its subsidiaries.



 

Sprouts Farmers Market       2020 Proxy Statement  1


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  Business Summary

 

BUSINESS SUMMARY

Sprouts Farmers Market, one of the fastest-growing retailers in the country, has made healthy living accessible to shoppers for nearly two decades by offering affordable, fresh, natural and organic products. True to its farmers market heritage, Sprouts is known for pioneering its unique grocery model by offering a welcoming store layout featuring fresh produce at the center of the store, an expansive bulk foods section, and a vitamin department focused on overall wellness. Sprouts also offers a unique assortment of healthier products with special attributes, such as plant-based, gluten-free, keto-friendly, and grass-fed, to meet the growing and diverse needs of today’s consumer. Headquartered in Phoenix, Arizona, Sprouts employs more than 30,000 team members and operates over 340 stores in 22 states from coast to coast.

SINCE DAY ONE, WE HAVE OFFERED VALUE ALONG WITH

A UNIQUE AND DIFFERENTIATED SELECTION OF PRODUCTS ACROSS THE STORE, REINFORCING OUR MISSION TO MAKE HEALTHY LIVING ACCESSIBLE TO EVERYONE.

2019 was once again a dynamic year in the retail industry and proved to be a strong year for Sprouts, including the following business highlights:

 

   

Grew annual revenue to $5.6 billion, representing 8% growth year over year

 

   

Increased comparable store sales by 1.1%, achieving two-year comparable store sales growth of 3.2%

 

   

Increased diluted earnings per share to $1.25 from $1.22 in 2018

 

   

Continued to self-fund our growth through strong operating cash flows

 

   

Opened 28 new stores, and expanded to three new states: Louisiana, New Jersey and Virginia

As we continue to grow, we do so in a manner that is good for the planet by improving our relationship with the environment and strengthening our social responsibility endeavors. Our sustainability and social responsibility highlights for 2019 included:

 

   

Donated over 27 million pounds of food to local food banks, equating to 23 million meals, through our Food Rescue program

 

   

Diverted 24 million pounds of organic materials from landfills through composting, recycling and cattle feed programs

 

   

Recycled 97 million pounds of cardboard

 

   

Reached nearly 100% responsibly sourced seafood

 

   

Donated nearly $3 million to over 320 local nonprofit organizations that support children’s nutrition education and fresh food access

 

   

Supported more than 950 community events through volunteering and in-kind donations, reaching more than two million residents in our communities

 

   

Hosted our second company-wide Day of Service, uniting 650 team members for 38 community service projects across the country for over 2,500 volunteer service hours in a single day

 

   

Promoted over 6,000 of our team members and dedicated nearly 40,000 hours to leadership development



 

2    2020 Proxy Statement       Sprouts Farmers Market


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General Information  

 

SPROUTS FARMERS MARKET, INC.

5455 East High Street, Suite 111

Phoenix, Arizona 85054

2020 ANNUAL MEETING OF STOCKHOLDERS

 

 

GENERAL INFORMATION

 

 

This proxy statement is provided, and the enclosed form of proxy is solicited, on behalf of Sprouts Farmers Market, Inc., a Delaware corporation, by our board of directors for use at the 2020 Annual Meeting of Stockholders (referred to as the “Annual Meeting”) and any postponements or adjournments thereof. The Annual Meeting will be held at the Sprouts Farmers Market Store Support Office, 5455 East High Street, Suite 111, Phoenix, Arizona 85054, on Tuesday, April 28, 2020 at 8:00 a.m. local time.

Internet Availability of Proxy Materials

In accordance with rules adopted by the Securities and Exchange Commission (referred to as the “SEC”) that allow companies to furnish their proxy materials over the Internet, we are mailing a Notice of Internet Availability of Proxy Materials instead of a paper copy of our proxy statement and our 2019 Annual Report to most of our stockholders. The Notice of Internet Availability of Proxy Materials contains instructions on how to access those documents and vote over the Internet. The Notice of Internet Availability of Proxy Materials also contains instructions on how to request a paper copy of our proxy materials, including this proxy statement, our 2019 Annual Report, and a form of proxy card. We believe this process will allow us to provide our stockholders the information they need in a more timely manner, while reducing the environmental impact and lowering our costs of printing and delivering the proxy materials.

These proxy solicitation materials are being first provided on or about March 16, 2020 to all stockholders entitled to vote at the meeting.

Record Date

Stockholders of record at the close of business on the record date of March 2, 2020 are entitled to notice of and to vote at the meeting.

Number of Outstanding Shares

On the record date, there were 117,543,668 outstanding shares of our common stock, par value $0.001 per share.

Requirements for a Quorum

The holders of a majority of the issued and outstanding shares of common stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business at the meeting. Each stockholder voting at the meeting, either in person or by proxy, may cast one vote per share of common stock held on all matters to be voted on at the meeting.

Votes Required for Each Proposal

Assuming that a quorum is present, directors shall be elected by a plurality of the votes cast by shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Therefore, the three nominees who receive the greatest number of votes cast shall be elected as directors. Our stockholders do not have cumulative voting rights for the election of directors.

 

Sprouts Farmers Market       2020 Proxy Statement  3


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  General Information

 

The advisory vote on the compensation of our named executive officers for fiscal 2019 (commonly referred to as a “say-on-pay” proposal) and the proposal to ratify PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 3, 2021 shall each be decided by the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote thereon. The advisory vote on the frequency of future say-on-pay proposals (commonly referred to as a “say-on-frequency” proposal) shall be decided by the frequency option (one year, two years or three years) that receives the greatest number of votes.

Although the say-on-pay and say-on-frequency votes are non-binding, they will provide information to our compensation committee and our board of directors regarding investor sentiment about our executive compensation philosophy, policies and practices, which our compensation committee and our board of directors will consider when determining executive compensation for the years to come.

The vote on each matter submitted to stockholders is tabulated separately. Broadridge Financial Solutions, or a representative thereof, will tabulate the votes.

Our Board’s Recommendation for Each Proposal

Our board of directors recommends that you vote your shares:

 

   

“FOR” each of the three Class I director nominees;

 

   

“FOR” the say-on-pay proposal;

 

   

“ONE YEAR” for the say-on-frequency proposal; and

 

   

“FOR” the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 3, 2021.

Voting Instructions

You may vote your shares by proxy by doing any one of the following: vote via the Internet at www.proxyvote.com; call 1-800-690-6903 to vote by telephone; sign, date and return your proxy or voting instruction card in the prepaid enclosed envelope to vote by mail; or attend the Annual Meeting to vote in person. When a proxy is properly executed and returned, the shares it represents will be voted at the meeting as directed.

If a proxy card is properly executed and returned and no voting specification is indicated, the shares will be voted (1) “for” the election of each of the three nominees for director set forth in this proxy statement, (2) “for” the non-binding advisory resolution to approve the compensation paid to our named executive officers for fiscal 2019, (3) “one year” for the non-binding advisory proposal on the frequency of future say-on-pay proposals, (4) “for” the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2020 and (5) as the persons specified in the proxy deem advisable in their discretion on such other matters as may properly come before the meeting. As of the date of this proxy statement, we have received no notice of any such other matters.

If you attend the Annual Meeting, you may vote in person even if you have previously voted via the Internet or by phone or returned a proxy or voting instruction card by mail, and your in-person vote will supersede any vote previously cast.

Broker Non-Votes and Abstentions

If you are a beneficial owner of shares held in “street name” and do not provide the broker, bank, or other nominee that holds your shares with specific voting instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote your shares on routine matters but cannot vote on non-routine matters. If the broker, bank or other nominee that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares will inform the election inspector that it does not have the authority to vote on this matter with respect to your shares. This is commonly referred to as a “broker non-vote.”

 

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General Information  

 

The election of directors (referred to as “Proposal 1”), the say-on-pay proposal (referred to as “Proposal 2”) and the say-on-frequency proposal (referred to as “Proposal 3”) are matters considered non-routine under applicable rules. A broker, bank or other nominee cannot vote without your instructions on non-routine matters; as a result, there may be broker non-votes on Proposals 1, 2 and 3. For your vote to be counted on the above proposals, you will need to communicate your voting decisions to your broker, bank or other nominee before the date of the Annual Meeting using the voting instruction form provided by your broker, bank or other nominee.

The ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2020 (referred to as “Proposal 4”) is a matter considered routine under applicable rules. A broker, bank or other nominee may generally vote on routine matters, and therefore no broker non-votes are expected in connection with Proposal 4.

Broker non-votes and abstentions each are counted for determining the presence of a quorum. The election of directors requires a plurality of votes cast, and the say-on-frequency proposal will be decided by the frequency option that receives the greatest number of votes. Neither broker non-votes nor any withhold votes in the election of directors will have any effect thereon. Because they represent shares present and entitled to vote that are not cast in favor of a proposal, abstentions will have the same effect as votes “against” Proposal 2 and Proposal 4. Broker non-votes, however, do not represent shares present and entitled to vote on non-routine matters, and therefore, will have no effect on Proposal 2 or Proposal 3.

Revoking Proxies

Any stockholder giving a proxy may revoke the proxy at any time before its use by furnishing to us either a written notice of revocation or a duly executed proxy (via Internet, telephone or mail) bearing a later date, or by attending the meeting and voting in person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically so request.

Election Inspector

Votes cast by proxy or in person at the meeting will be tabulated by the election inspector appointed for the meeting, who will determine whether a quorum is present. The election inspector will treat broker non-votes and abstentions as shares that are present and entitled to vote for purposes of determining the presence of a quorum, and as described in the “Broker Non-Votes and Abstentions” section of this proxy statement for purposes of determining the approval of any matter submitted to stockholders for a vote. The election inspector need not be a stockholder, and any of our directors or officers may be an inspector on any question other than a vote for or against his or her election to any position with our company or on any other matter in which he or she may be directly interested.

Voting Results

The final voting results from the Annual Meeting will be publicly disclosed in a Current Report on Form 8-K to be filed with the SEC within four business days of the Annual Meeting. In addition, we will publicly announce our board of director’s determination with respect to the frequency of future say-on-pay votes.

Costs of Solicitation of Proxies

We will bear the cost of this solicitation, estimated to be approximately $75,000. In addition, we may reimburse brokerage firms and other persons representing beneficial owners of shares for expenses incurred in forwarding solicitation materials to such beneficial owners. Proxies also may be solicited by certain of our directors and officers, personally or by telephone or e-mail, without additional compensation. We may, but do not currently intend to, engage a third-party proxy solicitor.

Householding

We are required to provide an Annual Report to all stockholders who receive this proxy statement. To reduce future costs to our company, if you are a stockholder of record and have more than one account

 

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  General Information

 

in your name, or reside at the same address as other stockholders of record, you may authorize us to discontinue duplicate mailings of future Annual Reports and proxy statements, commonly referred to as “householding.” To do so, mark the designated box on each proxy card for which you wish to discontinue receiving an Annual Report and proxy statement. If you are voting via the Internet or by telephone, you can either follow the prompts when you vote or give instructions to discontinue duplicate mailings of future Annual Reports and proxy statements. Street name stockholders who wish to discontinue receiving duplicate mailings of future Annual Reports should review the information provided in the proxy materials mailed to them by their bank or broker. If, now or in the future, you wish to receive a separate copy of the Annual Report or proxy statement, please notify us by sending a written request to our Corporate Secretary at our principal executive offices, 5455 East High Street, Suite 111, Phoenix, Arizona 85054, and we will deliver a separate copy.

Attending the Annual Meeting

You are entitled to attend the Annual Meeting only if you are a stockholder as of the close of business on March 2, 2020, the record date, or hold a valid proxy for the meeting. In order to be admitted to the Annual Meeting, you must present proof of ownership of Sprouts stock on the record date. This can be in the form of:

 

   

a brokerage statement or letter from a bank or broker indicating ownership on March 2, 2020;

 

   

the Notice of Internet Availability of Proxy Materials;

 

   

a printout of the proxy distribution email (if you received your materials electronically);

 

   

a proxy card;

 

   

a voting instruction form; or

 

   

a legal proxy provided by your broker, bank or other nominee.

Admission to the Annual Meeting will be on a first-come, first-served basis and will require proof of ownership described above. Stockholders and proxy holders must also present a government-issued form of photo identification, such as a driver’s license, and comply with customary security procedures. We will be unable to admit anyone who does not present identification or refuses to comply with our security procedures. The use of cameras or other recording devices will not be allowed at the Annual Meeting.

Availability of our Filings with the SEC

Our 2019 Annual Report to Stockholders, which was made available to stockholders with or preceding this proxy statement, contains financial and other information about our company, but is not incorporated into this proxy statement and is not to be considered a part of these proxy materials or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The information contained in the “Compensation Committee Report” and the “Report of the Audit Committee” shall not be deemed “filed” with the SEC or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.

Through our investor relations website, investors.sprouts.com, we make available free of charge all of our SEC filings, including our proxy statements, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K, as well as Form 3, Form 4 and Form 5 reports of our directors, officers, and principal stockholders, together with amendments to these reports filed or furnished pursuant to Sections 13(a), 15(d), or 16 of the Exchange Act. We will also provide upon written request, without charge to each stockholder of record as of the record date, a copy of our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 (referred to as the “Form 10-K”), as filed with the SEC. Any exhibits listed in the Form 10-K report also will be furnished upon request at the actual expense we incur in furnishing such exhibits. Any such requests should be directed to our Corporate Secretary at our principal executive offices set forth in this proxy statement.

 

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General Information  

 

Other Information

We report our results of operations on a 52- or 53-week fiscal year ending on the Sunday closest to December 31. Our last three completed fiscal years ended on December 31, 2017, December 30, 2018 and December 29, 2019. For ease of reference, we identify our fiscal years in this proxy by reference to the calendar year ending closest to the last day of such fiscal year. For example, we refer to our fiscal years ended December 31, 2017, December 30, 2018 and December 29, 2019 and our fiscal year ending January 3, 2021 as “fiscal 2017,” “fiscal 2018”, “fiscal 2019” and “fiscal 2020,” respectively.

 

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  Corporate Governance

 

CORPORATE GOVERNANCE

Our Board

Our business and affairs are overseen by our board of directors, which currently consists of eight members.

 

Joseph Fortunato

 

LOGO

 

Chairman of the Board

 

Age: 67

Director since: 2013

Chairman since: 2017

Committees:

  Compensation

  Nominating and

    Corporate Governance

  

Career Highlights

Mr. Fortunato has served as an Operating Partner at Prospect Hill Growth Partners, L.P., an operationally focused private equity firm, since January 2017. Mr. Fortunato serves on the board of directors of a number of Prospect Hill Growth Partners portfolio companies, including Comoto Holdings, Inc. (as Chairman since January 2016), Honors Holdings, LLC (since January 2018), EbLens LLC (as Chairman since March 2017) and Shoe Sensation (since August 2015). Mr. Fortunato previously served as Chairman of the Board, Chief Executive Officer and President of General Nutrition Companies, Inc. (NYSE: GNC; predecessor to GNC Holdings, Inc.), a global specialty retailer of health and wellness products, from November 2005 to August 2014 and was a consultant from September 2014 through December 2016. From 1990 to November 2005, Mr. Fortunato served in various executive roles with GNC, including Senior EVP and Chief Operating Officer, EVP of Retail Operations and Store Development and SVP of Financial Operations. Mr. Fortunato served on the board of directors of Mattress Firm Holding Corp., a retailer of mattresses and bedding-related products, from October 2012 until September 2016.

 

Key Board Skills and Qualifications

•   Record as an executive of a successful international retail company

•   Years of financial and operational experience

•   Experience on the boards of directors of public companies

 

Favorite Sprouts Brand Product

Organic Himalayan Pink Salt and Coconut Oil Popcorn

 

LOGO

Joel D. Anderson

 

LOGO

 

Independent Director

 

Age: 55

Director since: 2019

Committee:

  Audit

  

Career Highlights

Mr. Anderson has served as President, Chief Executive Officer and a Director of Five Below, Inc. (Nasdaq: FIVE), a leading high-growth value retailer offering trend-right, high-quality products, since February 2015, having previously served as President and Chief Operating Officer of Five Below from July 2014 to January 2015. Prior to joining Five Below, Mr. Anderson served as President and Chief Executive Officer of Walmart.com from 2011 until 2014 and as the Divisional Senior Vice President of the Northern Plains division of Walmart, Inc. (NYSE: WMT) from 2007 to 2011. Prior to joining Walmart, Mr. Anderson was President of the retail and direct business units for Lenox Group, Inc., a leader in quality tabletop and giftware, and served in various executive positions at Toys “R” Us, Inc. over a 14-year period.

 

Key Board Skills and Qualifications

•   Record as a chief executive officer of a publicly traded company

•   Over 25 years of retail industry experience

•   Experience as a high-growth retail executive at companies of scale

 

Favorite Sprouts Brand Product

Strawberry Flavored Yogurt Covered Pretzels

 

LOGO

 

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Kristen E. Blum

 

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Independent Director

 

Age: 54

Director since: 2016

Committees:

  Audit

  Nominating and

    Corporate Governance

  

Career Highlights

Ms. Blum served as SVP and Chief Information Officer of PepsiCo – Latin America from January 2018 to April 2019. In January 2019, Ms. Blum was appointed as Chairperson of The Sprouts Healthy Communities Foundation, our non-profit foundation focused on health and wellness related causes. Ms. Blum also has served as a director of GuideWell Mutual Holding Corp. since May 2018. Ms. Blum previously served PepsiCo as SVP and Chief Information Officer of Global IT Transformation from November 2017 to April 2018, SVP and Chief Information Officer of Frito-Lay from September 2015 to December 2017 and SVP and Chief Information Officer of Commercial Solutions, Innovation, Data and Analytics from July 2013 to September 2015, as well as SVP and Chief Information Officer of Enterprise Solutions from December 2010 to January 2012. Ms. Blum served as EVP and Chief Technology Officer of J.C. Penney Co. Inc. from January 2012 to June 2013 and SVP and Chief Information Officer of Abercrombie & Fitch from March 2006 to October 2010.

 

Key Board Skills and Qualifications

•   30+ years of experience in developing strategies and designing information technology solutions in the retail, consumer goods and high-tech industries

•   Cybersecurity, technology functional leadership and digital transformation

•   Well-versed in audit and risk management functions

•   National Association of Corporate Directors Certified Director and Board Fellow

 

Favorite Sprouts Brand Product

Creamy Almond Butter

 

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Terri Funk Graham

 

Independent Director

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Age: 54

Director since: 2013

Committees:

  Compensation

  Nominating and

    Corporate Governance,

    Chairperson

  

Career Highlights

Ms. Graham is a Branding Strategy Consultant, having most recently served as interim Chief Marketing Officer of Origin Entertainment, Inc., a film and television production company, from March 2016 to September 2017. Ms. Graham has served on the board of directors of CV Sciences, Inc. (OTCQB:CVSI), a consumer products and specialty pharmaceutical company, since August 2019 and Lumber Liquidators Holdings, Inc. (NYSE: LL), a specialty retailer of hardwood flooring, since October 2018, and served on the board of directors of 1-800 Contacts, an online retailer of contact lenses, from July 2015 to January 2016. Ms. Graham previously served as Chief Marketing Officer – Red Envelope for Provide Commerce, Inc., an e-commerce gifting company from July 2013 to September 2014. Ms. Graham served on the board of Hot Topic, Inc., a formerly publicly traded (NASDAQGS: HOTT) mall and web-based specialty retailer from June 2012 to June 2013. From September 2007 to December 2012, Ms. Graham served as SVP and Chief Marketing Officer at Jack in the Box Inc. (NASDAQGS: JACK), a restaurant company that operates and franchises Jack in the Box restaurants, having served in various marketing leadership roles subsequent to joining Jack in the Box Inc. in 1990.

 

Key Board Skills and Qualifications

•   Over 30 years of branding and marketing experience in the retail and restaurant industries, including extensive knowledge of digital and e-commerce

•   Public company board experience

•   Well-versed in corporate governance

 

Favorite Sprouts Brand Product

Vanilla Wafer Bites

 

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  Corporate Governance

 

Lawrence (“Chip”) P. Molloy

 

 

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Independent Director

 

Age: 58

Director since: 2013

Committee:

  Compensation,

    Chairperson

  

Career Highlights

Mr. Molloy served as our Interim Chief Financial Officer from June 2019 to February 2020. Mr. Molloy most recently served as Interim Chief Executive Officer of Torrid LLC, a plus-sized fashion retailer, from January to August 2018, and has served on Torrid’s board since August 2018. Previously, Mr. Molloy served as the Chief Financial Officer of Under Armour, Inc. (NYSE: UA) from January 2016 to February 2017. Mr. Molloy served as a director of Party City Holdco Inc. (NYSE: PRTY) from December 2013 to June 2016 and Wingstop Inc. (NASDAQ: WING) from February 2015 to March 2016. Mr. Molloy served as Senior Advisor to Roark Capital Group, a private equity firm, from October 2014 to December 2015. Prior to that, Mr. Molloy served as Special Advisor to PetSmart, Inc., a formerly publicly traded (NASDAQ: PETM) specialty pet retailer, from June 2013 until April 2014, and had served as Chief Financial Officer of PetSmart from September 2007 until June 2013. Prior to PetSmart, Mr. Molloy was employed by Circuit City Stores, Inc. in various finance leadership roles. He served ten years in the U.S. Navy as a fighter pilot, retiring from the Navy Reserve with a rank of Commander.

 

Key Board Skills and Qualifications

•   Extensive knowledge of our business and strategy while serving as our Interim Chief Financial Officer

•   Record as a senior financial executive at nationwide retailers

•   Well-versed in financial, accounting and risk management matters

 

Favorite Sprouts Brand Product

Non-Alcoholic Brewed Ginger Beer

 

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Joseph D. O’Leary

 

 

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Independent Director

 

Age: 61

Director since: 2017

Committees:

  Nominating and

    Corporate Governance

  

Career Highlights

Mr. O’Leary has served as a director of Edgewell Personal Care Co. (NYSE: EPC), a leading consumer products company, since October 2018, Francesca’s Holdings Corp. (NASDAQ: FRAN), a nationwide specialty boutique retailer, since April 2013, and Targeted PetCare, a manufacturer of specialty pet products, since December 2019. Mr. O’Leary also served as a Director of PetSmart, Inc., the largest specialty pet retailer, from May 2015 to November 2019 and Big Heart Pet Brands from August 2014 to March 2015. Mr. O’Leary served PetSmart as President and COO from June 2013 to April 2014, EVP of Merchandising, Marketing, Supply Chain and Strategic Planning from January 2011 to June 2013, SVP of Merchandising from March 2010 to January 2011, SVP of Merchandising and Supply Chain from October 2008 to March 2010, and SVP of Supply Chain from September 2006 to October 2008. Before joining PetSmart, Mr. O’Leary served as COO of Human Touch, LLC, and various logistics leadership roles with Gap Inc. (NYSE: GPS), a leading global clothing retailer, from 1999 to 2005, culminating as SVP, Supply Chain Strategy and Global Logistics. Prior to 1999, Mr. O’Leary held positions at Mothercare plc, Coopers & Lybrand LLP, and BP International.

 

Key Board Skills and Qualifications

•   Public company board and executive officer experience

•   Deep merchandising, supply chain and logistics experience with successful growth-oriented retailers

•   Strategic and operational acumen with international experience on multiple continents

 

Favorite Sprouts Brand Product

Kettle Style Chips

 

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Doug G. Rauch

 

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Independent Director

 

Age: 68

Director since: 2020

Committee:

  Audit, Chairperson

  

Career Highlights

Mr. Rauch served Trader Joe’s Company, a chain of neighborhood grocery stores with over 480 locations, for 31 years, including as a President from 1994 until his retirement from the company in 2008. In June 2012, Mr. Rauch founded and has since served as President of Daily Table, an innovative retail concept designed to bring affordable nutrition to the food insecure in Boston’s inner city. In January 2010, Mr. Rauch was also a founding board member and Chief Executive Officer of Conscious Capitalism Inc., an organization dedicated to the practice of business as a force for good, where he continues to serve as a board member. Mr. Rauch has served on the board of directors of PAR Technology Corporation (NYSE: PAR), a leading provider of point-of-sale technology solutions to restaurants and retail outlets, since November 2017, and Imperfect Foods, a grocery delivery service with a mission to eliminate food waste, since March 2019. Mr. Rauch also served a ten-year term as a Trustee at the Olin College of Engineering from October 2009 to October 2019.

 

Key Board Skills and Qualifications

•   Extensive knowledge and operational experience from over 35 years in the grocery industry

•   Strategic implementation and leadership skills

•   In-depth understanding of sustainability in operations

 

Favorite Sprouts Brand Product

Organic Dark Chocolate Brown Rice Cakes

 

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Jack L. Sinclair

 

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Director

 

Age: 59

Director since: 2019

  

Career Highlights

Mr. Sinclair has served as our Chief Executive Officer since June 2019. Previously, Mr. Sinclair served as Chief Executive Officer of 99 Cents Only Stores LLC, a premier discount retailer, from February 2018 to June 2019,and prior to that was its Chief Merchandising Officer from July 2015 to February 2018. From December 2007 to April 2015, Mr. Sinclair was the Executive Vice President of the U.S. Grocery Division of Walmart, Inc. (NYSE: WMT), where he led all aspects of Walmart’s U.S. grocery business for its more than 4,000 stores. Prior to joining Walmart, Mr. Sinclair spent 14 years at Safeway PLC in London from 1990 to 2004, where he held several senior management positions that included responsibility for operations, merchandising and marketing for over 450 Safeway supermarket and convenience store locations throughout the United Kingdom. Mr. Sinclair served on the board of directors of The Hain Celestial Group (NASDAQ: HAIN), a leading marketer, manufacturer and seller of organic and natural products, from September 2017 to June 2019.

 

Key Board Skills and Qualifications

•   Extensive knowledge of all aspects of our business, vision, strategy, people and leadership

•   Service as our Chief Executive Officer

•   Over 30 years of grocery and retail experience

 

Favorite Sprouts Brand Product

Market Corner Ciabatta Bread

 

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  Corporate Governance

 

Board Diversity

While we do not have a formal policy outlining the diversity standards to be considered when evaluating director candidates, our objective is to foster diversity of thought and experience on our board of directors. To accomplish that objective, the nominating and corporate governance committee considers ethnic and gender diversity, as well as differences in perspective, professional experience, education, skill and other qualities in the context of the needs of our board of directors. Nominees are not discriminated against on the basis of age, race, religion, national origin, sex, sexual orientation, disability or any other basis. The nominating and corporate governance committee evaluates its effectiveness in achieving diversity on the board of directors through its annual review of board member composition. Our current directors reflect these efforts and the importance of diversity to the board, and we are honored to have been recognized by the Women’s Forum of New York as a Corporate Champion for board diversity.

 

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Board Structure

Our certificate of incorporation and bylaws provide for a classified board of directors with staggered three-year terms, consisting of three classes as follows:

 

Class

  Director     Independent  

Class I (term expires at 2020 annual meeting)

 

Joel D. Anderson

Terri Funk Graham

Doug G. Rauch

  Yes

Yes

Yes

Class II (term expires at 2021 annual meeting)

 

Joseph Fortunato

Lawrence P. Molloy

Joseph D. O’Leary

  Yes

Yes

Yes

Class III (term expires at 2022 annual meeting)

 

Kristen E. Blum

Jack L. Sinclair

  Yes

No

 

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Our board of directors has determined that all of our current directors, except for Mr. Sinclair, are “independent,” as defined in the corporate governance rules of the NASDAQ Stock Market. There are no family relationships among any of our directors, director nominees or executive officers. Mr. Molloy was not “independent” during the period from June 20, 2019 through February 21, 2020 during which he served as our Interim Chief Financial Officer.

Only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective three-year terms. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. Our directors may be removed for cause by the affirmative vote of the holders of a majority of our voting stock.

The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company.

Board Leadership Structure

Our board of directors has no policy with respect to the separation of the offices of Chief Executive Officer and Chairman of the Board. It is the board’s view that rather than having a rigid policy, the board, with the advice and assistance of the nominating and corporate governance committee, and upon consideration of all relevant factors and circumstances, will determine, as and when appropriate, whether to institute a formal policy. Currently, our leadership structure separates these roles, with Mr. Fortunato serving as our Chairman of the Board and Mr. Sinclair serving as our Chief Executive Officer.

Our board believes that separating these roles provides the appropriate balance between strategy development, flow of information between management and the board of directors and oversight of management. We believe this provides guidance for our board of directors, while also positioning our Chief Executive Officer as the leader of the company in the eyes of our customers, team members and other stakeholders. As Chairman, Mr. Fortunato, among other responsibilities, oversees planning of the annual board calendar and develops meeting agendas, presides over regularly scheduled board meetings and executive sessions of the independent members of the board, serves as a liaison between the directors, consults with major stockholders, as appropriate, and performs such additional duties as our board of directors may otherwise determine and delegate. By having Mr. Fortunato serve as Chairman of the Board, Mr. Sinclair is better able to focus his attention on running our company.

The Board’s Role in Risk Oversight

Our board of directors is primarily responsible for overseeing our risk management processes. We have an enterprise risk management program designed to identify, prioritize and assess a broad range of risks that may affect our ability to execute our corporate strategy and fulfill our business objectives, and to formulate plans to mitigate their effects. Our board, as a whole, reviews our enterprise risk management program and specific risks we face, determines the appropriate level of risk for our company and reviews management’s strategies for adequately mitigating and managing the identified risks. Although our board administers this risk management oversight function, our audit, compensation and nominating and corporate governance committees support our board in discharging its oversight duties and addressing risks inherent in their respective areas. We believe this division of responsibilities is an effective approach for addressing the risks we face and that our board leadership structure supports this approach.

Board Participation

Our board of directors held five formal meetings in fiscal 2019 and took action by written consent twice. During fiscal 2019, each of our directors attended at least 75% of the total number of meetings of our board of directors and of the committees on which they serve. We regularly schedule executive sessions at each formal meeting of the board during which the independent directors meet without the presence or participation of management.

 

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  Corporate Governance

 

We encourage our directors to attend each annual meeting of stockholders. To that end, and to the extent reasonably practical, we generally schedule a meeting of our board of directors on or around the same day as our annual meeting of stockholders. Each of our directors at the time attended our 2019 annual meeting of stockholders.

Board Committees

Our board of directors has the authority to appoint committees to perform certain oversight and administration functions. Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities of each committee are described below. Members will serve on these committees until their resignation or until otherwise determined by the board of directors.

Audit Committee

Our audit committee consists of Doug G. Rauch, Chairperson, Joel D. Anderson and Kristen E. Blum. Our board of directors has determined that each such individual is independent under the rules of the SEC and the NASDAQ Stock Market. Our board has also determined that Mr. Anderson is an “audit committee financial expert” within the meaning of SEC regulations, and that each member of our audit committee can read and understand fundamental financial statements in accordance with audit committee requirements. In arriving at this determination, the board has examined each audit committee member’s scope of experience in financial roles and the nature of their employment.

The audit committee has the following responsibilities, among others things, as set forth in the audit committee charter:

 

   

reviewing and pre-approving the engagement of our independent registered public accounting firm to perform audit services and any permissible non-audit services;

 

   

evaluating the performance of our independent registered public accounting firm;

 

   

monitoring the rotation of partners of our independent registered public accounting firm on our engagement team as required by law;

 

   

reviewing our annual and quarterly financial statements and reports filed with the SEC and discussing the statements and reports with our independent registered public accounting firm and management, including a review of disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”

 

   

reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements;

 

   

considering and approving or disapproving all related party transactions and discussing such transactions that are significant to our company with our independent registered public accounting firm;

 

   

preparing the audit committee report required by the SEC to be included in our annual proxy statement;

 

   

conducting an annual assessment of the performance of the audit committee and its members, and the adequacy of its charter; and

 

   

establishing procedures for the receipt, retention, and treatment of complaints received by us regarding financial controls, accounting or auditing matters.

Our audit committee formally met four times during fiscal 2019.

 

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Compensation Committee

Our compensation committee consists of Lawrence P. Molloy, Chairperson, Joseph Fortunato and Terri Funk Graham. Our board of directors has determined that each such individual is independent under NASDAQ Stock Market listing standards and a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act. During the period from June 20, 2019 through February 21, 2020 during which he served as our Interim Chief Financial Officer, Mr. Molloy stepped off the compensation committee.

The compensation committee has the following responsibilities, among other things, as set forth in the compensation committee’s charter:

 

   

reviewing, modifying and approving (or if it deems appropriate, recommending to the full board of directors regarding) our overall compensation strategy and policies and discussing such compensation with our independent registered public accounting firm;

 

   

reviewing (or if it deems appropriate, recommending to the full board of directors regarding) performance goals and objectives relevant to the compensation of our executive officers and assessing their performance against these goals and objectives;

 

   

reviewing and recommending to the full board of directors the compensation of our directors;

 

   

evaluating, adopting and administering (or if it deems appropriate, making recommendations to the full board of directors regarding) the 2013 Incentive Plan (as defined below), other compensation plans and similar programs advisable for us, as well as modification or termination of existing plans and programs;

 

   

establishing policies with respect to equity compensation arrangements;

 

   

reviewing and discussing annually with management our “Compensation Discussion and Analysis”;

 

   

preparing the compensation committee report required by the SEC to be included in our annual proxy statement; and

 

   

reviewing and evaluating, at least annually, the performance of the compensation committee and the adequacy of its charter.

Our compensation committee formally met two times during fiscal 2019 and took action by written consent once.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of Terri Funk Graham, Chairperson, Kristen E. Blum, Joseph Fortunato and Joseph O’Leary. Our board of directors has determined that each such individual is independent under the rules of the NASDAQ Stock Market.

The nominating and corporate governance committee has the following responsibilities, among other things, as set forth in the nominating and corporate governance committee’s charter:

 

   

reviewing periodically and evaluating director performance on our board of directors and its applicable committees, and recommending to our board of directors and management areas for improvement;

 

   

establishing criteria and qualifications for membership on the board of directors and its committees;

 

   

interviewing, evaluating, nominating and recommending individuals for membership on our board of directors;

 

   

reviewing and recommending to our board of directors any amendments to our corporate governance policies; and

 

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  Corporate Governance

 

   

reviewing and assessing, at least annually, the performance of the nominating and corporate governance committee and the adequacy of its charter.

Our nominating and corporate governance committee formally met one time during fiscal 2019.

Board Evaluations

Our board believes that a robust annual evaluation process is a critical part of its governance practices. Accordingly, the nominating and corporate governance committee oversees an annual evaluation of the performance of the board of directors. The committee approves written evaluation questionnaires that are distributed to each director. The results of each written evaluation are provided to, and compiled by, an outside law firm. The chair of the nominating and corporate governance committee discusses the results of the performance evaluations with the full board. Our board utilizes the results of these evaluations in making decisions on director nominees, board agendas, board structure, composition and effectiveness and committee assignments. As a result of past board evaluations, we have made changes to board meeting agenda and the form and scope of materials provided to directors.

Identifying and Evaluating Director Candidates

Director candidates are evaluated in light of the then-existing composition of the board, and the background and areas of expertise of existing directors and potential nominees. The nominating and corporate governance committee also considers the specific needs of the various board committees. In the case of Mr. Rauch, the most recent addition to our board, the committee considered, among other factors, his decades of experience in the grocery industry with a national growth retailer where he was instrumental in the development of its prized buying philosophy and creation of its unique private label food program, among other factors. Prior to that, in connection with Mr. Anderson joining our board, the committee considered his experience as a chief executive officer of a publicly traded high-growth retailer and strong background in ecommerce, among other factors.

Our nominating and corporate governance committee will consider persons recommended by stockholders for inclusion as nominees for election to our board of directors. Stockholders wishing to recommend director candidates for consideration by the committee may do so by writing to our Corporate Secretary at our principal executive offices set forth in this proxy statement, and giving the recommended nominee’s name, biographical data and qualifications, accompanied by the written consent of the recommended nominee.

The evaluation process for director nominees who are recommended by our stockholders is the same as for any other nominee and is based on numerous factors that our nominating and corporate governance committee considers appropriate, some of which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity reflecting ethnic background, gender and professional experience, and the extent to which the nominee would fill a present need on our board of directors. We typically engage search firms to engage in national searches for prospective board candidates, and we instruct these search firms with which we work to identify potential board candidates that would, in addition to bringing particular skills and experience to the board, also add to the gender and/or ethnic diversity on the board.

Sustainability and Social Responsibility

Sprouts is committed to operating our business in a way that respects social and environmental well-being. We all play a role in being good stewards of our planet and its finite resources and, as a growing natural and organic retailer, Sprouts has a unique opportunity to have a positive impact on our earth and our communities. As we grow, we will continue to adopt practices that improve our relationship with the environment and strengthen our social responsibility endeavors, which are rooted in four pillars: environment, sourcing, our team and the community. To date, our initiatives have focused on fighting

 

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Corporate Governance  

 

hunger, reducing waste, sourcing responsibly, energy conservation, community support and building a diverse and inclusive workplace culture that provides opportunities for advancement, training and education.

As our many sustainability and social responsibility initiatives have advanced, so has our ability to accumulate, track, analyze and report on our accomplishments. For more information on our sustainability and social responsibility work, please visit our website at about.sprouts.com/sustainability to view our annual Sustainability and Social Responsibility Report. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on or accessible through our website into this proxy statement.

Availability of Corporate Governance Information

Our board of directors has adopted charters for our audit, compensation and nominating and corporate governance committees describing the authority and responsibilities delegated to each committee by our board of directors. Our board of directors has also adopted corporate governance guidelines, a code of conduct and ethics that applies to all of our team members, a code of ethics that applies to members of our board of directors and a code of ethics that applies to our principal executive officer and senior financial officers, including those officers responsible for financial reporting. We post on our website, at investors.sprouts.com, the charters of our audit, compensation and nominating and corporate governance committees, our corporate governance guidelines and the codes of conduct and ethics referenced above. We intend to disclose any amendments to these codes, or any waivers of their requirements, on our website to the extent required by applicable SEC or NASDAQ Stock Market rules. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on or accessible through our website into this proxy statement. These documents are also available in print to any stockholder requesting a copy in writing from our Corporate Secretary at our principal executive offices set forth in this proxy statement.

Communications with our Board of Directors

Stockholders or other interested persons wishing to communicate with our board of directors or with an individual member of our board of directors may do so by writing to our board of directors or to the particular member of our board of directors, and mailing the correspondence to our Corporate Secretary at 5455 East High Street, Suite 111, Phoenix, Arizona 85054. All such communications will be forwarded to the appropriate member or members of our board of directors, or if none is specified, to the Chairman of our board of directors.

Proxy Access

Our bylaws allow a stockholder to include director nominees in our proxy materials for election at our annual meeting of stockholders. Such nominations must comply with all applicable conditions in our bylaws and be directed to the attention of our Corporate Secretary at 5455 East High Street, Suite 111, Phoenix, Arizona 85054. See “Director Nominations for Inclusion in our 2021 Proxy Materials (Proxy Access)” below.

 

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  Proposal 1: Election of Directors

 

PROPOSAL 1: ELECTION OF DIRECTORS

Nominees

Our nominating and corporate governance committee recommended, and the board of directors nominated:

 

   

Joel D. Anderson

 

   

Terri Funk Graham

 

   

Doug G. Rauch

as nominees for election as Class I members of our board of directors. Each nominee is presently a Class I director of our company and has consented to serve a three-year term if elected, concluding at the 2023 annual meeting of stockholders. Ms. Graham was re-elected a director by the stockholders at the 2017 annual meeting, and Messrs. Anderson and Rauch were appointed by the board in 2019 and 2020, respectively. Biographical information about each of our directors is contained in the “Our Board” section above. At the Annual Meeting, three directors will be elected to our board of directors.

Required Vote

The three nominees receiving the highest number of affirmative “FOR” votes shall be elected as directors. Unless marked to the contrary, proxies received will be voted “FOR” each of these three nominees.

Recommendation of the Board

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ELECTION OF EACH OF THE ABOVE-NAMED NOMINEES.

 

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Director Compensation  

 

DIRECTOR COMPENSATION

Our directors that are considered “independent” under applicable SEC and NASDAQ stock market rules receive consideration for service on our board of directors. In 2019, these directors received the following cash compensation (all payable quarterly):

 

   

Annual retainer of $65,000;

 

   

Annual committee retainer fees of $10,000 per committee assignment;

 

   

Annual committee chairperson retainer fees in the following amounts:

 

  -

$25,000 for the chairperson of our audit committee;

 

  -

$20,000 for the chairperson of our compensation committee;

 

  -

$20,000 for the chairperson of our nominating and corporate governance committee; and

 

   

Annual retainer for our chairman of the board of $30,000.

In addition to the cash compensation discussed above, our independent directors also received equity compensation for 2019 equal to $125,000 in the form of restricted stock units (referred to as “RSUs”) vesting on the one-year anniversary of the grant date. The number of RSUs granted to each independent director was determined using the 20-day trailing average closing price of our common stock as reported on the grant date. We also pay for or reimburse directors for approved board governance educational seminars and for travel expenses related to attending board and committee meetings.

Our board of directors recognizes that stock ownership by directors may strengthen their commitment to the long-term success of our company and further align their interests with those of our stockholders. In accordance with our corporate governance guidelines, our independent directors are expected over a five-year period to beneficially own shares of our common stock (including shares owned outright, unvested shares, and stock options or other equity grants) having a value of at least five times their annual cash retainer until he/she leaves the board.

Our compensation committee periodically engages its independent compensation consultant, Korn Ferry, to review our company’s independent director compensation against peer and market data.

Director Compensation Table

The following table sets forth a summary of the compensation earned by our directors in fiscal 2019.

 

Name

  

Fees Earned or

Paid in Cash

     Stock Awards(1)     

All Other

Compensation

     Total  

Joel D. Anderson(2)

          $ 63,875             $ 63,875  

Kristen E. Blum

   $ 85,000      $ 125,166             $ 174,494  

Shon A. Boney(3)

   $ 32,500      $ 125,166             $ 157,666  

Joseph Fortunato

   $ 115,000      $ 125,166             $ 240,166  

Terri Funk Graham

   $ 105,000      $ 125,166             $ 230,166  

Lawrence P. Molloy(4)

   $ 197,500      $ 125,166      $ 928,378      $ 1,251,044  

Joseph D. O’Leary

   $ 75,000      $ 125,166             $ 200,166  

Steven H. Townsend(5)

   $ 105,000      $ 125,166             $ 230,166  

 

(1)

The amounts in this column reflect the aggregate grant date fair value of each RSU granted during the fiscal year, computed in accordance with ASC 718. The valuation assumptions used in determining such amounts are described in Note 26 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The grant date for the RSUs for all independent directors except for Mr. Anderson was May 13, 2019, and the grant date for Mr. Anderson was December 3, 2019.

 

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  Director Compensation

 

(2)

Mr. Anderson joined the board of directors effective November 18, 2019 and received a pro-rated portion of the annual director equity compensation.

 

(3)

Mr. Boney resigned from the board effective June 20, 2019.

 

(4)

Mr. Molloy was appointed as our Interim Chief Financial Officer on June 20, 2019 and continued in that role until February 21, 2020. In connection with Mr. Molloy’s appointment, he received an additional $105,000, which was intended to compensate Mr. Molloy for the audit committee retainer fees that he will forego for three years due to his inability to serve on the audit committee for three years following his service as Interim Chief Financial Officer. Amounts included in the ‘All Other Compensation’ column are related to Mr. Molloy’s compensation as our Interim Chief Financial Officer. For additional details, see ‘Executive Compensation – Summary Compensation Table’.

 

(5)

Mr. Townsend resigned from the board effective November 18, 2019.

The following table lists outstanding equity awards held by our current non-employee directors as of December 29, 2019.

 

    Option Awards     Stock Awards  

Name

 

Date of

Grant(1)

   

Number of Shares

Underlying Option

    

Exercise

Price

   

Option

Expiration

Date

   

Number of Shares

or Units of Stock

That Have Not

Vested(2)

   

Market Value

of Shares or

Units of Stock

That Have

Not Vested(3)

 

Joel D. Anderson

    December 3, 2019                          3,159     $ 61,632  

Kristen E. Blum

    May 13, 2019                          5,768     $ 112,534  

Joseph Fortunato

    May 19, 2014       6,195      $ 28.50       May 19, 2021              
    May 21, 2015       3,623      $ 30.30       May 21, 2022              
    May 13, 2019                          5,768     $ 112,534  

Terri Funk Graham

    July 31, 2013       2,778      $ 18.00       July 31, 2020              
    May 19, 2014       6,195      $ 28.50       May 19, 2021              
    May 21, 2015       3,623      $ 30.30       May 21, 2022              
    May 13, 2019                          5,768     $ 112,534  

Lawrence P. Molloy

    July 31, 2013       2,778      $ 18.00       July 31, 2020              
    May 19, 2014       6,195      $ 28.50       May 19, 2021              
    May 21, 2015       3,623      $ 30.30       May 21, 2022              
    May 13, 2019                          5,768     $ 112,534  

Joseph D. O’Leary

    May 13, 2019                          5,768     $ 112,534  

Doug G. Rauch(4)

                                    

 

(1)

All outstanding options are currently vested and exercisable.

 

(2)

Stock awards represent RSUs which cliff vest on the first anniversary of the grant date, in each case assuming continued service through the vesting date.

 

(3)

The market value of unvested RSUs is calculated by multiplying the number of unvested awards held by the applicable named director by the closing market price of our common stock on the Nasdaq Global Select Market on the last trading day of fiscal 2019, December 27, 2019, which was $19.51 per share.

 

(4)

Mr. Rauch was appointed to the board effective February 25, 2020.

 

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Executive Officers  

 

EXECUTIVE OFFICERS

The following table sets forth information regarding our executive officers as of March 16, 2020:

 

Name

   Age      Position

Jack L. Sinclair

     59      Chief Executive Officer

Denise A. Paulonis

     48      Chief Financial Officer / Treasurer

Dan J. Sanders

     61      Chief Operations Officer

David M. McGlinchey

     47      Chief Format Officer

Brandon F. Lombardi

     42      Chief Human Resources and Legal Officer / Corporate Secretary

Jack L. Sinclair’s biography is set forth under the heading “Our Board” above.

Denise A. Paulonis joined our company as Chief Financial Officer and Treasurer in February 2020. Ms. Paulonis most recently served as Executive Vice President and Chief Financial Officer of The Michaels Companies (Nasdaq: MIK), the largest arts and crafts specialty retailer in North America, from August 2016 to January 2020. Prior to her service as Michael’s Executive Vice President and Chief Financial Officer, Ms. Paulonis served in various finance roles within the organization, including Senior Vice President of Finance and Treasurer from November 2015 to August 2016, and Vice President of Corporate Finance, Investor Relations and Treasury from September 2014 to November 2015. Prior to joining Michaels, Ms. Paulonis held various senior level positions with PepsiCo from August 2009 to September 2014, including Vice President of Financial Planning and Analysis of the Frito Lay division, Vice President of Finance and strategy of PepsiCo U.S. Sales, and Vice President of Corporate Strategy and Development. Prior to joining PepsiCo, Ms. Paulonis held various senior positions with McKinsey & Company and Bank of America. Ms. Paulonis currently serves on the board of directors of Sally Beauty Holdings, Inc. (NYSE: SBH) and earned a B.S. in Finance and Economics from Miami University and an M.B.A. from The Wharton School at the University of Pennsylvania.

Dan J. Sanders has served as our Chief Operations Officer since October 2016. Mr. Sanders joined our company as Executive Vice President of Store Operations in July 2015, and previously served as President of Albertsons Southern California and President of Acme Markets, both while affiliated with Supervalu Inc., from March 2010 through March 2013. Additionally, Mr. Sanders served as Chief Executive Officer of United Supermarkets, LLC from June 2004 until February 2010. Prior to serving at United Supermarkets, Mr. Sanders was Division President and a Principal at AdPlex, a retail consulting firm specializing in advertising production and content management technology to Fortune 500 companies, from August 1997 to February 2003. Mr. Sanders is also a military veteran with more than a decade of service as a pilot in the United States Air Force. He holds an M.B.A. from Pepperdine University’s Graziadio School of Business and Management and a B.A. from Lubbock Christian University.

David M. McGlinchey was appointed Chief Format Officer in February 2020 to oversee our new store format development, real estate site selection, construction and merchant services, having previously served our company as Chief Merchandising Officer from August 2018 to February 2020 and Senior Vice President of Merchandising Services from July 2017 to August 2018. Before joining Sprouts, Mr. McGlinchey served as Vice President and Chief Grocery Merchant for Sears Holding Corporation from September 2013 through December 2016 and Senior Vice President of Merchandising and Marketing for the Shaw’s and Star Market banners of Supervalu Inc. from March 2010 through April 2013. Earlier, he served in a number of leadership roles of increasing responsibility over a 14-year span at Stop & Shop/Giant Food, including Senior Vice President of Merchandising Support, Vice President of Grocery Merchandising, Director of Dry Grocery Merchandising and Category Manager. Mr. McGlinchey holds a B.S. in Economics and Finance from Bentley University and an M.B.A. from Bentley University’s McCallum Graduate School of Business.

 

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  Executive Officers

 

Brandon F. Lombardi has served as our Chief Human Resources and Legal Officer and Corporate Secretary since October 2016, and previously served as our Chief Legal Officer and Corporate Secretary from January 2012 to October 2016. Prior to joining our company, Mr. Lombardi was a corporate and securities attorney at the international law firm of Greenberg Traurig, LLP from 2002 to January 2012, having worked in the firm’s Los Angeles and Phoenix offices. While in private practice, Mr. Lombardi served as outside general counsel and corporate secretary to public and private companies in a wide range of industries, including food retail, specializing in corporate governance, securities and corporate law, and mergers and acquisitions. While acting as our outside counsel, Mr. Lombardi led our merger with Henry’s Farmers Market in April 2011. Mr. Lombardi holds a J.D. from the Sandra Day O’Connor College of Law at Arizona State University and a B.S. in Global Business from Arizona State University.

Each of our executive officers serves at the discretion of our board of directors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.

 

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Executive Compensation  

 

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the material elements of the compensation of each person who served as our principal executive officer or principal financial officer during fiscal 2019 and our three other most highly compensated executive officers for fiscal 2019, which we collectively refer to as our “named executive officers.” Our named executive officers for fiscal 2019 were:

 

Name

   Title

Jack L. Sinclair(1)

   Chief Executive Officer and Director

Lawrence P. Molloy(2)

   Interim Chief Financial Officer and Director

Brandon F. Lombardi

   Chief Human Resources and Legal Officer / Corporate Secretary

Dan J. Sanders

   Chief Operations Officer

David M. McGlinchey(3)

   Chief Merchandising Officer

James L. Nielsen(4)

   Senior Advisor and Former Interim Co-Chief Executive Officer, President and Chief Operating Officer

Bradley S. Lukow(5)

   Former Interim Co-Chief Executive Officer, Chief Financial Officer and Treasurer

 

(1)

Mr. Sinclair was appointed Chief Executive Officer and Director on June 24, 2019.

 

(2)

Mr. Molloy was appointed Interim Chief Financial Officer on June 20, 2019. Effective upon Denise Paulonis’s appointment as Chief Financial Officer and Treasurer on February 21, 2020, Mr. Molloy stepped down as Interim Chief Financial Officer and Treasurer, and remains with our company in his capacity as an independent member of our board of directors.

 

(3)

Mr. McGlinchey served as our Chief Merchandising Officer during fiscal 2019 and was appointed as our Chief Format Officer in February 2020.

 

(4)

Mr. Nielsen served as our Interim Co-Chief Executive Officer until Mr. Sinclair’s appointment on June 24, 2019 and as our President and Chief Operating Officer until his transition to Senior Advisor on August 1, 2019.

 

(5)

Mr. Lukow served as our Interim Co-Chief Executive Officer, Chief Financial Officer and Treasurer until his resignation on June 20, 2019.

Unless otherwise provided below, this Compensation Discussion and Analysis will generally apply to our named executive officers other than Mr. Molloy, who received a cash amount for each week of service as our Interim Chief Financial Officer and did not participate in the other elements of our executive compensation program. References to our Chief Executive Officer’s compensation generally refer to the compensation package approved for Mr. Sinclair upon his appointment on June 24, 2019, and not the compensation packages for Messrs. Nielsen and Lukow, who held the Co-Chief Executive Officer position solely on an interim basis prior to Mr. Sinclair’s appointment.

Section One – Overview and Executive Summary

Executive Summary of Our Fiscal 2019 Executive Compensation Program

For 2019, our pay mix consisted of base salary, the opportunity to earn annual performance-based cash bonuses based on our achievement of Plan EBITDA (as defined below) and comparable store sales performance goals and equity incentives consisting of time-vesting RSUs and stock options and performance-based restricted stock (referred to as “performance shares”) based on our achievement of a Plan EBIT (as defined below) target over a three-year performance period. We have no pension plans or other executive retirement plans except our 401(k) plan that is available to all team members, and limited executive perquisites consisting primarily of payment of health and life insurance premiums for certain of our named executive officers. The compensation package approved for Mr. Sinclair upon his appointment as our Chief Executive Officer on June 24, 2019 was largely consistent with this pay mix.

 

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We believe that this mix of compensation, including in particular the performance shares and annual performance-based cash bonus program tied to company financial and operational objectives, closely links executive officer compensation to performance. We exceeded the threshold performance levels for our Plan EBITDA and comparable store sales goals for our annual performance-based cash bonus, and our performance shares remain subject to a three-year Plan EBIT performance target before they may be earned. Accordingly, our executive officers were awarded with payouts above threshold, but below target levels, for our company’s performance during fiscal 2019, consistent with our pay-for-performance philosophy.

2019 Fiscal Year Performance

Fiscal 2019 was another strong year for our company as we continued to grow in our very dynamic industry. Our brand of health and value resonated both with new and existing customers, leading to solid financial performance. Some of our fiscal 2019 results include:

 

   

Opened 28 new stores, representing unit growth of 9% from 2018;

 

   

Net sales of $5.6 billion; an 8% increase from 2018;

 

   

Comparable store sales growth of 1.1% and two-year comparable store sales growth of 3.2%;

 

   

Net income of $150 million; compared to net income of $159 million in 2018;

 

   

Earnings before interest and taxes (referred to as “EBIT”)1 of $217 million; compared to EBIT of $223 million in 2018;

 

   

Diluted earnings per share of $1.25; compared to $1.22 in 2018;

 

   

Generated cash flow from operations of $355 million, up 21% from 2018; and

 

   

Drove additional stockholder returns by repurchasing approximately 7.9 million shares.

Compensation Program Background and Philosophy

Our executive compensation program is administered by the compensation committee of our board of directors comprised entirely of independent directors. The program is intended to attract, motivate and retain executives and reward the creation of stockholder value. We seek to provide executive compensation packages that are competitive with comparable companies (our peer group discussed below along with other market competitors) and reward the achievement of short-term and long-term performance goals.

Like most companies, we use a combination of fixed and variable compensation to reward and incentivize strong performance as well as to align the interests of our executives with those of our stockholders. When making compensation decisions, the compensation committee takes into consideration the value of target total direct compensation (referred to as “TDC”) provided to executives and where that value falls in relation to comparable companies. While the compensation committee does not target a specific percentile when making compensation decisions, the committee generally looks to position the value of target TDC around the market median, which we believe will enable us to remain competitive in attracting and retaining qualified executive officers. Our compensation committee’s decisions on target compensation are also influenced by a variety of additional factors, including compensation mix, the executive’s performance, skills, experience, time in the role, retention risk, difficulty to replace and scope of responsibility.

 

1 EBIT is a non-GAAP financial measure that is explained and reconciled to the comparable GAAP measure in Appendix A to this proxy statement.

 

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2018 Say-on-Pay Vote and Stockholder Engagement

At our 2019 annual meeting, our “say-on-pay” advisory vote on the 2018 compensation of our named executive officers described in our 2019 proxy statement received approximately 98% support from our stockholders. Our compensation committee took this strong approval into account as one of many factors it considered in connection with the discharge of its responsibilities during 2019 and attributed this level of support, in part, to many of the features of our company’s compensation program, including:

 

   

Engaging Korn Ferry, the compensation committee’s independent compensation consultant, to evaluate our incentive plan design and provide executive compensation benchmarking analysis;

 

   

Conducting calls with several stockholders and implementing certain changes based on this feedback to better align with our peers;

 

   

Utilizing a three-year performance period for our performance shares to better align our practices with the broader retail market and to better align our executive officers’ long-term incentives with the creation of long-term value;

 

   

Continuing to utilize EBIT as our 2019 performance share metric to provide greater emphasis on our core business; and

 

   

Not granting any special retention awards in 2018 or 2019.

Our compensation committee determined not to make significant structural changes to our executive compensation program in 2019 based on the strong level of stockholder support demonstrated by our 2018 say-on-pay vote. We continued our ongoing stockholder outreach efforts by contacting the majority of our largest 25 stockholders in early 2020 to determine if any wished to raise concerns related to our compensation or governance practices. Four stockholders collectively holding over 25% of our outstanding shares accepted our invitations, and we provided their feedback to our compensation committee, which continued to refine our executive compensation program for 2019 and 2020, as a demonstration of its attention to corporate governance, stockholder feedback and its emphasis on the link between pay and performance.

 

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Section Two – Elements of our Compensation Program

The elements of our 2019 executive compensation program are presented below in summary format and more fully explained in the sections that follow:

 

Cash

Compensation

  Base Salary    Base salary is designed to provide a competitive fixed rate of pay recognizing different levels of responsibility and performance within our company, set generally near the 50th percentile of comparable companies.
  Performance-based Bonus    Our performance-based bonus is an annual cash incentive program designed to reward team members for achieving company sales and profitability goals.

Long-Term

Incentive

Compensation

  Performance Shares    Performance shares are granted to provide incentive for long-term creation of stockholder value based on company profitability goals measured by Plan EBIT over a three-year performance period. Performance shares represented 50% of the annual long-term incentive grant value in fiscal 2019 for our Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer, and 40% for our other executive officers.
  RSUs    Time-vesting restricted stock units (referred to as “RSUs”) are granted to provide incentive for long-term creation of stockholder value. RSUs vest in annual installments over three years and represented 50% of the annual long-term incentive grant value in fiscal 2019 for our Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer, and 40% for our other named executive officers.
    Stock Options    Time-vesting stock options are granted to provide incentive for long-term creation of stockholder value. Time-based stock options vest in annual installments over three years and represented 20% of the annual long-term incentive grant value for our other named executive officers in 2019, excluding our Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer.
Benefit Programs   Health, Welfare and Retirement Programs    Executives participate in the same benefit programs that are offered to other salaried team members. Our benefits are designed to provide market competitive benefits to protect team members’ and their covered dependents’ health and welfare and provide retirement benefits in the form of a 401(k) plan.
Other   Perquisites    Limited perquisites are provided to certain executives, primarily in the form of company-paid health and life insurance premiums.

Base Salary

Base salary is a fixed portion of compensation that reflects the compensation committee’s (and the Chief Executive Officer’s in the case of other named executive officers) assessment of the individual named executive officer’s performance, skills, experience, time in the role and scope of responsibility. Base salaries are generally set at levels near the median of comparable companies and are reviewed on an annual basis to determine if any adjustments are required.

Performance-based Cash Bonus

We utilize performance-based cash incentives to motivate executives to attain short-term objectives that align with long-term business goals. Meeting or exceeding our annual business and financial goals is important to executing our business strategy and delivering long-term value to stockholders. Individual award opportunities vary by job level and are generally set so that, along with other components of compensation, the executives’ target TDC is competitive with comparable companies.

Our performance-based cash bonus plan is based upon (1) Adjusted EBITDA2, as further adjusted for any income or expense that is unusual, non-recurring or extraordinary, as the compensation committee of our board deems appropriate (referred to as “Plan EBITDA”), and (2) comparable store sales growth. No incentive award is payable to executives unless a pre-established minimum of 91% of the target Plan EBITDA

 

2 Adjusted EBITDA is a non-GAAP financial measure that is explained and reconciled to the comparable GAAP measure in Appendix A to this proxy statement. We define “Adjusted EBITDA” as net income before interest expense, provision for income tax, and depreciation, amortization and accretion, excluding the impact of special items we do not consider representative of our ongoing financial performance.

 

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goal or 44% of the target comparable store sales goal is achieved. Incentive award payouts increase for performance up to a maximum of 105% of the target Plan EBITDA goal and 140% of the target comparable store sales goal.

The performance-based cash bonus plan focuses executives on critical financial and operational goals. Our compensation committee believes that Plan EBITDA is a primary indicator to our stockholders of overall business health, and its use achieves our desire to use a measure of profitability that drives stockholder value creating behaviors. The second measure, comparable store sales growth, focuses executive officers on both strengthening our core business and making our stores more productive.

Each executive officer has a target performance-based cash bonus opportunity, expressed as a percentage of base salary (referred to as the “Target Bonus”), with the ability to earn above or below that target based on our company’s actual performance.

At the beginning of 2019, the compensation committee and board of directors approved the financial and operational goals for the company. The compensation committee also reviewed and approved the Target Bonus opportunity for each executive officer. If Plan EBITDA and comparable store sales growth were 100% of the established targets, our executive officers would be each entitled to receive 100% of such officer’s respective Target Bonus. In addition, each executive officer had the opportunity to earn an out-performance bonus of 200% of such officer’s Target Bonus (referred to as “Total Bonus Opportunity”). The Target Bonus and Total Bonus Opportunity for our executive officers for 2019 were as follows:

 

Compensation Tier

 

Threshold Bonus

(as % of Base Salary)

 

Target Bonus

(as % of Base Salary)

 

Total Bonus Opportunity

(as % of Base Salary)

Chief Executive Officer

  12.5%   125%   250%

Other Named

Executive Officers

  6%   60%   120%

Because such a large percentage of executive officer compensation is performance-based, our compensation committee invests significant time determining the annual financial target for our performance-based cash bonus program. In general, management makes the initial recommendation for the financial targets based upon our company’s annual board-approved budget, and these recommendations are reviewed and discussed by the compensation committee. The major factors used in setting one or more targets for a particular year are the results for the most recently-completed year and the budget for the current year. Other factors taken into account may include general economic and competitive market conditions and industry dynamics. Our compensation committee sets the final corporate performance goals during our first quarter, typically at a level our compensation committee believes is challenging, but reasonable, for management to achieve.

Award payouts are determined each February following completion of the plan year by measuring the performance against each award component. In determining whether the performance ranges are met, the compensation committee exercises its judgment whether to reflect or exclude the impact of changes in accounting principles and extraordinary, unusual or infrequently occurring events. The 2019 incentive award target goals and 2019 results and corresponding bonus percentages relative to the target amounts are shown below.

 

Weighting

  Rationale for Measure   Threshold
Goal
 

Target

Goal

  Maximum
Goal
  2019 Results   Bonus Payout
Percentage

Plan EBITDA

(75%)

  Reflects overall business health and is a measure of profitability that is used by our management and drives stockholder value   $313.9 million   $345.0 million   $362.2 million   $340.8 million (99% of target)   88%

Comparable Store Sales

(25%)

  Demonstrates strength in core business   1.1%   2.5%   3.5%  

1.1%

(44% of target)

  12%

 

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Based on these results, our named executive officers, other than Mr. Nielsen, earned a 2019 cash incentive award of 68.8% of the Target Bonus amount. In connection with his transition to Senior Advisor, Mr. Nielsen’s 2019 bonus terms were amended to provide that if his employment was not terminated for cause prior to the bonus payment date, his 2019 annual bonus would be equal to $320,000.

Equity Incentive Compensation

Each year we grant equity-based awards to executive officers and key team members to motivate and reward them for creating long-term stockholder value. Long-term incentive awards are generally established so that, when added to total cash compensation, the target TDC for an individual executive is generally competitive around the market median of comparable companies, although some of our named executive officers are positioned below the 50th percentile and others are slightly above. In 2019, our compensation committee determined to grant to our executive officers performance shares, time-vesting RSUs and stock options. The value of such equity awards increases or decreases as a result of changes in the market price of our common stock, creating opportunities in the event of successful market performance of our shares, aligning the interests of our named executive officers with our stockholders.

 

  Award    Weighting        Vesting Terms and Other Conditions

  Performance Shares  

   40-50%   

For 2019, our Chief Executive Officer and former Chief Financial Officer received 50% performance shares, while our remaining named executive officers received 40% performance shares.

 

Performance shares are designed to reward cumulative performance over a three-year performance period and are subject to our company achieving a Plan EBIT3 performance target for 2021 based on our financial objectives. If the 2021 Plan EBIT target is achieved, the performance shares will be considered “earned” and will vest on the third anniversary of the grant date, subject to continued employment. If the Plan EBIT performance target is exceeded, our named executive officers may earn performance shares greater than the target amount, up to 200%.

 

The target number of shares of our common stock subject to performance shares is determined by the 20-day trailing average closing price for our common stock as reported on the grant date. As our 2019 performance shares measure Plan EBIT over a three-year performance period, we will measure the Plan EBIT performance target in 2022 to determine if performance shares will be earned. If such shares are earned, they will vest on the third anniversary of the grant date, subject to continued employment through the vesting date.

  RSUs

   40-50%   

For 2019, our Chief Executive Officer and former Chief Financial Officer received 50% RSUs, while our remaining named executive officers received 40% RSUs.

 

All of our executive officers receive time-vesting RSUs that vest one-third on each anniversary of the grant date.

 

The number of shares of our common stock subject to RSUs is determined by the 20-day trailing average closing price for our common stock as reported on the grant date.

  Stock Options

   0-20%   

For 2019, our Chief Executive Officer and former Chief Financial Officer did not receive stock options, while our remaining named executive officers received 20% stock options based on the compensation committee’s determination to increase equity incentive compensation for such officers as further incentive for long-term creation of shareholder value.

 

The exercise price of the stock options equals the closing price on the date of grant. Stock options vest one-third on each anniversary of the grant date and expire after seven years.

Benefits and Perquisites

We provide our named executive officers with benefits that our board of directors believes are reasonable and in the best interests of our company and our stockholders. Consistent with our compensation

 

3 EBIT is a non-GAAP financial measure that is explained and reconciled to the comparable GAAP measure in Appendix A to this proxy statement. We define “Adjusted EBIT” as net income before interest expense and provision for income tax, excluding certain special items we do not consider representative of our ongoing financial performance. We define “Plan EBIT” as Adjusted EBIT, as may be further adjusted for any income or expense that is unusual, non-recurring or extraordinary, as the compensation committee of our board deems appropriate.

 

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philosophy, we maintain competitive benefit packages for our named executive officers. The compensation committee, in its discretion, may revise, amend or add to an officer’s benefits if it deems it advisable. We believe these benefits are generally equivalent to benefits provided by comparable companies.

 

   

Retirement Plan Benefits. We sponsor a 401(k) defined-contribution plan (referred to as the “401(k) Plan”) covering substantially all eligible team members, including our named executive officers. Team member contributions to the 401(k) Plan are voluntary. Contributions by participants are limited to their annual tax deferred contribution limit by the Internal Revenue Service. We contribute an amount up to 50% of the first 6% of the eligible compensation deferred by a participant.

 

   

Health and Welfare Benefits. We offer medical, dental, vision, life insurance, short-term and long-term disability insurance and accidental death and dismemberment insurance for all eligible team members. Named executive officers are eligible to participate in the same plans as other eligible team members.

 

   

Perquisites. We pay the premium amounts for medical, dental, vision, life insurance, short-term and long-term disability insurance and accidental death and dismemberment insurance plans on behalf of certain of our named executive officers, and impute income related to the limited personal use of our corporate aircraft by certain of our executive officers.

 

   

Relocation Reimbursement. During fiscal 2019, we reimbursed Mr. Sinclair for certain relocation expenses in connection with his appointment as our Chief Executive Officer.

Section Three – How Executive Pay is Established

Role of Our Compensation Committee

Our compensation committee, which is comprised entirely of independent directors, is responsible for overseeing our executive compensation policies and programs with the goal of maintaining compensation that is competitive and reflects the long-term interests of our stockholders. You can learn more about the compensation committee’s purpose, responsibilities, and structure by reading the committee’s charter posted on our investor relations website at investors.sprouts.com. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on or accessible through our website into this proxy statement.

While our Chief Executive Officer and other executive officers may attend meetings of the compensation committee or our board of directors from time to time, the ultimate decisions regarding executive officer compensation are made solely by the members of our compensation committee. These decisions are based not only on our compensation committee’s deliberations, but also on input requested from our company or outside advisors, including our compensation committee’s independent compensation consultant, with respect to, among other things, market data analyses. The final decisions relating to our Chief Executive Officer’s compensation are determined solely by our compensation committee. Decisions regarding other executive officers are made by our compensation committee after considering recommendations from our Chief Executive Officer.

Role of the Compensation Consultant

Our compensation committee may periodically engage the services of independent compensation consultants to provide advice in connection with making executive compensation determinations. The chairperson of our compensation committee, in consultation with other committee members, defines the scope of any consultant’s engagement and related responsibilities. These responsibilities may include, among other things, advising on issues of executive compensation and equity compensation structure and assisting in the preparation of compensation disclosure for inclusion in our SEC filings. In fulfilling its responsibilities, the independent compensation consultant may interact with management or our other outside advisors to the extent necessary or appropriate.

 

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  Executive Compensation

 

In 2019, our compensation committee engaged Korn Ferry as its independent compensation consultant to provide the committee with an executive compensation assessment, peer group analysis, incentive plan design review and related compensation advice. The compensation committee’s independent compensation consultant provides analyses that inform the committee’s decisions, but it does not decide or approve any compensation decisions. Korn Ferry representatives met with the chairperson of the committee and with certain members of our management team, and at formal meetings with our compensation committee as requested.

The compensation committee considered the factors set forth in the NASDAQ Stock Market rule regarding compensation advisor independence. Specifically, the compensation committee analyzed whether the work of Korn Ferry as compensation consultant raised any conflict of interest, taking into consideration the following factors: (i) the provision of other services to our company by Korn Ferry; (ii) the amount of fees from our company paid to Korn Ferry as a percentage of Korn Ferry’s total revenue; (iii) the policies and procedures of Korn Ferry that are designed to prevent conflicts of interest; (iv) any business or personal relationship of Korn Ferry or the individual compensation advisors employed by Korn Ferry with an executive officer of our company; (v) any business or personal relationship of the individual compensation advisors with any member of the compensation committee; and (vi) any stock of our company owned by Korn Ferry or the individual compensation advisors employed by Korn Ferry. The compensation committee considered the above factors related to compensation advisor independence and based on the foregoing, the committee concluded that Korn Ferry was independent.

Our compensation committee intends to continue its practice of retaining executive compensation consultants from time to time, as our compensation committee deems appropriate, to advise our compensation committee with respect to its compensation policies and provide compensation data from comparable companies.

Management’s Role in Compensation Decisions

Members of our human resources, finance and legal departments work with our Chief Executive Officer to recommend changes to existing compensation plans and programs, to recommend financial and other targets to be achieved under those programs, to prepare analyses of financial data and other briefing materials to assist the compensation committee in making its decisions and, ultimately, to implement the decisions of our compensation committee.

Our Chief Executive Officer is actively engaged in setting compensation for other executives through a variety of means, including recommending for committee approval the financial goals and the annual variable pay amounts for our executive team. Our Chief Executive Officer works closely with our Chief Human Resources and Legal Officer and the chairperson of the compensation committee in analyzing relevant market data to determine base salary and annual target bonus opportunities for senior management and to develop targets for our short- and long-term incentive plans. Our Chief Executive Officer is subject to the same financial performance goals as our other executive officers, all of which are ultimately determined and approved by our compensation committee.

Compensation Levels and Benchmarking

We benchmark our executive compensation against a peer group of companies with which we may compete for executive talent. Market pay data for the peer group for 2019 was gathered through publicly available information and compensation surveys conducted by Korn Ferry. When making compensation decisions, the compensation committee takes into consideration the value of TDC provided to executives and where that value falls in relation to comparable companies (our peer group discussed below, along with other market survey data). While the compensation committee does not target a specific percentile of comparable companies when making decisions regarding individual compensation components, the committee generally looks to position the value of target TDC so as to be competitive with the market median of comparable companies, with exceptions made based on the committee’s analysis of key factors, as discussed below.

 

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The peer group is periodically evaluated and updated to ensure the companies in the group remain relevant to us based on our changing size and other factors. For 2019, our compensation committee reviewed the compensation of our executive officers and compared it with that of both our peer group companies and broader, composite market survey data provided by our compensation consultant. In assessing the appropriateness of peer companies, the compensation committee considered the following criteria for our peer group in 2019: annual revenues; food retail, health and wellness, as well as broader retail; talent market that represents the market for executive talent for our company; growth-oriented companies; and the peer groups used by proxy advisory firms.

The peer group of 14 companies which, along with broader market survey data, were used for benchmarking purposes in fiscal 2019 is set forth below.

 

Company

  

Revenue for Last
Twelve Months

(in millions)

    

Market Value as of

Most Recent FYE

(in millions)

 

United Natural Foods, Inc.

   $ 24,538      $ 469  

Dick’s Sporting Goods, Inc.

   $ 8,634      $ 4,350  

Spartan Nash Co.

   $ 8,435      $ 518  

Casey’s General Stores, Inc.

   $ 8,302      $ 5,850  

Tractor Supply Company

   $ 8,293      $ 11,062  

Ulta Beauty, Inc.

   $ 7,217      $ 14,470  

Burlington Stores, Inc.

   $ 7,066      $ 14,994  

The Michaels Companies, Inc.

   $ 5,139      $ 1,187  

Smart & Final Stores, Inc.

   $ 4,770      $ 360  

Sally Beauty Holdings, Inc.

   $ 3,876      $ 2,125  

Weis Markets, Inc.

   $ 3,534      $ 1,089  

Designer Brands Inc. (DSW)

   $ 3,518      $ 1,129  

The Hain Celestial Group, Inc.

   $ 2,266      $ 2,708  

GNC Holdings, Inc.

   $ 2,146      $ 228  

75th Percentile

   $ 8,300      $ 5,475  

50th Percentile

   $ 6,102      $ 1,656  

25th Percentile

   $ 3,620      $ 660  

Sprouts Farmers Market (as of December 29, 2019)

   $ 5,635      $ 2,293  

Based on input from Korn Ferry, the peer group was updated in early 2020 to assist the compensation committee with determining 2020 compensation. Based on the evaluation criteria, our compensation committee approved the removal of United Natural Foods, Inc., Smart & Final Stores, Inc., Weis Markets, Inc., The Hain Celestial Group, Inc. and GNC Holdings, Inc. and the addition of Big Lots, Inc., Five Below, Inc. and Grocery Outlet Holding Corp. to our peer group for 2020.

Our compensation committee may vary from its general approach for various elements of compensation depending on the committee’s analysis of key factors, such as performance, contributions to the business, ability to replace with a high quality candidate in our unique industry/model or disruption to our business if executive were to exit.

Section Four – 2019 Named Executive Officer Pay Actions

2019 Compensation Actions

In 2019, the compensation committee approved the following compensation and awards for our named executive officers after considering each officer’s individual achievements and contributions toward our long-term strategic goals, our peer group and market survey data and the accomplishments of the company. The compensation committee approved Mr. Sinclair’s annualized compensation package in connection with his appointment as our Chief Executive Officer in June 2019 after considering peer group

 

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and market survey data, Mr. Sinclair’s then-current compensation package with his former employer and his prior experience and expected contributions toward our long-term strategic goals. Mr. Molloy’s compensation was approved by the compensation committee (with Mr. Molloy abstaining) in consideration of the experience and stability he would bring to the Chief Financial Officer role on an interim basis, as well as Mr. Molloy’s standard consultancy fee and the expected temporary nature of his interim appointment.

 

Name    Base Salary      Target Bonus      RSU Awards      Performance
Share Awards
     Stock
Option
Awards
     Target
TDC
 

Jack L. Sinclair(1)

   $ 1,100,000      $ 1,375,000      $ 1,650,000      $ 1,650,000             $ 5,775,000 

Lawrence P. Molloy(2)

   $ 1,820,000                                  $ 1,820,000 

Brandon F. Lombardi

   $ 475,000      $ 285,000      $ 190,000      $ 190,000      $ 95,000      $ 1,235,000 

Dan J. Sanders

   $ 446,250      $ 267,750      $ 178,500      $ 178,500      $ 89,250      $ 1,160,250 

David M. McGlinchey

   $ 420,000      $ 252,000      $ 168,000      $ 168,000      $ 84,000      $ 1,092,000 

James L. Nielsen(3)

   $ 715,000      $ 536,250      $ 715,000      $ 715,000             $ 2,681,250 

Bradley S. Lukow(3)

   $ 656,250      $ 492,188      $ 492,188      $ 492,188             $ 2,132,814 

 

(1)

RSU awards for Mr. Sinclair do not include a one-time sign-on equity grant of RSUs with a value of $1,800,000 intended to compensate Mr. Sinclair for compensation from his prior employer that he relinquished to join our company. The number of RSUs and performance shares granted to Mr. Sinclair differ from the amounts set forth above as such amounts were adjusted so that the grant of performance shares did not exceed limitations provided for in our 2013 Incentive Plan. See – “Summary Compensation Table” and “Grant of Plan-Based Awards.”

 

(2)

Mr. Molloy’s base salary reflects the annualized amount of his weekly compensation for his service as Interim Chief Financial Officer.

 

(3)

Amounts for Messrs. Nielsen and Lukow include only the amounts approved by the compensation committee in their capacities as President & Chief Operating Officer and Chief Financial Officer, respectively. See – “Summary Compensation Table” and “Grant of Plan-Based Awards” for amounts received in Messrs. Nielsen and Lukow’s capacities as Interim Co-Chief Executive Officers.

 

   

Base Salary: Base salary amounts presented above differ from the amounts disclosed in the Summary Compensation Table because increases in base salary become effective in February of each year. Therefore, the amounts reported in the Summary Compensation Table for Messrs. Lombardi, Sanders, McGlinchey, Nielsen and Lukow reflect approximately one month at the 2018 base salary rate and the remaining portion of the year at the 2019 rate.

 

   

Short-Term Incentive Awards: We achieved 99% of the target Plan EBITDA goal (which comprised 75% of the Target Bonus amount) and achieved 44% of the target for our comparable store sales goal (which comprised 25% of the Target Bonus amount), which collectively resulted in a 2019 cash incentive award of 68.8% of the Target Bonus amount for our officers. This was calculated under the terms of the plan as described in “Section Two – Elements of Our Executive Compensation Program.”

 

   

Long-Term Incentive Grants (Performance Shares, RSUs and Stock Options): The compensation committee approved the long-term incentive grant for each named executive officer in 2019 with a view towards aligning a large portion of executive pay with the interests of our stockholders. Messrs. Sinclair, Nielsen and Lukow received 50% of their annual equity awards in the form of performance shares with a three-year Plan EBIT target and 50% in the form of RSUs. Messrs. Lombardi, Sanders and McGlinchey received 40% of their equity awards in the form of performance share awards with a three-year Plan EBIT target, 40% in the form of RSUs and 20% in the form of stock options.

 

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To demonstrate our focus on pay-for-performance, each element of compensation for 2019 target amounts as approved by the compensation committee is set forth as a percentage of target TDC in the following chart.

 

LOGO

Section Five – Executive Compensation Governance

Stock Ownership Guidelines

To further align the long-term interests of our executives and our stockholders, our board maintains stock ownership guidelines applicable to our Chief Executive Officer and other executive officers. Within five years of appointment to their position, our Chief Executive Officer must obtain and maintain beneficial ownership of shares of Sprouts stock equal in market value to five times his current annual base salary, and our other executive officers must maintain beneficial ownership of shares of Sprouts stock equal in market value to two times his or her respective current annual base salary. As of fiscal 2019 year-end, each of our named executive officers met these guidelines, with the exception of Mr. Sinclair who has an additional four years to satisfy his ownership guideline.

Change-in-Control and Severance Arrangements

In February 2020, our compensation committee amended our executive severance and change-in-control plan, which provides that our Chief Executive Officer is eligible for two to three years of severance benefits upon certain events, including an involuntary termination of employment or termination of employment in connection with a change in control, and our other executive officers are eligible for one to two years of severance benefits upon certain events, including an involuntary termination of employment or a termination of employment in connection with a change in control. For further information regarding compensation payable to our named executive officers in the event of termination of such officer’s employment, see – “Potential Payments Upon Termination or Change in Control”.

Hedging and Pledging Policy

Our insider trading policy expressly prohibits transactions involving hedging or pledging of Sprouts shares by directors, officers or team members without the approval of our Chief Legal Officer, who would review risks of proposed transactions.

Tax Deductibility of Executive Compensation

Section 162(m) of the Code generally does not permit publicly traded companies to take income tax deductions for compensation paid to our Chief Executive Officer and certain other executive officers to the

 

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extent that compensation exceeds $1 million per officer in any taxable year. Certain compensation, including performance-based compensation deductible for 2017 and prior years and certain grandfathered performance-based compensation arrangements, meeting specified requirements, is exempt from this limit. As a new public company, under special transition relief, certain compensation paid (and certain equity awards granted) prior to the 2017 Annual Meeting of Stockholders, has also been exempt from this limit. The executive officers to whom Section 162(m) generally applies for 2019 include our Chief Executive Officer, Interim Co-Chief Executive Officers, Chief Financial Officer and Interim Chief Financial Officer, the next three most highly compensated executive officers, and any such “covered employee” for a year after 2016. Although our compensation committee considers tax consequences as a factor when it makes compensation decisions, it retains the discretion and flexibility to make compensation decisions resulting in the grant of non-deductible compensation to the extent it deems that it is appropriate.

Clawback of Certain Compensation Following Restatement of Financial Statements

Our corporate governance guidelines provide that if the board of directors learns of any misconduct by an officer that contributed to our company having to restate all or a portion of our financial statements, it shall take such action as it deems necessary to remedy the misconduct, prevent its recurrence and, if appropriate, take remedial action against such officer in a manner it deems appropriate. In determining what remedies to pursue, the board of directors will take into account all relevant factors, including whether the restatement was the result of negligence or intentional or gross misconduct. The board of directors will, in all appropriate cases, require reimbursement of any bonus or incentive compensation awarded to an officer or effect the cancellation of unvested restricted, deferred stock awards previously granted to the officer if: (i) the amount of the bonus, incentive compensation or stock award was calculated based upon the achievement of certain financial results that were subsequently the subject of a restatement, (ii) the executive engaged in intentional misconduct that caused or partially caused the need for the restatement and (iii) the amount of the bonus, incentive compensation or stock award that would have been awarded to the officer had the financial results been properly reported would have been lower than the amount actually awarded. In addition, the board or directors, in its full and complete discretion, may dismiss the officer, authorize legal action for breach of fiduciary duty or take such other action to enforce the officer’s obligations to our company as the board of directors determines fit the facts surrounding the particular case.

Risk Considerations

Our board of directors does not believe that our 2019 compensation policies and practices create risks that are reasonably likely to have a material adverse effect on our company for the following reasons:

 

   

we believe our fixed pay is competitive given our size and stage of development;

 

   

our variable pay is based on achieving short-term financial goals, we set a threshold for financial targets below which no bonus payment can be made, and cash bonuses are awarded at amounts that are capped to avoid windfall payouts; and

 

   

long-term performance is rewarded through grants of RSUs that provide retention value only if our stock remains stable or increases, and performance shares that are valuable only if our company achieves certain financial targets, which aligns our executives’ interests with those of our equity holders. In addition, the number of shares that can be earned is capped.

 

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COMPENSATION COMMITTEE REPORT

Our compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on such review and discussion, the compensation committee recommended to our board of directors, and our board of directors approved, that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 for filing with the SEC.

Lawrence P. Molloy, Chairperson

Joseph Fortunato

Terri Funk Graham

Mr. Molloy stepped off the compensation committee from June 20, 2019 through February 21, 2020, during which time he served as our Interim Chief Financial Officer.

Compensation Committee Interlocks and Insider Participation

Our compensation committee is comprised of Lawrence P. Molloy, as Chairperson, Joseph Fortunato and Terri Funk Graham. Mr. Molloy served as our Interim Chief Financial Officer from June 20, 2019 to February 21, 2020. Otherwise, neither Mr. Fortunato nor Ms. Graham had any contractual or other relationships with us during fiscal 2019 except as directors, nor have Mr. Fortunato or Ms. Graham ever been an officer or team member of our company.

None of our executive officers currently serve, or in the past year have served, as a member of the board or compensation committee of any entity that has one or more executive officers serving on our board or compensation committee.

 

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Summary Compensation Table

The following table provides information regarding the compensation of our named executive officers for fiscal 2019, 2018, and 2017.

 

Name and Principal Position

  Year     Salary(1)     Option
Awards(2)
    Stock
Awards(3)
    Non-Equity
Incentive Plan
Compensation(4)
    All Other
Compensation(5)
    Total  

Jack L. Sinclair

Chief Executive Officer(6)

    2019     $ 550,000           $ 4,715,454     $ 946,000     $ 19,290     $ 6,230,744  
             

Lawrence P. Molloy

Interim Chief Financial Officer(7)

    2019     $ 924,000                       $ 4,378     $ 928,378  
             

Brandon F. Lombardi

Chief Human Resources and Legal Officer and Corporate Secretary(8)

    2019     $ 470,193     $ 94,999     $ 370,059     $ 194,095     $ 3,477     $ 1,132,823  
    2018     $ 422,596           $ 327,743     $ 209,946     $ 33,740     $ 994,025  
    2017     $ 397,596           $ 790,719     $ 357,439     $ 10,633     $ 1,556,387  
             

Dan J. Sanders

Chief Operations Officer(9)

    2019     $ 444,207     $ 89,246     $ 347,632     $ 183,369     $ 14,598     $ 1,079,052  
    2018     $ 422,596           $ 327,743     $ 209,946     $ 29,887     $ 990,172  
    2017     $ 397,596           $ 790,719     $ 357,439     $ 10,898     $ 1,556,652  

David M. McGlinchey

Chief Merchandising Officer(10)

    2019     $ 418,077     $ 83,996     $ 327,194     $ 222,582     $ 61,621     $ 1,113,470  
             

James L. Nielsen

Former Interim Co-Chief Executive Officer, President and Chief
Operating Officer(11)

    2019     $ 714,519           $ 1,392,610     $ 320,000     $ 169,349     $ 2,596,478  
    2018     $ 645,192     $ 156,022     $ 1,253,209     $ 400,664     $ 76,260     $ 2,531,347  
    2017     $ 592,788           $ 1,883,295     $ 746,083     $ 21,956     $ 3,244,122  
             

Bradley S. Lukow

Former Interim Co-Chief Executive Officer and Chief Financial Officer(12)

    2019     $ 326,830           $ 958,648           $ 151,449     $ 1,436,927  
    2018     $ 620,192     $ 156,022     $ 903,761     $ 359,463     $ 35,361     $ 2,075,051  
    2017     $ 564,904           $ 1,072,800     $ 710,988     $ 4,453     $ 2,353,145  
                                                       

 

(1)

Fiscal 2019 salary consists of a 52-week year from December 31, 2018 through December 29, 2019.

 

(2)

The amounts in this column reflect the aggregate grant date fair value of each option award granted during the fiscal year, computed in accordance with ASC 718. The valuation assumptions used in determining such amounts are described in Note 26 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019.

 

(3)

The amounts in this column reflect the aggregate grant date fair value of each performance share, share of restricted stock or restricted stock unit granted during the fiscal year, computed in accordance with ASC 718. The valuation assumptions used in determining such amounts are described in Note 26 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. Amounts shown with respect to unearned performance shares represent the expected value of the award, based on target level of performance. The value of such currently unearned performance shares at the maximum level of issuance for the awards granted in fiscal 2019 would be $2,796,000 for Mr. Sinclair, $370,059 for Mr. Lombardi, $347,632 for Mr. Sanders, $327,194 for Mr. McGlinchey, $1,392,610 for Mr. Nielsen and $958,648 for Mr. Lukow.

 

(4)

Unless otherwise indicated, amounts shown in this column include bonuses earned in fiscal 2019, 2018 and 2017 under our performance-based cash incentive plan, but not paid until fiscal 2020, 2019 and 2018, respectively, and are based on percentages of the actual base salary amounts earned by the named executive officers during such years.

 

(5)

Amounts in this column for 2019 include (a) medical and disability insurance premiums paid on behalf of Messrs. Lombardi, Lukow and Nielsen; (b) life insurance premiums of $2,451, $2,545, $781, $4,865, $1,036, $2,451, and $1,710 paid on behalf of Messrs. Sinclair, Molloy, Lombardi, Sanders, McGlinchey, Lukow and Nielsen, respectively; (c) health savings account contribution of $500 for Mr. McGlinchey; (d) matching contributions to our 401(k) plan for Messrs. Sanders, McGlinchey and Nielsen; (e) $1,833, $3,096 and $16,792 for personal use of our corporate aircraft by Messrs. Molloy, Lukow and Nielsen respectively; (f) relocation expenses of $16,839 and $54,812 paid on behalf of Messrs. Sinclair and McGlinchey respectively; and (g) $140,934 and $144,231 paid to Messrs. Lukow and Nielsen respectively in connection with their appointments as Interim Co-Chief Executive Officers in December 2018 through June 2019.

 

(6)

Mr. Sinclair was appointed Chief Executive Officer on June 24, 2019. In addition to his annual equity grant, Mr. Sinclair received a one-time sign-on grant of RSUs with a value of $1,800,000, which was intended to compensate him for compensation from his prior employer that he relinquished to join our company. See – “Grant of Plan-Based Awards”.

 

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(7)

Mr. Molloy was appointed Interim Chief Financial Officer on June 20, 2019. Mr. Molloy’s compensation is comprised of $35,000 per week between June 20, 2019 and December 29, 2019 for service as Interim Chief Financial Officer. Amounts exclude compensation earned related to Mr. Molloy’s service on our board of directors. See ‘Director Compensation’ for amounts paid to Mr. Molloy related to his service on our board of directors.

 

(8)

On January 28, 2019, Mr. Lombardi’s base salary increased to $475,000. The 2019 amount shown reflects payment of his base salary of $425,000 from December 31, 2018 through January 27, 2019 and $475,000 from January 28, 2019 through December 29, 2019.

 

(9)

On January 28, 2019, Mr. Sanders’ base salary increased to $446,250. The 2019 amount shown reflects payment of his base salary of $425,000 from December 31, 2018 through January 27, 2019 and $446,250 from January 28, 2019 through December 29, 2019.

 

(10)

On January 28, 2019, Mr. McGlinchey’s base salary increased to $420,000. The 2019 amount shown reflects payment of his base salary of $400,000 from December 31, 2018 through January 27, 2019 and $420,000 from January 28, 2019 through December 29, 2019. The amount included in the ‘Non-Equity Compensation Plan Compensation’ column for Mr. McGlinchey includes a $50,000 discretionary bonus awarded to Mr. McGlinchey in recognition of his interim leadership of our company’s marketing function.

 

(11)

On January 28, 2019, Mr. Nielsen’s base salary increased to $715,000. The 2019 amount shown reflects payment of his base salary of $650,000 from December 31, 2018 through January 27, 2019 and $715,000 from January 28, 2019 through December 29, 2019. In connection with his appointment as Interim Co-Chief Executive Officer, Mr. Nielsen received an additional $25,000 per month, from December 2018 to June 2019; such amounts are included in the ‘All Other Compensation’ column above. Mr. Nielsen transitioned to Senior Advisor on August 1, 2019, with such arrangement providing for the continuation of Mr. Nielsen’s base salary through March 31, 2020 and payment of a specified 2019 bonus as set forth in the ‘Non-Equity Incentive Plan Compensation’ column above. Pursuant to the employment transition agreement we entered into with Mr. Nielsen on August 1, 2019, Mr. Nielsen’s 2019 annual bonus was fixed at $320,000 if his employment was not terminated for cause prior to the bonus payment date.

 

(12)

On January 28, 2019, Mr. Lukow’s base salary increased to $656,250. The 2019 amount shown reflects payment of his base salary of $625,000 from December 31, 2018 through January 27, 2019 and $656,250 from January 28, 2019 through December 29, 2019. In connection with his appointment as Interim Co-Chief Executive Officer, Mr. Lukow received an additional $25,000 per month, from December 2018 to June 2019; such amounts are included in the ‘All Other Compensation’ column above. Mr. Lukow resigned on June 20, 2019.

 

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Grants of Plan-Based Awards

The following table sets forth certain information with respect to grants of plan-based awards to the named executive officers for fiscal 2019.

 

    Grant Date    

 

 

 

Estimated Future Payouts

Under Non-Equity
Incentive Plan Awards(1)

   

 

 

 

Estimated Future Payouts

Under Equity
Incentive Plan Awards(2)

   

All
Other

Stock

Awards:

Number
of

Shares
of

Stock or
Units

(3)(#)

   

All Other

Option

Awards:

Number

of

Securities

Underlying

Options

(4)(#)

   

Exercise

or Base

Price of

Option

Awards

($/Sh)

   

Grant

Date Fair

Value of

Stock

and Option

Awards(5)

($)

 

Name

 

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

 

Jack L. Sinclair

        $ 137,500     $ 1,375,000     $ 2,750,000                                            
    June 24, 2019                         37,500       75,000       150,000                       $ 1,398,000  
    June 24, 2019                                           88,690 (6)                $ 1,653,182  
    June 24, 2019                                           89,285 (7)                $ 1,664,272  

Lawrence P. Molloy(8)

                                                                 

Brandon F. Lombardi

        $ 28,500     $ 285,000     $ 570,000                                            
    March 4, 2019                         4,002       8,003       16,006                       $ 185,029  
    March 4, 2019                                           8,003                 $ 185,029  
    March 4, 2019                                                 12,451     $ 23.12     $ 94,999  

Dan J. Sanders

        $ 26,775     $ 267,500     $ 535,500                                            
    March 4, 2019                         3,759       7,518       15,036                       $ 173,816  
    March 4, 2019                                           7,518                 $ 173,816  
    March 4, 2019                                                 11,697     $ 23.12     $ 89,246  

David M. McGlinchey

        $ 25,200     $ 252,000     $ 504,000                                            
    March 4, 2019                         3,538       7,076       14,152                       $ 163,597  
    March 4, 2019                                           7,076                 $ 163,597  
    March 4, 2019                                                 11,009     $ 23.12     $ 83,996  

James L. Nielsen

        $ 53,625     $ 536,250     $ 1,072,500                                            
    March 4, 2019                         15,059       30,117       60,234                       $ 696,305  
    March 4, 2019                                           30,117                 $ 696,305  

Bradley S. Lukow

        $ 49,219     $ 492,188     $ 984,375                                            
    March 4, 2019                         10,366       20,732       41,464                       $ 479,324  
    March 4, 2019                                           20,732                 $ 479,324  

 

(1)

Amounts in these column represent possible amounts payable under our 2019 performance-based cash bonus program. For fiscal 2019, cash bonuses to be awarded to each named executive officer were based on Plan EBITDA and comparable store sales growth targets. The Target Bonus amounts for 2019 for Messrs. Sinclair, Lombardi, Sanders, McGlinchey, Nielsen and Lukow were 125%, 60%, 60%, 60%, 75% and 75% of 2019 base salary, respectively. The maximum amount achievable by Messrs. Sinclair, Lombardi, Sanders, McGlinchey, Nielsen and Lukow in 2019 was 200% of their respective Target Bonus. In addition, 75% of the bonus criteria for each named executive officer was weighted towards Plan EBITDA, and 25% towards comparable store sales growth. See “ – Summary Compensation Table” for actual amounts paid under our 2019 performance-based cash incentive program.

 

(2)

Amounts in these columns represent unvested performance share awards, which were granted on March 4, 2019 for all executives except Mr. Sinclair who received his grant on June 24, 2019. The performance shares cliff vest on March 4, 2022, assuming three-year Plan EBIT performance conditions are achieved and assuming continued service through the applicable vesting date.

 

(3)

Amounts in this column represent unvested RSUs, which were granted on March 4, 2019 for all executives except Mr. Sinclair who received his grant on June 24, 2019 and which are described in Note 6 below. The RSUs vest in three equal installments on March 4, 2020, March 4, 2021 and March 4, 2022, assuming continued employment through the applicable vesting date.

 

(4)

Amounts in this column represent unvested options, which were granted on March 4, 2019. The options vest in three equal installments on March 4, 2020, March 4, 2021 and March 4, 2022, assuming continued employment through the applicable vesting date.

 

(5)

Amounts in this column reflect the aggregate grant date fair value of each option, share of restricted stock and performance share granted during fiscal 2019, computed in accordance with ASC 718. The valuation assumptions used in determining such amounts are described in Note 26 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. Amounts with respect to performance share awards represent the expected value of the award, based on the target level of performance and the fair market value of our stock on the grant date.

 

(6)

Represents unvested RSUs, which were granted on June 24, 2019 in connection with Mr. Sinclair’s appointment as Chief Executive Officer. The RSUs vest in three equal installments on June 24, 2020, June 24, 2021 and June 24, 2022, assuming continued employment through the applicable vesting date.

 

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(7)

Represents a one-time sign-on grant of $1,800,000 RSUs, which was intended to compensate Mr. Sinclair for compensation from his prior employer that he relinquished to join our company. The RSUs vest in three equal installments on June 24, 2020, June 24, 2021 and June 24, 2022, assuming continued employment through the applicable vesting date.

 

(8)

Mr. Molloy’s compensation for his service as our Interim Chief Financial Officer did not include equity grants or eligibility to participate in our incentive plan. See ‘Director Compensation’ for equity awards granted to Mr. Molloy related to his service on our board of directors.

 

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Outstanding Equity Awards at Fiscal Year-End

The following table provides information regarding outstanding equity awards held by our named executive officers as of December 29, 2019.

 

        Option Awards     Stock Awards  
       

 

 

Number of Securities Underlying
Unexercised Options(1)

    Option
Exercise
Price
    Option Expiration
Date
    Number of
Shares or
Units of
Stock That
Have Not
Vested(2)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(3)
   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units

or Other

Rights

That Have

Not
Vested

   

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units

or Other

Rights

That

Have Not

Vested(3)

 

Name

  Grant Date   Exercisable     Unexercisable     Unearned  

Jack L. Sinclair

  June 24, 2019(7)                                               75,000     $ 1,463,250  
  June 24, 2019                                   177,975     $ 3,472,292              

Lawrence P. Molloy(4)

  July 31, 2013     2,778                 $ 18.00       July 31, 2020                          
  May 19, 2014     6,195                 $ 28.50       May 19, 2021                          
  May 21, 2015     3,623                 $ 30.30       May 21, 2022                          
  May 13, 2019                                   5,768     $ 112,534              

Brandon F. Lombardi

  March 4, 2014     12,383                 $ 39.01       March 4, 2021                          
  March 11, 2015     25,732                 $ 34.33       March 11, 2022                          
  March 4, 2016     7,683                 $ 28.21       March 4, 2023                          
  March 3, 2017(5)                                   6,388     $ 124,630              
  March 3, 2017                                   11,713     $ 228,521              
  March 5, 2018(6)                                               6,508     $ 126,971  
  March 5, 2018                                   4,338     $ 84,634              
  March 4, 2019(7)                                               8,003     $ 156,139  
  March 4, 2019                                   8,003     $ 156,139              
  March 4, 2019           12,451           $ 23.12       March 4, 2026                          

Dan J. Sanders

  March 4, 2016     2,405                 $ 28.21       March 4, 2023                          
  March 3, 2017(5)                                   6,388     $ 124,630              
  March 3, 2017                                   11,713     $ 228,521              
  March 5, 2018(6)                                               6,508     $ 126,971  
  March 5, 2018                                   4,338     $ 84,634              
  March 4, 2019(7)                                               7,518     $ 146,676  
  March 4, 2019                                   7,518     $ 146,676              
  March 4, 2019           11,697           $ 23.12       March 4, 2026                          

David M. McGlinchey

  March 5, 2018                                   4,689     $ 91,482              
  March 4, 2019(7)                                   7,076     $ 138,053              
  March 4, 2019                                   7,076     $ 138,053              
  March 4. 2019           11,009           $ 23.12       March 4, 2026                          

James L. Nielsen

  March 4, 2014     33,771                 $ 39.01       March 4, 2021                          
  March 11, 2015     33,439                 $ 34.33       March 11, 2022                          
  March 4, 2016     45,838                 $ 28.21       March 4, 2023                          
  May 23, 2016(8)     33,439                 $ 24.48       August 11, 2022                          
  March 3, 2017(5)                                   17,970     $ 350,595              
  March 3, 2017                                   26,676     $ 520,449              
  March 5, 2018(6)                                               24,885     $ 485,506  
  March 5, 2018                                   16,590     $ 323,671              
  Dec. 26, 2018(9)     6,667       13,333           $ 23.21       December 26, 2025                          
  March 4, 2019(7)                                               30,117     $ 587,583  
    March 4, 2019                                   30,117     $ 587,583              

 

(1)

Options are to acquire shares of common stock. Options generally expire seven years from the grant date. Time-vested options granted prior to 2016 generally vest over 12 quarters. Time-vested options granted subsequent to 2016 vest annually over three years on each anniversary of the grant date.

 

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(2)

Except as otherwise indicated, represents unvested RSUs or restricted stock awards (referred to as “RSAs”). The RSUs and RSAs generally vest in three equal installments on each of the first three anniversaries of the grant date, assuming continued employment through the applicable vesting date.

 

(3)

The market value of unvested awards is calculated by multiplying the number of unvested awards held by the applicable named executive officer by the closing market price of our common stock on the Nasdaq Global Select Market on the last trading day of fiscal 2019, December 27, 2019, which was $19.51 per share.

 

(4)

Option and stock awards granted to Mr. Molloy were in connection with his service as a member of our board of directors and not in consideration of his service as our Interim Chief Financial Officer.

 

(5)

Stock awards granted on March 3, 2017 represent unvested performance share awards. The remaining performance shares vest on March 3, 2020, assuming continued service through the applicable vesting date. Subsequent to fiscal 2017 year-end, the compensation committee determined that the conditions for such performance share awards were achieved at the maximum performance level.

 

(6)

These stock awards granted on March 5, 2018 represent unvested performance share awards. Amounts reflect the number of shares that may be earned under the performance share awards upon achievement of target performance; actual number of shares earned will be based on the fiscal 2020 Plan EBIT goals. The performance shares that are earned will cliff vest on March 5, 2021, assuming 2020 Plan EBIT performance conditions are achieved and continued service through the applicable vesting date.

 

(7)

These stock awards granted on March 4, 2019 for all executives except Mr. Sinclair, who received his grant on June 24, 2019 in connection with his appointment as Chief Executive Officer, represent unvested performance share awards. Amounts reflect the number of shares that may be earned under the performance share awards upon achievement of target performance; actual number of shares earned will be based on the fiscal 2021 Plan EBIT goals. The performance shares that are earned will cliff vest on March 4, 2022, assuming 2021 Plan EBIT performance conditions are achieved and continued service through the applicable vesting date.

 

(8)

Options granted to Mr. Nielsen on May 23, 2016 are related to his promotion to President and Chief Operating Officer in 2015.

 

(9)

Options granted on December 26, 2018 to Mr. Nielsen are related to his promotion to Interim Co-Chief Executive Officer, effective December 31, 2018. The options vest and become exercisable in three equal installments on December 26, 2019, December 26, 2020 and December 26, 2021, assuming continued employment through the applicable vesting date.

Option Exercises and Stock Vested

None of our named executive officers exercised options during fiscal 2019. The following table details RSU, RSA and PSA vesting during fiscal 2019 for each of our named executive officers.

 

     Stock Awards  
Name    Number of Shares
Acquired on
Vesting
     Value
Realized on
Vesting(1)
 
Jack L. Sinclair           $  
Lawrence P. Molloy      4,268      $ 91,719  
Brandon F. Lombardi      21,142      $ 490,251  
Dan J. Sanders      21,089      $ 489,026  
David M. McGlinchey      2,345      $ 54,216  
James L. Nielsen      52,943      $ 1,227,614  

Bradley S. Lukow

     41,471      $ 961,155  

 

(1)

The value realized on vesting is determined by multiplying the number of vested shares by the closing price of our company’s common stock on the vesting date.

Employment Agreements

Messrs. Sinclair, Molloy, Sanders and McGlinchey do not have an employment agreement. On January 23, 2012, we entered into an employment agreement with Mr. Lombardi, as amended from time to time, that provides for compensation and severance terms as well as confidentiality and non-competition obligations. In connection with Mr. Nielsen’s transition to Senior Advisor, we entered into an employment transition agreement on August 1, 2019 that provides for, among other things, continuation of Mr. Nielsen’s current base salary, payment of a specified 2019 bonus, and eligibility to continue to vest in his outstanding stock-based awards and to participate in our benefit plans for so long as he serves as Senior Advisor.

 

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We and each named executive officer may terminate the officer’s employment at any time. In the event of termination of employment, amounts payable to our named executive officers are reflected in the ”Potential Payments Upon Termination or Change in Control” section below.

Potential Payments Upon Termination or Change in Control

On November 4, 2015, our board of directors adopted an Executive Severance and Change in Control Plan (referred to as the “Plan”) to provide benefits and payments to certain of our senior executive officers if their employment is terminated under certain circumstances. The Plan was subsequently amended in December 2018 and covers senior executive officers designated by the compensation committee of our board of directors, including our named executive officers that do not otherwise have employment agreements which specifically provide for severance. In addition, if one of our senior executive officers designated for participation in the Plan has an employment agreement and his or her employment is terminated in connection with a change in control (as defined in the Plan) under circumstances providing for change in control severance benefits under the Plan (as described below), the senior executive officer is eligible to receive change in control severance benefits under the Plan, rather than severance benefits under the applicable employment agreement, unless the severance terms of the applicable employment agreement are more favorable to the executive in which case the terms of the employment agreement shall govern.

In the event that a Plan participant’s employment is terminated by us without cause or due to elimination of job position, reduction in force or restructuring, or by a participant due to relocation, and such termination does not constitute a termination in connection with a change in control described below and is not within 12 months of the participant’s date of hire, (a) our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer will be eligible to receive continued payments of base salary for two years and COBRA premium reimbursement for two years (or, if earlier, until the participant is no longer eligible for COBRA coverage), the aggregate amount of the annual bonus amounts received in respect of the prior two completed fiscal years, and a prorated bonus based on actual performance for the fiscal year in which termination occurs; and (b) other Plan participants will be eligible to receive continued payments of base salary for one year and COBRA premium reimbursement for one year (or, if earlier, until the participant is no longer eligible for COBRA coverage), an amount equal to the participant’s target bonus at the time of termination, and a prorated bonus based on actual performance for the fiscal year in which termination occurs.

In the event that a Plan participant’s employment is terminated by us without cause or by the participant for good reason (each as defined by the Plan) upon or during the 24-month period following a change in control, Plan participants other than our Chief Executive Officer will be eligible to receive continued payments of base salary for two years and COBRA premium reimbursement for two years (or, if earlier, until the participant is no longer eligible for COBRA coverage), as well as an amount equal to the participant’s target bonus at the time of termination. Our Chief Executive Officer will be eligible to receive continued payments of base salary for three years and COBRA premium reimbursement for three years (or, if earlier, until he is no longer eligible for COBRA coverage), as well as an amount equal to his annual bonuses paid in respect of the past three completed fiscal years.

The tables below reflect the amount of compensation to our named executive officers in the event of termination of such officer’s employment or upon a change in control pursuant to the Plan or the respective named executive officer’s employment agreement. Mr. Molloy was not eligible to participate in the Plan while serving as our Interim Chief Financial Officer. Mr. Nielsen transitioned to Senior Advisor on August 1, 2019 and was not an executive officer at December 29, 2019. Mr. Lukow did not receive compensation upon his resignation on June 20, 2019. The amount of compensation payable to each named executive officer upon voluntary or for cause termination, involuntary for good reason or involuntary not for cause termination, and in the event of disability or death of the executive or upon a change in control of our company is shown below. The amounts shown assume that such termination or change in control was effective as of December 29, 2019, and thus include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be

 

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paid out can only be determined at the time of such officer’s separation from our company. Certain of our equity award agreements granted prior to 2015 provide for the immediate vesting of the award upon a qualifying change in control transaction, while other equity award agreements provide for the vesting of the award only if not assumed by an acquiror or after the executive is terminated by an acquiror without cause or by the executive for good reason within 24 months of a qualifying change in control transaction.

Jack L. Sinclair

 

Executive Benefits and Payments    Voluntary or
For Cause
Termination
on
12/29/19
     Voluntary
for
Good Reason
or Involuntary
Not for Cause
Termination
on
12/29/19
     Death or
Disability
on
12/29/19
     Change of
Control with
No Termination
on
12/29/19
     Change of
Control with
Termination
within 24 months
of
12/29/19
 

Compensation:

              

Bonus

          $ 946,000                    $ 1,375,000  

Cash severance

          $ 2,200,000                    $ 3,300,000  

Health and welfare benefits

          $ 41,101                    $ 61,652  

Equity treatment(1)(2)

                               $ 4,935,542  
  

 

 

 

Total

          $ 3,187,101                    $ 9,672,194  

 

(1)

The amount shown represents the market value of unvested RSUs and performance shares that would become fully vested following a qualifying change in control transaction on December 27, 2019, the last trading day of fiscal 2019.

 

(2)

All outstanding and unvested equity awards will only vest upon a change in control if not assumed by acquiror or employment is terminated by the company without cause or by the team member for good reason within 24 months of change in control.

Lawrence P. Molloy

 

Executive Benefits and Payments    Voluntary or
For Cause
Termination
on
12/29/19
     Voluntary
for
Good Reason
or Involuntary
Not for Cause
Termination
on
12/29/19
     Death or
Disability
on
12/29/19
     Change of
Control with
No Termination
on
12/29/19
     Change of
Control with
Termination
within 24 months
of
12/29/19
 

Compensation:

              

Bonus

                                  

Cash severance

                                  

Health and welfare benefits

                                  

Equity treatment(1)(2)(3)

                               $ 112,534  
  

 

 

 

Total

                               $ 112,534  

 

(1)

The amount shown represents the market value of unvested RSUs that would become fully vested following a qualifying change in control transaction on December 27, 2019, the last trading day of fiscal 2019.

 

(2)

All outstanding and unvested equity awards will only vest upon a change in control if not assumed by acquiror or employment or board service is terminated by the company without cause or by the individual for good reason within 24 months of change in control.

 

(3)

Equity awards granted to Mr. Molloy were in connection with his service as a member of our board of directors and not in consideration of his service as our Interim Chief Financial Officer.

 

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  Executive Compensation

 

Brandon F. Lombardi

 

Executive Benefits and Payments    Voluntary or
For Cause
Termination
on
12/29/19
     Voluntary
for
Good Reason
or Involuntary
Not for Cause
Termination
on
12/29/19(1)
     Death or
Disability
on
12/29/19(1)
     Change of
Control with
No Termination
on
12/29/19
     Change of
Control with
Termination
within 24 months
of
12/29/19
 

Compensation:

              

Bonus

          $ 404,041      $ 194,095             $ 285,000  

Cash severance

          $ 475,000      $ 237,500             $ 950,000  

Health and welfare benefits

          $ 6,368                    $ 12,736  

Equity treatment(2)(3)

                               $ 877,033  
  

 

 

 

Total

          $ 885,409      $ 431,595             $ 2,124,769  

 

(1)

The amounts shown represent amounts payable pursuant to Mr. Lombardi’s employment agreement.

 

(2)

The amount shown represents the market value of unvested stock options, RSUs, RSAs and performance shares that would become fully vested following a qualifying change in control transaction. Options granted on March 4, 2019 are not included because the closing price of our common stock of $19.51 on December 27, 2019, the last trading day of fiscal 2019, was less than the exercise price of $23.12.

 

(3)

All outstanding and unvested equity awards will only vest upon a change in control if not assumed by acquiror or employment is terminated by the company without cause or by the team member for good reason within 24 months of change in control.

Dan J. Sanders

 

Executive Benefits and Payments    Voluntary or
For Cause
Termination
on
12/29/19
     Voluntary
for
Good Reason
or Involuntary
Not for Cause
Termination
on
12/29/19
     Death or
Disability
on
12/29/19
     Change of
Control with
No Termination
on
12/29/19
     Change of
Control with
Termination
within 24 months
of
12/29/19
 

Compensation:

              

Bonus

          $ 267,750                    $ 267,750  

Cash severance

          $ 446,250                    $ 892,500  

Health and welfare benefits

          $ 14,279                    $ 28,558  

Equity treatment(1)(2)

                               $ 858,108  
  

 

 

 

Total

          $ 728,279                    $ 2,046,916  

 

(1)

The amount shown represents the market value of unvested stock options, RSUs, RSAs and performance shares that would become fully vested following a qualifying change in control transaction. Options granted on March 4, 2019 are not included because the closing price of our common stock of $19.51 on December 27, 2019, the last trading day of fiscal 2019, was less than the exercise price of $23.12.

 

(2)

All outstanding and unvested equity awards will only vest upon a change in control if not assumed by acquiror or employment is terminated by the company without cause or by the team member for good reason within 24 months of change in control.

 

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David M. McGlinchey

 

Executive Benefits and Payments

   Voluntary or
For Cause
Termination
on
12/29/19
     Voluntary
for
Good Reason
or Involuntary
Not for Cause
Termination
on
12/29/19
     Death or
Disability
on
12/29/19
     Change of
Control with
No Termination
on
12/29/19
     Change of
Control with
Termination
within 24 months
of
12/29/19
 

Compensation:

              

Bonus

          $ 252,000                    $ 252,000  

Cash severance

          $ 420,000                    $ 840,000  

Health and welfare benefits

          $ 20,551                    $ 41,102  

Equity treatment(1)(2)

                               $ 367,588  
  

 

 

 

Total

          $ 692,551                    $ 1,500,690  

 

(1)

The amount shown represents the market value of unvested stock options, RSUs, and performance shares that would become fully vested following a qualifying change in control transaction. Options granted on March 4, 2019 are not included because the closing price of our common stock of $19.51 on December 27, 2019, the last trading day of fiscal 2019, was less than the exercise price of $23.12.

 

(2)

All outstanding and unvested equity awards will only vest upon a change in control if not assumed by acquiror or employment is terminated by the company without cause or by the team member for good reason within 24 months of change in control.

Pension Benefits and Nonqualified Deferred Compensation

We do not offer a pension plan for any of our team members. In fiscal 2019, we did not offer a nonqualified deferred compensation plan for any of our team members. Team members meeting certain requirements may participate in our 401(k) plan.

Team Member Benefit and Stock Plans

We have two team member benefit and stock plans under which we have issued equity to our team members and non-employee members of the board, our 2011 Option Plan and 2013 Incentive Plan.

CEO Pay Ratio

SEC rules require us to disclose the total annual compensation of our Chief Executive Officer (referred to as “CEO”), the median of the total annual compensation of all employees other than the CEO, as well as their ratio to each other (referred to as the “CEO pay ratio”). Total compensation for Jack Sinclair and our median compensated employee is calculated in accordance with SEC rules applicable to the Summary Compensation Table. For our 2019 fiscal year, these amounts were as follows:

 

   

CEO’s annualized total compensation: $6,780,744

 

   

Our median compensated employee’s total compensation: $21,181

 

   

Ratio of CEO’s total compensation to our median compensated employee’s total compensation: 320:1

In determining the median compensated employee, we chose December 29, 2019 as the determination date, and used the same methodology we employed in the prior year as our median compensated employee for fiscal 2018 no longer works for our company. As of this date, we employed 28,702 total team members (excluding Mr. Sinclair). We annualized compensation for Mr. Sinclair, as he joined our company on June 24, 2019, as well as permanent employees who were not employed by us for the full 2019 year. In determining our median compensated employee and computing the CEO pay ratio, we did not use any of the exemptions permitted under SEC rules, nor did we rely on any material assumptions, adjustments (i.e., cost-of-living adjustments) or estimates (i.e., statistical sampling).

 

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  Executive Compensation

 

We believe that the CEO pay ratio set forth above is a reasonable estimate for fiscal 2019, calculated in a manner consistent with SEC rules. The SEC rules for identifying the median compensated employee and calculating the CEO pay ratio based on that employee’s total annual compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the CEO pay ratio reported by other companies may not be comparable to the CEO pay ratio reported for us, as other companies may have different employment and compensation practices and may utilize different permitted methodologies, exclusions, estimates and assumptions in calculating their own CEO pay ratios.

 

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Equity Compensation Plan Information  

 

EQUITY COMPENSATION PLAN INFORMATION

As of December 29, 2019, the following table shows the number of securities to be issued upon exercise of outstanding equity awards under our equity compensation plans.

 

Plan Category    Number of
Securities to
Be Issued
Upon
Exercise of
Outstanding
Equity
Awards
(a)
    Weighted-
Average
Exercise
Price of
Outstanding
Equity
Awards
(b)
    Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column (a))
(c)
 

Equity Compensation Plans Approved by Stockholders(1)

     1,571,141 (3)    $ 29.68 (4)      5,911,063  

Equity Compensation Plans Not Approved by Stockholders(2)

         $        
  

 

 

 

Total

     1,571,141     $ 29.68       5,911,063  

 

(1)

Represents our 2013 Incentive Plan.

 

(2)

No awards remain outstanding under our 2011 Option Plan.

 

(3)

Includes 754,257 shares of common stock issuable upon vesting of outstanding RSUs, 55,053 shares of common stock issuable upon vesting of outstanding RSAs, 224,773 shares of common stock issuable upon vesting of outstanding performance shares and 537,058 shares of common stock issuable upon exercise of outstanding stock options granted under the 2013 Incentive Plan.

 

(4)

The weighted-average exercise price does not include the shares issuable upon vesting of RSUs, RSAs or performance share awards that have no exercise price.

 

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  Report of the Audit Committee

 

REPORT OF THE AUDIT COMMITTEE

At the end of fiscal 2019, the audit committee consisted of Joel D. Anderson and Kristen E. Blum4. All of the members of the committee are “independent” of our company and management, as independence is defined in applicable rules of the SEC and the NASDAQ Stock Market. Our board has also determined that Mr. Anderson is an “audit committee financial expert” within the meaning of SEC regulations, and that each member of our audit committee can read and understand fundamental financial statements in accordance with audit committee requirements. In arriving at this determination, the board has examined each audit committee member’s scope of experience in financial roles and the nature of their employment.

The purpose of the audit committee is to provide oversight of the company’s accounting and financial reporting processes, audits of the financial statements of the company and compliance with applicable legal requirements and regulations. The primary responsibilities of the committee include reviewing and pre-approving the engagement of our independent registered public accounting firm, reviewing our annual and quarterly financial statements and reports, discussing the statements and reports with our independent registered public accounting firm and management and reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The independent auditor is responsible for auditing the financial statements and expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles. Our board of directors has adopted a written charter for our audit committee, available at investors.sprouts.com, that reflects, among other things, requirements of the Sarbanes-Oxley Act of 2002, rules adopted by the SEC, and rules of the NASDAQ Stock Market. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on or accessible through our website into this proxy statement.

In fulfilling its oversight responsibilities, the committee reviewed and discussed with management and the independent auditor the audited financial statements at December 29, 2019 and December 30, 2018 and for each of the years in the three-year period ended December 29, 2019. The committee discussed with the independent auditor the matters required to be discussed by Public Company Accounting Oversight Board (PCAOB) AS 1301: “Communications with Audit Committees”, and other applicable regulations. This included a discussion of the independent auditor’s judgments as to the quality, not just the acceptability, of our company’s accounting principles and such other matters as are required to be discussed with the committee under generally accepted auditing standards. In addition, the committee received from the independent auditor written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence. The committee also discussed with the independent auditor the independent auditor’s independence from management and our company, including the matters covered by the written disclosures and letter provided by the independent auditor.

The committee discussed with our independent auditor the overall scope and plans for its audit. The committee meets with the independent auditor, with and without management present, to discuss the results of the independent auditor’s examinations, its evaluations of our company, the internal controls, and the overall quality of the financial reporting. The committee held four meetings during fiscal 2019.

Based on the reviews and discussions referred to above, the committee recommended to the board of directors, and the board approved, that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 29, 2019 for filing with the Securities and Exchange Commission.

 

4 Mr. Rauch joined the audit committee as chairperson upon his appointment to the board of directors on February 25, 2020, subsequent to the audit committee’s approval of the foregoing report.

 

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Report of the Audit Committee  

 

The report has been furnished by the audit committee to our board of directors.

Joel D. Anderson

Kristen E. Blum

The information contained in the “Report of the Audit Committee” is not considered to be “soliciting material,” “filed” or incorporated by reference in any past or future filing by the company under the Exchange Act or the Securities Act of 1933 unless and only to the extent that the company specifically incorporates it by reference.

 

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  Proposal 2: Advisory Vote on Executive Compensation (“Say-on-Pay”)

 

PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION (“SAY-ON-PAY”)

Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 enables our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules.

Summary

We are asking our stockholders to provide advisory approval of the compensation of our named executive officers (which consist of individuals serving as our Chief Executive Officer and Chief Financial Officer, as well as our three other most highly compensated executive officers during our fiscal year ended December 29, 2019), as such compensation is described in the “Executive Compensation – Compensation Discussion and Analysis” section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure set forth in this proxy statement, beginning on page 23. We urge our stockholders to review the complete Executive Compensation section included in this proxy statement for more information.

Our executive compensation program is designed to promote the creation of long-term stockholder value by paying for performance, attracting and retaining valuable team members and aligning the interests of our named executive officers with those of our stockholders. Our fiscal 2019 executive officer compensation program generally consisted of base salary, annual performance-based cash bonus, equity awards in the form of restricted stock awards, stock options and performance share awards that are earned upon the achievement of EBIT targets over a three-year performance period, benefits generally available to all of our salaried team members and limited perquisites. The fixed components (base salary and benefits) of our named executive officer compensation are designed to be competitive in order to induce talented executives to join our company. The variable cash bonus is tied specifically to the achievement of company-wide objectives and is designed so that above-average performance is rewarded with above-average rewards but capped to avoid windfall payments. The equity awards are subject to both performance and time-based vesting, which will provide retention value and reward sustained performance that is aligned with long-term stockholder interests. By tying a large portion of executive compensation to achievement of our operational goals, we seek to closely align the interests of our named executive officers with the interests of our stockholders. Consistent with our pay-for-performance philosophy, our strong performance during 2019 resulted in short-term incentive awards at 68.8% of the target levels and long-term incentives that may yet be achieved based on our three-year performance period for performance shares granted in fiscal 2019.

Our board of directors believes that the information provided above and within the “Executive Compensation” section of this proxy statement demonstrates that our executive compensation program is designed appropriately and is working to ensure that management’s interests are aligned with our stockholders’ interests to support long-term value creation.

In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our board of directors will request your advisory vote on the following resolution at the Annual Meeting:

RESOLVED, that the compensation paid to the company’s named executive officers for the fiscal year ended December 29, 2019, as disclosed in this proxy statement pursuant to the SEC’s executive compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables and the narrative discussion that accompanies the compensation tables), is hereby approved.

 

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Proposal 2: Advisory Vote on Executive Compensation (“Say-on-Pay”)  

 

Required Vote

The say-on-pay proposal requires the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote on the proposal.

The say-on-pay vote is advisory, and therefore not binding on our company, our compensation committee or our board of directors. Although non-binding, the vote will provide information to our compensation committee and our board of directors regarding investor sentiment about our executive compensation philosophy, policies and practices, which our compensation committee and our board of directors will be able to consider when determining executive compensation for the years to come.

Recommendation of the Board

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” ADOPTION OF THE RESOLUTION APPROVING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS FOR THE FISCAL YEAR ENDED DECEMBER 29, 2019, AS DESCRIBED IN THE “EXECUTIVE COMPENSATION – COMPENSATION DISCUSSION AND ANALYSIS” SECTION AND THE RELATED TABULAR AND NARRATIVE DISCLOSURE SET FORTH IN THIS PROXY STATEMENT.

 

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  Proposal 3: Advisory Vote on Determining the Frequency of Say-on-Pay Votes (“Say-on-Frequency”)

 

PROPOSAL 3: ADVISORY VOTE ON DETERMINING THE FREQUENCY OF SAY-ON-PAY VOTES

(“SAY- ON-FREQUENCY”)

Background

The Dodd-Frank Act enables our stockholders to indicate how frequently they believe we should seek a say-on-pay vote. Stockholders have the option of recommending a say-on-pay vote every year, every two years or every three years or abstaining from making a recommendation.

Summary

We currently conduct a say-on-pay vote every year. Our board of directors has considered the advantages and disadvantages of the annual frequency of the say-on-pay vote. Based on its analysis and feedback from our stockholders, our board of directors believes that continuing to ask our stockholders to vote on executive compensation each year would be the most meaningful for our board of directors and our compensation committee and best serve the interests of our company and its stockholders. Our board of directors believes an annual say-on-pay advisory vote will continue to provide the most timely feedback on executive compensation arrangements, plans, programs and policies as executive compensation disclosures are made annually.

Stockholders should recognize, however, that it may not be appropriate or feasible to change compensation programs already in place for the year in which the vote occurs since the advisory vote on executive compensation will take place after the beginning of the compensation year. Stockholders also should recognize that their recommendation may be modified in the future if an annual frequency vote becomes burdensome or otherwise proves to be less helpful than originally expected.

Required Vote

The say-on-frequency proposal requires a plurality of the shares present in person or represented by proxy at the meeting and entitled to vote on the proposal. Therefore, the frequency option (one year, two years or three years) that receives the greatest number of votes shall be passed.

The say-on-frequency vote is advisory, and therefore not binding on our company, our compensation committee or our board of directors. We will consider stockholders to have expressed a preference for the frequency that receives the largest number of favorable votes. Our board of directors also may from time to time decide that it is in the best interests of our company and its stockholders to hold the frequency vote more or less frequently than the non-binding option preferred by our stockholders.

Recommendation of the Board

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “ONE YEAR” ON THE PROPOSAL TO DETERMINE THE FREQUENCY OF SAY-ON-PAY VOTES.

 

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Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm  

 

PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

Our audit committee has appointed PricewaterhouseCoopers LLP, an independent registered public accounting firm (referred to as “PwC”), to audit the consolidated financial statements of our company for the fiscal year ending January 3, 2021, and recommends that stockholders vote in favor of the ratification of such appointment. In the event of a negative vote on such ratification, the audit committee will reconsider its selection. We anticipate that representatives of PwC will be present at the Annual Meeting, will have the opportunity to make a statement if they desire, and will be available to respond to appropriate questions.

Aggregate fees billed to our company for the fiscal years ended December 29, 2019 and December 30, 2018 by PwC, our independent registered public accounting firm, are as follows:

 

     2019      2018  

Audit fees(1)

   $ 1,400,000      $ 1,546,100  

Audit-related fees

   $      $  

Tax fees(2)

   $      $ 9,600  

All other fees(3)

   $ 2,700      $ 1,800  
  

 

 

 

Total

   $ 1,402,700      $ 1,557,500  

 

(1)

Audit fees include (i) fees associated with the audits of our consolidated financial statements, (ii) reviews of our interim quarterly consolidated financial statements and (iii) consents and other items related to SEC matters.

 

(2)

Tax fees for 2018 consist of consulting work related to home delivery services.

 

(3)

All other fees consist of licensing fees for PwC’s accounting research software.

Audit Committee Pre-Approval Policies and Procedures

Our audit committee has adopted policies and procedures for the pre-approval of audit services, internal control-related services and permitted non-audit services rendered by our independent registered public accounting firm. Pre-approval may also be given as part of our audit committee’s approval of the scope of the engagement of the independent registered public accounting firm or on an individual, case-by-case basis before the independent registered public accounting firm is engaged to provide each service. The chairman of the audit committee has been delegated the authority to pre-approve any engagement for audit services or permitted non-audit services (other than internal control-related services, which must be pre-approved by the full audit committee), provided the chairman must present any decisions made under the auspices of this authority to the full committee at the next scheduled meeting.

All of the services provided by PwC described above were approved by our audit committee pursuant to our audit committee’s pre-approval policies.

Vote Required

Ratification of the appointment of PwC to audit the consolidated financial statements of our company for the fiscal year ending January 3, 2021 will require the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote on the proposal.

Recommendation of the Board

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF OUR COMPANY FOR THE FISCAL YEAR ENDING JANUARY 3, 2021.

 

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  Security Ownership of Certain Beneficial Owners and Management

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of our common stock as of the record date, March 2, 2020, by the following:

 

   

each of our directors and named executive officers;

 

   

all of our directors and executive officers as a group; and

 

   

each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock.

For further information regarding material transactions between us and certain of our stockholders, see “Certain Relationships and Related Party Transactions.”

Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including options, restricted stock and restricted stock units that are currently exercisable or exercisable within 60 days of the record date, March 2, 2020. Shares issuable pursuant to options are deemed outstanding for computing the percentage of the person holding such options, but are not outstanding for computing the percentage of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose.

Our calculation of the percentage of beneficial ownership is based on 117,543,668 shares of common stock outstanding as of March 2, 2020.

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Sprouts Farmers Market, Inc., 5455 East High Street, Suite 111, Phoenix, Arizona 85054.

 

Name of Beneficial Owner    Shares
Beneficially
Owned(1)
     Percentage
Beneficially
Owned
 

Named Executive Officers and Directors:

     

Jack L. Sinclair(2)

             

Denise A. Paulonis(3)

             

Brandon F. Lombardi(4)

     72,887        *  

Dan J. Sanders(5)

     43,771        *  

David M. McGlinchey(6)

     13,374        *  

Joel D. Anderson(7)

     10,400        *  

Kristen E. Blum(8)

     16,981        *  

Joseph Fortunato(9)

     30,525        *  

Terri Funk Graham(10)

     30,803        *  

Lawrence P. Molloy(11)

     50,803        *  

Joseph O’Leary(12)

     6,854        *  

Doug G. Rauch(13)

            *  

All directors and executive officers as a group (13 persons)

     342,371        *  

5% Stockholders:

     

T. Rowe Price Associates, Inc.(14)

     13,771,533        11.7

BlackRock, Inc.(15)

     12,447,459        10.6

The Vanguard Group(16)

     11,167,396        9.5

Renaissance Technologies LLC(17)

     7,477,220        6.4

 

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Security Ownership of Certain Beneficial Owners and Management  

 

*

Less than 1% of the outstanding shares of common stock

 

(1)

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock subject to options or restricted stock units held by that person that are currently exercisable or exercisable within 60 days of the record date, March 2, 2020, are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities.

 

(2)

Mr. Sinclair was appointed as our Chief Executive Officer on June 24, 2019, and none of his outstanding equity awards are currently vested or exercisable or will become vested or exercisable within 60 days of the record date, March 2, 2020.

 

(3)

Ms. Paulonis was appointed as our Chief Financial Officer on February 21, 2020, and none of her outstanding equity awards are currently vested or exercisable or will become vested or exercisable within 60 days of the record date, March 2, 2020.

 

(4)

The amount listed includes (a) 22,938 shares of restricted stock that become vested or will become vested within 60 days of March 2, 2020 and (b) 49,949 shares issuable upon exercise of stock options that are currently vested or will become vested within 60 days after March 2, 2020.

 

(5)

The amount listed includes (a) 14,691 shares of common stock, (b) 22,776 shares of restricted stock that become vested or will become vested within 60 days of March 2, 2020 and (c) 6,304 shares issuable upon exercise of stock options that are currently vested or will become vested within 60 days after March 2, 2020.

 

(6)

The amount listed includes (a) 5,000 shares of common stock, (b) 4,704 shares of restricted stock that become vested or will become vested within 60 days of March 2, 2020 and (c) 3,670 shares issuable upon exercise of stock options that are currently vested or will become vested within 60 days after March 2, 2020.

 

(7)

The amount listed includes 10,400 shares of common stock.

 

(8)

The amount listed includes 16,981 shares of common stock.

 

(9)

The amount listed includes (a) 20,707 shares of common stock and (b) 9,818 shares issuable upon exercise of stock options that are currently vested or will become vested within 60 days after March 2, 2020.

 

(10)

The amount listed includes (a) 18,207 shares of common stock and (b) 12,596 shares issuable upon exercise of stock options that are currently vested or will become vested within 60 days after March 2, 2020.

 

(11)

The amount listed includes (a) 38,207 shares of common stock and (b) 12,596 shares issuable upon exercise of stock options that are currently vested or will become vested within 60 days after March 2, 2020.

 

(12)

The amount listed includes 6,854 shares of common stock.

 

(13)

Mr. Rauch was appointed to our board on February 25, 2020, and holds no outstanding equity as of the record date, March 2, 2020.

 

(14)

Based upon information contained in Schedule 13G/A filed by the beneficial owner with the SEC on February 14, 2020. Consists of 13,771,533 shares of common stock of which T. Rowe Price Associates, Inc. (“Price Associates”) has sole dispositive power, including 5,051,985 shares of common stock of which Price Associates has sole voting power and 6,007,400 shares of common stock of which T. Rowe Price Mid-Cap Growth Fund, Inc. has sole voting power. The address of Price Associates and T. Rowe Price Mid-Cap Growth Fund, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.

 

(15)

Based upon information contained in Schedule 13G/A filed by the beneficial owner with the SEC on February 10, 2020. Includes 12,062,098 shares of which Blackrock, Inc. has sole voting power and 12,447,459 shares of which Blackrock, Inc. has sole dispositive power as a parent holding company. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York, 10055.

 

(16)

Based upon information contained in Schedule 13G/A filed by the beneficial owner with the SEC on February 12, 2020. The Vanguard Group reports sole voting power with respect to 67,888 shares, sole dispositive power with respect to 11,097,196 shares, shared voting power with respect to 19,025 shares and shared dispositive power with respect to 70,200 shares. As the parent holding company, The Vanguard Group, Inc. reports that its wholly-owned subsidiary, Vanguard Fiduciary Trust Company is the beneficial owner of 51,175 shares as a result of its serving as investment manager of collective trust accounts, and its wholly-owned subsidiary, Vanguard Investments Australia, Ltd. is the beneficial owner of 35,738 shares as a result of its serving as investment manager of Australian investment offerings. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.

 

(17)

Based upon information contained in Schedule 13G filed by the beneficial owner with the SEC on February 12, 2020. Renaissance Technologies LLC and Renaissance Technologies Holdings Corporation report sole voting power with respect to 7,356,962 shares, sole dispositive power with respect to 7,392,541 shares and shared dispositive power with respect to 84,679 shares as an investment adviser. The address of Renaissance Technologies LLC is 800 Third Avenue, New York, New York 10022.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Other than compensation arrangements, we describe below transactions and series of similar transactions during our last three fiscal years to which we were a party or will be a party, in which:

 

   

the amounts involved exceeded or will exceed $120,000; and

 

   

any of our directors, executive officers, or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

Compensation arrangements for our directors and named executive officers are described elsewhere in this proxy statement.

CV Sciences

We purchased certain botanical-based products for resale from CV Sciences, Inc., a company in which Terri Funk Graham has served on the board of directors since August 2019. Our purchases from this company in fiscal 2019 totaled $0.3 million. Ms. Graham does not have a direct or indirect interest in such transactions.

Indemnification of Officers and Directors

Our certificate of incorporation and bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by Delaware law. In addition, we entered into indemnification agreements with each of our directors and executive officers.

Policies and Procedures for Related Party Transactions

We have adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock, and any members of the immediate family of any of the foregoing persons, are not permitted to enter into a related person transaction with us without the prior consent of our audit committee. Any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, in which the amount involved exceeds $120,000 and such person would have a direct or indirect interest, must first be presented to our audit committee for review, consideration, and approval. In approving or rejecting any such proposal, our audit committee is to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. All of the transactions described above were entered into after presentation, consideration and approval by our audit committee.

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

Pursuant to Rule 14a-8 under the Exchange Act, any proposal that a stockholder of our company wishes to have included in the proxy statement in connection with our 2021 annual meeting of stockholders must be submitted to us no later than November 16, 2020. All such stockholder proposals must comply with the procedures outlined in Rule 14a-8.

In accordance with our current bylaws, stockholder proposals, including stockholder nominations for candidates for election as directors, that are intended to be presented by stockholders at the 2021 annual meeting of stockholders but not submitted for inclusion in the proxy statement for our 2021 Annual Meeting of Stockholders pursuant to Rule 14a-8, must be received by us no earlier than November 29, 2020 and no later than December 29, 2020, unless we change the date of our 2021 annual meeting more than 30 days before or more than 70 days after April 28, 2020, in which case stockholder proposals must be received by

 

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us no earlier than the close of business on the 150th day prior to such annual meeting and not later than the close of business on the later of (x) the 120th day prior to such annual meeting or (y) the 10th day following the day on which we first make a public announcement of the date of such meeting. These time limits also apply in determining whether notice is timely for purposes of rules adopted by the SEC relating to the exercise of discretionary voting authority. All such stockholder proposals must include the specified information described in our bylaws.

Proposals and other items of business should be directed to the attention of our Corporate Secretary at our principal executive offices, 5455 East High Street, Suite 111, Phoenix, Arizona 85054.

DIRECTOR NOMINATIONS FOR INCLUSION IN OUR 2021 PROXY MATERIALS (PROXY ACCESS)

Under our proxy access bylaw, if a stockholder (or a group of up to 20 stockholders) who has owned at least 3% of our shares for at least three years and has complied with the other requirements set forth in our bylaws wants us to include director nominees (up to the greater of two nominees or 20% of the Board) in our 2021 proxy materials for election at our 2021 Annual Meeting of Stockholders, the nominations must be directed to the attention of our Corporate Secretary at our principal executive offices, 5455 East High Street, Suite 111, Phoenix, Arizona 85054, no earlier than November 29, 2020 and no later than December 29, 2020.

Any stockholder considering a proxy access nomination should carefully review our bylaws, which were included as Exhibit 3.2 to our Current Report on Form 8-K, filed with the SEC on January 30, 2017.

OTHER MATTERS

We know of no other matters to be submitted at the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent as our board of directors may recommend.

Dated: March 16, 2020

 

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Appendix A  

 

APPENDIX A

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

This proxy statement contains financial measures, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share in discussing our company’s financial performance, as well as Plan EBITDA and Plan EBIT, that were used as performance targets in certain of our performance-based compensation items during 2019. These measures are not calculated in accordance with accounting principles generally accepted in the United States of America (referred to as “GAAP”).

We define EBITDA as net income before interest expense, provision for income tax, and depreciation, amortization and accretion and adjusted EBITDA as EBITDA excluding the impact of special items we do not consider representative of our ongoing financial performance. Plan EBIT and Plan EBITDA may contain further adjustments, as determined by our compensation committee. We define adjusted net income and adjusted diluted earnings per share by adjusting the applicable GAAP measure to remove the impact of these special items.

We believe the presentation of EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share aids in the understanding of our business performance, but is not intended to be an alternative to GAAP measures. For the fiscal year ended December 29, 2019, there were no further adjustments used by our compensation committee to determine Plan EBIT and Plan EBITDA for purposes of certain of our performance-based compensation items; thus only adjusted EBIT and adjusted EBITDA are presented below.

These non-GAAP measures are intended to provide additional information only and do not have any standard meaning prescribed by GAAP. Use of these terms below may differ from similar measures reported by other companies. Because of their limitations, these non-GAAP measures should not be considered as measures of discretionary cash available to use to reinvest in growth of our business, or as measures of cash that will be available to meet our obligations. These non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP.

The following table shows a reconciliation of EBITDA and adjusted EBITDA to net income for the fifty-two weeks ended December 29, 2019 and December 30, 2018 and a reconciliation of net income and diluted earnings per share to adjusted net income and adjusted diluted earnings per share for the fifty-two weeks ended December 29, 2019 and December 30, 2018.

 

Sprouts Farmers Market       2020 Proxy Statement  A-1


Table of Contents

  Appendix A

 

SPROUTS FARMERS MARKET, INC. AND SUBSIDIARIES

NON-GAAP MEASURE RECONCILIATION

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

    

Fifty-two

Weeks Ended
December 29,
2019

    

Fifty-two

Weeks Ended
December 30,
2018

 

Net income

   $ 149,629      $ 158,536  

Income tax provision (1)

     46,539        37,260  

Interest expense, net

     21,192        27,435  
  

 

 

    

 

 

 

Earnings before interest and taxes (EBIT)

     217,360        223,231  

Depreciation, amortization and accretion

     122,804        110,749  
  

 

 

    

 

 

 

Earnings before interest, taxes, depreciation and amortization (EBITDA)

   $ 340,164      $ 333,980  
  

 

 

    

 

 

 

Special Items:

     

Executive compensation (2)

   $ 508      $ 3,618  

Store closures (3)

            7,961  
  

 

 

    

 

 

 

Total Special Items - pre tax

     508        11,579  
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 340,672      $ 345,559  
  

 

 

    

 

 

 
     

Net income

   $ 149,629      $ 158,536  

Special Items:

     

Executive compensation, net of tax (2)

            5,652  

Store closures, net of tax (3)

     377        5,921  
  

 

 

    

 

 

 

Adjusted Net income before one-time tax benefits

   $ 150,006      $ 170,109  

Income tax benefit related to Tax Act and other one-time tax benefits (4)

            (2,573
  

 

 

    

 

 

 

Adjusted Net income

   $ 150,006      $ 167,536  
  

 

 

    

 

 

 
     

Diluted earnings per share

   $ 1.25      $ 1.22  

Adjusted diluted earnings per share

   $ 1.25      $ 1.29  
     

Diluted weighted average shares outstanding

     119,742        129,776  

 

(1)

Income tax provision includes approximately a $12 million (or $0.10 per diluted share) benefit during the fifty-two weeks ended December 30, 2018 in excess federal and state tax for share based compensation primarily associated with the exercise of expiring pre-IPO options.

 

(2)

During the fifty-two weeks ended December 30, 2018, we recorded one-time pre-tax compensation charges of $4 million associated with the resignation of our former CEO. The after-tax impact includes incremental tax expense associated with certain nondeductible executive compensation costs.

 

(3)

During the fifty-two weeks ended December 30, 2018, in connection with the closure of two stores, we recorded one-time non-cash pre-tax charges of $8 million primarily related to the estimated fair value of the lease termination obligations and asset impairments. After-tax impact includes the tax benefit on the pre-tax charge.

 

(4)

During the fifty-two weeks ended December 30, 2018, we adopted a tax calculation method change for the accelerated deduction of certain items, resulting in a discrete tax benefit of $3 million.

 

A-2    2020 Proxy Statement       Sprouts Farmers Market


Table of Contents

LOGO

SPROUTS FARMERS MARKET, INC.

5455 East High Street, Suite 111

PHOENIX, AZ 85054

  

VOTE BY INTERNET - www.proxyvote.com

Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on 04/27/2020. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

 

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS

If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

 

VOTE BY PHONE - 1-800-690-6903

Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET on 04/27/2020. Have your proxy card in hand when you call and then follow the instructions.

 

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:

KEEP THIS PORTION FOR YOUR RECORDS

— — — — — — — — — — — — — — — — — —  — — — — — — — — — — — — — — — — — — — —  — — — — — — — — —

DETACH AND RETURN THIS PORTION ONLY

THIS   PROXY   CARD   IS   VALID   ONLY   WHEN   SIGNED   AND   DATED.

 

                          For
All
  Withhold
All
  For All

Except

        

To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.

            
    The Board of Directors recommends you vote FOR the following Class I director nominees:      

 

 

 

 

 

   

 

         
                                       
   

1.  Election of Directors

                             
   

 

Nominees

 

                                 
    01)    Joel D. Anderson                        02)    Terri Funk Graham                        03)    Doug G. Rauch                  
   
   

 

The Board of Directors recommends you vote FOR the following proposal:

          For   Against   Abstain    
   

 

2.  To vote on a non-binding advisory resolution to approve the compensation paid to our named executive officers for fiscal 2019 (“say-on-pay”).

     

 

 

 

 

 

   
   
   

 

The Board of Directors recommends you vote 1 YEAR on the following proposal:

        1 year   2 years   3 years   Abstain    
   

 

3.  To vote on a non-binding advisory proposal on the frequency of future say-on-pay votes (“say-on-frequency”).

   

 

 

 

 

 

 

 

   
   
   

 

The Board of Directors recommends you vote FOR the following proposal:

          For   Against   Abstain    
   

 

4.  To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 03, 2021.

     

 

 

 

 

 

   
   
    NOTE: In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment or postponement thereof.              
   

LOGO

             

 

Yes

 

 

No

                       
    Please indicate if you plan to attend this meeting                            
   

 

Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.

         
   

  

                                   
   

    

 

      

                                             
     

Signature [PLEASE SIGN WITHIN BOX]

 

  Date                               Signature (Joint Owners)

 

              Date                


Table of Contents

 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report and Notice and Proxy Statement are available at www.proxyvote.com

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LOGO

 

 

 

SPROUTS FARMERS MARKET, INC.

Annual Meeting of Stockholders

April 28, 2020 8:00 AM Local Time

This proxy is solicited on behalf of the Board of Directors

 

The undersigned stockholder of SPROUTS FARMERS MARKET, INC., a Delaware corporation, hereby acknowledges receipt of the notice of Annual Meeting of Stockholders and proxy statement, each dated March 16, 2020, and hereby appoints Denise A. Paulonis and Brandon F. Lombardi and each of them, proxies and attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the 2020 Annual Meeting of Stockholders of SPROUTS FARMERS MARKET, INC., to be held on Tuesday, April 28, 2020, at 8:00 AM Local Time, at the Sprouts Farmers Market Store Support Office located at 5455 East High Street, Suite 111, Phoenix, Arizona 85054, and at any adjournment or postponement thereof, and to vote all shares of common stock of SPROUTS FARMERS MARKET, INC. held of record by the undersigned at the close of business on March 2, 2020 as hereinafter specified upon the proposals set forth on the reverse side of this proxy card.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF THE THREE CLASS I DIRECTOR NOMINEES (PROPOSAL 1), “FOR” PROPOSAL 2, “1 YEAR” ON PROPOSAL 3, “FOR” PROPOSAL 4, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.

 

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, “FOR” THE ELECTION OF THE THREE CLASS I DIRECTOR NOMINEES (PROPOSAL 1), “FOR” PROPOSAL 2, “1 YEAR” ON PROPOSAL 3, “FOR” PROPOSAL 4, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING. A majority of such proxies or substitutes as shall be present and shall act at said meeting or any adjournment or postponements thereof (or if only one shall be present and act, then that one) shall have and may exercise all of the powers of said proxies hereunder.

 

Continued and to be signed on reverse side

 

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