DEF: Cheesecake Factory Seeks Stockholder Approval for Amended Stock Incentive Plan

The Cheesecake Factory is asking stockholders to approve an amendment to its stock incentive plan to increase the number of shares available for issuance.

Summary

• The Cheesecake Factory Incorporated is seeking stockholder approval for the Second Amendment to The Cheesecake Factory Incorporated Stock Incentive Plan.
• The Second Amendment aims to increase the aggregate number of shares authorized for issuance by 6,000,000 shares, bringing the total to 13,150,000 shares.
• The company projects that the current share reserve will only be sufficient for equity compensation grants through the third quarter of 2025.
• If approved, the Second Amendment is expected to provide enough shares for equity compensation until at least the 2028 annual meeting.
• The Board adopted the Second Amendment on March 26, 2025, contingent upon stockholder approval.
• As of March 24, 2025, there were 787,260 shares subject to stock options with a weighted average exercise price of $42.44 and 3,216,383 restricted shares and stock units outstanding.
• The company's burn rate for fiscal years 2022, 2023 and 2024 averaged 2.1%.
• The proposed share increase represents approximately 12.1% of the company's outstanding common stock as of the record date.
• The Board considered factors such as alignment with stockholders, attracting and retaining high performers, equity vs cash compensation, a balanced approach to compensation, burn rate and dilution when adopting the Second Amendment.
• The Amended Plan includes features such as a one-year minimum vesting requirement, no dividends on unvested awards, a director compensation limit of $750,000 per year, individual award limits, no liberal recycling, a clawback policy, and a prohibition on repricing.
• The Board unanimously recommends a vote for approval of the Second Amendment.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook, highlighting strong financial results and strategic achievements. However, it also acknowledges potential risks and challenges, resulting in a moderately positive sentiment score.

Positives

• The Second Amendment will allow the company to continue using equity compensation to align management's interests with those of stockholders.
• The increased share reserve will help the company attract, motivate, and retain high-performing employees.
• The Amended Plan includes features designed to protect shareholder interests, such as a one-year minimum vesting requirement and a clawback policy.
• The Board has considered the potential dilutive effect to stockholders and believes the proposed share increase is reasonable.

Negatives

• If the Second Amendment is not approved, the company may need to shift to a more cash-based compensation program, which could be detrimental to aligning executive and employee interests with that of stockholders.
• The proposed share increase will result in dilution of existing stockholders' equity, with an estimated dilution of approximately 17.6% for 2024 including this new request.

Risks

• Failure to approve the Second Amendment could hinder the company's ability to attract and retain talent.
• A shift to a more cash-based compensation program could increase compensation costs and reduce cash flow available for dividends and share repurchases.
• Economic, public health and political conditions that impact consumer confidence and spending, including changes in interest rates, periods of heightened inflation and market instability, and armed conflicts.
• Supply chain disruptions.
• Demonstrations, political unrest, potential damage to or closure of our restaurants and potential reputational damage to us or any of our brands.
• Pandemics and related containment measures, including the potential for quarantines or restriction on in-person dining.
• Acceptance and success of The Cheesecake Factory in international markets.
• Acceptance and success of North Italia, Flower Child and other Fox Restaurant Concepts (FRC) concepts.
• The risks of doing business abroad through Company-owned restaurants and/or licensees.
• Foreign exchange rates, tariffs and cross border taxation.
• Changes in unemployment rates.
• Increases in minimum wages and benefit costs.
• The economic health of our landlords and other tenants in retail centers in which our restaurants are located, and our ability to successfully manage our lease arrangements with landlords.
• The economic health of suppliers, licensees, vendors and other third parties providing goods or services to us.
• The timing of our new unit development and related permitting.
• Compliance with debt covenants.
• Strategic capital allocation decisions including with respect to share repurchases or dividends.
• The ability to achieve projected financial results.
• The resolution of uncertain tax positions with the Internal Revenue Service (IRS) and the impact of tax reform legislation.
• Changes in laws impacting our business.
• Adverse weather conditions and natural disasters in regions in which our restaurants are located.
• Factors that are under the control of government agencies, landlords and other third parties.
• The risks, costs and uncertainties associated with opening new restaurants.

Future Outlook

The company remains focused on leveraging its scale, operational strengths, and the appeal of its differentiated concepts to drive long-term value to its shareholders.

Industry Context

The document provides insight into executive compensation practices within the restaurant industry, particularly the use of equity-based compensation to align management interests with those of stockholders.

Comparison to Industry Standards

• The Compensation Committee intends to set director compensation levels at or near the market median relative to non-employee directors at companies of comparable size, industry and scope of operations in order to ensure directors are paid competitively for their time commitment and responsibilities.
• The Executive Compensation Peer Group approved by the Compensation Committee for 2024 consisted of publicly-traded companies in the restaurant and hotel/hospitality industries with revenue generally between one-third to three times our revenue.
• The peer companies are as follows: BJs Restaurants, Inc., Dave & Busters Entertainment, Inc., Jack in the Box Inc., Bloomin Brands, Inc., Dennys Corporation, Red Robin Gourmet Burgers, Inc., Brinker International, Inc., Dine Brands Global, Inc., Texas Roadhouse, Inc., Chipotle Mexican Grill, Inc., Dominos Pizza, Inc., The Wendys Company, Cracker Barrel Old Country Store, Inc., Hyatt Hotels Corporation, Wyndham Hotels & Resorts, Inc., Darden Restaurants, Inc.

Related Party Transactions

• We had no reportable transactions with related persons required to be disclosed under Item 404 of Regulation S-K since the beginning of fiscal 2024.

Stakeholder Impact

• The proposed Second Amendment is intended to benefit stockholders by aligning management's interests with long-term value creation.
• The company's commitment to people-focused programs and creating a great workplace contributed to The Cheesecake Factory being named to Fortune magazines list of 100 Best Companies to Work For in 2024, for the eleventh consecutive year.

Next Steps

• Stockholders are urged to vote on the proposals outlined in the proxy statement.
• The Board and Compensation Committee will consider the outcome of the say-on-pay vote when making future executive compensation decisions.

Key Dates

Keywords

stock incentive plan, equity compensation, share reserve, stock options, restricted stock, burn rate, dilution, executive compensation, KPMG, proxy statement, annual meeting, directors, governance, EBITDAR, performance goals, clawback policy, stock ownership