APPLEBEE'S INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 13, 1996
To the Stockholders of Applebee's International, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Applebee's International, Inc., a Delaware corporation (the
"Company"), will be held on May 13, 1996, at 10:00 a.m., CDT, at 4551 W. 107th
Street, Suite 100, Overland Park, Kansas 66207 for the following purposes:
I. To elect three directors;
II. To amend the Company's 1995 Equity Incentive Plan to reduce the
number of stock options to be granted each year to members of
the Board of Directors;
III. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 1996 fiscal year; and
IV. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
THE BOARD OF DIRECTORS RECOMMENDS A "YES" VOTE ON ALL PROPOSALS.
The Board of Directors has fixed the close of business on March 18, 1996,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT
THE MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING.
By Order of the Board of Directors
Robert T. Steinkamp, Secretary
Overland Park, Kansas
April 8, 1996
<PAGE>
APPLEBEE'S INTERNATIONAL, INC.
--------------
PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Applebee's International, Inc., a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on May
13, 1996, at 10:00 a.m. CDT, and at any adjournment or postponement thereof, for
the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Company's principal
executive office, 4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207.
This proxy statement and accompanying proxy ("Proxy Statement") was mailed
on or about April 8, 1996, to all stockholders entitled to vote at the Annual
Meeting.
Voting Rights and Outstanding Shares
Only stockholders of record at the close of business on March 18, 1996,
will be entitled to notice of and to vote at the Annual Meeting. At the close of
business on April 1, 1996, there were 31,XXX,XXX outstanding shares of the
Company's common stock, par value $.01 per share (the "Common Stock"). Each
share of Common Stock outstanding on the record date is entitled to one vote.
Approval of Proposals II and III requires the affirmative vote of a majority of
the outstanding shares of Common Stock represented at the meeting and entitled
to vote. Thus, abstentions and broker non-votes (i.e., shares present by proxy
but for which no voting authority has been given the record holder by the
beneficial holder) have the effect of votes against the proposals. Because
directors are elected by a plurality of the votes cast, abstentions and broker
non-votes will not affect the outcome of the election of directors.
On April 1, 1996, the closing sale price reported on The Nasdaq Stock
Market for a share of the Common Stock was [$ ] (as reported by the National
Quotation Bureau, Inc.).
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it any time before it is voted by filing with the Secretary of the
Company at the Company's principal executive office a written notice of
revocation or a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person.
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Solicitation
The Company will bear the entire cost of solicitation of proxies in the
enclosed form, including preparation, assembly, printing and mailing of this
Proxy Statement and any additional information furnished by the Company to
stockholders. Original solicitation of proxies by mail may be supplemented by
telephone, telegraph or personal solicitation by directors, officers or other
regular employees of the Company or by agents employed by the Company for the
specific purpose of supplemental proxy solicitation. Such soliciting agents, if
engaged, will be paid a reasonable fee for their services. No additional
compensation will be paid to directors, officers or other regular Company
employees for such services.
Stockholder Proposals
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1997 Annual Meeting of Stockholders must comply
with the rules of the Securities and Exchange Commission ("SEC") and be received
by the Company from qualified stockholders no later than December 13, 1996 in
order to be included in the proxy statement and proxy relating to that meeting.
Certain Information Concerning the Board of Directors
The Board of Directors is classified into three classes, each holding
three-year terms (designated Class I, II, and III). There are currently three
directors in Class I, with terms expiring at the 1996 Annual Meeting, four
directors in Class II, with terms expiring at the 1997 Annual Meeting, and three
directors in Class III, with terms expiring at the 1998 Annual Meeting. The
following information is furnished for each of the three persons being nominated
for election as a Class I director to a new three-year term ("Nominee") and for
each person who is continuing as a Class II or Class III director of the Company
("Incumbent").
ABE J. GUSTIN, JR., age 61 (Incumbent - Class II term expiring in 1997).
Mr. Gustin has been a director of the Company since September 1983 when the
Company was formed. He served as Chairman of the Board of Directors of the
Company from September 1983 until January 1988 and was again elected as Chairman
in September 1992. He was Vice President from November 1987 to January 1988, and
from January 1988 until December 1994, he served as President of the Company.
Mr. Gustin continues to serve as Chief Executive Officer of the Company. From
1983 to 1990, he also served as Chairman of Juneau Holding Co., a Kansas City,
Missouri-based firm which operated Taco Bell restaurants. Mr. Gustin serves as a
member of the Strategic Planning Committee.
D. PATRICK CURRAN, age 51 (Incumbent - Class II term expiring in 1997). Mr.
Curran became a director of the Company in November 1992. He has served as Chief
Executive Officer of the Curran Companies in North Kansas City, Missouri since
August 1979. Mr. Curran serves as a member of the board of directors of
Sealright Co., Inc., Unitog Company, and American Safety Razor Company, all
publicly traded corporations. Mr. Curran serves as a member of the Audit
Committee, the Executive Compensation Committee, the Nominating Committee and
the Strategic Planning Committee.
ERIC L. HANSEN, age 47 (Nominee - Class I term expiring in 1996). Mr.
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. Mr. Hansen
serves as a member of the Audit Committee, the Executive Compensation Committee
and the Strategic Planning Committee.
JACK P. HELMS, age 43 (Incumbent - Class III term expiring in 1998). Mr.
Helms became a director of the Company in March 1994. He is presently a
principal and shareholder in the investment banking firm of Goldsmith, Agio,
Helms and Company in Minneapolis, Minnesota. From May 1978 to January 1986, Mr.
Helms was a partner in the law firm of Fredrikson & Byron, P.A. in Minneapolis,
Minnesota. Mr. Helms serves as a member of the Audit Committee, the Executive
Compensation Committee and the Strategic Planning Committee.
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KENNETH D. HILL, age 62 (Nominee - Class I term expiring in 1996). Mr. Hill
became a director of the Company in November 1992 and has agreed to continue to
serve as a director through the term of his consulting agreement (March 1998) or
until the Company selects someone to fill his position on the Board of
Directors. See "Certain Transactions." He was employed by the Company in April
1991, serving as Executive Vice President and Chief Operating Officer until
January 1994, when he was named President of International Development.
Effective February 28, 1995, Mr. Hill resigned as an employee and officer of the
Company and became a consultant to the Company for governmental affairs,
industry relations, and new concept development. From May 1990 to March 1991, he
was President and Chief Executive Officer of Creative Restaurant Management, a
company created in a leveraged buy-out from Gilbert/Robinson, Inc., a Kansas
City-based specialty restaurant group. In March 1992, Creative Restaurant
Management filed a petition for bankruptcy, and the bankruptcy proceeding was
terminated in March 1995. 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 is an
honorary director of the National Restaurant Association, after having served as
both a director of that association and as chairman of most of its major
committees.
LLOYD L. HILL, age 52 (Incumbent - Class III term expiring in 1998). Mr.
Hill was elected a director of the Company in August 1989 and was appointed
Executive Vice President and Chief Operating Officer of the Company in January
1994. In December 1994, he assumed the role of President in addition to his role
as Chief Operating Officer. 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.
ROBERT A. MARTIN, age 65 (Incumbent - Class II term expiring in 1997). Mr.
Martin was elected a director of the Company in August 1989. In April 1991, he
became Vice President of Marketing, and in January 1994, he was promoted to
Senior Vice President of Marketing. In January 1996, Mr. Martin was promoted to
Executive 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 serves as a
member of the Nominating Committee.
JOHYNE H. RECK, age 46 (Incumbent - Class II term expiring in 1997). Ms.
Reck was elected a director of the Company in May 1985. Ms. Reck served as a
consultant to the Company on its civic and philanthropic programs through
December 31, 1995 at which time she resigned as a consultant. 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, who served as Executive Vice President and Chief
Administrative Officer of the Company until his resignation as an officer of the
Company which was effective January 31, 1996. Ms. Reck serves as a member of the
Nominating Committee.
BURTON M. SACK, age 58 (Incumbent - Class III term expiring in 1998). Mr.
Sack was elected a director and appointed an Executive Vice President of the
Company effective October 24, 1994. In January 1996, Mr. Sack was appointed
Executive Vice President of New Business Development with responsibility for
international franchising. 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 on
the board of advisors of Restaurant Associates, Inc.
RAYMOND D. SCHOENBAUM, age 49 (Nominee - Class I term expiring in 1996).
Mr. Schoenbaum was elected a director of the Company effective March 24, 1995
and serves as a consultant to the Company pursuant to an agreement which
terminated in March 1996. 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
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Systems, Inc., a franchisee of Wendy's International, Inc., from 1974 until 1986
and was a Shoney's franchisee from 1971 until 1974.
The Board has four standing committees: the Audit Committee, the Executive
Compensation Committee, the Nominating Committee and the Strategic Planning
Committee. The Audit Committee recommends engagement of the Company's
independent accountants, reviews and approves services performed by such
accountants, reviews and evaluates the Company's accounting system and its
system of internal controls, and performs other related duties delegated to such
Committee by the Board of Directors. The members of the Audit Committee are Mr.
Curran, Mr. Hansen, and Mr. Helms. The Executive Compensation Committee is
responsible for recommending to the Board of Directors executive compensation
levels, bonus plan participation and executive and overall compensation
policies. It also makes awards under the Company's 1995 Equity Incentive Plan.
The members of the Executive Compensation Committee are Mr. Curran, Mr. Hansen
and Mr. Helms. The Nominating Committee evaluates and recommends candidates for
nomination to the Board of Directors. Pursuant to the Company's By-laws,
stockholder nominations for Board candidates must be submitted to the Nominating
Committee, along with certain information about the candidate, at least 60 days
prior to the Annual Meeting date. The Nominating Committee is responsible for
reviewing and accepting or rejecting any stockholder nominations. The members of
the Nominating Committee are Mr. Curran, Mr. Martin and Ms. Reck. The Strategic
Planning Committee was established for the purpose of long-term planning and
establishing strategic goals for the Company. The members of the Strategic
Planning Committee are Mr. Gustin, Mr. Curran, Mr. Hansen and Mr. Helms.
During fiscal year 1995, the Board of Directors held nine meetings
(including six regular meetings), the Audit Committee held one meeting, and the
Executive Compensation Committee held eight meetings. The Nominating Committee
and the Strategic Planning Committee did not hold any meetings during 1995.
During fiscal year 1995, each director attended more than 75% of the Board
meetings and the meetings of the committees on which such director served.
During fiscal year 1995, directors who were not employees received director
fees of $1,500 for each regular Board meeting attended, plus a retainer of $500
per month and reimbursement of out-of-pocket expenses. Under the Company's 1995
Equity Incentive Plan and the previous 1989 Stock Option Plan, directors
received a number of stock options determined through a formula based on changes
in the Company's earnings before income taxes ("EBIT") from one year to the
next. Non-employee directors received an annual base grant of options to acquire
12,000 shares of Common Stock, which was increased or decreased by 1,500 shares
for each 5% increase or decrease in EBIT from the prior fiscal year. The maximum
increase or decrease was 6,000 shares. Employee directors received options, as
directors, in accordance with the same formula, but were limited to 50% of the
number of options granted non-employee directors. In fiscal 1995, options for
18,000 shares of Common Stock were granted to Mr. Curran, Mr. Hansen, Mr. Helms,
and Ms. Reck for serving as non-employee directors of the Company, options for
9,000 shares of Common Stock were granted to Mr. Kenneth Hill and Mr. Schoenbaum
(who, pursuant to their consulting agreements with the Company, were treated as
employees for director compensation purposes), and options for 9,000 shares of
Common Stock were granted to each of Mr. Gustin, Mr. Lloyd Hill, Mr. Martin and
Mr. Sack for serving as employee directors. Also, in recognition of past service
to the Company, Ms. Reck was granted options to purchase 23,000 shares of Common
Stock in March 1995. In addition, Mr. Martin received cash compensation of
$293,449 and options to purchase 20,000 shares of Common Stock for services
rendered to the Company in fiscal 1995. Mr. Kenneth Hill, Ms. Reck and Mr.
Schoenbaum also received cash compensation of $201,401, $22,677 and $110,866,
respectively, for services rendered to the Company in fiscal 1995. Cash
compensation paid and stock options granted to Mr. Gustin, Mr. Lloyd Hill and
Mr. Sack for services rendered to the Company as employees in fiscal 1995 are
shown in the Summary Compensation Table. See "Certain Transactions."
The Board of Directors has approved changes in the Company's director
compensation program, which will be implemented after the Annual Meeting if
Proposal II in this Proxy Statement is adopted by the stockholders. The new
compensation program changes the level of cash payments made to directors,
changes the formula by which non-employee directors receive stock options, and
5
<PAGE>
eliminates stock option grants to employee directors in their capacity as
directors.
Certain Information Concerning Executive Officers
Information regarding the executive officers of the Company, who are not
also directors of the Company, as of December 31, 1995, is as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Ronald B. Reck.......................... 47 Executive Vice President and Chief Administrative Officer
(resigned as an officer effective January 31, 1996)
George D. Shadid........................ 41 Executive Vice President, Chief Financial Officer and
Treasurer
Stuart F. Waggoner...................... 50 Senior Vice President of Operations
Philip J. Hickey, Jr.................... 41 President and Chief Operating Officer of Rio Bravo
International, Inc. (a wholly-owned subsidiary of
Applebee's International, Inc.)
Steven K. Lumpkin....................... 41 Vice President of Administration (promoted to Senior Vice
President of Administration effective January 1, 1996)
</TABLE>
RONALD B. RECK was employed by the Company in March 1991. He served as
Executive Vice President of Human Resources and Training until January 1993 when
he was named Executive Vice President and Chief Administrative Officer. From
1987 until March 1991, he was a self-employed consultant to the Company in the
personnel, human resources and corporate development areas. During the period
from 1984 through 1990, he was President of Aero-Mark Services, Inc., a
temporary health care personnel leasing service company located in Kansas City,
Missouri. Mr. Reck is the husband of Johyne H. Reck, a director of the Company.
Effective January 31, 1996, Mr. Reck resigned as an officer of the Company but
will continue as an employee until December 31, 1996.
GEORGE D. SHADID was employed by the Company in August 1992, and served as
Senior Vice President and Chief Financial Officer until January 1994 when he was
promoted to Executive Vice President and Chief Financial Officer. He also became
Treasurer in March 1995. From 1985 to 1987, he served as Corporate Controller of
Gilbert/Robinson, Inc., at which time he was promoted to Vice President, and in
1988 assumed the position of Vice President and Chief Financial Officer, which
he held until joining the Company. In November 1991, Gilbert/Robinson, Inc.
filed a petition for bankruptcy, which was discharged in December 1992. From
1976 until 1985, Mr. Shadid was employed by Deloitte & Touche LLP.
STUART F. WAGGONER has been an employee of the Company since December 1988
and served as the Executive Director of Franchise Operations until March 1991,
when he became Vice President of Franchise Operations. In December 1994, Mr.
Waggoner assumed the newly created position of Senior Vice President of
Operations, and has overall responsibility for franchise and Company owned
Applebee's restaurant operations. From October 1987 to December 1988, Mr.
Waggoner was a Vice President of Operations for Eateries', Inc., a restaurant
company based in Oklahoma City, Oklahoma. From 1985 to July 1987, Mr. Waggoner
was President of Pendleton's Bar & Grill in Dallas, Texas. From October 1974 to
March 1985, Mr. Waggoner was Vice President of Restaurant Administration for TGI
Friday's, Inc., in Dallas, Texas.
PHILIP J. HICKEY, JR. joined the Company in connection with the merger with
Innovative Restaurant Concepts, Inc. ("IRC") in March 1995 where he had been
President and Chief Operating Officer since 1992. He currently serves as
President and Chief Operating Officer of Rio Bravo International, Inc., a
wholly-owned subsidiary of Applebee's International, Inc. He co-founded the
Green Hills Grille concept in 1990 in Nashville, Tennessee, which was acquired
by IRC in 1992. Mr. Hickey was the co-creator of the Cooker Restaurant concept,
founded in 1984, and was President and Chief Operating Officer of the Cooker
Restaurant Corporation from 1984 to 1989. From 1976 to 1983, Mr. Hickey was
employed by Gilbert/Robinson, Inc., operators of the Houlihan's restaurant
chain.
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STEVEN K. LUMPKIN was employed by the Company in May 1995 as Vice President
of Administration. In January 1996, he was promoted to Senior Vice President of
Administration. From July 1993 until January 1995, Mr. Lumpkin was a Senior Vice
President with a division of the Olsten Corporation, Olsten Kimberly Quality
Care. From June 1990 until July 1993, Mr. Lumpkin was an Executive Vice
President and a member of the board of directors of Kimberly Quality Care. From
January 1978 until June 1990, Mr. Lumpkin was employed by Price Waterhouse LLP,
where he served as a management consulting partner and certified public
accountant.
Security Ownership of Officers, Directors and Certain Beneficial Owners
The following table sets forth information, as of April 1, 1996, regarding
the ownership of Common Stock, the Company's only class of outstanding
securities, by (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each director and each
executive officer named in the Summary Compensation Table, and (iii) all
executive officers and directors of the Company as a group. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
-------------------------------
Number of Percent
Shares Held
-------------- --------------
<S> <C> <C>
Burton M. Sack (2)..................................................... 2,100,539 6.8%
Abe J. Gustin, Jr. (2)................................................. 1,551,000 5.0%
Raymond D. Schoenbaum (2).............................................. 1,305,759 4.2%
Ronald B. Reck (2)..................................................... 529,440 1.7%
Lloyd L. Hill (2)...................................................... 128,000 0.4%
Johyne H. Reck (2)..................................................... 98,500 0.3%
Robert A. Martin (2)................................................... 76,000 0.2%
George D. Shadid (2)................................................... 70,101 0.2%
D. Patrick Curran (2).................................................. 59,000 0.2%
Kenneth D. Hill (2).................................................... 53,000 0.2%
Eric L. Hansen (2)..................................................... 49,850 0.2%
Jack P. Helms (2)...................................................... 37,500 0.1%
Massachusetts Financial Services Company............................... 3,278,390 10.6%
500 Boylston Street
Boston, MA 02116
Putnam Investments, Inc................................................ 2,294,260 7.4%
One Post Office Square
Boston, MA 02109
All executive officers and directors as a group (15 persons) (2)....... 6,649,996 21.4%
- ---------------
</TABLE>
(1) The mailing address of each individual is 4551 W. 107th Street, Suite 100,
Overland Park, Kansas 66207, unless otherwise shown.
(2) Includes certain shares subject to options exercisable as of April 1, 1996
or within 60 days thereafter: 9,000 shares for Mr. Sack, 9,000 shares for
Mr. Schoenbaum, 51,000 shares for Mr. Gustin, 53,000 shares for Mr. Reck,
116,000 shares for Lloyd L. Hill, 89,000 shares for Ms. Reck, 59,000 shares
for Mr. Martin, 45,000 shares for Mr. Shadid, 54,000 shares for Mr. Curran,
52,500 shares for Kenneth D. Hill, 45,000 shares for Mr. Hansen, 36,000
shares for Mr. Helms, and 724,500 shares for all executive officers and
directors as a group.
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
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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.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of the Common Stock,
to file certain reports of ownership and changes in ownership with the SEC.
Officers, directors and persons owning beneficially greater than 10% of the
Company's Common Stock are required by SEC regulations to furnish the Company
with copies of all such reports.
Based solely on its review of the copies of such reports received by the
Company, or written representations from certain reporting persons, the Company
believes that all filing requirements applicable to its officers, directors, and
greater than 10% beneficial owners were complied with during the fiscal year
ended December 31, 1995, except that certain reports were not timely filed by
Philip J. Hickey, Jr., Steven K. Lumpkin, and Raymond D. Schoenbaum. The
transactions were reported by each of these persons on their year-end reports on
Form 5.
PROPOSAL I
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF EACH NAMED NOMINEE.
Shares of Common Stock represented by executed proxies will be voted, if
authority to do so is not withheld, for the election of the Nominees named
below. If any Nominee should become unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute Nominee as the Company may propose. Each person nominated for
election has agreed to serve if elected, and the Company has no reason to
believe that any Nominee will be unavailable to serve. Additional information
concerning the following Nominees is set forth in "Certain Information
Concerning the Board of Directors."
The Company has a classified Board of Directors so that each director
serves a three year term. If elected, each of the below nominees would serve
until the 1999 Annual Meeting of Stockholders and until his successor is elected
and has qualified or until his earlier death, resignation or removal. Mr. Hill
has agreed to serve only through the end of his consulting agreement (March
1998) or until the Company selects someone to fill his position on the Board of
Directors.
<TABLE>
<CAPTION>
Director
Name Age Position With The Company Since
-------------------------------- ----- ------------------------------- --------
<S> <C> <C> <C>
Eric L. Hansen 47 Director 1991
Kenneth D. Hill 62 Director 1992
Raymond D. Schoenbaum 49 Director 1995
</TABLE>
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PROPOSAL II
AMENDMENT OF THE COMPANY'S 1995 EQUITY INCENTIVE PLAN
TO REDUCE DIRECTOR STOCK OPTIONS
Proposal II would amend the Company's 1995 Equity Incentive Plan by
deleting the current Section 9 and replacing it with the new Section 9 attached
to this Proxy Statement as Appendix A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
During 1995, the Company reviewed the compensation program for members of
the Board of Directors and engaged William M. Mercer, Incorporated to provide
data from other public companies on Board of Directors compensation and to
assist in structuring a revised director compensation program. As a result of
this review, management proposed, and the Board of Directors approved,
significant changes to the Board of Directors compensation program.
The changes described below related to the stock option portion of the
compensation program are reflected in the proposed amendments to Section 9 of
the 1995 Equity Incentive Plan as attached as Appendix A hereto and are being
submitted to the stockholders for approval in order to maintain the
qualification of the 1995 Equity Incentive Plan under Section 16 of the
Securities Exchange Act of 1934. The changes described below related to the cash
portion of the compensation program do not require stockholder approval and will
be implemented after the Annual Meeting upon approval by the stockholders of the
proposed amendment to Section 9 of the 1995 Equity Incentive Plan.
Cash Compensation
Under the new compensation program, non-employee directors will receive an
annual cash retainer of $15,000 plus $5,000 per committee up to a maximum of
$10,000 for all committees. This replaces the cash portion of the former program
which consisted of an annual retainer of $6,000, plus per meeting fees of
$1,500. Employee directors do not receive any cash compensation for their
service on the Board.
Director Stock Options
The new compensation program also changes the formula on which stock
options are granted annually to directors. First, under the former program,
directors who are also employees received options in their capacity as directors
under an established formula. Under the proposed amendment, employee directors
will no longer receive options in their capacity as directors.
Second, under the proposed amendment, the formula under which non-employee
directors are granted annual options will be changed so that the number of
options granted will be less than the number granted under the former program.
Under the former program, non-employee directors received an annual base grant
of options to purchase 12,000 shares of Common Stock. This base option was
increased or decreased by 1,500 shares for each 5% increase or decrease in the
Company's earnings before income taxes over the prior year, with the maximum
increase or decrease being 6,000 shares.
Under the proposed amendment, the annual base grant will be reduced from
12,000 shares to 5,000 shares; however, there is no provision for the base grant
to be decreased. The base grant of 5,000 shares will be increased (i) by 2,000
shares if the Company realizes an increase in Net Income of more than 20%
(defined as income after taxes determined in accordance with generally accepted
accounting principles) over the prior year, and (ii) by 100 shares for each
additional 1% increase in Net Income, but in no event will the total shares
granted in any year (the 5,000 base grant plus the incremental grants) exceed
9,000.
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<PAGE>
The final change under the proposed amendment is that the director options
will expire on their tenth anniversary. Under the former plan, director options
expired on their fifth anniversary.
Description of the Plan
The following paragraphs provide a summary of the principal features of the
1995 Equity Incentive Plan (the "Plan") and its operation, other than as related
to director options. The following summary is qualified in its entirety by
reference to the Plan, a copy of which may be obtained from the Company upon
written request.
Administration of the Plan
The Plan is administered by the Executive Compensation Committee of the
Board of Directors (the "Committee"). The members of the Committee must qualify
as "disinterested persons" under Rule 16b-3 under the Securities Exchange Act of
1934, and as "outside directors" under section 162(m) of the Internal Revenue
Code (for purposes of qualifying amounts received under the Plan as
"performance-based compensation" under section 162(m)).
Subject to the terms of the Plan, the Committee has the sole discretion to
determine the employees and consultants who shall be granted Awards, the size
and types of such Awards, and the terms and conditions of such Awards. The
Committee may delegate its authority to grant and administer awards to a
separate committee appointed by the Committee, but only the Committee may make
awards to participants who are executive officers of the Company. The director
option portion of the Plan is administered by the full Board of Directors,
rather than the Committee.
Eligibility to Receive Awards
Employees and consultants of the Company and its affiliates (i.e., any
corporation or other entity controlling, controlled by or under common control
with the Company) are eligible to be selected to receive one or more Awards. The
Plan also provides for the grant of stock options to the Company's employee and
non-employee directors. Such options will automatically be granted pursuant to a
nondiscretionary formula. The terms and conditions of options to be granted to
directors are discussed below under "Director Options."
Options
The Committee may grant nonqualified stock options, incentive stock options
("ISOs" which are entitled to favorable tax treatment), or any combination
thereof. The number of shares covered by each option will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted options for more than 100,000 shares.
The exercise price of each option is set by the Committee, but generally
cannot be less than 100% of the fair market value of the Company's Common Stock
on the date of grant. Thus, an option will have value only if the Company's
Common Stock appreciates in value after the date of grant. The exercise price of
an ISO must be at least 110% of the fair market value if the participant, on the
grant date, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its subsidiaries. Also,
the aggregate fair market value of the shares (determined on the grant date)
covered by ISOs which first become exercisable by any participant during any
calendar year may not exceed $100,000.
The exercise price of each option must be paid in full at the time of
exercise. The Committee also may permit payment through the tender of shares of
the Company's Common Stock then owned by the participant, or by any other means
that the Committee determines to be consistent with the Plan's purpose. Any
taxes required to be withheld must be paid by the participant at the time of
exercise.
Options become exercisable at the times and on the terms established by the
Committee. Options expire at the times established by the Committee, but
generally not later than 10 years after the date of grant (13 years in the event
10
<PAGE>
of the optionee's death). The Committee may extend the maximum term of any
option granted under the Plan, subject to the preceding limits.
Stock Appreciation Rights ("SARs")
The Committee determines the terms and conditions of each SAR. SARs may be
granted in conjunction with an option, or may be granted on an independent
basis. The number of shares covered by each SAR will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted SARs for more than 100,000 shares.
Upon exercise of a SAR, the participant will receive payment from the
Company in an amount determined by multiplying (1) the positive difference
between (a) the fair market value of a share of Company Common Stock on the date
of exercise, and (b) the exercise price, by (2) the number of shares with
respect to which the SAR is exercised. Thus, a SAR will have value only if the
Company's Common Stock appreciates in value after the date of grant.
SARs are exercisable at the times and on the terms established by the
Committee. Proceeds from SAR exercises may be paid in cash or shares of the
Company's Common Stock, as determined by the Committee. SARs expire at the times
established by the Committee, but are subject to the same maximum time limits as
are applicable to employee options granted under the Plan.
Restricted Stock Awards
Restricted stock awards are shares of the Company's Common Stock that vest
in accordance with terms established by the Committee. The number of shares of
restricted stock (if any) granted to a participant will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted more than 100,000 shares.
In determining the vesting schedule for each Award of restricted stock, the
Committee may impose whatever conditions to vesting as it determines to be
appropriate. For example, the Committee may (but is not required to) provide
that restricted stock will vest only if one or more performance goals are
satisfied. In order for the Award to qualify as "performance-based" compensation
under section 162(m) of the Internal Revenue Code, the Committee must use one or
more of the following measures in setting the performance goals: (1) earnings
per share, (2) individual performance objectives, (3) net income, (4) pro forma
net income, (5) return on designated assets, (6) return on revenues, and (7)
satisfaction of Company-wide or department based operating objectives. These
performance measures are set forth in the Plan and are some of the same measures
that are used in setting performance goals under the Company's 1994 Management
and Executive Incentive Plan and under the 1994 Long-Term Incentive Plan. The
Committee may apply the performance measures on a corporate or business unit
basis, as deemed appropriate in light of the participant's specific
responsibilities. The Committee may, in its sole discretion, accelerate the time
at which any restrictions lapse or remove any restrictions.
Performance Unit Awards and Performance Share Awards
Performance unit awards and performance share awards are amounts credited
to a bookkeeping account established for the participant. A performance unit has
an initial value that is established by the Committee at the time of its grant.
A performance share has an initial value equal to the fair market value of a
share of the Company's Common Stock on the date of grant. The number of
performance units or performance shares (if any) granted to a participant will
be determined by the Committee, but during any fiscal year of the Company, no
participant may be granted more than 100,000 performance shares or performance
units having an initial value greater than $250,000.
Whether a performance unit or performance share actually will result in a
payment to a participant will depend upon the extent to which performance goals
established by the Committee are satisfied. The applicable performance goals
will be determined by the Committee. In particular, the Plan permits the
11
<PAGE>
Committee to use the same performance goals as are discussed above with respect
to restricted stock. The Committee may, in its sole discretion, waive any
performance goal requirement.
After a performance unit or performance share award has vested (that is,
after the applicable performance goal or goals have been achieved), the
participant will be entitled to receive a payout of cash, Common Stock, or any
combination thereof, as determined by the Committee. Unvested performance units
and performance shares will be forfeited upon the earlier of the recipient's
termination of employment or the date set forth in the Award agreement.
Nontransferability of Awards
Awards granted under the Plan may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
applicable laws of descent and distribution; provided, however, that a
participant may designate one or more beneficiaries to receive any exercisable
or vested Awards following his or her death.
Change in Control
In the event of a change in control not approved by the Board of Directors,
all Awards granted under the Plan then outstanding but not then exercisable (or
subject to restrictions) become immediately exercisable, unless otherwise
provided in the applicable Award agreement. In general, a change in control
occurs if (1) a person (other than the Company and its affiliates) directly or
indirectly owns 30% of the Common Stock, (2) the composition of the Board
changes during any two year period whereby directors at the beginning of the
period (including new directors approved by a vote of at least two-thirds of the
directors then in office) cease to constitute a majority of the Board, or (3)
the stockholders of the Company approve a merger, consolidation or plan of
complete liquidation of the Company or approve an agreement for the sale of all
or substantially all of the Company's assets.
Tax Aspects
The following discussion is intended to provide an overview of the U.S.
federal income tax laws which are generally applicable to Awards granted under
the Plan as of the date of this Proxy Statement. People or entities in differing
circumstances may have different tax consequences, and the tax laws may change
in the future. This discussion is not to be construed as tax advice.
A recipient of a stock option or SAR will not have taxable income on the
date of grant. Upon the exercise of nonqualified options and SARs, the
participant will recognize ordinary income equal to the difference between the
fair market value of the shares on the date of exercise and the exercise price.
Any gain or loss recognized upon any later disposition of the shares generally
will be capital gain or loss.
Purchase of shares upon exercise of an ISO will not result in any taxable
income to the participant, except for purposes of the alternative minimum tax.
Gain or loss recognized by the participant on a later sale or other disposition
either will be long-term capital gain or loss or ordinary income, depending upon
how long the participant holds the shares. Any ordinary income recognized will
be in the amount, if any, by which the lesser of (1) the fair market value of
such shares on the date of exercise, or (2) the amount realized from the sale,
exceeds the exercise price.
Upon receipt of restricted stock, a performance unit or a performance
share, the participant will not have taxable income unless he or she elects to
be taxed. Absent such election, upon vesting the participant will recognize
ordinary income equal to the fair market value of the shares or units at such
time.
The Committee may permit participants to satisfy tax withholding
requirements in connection with the exercise or receipt of an Award by (1)
electing to have the Company withhold otherwise deliverable shares, or (2)
delivering to the Company then owned shares having a value equal to the amount
required to be withheld.
12
<PAGE>
The Company will be entitled to a tax deduction for an Award in an amount
equal to the ordinary income realized by the participant at the time the
participant recognizes such income. In addition, Internal Revenue Code section
162(m) contains special rules regarding the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers. The general rule is that
annual compensation paid to any of these specified executives will be deductible
only to the extent that it does not exceed $1 million. The Company can preserve
the deductibility of certain compensation in excess of $1 million, however, if
the Company complies with conditions imposed by section 162(m), including (1)
the establishment of a maximum number of shares with respect to which Awards may
be granted to any one employee during a specified time period, and (2) for
restricted stock, performance units and performance shares, inclusion in the
Plan of performance goals which must be achieved prior to payment. The Plan has
been designed to permit the Committee to grant Awards which satisfy the
requirements of section 162(m).
Amendment and Termination of the Plan
The Board generally may amend or terminate the Plan at any time and for any
reason, but in accordance with section 162(m) of the Internal Revenue Code and
Rule 16b-3 under the Securities Exchange Act of 1934, certain material
amendments to the Plan require stockholder approval.
The Board of Directors recommends that stockholders vote YES on this
proposal. The affirmative vote of the holders of a majority of the shares of
Common Stock represented at the Annual Meeting will be required for adoption of
the proposal.
PROPOSAL III
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE 1996 FISCAL YEAR
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
The Audit Committee has selected the accounting firm of Deloitte & Touche
LLP to serve as the Company's independent auditors for the 1996 fiscal year. The
stockholders are being asked to ratify this selection. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting. Such
representatives will have the opportunity to make a statement at the Annual
Meeting if they so choose and will be available to respond to appropriate
questions.
13
<PAGE>
EXECUTIVE COMPENSATION
Executive Compensation Committee Report
This report discusses the manner in which base salaries, incentive
compensation and stock option grants for Abe J. Gustin, Jr., the Company's Chief
Executive Officer ("CEO"), and the other executives named in the Summary
Compensation Table (the "Named Executives") were determined for the 1995 fiscal
year.
The Company continues to believe that its past growth and success have
been, and that its continued growth and success will be dependent in part on its
ability to attract and retain highly-qualified senior management. In addition,
the Company believes that executive officers should have their personal
financial interests closely aligned with stockholder value. As a result,
executive compensation packages for 1995 were established which the Company
believes to be competitive in the restaurant industry, based on the data
described in the compensation survey described below, and focused on the
Company's operating performance. The Company's executive compensation
arrangements consist of three primary parts: competitive base salary levels,
significant Company performance-based bonus payments, and stock options. The
Committee believes that these components are appropriate ways to provide the
Company's executives financial security and motivation to increase profitability
both in the near-term and over time. The Company uses an independent
compensation consultant to advise on executive compensation issues. The Company
had written employment agreements with the CEO and each Named Executive during
1995, including Mr. Shadid, who entered into a new employment agreement after
the expiration of his previous agreement in March of 1995. The Company's
executive employment agreements address only first-year base salary levels and,
therefore, except for Mr. Shadid's new agreement, did not determine 1995
compensation levels. Base salary, bonus and stock option levels are left to the
discretion of the Committee each year.
In reviewing compensation levels for 1995, the Committee conducted a
thorough review and study of the Company's executive salary and bonus policies
in order to provide the Company's executive officers with appropriate financial
and motivational arrangements in 1995 and the future. The Committee selected the
consulting firm of William M. Mercer, Incorporated ("Mercer") to assist it in
developing an executive compensation program designed to meet the Committee's
objectives. The consulting firm compared the base salaries, incentives and total
cash compensation of the Company's executives with those of comparable companies
(the "Study Group"), and reviewed and recommended modifications to the Company's
cash incentive and long-term compensation programs. (The Study Group included
the publicly-traded restaurant companies which are included in the customized
industry peer group used in the Performance Graph included in this Proxy
Statement, as well as other chain restaurant companies and companies within the
service industry of similar revenue size. The Committee did not direct the
consultant as to which specific companies to use in its study. The companies
were selected because they were generally comparable to the Company in size and
recent growth rate.) The results of the Committee's review were implemented in a
series of changes to the Company's bonus compensation practices, including the
development of the 1995 Equity Incentive Plan (approved by the stockholders at
the 1995 Annual Meeting).
Base Salary
In determining the 1995 base salaries for the CEO and Named Executives, the
Committee considered several criteria, including growth in stockholder value,
free cash flow, earnings before interest, taxes, depreciation, and amortization
("EBITDA"), net earnings, franchisee relations and new restaurant openings.
These criteria were not weighted by any predetermined formula, but rather, were
considered in light of the overall achievement of the Company's goals and of
general industry and economic factors. The significance of any particular
criterion varied depending upon the particular position or area of
responsibility of the executive in question. Mr. Gustin's 1995 base salary of
$425,000 represented an increase of 13% over 1994 and reflected the continued
strong operational and financial performance of the Company and of the
Applebee's franchise system, evidenced by, among other things, continued large
earnings growth, significant operating margin improvement, and a record number
of restaurant openings.
14
<PAGE>
It is the policy of the Company to review executive base salaries in
relation to comparable positions in the restaurant industry. The Committee
believes that base salaries should remain competitive, but not significantly
exceed the 50th percentile of the industry range determined by the Study Group.
The Committee also believes that for most executive and management employees,
base salary should comprise a relatively greater portion of total executive
compensation.
Incentive Compensation
The Committee believes that a significant part of compensation for the CEO
and other senior executives should continue to be based on the achievement of
operating and financial goals. The incentive plan, when combined with base
salary, provides award opportunities approximately equal to the 75th percentile
of comparable positions in the restaurant industry. In 1994, the Company
implemented a new bonus program, consisting of the 1994 Management and Executive
Incentive Plan (a cash bonus plan) for all executives and the 1994 Long-Term
Incentive Plan (a stock award plan) for all executives other than the CEO,
President and Executive Vice Presidents. Under the cash bonus plan, the
Committee established operating and financial goals for the Company and
individual bonus payments, based on a percentage of base salary, to be paid at
various levels of goal achievement. The Committee believes that this program
provides an appropriate, attractive incentive opportunity to the Company's
executives for both short-term and long-term rewards.
The Committee established the 1995 minimum achievement level to receive
bonus payments under the 1994 Management and Executive Incentive Plan at 74% of
the Company's internal targeted pre-tax profit, an increase from the 65%
achievement level used in 1994. The maximum achievement level for 1995
established under the 1994 Management and Executive Incentive Plan was 100% of
the Company's internal targeted pre-tax profit. Because the Company's actual
pre-tax profit in 1995 exceeded 100% of the Company's internal targeted pre-tax
profit, the CEO and three of the Named Executives received the maximum bonus
available under the plan, amounting to 75% of their respective base salaries for
1995. Mr. Sack's bonus, in accordance with his employment agreement, was not
determined by the plan, but was determined by individual goal achievement. Based
on the level of achievement of those individual goals, Mr. Sack received a bonus
of 67.5% of his base salary for 1995.
Stock Options
The Committee believes that stock option grants and other equity-related
compensation programs are important elements of the Company's executive
compensation program and will continue to be used to attract, motivate and
retain experienced, qualified members of management.
In 1995, the Company adopted and the stockholders approved the 1995 Equity
Incentive Plan, the terms of which are described under Proposal II, above.
Although the 1995 Equity Incentive Plan provides for several different types of
awards, the Committee approved only stock options in 1995.
Stock option grants in 1995, including those to the CEO and the Named
Executives, were made by the Committee and based on the level of each
recipient's responsibility within the Company and on amounts targeted at the
75th percentile. Options are granted at 100% of fair market value on date of
grant, and can be exercised (following a minimum holding period) at any time
over a 10 year period. Thus, Mr. Gustin, as Chairman and CEO, who was ultimately
responsible for all operations of the Company and for the franchise system and
relationships with franchisees, received the largest option grant, comprising
4.7% of all options granted in 1995.
In late 1995, the Committee, assisted by Mercer, compared the 1995 stock
option levels granted to the CEO and Named Executives to the stock options
granted to executives of other publicly traded restaurant companies and other
companies of similar revenue size using the most recent comparative data
available. In light of that review and comparison, the Committee confirmed that
the 1995 stock option grants to the CEO and Named Executives were appropriate.
15
<PAGE>
Other Information
Section 162(m) of the Internal Revenue Code places an annual limitation of
$1,000,000 on the compensation of certain executive officers of publicly held
corporations that can be deducted for federal income tax purposes unless such
compensation is based on performance. No executive of the Company received
annual compensation in excess of $1,000,000 in 1995 or in any prior year. The
Company's bonus and equity-based compensation plans are designed to meet the
requirements of Section 162(m) by basing all incentive compensation on
identifiable performance criteria. The Committee does not anticipate that any
executive base salary will exceed $1,000,000.
EXECUTIVE COMPENSATION COMMITTEE
D. Patrick Curran
Eric L. Hansen
Jack P. Helms
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee consists entirely of individuals who
are neither officers or employees of the Company.
16
<PAGE>
Summary Compensation Table
The following Summary Compensation Table sets forth the compensation of the
Chief Executive Officer and each of the next four most highly compensated
executive officers of the Company whose annual salary and bonuses exceeded
$100,000 for services in all capacities to the Company during the last three
fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
------------------------------------------------------------------------------
Other Annual
Fiscal Salary Bonus(1) Compensation(2) Options(3)
Name and Principal Position Year ($) ($) ($) (#)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Abe J. Gustin, Jr. 1995 $ 423,077 $ 318,750 $ -- 59,000
Chairman and Chief Executive 1994 366,965 161,719 369 49,000
Officer 1993 247,425 222,303 12,485 33,000
-----------------------------------------------------------------------------------------------------------------
Lloyd L. Hill(4) 1995 $ 308,655 $ 232,500 $ 95,576 72,000
President and Chief Operating 1994 244,111 119,229 67,418 51,000
Officer 1993 -- -- -- 33,000
-----------------------------------------------------------------------------------------------------------------
Ronald B. Reck(5) 1995 $ 249,038 $ 187,500 $ 11,843 53,000
Executive Vice President and 1994 220,650 97,031 4,510 42,000
Chief Administrative Officer 1993 167,792 133,381 19,985 19,500
-----------------------------------------------------------------------------------------------------------------
George D. Shadid 1995 $ 238,462 $ 180,000 $ 11,221 30,000
Executive Vice President and 1994 197,203 86,250 18,378 30,000
Chief Financial Officer 1993 165,149 115,189 4,985 15,000
-----------------------------------------------------------------------------------------------------------------
Burton M. Sack(6) 1995 $ 210,000 $ 141,750 $ -- 30,000
Executive Vice President 1994 36,346 -- -- --
1993 -- -- -- --
-----------------------------------------------------------------------------------------------------------------
</TABLE>
------------
(1) Represents payments made under the 1994 Management and Executive Incentive
Plan and payments made under executive bonus plans in 1993. In addition,
amounts applicable to Mr. Shadid include a bonus of $4,037 in 1993 pursuant
to an agreement between Mr. Shadid and the Company made at the time he
initially joined the Company in August 1992. Amounts applicable to Mr. Hill
include a bonus of $15,000 paid in 1994 pursuant to an agreement between
Mr. Hill and the Company made at the time he joined the Company as an
officer.
(2) Represents automobile allowances, club membership fees paid on behalf of
certain officers, payments made in connection with the Company's 401(k)
plan in 1993, and payments made in connection with the Company's
non-qualified retirement savings plan in 1994 and 1995. Amounts applicable
to Mr. Hill also include moving and relocation expense reimbursements of
$84,868 in 1995 and $67,378 in 1994.
(3) Represents options granted pursuant to the Company's 1989 Stock Option Plan
and 1995 Equity Incentive Plan, including options granted to directors who
are also executive officers (see "Certain Information Concerning the Board
of Directors").
(4) Mr. Hill's employment with the Company commenced February 1, 1994. Mr. Hill
received 18,000 options in 1993 for serving as a non-employee director and
also received 15,000 options in 1993 in connection with joining the Company
as an officer.
(5) Effective January 31, 1996, Mr. Reck resigned as an officer of the Company
but will continue as an employee through December 31, 1996.
(6) Mr. Sack's employment with the Company commenced October 24, 1994.
17
<PAGE>
During 1995, the Company had written employment agreements with the CEO and
each of the Named Executives. Mr. Gustin's agreement expired December 31, 1995,
and he has entered into a new employment agreement described below. The
agreement with Mr. Reck expired March 1, 1995 and was extended through December
31, 1995. Effective January 31, 1996, Mr. Reck resigned as an executive officer
of the Company but will continue as an employee until December 31, 1996. Mr.
Shadid's agreement also expired March 1, 1995, and he has entered into a new
agreement described below. Mr. Sack's agreement expired in 1995 and was not
renewed. Each of the employment agreements provides for periodic salary
adjustments as determined by the Executive Compensation Committee. In January
1996, Mr. Gustin's salary was increased to $465,000, Mr. Hill's salary was
increased to $340,000, and Mr. Shadid's salary was increased to $271,000.
Effective January 1, 1996, the Company and Mr. Gustin entered into a new
two-year employment agreement. The agreement allows periodic salary increases as
determined by the Executive Compensation Committee and provides a 26 month
severance payment based on the current year's salary and the greater of the
annualized current year's bonus or prior year's bonus (the "Severance Amount")
in the event of termination by the Company without cause (as defined) or by Mr.
Gustin with reason (as defined). Upon such a termination, if Mr. Gustin elects
to receive the Severance Amount, the agreement imposes a noncompetition and an
employee nonsolicitation clause. Upon any other termination, the agreement
allows the Company to impose the noncompetition and nonsolicitation provisions
for up to two years upon a payment of 50% of Mr. Gustin's base salary. The
agreement also provides for a lump sum payment equal to 26 times his current
year's monthly salary plus bonus, plus an amount equal to all bonuses paid or
accrued in the fiscal year of termination, without the imposition of a
noncompetition or nonsolicitation clause, in the event Mr. Gustin resigns or is
terminated following a change in control.
Mr. Hill's agreement was for an original term of one year, expiring in
January 1995, and automatically renews for successive one-year terms unless
otherwise terminated as provided in the agreement. The Company also entered into
a severance and noncompetition agreement with Mr. Hill which provides a
continuation of salary, bonus and benefits for a period of three years following
certain "triggering events," including termination by the Company without cause
or termination by Mr. Hill if the Company substantially reduces his
compensation, benefits, or duties or requires a relocation from the Kansas City
area. If the three-year severance payments are due, Mr. Hill will be bound by a
three-year non-compete. If the severance payments are not due, the Company can
elect to impose a one-year non-compete on Mr. Hill if it pays him 50% of his
base salary.
Effective March 1, 1995, the Company and Mr. Shadid entered into a new
employment agreement with an initial term ending December 29, 1996, and
renewable thereafter for additional one year terms. The agreement allows
periodic salary increases as determined by the Executive Compensation Committee
and provides a 26 month severance payment based on the current year's salary and
the greater of the annualized current year's bonus or prior year's bonus (the
"Severance Amount") in the event of termination by the Company without cause (as
defined) or by Mr. Shadid with reason (as defined). If Mr. Shadid elects to
receive the Severance Amount, the agreement imposes a noncompetition and an
employee nonsolicitation clause. The agreement also provides for a lump sum
payment equal to 26 times his current year's monthly salary plus bonus, plus an
amount equal to all bonuses paid or accrued in the fiscal year of termination,
without the imposition of a noncompetition or nonsolicitation clause, in the
event Mr. Shadid resigns or is terminated following a change in control.
In October 1994, the Company entered into a one-year employment agreement
with Mr. Sack in connection with Mr. Sack joining the Company as an Executive
Vice President. Mr. Sack's employment agreement provided for a base salary of
$210,000, with future periodic salary adjustments as determined by the Executive
Compensation Committee and was renewable for two additional one-year terms by
mutual agreement as provided in the agreement. The agreement expired in 1995 and
was not renewed.
The Company has entered into severance arrangements for the other officers
of the Company (nine persons), which provide for lump sum payments in the event
the employee resigns or is terminated following a change in control of the
Company in an amount equal to (i) one and two-thirds times the officer's cash
compensation for the prior year (salary plus bonus), and (ii) the amount of all
bonuses paid or accrued in the fiscal year of termination. If all officers with
change in control severance agreements (14 persons) had been terminated as of
December 31, 1995, as a result of a change in control, the Company would have
been required to make payments under the change in control severance provisions
of the above agreements aggregating approximately $5,500,000.
18
<PAGE>
The following tables set forth information regarding options granted and
exercised during fiscal year 1995 with respect to the Chief Executive Officer
and the next four most highly compensated executive officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------------------------------------
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants(1) for Option Term(2)
--------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration 5% 10%
Name (#) Year ($/Share) Date ($) ($)
----------------------- ------------- ---------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Abe J. Gustin, Jr. 50,000(3) 4.7% $28.50 8/06/05 $896,175 $2,271,083
9,000(4) 0.9 25.00 5/26/00 62,163 137,365
----------------------- ------------- ---------------- ------------ -------------- ------------ --------------
Lloyd L. Hill 40,000(3) 3.8 28.50 8/06/05 716,940 1,816,866
9,000(4) 0.9 25.00 5/26/00 62,163 137,365
23,000(5) 2.2 19.25 3/04/00 122,324 270,303
----------------------- ------------- ---------------- ------------ -------------- ------------ --------------
Ronald B. Reck 30,000(6) 2.8 28.50 8/06/05 537,705 1,362,650
23,000(5) 2.2 19.25 3/04/00 122,324 270,303
----------------------- ------------- ---------------- ------------ -------------- ------------ --------------
George D. Shadid 30,000(3) 2.8 28.50 8/06/05 537,705 1,362,650
----------------------- ------------- ---------------- ------------ -------------- ------------ --------------
Burton M. Sack 21,000(3) 2.0 28.50 8/06/05 376,394 953,855
9,000(4) 0.9 25.00 5/26/00 62,163 137,365
----------------------- ------------- ---------------- ------------ -------------- ------------ --------------
</TABLE>
- ---------------
(1) Options are granted at the fair market value on the date of grant.
(2) The assumed rates are compounded annually for the full terms of the options.
(3) Options vest three years after date of grant.
(4) Represents options granted to executive officers who are also directors
(see "Certain Information Concerning the Board of Directors") which vest
one year after date of grant.
(5) Options were vested upon grant.
(6) Options vest one year after date of grant.
19
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Value of Unexercised
Securities Underlying In-The-Money
Unexercised Options Options at
at 12/31/95 12/31/95(2)
Shares (#) ($)
Acquired Value ----------------------- ------------------------
at Exercise Realized(1) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
----------------------- ------------- ------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
Abe J. Gustin, Jr. None None 82,000/59,000 $ 709,341/$ --
----------------------- ------------- ------------- ----------------------- ------------------------
Lloyd L. Hill 12,000 $ 302,500 107,000/49,000 $ 749,186/$ --
----------------------- ------------- ------------- ----------------------- ------------------------
Ronald B. Reck 15,000 361,250 84,500/30,000 $ 630,989/$ --
----------------------- ------------- ------------- ----------------------- ------------------------
George D. Shadid 25,101 570,127 45,000/30,000 $ 408,050/$ --
----------------------- ------------- ------------- ----------------------- ------------------------
Burton M. Sack None None -- /30,000 $ -- /$ --
----------------------- ------------- ------------- ------------------------------------------------
</TABLE>
- --------------
(1) Market value less option price.
(2) Based upon the closing sale price of the Common Stock on December 29, 1995
(the last trading day in fiscal year 1995).
20
<PAGE>
Performance Graphs
The following graph compares the annual change in the Company's
cumulative total stockholder return for the five fiscal years ended December 31,
1995 (December 30, 1990 to December 31, 1995) based upon the market price of the
Company's Common Stock, compared with the cumulative total return on Media
General's NASDAQ Total Return Index, the Company's customized Industry Peer
Group and the S&P Restaurant Industry Index as indexed by Media General. The
Media General NASDAQ Index includes both the NASDAQ NMS and NASDAQ Small-Cap
Issuers indices. The customized Industry Peer Group consists of the Company;
Brinker International, Inc.; Chart House Enterprises, Inc.; Cracker Barrel Old
Country Store, Inc.; Max & Erma's Restaurants, Inc.; Morrison Restaurants, Inc.;
Spaghetti Warehouse, Inc.; and Uno Restaurant Corporation. The Company has
determined that the S&P Restaurant Industry Index represents a more meaningful
peer group than the custom peer group described above.
APPLEBEE'S INTERNATIONAL, INC.
Performance Graph
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
APPLEBEE'S INTERNATIONAL, INC. VS. CUSTOM PEER GROUP VS.
NASDAQ TOTAL RETURN INDEX
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Applebee's Custom S&P Restaurant NASDAQ
Measurement Point International, Inc. Peer Group Industry Index Total Return Index
- -------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
December 30, 1990 $100.00 $100.00 $100.00 $100.00
December 29, 1991 $200.96 $199.60 $134.86 $128.38
December 27, 1992 $403.18 $262.52 $172.77 $129.64
December 26, 1993 $894.52 $348.81 $201.69 $155.50
December 25, 1994 $645.66 $254.57 $201.06 $163.26
December 31, 1995 $989.92 $209.55 $301.56 $211.77
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 30, 1990
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1995
21
<PAGE>
Certain Indemnification Agreements
The Company has entered into Indemnification Agreements with each of its
directors and officers. Under the Indemnification Agreements, the Company agreed
to hold harmless and indemnify each indemnitee generally to the full extent
permitted by Section 145 of the Delaware General Corporation Law and against any
and all liabilities, expenses, judgments, fines, penalties and costs in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative to which the indemnitee
is made a party by reason of the fact that the indemnitee has, is or at the time
becomes a director or officer of the Company or any other entity at the request
of the Company. The indemnity does not cover liability arising out of fraudulent
acts, deliberate dishonesty or willful misconduct, violations of certain
securities laws, or if a court determines that such indemnification is not
lawful. In addition, the By-laws of the Company provide for indemnification to
all officers and directors of the Company to essentially the same extent as
provided in the indemnification agreements.
The Company presently carries director and officer liability insurance to
insure its directors and officers against certain liabilities they might incur
in connection with performing their duties for the Company. The proceeds of such
insurance would be available to the extent thereof to satisfy any obligation of
the Company to indemnify its directors or officers with respect to the liability
giving rise to the insurance proceeds. The insurance does not cover all
liabilities that could give rise to indemnification by the Company.
CERTAIN TRANSACTIONS
The Company and certain franchisees have obtained restaurant equipment from
Sal Reck Equipment Company. Sal Reck, the owner of such company, is the father
of Ronald B. Reck. During the 1995 fiscal year, the Company paid $3,128,000 for
equipment and services purchased from Sal Reck Equipment Company. The Company
believes that all such transactions have been on terms at least as favorable as
could have been obtained from unaffiliated third parties.
One of the Company's restaurants is leased from a corporation in which Abe
J. Gustin, Jr., Ronald B. Reck and Johyne H. Reck each owns a 25% interest.
During 1995, the Company entered into an agreement with this corporation to
lease additional parking space for this restaurant. The Company paid $186,000
under these leases in the 1995 fiscal year. The Company believes that the terms
of the leases reflect fair market value rentals which are comparable to those
which could have been obtained from an unaffiliated third party. Abe J. Gustin,
Jr. personally guaranteed a restaurant lease for a former franchisee in Dallas.
When the Company undertook the operation of this franchise restaurant it agreed
to assume the lease prospectively. This decision was approved by a majority of
the disinterested members of the Board of Directors. Mr. Gustin remains liable
on his guarantee. In the 1995 fiscal year, the aggregate payments made by the
Company on the lease were $96,000.
Mr. Gustin's brother and a brother-in-law own two of the Company's
franchisees, A.N.A., Inc., which operates 10 restaurants. Another brother-in-law
of Mr. Gustin owns a 50% interest in Apple-Bay East, Inc., another of the
Company's franchisees which operates two restaurants. The Company has also
entered into development agreements for two territories with Apple Partners
Limited Partnership. Ronald B. Reck's brother-in-law owns a 50% interest in the
corporate general partner of this limited partnership. The development and
franchise agreements of A.N.A., Inc., Apple-Bay East, Inc. and Apple Partners
Limited Partnership are standard in form and require payment of standard
franchise, royalty, and advertising fees.
22
<PAGE>
In March 1995, the Company acquired Innovative Restaurant Concepts, Inc.
and its affiliates ("IRC"). IRC owns and operates the Rio Bravo Cantina chain of
Mexican restaurants and four other specialty restaurant concepts. Under the
terms of the agreement, approximately 2,777,000 shares of the Company's Common
Stock or options to purchase such shares, subject to adjustment, were exchanged
for all of the outstanding stock, stock options and partnership interests of IRC
and approximately $13,700,000 of IRC indebtedness was assumed. Raymond D.
Schoenbaum owned beneficially approximately 55% of IRC and was released from his
personal guarantee of a portion of the IRC debt. As a part of the acquisition,
Mr. Schoenbaum entered into a consulting agreement with the Company. The
consulting agreement, which had an initial term of one year, terminated in March
1996 and paid Mr. Schoenbaum a fee of $165,000. The agreement also includes a
one year period after termination in which Mr. Schoenbaum is precluded from
competing in the casual dining restaurant industry and from hiring any employees
of the Company.
The Company leases certain office space under an operating lease from a
partnership in which a director of the Company holds a 37.5% interest. The
Company paid $84,000 under this lease in the 1995 fiscal year. The Company
believes that the terms of the lease reflect fair market value rentals which are
comparable to those which could have been obtained from an unaffiliated third
party.
Effective March 1, 1995, the Company entered into a two-year consulting
agreement with Mr. Kenneth Hill to act as a consultant to the Company for
governmental affairs and restaurant industry relations. This agreement was
recently extended for a third year. Mr. Hill was paid $200,000 for the first
year of the agreement, and will be paid $150,000 for the second year and $75,000
for the third year. The agreement contains nondisclosure, noncompetition, and
employee nonsolicitation clauses and also provides that all concepts and
discoveries conceived by Mr. Hill alone or with others become the exclusive
property of the Company. Mr. Hill has agreed to be nominated for election as a
Director, but has informed the Company that he will resign from the Board upon
the termination of his extended consulting agreement or earlier if the Company
selects someone to fill his position on the Board of Directors.
OTHER MATTERS
The Company knows of no other matters to be considered at the Annual
Meeting. However, if any other matters are properly presented at the meeting, it
is the intention of the persons named in the accompanying proxy to vote in
respect thereof in accordance with their best judgment.
The Board of Directors encourages each stockholder to attend the Annual
Meeting. Whether or not you plan to attend, you are urged to complete, sign and
return the enclosed proxy in the accompanying envelope. A prompt response will
greatly facilitate arrangements for the meeting, and your cooperation will be
appreciated. Stockholders who attend the meeting may vote their shares
personally even though they have sent in their proxies.
By Order of the Board of Directors
Robert T. Steinkamp, Secretary
Applebee's International, Inc.
4551 W. 107th Street, Suite 100
Overland Park, Kansas 66207
Overland Park, Kansas
April 8, 1996
23
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF APPLEBEE'S INTERNATIONAL, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 13, 1996
The undersigned hereby appoints each of Abe J. Gustin, Jr. and Robert
T. Steinkamp the proxy and attorney-in-fact of the undersigned with full power
of substitution for and in the name of the undersigned to attend the Annual
Meeting of Stockholders of Applebee's International, Inc., to be held at 4551 W.
107th Street, Suite 100, Overland Park, Kansas 66207 on May 13, 1996 at 10:00
a.m., CDT, and any and all adjournments thereof, and to vote thereat the number
of shares of Common Stock of Applebee's International, Inc., which the
undersigned would be entitled to vote if then personally present. The Board of
Directors recommends votes FOR proposals I through III.
I. To elect three directors to serve until the 1999 Annual Meeting
of Stockholders or until their earlier resignation;
Nominees: Eric L. Hansen, Kenneth D. Hill and Raymond D. Schoenbaum;
[ ] FOR all nominees listed above.
[ ] FOR all nominees listed above except____________________________.
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
II. To amend the Company's 1995 Equity Incentive Plan to reduce the number
of stock options to be granted each year to members of the Board of
Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 1996 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IV. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
1
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED
FOR PROPOSALS I THROUGH III.
Signature _________________ Date __________
Signature _________________ Date __________
Sign exactly as name appears hereon. When
shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, give full
title. If a corporation, sign full corporate
name by President or other authorized officer.
If a partnership, sign in partnership name by
authorized partner.
MARK, DATE, SIGN, AND PROMPTLY RETURN PROXY
CARD IN ENCLOSED ENVELOPE.
2
