UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ___)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
Buffalo Wild Wings, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed (
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
BUFFALO WILD WINGS, INC.
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
May 15, 2008
-------------------
TO THE SHAREHOLDERS OF BUFFALO WILD WINGS, INC.:
Our 2008 Annual Meeting of Shareholders will be held at Buffalo Wild
Wings, Inc. Home Office, 5500 Wayzata Boulevard, Suite 1600, Minneapolis,
Minnesota, at 9:00 a.m. Central Daylight Time on Thursday, May 15, 2008, 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 the amendment and restatement of the 2003 Equity
Incentive Plan to increase the shares reserved under the Plan from
2,900,000 to 3,900,000 and to make certain other revisions.
4. To approve an amendment to the Articles of Incorporation to
increase the authorized common shares from 20,200,000 to
44,000,000.
5. To ratify the appointment of our independent registered public
accounting firm for fiscal year ending December 28, 2008.
6. 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 30,
2007.
Only shareholders of record as shown on our books at the close of
business on March 24, 2008 will be entitled to vote at our 2008 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 2008 Annual Meeting. Whether or
not you plan to attend the 2008 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 17, 2008 President and Chief Executive Officer
Minneapolis, Minnesota
BUFFALO WILD WINGS, INC.
------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
to be held
May 15, 2008
------------------
The accompanying Proxy is solicited by the Board of Directors for use
at the Buffalo Wild Wings, Inc. 2008 Annual Meeting of Shareholders to be held
on Thursday, May 15, 2008, 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. We
have engaged The Proxy Advisory Group, LLC, to assist in the solicitation of
proxies and provide related advice and informational support, for a services
fee and the reimbursement of customary disbursements that are not expected to
exceed $10,000 in the aggregate.
Any shareholder giving a Proxy may revoke it any time prior to its use
at the 2008 Annual Meeting by giving written notice of such revocation to the
Secretary or any one of our other officers or by filing a later dated written
Proxy with one of our officers. Personal attendance at the 2008 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 2008 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 5500 Wayzata Boulevard, Suite 1600, 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 17, 2008.
OUTSTANDING SHARES AND VOTING RIGHTS
Our Board of Directors has fixed March 24, 2008 as the record date for
determining shareholders entitled to vote at the 2008 Annual Meeting. Persons
who were not shareholders on such date will not be allowed to vote at the 2008
Annual Meeting. At the close of business on the record date, there were
17,768, 391 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 2008 Annual Meeting.
Holders of Common Stock are not entitled to cumulative voting rights. All
references to shares and stock prices in this proxy statement have been adjusted
as applicable to reflect our 2-for-1 stock split on June 15, 2007.
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) 176,786 1.0%
Mary J. Twinem(3) 113,223 *
James M. Schmidt(4) 41,170 *
Judith A. Shoulak(5) 27,845 *
Kathleen M. Benning(6) 53,885 *
Kenneth H. Dahlberg(7) 1,140,586 6.4%
Dale M. Applequist 14,883 *
Robert W. MacDonald 4,593 *
Warren E. Mack(8) 84,735 *
J. Oliver Maggard(9) 11,005 *
Michael P. Johnson 7,145 *
James M. Damian 6,489 *
All Current Executive Officers and
Directors 1,684,286 9.4%
as a Group (14 Individuals)(10)
- ---------------------
*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 400 shares held by Ms. Smith's daughter and 20,554 shares
which may be purchased by Ms. Smith upon exercise of currently
exercisable options.
(3) Includes 16,000 shares that may be purchased by Ms. Twinem upon
exercise of currently exercisable options.
(4) Includes 6,800 shares that may be purchased by Mr. Schmidt upon
exercise of currently exercisable options.
(5) Includes 8,950 shares that may be purchased by Ms. Shoulak upon
exercise of currently exercisable options.
(6) Includes 15,200 shares that may be purchased by Ms. Benning upon
exercise of currently exercisable options.
(7) Includes 519,007 shares held by Carefree Capital Partners, L.P., 26,208
shares held by Carefree Capital, Inc., and 32,102 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 Mr. Dahlberg is 5500 Wayzata
Boulevard, Suite 1600, Minneapolis, MN 55416.
(8) Includes 22,812 shares held by Mr. Mack as trustee of the Edgar E. Mack
Trust and 4,502 shares that may be purchased by Mr. Mack upon exercise
of currently exercisable options.
(9) Includes 4,502 shares that may be purchased by Mr. Maggard upon
exercise of currently exercisable options.
(10) Includes 108,610 shares that may be purchased by current executive
officers and directors upon exercise of currently exercisable options.
See above footnotes for shares held indirectly.
-2-
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
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 on 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, 5500 Wayzata Boulevard, Suite 1600, 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 2007, the Board held five
(5) 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 2007 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 satisfy the definition of "independence" for audit committee members as set
forth in applicable Nasdaq listing standards, are J. Oliver Maggard, Chair,
Robert W. MacDonald, and Michael P. Johnson. 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 22. The Board has determined
that J. Oliver Maggard is the "audit committee financial expert" as defined by
Item 407(d)(5) of Regulation S-K under the Securities Act of 1933, as amended
and the Securities Exchange Act of 1934, as amended. 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 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 28. The Audit Committee held twelve (12) meetings during fiscal 2007.
-3-
Compensation Committee. The current members of the Compensation
Committee are Dale M. Applequist, Chair, J. Oliver Maggard, Michael P. Johnson,
and James M. Damian, with Mr. Damian joining the Committee in May 2007. All
members of the Compensation Committee are independent directors. The
Compensation Committee develops and administers compensation policies and plans
and is responsible for producing the "Compensation Committee Report," which is
on page 15 of this Proxy Statement. The Compensation Committee designs and
oversees our compensation programs for our Chief Executive Officer, Executive
Vice Presidents, which includes our Chief Financial Officer and General Counsel,
and Senior Vice Presidents, which includes all other executive officers. Our
independent directors are responsible for final approval of the Compensation
Committee's determination of the Chief Executive Officer's compensation. The
full Board of Directors is responsible for final approval of the Compensation
Committee's determinations for compensation of the other executive officers. The
Compensation 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. As part of its annual performance review of the
Chief Executive Officer, which is conducted in connection with determining the
Chief Executive Officer's base salary, the Compensation Committee may interview
other executive officers. In recommending base salaries for other executive
officers, the Compensation Committee takes into account salary recommendations
from the Chief Executive Officer, among other factors. In setting 2008
compensation, the Compensation Committee retained Don Delves at The Delves Group
as its compensation consultant. Mr. Delves is retained by and reports directly
to the Compensation Committee. The Compensation Committee consults with Mr.
Delves regarding the company's compensation plans, policies, and annual
programs, with Mr. Delves attending most of the Committee's meetings. Mr. Delves
has primarily assisted the Compensation Committee with reviewing equity
compensation trends. The Compensation Committee held nine (9) meetings during
fiscal 2007.
Governance/Nominating Committee. The current members of the
Governance/Nominating Committee are Kenneth H. Dahlberg, Chair, Robert W.
MacDonald, and James M. Damian, who replaced Dale Applequist in May 2007. All
members of the Governance/Nominating Committee are 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 Committee are
described more fully in the "Governance/Nominating Committee Report" on page 6.
The Governance/Nominating Committee held four (4) meetings during fiscal 2007.
Executive Committee. The members of the Executive Committee are Warren
E. Mack, Chair, Sally J. Smith, J. Oliver Maggard, and Dale M. Applequist, with
Mr. Applequist joining the Committee in May 2007. During the intervals between
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 held five (5) meetings during fiscal 2007.
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
specific director is named, 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.
5500 Wayzata Boulevard, Suite 1600
Minneapolis, MN 55416
-4-
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 annual cash compensation in 2007, which fees
remain the same for 2008 except as noted. The fees are paid quarterly.
$20,000 Board (non-chair) members
$25,000 Board chair ($40,000 in 2008)
$8,000 Non-chair members of Audit, Compensation and
Governance/Nominating Committees
$4,000 Non-chair members of Executive Committee
$16,000 Chairs of Audit and Compensation Committees
$10,000 Chair of Governance/Nominating Committee
$5,000 Chair of Executive Committee
Equity Compensation. In 2007, the non-employee directors were entitled
to an annual grant of restricted stock units having a value of $20,000 on the
first day of the fiscal year, with the number of units determined by dividing
$20,000 by the closing stock price on the previous day. Mr. MacDonald waived his
right to receive the foregoing grant. 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, for 2007,
each non-employee director was entitled to a fully-vested restricted stock unit
grant of 2,000 shares as of the first day of the fiscal year.
Beginning in 2008, the non-employee directors are entitled to only one
annual grant, which grant consists of fully-vested restricted stock units for
the number of shares equal to $60,000 divided by the stock price on the date of
grant. In 2008, the annual grants were issued on the first day of the fiscal
year; however, beginning in 2009, the annual grants will be made immediately
following election of directors at the annual shareholders' meeting. Upon the
initial election of a non-employee director on a subsequent date, such director
would be entitled to receive the foregoing grant on a pro rata basis.
Director Compensation Table
The table below summarizes the compensation paid by us to our
non-employee directors during fiscal year 2007.
Fees Earned or
Paid in Cash Stock Awards Total
Name ($)(1) ($)(2)(3)(4) ($)
------------------------ ------------------- ---------------------- ----------------------
Kenneth H. Dahlberg $33,750 $73,164 $106,914
Dale M. Applequist $42,000 $73,164 $115,164
Robert W. MacDonald $36,000 $53,200 $89,200
Warren E. Mack $26,250 $73,164 $99,414
J. Oliver Maggard $48,000 $73,164 $121,164
Michael P. Johnson $36,000 $65,506 $101,506
James M. Damian $28,000 $63,997 $91,997
------------------
(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 30, 2007, in
accordance with FAS 123R, of restricted stock unit awards made
under our 2003 Equity Incentive Plan, and thus include amounts
from restricted stock unit awards granted in and prior to fiscal
year 2007. 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 30, 2007 filed with the Securities and Exchange
Commission.
-5-
(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 2007.
Equity Grants to Directors in Fiscal Year 2007
--------------------------------------------------------------------------------------------------
Restricted Stock Grant Date Fair
Name Grant Date Unit Awards(a) Value of Awards
---------------------------- --------------------- ---------------------- ------------------------
Kenneth H. Dahlberg 01/01/07 2,752 $73,203
Dale M. Applequist 01/01/07 2,752 $73,203
Robert W. MacDonald 01/01/07 2,000 $53,200
Warren E. Mack 01/01/07 2,752 $73,203
J. Oliver Maggard 01/01/07 2,752 $73,203
Michael P. Johnson 01/01/07 2,752 $73,203
James M. Damian 01/01/07 2,752 $73,203
-------------------
(a) The per unit share price of the restricted stock unit
awards granted on January 1, 2007 was $26.60 on the date
of grant. The awards as to 2,000 shares granted to each
director on January 1, 2007 vested immediately, and the
awards as to 752 shares granted on January 1, 2007 to each
director except Mr. MacDonald, who waived his right to
receive such performance grant, vest as set forth in
"Equity Compensation" above.
(4) As of December 30, 2007, 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 33,902 898 1,030
Dale M. Applequist 0 898 1,030
Robert W. MacDonald 0 898 0
Warren E. Mack 4,502 898 1,030
J. Oliver Maggard 4,502 898 1,030
Michael P. Johnson 0 804 552
James M. Damian 0 702 450
----------------------
(a) See vesting terms set forth in "Equity Compensation"
above.
(b) Shares were issued to directors on March 5, 2008 upon
achievement of performance targets for the 2007 fiscal
year.
GOVERNANCE/NOMINATING COMMITTEE REPORT
The Governance/Nominating Committee is comprised of independent
directors. In accordance with its written charter, as well as the principles of
corporate governance 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:
-6-
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 persons as a director
candidate 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 each 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 29.
James M. Schmidt, Executive VP, General Counsel and Secretary
Buffalo Wild Wings, Inc.
5500 Wayzata Boulevard, Suite 1600
Minneapolis, MN 55416
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
Robert W. MacDonald
James M. Damian
ELECTION OF DIRECTORS
(Proposals #1 and #2)
Our Bylaws provide that the number of directors shall be the number set
by the shareholders. The Bylaws require that we have at least one director. In
accordance with our principles of corporate governance, which requires at least
seven directors, and the 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.
-7-
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 2008 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 2008 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) 50 President, Chief Executive Officer and Director 1996
Kenneth H. Dahlberg(2) 90 Director 1994
Dale M. Applequist(3)(4) 60 Director 1997
Robert W. MacDonald(1)(2) 65 Director 2003
Warren E. Mack(4) 63 Director 1994
J. Oliver Maggard(1)(3)(4) 53 Director 1999
Michael P. Johnson(1)(3) 60 Director 2006
James M. Damian(2)(3) 57 Chairman of the Board 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,
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. Mr. Dahlberg served as our Chairman of the Board
from June 2003 until August 2007.
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. Mr. Mack served as our Interim Chairman from
August 2007 to February 2008.
-8-
J. Oliver Maggard has served as Managing Partner of Caymus Partners
LLC, an investment banking firm, 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. Mr. Damian was appointed to serve as the Chairman of our Board in
February 2008.
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 awards of performance-based restricted stock units and, beginning in
fiscal year 2008, time-vested stock options. The basic philosophy of this
three-part compensation program is that the named executives will earn more than
their base salaries if performance goals are met and be rewarded for increases
to the company's stock price.
Base salaries are set roughly in the middle of the market range for
each position using salary surveys, as discussed below under the heading
"Guiding Principles for Executive Compensation." 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 unit awards,
again in meaningful amounts, which, for 2007 and the preceding three years, are
eligible to vest one-third per year based upon the achievement of annual company
net income goals established by the Board of Directors. The equity incentive
compensation program has been changed for 2008 and is discussed below--see
"Changes in Equity Incentive Compensation for 2008."
The company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Committee is composed of
four 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 Chief Executive Officer, Executive Vice
Presidents, which includes our Chief Financial Officer and General Counsel, and
Senior Vice Presidents, which includes all other executive officers. The
company's independent directors are responsible for final approval of the
Compensation Committee's determination of the Chief Executive Officer's
compensation. The full Board is responsible for final approval of the
Compensation Committee's determinations for compensation of the other executive
officers.
-9-
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 program and the equity
incentive program are directly linked to performance. Most of
the cash incentive program is linked to the achievement of
annual company performance targets. A smaller portion is
linked to each executive achieving personal objectives. The
equity incentive program provides for the award of restricted
stock units that vest upon achievement of annual company net
income goals that are established by the Board of Directors,
and, beginning in fiscal year 2008, time-vested stock option
grants.
2. Incentive compensation should reinforce our company's business
objectives and be balanced between short-term and long-term
performance.
Our annual cash incentive program is directly tied to
achieving profitable growth. Our equity incentive program
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 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 programs be
aligned with the shareholders' interests by rewarding
executive officers for achieving profitable growth. The equity
incentive program is further aligned with shareholders'
interests because it puts 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, we believe the total compensation opportunity should
be at or above the median for similar companies in our
industry. When evaluating 2007 compensation, the Compensation
Committee recommended 2007 base salaries that were roughly
near the median of base salaries paid by peers according to
data provided in the Chain Restaurant Compensation Association
Survey and PSI Stanton Group Exempt Survey, which surveys
include approximately 92 and 74 participants, respectively.
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 performance.
6. Tally sheets are a good tool for reviewing and setting compensation.
In 2007, our Compensation Committee continued its past
practice of reviewing compensation in tally-sheet format.
These sheets reflect all forms of compensation paid, including
perquisites, calculations of past accumulation of equity
compensation and accrued benefits under severance
arrangements. Tally sheets allow the Compensation Committee to
evaluate the relationship of performance-based incentive
compensation to base salary and total compensation. Going
forward, we expect that the Compensation Committee will
continue to use tally sheets to evaluate the relationship of
the total compensation paid by the company to that paid by its
peers.
-10-
7. The principles of rewarding performance should primarily drive
compensation decisions rather than tangential considerations,
such as tax benefits or accounting policies.
The cash incentive and equity incentive plans, as well as the
annual programs adopted thereunder, are designed to comply
with the deductibility requirements of Section 162(m) of the
Internal Revenue Code; however, we establish total
compensation programs 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 2007 executive compensation program are:
Base salary
Annual cash incentive compensation
Equity incentive compensation in the form of restricted stock
units (and, beginning in 2008, stock options)
Other benefits
The allocation of the compensation components for the named executive
officers for 2007 was approximately 39% base salary, 24% cash incentive
compensation, and 37% equity incentive compensation.
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 Chain Restaurant Compensation
Association Survey and PSI Stanton Group Exempt Survey. The base salary for the
Chief Executive Officer is determined by the Compensation Committee in executive
session, with final approval by the independent directors, taking into
consideration the results of a performance review, competitive market data, and
the current level of total compensation. As part of its performance review of
the Chief Executive Officer, the Compensation Committee also considers the Chief
Executive Officer's individual contributions, any changes in responsibility and
may interview the other executive officers. 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 total compensation, market median,
individual contributions, changes in position or responsibility, and internal
pay equity considerations.
The table below shows base compensation levels for the 2007 named
executive officers for 2006, 2007 and 2008.
- -----------------------------------------------------------------------------------------------------------
Base Salaries
- -----------------------------------------------------------------------------------------------------------
2006 2007 2008
- ------------------------- ------------------------- --------------------------- ---------------------------
Sally Smith $450,000 $500,000 $535,000
- ------------------------- ------------------------- --------------------------- ---------------------------
Mary Twinem $280,000 $315,000 $335,000
- ------------------------- ------------------------- --------------------------- ---------------------------
James Schmidt $215,000 $235,000 $270,000
- ------------------------- ------------------------- --------------------------- ---------------------------
Judy Shoulak $230,000 $255,000 $270,000
- ------------------------- ------------------------- --------------------------- ---------------------------
Kathy Benning $210,000 $224,000 $243,000
- ------------------------- ------------------------- --------------------------- ---------------------------
Annual Cash Incentive Compensation. For 2007, we established an annual
cash incentive program for our Chief Executive Officer, Executive Vice
Presidents, and Senior Vice Presidents. The criteria for earning incentive
compensation under this program was the same for all executive officers, except
that the Chief Executive Officer and Executive Vice Presidents 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 company performance. The
Compensation Committee selected and weighted the specific elements of this
program based on its judgment that these were key factors in creating
shareholder value.
The program 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; and net increase in system-wide
locations. Because our business plan is confidential, we do not publicly
disclose specific annual internal revenue, net income or operating objectives.
Disclosing specific objectives would provide competitors and other third parties
with insights into our planning process and would thereby cause competitive
harm.
-11-
The program also allows for the opportunity to earn cash incentives for
attaining personal objectives. The Committee reviews personal objectives for
each executive when determining their personal cash incentive. The personal
objectives 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 objectives
for the remaining executive officers are agreed upon by the Chief Executive
Officer and the respective executive officers. The actual amount of cash
incentive payable upon achievement of personal objectives is determined in the
discretion of the Compensation Committee. A description of the annual cash
incentive program is set forth below in more detail.
The 2007 annual cash incentive program had the following 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 97% of the planned targets, no cash
incentive would be earned. As the actual revenue increased above
97% 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 97% 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 Executive Vice Presidents 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 Executive Vice Presidents 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 Executive Vice
Presidents and 43.2% for the Senior Vice Presidents.
o Net Income: If actual net income were less than 95% of the planned
target, no cash incentive would be earned. As actual net income
increased above 95% of the planned target, the percentage of base
salary earned as a cash incentive increased. If actual net income
were at 95% of planned target, the participants would be entitled
to a cash incentive equal to a percentage of base salary, 10% for
the Chief Executive Officer and Executive Vice Presidents and 7.2%
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 Executive Vice Presidents and 10.8% of
base salary for the Senior Vice Presidents. Based on achieving net
income at 120% or more of the planned target, the maximum cash
incentive payable would be 30% of base salary for the Chief
Executive Officer and Executive Vice Presidents and 20% for the
Senior Vice Presidents.
o Net Increase in System-Wide Locations: For the Chief Executive
Officer and Executive Vice Presidents, the cash incentive payable
ranged from 3% to 18% of base salary based on the actual net
increase in system-wide locations, with 10% of base salary payable
for achieving the planned target. For the Senior Vice Presidents,
the cash incentive payable ranged from 2.2% to 13% of base salary
based on the actual net increase in system-wide locations, with
7.2% of base salary payable for achieving the planned target.
In addition to the objective company performance goals identified
above, the participants had the opportunity to earn a cash incentive based on
personal objectives of up to 20% of base salary for the Chief Executive Officer
and Executive Vice Presidents and up to 15% for the Senior Vice Presidents. In
2007, achievement of personal objectives caused the Chief Executive Officer to
earn 15% and the Executive Vice Presidents to earn 11.3% of their base salaries.
Considering the objective company performance goals and personal
objectives, the Chief Executive Officer and Executive Vice Presidents had the
opportunity to earn from 23% to 128% of their respective base salaries under the
2007 annual cash incentive program, and the Senior Vice Presidents had the
opportunity to earn from 17.2% to 91.2% of their respective base salaries under
the 2007 annual cash incentive program.
-12-
2007 Earned Cash Incentive Compensation. Each of the named executive
officers set forth below earned the following amounts of annual cash incentive
compensation based on 2007 performance:
------------------------- -------------------------- -------------------------
Named Executive Officer Cash Incentive Earned Percentage of Base
for 2007 Salary for 2007
------------------------- -------------------------- -------------------------
Sally Smith $334,200 66.8%
------------------------- -------------------------- -------------------------
Mary Twinem $210,546 66.8%
------------------------- -------------------------- -------------------------
James Schmidt $157,074 66.8%
------------------------- -------------------------- -------------------------
Judy Shoulak $123,930 48.6%
------------------------- -------------------------- -------------------------
Kathy Benning $108,864 48.6%
------------------------- -------------------------- -------------------------
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 long-term performance. Although the
restricted stock unit grants may accumulate 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, Executive Vice Presidents, 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 Executive
Vice Presidents receiving grants equal to 100% of their base salary, and the
Senior Vice Presidents receiving grants equal to 80% of their base salary. The
Compensation Committee used its discretion when determining the weight of equity
incentive compensation in 2007, but in doing so considered past practice,
competitive information, our principles and goals, and accumulated value of
executives' equity. 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 2007 was $500,000, and the closing sale price of our
stock at the end of 2006 was $26.60 per share, which resulted in the grant of
18,796 restricted stock units at the beginning of fiscal 2007.
The restricted stock units vest in one-third increments based upon
achievement of annual net income targets set by the Board of Directors. If we
achieve the annual net income target for a fiscal year, the active restricted
stock participants will vest 33-1/3% in their restricted stock units. If we do
not meet an annual net income target, no units 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 units granted. 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.
Because our business plan is confidential, we do not publicly disclose specific
net income objectives. Disclosing specific objectives would provide competitors
and other third parties with insights into our planning process and would
thereby cause competitive harm.
Changes in Equity Incentive Compensation for 2008. In setting
2008 compensation, the Compensation Committee retained Don Delves at The Delves
Group as its compensation consultant. Mr. Delves is retained by and reports
directly to the Compensation Committee, consults with the Committee regarding
the company's compensation plans, policies, and annual programs, and he attends
most of the Committee's meetings. Mr. Delves does not provide consulting
services to the company. With Mr. Delves's assistance, the Compensation
Committee conducted a thorough review during 2007 of current equity compensation
trends and related best practices among our selected peer group, our principles
and goals for equity compensation, and the alignment of our current equity
program with these goals. In reviewing trends and best practices, we relied
primarily on Mr. Delves advice supported by survey data on executive
compensation trends among the Fortune 1,000 companies and the 250 largest U.S.
companies in the Standard & Poor's 500 Index. Among our selected peer group, a
few companies are beginning to follow these current trends; however, equity
compensation among our selected peer group is still heavily weighted toward
time-based options, with as much as 75% of value being generated by options. As
a result, the Committee adopted revisions to our equity incentive program for
2008 that blend time-based incentive stock options with performance-based
restricted stock units for executives.
Participants will now have an opportunity to earn a range of
restricted stock units based upon the company achieving net income goals within
a range, rather than the all-or-nothing vesting under our 2007 program. In
addition, the net income targets include three-year cumulative goals rather than
being limited to annual targets. The restricted stock units under the revised
program will vest over a three-year performance period based upon achievement of
these cumulative net income goals, which are established at the time of the
original grant. For example, if during the first fiscal year the company
achieves at least the threshold goal, or what we refer to as our minimum goal, a
portion of the restricted stock units will vest. If after the second fiscal year
the company achieves at least its minimum cumulative net income goal for fiscal
years one and two of the performance period, additional restricted stock units
will vest. If after the third fiscal year the company achieves at least its
minimum cumulative net income goal for fiscal years one, two, and three of the
performance period additional restricted stock units will vest. Any units not
earned in year one or two of the performance period are eligible to vest in
future year(s). Another key difference from the 2007 program is that any
restricted stock units not earned by the end of the three-year performance
period are forfeited.
-13-
Under the new program, seven-year stock options, which vest equally
over four years, will represent approximately 25% of the grant date value of the
equity compensation assuming target level performance, or what we refer to as
mid-level performance, under the restricted stock unit portion of the program.
assuming mid-level performance, the combined grant date value of the restricted
stock units and stock options under the revised program is the same as the
restricted stock unit grant date value under the 2007 program. If the maximum
cumulative net income goals are achieved over the three-year performance period,
or what we refer to as our target goal, an executive will earn 200% of the
number of restricted stock units that would have been earned over the same
period for achieving mid-level performance. If the threshold cumulative net
income goals are achieved over the three-year performance period, or what we
refer to as our ninimum goal, an executive will earn 75% of the number of
restricted stock units that would have been earned over the same period for
achieving mid-level performance.
Other Benefits.
- ---------------
Deferred Compensation Program. We contribute a percentage of
the executive officers' annual base salary to our nonqualified 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 Executive Vice Presidents. Our
contribution for each of the other executive officers is 10% annually.
Participants self-direct the investment of their contributions in funds
that are similar to the funds offered by our 401(k) Plan. For 2007, the average
rate of return on the funds available for self-directed investment was 5.6%.
Benefits under the Deferred Compensation Plan vest over five years from
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. The Committee has not done a specific
analysis of perquisites provided by the company's peers but has relied on Mr.
Delves and outside counsel for guidance, and the Committee has concluded that
the perquisites provided to the executives are modest.
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, and 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.
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. 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 provides the Chief Executive Officer and Chief
Financial Officer with additional coverage equal to five times
their base salary and the other executive officers with
additional coverage equal to three times their annual base
salary. The supplemental life insurance policies have a fixed
value for the life of the policy, and have not been increased
for subsequent salary adjustments.
-14-
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 officer's 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 - 15 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
James M. Damian
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid or accrued during our last two fiscal years 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 2007.
We have entered into employment agreements with each of the named
executive officers, which agreements are described below. Any discretionary
compensation payments to the named executive officers were made pursuant to the
annual executive incentive plan and are included below in the Summary
Compensation Table under the heading "Non-Equity Incentive Plan Compensation."
Based on the fair value of equity awards granted to named executive
officers in 2007 and the base salary of the named executive officers, "salary"
accounted for approximately 39% of the total compensation of the named executive
officers and incentive compensation accounted for approximately 61% of such
total compensation. Because the value of certain equity awards included below is
based on the FAS 123R value rather than the grant date fair value, these
percentages may not be calculable using the table below.
-15-
Change in
Pension Value
and
Non-Equity Nonqualified
Incentive Deferred
Stock Option Plan Compensation All Other
Name and Salary Awards Awards Compensation Earnings Compensation
Principal Position Year ($) ($)(1) ($)(2) ($)(3) ($)(4) ($)(5) Total ($)
- ----------------------- ------- ---------- ------------ -------- -------------- --------------- -------------- ------------
Sally J. Smith 2007 $500,000 $849,391(6) $2,324 $334,200 $13,023 $111,820 $1,810,758
Chief Executive 2006 $450,000 $660,850 $5,520 $425,250 $26,456 $104,198 $1,672,274
Officer and
President
Mary J. Twinem 2007 $315,000 $281,643 $2,324 $210,546 $11,358 $70,609 $891,480
Executive VP and 2006 $280,000 $251,628 $5,520 $264,600 $16,990 $64,608 $883,346
Chief Financial
Officer
James M. Schmidt 2007 $235,000 $188,942 $1,240 $157,074 $5,296 $49,317 $636,869
Executive VP, 2006 $215,000 $159,199 $4,013 $147,490 $8,928 $43,636 $578,266
General
Counsel and
Secretary
Judith A. Shoulak 2007 $255,000 $187,982 $1,240 $123,930 $8,440 $48,895 $625,487
Senior VP, 2006 $230,000 $171,491 $2,745 $157,780 $11,276 $47,068 $620,360
Operations
Kathleen M. Benning 2007 $224,000 $169,004 $1,240 $108,864 $6,320 $37,810 $547,238
Senior VP,
Marketing and
Brand
Development (7)
- --------------------
(1) The amounts reflect the compensation cost recognized for financial
statement reporting purposes in each fiscal year, in accordance with FAS
123R, for restricted stock unit awards that we have made pursuant to our
2003 Equity Incentive Plan, and thus may include amounts from restricted
stock unit awards granted in and prior to such fiscal years. For a
discussion of our valuation assumptions for 2007 figures, see footnote 1(w)
to our audited financial statements included in our Annual Report on Form
10-K for the year ended December 30, 2007 filed with the Securities and
Exchange Commission. See "Option Exercises and Stock Vested" table on page
19 for shares and value realized by each named executive officer, and the
"Grants of Plan Based Awards" table for more information regarding the
restricted stock unit awards we granted in 2007. For a discussion of our
valuation assumptions for 2006 figures, see footnote 1(w) to our
consolidated financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2006 filed with the Securities and
Exchange Commission.
(2) The amounts reflect the compensation cost recognized for financial
statement reporting purposes in each fiscal year, in accordance with FAS
123R, for stock option awards that we have made pursuant to our 2003 Equity
Incentive Plan, and thus include amounts from stock option awards granted
in and prior to such fiscal years; no options were granted in fiscal year
2007 or 2006. For a discussion of our valuation assumptions for 2007
figures, see footnote 1(w) to our audited financial statements included in
our Annual Report on Form 10-K for the year ended December 30, 2007 filed
with the Securities and Exchange Commission. For a discussion of our
valuation assumptions for 2006 figures, see footnote 1(w) to our
consolidated financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2006 filed with the Securities and
Exchange Commission.
(3) The 2007 amounts represent cash incentive awards made pursuant to our 2007
executive incentive plan, which is discussed in further detail in the
"Compensation Discussion and Analysis" under "Annual Cash Incentive
Compensation" on page 11.
(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.
-16-
(5) Other annual compensation for fiscal year 2007 consists of the items set
forth in the table below:
Executive Executive Deferred
Medical Plan Long-Term Executive Contribution Compensation
Auto Lease/ Reimburse- Disability Life Insurance Club to 401(k) Plan
Allowance(a) ment (b) Premiums(c) Premiums (c) Dues Plan Accrual(d)
--------------- --------------- --------------- ----------------- ---------- --------------- ----------------
Sally J. Smith $20,200 $5,448 $6,668 $1,934 $6,070 $9,000 $62,500
Mary J. Twinem $16,000 $2,722 $2,543 $969 -- $9,000 $39,375
James M. Schmidt $ 6,000 $2,169 $1,680 $1,093 -- $9,000 $29,375
Judith A. Shoulak $ 6,000 $4,136 $2,532 $1,727 -- $9,000 $25,500
Kathleen M. Benning $ 6,000 -- -- $410 -- $9,000 $22,400
(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) Includes 11% administrative fee paid on behalf of officer.
(c) Includes taxes paid on behalf of officer.
(d) 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. Each of the named officers is fully vested.
(6) The amount shown includes a $399,428 adjustment to the amount initially
expensed for financial statement reporting purposes in 2007 for 24,844
shares issued pursuant to a restricted stock unit award. The restricted
stock units were initially scheduled to vest on December 31, 2006. The
Board of Directors amended the terms of the award on December 7, 2006 to
make vesting subject to shareholder approval of an amendment to our 2003
Equity Incentive Plan to permit us to deduct in full plan-related
compensation under Section 162(m) of the Internal Revenue Code. Shareholder
approval of the amendment was obtained on May 24, 2007, causing the units
to vest at that time.
(7) Ms. Benning was not a named executive officer in fiscal 2006; therefore,
only fiscal 2007 compensation information is included.
Employment Agreements
We have entered into employment agreements with each of our executive
officers, including each of the following: Sally J. Smith, Mary J. Twinem, and
Kathleen M. Benning, 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, with 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 2007 are set forth in the table above. The current base salaries, effective
for fiscal 2008 are $535,000 for Ms. Smith, $335,000 for Ms. Twinem, $270,000
for Mr. Schmidt, $270,000 for Ms. Shoulak, and $243,000 for Ms. Benning.
The employment agreements include termination and resignation
provisions, a confidentiality clause, a non-compete provision, and a severance
package in the event that we don't renew the agreement, the officer is
terminated without cause, or the officer resigns for good reason. See "Potential
Payments Upon Termination or Change in Control" on page 20 for further
information with respect to these provisions.
-17-
Grants of Plan-Based Awards
Estimated Future Payouts Under Estimated Future Payouts Under Equity Grant Date Fair
Non-Equity Incentive Plan Awards(1) Incentive Plan Awards (2) Value of Stock and
-------------------------------------- -------------------------------------- Option Awards
Name Grant Date(3) Threshold ($) Target ($) Maximum ($) Threshold (#) Target (#) Maximum (#) ($) (4)
- ------------------- ------------- ------------- ---------- ----------- ------------- ---------- ----------- ------------------
Sally J. Smith 01/01/07 -- -- -- 6,264 18,796 18,796 $499,974
N/A $115,000 $375,000 $640,000
Mary J. Twinem 01/01/07 -- -- -- 3,946 11,842 11,842 $314,997
N/A $72,450 $236,250 $403,200
James M. Schmidt 01/01/07 -- -- -- 2,944 8,834 8,834 $234,984
N/A $54,050 $176,250 $225,600
Judith A. Shoulak 01/01/07 -- -- -- 2,556 7,670 7,670 $204,022
N/A $43,860 $139,230 $232,560
Kathleen M. Benning 01/01/07 -- -- -- 2,244 6,736 6,736 $179,976
N/A $38,528 $122,304 $204,288
- ------------------
(1) These columns show the range of payouts targeted for fiscal 2007
performance under our executive incentive plan as described in the section
titled "Annual Cash Incentive Compensation" in the "Compensation Discussion
and Analysis" on page 11. The cash incentive payments for 2007 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 January
1, 2007 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
December 7, 2006 effective as of January 1, 2007, the first day of fiscal
year 2007.
(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 Form 10-K for the fiscal year ended
December 30, 2007 filed with the Securities and Exchange Commission.
Outstanding Equity Awards at Fiscal Year-End
Option Awards Stock Awards
-------------------------------------------------------------- -------------------------------------
Equity
Incentive
Equity Plan
Market Incentive Awards:
Number Value Plan Market or
of of Awards: Payout
Equity Shares Shares Number of Value of
Incentive or or Unearned Unearned
Plan Units Units Shares, Shares,
Awards: of of Units or Units or
Number of Number of Number of Stock Stock Other Other
Securities Securities Securities That That Rights Rights
Underlying Underlying Underlying Option Have Have That Have That Have
Unexercised Unexercised Unexercised Exercise Option Not Not Not Not
Options (#) Options (#) Unearned Price Expiration Vested Vested Vested Vested
Name Exercisable Unexercisable Options (#) ($) Date (#) ($) (#)(1) ($)(2)
- -------------------- ----------- -------------- ------------ --------- ----------- -------- ------- ---------- ----------
Sally J. Smith 14,554 -- -- $3.75 05/23/11 -- -- 21,408 $495,381
6,000 -- -- $9.075 05/29/13
Mary J. Twinem 10,000 -- -- $5.625 03/01/12 -- -- 13,420 $310,539
6,000 -- -- $9.075 05/29/13
James M. Schmidt 6,000 -- -- $3.75 05/23/11 -- -- 9,284 $214,832
800 -- -- $9.075 05/29/13
Judith A. Shoulak 5,000 -- -- $3.75 10/15/11 -- -- 8,742 $202,290
750 -- -- $5.625 03/01/12
3,200 -- -- $9.075 05/29/13
Kathleen M. Benning 6,000 -- -- $3.75 05/23/11 -- -- 7,804 $180,585
6,000 -- -- $5.625 03/01/12
3,200 -- -- $9.075 05/29/13
-18-
- ------------------
(1) Represents the maximum number of shares of Common Stock that an officer
would receive under the performance-based restricted stock units awarded as
follows:
Name Grant Date Units Vest on 12/28/08(a) Vest on
12/29/09(a)
----------------------- ------------- --------------- -------------------- -------------------
Sally J. Smith 12/26/05 8,876 8,876 --
01/01/07 12,532 6,266 6,266
Mary J. Twinem 12/26/05 5,524 5,524 --
01/01/07 7,896 3,948 3,948
James M. Schmidt 12/26/05 3,394 3,394 --
01/01/07 5,890 2,944 2,946
Judith A. Shoulak 12/26/05 3,628 3,628 --
01/01/07 5,114 2,556 2,558
Kathleen M. Benning 12/26/05 3,312 3,312 --
01/01/07 4,492 2,246 2,246
------------
(a) The vesting is subject to certain performance targets being
attained; therefore, the vesting may occur on a later date or not
at all. For more information on the vesting conditions for the
restricted stock unit awards, please see the "Grants of Plan Based
Awards" table and the discussion entitled "Equity Incentive
Compensation" that is contained in the "Compensation Discussion
and Analysis."
(2) The amounts reflect the value as calculated based on the closing price of
our Common Stock on December 28, 2007 of $23.14.
Option Exercises and Stock Vested
Option Awards Stock Awards
---------------------- ---------------------- ------------------------ -----------------------
Name Number of Shares Number of Shares
Acquired Value Realized Acq uired Value Realized
on Exercise (#) on Exercise ($)(1) on Vesting (#) on Vesting ($)
- ----------------------- ---------------------- ---------------------- ------------------------ -----------------------
Sally J. Smith 70,946 $1,567,963 47,678(2) $1,594,807(2)
Mary J. Twinem 79,200 $1,844,844 14,278(3) $330,393(3)
James M. Schmidt 25,000 $516,094 9,412(3) $217,794(3)
Judith A. Shoulak -- -- 9,570(3) $221,450(3)
Kathleen M. Benning -- -- 8,634(3) $199,791(3)
- ------------------
(1) Amounts reflect the difference between the exercise price of the stock
option and the market price on the date of exercise.
(2) The value realized reflects the market value of the stock on the date that
the restricted stock units vested. Performance awards covering an aggregate
of 24,844 shares were granted on June 11, 2004, December 27, 2004, and
December 26, 2005, with vesting subject to shareholder approval of an
amendment to our 2003 Equity Incentive Plan to permit us to deduct in full
plan-related compensation under Section 162(m) of the Internal Revenue
Code. The shareholders approved the amendment on May 24, 2007, and the
restricted stock units immediately vested, with the shares subsequently
issued on May 29, 2007 in accordance with the terms of the awards. The
market value for such shares was $42.925 per share. Performance awards
covering an aggregate of 22,834 shares were granted on December 27, 2004,
December 26, 2005, and January 1, 2007 and vested on December 30, 2007,
with a market value of $23.14 per share, with the shares being subsequently
issued on March 5, 2008.
(3) The value realized reflects the market value of the stock on the date that
the restricted stock units vested. These shares represent performance
awards granted on December 27, 2004, December 26, 2005, and January 1, 2007
which vested on December 30, 2007, with the shares being subsequently
issued on March 5, 2008. The price of our Common Stock on December 30, 2007
was $23.14 per share.
Nonqualified Deferred Compensation
We contribute a percentage of the executive officers' annual base
salary to our nonqualified deferred compensation plan. The amount of our
contribution for each executive is based on a percentage of base salary, which
amount for 2007 was 12.5% for Ms. Smith, Ms. Twinem, and Mr. Schmidt and 10% for
the other named executive officers.
-19-
Participants self-direct the investment of their contributions in funds
that mirror the funds offered by our 401(k) Plan. For 2007, the average rate of
return on the funds available for self-directed investment was 5.6%.
Benefits under the deferred compensation plan vest over five years from
date of hire, except in the case of death, in which case a lump sum is paid to
the beneficiaries. If an executive terminates employment with us and accepts
employment with a competitor, the vesting schedule lengthens to ten years from
the date of hire. Participants may receive distributions from the Deferred
Compensation Plan as a lump sum payment or in annual installments.
Executive Registrant Aggregate Aggregate Aggregate
Contri-butions Contri-butions in Earnings Withdrawals/ Balance at
Name in Last FY ($) Last FY ($)(1) in Last FY ($)(2) Distributions ($) Last FYE ($)(3)
- ----------------------- ---------------- ------------------- ------------------ --------------------- ----------------
Sally J. Smith -- $62,500 $13,023 -- $329,390
Mary J. Twinem -- $39,375 $11,358 -- $274,497
James M. Schmidt -- $29,375 $5,296 -- $137,291
Judith A. Shoulak -- $25,500 $8,440 -- $141,940
Kathleen M. Benning -- $22,400 $6,320 -- $161,489
- ------------------
(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.
(2) The rate of interest does not exceed 120% of the long-term Applicable
Federal Rate and may not be considered above-market; however, the interest
amounts in this column are included in the Summary Compensation Table
because our deferred compensation plan is only available to officers and
may be deemed to be preferential. The investment elections are similar to
those available to all eligible employees under our tax-qualified section
401(k) profit sharing plan.
(3) The balances in this column include deferrals for each of the executive
officers of $253,867 (Ms. Smith), $223,764 (Ms. Twinem), $102,620 (Mr.
Schmidt), and $108,000 (Mr. Shoulak), which were previously reported as
2006 compensation in the Summary Compensation Table. We have not included
2006 compensation for Ms. Benning.
Potential Payments Upon Termination or Change in Control
As set forth under "Employment Agreements" on page 17, 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 terms of our deferred compensation plan provide that
vesting would accelerate to 100% upon a change in control. However, all of the
current named executive officers are fully vested in such plan. The employment
agreements provide that during the term of the agreement and for a period
following termination of employment (one year for Ms. Smith and Ms. Twinem and
six months for the other executive officers), the executives will not compete
with us or solicit any of our employees or customers. 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 30, 2007, the named executive officers would have been entitled to the
following payments and benefits:
-20-
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
Vested but
Accrued but Unissued Total
Unpaid Restricted Deferred Termination
Salary(1) Bonus(2) Stock Units(3)
Compensation(4) Benefits
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
Sally J. Smith
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Resignation without good reason; $19,231 $259,200 $528,379 $328,579 $806,833
termination for cause
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Death or Permanent Disability $19,231 $334,200 $528,379 $328,579 $1,207,950
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Termination without cause, $500,000 $334,200 $528,379 $328,579 $1,688,719
resignation for good reason or
company's failure to extend
employment agreement
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
Mary J. Twinem
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Resignation without good reason; $12,115 $163,296 $330,393 $273,821 $777,177
termination for cause
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Death or Permanent Disability $12,115 $210,546 $330,393 $273,821 $824,427
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Termination without cause, $315,000 $210,546 $330,393 $273,821 $1,127,312
resignation for good reason or
company's failure to extend
employment agreement
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
James M. Schmidt
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Resignation without good reason; $9,038 $121,824 $217,794 $136,953 $485,463
termination for cause
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Death or Permanent Disability $9,038 $157,074 $217,794 $136,953 $520,713
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Termination without cause, $235,000 $157,074 $217,794 $136,953 $765,905
resignation for good reason or
failure to extend employment
agreement
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
Judith A. Shoulak
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Resignation without good reason; $9,808 $95,242 $221,450 $141,530 $464,923
termination for cause
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Death or Permanent Disability $9,808 $123,930 $221,450 $141,530 $493,611
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
oTermination without cause, $127,500 $123,930 $221,450 $141,530 $611,303
resignation for good reason or
company's failure to extend
employment agreement
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
Kathleen M. Benning
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Resignation without good reason; $9,346 $83,664 $199,791 $161,525 $450,182
termination for cause
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Death or Permanent Disability $9,346 $108,864 $199,791 $161,525 $475,382
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
o Termination without cause, $112,000 $108,864 $199,791 $161,525 $578,036
resignation for good reason or
company's failure to extend
employment agreement
- ----------------------------------------- ----------- -------------- ----------------- ---------------- ------------
- ------------------
(1) Upon termination without cause, resignation for good reason or the
company's failure to extend the employment agreement, Ms. Smith, Ms. Twinem
and Mr. Schmidt are entitled to 12 months' salary, and the other executives
are entitled to 6 months' salary. Such amounts would be payable in
accordance with our standard payroll practices.
(2) The amounts represent cash incentive awards made pursuant to our 2007
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 30, 2007, the last day of fiscal year 2007;
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 30, 2007, in accordance with
FAS 123R, of restricted stock unit awards made pursuant to our 2003 Equity
Incentive Plan and thus may include amounts from restricted stock unit
awards granted in and prior to fiscal year 2007, which vested but had not
been issued as of December 30, 2007. 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 30, 2007 filed with the Securities and Exchange Commission.
Unvested awards do not accelerate upon termination for any reason.
(4) All of the named executive officers are fully vested in the deferred
compensation plan.
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 2007, all officers, directors, and greater than
ten-percent beneficial owners complied with the applicable filing requirements
except that: Ms. Smith reported an option exercise on a late Form 4; Ms. Shoulak
reported one transaction on a late Form 4; Mr. MacDonald reported a transaction
late on a Form 5 that was timely filed. In addition, each of our outside
directors (Messrs. Dahlberg, Maggard, Applequist, MacDonald, Mack, Johnson, and
Damian) reported a stock grant on a late Form 4.
-21-
Certain Relationships and Related Transactions
Our Board of Directors has adopted a written policy with respect to
related party transactions, which policy sets 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 2007, there have been no transactions or
business relationships, other than as disclosed herein, between us and our
executive officers, directors, director nominees, and affiliates.
APPROVAL OF AMENDMENT AND RESTATEMENT OF
THE 2003 EQUITY INCENTIVE PLAN
(Proposal #3)
Proposed Amendment
The Board amended the 2003 Equity Incentive Plan (the "Plan"), subject
to shareholder approval, to (i) increase the shares of Common Stock reserved
under the Plan for stock options and restricted stock and restricted stock unit
awards from 2,900,000 to 3,900,000 and (ii) revise certain sections to implement
certain equity compensation "best practices" and facilitate administration of
the Plan, and (iii) obtain renewed shareholder approval of specified performance
objectives and the ten-year period during which incentive stock options may be
awarded for purposes of Sections 162(m) and 422, respectively, of the Internal
Revenue Code. Such revisions include the following: (i) providing that the
reserved share pool under the Plan shall be reduced by 1.5 shares for every
share subject to awards of restricted stock and restricted stock units granted
after shareholder approval of this Plan; (ii) prohibiting the repricing of stock
options without shareholder approval; (iii) limiting the Compensation
Committee's discretion to accelerate vesting of awards to situations involving a
change of control, death, disability, or retirement; (iv) requiring minimum
vesting periods for restricted stock and restricted stock unit awards, subject
to certain exceptions; (v) requiring that the exercise price of nonqualified
stock options be not less than 100% of fair market value of a share of our
Common Stock on the date of grant; (vi) including a broader range of events
giving rise to anti-dilution adjustments; (vii) including a change in control
definition consistent with that used in connection with other compensation
arrangements we provide; (viii) specifically permitting broker-assisted cashless
exercises if permitted by the Compensation Committee; (ix) allowing the
Compensation Committee to delegate administrative authority to others for
granting awards to persons other than executive officers and directors; and (x)
other immaterial administrative changes.
Reasons for the Amendment and Restatement
We believe that our Plan is an important factor in attracting and
retaining skilled personnel. As of March 24, 2008, there were 441,272 shares of
Common Stock subject to outstanding options and 228,000 shares of Common Stock
subject to outstanding restricted stock units granted pursuant to the Plan. As
of that date, exclusive of the 1,000,000 shares to be added pursuant to the
amendment described herein, we had 339,034 shares still reserved and available
under the Plan for the future granting of awards. 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 Plan
ties the employees' goals and interests to those of the company and its
shareholders.
-22-
The Board of Directors believes that it is in the best interest of
Buffalo Wild Wings and its shareholders to approve the amendment and restatement
of the Plan. Based on an estimated usage rate, we currently anticipate that,
without the proposed addition of 1,000,000 shares to the Plan, there may not be
sufficient shares available for grants under the Plan after 2008. In order to
continue to have an adequate number of shares available for awards to recruit,
hire, and retain personnel, the Board believes that we need the additional
1,000,000 shares for which shareholder approval is sought. The Board believes
that the other changes set forth above are necessary to permit more effective
administration of the Plan, to clarify certain provisions in the Plan and to
implement certain equity compensation best practices.
The Board of Directors recommends that shareholders vote "FOR" the
approval of the amendment and restatement of our Plan.
The essential features of the Plan, as being amended by this proposal,
are outlined below.
Description of the 2003 Equity Incentive Plan
A general description of the material features of the Plan, as amended,
follows, but this description is qualified in its entirety by reference to the
full text of the Plan, a copy of which is attached to this Proxy Statement as
Appendix A.
General. The Compensation Committee of the Board of Directors is
designated to administer the Plan and is referred to herein as the
"Administrator." The Administrator may grant incentive and nonqualified stock
options and restricted stock and restricted stock unit awards under the Plan,
and officers, employees, directors, consultants and advisors of ours (including
our subsidiaries and affiliates) are eligible to receive awards. Incentive stock
option awards may, however, be made only to employees, and the policy of the
Compensation Committee is to make awards only to full-time employees. The
Administrator may make awards under the Plan to those eligible individuals whose
performance, in the judgment of the Administrator, can have a significant effect
on our success. Any committee appointed by the Board to administer the 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) and each member must be independent under
the Nasdaq Marketplace Rules and be an outside director for purposes of Section
162(m) of the Internal Revenue Code (the "Code"). As of March 24, 2008, we had
approximately 813 full-time employees, of which seven are executive officers,
and seven non-employee directors eligible to participate in the Plan.
Shares Reserved and Available. Upon approval of the amendment and
restatement, the Plan will provide for the issuance of up to 3,900,000 shares of
our Common Stock, subject to adjustment 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, or other changes in our corporate structure that affect our shares
of Common Stock or the value thereof. For awards made after shareholder approval
of the amendment and restatement, shares subject to option awards will be
counted against the overall share limit as one share for every one share
granted, but shares subject to restricted stock and restricted stock unit awards
will be counted against that limit as 1.5 shares for every one share granted. If
any options or other awards granted under the 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 other award are available for subsequent grants and
increase the total number of shares available for grant using the same ratios
specified in the previous sentence. Any shares tendered by a participant or
withheld by us in payment of any option exercise price or in satisfaction of any
tax withholding obligation with respect to an award will not again become
available for awards or increase the number of shares available for grant.
The closing sale price of a share of our Common Stock on March 24, 2008
on the Nasdaq Global Select Market was $25.69 per share.
Term of the Plan. Incentive stock options may be granted pursuant to
the Plan during a period of ten (10) years from the date the shareholders
approve the amended and restated Plan, and nonqualified stock options and
restricted stock and restricted stock unit awards may be granted until all
shares subject to the Plan have been issued or the 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 Plan, including the authority to establish rules
for the administration of the Plan. The "awards" permitted under the Plan are
stock options, restricted stock, and restricted stock units. The Administrator
has authority to (i) select the participants in the Plan, (ii) determine the
types of awards to be granted and the number of shares covered by such awards,
and (iii) set the terms and conditions of such awards, which authority can be
delegated to an executive officer or non-employee director in connection with
the grants of awards to persons not subject to Section 16. The Administrator may
amend awards, but may accelerate the vesting or exercisability of an award only
in connection with a change in control or a participant's death, disability or
retirement, and may not reprice an option without shareholder approval.
-23-
Options. Options granted under the Plan may be either "incentive" stock
options within the meaning of Section 422 of the Code or "nonqualified" stock
options that do not qualify for special tax treatment under the Code. No 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 may not reprice an option without shareholder approval. The
Administrator will determine the term of an option (which may not exceed ten
years) and how and when it will become exercisable. The options may be exercised
by payment of the exercise price in cash by the optionee, through a
broker-assisted cashless exercise, or, if permitted in the respective award
agreement, by the delivery of previously owned shares by the optionee or by the
withholding of shares by us, in either case having a value equal to the exercise
price. An incentive stock option may not be transferred by an optionee except by
will or the laws of descent and distribution. A nonqualified option may be
transferred under similar circumstances and, if permitted in the respective
award agreement, by gift to a member of the 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. All shares authorized for award under the Plan
may be granted as incentive stock options. No participant may receive option
awards covering more than 100,000 shares during any fiscal year, and incentive
stock option awards are subject to the additional limitation prescribed by Code
Section 422 on the aggregate fair market value of shares that may first become
exercisable in any calendar year.
Restricted Stock and Restricted Stock Unit Awards. 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 Plan
shall be for a number of shares as determined by the Administrator, and the
Administrator will also establish vesting conditions based on continued
employment and, in its discretion, satisfaction of performance objectives, that
must be satisfied for the risks of forfeiture to lapse. Under the Plan, as
amended, a restricted stock or restricted stock unit award that is not
performance-based may not fully vest in less than three years from a grant date.
If such award is subject to vesting upon satisfaction of performance objectives,
the performance period must be one year or more. The foregoing limitations on
vesting will not apply if the award is made (i) to attract a key executive to
join Buffalo Wild Wings; (ii) upon a change in control; (iii) upon termination
of employment due to death or disability; (iv) in exchange for other
compensation; or (v) to non-employee directors. 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 and 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
a share 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, (xv) increase in market share, (xvi) same-store sale increases; or (xvii)
such other performance criteria as permitted in the Plan, in all cases
including, if selected by the Administrator, minimum threshold, target and
maximum levels. Any Performance Objective may be expressed in absolute amounts,
as a change from prior periods or as comparison to the performance of other
companies or other external measures, and may relate to company, business unit
or individual performance. In setting Performance Objectives, the Administrator
may exclude amounts it determines should appropriately be excluded, or may
adjust Performance Objectives to prevent dilution or enlargement of a
participant's rights, to the extent consistent with the requirements of Code
Section 162(m).
Change in Control. If a change in control of Buffalo Wild Wings occurs,
the Board may, in its discretion, provide for one or more of the following: (i)
the continuation, assumption or replacement of outstanding awards; (ii) the
acceleration of vesting and exercisability of outstanding awards; (iii) the
cancellation of unvested and unexercised awards; or (iv) payment to participants
in cash or shares of the company surviving the change in control of the
intrinsic value of outstanding awards immediately prior to the change in
control. For these purposes, a change in control generally refers to a merger or
consolidation involving Buffalo Wild Wings, a sale of all or substantially all
of our assets, the acquisition by a person or group of 30% or more of the voting
power of our stock, certain changes in the composition of our Board over an 18
month period, or the approval by our shareholders of a complete liquidation or
dissolution.
-24-
Amendment. The Board of Directors may, from time to time, suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that any Plan amendment shall be submitted to our shareholders for approval if
required by law or the securities exchange on which our stock is listed.
Currently, Nasdaq requires shareholder approval for material amendments to a
plan.
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 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 exercise
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 Plan are intended to qualify
for favorable tax treatment. 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 are not entitled to any income tax deduction upon the grant or
exercise of an incentive stock option. If the optionee 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 date of
exercise, the excess of the sale proceeds over the aggregate exercise price of
such shares will be long-term capital gain to the optionee, and we will not be
entitled to a tax deduction. Except in the event of death, if the shares are
disposed of before the end of the one- or two-year holding periods, the excess
of the fair market value of the shares at the time of exercise over the
aggregate exercise price (but generally not more than the amount of gain
realized on the disposition) will be ordinary income to the optionee at the time
of the disposition, and we will generally be entitled to a federal tax deduction
equal to the amount of ordinary income recognized by the optionee.
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 in connection with a restricted stock
award in an amount equal to the fair market value of the shares on the date the
shares vest and applicable restrictions lapse. Alternatively, if a recipient
makes a "Section 83(b)" election, the recipient will, in the year that a
restricted stock award is granted, recognize compensation taxable as ordinary
income equal to the fair market value of the shares on the date of the award.
With respect to restricted stock unit awards, a recipient will recognize
compensation taxable as ordinary income in an amount equal to the fair market
value of the shares issued in settlement of the restricted stock units on the
date the shares are issued. We 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.
Future Awards
Because future grants of stock options and restricted stock and
restricted stock unit awards are subject to the discretion of the Administrator,
the future awards that may be received by Plan participants cannot be determined
at this time. The Compensation Committee did grant time-vested options and
performance restricted stock unit awards under the Plan in fiscal year 2008,
which awards were made from shares currently available under the Plan without
regard to the proposed amendment and restatement and are not contingent upon
shareholder approval of the proposed amendment and restatement. These awards are
set forth below:
-25-
Shares of Underlying Shares of Underlying
Name and Position/Group Options(1) Restricted Stock Units(2)
- ----------------------- ---------- -------------------------
Sally J. Smith 12,750 34,680
President and CEO
Mary J. Twinem 7,984 21,716
Executive Vice President, CFO and Treasurer
James M. Schmidt 6,435 17,502
Executive Vice President, General Counsel and Secretary
Judith A. Shoulak 5,148 14,002
Senior Vice President, Human Resources
Kathleen M. Benning 4,633 12,602
Senior Vice President, Marketing and Brand Development
Current Executive Officers as a Group (7 persons) 45,911 124,876
Current Directors who are not Executive Officers -- 18,151
as a Group (7 persons)
Current Employees who are not Executive Officers 12,361 180,208
or Directors as a Group
- ---------------
(1) Each stock option is a seven-year incentive stock option with an exercise
price of $24.96, with vesting in four equal annual increments on the
last day of the fiscal year.
(2) The restricted stock units granted to the directors who are not employees
immediately vested on the date of grant; the other restricted stock units
vest on the last day of each fiscal year over three years only if certain
performance targets are met (actual shares issued may be less than the
maximum number shown).
Equity Compensation Plan Information
The following table summarizes our equity compensation plan information
as of December 30, 2007, our fiscal year end.
Number of securities to be Number of securities remaining
issued upon exercise of Weighted average available for future issuance
outstanding options, exercise price of under equity compensation
warrants and outstanding options, plans (excluding securities
Plan Category rights warrants and rights reflected in column (a))
------------- -------------------------- -------------------- ------------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 317,295 $5.61 1,126,789 (1)
Equity compensation plans
not approved by security -- -- --
holders
----------- ------------ ------------
TOTAL 317,295 $5.61 1,126,789
-------------
(1) Includes 432,978 shares remaining available under our Employee Stock Purchase Plan.
Vote Required
The Board of Directors recommends that the shareholders approve the
amendment and restatement of the 2003 Equity Incentive Plan. Under applicable
Minnesota law and our Articles of Incorporation, approval of the amendment of
the 2003 Equity Incentive Plan as set forth above 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.
If the shareholders fail to approve this proposal, the Plan will remain
in effect as it existed immediately prior to the proposed amendment and
restatement. In that case, we would be limited to issuing no more than 2,900,000
shares of our Common Stock in total pursuant to awards made under the Plan.
-26-
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
(Proposal #4)
On March 16, 2008, the Board of Directors unanimously approved an
amendment to our Articles of Incorporation to increase the authorized number of
common shares from 20,200,000 to 44,000,000 (the "Amendment"), subject to
shareholder approval.
As of March 24, 2008, of our 20,200,000 authorized shares of Common
Stock, 17,768,391 shares of were issued and outstanding, and 2,431,609 shares
were authorized but unissued. Approximately 1,772,012 shares have been reserved
for issuance pursuant to our employee benefit plans, including the increased
shares for our 2003 Equity Incentive Plan in Proposal #3 above.
The Board desires to increase the number of authorized shares to
provide sufficient shares for the increase of shares under our 2003 Equity
Incentive Plan as set forth in Proposal #3 above; to give the Board flexibility
to declare stock dividends or stock splits at such times as the Board may deem
appropriate; to give the Board flexibility to make acquisitions using stock; to
adopt additional employee benefit plans or further increase the shares available
under existing plans; to raise equity capital; or to use the additional shares
for other general corporate purposes. Other than the shares currently reserved
for issuance as described above, the Board has not authorized the issuance of
any additional shares, and there are no current agreements or commitments for
the issuance of any additional shares. If the Board authorizes the issuance of
additional shares in the future, it would do so only at the time and on such
terms as it then deems to be in the best interests of Buffalo Wild Wings and our
then existing shareholders.
In addition to the 20,200,000 currently authorized common shares,
1,000,000 undesignated shares are authorized in our Articles. The undesignated
shares will not be increased pursuant to the Amendment. Our Articles of
Incorporation permit the Board to establish from the current 1,000,000
undesignated shares, by resolution adopted and filed with the Minnesota
Secretary of State in the manner provided by law, one or more classes or series
and to fix the relative rights and preferences of each such class or series,
including the establishment of additional shares of Common Stock. These shares
are available for issuance by the Board at such times and for such purposes as
the Board may deem advisable without further action by the shareholders, except
as may be required by law or regulatory authorities. The Board has the
authority, for example, to issue a new class or series of stock to impede
potential takeover transactions; however, the Board would do so only on terms
which the Board deems to be in our best interests and the interests of our then
existing shareholders.
Our shareholders have no preemptive rights with respect to our Common
Stock. If this proposed Amendment is adopted, the additional authorized shares
of Common Stock will be available for issuance from time to time at the
discretion of the Board without further action by the shareholders, except where
shareholder approval is required by law, regulatory authorities or to obtain
favorable tax treatment for certain employee benefit plans. Although it is not
possible to state with certainty the effects of the amendment upon the rights of
the holders of Common Stock until the Board determines the purpose for the
actual issuance of Common Stock, additional shares of Common Stock might be
issued at times and under circumstances as to have a dilutive effect on earnings
per share and on the equity ownership of the present holders of our Common
Stock. Further, while an increase in the common shares could, under certain
circumstances, also be construed as having an anti-takeover effect (for example,
by diluting the stock ownership of a person seeking to effect a change in the
composition of the Board of Directors or contemplating a tender offer or other
transaction for the combination of the company with another company), we are not
proposing the increase in authorized shares in response to any effort to
accumulate our stock or to obtain control of the company by means of a merger,
tender offer or solicitation in opposition to management.
Vote Required
The Board of Directors recommends that the shareholders approve the
Amendment to the Articles. Under applicable Minnesota law and our Articles of
Incorporation, approval of the Amendment to the Articles of Incorporation as set
forth above requires the affirmative vote of the holders of a majority of the
voting power of the shares entitled to vote.
-27-
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal #5)
General
The Board of Directors recommends that the shareholders ratify the
appointment of KPMG LLP as our independent registered public accounting firm for
the year ending December 28, 2008. KPMG LLP has served as our accountants since
1994. 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 30, 2007, 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 2006 and 2007:
2006 2007
---- ----
Audit Fees $405,000 $425,000
Audit-Related Fees 33,000 49,200
Tax Fees -- --
All Other Fees -- --
------------- -------------
$438,000 $474,200
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.
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 services that are related to the performance of the audit of our
financial statements and are not reported under Audit Fees.
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
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;
-28-
(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. 5 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 30, 2007, 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 2008 Annual
Meeting. If any other matter properly comes before the 2008 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 2009 Annual Meeting must be received by us by
December 18, 2008 to be included in our proxy statement and related proxy for
the 2009 Annual Meeting. If a shareholder proposal intended to be presented at
the 2009 annual meeting but not included in the proxy materials is received by
us after March 3, 2009, then management named in our proxy for the 2009 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 30, 2007, 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.
-29-
FORM 10-K
Upon written request of any shareholder as of March 24, 2008, we will
furnish, without charge, a copy of our annual report on Form 10-K for the fiscal
year ended December 30, 2007, 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 should be directed to James M. Schmidt, Executive VP,
General Counsel and Secretary of Buffalo Wild Wings, Inc., 5500 Wayzata
Boulevard, Suite 1600, Minneapolis, Minnesota 55416. In addition, you may review
and print the Form 10-K and all exhibits from the SEC's website at www.sec.gov.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Sally J. Smith
-----------------------------------------------------
Sally J. Smith, President and Chief Executive Officer
Dated: April 17, 2008
APPENDIX A
BUFFALO WILD WINGS, INC.
2003 EQUITY INCENTIVE PLAN
(As Amended and Restated May __, 2008)
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) "Award" shall mean a grant made under the Plan in the form of Options,
Restricted Stock or Restricted Stock Units.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and the regulations promulgated thereunder.
(e) "Committee" shall mean a Committee of two or more non-employee
directors who shall be appointed by and serve at the pleasure of the Board. Each
member of the Committee shall be (i) an independent director within the meaning
of Rule 4200(a)(15) of the NASDAQ Marketplace Rules, (ii) a non-employee
director within the meaning of Exchange Act Rule 16b-3, and (iii) an outside
director for purposes of Code Section 162(m).
(f) The "Company" shall mean Buffalo Wild Wings, Inc., a Minnesota
corporation.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended
and in effect from time to time.
(h) "Fair Market Value" of a share of stock as of any date shall mean (i)
if the stock is listed on the NASDAQ Stock Market, or another established stock
exchange, the closing sale price of a share of the 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
Stock Market, or another 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 for a share of such stock
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 good faith and in a manner consistent with
Code Section 409A to be 100% of the fair market value of a share of such stock
on that date.
(i) "Option" means a right granted under the Plan to purchase a specified
number of shares of Stock at a specified price per share. An Option may be
either an "Incentive Stock Option" that is designated as such and granted in
accordance with the requirements of Code Section 422, or a "Nonqualified Stock
Option" that is any Option other than an Incentive Stock Option.
(j) The "Participant" means (i) an employee of the Company or any
Affiliate to whom an Incentive Stock Option has been granted pursuant to Section
9, or (ii) a consultant or advisor to or director, employee or officer of the
Company or any Affiliate to whom any other type of Award has been granted
pursuant to Section 10 or Section 17.
(k) "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.
(l) The "Plan" means the Buffalo Wild Wings, Inc. 2003 Equity Incentive
Plan, as amended from time to time, including the form of Award agreements as
they may be modified by the Board or Committee 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 amendment and restatement shall be
deemed a new stock option plan.
(m) "Restricted Stock" means shares of Stock issued to a Participant that
are subject to such restrictions on transfer, forfeiture conditions and other
restrictions or limitations as may be set forth in this Plan and the applicable
Award agreement.
(n) "Restricted Stock Unit" means a right to receive, in cash and/or
shares of Stock as determined by the Committee, the Fair Market Value of a share
of Stock, subject to such restrictions on transfer, forfeiture conditions and
other restrictions or limitations as may be set forth in this Plan and the
applicable Award agreement.
(o) "Stock" shall mean Common Stock of the Company (subject to adjustment
as described in Section 12).
(p) 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
-------
(a) 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.
A-2
(b) It is the intention of the Company to carry out the Plan through the
granting of Incentive Stock Options 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 and Restricted Stock Unit 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 after the adoption of the Plan by the Board.
SECTION 3.
EFFECTIVE DATE OF PLAN
----------------------
The Plan originally became effective as of its date of adoption by the
Board on April 18, 1995. The effective date of this amendment and restatement of
the Plan is the date such amendment and restatement is approved by the
shareholders of the Company as required in Section 2.
SECTION 4.
ADMINISTRATION
--------------
(a) Except as otherwise provided in this Plan, the Plan shall be
administered by the Committee, 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
subject to the limitations described herein) to (i) determine, in its sole
discretion, the type of Awards to be granted, the individuals to whom, and the
time or times at which, Awards shall be granted, the number of shares subject to
each Award, the exercise price, and the other terms and conditions of each
Award; (ii) cancel or suspend an Award; (iii) accelerate the vesting or
exercisability of an Award, but only in connection with a Change in Control (as
defined in Section 12(c)), a Participant's death or disability, or a
Participant's retirement (as may be defined under applicable Company policies);
or (iv) otherwise amend the terms and conditions of any outstanding 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 Award
agreements (which may vary from Participant to Participant) evidencing each
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.
(b) 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. 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. To the extent not
inconsistent with applicable law or stock exchange rules, the Committee may
delegate all or any portion of its authority under the Plan to determine and
administer Awards to Participants who are not subject to Section 16 of the
Exchange Act to one or more persons who are either non-employee directors or
executive officers of the Company.
A-3
SECTION 5.
PARTICIPANTS
------------
The Administrator shall from time to time, at its discretion and without
approval of the shareholders, designate those employees of the Company or any
Affiliate to whom Incentive Stock Options shall be granted pursuant to Section 9
of the Plan, and those employees, officers, directors, consultants and advisors
of the Company or of any Affiliate to whom other Awards shall be granted
pursuant to Sections 10 and 17 of the Plan; provided, however, that consultants
or advisors shall not be eligible to receive Awards hereunder unless such
consultant or advisor renders bona fide services to the Company or an Affiliate
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 Awards under this Plan to some or all Participants then holding
Awards or may grant Awards solely or partially to new Participants. In
designating Participants, the Administrator shall also determine the number of
shares to be subject to each Award made to each such Participant.
SECTION 6.
STOCK
-----
(a) Subject to adjustment as provided in Section 12 of the Plan, a total
of 3,900,000 shares of Stock shall be reserved and available for Awards under
the Plan, all of which may be granted as Incentive Stock Options. The shares of
Stock to be subject to Awards under this Plan shall consist of authorized but
unissued shares of Stock. In determining the number of shares to be counted
against the limit expressed above in connection with any Award made after May
__, 2008, the following rules shall apply:
(1) Shares that are subject to Option Awards shall be counted
against the limit as one share for every one share granted.
(2) Shares that are subject to Restricted Stock or Restricted Stock
Unit Awards shall be counted against the limit as 1.5 shares for every one share
granted.
(3) Where the number of shares subject to the Award is variable on
the date of grant, the number of shares to be counted against the limit prior to
the settlement of the Award and consistent with paragraphs 6(a)(1) and (2) shall
be the maximum number of shares that could be received under that particular
Award.
(b) In the event any portion of an outstanding Award under the Plan for
any reason expires (including as a result of less than the maximum number of
shares subject to a variable Award being issued), is terminated or forfeited
prior to vesting or exercise, or is settled for cash, the shares of Stock
allocable to such portion of the Award shall again be available for Awards under
the Plan, and the total number of shares of Stock available for grant under
Section 6(a) shall be correspondingly increased as provided in Section 6(c).
However, shares tendered by a Participant or withheld by the Company in payment
of the exercise price of an Option or in satisfaction of any tax withholding
obligation with respect to an Award will not again become available for Awards
or increase the number of shares available for grant under Section 6(a).
A-4
(c) Each share that again becomes available for Awards as provided in
Section 6(b) shall increase the total number of shares available for grant under
Section 6(a) by (i) one share if such share was subject to an Option Award under
the Plan, and (ii) [2.0] shares if such share was subject to a Restricted Stock
or Restricted Stock Unit Award.
(d) The aggregate number of shares of Stock subject to Options granted
during any fiscal year to any one Participant shall not exceed one hundred
thousand (100,000).
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 amendment
and restatement of this Plan as defined in Section 3. Other forms of Awards may
be granted pursuant to the Plan from time to time after the effective date of
the Plan and until all shares of Stock subject to the Plan have been issued or
until the earlier discontinuance or termination of the Plan by the Board. Any
Award granted within the time frames specified above shall remain in full force
and effect until the expiration of the Award as specified in the written Award
agreement and shall remain subject to the terms and conditions of this Plan.
SECTION 8.
OPTION EXERCISE PAYMENTS
------------------------
(a) Participants may pay for shares of Stock upon exercise of Options
granted pursuant to this Plan with cash, personal check, certified check
(including, if permitted by the Administrator, payment under a broker-assisted
sale and remittance program) or, if approved by the Administrator in its sole
discretion, by delivery to the Company of previously-owned shares of Stock or by
withholding shares of Stock otherwise issuable upon exercise of the Option (in
either case, such shares having a Fair Market Value as of the date the Option is
exercised equal to the total exercise price of the shares being purchased), or
such 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.
(b) With respect to payment in the form of shares of Stock, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3 under the Exchange Act, if
applicable.
A-5
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 Award 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. The Option Agreement shall state the total number of
shares covered by the Incentive Stock Option. An Option will constitute an
Incentive Stock Option only to the extent that the aggregate Fair Market Value
(determined as of the date the Option is granted) of the shares of Stock with
respect to which Incentive Stock Options held by a Participant first become
exercisable in any calendar year (under the Plan and all other plans of the
Company and its Affiliates) does not exceed $100,000, or such revised limit as
may subsequently be established under Code Section 422. To the extent an Option
that would otherwise be an Incentive Stock Option exceeds this limit, the Option
shall be treated as a Nonqualified Stock Option.
(b) Exercise Price. The exercise price at which each share of Stock
subject to an Incentive Stock Option may be purchased shall be determined by the
Administrator and set forth in the Option Agreement, but such exercise price
shall not be less than one hundred percent (100%) of the Fair Market Value of a
share of Stock on the date the Administrator grants the Option. However, 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 any
Affiliate, the exercise 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 a share of Stock on the date of the grant of the Option.
The Administrator shall have full authority and discretion in establishing the
exercise price and shall be fully protected in so doing.
(c) 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 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. However, 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 any Affiliate, the Incentive 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.
(d) Other Provisions. An 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 Code
or to conform to any change therein.
A-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 of Stock covered by the Nonqualified Stock Option.
The exercise price at which each share of Stock subject to a Nonqualified Stock
Option may be purchased shall be determined by the Administrator and set forth
in the Option Agreement, but such exercise price shall not be less than one
hundred percent (100%) of the Fair Market Value of a share of Stock on the date
the Administrator grants the Option.
(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 no
event shall any Nonqualified Stock Option be exercisable during a term of more
than ten (10) years from the date on which it is granted. In the event a
Nonqualified Stock Option s 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.
(c) 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 AWARDS
------------------
Except as provided in this Section 11, (i) no Award may be sold, assigned,
transferred or encumbered, in whole or in part, by the Participant other than by
will or by the laws of descent and distribution, and (ii) during the
Participant's lifetime, only the Participant (or the Participant's guardian or
legal representative) may exercise an Option or receive payment with respect to
any other Award. If the Participant shall attempt any transfer of any Award in
violation of this Section 11, such transfer shall be void and the Award, to the
extent not fully exercised or vested, shall terminate. The Administrator may,
however, permit the Participant to transfer by gift any or all Nonqualified
Stock Options to any "family member" (as defined by the General Instructions to
Form S-8 under the Securities Act of 1933, as amended) of the Participant. Any
such transferred Nonqualified Stock Option shall continue to be subject to the
same terms and conditions as were applicable to such Option immediately prior to
its transfer. For purposes of any provision of the Plan relating to notice to a
Participant or to acceleration or termination of an Option upon the death or
termination of employment of a Participant, the references to "Participant"
shall mean the original grantee of an Option and not any transferee.
A-7
SECTION 12.
RECAPITALIZATION, SALE, MERGER, EXCHANGE OR LIQUIDATION
-------------------------------------------------------
(a) In the event of any merger, reorganization, consolidation,
recapitalization, rights offering, dividend or distribution (whether in cash,
shares or other property, other than a regular cash dividend), stock split,
reverse stock split, subdivision or consolidation of shares, spin-off or similar
transaction or other change in corporate structure affecting the shares of Stock
or the value thereof, the Administrator shall cause equitable adjustments to be
made to (i) the number and kind of shares of Stock or other securities available
for future Awards under the Plan, (ii) outstanding Awards (including to the
number and kind of shares of Stock or other securities to which such Awards are
subject, the exercise or purchase price of such Awards and any share-based
Performance Objectives (as defined in Section 17(c)(1)) applicable to such
Awards), and (iii) the maximum number of shares of Stock or other securities
that may be the subject of Awards of a specific type (such as Incentive Stock
Options) or Awards to a single Participant. Adjustments contemplated by this
Section 12(a) shall be made taking into consideration the accounting and tax
consequences, and specifically in such a manner that will not cause Incentive
Stock Options to violate Section 422(b) of the Code or cause an Award to be
subject to adverse tax consequences under Section 409A of the Code. The number
of Shares subject to an Award shall always be a whole number.
(b) Unless otherwise provided in an Award agreement, in the event of a
Change in Control (as defined in Section 12(c)) of the Company, the Board may
provide for one or more of the following:
(1) the equitable acceleration of (i) the exercisability of any
outstanding Options and (ii) the vesting and corresponding lapse of the risks of
forfeiture on any other Awards;
(2) 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 Change in Control), and the
cancellation of any Restricted Stock or Restricted Stock Unit Awards for which
the risks of forfeiture have not lapsed;
(3) that Participants holding outstanding Options shall receive,
with respect to each share of Stock subject to such Options, as of the effective
date of any such Change in Control, cash in an amount equal to the excess of the
Fair Market Value of such shares on the date immediately preceding the effective
date of such Change in Control over the exercise price per share of such
Options; provided that the Board may, in lieu of such cash payment, distribute
to such Participants shares of Stock or shares of stock of any corporation
succeeding the Company (or of the parent of any such corporation) by reason of
such Change in Control, such shares having a Fair Market Value as of the date
immediately preceding the effective date of such Change in Control equal to the
amount of the cash payment provided for in this clause 12(b)(3);
A-8
(4) that Participants holding outstanding Restricted Stock or
Restricted Stock Unit Awards shall receive, with respect to each share of Stock
subject to such Awards, as of the effective date of any such Change in Control,
cash in an amount equal to the Fair Market Value of a share of Stock on the date
immediately preceding the effective date of such Change in Control; provided
that the Board may, in lieu of such cash payment, distribute to such
Participants shares of Stock or shares of stock of any corporation succeeding
the Company (or of the parent of any such corporation) by reason of such Change
in Control, such shares having a Fair Market Value as of the date immediately
preceding the effective date of such Change in Control equal to the amount of
the cash payment provided for in this clause 12(b)(4);
(5) the continuance by the Company, or the assumption or
replacement by the surviving or successor corporation (or its parent) in the
Change in Control, of Awards that were outstanding as of the date of the Change
in Control. For purposes of this clause 12(b)(5), an Award shall be considered
assumed or replaced if, following the Change in Control, the Participant has
received, in a manner that complies with Code Sections 424 and 409A, a
comparable equity-based award that preserves the existing compensatory value of
the Award at the time of the Change in Control and includes a vesting or
exercisability schedule that is the same as or more favorable to the
Participant.
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 Code or any other applicable law or regulation. The grant of an
Option or other form of 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.
(c) Unless otherwise provided in an applicable Award agreement, a "Change
in Control" for purposes of this Section 12 means:
(1) a merger, consolidation, statutory exchange or reorganization
approved by the Company's stockholders, unless securities representing more than
fifty percent (50%) of the total combined voting power of the outstanding voting
securities of the successor corporation are immediately thereafter beneficially
owned, directly or indirectly and in substantially the same proportion, by the
persons who beneficially owned the Company's outstanding voting securities
immediately prior to such transaction;
(2) any stockholder-approved sale, transfer or other disposition of
all or substantially all of the Company's assets;
(3) any transaction or series of related transactions pursuant to
which any person or any group of persons comprising a "group" within the meaning
of Rule 13d-5(b)(1) under the Securities Exchange Act of 1934, as amended (other
than the Company or a person that, prior to such transaction or series of
related transactions, directly or indirectly controls, is controlled by or is
under common control with, the Company) becomes directly or indirectly the
beneficial owner (within the meaning of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended) of securities possessing (or convertible into or
exercisable for securities possessing) thirty percent (30%) or more of the total
combined voting power of the Company's securities (determined by the power to
vote with respect to the elections of Board members) outstanding immediately
after the consummation of such transaction or series of related transactions,
whether such transaction involves a direct issuance from the Company or the
acquisition of outstanding securities held by one or more of the Company's
stockholders;
A-9
(4) a change in the composition of the Board over a period of
eighteen (18) consecutive months or less such that a majority of the Board
members ceases to be comprised of individuals who have been Board members
continuously since the beginning of such period; or
(5) approval by the Company's stockholders of a complete
liquidation or dissolution of the Company.
Notwithstanding anything herein stated, if any Award is determined to provide
for the deferral of compensation within the meaning of Code Section 409A, a
Change in Control shall be deemed to occur only if it would be deemed to
constitute a change in ownership or effective control, or a change in the
ownership of a substantial portion of the assets, of the Company under Code
Section 409A.
SECTION 13.
SECURITIES LAW REQUIREMENTS
---------------------------
No shares of Stock shall be issued pursuant to the Plan unless and until
there has been compliance, in the opinion of the Company's counsel, with all
applicable legal requirements, including without limitation, those relating to
federal and state securities laws and applicable stock exchange listing
requirements.
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 of Stock covered by an Option
or Restricted Stock Unit Award unless and until the date the Participant becomes
the holder of record of the shares of Stock to which the Award relates. 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 the Participant becomes the holder of record of
such shares (except as otherwise provided in Section 12 of the Plan).
A-10
SECTION 15.
AMENDMENT OF THE PLAN
---------------------
(a) 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 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. It will be conclusively presumed that any
amendment to the Plan or any Award agreement necessary to comply with applicable
law or to avoid the imposition of any additional tax under Section 409A would
not operate to the material detriment of any Participant. The Company shall
submit any amendment of the Plan to its shareholders for approval if the rules
of the principal securities exchange on which the shares of Stock are then
listed or other applicable laws or regulations require stockholder approval of
such amendment. 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 Code.
(b) Except as provided in Section 12, no Option granted under the Plan may
be amended to decrease the exercise price thereof, or be cancelled in
conjunction with the grant of any new Option with a lower exercise price, or
otherwise be subject to any action that would be treated under accounting rules
or otherwise as a "repricing" of such Option, unless such action is approved by
the Company's shareholders.
SECTION 16.
NO OBLIGATION TO EXERCISE OPTION
--------------------------------
The granting of an Option shall impose no obligation upon the Participant
to exercise such Option. Further, the granting of an Award hereunder shall not
impose upon the Company or any Affiliate any obligation to retain the
Participant in its employ for any period.
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 Award agreement (the "Restricted Stock
Agreement" or "Restricted Stock 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
applicable Award.
A-11
(b) Risks of Forfeiture. The Restricted Stock Agreement or Restricted
Stock Unit Agreement shall set forth the risks of forfeiture and other
restrictions, if any, which shall apply to the shares of Stock and units covered
by the applicable Award, and shall specify the timing and conditions under which
such Awards shall vest and the risks of forfeiture correspondingly lapse,
subject to the following limitations:
(1) An Award that is not subject to the satisfaction of Performance
Objectives (as defined in Section 17(c)) may not fully vest earlier than three
years from the date the Award was granted.
(2) The performance period of an Award that is subject to the
satisfaction of Performance Objectives may not be shorter than one year.
The limitations in clauses (1) and (2) above will not, however, apply in the
following situations: (i) an Award made to attract a key executive to join the
Company; (ii) upon a Change in Control; (iii) upon termination of employment due
to death or disability; (iv) Restricted Stock or Restricted Stock Units issued
in exchange for other compensation; and (v) Awards issued to non-employee
directors.
(c) Performance-Based Compensation. 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 vesting of such Awards and the corresponding
lapse of risks of forfeiture shall be subject to the achievement of one or more
Performance Objectives established in writing by the Administrator for a
specified performance period.
(1) For purposes of this Section 17(c), "Performance Objectives"
shall be limited to any one, or a combination of, the following performance
criteria: (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, (xix)
individual performance goals, (xx) net sales, (xxi) net earnings, (xxii)
earnings before income taxes, (xxiii) earnings before interest and taxes, (xxiv)
earnings before interest, taxes, depreciation and amortization, (xxv) earnings
per share (basic or diluted), (xxvi) profitability as measured by return ratios
(including, but not limited to, return on assets, return on equity, return on
investment and return on net sales), (xxvii) or by the degree to which any of
the foregoing earnings measures exceed a percentage of net sales; cash flow;
market share; margins (including, but not limited to, one or more of gross,
operating and net earnings margins); stock price; total stockholder return;
asset quality; non-performing assets; revenue growth; operating income; pre- or
after-tax income; cash flow per share; operating assets; improvement in or
attainment of expense levels or cost savings; economic value added; and
improvement in or attainment of working capital levels, in all cases including,
if selected by the Committee, minimum threshold, mid-level and target levels.
Any Performance Objective utilized may be expressed in absolute amounts, on a
per share basis, as a growth rate or change from preceding periods, or as a
comparison to the performance of specified companies or other external measures,
may relate to one or any combination of corporate, group, unit, division,
Affiliate or individual performance, and may be expressed in terms of differing
levels of achievement, such as minimum threshold, target and maximum levels.
A-12
(2) When establishing Performance Objectives for a performance
period, the Administrator may exclude amounts or charges relating to an event or
occurrence that the Administrator determines, consistent with the requirements
of Code Section 162(m), should appropriately be excluded. The Administrator may
also adjust Performance Objectives for a performance period to the extent
permitted by Code Section 162(m) to prevent the dilution or enlargement of a
Participant's rights with respect to performance-based compensation. The
Administrator will determine any amount payable in connection with an Award
subject to this Section 17(c) consistent with the requirements of Code Section
162(m), and may adjust downward, but not upward, any amount determined to be
otherwise payable in connection with such an Award.
(d) Issuance of Shares; Rights as Shareholder.
(1) 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 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. Shares of Stock subject to a Restricted Stock Award
may alternatively be evidenced by a book-entry in the name of the Participant
with the Company's transfer agent, and any book entry position shall be subject
to the applicable risks of forfeiture and other transfer restrictions and
accompanied by a corresponding legend/instructions to the transfer agent. 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.
(2) With respect to a Restricted Stock Unit Award, as the
Restricted Stock Units vest and the risks of forfeiture lapse, the Administrator
shall cause to be issued to the Participant shares of Stock in satisfaction of
such Restricted Stock Units within such time period after vesting as will cause
such payment to qualify for the "short-term deferral" exemption under Code
Section 409A.
(e) 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.
(f) Delay of Payment for Section 162(m). In the event the Administrator
reasonably anticipates that the Company's income tax deduction with respect to
any issuance of shares of Stock following the vesting of a Restricted Stock Unit
Award would not be permitted by the application of Code Section 162(m), and the
Administrator determines that as of the date the Restricted Stock Unit Award was
granted a reasonable person would not have anticipated the application of Code
Section 162(m) at the time of vesting and settlement of the Restricted Stock
Unit Award, the Administrator may, subject to such terms and conditions as
determined by the Administrator, delay the issuance of such shares of Stock
until the date at which the Administrator reasonably anticipates that the
corresponding income tax deduction will no longer be restricted due to the
application of Code Section 162(m).
A-13
(g) Limitation on Restricted Stock and Restricted Stock Units. In no event
shall any Participant receive during any one fiscal year Restricted Stock and
Restricted Stock Unit Awards for a number of shares of Stock 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 a share of Stock on
the date of the grant of the Award.
SECTION 18.
OTHER PROVISIONS
----------------
(a) Withholding Taxes. The Company or its Affiliate shall be entitled to
withhold and deduct from any compensation owed to a Participant all legally
required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the exercise, vesting or payment of an
Award to the Participant, and to require a Participant receiving shares of Stock
under the Plan to pay a cash amount sufficient to cover any required withholding
taxes before actual receipt of those shares. In the event the Participant is
required under the applicable Award agreement to pay the Company or Affiliate,
or make arrangements satisfactory to the Company or Affiliate 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 such obligations
to be satisfied, in whole or in part, by the Participant's delivery of shares of
Stock (including shares received pursuant to a Restricted Stock Award on which
the risks of forfeiture have lapsed) or by the Company or Affiliate withholding
shares of Stock otherwise issuable to the Participant upon the vesting or
exercise of an Award. Such shares delivered or withheld 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 then applicable. In no event may the Participant deliver
or have withheld shares having a Fair Market Value in excess of such statutory
minimum required tax withholding. Any election by a Participant to deliver or
have withheld shares of 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 must be approved by the Administrator and otherwise comply
with such rules as the Administrator may adopt to assure compliance with Rule
16b-3 under the Exchange Act, if applicable.
(b) Change in Status. Neither the transfer of employment of a Participant
between any of the Company or its Affiliates, nor a leave of absence granted to
such Participant and approved by the Committee, nor any change in status among
employee, consultant or non-employee director of the Company or its Affiliates
shall be deemed a termination of employment or services for purposes of the
Plan.
A-14
(c) Code Section 409A. It is intended that (i) all Awards of Options and
Restricted Stock under the Plan will not provide for the deferral of
compensation within the meaning of Code Section 409A and thereby be exempt from
such Section 409A, and (ii) all Restricted Stock Unit Awards under the Plan will
either not provide for the deferral of compensation within the meaning of such
Section 409A, or will comply with the requirements of such Section 409A, and
Awards shall be structured and the Plan administered in accordance with this
intent.
(d) Choice of Law. To the extent that federal laws do not otherwise
control, the Plan and all determinations made and actions taken pursuant to the
Plan shall be governed by the laws of the State of Minnesota without regard to
its conflicts-of-law principles and shall be construed accordingly.
(e) Severability of Provisions. If any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
A-15