The company appears to be preparing for a potential sale, sweetening its severance plans for top executives in case of a “change of control,” or a possible sale. The plan, which took effect Nov. 1, pays “parachute payments” if the company changes hands and the executives decide to leave within the first two years due to no fault of their own, the company said in a regulatory filing Friday.
It would pay current CEO Steve Ritchie three years of his base salary as well as a “retention equity grants” equal to three times his base salary, or more than $4.9 million based on his 2017 base salary of $820,377 — plus other incentives.
Chief Financial Officer Joseph Smith and Chief Operating and Growth Officer Michael Nettles would both qualify for cash bonuses and equity grants that are each equal to two years of their base salaries, which haven’t been disclosed yet.
The change of control provisions are generally designed to give executives an incentive to stay on through a sale process, making it financially attractive enough so they don’t jump ship before a sale closes and staying on long enough to ensure a smooth transition, compensation experts say.
If Papa John’s doesn’t find a savior to buy the company, it may need to shutter number of restaurants to make up for declining sales and higher borrowing costs.
The company was able to buy it some more time by renegotiating its lending agreements, but it came at a steep price. CFO Smith warned investors in August that the company was at risk of breaching its debt covenants at the time because its leverage ratio was getting too high.
Papa John’s lenders agreed Oct. 9 to increase its leverage limits in exchange for cutting its revolving credit line from $600 million to $400 million and increasing its borrowing costs, according to a regulatory filing. The company also has a $400 million term loan and has drawn about $585 million between the two as of last month, the company said.
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