UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

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Filed by a Party other than the Registrant o

 

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o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

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o  Soliciting Material Pursuant to Section 240.14a-12

 

BURGER KING HOLDINGS, INC.

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BURGER KING HOLDINGS, INC.
5505 BLUE LAGOON DRIVE
MIAMI, FLORIDA 33126

 

 

NOTICE OF 2007 ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD NOVEMBER 29, 2007

 

 

The annual meeting of shareholders of Burger King Holdings, Inc., a Delaware corporation (the “Company”), will be held at the Hilton Miami Airport, 5101 Blue Lagoon Drive, Miami, Florida 33126 on Thursday, November 29, 2007 at 9:00 a.m., Eastern Standard Time (“EST”).

 

The meeting will be held for the following purposes:

 

 

The Board of Directors has fixed the close of business on October 2, 2007 as the record date for determining shareholders entitled to notice of and to vote at the meeting.

 

By Order of the Board of Directors

 

 

Anne Chwat

General Counsel and Secretary

 

Miami, Florida

October 22, 2007

 

YOUR VOTE IS IMPORTANT

A proxy for the annual meeting is enclosed. Please promptly vote by completing the enclosed proxy card and returning it in the enclosed postage-paid envelope or submit your vote and proxy by telephone or by Internet even if you plan to attend the meeting in person. If you are present at the meeting and desire to vote in person, your vote by proxy will not be used.

 

TABLE OF CONTENTS

 

 

BURGER KING HOLDINGS, INC.
5505 Blue Lagoon Drive
Miami, Florida 33126

 

 

PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held On November 29, 2007

 

 

ANNUAL MEETING INFORMATION

 

This proxy statement contains information related to the annual meeting of shareholders of Burger King Holdings, Inc. (“Burger King Holdings” or the “Company”) to be held on Thursday, November 29, 2007 at 9:00 a.m. (EST) at the Hilton Miami Airport, 5101 Blue Lagoon Drive, Miami, Florida 33126. This proxy statement was prepared under the direction of our Board of Directors (the “Board of Directors” or the “Board”) to solicit your proxy for use at the annual meeting. It will be mailed to shareholders on or about October 22, 2007.

 

Who may attend the annual meeting?

All shareholders of record at the close of business on October 2, 2007 (the “Record Date”), or their duly appointed proxies, and our invited guests may attend the meeting. Seating is limited and admission is on a first-come, first-served basis. Please be prepared to present valid photo identification for admission to the meeting.

 

If you hold shares in “street name” (that is, in a brokerage account or through a bank or other nominee) and you plan to vote in person at the annual meeting, you will need to bring valid photo identification and a copy of a statement reflecting your share ownership as of the Record Date, or a legal proxy from your broker or nominee.

 

Shareholders of record will be verified against an official list available in the registration area at the meeting. We reserve the right to deny admittance to anyone who cannot adequately show proof of share ownership as of the Record Date.

 

When will the shareholders’ list be available for examination?

A complete list of the shareholders of record as of the Record Date will be available for examination by shareholders of record beginning October 24, 2007 and will continue to be available through and during the meeting.

 

Who may vote?

You may vote if you owned our common stock as of the close of business on the Record Date. Each share of our common stock is entitled to one vote. As of the Record Date, there were 135,162,602 shares of common stock outstanding and entitled to vote at the annual meeting.

 

What will I be voting on?

You will be voting on the following:

 

 

What are the voting recommendations of the Board of Directors?

The Board of Directors recommends that you vote your shares “FOR” each of the nominees named in this proxy statement for election to the Board and “FOR” ratification of the selection of KPMG as our independent registered public accounting firm for fiscal 2008.

How do I vote?

If you are a holder of record (that is, if your shares are registered in your name with The Bank of New York Mellon, our transfer agent (the “Transfer Agent”)), there are four ways to vote:

 

Telephone Voting:  You may vote by calling the toll-free telephone number indicated on the enclosed proxy card. Please follow the voice prompts that allow you to vote your shares and confirm that your instructions have been properly recorded.

 

Internet Voting:  You may vote by logging on to the website indicated on the enclosed proxy card. Please follow the website prompts that allow you to vote your shares and confirm that your instructions have been properly recorded.

 

Return Your Proxy Card By Mail:  You may vote by completing, signing and returning the enclosed proxy card in the postage-paid envelope provided with this proxy statement. The proxy holders will vote your shares according to your directions. If you sign and return your proxy card without specifying choices, your shares will be voted by the persons named in the proxy in accordance with the recommendations of the Board of Directors as set forth in this proxy statement.

 

Vote at the Meeting:  You may cast your vote in person at the annual meeting. Written ballots will be passed out to anyone who wants to vote in person at the meeting.

 

Even if you plan to attend the meeting, you are encouraged to vote your shares by proxy. You may still vote your shares in person at the meeting even if you have previously voted by proxy. If you are present at the meeting and desire to vote in person, your vote by proxy will not be used.

 

What if I hold my shares in “street name”?

You should follow the voting directions provided by your broker or nominee. You may complete and mail a voting instruction card to your broker or nominee or, in most cases, submit voting instructions by telephone or the Internet to your broker or nominee. If you provide specific voting instructions by mail, telephone or the Internet, your broker or nominee will vote your shares as you have directed.

 

Can I change my mind after I vote?

Yes. If you are a shareholder of record, you may change your vote or revoke your proxy at any time before it is voted at the annual meeting by:

 

 

If you hold your shares in street name, you may submit new voting instructions by contacting your broker, bank or other nominee. You may also vote in person at the annual meeting if you obtain a legal proxy from your broker, bank or other nominee.

 

Who will count the votes?

A representative of our Transfer Agent will count the votes and will serve as the independent inspector of elections.

 

What does it mean if I receive more than one proxy card?

It means that you have multiple accounts with brokers or the Transfer Agent. Please vote all of these shares. We encourage you to register all of your shares in the same name and address. You may do this by contacting your broker or the Transfer Agent. The Transfer Agent may be reached at 1-800-524-4458.

 

Will my shares be voted if I do not provide my proxy?

If you are the shareholder of record and you do not vote or provide a proxy, your shares will not be voted.

 

Your shares may be voted if they are held in street name, even if you do not provide the brokerage firm with voting instructions. Brokerage firms have the authority under New York Stock Exchange (“NYSE”) rules to vote shares for which their customers do not provide voting instructions on certain “routine” matters.

The election of directors and the proposal to ratify the selection of KPMG as our independent registered public accounting firm for fiscal 2008 are considered “routine” matters for which brokerage firms may vote unvoted shares. There are currently no other proposals to be voted on at the annual meeting.

 

May shareholders ask questions?

Yes. Our representatives will answer shareholders’ questions of general interest following the meeting. In order to give a greater number of shareholders an opportunity to ask questions, individuals or groups will be allowed to ask only one question and no repetitive or follow-up questions will be permitted.

 

How many votes must be present to hold the meeting?

A majority of the outstanding shares entitled to vote at the annual meeting, represented in person or by proxy, will constitute a quorum. Shares of common stock represented in person or by proxy, including shares which abstain or do not vote with respect to one or more of the matters presented for shareholder approval, will be counted for purposes of determining whether a quorum is present.

 

What vote is required to approve each proposal?

In accordance with our bylaws, the nominees for director receiving the highest number of votes cast in person or by proxy at the annual meeting (also referred to as a plurality of the votes cast) will be elected. If you mark your proxy to withhold your vote for a particular nominee on your proxy card, your vote will not count either “for” or “against” the nominee. The ratification of the selection of KPMG as our independent registered public accounting firm for fiscal 2008 requires the affirmative vote of a majority of the votes cast at the annual meeting in order to be approved.

 

Shares that abstain from voting as to a particular matter will not be counted as votes in favor of such matter, and also will not be counted as votes cast or shares voting on such matter. Accordingly, abstentions will not be included in vote totals and will not affect the outcome of the voting for either proposal.

 

Are there any shareholders who own a majority of our common stock?

As of the Record Date, private equity funds controlled by TPG Capital, Bain Capital Partners and the Goldman Sachs Funds (the “Sponsors”) collectively own approximately 58% of our outstanding common stock. The Sponsors have advised us that they intend to be represented at the annual meeting either in person or by proxy to vote their shares in favor of the nominees named in this proxy statement for election to the Board and in favor of ratification of the selection of KPMG as our independent registered public accounting firm. Therefore, we expect to have a quorum at the meeting and we expect the proposals to be approved. For further information about the Sponsors, please see “Stock Ownership Information” on pages 34-36.

 

Who will pay for this proxy solicitation?

We will bear the cost of preparing, assembling and mailing the proxy material and of reimbursing brokers, nominees, fiduciaries and other custodians for out-of-pocket and clerical expenses of transmitting copies of the proxy material to the beneficial owners of our shares. A few of our officers and employees may participate in the solicitation of proxies without additional compensation.

 

Will any other matters be voted on at the annual meeting?

As of the date of this proxy statement, our management knows of no other matter that will be presented for consideration at the meeting other than those matters discussed in this proxy statement. If any other matters properly come before the meeting and call for a vote of shareholders, validly executed proxies in the enclosed form returned to us will be voted in accordance with the recommendation of the Board of Directors, or, in the absence of such a recommendation, in accordance with the judgment of the proxy holders.

 

What is the Company’s website address?

Our website address is www.bk.com. We make this proxy statement, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) available on our

website in the Investor Relations-SEC Filings section, as soon as reasonably practicable after electronically filing such material with the United States Securities and Exchange Commission (“SEC”).

 

This information is also available free of charge at the SEC’s website located at www.sec.gov. Shareholders may also read and copy any reports, statements and other information filed by us with the SEC at the SEC public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC’s website for further information on its public reference room. In addition, shareholders may obtain free copies of the documents filed with the SEC by contacting our Investor Relations department at 305-378-7696 or by sending a written request to Burger King Holdings, Inc., Investor Relations, 5505 Blue Lagoon Drive, Miami, Florida 33126.

 

The references to our website address and the SEC’s website address do not constitute incorporation by reference of the information contained in these websites and should not be considered part of this document.

 

Our Corporate Governance Guidelines, Code of Business Ethics and Conduct, Code of Ethics for Executive Officers, Code of Conduct for Directors and Code of Business Ethics and Conduct for Vendors are located in the Investor Relations — Corporate Governance section of our website. These documents, as well as our SEC filings, are available in print to any shareholder who requests a copy at the phone number or address listed above.

 

CORPORATE GOVERNANCE PRINCIPLES, COMMITTEES AND DIRECTOR INFORMATION

 

Controlled Company Status & Director Independence

 

The private equity funds controlled by the Sponsors collectively own approximately 58% of our outstanding common stock. As a result, we are a “controlled company” under Section 303A of the NYSE listing standards. Section 303A exempts a controlled company (defined as a company of which more than 50% of the voting power is held by an individual, a group or another company) from the requirement that a majority of its board of directors be independent and that its compensation and nominating and corporate governance committees be composed entirely of “independent directors”. We rely on this exemption from the independence requirements with regard to the Board of Directors, the Compensation Committee and the Executive and Corporate Governance Committee which acts as our nominating and corporate governance committee. The “controlled company” exception does not modify the independence requirements of the Audit Committee, and as of May 7, 2007, we have complied with the requirements of the Sarbanes-Oxley Act and the NYSE rules, which require that the Audit Committee be composed entirely of independent directors.

 

Under the NYSE listing standards, a director qualifies as independent if the Board of Directors affirmatively determines that the director has no material relationship with us. While the focus of the inquiry is independence from management, the Board is required to broadly consider all relevant facts and circumstances in making an independence determination. The NYSE listing standards permit the Board to adopt and disclose standards to assist the Board in making determinations of independence. Accordingly, our Board has adopted as a part of our Corporate Governance Guidelines, director independence standards (attached as Appendix A) to assist it in determining whether or not a director has a material relationship with us.

 

Our Board conducted an evaluation of the members of the Audit Committee based on the NYSE listing standards, our director independence standards and the independence standards mandated by Section 301 of the Sarbanes-Oxley Act and set forth in Rule 10A-3 of the Exchange Act, which we refer to as the Independence Standards. Our Board also considered the recommendation of the Executive and Corporate Governance Committee which reviewed information disclosed by the members of the Audit Committee in questionnaires submitted to the Board. As a result of this evaluation and in consideration of the recommendation from our Executive and Corporate Governance Committee, our Board affirmatively determined that Messrs. Ronald M. Dykes, Peter R. Formanek and Manuel A. Garcia are independent according to the Independence Standards.

 

In making its determination, our Board (i) reviewed information disclosed by the directors in the questionnaires described above and (ii) considered lease payments paid by our subsidiary Burger King Corporation to the estate of Mrs. Clarita Garcia. Manuel A. Garcia, a current director of the Company, is the son of the late Mrs. Garcia and serves as executor of his mother’s estate. Our Board determined that the receipt of lease payments by the estate of

Mrs. Garcia does not constitute an indirect or direct material relationship with us and that Mr. Garcia satisfies all of the Independence Standards discussed in the above paragraph.

 

Corporate Governance Principles

 

Our Board of Directors adopted Corporate Governance Guidelines (the “Guidelines”) to assist the Board in exercising its responsibilities. The Guidelines are reviewed and revised by the Board as it deems necessary and appropriate and were last revised on May 31, 2007. The Guidelines and the charter for each of the standing committees of the Board are posted on our website at www.bk.com in the Investor Relations — Corporate Governance section and are available in print to any shareholder who requests a copy at the phone number or address listed in this proxy statement.

 

The Guidelines and the charter for the Executive and Corporate Governance Committee set forth our policies with respect to Board composition, membership qualifications, responsibilities, size, management oversight, committees and operations. The Executive and Corporate Governance Committee considers the following criteria when recommending nominees for director: high personal and professional ethics, integrity and values; expertise that is useful to us and complementary to the background and experience of the other members of the Board; ability to devote the time necessary for the diligent performance of duties and responsibilities of Board membership; willingness to represent the long term interests of all shareholders and objectively appraise management’s performance; possession of sound judgment to provide prudent guidance with respect to the operations and interests of the Company; and diversity and other relevant factors as the Board may determine. The Executive and Corporate Governance Committee considers possible candidates from many sources for nominees for director, including from management, directors and shareholders. The committee considers nominees recommended by shareholders, provided that the shareholder complies with the procedure set forth in our bylaws which is described in “Advance Notice Requirements for Shareholder Submission of Nominations and Proposals” in this proxy statement. Other than the submission requirements set forth in our bylaws, there is no difference in the manner in which the Executive and Corporate Governance Committee evaluates a nominee for director recommended by a shareholder.

 

We are subject to an amended and restated shareholders’ agreement with the private equity funds controlled by the Sponsors (the “Shareholders’ Agreement”) that currently gives each Sponsor the right to appoint two directors to the Board of Directors and requires that, with respect to each committee other than the Audit Committee, each of the Sponsors has at least one seat, that Sponsor directors constitute a majority, and that the chairman be a Sponsor director. See “Certain Relationships and Related Person Transactions” for more information on the Shareholders’ Agreement, including the stock ownership thresholds required to be maintained by a Sponsor in order for it to retain these Board of Director and Board committee appointment rights.

 

The non-management directors regularly schedule executive sessions of the Board and each of the committees in which management does not participate. The discussion leader for executive sessions of the full Board is generally Brian T. Swette, the Chairman of the Board. The Chairmen of the Audit, Compensation and Executive and Corporate Governance Committees lead executive session discussions on matters within the purview of those committees.

 

Communication with Directors

 

Any director may be contacted by writing to him in care of Burger King Holdings, Inc., Attn: Anne Chwat, General Counsel and Secretary, 5505 Blue Lagoon Drive, Miami, Florida 33126. Although the General Counsel and Secretary may screen frivolous or unlawful communications and commercial advertisements, she will forward all other correspondence to the indicated director.

 

Board and Committee Meeting Attendance and Annual Shareholders Meeting Attendance

 

The Board held seven meetings during the fiscal year ended June 30, 2007 (“fiscal 2007”). Each incumbent director, except Mr. David Bonderman, attended at least 75% of the aggregate of (a) the total number of meetings of the Board during fiscal 2007, and (b) the total number of meetings held by all committees of the Board on which the director served during fiscal 2007. Mr. Bonderman does not serve on any Board committees.

Although we do not have a specific policy regarding director attendance at our annual meeting of shareholders, all directors are encouraged to attend. We do so by, among other things, holding our annual meeting of shareholders on the same date as one of the Board meetings. All of our directors attended the 2006 annual meeting of shareholders.

 

Board Committees

 

The Board of Directors has established an Audit Committee, a Compensation Committee and an Executive and Corporate Governance Committee. The members of each committee are appointed by the Board of Directors and serve one year terms. Each committee has adopted a written charter which sets forth the committee’s purpose, membership criteria, powers and responsibilities and provides for the annual evaluation of the committee’s performance. The Compensation Committee charter was last revised on March 1, 2007, and the Audit and Executive and Corporate Governance Committee charters were last revised on May 31, 2007. Copies of the Audit Committee charter, Compensation Committee charter and Executive and Corporate Governance Committee charter are available on our website at www.bk.com in the Investor Relations — Corporate Governance section and are available in print to any shareholder who requests a copy at the phone number or address listed above.

 

Audit Committee

 

The Audit Committee assists the Board in its oversight of (i) the integrity of our financial statements, (ii) the qualifications, independence and performance of our independent registered public accounting firm, (iii) the performance of our internal audit function and (iv) compliance by us with legal and regulatory requirements. The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm.

 

The members of the Audit Committee are Messrs. Ronald M. Dykes (Chairman), Peter R. Formanek and Manuel A. Garcia. The Board of Directors has determined that (i) Messrs. Dykes, Formanek and Garcia are independent directors within the requirements of the Sarbanes-Oxley Act and the NYSE rules and (ii) all of the members of the Audit Committee are “financially literate” as defined by the NYSE rules. Mr. Formanek served as Chairman of the Audit Committee until September 13, 2007, when the Board appointed Mr. Dykes as Chairman. Mr. Richard Boyce served on the Audit Committee until May 7, 2007, when he was replaced by Mr. Dykes. The Board of Directors also has determined that Mr. Dykes possesses “financial management expertise” under the NYSE rules and qualifies as an “audit committee financial expert” as defined by the applicable SEC regulations.

 

The Audit Committee held 11 meetings in fiscal 2007.

 

Compensation Committee

 

The Compensation Committee: (i) sets our compensation philosophy and oversees compensation and benefits policies; (ii) oversees and sets the compensation and benefits arrangements of our Chief Executive Officer and certain other executives; (iii) provides a general review of, and makes recommendations to, the Board of Directors or to our shareholders with respect to our equity-based compensation plans; (iv) reviews and approves all of our equity-based compensation plans that are not otherwise subject to shareholder approval; and (v) implements, administers, operates and interprets all equity-based and similar compensation plans to the extent provided under the terms of such plans.

 

The Compensation Committee has the authority under its charter to engage the services of outside advisors, experts and others to assist the Compensation Committee. In accordance with this authority, the Compensation Committee has engaged Mercer Human Resource Consulting, Inc. (“Mercer”), as an outside compensation consultant, to advise the Compensation Committee on matters related to executive compensation. Further details regarding the nature and scope of Mercer’s engagement are provided in the “CD&A” on page 15.

 

The Compensation Committee may delegate its authority to subcommittees or the Chairman of the Compensation Committee when it deems appropriate and in our best interests. Additionally, the charter provides that the Compensation Committee may delegate to one of our officers the authority to make grants under our incentive compensation or other equity based plans to any person other than the Chief Executive Officer, the CEO Direct

Reports (as defined in the CD&A) or anyone not then covered by Section 16 of the Exchange Act. Further details are provided in the CD&A on page 15.

 

The members of the Compensation Committee are Messrs. Stephen G. Pagliuca (Chairman), Richard W. Boyce and Sanjeev K. Mehra. Armando Codina, a former director, served on the Compensation Committee from October 2006 until he resigned from the Board and the Compensation Committee on April 1, 2007.

 

The Compensation Committee held five meetings in fiscal 2007.

 

Executive and Corporate Governance Committee

 

The Executive and Corporate Governance Committee acts for the Board of Directors with respect to matters delegated to it by the Board and also acts as our nominating and corporate governance committee. The Board has delegated to this committee the authority to identify and recommend potential candidates qualified to become Board members and recommend directors for appointment to Board committees.

 

The Executive and Corporate Governance Committee also exercises general oversight with respect to the governance and performance of the Board, as well as corporate governance matters applicable to us and our employees and directors. In addition, this committee has authority to take action on behalf of the Company (except if prohibited by applicable law or regulation) if the amount associated with such action does not exceed $25 million.

 

The members of the Executive and Corporate Governance Committee are Messrs. Sanjeev K. Mehra (Chairman), Richard W. Boyce, John W. Chidsey and Stephen G. Pagliuca.

 

The Executive and Corporate Governance Committee held five meetings in fiscal 2007.

 

 

Our Amended and Restated Certificate of Incorporation provides that the number of directors constituting the Board of Directors shall not be fewer than three nor more than 15, with the exact number to be fixed by a resolution adopted by the affirmative vote of a majority of the Board. The Board of Directors has fixed the number of directors at 13. The term of office of each director is one year, commencing at this annual meeting and ending at the annual meeting of shareholders to be held in 2008. Each director elected will continue in office until he resigns or until a successor has been elected and qualified.

 

Andrew B. Balson, David Bonderman, Richard W. Boyce, David A. Brandon, John W. Chidsey, Ronald M. Dykes, Peter R. Formanek, Manuel A. Garcia, Adrian Jones, Sanjeev K. Mehra, Stephen G. Pagliuca, Brian T. Swette and Kneeland C. Youngblood currently serve as directors and are the proposed nominees for election as directors to serve for a one-year term expiring at the 2008 annual meeting of shareholders. Messrs. Balson, Bonderman, Boyce, Jones, Mehra and Pagliuca were appointed to the Board of Directors pursuant to the Shareholders’ Agreement described above under “Corporate Governance Principles”.

 

Each of the nominees has consented to serve if elected. If any nominee should be unable to serve or will not serve for any reason, the persons designated on the accompanying form of proxy will vote in accordance with their judgment. We know of no reason why the nominees would not be able to serve if elected.

 

NOMINEES FOR ELECTION AT THIS MEETING

 

The following table sets forth the name, age and principal occupation of each nominee for election as a director of the Company:

 

 

EXECUTIVE OFFICERS

 

The following table sets forth the name, age and positions of each of our executive officers. Executive officers are those officers designated by our Board as executive officers of the Company pursuant to Section 16 of the Exchange Act.

 

 

John W. Chidsey has served as our Chief Executive Officer and a member of our board since April 2006. From September 2005 until April 2006, he was our President and Chief Financial Officer and from June 2004 until September 2005, he was our President of North America. Mr. Chidsey joined us as Executive Vice President, Chief Administrative and Financial Officer in March 2004 and held that position until June 2004. From January 1996 to March 2003, Mr. Chidsey served in numerous positions at Cendant Corporation, most recently as Chief Executive Officer of the Vehicle Services Division and the Financial Services Division.

 

Russell B. Klein has served as our President, Global Marketing, Strategy and Innovation since June 2006. Previously, he served as Chief Marketing Officer from June 2003 to June 2006. From August 2002 to May 2003, Mr. Klein served as Chief Marketing Officer at 7-Eleven Inc. From January 1999 to July 2002, Mr. Klein served as a Principal at Whisper Capital.

 

Ben K. Wells has served as our Chief Financial Officer since April 2006. From May 2005 to April 2006, Mr. Wells served as our Senior Vice President, Treasurer. From June 2002 to May 2005, he was a Principal and Managing Director at BK Wells & Co., a corporate treasury advisory firm in Houston, Texas. From June 1987 to June 2002, he was at Compaq Computer Corporation, most recently as Vice President, Corporate Treasurer. Before joining Compaq, Mr. Wells held various finance and treasury responsibilities over a 10-year period at British Petroleum.

 

Julio Ramirez has served as our Executive Vice President, Global Operations since September 2007. Mr. Ramirez has worked for Burger King Corporation for over 20 years. From January 2002 to September 2007, Mr. Ramirez served as our President, Latin America. During his tenure, Mr. Ramirez has held several positions, including Senior Vice President of U.S. Franchise Operations and Development from February 2000 to December 2001 and President, Latin America from 1977 until 2000.

 

Peter C. Smith has served as our Chief Human Resources Officer since December 2003. From September 1998 to November 2003, Mr. Smith served as Senior Vice President of Human Resources at AutoNation.

 

Anne Chwat has served as our General Counsel and Secretary since September 2004. From September 2000 to September 2004, Ms. Chwat served in various positions at BMG Music (now SonyBMG Music Entertainment) including as Senior Vice President, General Counsel and Chief Ethics and Compliance Officer.

 

Charles M. Fallon, Jr. has served as our President, North America since June 2006. From November 2002 to June 2006, Mr. Fallon served as Executive Vice President of Revenue Generation for Cendant Car Rental Group, Inc. Mr. Fallon served in various positions with Cendant Corporation including Executive Vice President of Sales for Avis Rent-A-Car from August 2001 to October 2002.

Amy E. Wagner has served as our Senior Vice President, Investor Relations and Global Communications since June 2007. Previously she served as Senior Vice President, Investor Relations from April 2006 to June 2007. From February 1990 to April 2006, Ms. Wagner served in various corporate finance positions at Ryder System, Inc., including as Vice President, Risk Management and Insurance Operations from January 2003 to April 2006 and Group Director, Investor Relations from June 2001 to January 2003.

 

Christopher M. Anderson has served as our Senior Vice President and Controller since July 2007. From February 2005 through June 2007, he served as our Vice President and Controller. From May 2002 to February 2005, Mr. Anderson served as Director of Finance and Controller for Hewlett-Packard. From February 2000 to May 2002, he served as Director of Finance and Controller for Compaq Computer Corporation.

 

 

The Audit Committee has appointed KPMG to audit our financial statements for fiscal 2008. A representative of KPMG is expected to attend the annual meeting and will have an opportunity to make a statement if he or she so desires. He or she will also be available to respond to appropriate questions from our shareholders. For additional information regarding our relationship with KPMG, please see the “Audit Committee Report” below.

 

Although it is not required to submit this proposal to the shareholders for approval, the Board believes it is desirable that an expression of shareholder opinion be solicited and presents the selection of the independent registered public accounting firm to the shareholders for ratification. Even if the selection of KPMG is ratified by the shareholders, the Audit Committee in its discretion could decide to terminate the engagement of KPMG and engage another firm if the committee determines that this is necessary or desirable.

 

 

 

AUDIT COMMITTEE REPORT

 

The Audit Committee has: (i) reviewed and discussed the audited consolidated financial statements of the Company with management; (ii) discussed with KPMG, the independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards 61 (Communication with Audit Committees), as modified or supplemented; (iii) received the written disclosures and the letter from KPMG required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees); and (iv) discussed with KPMG the firm’s independence.

 

Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for fiscal 2007 for filing with the SEC.

 

The Audit Committee considered whether the provision of non-audit services by KPMG was compatible with maintaining such firm’s independence. After reviewing the services provided by KPMG, including all non-audit services, the Audit Committee, in accordance with its charter, authorized the selection of KPMG as the independent registered public accounting firm of the Company for the fiscal year ending June 30, 2008.

 

Respectfully submitted,

 

THE AUDIT COMMITTEE

Ronald M. Dykes, Chairman
Peter R. Formanek
Manuel A. Garcia

 

September 12, 2007

 

AUDIT FEES AND SERVICES

 

The following table sets forth fees for professional services rendered by KPMG for the annual audit of our financial statements for the years ended June 30, 2007 and 2006 and fees billed for other services rendered by KPMG for such years.

 

 

 

 

Pre-approval Policy

 

Pursuant to its written charter, the Audit Committee pre-approves all audit services and permitted non-audit services to be performed by our independent registered public accounting firm. The Audit Committee has adopted a pre-approval policy under which the Audit Committee has delegated to its chairman the authority to approve services valued at up to $50,000 per engagement. All decisions to pre-approve audit and permitted non-audit services are presented to the full Audit Committee at each of its scheduled meetings.

 

All audit and permitted non-audit services and all fees associated with such services performed by our independent registered public accounting firm in fiscal 2007 were approved by the full Audit Committee or approved by the chairman of the Audit Committee consistent with the policy described above.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Overview

 

This Compensation Discussion and Analysis (“CD&A”) describes our compensation philosophy, how the Compensation Committee establishes executive compensation, the objectives of the various compensation programs and how performance metrics are selected and evaluated for the various components of our compensation programs.

 

As used in this CD&A, the following terms have the following meanings:

 

 

Our Compensation Philosophy and Objectives

 

We believe that compensation is an important tool in furthering our long term goal of creating shareholder value. As such, our compensation philosophy is based on pay-for-performance principles. Our compensation programs are designed to support our business strategy by (i) rewarding superior financial and operational performance, (ii) placing a significant portion of compensation at risk if performance goals are not achieved, (iii) aligning the interests of the CEO and the CEO Direct Reports with those of our shareholders and (iv) enabling us to attract, retain and motivate top talent.

 

Our compensation policies are aligned with our business strategy and designed to sustain and improve our financial and operational performance. Our “Global Go Forward Plan” defines the key objectives necessary to achieve our financial and operational goals. These key objectives are: Grow Profitably, Fund the Future, Fire-Up the Guest and Working Together. Our executive compensation program for the CEO and each CEO Direct Report consists of base salary, annual cash incentives, long term equity incentives and executive benefits and perquisites. Annual cash and long term equity incentive programs reward financial and operational performance compared to goals established for the year. Each year, the Compensation Committee approves worldwide and regional financial goals for these programs. Additionally, individual performance objectives are established at the beginning of each fiscal year for all of our employees, including the CEO and each CEO Direct Report, which are intended to support the Global Go Forward Plan and against which the employee’s individual performance is measured. The Compensation Committee recommends, and the Board approves, individual performance objectives for the CEO each fiscal year. The CEO then establishes individual performance objectives for each CEO Direct Report based on the objectives that the Board has set for the CEO. Performance against these pre-established objectives is evaluated by the Compensation Committee following the end of each fiscal year.

 

For fiscal 2008, the CEO’s and each CEO Direct Report’s individual performance will be measured based upon business objectives, which will be 2/3 of their overall individual performance rating, and for the first time, objectives relating to inclusion and people development, which will be 1/3 of their overall individual performance rating. We believe that people are our most valuable resource and that bringing a diverse group of talented individuals into the organization, creating an inclusive culture and growing and developing our leadership talent from within are important goals. The Compensation Committee decided that 1/3 was the appropriate weight to reinforce these goals while not diluting other important business objectives.

 

Special Note Regarding Determination of NEOs

 

Messrs. Tan and Brok served as executive officers from July 1, 2006 through August 29, 2006. Effective August 30, 2006, our Board of Directors designated a new slate of executive officers which did not include Mr. Tan or Mr. Brok. Mr. Tan is employed by BKAP, which is our primary operating subsidiary in the Asia Pacific region, and until August 31, 2007, Mr. Brok was employed by Burger King B.V., a Netherlands subsidiary of the Company. Consequently, many of the benefits provided to Messrs. Tan and Brok are governed by the laws and/or programs applicable to those local entities and differ from benefits that we offer our U.S.-based executives.

 

Mr. Brok’s position with Burger King B.V. became redundant during fiscal 2007. As a result, Mr. Brok and Burger King B.V. entered into a Compromise Agreement dated June 25, 2007 (the “Compromise Agreement”), in which the parties agreed to terminate his employment effective August 31, 2007 (the “Separation Date”). Mr. Brok is an NEO solely as a result of the severance payment to be made to him under the Compromise Agreement. Mr. Brok’s separation from Burger King B.V. was governed by Netherlands law, which provides significant benefits to employees in a redundancy situation. The Compromise Agreement provides for a lump sum severance payment to Mr. Brok in the gross amount of $689,544. The Compromise Agreement also provides for a lump sum repatriation payment in the gross amount of $15,245 and the continuation of Mr. Brok’s health care coverage through the Separation Date. As part of the Compromise Agreement, Mr. Brok agreed not to compete with us, not to solicit our employees or franchisees, and to maintain the confidentiality of our information.

Oversight of Executive Compensation Programs

 

Role of Compensation Committee

 

The Compensation Committee is composed entirely of outside directors and is responsible to the Board of Directors and our shareholders for establishing and overseeing our compensation philosophy and for overseeing our executive compensation policies and programs generally. As part of this responsibility, the Compensation Committee (i) administers our executive compensation programs, (ii) evaluates the performance of the CEO and the CEO Direct Reports, (iii) oversees and sets compensation for the CEO and the CEO Direct Reports and (iv) reviews our management succession plan. All decisions relating to the issuance of equity to our executive officers are subject to review and approval by the Board of Directors until such time as the Compensation Committee meets the independence requirements of Rule 16b-3 of the Exchange Act. In addition, the Board of Directors approves all compensation decisions relating to the CEO.

 

The Compensation Committee’s charter describes the Compensation Committee’s responsibilities. The Compensation Committee and the Board of Directors review the charter annually. The charter was last revised on March 1, 2007. The Compensation Committee recommends any revisions to the charter to the Board of Directors for approval.

 

Role of Compensation Consultant

 

The Compensation Committee has the authority under its charter to engage the services of outside advisors, experts and others to assist the Compensation Committee. In accordance with this authority, the Compensation Committee has engaged Mercer as an outside compensation consultant to advise the Compensation Committee on matters related to executive compensation. The Compensation Committee annually reviews the market intelligence on compensation trends provided by Mercer as well as Mercer’s general views on the specific compensation programs designed by us. Key services provided by Mercer at the request of the Compensation Committee include:

 

 

In addition to providing services to the Compensation Committee, Mercer also has been engaged by the Company to provide advice on matters related to broad-based compensation and data on compensation practices outside the United States.

 

Benchmarking

 

In order to establish total direct compensation levels for our CEO and the CEO Direct Reports, we annually review compensation practices and total direct compensation opportunities for comparable positions at selected publicly-traded peer companies. We review compensation opportunities at other selected publicly-traded companies and consider data reported in various compensation surveys. In making determinations about compensation, the Compensation Committee also considers factors specific to the relevant individual and his or her role, including performance and long term potential, the nature and scope of such individual’s responsibilities and his or her effectiveness in supporting our long term goals.

 

In general, we establish the target total direct compensation of our CEO and each CEO Direct Report at the median of the adjusted target total direct compensation levels established by our peer group for their equivalent or similarly positioned employees. However, with exceptional performance, our executives have the opportunity to earn total direct compensation in the upper 25% of the peer group adjusted target total direct compensation levels, as described below. In line with our benchmarking practices, the total direct compensation of our CEO is established by reference to the compensation of other chief executive officers in our peer group and reflects the nature of the CEO’s role and responsibilities as compared to the CEO Direct Reports.

Our peer group is focused on other restaurant and franchise companies; however, recognizing that we recruit executive talent from a more diverse background and that we consider international growth to be a key driver of our success, we also include companies in the broader consumer products/services industry and companies with a strong global footprint. Additionally, as a highly franchised company, the complexity of managing the overall BURGER KING^® system may not be reflected in our actual revenue, so for peer group purposes, we add 50% of the worldwide franchise sales of our system to our total revenue numbers, thereby increasing our annual revenue, for benchmarking purposes, to approximately $7 billion. Taking into account this first adjustment, our annual revenue is still less than the median of the peer group. Consequently, in consultation with Mercer, we adjust the compensation data from the peer group companies for differences in revenue to provide comparable data for our analysis. We review the peer group and make changes as we deem necessary on an annual basis.

 

For the fiscal 2007 analysis, the companies comprising the peer group and their respective industry groups were:

 

 

Role of Executive Officers in Establishing Compensation

 

Our Chief Human Resources Officer administers our employee profit sharing, severance and other benefit plans and trusts, with oversight and supervision by the Compensation Committee. In addition, our Chief Human Resources Officer makes recommendations to the Compensation Committee with regard to job leveling and grading for the CEO, the CEO Direct Reports and other senior level employees. Our CEO and Compensation Committee work together to review our management succession planning for these employees.

 

The CEO annually reviews the individual performance of each of the CEO Direct Reports and provides the Compensation Committee with (i) evaluations of each CEO Direct Report, including an evaluation of each person’s performance against his or her individual performance objectives and (ii) recommendations regarding any increase in each person’s base salary level, the individual performance rating for purposes of calculating his or her annual cash incentive payment and the amount of any long term equity award for each person.

 

The CEO, Chief Human Resources Officer, General Counsel and Vice President of Total Rewards attend Compensation Committee meetings, although they leave the meetings during discussions and deliberations of individual compensation actions affecting them personally and during the Compensation Committee’s executive sessions.

 

Elements of Compensation and Benefit Programs

 

To achieve our policy goals, the Compensation Committee has utilized the following components of compensation: base salary, annual cash incentives, long term equity incentives, benefits and perquisites. Different elements of the total compensation package serve different objectives. Competitive base salaries and benefits are designed to attract and retain employees by providing them with a stable source of income and security over time. Annual cash incentives are performance-based and designed to motivate and reward employees who make a positive impact on our business and achieve their individual performance objectives. Our grants of long term incentives also are

performance-based and linked directly to business objectives and, for our CEO and each CEO Direct Report, to individual objectives. The use of equity compensation supports the objectives of encouraging stock ownership and aligning the interests of the CEO and the CEO Direct Reports with those of our shareholders, as they share in both the positive and negative stock price returns experienced by other shareholders.

 

The only retirement programs we provide to our CEO and each CEO Direct Report are the ability to participate in BKC’s 401(k) plan and Executive Retirement Program as described below.

 

The Compensation Committee uses total direct compensation as its measurement when it determines the level and components of compensation for the CEO and the CEO Direct Reports. The Compensation Committee conducts a review of the total direct compensation of the CEO and the CEO Direct Reports using data provided by Mercer and Company management. For the CEO and the CEO Direct Reports, the Compensation Committee places more emphasis on the performance-based components of total direct compensation. For fiscal 2007, the total target performance-based pay for the NEOs (other than Mr. Brok) ranged from 65% to 83% of their total compensation. For Mr. Chidsey, the components of total direct compensation were targeted to be allocated as 162/3% base salary, 162/3% annual cash incentive and 662/3% long term compensation in the form of equity. For Mr. Klein, the components of total direct compensation were targeted to be allocated as 26% base salary, 21% annual cash incentive and 53% long term equity. For Messrs. Wells and Fallon and Ms. Chwat, the components of total direct compensation were targeted to be allocated as 31% base salary, 22% annual cash incentive and 47% long term equity. For Mr. Tan, the components of total direct compensation were targeted to be allocated as 35% base salary, 21% annual cash incentive and 44% long term equity. The CEO’s variable pay as a percentage of total pay exceeds that of the CEO Direct Reports due to the importance of aligning the interests of the CEO with those of our shareholders and the nature of the CEO’s role and responsibilities as compared to the CEO Direct Reports.

 

Base Salary

 

We provide base salaries to recognize the skills, competencies, experience and individual performance that the CEO and each CEO Direct Report brings to his or her position. The Compensation Committee annually reviews and approves the base salary of the CEO and each CEO Direct Report and submits the CEO’s base salary to the Board of Directors for approval. The Compensation Committee considers various factors such as the relevant employment agreement, the executive’s performance and responsibilities, leadership and years of experience, competitive salaries within the marketplace for similar positions, and his or her total compensation package. Upon consideration of these factors, the Compensation Committee decided that the base salaries for the CEO and each CEO Direct Report, except Mr. Klein, were appropriately positioned and therefore, for fiscal 2007, each NEO, except Mr. Klein, received only a 3% salary increase, pro-rated for time in position, if applicable, which was equal to the general salary increase budget for all U.S.-based salaried employees in fiscal 2007. The Compensation Committee also decided that Mr. Klein should receive a larger salary increase for fiscal 2007 to bring his base salary into the desired competitive range. The increase for all NEOs except Mr. Klein was below general industry average.

 

For fiscal 2008, our NEOs decided to forego base salary increases. Based on a review of executive compensation performed by Mercer, the Compensation Committee determined that, despite this decision, Mr. Wells should receive a base salary increase for fiscal 2008 to bring his base salary into the desired competitive range. Mr. Wells is the only NEO who received a base salary increase for fiscal 2008.

 

Annual Cash Incentive Program and Special Bonus

 

The CEO and the CEO Direct Reports are eligible to receive an annual performance-based cash bonus based on the Company’s performance and on their individual performance. The CEO, the CEO Direct Reports and over 1,350 Company employees are eligible to participate in this annual cash incentive program. For fiscal 2007, annual cash incentives were awarded under the BKC Fiscal Year 2007 Restaurant Support Incentive Program (the “RSIP”), which was implemented under our 2006 Omnibus Incentive Plan. This annual cash incentive is calculated for each eligible employee as a percentage of his or her base salary, based on Company and individual performance, as set

forth below. The formula for determining an eligible employee’s cash incentive under the RSIP (the “Payout Amount”) is:

Annual Base Salary

X

Target Bonus Percentage

X

Overall Business Performance Factor

X

Individual Performance Multiplier

=

Payout Amount

 

Target Bonus Percentage:  The employment agreement for each of the NEOs (other than Mr. Brok) establishes the annual target cash bonus opportunity for the NEO, expressed as a percentage of his or her then current base salary. The target annual cash bonus opportunities for the NEOs, other than Mr. Chidsey, range from 60% to 80% of base salary and the target annual cash bonus opportunity for Mr. Chidsey is equal to 100% of his base salary. Due to the nature of the CEO’s role and responsibilities, the CEO’s target cash bonus opportunity as a percentage of his base salary is greater than that of the CEO Direct Reports.

 

Overall Business Performance Factor:  The Overall Business Performance Factor is based (i) 50% on worldwide Company performance and (ii) 50% on the Company’s performance in the employee’s geographic area of responsibility, which is either worldwide or regional. For fiscal 2007, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was the measure used to determine the Overall Business Performance Factor. We establish worldwide and regional adjusted EBITDA targets and minimum threshold amounts which must be achieved in order for any payments to be made under the RSIP. If we achieve (i) the minimum “threshold” performance level, a 50% payout may be earned, (ii) the “target” performance level, a 100% payout may be earned, and (iii) the “maximum” performance level, a 200% payout may be earned. Given the roles and worldwide scope of responsibility of Messrs. Chidsey, Klein, and Wells and Ms. Chwat, the Overall Business Performance Factor for those NEOs was measured on a 100% worldwide basis. The Overall Business Performance Factor for Mr. Fallon and Mr. Tan, who have regional responsibilities, was measured 50% on a worldwide basis and 50% on a regional basis.

 

Our threshold, target and maximum performance goals under the RSIP are based on our Board-approved budget and business plan for the upcoming fiscal year. We consider our budget and business plan, and accordingly our performance goals, to be confidential and sensitive competitive information, particularly to the extent that the target performance goals relate to regional or business unit financial targets for which we do not provide publicly announced guidance. With respect to our Company-wide target performance goals as to which we currently provide publicly announced guidance, the assumptions underlying our budget and the assumptions underlying our publicly announced guidance may differ based on confidential strategic or operating plans or initiatives. To the extent that publicly announced guidance differs from our budget or is expressed as a range, we believe that disclosing a specific target performance goal that differs from our publicly announced guidance would implicitly, and inappropriately, disclose our confidential assessment of the likelihood of the Company achieving results at one end or the other of such disclosed range. Our target performance goals are set at the beginning of each fiscal year with the intent of being challenging, but achievable. Therefore, we anticipate that the targets will be frequently, but not automatically, achieved, while the achievement of maximum performance levels will be reached only if we significantly exceed our budget.

 

Individual Performance Multiplier:  For fiscal 2007, Individual Performance Multipliers ranged from 0 to 1.25, based on an individual’s performance rating. Individual performance ratings are determined for each employee at the end of each fiscal year based on achievement of that person’s individual performance objectives. Individual performance ratings are given on a scale of between 1 and 5, with 5 being the highest possible rating.

 

If the Company achieves the Overall Business Performance Factor at the maximum performance level, and the NEOs achieve the highest individual performance rating, the annual cash bonus earned by each of the NEOs would be as follows (expressed as a percentage of base salary): Mr. Chidsey, 250%; Mr. Klein, 200%; Messrs. Wells and Fallon and Ms. Chwat, 175%; Mr. Tan, 150%; and Mr. Brok, 98%.

 

For fiscal 2007, we exceeded our worldwide adjusted EBITDA target portion of the Overall Business Performance Factor. In making this determination, the Compensation Committee used reported adjusted EBITDA for fiscal 2007 as a starting point, and then excluded additional expense items that are one-time non-recurring charges which the Compensation Committee determined were not reflective of our overall financial performance, including costs

associated with our secondary offering during fiscal 2007 and restructurings in the EMEA and Asia Pacific regions. We also exceeded our adjusted EBITDA target performance levels for the North America, Latin America and Asia Pacific regions.

 

For fiscal 2007, the Compensation Committee evaluated the CEO and reviewed the individual performance evaluations that the CEO completed for each CEO Direct Report at the end of fiscal 2007. All of the NEOs rated Individual Performance Multipliers equal to or greater than 1.0. Taking into account business performance and individual performance, the payouts to our NEOs, except Mr. Brok, ranged between 93% and 132% of their base salaries. The lump sum severance payment due to Mr. Brok under the Compromise Agreement includes an estimate of his fiscal 2007 cash bonus; therefore, Mr. Brok was not eligible to receive a cash bonus under the RSIP for fiscal 2007.

 

The fiscal 2007 cash bonus payments for the CEO and the other NEOs are set forth in the following table:

 

2007 RSIP CASH BONUS

 

 

In fiscal 2007, we paid Mr. Klein a one-time cash bonus in the amount of $300,000, in addition to the cash bonus he earned under the RSIP, in recognition of extraordinary performance.

 

Long Term Equity Incentives

 

We believe that long term compensation is a critical component of our executive compensation program as a way to foster a long term focus on our financial results. Long term compensation is an incentive tool that we and the Compensation Committee use to align the financial interests of executives to the creation of sustained shareholder value. We believe that equity incentives are preferable to cash in a long term plan design for the following reasons: equity incentives are a common form of pay in most publicly traded companies, and we use these incentives to remain competitive in attracting and retaining executives; the ultimate value is impacted by share price gains or losses, linking executive returns to those of shareholders; once vested, stock options provide flexibility for the executive in deciding when to exercise their options and recognize income; and equity incentives provide an opportunity for executives to increase their stock ownership in us. The Compensation Committee has adopted an Equity Grant Policy and the Board of Directors has adopted Stock Ownership Guidelines. These policies are described below in the “Additional Features of our Executive Compensation Programs” section of this CD&A.

 

We award long term equity incentives annually to the CEO and each CEO Direct Report. These awards represent the largest component of the total direct compensation package for the CEO and the CEO Direct Reports. Individual target awards were established for fiscal 2007 based on the executive’s level, base salary, and for all NEOs other than the CEO, on individual performance during fiscal 2006. The CEO’s target award is not subject to adjustment based on his individual performance. For fiscal 2007, the target equity awards for the NEOs as adjusted for individual performance and as a percentage of their base salary were: Mr. Chidsey, 400%; Mr. Wells, 165%; Mr. Klein, 220%; Mr. Fallon, 150%; Ms. Chwat, 150%; Mr. Tan, 138%; and Mr. Brok, 75%. Individual target grants for fiscal 2007 were awarded on August 21, 2006.

 

Each year, the Compensation Committee decides the appropriate types and mix of equity awards. For fiscal 2007, the Compensation Committee decided to utilize 100% performance-based restricted stock, rather than a mix of restricted stock and options. This was because the CEO and several of the CEO Direct Reports had previously received significant option grants, some as recently as May of 2006, and the Compensation Committee wanted to

move towards a more balanced portfolio of equity to be in a position to reward, motivate and retain key talent as our stock fluctuates in value. Additionally, due to these prior option grants, fiscal 2007 long term equity incentives to the CEO and the CEO Direct Reports were based upon 50% of their ordinary target awards rather than 100%. The fiscal 2007 equity incentives to each of Messrs. Klein, Wells and Tan were increased from 50% to 55% of their target awards, in recognition of their individual performance in fiscal 2006.

 

The fiscal 2007 performance-based restricted stock awards for the CEO and the CEO Direct Reports other than Messrs. Tan and Brok were subject to increase or decrease by up to 50%, and for Messrs. Tan and Brok by up to 20%, at fiscal year end, based upon the financial performance of the Company during fiscal 2007. The measure of the Company’s performance for this purpose for fiscal 2007 was profit before taxes (“PBT”). The number of performance-based restricted shares actually awarded for fiscal 2007, after adjustment for Company performance and the resulting leverage factor, was as follows: Mr. Chidsey, 160,142; Mr. Wells, 28,075; Mr. Klein, 44,039; Mr. Fallon, 25,522; Ms. Chwat, 26,288; and Mr. Tan, 22,424. The performance-based restricted shares awarded to Mr. Brok in fiscal 2007 were forfeited as a result of the termination of his employment. As discussed above, we consider our budget and business plan, and accordingly our target PBT performance goals, to be confidential and sensitive competitive information.

 

The fiscal 2007 grants of performance-based restricted stock to Messrs. Wells, Klein, Fallon, and Tan will vest 100% after three years, and the grants to Mr. Chidsey and Ms. Chwat will vest 50% after three years and the remaining 50% after four years. The Compensation Committee considered the equity holdings of the CEO and CEO Direct Reports, and based on the existing vesting schedules for the outstanding equity of these NEOs, determined that a delayed vesting of a portion of the performance-based restricted stock award would further the Company’s retention goals for Mr. Chidsey and Ms. Chwat.

 

For fiscal 2008, the Company has granted the NEOs a combination of equity grants, with 50% of the value earned in the form of stock options and 50% of the value earned in the form of performance-based restricted stock or performance-based restricted stock units. The grant date was August 27, 2007. The option awards will vest ratably over four years and the performance-based restricted stock or performance-based restricted stock units will have a one year performance period ending June 30, 2008, and will vest 100% on the third anniversary of the grant date. The Company performance factor of PBT will continue to be used as the business objective measure for long term equity incentive awards. For fiscal 2008, the target equity awards for each NEO, as a percentage of his or her base salary, are: Mr. Chidsey, 400%; Mr. Klein, 200%; Messrs. Wells and Fallon and Ms. Chwat, 150%; and Mr. Tan, 125%.

 

Executive Benefits & Perquisites

 

In addition to base salary, annual cash bonuses and long term equity incentives, we provide the following executive benefit programs:

 

Executive Retirement Program

 

The Executive Retirement Program (“ERP”) is a non-qualified program available to senior-level employees in the U.S. This program permits voluntary deferrals of up to 50% of salary and 100% of cash bonus until retirement or termination of employment. Amounts deferred, up to a maximum of 6% of base salary, are matched by us on a dollar-for-dollar basis. Depending on the level at which we achieve specified financial performance goals, accounts under the plan also may be credited with up to an additional 6% of base salary by us. The financial performance goals for fiscal 2007 were based on adjusted EBITDA. The financial performance goals for fiscal 2008 also will be based on adjusted EBITDA. All amounts deferred by the executive, or credited to his or her account by us, earned interest for the first six months of fiscal 2007 at an annual rate of 8.5%, and for the second six months of fiscal 2007 at an annual rate of 8.0%. For fiscal 2008, each participating employee will earn interest at a rate that reflects the performance of investment funds that he or she selects from a pool of funds. All of our contributions vest ratably over the three-year period beginning on the date the employee commences employment. Our performance-based contribution for fiscal 2007 was 4.64% of base salary for all participating employees. Further details for the NEOs are provided in the 2007 All Other Compensation Table on page 27 and the Nonqualified Deferred Compensation Table on page 30.

Executive Life Insurance Program

 

The Executive Life Insurance Program provides life insurance coverage which is paid by us and allows U.S.-based executives to purchase additional life insurance coverage at their own expense. Coverage for our U.S.-based NEOs, which is paid by us, is limited to the lesser of $1.3 million or 2.75 times base salary. BKAP’s life insurance program provides life insurance coverage which is paid by BKAP. Under this program, employees receive coverage in an amount equal to 24 times the employee’s monthly salary. Further details are provided in the 2007 All Other Compensation Table on page 27.

 

Executive Health Plan

 

The Executive Health Plan is offered to our U.S.-based NEOs and serves as a fully insured supplement to the medical plan provided to all BKC employees. Out-of-pocket costs and expenses for deductibles, coinsurance, dental care, orthodontia, vision care, prescription drugs, and preventative care are reimbursed up to an annual maximum of $100,000. Further details are provided in the 2007 All Other Compensation Table on page 27.

 

Perquisites

 

Each NEO employed by BKC is provided with an annual perquisite allowance to be used, at his or her election, in connection with financial planning services, automobile allowance and additional life and other insurance benefits. Currently, the annual allowance amount is $50,000 for Mr. Chidsey and $35,000 for Messrs. Wells, Klein and Fallon and Ms. Chwat. Additional information regarding perquisites provided to the NEOs is set forth in the 2007 Perquisites Table on pages 26.

 

Certain Other Benefits

 

BKC also maintains a comprehensive benefits program consisting of retirement income and health and welfare plans. The objective of the program is to provide full time employees with reasonable and competitive levels of financial support in the event of retirement, death, disability or illness, which may interrupt the eligible employee’s employment and/or income received as an active employee. BKC’s health and welfare plans consist of life, disability and health insurance benefit plans that are available to all full-time employees.

 

Employment Agreements, including Change in Control and Severance Arrangements

 

Employment Agreement with Mr. Chidsey

 

On April 7, 2006, BKC entered into an employment agreement with Mr. John W. Chidsey, BKC’s CEO. The term of the agreement ends on April 6, 2009. At the end of the term, the agreement automatically extends for additional three-year periods, unless either party provides notice of non-renewal to the other at least six months prior to the expiration of the relevant period. Mr. Chidsey currently receives an annual base salary of $1,012,500. The employment agreement provides that Mr. Chidsey’s target annual cash bonus opportunity is 100% of his base salary; however, Mr. Chidsey has the opportunity to earn up to 250% of his base salary if the Company achieves its financial objectives at the maximum level and Mr. Chidsey receives the maximum individual performance rating pursuant to the RSIP. Mr. Chidsey may elect to receive up to 50% of his annual cash bonus in such non-cash form as the Compensation Committee makes available to members of our senior management team. On an annual basis, Mr. Chidsey also is entitled to receive a target annual performance-based equity grant (consisting of restricted stock, stock options or any combination thereof as determined by the Compensation Committee) with a grant date value equal to 400% of his base salary as described in the “Elements of Compensation and Benefit Programs” section of this CD&A. Mr. Chidsey also is entitled to receive an annual perquisite allowance of $50,000 and is entitled to private charter jet usage for business travel (and up to $100,000 per year for personal use).

 

If Mr. Chidsey’s employment is terminated without cause or he terminates his employment with good reason or due to his death or disability (as such terms are defined in the employment agreement), he will be entitled to receive an amount equal to two times his annual base salary and target annual cash bonus (or three times, if his termination occurs after a change in control). This severance amount will be payable over a period of six months on our regular payroll dates, commencing on the six month anniversary of the termination date and ending on the one year

anniversary of the termination date. Mr. Chidsey also will be entitled to continued coverage under BKC’s medical, dental and life insurance plans for he and his eligible dependents and payment of his perquisite allowance, each during the two-year period following termination (or three-year period, if his termination occurs after a change in control). If Mr. Chidsey’s employment is terminated due to his death or disability or during the 24-month period after a change in control of the Company either without cause or for good reason, all options and other equity awards held by Mr. Chidsey will vest in full and he will have one year to exercise such awards. Among other events, a resignation for any reason within the 30-day period immediately following the one-year anniversary of a change in control involving a strategic buyer (as determined by the Board) constitutes a termination by BKC without cause under the employment agreement. If any payments due to Mr. Chidsey in connection with a change in control would be subject to an excise tax, we will provide Mr. Chidsey with a related tax gross-up payment, unless a reduction in Mr. Chidsey’s payments by up to 10% would avoid the excise tax.

 

Employment Agreements with Messrs. Wells, Klein and Fallon and Ms. Chwat

 

Mr. Ben K. Wells, Chief Financial Officer, Mr. Russell B. Klein, President, Global Marketing, Strategy and Innovation, Mr. Charles M. Fallon, Jr., President, North America, and Ms. Anne Chwat, General Counsel and Secretary, are subject to employment agreements with BKC. The term of each of the agreements ends on June 30, 2008. At the end of the term, each executive’s employment agreement automatically extends for an additional one-year period and will continue to be so extended unless BKC provides notice of non-renewal at least 90 days prior to the expiration of the relevant period. These NEOs currently receive annual base salaries of $480,300 for Mr. Wells, $500,000 for Mr. Klein, $425,000 for Mr. Fallon, and $450,883 for Ms. Chwat. Messrs. Wells and Fallon and Ms. Chwat are eligible to receive a performance-based annual cash bonus with a target payment equal to 70% of his or her annual base salary if the Company achieves the target financial objectives set by the Compensation Committee for a particular fiscal year; however, he or she is eligible to receive a performance-based annual cash bonus of up to 175% of his or her base salary if the Company achieves its financial objectives at the maximum level and he or she receives the maximum individual performance rating pursuant to the RSIP. Mr. Klein is eligible to receive a performance-based annual cash bonus with a target payment equal to 80% of his annual base salary if the Company achieves the target financial objectives set by the Compensation Committee for a particular fiscal year; however, he is eligible to receive a performance-based annual cash bonus of up to 200% of his base salary if the Company achieves its financial objectives at the maximum level and he receives the maximum individual performance rating pursuant to the RSIP. Each executive may elect to receive up to 50% of his or her annual bonus in the form of restricted stock units or in any other non-cash form that the Compensation Committee makes available to members of BKC’s senior management team. Each executive also is entitled to receive an annual perquisite allowance of $35,000 and is eligible to participate in our long term equity programs.

 

If BKC terminates the executive’s employment without cause or if the executive terminates his or her employment with good reason (as defined in the relevant agreement), the executive will be entitled to receive his or her then current base salary and perquisite allowance for one year, payable in equal installments over one year beginning on the termination date, a pro-rata bonus for the year of termination and continued coverage for one year under BKC’s medical, dental and life insurance plans for him or her and his or her eligible dependents. Additionally, if the executive’s employment is terminated at any time within 24 months after a change in control of the Company either without cause or by the executive for good reason, all options held by the executive will become fully vested upon termination and he or she will have 90 days to exercise such options. See the 2007 Potential Payments Upon Termination or Change in Control Table on pages 30-32 for a description of accelerated vesting of other types of equity upon termination of employment without cause or for good reason following a change in control.

 

Employment Agreement with Mr. Tan

 

Mr. Peter Tan, President, Asia Pacific, is subject to an employment agreement with BKAP. The term of the agreement is not specified; however, under the terms of the agreement, either party may terminate the agreement with or without cause, in accordance with the notice provisions set forth in the agreement. Mr. Tan currently receives an annual base salary of $477,469. Mr. Tan is eligible to receive a performance-based annual cash bonus with a target payment equal to 60% of his annual base salary if the Company achieves the target financial objectives set by the Compensation Committee for a particular fiscal year; however, he is eligible to receive a performance-

based annual cash bonus of up to 150% of his base salary if the Company achieves its financial objectives at the maximum level and he receives the maximum individual performance rating pursuant to the RSIP. Mr. Tan also is entitled to receive an annual car allowance of $45,962 and is eligible to participate in our long term equity programs.

 

If BKAP terminates Mr. Tan’s employment without cause, he will be entitled to receive his then current base salary for one year, payable in equal installments beginning on the termination date, a pro-rata bonus for the year of termination and continued coverage for one year under BKAP’s medical, dental and life insurance plans for him and his eligible dependents.

 

The potential payments and benefits to the NEOs in the event of a termination of employment or change in control are described below in the 2007 Potential Payments Upon Termination or Change in Control Table on pages 30-32.

 

Non-Competition and Confidentiality

 

Each of the CEO and the CEO Direct Reports has agreed in his or her employment agreement: (i) not to compete with us during the term of his or her employment and for one year after the termination of employment; (ii) not to solicit our employees or franchisees during the term of his or her employment and for one year after termination; and (iii) to maintain the confidentiality of our information. If the executive breaches any of these covenants, we will cease providing any severance and other benefits to the executive and we may require the executive to repay any severance amounts already paid to him or her. See the “Clawback Policy” section of this CD&A for information about our right to recoup economic gains from equity grants if an employee violates any restrictive covenants contained in his or her employment or separation agreement.

 

Additional Features of our Executive Compensation Programs

 

Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, generally limits the tax deductibility of annual compensation paid by a publicly-held company to $1,000,000 for the CEO and the next four highest compensated officers of the Company. Because of our status as a newly public company, our existing compensation programs are eligible for special relief from this tax rule. Once this relief expires, the Compensation Committee intends to utilize performance-based compensation programs that meet the deductibility requirements under Section 162(m). However, the Compensation Committee also realizes that in order to attract and retain individuals with superior talent, the possibility exists that individual exceptions may occur.

 

Equity Grant Policy

 

On February 28, 2007, the Compensation Committee adopted an Equity Grant Policy governing the issuance of our equity. Under the Equity Grant Policy, the Compensation Committee may delegate to one of our officers the authority to make grants to any person other than the CEO, the CEO Direct Reports or our executive officers, except that until the Compensation Committee meets the independence requirements of Rule 16b-3 of the Exchange Act, all equity awards to the CEO, and other executive officers are subject to review and approval by the Board of Directors.

 

Under the Equity Grant Policy, our annual employee grants must be made on August 21^st of each year and our mid-year grants must be made on March 21^st of each year. The Company, with the approval of the Compensation Committee or pursuant to the delegation of authority described above, also may make additional grants at its discretion. These additional grants are generally made for purposes of recognition and retention, and to newly hired executives, and are to be awarded on the first day of the month following the date of approval of the equity award, or at a later date designated by the approving authority. No grants may be made on any of these predetermined dates if the grant date would fall on or within five days preceding our release of material non-public information. In this event, the grant date must be postponed until the first business day following the release.

 

Under the Equity Grant Policy, we set the exercise price of options and the fair market value of other equity awards at the closing price of our common stock on the NYSE on the date of the grant, or, if there is no reported sale on the grant date, then on the last preceding date on which any reported sale occurred.

Executive Stock Ownership Guidelines

 

On September 13, 2007, the Board adopted Executive Stock Ownership Guidelines (the “Guidelines”) establishing minimum equity ownership requirements for our CEO, executive vice presidents and senior vice presidents. The purpose of the Guidelines is to align the interests of those executives with the interests of shareholders and further promote our commitment to sound corporate governance. The minimum required ownership is determined as a multiple of the executive’s annual base salary, based upon the executive’s level, as follows: 4 times base salary for our CEO, 2.5 times base salary for Mr. Klein, 2 times base salary for all other executive vice presidents, 1.75 times base salary for all regional presidents and one times base salary for all other senior vice presidents.

 

The Guidelines identify the types of equity that may be considered in determining whether an executive has met the minimum ownership requirement. Executives will have between three and five years to reach the minimum requirement, depending upon the date they commenced employment with us. If an executive does not meet his or her minimum required ownership within the proscribed time period, then until he or she meets the requirement, he or she must retain 100% of all net shares received from the exercise or settlement of equity awards granted under our incentive plans. Once an executive achieves his or her minimum required ownership on or after the applicable deadline, he or she must maintain the minimum required ownership for as long as he or she is an employee.

 

Clawback Policy

 

As described in our standard equity award agreements issued after April 2006, the Compensation Committee may seek to recoup economic gains realized during the preceding year from the vesting, exercise or settlement of equity grants from an employee who violates any post-employment restrictive covenant, contained in his or her employment or separation agreement, including non-compete and confidentiality obligations.

 

COMPENSATION COMMITTEE REPORT

 

We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussions with management, we recommended to the Board of Directors, and the Board of Directors has approved, that the Compensation Discussion & Analysis be included in this proxy statement.

 

THE COMPENSATION COMMITTEE

 

Stephen G. Pagliuca, Chairman

Richard W. Boyce

Sanjeev K. Mehra

 

September 12, 2007

 

EXECUTIVE COMPENSATION

 

2007 SUMMARY COMPENSATION TABLE

 

 

 

The assumptions and methodology used to calculate the accounting expense recognized in fiscal 2007 for the Post-IPO Options are set forth in Note 3 to our Consolidated Financial Statements included in our Form 10-K for fiscal 2007. The assumptions and methodology used to calculate the expense associated with the Pre-IPO Options for purposes of this 2007 Summary Compensation Table are set forth below:

Valuation and amortization method— We determined the fair value of the Pre-IPO Options using the Black-Scholes option-pricing formula. This fair value was then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The Pre-IPO Options expire 10 years from the grant date and generally vest ratably over a five-year service period commencing on the grant date.

Expected Term — The expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to contractual terms of the awards, vesting schedules and expectations of future employee behavior. We determined the expected term of the Pre-IPO Options using the simplified method for “plain vanilla” options as discussed in Section D, Certain Assumptions Used in Valuation Methods, of SEC Staff Accounting Bulletin No. 107. Based on the results of applying the simplified method, we used five years as the expected term for all Pre-IPO Options.

Expected Volatility— As we were not a publicly traded company on the date that any of the Pre-IPO Options were granted, we have elected to base our estimate of the expected volatility of our common stock on the historical volatility of a group of our peers whose historical share prices for the relevant time frame are publicly available. The time frame used was five years prior to grant date.

Expected Dividend Yield— We used historical dividend yield trends as an estimate for future yields for all Pre-IPO Options. As we did not declare dividends prior to February 16, 2006, the dividend yield used for all Pre-IPO Options was 0.00%.

Risk-Free Interest Rate — We based the risk-free interest rate used in the Black-Scholes valuation method at the time of the stock option grant on the yield to maturity on zero-coupon U.S. government bonds having a remaining life equal to the option’s expected term.

 

The following assumptions were used to estimate the fair value of the Pre-IPO Options reflected in the 2007 Summary Compensation Table:

 

 

 

2007 PERQUISITES TABLE

 

Our NEOs received the following perquisites during fiscal 2007:

 

 

 

 

2007 ALL OTHER COMPENSATION TABLE

 

 

 

 

2007 GRANTS OF PLAN-BASED AWARDS TABLE

 

 

 

 

2007 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

 

 

 

 

2007 OPTION EXERCISES AND STOCK VESTED TABLE

 

 

 

 

 

 

 

 

2007 NONQUALIFIED DEFERRED COMPENSATION TABLE ⁽¹⁾

 

This table reports the fiscal 2007 contributions by the NEOs and the Company to the ERP and the aggregate account balances for the NEOs. Details of the ERP are discussed in the CD&A on page 20. Further details for the NEOs are provided in the 2007 All Other Compensation Table on page 27.

 

 

 

 

2007 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE

 

The potential payments and benefits that would be provided to each NEO as a result of certain termination events are set forth in the table below. Calculations for this table are based on the assumption that the termination took place on June 30, 2007.