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California Pizza Kitchen DEF 14A 2008 SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant x Filed by a Party other than the Registrant ¨
Check the appropriate box:
CALIFORNIA PIZZA KITCHEN, INC. (Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
CALIFORNIA PIZZA KITCHEN, INC. 6053 West Century Boulevard, 11th Floor Los Angeles, California 90045-6430
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 21, 2008
Dear Stockholder:
You are invited to attend the Annual Meeting of the Stockholders of California Pizza Kitchen, Inc., a Delaware corporation, which will be held on Wednesday, May 21, 2008 at 10:00 AM, at the Sheraton Gateway Hotel, 6101 West Century Blvd., Los Angeles, California 90045, for the following purposes:
Stockholders of record at the close of business on April 9, 2008 are entitled to notice of, and to vote at, this meeting and any adjournments or postponements thereof. For ten days prior to the meeting, a complete list of the stockholders entitled to vote at the meeting will be available for examination by any stockholder for any purpose relating to the meeting during ordinary business hours at our offices.
Your attention is directed to the accompanying proxy statement. We invite all stockholders to attend the annual meeting. To ensure that your shares will be voted at this meeting, please complete, date and sign the enclosed proxy card and return it promptly in the enclosed envelope. You can also vote your shares by telephone or via the Internet. Voting instructions for telephone and Internet voting are printed on the proxy card. If you are a holder of record and you attend this meeting, you may vote in person, even though you have sent in your proxy. Stockholders who hold their shares through an account with a brokerage firm, bank or other nominee who desire to vote in person at the meeting will need to obtain a proxy form from the institution that holds their shares and follow the instructions on that form.
Accompanying this notice and proxy statement is a copy of our 2007 annual report to stockholders.
By Order of the Board of Directors,
Susan M. Collyns Chief Financial Officer and Secretary
IMPORTANT: The prompt return of proxies will save us the expense of further requests for proxies in order to ensure a quorum at the meeting. A self-addressed envelope is enclosed for your convenience. No postage is required if mailed in the United States.
Los Angeles, California April 11, 2008
[LOGO] california
PIZZA KITCHEN
CPK
CALIFORNIA PIZZA KITCHEN, INC. 6053 West Century Boulevard, 11th Floor Los Angeles, California 90045-6430
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 21, 2008
The accompanying proxy is solicited by the Board of Directors of California Pizza Kitchen, Inc., a Delaware corporation (referred to herein as the “Company” or in the first person notations “we,” “our” and “us”), for use at our 2008 Annual Meeting of Stockholders to be held on Wednesday, May 21, 2008, and any adjournment or postponement thereof, for the purposes set forth in the accompanying Notice of Annual Meeting. The date of this proxy statement is April 11, 2008, the approximate date on which we first sent or gave this proxy statement and the accompanying form of proxy to stockholders.
General Information
Annual Report. An annual report on Form 10-K for the fiscal year ended December 30, 2007 is enclosed with this proxy statement.
Voting Securities. Only stockholders of record as of the close of business on April 9, 2008 will be entitled to vote at the meeting and any adjournment or postponement thereof. As of that date, there were 25,331,584 shares of our common stock, par value $0.01 per share, issued and outstanding. Stockholders may vote in person or by proxy. Each holder of shares of our common stock is entitled to one (1) vote for each share of stock held on the proposals presented in this proxy statement. Our bylaws provide that the holders of a majority of the issued and outstanding shares of our stock entitled to vote, whether present in person or represented by proxy, shall constitute a quorum for the transaction of business at the meeting. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum.
Solicitation of Proxies. We will bear the cost of soliciting proxies. We may solicit stockholders through our regular employees and will request banks and brokers, and other custodians, nominees and fiduciaries, to solicit their customers who have shares of our stock registered in the names of such persons and will reimburse them for their reasonable, out-of-pocket costs. We also may use the services of our officers, directors and others to solicit proxies, personally or by telephone, without additional compensation. We may engage a proxy solicitation firm to assist us and, if we do, we expect the cost of the engagement to be no more than $20,000.
Voting of Proxies. All valid proxies received prior to the meeting will be voted. All shares represented by a proxy will be voted, and where a stockholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the direction of the stockholder. If no choice is indicated on the proxy, the shares will be voted in favor of the director-nominees and the other proposals. A stockholder who holds shares in his or her own name and who gives a proxy has the power to revoke his or her proxy at any time prior to the time it is voted by delivery to the Secretary of the Company of a written instrument revoking the proxy or a duly executed proxy with a later date or by attending the meeting and voting in person. Stockholders who hold their shares through an account with a brokerage firm, bank or other nominee who desire to revoke their proxies or to vote in person at the meeting will need to obtain a proxy form from the institution that holds their shares and follow the instructions on that form.
Stockholders also have the choice of voting by using a toll-free telephone number or via the Internet. Please refer to your proxy card enclosed with this proxy statement or the information forwarded by your bank, broker or other holder of record. The telephone and Internet voting facilities for stockholders of record will close at 11:59 p.m. EDT on May 20, 2008. The telephone and Internet voting procedures are designed to authenticate you as a stockholder by use of a control number and to allow you to confirm that your instructions have been properly recorded.
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PROPOSAL NUMBER ONE ELECTION OF DIRECTORS
Director Nominees. The table below sets forth the Company’s director nominees and certain information relating to those nominees, as of April 9, 2008, with respect to age and background.
Larry S. Flax, a co-founder, was named co-President in January 2004 and has served as co-Chief Executive Officer (“co-CEO”) since July 2003 and as co-Chairman of the Board since our formation in March 1985. From 1985 to 1996, Mr. Flax had also served as co-CEO. Mr. Flax served for nine years on the board of directors of Arden Realty, Inc. (ARI) prior to it being sold. Prior to founding California Pizza Kitchen, he practiced law as a principal in Flax and Rosenfield, Inc. after serving as an Assistant United States Attorney, Department of Justice and Assistant Chief, Criminal Division and Chief, Civil Rights Division of the United States Attorney’s Office in Los Angeles.
Richard L. Rosenfield, a co-founder, was named co-President in January 2004 and has served as co-CEO since July 2003 and as co-Chairman of the Board since our formation in March 1985. From 1985 to 1996, Mr. Rosenfield had also served as co-CEO. Prior to founding California Pizza Kitchen, he practiced law as a principal of Flax and Rosenfield, Inc. after serving with the Department of Justice, Criminal Division, Appellate Section in Washington, D.C. and as an Assistant United States Attorney, Special Prosecutions Section of the Criminal Division, in Los Angeles. Mr. Rosenfield also serves on the board of directors of Callaway Golf Company.
William C. Baker has served as a director since May 2002. From August 2004 to August 2005, Mr. Baker was Chairman and Chief Executive Officer of Callaway Golf Company. From 1997 to August 2004, Mr. Baker was a principal of the real estate investment firm of Baker & Simpson, L.L.C. Mr. Baker currently serves on the board of directors for Public Storage and Javo Beverage Company, Inc. and previously served as a director of Callaway Golf Company and La Quinta Corporation. He also served as President and/or Chairman of the Board of the Santa Anita Companies, Coast Newport Properties, Inc., Red Robin International, Del Taco Corporation, Macco Corporation and Great Southwest Corporation (Six Flags’ parent company). His experience additionally includes serving as trial attorney for the United States Department of Justice; Maritime Law attorney with the law firm of Zock, Petrie, Sheneman & Reid in New York; practicing with the law firm of Wynne, Jaffe & Tinsley in Dallas; General Manager of Texas Pavilion of the New York World’s Fair; and partner in Baker & Miller, an industrial development firm.
Leslie E. Bider is nominated as a director. Mr. Bider has served as a director of OSI Systems, Inc. since September 2006. He is currently Chief Strategist of ITU Ventures, a private equity firm. Between 1987 and 2005, Mr. Bider served as Chairman and Chief Executive Officer of Warner Chappell Music, Inc. Prior to that,
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Mr. Bider was Chief Financial Officer and Chief Operating Officer of Warner Bros. Music. Mr. Bider currently serves on the board of directors of Douglas Emmett, Inc., a real estate investment trust that trades on the New York Stock Exchange, and on the board of directors of several charitable and educational institutions.
Marshall S. Geller is nominated as a director. Mr. Geller is Founder and Senior Managing Director of St. Cloud Capital, a Los Angeles based private equity fund formed in December 2001. Mr. Geller has spent more than 40 years in corporate finance and investment banking, including 21 years as Senior Managing Director for Bear, Stearns & Co., with oversight of all operations in Los Angeles, San Francisco, Chicago, Hong Kong, and the Far East. Currently he serves as a director on the boards of 1st Century Bank N.A., National Holdings Corporation, GP Strategies Corporation, SCPIE Holdings, Inc., ValueVision Media, Inc., and Guidance Software, Inc. Mr. Geller is also on the board of governors of Cedars Sinai Medical Center, Los Angeles and serves on the Dean’s Advisory Council for the College of Business & Economics at California State University, Los Angeles and was recently appointed to the Little Hoover Commission, an independent California state oversight agency.
Charles G. Phillips has served as a director since November 2000. Mr. Phillips retired on March 31, 2008 from Prentice Capital Management, LLC (“Prentice”), an investment management firm he joined at the beginning of 2005. At Prentice, Mr. Phillips was a partner and served as Chief Operating Officer. Mr. Phillips was previously a managing director from 1991 to 2002 and President from 1998-2001 of Gleacher & Co., an investment banking and management firm. Mr. Phillips has served on the boards of several public and private companies and private investment funds.
Alan I. Rothenberg has served as a director since April 2006. Since 2002, he has served as Chairman of the Board of Directors of 1st Century Bank, National Association, a Los Angeles based commercial bank. Mr. Rothenberg is Chairman of Premier Partnerships, a sports and entertaining marketing and consulting firm and serves as President of the Los Angeles Board of Airport Commissioners. From 1990 until his retirement in 2000, Mr. Rothenberg was a Partner at Latham & Watkins, LLP. From 1968 to 1990, Mr. Rothenberg was a founder and Managing Partner of Manatt, Phelps, Rothenberg and Phillips, a Los Angeles law firm where he specialized in business and commercial litigation including practices in the sports, entertainment and financial fields. From 1990 through 1998, he served as President of the United States Soccer Federation. Mr. Rothenberg served as Chairman and Chief Executive Officer of the 1994 World Cup and the 1999 FIFA Women’s World Cup. Mr. Rothenberg serves on the boards of directors of United States Soccer Foundation, Constitutional Rights Foundation, Los Angeles Convention and Visitors Bureau and LA Sports Council. Mr. Rothenberg also serves on the board of directors of Zenith National Insurance Corp.
All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. If a director nominee declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election (although we know of no reason to anticipate that this will occur), the proxies may be voted for such substitute nominee as we may designate. Following the 2008 Annual Meeting of Stockholders, the Board of Directors will have two vacancies. There are no family relationships among our directors and officers. During the fiscal year ended December 30, 2007, our Board of Directors held four meetings. Each director attended or participated in 94% or more of the aggregate of (i) the total number of meetings of the Board of Directors and (ii) the total number of meetings held by all committees of the Board of Directors on which such director served during 2007.
Each member of our Board of Directors is encouraged to attend the Company’s Annual Meeting of Stockholders. All but one of the current members of our Board of Directors who served in that capacity at the time of our 2007 Annual Meeting of Stockholders attended such annual meeting.
Vote Required and Board of Directors’ Recommendation
If a quorum is present and voting, the seven nominees for the positions of directors receiving the highest number of votes will be elected. Abstentions and broker non-votes will have no effect on the outcome of the vote.
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Our Board of Directors unanimously recommends a vote “FOR ALL NOMINEES” named above.
Independence of the Board of Directors
We have established standards of independence for our Board of Directors that comply with the standards of independence set forth in the Marketplace Rules of The Nasdaq Stock Market. Under these standards of independence, an independent director is one who is not an officer or employee of the Company or its subsidiaries or any other individual who has a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and who otherwise:
Additionally, members of the audit committee must not accept, directly or indirectly, any compensation from the Company other than directors’ fees and must not be affiliated persons of the Company (other than by virtue of their directorship).
Our Board of Directors has determined that all of our current non-management directors and each of our director nominees do not have a material relationship with the Company and are therefore independent under both our standards of independence and the criteria for independence set forth in the listing standards of The Nasdaq Stock Market.
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Committees of the Board of Directors
Our Board of Directors has three standing committees: an audit committee, a compensation committee and a nominating and governance committee. In addition, the independent directors of the Company’s Board of Directors meet regularly in executive session outside the presence of management. The Board of Directors has appointed Charles G. Phillips to act as lead independent director.
Audit Committee
The audit committee is primarily concerned with the accuracy and effectiveness of the audits of our financial statements by our internal accounting staff and our independent registered public accountants. This committee’s function, among other things, is to review our quarterly and annual financial statements with our independent registered public accountants and management, review the scope and results of the examination of our financial statements by the independent registered public accountants, approve all professional services performed by the independent registered public accountants and related fees, determine whether to retain or replace our independent registered public accountants and periodically review our accounting policies and internal accounting and financial controls. The audit committee is also responsible for overseeing our internal reporting system relating to accounting, internal accounting controls and auditing matters. The audit committee is governed by a written charter which is publicly available on our website at www.cpk.com. This committee met five times during the fiscal year ended December 30, 2007.
The members of the audit committee during the year ended December 30, 2007 were Henry Gluck, Steven C. Good and Avedick B. Poladian. Mr. Poladian served as chair of the audit committee. All of the current members of the audit committee are “independent” as required by the applicable listing standards of The Nasdaq Stock Market as well as the Company’s standards of director independence set forth above. The Board of Directors has determined that Messrs. Good and Poladian are each an “audit committee financial expert” within the meaning of Item 401(h)(2) of Regulation S-K. Assuming the election of all nominated directors at the May 21, 2008 meeting, the composition of the audit committee shall be Leslie E. Bider, Marshall S. Geller and Alan I. Rothenberg, who will serve as chair. In addition, Messrs. Bider, Geller and Rothenberg are each an “audit committee financial expert” within the meaning of Item 401(h)(2) of Regulation S-K.
Compensation Committee
The compensation committee’s function, among other things, is to review salary and bonus levels and stock option grants for executive officers and key employees. Our compensation committee consists of Messrs. Baker, Phillips and Rothenberg. Mr. Baker serves as chair of the compensation committee. All of the compensation committee members are “independent” as required by applicable listing standards of The Nasdaq Stock Market as well as the Company’s standards of director independence set forth above. No member of the compensation committee has served as one of our officers or employees at any time. This committee met three times during fiscal year ended December 30, 2007. The compensation committee is governed by a written charter adopted in February 2006 which is publicly available on our website at www.cpk.com.
Nominating and Governance Committee
The nominating and governance committee is primarily concerned with the qualification of candidates for election or appointment to the Board of Directors, as well as the effectiveness of our corporate governance policies. The nominating and governance committee’s function, among other things, is to seek, evaluate and recommend to the Board of Directors qualified candidates to be elected or appointed to the Board, as well as to review on an annual basis the functioning and effectiveness of the Board of Directors. Our nominating and governance committee consisted of Messrs. Baker, Gluck, Good, Phillips, Poladian and Rothenberg during the year ended December 30, 2007, all of whom are “independent” as required by applicable listing standards of The Nasdaq Stock Market as well as the Company’s standards of director independence set forth above. Mr. Phillips
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serves as chair of the nominating and governance committee. This committee met once during fiscal year ended December 30, 2007. The nominating and governance committee is governed by a written charter which is publicly available on our website at www.cpk.com.
The Company’s Director Nominations Process
In April 2004, we adopted corporate governance guidelines (the “Guidelines”) outlining a framework for Board oversight of management activity and business results. The Guidelines are publicly available on our website at www.cpk.com. The Guidelines may be amended from time to time by our Board of Directors only upon a determination by the nominating and governance committee that such change is in our best interests and those of our stockholders and the subsequent approval of such change by the full Board of Directors.
Pursuant to the Guidelines, communications sent to us with respect to candidates for director proposed by our stockholders are forwarded to the chair of our nominating and governance committee. The nominating and governance committee then reviews and considers the stockholder proposal in connection with the annual meeting of stockholders so long as the proposal is received prior to the deadline for submission of all stockholder proposals.
The nominating and governance committee periodically reviews with our full Board of Directors the appropriate skills and characteristics required of Board members given the current Board composition. Our Board of Directors will be comprised of individuals who have distinguished records of leadership and success in their arena of activity and who will make substantial contributions to the Board’s operations. The Board’s assessment of director candidates includes, but is not limited to, consideration of relevant industry experience, general business experience, relevant financial experience, compliance with independence and other qualifications necessary to comply with applicable Nasdaq listing standards and any applicable tax and securities laws and the rules and regulations thereunder. Specific consideration shall also be given to: (i) roles and contributions valuable to the business community; (ii) personal qualities of leadership, character and judgment, as well as whether the candidate possesses and maintains throughout service on the Board of Directors a reputation in the community at large of integrity, trust, respect, competence and adherence to the highest ethical standards; (iii) relevant knowledge and diversity of background and experience in such things as business, finance and accounting, marketing, international business, government and the like; and (iv) whether the candidate is free of conflicts and has the time required for preparation, participation and attendance at all meetings.
A director’s qualifications in light of these criteria is considered at least each time the director is nominated or re-nominated for membership on our Board of Directors. The nominating and governance committee screens and recommends all director candidates to our Board of Directors. Each of the director nominees named above was recommended by the nominating and governance committee.
Compensation Committee Interlocks and Insider Participation
Our compensation committee currently consists of Messrs. Baker, Phillips and Rothenberg. Mr. Baker serves as chair of the compensation committee. No member of the compensation committee has served as one of our officers or employees at any time.
See Certain Relationships and Related Transactions for a discussion of transactions with our executive officers and directors.
Stakeholder Communications
As set forth in the Guidelines, our co-CEOs are responsible for establishing effective communications with our stakeholders, including stockholders, customers, employees, communities, suppliers, creditors, governments and corporate partners. It is the policy of the Board of Directors that management speaks for the Company. This
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policy does not preclude independent directors from meeting with stakeholders, but management, where appropriate, should be present at such meetings. Stockholders who wish to communicate with a particular director, to the independent directors as a group, or to the Board of Directors as a whole may address their communications to the attention of our Secretary at our principal executive offices at 6053 West Century Boulevard, Eleventh Floor, Los Angeles, CA 90045.
The Secretary shall maintain a log of all such communications. The Secretary shall promptly forward those communications that he or she believes require immediate attention to the lead independent director selected by the independent directors from among themselves, or by a procedure of selection adopted by the independent directors. The Secretary shall also provide the lead director on a quarterly basis with a summary of all stakeholder communications and actions taken in connection therewith. The lead director shall notify our Board of Directors or the chairs of the relevant committees of those matters which he or she believes are appropriate for further discussion or action. Communications sent to the Board of Directors with respect to candidates for director proposed by our stockholders shall be forwarded and reviewed in the manner described under “The Company’s Director Nominations Process.”
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PROPOSAL NUMBER TWO RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The audit committee of our Board of Directors has selected Ernst & Young LLP as independent registered public accountants to audit our financial statements for the fiscal year ending December 28, 2008. Ernst & Young LLP has acted in such capacity since its appointment during the fiscal year ended December 28, 1997. A representative of Ernst & Young LLP will be present at the annual meeting of stockholders with the opportunity to make a statement if the representative desires to do so and will be available to respond to appropriate questions.
Audit and Non-Audit Fees
The following table summarizes the fees paid or payable to Ernst & Young LLP for services rendered for the fiscal years ended December 31, 2006 and December 30, 2007.
Policy on Appointment, Replacement and Compensation of Independent Registered Public Accountants
The audit committee of our Board of Directors has the sole authority to appoint or replace our independent registered public accountants. The committee is directly responsible for the compensation and oversight of the work of the independent registered public accountants (including resolution of disagreements between management and the independent registered public accountants regarding financial reporting) for the purpose of preparing or issuing an audit report or related work.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Registered Public Accountants
Our audit committee, or a subcommittee of the committee, pre-approves the provision of all audit and non-audit services (including tax services) by the independent registered public accountants up to a specified dollar amount and also approves all audit and non-audit engagement fees and terms with the independent registered public accountants. During fiscal 2007 and 2006, all of the services related to the audit and other fees described above were pre-approved by our audit committee or sub-committee and none were provided pursuant to any waiver of the pre-approval requirement.
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Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the votes cast on the proposal at the annual meeting of stockholders, at which a quorum representing a majority of all outstanding shares of our common stock is present, either in person or by proxy, is required for approval of this proposal. Votes for or against, abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum. However, abstentions and broker non-votes will have no effect on the outcome of this vote.
Our Board of Directors unanimously recommends a vote “FOR” the appointment of Ernst & Young LLP as California Pizza Kitchen, Inc.’s independent registered public accountants for the fiscal year ending December 28, 2008.
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The following Audit Committee Report is provided in accordance with the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, this report shall not be deemed “soliciting materials” filed with the Securities and Exchange Commission, subject to Regulation 14A or 14C of the Securities and Exchange Commission or subject to the liabilities of Section 18 of the Exchange Act, as amended.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The audit committee is comprised solely of directors whom the Board has determined do not have a material relationship with the Company and is therefore independent under both our standards of independence and the criteria for independence set forth in the listing standards of The Nasdaq Stock Market. The composition of the audit committee, the attributes of its members and the responsibilities of the audit committee, as reflected in its charter, are intended to be in accordance with applicable requirements for corporate audit committees. The audit committee serves a Board-level oversight role, in which it provides advice, counsel and direction to management and the independent registered public accountants on the basis of the information it receives, holds periodic discussions with management and the independent registered public accountants and reviews the experience of the audit committee’s members in business, financial and accounting matters. The audit committee also provides oversight of management in the areas of financial reporting, the system of internal controls, the independent registered public accountants’ auditing process and audit results and legal and regulatory compliance in areas where control systems must be in place to reduce financial risk to the Company to acceptable levels. In addition, the audit committee oversees performance of the Company’s internal audit function.
The audit committee meets periodically with management to consider the adequacy of the Company’s internal controls and the reliability of the Company’s financial statements. The audit committee also meets privately with the independent registered public accountants, who have unrestricted access to the audit committee, and also periodically meets with the Company’s internal audit department. The audit committee has sole responsibility for the appointment of the independent registered public accountants and is directly responsible for their compensation and oversight and periodically reviews their performance and independence from management. The audit committee acts pursuant to a written charter that was adopted by the Board of Directors, a copy of which is publicly available on the Company’s website at www.cpk.com. The audit committee reviews and assesses the adequacy of its charter on an annual basis.
The audit committee oversees the Company’s financial reporting process on behalf of its Board of Directors. Management has the primary responsibility for the preparation, presentation and integrity of the Company’s financial statements, accounting and financial reporting principles, internal controls and procedures designed to ensure compliance with accounting standards, applicable laws and regulations. In fulfilling its oversight responsibilities, the audit committee reviewed and discussed the audited financial statements in the annual report with management. As part of its review, the audit committee also reviewed and discussed with the independent registered public accountants, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, and not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the audit committee under generally accepted accounting principles and the clarity of disclosures in the financial statements.
In addition, the audit committee has discussed with the independent auditors the independent registered public accountants’ independence from management and the Company including the matters in the written disclosures and the letter from the independent registered public accountants required by the Independence Standards Board Standard No.1 and considered the compatibility of non-audit services with the independent registered public accountants’ independence. The audit committee also discussed with the independent registered public accountants the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees.”
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The audit committee meets on at least a quarterly basis. During the year ended December 30, 2007, the independent registered public accountants were present at the Company’s quarterly review meetings. In addition, the audit committee meets with the independent registered public accountants at least on an annual basis, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls and the overall quality of its financial reporting. The audit committee held three such meetings with the independent registered public accountants during the year ended December 30, 2007.
In reliance on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors (and the Board of Directors approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 30, 2007 for filing with the Securities and Exchange Commission.
The Audit Committee
Avedick B. Poladian, Chairman Henry Gluck Steven C. Good
April 11, 2008
Employment Agreements
Messrs. Flax and Rosenfield
In April 2005, we entered into employment agreements with Larry S. Flax and Richard L. Rosenfield to serve as co-CEOs, effective January 1, 2005. The term of the employment agreements expires on December 31, 2009, subject to automatic one-year extensions. Under the employment agreements, Messrs. Flax and Rosenfield were each to receive a base salary of $500,000 per year, subject to discretionary annual increases from the Board of Directors. Annual bonuses for each co-CEO are based upon our attainment of specified financial targets and, upon such attainment, will fall within a range of 30% to 200% of the co-CEO’s base salary, with a target of 60% of base. Messrs. Flax and Rosenfield will each be entitled to a supplemental retirement benefit in an amount equal to $200,000 per year payable for his life; subject to certain reductions if they terminate employment prior to age 70.
The employment agreements provide that the option to purchase 450,000 shares at an exercise price of $15.74 granted to each of Messrs. Flax and Rosenfield on December 29, 2004 will be fully vested and exercisable as of April 11, 2005. On April 11, 2005, each of Messrs. Flax and Rosenfield were also granted additional options (the “Options”) to acquire 450,000 shares of Common Stock, pursuant to our 2004 Omnibus Incentive Compensation Plan. The per share exercise price of the Options is equal to $15.52 and the Options vest and become exercisable as to 20% of the grant on the third anniversary of the grant date and thereafter as to an additional 10% of the original grant on each quarterly anniversary until fully vested and exercisable at the end of the fifth anniversary of the grant date. In the event the executive’s employment terminates for any reason other than for “cause” or voluntary termination by the executive without “good reason,” vested Options will continue to be exercisable for at least three years following the employment termination date, but not longer than the expiration of the ten-year term after the date of grant.
On January 11, 2006, the co-CEOs were each granted 105,000 shares of restricted stock. The award shall vest as to 18,750 shares of restricted stock on the first anniversary of the grant date and thereafter an additional 4,687 shares of restricted stock subject to the award shall vest on each quarterly anniversary until and including the fourth anniversary of the grant date. The award shall vest as to 15,000 shares of restricted stock subject to the award on the earlier of (i) the fifth anniversary of the grant date and (ii) the last day of the first 30-day period following the Effective Date during which the average closing price of the Company Common Stock exceeds
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$23.33 per share. The award shall vest as to the remaining 15,000 shares of restricted stock subject to the award on the earlier of (i) the fifth anniversary of the grant date and (ii) the last day of the first 30-day period following the Effective Date during which the average closing price of the Company Common Stock exceeds $26.67 per share.
In the event we do not extend the term of employment, and, as a result, the term expires prior to the calendar year in which a co-CEO attains age 70, he (or his estate in the event he dies after his termination, as applicable) will be entitled to the following: (i) an amount equal to the sum of base salary and target bonus payable over one year; (ii) full vesting and immediate exercisability of any unvested options and immediate lapse of any restrictions on restricted stock; (iii) extension of the post-termination exercise period with respect to any stock option until the earlier of (x) the last day of the three-year period following the termination of employment or (y) expiration date of such option according to its terms; and (iv) continuation of health insurance benefits consistent with those provided by us to our senior executives. In the event (i) such extension of the term does not occur, and, as a result, the term expires after the commencement of the calendar year in which the executive attains age 70, or (ii) the employment of Messrs. Flax or Rosenfield is terminated by us other than for “disability” or “cause” or by the executive for “good reason” after the commencement of the calendar year in which the executive attains age 70, the executive (or his estate in the event he dies after his termination, as applicable) will be entitled to the benefits described above, except that he will not be entitled to the sum of base salary and target bonus.
In the event the employment of Messrs. Flax or Rosenfield is terminated by us other than for “disability” or “cause” or by the executive for “good reason” prior to the calendar year in which the executive attains age 70, or if such termination occurs within two years following a “change of control,” the executive (or his estate in the event he dies after his termination, as applicable) will be entitled to the same benefits as if we did not extend the term of the employment and, as a result, the term expires prior to the calendar year in which the executive attains age 70, provided that the executive will be entitled to an amount equal to two times the sum of base salary and target bonus.
In the event the employment of Messrs. Flax or Rosenfield is terminated by us as a result of the death or “disability” of Messrs. Flax or Rosenfield, the executive (or his estate in the event he dies after his termination, as applicable) will be entitled to (i) full vesting and immediate exercisability of any unvested options and immediate lapse of any restrictions on restricted stock; and (ii) extension of the post-termination exercise period with respect to any stock option until the earlier of (x) the last day of the three-year period following the termination of employment or (y) expiration date of such option according to its terms.
If any of the payments or benefits received or to be received by Messrs. Flax or Rosenfield will be subject to any excise tax imposed under Section 4999 of the Code resulting from application of Section 280G of the Code, we will pay to the executive an additional amount such that the net amount retained by the executive, after deduction of such excise tax, would be the same as the amount the executive would have retained had such excise tax not been incurred.
Pursuant to the terms of Messrs. Flax’s and Rosenfield’s employment agreements, we will use our reasonable best efforts to cause them to be nominated to the Board of Directors and continue to be named co-Chairmen of the Board during the term of the employment agreements.
Susan M. Collyns
In April 2005, we entered into an employment agreement with Susan M. Collyns to serve as Senior Vice President, Finance and Chief Financial Officer (“CFO”), effective January 3, 2005. The initial term of the employment agreement expired on December 28, 2007, and is subject to automatic one-year extensions. Under the employment agreement, Ms. Collyns will receive a base salary of $300,000 per year, subject to discretionary
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annual increases from the compensation committee. Annual bonuses for Ms. Collyns is based upon our attainment of specified financial targets and, upon such attainment, will fall within a range of 30% to 200% of her base salary, with a target of 45% of base.
On April 21, 2005, Ms. Collyns was granted an option to acquire 150,000 shares of Common Stock, pursuant to our 2004 Omnibus Incentive Compensation Plan. The per share exercise price of the option is equal to $16.34, which is the fair value on the date of grant, and the option vests and becomes exercisable as to 50% of the grant on the grant date and thereafter as to an additional 4.17% of the original grant on each quarterly anniversary until fully vested and exercisable at the end of the third anniversary of the grant date. In the event Ms. Collyns’ employment terminates for any reason other than for “cause” or voluntary termination by her without “good reason,” the vested portion of the option will continue to be exercisable for at least three years following the employment termination date, but not longer than the expiration of the ten-year term after the date of grant. Ms. Collyns is entitled to additional option grants each year during the term of the employment agreement beginning in 2006. On February 15, 2006, Ms. Collyns was granted an option to purchase 52,500 shares of common stock, vesting in semi-annual installments over a period of four years. On February 21, 2007, Ms. Collyns was granted an option to purchase 45,000 shares of common stock, vesting in semi-annual installments over a period of four years.
In the event we do not extend the term of employment, Ms. Collyns (or her estate in the event she dies after her termination, as applicable) will be entitled to the following: (i) an amount equal to the sum of base salary and target bonus; (ii) full vesting and immediate exercisability of any unvested options and immediate lapse of any restrictions on restricted stock; (iii) extension of the post-termination exercise period with respect to any stock option until the earlier of (x) the last day of the three-year period following the termination of employment or (y) expiration date of such option according to its terms; and (iv) continuation for one year following termination of employment of health insurance benefits consistent with those provided by us to our senior executives; provided, however, that any amount payable to Ms. Collyns will be reduced by any compensation she earns as a result of consultancy with or employment by another entity or individual during the one year payout period. There will be no reduction in any amounts payable by us to Ms. Collyns for compensation earned by Ms. Collyns in connection with service as a member of our Board of Directors or as a Board member of any other entity.
In the event the employment of Ms. Collyns is terminated by us other than for “disability” or “cause” or by her for “good reason,” or if such termination occurs within two years following a “change of control,” Ms. Collyns (or her estate in the event she dies after her termination, as applicable) will be entitled to the same benefits as if we did not extend the term of the employment provided that Ms. Collyns will be entitled to an amount equal to two times the sum of base salary and target bonus rather than one times such amount.
In the event the employment of Ms. Collyns is terminated as a result of the death or “disability” of Ms. Collyns, she (or her estate in the event she dies after her termination, as applicable) will be entitled to (i) full vesting and immediate exercisability of any unvested options and immediate lapse of any restrictions on restricted stock; and (ii) extension of the post-termination exercise period with respect to any stock option until the earlier of (x) the last day of the three-year period following the termination of employment or (y) expiration date of such option according to its terms.
If any of the payments or benefits received or to be received by Ms. Collyns will be subject to any excise tax imposed under Section 4999 of the Code resulting from application of Section 280G of the Code, we will pay to Ms. Collyns an additional amount such that the net amount retained by Ms. Collyns, after deduction of such excise tax, would be the same as the amount she would have retained had such excise tax not been incurred.
Rudy Sugueti
In November 2006, we entered into an employment agreement with Rudy Sugueti to serve as Senior Vice President, ASAP Operations effective November 6, 2006. The term of the employment agreement is for three
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years, subject to automatic one-year extensions. Under the employment agreement, Mr. Sugueti will receive a base salary of $200,000 per year, subject to discretionary annual increases from the Company. Annual bonuses for Mr. Sugueti are based upon our attainment of specified Company performance objectives. For each fiscal year during the employment period, Mr. Sugueti will be eligible to earn a target annual bonus of 45% of his base salary, depending on performance. Different annual bonus amounts may be payable for performance results within a range between a threshold that is less than the specified performance target(s) and for performance results in excess of the performance target(s).
On November 14, 2006, Mr. Sugueti was granted an option (the “Sugueti Option”) to acquire 45,000 shares of Common Stock, pursuant to our 2004 Omnibus Incentive Compensation Plan. The per share exercise price of the Sugueti Option is equal to $20.33, which is the fair value on the date of grant, and the Sugueti Option vests and becomes exercisable as to 8.33% of the grant on a quarterly basis until fully vested and exercisable at the end of the third anniversary of the grant date. In the event Mr. Sugueti’s employment terminates for any reason other than for “cause” or “retirement”, the vested portion of the Sugueti Option will continue to be exercisable for two months after the employment termination date. Mr. Sugueti is entitled to additional option grants each year during the term of the employment agreement beginning in November 2007.
In the event we do not extend the term of employment, Mr. Sugueti (or his estate in the event he dies after his termination, as applicable) will be entitled to the following: (i) an amount equal to one times the annual base salary; (ii) full vesting and immediate exercisability of any unvested options and immediate lapse of any restrictions on restricted stock; (iii) extension of the post-termination exercise period with respect to any stock option until the earlier of (x) the last day of the three-year period following the termination of employment or (y) expiration date of such option according to its terms; and (iv) continuation of health insurance benefits consistent with those provided by us to our senior executives until the end of the employment period; provided, however, that the percentage of the cost of such coverage paid by the Company shall not be less than the percentage of such costs that was paid by the Company immediately prior to the expiration date of the employment agreement.
In the event the employment of Mr. Sugueti is terminated by us other than for “disability” or “cause” or by his for “good reason”, or if such termination occurs within two years following a “change of control,” Mr. Sugueti (or his estate in the event he dies after his termination, as applicable) will be entitled to the same benefits as if we did not extend the term of the employment.
In the event the employment of Mr. Sugueti is terminated by us as a result of the death or “disability” of Mr. Sugueti, he (or his estate in the event he dies after his termination, as applicable) will be entitled to (i) full vesting and immediate exercisability of any unvested options and immediate lapse of any restrictions on restricted stock; and (ii) extension of the post-termination exercise period with respect to any stock option until the earlier of (x) the last day of the three-year period following the termination of employment or (y) expiration date of such option according to its terms.
In the event the employment of Mr. Sugueti is terminated by us for “cause” or resignation without “good reason”, the employment period of the agreement will end and the agreement will expire. The Company will have no further obligation to Mr. Sugueti except to the extent that Mr. Sugueti is otherwise entitled to any accrued but unpaid salary, bonus or benefits and insurance coverage in accordance with applicable law.
Certain Relationships and Related Transactions
Neal Rosenfield, a real estate broker for The Restaurant and Retail Leasing Company and the brother of Richard L. Rosenfield, our co-CEO, co-President, co-Chairman of the Board and Director, received commissions paid by a third-party landlord related to our lease of certain restaurant locations in the amounts of approximately $180,000 in 2007. The Company believes each of the transactions are on competitive terms at market rates.
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Peter Gillette, the stepson of Larry S. Flax, our co-CEO, co-President, co-Chairman of the Board and Director, acts as the Company’s Senior Vice President of Franchise and International Development. In fiscal 2007, Mr. Gillette received a salary of approximately $142,000 and a bonus of approximately $26,000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers, directors and 10% stockholders to file reports regarding initial ownership and changes in ownership with the Securities and Exchange Commission and any exchange upon which our securities are listed. Executive officers, directors and 10% stockholders are required by Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms they file. Our information regarding compliance with Section 16(a) is based solely on a review of the copies of such reports furnished to us by our executive officers, directors and 10% stockholders. We believe that during the fiscal year ending December 30, 2007, all of our executive officers, directors and 10% stockholders complied with all applicable Section 16(a) filing requirements.
Code of Ethics
The Company has adopted a Code of Ethics and Business Conduct (“Code of Ethics”), which is applicable to all of its employees, officers and directors. The Code of Ethics is available free of charge on the Company’s website at www.cpk.com . The Company intends to post amendments to or waivers under the Code of Ethics at this location on its website.
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EXECUTIVE COMPENSATION
Named Executive Officers
This section discusses compensation to our Named Executive Officers, which consists of our co-CEOs, CFO and the three next most highly paid executive officers of the Company as determined under the rules of the Securities and Exchange Commission (“SEC”).
The following Named Executive Officers of the Company held the following positions as of April 9, 2008:
Messrs. Flax and Rosenfield have been nominated for re-election to the position of director of the Company. See “Director Nominees” for a discussion of their business experience.
Susan M. Collyns served as Controller from September 2001 to March 2004 and was promoted to Chief Financial Officer in March 2004. Ms. Collyns is a certified public accountant and has over 23 years of financial experience in both the domestic U.S. and overseas markets. From 1996 to September 2001, Ms. Collyns served as Vice President of Finance and Operations for Sony/BMG’s Windham Hill Group. Previously, she served as an auditor with PricewaterhouseCoopers and has acted in various finance roles with GlaxoSmithKline and Lion Nathan. Ms. Collyns also serves as the Company’s Chief Accounting Officer and Secretary and is a board member of the California Pizza Kitchen Foundation.
Thomas Beck has served as Senior Vice President, Construction since September 2003. From 1997 to August 2003, Mr. Beck worked at Shawmut Design and Construction, where he last served as National Construction Manager for Shawmut’s Restaurant/Retail Division.
Sarah Grover has served as Vice President, Marketing and Public Relations since 1992 and was promoted to Senior Vice President, Marketing and Public Relations, in November 2000. Ms. Grover joined the Company in 1990 as Director of Public Relations. In 1996 and 2007, Advertising Age Magazine named Ms. Grover one of the “Marketing 100” and “Marketing 50,” respectively, a distinction given to the top marketers in the United States. Ms. Grover is the President of the California Pizza Kitchen Foundation and serves on the board of the Marketing Executives Group, a division of the National Restaurant Association.
Rudy Sugueti has served as the Senior Vice President of ASAP Operations since November 2006 and also as the Regional Vice President of full service operations for the Northwest region. Prior to that position, he served as Vice President of Quality Assurance. Throughout his career at California Pizza Kitchen, he has held many positions including Regional Vice President of West Coast Operations, Regional Director of Operations, General Manager and Kitchen Manager.
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Compensation Discussion and Analysis
Compensation Committee Composition and Charter
The Compensation Committee of the Board of Directors (the “Committee”) assists the Board in fulfilling its responsibilities for determining the compensation offered to the Company’s executive officers. The Committee’s purpose is to:
The Committee has the resources and authority appropriate to discharge its duties and responsibilities, including the authority to select, retain, terminate and approve the fees and other retention terms of special counsel and other experts or consultants as it deems appropriate, without seeking approval of the Board of Directors or management including sole authority to retain and terminate any compensation consultants retained to assist in the evaluation of director, CEO or senior executive compensation. The Committee’s charter is available at the Company’s web site at www.cpk.com.
Three non-employee directors, William C. Baker, Charles G. Phillips and Alan I. Rothenberg, serve on the Committee. Each member of the Committee meets the independence requirements specified by the NASDAQ and by Section 162(m) of the Code, as determined annually by the Board. The Chair of the Committee reports the Committee’s actions and recommendations to the full Board following each Committee meeting. The Committee held three formal meeting during fiscal year 2007.
Compensation Consultant
In accordance with the authority granted under its charter, the Committee has engaged Mercer Human Resource Consulting (“Mercer”) as an independent outside compensation consultant to advise the Committee from time to time on matters relating to executive compensation. Mercer has advised the Committee on executive compensation benchmarking and compensation program design. Mercer has been involved in assisting the Company in determining the Company’s peer group and performed compensation analysis focused on benchmarking comparisons and compensation mix and ratios.
Role of Executive Officers in Compensation Decisions
The Committee makes all decisions regarding the compensation of our co-CEOs, including non-equity and equity-based incentive compensation programs. The Committee and the co-CEOs review the performance of the other executive officers annually. The Committee reviews the performance of the co-CEOs and the conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual award amounts, are presented to the Board of Directors, which can exercise its discretion in modifying any recommended adjustments or awards.
Compensation Philosophy and Objectives
The goals of the Committee with respect to compensation policies are to:
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The Company uses salary, non-equity incentive plan compensation and restricted stock and stock option grants to attain these goals. The Committee reviews compensation surveys and other data to enable the Committee to compare the Company’s compensation levels with those of restaurant and retail companies with which it competes for talent and stockholder investment. The Committee’s guiding principle is to ensure the Company’s compensation and benefits policies attract, motivate and retain executives of the caliber necessary to support the Company’s growth and success, both operationally and strategically. This principle guides the design and administration of compensation and benefit programs for the Company’s officers, other executives and general workforce. The Committee, in collaboration with executive management and Mercer, re-affirmed in 2007 the following key strategies in support of the Company’s guiding principles:
Determining Executive Compensation
The Company has structured its annual and long-term incentive-based cash and non-cash executive compensation programs to motivate executives to achieve the business goals of the Company and reward them for achieving these goals. The Committee evaluates relevant market data when making compensation decisions regarding the executive officers. The Committee compares each element of total compensation against a peer group of restaurant and retail companies with which the Company competes for talent and stockholder investment. The peer group companies benchmarked included:
The Committee used the aforementioned peer group as the baseline to review total compensation levels for each of the Company’s executive officers. Following a diligent compensation review, and effective January 1, 2005, the Committee negotiated a five- and three-year contract between the Company and the co-CEOs, Richard Rosenfield and Larry Flax, and CFO, Susan Collyns, respectively. Additionally, in November 2006 the co-CEOs recommended to the Compensation Committee a three-year contract for Senior Vice President of ASAP Operations, Rudy Sugueti. The Committee also reviewed all other key executive positions and, as recommended by Mercer, outlined that the goal was to compensate executives in line with the market median. Variations to this objective may occur as dictated by the experience level of the individual and market factors.
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In 2007, an updated analysis of executive officer compensation was performed by Mercer and evaluated by the Company and the Committee. In addition to some of the companies listed above, the updated peer group included:
In addition to base compensation and bonus, a significant percentage of total compensation is allocated to incentives as a result of the philosophy mentioned above. The Committee gathers and reviews relevant information from industry sources, SEC filings and other publicly available sources to determine the appropriate level and mix of incentive compensation. Income from such incentive compensation is realized as a result of the performance of the Company and/or the individual, depending on the type of award, compared to established goals.
Compensation Components and Process
Base Salary
The annual salary for executive officers (including the Named Executive Officers shown in the Summary Compensation Table on page 22) is determined relative to job scope and responsibilities, past and current contributions, compensation for similar positions at the peer group companies and individual factors (such as unique skills, demand in the labor market and longer-term development and succession plans). The Committee emphasizes pay-for-performance in all components of compensation, making salary adjustments based on individual employee performance relative to compensation levels among employees in similar positions in their defined talent market and relationships among internal peers. In determining the salaries of the executive officers, the Committee considered information provided by the Company’s co-CEOs (with respect to the performance of other executive officers), the results of the review of the co-CEOs’ performance by the Committee, salary surveys and similar data prepared by Mercer. The Committee and co-CEOs are responsible for evaluating the performance of all other executive officers and recommends salary adjustments which are reviewed and approved by the Committee.
The Committee reviews executive officer salaries annually after the end of each fiscal year. In addition to considering the performance of individual executive officers and information concerning competitive salaries, significant weight is placed on the financial performance of the Company when considering salary adjustments. For fiscal year 2007, the Company’s management team elected to forego any significant salary increases. However, the Committee approved salary increases for certain executive officers during fiscal year 2007. The increases varied by officer, and resulted in an overall increase to payroll of 1.0%.
Non-equity Incentive Compensation
The Company maintains an annual Executive Bonus Plan (the “Bonus Plan”) designed to reward achievement at specified levels of financial and individual performance. The Committee approved the fiscal year 2007 Bonus Plan at its February 20, 2008 meeting. Payouts under the 2007 Bonus Plan were based on the Company’s achievement of a target level of EBITDA after pre-opening costs. Each officer position had an assigned target bonus level, expressed as a percentage of fiscal year end annual salary. For fiscal year 2007, the target bonuses were 60% for each of the co-CEOs (Larry Flax and Richard Rosenfield), 45% for Susan Collyns and 40% for each of Thomas Beck, Sarah Goldsmith Grover and Rudy Sugueti. These percentages were consistent with target bonus averages from Mercer’s analysis of executive compensation.
These bonus targets were selected because the Committee believed that these target bonus levels were competitive with target bonuses for similar positions reported in the independent, third-party published surveys.
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The Committee’s independent compensation consultant also reviewed the bonus target levels and reported to the Committee that the targets were competitive. The maximum amount that may be paid under to any executive officer under the Bonus Plan for any calendar year may not exceed $1.2 million. A payout of 75% of target was made for 2007 in line with the bonus payout schedule which met 95% of EBITDA after preopening charges and adjusting for non-recurring expenses.
Long-term Equity Compensation
The Company strongly believes that equity ownership by executive officers provides incentives to build stockholder value and align the interests of executive officers with the stockholders. In consultation with Mercer and the executive officers, the Committee determined that stock option grants under the Company’s 2004 Omnibus Incentive Compensation Plan remain the most effective instrument to achieve this goal. The value of an initial option grant to an executive officer has generally been determined with reference to peer group companies, the responsibilities and future contributions of the executive officer, as well as recruitment and retention considerations. The Company typically awards stock option grants to corporate office employees, including the executive officers, in February of each year, with an effective grant date and exercise price per share equal to the closing price of the Company’s common stock on the grant date. In August 2007 the Committee awarded stock option grants for 2006 performance.
Stock options are exercisable once vested except for “black-out” periods under the Company’s insider trading policy. Stock options are granted with an exercise price per share equal to the closing price of the Company’s common stock on the grant date. Stock options typically vest over a period of four years, semi-annually, with a term of 10 years.
At its August 7, 2007 meeting, the Committee reviewed the analyses and recommendations of the co-CEOs for stock option grants to the other executive officers. In reviewing the recommended grants, the Committee considered each officer’s performance and contribution during the fiscal year, analyses reflecting the value delivered and proportion of options granted to each executive officer, the executive officers in aggregate as a percentage of total options granted during the fiscal year. The Committee also considers the fair value using a Black Scholes pricing model of each executive officer’s options against a targeted percentage of each executive officer’s base salary. The Summary Compensation Table includes the stock option grants under the Company’s 2004 Omnibus Incentive Compensation Plan to the executive officers approved by the Committee in fiscal 2007.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“ESPP”) in which eligible employees, including the executive officers, may choose to participate. Participants may set aside up to $21,250 annually in salary at a price equal to 85% of the lower of the fair market value of the common stock on the first day of the offering period and the fair market value of the common stock on the last day of the purchase period. The Committee believes that this is an effective vehicle for enabling executives and employees to increase their ownership position in the Company, thereby promoting a closer link between the interests of employees and the Company’s stockholders.
Deferred Compensation Plan
The Company does not offer a 401(k) plan to executives because their participation could reduce the opportunity for other associates to contribute based on ERISA standards for qualified plans. Instead, the Company maintains the California Pizza Kitchen Executive Deferred Compensation Plan, a nonqualified plan, pursuant to which eligible employees can elect to defer up to 100% of their base salary and up to 100% of any cash bonuses. The Company makes a discretionary matching contribution on behalf of each participant at the same rate as the 401(k) plan (30 cents on the dollar up to six percent of compensation to the maximum 401(k) dollar limit amount). A participant is always 100% vested in his or her deferral, and matching contributions vest
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over three years. The participant may select from among a number of investment alternatives for his or her deferrals, which are the same investment alternatives for 401(k) participants. After annual discrimination testing is performed by the Company’s third party benefits administrator, an eligible portion of the deferred amounts may “wrap” into the 401(k) plan. No amounts were wrapped in 2007 for the Named Executive Officers. Generally, the portion of a participant’s account that was not eligible for the 401(k) wrap will be paid out based on his or her election upon termination of employment or, if earlier, upon a termination of the plan under qualifying circumstances. A participant may request an earlier distribution in the event of an unforeseeable financial emergency.
Benefits and Perquisites
The Committee oversees the design, implementation and administration of all Company-wide benefit programs. The Company provides a supplemental executive retirement plan, long-term disability insurance and reimbursement of country club membership dues to the co-CEOs. It also provides long-term disability insurance and reimbursement of country club membership dues to the CFO. These benefits and perquisites are considered valuable, reasonable and consistent with market conditions as reflected in the Mercer analysis. The amounts relating to these perquisites for fiscal 2007 are disclosed in the footnotes to the Summary Compensation Table in this proxy statement.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
The Company has entered into employment agreements with its co-CEOs, its CFO and Senior Vice President of ASAP Operations. No contract has expired and the agreements automatically renew for subsequent one-year terms unless either the Company or the employee provides written notice that the agreement shall not automatically renew. The foregoing agreements prohibit these officers from competing with the Company during the term of the agreements and for 12 months after termination.
Each of the employment agreements also provides for severance payments upon termination or after a change of control of the Company. These provisions are intended to promote stability and continuity of our senior management. More information concerning these severance payments appears herein under the caption “Potential Payments Upon Termination or Change in Control.”
Tax and Accounting Implications
The Company has considered the provisions of the Internal Revenue Code of 1986, as amended, and in particular Section 162(m) of the Internal Revenue Code, which restricts deductibility of executive compensation paid to certain of our executive officers at the end of any fiscal year to the extent such compensation exceeds $1,000,000 for any of such officers in any year and does not qualify for an exception under the statute or regulations. The Company believes that income from its management incentive plans should qualify for an exemption from these restrictions. The Company does not believe that other components of the Company’s compensation will be likely to exceed $1,000,000 for any executive officer in the foreseeable future and therefore concluded that no further action with respect to qualifying such compensation for deductibility was necessary at this time. In the future, the Committee will continue to evaluate the advisability of qualifying its executive compensation for deductibility of such compensation. The Company’s policy is to qualify its executive compensation for deductibility under applicable tax laws as practicable. The Company has also taken into consideration Internal Revenue Code Section 409A in the design and implementation of the Company’s compensation programs. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A, and such program’s benefits fail to comply with Section 409A at any time during the plan year, then all amounts deferred under the plan for that year and all preceding taxable years by the participant to whom the failure relates are included in the participant’s gross income in the taxable year in which the failure occurred to the extent those amounts are vested and were not previously included in income. In such case, the executive is subject to regular federal income tax, interest at an enhanced rate on any resulting tax underpayments and an additional federal income tax of 20% of the benefit amounts.
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The deductibility of some types of compensation payments can depend upon the timing of the vesting or an executive’s exercise of previously granted awards. Interpretations of and changes in applicable tax laws and regulations as well as other factors beyond our control can also affect deductibility of compensation. While the tax impact of any compensation arrangement is one factor to be considered, such impact is evaluated in light of the Company’s overall compensation philosophy and objectives. The Company will consider ways to maximize the deductibility of executive compensation, while retaining the discretion it deems necessary to compensate officers competitively and in a manner commensurate with performance. From time to time, the Company may therefore award compensation to our executive officers which is not fully deductible if it determines that such award is consistent with its philosophy and is in the Company’s and its stockholders’ best interests.
Summary Compensation Table
The following table sets forth summary information concerning the compensation awarded to, paid to or earned by each of our Named Executive Officers for all services rendered in all capacities to us in 2007.
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Grants of Plan-Based Awards
The following table sets forth summary information regarding all grants of plan-based awards made to our Named Executive Officers for the year ended December 30, 2007.
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Outstanding Equity Awards at Fiscal Year End
The following table sets forth summary information regarding the outstanding equity awards granted to each of our Named Executive Officers at December 30, 2007.
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Option Exercises and Vested Stock
The following table sets forth summary information regarding stock vested for our Named Executive Officers during the year ended December 30, 2007. Our Named Executive Officers did not exercise options during the year ended December 30, 2007.
Nonqualified Deferred Compensation
The following table sets forth summary information regarding contributions to and account balances under our Executive Deferred Compensation Plan for and as of the year ended December 30, 2007. The plan allows participants to defer up to 100% of base salary and 100% of cash bonuses. Participants can transfer all or a portion of the annual deferrals made under the plan to the Company’s 401(k) plan, up to a maximum amount possible under the 401(k) plan for the plan year during which the participant deferred compensation and/or bonus was earned. No amounts were deferred under the plan to the Company’s 401(k) plan in the year ended December 30, 2007. An executive must make an irrevocable election prior to each plan year, thus changing or stopping an elected an annual deferral amount while remaining a participant is prohibited.
Potential Payments Upon Termination or Change of Control
Larry S. Flax, Richard L. Rosenfield, Susan M. Collyns and Rudy Sugueti have entered into employment agreements with the Company that provide severance benefits upon termination of their employment in certain circumstances. Severance benefits are available to the executives when the Company chooses not to extend the term of their employment agreement, upon termination of their employment for any reason other than for death, disability or cause or by the executive for good reason or upon termination of their employment for death or disability. Certain additional benefits may also be available in the event the executive is terminated for any reason other than death, disability or cause or by the executive for good reason within two years after the occurrence of a change of control event.
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Depending on circumstances of termination, the executives may be entitled to the following: (i) a multiple of their base salary and, in some cases, their target bonus; (ii) full vesting and immediate exercisability of options and immediate lapse of any restrictions on restricted stock; (iii) extension of the post-termination exercisability of any stock option until the earlier of three years following termination or the expiration date of such option according to its terms; and (iv) continuation of health insurance benefits consistent with those provided by us to the Company’s senior executives; provided, however, that the percentage of the cost of such coverage paid by the Company shall not be less than the percentage of such costs that was paid by the Company immediately prior to the expiration date of the employment agreement. The specific severance benefits available to the executives are described in the table below. The value of the severance benefits is based on the assumption that termination took place on the last business day of the Company’s 2007 fiscal year. The receipt of any severance benefits is subject to the executive’s execution and delivery, and non-revocation within any applicable revocation period, of a mutual general release of claims in a form satisfactory to the Company and executive.
In the event the employment of the executive is terminated for cause or if they resign without good reason, their employment agreement will expire, and the Company will have no further obligation to them, except to the extent they are otherwise entitled to any accrued but unpaid salary, bonus, benefits or insurance coverage in accordance with applicable law.
Neither Thomas Beck nor Sarah Goldsmith Grover is a party to an employment agreement with the Company. Accordingly, the Company will have no obligation to them upon termination, except to the extent they are otherwise entitled to any accrued but unpaid salary, bonus, benefits or insurance coverage in accordance with applicable law.
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Pension Benefits
The Company does not have a pension plan.
Director Compensation
The following table shows compensation of the non-employee members of our board for 2007. Any board member who is also an employee of the company does not receive separate compensation for service on the board.
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COMPENSATION COMMITTEE REPORT1
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review and discussions, recommended to the board of directors that the Compensation Discussion and Analysis be included in the California Pizza Kitchen, Inc. 2008 annual meeting proxy statement.
The Compensation Committee
William C. Baker, Chairman Charles G. Phillips Alan I. Rothenberg
April 11, 2008
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 9, 2008, with respect to the beneficial ownership of the Company’s common stock by:
The percentage of class is calculated on the basis of 25,331,584 shares of common stock outstanding, except that shares of common stock underlying options exercisable within 60 days of April 9, 2008 are deemed to be outstanding for purposes of calculating the beneficial ownership of securities of the holders of such options. In the preparation of this table, the Company has relied upon information supplied by its officers, directors and certain stockholders and upon information contained in filings with the Securities and Exchange Commission. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws, where applicable. Except as otherwise indicated, the address for each beneficial owner is c/o California Pizza Kitchen, 6053 West Century Boulevard, 11th Floor, Los Angeles, CA 90045.
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STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2009 annual meeting of stockholders, pursuant to Rule 14a-8 under the Exchange Act, must be received by the Company no later than December 17, 2008 in order to be considered for inclusion in the Company’s proxy materials for that meeting. Proposals should be submitted in writing to the Secretary at our principal executive offices at 6053 West Century Boulevard, Eleventh Floor, Los Angeles, CA 90045. In addition, stockholders who would like to propose director candidates for consideration or would like to present other matters which stockholders wish to present for action at an annual meeting of stockholders (other than matters included in the Company’s proxy materials in accordance with Rule 14a-8 under the Exchange Act) should provide notice to our Secretary at our principal executive offices. Communications sent to us with respect to candidates for director proposed by our stockholders shall be forwarded to the chair of our nominating and governance committee. The nominating and governance committee shall then review and consider the stockholder proposal in connection with our 2009 annual meeting of stockholders so long as the proposal is prior to the deadline for submission of all stockholder proposals. If the stockholder does not also comply with the requirements of Rule 14a-4 under the Exchange Act, the Company may exercise discretionary voting authority under proxies it solicits to vote in accordance with its best judgment on any such stockholder proposal.
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Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —— — — — — — — — — — — —
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