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JACK IN THE BOX INC.

 

January 5, 2010

Dear Stockholder:

 

You are invited to attend the Jack in the Box Inc. Annual Meeting of Stockholders in San Diego, California, on February 10, 2010. In the following pages, you will find the Notice of Annual Meeting of Stockholders as well as a Proxy Statement. We have also enclosed a copy of our Annual Report on Form 10-K for the fiscal year ended September 27, 2009, for your information.

 

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 stockholders 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 in person, 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

 

Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to be held on February 10, 2010.

 

The Proxy Statement and the Annual Report on Form 10-K
are available at www.jackinthebox.com/proxy.

 

TABLE OF CONTENTS

 

JACK IN THE BOX INC.

9330 Balboa Avenue

San Diego, California 92123

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To the Stockholders of Jack in the Box Inc.:

 

The 2010 Annual Meeting of Stockholders of Jack in the Box Inc. will be held at 2:00 p.m. on Wednesday, February 10, 2010, at the Marriott Courtyard, 8651 Spectrum Center Boulevard, San Diego, California 92123 for the following purposes:

 

 

The Board of Directors recommends that you vote FOR:

 

 

The Board recommends that you vote AGAINST the stockholder proposal relating to animal welfare.

 

Only stockholders of record at the close of business on December 16, 2009, will be entitled to notice of, and to vote at, the Annual Meeting of Stockholders (the “Annual Meeting”). For ten days prior to the Annual Meeting, a complete list of stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder, for a purpose related to the Annual Meeting, during ordinary business hours at our corporate headquarters located at 9330 Balboa Avenue, San Diego, California 92123.

 

Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares via the toll-free telephone number or over the Internet, as described in the enclosed materials, or to sign, date, and return the enclosed proxy card as promptly as possible in the envelope provided.

 

By order of the Board of Directors

 

 

Phillip H. Rudolph
Secretary

 

San Diego, California

January 5, 2010

 

ADMISSION TO THE ANNUAL MEETING OF STOCKHOLDERS

 

A valid picture identification such as a driver’s license or passport, and proof of ownership of Jack in the Box Inc. common stock, will be required to enter the Annual 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 reflecting stock ownership as of the record date. 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. COMMON STOCK, YOU MAY NOT BE ADMITTED TO THE ANNUAL MEETING.

 

Cameras and recording devices are not permitted at the Annual Meeting.

 

JACK IN THE BOX INC.

9330 Balboa Avenue

San Diego, California 92123

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS

 

February 10, 2010

 

 

The Board of Directors of Jack in the Box Inc., a Delaware corporation (the “Company,” “Jack in the Box,” “we,” “us,” and “our”), solicits your proxies for the 2010 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Wednesday, February 10, 2010, at 2:00 p.m. local time, at the Marriott Courtyard, 8651 Spectrum Center Boulevard, San Diego, California 92123, 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, the Notice of Annual Meeting of Stockholders, the form of proxy, and the Annual Report on Form 10-K, were mailed to stockholders on or about January 5, 2010.

 

The Company will pay for the cost of preparing, printing, assembling and mailing the Notice of Annual Meeting of Stockholders, Proxy Statement, form of proxy, Annual Report on Form 10-K and any other solicitation materials furnished to stockholders. 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. If you choose to access proxy materials and/or vote over the Internet, you are responsible for Internet access charges. If you choose to vote by telephone, you are responsible for telephone charges. We have engaged Innisfree M&A Inc. (“Innisfree”), a proxy soliciting firm, to provide advice with respect to the 2010 Annual Meeting of Stockholders and to assist us in the solicitation of proxies, for which the Company will pay a fee of $25,000 plus reimbursement of certain out-of-pocket expenses. In addition to solicitation by mail, proxies may be solicited personally, by telephone, or by Innisfree. They may also be solicited by directors, officers, or employees of the Company, who will receive no additional compensation for such services.

 

Only holders of record of common stock at the close of business on December 16, 2009, (the “Record Date”) will be entitled to notice of and to vote at the Annual Meeting and any postponements or adjournments of the meeting. At the close of business on the Record Date, there were 55,248,730 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 of Common Stock held in a fiduciary capacity (often referred to as being held in “street name”), 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 that govern brokers who are voting shares held in street name, brokers have the discretion to vote those shares on routine matters but not on non-routine matters. Routine matters include the ratification of the appointment of the independent registered public accountants. Non-routine matters include the election of directors and actions on stock plans and stockholder proposals.

 

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, FOR Proposals 2 and 3 and AGAINST Proposal 4 unless you submit your proxy card through a broker and your broker

does not indicate a vote on a particular matter because your broker has not received voting instructions from you. See Broker Non-Votes above. If the Company receives a proxy card with a broker non-vote, your proxy will be voted FOR Proposal 3 and it will not be included as a vote FOR or AGAINST Proposals 1, 2 and 4. 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. If you do not wish to vote by telephone or the Internet, please complete, sign and return the proxy card in the enclosed self-addressed, postage-paid envelope. 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.

 

All of the directors of the Company are elected annually and serve until the next Annual Meeting and until their respective 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 unless you submit your proxy card through a broker and your broker has not received voting instructions from you. (See Broker Non-Votes above.) To the best of our knowledge, all nominees are and will be available to serve, and have consented to be named in the Proxy Statement. Stockholders’ nominations for election of a director may be made only pursuant to the provisions of the Company’s Bylaws. The Bylaws are available on the Company’s website at www.jackinthebox.com, in the “Investors” section under the link for “Corporate Governance.” The Company did not receive any stockholder nominations for election of a director.

 

Your vote may be cast in favor of the proposed directors, or it may be withheld. A plurality of the votes cast at the meeting (assuming a quorum) will be sufficient to elect the directors. Accordingly, withheld votes will have no effect on the election of directors. Stockholders may not cumulate votes in the election of directors. If you hold your shares through a broker and you do not instruct the broker on how to vote on this proposal, your broker will not have authority to vote your shares. Broker non-votes will 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 to elect the directors.

 

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

 

The following table provides certain information about each nominee for director as of January 1, 2010.

 

 

 

 

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 Chair 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.

 

Mr. Goebel has been a director of the Company since December 2008. He has been a Faculty Member of the U.S. Faculty of Mentors for Merryck & Co. Limited, a worldwide business mentoring firm that offers services exclusively for chief executive officers by chief executive officers since May 2008. In 2008, Mr. Goebel became the founding principal and President of Santoku, Inc., a private company that operates four sub and pasta shops under the name Mr. Goodcents, and provides cafeteria and vending services in the Kansas City area. Mr. Goebel has 35 years of experience in the retail, food service, and hospitality industries. From August 2006 until November 2007, he served as President and Chief Executive Officer of Applebee’s International, Inc. Mr. Goebel joined Applebee’s in 2001, where he held several positions, including Executive Vice President of Operations, Executive Vice President and Chief Operating Officer, and President, prior to becoming Chief Executive Officer. Prior to joining Applebee’s, Mr. Goebel was President of Summit Management, Inc., a consulting group specializing in executive development and strategic planning.

 

Mr. Hutchison has been a director of the Company since May 1998, and serves as Lead Director. He served 27 years as Chief Executive Officer and Chairman of International Technology Corp., a large publicly traded environmental engineering firm, until his retirement in 1997. Mr. Hutchison serves as a director of Cadiz Inc., a publicly traded company focused on land acquisition and water development, and Cardium Therapeutics, Inc., a publicly traded company focused on the acquisition and development of bio-medical products and businesses. Mr. Hutchison has been a member of the Board of Directors of Texas Eastern Products Pipeline Co., LLC since March 2005, and served as its Chairman of the Board from March 2006 to October 2009. Mr. Hutchison served as Chairman of the Board of Huntington Hotel Corporation, a privately held company, and as a director of The Olson Company, a privately held home builder.

 

Ms. Lang has been a director of the Company since November 2003. Ms. Lang has been Chairman of the Board since October 2005, and is currently the Chair of the Executive Committee. She has been Chief Executive Officer of the Company since October 2005. Ms. Lang was President and Chief Operating Officer of the Company 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 at the Company, having marketing or operations responsibilities. Ms. Lang has more than 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 Chair of the Compensation Committee. He has been President and Chief Executive Officer of Sharp HealthCare, San Diego’s largest integrated health system, since April 1996. Prior to his appointment to President and Chief Executive Officer, Mr. Murphy served as Senior Vice President of Business Development and Legal Affairs for Sharp Healthcare. He began his career at Sharp in 1991 as Chief Financial Officer of Grossmont Hospital before moving to a system-wide role as Vice President of Financial Accounting and Reporting.

 

Mr. Tehle has been a director since December 2004, and is currently Chair of the Audit Committee. He has been Executive Vice President and Chief Financial Officer of Dollar General Corporation, a large discount retailer, since June 2004. 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.

 

Ms. Webb has been a director of the Company since July 2008, and is currently Chair of the Nominating and Governance Committee. Ms. Webb is Senior Advisor to Ticketmaster Entertainment, Inc., a diversified live entertainment ticketing and marketing company. Ms. Webb was Chief Communications and Investor Relations Officer for Ticketmaster from April 2008 to June 2009. She joined Ticketmaster after a 20-year career with The Walt Disney Company. At Disney, Ms. Webb was Executive Director of The Walt Disney Company Foundation, where she was responsible for setting strategic direction for Disney’s philanthropic efforts. Previously she was Disney’s Senior Vice President of Investor Relations and Shareholder Services. Ms. Webb has 26 years experience in treasury, investment banking, institutional and retail investor relations, and capital markets.

 

The Board has analyzed the independence of each director. It has determined that the following directors are independent directors under the NASDAQ Marketplace Rules, as well as the additional Director Independence Guidelines adopted by the Board, and that these directors 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, Goebel, Hutchison, Murphy and Tehle, and Ms. Webb. In determining whether the directors listed above are independent, the Nominating and Governance Committee and the Board of Directors considered transactions, relationships, and arrangements between the Company and entities affiliated with each of the directors. The Board of Directors determined that any such transactions, relationships and arrangements complied with the Director Independence Guidelines adopted by the Board, and do not conflict with the interests of the Company or impair the relevant director’s independence or judgment. 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.

 

There are no family relationships among our directors and executive officers.

 

The Board held eight meetings in fiscal 2009. We expect each director to attend each meeting of the Board and of the committees on which he or she serves. We also expect them to attend the Annual Meeting. During the time each director served on the Board in fiscal 2009, each director attended more than 75% of the meetings of the Board and of the committees on which he or she served. All of the then-sitting directors attended the 2009 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 on the Company’s website at www.jackinthebox.com, in the “Investors” section under the link for “Corporate Governance.”

 

Committee Member Independence.  The Board has determined that each member of the Audit, Compensation, Nominating and Governance, and Finance Committees is an independent director for purposes of NASDAQ listing rules 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 Rule 10A-3(b)(1)(ii) under 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.

 

Audit Committee.  As more fully described in its charter, the Audit Committee assists the Board of Directors with overseeing:

 

 

The Audit Committee has sole authority to select, evaluate, and when appropriate, replace the Company’s independent registered public accountants.

 

The Audit Committee meets at least 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 (“SEC”). The Audit Committee also meets at least each quarter in private sessions with KPMG, management and the Director of Internal Audit. The Board of Directors has determined that each member of the Audit Committee qualifies as an “audit committee financial expert” as defined by SEC rules. Additional information regarding the Audit Committee is set forth in the Report of the Audit Committee on page 23. The Audit Committee held seven meetings in fiscal 2009.

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 it 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 the compensation of executive officers, including performance goals and objectives for performance-based executive compensation. The Committee approved the disclosures in the Company’s Compensation Discussion and Analysis beginning on page 26 of this Proxy Statement. The Compensation Committee held eight meetings in fiscal 2009.

 

Executive Committee.  The Executive Committee is authorized to exercise all 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 2009.

 

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 retirement plans, the budget process, and the financial implications of major acquisitions and divestitures. The Finance Committee held five meetings in fiscal 2009.

 

Nominating and Governance Committee.  The Nominating and Governance Committee assists the Board in identifying and recommending qualified candidates to become directors. Its activities include:

 

 

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 held six meetings in fiscal 2009.

 

Executive Sessions.  Non-employee directors meet in executive session without management present each time the Board holds its regularly scheduled meetings. Mr. Hutchison is currently designated by the Board to act as the Lead Director for such executive sessions of non-employee directors.

 

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 Committee also evaluates sitting directors each year. 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 first anniversary of the date of the previous 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

 

Any recommendation submitted by a stockholder to the Nominating and Governance Committee must include the same information concerning the potential candidate and the recommending stockholder as would be required under Article III, Section 3.16 of the Jack in the Box Inc. Bylaws if the stockholder wishes to nominate the candidate directly. In evaluating director candidates, the Nominating and Governance Committee considers the qualifications listed in the Jack in the Box Inc. Corporate Governance Principles and Practices, which are available at www.jackinthebox.com in the “Investors” section under the link for “Corporate Governance.” The following are some of the factors considered by the Nominating and Governance Committee in evaluating director candidates:

 

 

 

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 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 Nominating and Governance Committee retains a search firm to assist it. During fiscal year 2009, at the Committee’s request, the Company engaged one such search firm, The Alexander Group, and paid approximately $32,000 in connection with identification of possible candidates. The Committee applies the same standards in evaluating candidates submitted by stockholders as it does in evaluating candidates submitted by other sources.

 

A candidate nominated by a stockholder for election at an Annual Meeting of Stockholders will not be eligible for election unless the stockholder proposing the nominee has provided timely notice of the nomination in accordance with the deadlines (at least 120 days and no more than 150 days prior to the first anniversary of the date of the previous year’s Annual Meeting of Stockholders) and other requirements set forth in the Company’s Bylaws.

 

Article III, Section 3.16 of the Company’s Bylaws provides that, in order to be eligible for election as a Director, a candidate must deliver to the Corporate Secretary statements indicating whether the candidate

 

(a) is a party to any voting commitment that has not been disclosed to the Company;

 

(b) is a party to any voting commitment that could limit the nominee’s ability to carry out a director’s fiduciary duties;

 

(c) is a party to any arrangements for compensation, reimbursement, or indemnification in connection with service as a director that have not been disclosed to the Company;

 

(d) will comply with the Company’s publicly disclosed policies and guidelines.

 

The foregoing is a summary of provisions of the Company’s Bylaws, and is qualified by reference to the actual provisions of Article III, Section 3.16.

 

In 2009, the Board of Directors approved the following Board Committee assignments and designated Murray Hutchison as the Lead Director. The Board of Directors considers new assignments and the designation of a new Lead Director each February:

 

 

 

 

We operate within a comprehensive plan of corporate governance that includes high standards of professional and personal conduct. The following Corporate Governance documents appear on the Company’s website www.jackinthebox.com in the “Investors” section under the link for “Corporate Governance.” These materials are also available in print to any stockholder upon written request to the Company’s Corporate Secretary.

 

 

The Company also provides all franchisees and significant vendors with its code of ethics and with procedures for communicating any ethics or compliance concerns.

 

The Company intends to satisfy the disclosure requirements of SEC Regulation S-K Item 406(d) regarding any amendment to, or waiver of, a provision of the code of ethics that applies to the Company’s principal executive officer, principal financial officer, and principal accounting officer or controller or persons performing similar functions, by posting such information on the Company’s website. The Company has not made any such waivers and does not anticipate making any such waiver.

 

 

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

 

1. Lead Director.  The non-employee 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 Chief Executive Officer (“CEO”). He also determines the format and the adequacy of information required by the Board. Mr. Hutchison currently serves as Lead Director.

 

2. Meetings of Non-Employee Directors.  The non-employee 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.

 

3. Limitation on Other Board Service.  The Company’s Corporate Governance Principles and Practices set forth the Board’s policy limiting non-employee directors to simultaneous service on the Boards of 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. The approval process considers both the time commitment and potential business conflicts inherent in such service, and is administered by the Nominating and Governance Committee.

 

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

 

5. Retirement Policy.  The Board has adopted a retirement policy under which directors may not stand for election or be appointed after age 73.

 

6. 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.

 

7. 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.

 

8. 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.

 

9. Stock Ownership Guidelines.  The Board has established stock ownership guidelines for non-employee 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. These guidelines are described in the Compensation Discussion and Analysis section of this Proxy Statement.

 

The Company regularly monitors developments in corporate governance and may modify its Principles and Practices as warranted. Any modifications are reflected on the Jack in the Box Inc. website at www.jackinthebox.com.

 

No member of our Compensation Committee is an officer, former officer, or employee of the Company. During fiscal 2009, no member of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. During fiscal 2009, no interlocking relationship existed between any of our executive officers or Compensation Committee members, on the one hand, and the executive officers or Compensation Committee members of any other entity, on the other hand.

 

The Compensation Committee retained Towers Perrin as its independent consultant for executive compensation during fiscal 2009. A representative of Towers Perrin attended Compensation Committee meetings as requested. During fiscal 2009, Towers Perrin provided no services to management at Jack in the Box Inc. The Compensation Committee regularly reviews the services provided by its outside consultants.

 

Stockholders or others who wish to communicate any concern of any nature to the Board of Directors, any Committee of the Board or any individual director or group of directors, may write to a director or directors in care of the Office of the Corporate Secretary, Jack in the Box Inc. 9330 Balboa Avenue, San Diego, CA 92123, or telephone 1-888-613-5225.

 

Your letter should indicate that you are a stockholder of the Company. Comments or questions regarding our accounting, internal controls or auditing matters will be referred to members of our Audit Committee. Comments or questions regarding the nomination of directors and other corporate governance matters will be referred to members of the Nominating and Governance Committee. For all other matters, our Corporate Secretary will, depending on the subject matter:

 

 

The Compensation Committee of the Board of Directors has the responsibility for recommending to the Board the form and amount of compensation for non-employee directors. As an employee of the Company, Ms. Lang receives no additional compensation for her role as a director. Consequently, the following discussion of compensation and stock ownership guidelines applies only to non-employee directors. The Board believes that total compensation for directors should be competitive with that paid to directors in our industry peer group and in companies of similar size in the retail industry. A combination of equity and cash is provided to reflect a focus on both (i) long-term performance and shareholder value and (ii) compensation for the Board’s continuing oversight and corporate governance role.

 

Annual Retainer

 

Each director receives an annual cash retainer of $50,000. The Lead Director of the Board receives an additional $10,000 retainer.

 

Committee Chair and Committee Membership Retainer

 

In addition to the annual retainers, each director receives a retainer for their service as a committee chair or as a committee member in the amounts shown in the following table.

 

Committee Chair Retainer

 

(includes committee membership)

 

 

Committee Membership Retainer

 

 

Directors may elect to defer payment of the annual or committee retainers under the Jack in the Box Inc. Deferred Compensation Plan for Non-Management Directors (the “Deferred Compensation Plan”) described below. Upon election to the Board, the retainers are paid in cash or credited to the director’s Deferred Compensation Plan account on the first day of the month following the Annual Meeting. If a director is appointed to the Board at any other time than the Annual Meeting, a prorated retainer is paid on the first day of the month following the date of appointment.

 

Deferred Compensation Plan

 

Directors may elect to defer all or any portion of their retainers in the form of Common Stock equivalent units under the Jack in the Box Inc. Deferred Compensation Plan for Non-Management Directors. The number of Common Stock equivalents credited to a director’s account is based on a per share price equal to the average of the closing price of Jack in the Box Inc. stock on the NASDAQ Stock Market during the ten (10) trading days immediately preceding the date the deferred compensation is credited to the director’s account. The amount in a director’s account is settled in an equal number of shares of Common Stock when the director retires or terminates service from the Board. The Deferred Compensation Plan is a non-qualified plan under the Internal Revenue Code.

 

Other Expenses

 

The Company reimburses directors for actual travel and out-of-pockets expenses incurred in connection with attendance at Board and committee meetings.

Equity Awards

 

In fiscal 2008, the Committee engaged the services of Compensia, an independent compensation consultant, to conduct a review of director compensation relative to our industry peer group and companies of similar size in the retail industry.

 

The Committee also reviewed forms of director compensation and the features of the different types of equity awards with its independent consultant, Towers Perrin. Both Compensia and Towers Perrin advised the Committee that equity grants for non-employee directors should compensate directors for their role in corporate governance and strategic oversight. The Committee determined that restricted stock units (“RSUs”) better align with these director compensation objectives than do stock options. Based on this determination, the Committee made its September 2009 equity grant to non-employee directors in the form of RSUs. The following are among the features of RSUs that the Committee considered in changing from options to RSUs.

 

 

Total direct compensation for directors is established and paid as follows:

 

 

Initial Stock Option Grant Dates for Newly Elected Non-Employee Directors

 

New directors are granted an initial equity award under the 2004 Stock Incentive Plan when they join the Board. Prior to July 2009, directors were awarded equity in the form of stock options. After July 2009, equity awards to directors have been in the form of restricted stock units. Prior to February 2009, the stock options awarded to directors fully vested six months from the grant date. After February 2009, initial stock option grants and all RSU grants vested one year from the date of grant. The number of RSUs in an initial grant to a new director is determined by doubling the number of RSUs awarded to directors in the most recent annual grant.

 

Director Stock Ownership Guidelines

 

The Board believes that all directors should have a meaningful ownership interest in Jack in the Box Inc. to align their interests with those of our stockholders. In fiscal 2007, the Board reviewed with its independent compensation consultant, Towers Perrin, the stock ownership requirements of other companies in our peer group. Following this review, the Board adopted revised ownership guidelines. These guidelines require directors to acquire and hold $150,000 in Jack in the Box Common Stock (not including stock options) within three years of joining the Board. Direct or indirect holdings and stock equivalents in the Deferred Compensation Plan are considered in determining whether a director meets stock ownership guidelines.

The table below shows each non-employee director’s ownership value as of fiscal year end 2009. As of fiscal year end 2009, each of the non-employee directors met the stock ownership guidelines, except for Mr. Goebel and Ms. Webb, who were elected to the Board effective December 19, 2008, and July 31, 2008, respectively, and who therefore have additional time to satisfy their ownership requirements.

 

Fiscal 2009 Compensation

 

The following table provides information regarding compensation for each of the Company’s non-employee directors for fiscal 2009.

 

2009 Non-Employee Director Compensation Table

 

 

 

 

 

 

 

APPROVAL OF AMENDMENT AND RESTATEMENT OF THE 2004 STOCK INCENTIVE PLAN
TO INCREASE SHARE RESERVE AND MAKE CERTAIN OTHER AMENDMENTS     

 

The Board of Directors and the stockholders approved the adoption of our 2004 Stock Incentive Plan (the “2004 Plan”) in November 2003, February 2004, and February 2005, respectively.

 

As of December 16, 2009, an aggregate of 736,139 shares of our Common Stock remained available for future grants under the 2004 Plan. The Board believes it important to the continued success of the Company that we have available an adequate reserve of shares under the 2004 Plan for use in attracting, retaining and rewarding the high caliber employees, consultants and directors essential to our success and in motivating these individuals to strive to enhance our growth and profitability.

 

At the February 2010 Annual Meeting, our stockholders will be asked to approve an amendment and restatement of the 2004 Plan in order to increase, by 1,400,000 shares, the number of shares that may be issued under the 2004 Plan. On November 12, 2009, the Compensation Committee approved, subject to stockholder approval, this amendment. In light of historical usage and expected future grants, we expect that the addition of these shares will be sufficient to provide a competitive equity incentive program for 3-4 years.

 

We intend to register the 1,400,000 share increase on a Registration Statement on Form S-8 under the Securities Act of 1933 as soon as is practicable after receiving stockholder approval.

 

In addition, as approved by the stockholders in February 2005, no more than 650,000 shares (1,300,000 shares after a two-for-one split of Jack in the Box Common Stock effected in October, 2007) of this 2004 Plan reserve could have been issued upon the exercise or settlement of any restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, and performance units. If the stockholders approve this proposal, the specific numeric limit upon the exercise or settlement of such awards would be eliminated, but the new defined term of “Full-Value Shares” would be added to the 2004 Plan and Full-Value Shares would be counted against the cumulative aggregate share authorization on a one-and-three-quarters-for-one basis (i.e., each Full-Value Share would be counted against the cumulative aggregate share limit as one-and-three-quarters (1.75) shares). A Full-Value Share shall be defined to mean a share of Stock issued under the Plan pursuant to the exercise or settlement of Restricted Stock Awards and Performance Awards, including a Restricted Stock Bonus, a Restricted Stock Purchase Right, a Restricted Stock Unit, a Performance Share or a Performance Unit.

 

General.  The purpose of the 2004 Plan is to advance the interests of the Company by providing an incentive program that will enable the Company to attract and retain employees, consultants and directors upon whose judgment, interest and efforts the Company’s success is dependent, and to provide them with an equity interest in the success of the Company in order to motivate superior performance. These incentives may be provided through the grant of stock options (including indexed options), stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, and performance units.

 

Authorized Shares.  If the stockholders approve this proposal to authorize an additional 1,400,000 shares for issuance under the 2004 Plan, the cumulative aggregate share authorization under our 2004 Plan will increase to 7,900,000.

 

Including the proposed 1,400,000 share increase, but deducting the number of shares subject to outstanding awards under the 2004 Plan as of December 16, 2009, a total of 2,136,139 shares would be available under the 2004 Plan if this proposal is approved by our stockholders. Without such approval, only 736,139 shares would be available for incentive compensation.

 

If any award expires, lapses or otherwise terminates for any reason without having been exercised or settled in full, or if shares subject to forfeiture or repurchase are forfeited or repurchased by the Company, any such shares that are reacquired or subject to such a terminated award will again become available for issuance under the 2004 Plan. Upon any stock dividend, stock split, reverse stock split, recapitalization, or similar change in our capital structure, appropriate adjustments will be made to the shares subject to the 2004 Plan, to the award grant limitations and to all outstanding awards.

Required Vote and Board of Directors Recommendation

 

The affirmative vote of a majority of the votes cast at the meeting at which a quorum is present, either in person or by proxy, is required to approve the adoption of the proposed amendment to the 2004 Plan. If you hold your shares in your own name and abstain from voting on this matter, your abstention will have the effect of a negative vote. If you hold your shares through a broker and you do not instruct the broker on how to vote on this proposal, your broker will not have authority to vote your shares. Broker non-votes will 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 believes that the proposed adoption of the amendment and restatement of the 2004 Plan is in the best interests of the Company and its stockholders for the reasons stated above.

 

THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2004 PLAN.

 

Summary of the 2004 Plan

 

The following summary of the 2004 Plan is qualified in its entirety by the specific language of the 2004 Plan, a copy of which is attached as Exhibit C.

 

Administration.  The 2004 Plan has been and will continue to be administered by the Compensation Committee or other Committee of the Board of Directors duly appointed to administer the 2004 Plan, or, in the absence of such committee, by the Board of Directors. In the case of awards intended to qualify for the performance-based compensation exemption under Section 162(m) of the Code, administration must be by a compensation committee comprised solely of two or more “outside directors” within the meaning of Section 162(m). (For purposes of this summary, the term “Committee” will refer to either such duly appointed committee or to the Board of Directors.) Subject to the provisions of the 2004 Plan, the Committee determines in its discretion the persons to whom and the times at which awards are granted, the types and sizes of such awards, and all of their terms and conditions. The Committee may, subject to certain limitations on the exercise of its discretion required by Section 162(m) and the repricing and vesting restrictions described below, amend, cancel, renew, or grant a new award in substitution for any award, waive any restrictions or conditions applicable to any award, and accelerate, continue, extend or defer the vesting of any award. The 2004 Plan provides, subject to certain limitations, for indemnification by the Company of any director, officer, or employee against all reasonable expenses, including attorneys’ fees, incurred in connection with any legal action arising from such person’s action or failure to act in administering the 2004 Plan. The Committee will interpret the 2004 Plan and awards granted thereunder, and all determinations of the Committee will be final and binding on all persons having an interest in the 2004 Plan or any award.

 

Repricing and Vesting Restrictions.  The 2004 Plan forbids, without stockholder approval, the repricing of any outstanding stock option and/or stock appreciation right. In addition, the 2004 Plan forbids any awards of Full Value Shares to be granted, or subsequently amended to provide for (1) any acceleration of vesting for any reason other than upon a Change in Control or after a participant’s death, retirement or disability, (2) vesting on the basis of continued service any more rapidly than annual pro rata vesting over three years, (3) vesting on the basis of performance over a performance period of less than twelve (12) months.

 

Eligibility.  Awards may be granted to employees, directors and consultants of the Company or any present or future parent or subsidiary corporations of the Company. Incentive stock options may be granted only to employees who, as of the time of grant, are employees of the Company or any parent or subsidiary corporation of the Company. As of December 16, 2009, the Company had approximately 30,795 employees, including 9 executive officers, and seven non-management directors who would be eligible under the 2004 Plan.

 

Stock Options.  Each option granted under the 2004 Plan must be evidenced by a written agreement between the Company and the optionee specifying the number of shares subject to the option and the other terms and conditions of the option, consistent with the requirements of the 2004 Plan. The exercise price of each option may not be less than the fair market value of a share of Common Stock on the date of grant. However, any incentive stock option granted to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company (a “Ten Percent Stockholder”) must have an exercise price equal to at least 110% of the fair market value of a share of Common Stock on the date of grant. The exercise price of

each indexed stock option, and the terms and adjustments which may be made to such an option, will be determined by the Committee in its sole discretion at the time of grant. On December 16, 2009, the closing price of the Company’s Common Stock on the NASDAQ stock market was $19.52 per share. Subject to appropriate adjustment in the event of any change in the capital structure of the Company, no employee may be granted in any fiscal year of the Company options and/or freestanding stock appreciation rights which in the aggregate are for more than five hundred thousand (500,000) shares.

 

The 2004 Plan provides that the option exercise price may be paid in cash, by check, or in cash equivalent, by the assignment of the proceeds of a sale with respect to some or all of the shares being acquired upon the exercise of the option, to the extent legally permitted, by tender of shares of Common Stock owned by the optionee having a fair market value not less than the exercise price, by such other lawful consideration as approved by the Committee, or by any combination of these. Nevertheless, the Committee may restrict the forms of payment permitted in connection with any option grant. No option may be exercised unless the optionee has made adequate provision for federal, state, local and foreign taxes, if any, relating to the exercise of the option, including, if permitted or required by the Company, through the optionee’s surrender of a portion of the option shares to the Company.

 

Options will become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria, or restrictions as specified by the Committee. The maximum term of any option granted before November 12, 2009, under the 2004 Plan is ten years, and the maximum term of any option granted on or after November 12, 2009, under the 2004 Plan is seven years, provided, however, that an incentive stock option granted to a Ten Percent Stockholder must have a term not exceeding five years. The Committee will specify in each written option agreement, and solely in its discretion, the period of post-termination of service exercise applicable to each option.

 

Stock options are nontransferable by the optionee other than by will or by the laws of descent and distribution, and are exercisable during the optionee’s lifetime only by the optionee. However, a nonstatutory stock option may be assigned or transferred to the extent permitted by the Committee and set forth in the option agreement, subject to applicable limitations of securities law.

 

Stock Appreciation Rights.  Each stock appreciation right granted under the 2004 Plan must be evidenced by a written agreement between the Company and the participant specifying the number of shares subject to the award and the other terms and conditions of the award, consistent with the requirements of the 2004 Plan.

 

A stock appreciation right gives a participant the right to receive the appreciation in the fair market value of Company Common Stock between the date of grant of the award and the date of its exercise. The Company may pay the appreciation either in cash or in shares of Common Stock. The Committee may grant stock appreciation rights under the 2004 Plan in tandem with a related stock option or as a freestanding award. A tandem stock appreciation right is exercisable only at the time and to the same extent that the related option is exercisable, and its exercise causes the related option to be canceled. Freestanding stock appreciation rights vest and become exercisable at the times and on the terms established by the Committee. The maximum term of any stock appreciation right granted before November 12, 2009, under the 2004 Plan is ten years, and the maximum term of any stock appreciation right granted on or after November 12, 2009, under the 2004 Plan is seven years. Subject to appropriate adjustment in the event of any change in the capital structure of the Company, no employee may be granted in any fiscal year of the Company freestanding stock appreciation rights and/or options which in the aggregate are for more than five hundred thousand (500,000) shares.

 

Stock appreciation rights are nontransferable by the participant other than by will or by the laws of descent and distribution, and are exercisable during the participant’s lifetime only by the participant.

 

Restricted Stock Awards.  The Committee may grant restricted stock awards under the 2004 Plan, either in the form of a restricted stock purchase right, giving a participant an immediate right to purchase Common Stock, or in the form of a restricted stock bonus, for which the participant furnishes consideration in the form of services to the Company. The Committee determines the purchase price payable under restricted stock purchase awards, which may be less than the then current fair market value of our Common Stock. Restricted stock awards may be subject to vesting conditions based on such service or performance criteria as the Committee specifies, and the shares acquired may not be transferred by the participant until vested. Unless otherwise provided by the Committee, a participant will forfeit any shares of restricted stock as to which the restrictions have not lapsed prior to the participant’s termination of service. Participants holding restricted

stock will have the right to vote the shares and to receive any dividends paid, except that dividends or other distributions paid in shares will be subject to the same restrictions as the original award.

 

The Committee also may grant restricted stock awards under the 2004 Plan in the form of restricted stock units which represent a right to receive shares of Common Stock at a future date determined in accordance with the participant’s award agreement. No monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award, the consideration for which is furnished in the form of the participant’s services to the Company. The Committee may grant restricted stock unit awards subject to the attainment of performance goals similar to those described below in connection with performance shares and performance units, or may make the awards subject to vesting conditions similar to those applicable to restricted stock awards. Participants have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of Common Stock are issued in settlement of such awards. However, the Committee may grant restricted stock units that entitle their holders to receive dividend equivalents, which are rights to receive additional restricted stock units for a number of shares whose value is equal to any cash dividends we pay. Dividend equivalents shall only be payable to the extent the Participant’s right to any stock is nonforfeitable.

 

Subject to appropriate adjustment in the event of any change in the capital structure of the Company, no employee may be granted in any fiscal year of the Company restricted stock awards in the aggregate for more than two hundred thousand (200,000) shares of stock on which the restrictions are based on performance criteria.

 

Performance Awards.  The Committee may grant performance awards subject to such conditions and the attainment of such performance goals over such periods as the Committee determines in writing and sets forth in a written agreement between the Company and the participant. These awards may be designated as performance shares or performance units. Performance shares and performance units are unfunded bookkeeping entries generally having initial values, respectively, equal to the fair market value determined on the grant date of a share of Common Stock and $100 per unit. Performance awards will specify a predetermined amount of performance shares or performance units that may be earned by the participant to the extent that one or more predetermined performance goals are attained within a predetermined performance period. To the extent earned, performance awards may be settled in cash, shares of Common Stock (including shares of restricted stock) or any combination thereof. Subject to appropriate adjustment in the event of any change in the capital structure of the Company, for each fiscal year of the Company contained in the applicable performance period, no employee may be granted performance shares that could result in the employee receiving more than two hundred thousand (200,000) shares of Common Stock or performance units that could result in the employee receiving more than one million dollars ($1,000,000). A participant may receive only one performance award with respect to any performance period.

 

Prior to the beginning of the applicable performance period or such later date as permitted under Section 162(m) of the Code, the Committee will establish one or more performance goals applicable to the award. Performance goals will be based on the attainment of specified target levels with respect to one or more measures of business or financial performance of the Company and each parent and subsidiary corporation consolidated therewith for financial reporting purposes, or such division or business unit of the Company as may be selected by the Committee. The Committee, in its discretion, may base performance goals on one or more of the following such measures: sales, revenue, gross margin, operating margin, operating income, pre-tax profit, earnings before interest, taxes, depreciation and/or amortization, net income, cash flow, expenses, stock price, earnings per share, return on stockholders’ equity, return on capital, return on invested capital, return on assets, economic value added, number of customers, market share, same-store sales, average restaurant margin, return on investment, profit after tax and customer satisfaction. The target levels with respect to these performance measures may be expressed on an absolute basis or relative to a standard specified by the Committee. The degree of attainment of performance measures will, according to criteria established by the Committee, be computed before the effect of changes in accounting standards, restructuring charges and similar extraordinary items occurring after the establishment of the performance goals applicable to a performance award.

 

Following completion of the applicable performance period, the Committee will certify in writing the extent to which the applicable performance goals have been attained and the resulting value to be paid to the participant. The Committee retains the discretion to eliminate or reduce, but not increase, the amount that would otherwise be payable to the participant on the basis of the performance goals attained. However, no such reduction may increase the amount paid to any other participant. In its discretion, the Committee may

provide for the payment to a participant awarded performance shares of dividend equivalents with respect to cash dividends paid on the Company’s Common Stock. Performance award payments may be made in lump sum or in installments. If any payment is to be made on a deferred basis, the Committee may provide for the payment of dividend equivalents or interest during the deferral period. Dividend equivalents shall only be payable to the extent the Participant’s right to any Performance Award is earned and nonforfeitable.

 

Unless otherwise provided by the Committee, if a participant’s service terminates due to the participant’s death, disability or retirement prior to completion of the applicable performance period, the final award value will be determined at the end of the performance period on the basis of the performance goals attained during the entire performance period but will be prorated for the number of months of the participant’s service during the performance period. If a participant’s service terminates prior to completion of the applicable performance period for any other reason, the 2004 Plan provides that, unless otherwise determined by the Committee, the performance award will be forfeited. No performance award may be sold or transferred other than by will or the laws of descent and distribution prior to the end of the applicable performance period.

 

Change in Control.  The 2004 Plan defines a “Change in Control” of the Company as any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event (in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the event) direct or indirect beneficial ownership of a majority of the total combined voting power of the voting securities of the Company, its successor or the corporation to which the assets of the Company were transferred, or, in the case of (iii) below, the corporation or corporations to which the assets were transferred: (i) a sale or exchange by the stockholders in a single or series of related transactions of more than 50% of the Company’s voting stock; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. If a Change in Control occurs, the surviving, continuing successor or purchasing corporation or parent corporation thereof may either assume all outstanding awards or substitute new awards having an equivalent value.

 

In the event of a Change in Control, in which the outstanding stock options and stock appreciation rights are not assumed or replaced, then all unexercisable, unvested or unpaid portions of such outstanding awards will become exercisable, vested and payable in full immediately prior to the date of the Change in Control.

 

In the event of a Change in Control, the lapsing of all vesting conditions and restrictions on any shares subject to any restricted stock award, restricted stock unit award or performance award held by a participant whose service with the Company has not terminated prior to the Change in Control shall be accelerated effective as of the date of the Change in Control. For this purpose, the value of outstanding performance awards will be determined and paid on the basis of the greater of (i) the degree of attainment of the applicable performance goals prior the date of the Change in Control or (ii) 100% of the pre-established performance goal target.

 

Any award not assumed, replaced, or exercised prior to the Change in Control will terminate. The 2004 Plan authorizes the Committee, in its discretion, to provide for different treatment of any award, as may be specified in such award’s written agreement, which may provide for acceleration of the vesting or settlement of any award, or provide for longer periods of exercisability, upon a Change in Control.

 

The 2004 Plan does not permit any acceleration of vesting or settlement unless a Change in Control actually occurs.

 

Termination or Amendment.  The 2004 Plan will continue in effect until the first to occur of (i) its termination by the Committee, (ii) the date on which all shares available for issuance under the 2004 Plan have been issued and all restrictions on such shares under the terms of the 2004 Plan and the agreements evidencing awards granted under the 2004 Plan have lapsed, or (iii) the tenth anniversary of the 2004 Plan’s effective date. The Committee may terminate or amend the 2004 Plan at any time, provided that no amendment may be made without stockholder approval if the Committee deems such approval necessary for compliance with any applicable tax or securities law or other regulatory requirements, including the requirements of any stock exchange or market system on which the Common Stock of the Company is then listed. No termination or amendment may affect any outstanding award unless expressly provided by the Committee, and, in any event, may not adversely affect an outstanding award without the consent of the participant unless necessary to comply with any applicable law, regulation or rule.

Summary of U.S. Federal Income Tax Consequences

 

The following summary is intended only as a general guide to the U.S. federal income tax consequences of participation in the 2004 Plan and does not attempt to describe all possible federal or other tax consequences of such participation or tax consequences based on particular circumstances.

 

Incentive Stock Options.  An optionee recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Optionees who neither dispose of their shares within two years following the date the option was granted, nor within one year following the exercise of the option, will normally recognize a capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies such holding periods upon a sale of the shares, the Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares within two years after the date of grant or within one year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the shares on the determination date (see discussion under “Nonstatutory Stock Options” below) and the option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.

 

The difference between the option exercise price and the fair market value of the shares on the determination date of an incentive stock option (see discussion under “Nonstatutory Stock Options” below) is treated as an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.

 

Nonstatutory Stock Options and Indexed Stock Options.  Options not designated or qualifying as incentive stock options, or as an indexed stock option, will be nonstatutory stock options having no special tax status. An optionee generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonstatutory stock option, the optionee normally recognizes ordinary income in the amount of the difference between the option exercise price and the fair market value of the shares on the determination date (as defined below). If the optionee is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The “determination date” is the date on which the option is exercised unless the shares are subject to a substantial risk of forfeiture (as in the case where an optionee is permitted to exercise an unvested option and receive unvested shares which, until they vest, are subject to the Company’s right to repurchase them at the original exercise price upon the optionee’s termination of service) and are not transferable, in which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no longer subject to a substantial risk of forfeiture. If the determination date is after the exercise date, the optionee may elect, pursuant to Section 83(b) of the Code, to have the exercise date be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date the option is exercised. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. No tax deduction is available to the Company with respect to the grant of a nonstatutory stock option or the sale of the stock acquired pursuant to such grant. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the optionee as a result of the exercise of a nonstatutory stock option, except to the extent such deduction is limited by applicable provisions of the Code.

 

Stock Appreciation Rights.  A Participant recognizes no taxable income upon the receipt of a stock appreciation right. Upon the exercise of a stock appreciation right, the participant generally will recognize ordinary income in an amount equal to the excess of the fair market value of the underlying shares of Common Stock on the exercise date over the exercise price. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant in

connection with the exercise of the stock appreciation right, except to the extent such deduction is limited by applicable provisions of the Code.

 

Restricted Stock Awards.  A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the “determination date” (as defined above under “Nonstatutory Stock Options”). If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the determination date is after the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to have the date of acquisition be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date the shares are acquired. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

Performance and Restricted Stock Units Awards.  A participant generally will recognize no income upon the grant of a performance share, performance units or restricted stock units award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any nonrestricted shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the participant receives shares of restricted stock, the participant generally will be taxed in the same manner as described above (see discussion under “Restricted Stock Awards”). Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the “determination date” (as defined above under “Nonstatutory Stock Options and Indexed Stock Options”), will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

The Company has also considered Section 409A of the Code in the design and operation of the 2004 Plan. Section 409A imposes additional significant taxes in the event that an employee, director, or consultant receives “deferred compensation” that does not satisfy the requirements of Section 409A. In 2008, the 2004 Plan was amended to comply with the provisions of Section 409A, and the Committee intends to administer the 2004 Plan and all awards granted thereunder in a manner consistent with the applicable requirements of Section 409A.

 

New Plan Benefits

 

No awards will be granted under the 2004 Plan with respect to this requested share reserve increase prior to approval by the stockholders of the Company of the amended 2004 Plan containing the share reserve increase. Awards under the 2004 Plan will be granted at the discretion of the Committee and, accordingly, are not yet determinable. In addition, benefits under the 2004 Plan will depend on a number of factors, including the fair market value of the Company’s Common Stock on future dates, actual Company performance against performance goals established with respect to performance awards, and decisions made by the participants. Consequently, it is not possible to determine the benefits that might be received by participants under the 2004 Plan with respect to this share reserve increase.

 

RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

 

The Audit Committee has appointed the firm of KPMG LLP as the Company’s independent registered public accountants for fiscal year 2010. 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 the Company’s independent auditor 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 LLP 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 October 3, 2010, 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 LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS.

 

People for the Ethical Treatment of Animals (“PETA”), 501 Front St., Norfolk, VA, 23510, beneficial owner of 198 shares of the Company’s Common Stock, has notified the Company that it intends to present a resolution at the Annual Meeting. As required by the Securities and Exchange Commission, the resolution is included below exactly as submitted. The Board of Directors and the Company accept no responsibility for the proposed resolution and supporting statement.

 

For the reasons stated in the Statement of Opposition below, the Board of Directors recommends that you vote AGAINST this stockholder proposal.

 

PETA’s Stockholder Resolution Regarding Poultry Slaughter

 

RESOLVED, that to advance the company’s financial interests and the welfare of chickens killed for its restaurants, shareholders encourage the board to require its suppliers to set a timeline for switching to controlled-atmosphere killing (CAK), a less cruel method of slaughter.

 

Supporting Statement

 

Jack in the Box’s suppliers’ current slaughter method is cruel and inefficient. Consider the following:

 

All Jack in the Box poultry suppliers use electric immobilization in their slaughterhouses. This involves shackling live birds, shocking them with electrified water, cutting their throats, and removing their feathers in tanks of scalding-hot water.

 

Birds often suffer broken bones, bruising, and hemorrhaging during the shackling process, which lowers product quality and yield. They also peck and scratch at each other, which increases carcass contamination.

 

Because the electric current in the “stun” bath is kept too low to effectively render birds unconscious, and many have their throats cut while they are still able to feel pain.

 

Birds are often scalded to death in defeathering tanks. When this happens, they defecate, further decreasing yield and increasing the likelihood of contamination of successive birds entering the tank.

 

Frenzied birds flap their wings, kick workers, and vomit and defecate on them, leading to increased worker injuries and illness and poor overall ergonomics.

 

CAK is better for the birds’ welfare and more efficient. Consider the following benefits:

 

With CAK, birds are placed in chambers while they are still in transport crates, where their oxygen is replaced with inert gasses, efficiently and gently putting them “to sleep.”

 

Every published report on CAK concludes that it is superior to electric immobilization with regard to animal welfare, as do numerous meat-industry scientific advisors such as Drs. Temple Grandin, Mohan Raj, and Ian Duncan.

 

Because there is no live shackling or live scalding, product quality and yield (and animal welfare) are greatly improved and contamination is drastically decreased. The manager of a CAK turkey plant in Ohio told Poultry USA that since switching to CAK, his company is “starting to quantify the improvements in yield and labor, and see the benefits in wings, wing meat, and breast meat.”

 

Because workers only handle birds once the animals are dead, ergonomics improve, injury and illness rates decrease, and the opportunities for workers to abuse live birds are eliminated. The turnover at a Nebraska poultry plan dropped by 75 percent after it installed CAK. “Before, ... every week there was a new person. Now it’s turned into one of the nicer jobs in the plant,” said the owner.

 

The following Jack in the Box competitors are moving toward CAK:

 

Burger King, Popeye’s, Wendy’s, Hardee’s, and Carl’s Jr. give purchasing preference or consideration to chicken suppliers that use CAK.

Safeway, Harris Teeter, and Winn-Dixie are committed to purchasing birds killed by CAK.

 

KFCs in Canada are already sourcing chickens killed by CAK.

 

We (i.e. PETA) urge stockholders to support this socially and ethically responsible resolution.

 

BOARD OF DIRECTORS STATEMENT IN OPPOSITION OF THE PROPOSAL

 

Jack in the Box believes the abuse or neglect of animals is unacceptable. Your Company is committed to working closely with suppliers to examine the research on animal welfare practices. The Company challenges suppliers to identify programs and practices they can implement to maximize to the greatest extent the humane treatment of animals used in the production of food sold in its restaurants.

 

The Company has not imposed requirements on its suppliers to implement controlled atmosphere stunning (CAS) because, as discussed more fully below, the scientific research on CAS is inconclusive regarding:

 

 

Currently, the scientific research concerning the animal welfare benefits of CAS is inconclusive at best. In late 2008, experts advising the Food Marketing Institute (FMI) and the National Council of Chain Restaurants (NCCR) reviewed CAS technology and its impact on the animal welfare of poultry. Following their review, in November 2008, they issued a statement concluding, in pertinent part:

 

“Unresolved questions still exist about the welfare effects of the individual gases and gas mixtures (e.g. CO₂, argon, N₂) used for controlled atmosphere stunning (CAS)...The results of research are ambiguous...Further research is needed on the effects of the use of CO₂ and other “anesthetic” gases for CAS, including consideration of their potential impact on human health, the environment and food supply economics...Therefore, the FMI-NCCR Animal Welfare Advisors recommend that the poultry industry continue its efforts to identify more humane methods of slaughter...there is a need for objective, peer reviewed, scientific research to further assess the humaneness of CAS.”

 

The entire statement of the FMI-NCCR Animal Welfare Advisors may be accessed at http://www.fmi.org/animal_welfare/?fuseaction=cast.

 

Though Jack in the Box does not raise or process animals, the Company expects its suppliers to follow recognized guidelines and regulations designed to ensure that all animals used for its products are treated humanely. Your Company requires that its suppliers’ procedures meet or exceed government, industry and association standards, including those established by the United Egg Producers (UEP) and the National Chicken Council (NCC).

 

To continue to learn and better understand animal welfare issues and concerns, the Company has consulted during the past few years with recognized animal welfare experts, including Dr. Temple Grandin and Dr. Kellye Pfalzgraf — two of the nation’s most recognized thought leaders in the field of animal welfare. The Company encourages you to read its Animal Welfare Report, which is available at www.jackinthebox.com/corporate/corporate-responsibility/animal-welfare.

 

At this time, the Company believes that it is speculative to attempt to quantify the economic effect of CAS on the Company or its suppliers, and premature to make any commitment on future actions or to require timelines from its suppliers. The Company encourages continued research into CAS and other technologies that could have animal welfare advantages, and it will continue to work with recognized experts and evaluate expectations of its suppliers.

 

FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS BELIEVES THAT THIS PROPOSAL IS NOT IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL

 

The following is the report of the Audit Committee with respect to Jack in the Box Inc.’s audited consolidated financial statements for the fiscal year ended September 27, 2009.

 

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 listing standards of the NASDAQ Stock Market. 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 (“SEC”). 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. Each year, the Audit Committee reviews and assesses the adequacy of its charter and conducts a review and evaluation of the Committee’s operations. The Audit Committee charter can be found on the Company’s website at www.jackinthebox.com, in the “Investors” section under the link for “Corporate Governance.”

 

Management is responsible for the Company’s accounting and financial reporting principles; for establishing, maintaining and evaluating the effectiveness of disclosure controls and procedures as well as internal controls over financial reporting; and for the preparation, presentation and integrity of the Company’s consolidated financial statements.

 

KPMG LLP, the Company’s independent registered public accounting firm, is responsible for performing an independent audit of the Company’s consolidated financial statements and internal control over financial reporting in accordance with the Standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), and for issuing reports thereon.

 

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. As more fully described in its charter, one of the Audit Committee’s primary responsibilities is to assist the Board in this general oversight of Jack in the Box Inc.’s financial reporting, internal controls, and audit functions. The Audit Committee has sole authority to select, evaluate, approve fees, and when appropriate, to replace the Company’s independent registered public accountants. The Audit Committee also pre-approves all services performed by the independent auditors. The Audit Committee has appointed KPMG as the Company’s independent registered public accountants for fiscal year 2010, and has requested stockholder ratification of its appointment.

 

During the course of fiscal 2009, the Audit Committee met and discussed with representatives of management, the Internal Audit Department staff, and the independent auditor, the matters over which the Audit Committee has oversight responsibility. The Audit 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 27, 2009. 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 as required by professional and regulatory standards 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 27, 2009, for filing with the SEC.

 

THE AUDIT COMMITTEE

David M. Tehle, Chair

Murray H. Hutchison

Michael W. Murphy

 

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.

 

The following table presents fees billed for professional services rendered by KPMG, the Company’s independent registered public accountants, for the fiscal years ended September 27, 2009, and September 28, 2008.

 

 

 

 

Registered Public Accountants’ Independence.  The Audit Committee has considered whether the provision of the above-noted services is compatible with maintaining KPMG’s independence, and has determined that the provision of such services has not adversely affected KPMG’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 B to this Proxy Statement.

 

.

 

Throughout this Compensation Discussion and Analysis, the description of abbreviated terms include:

 

 

 

This Compensation Discussion and Analysis is organized into the following sections:

 

I. Executive Summary

 

II. Executive Compensation Philosophy and Objectives

 

III. Oversight of the Executive Compensation Program

 

IV. Components and Analysis of Total Compensation

 

V. Risk Analysis of Compensation Plans

 

VI. Other Executive Compensation Components

 

VII. Benchmarking Executive Compensation

 

VIII. Other Policies and Practices Relating to Executive Compensation

 

 

Our executive compensation programs are designed to attract and retain a high quality management team and reward for achievement of business goals.

 

Our incentive compensation programs are intended to align the interests of our executives with the interests of our shareholders. Payouts under these programs are directly tied to both the short- and long-term financial and operational performance of the Company. Key performance measures include earnings per share (“EPS”), return on invested capital, guest satisfaction scores, restaurant operating margin, and share price. We believe these performance measures are incentives to drive long-term shareholder value. The form of rewards and calibration of pay for performance are also intended to reflect the Company’s compensation philosophy and objectives, described later in this discussion.

 

Throughout fiscal 2009, the Compensation Committee, with input from its Consultant, conducted an extensive analysis of our compensation programs. The Committee’s goal was to assure that our compensation programs were well designed to meet our compensation objectives and support achievement of our business goals. As a result of its review, several changes were put in place in fiscal 2009 or will be put in place for fiscal 2010.

Highlights of changes implemented in fiscal 2009 include:

 

 

Changes to become effective in fiscal 2010 include:

 

 

The FY 2010 performance measures reward achievement of key financial and operational goals and provide an appropriate balance between short- and long-term results.

 

 

Significant financial and operational accomplishments of Jack in the Box and its employees in fiscal 2009, included:

 

 

 

 

A. Compensation Philosophy

 

The Jack in the Box compensation philosophy is to provide competitive pay for expected performance and exemplary pay for exemplary performance. Here’s how the Company defines these concepts:

 

 

Throughout this discussion, when the term “market pay” or “market” is used, we are referring to the pay levels or practices for comparable executive positions among our industry peer group companies and general industry companies of similar size in annual revenues. The peer group relied upon for this analysis is identified in the section entitled “Benchmarking Executive Compensation.”

 

B. Compensation Objectives

 

The Committee has set the following objectives for compensating executives of Jack in the Box. The Committee considers these objectives in its compensation decisions.

 

 

 

 

III. Oversight of the Executive Compensation Program

 

A. Role of the Compensation Committee

 

The Committee is comprised entirely of independent directors. By written charter, it administers the Company’s executive compensation program on behalf of the Board. As provided in its Charter, the Committee may form and delegate authority to subcommittees of its members. The Committee reviews and approves:

 

 

B. The Role of the Independent Compensation Consultant

 

As it has in recent years, the Committee retained Towers Perrin to serve as its independent compensation consultant in fiscal 2009. The Consultant provided the Committee with comparative information, advice, and perspective on matters relating to executive compensation. More specifically, the Consultant reviewed competitive compensation practices for all executive positions and, based on that assessment, advised the Committee regarding base salaries, annual incentives, and long-term incentives.

 

In performing its analysis, the Consultant reviewed market data from a variety of sources. The three sources below are collectively referred to as our “comparative benchmark group.”

 

(1) Current proxy and other public disclosures of our industry peer group companies (see “Benchmarking Executive Compensation”).

 

(2) Pay data from the 2009 Chain Restaurant Compensation Survey for the Company’s industry peer group companies.

 

(3) Pay data from the 2009 Towers Perrin executive compensation survey, which includes pay data for over 1,000 U.S. companies in all industries.

 

The Consultant reviewed this CD&A and the tables contained in this proxy statement. The Consultant attended five of the Compensation Committee’s eight meetings in fiscal 2009, and consulted frequently with the Committee Chair between meetings. Towers Perrin provided no other services of any kind to Jack in the Box. The Committee has sole authority to retain or terminate the services of its Consultant.

 

C. Role of the Chief Executive Officer in Compensation Decisions

 

In November 2008, the Company’s Chairman and CEO reviewed with the Committee the performance of the NEOs and other executives and provided her compensation recommendations for fiscal 2009. She also provided her perspective and recommendations on compensation and benefit plan design and strategies, financial goals and criteria for the annual incentive plan, and the amount of long-term incentive grants.

 

D. Tally Sheets

 

Each year as the Committee determines executive compensation, it reviews tally sheets prepared by the Company’s Compensation Department for all NEOs and Senior Vice Presidents. The tally sheets detail each component of compensation for the most recent three fiscal years, including:

 

 

The tally sheets also show the current value of all equity grants held by the executive, deferred compensation accounts, and the estimated retirement benefit values as of the end of the fiscal year.

The Committee uses the tally sheets for several purposes, including to:

 

 

E. How the Committee Determined Chief Executive Officer Compensation

 

At its September 2008 meeting, the Board’s Consultant provided the Committee with information on CEO market pay and additional perspectives on CEO compensation. The Committee considered the competitiveness of Ms. Lang’s compensation package relative to the market. It also considered the Company’s financial and operational performance, and Ms. Lang’s individual performance in fiscal 2008. The discussion and decisions by the Committee on Ms. Lang’s compensation occurred during executive session when only independent Committee members were present. Ms. Lang did not participate.

 

Following these deliberations, the Committee determined the compensation package for Ms. Lang for fiscal 2009, including base salary, annual incentive targets, and equity awards. As set forth more fully in the Summary Compensation Table in this proxy, the majority of Ms. Lang’s compensation mix is incentive based and subject to the achievement of performance targets, or to the appreciation of our stock price. As explained more fully in the section entitled “Long Term Incentives,” Ms. Lang did not receive an equity award in fiscal 2009.

 

For fiscal 2010, the Committee accepted Ms. Lang’s request to freeze her base salary in light of the uncertain economic environment.

 

 

Our total compensation program for executives consists of:

 

 

Our program is designed to emphasize variable (“at-risk”), performance-based compensation, and to establish incentives that provide an appropriate balance between the annual and long-term performance of the Company. Each year the Committee’s Consultant provides the Committee with a comparison of the executives’ Total Direct Compensation and the Total Direct Compensation paid to executives in our comparative benchmark group. The Committee reviews this information and makes decisions regarding each of the components of compensation. The Committee evaluates Total Direct Compensation relative to market median. The majority of executive pay is at-risk and performance-based.

 

 

i. Objective

 

Base salaries are set to provide competitive fixed pay in consideration of the knowledge, skills, experience, and expertise that each executive brings to their role. This enables us access to talented executives who are critical to developing and executing our strategies.

 

 

Each November, our Chairman and CEO, in consultation with the Company’s compensation department, develops a recommended salary adjustment amount for each executive (other than herself), and

provides the Committee with her recommendation. The Committee reviews the following information provided by the CEO to determine the appropriate salary level of each executive:

 

 

The Committee, with input from the Lead Director and the Consultant, reviews the same criteria in assessing the performance of the Chairman and CEO.

 

 

In November 2008, the Committee evaluated base salaries of each executive relative to (a) market pay data provided by the Consultant and (b) pay increase recommendations provided by the Chairman and CEO for executives other than herself. Based on an assessment of the factors described above, the Committee approved pay increases for the NEO’s effective November 2008. The salary increase for Mr. Watson includes a promotional increase from Vice President to Senior Vice President at the start of fiscal 2009. The table below shows the 2009 annualized base salary of each named executive officer and the fiscal 2009 pay increase effective in November 2008.

 

 

As this chart reflects, in fiscal 2009, the CEO’s salary was approximately 1.6 times higher than the salary of the President and COO, who was the next highest paid NEO.

 

 

At its September 2009 meeting, the Committee accepted management’s recommendation to implement a salary freeze for fiscal 2010. This recommendation was accepted in response to the significant economic downturn. The effect of the salary freeze is that, except for increases resulting from promotions, none of our NEOs or other executives will receive a base salary increase in fiscal 2010.

 

 

 

The Jack in the Box annual incentive plan is designed to provide cash payments to executives and other key management and staff, based on the achievement of annual goals approved by the Committee at the start of the fiscal year. Each executive’s annual incentive is based solely on Company performance against these established goals. Thus, executives, key management, and staff are all focused on the same goals and work together to achieve those goals.

2009 Annual Incentive Compensation Metrics

 

 

 

 

After tax EBIT *
long-term debt plus equity minus cash

 

 

 

The Committee approves annual incentive performance goals at the conclusion of the Company’s annual financial planning process and after the Board has approved the Company’s operational plan and budget for the upcoming fiscal year. EPS from continuing operations and ROIC were selected as annual incentive goals in 2009 because the Company believes:

 

 

The Committee establishes goals that it believes set an appropriate challenge for the Company to achieve without creating unreasonable risks to shareholders. Typically, operating budgets and plan goals are set at performance levels exceeding prior year performance of EPS and ROIC. If the Company achieves its budget for the fiscal year, annual incentives will be paid at targeted annual incentive levels that reflect the competitive market median. If the Company outperforms budget, annual incentive payouts can range up to the top quartile in the market. If the Company underperforms budget, payouts will be below market median and fall to zero if threshold performance levels are not achieved.

 

 

At the Committee’s September 2008 meeting, it established performance goals for fiscal 2009 that were based on the Board-approved fiscal 2009 operating plan and budget. The threshold, target, and maximum incentive payout percentages for the named executive officers, expressed as a percentage of annual base salary, are shown on the table below. The percentages are set by position level relative to market data of our comparative benchmark group and the executives’ role in the Company:

 

Annual Incentive Payout Percentages

 

 

In 2009:

 

 

 

As certified by the Committee, our performance results for fiscal 2009 were as follows:

 

 

 

 

In determining performance achievement each year, the Committee has the discretion to make adjustments when examining the Company’s operating results to account for unanticipated events that occurred during the year. There were no adjustments made in fiscal year 2009.

 

 

Throughout fiscal 2009, the Committee, its Consultant, and management reviewed performance metrics for our annual incentive program, and for the performance units under our long-term incentive program. The objective of this process was to determine (i) the performance metrics that best support our business goals and value creation for our shareholders, and (ii) whether the metric is more appropriately linked with annual or long-term performance. The Committee approved the metrics and percentages shown below for fiscal 2010. The long-term incentive program is described in the section of this proxy entitled “Long-Term Incentives.”

 

 

 

 

Restaurant operating margin was introduced as a performance goal in our annual incentive plan in 2010. It is an important measure of how effectively the Company manages its business operations and costs. It is also a key performance metric to our franchise operators, our franchising strategy, and our shareholders and potential investors.

 

 

 

The Committee believes that long-term incentives in the form of equity grants (including stock options, performance units settled in shares, restricted stock units and/or restricted stock) provide strong motivation to management to develop and implement strategies that increase shareholder value.

 

Each year, the Committee’s Consultant provides information on the competitive value of equity grants of the comparative benchmark group and develops grant guidelines at the market 50th and 75th percentiles. The Committee considers the Company’s overall fiscal year performance, recommendations from the

Chairman & CEO, and input from the Consultant, in determining the dollar value of equity grants for each executive. These grants have historically been provided in the form of stock options and restricted stock or restricted stock units under the Stock Ownership Program. As described below, the Committee modified the long-term incentive program effective for fiscal 2010.

 

 

In past years, the Committee has authorized equity grants on the date of the Committee’s regularly scheduled September meeting. At its September 2009 meeting, the Committee, with the input of its Consultant, decided that it would move decisions on long-term incentive grants to its November meeting. This change provides the Committee additional time to review and discuss market data provided by the Consultant in the context of the budget and long-term plan decisions made by the Board at its September meeting. Therefore, beginning in fiscal 2010, the Committee will consider equity grants at its regularly scheduled November meeting. The effective date of grants will be the second business day of the “window period” opened in accordance with the Company’s Employee/Insider Trading Policy after the release of the prior fiscal year end earnings. Fiscal year end earnings are generally released approximately one week following the date of the November Board meeting. Any stock options granted at that meeting will be granted with an exercise price equal to the closing price of Jack in the Box Common Stock on the effective date of grant.

 

 

Due to the change in the timing of equity grants from September to November, no equity grants were made in fiscal 2009.

 

 

During fiscal 2009, the Committee, its Consultant, and management reviewed long-term incentive program alternatives. The Committee’s objective was to transition from grants of stock options only to grants of stock options and performance units based on long-term Company goals. The Committee decided to revise the structure and components of the executive long-term incentive program as described below:

 

 

 

Performance units will be payable in shares of Jack in the Box stock at the end of the 3-fiscal year performance period based on achievement of the ROIC and VOG goals.

 

 

The Committee believes that the Company’s executive compensation program does not encourage excessive risk or unnecessary risk taking. Our programs have been balanced to focus our executives on both

short- and long-term financial and operational performance. For example, the programs each have different vesting and distribution criteria:

 

 

The incentive programs encourage executives to focus on growth and stock price appreciation in both the short and long terms.

 

The Committee has also adopted policies to encourage diligent and prudent decision-making and review processes. The processes that are in place to manage and control risk include:

 

 

 

 

 

The Committee believes health and welfare benefits are an important component of the total compensation package. These benefits provide executives with a level of security and protection that allows them to focus their efforts more completely on the business. Benefit programs like this are common among our comparative benchmark group and are perceived by the Company as a critical component to attract and retain top talent.

 

 

The health and welfare benefits provided to the NEOs and other executives are generally available to other employees in the Company. Both Company-subsidized and voluntary benefit programs are provided to our employees and generally include medical, dental, life insurance and disability coverage.

 

 

In addition to the coverage provided in the regular health and welfare plans, the NEOs and other executives participate in an executive health reimbursement program. The executives pay an additional premium for reimbursement of out-of-pocket healthcare expenses that exceed coverage under the regular plans. The annual maximum reimbursement amount for each position level is shown in the table below.

 

 

 

The Company provides employer-paid term life insurance with a value of $770,000.

 

Each year the Company assesses the benefit costs and the associated premiums for health and welfare benefits. There were no significant changes made to the health and welfare benefits during fiscal 2009.

 

B.  Perquisites

 

Our NEOs and other executives receive limited perquisites that are common among our comparative benchmark group and general industry. The Committee evaluates these perquisites regularly and continues to believe they are important to allow the Company to compete for and retain executive talent. The perquisites provided to our executives in excess of $5,000 annually include:

 

1) Car Allowance — $13,500 annually.

 

2) Financial Counseling Services — Provided to the NEOs and all Senior Vice Presidents. The benefit amounts provided to NEOs in fiscal 2009 ranged from $2,555 to $18,320.

 

During 2009, the Committee reviewed our perquisites and practices for providing gross-ups for taxes on the value of perquisites. The Committee, with input from its Consultant, compared perquisites and gross-ups of the comparative benchmark group to determine competitiveness and business justification. The Committee and management determined that it was appropriate to discontinue the gross-ups on executive perquisites.

 

 

 

The Company’s retirement plans are designed to offer our employees, including our NEO’s, retirement income security. These plans reward for service and provide an additional incentive for our employees to build a long-term career at Jack in the Box.

 

 

Our NEOs, along with our employees generally, are participants in a tax-qualified defined benefit pension plan (“Retirement Plan”).

 

 

In addition to the tax-qualified defined benefit pension plan, our NEOs and a limited number of other executives and employees are participants in the Supplemental Executive Retirement Plan (“SERP”). The SERP is a non-tax qualified pension plan. It was established in response to the Internal Revenue Code limitations on pension benefits (based on an annual compensation limit) that can be accrued under our tax-qualified defined benefit pension plan. The SERP provides additional retirement benefits in an equitable fashion as a result of the reductions in qualified pension benefits. The Company has purchased corporate owned life insurance policies to offset its obligations under the SERP. These obligations represent an unsecured claim against the Company.

 

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. At that time, the Committee approved closing the SERP to new participants effective January 1, 2007. Employees who became or become officers after this date receive an additional contribution of 4% of base salary and annual incentive to their non-qualified executive deferred compensation account for up to 10 years, as described below.

 

 

The Executive Deferred Compensation Plan (“EDCP”) is available to all executives and other employees who are excluded from participating in our qualified 401(k) plan in order to enable the Company to satisfy Internal Revenue Code (“IRC”) requirements. Under this Plan, participants may defer up to 50% of base salary and up to 100% of their annual cash incentive.

 

 

 

Prior to 1990, executives 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. Our current CEO and COO participated in the E$P Plan at that time. After 1989, executives and certain other highly compensated employees were excluded from participating in the E$P Plan. Executives with existing balances in the E$P Plan are able to maintain their balances in the E$P Plan; however, they can no longer make deferrals into the E$P.

 

VII.  Benchmarking Executive Compensation

 

The value of compensation provided to our executives is based on external market comparisons and internal comparisons of positions with similar scope of responsibility. For most executive positions, the Committee reviews two or three sources of competitive compensation data from among the three sources provided by the Consultant:

 

 

Towers Perrin uses a common statistical technique of regression analysis to adjust the data for differences in company size. It also adjusts historical compensation data to arrive at current-year estimates that the Committee can use in the compensation decision-making process.

 

The companies in the industry peer group were reviewed by the Committee and its Consultant in fiscal 2009. Our selected peer group represents companies that meet all or most of the following characteristics:

 

 

Our 2009 Industry Peer Group is comprised of the following companies:

 

 

The median revenue of the industry peer group for the most recent fiscal year of each company was $1.6 billion versus $2.5 billion in fiscal 2009 for Jack in the Box. The Committee’s independent Consultant used the industry peer group data and general industry data to assist the Committee with decisions on base salaries, annual incentives, and long-term incentive targets for fiscal 2009.

VIII. Other Policies and Practices Related to Executive Compensation

 

 

In 2002, Jack in the Box adopted a stock ownership program and guidelines for all NEOs and other officers at the senior vice president level and above. The program and guidelines are intended to assure executives are significant owners of Jack in the Box stock and take a proprietary interest in the Company and its results. The program also encourages retention of executives and aligns the long-term financial interests of these executives with those of our stockholders.

 

Under this program, the Committee granted restricted shares (“Ownership Shares”) to participants so that, in combination with shares directly owned by the executive, the applicable ownership requirement is met. In fiscal 2009, the Committee decided that future awards of Ownership Shares would be in the form of restricted stock units rather than restricted shares. This change applied to all new grants in fiscal 2009 and later.

 

 

Stock ownership guidelines are the lesser of a fixed number of shares or a multiple of salary. The stock ownership guidelines in 2009 are as follows:

 

 

Stock Ownership for the Named Executive Officers

 

 

 

At its September 2009 meeting, as it does every year, the Committee reviewed the stock ownership of each NEO and Senior Vice President, seven officers in total. The Committee discussed the impact of the recession on the stock market generally and on Jack in the Box stock value in particular. The Committee determined that it would not award additional Ownership Shares in fiscal 2009.

 

 

The Company prohibits derivative transactions in Company stock. Employees, including NEOs, other executives and their families may not:

 

 

The Company strongly discourages its executives from holding any Company security in a margin account or from pledging Company securities as collateral for a loan. The terms and conditions of any margin account or pledge of Company securities by an NEO or other executive must be reported to a Company Compliance Officer before an executive enters into the transaction. The Compliance Officer must be regularly updated regarding any change in circumstance. No NEO or other executive holds any Company security in a margin account, nor have any pledged any Company security.

 

 

The NEOs do not have employment or severance agreements, except in the event of a change in control as described in the Compensation and Benefits Assurance Agreements discussion in the next section. When a NEO terminates employment with the Company, the executive will receive amounts according to the specific terms and provisions of each compensation plan or benefit 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 of his or her death.

 

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

 

 

Each of the NEOs, and all Senior Vice Presidents — a total of seven officers — have a Compensation & Benefits Assurance Agreement (otherwise known as a Change in Control or “CIC” Agreement) that provides compensation in the form of a lump sum payment and other benefits in the event of a qualifying termination within 24 months of the effective date of the change in control of the Company. 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. Further details are set forth in this proxy in the section entitled “Potential Payments Upon Termination or Change in Control.”

The Committee believes that CIC agreements benefit shareholders by providing an important incentive to senior management to remain focused on running the business in the case of a pending or actual change in control event.

 

During fiscal 2009, the list of executives covered by a CIC Agreement was reviewed by the Committee. The Committee reviewed the terms and conditions of the CIC Agreements, and discussed the potential costs to the Company. With the assistance of its Consultant, the Committee reviewed the estimated cost to the Company (i) of each CIC Agreement and (ii) in the aggregate for all CIC Agreements. The estimates showed that both the costs for individual agreements and costs in the aggregate were reasonable and in line with market practices. Costs for some executives would also decline in the future as they vest in SERP benefits. However, the Committee determined that in order to further control costs, any CIC Agreement entered into after May 7, 2009, would not provide for gross-up of any amounts payable to the executive under the CIC Agreement. The Committee will continue to monitor costs and review the terms and conditions of CIC Agreements during fiscal year 2010.

 

A detailed discussion of the provisions of the Compensation & Benefits Assurance Agreements and the associated monetary values is provided in this proxy in the section entitled Compensation & Benefits Assurance Agreements.

 

 

The Jack in the Box executive compensation recovery policy was adopted in fiscal 2008. The policy states that in the event Jack in the Box Inc. materially restates all or a portion of its financial statements due to fraud or intentional misconduct either committed by a Corporate Officer or knowingly permitted by a Corporate Officer, the Committee may take action to recover incentive cash compensation and performance-based equity awards that were based on the achievement of financial results that were subsequently restated. For purposes of this policy, a Corporate Officer is defined as an employee with the title of Corporate Vice President or above, and includes the CEO and COO of the Company’s subsidiary Qdoba Restaurant Corporation, as well as former Corporate Officers who were employed by the Company at the time of the fraud or intentional misconduct.

 

Executive compensation subject to recovery may include full or partial repayment of:

 

a) Any annual incentive or incentive cash compensation paid to the Corporate Officer, plus a reasonable rate of interest.

 

b) Economic gains realized from the sale of shares awarded under a performance-based equity plan.

 

c) Cancellation of restricted stock or units, deferred stock awards or units, and outstanding stock options to the extent vesting of such awards is performance-based.

 

The Committee has the sole discretion to determine what action to take in the event of a restatement, including soliciting recommendations from the Audit Committee and the full Board and retaining outside advisors to assist in making its determinations. Any actions taken by the Committee would be independent of consequences imposed by law enforcement agencies, regulators or other authorities.

 

 

 

The Committee and its Consultant consider the Internal Revenue Code Section 162(m) implications of all compensation decisions for executives. Section 162(m) places a one million dollar limit on the amount of compensation that Jack in the Box can deduct in any one year for each named executive officer. Performance-based pay is excluded from this limit. With this in mind, our compensation programs are designed 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 and performance units, both of which are considered performance-based compensation. (Restricted stock awards are not considered performance-based under Section 162(m) and, accordingly, are subject to the $1.0 million deductibility limit.)

 

 

 

 

The Company administers the SERP, the EDCP and stock option awards consistent with Section 409A requirements.

 

 

The Company accounts for option expensing under the FASB authoritative guidance on stock compensation and uses a binomial valuation model prepared annually by AON Consulting to determine the “fair value” of our stock options at grant.

 

The Jack in the Box Compensation Committee is comprised solely of independent members of the Company’s Board of Directors. The Committee assists the Board in fulfilling its responsibilities regarding compensation matters, and is responsible under its charter to determine the compensation of Jack in the Box executives. This includes reviewing all components of pay for our CEO and the other NEOs. The Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with its Consultant, with management and with the Board. Based on this review and discussion, the Committee, on behalf of the Board, has authorized that this Compensation Discussion and Analysis be included in this Proxy Statement for fiscal 2009, ended September 27, 2009.

 

THE COMPENSATION COMMITTEE
Michael W. Murphy, Chair
David L. Goebel
Anne B. Gust
Murray H. Hutchison

 

The Summary Compensation Table below provides compensation information for the named executive officers serving at the end of fiscal 2009 (September 27, 2009) including our CEO, CFO and the three other most highly compensated executive officers, as required under the Securities and Exchange Commission rules (“named executive officers” or “NEOs”). The table includes compensation paid, the compensation expense of 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. Compensation for fiscal 2008 and 2007 is shown for the named executive officers who also were named executive officers in either of those years.

 

 

 

 

All Other Compensation Table

 

										Deferred												Company
										Compensation				Financial				Supplemental				Paid Life
		Other				Car/Cell				Matching				Counseling				Health				Insurance				Total All Other
Name		(1)				Allowance				Contributions				Services				Insurance				Premiums				Compensation
Linda A. Lang		$	1,985				13,500				59,781				18,320				14,127				0				107,713
Jerry P. Rebel		$	0				13,874				26,684				13,732				18,362				286				72,938
Paul L. Schultz		$	2,135				14,414				32,482				15,587				14,209				190				79,017
Terri F. Graham		$	1,935				14,580				16,043				2,555				13,726				419				49,258
Charles E. Watson		$	0				14,580				15,451				11,565				13,726				431				55,753

 

 

Footnote

 

 

 

 

 

 

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 2009. 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 Inc. Common Stock as of the last trading day of the fiscal year, September 27, 2009, which was $20.07.