UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

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Filed by a Party other than the Registrant ¨

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JACK IN THE BOX INC.

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

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JACK IN THE BOX INC.

 

January 16, 2008

Dear Stockholder:

 

You are invited to attend the Jack in the Box Inc. Annual Meeting of Stockholders in San Diego, California, on February 15, 2008. In the following pages you will find information about the meeting as well as a Proxy Statement.

 

To assure that your shares are represented at the meeting, we urge you to mark your choices on the enclosed proxy card, sign and date the card and return it promptly in the postage-paid envelope provided. We also offer shareholders the opportunity to vote their shares electronically through the Internet or by telephone. Please see the Proxy Statement and the enclosed proxy card for details about electronic voting. If you are able to attend the meeting and wish to vote your shares personally, you may do so at any time before the proxy is voted at the meeting.

 

Sincerely,

 

Linda A. Lang

Chairman of the Board

and Chief Executive Officer

 

TABLE OF CONTENTS

 

JACK IN THE BOX INC.

9330 Balboa Avenue

San Diego, California 92123

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on February 15, 2008

 

To the Stockholders of Jack in the Box Inc.:

 

The 2008 Annual Meeting of Stockholders of Jack in the Box Inc. will be held at 2:00 p.m. on Friday, February 15, 2008, at the Marriott Courtyard, 8651 Spectrum Center Boulevard, San Diego, California for the following purposes:

 

 

The Board of Directors recommends that you vote FOR the seven nominees for director and FOR the ratification of the appointment of independent registered public accounting firm.

 

Only stockholders of record at the close of business on December 27, 2007, will be entitled to vote at the meeting.

 

You will need proof of ownership of Jack in the Box Inc. common stock to enter the meeting. If your shares are held in the name of a bank, broker or other holder of record, you will need a recent brokerage statement or letter from a bank as proof of ownership. All shareholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND A BROKERAGE STATEMENT OR LETTER FROM A BANK SHOWING THAT YOU OWN JACK IN THE BOX INC. STOCK, YOU MAY NOT BE ADMITTED TO THE MEETING.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on February 15, 2008.

 

The Proxy Statement, the annual report to shareholders and the annual report on Form 10-K are available at www.jackinthebox.com/investors/proxy.

 

By order of the Board of Directors

 

Phillip H. Rudolph

Secretary

 

San Diego, California

January 16, 2008

JACK IN THE BOX INC.
9330 Balboa Avenue

San Diego, California 92123

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS

 

February 15, 2008

 

SOLICITATION OF PROXIES

 

The Board of Directors of Jack in the Box Inc., a Delaware corporation (the “Company,” “we,” “us,” and “our”) solicits your proxies for the 2008 Annual Meeting of Stockholders (the “Annual Meeting”) to be held at 2:00 p.m. on Friday, February 15, 2008, at the Marriott Courtyard, 8651 Spectrum Center Boulevard, San Diego, California, and at any postponements or adjournments of the meeting, for the purposes set forth in the “Notice of Annual Meeting of Stockholders.” This Proxy Statement, form of proxy, and the accompanying Jack in the Box Inc. 2007 Annual Report which includes the Annual Report on Form 10-K, were mailed to stockholders on or about January 16, 2008.

 

The Company will pay for the cost of preparing, assembling and mailing the Notice of Annual Meeting of Stockholders, Proxy Statement, form of proxy and Annual Report. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of common stock beneficially owned by others to forward to such beneficial owners. The Company may reimburse persons representing beneficial owners of common stock for their costs of forwarding solicitation materials to such beneficial owners. We have engaged Mellon Investor Services LLC (“Mellon”) to assist us in the solicitation of proxies, for which the Company will pay a fee not to exceed $5,500 plus out-of-pocket expenses. In addition to solicitation by mail, proxies may be solicited personally, by telephone or other means by Mellon, as well as by directors, officers or employees of the Company, who will receive no additional compensation for such services.

 

VOTING INFORMATION

 

Only holders of record of common stock at the close of business on December 27, 2007, (the “Record Date”) will be entitled to notice of and to vote at the Annual Meeting and any adjournment of the meeting. At the close of business on the Record Date, there were 59,400,327 shares of Jack in the Box Inc. Common Stock, $.01 par value (the “Common Stock”), outstanding, excluding treasury shares. Company treasury shares will not be voted. Each holder of record as of the Record Date is entitled to one vote for each share of stock held.

 

Quorum.  The presence, in person or by proxy, of the holders of at least a majority of the total number of shares of Common Stock entitled to vote is necessary to have a quorum at the Annual Meeting. Abstentions and broker non-votes (described below) are counted for the purpose of determining whether a quorum is present. If there are insufficient votes to constitute a quorum at the time of the Annual Meeting, we may adjourn the Annual Meeting to solicit additional proxies.

 

Broker Non-Votes.  A “broker non-vote” occurs when your broker submits a proxy card for your shares but does not indicate a vote on a particular matter because the broker has not received voting instructions from you and does not have authority to vote on that matter without such instructions. Under the rules of the New York Stock Exchange, if your broker holds shares in your name and delivers this Proxy Statement to you, the broker, in the absence of voting instructions from you, is entitled to vote your shares on Proposals 1 and 2 and other routine matters.

 

Voting and Revocability of Proxies.  Your proxy will be voted as you direct, either in writing or by telephone or Internet. If you give no direction, your proxy will be voted FOR the nominees for election as directors, and FOR Proposal 2, the ratification of the appointment of KPMG LLP as independent registered public accountants. The enclosed proxy gives discretionary authority as to any matters not specifically

referred to therein. See “Other Business.” The telephone and Internet voting procedures, available only if you are a stockholder of record, are designed to authenticate your identity, to allow you to vote your shares and to confirm that your instructions have been properly recorded. The enclosed proxy card sets forth specific instructions that you must follow if you qualify to vote via telephone or Internet and wish to do so. You may revoke your proxy at any time before it is voted at the Annual Meeting by filing a written notice of revocation with the Secretary of the Company at the Company’s executive offices at 9330 Balboa Avenue, San Diego, California 92123, by filing a duly executed written proxy bearing a later date or, if you qualify, by a later proxy delivered using the telephone or Internet voting procedures. Your proxy will not be voted if you are present at the Annual Meeting and elect to vote in person. Attendance at the meeting will not, by itself, revoke a proxy.

 

PROPOSAL ONE

 

ELECTION OF DIRECTORS

 

All of the directors of the Company are elected annually and serve until the next Annual Meeting and until their successors are elected and qualified. The current nominees for election as directors are set forth below. Should any nominee become unavailable to serve as a director, your proxy will be voted for such other person as the Board of Directors of the Company (the “Board”) designates. To the best of our knowledge, all nominees are and will be available to serve. Stockholders’ nominations for election of a director may be made only pursuant to the provisions of the Company’s Bylaws, described under “Other Business.”

 

Your vote may be cast in favor of the proposed directors or withheld. A plurality of the votes cast at the meeting (assuming a quorum) will be sufficient to elect the directors. Accordingly, withheld votes or broker non-votes will have no effect on the election of directors.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL NOMINEES.

 

INFORMATION RELATED TO THE
ELECTION OF DIRECTORS, COMMITTEES OF THE BOARD OF DIRECTORS
AND MEMBER QUALIFICATIONS

 

Nominees for Director

 

The following table provides certain information about each nominee for director as of January 1, 2008. Effective February 15, 2008, the Committees will be reconstituted as described below under “2008 Committee Assignments.”

 

 

 

 

The business experience, principal occupations and employment of the nominees follows:

 

Mr. Alpert has been a director of the Company since August 1992 and is currently Chairman of the Finance Committee. Mr. Alpert was a partner in the San Diego office of the law firm of Gibson, Dunn & Crutcher LLP for more than five years prior to his retirement in August 1992. He is currently Advisory Counsel to Gibson, Dunn & Crutcher LLP, although he no longer provides services to or receives any compensation from the firm. Gibson, Dunn & Crutcher LLP provides legal services to us from time-to-time.

 

Mr. Fellows has been a director of the Company since November 2006. He has served as President and Chief Executive Officer of Callaway Golf, as well as one of its directors, since August 2005. Prior to joining Callaway, during the period 2000 through July 2005, he served as President and Chief Executive Officer of GF Consulting, a management consulting firm, and served as Senior Advisor to Investcorp International, Inc. and J.P. Morgan Partners, LLC. Previously, he served as President and Chief Executive Officer of Revlon, Inc.

 

Ms. Gust has been a director of the Company since January 2003 and currently serves as Chair of the Nominating and Governance Committee. Ms. Gust has served as Special Counsel to the Attorney General of the State of California since January 2007. She served as Executive Vice President and Chief Administrative Officer of The Gap, Inc. from March 2000 until her retirement in May 2005. She joined The Gap, Inc. in 1991 and served in various management roles prior to her appointment as Chief Administrative Officer, including General Counsel. Prior to joining The Gap, Inc., Ms. Gust was a lawyer at the firms of Orrick, Herrington & Sutcliffe LLP and Brobeck, Phleger & Harrison LLP.

 

Mr. Hutchison has been a director of the Company since May 1998 and serves as Lead Director. He served 24 years as Chief Executive Officer and Chairman of International Technology Corp., a large publicly traded environmental engineering firm, until his retirement in 1996. Mr. Hutchison serves as a director of Cadiz Inc., Cardium, Inc., and is Chairman of the Board of Texas Eastern Products Pipeline Co., LLC.

 

Ms. Lang has been a director of the Company since November 2003. Ms. Lang has been Chairman of the Board since October 3, 2005, and is currently the Chair of the Executive Committee. She has been Chief Executive Officer since October 3, 2005. Ms. Lang was President and Chief Operating Officer from November 2003 to October 2005, and Executive Vice President from July 2002, to November 2003. From 1996 through July 2002, Ms. Lang held officer level positions with responsibility for marketing or operations. Ms. Lang has 20 years of experience with the Company in various marketing, finance and operations positions. Ms. Lang serves as a director of WD-40 Company.

 

Mr. Murphy has been director of the Company since September 2002 and is currently Chairman of the Audit Committee. He has been President and CEO of Sharp HealthCare, San Diego’s largest integrated health system, since April 1996. Prior to his appointment to President and CEO, Mr. Murphy served as Senior Vice President of Business Development and Legal Affairs. He began his career at Sharp in 1991 as Chief Financial Officer of Grossmont Hospital before moving to Sharp’s system-wide role of Vice President of Financial Accounting and Reporting.

 

Mr. Tehle has been a director since December 2004. He has been Executive Vice President and Chief Financial Officer of Dollar General Corporation, a large discount retailer, since June 2004. Formerly a public company, Dollar General became a private company in 2007. Mr. Tehle served from 1997 to June 2004 as Executive Vice President and Chief Financial Officer of Haggar Corporation, a manufacturing, marketing and retail corporation. From 1996 to 1997, he was Vice President of Finance for a division of The Stanley Works, one of the world’s largest manufacturer of tools, and from 1993 to 1996, he was Vice President and Chief Financial Officer of Hat Brands, Inc.

 

Directors’ Independence

 

The Board has analyzed the independence of each director and determined that the following directors are independent under the New York Stock Exchange listing standards and the additional Director Independence Guidelines adopted by the Board, and have no material relationships with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company): Messrs. Alpert, Fellows, Hutchison, Murphy and Tehle, and Ms. Gust. Ms. Lang is not considered independent because she is an officer of the Company. The Jack in the Box Inc. Director Independence Guidelines are attached hereto as Exhibit A.

 

2008 Committee Assignments

 

The Board of Directors has approved changes to the Board Committees to be effective February 15, 2008. The Committees shall be as follows:

 

 

Board Meetings and Committees of the Board of Directors

 

The Board held six meetings in fiscal 2007. We expect each director to attend each meeting of the Board and the committees on which he or she serves, and also expect them to attend the annual meeting. In fiscal 2007, each director attended 100% of the meetings of the Board and the committees on which he or she served, and all of the then-sitting directors attended the 2007 Annual Meeting.

 

The Board of Directors has five standing committees: Audit, Compensation, Nominating and Governance, Finance and Executive. The authority and responsibility of each committee is summarized below. A more detailed description of the functions of the Audit, Compensation, Nominating and Governance, and Finance Committees is included in each committee charter as adopted by the Board of Directors. All committee charters can be found in the Corporate Governance section of the Company’s corporate website www.jackinthebox.com.

 

Committee Member Independence.  The Board has determined that each current and anticipated member of the Audit, Compensation, Nominating and Governance, and Finance Committees is independent as defined under the requirements of the New York Stock Exchange, as well as under the additional Independence Guidelines adopted by the Board. In addition, the members of the Audit Committee are all independent as required under Section 10A(m)(3) of the Securities Exchange Act of 1934, and the members of the Compensation Committee are independent as required under Section 162(m) of the Internal Revenue Code. Independence determinations reflect upon both the membership of the above committees as presently constituted and after February 15, 2008.

 

Audit Committee.  As more fully described in its charter, included as Exhibit B to this Proxy Statement, the Audit Committee assists the Board of Directors with overseeing the integrity of the Company’s financial reports; the Company’s compliance with legal and regulatory requirements; the independent registered public accountant’s performance, qualifications and independence; the performance of the Company’s internal auditors and the Company’s processes for identifying, evaluating and addressing major financial risks. The Audit Committee has sole authority to select, evaluate and, when appropriate, replace the Company’s independent registered public accountants. The Audit Committee meets each quarter with the Company’s independent registered public accountants, KPMG LLP (“KPMG”), the Company’s Director of Internal Audit, and management to review the Company’s annual and interim consolidated financial results before the publication of quarterly earnings press releases and the filing of quarterly and annual reports with the Securities and Exchange Commission. The Audit Committee also meets separately each quarter with each of KPMG, management and the Director of Internal Audit. The Board of Directors has determined that all members of the Audit Committee satisfy the financial literacy requirements of the New York Stock Exchange and that each member of the Audit Committee qualifies as an “audit committee financial expert” as defined by Securities and Exchange Commission (“SEC”) rules. The Audit Committee held six meetings in fiscal 2007.

Compensation Committee.  As more fully described in its charter, the Compensation Committee assists the Board in discharging the Board’s responsibilities relating to director and executive officer compensation and oversees the evaluation of management. The Compensation Committee reviews and approves the Company’s compensation philosophy, each of the compensation components, equity and benefit plans, and compensation of executive officers, including performance goals and objectives. The Committee approved the disclosures in the Company’s “Compensation Discussion and Analysis” beginning on page 13 of this Proxy Statement. The Compensation Committee held five meetings in fiscal 2007.

 

Executive Committee.  The Executive Committee is authorized to exercise all the powers of the Board in the management of the business and affairs of the Company while the Board is not in session. The Executive Committee did not meet in fiscal 2007.

 

Finance Committee.  The Finance Committee assists the Board in advising and consulting with management concerning financial matters of importance to the Company. Topics considered by the Committee include the Company’s capital structure, financing arrangements, stock repurchase programs, capital investment policies, oversight of the Company’s pension and 401(k) plans, the budget process and the financial implications of major acquisitions and divestitures. The Finance Committee held six meetings in fiscal 2007.

 

Nominating and Governance Committee.  The Nominating and Governance Committee assists the Board in identifying and recommending to the Board qualified candidates to become directors, including: considering nominees properly submitted by stockholders; developing and recommending to the Board a set of corporate governance guidelines; providing oversight with respect to the annual evaluation of Board, Committee and individual director performance; and recommending to the Board director nominees for each Board committee. All nominees for election as Directors currently serve on the Board of Directors and are known to the Nominating and Governance Committee in that capacity. The Nominating and Governance Committee also assists the Board in its oversight of the Corporation’s insider trading compliance program. The Nominating and Governance Committee held six meetings in fiscal 2007.

 

Policy Regarding Consideration of Candidates for Director.  The Nominating and Governance Committee has the responsibility to identify, screen and recommend qualified candidates to the Board. The Nominating and Governance Committee will evaluate any recommendation for director candidates proposed by a stockholder. In order to be evaluated in connection with the Nominating and Governance Committee’s established procedures, stockholder recommendations for candidates for the Board must be sent in writing to the following address at least 120 days prior to the anniversary of the date Proxy Statements were mailed to stockholders in connection with the prior year’s annual meeting of stockholders:

 

Nominating and Governance Committee of the Board of Directors
c/o Office of the Corporate Secretary
Jack in the Box Inc.
9330 Balboa Avenue
San Diego, CA 92123

 

Stockholder recommendations should include the name of the candidate, age, contact information, present principal occupation or employment, qualifications and skills, background, last five year’s employment and business experience, a description of previous service as a director of any corporation or organization, and other relevant biographical information. There are no stated minimum criteria for director candidates. However, in evaluating director candidates, the Nominating and Governance Committee considers the following factors:

 

 

 

The Nominating and Governance Committee may also consider such other factors as it may deem are in the best interests of the Company and its stockholders. The Nominating and Governance Committee believes it appropriate for at least one member of the Board to meet the criteria for an “audit committee financial expert” as defined by SEC Rules, and for a majority of the Board to meet the definition of independence under the listing standards of the New York Stock Exchange. The Nominating and Governance Committee also believes it appropriate for certain key members of management to participate as members of the Board.

 

The Committee considers all candidates regardless of the source of the recommendation. In addition to stockholder recommendations, the Committee considers recommendations from current directors, Company personnel and others. From time to time the Committee may engage the services of outside search firms to help identify candidates. During fiscal year 2007, the Company engaged one such search firm, the Alexander Group, and paid approximately $1,800 in connection with identification of possible candidates.

 

After initial screening of a potential candidate’s qualifications, the Committee determines appropriate next steps, including requests for additional information, reference checks and interviews with potential candidates. All candidates must submit a completed form of the Company’s Directors and Officers Questionnaire as part of the consideration process.

 

Corporate Governance

 

The Board of Directors is committed to promoting ethical business practices and believes that strong corporate governance is important to ensure that the Company is managed for the long-term benefit of its stockholders. The Company regularly monitors developments in the area of corporate governance and may modify its Principles and Practices as warranted. Any modifications are reflected on the Jack in the Box Inc. website. (www.jackinthebox.com) The following Corporate Governance documents appear on the Company’s website under the “Investors,” “Corporate Governance” tabs. These materials are also available in print to any stockholder upon request.

 

 

Director Independence Guidelines.  In addition to the Corporate Governance Principles and Practices, the Board has adopted Independence Guidelines, which are attached as Exhibit A.

 

Among other matters, the Corporate Governance Principles and Practices include the following items concerning the Board:

 

1. Meetings of Non-Management Directors.  The non-management directors of the Company meet separately on a regular basis in executive session. The Lead Director is responsible for setting the agenda and presiding at the meetings.

2. Lead Director.  The non-management directors appoint a lead director each year to set the agenda for and preside at the executive sessions of the Board. The lead director acts as the primary communication channel between the Board and the CEO, and determines the format and the adequacy of information required by the Board. For fiscal 2008, the non-management directors have appointed Murray Hutchison as lead director.

 

3. Limitation on Other Board Service.  The Company’s Corporate Governance Principles and Practices set forth the Board’s policy limiting non-management directors to simultaneous service on no more than four public companies, including Jack in the Box Inc. The Board has an approval process that generally limits each of our officers to serving on no more than one public company’s board outside of Jack in the Box Inc. affiliates. The approval process considers both the time commitment and potential business conflicts and is administered by the Nominating and Governance Committee.

 

4. Retirement Policy.  The Board has adopted a retirement policy under which directors may not stand for election or be appointed after age 73. Dr. Alice Hayes, current Chairman of the Compensation Committee and member of the Nominating and Governance Committee, has informed the Board that she intends to retire from the Board effective February 15, 2008.

 

5. Board, Committee and Individual Director Evaluations.  Each year the Directors complete an evaluation process focusing on an assessment of Board operations as a whole and the service of each director. Additionally, each of the Audit, Compensation, Finance and Nominating and Governance Committees conducts a separate evaluation of its own performance and the adequacy of its Charter. The Nominating and Governance Committee coordinates the evaluation of individual directors and of the Board operations and reviews and reports to the Board on the annual self-evaluations completed by the committees.

 

6. New-Director Orientation and Continuing Education.  The Board works with management to schedule new-director orientation programs and continuing education programs for directors. Orientation is designed to familiarize new directors with the Company and the restaurant industry as well as Company personnel, facilities, strategies and challenges. Continuing education programs may include in-house and third-party presentations and programs.

 

7. Attendance at Annual Meetings.  The Company’s Corporate Governance Principles and Practices sets forth the Board’s policy on director attendance at our Annual Meeting of stockholders. It states that all directors shall make every effort to attend the Annual Meeting.

 

8. Stock Ownership Guidelines.  The Board has established stock ownership guidelines for non-management directors to appropriately link their interests with those of other stockholders. These guidelines provide that within a three-year period following appointment or election, the director should attain and hold an investment position of $150,000 in defined total stock value, exclusive of any outstanding stock options but including directly and indirectly held shares and the equivalent number of shares derived from deferral of director compensation. The Board has established ownership guidelines for senior officers as described in the “Compensation Discussion and Analysis” section of this Proxy Statement.

 

REPORT OF THE AUDIT COMMITTEE

 

The following is the report of the Audit Committee with respect to Jack in the Box Inc.’s audited financial statements for the fiscal year ended September 30, 2007.

 

The Audit Committee of the Board of Directors (the “Audit Committee”) is composed of the three directors named below, each of whom is an “independent director” as defined in the applicable listing standards of the New York Stock Exchange. Our Board has determined that each of the members of the Audit Committee is an audit committee financial expert as defined by the Securities and Exchange Commission. The duties of the Audit Committee are summarized in this Proxy Statement under “Board Meetings and Committees of the Board of Directors” on page 5 and are more fully described in the Audit Committee charter adopted by the Board of Directors attached hereto as Exhibit B. The Audit Committee reviews and assesses the adequacy of its charter each fiscal year. The Audit Committee Charter can be found under the Investors/Corporate Governance/Committee Charters tabs on the Jack in the Box Inc. website at www.jackinthebox.com.

 

As more fully described in its charter, one of the Audit Committee’s primary responsibilities is to assist the Board in its general oversight of Jack in the Box Inc.’s financial reporting, internal controls and audit functions. Management is responsible for the following: the Company’s accounting and financial reporting principles; and establishing, maintaining and evaluating the effectiveness of disclosure controls and procedures as well as internal controls over financial reporting and the preparation, presentation, and integrity of the Company’s consolidated financial statements. KPMG, the Company’s independent registered public accountants, is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the Standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and expressing an opinion on the conformity of those audited consolidated financial statements with U.S. generally accepted accounting principles as well as expressing an opinion on (i) management’s assessment of the effectiveness of internal control over financial reporting and (ii) the effectiveness of internal control over financial reporting.

 

Jack in the Box Inc. has an Internal Audit Department that reports to the Audit Committee and the Company’s General Counsel. The Internal Audit Department’s responsibilities include reviewing and evaluating the Company’s internal controls. The function of the Audit Committee is not to duplicate the activities of management, or the internal or external auditors, but to serve a Board-level oversight role in which it provides advice, counsel, and direction to management and the auditors.

 

The Audit Committee has sole authority to select, evaluate, approve fees, and when appropriate, to replace the Company’s independent registered public accountants. The Committee also pre-approves all audit and non-audit services performed by the independent auditors. The Audit Committee has appointed KPMG as the Company’s independent registered public accountants for fiscal year 2008 and has requested stockholder ratification of its appointment.

 

During the course of fiscal 2007, the Committee met and discussed with representatives of management, the Internal Audit Department staff and the independent auditors the matters over which the Committee has been delegated oversight responsibility. The Committee met regularly in separate private sessions with representatives of management, the Internal Audit Department staff and the independent auditors. The Audit Committee reviewed and discussed with management and KPMG the disclosures made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007. The Audit Committee reviewed and discussed management’s report on the effectiveness of the Company’s internal control over financial reporting and KPMG’s Report of Independent Registered Public Accounting Firm included in the Company’s Annual Report on Form 10-K related to its audit of (i) the consolidated financial statements, and (ii) the effectiveness of internal control over financial reporting.

 

The Committee discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, “Communications with Audit Committees,” as amended and PCAOB Auditing Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.” In addition, the Audit Committee received the written disclosures and the letter from KPMG required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and discussed with KPMG its independence from the Company.

 

The Audit Committee has discussed with management and KPMG such other matters and received such assurances from them as the Audit Committee deemed appropriate.

Based on the reviews and discussions referred to above, and the reports of KPMG, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007, for filing with the SEC.

 

Michael W. Murphy, Chair

Murray H. Hutchison

David M. Tehle

 

This report is not deemed to be incorporated by reference in any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this report by reference.

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FEES AND SERVICES

 

The following table presents fees billed for professional services rendered by KPMG for the fiscal years ended September 30, 2007, and October 1, 2006:

 

 

 

 

Registered Public Accountants Independence.  The Audit Committee has considered whether the provision of the above-noted services is compatible with maintaining the principal registered public accountant’s independence and has determined that the provision of such services has not adversely affected the registered public accountant’s independence.

 

Policy on Audit Committee Pre-Approval.  The Company and its Audit Committee are committed to ensuring the independence of the independent registered public accountants, both in fact and in appearance. In this regard, the Audit Committee has established a pre-approval policy in accordance with applicable Securities rules. The Audit Committee’s pre-approval policy is set forth in the Policy for Audit Committee Pre-Approval of Services, included as Exhibit C to this Proxy Statement.

 

PROPOSAL TWO

 

RATIFICATION OF THE APPOINTMENT

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

 

The Audit Committee has appointed the firm of KPMG as the Company’s independent registered public accountants for fiscal year 2008. Although action by stockholders in this matter is not required, the Audit Committee believes it is appropriate to seek stockholder ratification of this appointment.

 

KPMG has served as independent auditor for the Company since 1986. One or more representatives of KPMG will be present at the Annual Meeting and will have the opportunity to make a statement and to respond to appropriate questions from stockholders. The following proposal will be presented at the Annual Meeting:

 

Action by the Audit Committee appointing KPMG as the Company’s independent registered public accountants to conduct the annual audit of the consolidated financial statements of the Company and its subsidiaries for the fiscal year ending September 28, 2008, is hereby ratified, confirmed and approved.

 

Approval of this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting (assuming a quorum). For this proposal, abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum but will not have any effect on the outcome of the proposal.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF KPMG AS INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis provides information on our compensation objectives and philosophy, the components of our compensation program and the reasons we provide each component. We also discuss how we determine targeted compensation and the basis of our pay decisions for the executive officers of the Company, including the amounts paid to the named executive officers (“NEO”) as shown in the “Summary Compensation Table”.

 

Oversight of the Executive Compensation Program

 

Role of the Compensation Committee.  The Compensation Committee (the “Committee”) acts pursuant to a written charter and is comprised entirely of independent directors. The Committee administers the Company’s executive compensation program on behalf of the Board and reviews and approves the Company’s compensation philosophy, each of the compensation components, equity and benefits plans, and compensation of executive officers, including performance goals and objectives. Discussions regarding the compensation of Ms. Lang, our Chairman and Chief Executive Officer (“CEO”) occur during executive session when only Committee members are present. The Committee recommends the CEO’s compensation to the full Board for final consideration and approval. Ms. Lang does not participate in these discussions.

 

Role of the Chief Executive Officer in Compensation Decisions.  The CEO discusses the performance of the executive officers with the Committee on an annual basis and provides recommendations on compensation actions for executive officers other than herself. Additionally, she provides her perspective and recommendations to the Committee on compensation and benefit plan design and strategies, financial goals and criteria for the annual incentive, and the amount of long-term incentive awards.

 

Role of the Independent Compensation Consultant.  To assist the Committee with its responsibilities, the Committee has retained the services of Towers Perrin, a nationally recognized compensation consulting firm, to serve as its independent compensation consultant for comparative information, advice and perspective on matters related to CEO and executive officer compensation. The compensation consultant provides the Committee with objective information and expertise to make informed decisions on executive compensation. Towers Perrin maintains no other direct or indirect business relationships with the Company.

 

Towers Perrin performs an annual review of competitive compensation practices for all officer positions and based on that assessment provides advice regarding changes to base salaries, annual incentives, and long-term incentives. Market data is obtained from a variety of sources, including a national executive compensation database, restaurant industry survey, and proxy data of our industry peer group companies. We refer to these three sources collectively as our comparative benchmark group. The consultant attends the Compensation Committee meetings as requested, and in fiscal year 2007 attended four of the five Committee meetings.

 

Executive Compensation Philosophy and Objectives.  Our compensation philosophy, reviewed annually by the Compensation Committee, is to provide average pay for average performance and exemplary pay for exemplary performance. We define average pay as the median (50^th percentile) of market pay, and exemplary pay as pay above the median. Throughout this proxy, when we use the term “market pay” or “market”, we are referring to the pay levels or practices of similar executive positions among our comparative benchmark group.

 

We target our base pay, annual incentive, and long-term incentives (collectively, “direct compensation”) at the median market pay. The guiding principle in the design and administration of our compensation program is built on this philosophy and serves the following objectives:

 

 

NOTE:  Stock Split — On August 3, 2007, the Board of Directors approved a two-for-one split of our common stock, that was effected in the form of a 100% stock dividend on October 15, 2007. All historical share and per share data in our proxy reflects this two-for-one stock split, unless otherwise noted.

 

Components and Analysis of Total Compensation

 

Our total compensation program for executive officers consists of a combination of base salary, annual incentive, long-term incentives, benefits, and limited perquisites. The program is designed to provide an appropriate balance between annual and long-term performance of the Company, as well as between fixed and variable (“at-risk”) compensation. Each year, the Committee’s independent consultant provides the Committee and management with a comparison of the executive officers’ direct compensation with the direct compensation paid to executive officers of the organizations in the Company’s comparative benchmark group. Upon review of the information, the Committee makes its own assessments and decisions with respect to each of the compensation components described in more detail below.

 

 

To determine the appropriate salary level of an executive, the Company considers the performance of the executive during the fiscal year, time in position, the criticality of the role to the Company and the difficulty in replacing the executive. Individual performance is measured by what is achieved (results) as well as how it is achieved (behaviors). The Committee assesses the performance of the Chief Executive Officer, and the Chief Executive Officer assesses the performance of each of the other executive officers. The CEO, in consultation with the Company’s compensation department, determines the salary increase amount for each executive officer (other than herself) and subsequently provides the Committee with her assessment of their performance and recommended salary increase.

 

In November 2006, the Committee approved pay increases for the named executive officers to compensate them for their services rendered during the year. The increases, effective November 2006, ranged from 3% to 7% and were consistent with the percentage increases given to other employees in the Company. Base salaries of the named executive officers in fiscal 2007 averaged 96% of the 2007 market pay. Based on the assessment of the factors described above, the Committee believed the pay levels were appropriate relative to the market. In fiscal 2007 the CEO’s salary was approximately 1.4 times higher than the salary of the President & Chief Operating Officer (“COO”). The table below shows the 2007 annualized base salary of each named executive officer.

 

 

 

Setting Annual Incentive Performance Goals.  The Committee approves annual incentive performance goals at the conclusion of the Company’s annual financial planning process and subsequent to the Board’s approval of the Company’s financial plan and budget for the fiscal year. At such time, the

Company assesses the future operating environment inside and outside the Company and develops projections of anticipated results. If the Company achieves the budget for the fiscal year, then the annual incentive payout will pay at targeted bonus levels (median — 50^th percentile of market data). If the Company outperforms budget, then the annual incentive payout will be above the median of the market, and if it is below budget, payouts will be below the median. Each year the Committee approves goals that are considered to be challenging for the Company to achieve and generally reflect performance above the prior year.

 

In 2007, the EPS performance goal at budget (target) was 12% above prior fiscal year performance (FY 2006) and the goal at the maximum incentive payout level was 16.7% above prior fiscal year performance (FY 2006). As certified by the Committee, our performance results significantly exceeded budget and the annual incentive payouts were at the maximum level, as shown in the table below.

 

 

 

 

Annual Target Bonus Percentage for fiscal year 2008.  An extensive review of our financial performance and compensation practices relative to our industry peer group was conducted in 2007. As a result of the review, the Committee concluded that the target bonus percentages on average for the CEO, President & COO, and Executive Vice President (“EVP”) & Chief Financial Officer (“CFO ”) were below market. To ensure competitive target bonus percentages consistent with our pay philosophy, and for retention purposes, the Committee approved an adjustment to the target percentage for these positions beginning in fiscal year 2008.

 

The change in the target bonus percentage correspondingly affected the maximum bonus percentage as shown in the following table:

 

Bonus Payout Percentages

 

 

 

In 2007, the Committee’s compensation consultant provided stock option grant guidelines at market 50^th percentile and 75^th percentile based on total direct compensation (includes the total of base, bonus, and long-term incentives) of the comparative benchmark group. To determine the actual percentile at which to grant options, the Committee considered the Company’s overall fiscal year

performance and recommendations from the Chairman & CEO on each executive’s individual performance. For fiscal 2007, the Committee approved grants to the following NEO’s, the CEO, President & COO and EVP & CFO, at approximately market 75th percentile to reflect the Company’s exemplary performance relative to our industry peer group in several key financial areas.

 

Option awards were granted effective September 14, 2007, with an exercise price equal to the closing price of Jack in the Box stock on the date of grant. The options vest at a rate of 33% per year over a three-year period, and have a seven-year term. This reflects a change in the vesting and term of prior grants, and is intended to better align with market practices as well as reducing option expense in the long term. The majority of options granted in prior years vest at a rate of 25% per year over a four-year period and have a ten-year term.

 

2007 Grant Guidelines

 

 

 

 

Timing of Regular Annual Stock Option Grants.  The regular annual stock option grant date is the date of the Committee’s regularly scheduled September meeting, and all grants are approved by resolution of the Committee. The dates of Board and committee meetings are scheduled years in advance of the actual date of the meeting. All stock options are granted with an exercise price equal to the closing price of Jack in the Box Inc. common stock on the date of grant.

 

 

In connection with Mr. Schauf’s retirement at the end of September 2007, the Company provided a one-time lump sum payment of $54,122 to assist in covering the cost of Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and personal health insurance premiums until eligible for Medicare coverage.

 

 

 

 

In September 2007, the Committee evaluated the retirement benefits provided to participants in the SERP and the long term costs the Company bears in maintaining such a plan. Subsequent to this evaluation, the Committee approved freezing the SERP for new participants effective January 1, 2007. In lieu of the SERP, all new officers will receive an additional contribution of 4% of base salary and bonus to their non-qualified executive deferred compensation account for up to 10 years, as described below.

 

Non-qualified Deferred Compensation Plan.  The Executive Deferred Compensation Plan (“EDCP”) is available to all executive officers and other employees who are excluded from participating in our qualified 401(k) plan in order to meet the Internal Revenue Service (“IRS”) requirements. Participants may defer up to 50% of base salary and up to 100% of their annual cash bonus. The matching and vesting provisions are as follows:

 

 

All of the named executive officers are participants in the EDCP. Prior to 1990, two of the named executive officers were eligible to participate in the qualified Jack in the Box Inc. Easy$aver Plus (the “E$P”) Plan which includes a cash-or-deferred arrangement under Section 401(k) of the Internal Revenue Code. Executive officers and certain other highly compensated employees were excluded from participating in the E$P Plan after 1989. Executive officers with existing cash balances in the E$P Plan as of 1989 are able to maintain their balances in the E$P Plan; however, they can no longer make deferrals into the Plan.

 

Review of Compensation — Benchmarking Executive Compensation

 

Each component of compensation for our executive officers discussed above is based on external market comparisons and internal comparisons of positions with similar scope of responsibility. For most executive positions, there are two primary sources of compensation survey data: 1) Towers Perrin executive compensation database for general industry data, and 2) Chain Restaurant Compensation survey for industry-specific data of our industry peer group. Proxy data for executive positions in our industry peer group is also used for the named executive officer positions. When analyzing the data, Towers Perrin typically uses regression analysis to adjust the data for differences in company size.

 

The companies in the industry peer group are reviewed periodically and changes made if necessary. In 2007, the Committee approved a change in the industry peer group to emphasize companies with short and long-term growth potential and market capitalization more similar to Jack in the Box Inc., and a high level of brand recognition. The Committee also considered the companies with which we compete for business and executive talent. The new industry peer group was part of the comparative benchmark group used to establish

base, annual incentive, and long-term incentive targets for fiscal year 2008. The median revenue of the 2008 industry peer group is over 30% higher than the 2007 peer group (from $1.5 Billion to $2.0 Billion) and more closely approximates the annual revenue of Jack in the Box Inc. than the 2007 industry peer group.

 

 

Review of Compensation — Tally Sheets

 

Each year, the Committee reviews the various components of CEO and other executive officers’ compensation. In fiscal year 2007 the Committee reviewed tally sheets including components of cash compensation, equity-based compensation, and retirement and welfare benefits. Compensation tally sheets detailing the compensation components were prepared by management and reviewed by the Committee for each of the named executive officers, with the exception of Mr. Schauf who retired on the last day of fiscal year 2007, September 30, 2007. The Committee believes that executive compensation in fiscal 2007 was reasonable in its totality.

 

Executive Stock Ownership Requirements

 

A key objective of our executive compensation program is alignment with the long-term interests of our stockholders. To this end, in 2002, the Company adopted stock ownership guidelines for all named executive officers and other officers at the senior vice president level and above. The guidelines are intended to encourage retention and align the financial interests of these executives with those of our stockholders. Both shares directly owned by the executive and restricted shares awarded to the executive apply toward fulfillment of stock ownership guidelines.

 

Each September, the Committee reviews the share ownership of each executive officer and facilitates meeting ownership requirements by granting restricted shares. Each grant of restricted shares reduces the value of future stock option grants over a five year period. For new hires and promotions to an eligible executive position, the restricted stock grants are presented to the Committee for approval generally at the next meeting following the date of hire or promotion.

 

Restricted shares are held in an escrow account maintained by the Company and vesting is subject to the executive officer’s continued employment with the Company. Vested shares are determined and issued only upon termination.

 

Company stock ownership guidelines are the lesser of a fixed number of shares or a multiple of salary, as follows:

 

Currently all named executive officers satisfy their respective stock ownership requirement.

 

Stock Ownership for the Named Executive Officers

 

 

Termination of Service

 

The named executive officers do not have employment or severance agreements, except in the event of a change of control as described in the Compensation and Benefits Assurance Agreement section below. When a named executive officer terminates employment with the Company, the executive will receive amounts according to the specific terms and provisions of each compensation or benefits plan as described below.

 

 

If eligible to retire under a Company-sponsored retirement plan, in addition to the above, under the terms of the award agreement, the executive is entitled to the following:

 

 

If an executive dies while employed by the Company, under the terms of the stock award agreement, all outstanding options and stock awards will become 100% vested on the date the executive terminates employment with the Company on account of death.

 

The values of additional potential payments to the NEO’s are provided in the section titled “Potential Payments Upon Termination or Change in Control” in this Proxy Statement.

 

Compensation & Benefits Assurance Agreements

 

Each of the NEO’s, and three other executive officers, are subject to a Compensation & Benefits Assurance Agreement that provides compensation in the form of a lump sum and other benefits for the coverage periods set forth in the section titled “Potential Payments Upon Termination or Change in Control “ of this proxy. The list of covered executives is reviewed periodically by the Committee. We believe these agreements are important to provide continuity of management and provide the incentive to remain with the Company and continue to focus on running the business in the event of a pending or actual change in control event. Each agreement has a term of two years, and is subject to automatic extension for additional two year terms unless either party to the agreement gives notice of intent not to renew.

 

A detailed discussion of the provisions of the Compensation & Benefits Assurance Agreements and the associated monetary values is provided in the section titled “Compensation & Benefits Assurance Agreements” on page 26 of this Proxy Statement.

 

Tax and Accounting Information

 

Compensation decisions for executive officers are made with consideration of the Internal Revenue Code Section 162(m) implications. Section 162(m) places a limit of one-million ($1.0M) dollars on the amount of compensation that Jack in the Box can deduct in any one year for the named executive officers.

Since performance-based pay is excluded from this limit, we have designed our compensation program to provide the largest portion of an executive’s compensation through our annual cash incentive plan and long-term incentive plan in the form of stock options. Restricted stock awards are not considered performance-based under Section 162(m) and, accordingly, are subject to the $1.0 million limit on deductibility. Under Code Section 409A, amounts deferred by an employee under a non-qualified deferred compensation plan (such as the SERP and EDCP) may be included in gross income when deferred and subject to a 20% additional federal tax, unless the plan complies with certain requirements related to the timing of deferral election and distribution decisions. Stock options may be exempt from Section 409A if the exercise price is not less than the fair market value on the grant date, the number of shares subject to option is fixed on the grant date, and there is no subsequent deferral feature under the option. We administer the SERP, the EDCP and stock option awards consistent with Section 409A requirements.

 

We account for option expensing under Statement of Financial Accounting Standards (“SFAS”) 123R and use a binomial valuation model prepared annually by AON Consulting to determine the “fair value” of our stock options at grant.

 

COMPENSATION COMMITTEE REPORT

 

Management of the Company has prepared the Compensation Discussion and Analysis of the Company’s compensation programs. The Compensation Committee of the Board of Directors has reviewed and discussed with management and the Board the Compensation Discussion and Analysis contained in this proxy statement. On the basis of that review, the Committee approved on behalf of the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for fiscal year 2007, ending September 30, 2007.

 

THE COMPENSATION COMMITTEE

Alice B. Hayes, Chair

Anne B. Gust

Murray H. Hutchison

 

EXECUTIVE COMPENSATION

 

The Summary Compensation Table below provides compensation information for the named executive officers serving at the end of the fiscal year 2007, September 30, 2007. This includes Ms. Linda Lang, the Chairman and CEO, Mr. Jerry Rebel, the Executive Vice President and Chief Financial Officer, and the three most highly compensated executive officers, including (1) Mr. Paul Schultz, the President and COO, (2) Mr. Lawrence Schauf, Executive Vice President and Secretary, and (3) Mr. David Theno, Senior Vice President, Quality and Logistics. The table includes compensation paid, stock and option awards, non-equity incentive plan compensation earned, change in pension value and non-qualified deferred compensation earnings and all other compensation, whether paid or deferred.

 

Summary Compensation Table

 

 

 

 

All Other Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

 

 

 

Outstanding Equity Awards at Fiscal Year End 2007

 

The following table provides information on all outstanding option awards and unvested stock awards held by each of the named executive officers at the end of fiscal year 2007. Each option grant is shown separately and the vesting schedule is shown as a footnote (2) to the table. The market value of the restricted stock awards is based on the closing price of Jack in the Box common stock as of the last day of the fiscal year, September 30, 2007, which was $32.42.

 

 

 

 

Option Exercises and Stock Vested in Fiscal 2007

 

The table below provides information on stock option exercises and shares acquired on the vesting of stock awards by the named executive officers:

 

Option Exercises and Stock Vested

 

 

Retirement Plan. The Company offers retirement benefits under a company-funded defined benefit plan. The Retirement Plan provides the same benefit available to other employees employed in an administrative, clerical, or restaurant hourly position who have reached age 21 and completed one year of service with at least 1,000 hours of service. The Plan provides that a participant retiring at age 65 will receive an annual benefit, as follows:

 

 

 

Benefits are subject to grandfathered minimum benefit accruals under the previous plan as of December 31, 1988. Final Average Pay is defined as the highest five consecutive calendar years of pay (base and bonus) out of the last ten years of eligible service as an eligible employee. Pay excludes deferrals into the Executive Deferred Compensation Plan. Pay that can be taken into account for purposes of the formula is subject to an annual limit under the federal tax laws; the limit for 2007 is $225,000. Benefit Service is defined as the entire period of employment in calendar years and months while an eligible employee. Participants are credited with one full year of vesting service for a Plan year during which 1,000 hours are worked. Participants are 100% vested after completing 5 years of vesting service or reaching Normal Retirement Age. Participants are 0% vested until they are 100% vested.

 

The Employee Retirement Income Security Act of 1974 (“ERISA”) and various tax laws may cause a reduction in the annual retirement benefit payable under the Retirement Plan. Although normal retirement age is 65, benefits may begin as early as age 55 if participants meet the service requirements defined in the Retirement Plan; benefits payable are reduced 5/12 of 1% for each month benefits begin before normal retirement age. Retirement Plan benefits are not permitted to be paid to participants while they are actively employed with Jack in the Box Inc. Retirement Plan benefits are typically paid in the form of a monthly annuity. Participants may not elect a lump sum payment under the Retirement Plan.

 

Supplemental Executive Retirement Plan. The SERP was established in 1990 for selected executives in response to legislation restricting qualified plan benefits for “highly compensated employees.” The SERP provides for a percentage of replacement income based on Service and Final Average Compensation. Final Average Compensation for purposes of the SERP is defined as the average of the five highest calendar years of pay (base salary and bonus) out of the last ten years of employment with the Company. Benefit Service is defined as the entire period of employment in calendar years and months while an eligible employee.

 

The SERP provides that a participant retiring at age 62 will receive an annual benefit, as follows:

 

 

In order to be eligible for a retirement benefit under the SERP, the participant must attain the earlier of age 62 or age 55 and ten years of service while employed at Jack in the Box or while disabled. Death benefits are payable if the participant dies while employed. Although normal retirement age is age 62, benefits may begin as early as age 55 reduced 5/12 of 1% for each month benefits begin before age 62. SERP benefits are not permitted to be paid to participants while they are actively employed with Jack in the Box Inc. Benefits are typically paid in the form of a monthly annuity. Participants may not elect a lump sum payment under the Plan. The SERP is unfunded and represents an unsecured claim against the Company.

 

Before 2007, each of the executive officers, including the named executive officers, could participate in the Company’s defined benefit plan and Supplemental Executive Retirement Plan if they met certain eligibility requirements. In 2007, the Committee evaluated the retirement benefits provided to participants in the SERP and the long term costs the Company bears in maintaining such a plan. Based on this evaluation, the Committee approved freezing the SERP to new participants effective January 1, 2007, and instead providing that new officers will receive an additional Company contribution of 4% of base salary and bonus to their EDCP account for up to ten years.

 

Pension Benefits Table

 

The pension table below shows the actuarial present value of the accumulated benefits of each named executive officer as of the end of the measurement year, including years of credited service, under the Retirement Plan and Supplemental Executive Retirement Plan. Present values were calculated using the interest rate and mortality assumptions used in the Company’s financial statements.

 

 

 

 

Non-Qualified Deferred Compensation Table

 

The table below shows the contributions for each named executive officer made into the Executive Deferred Compensation Plan, including Company contributions, aggregate earnings and aggregate distributions for last fiscal year. All NEO’s in the table below are 100% vested in the Company contributions.

 

Non-Qualified Deferred Compensation Plan Table

 

 

Executive Deferred Compensation Plan.  The EDCP was adopted in 1990 for all executive officers and other employees excluded from participation in the Easy$aver Plus 401k Plan (“E$P Plan”) and is a non-qualified deferred compensation plan. The EDCP is unfunded, and participants’ accounts represent unsecured claims against the Company.

 

Participants may defer up to 50% of base salary and up to 100% (less applicable taxes) of bonus pay. The Company matches 100% of the first 3% of the participant’s compensation that is deferred into the EDCP. Participants receive full and immediate vesting of their own contributions and vest in the matching contributions at the rate of 25% per year, becoming fully vested only after they have completed four full years of service with the Company.

 

As described above, beginning in January 1, 2007, new officers who otherwise would have been eligible for the SERP, receive an additional Company contribution for up to ten years, of 4% of base salary and bonus in their EDCP account. Participants vest 25% per year in the additional Company contributions.

 

The EDCP provides for a choice of 18 funds in an array of asset classes made available by the Company and selected by the participant. Benefits under this plan include an earnings component based upon theoretical investment options (they are designed to match the performance of actual investments). Investment options do not provide preferential earnings.

 

A participating officer elects when plan year balances are distributed, while employed and/or upon separation from service. All distributions are subject to the requirements of Section 409A of the Internal Revenue Code. In general, the following refers to non-vested balances and amounts deferred after January 1, 2005;

 

 

Amounts deferred and vested before January 1, 2005, are grandfathered and are not subject to IRC 409A (including, the five year delay rule and the “specified employee” rule).

 

Compensation & Benefits Assurance Agreements.  The Company considers Compensation & Benefits Assurance (“CIC”) agreements it has entered into with key executives to be in the best interest of its stockholders to foster the continuous employment of key management without potential distraction or

personal concern if the Company were to be acquired by another company (“change in control”). These agreements help facilitate successful performance by key executive officers during an impending change in control, by protecting them against the loss of their positions following a change in the ownership or control of the Company, and ensuring that their expectations for long-term incentive compensation arrangements will be fulfilled. Generally, under the agreements, a change in control is defined to include (i) the acquisition by any person or group of 50% or more of the combined voting power of the Company (excluding acquisitions by the Company benefit plans or certain affiliates), (ii) individuals constituting our board of directors generally cease to constitute a majority of the board, (iii) certain mergers, consolidations, sales of assets or a stockholder-approved liquidation of the Company.

 

These agreements provide certain specified benefits if, within twenty-four full (24) calendar months from the effective date of a change in control event, their employment is terminated (i) involuntarily other than for cause, death, or disability or (ii) voluntarily for good reason. Voluntary termination for good reason is defined as (i) the assignment of the executive officer to duties or responsibilities inconsistent with the executive’s status or a reduction or alteration in the nature or status of the executive’s duties or responsibilities in effect as of ninety (90) days prior to the change in control event, (ii) the acquiring company’s requirement that an executive be based at a location in excess of fifty (50) miles from the executive’s location immediately prior to a change in control, (iii) a reduction in base salary in effect on the effective date of the change in control or failure by the company to increase annual base salary from time to time, (iv) failure of the acquiring Company to keep in effect any of the Company’s compensation, health and welfare, or retirement benefit plans, or any perquisites unless an alternative plan is provided of at least a comparable value, or (v) any breach by the acquiring Company of its obligations under this agreement. These terms are defined as a “Qualifying Termination.” CIC agreement benefits are not provided for terminations by reason of death, disability, voluntary termination without Good Reason, or the Company’s involuntary termination of the Executive’s employment for Cause.

 

In the event of a change in control of the Company and Qualifying Termination of an executive covered under a Compensation & Benefits Assurance agreement, the executive is entitled to the following severance benefits:

 

 

 

 

 

 

The following tables show potential payments to our named executive officers under our existing CIC agreement assuming a September 30, 2007 termination date and, where applicable, using the closing price of our common stock of $32.42 on September 28, 2007 (the last NYSE trading day in the fiscal year).

 

Supplemental Executive Retirement Plan.  In the event of a change in control and an involuntary termination not for cause or a voluntary termination for good reason, in accordance with the SERP, the named executive officer shall receive, in the form of three annual installments commencing on termination, the actuarial equivalent of his/her accrued early retirement benefit. Distributions under the SERP are subject to guidelines as listed under Section 409A of the Internal Revenue Code.

 

Non-Qualified Deferred Compensation.  In the event of a change in control, in accordance with the Executive Deferred Compensation Plan, participants shall become 100% vested. Accounts shall be distributed in accordance with the participant’s existing distribution election (on termination of employment or under a scheduled in-service withdrawal). Distributions under the EDCP are subject to guidelines as listed under Section 409A of the Internal Revenue Code.

 

Potential Payments Upon Termination or Change in Control

 

The following table shows potential payments to our named executive officers in the event of both (i) a change in control and (ii) either an involuntary termination not for cause or a voluntary termination for good reason under our Compensation and Benefits Assurance agreement, assuming a September 30, 2007 effective date and, where applicable, using the closing price of our common stock of $32.42 on September 28, 2007 (the last NYSE trading day in the fiscal year). The numbers shown in the table reflect additional payments resulting from the double trigger of a change in control and involuntary termination not for cause or voluntary termination for good reason. The number of vested shares and payments under the qualified pension plan and non-qualified deferred compensation plan are included in the tables disclosed earlier in this proxy titled “Outstanding Equity Awards at Fiscal Year End 2007”, “Pension Benefits Table”, and “Non-Qualified Deferred Compensation Table”, respectively.

 

In the event of a termination not related to a change in control, named executive officers will receive amounts under the terms and provisions of the specific plans in which they are a participant. The amounts shown in the table below reflect additional compensation that would become payable under existing plans and arrangements if the named executive officer’s employment had terminated on September 30, 2007. The

amounts shown in the table below were prepared by the Company’s independent compensation consultant, actuary MullinTBG, and the Company’s Compensation and Benefits department.