John Schnatter, founder of Papa John’s, has agreed to step down from the company’s board as part of a settlement resolving a prolonged battle over control of the pizza chain. The agreement follows months of legal and corporate conflict between Schnatter and the board, including multiple lawsuits and disputes over governance.
The company disclosed in a regulatory filing that it would collaborate with Schnatter to appoint an independent director unaffiliated with either him or Starboard Value LP, the hedge fund holding a nearly 10% stake. Schnatter, who owns 30% of the company’s shares, would resign from the board if the independent director is confirmed before the May annual stockholder meeting. This comes after his resignation as chairman in 2018, following allegations he used a racial slur during a media call.
Schnatter had previously filed lawsuits against Papa John’s to reclaim control of the business he founded in his father’s tavern. In January, a court ruled in his favor, compelling the company to release internal documents, including text messages related to his dismissal. After learning the board would not nominate him for re-election, Schnatter submitted a self-nomination, setting the stage for a potential proxy fight that the settlement now averts.
As part of the agreement, Papa John’s will provide Schnatter with full access to company records, allowing him to pursue legal action if wrongdoing is uncovered. In exchange, Schnatter has agreed to drop his ongoing lawsuits. "I am thankful that we have resolved these critical issues and can now focus on the company’s operations without further litigation," he stated.
The settlement also involves removing a poison pill provision that previously restricted Schnatter from engaging with other shareholders. Additionally, the company waived a requirement for Starboard to support the incumbent board. Earlier this month, Papa John’s reported a 7.3% decline in North American same-store sales for 2018, with continued challenges expected into 2019. Its shares rose 3% in early trading following the announcement.
