Filed On 3/27/95 ˇ SEC File 0-17962 ˇ Accession Number 853665-95-8
As Of Filer Filing On/For/As Docs:Pgs
3/27/95 Applebees International Inc PRE 14A 12/25/94 4:50
Preliminary Proxy Solicitation Material ˇ Schedule 14A
Filing Table of Contents
Document/Exhibit Description Pages Size
1: PRE 14A Preliminary Proxy Statement 26 163K
2: EX-99 Proposed Amendment to Certificate of Incorporation 1 6K
3: EX-99 1995 Equity Incentive Plan 21 81K
4: EX-99 Proxy Card 2 10K
APPLEBEE'S INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 26, 1995
To the Stockholders of Applebee's International, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Applebee's International, Inc., a Delaware corporation (the
"Company"), will be held on May 26, 1995, at 10:00 a.m., CDT, at 4551 W. 107th
Street, Suite 100, Overland Park, Kansas 66207 for the following purposes:
I. To approve an amendment to the Company's Certificate of Incorporation
which would classify the Board of Directors into three classes, each
with a term of three years;
II. To elect ten directors;
III. To amend the 1989 Stock Option Plan to increase the number of shares
of Common Stock subject to option thereunder by 1,500,000 shares;
IV. To approve the adoption of the Company's 1995 Equity Incentive Plan;
V. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 1995 fiscal year; and
VI. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
THE BOARD OF DIRECTORS RECOMMENDS A "YES" VOTE ON ALL PROPOSALS.
The Board of Directors has fixed the close of business on April 14, 1995,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT
THE MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING.
By Order of the Board of Directors
Robert T. Steinkamp, Secretary
Overland Park, Kansas
April 24, 1995
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APPLEBEE'S INTERNATIONAL, INC.
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Applebee's International, Inc., a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on May
26, 1995, at 10:00 a.m. CDT, and at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting
of Stockholders. The Annual Meeting will be held at the Company's principal
executive office, 4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207.
This proxy statement and accompanying proxy ("Proxy Statement") will be
mailed on or about April 24, 1995, to all stockholders entitled to vote at the
Annual Meeting.
Voting Rights and Outstanding Shares
Only stockholders of record at the close of business on April 14, 1995,
will be entitled to notice of and to vote at the Annual Meeting. At the close of
business on April 14, 1995, there were [ ] outstanding shares of the Company's
common stock, par value $.01 per share (the "Common Stock"). Each share of
Common Stock outstanding on the record date is entitled to one vote. Approval of
Proposal I requires the affirmative vote of a majority of the shares of Common
Stock outstanding and entitled to vote. Approval of Proposals III, IV and V
requires the affirmative vote of a majority of the outstanding shares of Common
Stock represented at the meeting and entitled to vote. Thus, abstentions and
broker non-votes (i.e., shares present by proxy but for which no voting
authority has been given the record holder by the beneficial holder) have the
effect of votes against the proposals. Because directors are elected by a
plurality of the votes cast, abstentions and broker non-votes will not affect
the outcome of the election of directors.
On April 14, 1995, the closing sale price reported on The Nasdaq Stock
Market for a share of the Common Stock was $[ . ] (as reported by the National
Quotation Bureau, Inc.).
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office a written
notice of revocation or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
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Solicitation
The Company will bear the entire cost of solicitation of proxies in the
enclosed form, including preparation, assembly, printing and mailing of this
Proxy Statement and any additional information furnished by the Company to
stockholders. Original solicitation of proxies by mail may be supplemented by
telephone, telegraph or personal solicitation by directors, officers or other
regular employees of the Company or by agents employed by the Company for the
specific purpose of supplemental proxy solicitation. Such soliciting agents, if
engaged, would be paid a reasonable fee for their services. No additional
compensation will be paid to directors, officers or other regular Company
employees for such services.
Stockholder Proposals
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1996 Annual Meeting of Stockholders must comply
with the rules of the Securities and Exchange Commission ("SEC") and be received
by the Company from qualified stockholders no later than December 26, 1995 in
order to be included in the proxy statement and proxy relating to that meeting.
Certain Information Concerning the Board of Directors
ABE J. GUSTIN, JR., age 60. Mr. Gustin has been a director of the Company
since September 1983 when the Company was formed. He served as Chairman of the
Board of Directors of the Company from September 1983 until January 1988 and was
again elected as Chairman in September 1992. He was Vice President from November
1987 to January 1988, and from January 1988 until December 1994, he served as
President of the Company. Mr. Gustin continues to serve as Chief Executive
Officer of the Company. From 1983 to 1990, he also served as Chairman of Juneau
Holding Co., a Kansas City, Missouri-based firm which at one time owned and
operated 18 Taco Bell restaurants. Mr. Gustin has over 15 years of experience in
the restaurant industry. Mr. Gustin currently serves as a member of the
Strategic Planning Committee and served as a member of the Audit Committee until
January 1995.
D. PATRICK CURRAN, age 50. Mr. Curran became a director of the Company in
November 1992. He has served as Chief Executive Officer of the Curran Companies
in North Kansas City, Missouri since August 1979. Mr. Curran serves as a member
of the board of directors of Sealright Co., Inc., Unitog Company, and American
Safety Razor Company, all publicly traded corporations. Mr. Curran serves as a
member of the Audit Committee, the Executive Compensation Committee, the
Nominating Committee and the Strategic Planning Committee.
ERIC L. HANSEN, age 46. Mr. Hansen was elected a director of the Company in
January 1991. He is presently a partner in the Kansas City law firm of Holman,
McCollum and Hansen, P.C., a professional association. From September 1984 to
December 1990, he served as a tax partner at Deloitte & Touche LLP, and from
September 1974 to September 1984, he was a certified public accountant with
Deloitte & Touche LLP. Mr. Hansen serves as a member of the Audit Committee, the
Executive Compensation Committee and the Strategic Planning Committee.
JACK P. HELMS, age 42. Mr. Helms became a director of the Company in March
1994. He is presently a principal and shareholder in the investment banking firm
of Goldsmith, Agio, Helms and Company in Minneapolis, Minnesota. From May 1978
to January 1986, Mr. Helms was a partner in the law firm of Fredrikson & Byron,
P.A. in Minneapolis, Minnesota. Mr. Helms serves as a member of the Audit
Committee, the Executive Compensation Committee and the Strategic Planning
Committee.
KENNETH D. HILL, age 61. Mr. Hill became a director of the Company in
November 1992. He was employed by the Company in April 1991, serving as
Executive Vice President and Chief Operating Officer until January 1994, when he
was named President of International Development. Effective February 28, 1995,
Mr. Hill resigned as an employee and officer of the Company and became a
consultant to the Company for governmental affairs, industry relations, and new
3
concept development. From May 1990 to March 1991, he was President and Chief
Executive Officer of Creative Restaurant Management, a company created in a
leveraged buy-out from Gilbert/Robinson, Inc., a Kansas City-based specialty
restaurant group. In March 1992, Creative Restaurant Management filed a petition
for bankruptcy, and the bankruptcy proceeding has not yet been discharged. Mr.
Hill served as President and Chief Executive Officer of T.J. Cinnamons, Ltd., a
gourmet bakery concept, from 1985 to 1990. He was President of Gilbert/Robinson,
Inc. from 1973 to 1985. Mr. Hill has over 38 years of restaurant industry
experience and is an honorary director of the National Restaurant Association,
after having served as both a director of that association and as chairman of
most of its major committees during the past 15 years.
LLOYD L. HILL, age 51. Mr. Hill was elected a director of the Company in
August 1989 and was appointed Executive Vice President and Chief Operating
Officer of the Company in January 1994. In December 1994, he assumed the role of
President in addition to his role as Chief Operating Officer. Prior to 1994, he
served as President and a director of Kimberly Quality Care, having joined that
organization in 1980. Kimberly Quality Care is engaged in the business of home
health care and nurse personnel staffing. Mr. Hill served as a member of the
Audit Committee until January 1995. Mr. Lloyd Hill and Mr. Kenneth Hill are not
related.
ROBERT A. MARTIN, age 64. Mr. Martin was elected a director of the Company
in August 1989. In April 1991, he became Vice President of Marketing, and in
January 1994, he was promoted to Senior Vice President of Marketing. From
January 1990 to April 1991, he served as President of Kayemar Enterprises, a
Kansas City-based marketing consulting firm. From 1983 to January 1990, he
served as the President, Chief Operating Officer and a director of Juneau
Holding Co., of which Abe Gustin, Chief Executive Officer of the Company, was
Chairman. From July 1977 to June 1981, he served as President of United Vintners
Winery and prior to that time was employed for 25 years by Schlitz Brewing
Company, most recently in the position of Senior Vice President of Sales and
Marketing. Mr. Martin has more than 12 years of experience in the restaurant
industry. Mr. Martin serves as a member of the Nominating Committee.
JOHYNE H. RECK, age 45. Ms. Reck was elected a director of the Company in
May 1985. Ms. Reck currently serves as a consultant to the Company on its civic
and philanthropic programs. She previously served as Secretary from May 1985 to
January 1990, as Treasurer from May 1985 to December 1989, and as an Executive
Vice President from March 1988 until April 1991. From March 1983 to 1991, she
served as a director and President of Corner and Main Advertising, Inc., an
advertising agency which she owned. Ms. Reck is the wife of Ronald B. Reck,
Executive Vice President and Chief Administrative Officer of the Company. Ms.
Reck serves as a member of the Nominating Committee.
BURTON M. SACK, age 57. Mr. Sack was elected a director and an Executive
Vice President of the Company effective October 24, 1994. Mr. Sack was the
principal shareholder, a director, and the President of Pub Ventures of New
England, Inc., previously a franchisee of the Company, from 1984 until its
acquisition by the Company in October 1994. Mr. Sack has also been a director of
Bay Street Restaurants since 1988 and of Restaurant Capital Corporation since
1986. Mr. Sack was a director of Western Sizzlin Steakhouses from 1993 through
1994 and has been on the board of advisors of Restaurant Associates, Inc. since
1993.
RAYMOND D. SCHOENBAUM, age 49. Mr. Schoenbaum was elected a director of the
Company effective March 24, 1995. He was the founder, majority shareholder, and
chairman of the board of directors of Innovative Restaurant Concepts, Inc.,
operator of the Rio Bravo Cantina Mexican concept, prior to its acquisition by
the Company in March 1995. Mr. Schoenbaum served as Vice Chairman of Restaurant
Systems, Inc., a franchisee of Wendy's International, Inc., from 1974 until 1986
and was a Shoney's franchisee from 1971 until 1974.
The Board has four standing committees: the Audit Committee, the Executive
Compensation Committee, the Nominating Committee and the Strategic Planning
Committee. (On March 22, 1994, the Stock Option Committee was combined with the
Compensation Committee and became the Executive Compensation Committee.) The
Audit Committee recommends engagement of the Company's independent accountants,
reviews and approves services performed by such accountants, reviews and
evaluates the Company's accounting system and its system of internal controls,
and performs other related duties delegated to such Committee by the Board of
Directors. The members of the Audit Committee are Mr. Curran, Mr. Hansen, and
4
Mr. Helms. The Executive Compensation Committee is responsible for recommending
to the Board of Directors executive compensation levels, bonus plan
participation and executive and overall compensation policies. It also makes
option grants under the Company's 1989 Stock Option Plan. The members of the
Executive Compensation Committee are Mr. Curran, Mr. Hansen and Mr. Helms. The
Nominating Committee was established by the Board of Directors in January 1994
to evaluate and recommend candidates for nomination to the Board of Directors.
Pursuant to the Company's By-laws, stockholder nominations for Board candidates
must be submitted to the Nominating Committee, along with certain information
about the candidate, at least 60 days prior to the Annual Meeting date. The
Nominating Committee is responsible for reviewing and accepting or rejecting any
stockholder nominations. The members of the Nominating Committee are Mr. Curran,
Mr. Martin and Ms. Reck. The Strategic Planning Committee was established in May
1994 for the purpose of long-term planning and establishing strategic goals for
the Company. The members of the Strategic Planning Committee are Mr. Gustin, Mr.
Curran, Mr. Hansen and Mr. Helms.
During fiscal year 1994, the Board of Directors held 15 meetings (including
five regular meetings), the Audit Committee held two meetings, the Executive
Compensation Committee held eight meetings, the Nominating Committee held two
meetings, and the Strategic Planning Committee held one meeting. During fiscal
year 1994, each director attended more than 75% of the Board meetings and the
meetings of the committees on which such director served.
Directors who are not employees receive director fees of $1,500 for each
regular Board meeting attended, plus a retainer of $500 per month and
reimbursement of out-of-pocket expenses. Under the Company's 1989 Stock Option
Plan, directors receive a number of stock options each year determined through a
formula based on changes in the Company's earnings before income taxes ("EBIT")
from one year to the next. Non-employee directors receive an annual base grant
of options to acquire 12,000 shares of Common Stock, which is increased or
decreased by 1,500 shares for each 5% increase or decrease in EBIT from the
prior fiscal year. The maximum increase or decrease is 6,000 shares. Employee
directors receive options, as directors, in accordance with the same formula,
but are limited to 50% of the number of options granted non-employee directors.
In the event Proposal IV is adopted, this director option program will remain in
place. However, the Board of Directors has engaged an independent consulting
firm to analyze the Company's director compensation program, and based on that
analysis, the Board may change its compensation program. Any changes in the
director option program will be effective for grants made in 1996, and no
changes will be made without stockholder approval. In fiscal 1994, options for
18,000 shares of Common Stock were granted to Mr. Curran, Mr. Hansen, Mr. Helms,
and Ms. Reck for serving as non-employee directors of the Company, and options
for 9,000 shares of Common Stock were granted to each of Mr. Gustin, Mr. Lloyd
Hill, Mr. Kenneth Hill and Mr. Martin for serving as employee directors. In
addition, Mr. Martin and Mr. Sack received cash compensation of $180,117 and
$39,808 respectively, and Mr. Martin received options to purchase 20,000 shares
of Common Stock for services rendered to the Company in fiscal 1994. Ms. Reck
also received cash compensation of $43,200 for services rendered to the Company
in fiscal 1994. See "Certain Transactions."
Certain Information Concerning Executive Officers
Information regarding the executive officers of the Company, who are not
also directors of the Company, as of December 25, 1994, is as follows:
ˇ Enlarge/Download Table
Name Age Position
Ronald B. Reck........................... 46 Executive Vice President and Chief Administrative
Officer
George D. Shadid......................... 40 Executive Vice President and Chief Financial Officer
Stuart F. Waggoner....................... 49 Senior Vice President of Operations
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RONALD B. RECK was employed by the Company in March 1991. He served as
Executive Vice President of Human Resources and Training until January 1993 when
he was named Executive Vice President and Chief Administrative Officer. From
1987 until March 1991, he was a self-employed consultant to the Company in the
personnel, human resources and corporate development areas. During the period
from 1984 through 1990, he was President of Aero-Mark Services, Inc., a
temporary health care personnel leasing service company located in Kansas City,
Missouri. Mr. Reck is the husband of Johyne Reck, a director of the Company.
GEORGE D. SHADID was employed by the Company in August 1992, and served as
Senior Vice President and Chief Financial Officer until January 1994 when he was
promoted to Executive Vice President and Chief Financial Officer. He became
Treasurer in March 1995. From 1985 to 1987, he served as Corporate Controller of
Gilbert/Robinson, Inc., at which time he was promoted to Vice President, and in
1988 assumed the position of Vice President and Chief Financial Officer, which
he held until joining the Company. In November 1991, Gilbert/Robinson, Inc.
filed a petition for bankruptcy. The bankruptcy proceeding was discharged in
December 1992. From 1976 until 1985, Mr. Shadid was employed by Deloitte &
Touche LLP.
STUART F. WAGGONER has been an employee of the Company since December 1988
and served as the Executive Director of Franchise Operations until March 1991,
when he became Vice President of Franchise Operations. In December 1994, Mr.
Waggoner assumed the newly created position of Senior Vice President of
Operations, with overall responsibility for franchise and Company owned
Applebee's restaurant operations and international development. From October
1987 to December 1988, Mr. Waggoner was a Vice President of Operations for
Eateries', Inc., a restaurant company based in Oklahoma City, Oklahoma. From
1985 to July 1987, Mr. Waggoner was President of Pendleton's Bar & Grill in
Dallas, Texas. From October 1974 to March 1985, Mr. Waggoner was Vice President
of Restaurant Administration for TGI Friday's, Inc., in Dallas, Texas. Mr.
Waggoner has more than 25 years of restaurant experience.
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Security Ownership of Officers, Directors and Certain Beneficial Owners
The following table sets forth information, as of April 14, 1995, regarding
the ownership of the Common Stock, the Company's only class of outstanding
securities, by (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each director and each
executive officer named in the Summary Compensation Table, and (iii) all
executive officers and directors of the Company as a group. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned.
ˇ Enlarge/Download Table
Beneficial Ownership
Number of Percent
Shares Held
Burton M. Sack(1)...................................................... 2,286,250 8.0%
Abe J. Gustin, Jr. (1) (2)............................................. 1,542,000 5.4%
Raymond D. Schoenbaum(1)(3)............................................ 1,531,018 5.3%
Ronald B. Reck (1) (2)................................................. 545,940 1.9%
Lloyd L. Hill (1) (2).................................................. 89,000 0.3%
Johyne H. Reck (1) (2)................................................. 83,000 0.3%
Robert A. Martin (1) (2)............................................... 64,000 0.2%
Kenneth D. Hill (1) (2)................................................ 58,500 0.2%
Eric L. Hansen (1) (2)................................................. 41,350 0.1%
D. Patrick Curran (1) (2).............................................. 41,000 0.1%
George D. Shadid(1) (2)................................................ 40,101 0.1%
Jack P. Helms(1) (2)................................................... 19,500 0.1%
Massachusetts Financial Services Company............................... 2,532,200 8.8%
500 Boylston Street
Boston, MA 02116
Putnam Investments, Inc................................................ 2,300,782 8.0%
One Post Office Square
Boston, MA 02109
Tom E. DuPree, Jr...................................................... 1,739,850 6.1%
617 Dixie Avenue
Madison, GA 30650
All executive officers and directors as a group (13 persons) (2)....... 6,401,709 22.3%
<FN>
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(1) The mailing address of this person is 4551 W. 107th Street, Suite 100,
Overland Park, Kansas 66207.
(2) Includes certain shares subject to options exercisable as of April 14, 1995
or within 60 days thereafter: 42,000 shares for Mr. Gustin, 69,500 shares
for Mr. Reck, 89,000 shares for Lloyd L. Hill, 83,000 shares for Ms. Reck,
39,000 shares for Mr. Martin, 58,500 shares for Kenneth D. Hill, 36,000
shares for Mr. Hansen, 36,000 shares for Mr. Curran, 40,101 shares for Mr.
Shadid, 18,000 shares for Mr. Helms, and 563,201 shares for all executive
officers and directors as a group.
(3) Includes 114,826 shares held in escrow resulting from the recent merger of
the Company with Innovative Restaurant Concepts, Inc. and its affiliates.
</FN>
Mr. Gustin is a party to a voting agreement which binds Mr. Reck. Pursuant
to the voting agreement, these parties have agreed to vote all voting securities
of the Company held by them at any time (i) to maintain the size of the Board of
Directors at ten members unless otherwise mutually agreed, (ii) to vote for the
election of Mr. Gustin and Ms. Reck as directors of the Company at each election
of directors, (iii) to vote against the removal of Mr. Gustin and Ms. Reck as
directors of the Company, and (iv) to vote their shares so that the Board of
Directors has at least two independent directors at all times. In addition, in
the event of the death of any of the parties, the voting agreement contains
provisions relating to voting for the election of a successor director of the
deceased party. The voting agreement terminates upon the death of any two of the
parties. The voting agreement terminates in 1999, and does not apply to any
voting securities transferred to a third party in a public transaction.
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Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of the Common Stock,
to file certain reports of ownership and changes in ownership with the SEC.
Officers, directors and persons owning beneficially greater than 10% of the
Company's Common Stock are required by SEC regulations to furnish the Company
with copies of all such reports.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons, the Company
believes that all filing requirements applicable to its officers, directors, and
greater than 10% beneficial owners were complied with during the fiscal year
ended December 25, 1994, except that certain reports were not timely filed
covering two transactions by Lloyd Hill and one transaction each by Ronald Reck,
Johyne Reck and Stuart Waggoner. The transactions were reported by each of these
persons on their year-end reports on Form 5, which also were not timely filed.
PROPOSAL I
AMENDMENT TO CERTIFICATE OF INCORPORATION
ESTABLISHING A CLASSIFIED BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
The Board of Directors has unanimously adopted a resolution approving and
submitting to a vote by the Stockholders of the Company a proposed amendment
(the "Proposed Amendment") to the Certificate of Incorporation of the Company
that would classify the Board of Directors into three classes, each with a term
of three years. Classifying the directors into three groups results in only
approximately one-third of the Board standing for election each year. This
procedure provides stability and continuity to the Board and requires directors
to make a long-term commitment to their duties. Set forth below is a discussion
of the Proposed Amendment. The complete text of the Proposed Amendment is set
forth in Appendix A.
In updating its corporate records following the 1994 Annual Meeting of
Stockholders, the Company reviewed the voting records of earlier stockholder
meetings and has determined that the results of the vote on a proposal submitted
to its stockholders at its 1992 Annual Meeting to classify the Board of
Directors were incorrectly reported. A reexamination of the voting records of
the 1992 Annual Meeting indicates that although the proposal received the
affirmative vote of more than a majority of the shares voting at the meeting, it
did not receive the affirmative vote of a majority of all outstanding shares. As
a result, the proposal to amend the Certificate of Incorporation to classify the
Board of Directors was not adopted. Nevertheless, the Board of Directors did act
to amend the Company's By-laws to conform with the classified Board provisions
which a majority of the stockholders voting at the 1992 Annual Meeting voted to
adopt. To clarify this matter, the Company is resubmitting to its stockholders
the proposal to amend the Certificate of Incorporation and By-laws to classify
its Board of Directors.
Section 141 of the Delaware General Corporation Law ("DGCL") provides that
a corporation's directors may be divided into one, two or three classes.
Proposal I would divide the Company's Board of Directors into three classes, as
nearly equal in number as possible, designated Class I, Class II, and Class III.
If Proposal I is adopted, the term of office of the initial Class I Directors
will expire at the 1996 annual meeting of Stockholders, the term of office of
the initial Class II Directors will expire at the 1997 annual meeting, and the
term of office of the initial Class III Directors will expire at the 1998 annual
meeting. At each annual meeting following such initial classification and
election, Directors elected to succeed those whose terms expire at the time of
the meeting will be elected for a three-year term.
The Proposed Amendment to the Certificate is not the result of management's
knowledge of any specific effort to obtain control of the Company by means of an
accumulation of the Company's securities, a merger, a tender offer, a proxy
solicitation in opposition to management or otherwise. The Board of Directors
8
periodically reviews the Company's vulnerability to a hostile takeover that
might be detrimental to long-term stockholder value and seeks advice from its
investment bankers and legal counsel concerning actions the Board might wish to
consider to provide it ways to protect stockholder value. The Board of Directors
will in the future take such actions as it deems appropriate in this regard;
however, the Proposed Amendment was not adopted in response to any efforts by
another party to acquire a controlling interest or to seek Board of Directors
representation. The submission of the Proposed Amendment to the Certificate is
not a part of any plan by the Company's management to adopt a series of
amendments to the Certificate or By-laws intended to render a change in control
of the Company more difficult. Except as indicated below, management is not
aware of the existence of any other provisions in the Certificate or By-laws
having an anti-takeover effect.
The Company has in place certain provisions in its Certificate and By-laws
which may have the effect of delaying a change in control of the Company. A
classified Board of Directors makes it more difficult for stockholders to
replace the entire Board of Directors (otherwise than for cause) in one annual
meeting, even when this may be desired by holders of a majority of the shares of
Common Stock. A person or entity desiring to acquire control of the Company by
merger, acquisition of shares or other means may be discouraged from doing so
because they must hold a majority of the shares voting at two successive annual
meetings of the stockholders in order to change a majority of the members of the
Board of Directors. Further, the Certificate does not provide for cumulative
voting. As a result, in order to ensure representation on the Board of
Directors, a stockholder must control the votes of a majority of the shares
present and voting at a stockholders' meeting at which a quorum is present. The
lack of cumulative voting requires a person or entity seeking a takeover to
acquire a substantially greater number of shares to ensure representation on the
Board of Directors than would be necessary were cumulative voting available. The
Certificate authorizes the issuance of 1,000,000 shares of preferred stock which
may be classified, divided and issued in series by the Board of Directors. No
shares of preferred stock are currently outstanding, although shares have been
reserved for issuance under the shareholder rights plan described below. The
rights of the holders of shares of different series of preferred stock may vary
with respect to the matters which the Board of Directors has the discretion to
establish. Those matters include dividend rights, preferences with respect to
liquidation or other distributions, redemption and conversion rates and terms,
and voting powers. Because the voting powers of any such series of preferred
stock are to be determined by the Board of Directors, the existence of that
class of securities enables the Board of Directors to vest large amounts of
voting power in persons acquiring preferred stock. Holders of preferred stock
may be given the right to vote as a class on certain matters and to elect
directors, and each share may be convertible into such number of shares of
Common Stock as may be specified by the Board of Directors. The ability of the
Board of Directors to establish voting, redemption, conversion and other rights
of holders of preferred stock might be used to ward off a takeover attempt of
the Company. The Board of Directors might establish and issue preferred stock
even though the stockholders generally approve of the terms of a proposed
takeover. In addition, the Company's By-laws include a provision requiring that
any stockholder who wishes to make a nomination for director at an annual
stockholders' meeting must give written notice to the Company at least 60 days
in advance of the meeting. Stockholder nominations would be referred to the
Nominating Committee of the Board of Directors for review and recommendation.
This requirement affords the Board of Directors adequate time to consider the
qualifications of the proposed nominee and determine an appropriate response. It
may also, however, conceivably discourage some persons from attempting to
acquire control of the Company by potentially lengthening the time required for
a person to acquire control of the Company through a proxy contest or the
election of a majority of the directors.
The Company has adopted a shareholder rights plan under which all
shareholders of record on September 19, 1994 received a right to purchase shares
of Series A Participating Cumulative Preferred Stock on certain conditions
relating to an acquisition by a person or group of more than 15% of the
outstanding Common Stock or the commencement of a tender offer which could
result in such ownership. The rights plan imposes significant limitations on
anyone attempting to gain control of the Company without first obtaining the
approval of the Company's Board of Directors. The rights have certain
anti-takeover effects by causing substantial dilution to a person or group that
attempts to acquire the Company without complying with the terms and conditions
of the rights.
9
The Board of Directors recommends that stockholders vote YES to the
proposed amendment. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting will
be required for adoption of the Proposed Amendment.
PROPOSAL II
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF EACH NAMED NOMINEE.
Shares of Common Stock represented by executed proxies will be voted, if
authority to do so is not withheld, for the election of the Nominees named
below. If any Nominee should become unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute Nominee as the Company may propose. Each person nominated for
election has agreed to serve if elected, and the Company has no reason to
believe that any Nominee will be unavailable to serve. Additional information
concerning the following Nominees is set forth in "Certain Information
Concerning the Board of Directors."
ˇ Download Table
Director
Name Age Position With The Company Since
Abe J. Gustin, Jr. 60 Chairman and Chief Executive Officer 1983
Lloyd L. Hill 51 President and Chief Operating Officer 1989
Robert A. Martin 64 Senior Vice President of Marketing 1989
Burton M. Sack 57 Executive Vice President 1994
D. Patrick Curran 50 Director 1992
Eric L. Hansen 46 Director 1991
Jack P. Helms 42 Director 1994
Kenneth D. Hill 61 Director 1992
Johyne H. Reck 45 Director 1985
Raymond D. Schoenbaum 49 Director 1995
Classification of Board
In the event that Proposal I is approved, the Nominees are proposed to be
elected to the classes as set forth below:
ˇ Download Table
Term
Class Nominee Expires
I Eric L. Hansen 1996
I Kenneth D. Hill 1996
I Raymond D. Schoenbaum 1996
II D. Patrick Curran 1997
II Abe J. Gustin, Jr. 1997
II Robert A. Martin 1997
II Johyne H. Reck 1997
III Jack P. Helms 1998
III Lloyd L. Hill 1998
III Burton M. Sack 1998
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In the event that Proposal I is not approved, the Nominees will, if
elected, hold office until the next Annual Meeting of Stockholders and until his
or her successor is elected and has qualified or until such director's death,
resignation, or removal.
PROPOSAL III
AMENDMENT TO THE COMPANY'S 1989 STOCK OPTION PLAN INCREASING THE NUMBER OF
SHARES OF THE COMPANY'S COMMON STOCK AVAILABLE FOR OPTIONS UNDER SUCH PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
The stockholders are being asked to ratify Amendment No. 4 to the 1989
Stock Option Plan. Although the 1989 Stock Option Plan has 3,000,000 shares
authorized for option grants, there are currently only a total of 674,480 shares
of Common Stock remaining available for option grants under the 1989 Stock
Option Plan. The amendment increases the number of shares of Common Stock
available for options under the 1989 Stock Option Plan by 1,500,000 shares.
The text of the proposed amendment is as follows:
The Applebee's International, Inc. 1989 Stock Option Plan is hereby amended
as follows:
Section 2 is hereby amended to read as follows:
"Section 2. Stock and Maximum Number of Shares Subject to the Plan.
Subject to the adjustments provided for in Section 6.6 hereof, the
aggregate number of shares of Stock which may be issued pursuant to
the exercise of all Options granted hereunder shall equal but shall
not exceed 4,500,000 Shares."
Stock Option Plan
The Company's 1989 Stock Option Plan provides for the grant of both
nonqualified stock options and options that qualify as incentive stock options
under Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code"), and is administered by the Executive Compensation Committee, comprised
of three or more disinterested persons appointed by the Board of Directors (the
"Committee"). Key employees of the Company and subsidiaries at least 50% owned
by the Company, including executive officers and directors, are eligible to
receive options granted under the Plan (approximately 600 eligible persons at
December 25, 1994). The Committee has complete discretion to select the
optionees and to establish the terms and condition of each option, subject in
all cases to the provisions of the Plan. The Plan currently provides that a
total of up to 3,000,000 shares of Common Stock may be made subject to options
granted thereunder. The Plan provides that the option price of each option shall
be fixed by the Committee; however, the option price of each incentive stock
option granted under the Plan must be not less than 100% (110% if granted to a
stockholder owning 10% or more of the outstanding Common Stock) of the fair
market value of the Common Stock as of the date the option is granted. During
any calendar year the aggregate fair market value, determined at the date of
grant, of shares that become exercisable under an incentive stock option granted
to one employee must not exceed $100,000. The term of each incentive stock
option, which is also fixed by the Committee, may not exceed 10 years from the
date the option is granted or five years in the case of incentive stock options
granted to stockholders owning 10% or more of the outstanding Common Stock or
nonstatutory options granted to directors of the Company. Options granted under
the Plan are not transferable, except by will or the laws of descent or
distribution, and are subject to various other conditions and restrictions.
Shares subject to canceled or lapsed options are available for subsequently
granted options under the Plan.
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Nonqualified stock options differ from incentive stock options in several
additional respects. To the extent that a nonqualified stock option is granted
at an exercise price below the fair market value of the Common Stock on the date
of grant, under current generally accepted accounting principles, the Company
would recognize compensation expense in an amount per share equal to the
difference between the exercise price and the fair market value of a share of
Common Stock at the date of grant. The grant of an incentive option at a fair
market value exercise price would not require the Company to recognize any
compensation expense but, upon exercise, would instead be reflected as a capital
transaction affecting only the Company's balance sheet. For federal income tax
purposes, the Company would be entitled upon exercise of a nonqualified option
to a deduction for compensation paid in an amount per share equal to the
difference between the exercise price and the fair market value of each share of
Common Stock at the date of exercise. No deduction would be available to the
Company upon exercise of an incentive option. The Plan requires all nonqualified
options to be granted at an exercise price not less than 100% of the fair market
value on the date of grant, provided that the exercise price shall never be less
than the par value per share of the Common Stock.
As of the date hereof, stock options have been granted with respect to
2,325,520 shares available under the Plan. Of those, options with respect to
781,351 shares were exercisable as of December 25, 1994.
As of December 25, 1994, the following persons or groups held options to
purchase shares of Common Stock as indicated:
ˇ Enlarge/Download Table
Number of
Options
Held
Abe J. Gustin, Jr., Chairman and Chief Executive Officer............................ 82,000
Lloyd L. Hill, President and Chief Operating Officer 96,000
Kenneth D. Hill, Executive Vice President and
President of International Development......................................... 109,500
Ronald B. Reck, Executive Vice President and Chief Administrative Officer........... 76,500
George D. Shadid, Executive Vice President and Chief Financial Officer.............. 70,101
All executive officers as a group................................................... 541,701
All employees other than executive officers......................................... 785,722
All directors who are not executive officers........................................ 150,000
PROPOSAL IV
ADOPTION OF THE COMPANY'S 1995 EQUITY INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
As a result of a comprehensive review of the Company's executive
compensation programs, the Executive Compensation Committee of the Board of
Directors believes it is in the Company's best interest to replace the existing
1989 Stock Option Plan with a new plan allowing greater flexibility in the use
of equity-related compensation. As a result, the Board had adopted the 1995
Equity Incentive Plan which is being submitted to the stockholders for approval
in order to satisfy certain requirements of the Securities Exchange Act of 1934
related to compensation plans involving payment in Company securities and of the
Internal Revenue Code relating to deductibility of certain executive
compensation above a $1,000,000 annual amount. A copy of the 1995 Equity
Incentive Plan appears in Appendix B.
The Board of Directors believes that the 1995 Equity Incentive Plan will
become an important part of the Company's management compensation program by
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helping to attract and retain motivated, highly competent employees. By
providing stock options, restricted stock grants, and other equity-related
compensation, the Board believes that the participants will have a strong
incentive to emphasize stockholder value.
General
In the event the Plan is approved by the stockholders, the Company's
present 1989 Stock Option Plan will be terminated and future stock options will
be issued under the Plan. Stock options outstanding under the existing 1989
Stock Option Plan will not be effected by the termination of that plan.
The Plan allows the granting of stock options, stock appreciation rights
("SARs"), restricted stock awards, performance unit awards and performance share
awards (collectively, "Awards") to eligible Plan participants. While the Company
has no current plans to grant Awards other than stock options, the Board of
Directors believes that the ability to use different types of equity
compensation vehicles will give the Company the flexibility needed to adapt most
effectively over time to changes in the labor market and in equity compensation
practices.
The number of shares authorized to be issued pursuant to Awards granted
under the Plan is 2,000,000. If an Award expires or is canceled without having
been fully exercised or vested, the unvested or canceled shares generally will
be available thereafter for grants of Awards. The number of shares available for
grant under the Plan, as well as outstanding Awards, the formula for granting
non-employee director options, and the numerical limits for individual grants,
will be adjusted as appropriate to reflect any stock splits, stock dividends,
recapitalizations, reorganizations or other changes to the capital structure of
the Company.
Purpose of the Plan
The Plan is intended to attract, motivate and retain (1) employees of the
Company and its affiliates, (2) consultants who provide significant services to
the Company and its affiliates, and (3) directors of the Company, including
those who are employees of neither the Company nor any affiliate ("non-employee
directors"). The Plan also is designed to further the growth and financial
success of the Company and its affiliates by aligning the interests of the
participants, through stock ownership and other incentives, with the interests
of the Company's stockholders.
Description of the Plan
The following paragraphs provide a summary of the principal features of the
Plan and its operation. The Plan is set forth in its entirety as Appendix B to
this Proxy Statement. The following summary is qualified in its entirety by
reference to Appendix B.
Administration of the Plan
The Plan will be administered by the Executive Compensation Committee of
the Board of Directors (the "Committee"). The members of the Committee must
qualify as "disinterested persons" under Rule 16b-3 under the Securities
Exchange Act of 1934, and as "outside directors" under section 162(m) of the
Internal Revenue Code (for purposes of qualifying amounts received under the
Plan as "performance-based compensation" under section 162(m)).
Subject to the terms of the Plan, the Committee has the sole discretion to
determine the employees and consultants who shall be granted Awards, the size
and types of such Awards, and the terms and conditions of such Awards. The
Committee may delegate its authority to grant and administer awards to a
separate committee appointed by the Committee, but only the Committee may make
awards to participants who are executive officers of the Company. The director
option portion of the Plan will be administered by the full Board of Directors,
rather than the Committee.
13
Eligibility to Receive Awards
Employees and consultants of the Company and its affiliates (i.e., any
corporation or other entity controlling, controlled by or under common control
with the Company) are eligible to be selected to receive one or more Awards. The
actual number of employees and consultants who will receive Awards under the
Plan cannot be determined because selection for participation in the Plan is in
the sole discretion of the Committee.
The Plan also provides for the grant of stock options to the Company's
employee and non-employee directors. Such options will automatically be granted
pursuant to a nondiscretionary formula. The terms and conditions of options to
be granted to directors are discussed below under "Director Options."
Options
The Committee may grant nonqualified stock options, incentive stock options
(which are entitled to favorable tax treatment) ("ISOs"), or any combination
thereof. The number of shares covered by each option will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted options for more than 100,000 shares.
The exercise price of each option is set by the Committee, but generally
cannot be less than 100% of the fair market value of the Company's Common Stock
on the date of grant. Thus, an option will have value only if the Company's
Common Stock appreciates in value after the date of grant. The exercise price of
an ISO must be at least 110% of the fair market value if the participant, on the
grant date, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its subsidiaries. Also,
the aggregate fair market value of the shares (determined on the grant date)
covered by ISOs which first become exercisable by any participant during any
calendar year may not exceed $100,000.
The exercise price of each option must be paid in full at the time of
exercise. The Committee also may permit payment through the tender of shares of
the Company's Common Stock then owned by the participant, or by any other means
that the Committee determines to be consistent with the Plan's purpose. Any
taxes required to be withheld must be paid by the participant at the time of
exercise.
Options become exercisable at the times and on the terms established by the
Committee. Options expire at the times established by the Committee, but
generally not later than 10 years after the date of grant (13 years in the event
of the optionee's death). The Committee may extend the maximum term of any
option granted under the Plan, subject to the preceding limits.
Director Options
Under the Plan, each non-employee Director will receive an annual grant of
Director Options to purchase 12,000 shares of Common Stock, which is
automatically increased or decreased by 1,500 shares for each increment of 5% by
which the actual earnings before income taxes of the Company for a particular
fiscal year exceed or are less than the earnings before income taxes for the
previous fiscal year. The maximum increase or decrease is 6,000 shares.
Employee Directors will also receive an annual grant of Director Options to
purchase 6,000 shares of Common Stock, automatically increased or decreased by
750 shares for each increment of 5% by which the actual earnings before income
taxes of the Company for a particular fiscal year exceed or are less than the
earnings before income taxes for the previous fiscal year. The maximum increase
or decrease is 3,000 shares.
Directors who are employees of the Company and who are not members of the
Executive Compensation Committee may also receive other grants of options to
purchase Common Stock so long as such grants are in compliance with all
provisions of Rule 16b-3(c)(2) of the Securities and Exchange Commission
relating to administration of the Plan by "disinterested persons."
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All Director Options are subject to the following provisions:
(i) Director Options shall be granted each year at the annual
meeting of the Board of Directors.
(ii) No Director Option may be exercised within twelve months after
the date of grant. Thereafter, all Director Options shall be
immediately exercisable and shall expire five years from the
date of grant.
(iii) The exercise price of all Director Options shall not be less
than the fair market value of the Common Stock at the time of
the grant.
(iv) The provisions of the Plan regarding non-transferability,
termination of a directorship, disability and death of a
director apply to Director Options.
Stock Appreciation Rights
The Committee determines the terms and conditions of each SAR. SARs may be
granted in conjunction with an option, or may be granted on an independent
basis. The number of shares covered by each SAR will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted SARs for more than 100,000 shares.
Upon exercise of a SAR, the participant will receive payment from the
Company in an amount determined by multiplying (1) the positive difference
between (a) the fair market value of a share of Company Common Stock on the date
of exercise, and (b) the exercise price, by (2) the number of shares with
respect to which the SAR is exercised. Thus, a SAR will have value only if the
Company's Common Stock appreciates in value after the date of grant.
SARs are exercisable at the times and on the terms established by the
Committee. Proceeds from SAR exercises may be paid in cash or shares of the
Company's Common Stock, as determined by the Committee. SARs expire at the times
established by the Committee, but are subject to the same maximum time limits as
are applicable to employee options granted under the Plan.
Restricted Stock Awards
Restricted stock awards are shares of the Company's Common Stock that vest
in accordance with terms established by the Committee. The number of shares of
restricted stock (if any) granted to a participant will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted more than 100,000 shares.
In determining the vesting schedule for each Award of restricted stock, the
Committee may impose whatever conditions to vesting as it determines to be
appropriate. For example, the Committee may (but is not required to) provide
that restricted stock will vest only if one or more performance goals are
satisfied. [In order for the Award to qualify as "performance-based"
compensation under section 162(m) of the Internal Revenue Code, the Committee
must use one or more of the following measures in setting the performance goals:
(1) earnings per share, (2) individual performance objectives, (3) net income,
(4) pro forma net income, (5) return on designated assets, (6) return on
revenues, and (7) satisfaction of Company-wide or department based operating
objectives. These performance measures are set forth in the Plan and are some of
the same measures that are used in setting performance goals under the Company's
1994 Management and Executive Incentive Plan and under the 1994 Long-Term
Incentive Plan which was approved by the stockholders at last year's Annual
Meeting. The Committee may apply the performance measures on a corporate or
business unit basis, as deemed appropriate in light of the participant's
specific responsibilities. The Committee may, in its sole discretion, accelerate
the time at which any restrictions lapse or remove any restrictions.
15
Performance Unit Awards and Performance Share Awards
Performance unit awards and performance share awards are amounts credited
to a bookkeeping account established for the participant. A performance unit has
an initial value that is established by the Committee at the time of its grant.
A performance share has an initial value equal to the fair market value of a
share of the Company's Common Stock on the date of grant. The number of
performance units or performance shares (if any) granted to a participant will
be determined by the Committee, but during any fiscal year of the Company, no
participant may be granted more than 100,000 performance shares or performance
units having an initial value greater than $250,000.
Whether a performance unit or performance share actually will result in a
payment to a participant will depend upon the extent to which performance goals
established by the Committee are satisfied. The applicable performance goals
will be determined by the Committee. In particular, the Plan permits the
Committee to use the same performance goals as are discussed above with respect
to restricted stock. The Committee may, in its sole discretion, waive any
performance goal requirement.
After a performance unit or performance share award has vested (that is,
after the applicable performance goal or goals have been achieved), the
participant will be entitled to receive a payout of cash, Common Stock, or any
combination thereof, as determined by the Committee. Unvested performance units
and performance shares will be forfeited upon the earlier of the recipient's
termination of employment or the date set forth in the Award agreement.
Nontransferability of Awards
Awards granted under the Plan may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
applicable laws of descent and distribution; provided, however, that a
participant may designate one or more beneficiaries to receive any exercisable
or vested Awards following his or her death.
Change in Control
In the event of a change in control not approved by the Board of Directors,
all Awards granted under the Plan then outstanding but not then exercisable (or
subject to restrictions) shall become immediately exercisable, unless otherwise
provided in the applicable Award agreement. In general, a change in control
occurs if (1) a person (other than the Company and its affiliates) directly or
indirectly owns 30% of the Common Stock, (2) the composition of the Board
changes during any two year period whereby directors at the beginning of the
period (including new directors approved by a vote of at least two-thirds of the
directors then in office) cease to constitute a majority of the Board, or (3)
the stockholders of the Company approve a merger, consolidation or plan of
complete liquidation of the Company or approve an agreement for the sale of all
or substantially all of the Company's assets.
Tax Aspects
The following discussion is intended to provide an overview of the U.S.
federal income tax laws which are generally applicable to Awards granted under
the Plan as of the date of this Proxy Statement. People or entities in differing
circumstances may have different tax consequences, and the tax laws may change
in the future. This discussion is not to be construed as tax advice.
A recipient of a stock option or SAR will not have taxable income on the
date of grant. Upon the exercise of nonqualified options and SARs, the
participant will recognize ordinary income equal to the difference between the
fair market value of the shares on the date of exercise and the exercise price.
Any gain or loss recognized upon any later disposition of the shares generally
will be capital gain or loss.
16
Purchase of shares upon exercise of an ISO will not result in any taxable
income to the participant, except for purposes of the alternative minimum tax.
Gain or loss recognized by the participant on a later sale or other disposition
either will be long-term capital gain or loss or ordinary income, depending upon
how long the participant holds the shares. Any ordinary income recognized will
be in the amount, if any, by which the lesser of (1) the fair market value of
such shares on the date of exercise, or (2) the amount realized from the sale,
exceeds the exercise price.
Upon receipt of restricted stock, a performance unit or a performance
share, the participant will not have taxable income unless he or she elects to
be taxed. Absent such election, upon vesting the participant will recognize
ordinary income equal to the fair market value of the shares or units at such
time.
The Committee may permit participants to satisfy tax withholding
requirements in connection with the exercise or receipt of an Award by (1)
electing to have the Company withhold otherwise deliverable shares, or (2)
delivering to the Company then owned shares having a value equal to the amount
required to be withheld.
The Company will be entitled to a tax deduction for an Award in an amount
equal to the ordinary income realized by the participant at the time the
participant recognizes such income. In addition, beginning with the Company's
1995 fiscal year, new Internal Revenue Code section 162(m) contains special
rules regarding the federal income tax deductibility of compensation paid to the
Company's Chief Executive Officer and to each of the other four most highly
compensated executive officers. The general rule is that annual compensation
paid to any of these specified executives will be deductible only to the extent
that it does not exceed $1 million. The Company can preserve the deductibility
of certain compensation in excess of $1 million, however, if the Company
complies with conditions imposed by section 162(m), including (1) the
establishment of a maximum number of shares with respect to which Awards may be
granted to any one employee during a specified time period, and (2) for
restricted stock, performance units and performance shares, inclusion in the
Plan of performance goals which must be achieved prior to payment. The Plan has
been designed to permit the Committee to grant Awards which satisfy the
requirements of new section 162(m).
Amendment and Termination of the Plan
The Board generally may amend or terminate the Plan at any time and for any
reason, but in accordance with section 162(m) of the Internal Revenue Code and
Rule 16b-3 under the Securities Exchange Act of 1934, certain material
amendments to the Plan will be subject to stockholder approval.
The Board of Directors recommends that stockholders vote YES on this
proposal. The affirmative vote of the holders of a majority of the shares of
Common Stock represented at the Annual Meeting will be required for adoption of
the proposal. If Proposal III is not approved by the stockholders, the 1995
Equity Incentive Plan will not be implemented and the existing 1989 Stock Option
Plan will remain in effect.
PROPOSAL V
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE 1995 FISCAL YEAR
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
The Audit Committee has selected the accounting firm of Deloitte & Touche
LLP to serve as the Company's independent auditors for the 1995 fiscal year. The
stockholders are being asked to ratify this selection. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting. Such
representatives will have the opportunity to make a statement at the Annual
Meeting if they so choose and will be available to respond to appropriate
questions.
17
EXECUTIVE COMPENSATION
Executive Compensation Committee Report
This report discusses the manner in which base salaries, incentive
compensation and stock option grants for Abe J. Gustin, Jr., the Company's Chief
Executive Officer ("CEO") and the other executives named in the Summary
Compensation Table (the "Named Executives") were determined for the 1994 fiscal
year.
The Company believes that its past growth and success have been, and that
its continued growth and success will be dependent in part on its ability to
attract and retain highly-qualified senior management. In addition, the Company
believes that executive officers should have their personal financial interests
closely aligned with stockholder value. As a result, executive compensation
packages for 1994 were established that the Company believes to be competitive
in the restaurant industry, based on the data described in the compensation
survey described below, and focused on the Company's operating performance. The
Company's executive compensation arrangements consist of three primary parts:
competitive base salary levels, significant Company performance-based bonus
payments, and stock options. The Committee believes that these components are
appropriate ways to provide its executives financial security and motivation to
increase profitability in both the near-term and over time. Although the Company
had written employment agreements with the CEO and each Named Executive during
1994, those agreements addressed only first-year base salary levels and did not
determine 1994 compensation levels. Base salary, bonus and stock option levels
are left to the discretion of the Committee each year.
In reviewing compensation levels for 1994, the Committee conducted a
thorough review and study of the Company's executive salary and bonus policies
in order to provide the Company's executive officers with appropriate financial
and motivational arrangements in 1994 and the future. The Committee selected the
consulting firm of William M. Mercer, Incorporated ("Mercer") to assist it in
developing an executive compensation program designed to meet the Committee's
objectives. Mercer's efforts consisted of comparing the base salaries of the
Company's executives with those of comparable companies (the "Mercer Study
Group"), and of reviewing and recommending modifications to the Company's cash
incentive compensation programs. (The Mercer Study Group included eight
publicly-traded restaurant companies, three of which are also included in the
industry peer group used in the Performance Graph included in this Proxy
Statement. The Committee did not direct Mercer as to which specific companies to
use in its study. The companies were selected because they were generally
comparable to the Company in size and recent growth rate.) The results of the
Committee's review were implemented in a series of changes to the Company's
bonus compensation practices, including the adoption of the 1994 Long-Term
Incentive Plan (approved by the stockholders at the 1994 Annual Meeting) and the
1994 Management and Executive Incentive Plan. In addition, the review of
executive compensation led to the development of the 1995 Equity Incentive Plan,
being submitted for stockholder approval under Proposal IV, above.
Base Salary
In determining the 1994 base salaries for the CEO and Named Executives, the
Committee considered several criteria, including growth in stockholder value,
free cash flow, earnings before interest, taxes, depreciation, and amortization
("EBITDA"), net earnings, franchisee relations and new restaurant openings (the
"Corporate Performance Criteria"). These criteria were not weighted by any
predetermined formula, but rather, were considered in light of the overall
achievement of the Company's goals and of general industry and economic factors.
The significance of any particular criterion varied depending upon the
particular position or area of responsibility of the executive in question. Mr.
Gustin's 1994 base salary of $375,000 represented an increase of 57% over 1993
and reflected the continued strong operational and financial performance of the
Company and of the Applebee's franchise system, evidenced by, among other
things, continued large earnings growth and a record number of restaurant
openings.
18
The compensation review by Mercer resulted in significant increases in base
salaries for 1994, and supported the level of base salary approved for Lloyd
Hill when he joined the Company's management team in January 1994. The Committee
believes that base salaries should remain competitive, but not significantly
exceed the middle portion of the industry range determined by the Mercer Study
Group. The Committee also believes that for most executive and management
employees, base salary should comprise a relatively greater portion of total
executive compensation.
Incentive Compensation
While the Committee believes that base salaries should represent a higher
percentage of compensation than in the past, it feels strongly that a
significant part of compensation for the CEO and other senior executives should
continue to be based on the achievement of operating and financial goals. For
several years the Company used an executive bonus plan that allocated a
percentage of profits to a bonus pool in the event a specified level of the
Company's goals was achieved. The pool was then divided among the participants
based upon their comparative "point" assignments.
In 1994, a new bonus program, consisting of the 1994 Management and
Executive Incentive Plan (a cash bonus plan) for all executives and the 1994
Long-Term Incentive Plan (a stock award plan) for all executives other than the
CEO and Executive Vice Presidents, was implemented. Under the cash bonus plan,
the Committee established operating and financial goals for the Company and
individual bonus payments, based on a percentage of base salary, to be paid at
various levels of goal achievement. The Committee believes that this new program
will provide an appropriate, attractive incentive opportunity to the Company's
executives for both short-term and long-term rewards.
The Committee established the minimum achievement level to receive bonus
payments under the 1994 Management and Executive Incentive Plan at 65% of the
Company's internal targeted pre-tax profit, the same achievement level used in
1993. The Company's actual pre-tax profit in 1994 exceeded 90% of the Company's
internal targeted pre-tax profit, resulting in bonuses for 1994 of approximately
43% of base salary for the CEO and each of the Named Executives.
Stock Options
Stock option grants in 1994, including those to the CEO and the Named
Executives, were made by the Committee and based primarily on the level of each
recipient's responsibility within the Company. Thus, Mr. Gustin, as Chairman and
CEO, who was ultimately responsible for all operations of the Company and for
the franchise system and relationships with franchisees, received the largest
option grant, comprising 6.8% of all options granted in 1994.
The Committee believes that stock option grants and other equity-related
compensation programs should be an important element of the Company's executive
compensation program; and as a result, the Committee has approved the 1995
Equity Incentive Plan, recommended for approval by the stockholders in Proposal
IV, above, to use equity-related compensation more effectively to attract,
motivate and retain experienced, qualified members of management. In addition,
the Committee reviewed certain outstanding, but fully-vested, options that were
to expire during 1994 and determined that the original three-year terms were not
long enough to provide the holders with the intended benefits of those options.
As a result, the Committee, with the agreement of the individuals, approved the
extensions of certain options through the tenth anniversary of their original
grant and increased the exercise price of those options from $3.02 per share to
$14.38 per share (the market price on the extension date), as shown in the
following table.
19
ˇ Enlarge/Download Table
10-YEAR SUMMARY OF OPTION REPRICINGS
Market Expiration
Number of Price of Exercise Date of
Options Stock at Price at New Option at
Repriced Time of Time of Exercise Date
Date of (#) Repricing Repricing Price of Repricing
Name Repricing ($) ($) ($)
Lloyd L. Hill 5/25/94 12,000 $14.38 $3.02 $14.38 8/13/94
President and Chief
Operating Officer
Ronald B. Reck 5/25/94 12,000 $14.38 $3.32 $14.38 8/13/94
Executive Vice
President and Chief
Administrative Officer
Stuart F. Waggoner 5/25/94 9,000 $14.38 $3.02 $14.38 8/13/94
Senior Vice President
of Operations
Other Information
Regulations under section 162(m) of the Internal Revenue Code, regarding
the annual deduction limitation of $1,000,000 on the compensation of certain
executive officers of publicly held corporations, did not apply to the 1994
fiscal year of the Company which began prior to January 1, 1994. Although no
executive of the Company has historically received annual compensation in excess
of $1,000,000, the Committee has designed the 1995 Equity Incentive Plan to meet
the requirements of section 162(m).
EXECUTIVE COMPENSATION COMMITTEE
D. Patrick Curran
Eric L. Hansen
Jack P. Helms
Compensation Committee Interlocks and Insider Participation
During a portion of 1994, the Company had both a Stock Option Committee and
a Compensation Committee. At the beginning of 1994, the Stock Option Committee
consisted of D. Patrick Curran and Eric L. Hansen and the Compensation Committee
also consisted of Mr. Curran and Mr. Hansen. In March 1994, the Compensation
Committee and the Stock Option Committee were combined into the Executive
Compensation Committee and, at that time, Jack P. Helms was also appointed to
the combined Committee. None of these individuals has ever been an officer or
employee of the Company.
20
Summary Compensation Table
The following Summary Compensation Table sets forth the compensation of the
Chief Executive Officer and each of the next four most highly compensated
executive officers of the Company whose annual salary and bonuses exceeded
$100,000 for services in all capacities to the Company during the last three
fiscal years.
SUMMARY COMPENSATION TABLE
ˇ Enlarge/Download Table
Long Term
Compensation
Annual Compensation Awards
Other Annual
Fiscal Salary Bonus(1) Compensation(2) Options(3)
Name and Principal Position Year ($) ($) ($) (#)
Abe J. Gustin, Jr. 1994 $366,965 $161,719 $ 369 49,000
Chairman and Chief Executive 1993 247,425 222,303 12,485 33,000
Officer 1992 219,078 152,896 4,800 15,000
Lloyd L. Hill(4) 1994 $244,111 $119,229 $67,418 51,000
President and Chief Operating 1993 -- -- -- 33,000
Officer 1992 -- -- -- 12,000
Kenneth D. Hill(5) 1994 $222,234 $ 97,031 $ 4,750 39,000
Executive Vice President and 1993 168,197 133,381 5,929 28,500
President of International 1992 150,577 91,737 5,441 15,000
Development
Ronald B. Reck 1994 $220,650 $ 97,031 $ 4,510 42,000
Executive Vice President and 1993 167,792 133,381 19,985 19,500
Chief Administrative Officer 1992 142,154 91,737 4,800 15,000
George D. Shadid(6) 1994 $197,203 $ 86,250 $18,378 30,000
Executive Vice President and 1993 165,149 115,189 4,985 15,000
Chief Financial Officer 1992 45,769 38,821 1,569 42,000
<FN>
---------------
(1) Represents payments made under the 1994 Management and Executive Incentive
Plan and payments made under executive bonus plans in prior years. In
addition, amounts applicable to Mr. Shadid include bonuses of $4,037 and
$10,963 in 1993 and 1992, respectively, constituting a $15,000 bonus paid
for 1992 pursuant to an agreement between Mr. Shadid and the Company made
at the time he initially joined the Company. Amounts applicable to Mr.
Lloyd Hill include a bonus of $15,000 paid in 1994 pursuant to an agreement
between Mr. Lloyd Hill and the Company made at the time he joined the
Company as an officer.
(2) Represents automobile allowances, club membership fees paid on behalf of
certain officers, payments made in connection with the Company's 401(k)
plan in 1992 and 1993, and payments made in connection with the Company's
non-qualified retirement savings plan in 1994. In 1994, the Company
established a non-qualified defined contribution retirement plan for key
employees, and such employees were no longer eligible to participate in the
Company's 401(k) plan. Amounts applicable to Mr. Lloyd Hill also include
moving and relocation expense reimbursements of $67,378 in 1994.
(3) Represents options granted pursuant to the Company's 1989 Stock Option
Plan, including options granted to directors who are also executive
officers (see "Certain Information Concerning the Board of Directors").
(4) Mr. Lloyd Hill's employment with the Company commenced February 1, 1994.
Mr. Lloyd Hill received 12,000 and 18,000 options in 1992 and 1993,
respectively, for serving as a non-employee director and also received
15,000 options in 1993 in connection with joining the Company as an
officer.
(5) Effective February 28, 1995, Mr. Kenneth Hill resigned as an employee and
officer of the Company.
(6) Mr. Shadid's employment with the Company commenced August 17, 1992.
</FN>
21
During 1994, the Company had written employment agreements with Mr. Gustin,
Mr. Lloyd Hill, Mr. Kenneth Hill, Mr. Reck, and Mr. Shadid. The agreements with
Mr. Gustin and Mr. Reck expired March 1, 1995, and have been extended through
June 1, 1995. Mr. Shadid's agreement also expired March 1, 1995, and he has
entered into a new agreement described below. Effective February 28, 1995, Mr.
Kenneth Hill resigned as an executive officer of the Company and became a
consultant under the terms of a written consulting agreement. See "Certain
Transactions."
Mr. Lloyd Hill's agreement was for an original term of one year, expiring
in January 1995, and automatically renews for successive one-year terms unless
otherwise terminated as provided in the agreement. The Company also entered into
a severance and noncompetition agreement with Mr. Hill which provides a
continuation of salary, bonus and benefits for a period of three years following
certain "triggering events," including termination by the Company without cause
or termination by Mr. Hill if the Company substantially reduces his
compensation, benefits, or duties or requires a relocation from the Kansas City
area. If the three-year severance payments are due, Mr. Hill will be bound by a
three-year non-compete. If the severance payments are not due, the Company can
elect to impose a one-year non-compete on Mr. Hill if it pays him 50% of his
base salary.
Effective March 1, 1995, the Company and Mr. Shadid entered into a new
employment agreement with an initial term ending December 29, 1996, and
renewable thereafter for additional one year terms. The agreement allows
periodic salary increases as determined by the Executive Compensation Committee
and provides a 26 month severance payment based on the current year's salary and
bonus (the "Severance Amount") in the event of termination by the Company
without cause (as defined) or by Mr. Shadid with reason (as defined). If Mr.
Shadid elects to receive the Severance Amount, the agreement imposes a
noncompetition and an employee nonsolicitation clause. The agreement also
provides for a lump sum payment equal to 26 times his prior year's monthly
salary plus bonus, plus an amount equal to all bonuses paid or accrued in the
fiscal year of termination, without the imposition of a noncompetition or
nonsolicitation clause, in the event Mr. Shadid resigns or is terminated
following a change in control.
In October 1994, the Company entered into a one-year employment agreement
with Mr. Sack in connection with Mr. Sack joining the Company as an Executive
Vice President. Mr. Sack's employment agreement provides for a base salary of
$210,000, with future periodic salary adjustments as determined by the Executive
Compensation Committee and is renewable for two additional one-year terms by
mutual agreement as provided in the agreement. The agreement also contains a
confidentiality provision and a one-year noncompetition covenant. In addition,
the agreement provides for a continuation of salary and benefits for a period of
18 months in the event Mr. Sack resigns or is terminated following a change in
control of the Company.
Each of the 1994 employment agreements provided for periodic salary
adjustments as determined by the Executive Compensation Committee. In January
1995, Mr. Gustin's salary was increased to $425,000, Mr. Lloyd Hill's salary was
increased to $310,000, Mr. Reck's salary was increased to $250,000 and Mr.
Shadid's salary was increased to $240,000. The 1994 employment agreements also
contained a confidentiality provision and a one-year noncompetition covenant
which the Company could have extended for an additional year under certain
circumstances. These employment agreements also provided for a lump sum payment
in the event the employee resigned or was terminated following a change in
control of the Company in an amount equal to (i) twice the employee's cash
compensation for the prior fiscal year (salary plus bonus), and (ii) the amount
of all bonuses paid or accrued in the fiscal year of termination.
The Company has entered into severance arrangements for the other senior
employees of the Company (seven persons), which provide for lump sum payments in
the event the employee resigns or is terminated following a change in control of
the Company in an amount equal to (i) one and two-thirds times the officer's
cash compensation for the prior year (salary plus bonus), and (ii) the amount of
all bonuses paid or accrued in the fiscal year of termination. If all officers
with change in control severance agreements (12 persons) had been terminated as
of December 25, 1994, as a result of a change in control, the Company would have
been required to make payments under the change in control severance provisions
of the above agreements aggregating approximately $5,000,000.
22
The following tables set forth information regarding options granted and
exercised during fiscal year 1994 with respect to the Chief Executive Officer
and the next four most highly compensated executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
ˇ Enlarge/Download Table
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants(1) for Option Term(2)
Number of % of Total
Securities Options
Underlying Granted to Exercis
Options Employees or Bas
Granted in Fiscal Price Expiration 5% 10%
Name (#) Year ($/Share) Date ($) ($)
Abe J. Gustin, Jr. 40,000 6.8% $13.8150 8/15/04 $347,527 $880,703
9,000(3) 1.5 14.6900 5/25/99 36,528 80,715
Lloyd L. Hill 30,000 5.1 13.8150 8/15/04 260,648 660,529
9,000(3) 1.5 14.6900 5/25/99 36,528 80,715
12,000(4) 2.0 14.3800 8/13/01 72,920 171,108
Kenneth D. Hill 30,000 5.1 13.8150 8/15/04 260,648 660,529
9,000(3) 1.5 14.6900 5/25/99 36,528 80,715
Ronald B. Reck 30,000 5.1 13.8150 8/15/04 260,648 660,529
12,000(4) 2.0 14.3800 8/13/01 72,920 171,108
George D. Shadid 30,000 5.1 13.8150 8/15/04 260,648 660,529
<FN>
---------------
(1) Options are granted at the fair market value on the date of grant and vest
one year after date of grant.
(2) The assumed rates are compounded annually for the full terms of the
options.
(3) Represents options granted to executive officers who are also directors
(see "Certain Information Concerning the Board of Directors").
(4) Represents repriced options originally granted in 1991.
</FN>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
ˇ Enlarge/Download Table
Number of Value of Unexercised
Securities Underlying In-The-Money
Unexercised Options Options at
Shares at 12/25/94 12/25/94(2)
Acquired Value (#) ($)
at Exercise Realized(1) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
Abe J. Gustin, Jr. None None 26,068/ 55,932 $ 16,548/ $ 47,542
Lloyd L. Hill None None 57,000/ 39,000 $ 168,400/ $ 33,660
Kenneth D. Hill None None 62,521/ 46,979 $ 476,551/ $ 52,399
Ronald B. Reck None None 39,048/ 37,452 $ 158,080/ $ 42,855
George D. Shadid None None 28,064/ 42,037 $ 167,809/ $111,079
<FN>
--------------
(1) Market value less option price.
(2) Based upon the closing sale price of the Common Stock on December 23, 1994
(the last trading day in fiscal year 1994).
</FN>
23
Performance Graph
The following graph compares the annual change in the Company's
cumulative total stockholder return for the five fiscal years ended December 25,
1994 (December 31, 1989 to December 25, 1994) based upon the market price of the
Company's Common Stock, compared with the cumulative total return on Media
General's NASDAQ Total Return Index and the Company's customized Industry Peer
Group as indexed by Media General. The Media General NASDAQ Index includes both
the NASDAQ NMS and NASDAQ Small-Cap Issuers indices. The customized Industry
Peer Group consists of the Company; Brinker International, Inc.; Chart House
Enterprises, Inc.; Cracker Barrel Old Country Store, Inc.; Max & Erma's
Restaurants, Inc.; Morrison Restaurants, Inc.; Spaghetti Warehouse, Inc.; and
Uno Restaurant Corporation.
APPLEBEE'S INTERNATIONAL, INC.
Performance Graph
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
APPLEBEE'S INTERNATIONAL, INC. VS. CUSTOM PEER GROUP VS.
NASDAQ TOTAL RETURN INDEX
[GRAPH APPEARS HERE]
ˇ Download Table
Measurement Period Applebee's Custom NASDAQ
(Fiscal Year Covered) International, Inc. Peer Group Total Return Index
Measurement Point -
December 31, 1989 $100.00 $100.00 $100.00
December 30, 1990 $ 54.07 $ 92.69 $ 81.12
December 29, 1991 $108.66 $183.64 $104.14
December 27, 1992 $218.01 $244.85 $105.16
December 26, 1993 $483.68 $322.69 $126.14
December 25, 1994 $349.12 $239.38 $132.44
Assumes $100 Invested on December 31, 1989
Assumes Dividends Reinvested
Fiscal Year Ending December 25, 1994
24
Certain Indemnification Agreements
The Company has entered into Indemnification Agreements with each of its
directors and officers. Under the Indemnification Agreements, the Company agreed
to hold harmless and indemnify each indemnitee generally to the full extent
permitted by Section 145 of the Delaware General Corporation Law and against any
and all liabilities, expenses, judgments, fines, penalties and costs in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative to which the indemnitee
is made a party by reason of the fact that the indemnitee has, is or at the time
becomes a director or officer of the Company or any other entity at the request
of the Company. The indemnity does not cover liability arising out of fraudulent
acts, deliberate dishonesty or willful misconduct, violations of certain
securities laws, or if a court determines that such indemnification is not
lawful. In addition, the By-laws of the Company provide for indemnification to
all officers and directors of the Company to essentially the same extent as
provided in the indemnification agreements.
The Company presently carries director and officer liability insurance to
insure its directors and officers against certain liabilities they might incur
in connection with performing their duties for the Company. The proceeds of such
insurance would be available to the extent thereof to satisfy any obligation of
the Company to indemnify its directors or officers with respect to the liability
giving rise to the insurance proceeds. The insurance does not cover all
liabilities that could give rise to indemnification by the Company.
CERTAIN TRANSACTIONS
The Company and certain franchisees have obtained restaurant equipment from
Sal Reck Equipment Company. Sal Reck, the owner of such company, is the father
of Ronald B. Reck. During the 1994 fiscal year, the Company paid $3,869,000 for
equipment and services purchased from Sal Reck Equipment Company. In addition,
at December 25, 1994, the Company had $194,000 in accounts payable to such
company. The Company believes that all such transactions have been on terms at
least as favorable as could have been obtained from unaffiliated third parties.
One of the Company's restaurants is leased from a corporation of which Abe
J. Gustin, Jr., Ronald B. Reck and Johyne H. Reck each owns a 25% interest. The
Company paid $173,000 under this lease in the 1994 fiscal year. The Company
believes that the terms of the lease reflect fair market value rentals which are
comparable to those which could have been obtained from an unaffiliated third
party. Abe J. Gustin, Jr. personally guaranteed a restaurant lease for a former
franchisee in Dallas. When the Company undertook the operation of this franchise
restaurant it agreed to assume the lease prospectively. This decision was
approved by a majority of the disinterested members of the Board of Directors.
Mr. Gustin remains liable on his guarantee. In the 1994 fiscal year, the
aggregate payments made by the Company on the lease were $96,000.
Mr. Gustin's brother and a brother-in-law own two of the Company's
franchisees, A.N.A., Inc., which operates nine restaurants, and Penn-Apple,
Inc., which holds the rights to a development territory. Another brother-in-law
of Mr. Gustin owns a 50% interest in Apple-Bay East, Inc., another of the
Company's franchisees which operates two restaurants. The Company has also
entered into development agreements for two territories with Apple Partners
Limited Partnership. Ronald B. Reck's brother-in-law owns a 50% interest in the
corporate general partner of this limited partnership. As of [April , 1995], the
Company had $[ ] in accounts receivable from Apple Partners Limited Partnership.
The development and franchise agreements of A.N.A., Inc., Penn-Apple, Inc.,
Apple-Bay East, Inc. and Apple Partners Limited Partnership are standard in form
and require payment of standard franchise, royalty, and advertising fees.
As of December 6, 1994, Tom E. DuPree, Jr., Chairman of the Board, Chief
Executive Officer and the beneficial owner of approximately 35.5% of the
outstanding common stock of Apple South, Inc., reported ownership of 1,739,850
shares (6.1% of the Company's outstanding Common Stock as of April 14, 1995).
Apple South, Inc., the Company's largest franchisee, operated 120 Applebee's
restaurants as of December 25, 1994. Approximately 28% ($8,867,000) of the
25
Company's fiscal year 1994 franchise income and approximately 4% of the
Company's fiscal year 1994 total operating revenues were generated by Apple
South. As of December 25, 1994, the Company had $970,000 in accounts receivable
from Apple South, which has been subsequently paid in the normal course of
business.
In October 1994, the Company acquired Pub Ventures of New England, Inc.
("PVNE"), a franchisee of the Company, in exchange for 3,300,000 shares of the
Company's Common Stock. Burton M. "Skip" Sack beneficially owned 68% of PVNE. In
connection with this acquisition, the Company assumed approximately $4,000,000
of PVNE debt which had been guaranteed by Mr. Sack and Mr. Sack became an
Executive Vice President and a member of the Board of Directors of the Company.
The Company also agreed to nominate Mr. Sack for reelection to the Board of
Directors at the 1995 Annual Meeting of Stockholders.
In March 1995, the Company acquired Innovative Restaurant Concepts, Inc.
and its affiliates ("IRC"). IRC owns and operates the Rio Bravo Cantina chain of
Mexican restaurants and four other specialty restaurant concepts. Under the
terms of the agreement, approximately 2,777,000 shares of the Company's Common
Stock or options to purchase such shares, subject to adjustment, were exchanged
for all of the outstanding stock, stock options and partnership interests of IRC
and approximately $13,700,000 of IRC indebtedness was assumed. Raymond D.
Schoenbaum owned beneficially approximately 55% of IRC and was released from his
personal guarantee of a portion of the IRC debt. As a part of the acquisition,
Mr. Schoenbaum entered into a consulting agreement with the Company. The
consulting agreement, which has an initial term of one year and is extendible
thereafter by mutual agreement, pays Mr. Schoenbaum a fee of $165,000. The
agreement also includes a one year period after termination in which Mr.
Schoenbaum is precluded from competing in the casual dining restaurant industry
and from hiring any employees of the Company. Mr. Schoenbaum became a member of
the Board of Directors on March 24, 1995, and under the terms of the consulting
agreement, the Company agreed to nominate him for reelection to the Board of
Directors at the 1995 Annual Meeting of Stockholders.
Effective March 1, 1995, the Company entered into a two-year consulting
agreement with Mr. Kenneth Hill to act as a consultant to the Company for
governmental affairs and restaurant industry relations. Mr. Hill will be paid
$200,000 for the first year of the agreement and $150,000 for the second year.
The agreement contains nondisclosure, noncompetition, and employee
nonsolicitation clauses and also provides that all concepts and discoveries
conceived by Mr. Hill alone or with others become the exclusive property of the
Company.
OTHER MATTERS
The Company knows of no other matters to be considered at the Annual
Meeting. However, if any other matters are properly presented at the meeting, it
is the intention of the persons named in the accompanying proxy to vote in
respect thereof in accordance with their best judgment.
The Board of Directors encourages each stockholder to attend the Annual
Meeting. Whether or not you plan to attend, you are urged to complete, sign and
return the enclosed proxy in the accompanying envelope. A prompt response will
greatly facilitate arrangements for the meeting, and your cooperation will be
appreciated. Stockholders who attend the meeting may vote their shares
personally even though they have sent in their proxies.
By Order of the Board of Directors
Robert T. Steinkamp, Secretary
Applebee's International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Overland Park, Kansas
April 24, 1995
26
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