John Schnatter. Photo: Kathy Hutchins/Shutterstock.com

Papa John's founder John Schnatter has agreed to resign from the company's board as part of the settlement of a Delaware Chancery Court lawsuit, which targeted investor restrictions tied to a poison pill that the company adopted in the wake of his ouster as the pizza chain's chief executive.

The agreement, filed this week with the U.S. Securities and Exchange Commission, also requires Papa John's to sever a voting agreement with an activist investor and scrap a provision of its poison pill that prevented stockholders from opposing certain board actions. Together, Schnatter and the company would select an independent director to serve on an expanded Papa John's board, according to the regulatory finding.

Schnatter, who owns about 31 percent of the company's shares, would relinquish his board seat once the new independent director is appointed.

The settlement puts an end to a contentious and multifaceted legal battle that Schnatter launched last year in Delaware, after he resigned as chairman amid reports that he had used a racial slur during a company training call. In January, Chancery Court Chancellor Andre G. Bouchard allowed Schnatter to access corporate documents related to his ouster, but said that any production would be limited to Schnatter's changing roles at the company.

Last month, Schnatter took aim in a separate Chancery Court lawsuit at the poison pill, which the company adopted in July to prevent him from acquiring any more stock. According to Schnatter's complaint, the poison pill contained a so-called “wolf-pack provision,” which prevents major investors like Schnatter from teaming up with other stockholders to take control of the company.

According to Schnatter, it was solely up to a special committee of the Papa John's board to decide when stockholders were “acting in concert” under the provision, essentially preventing investors from opposing corporate actions that they disagreed with.

The settlement, however, nixes the poison pill's “acting in concert” provision and obligates the company to scrap a requirement that Starboard Value LP, a New York investing fund that owns a nearly 10-percent stake in Papa John's, to vote in favor of the incumbent board at the company's annual stockholder meeting, currently slated for May.

Schnatter was represented in the case by Garland A. Kelley of Glaser Weil Fink Howard Avchen & Shapiro in Los Angeles and Peter B. Ladig, Brett M. McCartney and Elizabeth A. Powers of Bayard in Wilmington.

Under the settlement, Schnatter would still receive all the corporate documents obtained through his books-and-records action, and he retains his ability to assert new legal claims if those documents reveal additional wrongdoing on the part of company insiders.

In a statement, Schnatter said he was eager to work with Starboard CEO Jeffrey Smith and put the litigation behind him.

“I'm happy that we were able to enter into this agreement and allow the new leadership being implemented by Jeff Smith and Starboard to help Papa John's regain its strength and market position,” Schnatter said.

“I care deeply about its employees, franchisees and investors and am thankful that I've been able to resolve these important issues, and that we can all focus on the company's business without the need for additional litigation.”

A spokesman for the company declined Wednesday to comment on the settlement.

The Delaware case was captioned Schnatter v. Shapiro.