<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 6, 1995
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
APPLEBEE'S INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
4551 WEST 107TH STREET
SUITE 100
OVERLAND PARK, KANSAS 66207
(913) 967-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DELAWARE 43-1461763
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ABE J. GUSTIN, JR.
CHIEF EXECUTIVE OFFICER
4551 WEST 107TH STREET
SUITE 100
OVERLAND PARK, KANSAS 66207
(913) 967-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
----------------
COPIES TO:
SHARI L. WRIGHT, ESQ. DAVID B. MILLER, ESQ.
BLACKWELL SANDERS MATHENY WEARY & LOMBARDI FAEGRE & BENSON
L.C. PROFESSIONAL LIMITED LIABILITY
2300 MAIN STREET, SUITE 1100 PARTNERSHIP
KANSAS CITY, MO 64108 2200 NORWEST CENTER
(816) 274-6800 90 SOUTH SEVENTH STREET
---------------- MINNEAPOLIS, MN 55402
(612) 336-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities being offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: [X]
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE(1)
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<S> <C> <C>
Common Stock, par value $.01 per share.... $72,000,000 $24,827.59
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(h).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 6, 1995
Prospectus
dated , 1995
2,400,000 SHARES
LOGO
APPLEBEE'S INTERNATIONAL, INC.
COMMON STOCK
Of the 2,400,000 shares of Common Stock (the "Common Stock") offered hereby,
2,100,000 shares are being sold by Applebee's International, Inc. (the
"Company"), and 300,000 shares are being sold by the Selling Stockholders. The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "APPB." On July 3, 1995, the last sale price of the Common Stock as
reported by The Nasdaq Stock Market was $25.50 per share. See "Price Range of
Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2) SELLING STOCKHOLDERS (2)
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total (3)..................... $ $ $ $
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</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $300,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an aggregate of 360,000 additional shares
of Common Stock solely to cover over-allotments, if any, at the per share
Price to Public less the Underwriting Discount. If the Underwriters
exercise this option in full, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Stockholders will be
$ , $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters
subject to prior sale when, as and if delivered to and accepted by the
Underwriters and subject to their right to reject orders in whole or in part.
It is expected that delivery of the certificates representing shares of Common
Stock will be made at the offices of Piper Jaffray Inc. in Minneapolis,
Minnesota on or about , 1995.
PIPER JAFFRAY INC.
DILLON, READ & CO. INC.
MONTGOMERY SECURITIES
<PAGE>
[Pictures of Applebee's restaurants and food]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ
STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus or
incorporated by reference herein. Unless otherwise noted, the information in
this Prospectus does not give effect to the exercise of the Underwriters' over-
allotment option.
THE COMPANY
Applebee's International, Inc. (the "Company") develops, franchises and
operates casual dining restaurants principally under the name "Applebee's
Neighborhood Grill & Bar." The Applebee's system has grown rapidly since the
inception of the Company to become one of the largest casual dining restaurant
chains in the United States. As of June 25, 1995, the Applebee's system
included 576 restaurants in 43 states, one Canadian province and the Caribbean
island of Curacao. Of the 576 restaurants, 115 were owned and operated by the
Company and 461 were operated by franchisees.
Each Applebee's restaurant is designed as an attractive, friendly,
neighborhood establishment featuring moderately priced, high quality food and
beverage items, table service and a comfortable atmosphere. The restaurants
feature a broad selection of entrees, including beef, chicken, seafood and
pasta items, prepared in a variety of cuisines, as well as appetizers, salads,
sandwiches, specialty drinks and desserts. Company owned restaurants currently
have an average guest check, including alcoholic beverages, of approximately
$8.00 to $8.50. Applebee's restaurants appeal to a wide range of customers,
including families with children, young adults and senior citizens. The
Company's two current free-standing restaurant prototypes are approximately
5,000 and 5,400 square feet and seat approximately 175 and 200 patrons,
respectively. System-wide weighted average weekly sales for Applebee's
restaurants were $41,376 for the 13 weeks ended March 26, 1995.
Over the last six and a half years, the Company has expanded the Applebee's
system by more than 500 restaurants, from 73 restaurants at the end of 1988 to
576 restaurants as of June 25, 1995, primarily through exclusive franchise
arrangements with experienced multi-unit restaurant operators and also through
Company owned restaurant openings. The Company currently has approximately 60
franchisees, including four international franchisees. Since 1992, the Company
has accelerated the growth of its Company owned restaurant operations, both
through the opening of new restaurants in existing Company territories and
through the selective acquisition of franchise restaurants.
In 1994, the Company and its franchisees opened 23 and 122 Applebee's
restaurants, respectively. The Company expects to open at least 27 Applebee's
restaurants in 1995, of which 13 were open as of June 25, 1995, and
approximately 30 Applebee's restaurants in 1996. The Company expects
franchisees to open a minimum of 120 Applebee's restaurants in 1995, of which
58 were open and 34 were under construction as of June 25, 1995. Also as of
such date, an additional 98 restaurant sites were approved for franchise
development. During 1996, the Company expects franchisees to open more than 100
Applebee's restaurants. Based on these expectations, the Company anticipates
that there will be more than 780 domestic Applebee's restaurants in operation
by the end of 1996, and believes that the United States can ultimately support
approximately 1,200 to 1,500 Applebee's restaurants.
As part of its overall growth strategy, the Company acquired the Rio Bravo
Cantina chain of Mexican casual dining restaurants in March 1995. Rio Bravo
Cantina restaurants offer generous portions of fresh Tex-Mex and Mexican
cuisine at attractive prices. The menu includes traditional Mexican food items
such as burritos, enchiladas, tamales and tacos in addition to a wide variety
of other favorites such as beef, chicken and shrimp fajitas, quesadillas,
shrimp dishes and a variety of salads and desserts. The restaurants feature
tortillas made on the premises, fresh daily specials, a variety of signature
margaritas and distinctive Mexican architecture and interior decor which create
a festive atmosphere reminiscent of an authentic Mexican cantina. As of June
25, 1995, the Company operated 14 Rio Bravo Cantina restaurants in Florida,
Georgia and Tennessee. Weighted average weekly sales for Rio Bravo Cantina
restaurants were $63,326 for the 13 weeks ended March 26, 1995. The Company
expects to open four Company owned Rio Bravo Cantina restaurants in 1995, of
which two were open as of June 25, 1995, and five Company owned Rio Bravo
Cantina restaurants in 1996. In addition, the Company is currently preparing
the Rio Bravo Cantina concept for franchising.
3
<PAGE>
The Company's principal executive offices are located at 4551 West 107th
Street, Suite 100, Overland Park, Kansas 66207, and its telephone number is
(913) 967-4000. The Company is a Delaware corporation. All references to the
Company herein include the Company and its subsidiaries. "Applebee's
Neighborhood Grill & Bar" and "Rio Bravo Cantina" are registered trademarks of
the Company.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company.................. 2,100,000 shares
By the Selling Stockholders..... 300,000 shares
Total......................... 2,400,000 shares
Common Stock outstanding after the
offering......................... 30,448,046 shares(1)
Use of proceeds................... To repay certain outstanding indebtedness,
to fund the development of Company owned
restaurants and for general corporate
purposes. See "Use of Proceeds."
Nasdaq Stock Market symbol........ APPB
</TABLE>
- --------
(1) As of June 25, 1995. Does not reflect approximately 1,509,000 shares of
Common Stock subject to options outstanding as of June 25, 1995 granted
under the Company's 1989 Stock Option Plan and Equity Incentive Plan, of
which approximately 882,000 shares were subject to exercisable options.
SUMMARY CONSOLIDATED FINANCIAL AND RESTAURANT DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RESTAURANT DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS ENDED
---------------------------------------------------------------- -------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 27, MARCH 26,
1990 1991 1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Company restaurant
sales.................. $65,000 $73,877 $85,459 $159,482 $222,445 $49,847 $66,021
Franchise income........ 7,524 9,464 14,319 21,324 31,419 6,658 9,418
------- ------- ------- -------- -------- ------- -------
Total operating
revenues.............. 72,524 83,341 99,778 180,806 253,864 56,505 75,439
Operating earnings(1)... 4,547 7,033 9,226 19,677 29,311 5,521 8,232
Pro forma net
earnings(1)(2)......... $ 2,781 $ 4,245 $ 6,335 $ 12,551 $ 17,823 $ 3,401 $ 4,253
Pro forma net earnings
per common share(1)(2). $ 0.14 $ 0.21 $ 0.26 $ 0.46 $ 0.64 $ 0.12 $ 0.15
Weighted average shares
outstanding............ 19,970 19,763 24,755 27,543 27,970 27,910 28,078
</TABLE>
<TABLE>
<CAPTION>
MARCH 26, 1995
--------------------
AS
ACTUAL ADJUSTED(3)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $187,997 $225,395
Note payable and long-term obligations, including cur-
rent portion.......................................... 38,171 24,863
Stockholders' equity................................... 115,988 166,694
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS ENDED
---------------------------------------------------------------- --------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 27, MARCH 26,
1990 1991 1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
RESTAURANT DATA(4):
Total system sales (in
thousands):
Applebee's............. $226,804 $287,713 $402,381 $604,813 $882,515 $194,992 $278,420
Rio Bravo Cantinas..... 18,071 20,944 22,583 24,962 36,679 7,975 10,385
Specialty restau-
rants(5).............. 4,441 4,885 5,883 15,652 14,833 4,232 3,437
-------- -------- -------- -------- -------- -------- --------
Total................. $249,316 $313,542 $430,847 $645,427 $934,027 $207,199 $292,242
======== ======== ======== ======== ======== ======== ========
Restaurants open (end of period):
Applebee's:
Company owned or
operated(6).......... 35 33 42 75 97 77 105
Franchise............. 125 158 208 286 408 301 430
-------- -------- -------- -------- -------- -------- --------
Total Applebee's...... 160 191 250 361 505 378 535
Rio Bravo Cantinas..... 6 7 7 9 12 9 13
Specialty restau-
rants(5).............. 1 1 4 6 4 6 4
-------- -------- -------- -------- -------- -------- --------
Total................. 167 199 261 376 521 393 552
======== ======== ======== ======== ======== ======== ========
Weighted average weekly
sales per restaurant:
Applebee's:
Company owned or
operated(6).......... $ 29,729 $ 29,892 $ 34,679 $ 40,146 $ 39,924 $ 39,745 $ 40,290
Franchise............. 32,920 32,203 36,424 39,852 41,010 40,967 41,639
Total Applebee's...... 32,235 31,759 36,150 39,904 40,789 40,717 41,376
Rio Bravo Cantinas..... 62,100 60,011 62,041 65,346 68,177 68,358 63,326
Change in comparable
restaurant sales(7):
Applebee's:
Company owned or
operated(6).......... (0.6)% 1.6% 12.6% 12.1% 3.7% 5.1% 3.7%
Franchise............. 4.4 (2.3) 10.4 7.6 3.1 4.1 2.2
Total Applebee's...... 3.0 (1.4) 10.9 8.5 3.2 4.3 2.6
Rio Bravo Cantinas..... 9.9 (2.0) 2.7 7.6 9.5 14.8 1.1
</TABLE>
- --------
(1) Includes merger costs of $920,000 (approximately $0.03 per share) for the
fiscal year ended December 25, 1994 and $1,770,000 (approximately $0.06 per
share) for the 13 weeks ended March 26, 1995. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(2) Reflects provisions for pro forma income taxes related to pooled companies
which were previously taxed as S corporations or limited partnerships for
federal and state income tax purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(3) Adjusted to reflect the sale of 2,100,000 shares of Common Stock offered by
the Company hereby (at an assumed offering price of $25.50 per share) and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
(4) Sales data are composed of franchise restaurant sales, as reported by
franchisees to the Company, and Company restaurant sales.
(5) Specialty restaurants as of December 26, 1993 and March 27, 1994 included
two restaurants which were subsequently converted to Rio Bravo Cantina
restaurants.
(6) Company owned or operated data include certain Texas restaurants operated
by the Company under a management agreement since July 1990. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(7) When computing comparable restaurant sales, restaurants open for at least
18 months are compared from period to period.
5
<PAGE>
RISK FACTORS
In deciding whether to purchase shares of Common Stock offered hereby, a
prospective investor should consider all of the information contained in this
Prospectus and, in particular, the following factors:
Growth of Applebee's System. The Company has experienced rapid growth in the
Applebee's system in the last three years and expects such growth to continue
for the foreseeable future. The Company's continued growth will depend upon the
ability of the Company and its franchisees to open and operate additional
restaurants profitably. The opening of new restaurants, both by the Company and
its franchisees, will depend on a number of factors, many of which are beyond
the control of the Company and its franchisees. These factors include, among
others, the availability of management, restaurant staff and other personnel,
the cost and availability of suitable restaurant locations, acceptable leasing
or financial terms, cost effective and timely construction of restaurants
(which construction can be delayed due to, among other reasons, labor disputes,
local zoning and licensing matters, and weather conditions), and securing
required governmental permits. There can be no assurance that the Company or
its franchisees will be successful in opening the number of restaurants
anticipated, or that new restaurants opened by the Company or its franchisees
will be operated profitably. See "Business--Expansion Strategy."
In the course of expansion of the Applebee's concept, the Company and its
franchisees enter new or more highly competitive geographic regions or local
markets in which they may have limited operating experience. There can be no
assurance of the level of success of the Applebee's concept in these regions or
particular local markets. New Company owned restaurants typically operate with
below normal profitability and incur certain additional costs in the process of
achieving operational efficiencies during the first several months of
operation. When the Company enters highly competitive new markets or
territories in which the Company has not yet established a market presence,
such as the Texas and southern California markets (in which the Company opened
a significant number of new restaurants in 1994), the adverse effects on sales
and profit margins may be greater and more prolonged. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's expansion has and will continue to require the implementation
of enhanced operational systems. The Company regularly evaluates the adequacy
of its current policies, procedures, systems and resources, including financial
controls, management information systems, field and restaurant management, and
vendor capacities and relations. There can be no assurance that the Company
will adequately address all of the changing demands that its planned expansion
will impose on such systems, controls, and resources.
Reliance on Franchisees. The continued growth of the Company is, in part,
dependent upon its ability to retain qualified domestic Applebee's franchisees
and to attract franchisees for international markets and the ability of its
Applebee's franchisees to maximize penetration of their designated markets and
to operate their restaurants successfully. Although the Company has established
criteria to evaluate prospective franchisees, there can be no assurance that
the Company's existing or future franchisees will have the business abilities
or access to financial resources necessary to open the required number of
Applebee's restaurants or that they will successfully develop or operate these
restaurants in their franchise areas in a manner consistent with the Company's
standards.
The rights of a franchisee to continued area exclusivity under its
development agreement are contingent upon, among other things, the franchisee
meeting its development schedule. If the development agreement is terminated
due to non-development, any franchise agreements entered into with the
franchisee prior to termination remain in effect. When delays in development
are anticipated or have been due to reasons acceptable to the Company, the
Company has granted extensions to franchisees. Because of delays by franchisees
in meeting their development obligations, the Company has historically reviewed
and, where appropriate, renegotiated the development obligations for a
significant number of its franchisees. The majority of the recent negotiations
resulted in less aggressive development schedules.
6
<PAGE>
Although the Company has no obligation to assume the management or operation
of any franchise restaurant, in order to stabilize a market, the Company has
occasionally undertaken the operation of franchise restaurants or provided
financial assurances to lenders and other creditors when, as a result of
financial difficulties, the franchisee is unable to continue operating its
restaurants. Financial difficulties of franchisees may also from time to time
require the Company to stop accruing franchise fees, to establish reserves with
respect to amounts due, or both. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company's largest franchisee, Apple South, Inc. ("Apple South"), operated
146 Applebee's restaurants as of June 25, 1995, which constituted 32% of all
franchise restaurants. On June 30, 1995, Apple South acquired an additional 18
franchise restaurants for a total of 164 Applebee's restaurants, or 36% of all
franchise restaurants. The ability of Apple South to operate its restaurants
successfully and meet its development schedule will have an impact on the
Company's future growth and results of operations. See "Business--Applebee's
Franchise System."
The Company intends to continue its efforts to franchise restaurants in
certain international territories. There can be no assurance that the Company
will be able to attract qualified franchisees or that such franchisees will be
able to open and operate Applebee's restaurants successfully. See "Business--
International Franchise Arrangements."
Acquisitions. Since 1992, the Company has acquired 37 Applebee's franchise
restaurants, 13 Rio Bravo Cantina restaurants, and four specialty restaurants.
The future success of acquired restaurants depends primarily on the Company's
ability to maintain sales and profitability of the restaurants and to retain
and attract qualified management personnel. Such acquisitions also involve
risks of unforeseen liabilities or other conditions relating to the acquired
operations. A portion of the proceeds of this offering may be used to acquire
additional Applebee's franchise restaurants. Such future acquisitions, should
they occur, will present these same uncertainties and risks.
The Company intends to develop and franchise the Rio Bravo Cantina concept.
There can be no assurance, however, that the Company will be successful in
developing this concept as a franchising vehicle, identifying and attracting
franchisees, or operating multiple restaurant concepts. See "Business--Rio
Bravo Cantina Restaurants."
Competition. Competition in the casual dining segment of the restaurant
industry is expected to remain intense with respect to price, service,
location, concept, and the type and quality of food. There is also intense
competition for real estate sites, qualified management personnel, and hourly
restaurant staff. The Company's competitors include national, regional and
local chains as well as local owner-operated restaurants. Some of these
restaurant chains have greater financial resources and market presence than the
Company and its franchisees. See "Business--Competition."
Restaurant Industry. The restaurant industry is affected by changes in
consumer tastes and by national, regional, and local economic conditions,
demographic trends, traffic patterns, and the type, number, and location of
competing restaurants. Multi-unit chains such as the Company can also be
adversely affected by publicity resulting from food quality, illness, injury or
other health concerns or operating issues stemming from one restaurant or a
limited number of restaurants. Dependence on fresh produce and meats also
subjects restaurant companies such as the Company to the risk that shortages or
interruptions in supply, caused by adverse weather or other conditions, could
adversely affect the availability, quality or cost of ingredients. In addition,
factors such as inflation, increased food, labor, and employee benefit costs,
and the availability of qualified management and hourly employees may also
adversely affect the restaurant industry in general and the Company's
restaurants in particular. The continued success of the Company will depend in
part on the ability of the Company's management to identify and respond
appropriately to changing conditions. See "Business--Competition."
7
<PAGE>
Government Regulation. The restaurant industry is subject to extensive state
and local governmental regulations relating to the sale of food and alcoholic
beverages and to sanitation, public health, fire, and building codes.
Termination of the liquor license for any restaurant would adversely affect the
revenues of that restaurant. Restaurant operating costs are also affected by
other government actions that are beyond the Company's control, including
increases in the minimum hourly wage requirement, workers' compensation
insurance rates, and unemployment and other taxes. The Company may be subject
in certain states to "dram-shop" statutes, which generally provide a person
injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. The Company is also subject to federal regulation and certain state
laws which govern the offer and sale of franchises. Many state franchise laws
impose substantive requirements on any franchise agreement, including
limitations on noncompetition provisions and the termination or nonrenewal of a
franchise. See "Business--Government Regulation."
Stock Price Volatility. The market price of the Common Stock could be subject
to significant fluctuations in response to variations in quarterly operating
results and other factors. In addition, the securities markets have experienced
significant price and volume fluctuations from time to time in recent years
that have often been unrelated or disproportionate to the operating performance
of particular companies. These broad fluctuations may adversely affect the
market price of the Common Stock. See "Price Range of Common Stock."
Certain Anti-Takeover Effects. The Company's Certificate of Incorporation and
Bylaws, as amended, contain certain provisions which may render more difficult
an unfriendly tender offer, proxy contest, merger, or change in control of the
Company, which could be in the best interests of the Company's stockholders.
These provisions include the ability to issue "blank check" preferred stock, a
classified Board of Directors, and a stockholder rights plan under which all
stockholders have 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.
Shares Eligible for Future Sale. Pursuant to registration rights granted to
the Selling Stockholders, 716,500 shares of Common Stock will be available for
sale subsequent to the offering pursuant to a previously filed registration
statement. Mr. Richard J. Ferris, a Selling Stockholder not affiliated with the
Company, has agreed to refrain from selling any of his portion of such shares
until 45 days after the consummation of this offering. The other Selling
Stockholder, Mr. Burton M. Sack, is a director and executive officer of the
Company and will be subject to a 90-day lock-up period. See "Principal and
Selling Stockholders."
The Company issued approximately 2,630,000 shares of Common Stock in
connection with the acquisition of the Rio Bravo Cantina concept. Approximately
703,000 of these shares will become eligible for sale, on the first business
day after the Company files its Form 10-Q for the second quarter (anticipated
to be August 4, 1995). Approximately 1,927,000 of such shares will be eligible
for sale, subject to Rule 144 (except for the holding period requirement), upon
expiration of 90-day lock-up agreements executed by directors and certain
officers of the Company.
The Company, its executive officers, directors and certain other officers
have agreed to refrain from selling any shares of Common Stock for a period of
90 days after the date of this Prospectus, except that the Company may issue
shares pursuant to the over-allotment option and certain employee stock option
plans. See "Underwriting."
8
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,100,000 shares of
Common Stock offered hereby (based on an assumed offering price of $25.50 per
share) are estimated to be $50,706,000 ($58,357,000 if the Underwriters' over-
allotment option is exercised in full) after deducting underwriting discounts
and estimated offering expenses. The net proceeds will be used (i) to retire
approximately $12,500,000 of secured debt assumed in certain recent
acquisitions, which debt bears interest at floating rates and has various
maturity dates ranging from on demand through the year 2000, (ii) to repay the
outstanding balance of the Company's revolving credit facility, which as of
June 25, 1995 was $5,000,000, and which bears interest at LIBOR plus 0.60%, or
the prime rate, at the Company's option, (iii) to fund the development of
Company owned restaurants, and (iv) for general corporate purposes, including
possible acquisitions of franchise restaurants. The Company is not currently
engaged in any acquisition negotiations. The Company will receive none of the
proceeds from the sale of the Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The holders of the Common Stock are entitled to receive dividends when and as
declared by the Board of Directors. The Company paid annual dividends for 1993
and 1994 of $0.04 and $0.05 per share of Common Stock, respectively. Future
dividends will depend upon future earnings, results of operations, capital
requirements, the financial condition of the Company and certain other factors.
There can be no assurance as to the amount of net earnings that the Company
will generate in 1995 or future years and, accordingly, there can be no
assurance as to the amount that will be available for the declaration of
dividends, if any. In addition, the Company has entered into debt agreements
that contain covenants restricting the amount of retained earnings available
for the payment of cash dividends. The Company does not expect these
restrictions to materially affect its dividend policy.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is traded on The Nasdaq Stock Market under
the symbol "APPB." The table below sets forth for the fiscal quarters indicated
the reported high and low last sale prices of the Company's Common Stock, as
reported on The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
1993 ------ ------
<S> <C> <C>
First quarter............................................ $ 9.38 $ 7.42
Second quarter........................................... 13.00 8.50
Third quarter............................................ 14.75 12.33
Fourth quarter........................................... 21.08 14.50
1994
First quarter............................................ $25.00 $18.75
Second quarter........................................... 25.25 11.00
Third quarter............................................ 19.75 11.25
Fourth quarter........................................... 20.25 12.75
1995
First quarter............................................ $22.00 $13.38
Second quarter........................................... 26.50 20.50
Third quarter (through July 3, 1995)..................... 25.75 25.19
</TABLE>
On July 3, 1995, the last sale price of the Common Stock on The Nasdaq Stock
Market was $25.50.
9
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at March 26, 1995, and as adjusted to reflect the sale of 2,100,000
shares of Common Stock offered by the Company hereby (based on an assumed
offering price of $25.50 per share) and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 26, 1995
(IN THOUSANDS)
------------------
AS
ACTUAL ADJUSTED
-------- --------
<S> <C> <C>
Note payable and current portion of long-term obligations.. $ 3,428 $ 1,229
======== ========
Long-term obligations, less current portion(1)............. $ 34,743 $ 23,634
Stockholders' equity:
Preferred stock--par value $0.01 per share: authorized--
1,000,000 shares;
no shares issued........................................ -- --
Common stock--par value $0.01 per share; authorized--
125,000,000 shares; issued--28,435,693 shares;
30,535,693 shares, as adjusted(2)....................... 284 305
Additional paid-in capital............................... 81,571 132,256
Retained earnings........................................ 34,952 34,952
Unrealized gain on short-term investments, net of income
taxes................................................... 30 30
Treasury stock--281,772 shares, at cost.................. (849) (849)
-------- --------
Total stockholders' equity............................. 115,988 166,694
-------- --------
Total capitalization................................... $150,731 $190,328
======== ========
</TABLE>
- --------
(1) As of March 26, 1995, there were no amounts outstanding under the Company's
$20,000,000 revolving credit facility. As of June 25, 1995, $5,000,000 was
outstanding.
(2) Does not reflect approximately 1,554,000 shares of Common Stock subject to
options outstanding as of March 26, 1995 granted under the Company's 1989
Stock Option Plan, of which approximately 969,000 shares were subject to
exercisable options.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth, for the periods and the dates indicated,
selected consolidated financial data of the Company. The selected consolidated
financial data for the three fiscal years in the period ended December 25, 1994
have been derived from audited financial statements which appear elsewhere in
this Prospectus. The selected consolidated financial data of the Company for
the 13 weeks ended March 27, 1994 and March 26, 1995 have been derived from
unaudited financial statements (which include all normal, recurring adjustments
necessary for a fair presentation of the financial data for such periods).
Results of operations for the 13 weeks ended March 26, 1995 are not necessarily
indicative of the results that may be expected for the remainder of fiscal
1995. The following should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS ENDED
-------------------------------------- -------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 27, MARCH 26,
1992 1993 1994 1994 1995
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Revenues:
Company restaurant
sales................. $85,459 $159,482 $222,445 $49,847 $66,021
Franchise income....... 14,319 21,324 31,419 6,658 9,418
------- -------- -------- ------- -------
Total operating reve-
nues................ 99,778 180,806 253,864 56,505 75,439
------- -------- -------- ------- -------
Cost of Company restau-
rant sales:
Food and beverage...... 26,028 46,757 64,819 14,821 18,908
Labor.................. 27,663 50,950 70,777 16,237 21,068
Direct and occupancy... 20,489 37,283 53,883 12,319 15,378
Pre-opening expense.... 768 1,588 2,093 136 633
------- -------- -------- ------- -------
Total cost of Company
restaurant sales.... 74,948 136,578 191,572 43,513 55,987
------- -------- -------- ------- -------
General and administra-
tive expenses.......... 14,573 22,526 29,167 6,874 8,909
Merger costs(1)......... -- -- 920 -- 1,770
Amortization of intangi-
ble assets............. 1,031 1,934 2,033 547 515
Loss on disposition of
restaurants and equip-
ment................... -- 91 861 50 26
------- -------- -------- ------- -------
Operating earnings...... 9,226 19,677 29,311 5,521 8,232
------- -------- -------- ------- -------
Other income (expense):
Investment income...... 1,623 1,675 1,065 306 237
Interest expense....... (599) (1,075) (2,029) (299) (614)
Other income........... 33 179 253 60 82
------- -------- -------- ------- -------
Total other income
(expense)........... 1,057 779 (711) 67 (295)
------- -------- -------- ------- -------
Earnings before income
taxes.................. 10,283 20,456 28,600 5,588 7,937
Income taxes............ 3,472 6,693 9,453 1,904 3,611
------- -------- -------- ------- -------
Net earnings............ 6,811 13,763 19,147 3,684 4,326
Pro forma provision for
income taxes of pooled
companies(2)........... 476 1,212 1,324 283 73
------- -------- -------- ------- -------
Pro forma net earn-
ings(2)................ $ 6,335 $ 12,551 $ 17,823 $ 3,401 $ 4,253
======= ======== ======== ======= =======
Pro forma net earnings
per common share(2).... $ 0.26 $ 0.46 $ 0.64 $ 0.12 $ 0.15
======= ======== ======== ======= =======
Weighted average shares
outstanding............ 24,755 27,543 27,970 27,910 28,078
</TABLE>
<TABLE>
<CAPTION>
MARCH 26, 1995
--------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, AS
1992 1993 1994 ACTUAL ADJUSTED(3)
------------ ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Total assets... $92,383 $138,680 $180,014 $187,997 $225,395
Note payable
and long-term
obligations,
including cur-
rent portion.. 8,598 17,667 34,972 38,171 24,863
Stockholders'
equity........ 68,561 92,680 108,788 115,988 166,694
</TABLE>
- --------
(1) Includes merger costs of $920,000 (approximately $0.03 per share) for the
fiscal year ended December 25, 1994 and $1,770,000 (approximately $0.06 per
share) for the 13 weeks ended March 26, 1995. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(2) Reflects provisions for pro forma income taxes related to pooled companies
which were previously taxed as S corporations or limited partnerships for
federal and state income tax purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(3) Adjusted to reflect the sale of 2,100,000 shares of Common Stock offered by
the Company hereby (at an assumed offering price of $25.50 per share) and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's revenues are generated from two primary sources: Company
restaurant sales (food and beverage sales) and franchise income consisting of
franchise restaurant royalties (generally 4% of each franchise restaurant's
monthly gross sales) and franchise fees (which typically range from $30,000 to
$35,000 per restaurant opened). Beverage sales include sales of alcoholic
beverages, while non-alcoholic beverages are included in food sales. Certain
expenses (food and beverage, labor, direct and occupancy costs, and pre-opening
expenses) relate directly to Company restaurants, and other expenses (general
and administrative and amortization expenses) relate to both Company
restaurants and franchise operations. The Company's policy is to expense pre-
opening costs as incurred.
Beginning in fiscal 1995, the cost of meals provided to employees and other
complimentary meals have been classified as labor costs and direct and
occupancy costs, respectively. Previously, the retail price of such meals was
reflected in Company restaurant sales with corresponding amounts reflected as
labor or direct and occupancy costs. The consolidated financial statements for
all periods presented have been reclassified to conform to the presentation
adopted in fiscal 1995, the effects of which were not material.
The Company operates on a 52 or 53 week fiscal year ending on the last Sunday
in December. The Company's fiscal years ended December 27, 1992, December 26,
1993 and December 25, 1994 each contained 52 weeks, and are referred to
hereafter as 1992, 1993 and 1994, respectively. The Company's fiscal quarters
ended March 27, 1994 and March 26, 1995 each contained 13 weeks, and are
referred to hereafter as the "1995 quarter" and the "1994 quarter,"
respectively.
RECENT ACQUISITIONS
During 1993, the Company acquired 14 franchise restaurants in Minnesota,
effective for financial reporting purposes on February 27, 1993. The Minnesota
acquisition was accounted for as a purchase and, accordingly, the results of
operations of such restaurants are included in the Company's consolidated
statements of earnings subsequent to February 26, 1993 and are hereafter
referred to as the "Minnesota operations."
On October 24, 1994, a wholly-owned subsidiary of the Company merged with and
into Pub Ventures of New England, Inc. ("PVNE"), the Company's franchisee for
the New England area, referred to herein as the "PVNE Merger." As a result of
the PVNE Merger, PVNE became a wholly-owned subsidiary of the Company. The PVNE
Merger was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements include the accounts and
operations of the merged entities for all periods presented. At the time of the
PVNE Merger, PVNE operated 14 Applebee's restaurants.
On March 23, 1995, a wholly-owned subsidiary of the Company merged with and
into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the
"IRC Merger." As a result of the IRC Merger, IRC became a wholly-owned
subsidiary of the Company. The IRC Merger was accounted for as a pooling of
interests and, accordingly, the accompanying consolidated financial statements
include the accounts and operations of the merged entities for all periods
presented. At the time of the IRC Merger, IRC operated 17 restaurants,
including 13 Rio Bravo Cantina restaurants, and four other specialty
restaurants, comprised of Ray's on the River, two Green Hills Grille
restaurants, and the Rio Bravo Grill. During 1993, IRC acquired six Casa
Gallardo restaurant sites which were subsequently converted to Rio Bravo
Cantina restaurants. The four specialty restaurants and the Casa Gallardo
restaurants prior to their conversion to Rio Bravo Cantina restaurants are
included in "specialty restaurants."
On April 3, 1995, the Company acquired the operations and assets of five
franchise restaurants in the Philadelphia metropolitan area, referred to herein
as the "Philadelphia Acquisition." The acquisition was
12
<PAGE>
accounted for as a purchase and, accordingly, the results of operations of such
restaurants will be reflected in the 1995 financial statements for periods
subsequent to the date of acquisition.
Prior to September 7, 1994, PVNE was classified as an S Corporation and
accordingly, stockholders were responsible for paying their proportionate share
of federal and certain state income taxes. In addition, the combined earnings
of IRC included earnings of limited partnerships which were not taxable
entities for federal and state income tax purposes. The accompanying
consolidated statements of earnings reflect provisions for income taxes on a
pro forma basis as if the Company had been liable for federal and state income
taxes on PVNE's earnings prior to September 7, 1994 and the earnings of IRC's
limited partnerships at statutory rates.
SECOND QUARTER 1995 RESULTS
Based on preliminary information, net earnings for the second quarter ended
June 25, 1995 are estimated to be approximately $0.24 per share, an increase of
60% as compared with pro forma net earnings of $0.15 per share for the second
quarter ended June 26, 1994. For the 26 weeks ended June 25, 1995, pro forma
net earnings are estimated to be approximately $0.39 per share. This represents
an increase of 44% as compared with pro forma net earnings of $0.27 per share
for the comparable period in 1994. Excluding one-time merger costs of
approximately $1,770,000 related to the Company's acquisition of IRC, pro forma
net earnings are estimated to be approximately $0.45 per share for the 26 weeks
ended June 25, 1995. This represents an increase of 67% as compared with pro
forma net earnings of $0.27 per share for the comparable period in 1994.
Applebee's total system sales for the second quarter of 1995 were $300.2
million, an increase of approximately 42% from total system sales of $210.8
million for the second quarter of 1994. System-wide comparable sales increased
1.9% in the 1995 second quarter. Comparable sales of Company owned and operated
Applebee's restaurants increased 0.3% and comparable franchisee sales increased
2.3% for the quarter. Total operating revenues for the second quarter of 1995
were $83.8 million, an increase of 35% as compared with $62.2 million for the
second quarter of 1994.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of earnings expressed as a
percentage of total operating revenues, except where otherwise noted.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS ENDED
-------------------------------------- -------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 27, MARCH 26,
1992 1993 1994 1994 1995
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Company restaurant
sales................ 85.6% 88.2% 87.6% 88.2% 87.5%
Franchise income...... 14.4 11.8 12.4 11.8 12.5
----- ----- ----- ----- -----
Total operating rev-
enues.............. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Cost of Company
restaurant sales (as a
percentage of Company
restaurant sales):
Food and beverage..... 30.4% 29.3% 29.1% 29.7% 28.6%
Labor................. 32.4 31.9 31.8 32.6 31.9
Direct and occupancy.. 24.0 23.4 24.2 24.7 23.3
Pre-opening expense... 0.9 1.0 1.0 0.3 1.0
----- ----- ----- ----- -----
Total cost of Com-
pany restaurant
sales.............. 87.7% 85.6% 86.1% 87.3% 84.8%
===== ===== ===== ===== =====
General and administra-
tive expenses.......... 14.6% 12.5% 11.5% 12.2% 11.8%
Merger costs............ -- -- 0.4 -- 2.3
Amortization of intangi-
ble assets............. 1.0 1.1 0.8 1.0 0.7
Loss on disposition of
restaurants and
equipment.............. -- 0.1 0.3 0.1 --
----- ----- ----- ----- -----
Operating earnings...... 9.2 10.9 11.6 9.8 10.9
----- ----- ----- ----- -----
Other income (expense):
Investment income..... 1.6 0.9 0.4 0.5 0.3
Interest expense...... (0.6) (0.6) (0.8) (0.5) (0.8)
Other income.......... 0.1 0.1 0.1 0.1 0.1
----- ----- ----- ----- -----
Total other income
(expense).......... 1.1 0.4 (0.3) 0.1 (0.4)
----- ----- ----- ----- -----
Earnings before income
taxes.................. 10.3 11.3 11.3 9.9 10.5
Income taxes (including
pro forma provision for
income taxes).......... 4.0 4.4 4.3 3.9 4.9
----- ----- ----- ----- -----
Pro forma net earnings.. 6.3% 6.9% 7.0% 6.0% 5.6%
===== ===== ===== ===== =====
</TABLE>
14
<PAGE>
The following table sets forth certain unaudited restaurant data relating to
Company restaurants and franchise restaurants, as reported to the Company by
franchisees.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS ENDED
-------------------------------------- -------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 27, MARCH 26,
1992 1993 1994 1994 1995
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Number of restaurant
openings:
Applebee's:
Company owned or op-
erated............. 8 17 23 2 8
Franchise........... 52 96 122 15 22
------- ------- ------- ------- -------
Total Applebee's.... 60 113 145 17 30
Rio Bravo Cantinas.... -- 2 3 -- 1
Restaurants open (end of
period):
Applebee's:
Company owned or op-
erated(1).......... 42 75 97 77 105
Franchise........... 208 286 408 301 430
------- ------- ------- ------- -------
Total Applebee's.... 250 361 505 378 535
Rio Bravo Cantinas.... 7 9 12 9 13
Specialty
restaurants(2)........ 4 6 4 6 4
------- ------- ------- ------- -------
Total............... 261 376 521 393 552
======= ======= ======= ======= =======
Weighted average weekly
sales per restaurant:
Applebee's:
Company owned....... $35,869 $41,166 $40,405 $40,485 $40,559
Company owned or op-
erated(1).......... 34,679 40,146 39,924 39,745 40,290
Franchise........... 36,424 39,852 41,010 40,967 41,639
Total Applebee's.... 36,150 39,904 40,789 40,717 41,376
Rio Bravo Cantinas.... 62,041 65,346 68,177 68,358 63,326
Change in comparable
restaurant sales(3):
Applebee's:
Company owned....... 13.3% 12.5% 4.0% 5.7% 3.6%
Company owned or op-
erated(1).......... 12.6 12.1 3.7 5.1 3.7
Franchise........... 10.4 7.6 3.1 4.1 2.2
Total Applebee's.... 10.9 8.5 3.2 4.3 2.6
Rio Bravo Cantinas.... 2.7 7.6 9.5 14.8 1.1
</TABLE>
- --------
(1) Company owned or operated data include certain Texas restaurants operated
by the Company under a management agreement since July 1990 (three at the
end of 1992, 1993 and the 1994 quarter and two at the end of 1994 and the
1995 quarter).
(2) Specialty restaurants as of December 26, 1993 and March 27, 1994 included
two restaurants which were subsequently converted to Rio Bravo Cantina
restaurants.
(3) When computing comparable restaurant sales, restaurants open for at least
18 months are compared from period to period.
15
<PAGE>
1995 QUARTER COMPARED TO 1994 QUARTER
Company Restaurant Sales. Company restaurant sales increased $16,174,000
(32%) from $49,847,000 in the 1994 quarter to $66,021,000 in the 1995 quarter.
Company restaurant sales for Applebee's restaurants increased $14,559,000 (39%)
from $37,640,000 in the 1994 quarter to $52,199,000 in the 1995 quarter. Sales
for the Rio Bravo Cantina restaurants were $7,975,000 and $10,385,000 in the
1994 quarter and the 1995 quarter, respectively, and sales for the specialty
restaurants were $4,232,000 and $3,437,000 in the 1994 quarter and the 1995
quarter, respectively. The increases in sales for the Applebee's and Rio Bravo
Cantina restaurants resulted primarily from Company restaurant openings and
increases in comparable restaurant sales. The decrease in sales for the
specialty restaurants was due to the conversion of two Casa Gallardo
restaurants to Rio Bravo Cantina restaurants subsequent to the end of the 1994
quarter.
Comparable restaurant sales at Company owned Applebee's restaurants increased
by 3.6% in the 1995 quarter. When computing comparable restaurant sales,
restaurants open for at least 18 months are compared from period to period. The
increase in comparable restaurant sales was due in part to a menu price
increase implemented in mid-July 1994 in selected markets for certain menu
items. The Company does not expect to achieve such comparable restaurant sales
increases for the remainder of the 1995 fiscal year for Company owned
Applebee's restaurants, as many of its restaurants are operating near sales
capacity and are experiencing increased competition in certain markets.
Weighted average weekly sales at Company owned Applebee's restaurants increased
slightly from $40,485 in the 1994 quarter to $40,559 in the 1995 quarter.
Excluding the southern California and Texas markets, weighted average weekly
sales at Company owned Applebee's restaurants increased 5.0% from $42,017 in
the 1994 quarter to $44,101 in the 1995 quarter.
Comparable restaurant sales for the Rio Bravo Cantina restaurants increased
by 1.1% in the 1995 quarter, although weighted average weekly sales declined
from $68,358 in the 1994 quarter to $63,326 in the 1995 quarter. The decrease
in weighted average weekly sales was due primarily to the lower than average
sales volumes of three of the four new restaurants open in the 1995 quarter
that were not open in the first quarter of 1994. Two of the restaurants were
opened in a market where there was already an existing Rio Bravo Cantina
restaurant and one of the other new restaurants is open only for dinner.
Weighted average weekly sales at Company owned Applebee's restaurants
continue to be adversely affected by the southern California and Texas
territories where the weighted average weekly sales of Company owned Applebee's
restaurants were approximately $26,000 and $31,000, respectively, in the 1995
quarter. When entering highly competitive new markets, or territories where the
Company has not yet established a market presence, early sales levels and
profit margins are expected to be lower than in markets where the Company has a
concentration of restaurants or has established customer awareness. While
operating margins in the Texas market have been improving, the operations of
the Company owned restaurants in these markets negatively impacted overall cost
of sales excluding pre-opening expense (as a percentage of Company restaurant
sales) by approximately 2.0% in both the 1995 quarter and the 1994 quarter. The
Company believes that the opening of additional restaurants in these
territories will result in increased market penetration, advertising
effectiveness, and customer awareness, thereby ultimately increasing restaurant
sales levels and related margins.
Franchise Income. Franchise income increased $2,760,000 (41%), from
$6,658,000 in the 1994 quarter to $9,418,000 in the 1995 quarter, due primarily
to the increased number of franchise restaurants operating during the 1995
quarter as compared to the 1994 quarter. Franchise restaurant weighted average
weekly sales and comparable restaurant sales increased 1.6% and 2.2%,
respectively, in the 1995 quarter.
Cost of Company Restaurant Sales. Food and beverage costs decreased from
29.7% in the 1994 quarter to 28.6% in the 1995 quarter as a result of the menu
price increase implemented in mid-July 1994 at Applebee's restaurants and
increased operational efficiencies. Such decreases were partially offset by the
effect of the continued decline in beverage sales, as a percentage of overall
Company restaurant sales, from 21.7%
16
<PAGE>
in the 1994 quarter to 19.5% in the 1995 quarter, as margins on alcoholic
beverage sales are higher than those for food sales. Management believes that
the reduction in beverage sales is due in part to the continuation of the
overall trend toward increased awareness of responsible alcohol consumption. In
addition, the Company experienced temporary increases in food costs in the
second quarter of 1995 as a result of the winter flooding in California which
caused shortages of certain produce items and a significant increase in related
costs. The Company does not currently anticipate increasing its menu prices to
offset the effects of such increased costs.
Labor costs decreased from 32.6% in the 1994 quarter to 31.9% in the 1995
quarter. Labor costs, as a percentage of sales, were positively impacted by an
overall reduction in workers' compensation insurance costs due to favorable
historical claims experience, and improved hourly labor efficiency, but were
adversely affected by the lower sales volumes in the southern California and
Texas markets.
Direct and occupancy costs decreased from 24.7% in the 1994 quarter to 23.3%
in the 1995 quarter. The decrease was due primarily to lower levels of
advertising expenditures during the 1995 quarter. However, the southern
California and Texas markets continue to have a negative impact on overall
direct and occupancy costs due to the absorption of such expenses, which are
primarily fixed in nature, over a lower sales base in those markets.
General and Administrative Expenses. General and administrative expenses
decreased in the 1995 quarter to 11.8% from 12.2% in the 1994 quarter, due
primarily to the absorption of general and administrative expenses over a
larger revenue base. General and administrative expenses increased by
$2,035,000 during the 1995 quarter compared to the 1994 quarter due primarily
to the costs of additional personnel associated with the Company's development
efforts and system-wide expansion, higher incentive compensation expense, and
related fringe benefit costs. A portion of the increase was also due to an
increase in the Company's training costs relating to new Company and franchise
restaurant openings and the training of restaurant managers.
The Company continues to realize operating losses for the Texas restaurants
it operates under an agreement with a former franchisee (two in the 1995
quarter and three in the 1994 quarter). Losses of $28,000 and $162,000 during
the 1995 quarter and the 1994 quarter, respectively, are included in general
and administrative expenses. The reduction in losses resulted primarily from
the closing of one of the three Texas restaurants during the second quarter of
1994. Continued losses may lead the Company to reevaluate its future strategies
for the two remaining restaurants.
The Company is using assets owned by a former Texas franchisee in the
operation of these restaurants under a purchase rights agreement which required
the Company to make certain payments to the franchisee's lender. In 1991, a
dispute arose between the lender and the Company over the amount of the
payments due the lender. Based upon a then current independent appraisal, the
Company offered to settle the dispute and purchase the assets for $1,000,000 in
1991. The lender rejected the Company's offer and claimed that the Company had
guaranteed the entire $2,400,000 debt of the franchisee. In November 1992, the
lender was declared insolvent by the FDIC and has since been liquidated. The
Company has been contacted by the FDIC, and in 1993, the Company offered to
settle the issue and purchase the assets for the three restaurants then being
operated for $182,000. The Company does not anticipate that the resolution of
this issue will have a material adverse effect on its financial position or
results of operations. However, in the event that the Company were to pay an
amount determined to be in excess of the fair market value of the assets, the
Company may be required to recognize a loss at the time of such payment.
In January 1991, the Company's franchisee in Houston, Texas declared
bankruptcy and as a result, the management of the five franchise restaurants
then operated was transferred to a prospective franchisee who subsequently
closed two restaurants. In August 1992, the prospective franchisee was granted
a development agreement for the Houston territory and franchise agreements for
such restaurants, and in October 1993, the Company provided certain financial
assistance to this franchisee in the form of a loan and a renegotiated royalty
payment obligation. The Company also subsequently provided a guarantee for an
equipment lease.
17
<PAGE>
The new franchisee filed for bankruptcy protection in late April 1995. The
Company has been monitoring the franchisee's performance and has established
reserves which it believes are adequate relating to any receivables from this
franchisee and does not anticipate that the franchisee's financial difficulties
will have a material adverse effect on the Company's financial position or
results of operations.
Merger Costs. The Company incurred merger costs of $1,770,000 in the 1995
quarter relating to the IRC Merger. The impact of these costs on pro forma net
earnings per common share was approximately $0.06 in the 1995 quarter.
Investment Income. Investment income decreased in the 1995 quarter compared
to the 1994 quarter primarily as a result of decreases in cash and cash
equivalents and short-term investments resulting from the Company's utilization
of such funds for capital expenditures. In addition, the 1994 quarter included
a gain of $101,000 on the sale of investments.
Interest Expense. Interest expense increased in the 1995 quarter compared to
the 1994 quarter primarily as a result of interest related to the $20,000,000
of senior unsecured notes issued in the second quarter of 1994.
Income Taxes. The effective income tax rate, as a percentage of earnings
before income taxes, was 46.4% in the 1995 quarter compared to 39.1% in the
1994 quarter. The increase in the Company's overall effective tax rate was due
to the non-deductibility of the merger costs incurred relating to IRC.
Excluding such merger costs, the effective income tax rate would have been
38.0% in the 1995 quarter. The Company's overall effective tax rate excluding
merger costs decreased as compared to the 1994 quarter due primarily to
increased tax credits in the 1995 quarter for FICA taxes paid by the Company on
employee tip income.
1994 COMPARED TO 1993
Company Restaurant Sales. Company restaurant sales increased $62,963,000
(39%) from $159,482,000 in 1993 to $222,445,000 in 1994. Company restaurant
sales for Applebee's restaurants increased $52,065,000 (44%) from $118,868,000
in 1993 to $170,933,000 in 1994. Sales from the Minnesota operations accounted
for $8,317,000 of the increase, due primarily to the inclusion of such
operations for the entire 1994 fiscal year while the 1993 fiscal year included
only 43 weeks of sales from the Minnesota operations. The remaining increase in
sales resulted primarily from Company restaurant openings, other acquisitions
in 1993 and 1994, and increases in comparable restaurant sales. Sales for the
Rio Bravo Cantina restaurants were $24,962,000 and $36,679,000 in 1993 and
1994, respectively, and sales for the specialty restaurants were $15,652,000
and $14,833,000 in 1993 and 1994, respectively.
Comparable restaurant sales at Company owned Applebee's restaurants increased
by 4.0% in 1994. The increase in comparable restaurant sales was due in part to
a menu price increase implemented in mid-July 1994 in selected markets for
certain menu items. Such increase was partially offset by lower guest check
averages resulting from the "triple choice" special offered as part of the
Company's 1994 "Summerfare" promotion. The "triple choice" special was a
combination of an appetizer, salad, and dessert for one relatively low price.
Weighted average weekly sales at Company owned Applebee's restaurants decreased
from $41,166 in 1993 to $40,405 in 1994. Excluding the southern California and
Texas markets, weighted average weekly sales at Company owned Applebee's
restaurants increased 4.2% from $41,668 in 1993 to $43,428 in 1994.
The increase in sales for the Rio Bravo Cantina restaurants of $11,717,000
resulted primarily from increases in sales volumes of existing restaurants, the
full year impact of two Casa Gallardo restaurants which were converted to Rio
Bravo Cantina restaurants during 1993, and the conversion of three additional
Casa Gallardo restaurants to Rio Bravo Cantina restaurants during 1994.
Comparable restaurant sales for the Rio Bravo Cantina restaurants increased by
9.5% in 1994 and weighted average weekly sales increased 4.3% from $65,346 in
1993 to $68,177 in 1994.
18
<PAGE>
Overall weighted average weekly sales for Applebee's restaurants were
adversely affected by the southern California and Texas territories where the
weighted average weekly sales of Company owned restaurants were approximately
$28,000 and $31,000, respectively, in 1994. Profitability in the southern
California and Texas markets was adversely affected by the lower sales volumes
and operating inefficiencies at recently opened restaurants. The operations of
the Company owned restaurants in these markets increased overall cost of sales
excluding pre-opening expense (as a percentage of Company restaurant sales) by
approximately 2.1% during 1994. As of December 25, 1994, the Company had eight
restaurants open in southern California, of which six opened in 1994. In
addition, the Company owned 15 restaurants in the Texas area, of which seven
were opened or acquired in 1994.
Franchise Income. Franchise income increased $10,095,000 (47%) from
$21,324,000 in 1993 to $31,419,000 in 1994. This increase was due primarily to
the increased number of franchise restaurants operating during 1994 as compared
to 1993. Weighted average weekly sales and comparable restaurant sales at
franchise restaurants increased 2.9% and 3.1%, respectively, in 1994, but were
adversely affected by lower guest check averages resulting from the "triple
choice" special offered as part of the Company's 1994 "Summerfare" promotion.
Cost of Company Restaurant Sales. Food and beverage costs decreased from
29.3% in 1993 to 29.1% in 1994 as a result of the menu price increase
implemented in mid-July 1994 at Applebee's restaurants and operational
efficiencies. Such decreases were partially offset by the effect of the
continued decline in beverage sales, as a percentage of overall Company
restaurant sales, from 21.9% in 1993 to 20.5% in 1994.
Labor costs decreased slightly from 31.9% in 1993 to 31.8% in 1994. Labor
costs were positively impacted by an overall reduction in workers' compensation
and medical insurance costs due to favorable claims experience, but these
decreases were offset, in part, by the effect of the lower sales volumes in the
southern California and Texas markets.
Direct and occupancy costs increased from 23.4% in 1993 to 24.2% in 1994. The
increase was due primarily to increased levels of advertising expenditures,
higher utility costs in certain newer markets, and higher depreciation expense
relating to new restaurants during 1994. In addition, the full year effect of
the Minnesota operations resulted in an increase in overall rent expense as the
Minnesota region has both a higher percentage of leased properties and higher
rental rates than the Company restaurants as a whole. The increase in direct
and occupancy costs, as a percentage of Company restaurant sales, was also due,
in part, to the absorption of such expenses, which are primarily fixed in
nature, over a lower sales base in the southern California and Texas markets.
Such increases were offset, in part, by a decrease in rent expense for the IRC
restaurants due to an increase in the proportion of its owned versus leased
properties.
General and Administrative Expenses. General and administrative expenses
decreased in 1994 to 11.5% from 12.5% in 1993, due primarily to the absorption
of general and administrative expenses over a larger revenue base. General and
administrative expenses increased by $6,641,000 during 1994 compared to 1993
due primarily to the costs of additional personnel associated with the
Company's development efforts and system-wide expansion, and related fringe
benefit costs. A portion of the increase was also due to an increase in the
Company's training costs relating to new Company and franchise restaurant
openings and the training of restaurant managers. Such increases in general and
administrative expenses were partially offset by a decrease resulting from
management fees associated with the Minnesota operations of $1,117,000 incurred
in 1993.
The Company realized operating losses of $284,000 and $326,000 during 1994
and 1993, respectively, for the Texas restaurants it operates under an
agreement with a former franchisee. The Company closed one of the three
restaurants during the second quarter of 1994 and recognized a loss of
$223,000, due primarily to the termination of the related lease agreement. The
operating results of this restaurant had deteriorated, and by closing this
restaurant and incurring the one-time costs of disposition, the Company avoided
potentially significant losses in the future.
Merger Costs. The Company incurred merger costs of $920,000 in the fourth
quarter of 1994 relating to the acquisition of PVNE. The impact of these costs
on pro forma net earnings per common share was approximately $0.03 in 1994.
19
<PAGE>
Loss on Disposition of Restaurants and Equipment. As discussed above, during
the second quarter of 1994, the Company recognized a loss of $223,000 resulting
from the closure and termination of the lease agreement of one of the Texas
restaurants. This loss was partially offset by a gain of $54,000 resulting from
the sale of one restaurant to a new franchisee. In addition, during 1994 the
Company replaced a majority of its restaurant point-of-sale systems with
upgraded systems technology which resulted in a write-off of approximately
$552,000 for the costs of the existing equipment in 1994.
Investment Income. Investment income decreased in 1994 compared to 1993
primarily as a result of decreases in cash and cash equivalents, short-term
investments and marketable securities resulting from the Company's utilization
of such funds for capital expenditures and for acquisitions in 1993 and 1994.
In addition, a gain of $312,000 was realized on the sale of investments in
1993, while a gain of only $112,000 was realized on a sale of investments in
1994.
Interest Expense. Interest expense increased in 1994 compared to 1993
primarily as a result of interest on the senior unsecured notes issued in the
second quarter of 1994 and borrowings under a line of credit.
Income Taxes. The effective income tax rate, as a percentage of earnings
before income taxes, was 37.7% in 1994 compared to 38.6% in 1993. The decrease
in the Company's overall effective tax rate in 1994 was due primarily to the
effect of tax benefits allowed by the Omnibus Budget Reconciliation Act of 1993
beginning in 1994 for FICA taxes paid by the Company on employee tip income. In
addition, the Company also earned increased tax credits in 1994 relating to the
Targeted Jobs Tax Credit. The effect of these items on the income tax rate was
partially offset by the non-deductibility of a majority of the merger costs
incurred relating to PVNE.
1993 COMPARED TO 1992
Company Restaurant Sales. Company restaurant sales increased $74,023,000
(87%) from $85,459,000 in 1992 to $159,482,000 in 1993. Company restaurant
sales for Applebee's restaurants increased $61,875,000 (109%) from $56,993,000
in 1992 to $118,868,000 in 1993. Sales from the Minnesota operations included
in 1993 accounted for $25,215,000 of the increase and the remaining increase of
$36,660,000 resulted from Company restaurant openings, other acquisitions in
1993 and 1992, and increases in sales volumes of existing restaurants. Sales
for the Rio Bravo Cantina restaurants were $22,583,000 and $24,962,000 in 1992
and 1993, respectively, and sales for the specialty restaurants were $5,883,000
and $15,652,000 in 1992 and 1993, respectively.
Higher sales volumes at existing Company owned Applebee's restaurants
resulted from an increase in weighted average weekly sales of 14.8% from
$35,869 in 1992 to $41,166 in 1993, and an increase in comparable restaurant
sales of 12.5%. The Company believes the increases in weighted average weekly
sales and comparable restaurant sales were attributable to increased
advertising in Company markets, several successful food promotions, improved
customer service, and continued increased customer awareness. In addition, such
increases were due, in part, to a menu price increase implemented in mid-
January 1993.
The increase in sales for the Rio Bravo Cantina restaurants of $2,379,000
resulted primarily from increases in sales volumes of existing restaurants and
from the conversion of two Casa Gallardo restaurants to Rio Bravo Cantina
restaurants during the year. Comparable restaurant sales for the Rio Bravo
Cantina restaurants increased by 7.6% in 1993 and weighted average weekly sales
increased 5.3% from $62,041 in 1992 to $65,346 in 1993. The increase in sales
for the specialty restaurants of $9,769,000 was due primarily to the
acquisition of two Green Hills Grille restaurants in November 1992 which
accounted for $4,455,000 of the increase, the acquisition of four Casa Gallardo
restaurants in May 1993 which accounted for $3,258,000 of the increase, and the
opening of the Rio Bravo Grill in December of 1992 which accounted for
$2,008,000 of the increase. The Casa Gallardo restaurants were acquired in
order to obtain locations which were subsequently converted to Rio Bravo
Cantina restaurants.
20
<PAGE>
Franchise Income. Franchise income increased $7,005,000 (49%) from
$14,319,000 in 1992 to $21,324,000 in 1993, due primarily to the increased
number of franchise restaurants operating during 1993 as compared to 1992.
Several successful national food promotions also led to increases of 9.4% in
weighted average weekly sales and 7.6% in franchise restaurant comparable sales
in 1993. The remaining increase in franchise income was due to an increase in
franchise fees of $1,345,000 (87%) from $1,548,000 in 1992 to $2,893,000 in
1993, resulting from an increase in the number of new franchise restaurant
openings from 52 in 1992 to 96 in 1993.
Cost of Company Restaurant Sales. Food and beverage costs decreased from
30.4% in 1992 to 29.3% in 1993, primarily due to the impact of the Minnesota
operations. The food and beverage costs of the Minnesota operations, as a
percentage of Minnesota sales, were 28.6% in 1993, due in part to a higher mix
of beverage sales at such restaurants. In addition, the menu price increase
implemented in mid-January 1993 had a positive impact on the food and beverage
costs, as a percentage of Company restaurant sales, on the Company's other
Applebee's restaurants. However, the effects of the menu price increase on food
and beverage costs were partially offset by the effects of the continued
increase in food sales as a percentage of total sales. Beverage sales, as a
percentage of overall Company restaurant sales, excluding the Minnesota
operations, were 21.1% in 1993 versus 23.8% in 1992.
Labor costs decreased from 32.4% in 1992 to 31.9% in 1993, primarily from the
lower labor costs of the Minnesota operations. Labor costs of the Minnesota
operations, as a percentage of Minnesota sales, were 29.4% in 1993. In
addition, labor costs for the Company Applebee's restaurants other than the
Minnesota operations, declined by 1.8% in 1993 compared to 1992, due to higher
sales volumes, improved labor efficiency, and a reduction in medical insurance
costs due to favorable claims experience in 1993. Such decreases were offset,
in part, by an increase in labor costs for the IRC restaurants due primarily to
the higher costs associated with the Casa Gallardo restaurants acquired in 1993
and the Green Hills Grille restaurants acquired in November 1992, as well as
the Rio Bravo Grill which opened in December 1992.
Direct and occupancy costs decreased from 24.0% in 1992 to 23.4% in 1993. The
decrease was due primarily to a decrease in rent expense for the IRC
restaurants due to an increase in the proportion of its owned versus leased
properties. This decrease was offset, in part, by increased levels of
advertising expenditures during 1993 for the Applebee's restaurants.
Pre-opening expense increased from $768,000 in 1992 to $1,588,000 in 1993.
During 1993, the Company changed its policy from amortizing certain pre-opening
costs over the first twelve months of operation of a new or relocated
restaurant beginning with the first full four weeks of operation to expensing
certain of such costs as incurred. Pre-opening costs incurred for the 17 new
Applebee's restaurants opened in 1993 and the two Rio Bravo Cantina restaurants
converted in 1993 using this method were $1,330,000. The cumulative effect of
the change in accounting method of $258,000 (before related income taxes of
$100,000) is included in pre-opening expense in the 1993 consolidated statement
of earnings.
General and Administrative Expenses. General and administrative expenses
decreased in 1993 to 12.5% from 14.6% in 1992 due, in part, to the absorption
of general and administrative expenses over a larger revenue base. General and
administrative expenses increased by $7,953,000 during 1993 compared to 1992
due to added personnel and related costs associated with the Company's
development efforts and system-wide expansion, including the acquisition of the
Minnesota operations, the costs of franchise services to support the increased
number of franchise restaurants, and higher incentive compensation expense. A
portion of the increase was also due to an increase in the Company's training
costs relating to new Company and franchise restaurant openings and the
training of restaurant managers. An additional portion of the increase resulted
from management fees associated with the Minnesota operations of $1,117,000
incurred in 1993.
The Company realized operating losses for the three Texas restaurants it
operates under an agreement between the Company and its former franchisee.
These losses were $326,000 and $346,000 during 1993 and 1992, respectively.
21
<PAGE>
Amortization Expense. Amortization of intangible assets increased in 1993
compared to 1992, due primarily to amortization of goodwill and other
intangibles associated with the acquisitions of restaurants in 1993 and in late
1992.
Investment Income. Investment income increased in 1993 compared to 1992
primarily because of a $312,000 gain on the sale of investments in 1993. This
increase was partially offset by a decrease in investment income due to
decreases in cash and cash equivalents, short-term investments, and marketable
securities resulting from the Company's utilization of such funds for capital
expenditures and acquisitions.
Income Taxes. The effective income tax rate, as a percentage of earnings
before income taxes, was 38.6% in 1993 compared to 38.4% in 1992. The
provisions of the Omnibus Budget Reconciliation Act of 1993 did not have a
material overall effect on the Company's income tax expense for 1993.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," for its 1993 fiscal year and did not restate
financial statements for prior periods. The adoption of Statement No. 109 did
not have a material impact on the Company's financial position or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for 1992,
1993, 1994 and the 1995 quarter (in thousands):
<TABLE>
<CAPTION>
13 WEEKS
FISCAL YEAR ENDED ENDED
-------------------------------------- ---------
DECEMBER 27, DECEMBER 26, DECEMBER 25, MARCH 26,
1992 1993 1994 1995
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
Net cash provided by operating
activities................... $ 11,617 $ 27,704 $ 30,828 $ 10,228
Net cash used by investing
activities.................... (41,937) (30,129) (45,624) (7,939)
Net cash provided by financing
activities.................... 31,476 6,490 16,376 999
-------- -------- -------- --------
Net increase in cash and cash
equivalents................... $ 1,156 $ 4,065 $ 1,580 $ 3,288
======== ======== ======== ========
</TABLE>
The Company's need for capital resources historically has resulted from and
for the foreseeable future is expected to relate primarily to the construction
and acquisition of restaurants. Such capital has been provided by public stock
offerings, debt financing, and ongoing Company operations, including cash
generated from Company and franchise operations, credit from trade suppliers,
real estate lease financing, and landlord contributions to leasehold
improvements. The Company has also used its common stock as consideration in
the acquisition of restaurants. In addition, the Company assumed debt or issued
new debt in connection with the Minnesota acquisition and the PVNE and IRC
Mergers.
Capital expenditures were $48,734,000 in 1994 (which includes the acquisition
of two franchise restaurants) and $8,039,000 in the 1995 quarter. In addition,
in April 1995, the Company completed the Philadelphia Acquisition for a total
cash purchase price of $9,500,000. The Company currently expects to open at
least 27 Applebee's restaurants and four Rio Bravo Cantina restaurants in 1995
and approximately 30 Applebee's restaurants and five Rio Bravo Cantina
restaurants in 1996. The Company presently anticipates capital expenditures,
including the Philadelphia Acquisition, of between $65,000,000 and $70,000,000
in 1995 and between $60,000,000 and $65,000,000 in 1996 primarily for the
development of new restaurants, refurbishments of and capital replacements for
existing restaurants, and enhancements to information systems for the Company's
restaurants and corporate office. The amount of actual capital expenditures
will be dependent upon the proportion of leased versus owned properties, among
other things. In addition, if the Company opens more restaurants than it
currently anticipates or acquires additional restaurants, its capital
requirements will increase accordingly.
22
<PAGE>
In June 1994, the Company completed a $20,000,000 senior unsecured private
debt placement with institutional lenders unaffiliated with the Company. In
addition, in February 1995, the Company obtained additional long-term debt
financing in the form of a $20,000,000 unsecured bank revolving credit facility
which expires on December 31, 1997. The debt agreements contain various
covenants and restrictions which, among other things, require the maintenance
of a stipulated fixed charge coverage ratio and minimum consolidated net worth,
as defined, and also limit additional indebtedness in excess of specified
amounts. The debt agreements also restrict the amount of retained earnings
available for the payment of cash dividends. At March 26, 1995, $22,769,000 of
retained earnings was available for the payment of cash dividends. The Company
has been and is currently in compliance with the covenants of all of its debt
agreements.
As of June 25, 1995, the Company held liquid assets totaling approximately
$9,000,000, and had $5,000,000 outstanding under the revolving credit facility.
Any borrowings outstanding under the revolving credit facility will be repaid
from the net proceeds of this offering. In addition, the Company will repay
approximately $12,500,000 of debt assumed in connection with the PVNE and IRC
Mergers from the net proceeds of this offering. The Company believes that the
proceeds from this offering, combined with borrowings available under the
$20,000,000 revolving credit facility, liquid assets, and cash generated from
operations, will provide sufficient funds for its capital requirements for the
foreseeable future.
INFLATION
Substantial increases in costs and expenses, particularly food, supplies,
labor and operating expenses could have a significant impact on the Company's
operating results to the extent that such increases cannot be passed along to
customers. The Company does not believe that inflation has materially affected
its operating results during the past three years.
23
<PAGE>
BUSINESS
GENERAL
The Company develops, franchises and operates casual dining restaurants
principally under the name "Applebee's Neighborhood Grill & Bar." The
Applebee's system has grown rapidly since the inception of the Company to
become one of the largest casual dining restaurant chains in the United States.
As of June 25, 1995, the Applebee's system included 576 restaurants in 43
states, one Canadian province and the Caribbean island of Curacao. Of the 576
restaurants, 115 were owned and operated by the Company and 461 were operated
by franchisees.
Over the last six and a half years, the Company has expanded the Applebee's
system by more than 500 restaurants, from 73 restaurants at the end of 1988 to
576 restaurants as of June 25, 1995, primarily through exclusive franchise
arrangements with experienced multi-unit restaurant operators and also through
Company owned restaurant openings. The Company currently has approximately 60
franchisees, including four international franchisees. Since 1992, the Company
has accelerated the growth of its Company owned restaurant operations, both
through the opening of new restaurants in existing Company territories and
through the selective acquisition of franchise restaurants.
As part of its overall growth strategy the Company acquired the Rio Bravo
Cantina chain of Mexican casual dining restaurants in March 1995. Rio Bravo
Cantina restaurants offer generous portions of fresh Tex-Mex and Mexican
cuisine at attractive prices. As of June 25, 1995, the Company operated 14 Rio
Bravo Cantina restaurants in Florida, Georgia and Tennessee.
EXPANSION STRATEGY
The Company intends to continue expanding its position in the casual dining
industry through the following strategies:
. Development of Company owned Applebee's restaurants through the opening
of new restaurants in the Company's existing territories and
opportunistic acquisitions of Applebee's franchise restaurants.
. Active support of Applebee's franchisees in developing their franchise
territories and optimizing restaurant operating performance.
. Growth of the Applebee's franchise system into international markets,
initially certain areas of Canada, the Caribbean and northern Europe.
. Expansion of the Rio Bravo Cantina concept through franchising and the
development of Company owned restaurants.
In 1994, the Company and its franchisees opened 23 and 122 Applebee's
restaurants, respectively. The Company expects to open at least 27 Applebee's
restaurants in 1995, of which 13 were open as of June 25, 1995, and
approximately 30 Applebee's restaurants in 1996. The Company expects
franchisees to open a minimum of 120 Applebee's restaurants in 1995, of which
58 were open and 34 were under construction as of June 25, 1995. Also as of
such date, an additional 98 restaurant sites were approved for franchise
development. During 1996, the Company expects franchisees to open more than 100
Applebee's restaurants. Based on these expectations, the Company anticipates
that there will be more than 780 domestic Applebee's restaurants in operation
by the end of 1996 and believes that the United States can ultimately support
approximately 1,200 to 1,500 Applebee's restaurants.
The Company expects to open four Company owned Rio Bravo Cantina restaurants
in 1995, of which two were open as of June 25, 1995, and five Company owned Rio
Bravo Cantina restaurants in 1996. In addition, the Company plans to begin
selecting its initial franchisees for the Rio Bravo Cantina concept in late
1995 and currently expects that those franchisees would open their first
restaurants in the second half of 1996.
The following map shows the location by state and the number of Company owned
and franchise restaurants in the United States as of June 25, 1995:
24
<PAGE>
[MAP OF UNITED STATES]
25
<PAGE>
THE APPLEBEE'S SYSTEM
Concept. Each Applebee's restaurant is designed as an attractive, friendly,
neighborhood establishment featuring moderately priced, high quality food and
beverage items, table service and a comfortable atmosphere. Company owned
restaurants currently have an average guest check, including alcoholic
beverages, of approximately $8.00 to $8.50. Applebee's restaurants appeal to a
wide range of customers including families with children, young adults and
senior citizens.
Applebee's restaurants are designed according to Company specifications and
are located in free-standing buildings, end caps of strip shopping centers, and
shopping malls. The Company's two current free-standing restaurant prototypes
are approximately 5,000 and 5,400 square feet and seat approximately 175 and
200 patrons, respectively. Each Applebee's restaurant has a centrally located
bar and many restaurants offer patio seating. The decor of each restaurant
incorporates artifacts and memorabilia such as old movie posters, musical
instruments and sports equipment along with photographs and magazine and
newspaper articles highlighting local history and personalities, giving each
restaurant an individual, neighborhood identity.
Menu. Each Applebee's restaurant offers a diverse menu of high quality,
moderately priced food and beverage items consisting of traditional favorites
and innovative dishes. The restaurants feature a broad selection of entrees,
including beef, chicken, seafood and pasta items prepared in a variety of
cuisines, as well as appetizers, salads, sandwiches, specialty drinks and
desserts. The Company's core menu is supplemented by four food-specific
promotions each year. Most restaurants offer beer, wine, liquor and premium
specialty drinks. During 1994, alcoholic beverages accounted for 17.9% of
Company owned Applebee's restaurant sales. The Company continuously develops
and tests new menu items through regional consumer tastings and additional
tests in selected Company and franchise restaurants. Franchisees are required
to present a menu consisting of approximately 65% of selections from the
Company approved list of national core items and approximately 35% of
additional items selected from the Company approved list of optional items.
Restaurant Operations. All restaurants are operated in accordance with
uniform operating standards and specifications relating to the quality and
preparation of menu items, selection of menu items, maintenance and cleanliness
of premises, and employee conduct. The Company's operational standards are
based upon "QSCVC"--quality, service, cleanliness, value and courtesy. All
standards and specifications are developed by the Company, with input from
franchisees, and applied on a system-wide basis.
Training. The Company has an extensive 10 to 12 week restaurant operations
training course for general managers, kitchen managers and other restaurant
managers with development or supervisory responsibility over more than one
restaurant. The operations training course consists of in-store task-oriented
training and formal administrative, customer service, and financial training. A
team of Company employed trainers conducts hands-on training for all restaurant
employees to ensure compliance with Company standards.
The Company also operates Applebee University, which offers restaurant
managers specialized training programs, and conducts regular meetings that
emphasize leadership, quality of food preparation, and service. In 1994, the
Company conducted 12 Applebee University sessions consisting of approximately
four days of continuing education in a classroom setting. The Company,
generally through in-restaurant seminars and video presentations, provides
periodic training for its restaurant employees regarding topics such as the
responsible service of alcohol and food sanitation and storage.
Advertising. The Company concentrates its advertising and marketing efforts
primarily on four food-specific promotions each year. Each promotion features a
specific theme or ethnic cuisine. Two of the Company's most popular promotions
have been the current "Summerfare" and annual "Riblet" promotion. The Company
advertises on a national, regional and local basis, utilizing primarily
television, radio and print media. In 1994, the Company spent approximately
3.4% of Company owned restaurant's monthly gross sales on advertising,
including 1.5% contributed to the national advertising pool which develops and
funds the specific national promotions. All franchisees are also required to
contribute 1.5% to the national advertising account. The remainder of the
Company's advertising expenditures are focused on local advertising in areas
with Company owned restaurants.
26
<PAGE>
Purchasing. Maintaining high food quality and system-wide consistency is a
central focus of the Company's purchasing program. The Company mandates quality
standards for all products used in the restaurants and maintains a limited list
of approved suppliers from which the Company and its franchisees must select.
The Company has negotiated purchasing agreements with most of its approved
suppliers which result in volume discounts for the Company and its franchisees.
Beginning in late 1993, the Company addressed the need to assure sufficient
future supplies of Riblets, a successful specialty item on the Applebee's menu,
by purchasing large quantities and placing them in storage. The Company has
made such supplies of Riblets available to franchisees generally at its cost
through third-party distributors and expects to continue to do so.
COMPANY APPLEBEE'S RESTAURANTS
Company Restaurant Openings and Acquisitions. The Company's expansion
strategy is to cluster restaurants in targeted markets, thereby increasing
consumer awareness and enabling the Company to take advantage of operational,
distribution, and advertising efficiencies. The Company's experience in
developing markets indicates that market penetration through the opening of
multiple restaurants within a particular market results in increased average
restaurant sales in that market.
The Company has expanded from a total of 31 owned or operated restaurants as
of December 27, 1992 to a total of 115 as of June 25, 1995. The areas in which
the Company's restaurants are located and the areas where the Company opened
new restaurants or acquired restaurants from franchisees during 1994 and 1995
are set forth in the following table. The Company intends to continue
developing restaurants in all of the following areas, with the exception of
Atlanta, Georgia.
<TABLE>
<CAPTION>
COMPANY RESTAURANTS
COMPANY OPENED AND ACQUIRED IN COMPANY
RESTAURANTS ---------------------------- RESTAURANTS
AS OF 1995 AS OF
DECEMBER (THROUGH JUNE 25,
AREA 27, 1992 1993 1994 JUNE 25) 1995
- ---- ----------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
North/Central Texas......... 6 6 7 1 18
Minneapolis/St. Paul, Minne-
sota....................... - 15 1 2 18
New England (includes
Massachusetts, Vermont, New
Hampshire, Rhode Island,
Maine and parts of
Connecticut)............... - - 15 2 17
Kansas City, Missouri....... 13 1 - 3 17
Detroit/Southern Michigan... - 6 7 1 14
San Diego/Southern Califor-
nia........................ 1 2 6 3 11
Atlanta, Georgia............ 8 - - - 8
Philadelphia, Pennsylvania.. - - - 5 5
Las Vegas/Reno, Nevada...... 3 - 1 - 4
Albuquerque, New Mexico..... - 1 - 1 2
Long Island, New York....... - - 1 - 1
--- ------- ------- ------- ---
31 31 38 18 115
=== ======= ======= ======= ===
</TABLE>
In addition, during 1994, the Company sold one restaurant in Texas to a new
franchisee, closed one restaurant in Texas which it had managed, and
transferred the operations of one California restaurant to a franchisee.
Restaurant Operations. The staff for a typical Applebee's restaurant consists
of one general manager, one kitchen manager, three assistant managers and
approximately 85 hourly employees. All managers of Company owned restaurants
receive a salary, performance bonus based on restaurant sales, profits and
adherence to Company standards, and an annual stock option grant. The Company
employs five Regional Vice Presidents of Operations/Directors of Operations and
21 District Managers, whose duties include regular restaurant visits and
inspections and the ongoing maintenance of the Company standards of quality,
27
<PAGE>
service, cleanliness, value, and courtesy. In addition to providing a
significant contribution to revenues and operating earnings, Company
restaurants are used for many purposes which are integral to the development of
the entire system, including testing of new menu items and training of
franchise restaurant managers and operating personnel. In addition, the
operation of Company restaurants enables the Company to develop and refine its
operating standards and specifications further and to understand and better
respond to day-to-day management and operating concerns of franchisees.
Unit Economics. For the 52 weeks ended March 26, 1995, the 72 Company owned
Applebee's restaurants opened prior to March 28, 1994 generated average sales
of approximately $2,134,000, average restaurant operating income of
approximately $364,000 (or 17.1% of sales), and average cash flow of $430,000
(or 20.1% of sales). The 23 Applebee's restaurants opened by the Company in
fiscal 1994 had an average cash investment of approximately $1,064,000 for
building, leasehold improvements, furniture, fixtures and equipment, excluding
land costs, pre-opening expense, and landlord contributions. The Company
anticipates that such average cash investment per restaurant will be
approximately $1,000,000 to $1,200,000 in 1995. The Company has historically
purchased the land for a portion of its new restaurants and leased the
remainder, depending upon factors such as land cost, site availability, and
lease terms. The Company purchased the land for approximately 60% of its
restaurants opened in 1994 with an average cost of approximately $525,000 per
site. The Company expects to continue to purchase a significant portion of its
sites.
THE APPLEBEE'S FRANCHISE SYSTEM
Franchise Territory and Restaurant Openings. The Company currently has
exclusive franchise arrangements with approximately 60 franchisees, including
four international franchisees. The Company has generally selected franchisees
that are experienced multi-unit restaurants operators who have been involved
with other restaurant concepts. The Company's franchisees operate Applebee's
restaurants in 36 states, one Canadian province and the Caribbean island of
Curacao. Virtually all territories in the contiguous 48 states have been
granted to franchisees or designated for Company development.
As of June 25, 1995, there were 461 franchise restaurants. Franchisees opened
96 restaurants in 1993, 122 restaurants in 1994, and, through June 25, 58
restaurants in 1995. The Company anticipates at least 120 franchise restaurant
openings in 1995 and more than 100 franchise restaurant openings in 1996.
Development of Restaurants. The Company makes available to franchisees the
physical specifications for a typical restaurant, retaining the right to
prohibit or modify the use of any plan. Each franchisee, with assistance from
the Company, is responsible for selecting the site for each restaurant within
its territory, subject to Company approval. The Company conducts a physical
inspection, reviews any proposed lease or purchase agreement, and makes
available demographic studies.
Domestic Franchise Arrangements. Each Applebee's franchise arrangement
consists of a development agreement and separate franchise agreements.
Development agreements grant the exclusive right to develop a number of
restaurants in a designated geographical area. The term of a domestic
development agreement is generally 20 years. A separate franchise agreement is
entered into by the franchisee relating to the operation of each restaurant
which has a term of 20 years and permits renewal for up to an additional 20
years in accordance with the terms contained in the then current franchise
agreement (including the then current royalty rates and advertising fees) and
upon payment of an additional franchise fee.
For each restaurant developed, a franchisee is currently obligated to pay to
the Company a royalty fee equal to 4% of the restaurant's monthly gross sales.
The Company's current form of development agreement requires an initial
franchise fee of $35,000 for each restaurant developed during its term. The
terms, royalties and advertising fees under a limited number of franchise
agreements and the franchise fees under older development agreements vary from
the currently offered arrangements.
The Company's largest franchisee is Apple South, Inc. ("Apple South")
headquartered in Madison, Georgia. Apple South is a publicly traded company and
operated 146 Applebee's restaurants as of June 25, 1995. On June 30, 1995,
Apple South acquired an additional 18 franchise restaurants for a total of 164
Applebee's restaurants. No other individual franchisee or group of affiliated
franchisees has more than 40
28
<PAGE>
restaurants. The Company recently entered into an agreement with Apple South
which allowed Apple South to acquire certain franchise and development rights
in Wisconsin and Chicago and imposed accelerated development schedules in Apple
South's existing territories. Under the agreement, Apple South is restricted
from opening or franchising any other casual dining restaurant concepts in the
Chicago and Wisconsin territories until its development of Applebee's
restaurants in those territories reaches specified targets. The agreement with
Apple South also acknowledges that, in view of the significant amount of
additional development territory acquired by Apple South in 1995, among other
things, it is highly unlikely that, during the next four years, the Company
will approve any transfers of Applebee's development territory to Apple South
from another franchisee or directly grant Apple South any new Applebee's
development territory.
Advertising. Domestic franchisees are required to spend at least 1.5% of
annual gross sales on local advertising and promotional activities, in addition
to their 1.5% annual contribution to the national advertising account.
Franchisees also promote the opening of each restaurant and the Company,
subject to certain conditions, reimburses the franchisee for 50% of the out-of-
pocket opening advertising expenditures, up to a maximum of $2,500. The Company
can increase the combined amount of the monthly advertising fee and the amount
required to be spent on local advertising and promotional activities to a
maximum of 5% of gross sales.
Training and Support. The Company provides ongoing advice and assistance to
franchisees in connection with the operation and management of each restaurant
through training sessions, meetings, seminars, on-premises visits, and by
written or other material. Such advice and assistance relates to revisions to
operating manual policies and procedures, and new developments, techniques, and
improvements in restaurant management, food and beverage preparation, sales
promotion, and service concepts.
Quality Control. The Company continuously monitors franchisee operations and
inspects restaurants, principally through its 19 full-time employed franchise
consultants who report to the Company's two Directors of Franchise Operations.
The Company makes both scheduled and unannounced inspections of restaurants to
ensure that only approved products are in use and that Company prescribed
practices and procedures are being followed. A minimum of three planned visits
are made each year, during which a representative of the Company conducts an
inspection and consultation at each restaurant. Franchisees must comply with
the Company's high standards of quality, service, cleanliness, value, and
courtesy. The Company has the right to terminate a franchise if a franchisee
does not operate and maintain a restaurant in accordance with the Company's
requirements.
Franchise Business Council. The Company maintains a Franchise Business
Council which provides advice to the Company regarding operations, marketing,
product development and other aspects of restaurant operations for the purpose
of improving the franchise system. The Franchise Business Council consists of
seven franchisee representatives and two members of the Company's management.
One of the franchisee representatives is a permanent member and any franchisee
who operates at least 10% of the total number of system restaurants is reserved
a seat (currently one franchisee). The remaining franchisee representatives are
elected prior to and announced at the annual franchise convention.
International Franchise Agreements. The Company has begun pursuing
international franchising of the Applebee's concept under a long-term strategy
of controlled expansion. This strategy includes seeking highly qualified
franchisees with the resources to open multiple restaurants in each territory
and the familiarity with the specific local business environment. The Company
will initially focus on international franchising in Canada, the Caribbean, and
northern Europe. In this regard, franchisees opened restaurants in Winnipeg,
Manitoba, and the Caribbean island of Curacao during 1994, and in Puerto Rico
in July 1995. In addition, the Company entered into a development agreement
with its first European franchisee during 1994. The Company anticipates the
first franchise restaurant in the Netherlands under this agreement to open in
the fall of 1995. The success of further international expansion will be
dependent upon, among other things, foreign acceptance of the Applebee's
concept, and the Company's ability to attract qualified franchisees and
operating personnel, to comply with the regulatory requirements of foreign
jurisdictions, and to supervise international franchisee operations
effectively.
29
<PAGE>
Franchise Financing. Although financing is the sole responsibility of the
franchisee, the Company makes available to franchisees the names and addresses
of financial institutions interested in financing the costs of restaurant land,
building and equipment for qualified franchisees. None of these financial
institutions is an affiliate or agent of the Company, and the Company has no
control over the terms or conditions of any financing arrangement offered by
these financial institutions. Under a previous franchise financing program, the
Company provided a limited guaranty of loans made to certain franchisees. See
Notes to Consolidated Financial Statements of the Company included elsewhere
herein. On infrequent occasions, when the Company believes it is necessary to
support franchise development in a strategic territory, the Company has made
secured loans to franchisees, agreed to defer collection of royalties, or
guaranteed equipment leases.
RIO BRAVO CANTINA RESTAURANTS
General. As part of its overall growth strategy, the Company acquired the Rio
Bravo Cantina chain of Mexican casual dining restaurants in March 1995. As of
June 25, 1995, the Company operated 14 Rio Bravo Cantina restaurants in
Florida, Georgia and Tennessee.
Expansion. The Company is in the process of developing the franchising
program for the Rio Bravo Cantina concept and the related Company support
systems. The Company anticipates that the franchise preparation process will be
completed and that the initial Rio Bravo Cantina franchisees will be selected
in late 1995. Franchise restaurants are anticipated to begin opening in the
second half of 1996.
Additionally, the Company will continue developing Rio Bravo Cantina
restaurants in the market areas where it currently has Rio Bravo Cantinas and
will begin to open restaurants in other selected markets. The Company expects
to open four Company owned Rio Bravo Cantina restaurants in 1995, of which two
were open as of June 25, 1995, and five Company owned Rio Bravo Cantina
restaurants in 1996.
Concept. Rio Bravo Cantina restaurants offer generous portions of fresh Tex-
Mex and Mexican cuisine at attractive prices. The restaurants feature tortillas
made on the premises, fresh daily specials, a variety of signature margaritas
and distinctive Mexican architecture and interior decor which create a festive
atmosphere reminiscent of an authentic Mexican cantina. The design of the
restaurants incorporates materials such as exposed brick, barn wood, Mexican
tile floors and stucco walls embellished with various signs, inscriptions and
other items depicting a rustic border motif.
Rio Bravo Cantina restaurants can be located in either free-standing
buildings or strip shopping centers and are adaptable to conversions of pre-
existing restaurant sites. Existing locations, many of which are conversions of
other restaurants, range in size from 6,600 to 10,300 square feet and seat
between 225 and 450 customers. Most of the restaurants have a patio area
providing additional seating during much of the year. The Company is currently
refining a free-standing prototype, which is expected to be approximately 6,900
square feet, and will seat approximately 240 people with an optional outdoor
patio area that seats approximately 45 patrons.
Menu. Rio Bravo Cantina restaurants are open for lunch and dinner seven days
a week. The menu includes traditional Mexican food items such as burritos,
enchiladas, tamales and tacos. In addition, the menu offers a wide variety of
other favorites such as beef, chicken and shrimp fajitas, quesadillas, shrimp
dishes, and a variety of salads and desserts. A large variety of Mexican and
domestic beers, Sangria, and signature margaritas are also featured. The lunch
menu offers entrees priced from $4.55 to $7.75 and dinner entrees priced from
$5.50 to $12.99. Rio Bravo Cantina restaurants currently have an average guest
check, including alcoholic beverages, of between $11.75 and $12.75. During
1994, alcoholic beverages accounted for approximately 32% of total restaurant
sales.
30
<PAGE>
SPECIALTY RESTAURANTS
In connection with the acquisition of the Rio Bravo Cantina concept, the
Company also acquired four specialty restaurants, comprised of two Green Hills
Grille restaurants in Nashville, Tennessee and Huntsville, Alabama, an upscale
Rio Bravo Cantina called the Rio Bravo Grill in Atlanta, Georgia and Ray's on
the River, in Atlanta, Georgia. The Company currently does not intend to expand
any of the specialty restaurant concepts.
COMPETITION
The restaurant industry is highly competitive with respect to price, service,
location, concept and food type and quality, and competition is expected to
intensify. There are a number of well-established competitors with
substantially greater financial and other resources than the Company. Some of
the Company's competitors have been in existence for a substantially longer
period than the Company and may be better established in the markets where the
Company's restaurants are or may be located. The restaurant business is often
affected by changes in consumer tastes, national, regional or local economic
conditions, demographic trends, traffic patterns, the availability and cost of
suitable locations, and the type, number, and location of competing
restaurants. The Company has begun to experience increased competition in
attracting and retaining qualified management level operating personnel. In
addition, factors such as inflation, increased food, labor and benefits costs,
and the availability of and competition for hourly employees may adversely
affect the restaurant industry in general and the Company's restaurants in
particular.
SERVICE MARKS
The Company owns the rights to the "Applebee's Neighborhood Grill & Bar" and
"Rio Bravo Cantina" service marks and certain variations thereof in the United
States and, with respect to the Applebee's mark, in various foreign countries.
The Company is aware of names and marks similar to the service marks of the
Company used by third parties in certain limited geographical areas. The
Company does not know of any infringing uses that it believes would materially
affect its business. The Company intends to protect its service marks by
appropriate legal action where and when necessary.
EMPLOYEES
At June 25, 1995, the Company employed approximately 12,600 full and part-
time employees, of whom approximately 250 were corporate personnel, 800 were
restaurant managers or manager trainees and 11,550 were employed in non-
management full and part-time restaurant positions. Of the 250 corporate
employees, 70 were in management positions and 180 were general office
employees, including part-time employees.
The Company considers its employee relations to be good. Most employees,
other than restaurant management and corporate personnel, are paid on an hourly
basis. The Company believes that it provides working conditions and wages that
compare favorably with those of its competition. The Company has never
experienced a work stoppage due to labor difficulty and the Company's employees
are not covered by a collective bargaining agreement.
PROPERTIES
At June 25, 1995, the Company owned or operated 115 Applebee's restaurants,
of which it leased the land and building for 57 sites, owned the building and
leased the land for 21 sites, and owned the land and building for 37 sites. The
Company also owned 18 other restaurants (including 14 Rio Bravo Cantinas and
four specialty restaurants), of which it leased the land and building for 10
sites and owned the land and building for eight sites. In addition, as of June
25, 1995, the Company owned five sites for future development of restaurants
and had entered into 10 lease agreements for restaurant sites the Company plans
to open during 1995 or 1996. The Company's leases generally have an initial
term of 10 to 25 years, with renewal terms of 5 to 20 years, and provide for a
fixed rental plus, in certain instances, percentage rentals based on gross
sales.
31
<PAGE>
The Company owns an 80,000 square foot office building in which its corporate
offices are headquartered in Overland Park, Kansas, located in the metropolitan
Kansas City area. Approximately 40% of the building is currently leased to
third parties until such time as the Company may need additional office space.
The Company also leases office space in certain of the regions in which it
operates restaurants.
GOVERNMENT REGULATION
The Company's restaurants are subject to numerous federal, state, and local
laws affecting health, sanitation and safety standards, as well as to state and
local licensing regulation of the sale of alcoholic beverages. Each restaurant
requires appropriate licenses from regulatory authorities allowing it to sell
liquor, beer, and wine, and each restaurant requires food service licenses from
local health authorities. The Company's licenses to sell alcoholic beverages
must be renewed annually and may be suspended or revoked at any time for cause,
including violation by the Company or its employees of any law or regulation
pertaining to alcoholic beverage control, such as those regulating the minimum
age of patrons or employees, advertising, wholesale purchasing, and inventory
control. The failure of a restaurant to obtain or retain liquor or food service
licenses could have a material adverse effect on its operations. In order to
reduce this risk, each restaurant is operated in accordance with standardized
procedures designed to assure compliance with all applicable codes and
regulations.
The Company is subject to a variety of federal and state laws governing
franchise sales and the franchise relationship. In general, these laws and
regulations impose certain disclosure and registration requirements prior to
the sale and marketing of franchises. Recent decisions of several state and
federal courts and recently enacted or proposed federal and state laws
demonstrate a trend toward increased protection of the rights and interests of
franchisees against franchisors. Such decisions and laws may limit the ability
of franchisors to enforce certain provisions of franchise agreements or to
alter or terminate franchise agreements. Due to the scope of the Company's
business and the complexity of franchise regulations, minor compliance problems
may be encountered in the future; however, the Company does not believe any
such compliance problems will have a material adverse effect on its business.
Under certain court decisions and statutes, owners of restaurants and bars in
some states in which the Company owns or operates restaurants may be held
liable for serving alcohol to intoxicated customers whose subsequent conduct
results in injury or death to a third party, and no assurance can be given that
the Company will not be subject to such liability. The Company believes its
insurance presently provides adequate coverage for such liability.
32
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Abe J. Gustin, Jr.................. 60 Chairman of the Board of Directors
and Chief Executive Officer
Lloyd L. Hill...................... 51 President, Chief Operating Officer,
and Director
Ronald B. Reck..................... 46 Executive Vice President and
Chief Administrative Officer
Burton M. Sack..................... 57 Executive Vice President and Director
George D. Shadid................... 41 Executive Vice President and
Chief Financial Officer
Robert A. Martin................... 64 Senior Vice President of Marketing
and Director
Stuart F. Waggoner................. 49 Senior Vice President of Operations
D. Patrick Curran.................. 51 Director
Eric L. Hansen..................... 46 Director
Jack P. Helms...................... 42 Director
Kenneth D. Hill.................... 61 Director
Johyne H. Reck..................... 46 Director
Raymond D. Schoenbaum.............. 49 Director
</TABLE>
Abe J. Gustin, Jr. 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 franchisee which operated Taco Bell restaurants.
Mr. Gustin has over 15 years of experience in the restaurant industry. Mr.
Gustin has an employment agreement with the Company that expires in December
1995.
Lloyd L. 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. From 1980 to 1994, he served as
President and a director of Kimberly Quality Care, a home health care and nurse
personnel staffing company. Mr. Lloyd Hill and Mr. Kenneth Hill are not
related. Mr. Hill has an employment agreement with the Company that
automatically renews for successive one-year terms unless otherwise terminated
as provided in the agreement.
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's employment agreement with the Company expires on December
31, 1995, and he has indicated he will be leaving the Company in early 1996.
Mr. Reck is the husband of Johyne Reck, a director of the Company.
33
<PAGE>
Burton M. Sack was elected a director and appointed 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.,
a former franchisee of the Company which was acquired by the Company in October
1994. Mr. Sack is also a director of Bay Street Restaurants and Restaurant
Capital Corporation. Mr. Sack is on the board of advisors of Restaurant
Associates, Inc. Mr. Sack has an employment agreement with the Company that
expires in October 1995.
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. 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, which was discharged in December 1992. From 1976 until 1985, Mr.
Shadid was employed by Deloitte & Touche LLP. Mr. Shadid has an employment
agreement with the Company that expires in December 1996.
Robert A. 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 Mr. 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.
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 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.
D. Patrick Curran became a director of the Company in November 1992. He has
served as Chief Executive Officer of the Curran Companies, a specialty chemical
company, 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 of which are publicly traded corporations.
Eric L. Hansen was elected a director of the Company in January 1991. He is
presently a shareholder 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.
Jack P. Helms became a director of the Company in March 1994. He is presently
President, CEO and a member of the Board of Directors in the investment banking
firm of Goldsmith, Agio, Helms and Company in Minneapolis, Minnesota. Mr. Helms
also serves as a member of the Board of Directors for HPG International, Inc.
From May 1978 to January 1986, Mr. Helms was a lawyer in the law firm of
Fredrikson & Byron, P.A. in Minneapolis, Minnesota.
Kenneth D. 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
34
<PAGE>
as an employee and officer of the Company and is currently a consultant to the
Company. From May 1990 to March 1991 he was President and Chief Executive
Officer of Creative Restaurant Management. 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.
Johyne H. Reck was elected a director of the Company in May 1985. Ms. Reck
currently serves as a consultant to the Company. 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.
Raymond D. Schoenbaum was elected a director of the Company effective March
24, 1995 and serves as a consultant to the Company. He was the founder,
majority shareholder, and chairman of the board of directors of Innovative
Restaurant Concepts, Inc., operator of the Rio Bravo Cantina restaurant
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.
35
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information, as of June 25, 1995, regarding
the beneficial ownership of Common Stock by (i) each director and executive
officer, (ii) all executive officers and directors of the Company as a group,
(iii) each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, and (iv) each Selling Stockholder. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED AFTER
PRIOR TO OFFERING(1) SHARES OFFERING
-------------------- BEING --------------------
NUMBER PERCENT(%) OFFERED NUMBER PERCENT(%)
--------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Burton M. Sack(2)............ 2,203,000 7.8 100,000 2,103,000 6.9
Abe J. Gustin, Jr.(3)........ 1,582,000 5.6 -- 1,582,000 5.2
Raymond D. Schoenbaum(4)..... 1,556,759 5.5 -- 1,556,759 5.1
Ronald B. Reck(3)............ 575,940 2.0 -- 575,940 1.9
Lloyd L. Hill(3)............. 119,000 * -- 119,000 *
Johyne H. Reck(3)............ 80,500 * -- 80,500 *
Robert A. Martin(3).......... 76,000 * -- 76,000 *
Kenneth D. Hill(3)........... 74,000 * -- 74,000 *
Stuart F. Waggoner(3)........ 71,450 * -- 71,450 *
George D. Shadid(3).......... 70,101 * -- 70,101 *
D. Patrick Curran(3)......... 41,000 * -- 41,000 *
Eric L. Hansen(3)............ 32,350 * -- 32,350 *
Jack P. Helms(3)............. 19,500 * -- 19,500 *
All executive officers and
directors as a group
(13 persons)(3)............. 6,501,600 22.9 100,000 6,401,600 21.0
Massachusetts Financial 2,532,200 8.9 -- 2,532,200 8.3
Services Company(5).........
500 Boylston Street
Boston, MA 02116
Putnam Investments, Inc.(5).. 2,300,782 8.1 -- 2,300,782 7.6
One Post Office Square
Boston, MA 02109
Richard J. Ferris(6)......... 955,000 3.4 200,000 755,000 2.5
1436 Ridge Road
Northbrook, IL 60062
</TABLE>
- --------
*Amounts are less than one percent.
(1) The mailing address for each person is 4551 W. 107th Street, Suite 100,
Overland Park, Kansas 66207, unless otherwise shown.
(2) Includes shares held of record by family trusts and a family partnership of
which Mr. Sack may be deemed the beneficial owner.
(3) Includes certain shares subject to options exercisable as of June 25, 1995,
or within 60 days thereafter: 82,000 shares for Mr. Gustin, 99,500 shares
for Mr. Reck, 119,000 shares for Lloyd L. Hill, 80,500 shares for Ms. Reck,
59,000 shares for Mr. Martin, 73,500 shares for Kenneth D. Hill, 63,500
shares for Mr. Waggoner, 70,101 shares for Mr. Shadid, 36,000 shares for
Mr. Curran, 27,000 shares for Mr. Hansen, 18,000 shares for Mr. Helms, and
728,101 shares for all executive officers and directors as a group.
(4) Includes 114,826 shares held in escrow resulting from the recent merger of
the Company with Innovative Restaurant Concepts, Inc. and its affiliates.
(5) Based on information contained on Schedule 13G for the year ended December
31, 1994.
(6) Includes shares held of record by a family partnership of which Mr. Ferris
may be deemed the beneficial owner.
36
<PAGE>
Mr. Gustin is a party to a voting agreement that binds Mr. Reck, pursuant to
which they 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.
Mr. Ferris and Mr. Sack were owners of PVNE, which merged with and into the
Company in a transaction completed in October 1994. Mr. Sack became a Director
and an Executive Vice President of the Company, and entered into a one-year
employment contract with the Company. Mr. Ferris, Mr. Sack and certain related
entities were granted the right to participate in offerings of the Company's
Common Stock, subject to certain restrictions, and to demand registration of up
to 825,000 shares of Common Stock issued to them in the merger. These
stockholders have exercised their demand registration rights, and, as a result,
the Company has caused a registration statement on Form S-3 (the "Selling
Stockholder Registration Statement") to become and remain effective for 824,000
shares held by these stockholders. The Selling Stockholders' demand
registration rights were amended to allow the sale of 1,200,000 shares, less
any shares sold in this offering and shares previously sold under the Selling
Stockholder Registration Statement. Accordingly, subsequent to this offering,
716,500 shares will be available for sale under the Selling Stockholder
Registration Statement. Mr. Ferris has agreed to refrain from making sales
pursuant to the Selling Stockholder Registration Statement or otherwise until
45 days after the consummation of this offering. Mr. Sack, as a director of the
Company, will have a 90 day lock-up period. See "Underwriting." The Company has
agreed to maintain the effectiveness of the Selling Stockholder Registration
Statement until 105 days after the expiration of Mr. Ferris' lock-up period,
which will permit the Selling Stockholders to sell the remaining 716,500 shares
upon expiration of their respective lock-up periods.
37
<PAGE>
UNDERWRITING
The Company and the Selling Stockholders have entered into a Purchase
Agreement (the "Purchase Agreement") with the underwriters listed in the table
below (the "Underwriters"), for whom Piper Jaffray Inc., Dillon, Read & Co.
Inc., and Montgomery Securities are acting as representatives (the
"Representatives"). Subject to the terms and conditions set forth in the
Purchase Agreement, the Company and the Selling Stockholders have agreed to
sell to the Underwriters, and each of the Underwriters has severally agreed to
purchase, the number of shares of Common Stock set forth opposite each
Underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Piper Jaffray Inc...............................................
Dillon, Read & Co. Inc..........................................
Montgomery Securities ..........................................
---------
Total Underwriters ( )..................................... 2,400,000
=========
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold
pursuant to the Purchase Agreement if any is purchased (excluding shares
covered by the over-allotment option granted therein). In the event of a
default by any Underwriter, the Purchase Agreement provides that, in certain
circumstances, purchase commitments of the nondefaulting Underwriters may be
increased or decreased or the Purchase Agreement may be terminated.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the Common Stock directly to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not more
than $ per share. Additionally, the Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the public offering, the public offering price and other selling
terms may be changed by the Underwriters.
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on The Nasdaq Stock Market
immediately prior to the commencement of sales in this offering, in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934. Passive market
making consists of displaying bids on The Nasdaq Stock Market limited by the
bid prices of independent market makers and purchases limited by such prices
and effected in response to order flow. Net purchases by a passive market maker
on each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified prior
period and must be discontinued when such limit is reached. Passive market
making may stabilize the market price of the Common Stock at a level above that
which might otherwise prevail and, if commenced, may be discontinued at any
time.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable by the Representatives within 30 days after the date of the
Purchase Agreement, to purchase up to an additional 360,000 shares of Common
Stock at the same price per share to be paid by the Underwriters for the other
shares offered hereby. If the Underwriters purchase any of such additional
shares pursuant to this option, each Underwriter will be committed to purchase
such additional shares in approximately the same proportion as set forth in the
table above. The Underwriters may exercise the option only for the purpose of
covering over-allotments, if any, made in connection with the distribution of
the Common Stock offered hereby.
38
<PAGE>
The Company, its executive officers, directors, and certain other officers
have agreed that they will not sell, offer to sell, issue, distribute or
otherwise dispose of any shares of Common Stock for a period of 90 days after
the date of this Prospectus without the prior written consent of the
Representatives, except that the Company may issue shares pursuant to the over-
allotment option. Richard J. Ferris, one of the Selling Stockholders, has
agreed that he will not sell, offer to sell, issue, distribute or otherwise
dispose of any shares of Common Stock for a period of 45 days after the
consummation of this offering. See "Principal and Selling Stockholders."
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
EXPERTS
The consolidated financial statements of Applebee's International, Inc. and
subsidiaries (the "Company"), except for Pub Ventures of New England, Inc.
("PVNE") for the fiscal years ended December 31, 1993 and 1992 and Innovative
Restaurant Concepts, Inc. and subsidiaries, Cobb/Gwinnett Rio, Ltd., Rio Real
Estate, L.P. and CG Restaurant Partners, Ltd. ("IRC"), included and
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, as stated in their report appearing and incorporated by reference
herein. The financial statements of PVNE for the year ended December 31, 1993
(consolidated with those of the Company) have been audited by Coopers & Lybrand
L.L.P., and the financial statements of PVNE for the year ended December 31,
1992 (consolidated with those of the Company) have been audited by Kennedy &
Lehan, P.C., as stated in their reports included and incorporated by reference
herein. The combined financial statements of IRC as of December 25, 1994 and
December 26, 1993 and for each of the three years in the period ended December
25, 1994 (consolidated with those of the Company and incorporated by reference
herein) have been audited by Arthur Andersen LLP, as stated in their report
included and incorporated by reference herein. Such financial statements of the
Company (which include PVNE for the fiscal years ended December 31, 1993 and
1992 and IRC for the fiscal years ended December 25, 1994, December 26, 1993
and December 27, 1992), and such separate combined financial statements of IRC
are included or incorporated by reference herein in reliance upon the
respective reports of such firms given upon their authority as experts in
accounting and auditing. All of the foregoing are independent auditors.
LEGAL OPINION
The validity of the Common Stock offered hereby will be passed upon for the
Company by Robert T. Steinkamp, counsel to the Company. Certain legal matters
in connection with this offering will be passed upon for the Underwriters by
Faegre & Benson Professional Limited Liability Partnership, Minneapolis,
Minnesota and for the Company by Blackwell Sanders Matheny Weary & Lombardi
L.C., Kansas City, Missouri.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files periodic reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission located at Seven
World Trade Center, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Commission
39
<PAGE>
at prescribed rates by addressing written requests for such copies to the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such reports, proxy statements and other information
can also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form S-
3 (the "Registration Statement") under the Securities Act of 1933, as amended,
with respect to the Common Stock being offered in this Prospectus. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and in
the exhibits and schedules thereto to which reference is hereby made. For
further information regarding the Company and the Common Stock, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed as a part thereof. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is hereby made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected without charge
at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and copies thereof may be obtained from the Commission at prescribed
rates.
INCORPORATION BY REFERENCE
The following documents which have been filed with the Commission by the
Company are hereby incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 25, 1994 (except for the consolidated financial statements which
have been superseded by the consolidated financial statements included in
the Company's Current Report on Form 8-K dated May 15, 1995 and in the
Registration Statement).
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 26, 1995.
3. The Company's Current Reports on Form 8-K dated December 8, 1994,
March 1, 1995, March 23, 1995, and May 15, 1995.
4. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A effective September 27, 1989.
5. The description of the Company's Rights to purchase Series A
Participating Cumulative Preferred Stock contained in the Company's
Registration Statement on Form 8-A dated September 12, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares offered hereby shall be deemed to be
incorporated by reference in this Prospectus and to be made a part hereof from
the date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents. Such requests should be directed to the
Company, 4551 West 107th Street, Suite 100, Overland Park, Kansas 66207,
Attention: Robert T. Steinkamp, Secretary, telephone (913) 967-4000.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FISCAL YEARS ENDED DECEMBER 25, 1994, DECEMBER 26, 1993 AND DECEMBER 27,
1992:
Independent Auditors' Reports........................................... F-2
Consolidated Balance Sheets as of December 25, 1994 and December 26,
1993................................................................... F-6
Consolidated Statements of Earnings for the Fiscal Years Ended December
25, 1994,
December 26, 1993 and December 27, 1992................................ F-7
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended
December 25, 1994, December 26, 1993 and December 27, 1992............. F-8
Consolidated Statements of Cash Flows for the Fiscal Years Ended Decem-
ber 25, 1994,
December 26, 1993 and December 27, 1992................................ F-9
Notes to Consolidated Financial Statements.............................. F-11
13 WEEKS ENDED MARCH 26, 1995 AND MARCH 27, 1994 (UNAUDITED):
Consolidated Balance Sheets as of March 26, 1995 and December 25, 1994.. F-26
Consolidated Statements of Earnings for the 13 Weeks Ended March 26,
1995 and
March 27, 1994......................................................... F-27
Consolidated Statement of Stockholders' Equity for the 13 Weeks Ended
March 26, 1995......................................................... F-28
Consolidated Statements of Cash Flows for the 13 Weeks Ended March 26,
1995 and
March 27, 1994......................................................... F-29
Notes to Consolidated Financial Statements.............................. F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Applebee's International, Inc.:
We have audited the accompanying consolidated balance sheets of Applebee's
International, Inc. and subsidiaries (the "Company") as of December 25, 1994
and December 26, 1993 and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended December 25, 1994. The consolidated financial statements give
effect to the merger on March 23, 1995 of a wholly-owned subsidiary of
Applebee's International, Inc. with and into Innovative Restaurant Concepts,
Inc., which has been accounted for using the pooling of interests method as
described in Note 4 to the consolidated financial statements. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Pub Ventures of New England, Inc. for the fiscal years ended
December 31, 1993 and 1992, which financial statements reflect total assets
constituting approximately 7% of the related consolidated financial statement
total for 1993 and which reflect total operating revenues constituting
approximately 15% and 17% of the related consolidated financial statement
totals for the fiscal years ended December 26, 1993 and December 27, 1992,
respectively. We also did not audit the combined financial statements of
Innovative Restaurant Concepts, Inc., which financial statements reflect total
assets constituting approximately 16% and 18% of the related consolidated
financial statement totals for 1994 and 1993, respectively, and which reflect
total operating revenues constituting approximately 20%, 22% and 29% of the
related consolidated financial statement totals for each of the fiscal years
ended December 25, 1994, December 26, 1993 and December 27, 1992, respectively.
The financial statements of Pub Ventures of New England, Inc. and the combined
financial statements of Innovative Restaurant Concepts, Inc. and subsidiaries,
Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P., and CG Restaurant Partners,
Ltd. (collectively referred to as "IRC") were audited by other auditors, whose
reports thereon have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts indicated for Pub Ventures of New England,
Inc. and IRC in the consolidated financial statements, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the aforementioned reports of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Applebee's International, Inc. and subsidiaries at December 25, 1994 and
December 26, 1993, and the consolidated results of their operations and cash
flows for each of the three fiscal years in the period ended December 25, 1994
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
May 15, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Innovative Restaurant Concepts, Inc. and
the Partners of Cobb/Gwinnett Rio, Ltd.,
Rio Real Estate, L.P., and
CG Restaurant Partners, Ltd.:
We have audited the accompanying combined balance sheets of INNOVATIVE
RESTAURANT CONCEPTS, INC. (a Georgia corporation) AND SUBSIDIARIES,
COBB/GWINNETT RIO, LTD. (a Georgia limited partnership), RIO REAL ESTATE, L.P.
(a Georgia limited partnership), AND CG RESTAURANT PARTNERS, LTD. (a Georgia
limited partnership) as of December 25, 1994 and December 26, 1993 and the
related combined statements of operations, stockholders' equity and partners'
capital, and cash flows for each of the three years in the period ended
December 25, 1994. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Innovative Restaurant
Concepts, Inc. and subsidiaries, Cobb/Gwinnett Rio, Ltd., Rio Real Estate,
L.P., and CG Restaurant Partners, Ltd., as of December 25, 1994 and December
26, 1993 and the results of their operations and their cash flows for each of
the three years in the period ended December 25, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 9 to the financial statements, the stockholders and
partners of the Companies entered into an agreement on October 14, 1994 to
exchange 100% of the outstanding common stock and partnership units of the
Companies for common stock of an unrelated entity.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 22, 1995
F-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Pub Ventures of New England, Inc.:
We have audited the balance sheet of Pub Ventures of New England, Inc. as of
December 31, 1993 and the related statements of income, retained earnings and
cash flows for the year then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pub Ventures of New England,
Inc. as of December 31, 1993 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
Boston, Massachusetts
January 29, 1994
F-4
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
Pub Ventures of New England, Inc.
Weston, Massachusetts
We have audited the balance sheet of Pub Ventures of New England, Inc. at
December 31, 1992 and the related statements of income, retained earnings and
cash flows for the year then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pub Ventures of New England,
Inc. at December 31, 1992 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The Company changed its method of accounting for startup costs during the
year ended December 31, 1992.
KENNEDY & LEHAN
Quincy, Massachusetts
January 28, 1993
F-5
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 9,634 $ 8,054
Short-term investments, at market value in 1994 and
amortized cost in 1993 (amortized cost of $9,046
in 1994 and market value of $11,178 in 1993)...... 8,893 10,557
Receivables (less allowance for bad debts of $740
in 1994 and $322 in 1993)......................... 7,396 6,295
Inventories........................................ 5,159 2,280
Prepaid and other current assets................... 2,887 1,671
-------- --------
Total current assets............................. 33,969 28,857
Property and equipment, net.......................... 114,729 77,260
Goodwill, net........................................ 21,113 22,403
Franchise interest and rights, net................... 6,401 7,009
Other assets......................................... 3,802 3,151
-------- --------
$180,014 $138,680
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand note and current portion of notes payable... $ 3,505 $ 1,934
Current portion of obligations under noncompetition
and consulting agreement.......................... 220 244
Accounts payable................................... 10,750 9,457
Accrued expenses and other current liabilities..... 16,713 11,444
Accrued dividends.................................. 1,269 879
Accrued income taxes............................... 1,169 2,365
-------- --------
Total current liabilities........................ 33,626 26,323
-------- --------
Non-current liabilities:
Notes payable--less current portion................ 34,312 16,787
Franchise deposits................................. 1,355 1,263
Obligations under noncompetition and consulting
agreement--less current portion................... 660 880
Deferred income taxes.............................. 715 258
-------- --------
Total non-current liabilities.................... 37,042 19,188
-------- --------
Total liabilities................................ 70,668 45,511
Minority interest in joint venture................... 558 489
Commitments and contingencies (Notes 6, 7 and 11)
Stockholders' equity:
Preferred stock--par value $0.01 per share: autho-
rized--1,000,000 shares; no shares issued......... -- --
Common stock--par value $0.01 per share: autho-
rized--125,000,000 shares as adjusted; issued--
28,295,479 shares in 1994 and 28,185,720 shares in
1993.............................................. 283 282
Additional paid-in capital......................... 78,675 73,397
Retained earnings.................................. 30,775 19,850
Unrealized loss on short-term investments, net of
income taxes...................................... (96) --
-------- --------
109,637 93,529
Treasury stock--281,772 shares in 1994 and 1993, at
cost.............................................. (849) (849)
-------- --------
Total stockholders' equity....................... 108,788 92,680
-------- --------
$180,014 $138,680
======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Company restaurant sales.............. $222,445 $159,482 $85,459
Franchise income...................... 31,419 21,324 14,319
-------- -------- -------
Total operating revenues............ 253,864 180,806 99,778
-------- -------- -------
Cost of Company restaurant sales:
Food and beverage..................... 64,819 46,757 26,028
Labor................................. 70,777 50,950 27,663
Direct and occupancy.................. 53,883 37,283 20,489
Pre-opening expense................... 2,093 1,588 768
-------- -------- -------
Total cost of Company restaurant
sales.............................. 191,572 136,578 74,948
-------- -------- -------
General and administrative expenses..... 29,167 22,526 14,573
Merger costs............................ 920 -- --
Amortization of intangible assets....... 2,033 1,934 1,031
Loss on disposition of restaurants and
equipment.............................. 861 91 --
-------- -------- -------
Operating earnings...................... 29,311 19,677 9,226
-------- -------- -------
Other income (expense):
Investment income..................... 1,065 1,675 1,623
Interest expense...................... (2,029) (1,075) (599)
Other income (expense)................ 253 179 33
-------- -------- -------
Total other income (expense)........ (711) 779 1,057
-------- -------- -------
Earnings before income taxes............ 28,600 20,456 10,283
Income taxes............................ 9,453 6,693 3,472
-------- -------- -------
Net earnings............................ 19,147 13,763 6,811
Pro forma provision for income taxes of
pooled companies....................... 1,324 1,212 476
-------- -------- -------
Pro forma net earnings.................. $ 17,823 $ 12,551 $ 6,335
======== ======== =======
Pro forma net earnings per common share. $ 0.64 $ 0.46 $ 0.26
======== ======== =======
Weighted average shares outstanding..... 27,970 27,543 24,755
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL LOSS ON TOTAL
----------------- PAID-IN RETAINED SHORT-TERM TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INVESTMENTS STOCK EQUITY
---------- ------ ---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 29,
1991................... 6,682,114 $ 67 $28,440 $ 3,074 $-- $(849) $ 30,732
Issuance of common
stock from public of-
fering................ 2,085,000 21 29,322 -- -- -- 29,343
Dividends on common
stock, at a rate of
$0.03 per share....... -- -- -- (613) -- -- (613)
Stock options exer-
cised................. 110,361 1 1,174 -- -- -- 1,175
Income tax benefit upon
exercise of stock op-
tions................. -- -- 365 -- -- -- 365
Transactions of pooled
companies prior to
acquisition, net...... -- -- 1,490 (742) -- -- 748
Pro forma provision for
income taxes of pooled
companies............. -- -- -- 476 -- -- 476
Pro forma net earnings. -- -- -- 6,335 -- -- 6,335
---------- ---- ------- ------- ---- ----- --------
Balance, December 27,
1992................... 8,877,475 89 60,791 8,530 -- (849) 68,561
Effect of stock splits. 17,754,950 187 -- (187) -- -- --
Issuance of common
stock in connection
with acquisition of
restaurants........... 1,276,596 4 9,996 -- -- -- 10,000
Dividends on common
stock, at a rate of
$0.04 per share....... -- -- -- (879) -- -- (879)
Stock options exer-
cised................. 276,699 2 1,230 -- -- -- 1,232
Income tax benefit upon
exercise of stock op-
tions................. -- -- 801 -- -- -- 801
Transactions of pooled
companies prior to
acquisition, net...... -- -- 579 (1,377) -- -- (798)
Pro forma provision for
income taxes of pooled
companies............. -- -- -- 1,212 -- -- 1,212
Pro forma net earnings. -- -- -- 12,551 -- -- 12,551
---------- ---- ------- ------- ---- ----- --------
Balance, December 26,
1993................... 28,185,720 282 73,397 19,850 -- (849) 92,680
Dividends on common
stock, at a rate of
$0.05 per share....... -- -- -- (1,269) -- -- (1,269)
Stock options exer-
cised................. 109,759 1 661 -- -- -- 662
Income tax benefit upon
exercise of stock op-
tions................. -- -- 215 -- -- -- 215
Unrealized loss on
short-term invest-
ments, net of income
taxes................. -- -- -- -- (96) -- (96)
Transactions of pooled
companies prior to
acquisition, net...... -- -- 4,402 (6,953) -- -- (2,551)
Pro forma provision for
income taxes of pooled
companies............. -- -- -- 1,324 -- -- 1,324
Pro forma net earnings. -- -- -- 17,823 -- -- 17,823
---------- ---- ------- ------- ---- ----- --------
Balance, December 25,
1994................... 28,295,479 $283 $78,675 $30,775 $(96) $(849) $108,788
========== ==== ======= ======= ==== ===== ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 27,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Pro forma net earnings.......................... $ 17,823 $ 12,551 $ 6,335
Adjustments to reconcile pro forma net earnings
to net cash
provided by operating activities:
Depreciation and amortization................. 8,997 6,159 3,738
Amortization of intangible assets............. 2,033 1,934 1,031
Gain on sale of investments................... (112) (312) --
Deferred income tax provision (benefit)....... 100 (271) 71
Loss on disposition of restaurants and equip-
ment......................................... 661 91 115
Pro forma provision for income taxes of pooled
companies.................................... 1,324 1,212 476
Changes in assets and liabilities (exclusive of
effects of
acquisitions other than pooled companies):
Receivables................................... (1,101) (1,699) (2,230)
Inventories................................... (2,879) (1,008) (160)
Prepaid and other current assets.............. (802) (509) (452)
Assets held for resale........................ -- 725 (725)
Accounts payable.............................. 1,293 5,068 1,716
Accrued expenses and other current liabili-
ties......................................... 5,269 4,268 1,242
Accrued income taxes.......................... (672) 1,631 (392)
Franchise deposits............................ 92 189 471
Other......................................... (1,198) (2,325) 381
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 30,828 27,704 11,617
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments............. (8,306) (4,961) (33,685)
Maturities and sales of short-term investments.. 9,942 25,575 21,035
Purchases of marketable securities.............. -- (499) (14,836)
Maturities and sales of marketable securities... -- 5,142 --
Purchases of property and equipment............. (45,419) (45,664) (13,156)
Acquisitions of restaurants..................... (3,315) (12,800) --
Investment in joint venture interest............ -- -- (1,295)
Proceeds from sale of restaurants and equipment. 1,474 3,078 --
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES......... (45,624) (30,129) (41,937)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock from pub-
lic offering................................... -- -- 29,343
Dividends paid.................................. (879) (613) (276)
Cash transactions of pooled companies prior to
acquisition, net............................... (2,543) (1,018) (517)
Issuance of common stock upon exercise of stock
options........................................ 662 1,232 1,175
Income tax benefit upon exercise of stock op-
tions.......................................... 215 801 365
Proceeds from issuance of notes payable......... 27,116 13,709 6,696
Payments on notes payable....................... (8,020) (7,675) (5,321)
Payments under noncompetition and consulting
agreement...................................... (244) -- --
Minority interest in net earnings of joint ven-
ture........................................... 69 54 11
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES..... 16,376 6,490 31,476
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 1,580 4,065 1,156
CASH AND CASH EQUIVALENTS, beginning of period.... 8,054 3,989 2,833
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.......... $ 9,634 $ 8,054 $ 3,989
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes.................................. $ 9,806 $ 5,114 $ 3,501
======== ======== ========
Interest...................................... $ 1,927 $ 849 $ 598
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In connection with IRC's acquisition of an unrelated restaurant company
during 1992, a pooled company issued common stock having a fair value of
approximately $1,265,000.
In connection with the acquisition of 14 restaurants during 1993, the Company
issued or assumed notes payable aggregating $2,463,000, entered into a
noncompetition and consulting agreement in the amount of $1,124,000 and issued
additional common stock aggregating $10,000,000 (see Note 4).
Marketable securities of $10,505,000 were reclassified to short-term
investments during 1993.
A two-for-one stock split effected as a 100% stock dividend was declared and
distributed during 1993 and a three-for-two stock split effected as a 50% stock
dividend was declared in 1993 and distributed in January 1994, resulting in
adjustments of $187,000 to common stock and retained earnings (see Note 12).
During 1993, the Company recorded additional goodwill and income tax
liabilities of $1,000,000 resulting from changes in the purchase price
allocations of previous business combinations. During 1994, this amount was
reduced by $524,000 as a result of the IRS settlement (see Note 10).
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
See notes to consolidated financial statements.
F-10
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Applebee's International, Inc. (the "Company") develops, operates and
franchises a national chain of casual dining restaurants under the name
"Applebee's Neighborhood Grill & Bar." As of December 25, 1994, there were 505
Applebee's restaurants, of which 408 were operated by franchisees and 97 were
owned or operated by the Company. Such restaurants were located in 43 states,
one Canadian province, and the Caribbean island of Curacao. After giving
retroactive effect to the merger with Innovative Restaurant Concepts, Inc.
discussed in Note 4, the Company also operated 16 other restaurants, including
12 Rio Bravo Cantinas, as of December 25, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The consolidated financial statements have been
prepared to give retroactive effect to the merger with Innovative Restaurant
Concepts, Inc. ("IRC") on March 23, 1995 (see Note 4). Beginning in fiscal
1995, the cost of meals provided to employees and other complimentary meals
have been classified as labor costs and direct and occupancy costs,
respectively. Previously, the retail price of such meals was reflected in
Company restaurant sales with corresponding amounts reflected as labor costs or
direct and occupancy costs. The consolidated financial statements for all
periods presented have been reclassified to conform to the presentation adopted
in fiscal 1995, the effects of which were not material.
Principles of consolidation: The consolidated financial statements include
the accounts of the Company, its wholly-owned subsidiaries and its controlled-
interest joint venture. All material intercompany profits, transactions and
balances have been eliminated.
Fiscal year: The Company's fiscal year ends on the last Sunday of the
calendar year. The fiscal years ended December 25, 1994, December 26, 1993 and
December 27, 1992 each contained 52 weeks, and are referred to hereafter as
1994, 1993 and 1992, respectively.
Short-term investments and marketable securities: Short-term investments and
marketable securities are comprised of U.S. government and agency securities,
certificates of deposit, state and municipal bonds and preferred stocks. Such
securities are classified based upon the Company's intent and ability to hold
these securities. Gains and losses from sales are determined using the specific
identification method.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," as of the
beginning of its 1994 fiscal year, the cumulative effect of which was not
material. Statement No. 115 addresses the accounting and reporting for certain
investments in debt and equity securities by requiring such investments to be
classified in hold-to-maturity, available-for-sale, or trading categories. In
accordance with Statement No. 115, prior years' financial statements have not
been restated to reflect the change in accounting method. At December 26, 1993,
marketable securities were carried at the lower of amortized cost or aggregate
market.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Pre-opening costs: The Company expenses direct training and other costs
related to opening new or relocated restaurants as incurred. IRC's method of
accounting for pre-opening costs has been conformed with the Company's method
of accounting for such costs in the consolidated financial statements.
Property and equipment: Property and equipment are stated at cost.
Depreciation is provided primarily on a straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized
F-11
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
over the shorter of the estimated useful life or the lease term of the related
asset. The general ranges of original depreciable lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings.......................... 20
Leasehold improvements............. 5-20
Furniture and equipment............ 3-7
</TABLE>
Goodwill: Goodwill represents the excess of cost over fair market value of
net assets acquired by the Company. Goodwill is being amortized over periods
ranging from 15 to 20 years on a straight-line basis. Accumulated amortization
at December 25, 1994 and December 26, 1993 was $2,275,000 and $1,135,000,
respectively.
Franchise interest and rights: Franchise interest and rights represent
allocations of purchase price to either the purchased restaurants or franchise
operations acquired. The allocated costs are amortized over the estimated life
of the restaurants or the franchise agreements on a straight-line basis ranging
from 7 to 20 years. Accumulated amortization at December 25, 1994 and December
26, 1993 was $4,549,000 and $3,927,000, respectively.
Franchise revenues: Franchise revenues are recognized in accordance with
Statement of Financial Accounting Standards No. 45 which requires deferral
until substantial performance of franchisor obligations is complete. Initial
franchise fees, included in franchise income in the consolidated statements of
earnings, totaled $3,753,000, $2,893,000 and $1,548,000 for 1994, 1993 and
1992, respectively.
Earnings per share: Earnings per share are computed based on the weighted
average number of common shares outstanding. The shares issuable under the
Employee Stock Option Plan (see Note 13) are excluded from the computations,
because their dilutive effect is not material. All references to the number of
shares and per share amounts have been restated to reflect all stock splits
declared by the Company (see Note 12).
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the following methods
were used in estimating fair value disclosures for significant financial
instruments of the Company. The carrying amount of cash and cash equivalents
approximates fair value because of the short maturity of those instruments. The
carrying amount of short-term investments is based on quoted market prices. The
fair value of the Company's notes payable is estimated based on quotations made
on similar issues.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1994 1993
---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents.............. $ 9,634 $ 9,634 $ 8,054 $ 8,054
Short-term investments................. $ 8,893 $ 8,893 $10,557 $10,557
Notes payable.......................... $37,817 $36,567 $18,721 $18,721
</TABLE>
F-12
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACQUISITIONS
IRC Merger: On March 23, 1995, a wholly-owned subsidiary of the Company
merged with and into Innovative Restaurant Concepts, Inc. ("IRC"), referred to
herein as the "IRC Merger". Immediately prior to the IRC Merger, IRC's
affiliated limited partnerships, Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P.
and CG Restaurant Partners, Ltd., were liquidated, and contemporaneously with
the IRC Merger, the Company acquired the interests of the limited partners in
the distributed assets of these partnerships. As a result of the IRC Merger,
IRC became a wholly-owned subsidiary of the Company. A total of approximately
2,630,000 shares of the Company's newly-issued common stock was issued to the
shareholders and limited partners of IRC, including IRC shares issued in 1995
upon the exercise of IRC stock options prior to the IRC Merger. IRC employees
also exchanged pre-existing stock options for options to purchase approximately
147,000 shares of the Company's common stock. Of such shares and options, 7.5%
were placed in escrow to address potential adjustments during the escrow period
that will end December 23, 1995. In addition, the Company assumed approximately
$13,700,000 of IRC indebtedness, of which $1,270,000 was repaid at closing. At
the time of the IRC Merger, IRC operated 17 restaurants, 13 of which were Rio
Bravo Cantinas, a Mexican restaurant concept, and four were other specialty
restaurants.
The IRC Merger was accounted for as a pooling of interests and accordingly,
the accompanying consolidated financial statements have been restated to
include the accounts and operations of the merged entities for all periods
presented. All share amounts have been restated to reflect the total number of
shares issued in the IRC Merger for all periods presented. Separate results of
the two entities for the fiscal years ended December 25, 1994, December 26,
1993, and December 27, 1992 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
COMPANY PRO
(INCLUDING PRO FORMA FORMA
PVNE) IRC ADJUSTMENTS COMBINED
---------- ------- ----------- --------
<S> <C> <C> <C> <C>
1994:
Net sales....................... $170,933 $51,512 $ -- $222,445
Net earnings.................... $ 15,780 $ 2,242 $(199) $ 17,823
1993:
Net sales....................... $118,868 $40,614 $ -- $159,482
Net earnings.................... $ 11,375 $ 1,222 $ (46) $ 12,551
1992:
Net sales....................... $ 56,993 $28,466 $ -- $ 85,459
Net earnings.................... $ 5,819 $ 612 $ (96) $ 6,335
</TABLE>
Adjustments have been made to eliminate the impact of intercompany balances
and to record provisions for pro forma income taxes for certain affiliates of
IRC. Merger costs of $1,770,000 relating to the IRC merger have been expensed
in the first quarter of 1995. Merger costs include investment banking fees,
legal and accounting fees, and other merger related expenses.
PVNE Merger: On October 24, 1994, a wholly-owned subsidiary of the Company
merged with and into Pub Ventures of New England, Inc. ("PVNE"), referred to
herein as the "PVNE Merger". As a result of the PVNE Merger, PVNE became a
wholly-owned subsidiary of the Company. The shareholders of PVNE received an
aggregate of 3,300,000 shares of the Company's newly-issued common stock. At
the time of the PVNE Merger, PVNE operated 14 Applebee's restaurants, and
several restaurant sites were under development. The PVNE Merger was accounted
for as a pooling of interests. Merger costs of $920,000, which were expensed
upon completion of the PVNE Merger in the fourth quarter of 1994, have been
included in the Company's consolidated statement of earnings for 1994. Merger
costs include investment banking fees, legal and accounting fees, and severance
and benefits-related costs. The impact of these costs on pro forma net earnings
per common share was approximately $0.03 in 1994.
F-13
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Minnesota restaurant acquisition: Effective February 26, 1993, the Company
entered into an agreement to acquire 14 franchise restaurants and certain
restaurant sites under development in Minnesota, all of which were owned and
operated by a franchisee through a limited partnership (the "Partnership"). The
above transaction is referred to herein as the "Minnesota Acquisition."
While the transaction remained in escrow (February 27, 1993 through August
15, 1993), an affiliate of the Partnership managed the restaurants. Under this
management arrangement, the Partnership paid management fees to its affiliate
in an amount equal to 8% of the Partnership's net sales (as defined in the
management agreement). For financial reporting purposes, the Minnesota
Acquisition was determined to have occurred as of February 26, 1993, with the
earnings of the acquired restaurants accruing to the Company since that date.
The Minnesota Acquisition has been recorded under the purchase method of
accounting and, accordingly, the 1993 financial statements reflect the
Minnesota Acquisition, the related purchase accounting adjustments and the
results of operations of the acquired restaurants subsequent to February 26,
1993. Management fees paid to the Partnership's affiliate totaling
approximately $1,117,000 are included in "general and administrative expenses"
in the accompanying statement of earnings for 1993.
The Minnesota Acquisition purchase price, including related transaction
costs, aggregated $23,548,000, composed of (i) cash payments of $10,741,000,
(ii) newly issued promissory notes totaling $1,664,000, (iii) a promissory note
of the Partnership in the amount of $799,000, which has been assumed by the
Company, and (iv) $10,000,000 of aggregate value of the Company's common stock
(1,276,596 shares).
The Minnesota Acquisition purchase price has been allocated to the fair value
of net assets acquired, and goodwill totaling $17,959,000 has been recorded in
connection with the Acquisition and is being amortized over 20 years on a
straight-line basis. The Minnesota Acquisition purchase price has been
allocated in the financial statements as follows (in thousands):
<TABLE>
<S> <C>
Property and equipment........... $ 6,491
Inventories...................... 243
Deferred income taxes............ (1,145)
Goodwill......................... 17,959
-------
Total........................ $23,548
=======
</TABLE>
The Company also entered into a noncompetition and consulting agreement with
certain affiliates of the Partnership. This agreement provides for annual
payments over a five year term aggregating $1,124,000, which have been recorded
as an asset and liability in the consolidated balance sheet as of December 26,
1993. The asset, included in "other assets," is being amortized over a five-
year period and the amortization is included in "amortization of intangible
assets" in the consolidated statement of earnings for 1993.
The following summarized unaudited pro forma results of operations of the
Company (in thousands, except per share amounts) for 1993 and 1992 assume the
Minnesota Acquisition occurred as of the beginning of the respective periods.
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which would actually
have resulted had the Minnesota Acquisition been effected as of the dates
indicated, or which may result in the future.
<TABLE>
<CAPTION>
1993 1992
-------------------- --------------------
PRO PRO
AS REPORTED FORMA AS REPORTED FORMA
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Company restaurant sales.......... $159,482 $164,322 $85,459 $109,997
Earnings before income taxes...... $ 20,456 $ 21,545 $10,283 $ 11,355
Pro forma net earnings............ $ 12,551 $ 13,147 $ 6,335 $ 6,597
Pro forma net earnings per common
share............................ $ 0.46 $ 0.47 $ 0.26 $ 0.25
Weighted average shares outstand-
ing.............................. 27,543 27,753 24,755 26,031
</TABLE>
F-14
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other restaurant acquisitions: During 1992, IRC issued common stock in
exchange for substantially all the operating assets and liabilities of an
unrelated restaurant company. The aggregate purchase price, including
associated costs and liabilities assumed of approximately $1,579,000, totaled
approximately $2,868,000. This acquisition has been accounted for as a
purchase, and accordingly, the acquired assets and liabilities have been
recorded at their estimated fair values at the date of acquisition. The
acquisition resulted in goodwill of approximately $1,799,000, which is being
amortized on a straight-line basis over 20 years. The operating results of the
acquired company are included in the statements of operations beginning on the
date of acquisition.
During 1993, the Company acquired the operations of two franchise restaurants
and the related leasehold improvements, furniture and fixtures and rights to
future development of restaurants in the franchise territories. The Company
also acquired the land and building related to one of the restaurants. The
total purchase price, for financial reporting purposes, was approximately
$1,903,000 (including cash payments to the seller of $1,800,000). The purchase
price has been allocated to the fair value of net assets acquired, and resulted
in an allocation to goodwill of approximately $612,000. The 1993 financial
statements reflect the results of operations of such restaurants subsequent to
the date of acquisition.
In addition, during 1994 the Company acquired the operations of two franchise
restaurants and the related land, furniture and fixtures. The total purchase
price was approximately $3,315,000 and has been allocated to the fair value of
net assets acquired, and resulted in an allocation to goodwill of $515,000. The
1994 financial statements reflect the results of operations of such restaurants
subsequent to the date of acquisition.
5. RECEIVABLES
Receivables are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1994 1993
------------ ------------
<S> <C> <C>
Franchise royalty, advertising and trade re-
ceivables.................................... $5,598 $3,942
Franchise fee receivables..................... 536 412
Credit card receivables....................... 1,102 780
Interest and dividends receivable............. 143 277
Other......................................... 757 1,206
------ ------
8,136 6,617
Less allowance for bad debts.................. 740 322
------ ------
$7,396 $6,295
====== ======
</TABLE>
F-15
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment, net is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1994 1993
------------ ------------
<S> <C> <C>
Land.................... $ 25,492 $17,592
Buildings............... 47,106 27,365
Leasehold improvements.. 18,629 15,910
Furniture and equipment. 45,081 33,221
Construction in pro-
gress.................. 5,763 2,918
-------- -------
142,071 97,006
Less accumulated depre-
ciation and amortiza-
tion................... 27,342 19,746
-------- -------
$114,729 $77,260
======== =======
</TABLE>
The Company leases certain of its restaurants. All leases are accounted for
as operating leases and certain leases provide for contingent rent based upon
sales. Total rental expense for all operating leases is composed of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Minimum rent......................................... $5,797 $5,339 $3,534
Contingent rent...................................... 1,532 1,139 586
------ ------ ------
$7,329 $6,478 $4,120
====== ====== ======
</TABLE>
Future minimum lease payments under noncancelable leases (including leases
executed for sites to be developed in 1995) as of December 25, 1994 are as
follows (in thousands):
<TABLE>
<S> <C>
1995............................................................. $ 6,728
1996............................................................. 6,825
1997............................................................. 6,589
1998............................................................. 6,160
1999............................................................. 5,899
Thereafter....................................................... 42,059
-------
74,260
Less minimum amounts receivable under noncancelable sublease..... (487)
-------
$73,773
=======
</TABLE>
F-16
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. NOTES PAYABLE
Notes payable are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1994 1993
------------ ------------
<S> <C> <C>
Unsecured notes payable; 7.70% interest per annum,
with principal payments beginning in 1998; due May
2004............................................... $20,000 $ --
Secured bank note; interest at the prime rate plus
0.75%; due in various monthly installments of prin-
cipal and interest with a final balloon payment due
December 1999...................................... 6,940 6,434
Secured bank note; interest at the prime rate; due
in equal monthly installments of principal and in-
terest through January 2000........................ 2,662 3,195
Secured bank note; 6.69% interest per annum at De-
cember 25, 1994; due in quarterly installments of
principal and interest through October 1998........ 2,400 3,000
Secured bank notes; interest ranging from the prime
rate to the prime rate plus 0.50%; due in various
monthly installments of principal and interest with
balloon payments due in July 1997, December 1997
and May 1998....................................... 2,069 2,321
Secured revolving credit facility; interest at the
prime rate; due on demand.......................... 584 36
Secured revolving credit facility; interest at the
prime rate; due October 1995....................... 800 476
Unsecured promissory notes issued in connection with
the acquisition of
restaurants; 8.00% interest per annum; due in an-
nual installments of
principal and interest through February 2000....... 2,180 2,463
Unsecured promissory note to stockholder; 8.00% in-
terest per annum; due in equal monthly installments
of principal and interest through October 1995..... 112 237
Unsecured promissory note to stockholder; 7.00% in-
terest per annum................................... -- 400
Other............................................... 70 159
------- -------
Total............................................... 37,817 18,721
Less demand note and current portion of notes pay-
able............................................... 3,505 1,934
------- -------
Non-current portion of notes payable................ $34,312 $16,787
======= =======
</TABLE>
The prime rate at December 25, 1994 and December 26, 1993 was 8.5% and 6.0%,
respectively.
During 1994, the Company completed a $20,000,000 senior unsecured private debt
placement with institutional lenders unaffiliated with the Company. The notes
bear interest at 7.70% annually with principal payments beginning in 1998
through 2004. The debt agreement contains various covenants and restrictions
which, among other things, require the maintenance of a stipulated fixed charge
coverage ratio and minimum consolidated net worth, as defined, and limit
additional indebtedness in excess of specified amounts. The debt agreement also
restricts the amount of retained earnings available for the payment of cash
dividends. At December 25, 1994, $20,643,000 of retained earnings was available
for the payment of cash dividends. The Company is currently in compliance with
the covenants of this debt agreement.
The secured bank note of $6,940,000 as of December 25, 1994 contains various
covenants and restrictions on the part of IRC which, among other things,
require the maintenance of a stipulated ratio of cash flow to current
maturities of long-term debt, total liabilities to net worth, and minimum net
worth. As of December 25, 1994, IRC was in compliance with these covenants.
IRC has a line-of-credit agreement with a bank which provides for borrowings
up to $700,000. This agreement expires December 31, 1999, and borrowings under
this agreement bear interest at the prime rate
F-17
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and are due on demand. Available borrowings under the line-of-credit were
approximately $116,000 and $664,000 at December 25, 1994 and December 26, 1993,
respectively.
During 1993, the Company used a portion of the proceeds of a $3,000,000,
6.69% term loan to extinguish debt under two installment notes which had a
balance of approximately $2,331,000 at December 27, 1992. In addition, the
Company obtained a $4,000,000 revolving credit facility with a bank which bears
interest on the outstanding borrowings at prime or LIBOR plus 1.25% at the
Company's option and requires the Company to pay a commitment fee of 3/8 of 1%
on any unused portion of the facility. The debt agreement contains various
covenants and restrictions which among other things, restrict additional
indebtedness and require the maintenance of certain financial ratios and
covenants.
The Company issued a $300,000, 7.00% note dated December 31, 1992 and a
$600,000, 7.00% note dated July 6, 1993 payable to a stockholder. Both notes
were paid in 1993. In addition, the Company had a $400,000 subordinated note
payable to a stockholder outstanding at December 26, 1993 which was paid in
1994.
Maturities of notes payable for each of the five fiscal years subsequent to
December 25, 1994, ending during the years indicated, are as follows (in
thousands):
<TABLE>
<S> <C>
1995 (including demand note of
$584)............................ $3,505
1996.............................. 1,973
1997.............................. 2,775
1998.............................. 5,210
1999.............................. 9,652
</TABLE>
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1994 1993
------------ ------------
<S> <C> <C>
Compensation and related taxes.................. $ 6,240 $ 4,459
Gift certificates............................... 1,690 887
Sales and use taxes............................. 1,631 1,283
Insurance....................................... 1,237 1,053
Rent............................................ 1,355 1,176
Advertising..................................... 97 509
Other........................................... 4,463 2,077
------- -------
$16,713 $11,444
======= =======
</TABLE>
9. JOINT VENTURE
In October 1992, the Company entered into a joint venture arrangement with
its franchisee in Nevada for three existing restaurants and one additional
restaurant to be developed. In exchange for a 50% ownership and the rights to
operate such restaurants, the Company contributed approximately $1,299,000 in
cash to the joint venture. The transaction was recorded as a purchase for
financial reporting purposes and, based on its control over operating policies
of the joint venture, the Company has consolidated the joint venture from date
of acquisition for financial statement purposes. The Company has an option to
purchase the remaining 50% interest for $1,275,000, exercisable beginning in
October 1995.
F-18
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax
return. The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" at the beginning of its 1993 fiscal year.
Previously, the Company recorded income tax provisions using the deferred
method. Statement No. 109 provides for the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been reported in the financial statements. The adoption of Statement No. 109
did not have a material impact on the Company's financial position or results
of operations. In addition, income tax expense and deferred income taxes were
adjusted during 1993 to reflect the impact of the Omnibus Budget Reconciliation
Act of 1993, the effects of which were not material.
Prior to September 7, 1994, PVNE, a pooled company, was classified as an S
Corporation and accordingly, stockholders were responsible for paying their
proportionate share of federal and certain state income taxes. In addition, the
combined earnings of IRC, a pooled company, included earnings of limited
partnerships which were not taxable entities for federal and state income tax
purposes. The accompanying consolidated statements of earnings reflect
provisions for income taxes on a pro forma basis as if the Company were liable
for federal and state income taxes on PVNE's earnings prior to September 7,
1994 and the earnings of IRC's limited partnerships at a statutory rate of 39%
in 1994 and 1993 and 38% in 1992.
The income tax provision (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Current provision:
Federal........................................ $ 7,934 $5,810 $2,649
State.......................................... 1,419 1,154 752
Deferred provision (benefit)..................... 100 (271) 71
Pro forma provision for income taxes of pooled
companies....................................... 1,324 1,212 476
------- ------ ------
Income taxes..................................... $10,777 $7,905 $3,948
======= ====== ======
The deferred income tax provision (benefit) is comprised of the following (in
thousands):
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Franchise deposits............................... $ (36) $ (74) $ --
Depreciation..................................... 109 (4) 18
Allowance for bad debts.......................... (163) (39) --
Accrued expenses................................. (99) (128) (118)
Other............................................ 289 (26) 171
------- ------ ------
Deferred income tax provision (benefit).......... $ 100 $ (271) $ 71
======= ====== ======
</TABLE>
F-19
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the income tax provision and the expected tax
determined by applying the statutory Federal income tax rates to earnings
before income taxes follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Federal income tax at statutory rates............ $ 9,916 $7,022 $3,443
Increase (decrease) to income tax expense:
Amortization of goodwill....................... 267 209 20
State income taxes, net of federal benefit..... 1,039 748 469
Merger costs................................... 271 -- --
Tax exempt investment income................... (207) (377) (150)
Meals and entertainment disallowance........... 186 60 49
FICA tip tax credit............................ (641) -- --
Other.......................................... (54) 243 117
------- ------ ------
Income taxes..................................... $10,777 $7,905 $3,948
======= ====== ======
</TABLE>
The net current deferred tax asset amounts are included in "prepaid and other
current assets" in the accompanying consolidated balance sheets. The
significant components of deferred tax assets and liabilities and the related
balance sheet classifications are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1994 1993
------------ ------------
<S> <C> <C>
Classified as current:
Allowance for bad debts....................... $ 289 $ 126
Accrued expenses.............................. 238 307
Other, net.................................... 88 (232)
------ -----
Net deferred tax asset........................ $ 615 $ 201
====== =====
Classified as non-current:
Depreciation differences...................... $1,171 $ 916
Franchise deposits............................ (529) (493)
Other, net.................................... 73 (165)
------ -----
Net deferred tax liability.................... $ 715 $ 258
====== =====
</TABLE>
As the result of a recent examination by the Internal Revenue Service ("IRS")
of the Company's 1990 and 1991 Federal income tax returns, the IRS proposed
adjustments to the Company's taxable income for such years. The adjustments
related to various matters, including the deductibility of certain intangible
assets recorded in connection with the Company's acquisition of the Applebee's
franchising and restaurant operations. During 1994, the Company and the IRS
reached a settlement, and the resolution of this matter did not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
11. COMMITMENTS AND CONTINGENCIES
Litigation: The Company is involved in various legal actions arising in the
normal course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that the outcome of
these actions will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
F-20
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Franchise financing: The Company entered into an agreement in 1992 with a
financing source to provide up to $75,000,000 of financing to Company
franchisees to fund development of new franchise restaurants. Up to $25,000,000
of the $75,000,000 available under the agreement can be used by franchisees for
short-term construction financing. The Company provided a limited guaranty of
loans made under the agreement. The Company's recourse obligation of the
construction financing portion of the facility is capped at $2,500,000. When
the short-term construction loans are converted to long-term loans, the
Company's maximum recourse obligation is reduced from 10% to 6.7% of the
$75,000,000 facility. The Company's recourse obligations are reduced beginning
in the second year of each long-term loan and thereafter decrease ratably to
zero after the seventh year of each loan. At December 25, 1994, approximately
$41,133,000 had been funded through this financing source and various loans
were in process. The Company has not been apprised of any defaults by
franchisees. This agreement expired on December 31, 1994 and was not renewed,
although some loan commitments as of the termination date may thereafter be
funded.
Severance agreements: The Company has severance and employment agreements
with certain officers providing for severance payments to be made in the event
the employee resigns or is terminated related to a change in control (as
defined in the agreements). If the severance payments had been due as of
December 25, 1994, the Company would have been required to make payments
aggregating approximately $5,000,000. In addition, the Company has severance
and employment agreements with certain officers which contain severance
provisions not related to a change in control, and such provisions would have
required aggregate payments of approximately $2,700,000 if such officers had
been terminated as of December 25, 1994.
12. STOCKHOLDERS' EQUITY
On March 24, 1992, the Company completed a public offering of its common
stock. The public offering included 6,255,000 shares sold by the Company and
3,405,000 shares sold by certain stockholders of the Company (2,085,000 shares
and 1,135,000 shares, respectively, prior to adjustments for the stock splits
discussed below). Proceeds of approximately $29,343,000, after expenses, were
received from the offering.
On May 17, 1993, the Company declared a two-for-one stock split of its common
stock in the form of a 100% stock dividend, distributed on June 25, 1993 to
stockholders of record on June 4, 1993. On December 10, 1993, the Company
declared a three-for-two stock split of its common stock in the form of a 50%
stock dividend, distributed on January 28, 1994 to stockholders of record on
December 23, 1993. Except for shares authorized, all references to number of
shares and per share information in the consolidated financial statements and
notes have been adjusted to reflect both stock splits on a retroactive basis.
The two-for-one stock split and the three-for-two stock split resulted in
increases in common stock and reductions in retained earnings of $187,000.
An amendment to the Company's Certificate of Incorporation was approved at
the Annual Meeting of Stockholders held on May 25, 1994 which increased the
number of authorized shares of Common Stock from 25,000,000 shares to
125,000,000 shares.
On September 7, 1994, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "'Rights Plan") and declared a dividend, issued on September
19, 1994, of one Right for each outstanding share of Common Stock of the
Company (the "Common Shares"). The Rights become exercisable if a person or
group acquires more than 15% of the outstanding Common Shares, other than
pursuant to a Qualifying Offer (as defined) or makes a tender offer for more
than 15% of the outstanding Common Shares, other than pursuant to a Qualifying
Offer. Upon the occurrence of such an event, each Right entitles the holder
(other
F-21
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
than the acquiror) to purchase for $75 the economic equivalent of Common
Shares, or in certain circumstances, stock of the acquiring entity, worth twice
as much. The Rights will expire on September 7, 2004 unless earlier redeemed by
the Company, and are redeemable prior to becoming exercisable at $0.01 per
Right.
13. EMPLOYEE BENEFIT PLANS
Employee stock option plan: During 1989, the Company's Board of Directors
approved the 1989 Employee Stock Option Plan (the "Plan") which provides for
the grant of both qualified and nonqualified options as determined by a
committee appointed by the Board of Directors. The committee has discretion to
select the optionees and to establish the terms and conditions of each option,
subject to provisions of the Plan.
The Plan provides that the option price, for both qualified and nonqualified
options, as of the date granted cannot be less than the fair market value of
the Company's common stock. Options outstanding at December 25, 1994 were at
prices ranging from $3.02 to $20.67 per share. The options are granted for a
term of three to ten years and are generally exercisable one year from date of
grant. The Plan contains other restrictions relative to option terms and
maximum grant amounts to individual employees. The Plan, as amended, provides
for a total of up to 3,000,000 shares which may be granted under its provisions
and the Company has reserved such shares of common stock.
Transactions relative to the Plan are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- --------
<S> <C> <C> <C>
Options outstanding at beginning of peri-
od...................................... 1,149,388 916,573 917,956
Granted................................ 603,500 520,464 343,650
Exercised.............................. (109,759) (276,699) (331,083)
Canceled............................... (48,450) (10,950) (13,950)
--------- --------- --------
Options outstanding at end of period..... 1,594,679 1,149,388 916,573
========= ========= ========
Options exercisable at end of period..... 928,607 595,294 545,536
Options available for grant at end of pe-
riod.................................... 684,780 1,239,830 249,344
</TABLE>
Employee retirement plans: During 1992, the Company established a profit
sharing plan and trust in accordance with Section 401(k) of the Internal
Revenue code. The Company matches 25% of employee contributions, not to exceed
2% of the employee's total annual compensation, with the Company contributions
vesting at the rate of 20% each year beginning after the employee's second year
of service. During 1994, the Company established a non-qualified defined
contribution retirement plan for key employees. The Company's contributions
under both plans in 1994, 1993 and 1992 were approximately $127,000, $175,000
and $31,000, respectively.
14. RELATED PARTY TRANSACTIONS
The Company and certain franchisees have obtained restaurant equipment from a
company owned by an individual who is related to a director of the Company and
who is also related to an officer and stockholder of the Company. During 1994,
1993 and 1992, the Company paid $3,869,000, $369,000 and $784,000,
respectively, for equipment and services purchased from this company. In
addition, the Company had $194,000 and $565,000 in accounts payable to this
company at December 25, 1994 and December 26, 1993, respectively.
The Company leases a restaurant site from a corporation whose ownership is
composed of certain current and former stockholders, directors and officers of
the Company. The lease has a term of 20 years with two renewal options. The
lease provides for rentals in an amount equal to approximately 7% of gross
sales and
F-22
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
has an initial term of 20 years. Rents incurred under the lease were $173,000,
$152,000 and $150,000 for 1994, 1993 and 1992, respectively, and are included
in direct and occupancy costs in the consolidated statements of earnings.
The Company leases a restaurant site from a partnership in which a former
director who is related to a director of the Company and who is also related to
an officer and stockholder of the Company holds a 50% interest. The lease has a
term of 20 years with two options to renew. The lease provides for rentals in
an amount equal to approximately 7% of gross sales of the restaurant. Rents
incurred under the lease were $113,000 for each of 1994, 1993 and 1992,
respectively, and are included in direct and occupancy costs in the
consolidated statements of earnings.
IRC leases its office space under an operating lease with an outside party
related through common ownership. The lease expires in April 1998; however, the
Company has the option to terminate the lease at the end of 1995. Rents
incurred under the lease were $74,000, $55,000 and $52,000 for 1994, 1993 and
1992, respectively, and are included in general and administrative expenses in
the consolidated statements of earnings.
15. SUBSEQUENT EVENTS
In February 1995, the Company obtained a $20,000,000 unsecured bank revolving
credit facility which expires on December 31, 1997. The revolving credit
facility bears interest at LIBOR plus 0.60% or the prime rate, at the Company's
option, and requires the Company to pay a commitment fee of 0.15% on any unused
portion of the facility. As of March 26, 1995, no amounts were outstanding
under the facility. The debt agreement contains various covenants and
restrictions which, among other things, require the maintenance of a stipulated
fixed charge coverage ratio and minimum consolidated net worth, as defined, and
also limit additional indebtedness in excess of specified amounts. The debt
agreement also restricts the amount of retained earnings available for the
payment of cash dividends. The Company is currently in compliance with such
covenants.
In March 1995, IRC obtained a $2,000,000 note payable to a bank bearing
interest at the prime rate, payable in monthly installments of $25,000
including interest, beginning April 1, 1996 with a final balloon payment due
February 1, 1998. The note is collateralized by certain real and personal
property.
In April 1995, the Company acquired the operations of five franchise
restaurants and the related furniture and fixtures, certain land and leasehold
improvements. The total purchase price was approximately $9,500,000, of which
$9,250,000 was paid in cash at the time of closing and the remaining $250,000
was placed in escrow to address potential adjustments. The acquisition will be
accounted for as a purchase, and accordingly, the purchase price will be
allocated to the fair value of net assets acquired and the results of
operations of such restaurants will be reflected in the 1995 financial
statements subsequent to the date of acquisition.
F-23
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following presents the unaudited consolidated quarterly results of
operations for 1994 and 1993 (in thousands, except per share amounts). Merger
costs of $920,000 related to the PVNE Merger were expensed in the fourth
quarter of 1994.
<TABLE>
<CAPTION>
1994
-------------------------------------------------------
FISCAL QUARTER ENDED
-------------------------------------------------------
MARCH 27, JUNE 26, SEPTEMBER 25, DECEMBER 25,
1994 1994 1994 1994
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Company restaurant
sales................ $49,847 $54,859 $58,457 $59,282
Franchise income...... 6,658 7,358 8,046 9,357
------- ------- ------- -------
Total operating rev-
enues.............. 56,505 62,217 66,503 68,639
------- ------- ------- -------
Cost of Company restau-
rant sales:
Food and beverage..... 14,821 16,056 16,768 17,174
Labor................. 16,237 17,426 18,585 18,529
Direct and occupancy.. 12,319 13,152 14,088 14,324
Pre-opening expense... 136 631 559 767
------- ------- ------- -------
Total cost of Com-
pany restaurant
sales.............. 43,513 47,265 50,000 50,794
------- ------- ------- -------
General and administra-
tive expenses.......... 6,874 7,040 6,923 8,330
Merger costs............ -- -- -- 920
Amortization of intangi-
ble assets............. 547 518 517 451
Loss on disposition of
restaurants and equip-
ment................... 50 461 222 128
------- ------- ------- -------
Operating earnings...... 5,521 6,933 8,841 8,016
------- ------- ------- -------
Other income (expense):
Investment income..... 306 185 302 272
Interest expense...... (299) (385) (673) (672)
Other income.......... 60 53 55 85
------- ------- ------- -------
Total other income
(expense).......... 67 (147) (316) (315)
------- ------- ------- -------
Earnings before income
taxes.................. 5,588 6,786 8,525 7,701
Income taxes............ 1,904 2,192 2,431 2,926
------- ------- ------- -------
Net earnings............ 3,684 4,594 6,094 4,775
Pro forma provision for
income taxes of pooled
companies.............. 283 337 678 26
------- ------- ------- -------
Pro forma net earnings.. $ 3,401 $ 4,257 $ 5,416 $ 4,749
======= ======= ======= =======
Pro forma net earnings
per common share....... $ 0.12 $ 0.15 $ 0.20 $ 0.17
======= ======= ======= =======
Weighted average shares
outstanding............ 27,910 27,974 27,988 28,007
</TABLE>
F-24
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1993
-------------------------------------------------------
FISCAL QUARTER ENDED
-------------------------------------------------------
MARCH 28, JUNE 27, SEPTEMBER 26, DECEMBER 26,
1993 1993 1993 1993
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Company restaurant
sales................ $33,395 $39,589 $43,335 $43,163
Franchise income...... 4,485 4,936 5,685 6,218
------- ------- ------- -------
Total operating rev-
enues.............. 37,880 44,525 49,020 49,381
------- ------- ------- -------
Cost of Company restau-
rant sales:
Food and beverage..... 9,901 11,678 12,490 12,688
Labor................. 10,899 12,560 13,840 13,651
Direct and occupancy.. 7,802 9,135 9,982 10,364
Pre-opening expense... 330 140 285 833
------- ------- ------- -------
Total cost of Com-
pany restaurant
sales.............. 28,932 33,513 36,597 37,536
------- ------- ------- -------
General and administra-
tive expenses.......... 4,821 5,517 6,231 5,957
Amortization of intangi-
ble assets............. 352 516 523 543
Loss on disposition of
restaurants and equip-
ment................... -- 1 64 26
------- ------- ------- -------
Operating earnings...... 3,775 4,978 5,605 5,319
------- ------- ------- -------
Other income (expense):
Investment income..... 398 347 540 390
Interest expense...... (224) (269) (272) (310)
Other income.......... 40 67 67 5
------- ------- ------- -------
Total other income
(expense).......... 214 145 335 85
------- ------- ------- -------
Earnings before income
taxes.................. 3,989 5,123 5,940 5,404
Income taxes............ 1,283 1,836 1,884 1,690
------- ------- ------- -------
Net earnings............ 2,706 3,287 4,056 3,714
Pro forma provision for
income taxes of pooled
companies.............. 272 272 377 291
------- ------- ------- -------
Pro forma net earnings.. $ 2,434 $ 3,015 $ 3,679 $ 3,423
======= ======= ======= =======
Pro forma net earnings
per common share........ $ 0.09 $ 0.11 $ 0.13 $ 0.13
======= ======= ======= =======
Weighted average shares
outstanding............ 26,802 27,745 27,772 27,853
</TABLE>
----------------
F-25
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH DECEMBER 25,
26, 1995 1994
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 12,922 $ 9,634
Short-term investments, at market value (amortized
cost of $8,942 in 1995 and $9,046 in 1994)........... 8,990 8,893
Receivables (less allowance for bad debts of $801 in
1995 and $740 in 1994)............................... 7,096 7,396
Inventories........................................... 6,348 5,159
Prepaid and other current assets...................... 2,055 2,887
-------- --------
Total current assets................................ 37,411 33,969
Property and equipment, net........................... 120,168 114,729
Goodwill, net......................................... 20,811 21,113
Franchise interest and rights, net.................... 6,237 6,401
Other assets.......................................... 3,370 3,802
-------- --------
$187,997 $180,014
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand note and current portion of notes payable...... $ 3,208 $ 3,505
Current portion of obligations under noncompetition
and consulting agreement............................. 220 220
Accounts payable...................................... 12,539 10,750
Accrued expenses and other current liabilities........ 15,053 16,713
Accrued dividends..................................... -- 1,269
Accrued income taxes.................................. 4,163 1,169
-------- --------
Total current liabilities........................... 35,183 33,626
-------- --------
Non-current liabilities:
Notes payable--less current portion................... 34,303 34,312
Franchise deposits.................................... 1,417 1,355
Obligations under noncompetition and consulting
agreement--less current portion...................... 440 660
Deferred income taxes................................. 62 715
-------- --------
Total non-current liabilities....................... 36,222 37,042
-------- --------
Total liabilities................................... 71,405 70,668
Minority interest in joint venture...................... 604 558
Commitments and contingencies (Notes 3 and 4)
Stockholders' equity:
Preferred stock--par value $0.01 per share:
authorized--1,000,000 shares; no shares issued....... -- --
Common stock--par value $0.01 per share: authorized--
125,000,000 shares; issued--28,435,693 shares in 1995
and 28,295,479 shares in 1994........................ 284 283
Additional paid-in capital............................ 81,571 78,675
Retained earnings..................................... 34,952 30,775
Unrealized gain (loss) on short-term investments, net
of income taxes...................................... 30 (96)
-------- --------
116,837 109,637
Treasury stock--281,772 shares in 1995 and 1994, at
cost................................................. (849) (849)
-------- --------
Total stockholders' equity.......................... 115,988 108,788
-------- --------
$187,997 $180,014
======== ========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------
MARCH 26, MARCH 27,
1995 1994
--------- ---------
<S> <C> <C>
Revenues:
Company restaurant sales.................................. $66,021 $49,847
Franchise income.......................................... 9,418 6,658
------- -------
Total operating revenues................................ 75,439 56,505
------- -------
Cost of Company restaurant sales:
Food and beverage......................................... 18,908 14,821
Labor..................................................... 21,068 16,237
Direct and occupancy...................................... 15,378 12,319
Pre-opening expense....................................... 633 136
------- -------
Total cost of Company restaurant sales.................. 55,987 43,513
------- -------
General and administrative expenses......................... 8,909 6,874
Merger costs................................................ 1,770 --
Amortization of intangible assets........................... 515 547
Loss on disposition of equipment............................ 26 50
------- -------
Operating earnings.......................................... 8,232 5,521
------- -------
Other income (expense):
Investment income......................................... 237 306
Interest expense.......................................... (614) (299)
Other income.............................................. 82 60
------- -------
Total other income (expense)............................ (295) 67
------- -------
Earnings before income taxes................................ 7,937 5,588
Income taxes................................................ 3,611 1,904
------- -------
Net earnings................................................ 4,326 3,684
Pro forma provision for income taxes........................ 73 283
------- -------
Pro forma net earnings...................................... $ 4,253 $ 3,401
======= =======
Pro forma net earnings per common share..................... $ 0.15 $ 0.12
======= =======
Weighted average shares outstanding......................... 28,078 27,910
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON STOCK ADDITIONAL ON TOTAL
----------------- PAID-IN RETAINED SHORT-TERM TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INVESTMENTS STOCK EQUITY
---------- ------ ---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 25,
1994................... 28,295,479 $283 $78,675 $30,775 $(96) $(849) $108,788
Pro forma provision
for income taxes..... -- -- -- 73 -- -- 73
Reclassification of
net income of IRC
partnerships......... -- -- 149 (149) -- -- --
Stock options
exercised:
Company............. 140,214 1 1,085 -- -- -- 1,086
IRC................. -- -- 1,333 -- -- -- 1,333
Income tax benefit
upon exercise of
stock options........ -- -- 329 -- -- -- 329
Unrealized gain on
short-term
investments, net of
income taxes......... -- -- -- -- 126 -- 126
Pro forma net
earnings............. -- -- -- 4,253 -- -- 4,253
---------- ---- ------- ------- ---- ----- --------
Balance, March 26, 1995. 28,435,693 $284 $81,571 $34,952 $ 30 $(849) $115,988
========== ==== ======= ======= ==== ===== ========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------
MARCH 26, MARCH 27,
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Pro forma net earnings................................... $ 4,253 $ 3,401
Adjustments to reconcile pro forma net earnings to net
cash provided by operating activities:
Depreciation and amortization.......................... 2,580 1,896
Amortization of intangible assets...................... 515 547
(Gain) loss on sale of investments..................... 4 (101)
Deferred income tax benefit............................ (573) (182)
Loss on disposition of equipment....................... 26 50
Pro forma provision for income taxes................... 73 283
Changes in assets and liabilities:
Receivables............................................ 300 17
Inventories............................................ (1,189) (1,075)
Prepaid and other current assets....................... 669 (63)
Accounts payable....................................... 1,789 1,617
Accrued expenses and other current liabilities......... (1,660) (609)
Accrued income taxes................................... 2,994 (190)
Franchise deposits..................................... 62 (8)
Other.................................................. 385 (251)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 10,228 5,332
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and sales of short-term investments........... 100 1,761
Purchases of property and equipment...................... (8,039) (8,030)
------- -------
NET CASH USED BY INVESTING ACTIVITIES.................. (7,939) (6,269)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid........................................... (1,269) (879)
Cash distributions....................................... -- (684)
Issuance of common stock upon exercise of stock options.. 2,419 118
Income tax benefit upon exercise of stock options........ 329 116
Proceeds from issuance of notes payable.................. 2,816 320
Payments on notes payable................................ (3,122) (1,874)
Payments under noncompetition and consulting agreement... (220) (244)
Minority interest in net earnings of joint venture....... 46 12
------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES....... 999 (3,115)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 3,288 (4,052)
CASH AND CASH EQUIVALENTS, beginning of period............. 9,634 8,054
------- -------
CASH AND CASH EQUIVALENTS, end of period................... $12,922 $ 4,002
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the 13 week period for:
Income taxes........................................... $ 885 $ 2,295
======= =======
Interest............................................... $ 563 $ 470
======= =======
</TABLE>
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
See notes to consolidated financial statements.
F-29
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of Applebee's International, Inc. and
subsidiaries (the "Company") for the 13 weeks ended March 26, 1995 and March
27, 1994 have been prepared without audit (except that the balance sheet
information as of December 25, 1994 has been derived from consolidated
financial statements which were audited) in accordance with the rules and
regulations of the Securities and Exchange Commission. Although certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, the Company believes that the disclosures are adequate to
make the information presented not misleading. The accompanying consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the fiscal year ended December 25, 1994
included herein.
The Company believes that all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of the
interim periods presented have been made. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the full year.
Beginning in fiscal 1995, the cost of meals provided to employees and other
complimentary meals have been classified as labor costs and direct and
occupancy costs, respectively. Previously, the retail price of such meals was
reflected in Company restaurant sales with corresponding amounts reflected as
labor costs or direct and occupancy costs. The consolidated financial
statements for the 13 weeks ended March 27, 1994 have been reclassified to
conform to the presentation for the 13 weeks ended March 26, 1995, the effects
of which were not material.
2. ACQUISITIONS
IRC Merger: On March 23, 1995, the Company acquired Innovative Restaurant
Concepts, Inc. and its affiliates ("IRC"), referred to herein as the "IRC
Merger". As a result of the IRC Merger, IRC became a wholly-owned subsidiary of
the Company. A total of approximately 2,630,000 shares of the Company's newly-
issued common stock was issued to the shareholders and limited partners of IRC,
including IRC shares issued in 1995 upon the exercise of IRC stock options
prior to the IRC Merger. IRC employees exchanged pre-existing stock options for
options to purchase approximately 147,000 shares of the Company's common stock.
Of such shares and options, 7.5% were placed in escrow to address potential
adjustments during the escrow period that will end December 23, 1995. In
addition, the Company assumed approximately $13,700,000 of IRC indebtedness, of
which $1,270,000 was repaid at closing. At the time of the IRC Merger, IRC
operated 17 restaurants, 13 of which were Rio Bravo Cantinas, a Mexican
restaurant concept, and four were other specialty restaurants.
The IRC Merger was accounted for as a pooling of interests and accordingly,
the accompanying consolidated financial statements have been restated to
include the accounts and operations of the merged entities for all periods
presented. All share amounts have been restated to reflect the total number of
shares issued to IRC for all periods presented. Separate results of the two
entities were as follows (amounts in thousands):
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMPANY IRC ADJUSTMENTS COMBINED
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
13 Weeks Ended March 26, 1995
Net sales....................... $52,199 $13,822 $ -- $66,021
Net earnings.................... $ 5,519 $ 577 $(1,843) $ 4,253
13 Weeks Ended March 27, 1994
Net sales....................... $37,640 $12,207 $ -- $49,847
Net earnings.................... $ 2,916 $ 580 $ (95) $ 3,401
</TABLE>
F-30
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Adjustments have been made to eliminate the impact of intercompany balances
and to record provisions for pro forma income taxes for certain affiliates of
IRC. Merger costs of $1,770,000 relating to the IRC merger have been expensed
in the first quarter of 1995. Merger costs include investment banking fees,
legal and accounting fees, and other merger related expenses. The impact of
these costs on pro forma net earnings per common share was approximately $0.06
in the first quarter of 1995.
Other restaurant acquisitions: On April 3, 1995, the Company acquired the
operations of five franchise restaurants and the related furniture and
fixtures, certain land and leasehold improvements. The total purchase price was
approximately $9,500,000, of which $9,250,000 was paid in cash at the time of
closing and the remaining $250,000 was placed in escrow to address potential
adjustments. The acquisition will be accounted for as a purchase, and
accordingly, the purchase price will be allocated to the fair value of net
assets acquired and the results of operations of such restaurants will be
reflected in the 1995 financial statements subsequent to the date of
acquisition. Based on preliminary information, it is anticipated that
approximately $6,500,000 of the purchase price will be allocated to goodwill.
3. COMMITMENTS AND CONTINGENCIES
Litigation: The Company is involved in various legal actions arising in the
normal course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that the outcome of
these actions will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Franchise financing: The Company entered into an agreement in 1992 with a
financing source to provide up to $75,000,000 of financing to Company
franchisees to fund development of new franchise restaurants. Up to $25,000,000
of the $75,000,000 available under the agreement can be used by franchisees for
short-term construction financing. The Company has provided a limited guaranty
of loans made under the agreement. The Company's recourse obligation of the
construction financing portion of the facility is capped at $2,500,000. When
the short-term construction loans are converted to long-term loans, the
Company's maximum recourse obligation is reduced from 10% to 6.7% of the
$75,000,000 facility. The Company's recourse obligations are reduced beginning
in the second year of each long-term loan and thereafter decrease ratably to
zero after the seventh year of each loan. At March 26, 1995, approximately
$41,433,000 had been funded through this financing source and various loans
were in process. The Company has not been apprised of any defaults by
franchisees. This agreement expired on December 31, 1994 and was not renewed,
although some loan commitments as of the termination date may thereafter be
funded.
Severance agreements: The Company has severance and employment agreements
with certain officers providing for severance payments to be made in the event
the employee resigns or is terminated related to a change in control (as
defined in the agreements). If the severance payments had been due as of March
26, 1995, the Company would have been required to make payments aggregating
approximately $4,800,000. In addition, the Company has severance and employment
agreements with certain officers which contain severance provisions not related
to a change in control, and such provisions would have required aggregate
payments of approximately $3,100,000 if such officers had been terminated as of
March 26, 1995.
4. FINANCING
In February 1995, the Company obtained a $20,000,000 unsecured bank revolving
credit facility which expires on December 31, 1997. The revolving credit
facility bears interest at LIBOR plus 0.60% or the prime rate, at the Company's
option, and requires the Company to pay a commitment fee of 0.15% on any unused
F-31
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
portion of the facility. As of March 26, 1995, no amounts were outstanding
under the facility. The revolving credit facility contains various covenants
and restrictions which, among other things, require the maintenance of a
stipulated fixed charge coverage ratio and minimum consolidated net worth, as
defined, and also limit additional indebtedness in excess of specified amounts.
The revolving credit facility also restricts the amount of retained earnings
available for the payment of cash dividends. The Company is currently in
compliance with such covenants.
F-32
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH ANY OFFERING MADE HEREBY OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES COVERED BY THIS PROSPECTUS IN ANY JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 9
Dividend Policy........................................................... 9
Price Range of Common Stock............................................... 9
Capitalization............................................................ 10
Selected Consolidated Financial Data...................................... 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 12
Business.................................................................. 24
Management................................................................ 33
Principal and Selling Stockholders........................................ 36
Underwriting.............................................................. 38
Experts................................................................... 39
Legal Opinion............................................................. 39
Available Information..................................................... 39
Incorporation by Reference................................................ 40
Index to Financial Statements............................................. F-1
</TABLE>
2,400,000 SHARES
LOGO
APPLEBEE'S
INTERNATIONAL,
INC.
COMMON STOCK
--------------
PROSPECTUS
--------------
PIPER JAFFRAY INC.
DILLON, READ & CO. INC.
MONTGOMERY SECURITIES
, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............. $ 24,828
NASD Fees....................................................... 7,700
Accounting Fees and Expenses.................................... 50,000
Legal Fees and Expense.......................................... 75,000
Printing Expenses............................................... 125,000
Blue Sky Qualification Fees and Expenses........................ 5,000
Miscellaneous Expenses.......................................... 12,472
--------
Total....................................................... $300,000
========
</TABLE>
Except for the Securities and Exchange Commission and NASD Fees, all fees and
expenses are estimated. All expenses listed will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has entered into indemnification agreements with certain officers
and directors of the Company. Under these agreements, the Company agrees to
hold harmless and indemnify each indemnitee generally to the full extent
permitted by Section 145 of the Delaware General Corporation Law (the "DGCL")
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.
Section IX of the Bylaws of the Company provides for the indemnification of
officers and directors of the Company generally to the extent permitted by
Section 145 of the DGCL, including liabilities arising under the securities
laws. Section 145 permits a corporation to indemnify certain persons, including
officers and directors, who are (or are threatened to be made) parties to any
threatened, pending or completed legal action (whether civil, criminal,
administrative or investigative) for reason of their being officers or
directors. The indemnity may include expenses, attorneys' fees, judgments,
fines and reasonably incurred costs of settlement, provided the officer and
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interest; and, in the case of criminal
proceedings, he had no reasonable cause to believe that his conduct was
illegal. The corporation may indemnify officers and directors in derivative
actions (in which suit is brought by a shareholder on behalf of the
corporation) under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is judged liable
for negligence or misconduct in the performance of his duty to the corporation.
If the officer or director is successful on the merits or otherwise in defense
of any action referred to above, the corporation must indemnify him against the
expenses and attorneys' fees he actually and reasonably incurred.
The Company has obtained liability insurance coverage for its officers and
directors with respect to actions arising out of the performance of such
officer's or director's duty in his or her capacity as such.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
<C> <S> <C>
1.1 Form of Purchase Agreement.
4.1 Shareholder Rights Plan contained in Rights Agreement
dated as of September 7, 1994, between Applebee's Interna-
tional, Inc. and Chemical Bank, as Rights Agent (incorpo-
rated by reference to Exhibit 4.1 of the Registrant's An-
nual Report on Form 10-K for the fiscal year ended Decem-
ber 25, 1994).
4.2 Certificate of Voting Powers, Designations, Preferences
and Relative Participating, Optional and Other Special
Rights and Qualifications of Series A Participating Cumu-
lative Preferred Stock of Applebee's International, Inc.
(incorporated by reference to Exhibit 4.2 of the Regis-
trant's Annual Report on Form 10-K for the fiscal year
ended December 25, 1994).
5.1 Opinion of Robert T. Steinkamp, counsel to the Company.
23.1 Consent of Robert T. Steinkamp (included as part of Ex-
hibit 5).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Kennedy & Lehan P.C.
24.1 See Page II-4 of Registration Statement for power of at-
torney.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) Not applicable.
(b) For purposes of determining any liability under the Securities Act of
1933, each filing of the Company's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c)-(g) Not applicable.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
in Item 15 above, or otherwise, the registrant has been advised that, in
the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer, or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted against the registrant by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(i) (1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule
II-2
<PAGE>
430A and contained in a form of prospectus filed by the registration
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(j) Not applicable.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF OVERLAND PARK, STATE OF KANSAS, ON JULY 5, 1995.
Applebee's International, Inc.
/s/ Abe J. Gustin, Jr.
By: _________________________________
Abe J. Gustin, Jr.
Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Abe J. Gustin, Jr. and Robert T.
Steinkamp, and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and re-substitution, for him and in his name,
place and stead, in any and all capacities, to sign any amendments to this
Registration Statement (including post-effective amendments), and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Abe J. Gustin, Jr. Chairman of the Board, Chief July 5, 1995
____________________________________ Executive Officer and
Abe J. Gustin, Jr. Director (Principal
Executive Officer)
/s/ George D. Shadid Executive Vice President and July 5, 1995
____________________________________ Chief Financial Officer
George D. Shadid (Principal Financial
Officer)
/s/ David R. Smith Vice President and July 5, 1995
____________________________________ Controller (Principal
David R. Smith Accounting Officer)
/s/ D. Patrick Curran Director July 5, 1995
____________________________________
D. Patrick Curran
/s/ Eric L. Hansen Director July 5, 1995
____________________________________
Eric L. Hansen
/s/ Kenneth D. Hill Director July 5, 1995
____________________________________
Kenneth D. Hill
/s/ Jack P. Helms Director July 5, 1995
____________________________________
Jack P. Helms
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Lloyd L. Hill Director July 5, 1995
____________________________________
Lloyd L. Hill
/s/ Robert A. Martin Director July 5, 1995
____________________________________
Robert A. Martin
/s/ Johyne H. Reck Director July 5, 1995
____________________________________
Johyne H. Reck
/s/ Burton M. Sack Director July 5, 1995
____________________________________
Burton M. Sack
/s/ Raymond D. Schoenbaum Director July 5, 1995
____________________________________
Raymond D. Schoenbaum
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
1.1 Form of Purchase Agreement.
4.1 Shareholder Rights Plan contained in Rights Agreement dated as
of September 7, 1994, between Applebee's International, Inc.
and Chemical Bank, as Rights Agent (incorporated by reference
to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 25, 1994).
4.2 Certificate of Voting Powers, Designations, Preferences and
Relative Participating, Optional and Other Special Rights and
Qualifications of Series A Participating Cumulative Preferred
Stock of Applebee's International, Inc. (incorporated by ref-
erence to Exhibit 4.2 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
5.1 Opinion of Robert T. Steinkamp, counsel to the Company.
23.1 Consent of Robert T. Steinkamp (included as part of Exhibit
5).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Kennedy & Lehan P.C.
24.1 See Page II-4 of Registration Statement for power of attorney.
</TABLE>
<PAGE>
2,400,000 SHARES/1/
APPLEBEE'S INTERNATIONAL, INC.
COMMON STOCK
PURCHASE AGREEMENT
------------------
July __, 1995
PIPER JAFFRAY INC.
DILLON, READ & CO. INC.
MONTGOMERY SECURITIES
As Representatives of the several
Underwriters named in Schedule II hereto
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Gentlemen:
Applebee's International, Inc., a Delaware corporation (the
"Company"), and the stockholders of the Company listed in Schedule I hereto (the
"Selling Stockholders") severally propose to sell to the several Underwriters
named in Schedule II hereto (the "Underwriters") an aggregate of 2,400,000
shares (the "Firm Shares") of Common Stock, $.01 par value (the "Common Stock"),
of the Company. The Firm Shares consist of 2,100,000 authorized but unissued
shares of Common Stock to be issued and sold by the Company and 300,000
outstanding shares of Common Stock to be sold by the Selling Stockholders. The
Company and the Selling Stockholders have also granted to the several
Underwriters an option to purchase up to 360,000 additional shares of Common
Stock, respectively, on the terms and for the purposes set forth in Section 3
hereof (the "Option Shares"). The Firm Shares and any Option Shares purchased
pursuant to this Purchase Agreement are herein collectively called the
"Securities."
The Company and the Selling Stockholders hereby confirm their
agreement with respect to the sale of the Securities to the several
Underwriters, for whom you are acting as Representatives (the
"Representatives").
1. Registration Statement. A registration statement on Form S-3 (File No.
33-_______) with respect to the Securities, including a preliminary form of
prospectus, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations ("Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder and has been filed with the Commission; one or
more amendments to such registration statement have also been so prepared and
have been, or will be, so filed. Copies of such registration statement and
amendments and each related preliminary prospectus have been delivered to you.
- -------------
/1/ Plus an option to purchase up to 360,000 additional shares to cover over-
allotments.
-1-
<PAGE>
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, it will prepare and file a
prospectus pursuant to Rule 424(b) that discloses the information previously
omitted from the prospectus in reliance upon Rule 430A. Such registration
statement as amended at the time it is or was declared effective by the
Commission, and, in the event of any amendment thereto after the effective date
and prior to the First Closing Date (as hereinafter defined), such registration
statement as so amended (but only from and after the effectiveness of such
amendment), including the information deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A(b), if applicable,
is hereinafter called the "Registration Statement." The prospectus included in
the Registration Statement at the time it is or was declared effective by the
Commission is hereinafter called the "Prospectus," except that if any prospectus
filed by the Company with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or any other prospectus provided to the Underwriters by the
Company for use in connection with the offering of the Securities (whether or
not required to be filed by the Company with the Commission pursuant to Rule
424(b) of the Rules and Regulations) differs from the prospectus on file at the
time the Registration Statement is or was declared effective by the Commission,
the term "Prospectus" shall refer to such differing prospectus from and after
the time such prospectus is filed with the Commission or transmitted to the
Commission for filing pursuant to such Rule 424(b) or from and after the time it
is first provided to the Underwriters by the Company for such use. The term
"Preliminary Prospectus" as used herein means any preliminary prospectus
included in the Registration Statement prior to the time it becomes or became
effective under the Act and any prospectus subject to completion as described in
Rule 430A of the Rules and Regulations.
2. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters as follows:
(i) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; except
that the foregoing shall not apply to statements in or omissions from any
Preliminary Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by you, or by any Underwriter through
you, specifically for use in the preparation thereof.
(ii) As of the time the Registration Statement (or any post-
effective amendment thereto) is or was declared effective by the
Commission, upon the filing or first delivery to the Underwriters of the
Prospectus (or any supplement to the Prospectus) and at the First Closing
Date and Second Closing Date (as hereinafter defined), (A) the Registration
Statement and Prospectus (in each case, as so amended and/or supplemented)
will conform or conformed in all material respects to the requirements of
the Act and the Rules and Regulations, (B) the Registration Statement (as
so amended) will not or did not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) the
Prospectus (as so supplemented) will not or did not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they are or were made, not misleading; except
that the foregoing shall not apply to statements in or
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omissions from any such document in reliance upon, and in conformity with,
written information furnished to the Company by you, or by any Underwriter
through you, specifically for use in the preparation thereof. If the
Registration Statement has been declared effective by the Commission, no
stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceeding for that purpose has been initiated or, to
the Company's knowledge, threatened by the Commission.
(iii) The financial statements of the Company, together with the
notes thereto, set forth in the Registration Statement and Prospectus
comply in all material respects with the requirements of the Act and fairly
present the financial condition of the Company as of the dates indicated
and the results of operations and changes in cash flows for the periods
therein specified in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise stated therein); and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. No other financial statements or schedules are required to be
included in the Registration Statement or Prospectus. Each of the
independent public accountants which have expressed their opinion with
respect to the financial statements and schedules filed as a part of the
Registration Statement and included in the Registration Statement and
Prospectus, are independent public accountants as required by the Act and
the Rules and Regulations. The information in the Prospectus found (i)
under the caption "Restaurant Data" contained in the Prospectus Summary--
Summary Consolidated Financial Data section of the Prospectus, and (ii) in
the second chart under the Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations
section of the Prospectus, is accurate in all respects.
(iv) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its properties
and conduct its business as currently being carried on and as described in
the Registration Statement and Prospectus, and is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction in
which it owns or leases real property or in which the conduct of its
business makes such qualification necessary and in which the failure to so
qualify would have a material adverse effect upon its business, condition
(financial or otherwise) or properties of the Company and its subsidiaries,
taken as a whole.
(v) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries has incurred any material liabilities or obligations, direct
or contingent, or entered into any material transactions, or declared or
paid any dividends or made any distribution of any kind with respect to its
capital stock; and there has not been any change in the capital stock
(other than a change in the number of outstanding shares of Common Stock
due to the issuance of shares upon the exercise of outstanding options or
warrants), or any material change in the short-term or long-term debt, or
any issuance of options, warrants, convertible securities or other rights
to purchase the capital stock, other than in accordance with the Company's
1995 Equity Incentive Plan, of the Company or any of its subsidiaries, or
any material adverse change, or any development involving a prospective
material adverse change, in the general affairs, condition (financial or
otherwise), business, key personnel, property, prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole.
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(vi) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company or any of its subsidiaries
is a party before or by any court or governmental agency, authority or
body, or any arbitrator, which might result in any material adverse change
in the condition (financial or otherwise), business, prospects, net worth
or results of operations of the Company and its subsidiaries, taken as a
whole.
(vii) There are no contracts or documents of the Company or any
of its subsidiaries that are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have
not been so filed.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding
obligation of the Company, enforceable in accordance with its terms, except
as rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any agreement or instrument to which the Company is a
party or by which it is bound or to which any of its property is subject,
the Company's charter or by-laws, or any order, rule, regulation or decree
of any court or governmental agency or body having jurisdiction over the
Company or any of its properties; no consent, approval, authorization or
order of, or filing with, any court or governmental agency or body is
required for the execution, delivery and performance of this Agreement or
for the consummation of the transactions contemplated hereby, including the
issuance or sale of the Securities by the Company, except such as may be
required under the Act or state securities or blue sky laws; and the
Company has full power and authority to enter into this Agreement and to
authorize, issue and sell the Securities as contemplated by this Agreement.
(ix) All of the issued and outstanding shares of capital stock of
the Company, including the outstanding shares of Common Stock, are duly
authorized and validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and the holders thereof are not
subject to personal liability by reason of being such holders; the
Securities which may be sold hereunder by the Company have been duly
authorized and, when issued, delivered and paid for in accordance with the
terms hereof, will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability by reason of being such holders. Except as otherwise stated in
the Registration Statement and Prospectus, there are no preemptive rights
or other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, any shares of Common Stock pursuant to the
Company's charter, by-laws or any agreement or other instrument to which
the Company is a party or by which the Company is bound. Neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any rights for
or relating to the registration of any shares of Common Stock or other
securities of the Company that have not been waived by the holders of such
rights. All of the issued and outstanding shares of capital stock of each
of the Company's subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise
described in the Registration Statement and Prospectus and except for any
directors' qualifying shares, the Company owns of record and beneficially,
free and clear of any security interests,
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claims, liens, proxies, equities or other encumbrances, all of the issued
and outstanding shares of such stock. Except as described in the
Registration Statement and the Prospectus, there are no options, warrants,
agreements, contracts or other rights in existence to purchase or acquire
from the Company or any subsidiary of the Company any shares of the capital
stock of the Company or any subsidiary of the Company. The Company has an
authorized and outstanding capitalization as set forth in the Registration
Statement and the Prospectus.
(x) Except where the failure to comply, lack of possession or
invalidity in each case below would not have a material adverse effect on
the condition (financial or otherwise), business, results of operations, or
prospects of the Company and its subsidiaries, taken as a whole, the
Company and each of its subsidiaries holds, and is operating in compliance
in all respects with, all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders of any governmental
or self-regulatory body required for the conduct of its business, and all
such franchises, grants, authorizations, licenses, permits, easements,
consents, certifications and orders are valid and in full force and effect;
and the Company and each of its subsidiaries is in compliance in all
respects with all applicable federal, state, local and foreign laws,
regulations, orders and decrees; and without limiting the generality of the
foregoing, the Company is and , at the time such offers and sales were
made, was in compliance with all laws, rules, regulations, orders and
decrees applicable to the offer and sale of franchises in connection with
its Applebee's(R) restaurant system in each jurisdiction in which such
offers and sales have been made.
(xi) The Company and its subsidiaries have good and marketable
title to all property described in the Registration Statement and
Prospectus as being owned by them, in each case free and clear of all
liens, claims, security interests or other encumbrances except such as are
described in the Registration Statement and the Prospectus; the property
held under lease by the Company and its subsidiaries is held by them under
valid, subsisting and enforceable leases with only such exceptions with
respect to any particular lease as do not interfere in any material respect
with the conduct of the business of the Company or its subsidiaries; the
Company and each of its subsidiaries owns or possesses all patents, patent
applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and rights necessary for the conduct of the
business of the Company and its subsidiaries as currently carried on and as
described in the Registration Statement and Prospectus; except as stated in
the Registration Statement and Prospectus, no name which the Company or any
of its subsidiaries uses and no other aspect of the business of the Company
or any of its subsidiaries will involve or give rise to any infringement
of, or license or similar fees for, any patents, patent applications,
trademarks, service marks, tradenames, trademark registrations, service
mark registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others material to the business or prospects of the
Company or its subsidiaries, taken as a whole, and, except as disclosed in
the Prospectus, neither the Company nor any of its subsidiaries has
received any notice alleging any such infringement or fee.
(xii) To the best knowledge of the Company, each of the
franchise agreements and development agreements entered into by the Company
relating to its conveyance of franchise and development rights,
respectively, in connection with its Applebee's(R) restaurant system has
been duly authorized, executed and delivered by the parties to such
agreement, and is a valid, legal and binding obligation of the parties
thereto, and is enforceable by the Company in accordance with its terms
(except as such enforceability may be limited by bankruptcy,
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<PAGE>
insolvency, reorganization, or similar laws affecting the rights of
creditors generally and subject to general principles of equity).
(xiii) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in breach of or otherwise
in default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note, indenture, loan agreement
or any other material contract, lease or other instrument to which it is
subject or by which any of them may be bound, or to which any of the
material property or assets of the Company or any of its subsidiaries is
subject.
(xiv) The Company and its subsidiaries have filed all federal,
state, local and foreign income and franchise tax returns required to be
filed and are not in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect thereto, other
than any which the Company or any of its subsidiaries is contesting in good
faith.
(xv) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xvi) The Company's Common Stock is registered under the
Securities Act of 1934, as amended (the "Exchange Act") and quoted on The
Nasdaq Stock Market.
(xvii) Since June 30, 1990, all material transactions between
the Company or any of its subsidiaries, on the one hand, and the Company's
officers or directors, the Selling Stockholders or any other affiliate of
the Company, on the other hand, have been on terms no less favorable than
could have been obtained from an unaffiliated third party and have been
approved by a majority of the disinterested members of the Company's board
of directors in a manner consistent with the requirements of the Company's
bylaws and applicable law.
(xviii) Other than the subsidiaries of the Company listed in
Exhibit 21 to the Registration Statement, the Company owns no capital stock
or other equity or ownership or proprietary interest in any corporation,
partnership, association, trust or other entity.
(xix) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xx) Other than as contemplated by this Agreement, the Company
has not incurred any liability for any finder's or broker's fee or agent's
commission in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
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<PAGE>
(xxi) Neither the Company nor any of its affiliates is presently
doing business with the government of Cuba or with any person or affiliate
located in Cuba.
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Underwriters as follows:
(i) Such Selling Stockholder is the record and beneficial owner
of, and has, and on the First Closing Date and/or the Second Closing Date,
as the case may be, will have, valid and marketable title to the Securities
to be sold by such Selling Stockholder, free and clear of all security
interests, claims, liens, restrictions on transferability, legends,
proxies, equities or other encumbrances; and upon delivery of and payment
for such Securities hereunder, the several Underwriters will acquire valid
and marketable title thereto, free and clear of any security interests,
claims, liens, restrictions on transferability, legends, proxies, equities
or other encumbrances. Such Selling Stockholder is selling the Securities
to be sold by such Selling Stockholder for such Selling Stockholder's own
account and is not selling such Securities, directly or indirectly, for the
benefit of the Company, and no part of the proceeds of such sale received
by such Selling Stockholder will inure, either directly or indirectly, to
the benefit of the Company other than as described in the Registration
Statement and Prospectus.
(ii) Such Selling Stockholder has duly authorized, executed and
delivered a Letter of Transmittal and Custody Agreement ("Custody
Agreement"), which Custody Agreement is a valid and binding obligation of
such Selling Stockholder, to **[INSERT NAME OF CUSTODIAN], as Custodian
(the "Custodian"); pursuant to the Custody Agreement, the Selling
Stockholder has placed in custody with the Custodian, for delivery under
this Agreement, the certificates representing the Securities to be sold by
such Selling Stockholder; such certificates represent validly issued,
outstanding, fully paid and nonassessable shares of Common Stock; and such
certificates were duly and properly endorsed in blank for transfer, or were
accompanied by all documents duly and properly executed that are necessary
to validate the transfer of title thereto, to the Underwriters, free of any
legend, restriction on transferability, proxy, lien or claim, whatsoever.
(iii) Such Selling Stockholder has the power and authority to
enter into this Agreement and to sell, transfer and deliver the Securities
to be sold by such Selling Stockholder; and such Selling Stockholder has
duly authorized, executed and delivered to Abe J. Gustin, Jr. and Robert T.
Steinkamp, as attorneys-in-fact (the "Attorneys-in-Fact"), an irrevocable
power of attorney (a "Power of Attorney") authorizing and directing the
Attorneys-in-Fact, or either of them, to effect the sale and delivery of
the Securities being sold by such Selling Stockholder, to enter into this
Agreement and to take all such other action as may be necessary hereunder.
(iv) This Agreement, the Custody Agreement and the Power of
Attorney have each been duly authorized, executed and delivered by or on
behalf of such Selling Stockholder, and each constitutes a valid and
binding agreement of such Selling Stockholder, enforceable in accordance
with its terms, except as rights to indemnity hereunder or thereunder may
be limited by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
laws affecting the rights of creditors generally and subject to general
principles of equity. The execution and delivery of this Agreement, the
Custody Agreement and the Power of Attorney and the performance of the
terms hereof and thereof and the consummation of the transactions herein
and therein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any agreement
or instrument to
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<PAGE>
which such Selling Stockholder is a party or by which such Selling
Stockholder is bound, or any law, regulation, order or decree applicable to
such Selling Stockholder; no consent, approval, authorization or order of,
or filing with, any court or governmental agency or body is required for
the execution, delivery and performance of this Agreement, the Custody
Agreement and the Power of Attorney by such Selling Stockholder, or for the
consummation of the transactions contemplated hereby and thereby, including
the sale of the Securities being sold by such Selling Stockholder, except
such as may be required under the Act or state securities laws or blue sky
laws.
(v) The information set forth in the Prospectus under the caption
"Principal and Selling Stockholders" and other parts of the Registration
Statement that specifically relate to such Selling Stockholder does not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to the statements
therein not misleading.
(vi) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary Prospectus
or the Prospectus or other materials permitted by the Act to be distributed
by such Selling Stockholder.
(vii) Such Selling Stockholder has reviewed the Registration
Statement and the Prospectus and to the best knowledge of such Selling
Stockholder neither the Registration Statement nor the Prospectus contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading regarding such Selling Stockholder, the other Selling
Stockholders, the Company or otherwise.
(vii) To the best knowledge of such Selling Stockholder without
independent investigation on his part, the representations and warranties
of the Company contained in paragraph (a) of this Section 2 are true and
correct.
(c) Any certificate signed by any officer of the Company and delivered
to you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby;
any certificate signed by or on behalf of any Selling Stockholder as such and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by such Selling Stockholder to each Underwriter as
to the matters covered thereby.
3. Purchase, Sale and Delivery of Securities.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell 2,100,000 Firm Shares, and each Selling
Stockholder agrees, severally and not jointly, to sell the number of Firm Shares
set forth opposite the name of such Selling Stockholder in Schedule I hereto, to
the several Underwriters, and each Underwriter agrees, severally and not
jointly, to purchase from the Company and the Selling Stockholders the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule II
hereto. The purchase price for each Firm Share shall be $__________ per share.
The obligation of each Underwriter to each of the Company and the Selling
Stockholders shall be to purchase from each of the Company and the Selling
Stockholders that number of Firm Shares (to be adjusted by the
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<PAGE>
Representatives to avoid fractional shares) which represents the same proportion
of the number of Firm Shares to be sold by each of the Company and the Selling
Stockholders pursuant to this Agreement as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto represents to the
total number of Firm Shares to be purchased by all Underwriters pursuant to this
Agreement. In making this Agreement, each Underwriter is contracting severally
and not jointly; except as provided in paragraph (c) of this Section 3 and in
Section 8 hereof, the agreement of each Underwriter is to purchase only the
respective number of Firm Shares specified in Schedule II.
The Firm Shares will be delivered by the Company and the Custodian to
you for the accounts of the several Underwriters against payment of the purchase
price therefor by certified or official bank check or other next day funds
payable to the order of the Company and the Custodian, as appropriate, at the
offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable, at
9:00 a.m., Minneapolis time, on the third full business day following the date
hereof (provided that, in the event that the offering is priced after 4:30 p.m.,
Washington, D.C. time, the Firm Shares shall be so delivered on the fourth full
business day following the date hereof), or at such other time as you and the
Company determine, such time and date of delivery being herein referred to as
the "First Closing Date." The Firm Shares, in definitive form and in such
denominations and registered in such names as you may request upon at least two
business days' prior notice to the Company and the Custodian, will be made
available for checking and packaging at the offices of Piper Jaffray Inc., Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other
location as may be mutually acceptable, at least one business day prior to the
First Closing Date.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company, with respect to 315,000 of the Option Shares, and each of the Selling
Stockholders, with respect to the number of Option Shares set forth opposite the
name of such Selling Stockholder in Schedule I hereto, hereby grant to the
several Underwriters an option to purchase all or any portion of the Option
Shares at the same purchase price as the Firm Shares, for use solely in covering
any over-allotments made by the Underwriters in the sale and distribution of the
Firm Shares. The option granted hereunder may be exercised at any time (but not
more than once) within 30 days after the effective date of this Agreement upon
notice (confirmed in writing) by the Representatives to the Company and to the
Attorneys-in-Fact setting forth the aggregate number of Option Shares as to
which the several Underwriters are exercising the option, the names and
denominations in which the certificates for the Option Shares are to be
registered and the date and time, as determined by you, when the Option Shares
are to be delivered, such time and date being herein referred to as the "Second
Closing Date;" provided, however, that the Second Closing Date shall not be
earlier than the First Closing Date nor earlier than the second business day
after the date on which the option shall have been exercised. If the option is
exercised, the obligation of each Underwriter shall be to purchase from the
Selling Stockholders, on a pro rata basis up to 45,000 Option Shares, that
number of Option Shares (to be adjusted by the Representatives to avoid
fractional shares) which represents the same proportion that the number of
Option Shares granted by each Selling Stockholder bears to the total number of
Option Shares granted by all of Selling Stockholders, and, to the extent the
option to purchase Option Shares exceeds 45,000, from the Company up to an
aggregate of 315,000 Option Shares. The number of Option Shares to be purchased
by each Underwriter shall be the same percentage of the total number of Option
Shares to be purchased by the several Underwriters as the number of Firm Shares
to be purchased by such Underwriter is of the total number of Firm Shares to be
purchased by the several Underwriters, as adjusted by the Representatives in
such manner as the Representatives deem advisable to avoid fractional shares.
No Option Shares shall be sold and delivered unless the Firm Shares previously
have been, or simultaneously are, sold and delivered.
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<PAGE>
The Option Shares will be delivered by the Custodian and the Company,
as appropriate, to you for the accounts of the several Underwriters against
payment of the purchase price therefor by certified or official bank check or
other next day funds payable to the order of the Custodian or the Company, as
appropriate, at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota, or such other location as may be
mutually acceptable at 9:00 a.m., Minneapolis time, on the Second Closing Date.
The Option Shares in definitive form and in such denominations and registered in
such names as you have set forth in your notice of option exercise, will be made
available for checking and packaging at the office of Piper Jaffray Inc., Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other
location as may be mutually acceptable, at least one business day prior to the
Second Closing Date.
(c) It is understood that you, individually and not as Representatives
of the several Underwriters, may (but shall not be obligated to) make payment to
the Company or the Selling Stockholders, on behalf of any Underwriter for the
Securities to be purchased by such Underwriter. Any such payment by you shall
not relieve any such Underwriter of any of its obligations hereunder. Nothing
herein contained shall constitute any of the Underwriters an unincorporated
association or partner with the Company or any Selling Stockholder.
4. Covenants.
(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to cause
the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you
promptly of the time when the Registration Statement or any post-effective
amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed and of any request by the
Commission for any amendment or supplement to the Registration Statement or
Prospectus or additional information; if the Company has elected to rely on
Rule 430A of the Rules and Regulations, the Company will file a Prospectus
containing the information omitted therefrom pursuant to such Rule 430A
with the Commission within the time period required by, and otherwise in
accordance with the provisions of, Rules 424(b) and 430A of the Rules and
Regulations; the Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus that, in your opinion, may be
necessary or advisable in connection with the distribution of the
Securities by the Underwriters; and the Company will not file any amendment
or supplement to the Registration Statement or Prospectus to which you
shall reasonably object by notice to the Company after having been
furnished a copy a reasonable time prior to the filing.
(ii) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the Securities for offering or
sale in any jurisdiction, or of the initiation or threatening of any
proceeding for any such purpose; and the Company will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such a stop order should be issued.
(iii) Within the time during which a prospectus relating to the
Securities is required to be delivered under the Act, the Company will
comply as far as it is able with all
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<PAGE>
requirements imposed upon it by the Act, as now and hereafter amended, and
by the Rules and Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in the
Securities as contemplated by the provisions hereof and the Prospectus. If
during such period any event occurs as a result of which the Prospectus
would include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, or if during such period it is
necessary to amend the Registration Statement or supplement the Prospectus
to comply with the Act, the Company will promptly notify you and will amend
the Registration Statement or supplement the Prospectus (at the expense of
the Company) so as to correct such statement or omission or effect such
compliance.
(iv) The Company will use its best efforts to qualify the
Securities for sale under the securities laws of such jurisdictions as you
reasonably designate and to continue such qualifications in effect so long
as required for the distribution of the Securities, except that the Company
shall not be required in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process in any
state.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement (three of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments
and supplements to such documents, in each case as soon as available and in
such quantities as you may from time to time reasonably request.
(vi) During a period of five years commencing with the date
hereof, the Company will furnish to the Representatives, and to each
Underwriter who may so request in writing, copies of all periodic and
special reports furnished to the stockholders of the Company and all
information, documents and reports filed with the Commission, the National
Association of Securities Dealers, Inc., NASDAQ or any securities exchange.
(vii) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 15 months
after the end of the Company's current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period beginning
after the effective date of the Registration Statement that shall satisfy
the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.
(viii) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming
effective under the provisions of Section 9(a) hereof or is terminated,
will pay or cause to be paid (A) all expenses (including transfer taxes
allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's
accountants and counsel but, except as otherwise provided below, not
including fees of the Underwriters' counsel) in connection with the
preparation, printing, filing, delivery, and shipping of the Registration
Statement (including the financial statements therein and all amendments,
schedules, and exhibits thereto), the Securities, each Preliminary
Prospectus, the Prospectus, and any amendment thereof or supplement
thereto, and the printing, delivery, and shipping of this Agreement and
other underwriting documents, including Blue Sky Memoranda, (C) all filing
fees and fees and disbursements of the Underwriters' counsel incurred in
connection with the qualification of the Securities for offering and sale
by the Underwriters or by dealers under the securities or blue sky laws of
the states and other jurisdictions which you shall designate in accordance
with Section 4(d) hereof, (D) the fees and expenses of any transfer
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agent or registrar, (E) the filing fees incident to any required review by
the National Association of Securities Dealers, Inc. of the terms of the
sale of the Securities, (F) listing fees, if any, and (G) all other costs
and expenses incident to the performance of its obligations hereunder that
are not otherwise specifically provided for herein. If the sale of the
Securities provided for herein is not consummated by reason of action by
the Company pursuant to Section 9(a) hereof which prevents this Agreement
from becoming effective, or by reason of any failure, refusal or inability
on the part of the Company or the Selling Stockholders to perform any
agreement on its or their part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be
fulfilled by the Company or the Selling Stockholders is not fulfilled, the
Company will reimburse the several Underwriters for all out-of-pocket
disbursements (including fees and disbursements of counsel) incurred by the
Underwriters in connection with their investigation, preparing to market
and marketing the Securities or in contemplation of performing their
obligations hereunder. The Company shall not in any event be liable to any
of the Underwriters for loss of anticipated profits from the transactions
covered by this Agreement.
(ix) The Company will apply the net proceeds from the sale of the
Securities to be sold by it hereunder for the purposes set forth in the
Prospectus and will file such reports with the Commission with respect to
the sale of the Securities and the application of the proceeds therefrom as
may be required in accordance with Rule 463 of the Rules and Regulations.
(x) The Company will not, without your prior written consent,
offer for sale, sell, contract to sell, grant any option for the sale of or
otherwise issue or dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase
or acquire, Common Stock, except to the Underwriters pursuant to this
Agreement and the Company's 1995 Equity Incentive Plan for a period of 90
days after the commencement of the public offering of the Securities by the
Underwriters.
(xi) The Company either has caused to be delivered to you or will
cause to be delivered to you prior to the effective date of the
Registration Statement a letter from each of the Company's directors and
officers stating that such person agrees that he or she will not, without
your prior written consent, offer for sale, sell, contract to sell or
otherwise dispose of any shares of Common Stock or rights to purchase
Common Stock, except to the Underwriters pursuant to this Agreement, for a
period of 90 days after commencement of the public offering of the
Securities by the Underwriters.
(xii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities or the Common Stock, and has not effected
any sales of Common Stock which are required to be disclosed in response to
Item 701 of Regulation S-K under the Act which have not been so disclosed
in the Registration Statement.
(xiii) The Company will not incur any liability for any finder's
or broker's fee or agent's commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xiv) The Company will file with The Nasdaq Stock Market all
documents and notices required by The Nasdaq Stock Market of companies that
have issued securities that are quoted on The Nasdaq Stock Market.
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(xv) The Company will inform the Florida Department of Banking
and Finance at any time prior to the consummation of the distribution of
the Securities by the Underwriters if it commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba. Such information will be provided within 90 days after the
commencement thereof or after a change occurs with respect to previously
reported information.
(b) Each Selling Stockholder covenants and agrees with the several
Underwriters as follows:
(i) Except as otherwise agreed to by the Company and the Selling
Stockholder, such Selling Stockholder will pay all taxes, if any, on the
transfer and sale, respectively, of the Securities being sold by such
Selling Stockholder, the fees of such Selling Stockholder's counsel and
such Selling Stockholder's proportionate share (based upon the number of
Securities being offered by such Selling Stockholder pursuant to the
Registration Statement) of all costs and expenses (except for legal and
accounting expenses and fees of the registrar and transfer agent) incurred
by the Company pursuant to the provisions of Section 4(a)(viii) of this
Agreement; provided, however, that each Selling Stockholder severally
agrees to reimburse the Company for any reimbursement made by the Company
to the Underwriters pursuant to Section 4(a)(viii) hereof to the extent
such reimbursement resulted from the failure or refusal on the part of such
Selling Stockholder to comply under the terms or fulfill any of the
conditions of this Agreement, such failure or refusal resulting from
circumstances within such Selling Stockholder's control.
(ii) If this Agreement shall be terminated by the Underwriters
because of any failure, refusal or inability on the part of such Selling
Stockholder to perform any agreement on such Selling Stockholder's part to
be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by such Selling Stockholder
is not fulfilled, such Selling Stockholder agrees to reimburse the several
Underwriters for all out-of-pocket disbursements (including fees and
disbursements of counsel for the Underwriters) incurred by the Underwriters
in connection with their investigation, preparing to market and marketing
the Securities or in contemplation of performing their obligations
hereunder. The Selling Stockholder shall not in any event be liable to any
of the Underwriters for loss of anticipated profits from the transactions
covered by this Agreement.
(iii) The Securities to be sold by such Selling Stockholder,
represented by the certificates on deposit with the Custodian pursuant to
the Custody Agreement of such Selling Stockholder, are subject to the
interest of the several Underwriters and the other Selling Stockholders;
the arrangements made for such custody are, except as specifically provided
in the Custody Agreement, irrevocable; and the obligations of such Selling
Stockholder hereunder shall not be terminated, except as provided in this
Agreement or in the Custody Agreement, by any act of such Selling
Stockholder, by operation of law, whether by the liquidation, dissolution
or merger of such Selling Stockholder, by the death of such Selling
Stockholder, or by the occurrence of any other event. If any Selling
Stockholder should liquidate, dissolve or be a party to a merger or if any
other such event should occur before the delivery of the Securities
hereunder, certificates for the Securities deposited with the Custodian
shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such liquidation, dissolution, merger or
other event had not occurred, whether or not the Custodian shall have
received notice thereof.
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<PAGE>
(iv) Such Selling Stockholder will not, without your prior
written consent, offer for sale, sell, contract to sell, grant any option
for the sale of or otherwise dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase
or acquire, Common Stock, except to the Underwriters pursuant to this
Agreement, for a period of 90 days after the commencement of the public
offering of the Securities by the Underwriters.
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Securities or the Common Stock, and has not effected any sales of Common
Stock which, if effected by the Company, would be required to be disclosed
in response to Item 701 of Regulation S-K.
(vi) Such Selling Stockholder shall immediately notify you if any
event occurs, or of any change in information relating to such Selling
Stockholder or the Company or any new information relating to the Company
or relating to any matter stated in the Prospectus or any supplement
thereto, which results in the Prospectus (as supplemented) including an
untrue statement of a material fact or omitting to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
5. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and at each of the First Closing Date and the Second Closing Date (as if
made at such Closing Date), of and compliance with all representations,
warranties and agreements of the Company and the Selling Stockholders contained
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., Minneapolis time, on the date of this Agreement, or such later
time and date as you, as Representatives of the several Underwriters, shall
approve, and all filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereof shall have
been issued; no proceedings for the issuance of such an order shall have been
initiated or threatened; and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto, contains an untrue statement of fact which, in your opinion, is
material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(c) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries shall have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and there
shall not have been any change in the capital stock (other than a change in the
number of outstanding shares of Common Stock due to the issuance of shares upon
the
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exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock
of the Company or any of its subsidiaries, or any material adverse change or any
development involving a prospective material adverse change (whether or not
arising in the ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects, net
worth or results of operations of the Company and its subsidiaries, taken as a
whole, that, in your judgment, makes it impractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated in the
Prospectus.
(d) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Blackwell Sanders
Matheny Weary & Lombardi L.C., counsel for the Company, dated such Closing Date
and addressed to you, to the effect that:
(i) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its properties
and conduct its business as currently being carried on and as described in
the Registration Statement and Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real property or in which the
conduct of its business makes such qualification necessary and in which the
failure to so qualify would have a material adverse effect upon the
business, condition (financial or otherwise) or properties of the Company
and its subsidiaries, taken as a whole.
(ii) All of the issued and outstanding shares of the capital
stock of the Company have been duly authorized and validly issued and are
fully paid and nonassessable, and the holders thereof are not subject to
personal liability by reason of being such holders. The Securities to be
issued and sold by the Company hereunder have been duly authorized and,
when issued, delivered and paid for in accordance with the terms of this
Agreement, will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability by reason of being such holders. Except as otherwise stated in
the Registration Statement and Prospectus, there are no preemptive rights
or other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, any shares of Common Stock pursuant to the
Company's charter, by-laws or any agreement or other instrument known to
such counsel to which the Company is a party or by which the Company is
bound. To the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any rights for or relating to
the registration of any shares of Common Stock or other securities of the
Company that have not been waived by the holders of such rights.
(iii) All of the issued and outstanding shares of capital stock
of each of the Company's subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable, and, to the best of such
counsel's knowledge, except as otherwise described in the Registration
Statement and Prospectus and except for directors' qualifying shares, the
Company owns of record and beneficially, free and clear of any security
interests, claims, liens, proxies, equities or other encumbrances, all of
the issued and outstanding shares of such stock. To the best of such
counsel's knowledge, except as described in the Registration Statement and
Prospectus, there are no options, warrants, agreements, contracts or other
rights in existence to purchase or acquire from the Company or any
subsidiary any shares of the capital stock of the Company or any subsidiary
of the Company.
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<PAGE>
(iv) The Registration Statement has become effective under the
Act and, to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or threatened by the
Commission.
(v) The descriptions in the Registration Statement and Prospectus
of statutes, legal and governmental proceedings, contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown; and such counsel does not know of any
statutes or legal or governmental proceedings required to be described in
the Prospectus that are not described as required, or of any contracts or
documents of a character required to be described in the Registration
Statement or Prospectus or included as exhibits to the Registration
Statement that are not described or included as required.
(vi) The Company has full corporate power and authority to enter
into this Agreement, and this Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid, legal and binding
obligation of the Company enforceable in accordance with its terms (except
as rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity); the
execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, rule or regulation, any agreement or instrument known
to such counsel to which the Company is a party or by which it is bound or
to which any of its property is subject, the Company's charter or by-laws,
or any order or decree known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
respective properties; and no consent, approval, authorization or order of,
or filing with, any court or governmental agency or body is required for
the execution, delivery and performance of this Agreement or for the
consummation of the transactions contemplated hereby, including the
issuance or sale of the Securities by the Company, except such as may be
required under the Act or state securities laws.
(vii) To the best of such counsel's knowledge and except as
disclosed in the Prospectus: (A) the Company and each of its subsidiaries
holds, and is operating in compliance in all material respects with, all
material franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders of any governmental or self-regulatory
body required for the conduct of its business and all such franchises,
grants, authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect; (B) the
Company and each of its subsidiaries is in compliance in all material
respects with all material laws, regulations, orders and decrees applicable
to it; and (C) without limiting the generality of (A) or (B), the Company
is and, at the time such offers and sales were made, was in compliance with
all material laws, rules, regulations, orders and decrees applicable to the
offer and sale of franchises in connection with its Applebee's(R)
restaurant system in each jurisdiction in which such offers and sales have
been made other than certain occurrences or noncompliance, the effect of
which could not be reasonably expected to have a material adverse effect on
the business, condition (financial or otherwise) or prospects of the
Company and its subsidiaries, taken as a whole.
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<PAGE>
(viii) To the best of such counsel's knowledge, neither the
Company nor any of its subsidiaries is in violation of its respective
charter or by-laws. To the best of such counsel's knowledge, neither the
Company nor any of its subsidiaries is in breach of or otherwise in default
in the performance of any material obligation, agreement or condition
contained in any bond, debenture, note, indenture, loan agreement or any
other material contract, lease or other instrument to which it is subject
or by which any of them may be bound, or to which any of the material
property or assets of the Company or any of its subsidiaries is subject,
the breach of or default in which could reasonably be expected to have a
material adverse effect upon the Company and its subsidiaries, taken as a
whole.
(ix) Each of the franchise agreements and development agreements
entered into by the Company relating to its conveyance of franchise and
development rights, respectively, in connection with its Applebee's(R)
restaurant system has been duly authorized, executed and delivered by, an,
assuming due execution and delivery by the other parties thereto, is a
valid, legal and binding obligation of, and is enforceable by, the Company,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally
and subject to general principals of equity.
(x) The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto, comply as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
and on the basis of conferences with officers of the Company, examination
of documents referred to in the Registration Statement and Prospectus and
such other procedures as such counsel deemed appropriate, nothing has come
to the attention of such counsel that causes such counsel to believe that
the Registration Statement or any amendment thereof, at the time the
Registration Statement became effective and as of such Closing Date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (as of its date
and as of such Closing Date), as amended or supplemented, includes any
untrue statement of material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; it being understood that such
counsel need express no opinion as to the financial statements or other
financial data included in any of the documents mentioned in this clause.
(x) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to matters of
law other than Delaware General Corporation Law, Missouri law, Kansas law and
federal law, upon the opinion or opinions of local counsel provided that the
extent of such reliance is specified in such opinion and that such counsel shall
state that such opinion or opinions of local counsel are satisfactory to them
and that they believe they and you are justified in relying thereon and (ii) as
to matters of fact, to the extent such counsel deems reasonable upon
certificates of officers of the Company and its subsidiaries provided that the
extent of such reliance is specified in such opinion and that in such opinion
they state that they believe they and you are justified in relying thereon.
(e) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Blackwell Sanders
Matheny Weary & Lombardi L.C., counsel for the Selling Stockholders, dated such
Closing Date and addressed to you, to the effect that:
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(i) The Securities to be sold by the Selling Stockholders
hereunder have been duly authorized and are validly issued, fully paid and
nonassessable. The certificates for the Securities to be sold by the
Selling Stockholders hereunder are in due and proper form. Each of the
Selling Stockholders is the sole record and beneficial owner of the
Securities to be sold by such Selling Stockholder. Delivery of the
certificates for the Securities to be sold by each Selling Stockholder
pursuant to this Agreement, upon payment therefor by the Underwriters, will
pass marketable title to such Securities to the Underwriters and the
Underwriters will acquire all the rights of such Selling Stockholder in the
Securities (assuming the Underwriters have no knowledge of an adverse
claim), free and clear of any security interests, claims, liens,
restrictions on transfer or other encumbrances.
(ii) Each of the Selling Stockholders has the power and authority
to enter into the Custody Agreement, the Power of Attorney and this
Agreement and to perform and discharge such Selling Stockholder's
obligations thereunder and hereunder; and this Agreement, the Custody
Agreements and the Powers of Attorney have been duly and validly
authorized, executed and delivered by (or by the Attorneys-in-Fact, or
either of them, on behalf of) the Selling Stockholders and are valid and
binding agreements of the Selling Stockholders, enforceable in accordance
with their respective terms (except as rights to indemnity hereunder or
thereunder may be limited by federal or state securities laws and except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and
subject to general principles of equity).
(iii) The execution and delivery of this Agreement, the Custody
Agreement and the Power of Attorney and the performance of the terms hereof
and thereof and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any statute, rule or
regulation, or any agreement or instrument known to such counsel to which
such Selling Stockholder is a party or by which such Selling Stockholder is
bound or to which any of its property is subject, any such Selling
Stockholder's charter or by-laws, or any order or decree known to such
counsel of any court or government agency or body having jurisdiction over
such Selling Stockholder or any of its respective properties; and no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Custody Agreement and the Power of
Attorney or for the consummation of the transactions contemplated hereby
and thereby, including the sale of the Securities being sold by such
Selling Stockholder, except such as may be required under the Act or state
securities laws or blue sky laws.
(iv) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to matters of
law other than Missouri law, Kansas law and federal law, upon the opinion or
opinions of local counsel provided that the extent of such reliance is specified
in such opinion and that such counsel shall state that such opinion or opinions
of local counsel are satisfactory to them and that they believe they and you are
justified in relying thereon and (ii) as to matters of fact, to the extent such
counsel deems reasonable upon certificates of officers of the Selling
Stockholders provided that the extent of such reliance is specified in such
opinion and that in such opinion they state that they and you are justified in
relying thereon.
(f) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, such opinion or opinions from
Faegre & Benson Professional Limited
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Liability Partnership, counsel for the several Underwriters, dated such Closing
Date and addressed to you, with respect to the formation of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as you reasonably may request, and such counsel shall have
received such papers and information as they request to enable them to pass upon
such matters.
(g) On each Closing Date, you, as Representatives of the several
Underwriters, shall have received a letter of Deloitte & Touche LLP, dated such
Closing Date and addressed to you, confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission, and stating, as of the date of such
letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date of such
letter), the conclusions and findings of said firm with respect to the financial
information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the letter
so to be delivered on such Closing Date shall be to confirm the conclusions and
findings set forth in such prior letter.
(h) On each Closing Date, there shall have been furnished to you, as
Representatives of the Underwriters, a certificate, dated such Closing Date and
addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, in all material respects, as if made at and
as of such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date;
(ii) No stop order or other order suspending the effectiveness of
the Registration Statement or any amendment thereof or the qualification of
the Securities for offering or sale has been issued, and no proceeding for
that purpose has been instituted or, to the best of their knowledge, is
contemplated by the Commission or any state or regulatory body; and
(iii) The signers of said certificate have carefully examined
the Registration Statement and the Prospectus, and any amendments thereof
or supplements thereto, and (A) such documents contain all statements and
information required to be included therein, the Registration Statement, or
any amendment thereof, does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented, does not include any untrue
statement of material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, (B) since the effective date of the Registration
Statement there has occurred no event required to be set forth in an
amended or supplemented prospectus which has not been so set forth, (C)
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions, not in the
ordinary course of business, or declared or paid any dividends or made any
distribution of any kind with respect to its capital stock, and except as
disclosed in the Prospectus, there has not been any change in the capital
stock (other than a change in the number of outstanding shares of Common
Stock due to the issuance of shares upon the exercise of outstanding
options or warrants), or any material change in the short-term or long-term
debt, or any issuance of options, warrants, convertible
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securities or other rights to purchase the capital stock, of the Company,
or any of its subsidiaries, or any material adverse change or any
development involving a prospective material adverse change (whether or not
arising in the ordinary course of business), in the general affairs,
condition (financial or otherwise), business, key personnel, property,
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, and (D) except as stated in the
Registration Statement and the Prospectus, there is not pending, or, to the
knowledge of the Company, threatened or contemplated, any action, suit or
proceeding to which the Company or any of its subsidiaries is a party
before or by any court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change in the
condition (financial or otherwise), business, prospects or results of
operations of the Company and its subsidiaries, taken as a whole.
(i) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, a certificate or certificates,
dated such Closing Date and addressed to you, signed by each of the Selling
Stockholders or either of such Selling Stockholder's Attorneys-in-Fact to the
effect that the representations and warranties of such Selling Stockholder
contained in this Agreement are true and correct as if made at and as of such
Closing Date, and that such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on such Selling Stockholder's part
to be performed or satisfied at or prior to such Closing Date.
(j) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or they
may have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
6. Indemnification and Contribution.
(a) The Company and each Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company and/or such Selling Stockholders, as the case may be), insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, including the information
deemed to be a part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A, if applicable, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending against such loss,
claim, damage, liability or action; provided, however, that neither the Company
nor any Selling Stockholder shall be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by you, or by any Underwriter
through you, specifically for use in the preparation thereof; and further
provided, however, that each Selling Stockholder shall be obligated to indemnify
the
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<PAGE>
Underwriters under this Section 6 only if such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement of a material fact contained in the disclosure with respect to such
Selling Stockholder in the section of the Prospectus entitled "Principal and
Selling Stockholders" or an omission or alleged omission to state in such
section of the Prospectus a material fact required to be stated therein or
necessary to make the statements therein not misleading; and further provided,
however, that in no event shall any Selling Stockholder be liable under the
provisions of this Section 6 for any amount in excess of the aggregate amount of
proceeds such Selling Stockholder received from the sale of the Securities
pursuant to this Agreement.
In addition to their other obligations under this Section 6(a), the
Company and each Selling Stockholder, jointly and severally, agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in this Section 6(a), they will
reimburse each Underwriter on a monthly basis for all reasonable legal fees or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's and/or the Selling Stockholder's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriter that received such payment shall promptly return it to
the party or parties that made such payment, together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Norwest Bank Minnesota, National Association (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement shall be in addition to any
liabilities which the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company and the Selling Stockholders may become subject, under the Act
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by such Underwriter through you,
specifically for use in the preparation thereof, and will reimburse the Company
and the Selling Stockholders for any legal or other expenses reasonably incurred
by the Company or any such Selling Stockholder in connection with investigating
or defending against any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the
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<PAGE>
indemnifying party from any liability that it may have to any indemnified party
under subsection (a) or (b) above, except to the extent the indemnifying party
has been prejudiced in any material respect by such failure. In case any such
action shall be brought against any indemnified party, and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if, in the sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent the
Representatives and all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the Underwriters
under subsection (a) of this Section 6, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party or
parties and reimbursed to the Underwriters as incurred (in accordance with the
provisions of the second paragraph in subsection (a) above). An indemnifying
party shall not be obligated under any settlement agreement relating to any
action under this Section 6 to which it has not agreed in writing.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholders on the one hand and the Underwriters
on the other from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and Selling Stockholders bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties' relevant
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this subsection (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending against any
action or claim which is the subject of this subsection (d). Notwithstanding
the provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that such Underwriter has otherwise
been required to
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<PAGE>
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 6 shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 6
shall be in addition to any liability that the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is named in
the Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the Registration Statement and to
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of the Act.
7. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters, the Company and the Selling Stockholders contained in Section 6
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
thereof, or the Company or any of its officers, directors, or controlling
persons, or any Selling Stockholders or any controlling person thereof, and
shall survive delivery of, and payment for, the Securities to and by the
Underwriters hereunder.
8. Substitution of Underwriters.
(a) If any Underwriter or Underwriters shall fail to take up and pay
for the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule II
hereto, the remaining Underwriters shall be obligated to take up and pay for (in
proportion to their respective underwriting obligations hereunder as set forth
in Schedule II hereto except as may otherwise be determined by you) the Firm
Shares that the withdrawing or defaulting Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters shall fail to take up and pay
for the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased aggregates more than
10% of the total amount of Firm Shares set forth in Schedule II hereto, and
arrangements satisfactory to you for the purchase of such Firm Shares by other
persons are not made within 36 hours thereafter, this Agreement shall terminate.
In the event of any such termination, neither the Company nor any Selling
Stockholder shall be under any liability to any Underwriter (except to the
extent provided in Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof)
nor shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
amount of Firm Shares agreed by such Underwriter to be purchased hereunder) be
under any liability to the Company or the Selling Stockholders (except to the
extent provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased by the
non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to
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<PAGE>
postpone the First Closing Date for not more than seven business days in order
that the necessary changes in the Registration Statement, Prospectus and any
other documents, as well as any other arrangements, may be effected. As used
herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 8.
9. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at 10:00 a.m., Minneapolis
time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall become
effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to securities
dealers, whichever shall first occur. By giving notice as hereinafter specified
before the time this Agreement becomes effective, you, as Representatives of the
several Underwriters, or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except that the
provisions of Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the First Closing Date, and the option referred to in
Section 3(b), if exercised, may be canceled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused or been unable, at
or prior to such Closing Date, to perform any agreement on its part to be
performed hereunder, (ii) any other condition of the Underwriters' obligations
hereunder is not fulfilled, (iii) trading on the New York Stock Exchange or the
American Stock Exchange shall have been wholly suspended, (iv) minimum or
maximum prices for trading shall have been fixed, or maximum ranges for prices
for securities shall have been required, on the New York Stock Exchange or the
American Stock Exchange, by such Exchange or by order of the Commission or any
other governmental authority having jurisdiction, (v) a banking moratorium shall
have been declared by Federal, New York, Minnesota, Missouri or Kansas
authorities, or (vi) there has occurred any material adverse change in the
financial markets in the United States or an outbreak of major hostilities (or
an escalation thereof) in which the United States is involved, a declaration of
war by Congress, any other substantial national or international calamity or any
other event or occurrence of a similar character shall have occurred since the
execution of this Agreement that, in your judgment, makes it impractical or
inadvisable to proceed with the completion of the sale of and payment for the
Securities. Any such termination shall be without liability of any party to any
other party except that the provisions of Section 4(a)(viii), Section 4(b)(ii)
and Section 6 hereof shall at all times be effective.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company and an
Attorney-in-Fact, on behalf of the Selling Stockholders, shall be notified
promptly by you by telephone or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, you and an Attorney-
in-Fact, on behalf of the Selling Stockholders, shall be notified by the Company
by telephone or telegram, confirmed by letter.
10. Default by One or More of the Selling Stockholders or the Company. If
one or more of the Selling Stockholders shall fail at the First Closing Date to
sell and deliver the number of Securities
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<PAGE>
which such Selling Stockholder or Selling Stockholders are obligated to sell
hereunder, and the remaining Selling Stockholders do not exercise the right
hereby granted to increase, pro rata or otherwise, the number of Securities to
be sold by them hereunder to the total number of Securities to be sold by all
Selling Stockholders as set forth in Schedule I, then the Underwriters may at
your option, by notice from you to the Company and the non-defaulting Selling
Stockholders, either (a) terminate this Agreement without any liability on the
part of any non-defaulting party or (b) elect to purchase the Securities which
the Company and the non-defaulting Selling Stockholders have agreed to sell
hereunder.
In the event of a default by any Selling Stockholder as referred to in
this Section, either you or the Company or, by joint action only, the non-
defaulting Selling Stockholders shall have the right to postpone the First
Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
If the Company shall fail at the First Closing Date to sell and
deliver the number of Securities which it is obligated to sell hereunder, then
this Agreement shall terminate without any liability on the part of any non-
defaulting party.
No action taken pursuant to this Section shall relieve the Company or
any Selling Stockholders so defaulting from liability, if any, in respect of
such default.
11. Information Furnished by Underwriters. The statements set forth in
the last paragraph of the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in Section 2 and
Section 6 hereof.
12. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o Piper Jaffray
Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402,
except that notices given to an Underwriter pursuant to Section 6 hereof shall
be sent to such Underwriter at the address stated in the Underwriters'
Questionnaire furnished by such Underwriter in connection with this offering; if
to the Company, shall be mailed, telegraphed or delivered to it at 4551 W. 107th
Street, Suite 100, overland Park, Kansas 66207, Attention: Mr. Abe J. Gustin,
Jr.; if to any of the Selling Stockholders, at the address of the Attorneys-in-
Fact as set forth in the Powers of Attorney; or in each case to such other
address as the person to be notified may have requested in writing. All notices
given by telegram shall be promptly confirmed by letter. Any party to this
Agreement may change such address for notices by sending to the parties to this
Agreement written notice of a new address for such purpose.
13. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
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<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the
Company, the Selling Stockholders and the several Underwriters in accordance
with its terms.
Very truly yours,
Applebee's International, Inc.
By:
-----------------------------
President
Selling Stockholders
By:
-----------------------------
Attorney-in-Fact
By:
-----------------------------
Attorney-in-Fact
Confirmed as of the date first
above mentioned, on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
Piper Jaffray Inc.
By:
-------------------------
Managing Director
Dillon, Read & Co. Inc.
By:
-------------------------
Managing Director
Montgomery Securities
By:
-------------------------
Managing Director
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<PAGE>
SCHEDULE I
Selling Stockholders
<TABLE>
<CAPTION>
Number of Maximum Number
Firm Shares of Option Shares
Name to be Sold Subject to Option
- ------------------- ----------- ------------------
<S> <C> <C>
Burton M. Sack 100,000 15,000
Richard C. Ferris 200,000 30,000
------- ------
Total.............. 300,000 45,000
======= ======
</TABLE>
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<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares (1)
- ----------- ---------------
<S> <C>
Piper Jaffray Inc........................................
Dillon, Read & Co. Inc. .................................
Montgomery Securities....................................
---------------
Total....................................... 2,400,000
===============
- ---------------
(1) The Underwriters may purchase up to an additional 360,000 Option Shares, to
the extent the option described in Section 3 of the Agreement is exercised,
in the proportions and in the manner described in the Agreement.
</TABLE>
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<PAGE>
EXHIBIT 5
July 5, 1995
Applebee's International, Inc.
4551 W. 107th Street
Overland Park, Kansas 66207
Re: Validity of 2,760,000 Shares of Common Stock of
Applebee's International, Inc.
Ladies and Gentlemen:
I have acted as counsel for Applebee's International, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
registration statement on Form S-3 (the "Registration Statement") for the
registration under the Securities Act of 1933, as amended, of 2,760,000 shares
of common stock, par value $.01 per share (the "Common Stock"), of the Company,
including 300,000 shares to be sold by certain selling stockholders of the
Company and 360,000 shares subject to an over-allotment option granted to the
underwriters.
In connection therewith I have examined:
1. The resolutions of the Board of Directors of the company (a)
authorizing the preparation and filing of the Registration Statement,
(b) approving the Purchase Agreement with the underwriters (the
"Purchase Agreement") and (3) authorizing certain related transaction;
2. The Registration Statement;
3. The Certificate of Incorporation of the Company;
4. The Bylaws of the Company; and
5. The proposed form of Purchase Agreement.
I have also made such other factual and legal investigations as I deemed
necessary or appropriate in order to render the opinion hereafter expressed. In
such examination, I have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of documents submitted to us as certified copies or
photocopies.
<PAGE>
Applebee's International, Inc.
July 5, 1995
Page 2
Based solely on the foregoing, I am of the opinion that shares are duly
authorized, and, upon delivery by the Company and receipt by the Company of
adequate consideration therefor, said shares will be validly issued, fully paid,
and nonassessable.
I express no opinion as to the laws of any jurisdiction other than the
General Corporation Law of the State of Delaware. The opinion set forth in this
letter is effective as of the date hereof. No expansion of my opinion may be
made by implication or otherwise. I express no opinion other than as herein
expressly set forth. I do not undertake to advise you with respect to any
matter within the scope of this letter which comes to my attention after the
date of this letter and disclaim any responsibility to advise you of future
changes of law or fact which may affect the above opinion. Other than the
addressee hereof, no one is entitled to rely on this opinion; provided, however,
that I hereby consent to all references to the undersigned in the Registration
Statement and the Prospectus contained therein, and in all amendments thereto,
and to the filing of this opinion by the Company as an exhibit to said
Registration Statement.
Very truly yours,
Robert T. Steinkamp
Vice President/General Counsel
RTS:dm
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use and incorporation by reference in this Registration
Statement on Form S-3 of Applebee's International, Inc. of our report dated
May 15, 1995, appearing in the Prospectus, which is part of this Registration
Statement, and appearing in Form 8-K of Applebee's International, Inc. dated
May 15, 1995. We also consent to the reference to us under the heading "Experts"
in this Registration Statement.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
July 5, 1995
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in and
incorporation by reference in this registration statement of our report dated
March 22, 1995 included in Form 8-K (Registration File No. 000-17962) of
Applebee's International, Inc. and to all references to our Firm included in
this registration statement.
Arthur Andersen LLP
Atlanta, Georgia
July 5, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in this Registration
Statement of Applebee's International, Inc. on Form S-3 of our report dated
January 29, 1994, appearing in the Prospectus, which is part of this
Registration Statement, and appearing in Form 8-K of Applebee's International,
Inc. dated May 15, 1995, (related to the financial statements of Pub Ventures of
New England, Inc. as of December 31, 1993, and for the year then ended, not
presented separately therein). We also consent to the reference to our firm
under the caption "Experts" in this Registration Statement.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 5, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in this Registration
Statement of Applebee's International, Inc. on Form S-3 of our report dated
January 28, 1993, appearing in this Prospectus, which is part of this
Registration Statement, and appearing in Form 8-K of Applebee's International,
Inc. dated May 15, 1995, (related to the financial statements of Pub Ventures of
New England, Inc. as of December 31, 1992, and for the year then ended, not
presented separately therein). We also consent to the reference to us under the
heading "Experts" in this Registration Statement.
Kennedy & Lehan, P.C.
Quincy, Massachusetts
July 5, 1995
