PNRA Panera Bread Company

Compensation Discussion and Analysis

This Compensation Discussion and Analysis is designed to provide our stockholders with an understanding of our compensation philosophy, objectives, programs and process, as well as the compensation paid to our named executive officers, or NEOs, in fiscal 2016. For fiscal 2016, our NEOs were:

Compensation Objectives and Philosophy

Our executive compensation program is designed to meet the following primary objectives:

Say-on-Pay Feedback from Stockholders

In 2016, we submitted our executive compensation program to an advisory vote of our stockholders and it received the support of over 91% of the total votes cast at our 2016 Annual Meeting of Stockholders. Our Compensation Committee considered the results of the advisory stockholder vote, together with the other factors and data discussed in this Amendment, in determining executive compensation decisions and policies. Our Compensation Committee will continue to consider the outcome of the say-on-pay votes as it reviews and determines the total compensation packages for our NEOs.

We provide benefits to our executive officers at levels that are generally comparable to those offered to all our full-time management employees. Perquisites are not a significant part of our executive compensation program. Both benefits and the limited perquisites we offer to our NEOs are described in more detail below.

Executive Compensation Processes and Roles of Management, the Compensation Committee, and the Compensation Consultant

Our executive compensation is based in part on the organization levels of our executive officers, which are comprised of Chief Executive Officer, Executive Vice Chairman, President, Executive Vice President and one Senior Vice President level.

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Each component of the compensation of our Chairman and Chief Executive Officer, Mr. Shaich, our Executive Vice Chairman, Mr. Moreton, and our President, Mr. Hurst, is established by our Board upon the recommendation of our Compensation Committee, with third party advisory support as determined appropriate by our Compensation Committee. Each component of compensation of our other executive officers is established by our Compensation Committee, upon the recommendation of our Chief Executive Officer and any third party advisers as determined appropriate.

The Compensation Committee has implemented an annual performance review program for our executives under which annual performance goals are determined early in each fiscal year for each of our executive officers. These goals may include both corporate goals and individual department-specific performance that facilitate the achievement of corporate performance. Annual bonuses are tied to the achievement of these performance goals.

During the first quarter of each fiscal year, we evaluate corporate and, as applicable, individual performance against the goals for the recently completed fiscal year. Our Chief Executive Officer presents to the Compensation Committee a recommendation for annual salary increases and annual bonus awards, if any, for each of the other executive officers other than our Executive Vice Chairman and our President. These recommendations are then discussed by the Compensation Committee, which approves salary increases and annual bonus awards for such executives. In the case of our Chairman and Chief Executive Officer, Executive Vice Chairman and President, their individual performance evaluations are conducted by the Compensation Committee, which recommends a salary increase and annual bonus award for such executive officer, if any, to the Board for consideration and approval.

The Compensation Committee and Board grant long-term equity and performance awards under our 2005 Long-Term Incentive Program, as amended, which we refer to as the LTIP, to our executive officers based on long-term incentive compensation targets that have been established. Newly hired and promoted executives may be granted supplemental awards, if any, at a Compensation Committee meeting following their hiring or promotion dates.

The Compensation Committee has the authority to retain compensation consultants and other outside advisors to assist in the evaluation of executive officer compensation. In fiscal 2016, our Compensation Committee retained an independent compensation consultant, W.T. Haigh & Company, Inc., or W.T. Haigh, to assist the Compensation Committee with the development of our 2016-2018 long-term incentive plan, the development of market long-term incentive practices in our peer companies and the review of this Compensation and Discussion and Analysis. W.T. Haigh reports directly to the Compensation Committee and does not provide any other services to us.

Market Surveys and Competitive Analysis

In fiscal 2016, in connection with its evaluation of long-term incentive practices in our peer companies, the Compensation Committee engaged W.T. Haigh to conduct a survey reviewing the forms and mix of long-term incentive compensation, including prevalence and weighting of performance-based long-term incentives, in our peer companies. The peer companies, which were unchanged from the fiscal year ended December 29, 2015, which we refer to as fiscal 2015, were selected based primarily on the balance of the following criteria:

Based on these criteria, our peer group for fiscal 2016 was comprised of the following 13 companies:

The Compensation Committee reviewed the peer group data presented by W.T. Haigh to supplement its general understanding of current long-term incentive compensation practices and levels.

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Determining Executive Compensation

Our Compensation Committee’s goal is to determine executive officers’ overall total compensation levels and to ensure such compensation reflects an appropriate mix between cash payments and equity incentive awards to meet short-, intermediate- and long-term goals and objectives. The mix of compensation is designed to reward achievement of annual performance objectives, drive mid- to long-term company performance and focus on the creation of stockholder value. At the target level of performance, variable, at-risk annual incentive bonuses and long-term incentive compensation are designed to constitute a significant percentage of an executive’s total compensation.

We offer total compensation packages for our NEOs at levels we consider to be competitive with the compensation paid to executive officers at companies of similar size in the restaurant, retail and consumer industries based on our overall experience in executive hiring and our review of publicly available information. Our executive compensation program is structured to be variable and to be consistent with shorter- and longer-term company and individual performance.

2016 Target Pay Mix for Named Executive Officers

With respect to compensation awarded in fiscal 2016, our target fixed compensation versus variable compensation was structured as follows for our Chief Executive Officer and other NEOs:

We believe our executive compensation should be structured to balance appropriately annual cash compensation with longer-term equity- and cash-based compensation elements. With respect to compensation awarded in fiscal 2016, our target annual cash versus long-term equity and cash-based compensation was structured as follows for our Chief Executive Officer and other NEOs:

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The following table sets forth the target percentages and actual percentages for salary, annual incentive bonus and long-term incentive compensation earned in fiscal 2016 by our NEOs.

Base Salary.     The base salary of our executive officers is intended to be competitive with the salary offered by companies of similar size in the restaurant industry. The base salaries of all of our full-time management employees, including our executive officers, are reviewed annually and may be increased to reflect an individual’s role, responsibility, experience or prior performance, cost-of-living adjustments, revised market standards, promotions or other adjustments, as determined appropriate by our Compensation Committee or Board. Annual base compensation reviews are conducted for increases and promotions during the first quarter of each fiscal year. Base compensation reviews are also conducted during the fiscal year as appropriate for promotions. The base compensation of all our full-time employees is paid through standard payroll payments.

The following table sets forth the annual base salaries of our NEOs as of December 27, 2016 and December 29, 2015.

For fiscal 2016, the Board and the Compensation Committee approved a 3% increase in base salary for all NEOs, except for Messrs. Bufano, Koziol and Madsen. The Board and the Compensation Committee approved such salary increase in an effort to ensure internal salary equity, remain competitive with companies with which we compete for executive talent and attract the essential executive talent we believe is necessary for us to achieve our goals and objectives. A 3% increase for Mr. Bufano for fiscal 2016 was prorated from his date of promotion to Senior Vice President and Chief Financial Officer on April 15, 2015. A 3% increase for Mr. Koziol for fiscal 2016 was prorated from his date of hire on April 27, 2015. A 3% increase for Mr. Madsen for fiscal 2016 was prorated from his date of hire on May 11, 2015.

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Annual Incentive Bonus.     We believe that cash bonuses are an important factor in motivating our executive officers to perform at their highest level toward achievement of our primary company annual performance objectives. We believe achievement of these objectives will improve short-term operational and financial results, long-term growth and stockholder value. We also believe that establishing cash bonus opportunities is an important factor in attracting and retaining talented and qualified executives.

For fiscal 2016, the target annual incentive bonus for our NEOs ranged from 40% to 100% of each executive officer’s base salary, based on organization level, with a maximum range of bonus payout potential from zero to two times the executive’s target bonus. The following are the fiscal 2016 target annual incentive levels for our NEOs:

The annual incentive bonus for our NEOs, if any, is discretionary and is typically based on the attainment of company-wide performance goals, which are designed to improve our overall operational and financial results. These goals are approved by our Board and the Compensation Committee annually. Each company-wide performance goal is prioritized and weighted as a portion of the total potential bonus payout. The performance expectations for each performance goal at the target bonus payment level are generally set at a level that is considered difficult to achieve, but attainable. Based on the level of achievement against these goals, each participant is eligible to receive a bonus payment equal to a specified percentage of his annual salary. Our Board and the Compensation Committee then are permitted to exercise discretion in evaluating awards and approving the final award payouts.

Our annual performance bonus metrics are designed to drive key initiatives in order to achieve our short-, medium- and long-term financial goals. The determination of these goals begins with our annual internal financial planning process. Given that fiscal 2016 represented the culmination of several years of significant investments and the execution of several new and recently commenced key initiatives intended to drive the long term success of the business, our Board and Compensation Committee determined that it was appropriate to measure executive performance for purposes of determining bonus payouts by evaluating Panera’s progress in fiscal 2016 against its significant key initiatives. These broad initiatives, which were established by our management and reviewed by our Board and the Compensation Committee at the beginning of fiscal 2016 and which we refer to as the Key Initiatives, included the following:

While we do not publicly disclose our internal metric targets because of the potential competitive harm that would result, we publicly announce more general performance measures, such as same store sales for the Company and diluted earnings per share, or EPS, which the achievement of the Key Initiatives are intended to drive.

For fiscal 2016, the Board’s assessment of Panera’s overall performance related to the Key Initiatives comprised the sole corporate performance measure for our annual incentive bonus. The annual incentive bonus was structured so that overall achievement at the targeted level of the Key Initiatives would result in bonus payout achievement at 100 percent – in other words, at target. Achievement above or below the targeted level of the Key Initiatives as determined by the Board would result in adjustments upward or downward to the bonus payouts.

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With respect to our Board’s assessment of our performance relative to the Key Initiatives, our Board and the Compensation Committee reviewed the Key Initiatives and during the course of fiscal 2016 evaluated our progress against these initiatives on a regular basis at its periodic meetings. This evaluation culminated with a final review of a comprehensive written update setting forth each of our Key Initiatives and the progress against each during which the Compensation Committee and the Board approved annual incentive bonus payouts. During this evaluation, our Board and the Compensation Committee determined that we had made significant and meaningful progress against the Key Initiatives, including projects related to our Panera 2.0 initiatives, catering and small order delivery and operational excellence. The Board and the Compensation Committee noted in their determination the improving comparable sales performance over the course of fiscal 2016, both in absolute terms and when compared to the industry Black Box composite index provided by Black Box Intelligence, a data provider that offers restaurant and service analytics including revenue, expenses and consumer traffic data to its member participants . The Board and the Compensation Committee recognized the progress made against the Key Initiatives throughout fiscal 2016, together with the fact that Panera had exceeded its earnings targets for the year, which resulted in an increase in EPS in fiscal 2016 as compared to fiscal 2015, improved sales and expanded bakery-cafe margins.

As a result of the determination of our Board and the Compensation Committee described above, the bonus payout achievement for fiscal 2016 was scored at 125% of the target level. The annual incentive bonus payments for Messrs. Shaich and Hurst represented 125% of their respective target annual incentive level. The annual incentive bonus payment for Mr. Bufano represented 145% of his target annual incentive level, representing the additional consideration by the Board and the Compensation Committee of Mr. Bufano’s individual performance, specifically his contributions to the Company’s refranchising efforts as well as more broadly with respect to financial planning, analysis and reporting related to the Company’s progress against its transformational plan. The annual incentive bonus payment for Mr. Koziol represented 135% of his target annual incentive level, representing the additional consideration by the Board and the Compensation Committee of Mr. Koziol’s individual performance, specifically his contributions to the Company’s success in meeting its internal goals related to cost savings initiatives related to sourcing and distribution. The annual incentive bonus payment for Mr. Chapman represented 120% of his target annual incentive level, representing the additional consideration by the Board and the Compensation Committee of Mr. Chapman’s individual performance related to Company operations. As a result of his resignation, Mr. Madsen was not entitled to receive an annual incentive bonus for fiscal 2016.

The payment and amount of Mr. Shaich’s annual bonus is discretionary and determined by our Board following a review of our performance during the fiscal year on which the bonus is based. In making its determination, our Board, upon the recommendation of our Compensation Committee, may consider any number of factors, including the achievement of our corporate performance goals for that year and the recommendation of management and third party advisers. For fiscal 2016, our Board approved an annual incentive bonus for our Chairman and Chief Executive Officer at 125% of his target opportunity consistent with the determination of the Compensation Committee described above.

The following table sets forth the annual incentive bonuses paid to each of our NEOs for fiscal 2016:

Other Eligible Employees and Other Programs.     The annual incentive bonus program is offered to all of our other employees at the manager level and above. Eligibility for our other management employees varies primarily by the organization level and level of achievement of each of several pre-established incentive goals approved by our Chairman and Chief Executive Officer. In place of the annual management incentive bonus program, we also offer special cash incentive bonus programs to targeted full-time management employees in an effort to accomplish key company initiatives. These special cash incentive bonus programs are tailored to drive achievement of our company performance objectives specifically targeted to our store operations, real estate development and manufacturing, as well as to reward applicable individual performance standards, including but not limited to safe driving records, customer service, sanitation and safety.

Long-Term Incentive Program Compensation

Our NEOs, along with our other management employees, are eligible to participate in our LTIP, which is a sub-plan under our 2015 Stock Incentive Plan.

Our LTIP is designed to align our executives’ long-term goals with those of our stockholders by providing participants with incentives to drive our long-term performance over multi-year periods. Each award to our executive officers typically includes an annual grant of equity (restricted stock and stock settled appreciation rights, or SSARs), which vest over a five-year period, and also a payment of cash or stock (or a combination thereof), based on our cumulative achievement of various operating performance metrics over a three-consecutive-fiscal-year period, which we refer to as an LTIP performance period. Participation in our LTIP in any given year is discretionary, as determined by our Compensation Committee, upon the recommendation of our Chairman and Chief Executive Officer.

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The LTIP awards to our executive officers and other officers at the Vice President level are typically comprised of any or all of the following:

A significant portion of our equity awards is directly tied to our long-term performance:

The performance award component of our LTIP, described below in more detail, comprises half of the target LTIP award payments. Restricted stock award and choice award components, also described below in more detail, together comprise the other half of these target award payments. The actual award payment of the performance award component will be adjusted, based on our performance over an LTIP performance period over which that component is measured and the restricted stock and choice components are variable based on our stock price performance. All LTIP grants are made at regularly scheduled meetings of our Board and Compensation Committee or, upon determination of the Compensation Committee, at a meeting convened on the first business day of any intervening month as appropriate.

The values of the LTIP grants made in fiscal 2016 to our NEOs are set forth in the table below. Values reflected for each component are expressed as a percentage of annual base salary (at the rate in effect on the grant date) from which they are determined. The values reflected in the table below differ from the values set forth in the Summary Compensation Table and the Grants of Plan-Based Awards Table with respect to choice awards because executives who elect to receive SSAR awards are granted such SSAR awards not as percentage of salary but rather as a ratio, based on a multiple determined by us, of the overall restricted stock grant the executive would have received had the award been granted 100% in restricted stock; and with respect to restricted stock awards, due to rounding since we do not grant fractional shares:

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Restricted Stock Awards.     Restricted stock awards make up 25% of each participant’s total LTIP annual target opportunity. Restricted stock awards are granted annually and are comprised of shares of Class A Common Stock that are subject to forfeiture. The shares of restricted stock underlying the restricted stock awards may not be sold or transferred and are generally not entitled to receive dividends paid on the Class A Common Stock, if any, until such shares vest. The shares of restricted stock vest over five years, with 25% of such shares vesting on each of the second, third, fourth and fifth anniversaries of the approved vesting reference date, subject to continued employment with us. In the event of the executive’s death or disability between two vesting accrual periods, a pro rata portion of the additional restricted stock which would have vested had the participant not died or become disabled prior to the vesting accrual period next following the death or disability will be vested. Awards to our NEOs under the restricted stock award component, expressed as a percentage of base salary, ranged from 25% to 75% in fiscal 2016, based on the NEO’s organization level. Restricted stock awards were included in the LTIP to provide eligible participants with direct equity ownership, while also providing incentives to remain employed with us throughout the five-year period over which the shares underlying the award vest.

Choice Awards.     Choice awards are granted annually in the form of restricted stock and/or SSARs and make up 25% of each participant’s total LTIP annual target opportunity. The executive can elect to receive restricted stock or a SSAR award, or a combination of restricted stock and a SSAR award. A SSAR award entitles the recipient to the right to receive the appreciation in value of such number of shares that is equal to a multiple of the number of shares of restricted stock that would have been awarded to the recipient under a restricted stock award. In fiscal 2016, the applicable multiple as determined by the Compensation Committee was four SSARs for each share of restricted stock. SSARs granted pursuant to a choice award have an exercise price equal to the closing price of the Class A Common Stock on The NASDAQ Global Select Market on the date of grant. SSARs vest over the same five-year period as restricted stock awards as described above, with 25% vesting on each of the second, third, fourth and fifth anniversaries of the approved vesting reference date, subject to continued employment with us. The SSARs expire six years from the date of grant, but will be subject to earlier termination as provided in the award agreement. In the event of the executive’s death or disability between two vesting accrual periods, a pro rata portion of the additional portion of the SSAR that would have vested had the participant not died or become disabled prior to the vesting accrual period next following the death or disability will be vested. The provisions of the restricted stock awards described above also apply to the choice awards that the executive elects to receive as restricted stock awards, if any. Awards to our NEOs under the choice award component, like the restricted stock award component, expressed as a percentage of base salary, ranged from 25% to 75% in fiscal 2016, based on the NEO’s organization level. Taking the restricted stock award and choice award components together, the range of target awards to our NEOs for both components is 50% to 150% of base salary, based on the executive officer’s organization level. Choice awards were included in the LTIP to provide eligible participants with the flexibility to choose the form of award, given that each individual’s financial and other circumstances may vary.

Performance Awards.     The performance award component is based on the level of our cumulative achievement of predetermined performance metrics in each of three consecutive fiscal years which comprise the LTIP performance period for which the award is made. The performance award component makes up 50% of each participant’s total LTIP annual target opportunity. The performance award is earned based on our achievement of these predetermined company performance metrics, assuming the recipient remains employed by us throughout the LTIP performance period and on the date of payment. The performance metrics are established by our Compensation Committee and approved by our Board during the first year of the LTIP performance period to which the metrics pertain. Each performance metric, weighting of each metric, and award levels for each metric of the performance awards are communicated to each recipient. The performance awards are payable in a combination of cash and whole shares of Class A Common Stock as the Compensation Committee determines. The target award payment for the NEOs ranges from 50% to 150% of base salary, based on organization level. However, the actual award payment will be adjusted, based on our performance over the LTIP performance period, and any other factors as determined by our Compensation Committee. The actual award payment for the performance award component ranges from zero, since it is eliminated if we fail to achieve the minimum threshold level for one or all of our performance metrics, as applicable, over the LTIP performance period, to double the individual’s targeted award payment if we achieve maximum performance in one or all of our performance metrics, as applicable, subject to any adjustments as determined by our Compensation Committee. Additionally, our Compensation Committee may adjust the actual award payments up to the executive’s targeted award payout in the event the minimum threshold level of performance established by the Compensation Committee is not achieved if, in Compensation Committee’s judgment, our company’s performance during the LTIP performance period is comparable or exceeds that of its peers, as determined by the Compensation Committee. In fiscal 2015, choice awards and restricted stock awards, which, together, we refer to as replacement awards, were granted to certain employees, including our NEOs, in lieu of granting 2015-2017 performance awards.

Our Board, on the recommendation of the Compensation Committee, has determined that, consistent with the terms of the LTIP, certain employees hired or promoted after the commencement of an existing LTIP performance period and eligible to receive performance awards under the LTIP would be eligible to receive payouts under such performance awards on a pro rata basis with respect to such LTIP performance period.

2014-2016 Performance Awards: The LTIP performance period for LTIP performance awards granted in fiscal 2014, or the 2014-2016 performance awards, ended at the close of fiscal 2016. The LTIP performance award structure, performance target, performance results, value of the component as a percentage of the target value of each award and the actual payout as a percentage of the target value of each award were as follows:

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The cumulative achievement of the performance metric for the 2014-2016 performance awards for the performance period resulted in a calculated payout of 0% of each participant’s target award payment. Consistent with its discretionary authority to determine the appropriate payout for performance awards under the LTIP, with respect to the 2014-2016 performance awards, the Compensation Committee reviewed both the achievement of the performance metric for the performance period and then applied its judgment of Panera’s overall performance, particularly during fiscal 2015 and fiscal 2016, and relative to similar companies in our business segment. While the actual achievement of the performance metric for the performance period resulted in the calculated payout of 0% of an individual’s target award payment, the Compensation Committee determined that it was appropriate to award payouts at a higher level than the calculated payout (but less than the target award payments). In making this determination, the Compensation Committee considered Panera’s improving comparable same store sales during the performance period in both absolute terms and when measured against its industry peers as reflected in the Black Box all-industry index, which such comparable same store sales outperformed the index at an accelerating rate in fiscal 2015 and fiscal 2016. Additionally, the Compensation Committee noted that we had made significant strides against our key strategic initiatives during the performance period related to our transformation plan as indicated by recent trends in its key financial metrics during fiscal 2016, most notably the Company’s positive EPS growth of 7% for fiscal 2016. As such, the Compensation Committee determined that the appropriate payout for the 2014-2016 performance awards should be set at 75% of a participant’s target award payment, instead of the calculated payout.

In March 2017, our Compensation Committee approved the payment of performance awards entirely in cash for the LTIP performance period ending in fiscal 2016. Based on the actual payout as a percentage of the target value of each award, the payments to our NEOs for the 2014-2016 performance awards, which were paid in March 2017, were as follows:

Other Eligible Employees.     The LTIP program, subject to certain adjustments based on the organization level or role of the participants, is generally available to all our full-time management employees. For fiscal 2016, approximately 877 employees received LTIP grants, including, in addition to our NEOs, three other current executive officers and approximately 868 other management employees.

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Benefits

We make the following benefit packages generally available to our full-time employees, including our NEOs, upon satisfaction of eligibility requirements:

Perquisites

We also offer limited perquisites to our executive officers, which are not generally available to all employees, as follows:

Chairman and Chief Executive Officer .    Our Board has approved the following benefits for Mr. Shaich, which he is eligible to receive for as long as he serves as our Chairman and Chief Executive Officer:

Executive Vice Chairman.     Our Board has approved the following benefits for Mr. Moreton, which he is eligible to receive for as long as he serves as our Executive Vice Chairman:

President .    Our Board has approved a monthly car allowance of $1,500 for Mr. Hurst, which he is eligible to receive for as long as he serves as our President:

Executive Vice President, Chief Operating Officer .    Our Board has approved the reimbursement for travel from Mr. Chapman’s home to our office in Needham, Massachusetts, which Mr. Chapman is eligible to receive for as long as he serves as our Executive Vice President, Chief Operating Officer.

In making its determination to approve these services, our Board considered the range of these perquisites at other companies along with the travel requirement which may be placed on Mr. Shaich in visiting company-owned and franchise-operated bakery-cafes and attending meetings with our employees, franchisees, vendors and stockholders. Mr. Shaich is also approved to have his family accompany him in the chartered jet on business trips provided the aggregate incremental cost to us is de minimis.

Other NEOs

Our Board has approved the following benefits for our other NEOs:

Except as described above, none of our NEOs is offered any other form of compensation qualifying as perquisites.

Employment Agreements

We do not have employment agreements with any of our NEOs, and we do not provide them any benefits payable by reason of retirement (other than under our 401(k) plan, as described in the Summary Compensation Table). However, each of our NEOs is subject to a non-competition agreement. For all our employees at the director level and above including our NEOs, as well as certain individuals in positions below the director level, the non-competition agreements provide for payments of separation pay in the form and amount of continued base pay for up to specified terms, reduced by compensation received from other sources, along with continued health, and in some instances 401(k), benefits for the same term, in the event of our termination of employment without cause. The length of the maximum term during which separation pay may continue correlates to the applicable organization level, which in the case of our NEOs and all other executive officers, is one year.

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Announcement of Transaction with JAB Holdings B.V.

On April 4, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Rye Parent Corp., a Delaware corporation (“Parent”), Rye Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and JAB Holdings B.V., a private limited liability company incorporated under the laws of the Netherlands (“JAB”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of (i) Class A common stock, with a par value of $0.0001 per share, of the Company (the “Class A Common Stock”), and (ii) Class B common stock, with a par value of $0.0001 per share, of the Company (the “Class B Common Stock”, and, together with the Class A Common Stock, the “Common Stock”), except for certain excluded shares, will be automatically cancelled and converted into the right to receive $315.00 in cash (the “Merger Consideration”).

In addition, subject to the terms and conditions of the Merger Agreement, at the Effective Time, (a) each outstanding stock option and stock appreciation right of the Company will accelerate and become fully vested and will be converted into the right to receive a cash amount based on the spread, if any, of the Merger Consideration over the exercise price payable per share under such stock option or stock appreciation right, as applicable, (b) each outstanding restricted share of the Company will accelerate and become fully vested and receive the same treatment as the Common Stock, in each case, paid as soon as reasonably practicable after the Effective Time, net of any applicable withholding taxes. In addition, each outstanding performance award of the Company for which the performance period has not ended will be cancelled and converted into the right to receive a cash amount based on the greater of target and actual performance determined through the Effective Time, to be paid as follows: (i) a pro-rata portion of each performance award will be paid as soon as reasonably practicable after the Effective Time; and (ii) the remaining portion of each performance award will be paid on the earlier of the date on which such performance award was originally scheduled to vest (subject to the holder’s continued employment with the Company or any of its affiliates through such date), and the holder’s termination of employment without cause or resignation for good reason, in each case, net of any applicable withholding taxes.

In connection with the Merger, the Company entered into a Non-Competition Agreement with Mr. Shaich. The Non-Competition Agreement restricts Mr. Shaich, for a period of one year following his termination of employment with the Company for any reason, from engaging in competitive activities against the Company and from soliciting the Company’s employees, contractors, consultants, catering customers or franchisees. As consideration for the non-competition and non-solicitation covenants, Mr. Shaich will receive a lump sum payment of $7 million upon the closing of the Merger, which Mr. Shaich will be required to repay to the Company if he violates the covenants during the one year restricted period. The Non-Competition Agreement also provides that Mr. Shaich will be entitled to receive a lump sum payment equal to three times the sum of his base salary and target annual incentive bonus upon his termination by the Company without cause or by Mr. Shaich for good reason, each as defined in the Non-Competition Agreement (a “qualifying termination”), or, if later, upon the second anniversary of the Closing. Upon a qualifying termination, Mr. Shaich will also be eligible to receive a pro-rated portion of his annual incentive bonus based on actual performance and paid at the time such bonuses are paid to similarly situated employees and 18 months of continued medical insurance coverage.

The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement originally filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on April 5, 2017, and which is incorporated herein by reference.

Accounting and Tax Considerations

The corporate financial reporting and income tax consequences of individual compensation elements are important considerations for the Compensation Committee when it is analyzing the overall level of compensation and the mix of compensation among individual elements. Overall, the Compensation Committee seeks to balance its objective of providing an effective compensation package to our NEOs with the desire to maximize the deductibility of compensation, while ensuring an appropriate (and transparent) impact on reported earnings and other closely followed financial measures.

Section 162(m) of the Internal Revenue Code, as amended, generally disallows a tax deduction to public companies for annual compensation in excess of $1,000,000 that is paid to the company’s chief executive officer and to each other officer (other than its chief executive officer and chief financial officer) whose compensation is required to be reported to stockholders pursuant to the Exchange Act by reason of being among the company’s three most highly paid executive officers. Certain compensation, including qualified “performance-based” compensation, will not be subject to the deduction limit if certain requirements are met. The Compensation Committee reviews the potential effect of Section 162(m) periodically and may, in its judgment after considering the tax consequences and financial effects such action may have on us, design and authorize compensation elements that may not be deductible under Section 162(m) when it believes that such compensation is appropriate and in our best interests.

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Summary Compensation

The following table sets forth information regarding the compensation earned by or paid to our NEOs during the fiscal years indicated.

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Grants of Plan-Based Awards

The following table sets forth information concerning each grant of an award made to a NEO during fiscal 2016 under any plan, contract, authorization or arrangement pursuant to which cash, securities, similar instruments or other property may be received.

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Information Relating to Equity Awards and Holdings

The following table sets forth information concerning restricted stock that has not vested, stock options that have not been exercised and equity incentive plan awards for each of our NEOs outstanding as of December 27, 2016.

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The following table sets forth information concerning the exercise of stock options and vesting of restricted stock during fiscal 2016 for each of our NEOs.

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Potential Payments Upon Termination or Change-in-Control

The table below shows the estimated incremental value transfer to each of our NEOs, except for Mr. Madsen, under various scenarios relating to a termination of employment. The tables below assume that such termination occurred on December 27, 2016, the last day of fiscal 2016. The actual amounts that would be paid to any NEO can only be determined at the time of an actual termination of employment and would vary from those listed below. The estimated amounts listed below are in addition to any retirement, welfare and other benefits that are generally available to our full-time employees.