BUFFALO WILD WINGS, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
May 24, 2007
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TO THE SHAREHOLDERS OF BUFFALO WILD WINGS, INC.:
Our 2007 Annual Meeting of Shareholders will be held at Buffalo Wild
Wings, Inc. Innovation Center, 1660 S. Highway 100, Suite 128, St. Louis Park,
Minnesota, at 9:00 a.m. Central Daylight Time on Thursday, May 24, 2007, for the
following purposes:
1. To set the number of members of the Board of Directors at eight
(8).
2. To elect members of the Board of Directors.
3. To approve an amendment to the 2003 Equity Incentive Plan to add
certain provisions to preserve our ability to deduct in full
certain plan-related compensation under Section 162(m) of the
Internal Revenue Code.
4. To approve the Cash Incentive Plan containing certain provisions
to preserve our ability to deduct in full certain plan-related
compensation under Section 162(m) of the Internal Revenue Code.
5. To take action on any other business that may properly come before
the meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form
of Proxy, and our Annual Report on Form 10-K for the year ended December 31,
2006.
Only shareholders of record as shown on our books at the close of
business on April 2, 2007 will be entitled to vote at our 2007 Annual Meeting or
any adjournment thereof. Each shareholder is entitled to one vote per share on
all matters to be voted on at the meeting.
You are cordially invited to attend the 2007 Annual Meeting. Whether or
not you plan to attend the 2007 Annual Meeting, please sign, date, and mail the
enclosed form of Proxy in the return envelope provided as soon as possible. The
Proxy is revocable and will not affect your right to vote in person in the event
you attend the meeting. The prompt return of proxies will help us avoid the
unnecessary expense of further requests for proxies.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Sally J. Smith
-------------------------------------
Sally J. Smith
Dated: April 20, 2007 President and Chief Executive Officer
Minneapolis, Minnesota
NOTICE TO SHAREHOLDERS: Direct registration is now available to Buffalo Wild
Wings, Inc. shareholders. If you would like to hold your stock in book-entry
form through the direct registration program of Continental Stock Transfer &
Trust Company, please send your certificate(s) to Continental with a request
that your shares be reissued in book-entry form. For further information, please
contact Continental.
BUFFALO WILD WINGS, INC.
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
to be held
May 24, 2007
------------------
The accompanying Proxy is solicited by the Board of Directors for use
at the Buffalo Wild Wings, Inc. 2007 Annual Meeting of Shareholders to be held
on Thursday, May 24, 2007, at the location and for the purposes set forth in the
Notice of Annual Meeting, and at any adjournment thereof. Buffalo Wild Wings,
Inc. is referred to in this document as "we," "us," "our," and the "company."
The cost of soliciting proxies, including the preparation, assembly,
and mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by us.
Our directors, officers, and regular employees may, without compensation other
than their regular remuneration, solicit proxies personally or by telephone.
Any shareholder giving a Proxy may revoke it any time prior to its use
at the 2007 Annual Meeting by giving written notice of such revocation to the
Secretary or any other one of our officers or by filing a later dated written
Proxy with one of our officers. Personal attendance at the 2007 Annual Meeting
is not, by itself, sufficient to revoke a Proxy unless written notice of the
revocation or a later dated Proxy is delivered to an officer before the revoked
or superseded Proxy is used at the 2007 Annual Meeting. Proxies will be voted as
directed therein. Proxies which are signed by shareholders, but which lack
specific instruction with respect to any proposal, will be voted in favor of
such proposal as set forth in the Notice of Annual Meeting or, with respect to
the election of directors, in favor of the number and slate of directors
proposed by the Board of Directors and listed herein.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of our outstanding shares of Common Stock entitled to vote shall
constitute a quorum for the transaction of business. If a broker returns a
"non-vote" proxy, indicating a lack of voting instructions by the beneficial
holder of the shares and a lack of discretionary authority on the part of the
broker to vote on a particular matter, then the shares covered by such non-vote
shall be deemed present at the meeting for purposes of determining a quorum but
shall not be deemed to be represented at the meeting for purposes of calculating
the vote required for approval of such matter. If a shareholder abstains from
voting as to any matter, then the shares held by such shareholder shall be
deemed present at the meeting for purposes of determining a quorum and for
purposes of calculating the vote with respect to such matter, but shall not be
deemed to have been voted in favor of such matter. An abstention as to any
proposal will therefore have the same effect as a vote against the proposal.
The mailing address of the principal executive office of Buffalo Wild
Wings is 1600 Utica Avenue South, Suite 700, Minneapolis, Minnesota 55416. We
expect that this Proxy Statement, the related Proxy, and Notice of Annual
Meeting will first be mailed to shareholders on or about April 20, 2007.
OUTSTANDING SHARES AND VOTING RIGHTS
Our Board of Directors has fixed April 2, 2007 as the record date for
determining shareholders entitled to vote at the 2007 Annual Meeting. Persons
who were not shareholders on such date will not be allowed to vote at the 2007
Annual Meeting. At the close of business on the record date, there were
8,768,487 shares of our Common Stock issued and outstanding. The Common Stock is
our only outstanding class of capital stock. Each share of Common Stock is
entitled to one vote on each matter to be voted upon at the 2007 Annual Meeting.
Holders of Common Stock are not entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table provides information as of the record date
concerning the beneficial ownership of our Common Stock by (i) the named
executive officers in the Summary Compensation Table, (ii) each of our
directors, (iii) the persons known by us to own more than 5% of our outstanding
Common Stock, and (iv) all current directors and executive officers as a group.
Except as otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock owned by them.
Name (and Address of 5% Number of Shares Percent
Owner) or Identity of Group Beneficially Owned(1) of Class (1)
- --------------------------- --------------------- ------------
Sally J. Smith(2) 109,665 1.2%
Mary J. Twinem(3) 69,883 *
James M. Schmidt(4) 18,918 *
Judith A. Shoulak(5) 13,598 *
E. Lee Sanders 11,144 *
Kenneth H. Dahlberg(6) 855,984 9.7%
Dale M. Applequist(7) 25,381 *
Robert W. MacDonald 2,000 *
Warren E. Mack(8) 45,556 *
J. Oliver Maggard(9) 4,841 *
Michael P. Johnson 2,000 *
James M. Damian 1,723 *
Carefree Capital, Inc.(10) 547,610 6.2%
FMR Corp.(11) 483,494 5.5%
Tiger Consumer Management, LLC (12) 487,730 5.6%
All Current Executive Officers and Directors
as a Group (14 Individuals)(13) 1,199,567 13.5%
- ---------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Under the rules of the SEC, shares not actually outstanding are deemed to
be beneficially owned by an individual if such individual has the right to
acquire the shares within 60 days. Pursuant to such SEC Rules, shares
deemed beneficially owned by virtue of an individual's right to acquire
them are also treated as outstanding when calculating the percent of the
class owned by such individual and when determining the percent owned by
any group in which the individual is included.
(2) Includes 200 shares held by Ms. Smith's daughter and 22,000 shares which
may be purchased by Ms. Smith upon exercise of currently exercisable
options.
(3) Includes 17,600 shares that may be purchased by Ms. Twinem upon exercise of
currently exercisable options.
(4) Includes 3,400 shares that may be purchased by Mr. Schmidt upon exercise of
currently exercisable options.
(5) Includes 4,475 shares that may be purchased by Ms. Shoulak upon exercise of
currently exercisable options.
(6) Includes 534,506 shares held by Carefree Capital Partners, L.P., 13,104
shares held by Carefree Capital, Inc., 12,500 shares held by The Ken and
Betty Dahlberg Family Foundation and 16,951 shares which may be purchased
by Mr. Dahlberg upon exercise of currently exercisable options. Carefree
Capital, Inc. is the general partner of Carefree Capital Partners, L.P.,
and Mr. Dahlberg is the principal shareholder of Carefree Capital, Inc. The
address for Carefree Capital and Mr. Dahlberg is 1600 Utica Avenue South,
Suite 700, Minneapolis, MN 55416.
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(7) Includes 9,751 shares that may be purchased by Mr. Applequist upon exercise
of currently exercisable options.
(8) Includes 11,406 shares held by Mr. Mack as trustee of the Edgar E. Mack
Trust and 2,251 shares that may be purchased by Mr. Mack upon exercise of
currently exercisable options.
(9) Includes 2,251 shares that may be purchased by Mr. Maggard upon exercise of
currently exercisable options.
(10) Includes 534,506 shares held by Carefree Capital Partners, L.P. See note
(6).
(11) According to a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2007 by FMR Corp. ("FMR"), FMR, through its
subsidiaries, beneficially owns the shares and has sole voting power over
1,882 of the shares and sole dispositive power over all of the shares. The
ownership and powers of the subsidiaries are as follows: (i) Fidelity
Management & Research Company ("Fidelity Research"), as an investment
adviser to various investment companies (the "Funds"), beneficially owns
481,612 of the shares, with Edward C. Johnson 3d, FMR, and the Funds each
having sole power to dispose of such shares, and the Funds' Boards of
Trustees having the sole power to vote or direct the voting of such shares;
and (ii) Pyramis Global Advisors Trust Company ("Pyramis"), a bank,
beneficially owns 1,882 of the shares, with Mr. Johnson and FMR through its
control of Pyramis, each having sole voting power and dispositive power
over such shares. As the principal holder of FMR, Mr. Johnson, Chairman,
may be deemed to own or control the shares. Except as set forth herein,
neither FMR nor its subsidiaries have voting or dispositive power. The
address of FMR, Mr. Johnson, Fidelity Research, and Pyramis is 82
Devonshire Street, Boston, Massachusetts 02109.
(12) According to a Schedule 13G filed with the Securities and Exchange
Commission on February 5, 2007 by Tiger Consumer Management, LLC ("Tiger")
and Patrick F. McCormack, Tiger and Mr. McCormack have shared voting and
dispositive power over the shares. Tiger serves as the management company
of a domestic private investment partnership and also serves as the
investment manager of an offshore investment vehicle; therefore, Tiger may
be deemed to beneficially own the shares held by the various entities
managed by it. Mr. McCormack is the managing member of Tiger. The address
for Tiger and Mr. McCormack is 101 Park Avenue, 48th Floor, New York, NY
10178.
(13) Includes 86,679 shares that may be purchased by current executive officers
and directors upon exercise of currently exercisable options. See above
footnotes for shares held indirectly.
CORPORATE GOVERNANCE
Our business affairs are conducted under the direction of the Board of
Directors in accordance with the Minnesota Business Corporation Act and our
Articles of Incorporation and Bylaws. Members of the Board of Directors are
informed of our business by discussing matters with management, reviewing
materials provided to them, and participating in meetings of the Board of
Directors and its committees. The corporate governance practices that we follow
are summarized below.
Independence
The Board has determined that a majority of its members are
"independent" as defined by the listing standards of The Nasdaq Stock Market.
Our independent directors are Kenneth H. Dahlberg, Dale M. Applequist, Robert W.
MacDonald, Warren E. Mack, J. Oliver Maggard, Michael P. Johnson and James M.
Damian. The Board considered the fact that Mr. Mack is an attorney with
Fredrikson & Byron, which provides legal services to us. It was determined that
this relationship does not adversely affect Mr. Mack's independence on our
Board.
Code of Ethics & Business Conduct
The Board has approved a Code of Ethics & Business Conduct, which
applies to all of our employees, directors, and officers, and also a Code of
Ethics ("Executive Code of Ethics"), which applies to our principal executive
officer, principal financial officer, principal accounting officer, controller,
executive and senior vice presidents, and vice presidents. The Codes address
such topics as protection and proper use of our assets, compliance with
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applicable laws and regulations, accuracy and preservation of records,
accounting and financial reporting, conflicts of interest, and insider trading.
The Codes are available free of charge through our website at
www.buffalowildwings.com and are available in print to any shareholder who sends
a request for a paper copy to Buffalo Wild Wings, Inc., Attn. Investor
Relations, 1600 Utica Avenue South, Suite 700, Minneapolis, Minnesota 55416. We
intend to include on our website any amendment to, or waiver from, a provision
of our Executive Code of Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer, or controller and
relates to any element of the code of ethics definition enumerated in Item
406(b) of Regulation S-K.
Meeting Attendance
Board and Committee Meetings. During fiscal 2006, the Board held four
(4) meetings. Each director attended at least 75% of the meetings of the Board
and the standing committees on which such director served.
Annual Meeting of Shareholders. Our policy is that all directors are
expected to attend our annual meetings of shareholders. If a director is unable
to attend an annual meeting, the director must send a written notice to our
Secretary at least one week prior to the meeting. All of the directors serving
on our Board at the time attended our 2006 annual meeting of shareholders.
Executive Sessions of the Board
An executive session of independent directors is generally held at the
time of each regular Board meeting.
Committees of the Board
Our Board of Directors has four standing committees: Audit Committee,
Compensation Committee, Governance/Nominating Committee, and Executive
Committee.
Audit Committee. The current members of the Audit Committee, all of
whom are independent directors, are J. Oliver Maggard, Chair, Robert W.
MacDonald, and Michael P. Johnson, who replaced Dale M. Applequist in February
2006. The Audit Committee reviews, in consultation with our independent
registered public accounting firm, our financial statements, accounting and
other policies, accounting systems, internal audit reports, and the adequacy of
internal controls for compliance with corporate policies and directives. The
Audit Committee is responsible for the engagement of our independent registered
public accounting firm and reviews other matters relating to our relationship
with our independent registered public accounting firm. The Audit Committee also
oversees the administration of our related party transactions policy, which is
described in "Certain Relationships and Related Transactions" on page 21. The
Board has determined that J. Oliver Maggard is the "audit committee financial
expert" as defined by Item 401(h)(2) of Regulation S-K under the Securities Act
of 1933. We acknowledge that the designation of Mr. Maggard as the audit
committee financial expert does not impose on Mr. Maggard any duties,
obligations, or liability that are greater than the duties, obligations, and
liability imposed on Mr. Maggard as a member of the Audit Committee and the
Board of Directors in the absence of such designation or identification. The
"Report of Audit Committee" is included on page 27. The Audit Committee met nine
(9) times during fiscal 2006.
Compensation Committee. The current members of the Compensation
Committee are Dale M. Applequist, Chair, J. Oliver Maggard, and Michael P.
Johnson, with Mr. Johnson joining the committee in February 2006, all of whom
are independent directors. The Compensation Committee develops and administers
compensation policies and plans. The Compensation Committee determines the
compensation for the Chief Executive Officer and the Chief Financial Officer and
recommends to the Board of Directors from time to time the compensation to be
paid to our other executive officers. In addition, this committee is vested with
the same authority as the Board of Directors with respect to the granting of
awards and the administration of our equity and non-equity plans. The
"Compensation Committee Report" is on page 14. The Compensation Committee met
seven (7) times during fiscal 2006.
Governance/Nominating Committee. The current members of the
Governance/Nominating Committee are Kenneth H. Dahlberg, Chair, Dale M.
Applequist, and Robert W. MacDonald, all independent directors. The
Governance/Nominating Committee recommends Board of Director candidates for
nomination, recommends to the Board the members of various committees, and
addresses corporate governance matters. The policies of the
Governance/Nominating Committee are described more fully in the
"Governance/Nominating Committee Report" on page 7. The Governance/Nominating
Committee met four (4) times during fiscal 2006.
4
Executive Committee. The members of the Executive Committee are Warren
E. Mack, Chair, Sally J. Smith, and J. Oliver Maggard. During the intervals
between the meetings of the Board of Directors, the Executive Committee has all
the powers of the Board in the management of our business, properties and
affairs, including any authority to take action provided in our Bylaws to be
taken by the Board, subject to applicable laws. The Executive Committee,
however, is not authorized to fill vacancies of the Board or its committees,
declare any dividend or distribution or take any action which pursuant to the
Bylaws is required to be taken by a vote of a specified portion of the whole
Board. The Executive Committee met three (3) times during fiscal 2006.
Communications with the Board
Shareholders may communicate directly with the Board of Directors. All
communications should be directed to our Corporate Secretary at the address
below and should prominently indicate on the outside of the envelope that it is
intended for the Board of Directors or for non-management directors. If no
director is specified, the communication will be forwarded to the entire Board.
The communication will not be opened before being forwarded to the intended
recipient, but it will go through normal security procedures. Shareholder
communications to the Board should be sent to:
James M. Schmidt, Executive VP, General Counsel and Secretary
Buffalo Wild Wings, Inc.
1600 Utica Avenue South, Suite 700
Minneapolis, MN 55416
Compensation to Non-Employee Directors
Cash Compensation. In addition to being reimbursed for out-of-pocket
expenses incurred while attending Board or committee meetings, the non-employee
directors received the following cash compensation in 2006, with the annual fees
paid quarterly:
$20,000 Board Annual Fee
$5,000 Audit Committee Annual Fee
$4,000 Compensation and Governance/Nominating Committees Annual Fee
$500 Executive Committee Meeting Attendance Fee
$5,000 Board and Committee Chair Annual Fee
As of January 1, 2007, the cash compensation for the non-employee
directors was changed to consist of annual fees, payable quarterly, as follows:
$20,000 Board members
$8,000 Non-chair members of Audit, Compensation and Governance/
Nominating Committees
$4,000 Non-chair members of Executive Committee
$5,000 Board chair
$16,000 Chairs of Audit and Compensation Committees
$10,000 Chair of Governance/Nominating Committee
$5,000 Chair of Executive Committee
Equity Compensation. The non-employee directors are entitled to an
annual grant of restricted stock units having a value of $20,000 on the first
day of each fiscal year, with the number of units determined by dividing $20,000
by the closing stock price on the previous day. Mr. MacDonald has waived his
right to receive the foregoing grant each year. The restricted stock units vest
to the extent of 33-1/3% on the last day of each fiscal year, and the risks of
forfeiture lapse as to such increment, if the Company achieves 95% of the
earnings target established by the Board of Directors. In addition, beginning in
fiscal 2006, each non-employee director is entitled to a fully-vested restricted
stock unit grant of 1,000 shares as of the first day of each fiscal year. Upon
the initial election of a non-employee director, such director would be entitled
to receive the foregoing grants on a pro rata basis.
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Director Compensation Table
The table below summarizes the compensation paid by us to our
non-employee directors during fiscal year 2006.
Fees Earned or Paid Stock Awards Total
Name in Cash ($)(1) ($)(2)(3)(4) ($)
-----------------------------------------------------------------------
Kenneth H. Dahlberg $34,000 $53,797 $87,797
Dale M. Applequist $34,250 $53,797 $88,047
Robert W. MacDonald $29,000 $33,800 $62,800
Warren E. Mack $21,500 $53,797 $75,297
J. Oliver Maggard $35,500 $53,797 $89,297
Michael P. Johnson $21,750 $34,354 $56,104
James M. Damian $15,000 $25,192 $40,192
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(1) The amounts consist of the cash fees paid to the non-employee
directors as described in "Cash Compensation" above.
(2) The amounts reflect the amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2006 in
accordance with FAS 123R of awards pursuant to our restricted
stock unit award program under our 2003 Equity Incentive Plan and
includes amounts from restricted stock unit awards granted in and
prior to fiscal year 2006. Assumptions used in the calculation of
these amounts are included in footnote 1(w) to our audited
financial statements included in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2006 filed with the
Securities and Exchange Commission.
(3) As noted in footnote (2) above, the amount shown in the table
above reflects the amounts recognized for financial reporting
purposes. The following table in this footnote represents the
grant date fair value of awards of restricted stock units to the
directors in fiscal year 2006.
Equity Grants to Directors in Fiscal Year 2006
------------------------------------------------------------------
Restricted Stock Grant Date Fair
Name Grant Date Unit Awards(a) Value of Awards
------------------------------------------------------------------
Kenneth H. Dahlberg 12/26/05 1,592 $53,810
Dale M. Applequist 12/26/05 1,592 $53,810
Robert W. MacDonald 12/26/05 1,000 $33,800
Warren E. Mack 12/26/05 1,592 $53,810
J. Oliver Maggard 12/26/05 1,592 $53,810
Michael P. Johnson 02/16/06 1,302 $48,252
James M. Damian 05/11/06 923 $39,578
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(a) The per unit share price of the restricted stock unit awards
granted on December 26, 2005 was $33.80 on the date of
grant. The awards as to 1,000 shares granted on December 26,
2005 vested immediately, and the awards as to 592 shares
vest as set forth in "Equity Compensation" above. The per
share price of the restricted stock unit awards granted on
February 16, 2006 was $37.06 on the date of grant, with 849
shares vesting immediately and the award as to 453 shares
vest as set forth in "Equity Compensation" above. The per
share price of the restricted stock unit awards granted on
May 11, 2006 was $42.88 on the date of grant, with 623
shares vesting immediately and the award as to 300 shares
vest as set forth in "Equity Compensation" above.
(4) As of December 31, 2006, the non-employee directors had the
following outstanding equity awards.
Restricted Stock Units
Stock Options ---------------------------
Name (Fully Vested) Unvested(a) Vested(b)
------------------------------------------------------------------
Kenneth H. Dahlberg 16,951 588 625
Dale M. Applequist 17,851 588 625
Robert W. MacDonald 0 0 0
Warren E. Mack 6,751 588 625
J. Oliver Maggard 2,251 588 625
Michael P. Johnson 0 302 151
James M. Damian 0 200 100
----------------------
(a) See vesting terms set forth in "Equity Compensation" above.
(b) Shares were issued to directors on March 12, 2007 upon
achievement of performance target.
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GOVERNANCE/NOMINATING COMMITTEE REPORT
The Governance/Nominating Committee is comprised of independent
directors. In accordance with its Principles of Corporate Governance and written
charter adopted by the Board of Directors, the Governance/Nominating Committee
assists the Board of Directors with fulfilling its responsibilities regarding
any matters relating to corporate governance, including selection of candidates
for our Board of Directors. Its duties include oversight of the principles of
corporate governance by which Buffalo Wild Wings and the Board are governed, the
codes of ethical conduct and legal compliance by which Buffalo Wild Wings and
its directors, executive officers, employees, and agents are governed; policies
for evaluation of the Board and the chairperson; policies for election and
reelection of Board members; and policies for succession planning for the Chief
Executive Officer, Board chairperson, and other Board leaders. In addition, the
Committee is responsible for annually reviewing the composition of the Board,
focusing on the governance and business needs and requirements of Buffalo Wild
Wings, screening of Board member candidates and recommending nominees to the
Board, evaluating the performance of Board members, and recommending the
reelection of Board members who are performing effectively and who continue to
provide a competency needed on the Board. Our Principles of Corporate Governance
provide that there should be at least seven directors on the Board, with a
majority being independent.
The Governance/Nominating Committee will consider candidates for
nomination as a director recommended by shareholders, directors, third-party
search firms, and other sources. In evaluating director nominees, a candidate
should have certain minimum qualifications, including being able to read and
understand basic financial statements, being familiar with our business and
industry, having high standards of personal ethics and mature judgment, being
able to work collegially with others, and being willing to devote the necessary
time and energy to fulfilling the Board's responsibility of oversight of us.
Independent directors are encouraged to limit the number of other boards of
for-profit companies on which they serve, and management personnel are not
permitted to serve on more than one other board of a for-profit company. In
addition, factors such as the following may be considered:
o appropriate size and diversity of the Board;
o needs of the Board with respect to particular talent and experience;
o business and professional experience of nominee;
o familiarity with domestic and international business affairs;
o age and other legal and regulatory requirements;
o appreciation of the relationship of our business to the changing needs
of society; and
o desire to balance the benefit of continuity with the periodic
injection of the fresh perspective provided by a new member.
Shareholders who wish to recommend one or more directors must provide a
written recommendation to our Secretary. Notice of a recommendation must include
the shareholder's name, address, and the number of Buffalo Wild Wings shares
owned, along with information with respect to the person being recommended, i.e.
name, age, business address, residence address, current principal occupation,
five-year employment history with employer names and a description of the
employer's business, the number of shares beneficially owned by the prospective
nominee, whether such person can read and understand basic financial statements,
and other board memberships, if any. The recommendation must be accompanied by a
written consent of the prospective nominee to stand for election if nominated by
the Board of Directors and to serve if elected by the shareholders. We may
require a nominee to furnish additional information that may be needed to
determine the eligibility of the nominee.
Shareholders who wish to present a proposal at an annual meeting of
shareholders must provide a written notice to our Secretary at the address
below. For each proposal, the notice must include a brief description of the
matter to be brought before the meeting, the reasons to bring the matter before
the meeting, the shareholder's name, address, and number of shares owned, and
any material interest that the shareholder may have in the proposal. The
Secretary will forward the proposals and recommendations to the
Governance/Nominating Committee. See "Shareholder Proposals" on page 28.
James M. Schmidt, Executive VP, General Counsel and Secretary
Buffalo Wild Wings, Inc.
1600 Utica Avenue South, Suite 700
Minneapolis, MN 55416
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A copy of the current Governance/Nominating Committee Charter can be
found on Buffalo Wild Wings' website at www.buffalowildwings.com.
Members of the Governance/Nominating Committee
Kenneth H. Dahlberg, Chair
Dale M. Applequist
Robert W. MacDonald
ELECTION OF DIRECTORS
(Proposals #1 and #2)
Our Bylaws provide that the number of directors shall be the number set
by the shareholders, which shall be not less than one. Pursuant to
recommendations of the Governance/Nominating Committee, the Board set the number
of directors at eight (8) and selected the persons listed below as nominees to
be elected at the Annual Meeting. Unless otherwise instructed, the Proxies will
be so voted.
Under applicable Minnesota law, approval of the proposal to set the
number of directors at eight requires the affirmative vote of the holders of a
majority of the voting power of the shares represented in person or by proxy at
the Annual Meeting with authority to vote on such matter, provided that such
majority must be greater than 25% of our outstanding shares. The election of the
nominees to the Board of Directors requires the affirmative vote of the holders
of a plurality of the voting power of the shares represented in person or by
proxy at the Annual Meeting with authority to vote on such matter.
In the absence of other instruction, the Proxies will be voted for each
of the individuals listed below. If elected, such individuals shall serve until
the next annual meeting of shareholders and until their successors shall be duly
elected and qualified. All of the nominees are members of the current Board of
Directors. If, prior to the 2007 Annual Meeting of Shareholders, it should
become known that any one of the following individuals will be unable to serve
as a director after the 2007 Annual Meeting by reason of death, incapacity, or
other unexpected occurrence, the Proxies will be voted for such substitute
nominee(s) as is selected by the Board of Directors. Alternatively, the Proxies
may, at the Board's discretion, be voted for such fewer number of nominees as
results from such death, incapacity, or other unexpected occurrence. The Board
of Directors has no reason to believe that any of the following nominees will be
unable to serve.
Position with Director
Name Age Buffalo Wild Wings Since
- ---- --- -------------------- -----
Sally J. Smith(4) 49 President, Chief Executive Officer and Director 1996
Kenneth H. Dahlberg(2) 89 Chairman of the Board 1994
Dale M. Applequist(2)(3) 59 Director 1997
Robert W. MacDonald(1)(2) 64 Director 2003
Warren E. Mack(4) 62 Director 1994
J. Oliver Maggard(1)(3)(4) 52 Director 1999
Michael P. Johnson(1)(3) 59 Director 2006
James M. Damian 56 Director 2006
------------------
(1) Member of Audit Committee
(2) Member of Governance/Nominating Committee
(3) Member of Compensation Committee
(4) Member of Executive Committee
Business Experience of the Director Nominees
Sally J. Smith has served as our Chief Executive Officer and President
since July 1996 and as our Chief Financial Officer from 1994 to 1996. Prior to
joining Buffalo Wild Wings, she was the Chief Financial Officer of Dahlberg,
8
Inc., the manufacturer and franchisor of Miracle-Ear hearing aids, from 1983 to
1994. Ms. Smith began her career with KPMG LLP, an international accounting and
auditing firm. Ms. Smith is a CPA. Ms. Smith serves on the boards of the
National Restaurant Association and Alerus Financial Corporation.
Kenneth H. Dahlberg has served as Chairman of Carefree Capital, Inc.
since June 1995, and he served as its Chief Executive Officer from June 1995 to
January 2004. He was the founder of Dahlberg, Inc., a public company prior to
its acquisition by Bausch & Lomb, Inc. in 1993, and served as its Chairman of
the Board from 1948 to 1993.
Dale M. Applequist served as President and Chief Executive Officer of
Cash Plus, Inc., an advertising agency that he co-founded, from 1978 to 1998. He
also was a partner and director of Campbell-Mithun Advertising, LLC from 1990 to
1998.
Robert W. MacDonald has been a principal of CTW Consulting, LLC, a
business consulting firm, since March 2002. Mr. MacDonald served as the Chief
Executive Officer and Chairman of Allianz Life Insurance Company of North
America from October 1999 to March 2002 and continued to serve as a director
through December 2006. From 1987 to 1999, Mr. MacDonald served as Chairman and
Chief Executive Officer of LifeUSA Holding, Inc., an insurance holding company.
Mr. MacDonald is also a director of Windsor Financial Group, LLC.
Warren E. Mack has been an attorney with the law firm of Fredrikson &
Byron, P.A. since 1969, serving as its Chairman from 1999 to 2004, its President
from 1985 to 1997 and as a director from 1978 to 2004. Fredrikson & Byron, P.A.
provides legal services to us.
J. Oliver Maggard has served as Managing Partner of Caymus Partners
LLC, an investment banking company in New York, since October 2002. From January
1995 to October 2002, Mr. Maggard was a Managing Director and Partner of Regent
Capital Management Corp., a private equity firm which he co-founded. Prior to
founding Regent Capital, Mr. Maggard held various positions with Bankers Trust
Company, Kidder Peabody & Company, Inc., Drexel Burnham Lambert Incorporated,
and E.F. Hutton & Co.
Michael P. Johnson currently serves as Senior Vice President and Chief
Administrative Officer of The Williams Companies, Inc., a publicly-held natural
gas producer, processor, and transporter, having joined The Williams Companies
in 1998. From 1991 to 1998, Mr. Johnson served in various officer-level
positions for Amoco Corporation, most recently as Vice President of Human
Resources. Mr. Johnson serves on the Board of Directors of QuikTrip Corporation.
Mr. Johnson also serves on the boards of several charitable organizations and
foundations, including the Tiger Woods Foundation.
James M. Damian currently serves as Senior Vice President of Best
Buy's Experience Development Group. Mr. Damian joined Best Buy in 1998, prior to
which he held various positions with Howard Sant Partnerships, a London
architectural firm, Harvey Nichols, a London-based luxury retailer, B. Altman &
Co., R. H. Macy & Co., and Hindsgaul Mannequins Worldwide of Copenhagen, New
York and Paris.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
Buffalo Wild Wings is focused on profitable growth that builds
shareholder value. To accomplish this goal, we need to attract, motivate, retain
and fairly reward executive talent with a total compensation plan, a significant
portion of which is paid based on performance. We do this with an overall
compensation program composed of three main elements: (1) base salaries; (2)
cash incentive compensation; and (3) equity incentive compensation in the form
of performance-based restricted stock grants. The basic philosophy of this
three-part compensation plan is that the named executives will earn more than
their base salaries if performance goals are met.
Base salaries are set roughly in the middle of the market range for
each position using salary surveys. The annual cash incentive provides an
opportunity to earn additional cash at a meaningful level based primarily on
achieving annual performance goals for the company. Equity incentive
compensation is paid in the form of restricted stock grants, again in meaningful
amounts, which vest one-third per year based upon the achievement of annual
company net income goals established by the Board of Directors.
9
The company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Committee is composed of
three independent directors, each of whom satisfies the definition of
"independence" as set forth in the NASDAQ listing standards and the Compensation
Committee Charter, which is available on the company's website at
www.buffalowildwings.com. Our Compensation Committee designs and oversees our
compensation programs for our executive officers, which includes our President,
Executive Vice Presidents and Senior Vice Presidents. The Compensation Committee
determines the compensation of the Chief Executive Officer and the Chief
Financial Officer and determines, with the Chief Executive Officer, the
compensation of the other executive officers, submitting its recommendations for
the other executive officers to the Board for final approval.
Guiding Principles for Executive Compensation
The following principles influence and guide our company's compensation
practices for executive officers:
1. We are a pay-for-performance company.
Both the annual cash incentive plan and the equity incentive
plan are directly linked to performance. Most of the cash
incentive plan is linked to the achievement of annual company
performance targets. A smaller portion is linked to each
executive achieving personal performance goals. The equity
incentive plan provides for the grant of restricted stock
units that vest one-third each year upon achievement of annual
company net income goals that are established by the Board of
Directors.
2. Incentive compensation should reinforce our company's business
objectives and be balanced between short-term and long-term
performance.
Our annual cash incentive plan is directly tied to achieving
profitable growth. Our equity incentive plan requires three
years of meeting our annual net income performance targets to
achieve full vesting. It also puts shares of our stock in the
hands of the executive officers, giving them a meaningful
stake in the long-term success of the business.
3. Incentive compensation should align interests of executives
with shareholders.
We intend that our cash and equity incentive plans be aligned
with the shareholders' interests by rewarding executive
officers for achieving profitable growth. We also intend that
the equity incentive plan be further aligned with
shareholders' interests by putting shares in the hands of our
executive officers.
4. Total compensation of executives should be market competitive
to attract and retain talent.
To attract the type of talent needed to achieve and maintain a
leadership position in our sector of the chain restaurant
industry, the total compensation opportunity should be at or
above the median for similar companies in our industry. In
addition, we believe that it is important that our executive
compensation packages are heavily weighted toward
performance-based compensation.
5. Compensation should reflect position and responsibility, and
incentive compensation should be a greater part of total
compensation for more senior positions.
Total compensation should generally increase with position and
responsibility and should be structured to avoid disparities
among employees with similar duties. As position and
responsibility increase, a greater percentage of total
compensation should be tied to company and individual
performance.
6. Tally sheets are a good tool for reviewing and setting
compensation.
In 2006, our Compensation Committee continued its past
practice of reviewing compensation in tally-sheet format.
These sheets reflect all forms of compensation, including
perquisites and calculations of past accumulation of equity
interest.
10
7. The principles of rewarding performance should drive
compensation decisions rather than tangential considerations,
such as tax benefits or accounting policies.
We have included in this proxy statement for shareholder
approval the performance criteria for the cash incentive plan
and the equity incentive plan to comply with the deductibility
requirements of Section 162(m) of the Internal Revenue Code.
However, we establish total compensation plans that we believe
are most appropriate in light of compensation principles (as
identified above), regardless of the accounting or tax
policies.
Material Elements of the Executive Compensation Program
The material elements of our executive compensation program are:
Base Salary
Annual Cash Incentive Compensation
Equity Incentive Compensation in the Form of Restricted Stock Units
Other Benefits
Base Salary. Base Salary is the foundation of the compensation program
in that most other major components of compensation are based on a relationship
to base salary. Base salaries, as well as other compensation, are determined by
the Compensation Committee using as its starting point competitive market
information. Base salaries are reviewed during the fourth quarter and go into
effect at the beginning of the next year. The Compensation Committee reviewed
competitive information contained in the annual Chain Restaurant Compensation
Association survey in setting 2006 base salaries. The base salaries for the
Chief Executive Officer and Chief Financial Officer are determined by the
Compensation Committee in executive session taking into consideration the
results of their performance review and the competitive market. With respect to
the other executive officers, the Compensation Committee makes final
recommendations to the Board of Directors for each person taking into account
the salary recommendations from the Chief Executive Officer, current level of
pay, market median, individual contributions, changes in position or
responsibility and internal pay equity considerations. As part of its review,
the Compensation Committee may interview the Chief Financial Officer, Executive
Vice President and other executive officers.
The table below shows base compensation levels for the 2006 named
executive officers for 2005, 2006 and 2007.
-----------------------------------------------------------------------------
Base Salaries
-----------------------------------------------------------------------------
2005 2006 2007
------------------- --------------- ------------------ ---------------------
Sally Smith $400,000 $450,000 $500,000
------------------- --------------- ------------------ ---------------------
Mary Twinem $250,000 $280,000 $315,000
------------------- --------------- ------------------ ---------------------
James Schmidt $200,000 $215,000 $235,000
------------------- --------------- ------------------ ---------------------
Judy Shoulak $220,000 $230,000 $255,000
------------------- --------------- ------------------ ---------------------
E. Lee Sanders $210,000 $215,000 $215,000
------------------- --------------- ------------------ ---------------------
Annual Cash Incentive Compensation. For 2006, we established an annual
cash incentive plan for our Chief Executive Officer, Chief Financial Officer and
Senior Vice Presidents, which includes all the other executive officers. The
criteria for earning incentive compensation under this plan was the same for all
executive officers except that the Chief Executive Officer and Chief Financial
Officer had an opportunity to earn a larger percentage of base salary than the
Senior Vice Presidents. The reason for this larger opportunity is that the
Compensation Committee believes that as position and responsibility increase, a
greater percentage of total compensation should be tied to corporate and
individual performance. The Compensation Committee selected and weighted the
elements of this plan based on its judgment that these were key factors in
creating shareholder value.
The plan rewards for overall company performance in the following
categories: revenue, including positive same-store sales overall for the year
and for each fiscal quarter; net income; net increase in system-wide locations;
and retention/turnover. In addition, the plan allows for the opportunity to earn
cash incentives for the achievement of personal performance goals. The personal
performance goals for Sally Smith, our Chief Executive Officer, are agreed on at
the beginning of each year between Ms. Smith and the Compensation Committee when
the Committee reviews her performance for the previous year. The personal
performance goals for the remaining executive officers are agreed upon by the
Chief Executive Officer and the respective executive officers and submitted to
the Compensation Committee for approval. The actual amount of cash incentive
11
payable upon achievement of personal performance goals is determined in the
discretion of the Compensation Committee. A description of the annual cash
incentive plan is set forth below in more detail.
The 2006 annual cash incentive plan had five key objective performance
criteria:
o Revenue: The revenue performance goal included a revenue target as
well as positive same-store sales targets for both company-owned and
franchised stores for the year and each fiscal quarter. If actual
revenue were less than 95% of the planned targets, no cash incentive
would be earned. As the actual revenue increased above 95% of planned
targets and same-store sales were positive, the percentage of base
salary that may be earned as a cash incentive increased. Achieving
revenue at 95% of planned targets and achieving positive same-store
sales for each of the four quarters of the year would entitle the
participants to a cash incentive equal to a percent of base salary, 5%
for the Chief Executive Officer and Chief Financial Officer and 3.6%
for the Senior Vice Presidents. Achieving revenue at planned targets
and positive same-store sales, the cash incentive would be 30% of base
salary for the Chief Executive Officer and Chief Financial Officer and
21.6% of base salary for the Senior Vice Presidents. Based on
achieving revenue at 115% or more of planned targets and positive
same-store sales, the maximum cash incentive payable is 60% of base
salary for the Chief Executive Officer and Chief Financial Officer and
43.2% for the Senior Vice Presidents.
o Net Income: If actual net income were less than 90% of the planned
target, no cash incentive would be earned. As actual net income
increased above 90% of the planned target, the percentage of base
salary earned as a cash incentive increased. If actual net income were
at 90% of planned target, the participants would be entitled to a cash
incentive equal to a percentage of base salary, 8% for the Chief
Executive Office and Chief Financial Officer and 5.8% for Senior Vice
Presidents. Achieving net income at the planned target, the cash
incentive would be 15% of base salary for the Chief Executive Officer
and Chief Financial Officer and 10.8% of base salary for the Senior
Vice Presidents. Based on achieving net income at 115% or more of the
planned target, the maximum cash incentive payable would be 25% of
base salary for the Chief Executive Officer and Chief Financial
Officer and 18% for the Senior Vice Presidents.
o Net Increase in System-Wide Locations: For the Chief Executive Officer
and Chief Financial Officer, the cash incentive payable ranged from 1%
to 10% of base salary based on the actual net increase in system-wide
locations, with 5% of base salary payable for achieving the planned
target. For the Senior Vice Presidents, the cash incentive payable
ranged from 0.7% to 7.2% of base salary based on the actual net
increase in system-wide locations, with 3.6% of base salary payable
for achieving the planned target.
o Manager Retention/Turnover: For the Chief Executive Officer and Chief
Financial Officer, the cash incentive payable ranged from 1% to 4% of
base salary based on the actual manager retention/turnover rates, with
2.5% of base salary payable for achieving the planned target. For the
Senior Vice Presidents, the cash incentive payable ranged from 0.7% to
2.9% of base salary based on the actual manager retention/turnover
rates, with 1.8% of base salary payable for achieving the planned
target.
o Hourly Retention/Turnover: For the Chief Executive Officer and Chief
Financial Officer, the cash incentive payable ranged from 1% to 4% of
base salary based on the actual hourly retention/turnover rates, with
2.5% of base salary payable for achieving the planned target. For the
Senior Vice Presidents, the cash incentive payable ranged from 0.7% to
2.9% of base salary based on the actual hourly retention/turnover
rates, with 1.8% of base salary payable for achieving performance at
the planned target.
In addition to the five objective company performance goals identified
above, the participants had the opportunity to earn a cash incentive, based on
personal performance, of up to 20% of base salary for the Chief Executive
Officer and Chief Financial Officer and up to 15% for the Senior Vice
Presidents. The actual amount of such cash incentive was in the discretion of
the Compensation Committee.
Considering the five objective company performance goals and personal
performance, the Chief Executive Officer and Chief Financial Officer had the
opportunity to earn from 31% to 123% of their respective base salaries under the
2006 annual cash incentive plan, and the Senior Vice Presidents had the
opportunity to earn from 22.9% to 89.2% of their respective base salaries under
the 2006 annual cash incentive plan.
12
2006 Earned Cash Incentive Compensation. Each of the named executive
officers set forth below earned the following amounts of annual cash incentive
compensation based on 2006 performance:
----------------------------------------------------------------
Named Executive Cash Incentive Percentage of Base
Officer Earned for 2006 Salary for 2006
---------------------- --------------------- -------------------
Sally Smith $425,250 94.5%
---------------------- --------------------- -------------------
Mary Twinem $264,600 94.5%
---------------------- --------------------- -------------------
James Schmidt $147,490 68.6%
---------------------- --------------------- -------------------
Judy Shoulak $157,780 68.6%
---------------------- --------------------- -------------------
E. Lee Sanders $125,990 58.6%
---------------------- --------------------- -------------------
Equity Incentive Compensation. Long-term incentives are necessary to
retain and motivate executive officers to achieve the long-term interests of
holders of our stock. For the last several years, we have used the award of
performance-based restricted stock units as the way to achieve this goal. We
believe that the combination of cash and equity incentives is appropriate given
that the cash elements of incentive compensation emphasize short-term or annual
performance, and that equity elements of incentive compensation through
restricted stock unit grants emphasize our long-term performance. Although the
restricted stock grants may accumulate sizeable value over time, we believe that
the expected benefit to us and our shareholders outweighs the cost. The reward
is an appropriate motivational tool and is necessary to retain critical team
members in our high-growth company.
Our Chief Executive Officer, Chief Financial Officer and Senior Vice
Presidents receive annual grants subject to certain vesting restrictions. For
the past three years, the annual grants were based on a percentage of the
executive officer's base salary, with the Chief Executive Officer and Chief
Financial Officer receiving grants equal to 100% of their base salary, and the
Senior Vice Presidents receiving grants equal to 80% of their base salary. The
number of shares awarded to each executive officer is based on the closing sale
price of our stock at year-end. For example, Sally Smith's base salary for 2006
was $450,000, and the closing sale price of our stock at the end of 2005 was
$33.80 per share, which resulted in a restricted stock unit grant of 13,314
units.
The restricted stock unit grants vest equally over three years based
upon achievement of annual net income targets set by the Board of Directors. If
we achieve the annual net income target for the current fiscal year, the active
restricted stock participants will vest 33?% in their restricted stock units. As
long as we continue to achieve the annual net income targets for each of the
next two years, the participants will continue to vest 33?% each of those two
years. If we do not meet an annual net income target, no shares vest that year
but are held over until the next year. Active participants have up to ten years
from the date of the grant to earn vesting of all shares under the grant. The
Board of Directors sets the annual net income target for purposes of restricted
stock unit vesting at 95% of the net income target in the budget as adopted by
the Board of Directors, which budget generally requires a high level of
performance.
Although the Compensation Committee has the ability to grant stock
options pursuant to the terms of the company's 2003 Equity Incentive Plan, it
has not made any stock option grants during the last several years. Instead, the
Compensation Committee has elected to focus on grants of performance-based
restricted stock units as described in the preceding paragraph.
Other Benefits.
Deferred Compensation Program. We contribute a percentage of the
executive officers' annual base salary to our non-qualified deferred
compensation plan (the "Deferred Compensation Plan"). The Deferred Compensation
Plan is an unfunded plan maintained to provide additional retirement benefits to
the eligible employees as an executive retention tool. We make contributions to
the Deferred Compensation Plan in an aggregate annual amount of 12.5% of base
pay for each of the Chief Executive Officer and Chief Financial Officer. Our
contribution for each of the other executive officers is 10% annually.
From January 1, 2006 to September 1, 2006, executive officers earned
interest equal to the prime rate on their deferred compensation balances. As of
September 1, 2006, participants self-direct the investment of their
contributions in funds that mirror the funds offered by our 401(k) Plan. From
September 1, 2006 through December 2006, the average rate of return on the funds
available for self-directed investment was 5.2%.
13
Benefits under the Deferred Compensation Plan vest over five years from
his or her date of hire. If an executive terminates employment with us and
accepts employment with a competitor, the vesting schedule lengthens to ten
years from the date of hire. Participants may receive distributions from the
Deferred Compensation Plan as a lump sum payment or in annual installments.
Perquisites. We provide our executive officers and certain other key
employees with perquisites that we believe are reasonable and consistent with
our overall compensation program. The provision of perquisites creates business
advantages for us, such as the attraction and retention of highly qualified
employees for key positions. The Compensation Committee periodically reviews the
levels of perquisites and other personal benefits provided to our executive
officers.
We provide the personal benefits described below, which are quantified
in the column "All Other Compensation" of the "Summary Compensation Table" on
page 15:
o We provide and maintain a company-owned vehicle for the Chief
Executive Officer and Chief Financial Officer. We also pay for
insurance and maintenance on those vehicles. The other executive
officers receive a $500 per month vehicle allowance.
o We pay annual country club dues for one facility on behalf of the
Chief Executive Officer. We believe that a club membership will
facilitate Ms. Smith's role as a company representative in the
community.
o In addition to benefits available to all employees under company-wide
health, dental, and life insurance plans, we provide the executive
officers with supplemental medical reimbursement insurance and
supplemental life insurance. The supplemental medical insurance offers
reimbursement to the executives and their eligible dependents for up
to $5,000 annually of medical expenses not covered under our basic
medical plan, and is tax-free. The supplemental life insurance
provides the Chief Executive Officer and Chief Financial Officer with
additional coverage equal to five times their base salary, based on
salary levels at the time of the benefit's adoption in the year 2000.
The other executive officers receive additional coverage equal to
three times their annual base salary, based on salary levels at the
time of the benefit's adoption in the year 2000, or based on salary at
the time of hire for executives joining us since 2000. The
supplemental life insurance policies have a fixed value for the life
of the policy, and have not been increased for subsequent salary
adjustments.
o In addition to benefits available to employees under company-wide
short- and long-term disability insurance plans, we also provide the
executive officers with supplemental long-term disability insurance.
If an executive officer becomes totally disabled for more than
thirteen weeks, the supplemental disability insurance will provide
monthly income to that person until the earlier of their recovery or
their sixty-fifth birthday. Benefits are equal to 70% of the executive
officers' monthly base pay.
Compensation Committee Report
The Compensation Committee evaluates and establishes compensation for
executive officers and oversees the deferred compensation plan, the equity plan,
and other management incentive, benefit and perquisite programs. Management has
the primary responsibility for the company's financial statements and reporting
process, including the disclosure of executive compensation. With this in mind,
the Committee has reviewed and discussed with management the "Compensation
Discussion and Analysis" found on pages 9 - 14 of this proxy statement. The
Committee is satisfied that the Compensation Discussion and Analysis fairly and
completely represents the philosophy, intent, and actions of the Committee with
regard to executive compensation. The Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this
proxy statement for filing with the Securities and Exchange Commission.
Members of the Compensation Committee
Dale M. Applequist, Chair
J. Oliver Maggard
Michael P. Johnson
14
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid or accrued for our last fiscal year to the Chief Executive
Officer, Chief Financial Officer and the other three highest paid executive
officers based on total compensation, not including deferred compensation
earnings, which was earned or accrued for fiscal year 2006.
We have entered into employment agreements with each of the named
executive officers, which agreements are described below.
No bonus was paid to any named executive officer except as provided for
pursuant to the 2006 executive incentive plan, a non-equity incentive plan.
Based on the fair value of equity awards granted to named executive
officers in 2006 and the base salary of the named executive officers, "salary"
accounted for approximately 37% of the total compensation of the named executive
officers and incentive compensation accounted for approximately 63% of such
total compensation. Because the value of certain equity awards included below is
based on the FAS 123R value rather than the fair value, these percentages may
not be calculable using the table below.
Change in Pension
Value and
Non-Equity Nonqualified
Option Incentive Plan Deferred All Other
Name and Stock Awards Awards Compensation Compensation Compensation
Principal Position Year Salary ($) ($)(1) ($)(2) ($)(3) Earnings ($)(4) ($)(5) Total ($)
- ------------------------- ----- ----------- ------------ --------- --------------- ---------------- ------------ ----------
Sally J. Smith 2006 $450,000 $660,850(6) $5,520 $425,250 $26,456 $104,198 $1,672,274
Chief Executive
Officer and President
Mary J. Twinem 2006 $280,000 $251,628 $5,520 $264,600 $16,990 $64,608 $883,346
Chief Financial
Officer
James M. Schmidt 2006 $215,000 $159,199 $4,013 $147,490 $8,928 $43,636 $578,266
Executive VP, General
Counsel and Secretary
Judith A. Shoulak 2006 $230,000 $171,491 $2,745 $157,780 $11,276 $47,068 $620,360
Senior VP, Operations
E. Lee Sanders 2006 $215,000 $166,690 $2,791 $125,990 $13,650 $45,199 $569,320
Former Senior VP,
Development and
Franchising(7)
- --------------------
(1) The amounts reflect the amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in accordance with FAS
123R of awards pursuant to our restricted stock unit award program pursuant
to our 2003 Equity Incentive Plan and includes amounts from restricted
stock unit awards granted in and prior to fiscal year 2006. Assumptions
used in the calculation of these amounts are included in footnote 1(w) to
our audited financial statements included in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2006 filed with the Securities and
Exchange Commission. See "Option Exercises and Stock Vested" on page 19 for
shares and value realized by each named executive officer.
(2) The amounts reflect the amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in accordance with FAS
123R of stock option awards pursuant to our 2003 Equity Incentive Plan and
represents amounts from options granted prior to fiscal year 2006; no
options were granted in fiscal year 2006. Assumptions used in the
calculation of these amounts are included in footnote 1(w) to our audited
financial statements for fiscal year 2006 included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2006 filed with the
Securities and Exchange Commission.
(3) The amounts represent cash incentive awards made pursuant to our 2006
executive incentive plan, which is discussed in further detail in the
"Compensation Discussion and Analysis" under "Annual Cash Incentive
Compensation" on page 11.
15
(4) Aggregate increase in actuarial value of all defined benefit and actuarial
plans (including supplemental plans) accrued during the year and earnings
on nonqualified deferred compensation. Of the amount shown for Ms. Smith,
$9,770 was used to pay a life insurance premium for Ms. Smith.
(5) Other annual compensation for fiscal year 2006 consists of the items set
forth in the table below:
Executive Deferred
Executive Long-Term Executive Contribution Compensation
Auto Lease/ Medical Plan Disability Life Insurance Club to 401(k) Plan
Allowance(a) Reim-bursement Premiums Premiums Dues Plan Accrual(b)
-----------------------------------------------------------------------------------------------------
Sally J. Smith $20,200 $5,000 $6,682 $1,866 $5,400 $8,800 $56,250
Mary J. Twinem $16,000 $1,289 $2,548 $971 -- $8,800 $35,000
James M. Schmidt $ 6,000 $4,756 $1,684 $1,096 -- $8,600 $21,500
Judith A. Shoulak $ 6,000 $5,000 $2,538 $1,730 -- $8,800 $23,000
E. Lee Sanders $ 6,000 $4,484 $2,840 $1,775 -- $8,600 $21,500
------------------
(a) The amounts shown for Ms. Smith and Ms. Twinem cover the lease of an
automobile and $7,000 for maintenance of such automobile; the amounts
shown for all other named executive officers represent an automobile
allowance.
(b) These amounts exclude investment earnings (losses) on individual
deferred compensation investment account. The deferred compensation
vests on the basis of 20% for each year of service with Buffalo Wild
Wings.
(6) Even though Ms. Smith's restricted stock units were expensed for financial
statement reporting purposes as stated in note (1) above, the vesting is
subject to shareholder approval of the amendment to the 2003 Equity
Incentive Plan to permit us to deduct in full plan-related compensation
under Section 162(m) of the Internal Revenue Code (see Proposal #3 on page
22). In accordance with a December 7, 2006 amendment to the restricted
stock units that were to vest on December 31, 2006, these restricted stock
units will not vest and will terminate if shareholder approval of the
amendment is not received, in which case, Ms. Smith will not receive any
compensation with respect to such restricted stock units.
(7) Mr. Sanders resigned on March 30, 2007.
Employment Agreements
We have entered into employment agreements with each of our executive
officers, including each of the following: Sally J. Smith and Mary J. Twinem,
effective December 1, 1999, James M. Schmidt, effective April 22, 2002, and
Judith A. Shoulak, effective February 25, 2002. The agreements are for one-year
terms and include an automatic extension for successive one-year terms. All of
the foregoing agreements have been renewed and are currently in effect. The
agreements provide for a base salary, which salary is reviewed annually by the
Compensation Committee. The base salaries for fiscal year 2006 are set forth in
the table above. The current base salaries, effective as of January 1, 2007, are
$500,000 for Ms. Smith, $315,000 for Ms. Twinem, $235,000 for Mr. Schmidt, and
$255,000 for Ms. Shoulak.
We also entered into a similar employment agreement with E. Lee
Sanders, effective August 20, 2001, which agreement terminated on March 30, 2007
upon his resignation. Mr. Sanders is not entitled to any payments under such
agreement in connection with his resignation; however, in accordance with our
past practice, Mr. Sanders received two weeks vacation pay on March 30, 2007,
which amount was $8,269.
The employment agreements include termination and resignation
provisions, a confidentiality clause, a non-compete provision, and a severance
package in the event that we don't renew the agreement, the officer is
terminated without cause, or the officer resigns for good reason. See "Potential
Payments Upon Termination or Change in Control" on page 20 for further
information with respect to these provisions.
16
Grants of Plan-Based Awards
Grant Date
Estimated Future Payouts Under Estimated Future Payouts Under Equity Fair Value
Non-Equity Incentive Plan Awards(1) Incentive Plan Awards(2) of Stock
-------------------------------------- ----------------------------------------- and Option
Name Grant Date(3) Threshold ($) Target ($) Maximum ($) Threshold (#) Target (#) Maximum (#) Awards ($)(4)
- ----------------------------------------------------------------------- --------------------------------------------------------
Sally J. Smith 12/26/05 -- -- -- 4,438 13,314 13,314 $450,013
N/A $139,500 $337,500 $553,500
Mary J. Twinem 12/26/05 -- -- -- 2,761 8,284 8,284 $279,999
N/A $86,800 $210,000 $344,400
James M. Schmidt 12/26/05 -- -- -- 1,696 5,089 5,089 $172,008
N/A $49,235 $117,390 $191,780
Judith A. Shoulak 12/26/05 -- -- -- 1,814 5,444 5,444 $184,007
N/A $52,670 $125,580 $205,160
E. Lee Sanders 12/26/05 -- -- -- 1,696 5,089 5,089 $172,008
N/A $49,235 $117,390 $191,780
-------------------
(1) These columns show the range of payouts targeted for fiscal 2006
performance under our executive incentive plan as described in the
section titled "Annual Cash Incentive Compensation" in the
"Compensation Discussion and Analysis" on page11. The bonus payments
for 2006 performance have been made based on the metrics described and
are shown in the in the column "Non-equity Incentive Plan
Compensation" of the "Summary Compensation Table" on page 15.
(2) Reflects long-term incentive awards in the form of performance-based
restricted stock units granted to each named executive officer on
December 26, 2005 in accordance with our 2003 Equity Incentive Plan
and pursuant to our long-term incentive program described in the
"Compensation Discussion and Analysis" under "Equity Incentive
Compensation" on page 13.
(3) The restricted stock units were granted by the Compensation Committee
on November 30, 2005 effective as of December 26, 2005, the first day
of fiscal year 2006.
(4) The amounts represent the grant date fair value of long-term incentive
awards in the form of performance-based restricted stock units in
accordance with FAS 123R. Assumptions used in the calculation of these
amounts are included in footnote 1(w) to our audited financial
statements included in our annual report on From 10-K for the fiscal
year ended December 31, 2006.
17
Outstanding Equity Awards at Fiscal Year-End
Option Awards Stock Awards
------------------------------------------------------------- ------------------------------------------------
Equity
Incentive
Plan
wards:
Market
or Payout
Equity Value of
Incentive Unearned
Equity Plan Awards: Shares,
Incentive Plan Market Number of Units
Number of Number of Awards: Number Number of Value of Unearned or Other
Securities Securities of Securities Shares or Shares or Shares, Units Rights
Underlying Underlying Underlying Units of Units of or Other That
Unexercised Unexercised Unexercised Option Option Stock That Stock That Rights That Have Not
Options (#) Options (#) Unearned Exercise Expiration Have Not Have Not Have Not Vested
Name Exercisable Unexercisable Options (#) Price ($) Date Vested (#) Vested ($) Vested (#)(2) ($)(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Sally J. Smith 5,000 -- -- $4.15 01/28/08 -- -- 25,145 $1,337,714
12,000 -- -- $3.35 02/17/09
6,750 -- -- $3.90 02/28/10
6,723 -- -- $7.50 05/23/11
7,277 -- -- $7.50 05/23/11
5,000 -- -- $11.25 03/01/12
2,250 750(1) -- $18.15 05/29/13
Mary J. Twinem 30,000 -- -- $4.15 01/28/08 -- -- 7,928 $421,770
9,600 -- -- $7.50 05/23/11
5,000 -- -- $11.25 03/01/12
2,250 750(1) -- $18.15 05/29/13
James M. Schmidt 3,300 -- -- $3.90 05/23/10 -- -- 4,931 $262,329
3,000 -- -- $7.50 05/23/11
8,000 -- -- $11.25 04/22/12
1,200 400(1) -- $18.15 05/29/13
Judith A. Shoulak 2,500 -- -- $7.50 10/15/11 -- -- 5,321 $283,077
375 -- -- $11.25 03/01/12
1,200 400(1) -- $18.15 05/29/13
E. Lee Sanders -- 400(1) -- $18.15 05/29/13 -- -- 5,008 $266,426
- -----------------
(1) The stock options were granted on May 29, 2003. The unvested portion vests
on May 29, 2007; however, the unvested portion held by Mr. Sanders expired
upon his resignation on March 30, 2007.
(2) Includes performance-based restricted stock units awarded as follows:
Name Grant Date Units Vest on 05/24/07(a) Vest on 12/30/07(b) Vest on 12/28/08(b)
--------------------------------------------------------------------------------------------------------------
Sally J. Smith 06/11/04 4,137 4,137 -- --
12/27/04 7,694 3,847 3,847 --
12/26/05 13,314 4,438 4,438 4,438
Mary J. Twinem 12/27/04 2,405 -- 2,405 --
12/26/05 5,523 -- 2,761 2,762
James M. Schmidt 12/27/04 1,538 -- 1,538 --
12/26/05 3,393 -- 1,696 1,697
Judith A. Shoulak 12/27/04 1,692 -- 1,692 --
12/26/05 3,629 -- 1,815 1,814
E. Lee Sanders 12/27/04 1,615 -- 1,615 --
12/26/05 3,393 -- 1,696 1,697
------------
(a) The vesting is subject to shareholder approval of the amendment to
2003 Equity Incentive Plan to permit us to deduct in full
plan-related compensation under Section 162(m) of the Internal
Revenue Code (see Proposal #3 on page 22). In accordance with a
December 7, 2006 amendment to these restricted stock units which
were to originally vest on December 31, 2006, these restricted
stock units will not vest and will terminate if shareholder
approval of the amendment is not received, in which case, Ms.
Smith will not receive the shares under such restricted stock
units.
(b) The vesting is subject to certain performance targets being
attained; therefore, the vesting may occur on a later date or not
at all.
18
(3) The amounts reflect the value as calculated based on the closing price of
our common stock on December 29, 2006 of $53.20. The amount shown for Ms.
Smith includes $660,850 for 12,422 restricted stock units which were to
vest on December 31, 2006; however, pursuant to a December 7, 2006
amendment to such restricted stock units, the vesting became subject to
shareholder approval of the amendment to the 2003 Equity Incentive Plan to
permit us to deduct in full plan-related compensation under Section 162(m)
of the Internal Revenue Code (see Proposal #3 on page 22). If shareholder
approval of the amendment is received, these restricted stock units will
vest immediately, and 12,422 shares will be issued to Ms. Smith as of such
approval date with a market value as of such date. If shareholder approval
is not received, these restricted stock units will not vest and will
terminate, in which case, Ms. Smith will not receive the shares under such
restricted stock units.
Option Exercises and Stock Vested
Option Awards Stock Awards
----------------------------------------------- ------------------------------------------------
Name Number of Shares Acquired Value Realized Number of Shares Acquired Value Realized
on Exercise (#) on Exercise ($)(1) on Vesting (#)(2) on Vesting ($)(2)
- -------------------------------------------------------------------- ------------------------------------------------
Sally J. Smith 25,000 $685,750 0(3) 0(3)
Mary J. Twinem -- -- 7,824 $416,237
James M. Schmidt 4,355 $198,724 4,956 $263,659
Judith A. Shoulak -- -- 5,333 $283,716
E. Lee Sanders 3,150 $102,648 5,204 $276,853
- ------------------
(1) Amounts reflect the difference between the exercise price of the stock
option and the market price at the time of exercise.
(2) The value realized reflects the market value of the stock on the date that
the restricted stock units vested. These shares represent performance
awards issued on June 11, 2004, December 27, 2004 and December 26, 2005,
which vested on December 31, 2006 and were subsequently issued on March 12,
2007.
(3) Restricted stock units for 12,422 shares were to vest on December 31, 2006
with a value of $660,850; however, pursuant to a December 7, 2006 amendment
to such restricted stock units, the vesting became subject to shareholder
approval of the amendment to the 2003 Equity Incentive Plan to permit us to
deduct in full plan-related compensation under Section 162(m) of the
Internal Revenue Code (see Proposal #3 on page 22). If shareholder approval
of the amendment is received, these restricted stock units will vest, and
12,422 shares will be issued to Ms. Smith as of such approval date with a
market value as of such date. If shareholder approval is not received,
these restricted stock units will not vest and will terminate, in which
case, Ms. Smith will not receive the shares under such restricted stock
units.
Nonqualified Deferred Compensation
Under our deferred compensation plan, deferred compensation is accrued,
which amounts are subject to certain vesting provisions, depending on length of
employment and circumstances of employment termination. The amount of deferred
compensation is based on a percentage of base salary, which amount for 2006 was
12.5% for Ms. Smith and Ms. Twinem and 10% for the other named executive
officers. Benefits are normally paid out in annual installments over five years,
except in the case of death, in which case a lump sum is paid to the
beneficiaries.
Executive Registrant
Contributions in Contributions in Last Aggregate Earnings Aggregate Withdrawals/ Aggregate Balance at
Name Last FY ($) FY ($)(1) in Last FY ($) Distributions ($) Last FYE ($)
- --------------------------------------------------------------------------------------------------------------------------------
Sally J. Smith -- $56,250 $16,686 -- $253,867
Mary J. Twinem -- $35,000 $16,990 -- $223,764
James M. Schmidt -- $21,500 $8,928 -- $102,620
Judith A. Shoulak -- $23,000 $11,276 -- $108,000
E. Lee Sanders -- $21,500 $13,650 -- $125,581
- ------------------
(1) Amounts are also reported as compensation to the named executive officers
in the "All Other Compensation" column of the "Summary Compensation Table"
on page 15.
19
Potential Payments Upon Termination or Change in Control
As set forth under "Employment Agreements" on page 16, we have entered
into employment agreements with each of our named executive officers. According
to these employment agreements and our incentive plans, the named executive
officers would be entitled to payments and benefits upon certain terminations.
We have no agreements with our named executive officers to specifically provide
for benefits upon terminations in connection with a change in control of
company, except that the vesting would accelerate to 100% upon such an event
under our deferred compensation plan. Upon termination for "cause" (as defined
in the agreements), resignation without "good reason" (as defined in the
employment agreements), or upon death or "permanent disability" (as defined in
the employment agreements), the named executive officers would not be entitled
to any further compensation or benefits after the termination date pursuant to
the employment agreements. The employment agreements provide for payments upon
(i) termination "without cause," (ii) resignation for "good reason," and (iii)
our failure to extend employment agreement. The named executive officers would
have the right to receive benefits or payments under any plan to the extent
vested upon any termination or resignation. Assuming that the named executive
officers' employment terminated at the close of business on December 31, 2006,
the named executive officers would have been entitled to the following payments
and benefits:
Vested but Unissued
Accrued but Restricted Deferred Total
Unpaid Stock Compensation Termination
Salary(1) Bonus(2) Units(3) (4) Benefits(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Sally J. Smith
- ----------------------------------------------------------------------------------------------------------------------------------
o Resignation for employment with a competitor $17,308 $335,250 $660,850 $253,867 $1,267,275
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination for cause; resignation without good $17,308 $335,250 $660,850 $253,867 $1,267,275
reason
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Death or Permanent Disability $17,308 $425,250 $660,850 $253,867 $1,357,275
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination without cause, resignation for good $467,308 $425,250 $660,850 $253,867 $1,807,275
reason or company's failure to extend
employment agreement
- ----------------------------------------------------------------------------------------------------------------------------------
Mary J. Twinem
- ----------------------------------------------------------------------------------------------------------------------------------
o Resignation for employment with a competitor $10,769 $208,600 $251,628 $223,764 $694,761
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination for cause; resignation without good $10,769 $208,600 $251,628 $223,764 $694,761
reason
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Death or Permanent Disability $10,769 $264,600 $251,628 $223,764 $750,761
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination without cause, resignation for good $290,769 $264,600 $251,628 $223,764 $1,030,761
reason or company's failure to extend
employment agreement
- ----------------------------------------------------------------------------------------------------------------------------------
James M. Schmidt
- ----------------------------------------------------------------------------------------------------------------------------------
o Resignation for employment with a competitor $8,269 $115,240 $159,199 $41,048 $323,756
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination for cause; resignation without good $8,269 $115,240 $159,199 $82,096 $364,804
reason
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Death or Permanent Disability $8,269 $147,490 $159,199 $102,620 $417,578
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination without cause, resignation for good $115,769 $147,490 $159,199 $82,096 $504,554
reason or failure to extend employment agreement
- ----------------------------------------------------------------------------------------------------------------------------------
Judith A. Shoulak
- ----------------------------------------------------------------------------------------------------------------------------------
o Resignation for employment with a competitor $8,846 $123,280 $171,491 $54,000 $357,617
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination for cause; resignation without good $8,846 $123,280 $171,491 $108,000 $411,617
reason
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Death or Permanent Disability $8,846 $157,780 $171,491 $108,000 $416,213
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination without cause, resignation for good $123,846 $157,780 $171,491 $108,000 $531,213
reason or company's failure to extend
employment agreement
- ----------------------------------------------------------------------------------------------------------------------------------
E. Lee Sanders
- ----------------------------------------------------------------------------------------------------------------------------------
o Resignation for employment with a competitor $8,269 $115,240 $166,690 $62,791 $352,990
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination for cause; resignation without good $8,269 $115,240 $166,690 $125,581 $415,780
reason
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Death or Permanent Disability $8,269 $125,990 $166,690 $125,581 $426,530
- ------------------------------------------------------ ------------- -------------- --------------------- ------------ -----------
o Termination without cause, resignation for good $115,769 $125,990 $166,690 $125,581 $534,030
reason or company's failure to extend
employment agreement
- ------------------------------------------------------ ------------- -------------- --------------------- --------------------- --
20
- ------------------
(1) Upon termination without cause, resignation for good reason or the
company's failure to extend the employment agreement, Ms. Smith and Ms.
Twinem are entitled to 12 months' salary, and the other executives are
entitled to 6 months' salary, which amounts are as follows: Ms. Smith -
$450,000, Ms. Twinem - $280,000, Mr. Schmidt - $107,500, Ms. Shoulak -
$115,000, and Mr. Sanders - $107,500. In addition, our practice has been to
pay the executive two weeks' vacation pay upon termination for any reason .
The amounts shown include vacation pay as follows: Ms. Smith - $17,308, Ms.
Twinem - $10,769, Mr. Schmidt - $8,269, Ms. Shoulak - $8,846, and Mr.
Sanders - $8,269.
(2) The amounts represent cash incentive awards made pursuant to our 2006
executive incentive plan, which is discussed in further detail on page 11
under "Annual Cash Incentive Compensation" of the "Compensation Discussion
and Analysis." If the resignation or termination occurred prior to the last
day of the fiscal year, the executive would not be entitled to any bonus
for such year. For purposes of this presentation, it is assumed that the
terminations were on December 31, 2006, the last day of fiscal year 2006;
therefore, the earned bonus would be paid under all terminations, but the
discretionary portion would not be paid upon termination for cause or
resignation without good reason.
(3) The amounts reflect the amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in accordance with FAS
123R of awards pursuant to our restricted stock unit award program pursuant
to our 2003 Equity Incentive Plan and includes amounts from restricted
stock unit awards granted in and prior to fiscal year 2006, which vested on
December 31, 2006. Assumptions used in the calculation of these amounts are
included in footnote 1(w) to our audited financial statements included in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2006
filed with the Securities and Exchange Commission. Unvested awards do not
accelerate upon termination for any reason.
(4) The deferred compensation plan provides for acceleration of vesting to 100%
upon the occurrence of (i) death or disability, (ii) retirement at or after
age 65, or (iii) change in control. If the terminations or resignations
(except in connection with taking employment with a competitor) were in
connection with a change in control or followed a change in control, the
deferred compensation amount would be increased to $102,620 for Mr.
Schmidt, and his total termination benefits would be $385,328 upon
termination for cause or resignation without good reason and $632,578 upon
termination without cause, resignation for good reason or failure to extend
employment agreement.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by us, we
believe that, during fiscal year 2006, all officers, directors, and greater than
ten-percent beneficial owners complied with the applicable filing requirements
except that: Ms. Smith reported two option exercises on a late Form 4; E. Lee
Sanders reported one option exercise on a late Form 4; Craig Donoghue reported
five option exercises on late Forms 4; Linda G. Traylor reported her initial
holdings (none) on a late Form 3; Mr. Maggard reported four sales late on a Form
5 that was timely filed and an option exercise and sale on a late Form 4; and
Ms. Shoulak reported two sales late on a Form 5 that was not timely filed.
Certain Relationships and Related Transactions
Our Board of Directors adopted a policy with respect to related party
transactions to set out procedures pursuant to which related party transactions
are reviewed and approved. The policy covers all transactions between us and any
related party (including any transactions requiring disclosure under Item 404 of
Regulation S-K), other than transactions generally available to all employees
and transactions involving less than five thousand dollars ($5,000) when
aggregated with all similar transactions. The Audit Committee is generally
responsible for reviewing and assessing the adequacy of the policy and
recommends to the Board revisions to such policy. The Audit Committee oversees
administration of the policy. A related party transaction may be consummated if
it is ratified or approved by the Audit Committee and it is on terms comparable
to those that could be obtained in arm's length dealings with an unrelated third
party or it is approved by the disinterested members of the Board of Directors.
Since the beginning of fiscal 2006, there have been no transactions or
business relationships, other than as disclosed herein, between us and our
executive officers, directors, director nominees, and affiliates.
21
APPROVAL OF AN AMENDMENT TO
THE 2003 EQUITY INCENTIVE PLAN
(Proposal #3)
Proposed Amendment
The Board of Directors amended our 2003 Equity Incentive Plan (the
"Equity Plan") to add certain provisions of the Equity Plan in order to preserve
our ability to deduct in full certain plan-related compensation under Section
162(m) of the Internal Revenue Code (the "Amendment").
Reasons for the Amendment
We believe that our Equity Plan is an important factor in attracting
and retaining skilled personnel. As of April 2, 2007, there were 126,486 shares
of Common Stock under outstanding options and 159,376 shares of Common Stock
under outstanding restricted stock units granted pursuant to the Equity Plan. As
of April 2, 2007, 354,063 shares were available for issuance of awards under the
Equity Plan. The Board of Directors believes that granting fairly priced stock
options and restricted stock and restricted stock unit awards to employees,
officers, consultants and directors is an effective means to promote the future
growth and development of the company. Such options and awards, among other
things, increase these individuals' proprietary interest in our success and
enable us to attract and retain qualified personnel. The Board of Directors also
believes that the Equity Plan ties the employees' goals and interests to those
of the company and its shareholders.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally denies a corporate tax deduction for annual compensation
exceeding $1 million paid to the chief executive officer or to any of the four
other most highly compensated officers of a publicly-held company. However,
certain types of compensation, including performance-based compensation, are
excluded from this limit. Generally speaking, for compensation resulting from
restricted stock and restricted stock units to qualify as "performance-based"
within the meaning of Code Section 162(m), the following conditions must be met:
(i) the grant of such restricted stock and restricted stock units must be made
by a compensation committee of the Board of Directors that consists solely of
two or more "outside directors" as defined by Code Section 162(m), (ii) the
granting or vesting of the restricted stock or restricted stock units must be
conditioned on the achievement of one or more objective performance criteria,
the material terms of which are approved by the shareholders, (iii) the
shareholders approve the class of employees eligible to receive restricted stock
awards and restricted stock units, and (iv) the Equity Plan must state the
maximum number of shares for which such restricted stock awards and restricted
stock units may be granted to any employee during a specified period, and the
shareholders must approve such limit.
The Board of Directors believes that it is in the best interests of
Buffalo Wild Wings and its shareholders to preserve the ability to deduct in
full the compensation resulting from the grant of restricted stock and
restricted stock units granted under the Equity Plan following the Annual
Meeting. Therefore, the Board of Directors has amended the Equity Plan to
provide for performance-based grants or vesting of restricted stock and
restricted stock units and to otherwise ensure that restricted stock awards and
restricted stock units granted under the Equity Plan comply with the
requirements of Code Section 162(m).
The Board of Directors recommends that shareholders vote "FOR" the
approval of the amendment to our Equity Plan.
The essential features of the Equity Plan, as amended, are outlined
below.
Description of the 2003 Equity Incentive Plan
A general description of the material features of the Equity Plan
follows, but this description is qualified in its entirety by reference to the
full text of the Equity Plan, a copy of which may be obtained without charge
upon request to James M. Schmidt, our Executive Vice President, General Counsel
and Secretary.
General. Under the Equity Plan, the Board of Directors or a committee
appointed by the Board (the "Administrator") may grant incentive and
nonqualified stock options and restricted stock and restricted stock unit awards
to those officers and employees of ours (including our subsidiaries and
affiliates), or our directors, consultants, or advisors whose performance, in
the judgment of the Administrator, can have a significant effect on our success.
22
Any committee appointed by the Board to administer the Equity Plan shall consist
of at least two "non-employee" directors (as defined in Rule 16b-3, or any
successor provision, of the General Rules and Regulations under the Securities
Exchange Act of 1934). Further, for purposes of granting restricted stock awards
or restricted stock unit awards that are intended to qualify as
"performance-based compensation," such directors shall be "outside directors" as
defined in Code Section 162(m). As of March 26, 2006, we had 1,250 full-time
employees, of which seven are executive officers, and seven non-employee
directors.
Shares Reserved and Available. The Equity Plan provides for the
issuance of up to 1,450,000 shares of our Common Stock, subject to adjustment of
such number in the event of future increases or decreases in the number of our
outstanding shares of Common Stock effected as a result of stock splits, stock
dividends, combinations of shares, or similar transactions in which we receive
no consideration. If any options or awards granted under the Equity Plan expire
or terminate prior to exercise or the lapsing of any risks of forfeiture, the
shares subject to that portion of the option or award are available for
subsequent grants.
Term. Incentive stock options may be granted pursuant to the Equity
Plan during a period of ten (10) years from the date the Board of Directors
approved the Equity Plan (until September 3, 2013), and nonqualified stock
options and restricted stock awards may be granted until the Equity Plan is
discontinued or terminated by the Board of Directors.
Administration and Types of Awards. The Administrator has broad powers
to administer and interpret the Equity Plan, including the authority to (i)
establish rules for the administration of the Equity Plan, (ii) select the
participants in the Equity Plan, (iii) determine the types of options and awards
to be granted and the number of shares covered by such options and awards, and
(iv) set the terms and conditions of such options and awards.
Options. Options granted under the Equity Plan may be either
"incentive" stock options within the meaning of Section 422 of the Internal
Revenue Code ("IRC") or "nonqualified" stock options that do not qualify for
special tax treatment under the IRC. No incentive stock option may be granted
with a per share exercise price less than the fair market value of a share of
our Common Stock on the date the option is granted. The Administrator will
determine the term of the option (which in case of an incentive stock option,
generally may not exceed ten years) and how it will become exercisable. An
incentive stock option may not be transferred by an optionee except by will or
the laws of descent and distribution. In certain circumstances, a nonqualified
option may be transferred to a member of an optionee's family, a trust for the
benefit of such immediate family members, or a partnership in which such family
members are the only partners.
Restricted Stock and Restricted Stock Unit Award. The Administrator is
also authorized to grant awards of restricted stock and restricted stock units.
Each restricted stock or restricted stock unit award granted under the Equity
Plan shall be for a number of shares as determined by the Administrator, and the
Administrator, in its discretion, may also establish continued employment,
vesting or other conditions that must be satisfied for the risks of forfeiture
to lapse. No award is transferable, other than by will or the laws of descent
and distribution, prior to the lapsing of the risks of forfeiture. During any
one fiscal year, no participant shall receive restricted stock awards or
restricted stock unit awards for a number of shares that is greater than (i)
175% of the participant's base salary in effect on the date of the grant of the
award, divided by (ii) the fair market value of our Common Stock on the date of
the grant of the award.
If a restricted stock award or restricted stock unit award is intended
to qualify as "performance-based compensation" under Code Section 162(m), the
risks of forfeiture shall lapse based on the achievement of one or more
performance objectives established in writing by the Administrator in accordance
with Code Section 162(m) and the applicable regulations. Such performance
objectives ( the "Performance Objectives") shall consist of any one, or a
combination of, (i) revenue, (ii) net income, (iii) stockholders' equity, (iv)
earnings per share, (v) return on equity, (vi) return on assets, (vii) total
shareholder return, (viii) net operating income, (ix) cost controls, (x) cash
flow, (xi) increase in revenue, (xii) increase in share price or earnings,
(xiii) return on investment, (xiv) department or business unit performance
goals, or (xv) increase in market share, in all cases including, if selected by
the Administrator, minimum threshold, target and maximum levels.
Amendment. The Board of Directors may, from time to time, suspend or
discontinue the Equity Plan or revise or amend it in any respect; provided, (i)
no such revision or amendment may impair the terms and conditions of any
outstanding option or award to the material detriment of the participant without
the consent of the participant, except as authorized in the event of our merger,
consolidation, or liquidation; and (ii) the Equity Plan may not be amended in
any manner that will (a) materially increase the number of shares subject to the
Equity Plan except as provided in the case of stock splits, consolidations,
stock dividends, or similar events, (b) change the designation of the class of
23
employees eligible to receive awards, (c) decrease the price at which options
will be granted, or (d) materially increase the benefits accruing to
participants under the Equity Plan without the approval of the shareholders, to
the extent such approval is required by applicable law or regulation.
Federal Income Tax Matters
Options. Under present law, an optionee will not realize any taxable
income on the date a nonqualified option is granted pursuant to the Equity Plan.
Upon exercise of the option, however, the optionee must recognize, in the year
of exercise, ordinary income equal to the difference between the option price
and the fair market value of our Common Stock on the date of exercise. Upon the
sale of the shares, any resulting gain or loss will be treated as capital gain
or loss. We will receive an income tax deduction in our fiscal year in which
nonqualified options are exercised equal to the amount of ordinary income
recognized by those optionees exercising options and must withhold income and
other employment-related taxes on such ordinary income.
Incentive stock options granted under the Equity Plan are intended to
qualify for favorable tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended. Under Section 422, an optionee recognizes no taxable
income when the option is granted. Further, the optionee generally will not
recognize any taxable income when the option is exercised if he has at all times
from the date of the option's grant until three months before the date of
exercise been our employee. We ordinarily are not entitled to any income tax
deduction upon the grant or exercise of an incentive stock option. Certain other
favorable tax consequences may be available to the optionee if he or she does
not dispose of the shares acquired upon the exercise of an incentive stock
option for a period of two years from the granting of the option and one year
from the receipt of the shares.
Restricted Stock and Restricted Stock Unit Awards. Generally, no income
is taxable to the recipient of a restricted stock or restricted stock unit award
in the year that the award is granted. Instead, the recipient will recognize
compensation taxable as ordinary income equal to the fair market value of the
shares in the year in which the transfer restrictions lapse. Alternatively, if a
recipient makes a "Section 83(b)" election, the recipient will, in the year that
the award is granted, recognize compensation taxable as ordinary income equal to
the fair market value of the shares on the date of the award. The Company
normally will receive a deduction equal to the amount of compensation the
recipient is required to recognize as ordinary taxable income and must comply
with applicable tax withholding requirements.
Equity Plan Benefits
The table below shows the total number of shares underlying stock
options and restricted stock units that have been granted under the Equity Plan
as of April 2, 2007 to each executive officer and the groups set forth,
including shares underlying options that may have been exercised and shares
underlying restricted stock units that may have vested. Because future grants of
stock options and restricted stock and restricted stock unit awards are subject
to the discretion of the Administrator, the future benefits that may be received
by these individuals and groups under the Equity Plan cannot be determined at
this time.
Shares of Common Stock Shares of Common Stock
Underlying Underlying Restricted
Name and Position/Group Options Received(1) Stock Units Received(2)
- ----------------------- ------------------- -----------------------
Sally J. Smith 175,522 46,664
President and CEO
Mary J. Twinem 113,600 29,397
Executive Vice President, CFO and Treasurer
James M. Schmidt 26,100 19,285
Executive Vice President, General Counsel and Secretary
Judith A. Shoulak 7,100 19,832
Senior Vice President, Human Resources
E. Lee Sanders 12,600 18,843
Former Senior Vice President, Development and Franchising
Current Executive Officers as a Group (7 persons) 397,522 152,177
Current Directors who are not Executive Officers 66,604 23,993
as a Group (7 persons)
Current Employees who are not Executive Officers 169,210 119,028
or Directors as a Group
- ---------------
(1) Includes shares underlying options that have been exercised by holder.
(2) Includes shares underlying restricted stock units that have vested and been
issued to recipient.
24
Equity Compensation Plan Information
The following table summarizes our equity compensation plan information
as of December 31, 2006, our fiscal year end.
Number of securities
remaining available
for future issuance under
Number of securities to be issued Weighted average exercise equity compensation
upon exercise of outstanding price of outstanding options, plans (excluding securities
Plan Category options, warrants and rights warrants and rights reflected in column (a))
------------- -------------------------------- ---------------------------- -------------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 294,599 $8.45 655,215(1)
Equity compensation plans not
approved by security holders -- -- --
------------ ------------ --------
TOTAL 294,599 $8.45 655,215
-------------
(1) Includes 231,907 shares remaining available under our Employee Stock Purchase Plan.
Vote Required
The Board of Directors recommends that the shareholders approve the
amendment of the 2003 Equity Incentive Plan to provide for our deduction of
certain compensation under Section 162(m) of the Internal Revenue Code. Approval
of the amendment of the 2003 Equity Incentive Plan requires the affirmative vote
of a majority of the shares represented at the Annual Meeting in person or by
proxy.
APPROVAL OF CASH INCENTIVE PLAN
(Proposal #4)
The Board of Directors adopted subject to shareholder approval, the
Buffalo Wild Wings, Inc. Cash Incentive Plan (the "Incentive Plan") to provide
incentives and rewards to certain key employees of the Company in the form of
annual incentive bonuses based on the achievement of certain performance
objectives, as well as individual performance.
Background
Buffalo Wild Wings, Inc. has, in the past, provided annual incentive
payments to certain key executives under an annual incentive bonus program.
Bonuses were based on the achievement of certain business and financial
objectives. Code Section 162(m) generally denies a corporate tax deduction for
annual compensation exceeding $1 million paid to the chief executive officer or
to any of the four other most highly compensated officers of a publicly-held
company. However, certain types of compensation, including performance-based
compensation, are excluded from this limit. In the past, the annual incentive
bonuses have not satisfied all of the requirements for performance-based
compensation under Code Section 162(m), primarily because the shareholders have
not approved the material terms of the performance criteria and the class of
employees who are eligible for such payments.
The Board of Directors believes that it is in the best interests of
Buffalo Wild Wings, Inc. and its shareholders to preserve the ability of the
Company to deduct in full the compensation resulting from the annual incentive
payments. Therefore, the Board of Directors desires to take the necessary action
to ensure that annual incentive bonuses comply with the requirements of Code
Section 162(m) by requesting our shareholders to approve the Incentive Plan.
25
Summary of Incentive Plan
The Incentive Plan is administered by the Compensation Committee of the
Board of Directors. The members of the Compensation Committee are "outside
directors" within the meaning of Code Section 162(m), and are not eligible to
participate in the Incentive Plan. The Compensation Committee has authority to
administer the Incentive Plan.
Senior management, including the Chief Executive Officer and other
named executive officers, are eligible to participate in the Incentive Plan. The
Committee shall, from time to time, designate those management employees of the
Company who shall be eligible to participate in the Incentive Plan. Any
management employee selected to participate in the Incentive Plan shall continue
to participate each fiscal year until otherwise determined by the Committee. The
Committee shall periodically review its selection of participants and make any
changes as the Committee, in its sole discretion, deems appropriate. The
Committee may, in its sole discretion, designate certain management employees as
being ineligible to participate in the Incentive Plan; provided, however, that
the discontinuation of a management employee's eligibility shall not alter,
impair or reduce the value of any annual incentive bonus earned by such employee
without his or her consent
At or prior to the beginning of each fiscal year, the Compensation
Committee sets a target bonus amount for each executive officer. The bonus is
based on the achievement of pre-established performance objectives for the
fiscal year. The performance objectives may include any one, or a combination
of, (i) revenue, (ii) net income, (iii) stockholders' equity, (iv) earnings per
share, (v) return on equity, (vi) return on assets, (vii) total shareholder
return, (viii) net operating income, (ix) cost controls, (x) cash flow, (xi)
increase in revenue, (xii) increase in share price or earnings, (xiii) return on
investment, (xiv) department or business unit performance goals, (xv) increase
in market share, (xvi) same-store sale increases, (xvii) increases in the number
of store locations, (xviii) financial performance that exceeds the financial
performance of the Company's peers in the industry, and (xix) individual
performance goals, in all cases including, if selected by the Committee, minimum
threshold, target and maximum levels. Generally speaking, the Compensation
Committee will determine the specific performance goals prior to the 90th day of
the fiscal year.
The level of bonus will vary depending upon the percentage of the
performance objectives achieved. At each level, the amount of incentive bonus
payable to the Participant shall be a percentage of the Participant's base
salary; provided, however, that in no event shall the Participant's maximum
annual incentive bonus exceed 175% of his or her base salary in effect at the
end of the Company's fiscal year; and provided, further, that if a certain
minimum percentage of the performance objectives is not achieved, no annual
incentive bonus will be paid to the participant. The performance objectives and
maximum annual incentive bonus shall be communicated to the participant as soon
as administratively practicable after the beginning of such fiscal year. The
annual incentive bonus for a participant may vary from fiscal year to fiscal
year, and annual incentive bonus awards may vary from participant to
participant.
After completion of the fiscal year, the Compensation Committee will
determine and certify the degree to which the performance goals have been
achieved. The Compensation Committee may make discretionary adjustments to the
annual bonus amounts, but it cannot increase an executive officer's targeted
bonus. If the participant terminates employment with the Company prior to the
last day of the fiscal year for a reason other than death or disability, the
Participant shall not earn the annual incentive bonus for that year. If the
participant terminates employment with the Company prior to the last day of the
fiscal year due to death or disability, the Participant shall be entitled to a
prorated annual incentive bonus, based on the number of days in the fiscal year
that the participant was employed. The annual incentive bonus (less applicable
withholding) shall be paid to the participant (or, in the event of the
participant's death to the participant's estate) in cash, in a single lump-sum
payment, as soon as administratively practicable after the date the Committee
certifies the achievement of the performance objectives specified for the fiscal
year, but not later than the 15th day of the third month following the end of
the fiscal year during which the annual incentive bonus was earned.
The benefits that will be payable for the 2007 fiscal year are
undeterminable at this time, as such benefits will be based on the specific
performance goals chosen and the extent to which those goals are achieved.
26
Vote Required
The Board of Directors recommends that the shareholders approve the
terms of the Cash Incentive Plan. Approval of the Cash Incentive Plan requires
the affirmative vote of the holders of a majority of the voting power of the
shares represented in person or by proxy at the Annual Meeting with authority to
vote on such matters.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
General
KPMG LLP, an independent registered public accounting firm, has served
as our accountants since 1994. The Audit Committee has retained KPMG LLP to
audit our financial statements for the year ending December 30, 2007. The Audit
Committee may direct the appointment of new independent auditors at anytime
during the year without notice to, or the consent of, the shareholders, and the
Audit Committee would do so if it were in our best interest and the interest of
our shareholders. KPMG LLP provided services in connection with the audit of our
financial statements for the year ended December 31, 2006, and consultation on
matters relating to accounting and financial reporting. Representatives of KPMG
LLP are expected to be present at the Annual Meeting and will be given an
opportunity to make a statement if so desired and to respond to appropriate
questions.
Audit Fees
We paid the following fees to KPMG LLP for fiscal years 2005 and 2006:
2005 2006
---- ----
Audit Fees $385,000 $405,000
Audit-Related Fees 55,000 33,000
Tax Fees 0 0
All Other Fees 0 0
------------ ------------
$440,000 $438,000
Audit fees consist of fees billed or estimated to be billed to KPMG LLP
for the audit of the annual financial statements included in our Annual Report
on Form 10-K, review of financial statements included in the Quarterly Reports
on Form 10-Q, the audit of our internal control over financial reporting with
the objective of obtaining reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects, and
the attestation of management's report on the effectiveness of internal control
over financial reporting.
Audit-related fees consist of fees billed for services in connection
with the audit of our employee benefit plan and National Advertising Fund as
well as other assurance and related services that are related to the performance
of the audit of our financial statements and are not reported under Audit Fees.
In addition, audit-related fees for 2005 include $28,000 related to the 2004
audit but billed and paid in fiscal 2005.
The Audit Committee has considered whether provision of the above
audit-related services is compatible with maintaining the registered public
accounting firm's independence and has determined that such services are
compatible with maintaining registered public accounting firm's independence.
Pre-Approval of Audit Fees
Pursuant to its written charter, the Audit Committee is responsible for
pre-approving all audit and permitted non-audit services to be performed for
Buffalo Wild Wings by its independent registered public accounting firm or any
other auditing or accounting firm.
Report of Audit Committee
The Board of Directors maintains an Audit Committee comprised of three
of our outside directors. The Board of Directors and the Audit Committee believe
that the Audit Committee's current member composition satisfies the rule of the
National Association of Securities Dealers, Inc. ("NASD") that governs audit
27
committees, Rule 4350(d)(2), including the requirement that audit committee
members all be "independent directors" as that term is defined by NASD Rule
4200(a)(15).
In accordance with its written charter adopted by the Board of
Directors, which is available on Buffalo Wild Wings' website at
www.buffalowildwings.com, the Audit Committee assists the Board of Directors
with fulfilling its oversight responsibility regarding the quality and integrity
of our accounting, auditing and financial reporting practices. In performing its
oversight responsibilities regarding the audit process, the Audit Committee:
(1) reviewed and discussed the audited consolidated financial
statements with management;
(2) discussed with the independent registered public accounting firm
the matters required to be discussed by the Statement on Auditing
Standards No. 61, as amended; and
(3) received and reviewed the written disclosures from the independent
registered public accounting firm required by the Independence
Standards Board Standard No.1 and discussed with the independent
registered public accounting firm any relationships that may
impact its objectivity and independence.
Management has completed the documentation, testing, and evaluation of
our system of internal control over financial reporting in response to the
requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and
related regulations. The Audit Committee met periodically, both independently
and with management, to review and discuss our progress in complying with
Section 404, including the Public Company Accounting Oversight Board's (PCAOB)
Auditing Standard No. 2 regarding the audit of the internal control financial
reporting. The Audit Committee also met periodically with KPMG LLP, our
independent registered public accounting firm to discuss our internal controls
and the status of our Section 404 compliance efforts. At the conclusion of the
process, management provided the Audit Committee with a report on the
effectiveness of our internal control over financial reporting. The Audit
Committee continues to oversee our efforts related to our internal controls.
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2006, as filed with the Securities and Exchange
Commission.
Members of the Audit Committee
J. Oliver Maggard, Chair
Robert W. MacDonald
Michael P. Johnson
OTHER BUSINESS
Management knows of no other matters to be presented at the 2007 Annual
Meeting. If any other matter properly comes before the 2007 Annual Meeting, the
appointees named in the proxies will vote the proxies in accordance with their
best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the company and
intended to be presented at the 2008 Annual Meeting must be received by us by
December 22, 2007 to be included in our proxy statement and related proxy for
the 2008 Annual Meeting. If a shareholder proposal intended to be presented at
the 2008 annual meeting but not included in the proxy materials is received by
us after March 6, 2008, then management named in our proxy for the 2008 Annual
Meeting will have discretionary authority to vote shares represented by such
proxies on the shareholder proposal, if presented at the meeting.
ANNUAL REPORT
A copy of our Annual Report to Shareholders for the fiscal year ended
December 31, 2006, including financial statements, accompanies this Notice of
Annual Meeting and Proxy Statement. No portion of the Annual Report is
incorporated herein or is to be considered proxy soliciting material.
28
FORM 10-K
WE WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF OUR ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND A
LIST OF EXHIBITS TO SUCH FORM 10-K. WE WILL FURNISH TO ANY SUCH PERSON ANY
EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE FORM 10-K UPON THE ADVANCE
PAYMENT OF REASONABLE FEES. REQUESTS FOR A COPY OF THE FORM 10-K AND/OR ANY
EXHIBIT(S) SHOULD BE DIRECTED TO JAMES M. SCHMIDT, EXECUTIVE VP, GENERAL COUNSEL
AND SECRETARY OF BUFFALO WILD WINGS, INC., 1600 UTICA AVENUE SOUTH, SUITE 700,
MINNEAPOLIS, MINNESOTA 55416. YOUR REQUEST MUST CONTAIN A REPRESENTATION THAT,
AS OF APRIL 2, 2007, YOU WERE A BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT
THE 2006 ANNUAL MEETING OF SHAREHOLDERS.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Sally J. Smith
-----------------------------------------------------
Sally J. Smith, President and Chief Executive Officer
Dated: April 20, 2007
29
APPENDIX A
BUFFALO WILD WINGS, INC.
2003 EQUITY INCENTIVE PLAN
(As Amended Through March 17, 2007)
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Affiliates" shall mean a Parent or Subsidiary of the Company.
(b) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. If
the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, then, to the
extent necessary for compliance with Rule 16b-3, or any successor
provision, each of the members of the Committee shall be a
"non-employee director." Solely for purposes of this Section
1(a), "non-employee director" shall have the same meaning as set
forth in Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended.
(c) The "Company" shall mean Buffalo Wild Wings, Inc., a Minnesota
corporation.
(d) "Fair Market Value" as of any date shall mean (i) if such stock
is listed on the Nasdaq National Market, Nasdaq SmallCap Market,
or an established stock exchange, the price of such stock at the
close of the regular trading session of such market or exchange
on such date, as reported by The Wall Street Journal or a
comparable reporting service, or, if no sale of such stock shall
have occurred on such date, on the next preceding day on which
there was a sale of stock; (ii) if such stock is not so listed on
the Nasdaq National Market, Nasdaq SmallCap Market, or an
established stock exchange, the average of the closing "bid" and
"asked" prices quoted by the OTC Bulletin Board, the National
Quotation Bureau, or any comparable reporting service on such
date or, if there are no quoted "bid" and "asked" prices on such
date, on the next preceding date for which there are such quotes;
or (iii) if such stock is not publicly traded as of such date,
the per share value as determined by the Board, or the Committee,
in its sole discretion by applying principles of valuation with
respect to the Company's Common Stock.
(e) The "Internal Revenue Code" is the Internal Revenue Code of 1986,
as amended from time to time.
(f) The "Participant" means (i) an employee of the Company or any
Subsidiary to whom an incentive stock option has been granted
pursuant to Section 9, (ii) a consultant or advisor to or
director, employee or officer of the Company or any Subsidiary to
whom a nonqualified stock option has been granted pursuant to
Section 10, or (iii) a consultant or advisor to, or director,
employee or officer of the Company or any Subsidiary to whom a
restricted stock award has been granted pursuant to Section 17.
(g) "Parent" shall mean any corporation which owns, directly or
indirectly in an unbroken chain, fifty percent (50%) or more of
the total voting power of the Company's outstanding stock.
(h) The "Plan" means the Buffalo Wild Wings, Inc. 2003 Equity
Incentive Plan, as amended from time to time, including the form
of Option and Award Agreements as they may be modified by the
Board from time to time. This Plan amends and restates the
Buffalo Wild Wings, Inc. 1995 Stock Option Plan, formerly known
as the bw-3, Inc. 1995 Stock Option Plan, and, prior to that,
known as the JMS Associates, Inc. 1995 Stock Option Plan. For
purposes of the ten-year period described in Section 7, this
restatement shall be deemed a new stock option plan.
(i) "Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 12) reserved for incentive and
nonqualified stock options and restricted stock awards pursuant
to this Plan.
(j) A "Subsidiary" shall mean any corporation of which fifty percent
(50%) or more of the total voting power of outstanding stock is
owned, directly or indirectly in an unbroken chain, by the
Company.
SECTION 2.
PURPOSE
-------
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the employment and retention of competent
personnel and by furnishing incentive to officers, directors, employees,
consultants, and advisors upon whose efforts the success of the Company and its
Subsidiaries will depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, through the granting of
"nonqualified" stock options pursuant to Section 10 of this Plan, and through
the granting of restricted stock awards pursuant to Section 17 of this Plan.
Adoption of this Plan shall be and is expressly subject to the condition of
approval by the shareholders of the Company within twelve (12) months before or
after the adoption of the Plan by the Board of Directors.
2
SECTION 3.
EFFECTIVE DATE OF PLAN
----------------------
The Plan originally became effective as of its date of adoption by the
Board of Directors on April 18, 1995. The effective date of the restatement of
the Plan is the date such restatement is approved by the Board of Directors,
subject to approval by the shareholders of the Company as required in Section 2.
SECTION 4.
ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time to administer the Plan (collectively
referred to as the "Administrator"). The Administrator shall have all of the
powers vested in it under the provisions of the Plan, including but not limited
to exclusive authority (where applicable and within the limitations described
herein) to determine, in its sole discretion, whether an incentive stock option,
nonqualified stock option or restricted stock award shall be granted, the
individuals to whom, and the time or times at which, options and awards shall be
granted, the number of shares subject to each option or award, the option price,
and terms and conditions of each option or award. The Administrator shall have
full power and authority to administer and interpret the Plan, to make and amend
rules, regulations and guidelines for administering the Plan, to prescribe the
form and conditions of the respective stock option and restricted stock award
agreements (which may vary from Participant to Participant) evidencing each
option or award and to make all other determinations necessary or advisable for
the administration of the Plan. The Administrator's interpretation of the Plan,
and all actions taken and determinations made by the Administrator pursuant to
the power vested in it hereunder, shall be conclusive and binding on all parties
concerned.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
------------
The Administrator shall from time to time, at its discretion and
without approval of the shareholders, designate those employees to whom
incentive stock options shall be granted pursuant to Section 9 of the Plan;
those employees, officers, directors, consultants and advisors of the Company or
of any Subsidiary to whom nonqualified stock options shall be granted pursuant
to Section 10 of the Plan; and those employees, officers, directors, consultants
and advisors of the Company or any Subsidiary to whom restricted stock awards
shall be granted pursuant to Section 11 of the Plan; provided, however, that
3
consultants or advisors shall not be eligible to receive stock options or
restricted stock awards hereunder unless such consultant or advisor renders bona
fide services to the Company or Subsidiary and such services are not in
connection with the offer or sale of securities in a capital raising transaction
and do not directly or indirectly promote or maintain a market for the Company's
securities. The Administrator may grant additional incentive stock options,
nonqualified stock options and restricted stock awards under this Plan to some
or all Participants then holding options or awards or may grant options and
awards solely or partially to new Participants. In designating Participants, the
Administrator shall also determine the number of shares to be optioned or
awarded to each such Participant. The Board may from time to time designate
individuals as being ineligible to participate in the Plan.
SECTION 6.
STOCK
-----
The Stock to be optioned or awarded under this Plan shall consist of
authorized but unissued shares of Stock. One Million Four Hundred Fifty Thousand
(1,450,000) shares of Stock shall be reserved and available for stock options
and restricted stock awards under the Plan; provided, however, that the total
number of shares of Stock reserved for options and restricted stock awards under
this Plan shall be subject to adjustment as provided in Section 12 of the Plan.
In the event (i) any portion of an outstanding stock option or restricted stock
award under the Plan for any reason expires, (ii) any portion of an outstanding
stock option is terminated prior to the exercise of such option, or (iii) any
portion of a restricted stock award is terminated prior to the lapsing of any
risks of forfeiture on such stock, the shares of Stock allocable to such portion
of the option or award shall continue to be reserved for stock options and
restricted stock awards under the Plan and may be optioned or awarded hereunder.
SECTION 7.
DURATION OF PLAN
-----------------
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the effective date of the
restatement of this Plan as defined in Section 3. Nonqualified stock options and
restricted stock awards may be granted pursuant to the Plan from time to time
after the effective date of the Plan and until the Plan is discontinued or
terminated by the Board. Any incentive stock option granted during such ten-year
period and any nonqualified stock option or restricted stock award granted prior
to the termination of the Plan by the Board shall remain in full force and
effect until the expiration of the option or award as specified in the written
stock option or restricted stock award agreement and shall remain subject to the
terms and conditions of this Plan.
SECTION 8.
PAYMENT
-------
Participants may pay for shares upon exercise of stock options granted
pursuant to this Plan with cash, personal check, certified check or, if approved
by the Administrator in its sole discretion, previously-owned shares of the
Company's Common Stock valued at such Stock's then Fair Market Value, or such
4
other form of payment as may be authorized by the Administrator. The
Administrator may, in its sole discretion, limit the forms of payment available
to the Participant and may exercise such discretion any time prior to the
termination of the option granted to the Participant or upon any exercise of the
option by the Participant. "Previously-owned shares" means shares of the
Company's Common Stock which the Participant has owned for at least six (6)
months prior to the exercise of the stock option, or for such other period of
time as may be required by generally accepted accounting principles.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
-----------------------------------------------
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Participant to Participant; provided,
however, that each Participant and each Option Agreement shall comply with and
be subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall
state the total number of shares covered by the incentive stock
option. To the extent required to qualify the Option as an
incentive stock option under Section 422 of the Internal Revenue
Code, or any successor provision, the option price per share
shall not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock per share on the date the
Administrator grants the option; provided, however, that if a
Participant owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the
Company or of its Parent or any Subsidiary, the option price per
share of an incentive stock option granted to such Participant
shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock per share on the date of the
grant of the option. The Administrator shall have full authority
and discretion in establishing the option price and shall be
fully protected in so doing.
(b) Term and Exercisability of Incentive Stock Option. The term
during which any incentive stock option granted under the Plan
may be exercised shall be established in each case by the
Administrator. To the extent required to qualify the Option as an
incentive stock option under Section 422 of the Internal Revenue
Code, or any successor provision, in no event shall any incentive
stock option be exercisable during a term of more than ten (10)
years from the date on which it is granted; provided, however,
that if a Participant owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock
of the Company or of its Parent or any Subsidiary, the incentive
5
stock option granted to such Participant shall be exercisable
during a term of not more than five (5) years from the date on
which it is granted. The Option Agreement shall state when the
incentive stock option becomes exercisable and shall also state
the maximum term during which the option may be exercised. In the
event an incentive stock option is exercisable immediately, the
manner of exercise of the option in the event it is not exercised
in full immediately shall be specified in the Option Agreement.
The Administrator may accelerate the exercise date of any
incentive stock option granted hereunder which is not immediately
exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Participant all
legally required amounts necessary to satisfy any and all
withholding and employment-related taxes attributable to the
Participant's exercise of an incentive stock option or a
"disqualifying disposition" of shares acquired through the
exercise of an incentive stock option as defined in Internal
Revenue Code Section 421(b). In the event the Participant is
required under the Option Agreement to pay the Company, or make
arrangements satisfactory to the Company respecting payment of,
such withholding and employment-related taxes, the Board may, in
its discretion and pursuant to such rules as it may adopt, permit
the Participant to satisfy such obligation, in whole or in part,
by electing to have the Company withhold shares of Common Stock
otherwise issuable to the Participant as a result of the option's
exercise having a Fair Market Value equal to the minimum required
tax withholding, based on the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes, that
are applicable to the supplemental income resulting from the
option. In no event may the Company or any Affiliate withhold
shares having a Fair Market Value in excess of such statutory
minimum required tax withholding. The Participant's election to
have shares withheld for this purpose shall be made on or before
the date the option is exercised or, if later, the date that the
amount of tax to be withheld is determined under applicable tax
law. Such election shall be approved by the Board and otherwise
comply with such rules as the Board may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then
in effect, of the General Rules and Regulations under the
Securities Exchange Act of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the
Administrator shall deem advisable. Any such Option Agreement
shall contain such limitations and restrictions upon the exercise
of the option as shall be necessary to ensure that such option
will be considered an "incentive stock option" as defined in
Section 422 of the Internal Revenue Code or to conform to any
change therein.
6
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
--------------------------------------------------
Each nonqualified stock option granted pursuant to this Section 10
shall be evidenced by a written Option Agreement. The Option Agreement shall be
in such form as may be approved from time to time by the Administrator and may
vary from Participant to Participant; provided, however, that each Participant
and each Option Agreement shall comply with and be subject to the following
terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall
state the total number of shares covered by the nonqualified
stock option. Unless otherwise determined by the Administrator,
the option price per share shall be one hundred percent (100%) of
the Fair Market Value of the Common Stock per share on the date
the Administrator grants the option; provided, however, that the
option price may not be less than eighty-five percent (85%) of
the Fair Market Value of the Common Stock per share on the date
of grant.
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan
may be exercised shall be established in each case by the
Administrator. The Option Agreement shall state when the
nonqualified stock option becomes exercisable and shall also
state the maximum term during which the option may be exercised.
In the event a nonqualified stock option is exercisable
immediately, the manner of exercise of the option in the event it
is not exercised in full immediately shall be specified in the
Option Agreement. The Administrator may accelerate the exercise
date of any nonqualified stock option granted hereunder which is
not immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Participant all
legally required amounts necessary to satisfy any and all
withholding and employment-related taxes attributable to the
Participant's exercise of a nonqualified stock option. In the
event the Participant is required under the Option Agreement to
pay the Company or Subsidiary, or make arrangements satisfactory
to the Company or Subsidiary respecting payment of, such
withholding and employment-related taxes, the Administrator may,
in its discretion and pursuant to such rules as it may adopt,
permit the Participant to satisfy such obligation, in whole or in
part, by delivering shares of the Company's Common Stock or by
electing to have the Company or Subsidiary withhold shares of
Common Stock otherwise issuable to the Participant having a Fair
Market Value equal to the minimum required tax withholding, based
on the minimum statutory withholding rates for federal and state
tax purposes, including payroll taxes, that are applicable to the
supplemental income resulting from the exercise of the
nonqualified stock option. In no event may the Company or
Subsidiary withhold shares having a Fair Market Value in excess
of such statutory minimum required tax withholding. The
Participant's election to have shares withheld for this purpose
shall be made on or before the date the option is exercised or,
7
if later, the date that the amount of tax to be withheld is
determined under applicable tax law. Such election shall be
approved by the Administrator and otherwise comply with such
rules as the Administrator may adopt to assure compliance with
Rule 16b-3, or any successor provision, as then in effect, of the
General Rules and Regulations under the Securities Exchange Act
of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the
Administrator shall deem advisable.
SECTION 11.
TRANSFER OF OPTIONS
-------------------
No incentive stock option shall be transferable, in whole or in part,
by the Participant other than by will or by the laws of descent and
distribution. During the Participant's lifetime, the incentive stock option may
be exercised only by the Participant. If the Participant shall attempt any
transfer of any incentive stock option granted under the Plan during the
Participant's lifetime, such transfer shall be void and the incentive stock
option, to the extent not fully exercised, shall terminate.
No nonqualified stock option shall be transferred, except that the
Administrator may, in its sole discretion, permit the Participant to transfer
any or all nonqualified stock options to any member of the Participant's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or
more trusts whose beneficiaries are members of such Participant's "immediate
family" or partnerships in which such family members are the only partners;
provided, however, that the Participant cannot receive any consideration for the
transfer and such transferred nonqualified stock option shall continue to be
subject to the same terms and conditions as were applicable to such nonqualified
stock option immediately prior to its transfer.
SECTION 12.
RECAPITALIZATION, SALE, MERGER, EXCHANGE OR LIQUIDATION
-------------------------------------------------------
If, following adoption of this Plan, the Company effects an increase or
decrease in the number of shares of Common Stock in the form of a subdivision or
consolidation of shares, or the payment of a stock dividend, or effects any
other increase or decrease in the number of shares of Common Stock without
receipt of consideration by the Company, the number of shares of Option Stock
reserved under Section 6 hereof and the number of shares of Option Stock covered
by each outstanding option and restricted stock award, and the price per share
thereof, shall be appropriately adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect to
which the adjustment relates.
Unless otherwise provided in the Option or Award Agreement, in the
event of an acquisition of the Company through the sale of substantially all of
the Company's assets and the consequent discontinuance of its business or
8
through a merger, consolidation, exchange, reorganization, reclassification,
extraordinary dividend, divestiture or liquidation of the Company (collectively
referred to as a "transaction"), the Board may provide for one or more of the
following:
(a) the equitable acceleration of the exercisability of any
outstanding options and the lapsing of the risks of forfeiture on
any restricted stock awards;
(b) the complete termination of this Plan, the cancellation of
outstanding options not exercised prior to a date specified by
the Board (which date shall give Participants a reasonable period
of time in which to exercise the options prior to the
effectiveness of such transaction), and the cancellation of any
restricted stock awards for which the risks of forfeiture have
not lapsed;
(c) that Participants holding outstanding stock options shall
receive, with respect to each share of Stock subject to such
options, as of the effective date of any such transaction, cash
in an amount equal to the excess of the Fair Market Value of such
Stock on the date immediately preceding the effective date of
such transaction over the option price per share of such options;
provided that the Board may, in lieu of such cash payment,
distribute to such Participants shares of stock of the Company or
shares of stock of any corporation succeeding the Company by
reason of such transaction, such shares having a value equal to
the cash payment herein;
(d) that Participants holding outstanding restricted stock awards
shall receive, with respect to each share of Stock subject to
such awards, as of the effective date of any such transaction,
cash in an amount equal to the Fair Market Value of such Stock on
the date immediately preceding the effective date of such
transaction; provided that the Board may, in lieu of such cash
payment, distribute to such Participants shares of stock of the
Company or shares of stock of any corporation succeeding the
Company by reason of such transaction, such shares having a value
equal to the cash payment herein;
(e) the continuance of the Plan with respect to the exercise of
options which were outstanding as of the date of adoption by the
Board of such plan for such transaction and provide to
Participants holding such options the right to exercise their
respective options as to an equivalent number of shares of stock
of the corporation succeeding the Company by reason of such
transaction; and
(f) the continuance of the Plan with respect to restricted stock
awards for which the risks of forfeiture have not lapsed as of
the date of adoption by the Board of such plan for such
transaction and provide to Participants holding such awards the
right to receive an equivalent number of shares of stock of the
corporation succeeding the Company by reason of such transaction.
The Board may restrict the rights of or the applicability of this Section 12 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
9
The grant of an option or restricted stock award pursuant to the Plan shall not
limit in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, exchange or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 13.
INVESTMENT PURPOSE
------------------
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Stock to Participant, the Administrator may require Participant
to (i) represent that the shares of Stock are being acquired for investment and
not resale and to make such other representations as the Administrator shall
deem necessary or appropriate to qualify the issuance of the shares as exempt
from the Securities Act of 1933 and any other applicable securities laws, and
(ii) represent that Participant shall not dispose of the shares of Stock in
violation of the Securities Act of 1933 or any other applicable securities laws
or any company policies then in effect.
As a further condition to the grant of any stock option or the issuance
of Stock to Participant, Participant agrees to the following:
(a) In the event the Company advises Participant that it plans an
underwritten public offering of its Common Stock in compliance
with the Securities Act of 1933, as amended, and the
underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any option
to buy or otherwise dispose of part or all of their stock
purchase rights of the underlying Common Stock, Participant will
not, for a period not to exceed 180 days from the prospectus,
sell or contract to sell or grant an option to buy or otherwise
dispose of any stock option granted to Participant pursuant to
the Plan or any of the underlying shares of Common Stock without
the prior written consent of the underwriter(s) or its
representative(s).
(b) In the event the Company makes any public offering of its
securities and determines in its sole discretion that it is
necessary to reduce the number of issued but unexercised stock
purchase rights so as to comply with any state's securities or
Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have the right (i) to accelerate
the exercisability of any stock option and the date on which such
option must be exercised, provided that the Company gives
Participant prior written notice of such acceleration, and (ii)
to cancel any options or portions thereof which Participant does
not exercise prior to or contemporaneously with such public
offering.
(c) In the event of a transaction (as defined in Section 12 of the
Plan), Participant will comply with Rule 145 of the Securities
Act of 1933 and any other restrictions imposed under other
applicable legal or accounting principles if Participant is an
10
"affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Participant will
execute any documents necessary to ensure compliance with such
rules.
The Company reserves the right to place a legend on any stock certificate issued
upon the exercise of an option or upon the grant of a restricted stock award
pursuant to the Plan to assure compliance with this Section 13.
SECTION 14.
RIGHTS AS A SHAREHOLDER
-----------------------
A Participant (or the Participant's successor or successors) shall have
no rights as a shareholder with respect to any shares covered by an incentive
stock option or nonqualified stock option until the date of the issuance of a
stock certificate evidencing such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such stock certificate is actually issued (except as otherwise provided
in Section 12 of the Plan).
SECTION 15.
AMENDMENT OF THE PLAN
---------------------
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 12, shall
impair the terms and conditions of any stock option or restricted stock award
which is outstanding on the date of such revision or amendment to the material
detriment of the Participant without the consent of the Participant.
Notwithstanding the foregoing, no such revision or amendment shall (i) increase
the number of shares subject to the Plan except as provided in Section 12
hereof, (ii) change the designation of the class of employees eligible to
receive stock options or restricted stock awards, (iii) decrease the price at
which options may be granted, or (iv) increase the benefits accruing to
Participants under the Plan, without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements of any
applicable law or regulation. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code.
SECTION 16.
NO OBLIGATION TO EXERCISE OPTION
--------------------------------
The granting of a stock option shall impose no obligation upon the
Participant to exercise such option. Further, the granting of a stock option or
restricted stock award hereunder shall not impose upon the Company or any
Subsidiary any obligation to retain the Participant in its employ for any
period.
11
SECTION 17.
RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS
-------------------------------------------------
Each restricted stock/restricted stock unit award granted pursuant to
the Plan shall be evidenced by a written restricted stock/restricted stock unit
agreement (the `Restricted Stock Agreement' or `Restricted Unit Agreement,' as
the case may be). The Restricted Stock Agreement or Restricted Stock Unit
Agreement shall be in such form as may be approved from time to time by the
Administrator and may vary from Participant to Participant; provided, however,
that each Participant and each Restricted Stock Agreement or Restricted Stock
Unit Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares. The Restricted Stock Agreement or Restricted
Stock Unit Agreement shall state the total number of shares of
Stock covered by the restricted stock/restricted stock unit
award.
(b) Risks of Forfeiture. The Restricted Stock Agreement or Restricted
Stock Unit Agreement shall set forth the risks of forfeiture, if
any, which shall apply to the shares of Stock covered by the
restricted stock/restricted stock unit award, and shall specify
the manner in which such risks of forfeiture shall lapse.
(i) To the extent that the Administrator determines
it to be desirable to qualify Restricted Stock or Restricted
Stock Unit Awards granted hereunder as "performance-based
compensation" within the meaning of Code Section 162(m), the
risks of forfeiture shall be based on the achievement of one
or more Performance Objectives established in writing by the
Administrator. For purposes of this Section 17(b)(i),
"Performance Objectives" shall be limited to any one, or a
combination of, (i) revenue, (ii) net income, (iii)
stockholders' equity, (iv) earnings per share, (v) return on
equity, (vi) return on assets, (vii) total shareholder return,
(viii) net operating income, (ix) cost controls, (x) cash
flow, (xi) increase in revenue, (xii) increase in share price
or earnings, (xiii) return on investment, (xiv) department or
business unit performance goals, or (xv) increase in market
share, in all cases including, if selected by the
Administrator, minimum threshold, target and maximum levels.
(ii) The Administrator may, in its sole discretion,
and to the extent permitted by applicable tax and securities
laws and regulations, accelerate the date on which the risks
of forfeiture shall lapse, but only with respect to those
shares of Stock which are restricted as of the effective date
of the acceleration.
(c) Issuance of Shares; Rights as Shareholder.
(i) With respect to a restricted stock award, the
Company shall cause to be issued a stock certificate
representing such shares of Stock in the Participant's name,
and shall deliver such certificate to the Participant;
provided, however, that the Company shall place a legend on
such certificate describing the risks of forfeiture and other
transfer restrictions set forth in the Participant's
12
Restricted Stock Agreement and providing for the cancellation
and return of such certificate if the shares of Stock subject
to the restricted stock award are forfeited. Until the risks
of forfeiture have lapsed or the shares subject to such
restricted stock award have been forfeited, the Participant
shall be entitled to vote the shares of Stock represented by
such stock certificates and shall receive all dividends
attributable to such shares, but the Participant shall not
have any other rights as a shareholder with respect to such
shares.
(ii) With respect to a restricted stock unit award,
as the risks of forfeiture on the restricted stock units
lapse, the Administrator shall cause to be issued one or more
stock certificates in the Participant's name and shall deliver
such certificates to the Participant in satisfaction of such
restricted stock units. Until the risks of forfeiture on the
restricted stock units have lapsed, the Participant shall not
be entitled to vote any shares of stock which may be acquired
through the restricted stock units, shall not receive any
dividends attributable to such shares, and shall not have any
other rights as a shareholder with respect to such shares.
(d) Withholding Taxes. The Company or its Subsidiary shall be
entitled to withhold and deduct from future wages of the
Participant all legally required amounts necessary to satisfy any
and all withholding and employment-related taxes attributable to
the Participant's restricted stock/restricted stock unit award.
In the event the Participant is required under the Restricted
Stock Agreement or Restricted Stock Unit Agreement to pay the
Company or Subsidiary, or make arrangements satisfactory to the
Company or Subsidiary respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its
discretion and pursuant to such rules as it may adopt, require
the Participant to satisfy such obligations, in whole or in part,
by delivering shares of Stock received pursuant to a restricted
stock/restricted stock unit award on which the risks of
forfeiture have lapsed or to permit the Participant to satisfy
such obligations, in whole or in part, by delivering shares of
Common Stock, including shares of Stock received pursuant to a
restricted stock/restricted stock unit award on which the risks
of forfeiture have lapsed. Such shares shall have a Fair Market
Value equal to the minimum required tax withholding, based on the
minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes, that are applicable to the
supplemental income resulting from the lapsing of the risks of
forfeiture on such restricted stock/restricted stock unit. In no
event may the Participant deliver shares having a Fair Market
Value in excess of such statutory minimum required tax
withholding. The Participant's election to deliver shares of
Common Stock for this purpose shall be made on or before the date
that the amount of tax to be withheld is determined under
applicable tax law. Such election shall be approved by the
Administrator and otherwise comply with such rules as the
Administrator may adopt to assure compliance with Rule 16b-3, or
any successor provision, as then in effect, of the General Rules
and Regulations under the Securities Exchange Act of 1934, if
applicable.
13
(f) Nontransferability. No restricted stock/restricted stock unit
award shall be transferable, in whole or in part, by the
Participant, other than by will or by the laws of descent and
distribution, prior to the date the risks of forfeiture described
in the Restricted Stock Agreement or Restricted Stock Unit
Agreement have lapsed. If the Participant shall attempt any
transfer of any restricted stock/restricted stock unit award
granted under the Plan prior to such date, such transfer shall be
void and the restricted stock/restricted stock unit award shall
terminate.
(g) Other Provisions. The Restricted Stock Agreement or Restricted
Stock Unit Agreement authorized under this Section 17 shall
contain such other provisions as the Administrator shall deem
advisable.
(h) Delay of Payment for Section 162(m). In the event the
Administrator reasonably anticipates that the Company's income
tax deduction with respect to the vesting of any Restricted Stock
Award or any issuance of shares of Stock required by a Restricted
Stock Unit Award would be limited or eliminated by Code Section
162(m), the Administrator may, subject to such terms and
conditions as determined by the Administrator, delay all or a
portion of the vesting or issuance of such shares of Stock until
the earlier of (i) the date at which the Administrator reasonably
anticipates that the corresponding income tax deduction will not
be so limited or eliminated, and (ii) the Participant's
separation from service, as such term is defined in Code Section
409A and the regulations, notices and other guidance of general
applicability issued thereunder.
(i) Limitation on Restricted Stock or Restricted Stock Units. In no
event shall any Participant receive during any one fiscal year
Restricted Stock or Restricted Stock Unit Awards for a number of
shares that is greater than (i) 175% of the Participant's base
salary in effect on the date of the grant of the Award, divided
by (ii) the Fair Market Value of the Stock on the date of the
grant of the Award.
14
APPENDIX B
BUFFALO WILD WINGS, INC.
CASH INCENTIVE PLAN
ARTICLE 1.
PURPOSE
1.1 Annual Bonuses. The purpose of the Buffalo Wild Wings, Inc. Cash
Incentive Plan (the "Plan") is to provide incentives and rewards to certain key
employees of Buffalo Wild Wings, Inc. ("Company") in the form of annual
incentive bonuses based on the achievement of certain performance objectives, as
well as individual performance.
ARTICLE 2.
ADMINISTRATION
2.1 Administration and Delegation of Authority. The Plan shall be
administered by the Compensation Committee (the "Committee") of the Company's
Board of Directors, which shall consist of not less than two (2) members of the
Board of Directors, each of whom is an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations issued thereunder. No member of such Committee shall participate in
any decisions concerning the payments to be made to him or her, or other matters
relating to his or her benefits hereunder. All actions of the Committee shall be
determined by a majority of its members at a meeting at which a quorum is
present, or by a majority of all members in writing signed by all members,
whether or not voting in favor of such determination. A majority of all of the
members shall constitute a quorum.
2.2 Powers. Except as otherwise provided, and subject to the provisions of
the Plan, the Committee shall have full power and authority to administer and
interpret the Plan, to adopt and revise rules, regulations and guidelines
relating to the Plan and, to make all other determinations necessary or
advisable for the administration of the Plan. Decisions and determinations by
the Committee shall be final and binding on all parties.
ARTICLE 3.
PARTICIPATION
3.1 Selection of Participants and Plan Entry. The Committee shall, from
time to time, designate those key employees who shall be eligible to participate
in the Plan. Any key employee selected to participate in the Plan shall continue
to participate each fiscal year until otherwise determined by the Committee. The
Committee shall periodically review its selection of participants and make any
changes as the Committee, in its sole discretion, deems appropriate. The
Committee may, in its sole discretion, designate certain key employees as being
ineligible to participate in the Plan; provided, however, that the
discontinuation of a key employee's eligibility shall not alter, impair or
reduce the value of any annual incentive bonus earned by such key employee
without his or her consent. Hereafter, a key employee selected to participate in
the Plan shall be referred to as a "Participant."
ARTICLE 4.
BONUS PAYMENTS
4.1 Determination of Annual Incentive Bonus.
4.1.1 Determination of Performance Goals and Bonus. At or prior to the
beginning of each fiscal year, the Committee shall determine the performance
objectives and annual incentive bonus for each Participant and shall set forth
such objectives and annual incentive bonus in writing. The level of bonus shall
vary depending upon the percentage of the performance objectives achieved. At
each level, the amount of incentive bonus payable to the Participant shall be a
percentage of the Participant's base salary; provided, however, that in no event
shall the Participant's maximum annual incentive bonus exceed 175% of his or her
base salary in effect at the end of the Company's fiscal year; and provided,
further, that if a certain minimum percentage of the performance objectives is
not achieved, no annual incentive bonus will be paid to the Participant. The
performance objectives and maximum annual incentive bonus shall be communicated
to the Participant as soon as administratively practicable after the beginning
of such fiscal year. The annual incentive bonus for a Participant may vary from
fiscal year to fiscal year, and annual incentive bonus awards may vary from
Participant to Participant.
4.1.2 Determination of Payout. After the completion of the fiscal
year, the Committee will determine and certify in writing the degree to which
the performance objectives have been achieved. The Committee may, in its
discretion, decrease, but not increase, the Participant's maximum annual
incentive bonus. If the Participant terminates employment with the Company prior
to the last day of the fiscal year for a reason other than death or disability,
the Participant shall not earn the annual incentive bonus for that year. If the
Participant terminates employment with the Company prior to the last day of the
fiscal year due to death or disability, the Participant shall be entitled to a
prorated annual incentive bonus, based on the number of days in the fiscal year
that the Participant was employed. For purposes of this Section 4.1.2,
"disability" shall mean a medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a
continuous period of at least twelve (12) months and which renders the
Participant unable to engage in any substantial gainful activity, and shall be
established by the certificate of a medical doctor chosen by or satisfactory to
the Committee.
4.2 Performance Objectives. To qualify the annual incentive bonuses as
"performance-based compensation" within the meaning of Code Section 162(m), the
performance objectives shall be limited to any one, or a combination of, (i)
revenue, (ii) net income, (iii) stockholders' equity, (iv) earnings per share,
(v) return on equity, (vi) return on assets, (vii) total shareholder return,
(viii) net operating income, (ix) cost controls, (x) cash flow, (xi) increase in
revenue, (xii) increase in share price or earnings, (xiii) return on investment,
(xiv) department or business unit performance goals, (xv) increase in market
share, (xvi) same-store sale increases, (xvii) increases in the number of store
locations, (xviii) financial performance that exceeds the financial performance
2
of the Company's peers in the industry, and (xix) individual performance goals,
in all cases including, if selected by the Committee, minimum threshold, target
and maximum levels.
4.3 Payment. The annual incentive bonus shall be paid to the Participant
(or, in the event of the Participant's death to the Participant's estate) in
cash, in a single lump-sum payment, as soon as administratively practicable
after the date the Committee certifies the achievement of the performance
objectives specified for the fiscal year, but not later than the 15th day of the
third month following the end of the fiscal year during which the annual
incentive bonus was earned.
ARTICLE 5.
MISCELLANEOUS PROVISIONS
5.1 Nontransferability. No Participant (or the estate or heirs at law of
any Participant) shall have any right to assign, encumber or otherwise
anticipate the right to receive payment hereunder, and the value of the
Participant's annual incentive bonus awards under the Plan shall not be subject
to garnishment, attachment or any other legal process by the creditors of any
Participant (or the estate or heirs at law of any Participant) hereunder.
5.2 Liability of Company. The Company shall have no liability in connection
with the Plan except to pay any annual incentive bonus awards in accordance with
the terms of the Plan. The Company has made no representations to any
Participant with respect to the tax implications of any transactions
contemplated by the Plan. Each Participant shall obtain his or her own counsel
to advise the Participant with respect to the tax effect of the Plan.
5.3 Binding Effect. The Plan shall be binding upon the Participants and the
Company and their heirs, executors and assigns. The Company shall not be a party
to any merger, consolidation or reorganization unless and until its obligations
under the Plan shall be expressly assumed by its successor or successors.
5.4 Payment in Case of Incompetency. If, in the judgment of the Committee
based upon facts and information readily available to it, any person entitled to
receive a payment hereunder is incapable for any reason of personally receiving
and giving a valid receipt for the payment of a benefit, the Committee may cause
such payment or any part thereof to be made to the duly appointed guardian or
legal representative of such person, or to any person or institution
contributing to or providing for the care and maintenance of such person,
provided that no prior claim for said payment has been made by a duly appointed
guardian or legal representative of such person. The Committee shall not be
required to see to the proper application of any such payment made in accordance
with the provisions hereof, and any such payment shall constitute payment for
the account of such person and a full discharge of any liability or obligation
of the Company.
5.5 Withholding. The Company shall have the right to deduct from all
amounts payable hereunder any state or federal taxes required by law to be
withheld with respect to such awards. If the Company is unable to withhold such
3
federal and state taxes, for whatever reason, the Participant hereby agrees to
pay to the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal or state law.
5.6 Right to Terminate Employment. No employee or other person shall have
any claim or right to receive annual incentive bonus awards under or otherwise
participate in the Plan. Neither the Plan nor any action taken hereunder shall
be construed as giving any employee any right to be retained in the employment
of the Company, interfere with the right of the Company to discharge any
employee at any time, give the Company the right to require an employee to
remain in its employ, or interfere with the employee's right to terminate
employment at any time.
5.7 Compliance with Applicable Laws. The Company and Participants intend
that the Plan comply with any applicable provisions of the Internal Revenue Code
of 1986, as amended from time to time, and the regulations thereunder, with any
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder, and with any applicable provisions of
the Securities Exchange Act of 1934, as amended. If, at a later date, these
provisions are construed in such a way as to make the Plan null and void, the
Plan shall be given effect in a manner that shall best carry this intention.
5.8 Notices. Any notice, election or form to be delivered pursuant to the
Plan shall be given in writing and delivered, personally or by first-class mail,
postage prepaid, to the Company, the Participant or any other person, as the
case may be, at their last known address.
5.9 Headings. Headings or titles at the beginning of articles and sections
are for convenience of reference, shall not be considered a part of the Plan,
and shall not influence its construction.
5.10 Amendment and Termination. The Company, and only the Company, may
alter, amend or terminate the Plan at any time; provided, however, that no
amendment to the Plan may alter, impair or reduce the value of a Participant's
annual incentive bonus awards to the extent earned prior to the effective date
of such amendment, without the written consent of such Participant.
5.11 Governing Law. The provisions of the Plan shall be construed and
enforced according to the laws of the State of Minnesota to the extent that such
laws are not preempted by any applicable federal law.
The Company has caused this Plan to be executed by its duly authorized
officer effective as of January 1, 2007.
BUFFALO WILD WINGS, INC.
By
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Its
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4
- FOLD AND DETACH HERE AND READ THE REVERSE SIDE -
- --------------------------------------------------------------------------------
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Sally J. Smith and Mary J. Twinem, and each of
them, as proxies, each with the power to appoint her substitute, and authorizes
each of them to represent and to vote, as designated on the reverse hereof, all
of the shares of common stock of Buffalo Wild Wings, Inc. held of record by the
undersigned at the close of business on April 2, 2007 at the Annual Meeting of
Shareholders of Buffalo Wild Wings, Inc. to be held on May 24, 2007 or at any
adjournment thereof.
Buffalo Wild Wings, Inc.
ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 24, 2007, 9:00 a.m. Central Daylight Time
Buffalo Wild Wings, Inc. Innovation Center
1660 S. Highway 100, Suite 128
St. Louis Park, Minnesota
(Continued, and to be marked, dated and signed, on the other side)
Buffalo Wild Wings, Inc.
1600 Utica Avenue South, Suite 700
Minneapolis, Minnesota 55416
To Vote Your Proxy
- ------------------
Mark, sign and date your proxy card, detach it and return it in the postage-paid
envelope provided.
- FOLD AND DETACH HERE AND READ THE REVERSE SIDE -
- --------------------------------------------------------------------------------
PROXY - BUFFALO WILD WINGS, INC.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" THE PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.
Please mark your votes like this [X]
1. SET THE NUMBER OF DIRECTORS AT EIGHT (8)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF DIRECTORS:
[ ] FOR [ ] WITHHOLD AUTHORITY
(To withhold authority to vote for any individual nominee, strike a line through
that nominee's name in the list below)
Sally J. Smith, Kenneth H. Dahlberg, Dale M. Applequist, Robert W. MacDonald,
Warren E. Mack, J. Oliver Maggard, Michael P. Johnson, James M. Damian
3. APPROVE AN AMENDMENT TO 2003 EQUITY INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. APPROVE THE CASH INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
COMPANY ID:
PROXY NUMBER:
ACCOUNT NUMBER:
Signature Signature Date
----------------------- ----------------------- -----------
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.