APPLEBEE'S INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 14, 1997
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 14, 1997, 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 increase
the number of shares of Common Stock available for Awards
thereunder by 300,000 shares;
III. To adopt the Company's Employee Stock Purchase Plan;
IV. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 1997 fiscal year; and
V. 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 21, 1997,
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, 1997
<PAGE>
APPLEBEE'S INTERNATIONAL, INC.
--------------
PROXY STATEMENT
--------------
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
14, 1997, 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, 1997, 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 21, 1997,
will be entitled to notice of and to vote at the Annual Meeting. At the close of
business on March 27, 1997, there were 31,330,898 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, III and IV 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
in person or by proxy but for which no voting authority has been given 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 March 27, 1997, the closing sale price reported on The Nasdaq Stock
Market for a share of the Common Stock was $25.25 (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.
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.
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Stockholder Proposals
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1998 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, 1997 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 1999 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. One of
the Class II directors, Johyne H. Reck, whose term expires at the 1997 Annual
Meeting, has decided not to stand for reelection, and as a result, the size of
the Board will be reduced to nine members. The following information is
furnished for Ms. Reck, each of the three persons being nominated for election
as a Class II director to a new three-year term ("Nominee"), and for each person
who is continuing as a Class I or Class III director of the Company
("Incumbent").
ABE J. GUSTIN, JR., age 62 (Nominee - 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
served as Chief Executive Officer of the Company through 1996, and effective
January 1, 1997, became Co-Chief Executive Officer along with Lloyd L. Hill.
From 1983 to 1990, he also served as Chairman of Juneau Holding Co., a Kansas
City, Missouri-based firm which operated Taco Bell restaurants.
LLOYD L. HILL, age 53 (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. Effective January 1, 1997, Mr. Hill assumed the role
of Co-Chief Executive Officer along with Mr. Gustin. From 1990 to 1994, he
served as President of Kimberly Quality Care, a home health care and nurse
personnel staffing company, where he also served as a director from 1988 to
1994, having joined that organization in 1980. Mr. Hill serves as a member of
the Nominating Committee.
Mr. Gustin and Mr. Hill will share the responsibilities of Chief Executive
Officer through 1997. Beginning in 1998, Mr. Gustin will retain his position as
the Chairman of the Board and Mr. Hill will remain Chief Executive Officer.
D. PATRICK CURRAN, age 52 (Nominee - 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 and the Executive Compensation Committee.
ERIC L. HANSEN, age 48 (Incumbent - Class I term expiring in 1999). 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 Nominating Committee.
JACK P. HELMS, age 44 (Incumbent - Class III term expiring in 1998). Mr.
Helms became a director of the Company in March 1994. He is presently a
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<PAGE>
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 Executive Compensation Committee
and the Nominating Committee.
KENNETH D. HILL, age 63 (Incumbent - Class I term expiring in 1999). 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 and
industry relations. 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 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. Mr. Kenneth Hill and Mr. Lloyd Hill are not related.
ROBERT A. MARTIN, age 66 (Nominee - 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.
JOHYNE H. RECK, age 47 (Class II term expiring in 1997). Ms. Reck has
decided not to stand for reelection at the 1997 Annual Meeting. Ms. Reck was
originally 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 an officer of the Company until his
resignation which was effective January 31, 1996. Ms. Reck serves as a member of
the Audit Committee.
BURTON M. SACK, age 59 (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.
RAYMOND D. SCHOENBAUM, age 50 (Incumbent - Class I term expiring in 1999).
Mr. Schoenbaum was elected a director of the Company effective March 24, 1995
and served 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
Systems, Inc., a franchisee of Wendy's International, Inc., from 1974 until 1986
and was a Shoney's franchisee from 1971 until 1974. Mr. Schoenbaum serves as a
member of the Executive Compensation Committee and the Nominating Committee.
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<PAGE>
The Board has three standing committees: the Audit Committee, the Executive
Compensation Committee and the Nominating 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 Ms. Reck. 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, Mr. Helms and Mr. Schoenbaum. 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 any stockholder nominations.
The members of the Nominating Committee are Mr. Hansen, Mr. Helms, Mr. Lloyd
Hill, and Mr. Schoenbaum.
During fiscal year 1996, the Board of Directors held seven meetings
(including five regular meetings), the Audit Committee held two meetings, the
Executive Compensation Committee held eight meetings, and the Nominating
Committee held one meeting. During fiscal year 1996, each director attended more
than 75% of the Board meetings and the meetings of the committees on which such
director served.
For director compensation purposes, Mr. Curran, Mr. Hansen, Mr. Helms and
Ms. Reck were considered "non-employee directors" throughout 1996, and Mr.
Schoenbaum was deemed a "non-employee director" subsequent to the termination of
his consulting agreement in March 1996. During 1996, Mr. Gustin, Mr. Lloyd Hill,
Mr. Martin and Mr. Sack were "employee directors," and Mr. Kenneth Hill was also
treated as an "employee director" pursuant to his consulting agreement with the
Company.
During fiscal year 1996, changes to the Company's director compensation
program were implemented after being approved by the stockholders at the 1996
Annual Meeting. Prior to the 1996 Annual Meeting, non-employee directors
received fees of $1,500 for each regular Board meeting attended, plus an annual
retainer of $6,000. Under the revised compensation program, non-employee
directors receive an annual cash retainer of $15,000 plus an annual fee of
$5,000 for each committee on which the director serves, up to a maximum of
$10,000 for all such committees. Employee directors do not receive any
compensation for their service on the Board.
Additionally, the Company's 1995 Equity Incentive Plan, as amended at the
1996 Annual Meeting, provides for non-employee directors to receive an annual
base grant of options to purchase 5,000 shares of Common Stock. 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. There is no provision for
the base grant to be decreased. Under the amended plan, options for 9,000 shares
of Common Stock were granted in fiscal 1996 to Mr. Curran, Mr. Hansen, Mr.
Helms, Ms. Reck and Mr. Schoenbaum for serving as non-employee directors of the
Company. In addition, an option for 9,000 shares of Common Stock was granted in
fiscal 1996 to Mr. Kenneth Hill (who, pursuant to his consulting agreement with
the Company, was treated as an employee for director compensation purposes).
Mr. Kenneth Hill and Mr. Schoenbaum also received cash compensation of
$162,500 and $51,792, respectively, for services rendered as consultants to the
Company in fiscal 1996. Cash compensation paid and stock options granted to Mr.
Gustin, Mr. Lloyd Hill and Mr. Martin for services rendered to the Company as
employees in fiscal 1996 are shown in the Summary Compensation Table. In
addition, Mr. Sack received cash compensation of $224,827 and options to
purchase 39,000 shares of Common Stock for services rendered to the Company as
an employee in fiscal 1996. See "Certain Transactions."
4
<PAGE>
Certain Information Concerning Executive Officers
Information regarding the executive officers of the Company, who are not
also directors of the Company, as of December 29, 1996, is as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
George D. Shadid........................ 42 Executive Vice President, Chief Financial Officer and
Treasurer
Steven K. Lumpkin....................... 42 Senior Vice President of Administration
Ronald J. Marks......................... 41 Vice President of Research and Development (promoted to
Senior Vice President effective January 1, 1997)
Stuart F. Waggoner...................... 51 Senior Vice President of Operations
Philip J. Hickey, Jr.................... 42 President and Chief Operating Officer of Rio Bravo
International, Inc.(a wholly-owned subsidiary of
Applebee's International, Inc.)
</TABLE>
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.
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.
RONALD J. MARKS has been an employee of the Company since March 1988 and
served as Director of Product Development until March 1991, when he became
Director of Menu Development. In February 1992, he was promoted to Executive
Director of Research and Development, and in February 1993, Mr. Marks was
promoted to Vice President of Research and Development. He was promoted to
Senior Vice President of Research and Development in January 1997.
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,
5
<PAGE>
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.
Security Ownership of Officers, Directors and Certain Beneficial Owners
The following table sets forth information, as of March 27, 1997, 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>
Massachusetts Financial Services Company......................... 3,947,595 12.6%
500 Boylston Street
Boston, MA 02116
Putnam Investments, Inc.......................................... 3,600,240 11.5%
One Post Office Square
Boston, MA 02109
AIM Management Group, Inc........................................ 2,508,300 8.0%
11 Greenway Plaza, Suite 1919
Houston, TX 77046
FMR Corp......................................................... 2,010,400 6.4%
82 Devonshire Street
Boston, MA 02109
Burton M. Sack (2)............................................... 2,031,180 6.5%
Abe J. Gustin, Jr. (2)........................................... 1,558,000 5.0%
Raymond D. Schoenbaum (2)........................................ 1,193,759 3.8%
Lloyd L. Hill (2)................................................ 128,000 0.4%
Johyne H. Reck (2) (3)........................................... 107,500 0.3%
Robert A. Martin (2)............................................. 85,000 0.3%
Kenneth D. Hill (2).............................................. 77,000 0.2%
George D. Shadid (2)............................................. 70,101 0.2%
D. Patrick Curran (2)............................................ 68,000 0.2%
Eric L. Hansen (2)............................................... 52,250 0.2%
Jack P. Helms (2)................................................ 50,000 0.2%
Stuart F. Waggoner (2)........................................... 43,500 0.1%
Steven K. Lumpkin (2)............................................ 10,000 -
All executive officers and directors as a group (15 persons) (2). 5,702,597 18.2%
- ---------------
<FN>
(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 March 27, 1997
or within 60 days thereafter: 9,000 shares for Mr. Sack, 58,000 shares for
Mr. Gustin, 18,000 shares for Mr. Schoenbaum, 116,000 shares for Lloyd L.
Hill, 98,000 shares for Ms. Reck, 59,000 shares for Mr. Martin, 76,500
shares for Kenneth D. Hill, 45,000 shares for Mr. Shadid, 63,000 shares for
Mr. Curran, 47,000 shares for Mr. Hansen, 45,000 shares for Mr. Helms,
34,500 shares for Mr. Waggoner, 10,000 shares for Mr. Lumpkin, and 716,000
shares for all executive officers and directors as a group.
(3) Ms. Reck disclaims ownership of 406,440 shares of Common Stock beneficially
owned by her husband, Ronald B. Reck, a former executive officer of the
Company, including 30,000 shares subject to currently exercisable options.
</FN>
</TABLE>
Mr. Gustin is a party to a voting agreement that binds Ronald B. Reck, a
former executive officer of the Company, 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
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<PAGE>
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. However, Ms. Reck has decided not to stand for
reelection at the 1997 Annual Meeting. 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.
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 29, 1996, except that one report was not timely filed by William
L. McClave, Vice President of Marketing - Rio Bravo. The transactions were
reported by Mr. McClave on his year-end report 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 2000 Annual Meeting of Stockholders and until his successor is elected
and has qualified or until his earlier death, resignation or removal.
<TABLE>
<CAPTION>
Position With Director
Name Age The Company Since
------------------------------- ------------ -------------------------------------------- ---------------
<S> <C> <C> <C>
Abe J. Gustin, Jr.............. 62 Chairman and Co-Chief Executive Officer 1983
D. Patrick Curran.............. 52 Director 1992
Robert A. Martin............... 66 Executive Vice President of Marketing 1989
</TABLE>
7
<PAGE>
PROPOSAL II
AMENDMENT OF THE COMPANY'S 1995 EQUITY INCENTIVE PLAN
INCREASING THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK
AVAILABLE FOR AWARDS UNDER SUCH PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
The stockholders are being asked to ratify Amendment No. 3 to the 1995
Equity Incentive Plan. There are currently only a total of 170,657 shares of
Common Stock remaining available for Awards under the 1995 Equity Incentive
Plan. The amendment increases the authorized number of shares of Common Stock
available for Awards under the 1995 Equity Incentive Plan by 300,000 shares, to
a total of 2,300,000 shares authorized.
As of December 29, 1996, stock options have been granted with respect to
1,829,343 shares available under the Plan. Of those, options with respect to
156,000 shares were exercisable as of December 29, 1996.
As of December 29, 1996, the following persons or groups held options to
purchase shares of Common Stock under the 1995 Equity Incentive Plan:
<TABLE>
<CAPTION>
Number of
Options
Held
------------
<S> <C>
Abe J. Gustin, Jr., Chairman and Chief Executive Officer................. 159,000
Lloyd L. Hill, President and Chief Operating Officer..................... 149,000
George D. Shadid, Executive Vice President and Chief Financial Officer... 105,000
Steven K. Lumpkin, Senior Vice President of Administration............... 65,000
Stuart F. Waggoner, Senior Vice President of Operations.................. 70,000
Robert A. Martin, Executive Vice President of Marketing.................. 89,000
All executive officers as a group........................................ 809,885
All employees other than executive officers.............................. 875,458
All directors who are not executive officers............................. 144,000
</TABLE>
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. 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 "non-employee directors" 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.
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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 non-employee
directors. Such options will automatically be granted pursuant to a
nondiscretionary formula. See "Certain Information Concerning the Board of
Directors."
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
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.
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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. 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
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.
Transferability of Awards
No Award granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will, or by the
laws of descent and distribution; provided, however, that an Award granted under
the Plan may be transferred to a holder's family members, to trusts created for
the benefit of the holder or the holder's family members, or to charitable
entities. If permitted by the Committee, a Participant under the Plan may name a
beneficiary or beneficiaries to whom any vested but unpaid Award shall be paid
in the event of the Participant's death. In the absence of any such designation,
any vested benefits remaining unpaid at the Participant's death shall be paid to
the Participant's estate and, subject to the terms of the Plan and of the
applicable Award Agreement, any unexercised vested Award may be exercised by the
administrator or executor of the Participant's estate.
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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.
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).
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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 amendments to the
Plan may 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
ADOPTION OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
Adoption of Employee Stock Purchase Plan by the Board
The Board of Directors has adopted the Applebee's International, Inc.
Employee Stock Purchase Plan (the "Purchase Plan") and directed that the
Purchase Plan be submitted to a vote of the stockholders at the Annual Meeting.
If approved by the stockholders, the Purchase Plan will become effective January
1, 1997. On March 27, 1997, the closing sale price reported on The Nasdaq Stock
Market for a share of the Common Stock was $25.25 (as reported by the National
Quotation Bureau, Inc.).
Purpose
The purpose of the Purchase Plan is to provide eligible employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of its Common Stock and, thus, to develop a stronger incentive to work
for the continued success of the Company. The Purchase Plan is an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
Administration
The Purchase Plan will be administered by a Committee appointed by the
Board of Directors (the "Committee"). Subject to the provisions of the Purchase
Plan, the Committee is authorized to determine any questions arising in the
administration, interpretation and application of the Purchase Plan, and to make
such uniform rules as may be necessary to carry out its provisions.
Eligibility and Number of Shares
Up to 200,000 shares of Common Stock of the Company are available for
distribution under the Purchase Plan, subject to appropriate adjustments by the
Committee in the event of certain changes in the outstanding shares of Common
Stock by reason of stock dividends, stock splits, corporate separations,
recapitalizations, mergers, consolidations, combinations, exchanges of shares or
similar transactions. Shares delivered pursuant to the Purchase Plan may be
acquired by purchase for the accounts of participants on the open market or in
privately negotiated transactions by a registered securities broker/dealer
selected by the Company (the "Agent"), by direct issuance from the Company
(whether newly issued or treasury shares) or by any combination thereof.
Any employee of the Company or, subject to approval by the Board of
Directors, a parent or subsidiary corporation of the Company (including officers
and any directors who are also employees) will be eligible to participate in the
Purchase Plan for any Purchase Period (as defined below) so long as, on the
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first day of such Purchase Period, the employee has completed at least 12 months
of continuous service. "Purchase Period" means each calendar quarter of the
year.
Any eligible employee may elect to become a participant in the Purchase
Plan for any Purchase Period by filing an enrollment form in advance of the
Purchase Period to which it relates. The enrollment form will authorize payroll
deductions beginning with the first payday in such Purchase Period and
continuing until the employee modifies his or her authorization, withdraws from
the Purchase Plan or ceases to be eligible to participate.
No employee may participate in the Purchase Plan if such employee would be
deemed for purposes of the Code to own stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company.
The Company currently has approximately 6,800 employees who are eligible to
participate in the Purchase Plan.
Participation
An eligible employee who elects to participate in the Purchase Plan will
authorize the Company to make payroll deductions of a specified fixed dollar
amount or whole percentage from 1% to 15% of the employee's gross cash
compensation as defined in the Purchase Plan. A participant may, on January 1 or
July 1, direct the Company to increase or decrease the amount of deductions
(within those limits) or make no further deductions, as set forth in greater
detail in the Purchase Plan. A participant may also elect to withdraw from the
Purchase Plan at any time before the end of a Purchase Period. In the event of a
withdrawal, all future payroll deductions will cease and the amounts withheld
will be paid to the participant in cash within 30 days. Any participant who
stops payroll deductions may not thereafter resume payroll deductions for that
Purchase Period, and any participant who withdraws from the Purchase Plan will
not be eligible to reenter the Purchase Plan until the next succeeding Purchase
Period.
Amounts withheld under the Purchase Plan will be held by the Company as
part of its general assets until the end of the Purchase Period and then applied
to the purchase of Common Stock of the Company as described below.
No interest will be credited to a participant for amounts withheld.
Purchase of Stock
As of the last day of each Purchase Period, the amounts withheld for a
participant in the Purchase Plan will be used to purchase shares of Common Stock
of the Company. The purchase price of each share will be equal to 90% of the
lesser of the Fair Market Value (as defined in the Purchase Plan) of a share of
Common Stock on either the first or last day of the Purchase Period. All amounts
so withheld will be used to purchase the number of shares of Common Stock
(including fractional shares) that can be purchased with such amounts at such
price, unless the participant has properly notified the Company that he or she
elects to receive the entire amount in cash. If some or all of such shares are
acquired for the accounts of participants on the open market or in privately
negotiated transactions, the Company will provide to the Agent such funds, in
addition to the funds available from participants' payroll deductions, as may be
necessary to permit the Agent to purchase that number of shares (including
brokerage fees and expenses).
No more than $25,000 in Fair Market Value (determined on the last day of
the respective Purchase Periods) of shares of Common Stock may be purchased
under the Purchase Plan and all other employee stock purchase plans, if any, of
the Company and any parent or subsidiary corporation of the Company by any
participant for each calendar year.
If purchases by all participants would exceed the number of shares of
Common Stock available for purchase under the Purchase Plan, each participant
will be allocated a ratable portion of such available shares. Any amount not
used to purchase shares of Common Stock will be refunded to the participant in
cash.
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Shares of Common Stock acquired by each participant will be held in a
general securities brokerage account maintained by the Agent for the benefit of
all participants, with the Agent maintaining individual subaccounts for each
participant (showing fractional share ownership to four decimal places). Each
participant will be entitled to vote all shares held for the benefit of such
participant in the general securities brokerage account. Certificates for the
number of whole shares of Common Stock purchased by a participant will be issued
and delivered to him or her only upon the request of such participant or his or
her representative. No certificates for fractional shares will be issued and
participants will instead receive cash representing any fractional shares.
Dividends on a participant's shares held in the general securities
brokerage account will automatically be reinvested in additional shares of
Common Stock of the Company. If a participant desires to receive dividends on
the participant's shares in cash, such participant must request that a
certificate for such shares be issued to such participant. The purchase price of
any shares ("Reinvestment Shares") purchased through the reinvestment of
dividends is determined as follows: (i) if, with respect to any particular
dividend payment, the Company instructs the Agent that any Reinvestment Shares
are to be purchased directly from the Company, the purchase price of each such
Reinvestment Share is the fair market value of a share on the business day
immediately preceding the date of purchase; or (ii) if, with respect to any
particular dividend payment, the Company does not instruct the Agent to purchase
Reinvestment Shares directly from the Company, the Agent will commingle all
dividends paid on all participants' shares held in the general securities
brokerage account and will purchase on the open market, or in privately
negotiated transactions, as soon as reasonably practicable after the receipt of
the dividends, as many shares of Common Stock of the Company as can be acquired
with such commingled dividends, and the purchase price of each such Reinvestment
Share is the average price paid by the Agent in purchasing all Reinvestment
Shares for all participants with the proceeds of such dividend payment. There is
allocated to each participant's individual subaccount such participant's pro
rata portion of the shares purchased with the commingled funds. The Company pays
all brokerage fees and expenses of the Agent in connection with the reinvestment
of dividends.
Death, Disability, Retirement or Other Termination of Employment
If the employment of a participant terminates for any reason, including
death, disability or retirement, the amounts previously withheld will be
returned to the participant or beneficiary, as the case may be, and the
participant's interest in the securities brokerage account will be liquidated as
described in the Purchase Plan.
Rights Not Transferable
The rights of a participant under the Purchase Plan are exercisable only by
the participant during his or her lifetime. No right or interest of any
participant in the Purchase Plan may be sold, pledged, assigned or transferred
in any manner other than by will or the laws of descent and distribution.
Amendment or Modification
The Board of Directors may at any time amend the Purchase Plan in any
respect which shall not adversely affect the rights of participants pursuant to
shares previously acquired under the Purchase Plan, provided that approval by
the stockholders of the Company is required to increase the number of shares to
be reserved under the Purchase Plan (except for adjustments by reason of stock
dividends, stock splits, corporate separations, recapitalizations, mergers,
consolidations, combinations, exchanges of shares and similar transactions).
Termination
All rights of participants in any offering under the Purchase Plan will
terminate at the earlier of (i) the day that participants become entitled to
purchase a number of shares of Common Stock equal to or greater than the number
of shares remaining available for purchase or (ii) at any time, at the
discretion of the Board of Directors. Upon termination of the Purchase Plan,
shares of Common Stock will be purchased for participants in accordance with the
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terms of the Purchase Plan, and cash, if any, previously withheld and not used
to purchase Common Stock will be refunded to the participants.
Federal Tax Considerations
The following discussion is intended to provide an overview of the U.S.
federal income tax laws which are generally applicable to the Purchase 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.
Payroll deductions under the Plan will be made on an after-tax basis.
Participants will not recognize any additional income as a result of
participation in the Plan until the disposal of shares acquired under the Plan
or the death of the Participant. Participants who hold their shares for more
than 24 months after the end of the Purchase Period or die while holding their
shares will recognize ordinary income in the year of disposition or death equal
to the lesser of (i) the excess of the fair market value of the shares on the
date of disposition or death over the purchase price paid by the participant or
(ii) the excess of the fair market value of the shares on the last day of the
Purchase Period over the purchase price paid by the participant. If the 24-month
holding period has been satisfied when the participant sells the shares or if
the participant dies while holding the shares, the Company will not be entitled
to any deduction in connection with the transfer of such shares to the
participant.
Participants who dispose of their shares within 24 months after the shares
were purchased will be considered to have realized ordinary income in the year
of disposition in an amount equal to the excess of the fair market value of the
shares on the date they were purchased by the participant over the purchase
price paid by the participant. If such dispositions occur, the Company generally
will be entitled to a deduction at the same time and in the same amount as the
participants who make those dispositions are deemed to have realized ordinary
income.
Participants will have a basis in their shares equal to the purchase price
of their shares plus any amount that must be treated as ordinary income at the
time of disposition of the shares. Any additional gain or loss realized on the
disposition of shares acquired under the Purchase Plan will be capital gain or
loss.
Copy of Purchase Plan
The full text of the Purchase Plan appears in Appendix A to this Proxy
Statement, to which Appendix reference is made for a complete statement of the
terms of the Purchase Plan.
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 IV
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE 1997 FISCAL YEAR
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
The Company has selected the accounting firm of Deloitte & Touche LLP to
serve as the Company's independent auditors for the 1997 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.
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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 1996 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, the
Company established executive total direct compensation levels for 1996 that it
believes are competitive with restaurant industry leaders, based on 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 used an independent compensation consultant
to advise on executive compensation issues. The Company had written employment
agreements in effect throughout 1996 with Mr. Gustin, Mr. Hill and Mr. Shadid.
Mr. Gustin entered into a new two-year employment agreement effective January 1,
1996. The Company's executive employment agreements address only first-year base
salary levels and, therefore, did not determine 1996 compensation levels. Base
salary, bonus and stock option levels are left to the discretion of the
Committee each year.
In reviewing compensation levels for 1996, 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 1996 and the future. The compensation
consultant compared the base salaries, incentives and total cash compensation
paid to the Company's executives with those paid by other companies in four
categories:
Performance graph customized industry peer group -- consisting of the
seven publicly-traded restaurant companies comprising the customized
industry peer group used in the performance graph included in the
Company's 1996 Proxy Statement.
Historical peer group -- consisting of the Performance Graph customized
industry peer group plus 12 additional publicly-traded restaurant
companies. This is the same group the Committee used in 1994 to
evaluate 1995 executive compensation levels.
Industry leader peer group -- consisting of 10 publicly-traded
restaurant companies, three of which are included in the Performance
Graph customized industry peer group, four more of which are included
in the Historical peer group, and three of which are not in either of
the other industry peer groups.
Service industry peer group -- consisting of eight publicly-traded
health care and retail companies with annual revenues in excess of $1
billion.
The Committee directed the compensation 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
Committee's review of this data and of an industry compensation analysis
prepared by the consultant resulted in the base salary increase described below.
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Base Salary
In determining the 1996 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 an 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 1996 base salary of
$465,000 represented an increase of 9.4% over 1995 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 another year of a
record number of restaurant openings.
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 with industry leaders, but
not significantly exceed the median.
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 among industry leaders. The Company uses its 1994
Management and Executive Incentive Plan (a cash bonus plan) for all executives
and its 1994 Long-Term Incentive Plan (a stock award plan) for all executives
below the Senior Vice President level. 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 1996 minimum achievement level to receive
bonus payments under the 1994 Management and Executive Incentive Plan at 88% of
the Company's internal targeted pre-tax profit, an increase from the 74% minimum
achievement level used in 1995. The maximum achievement level for 1996
established under the 1994 Management and Executive Incentive Plan was 98.5% of
the Company's internal targeted pre-tax profit. The plan allows the Committee to
exclude items from the calculation of pre-tax profit when it believes that it is
equitable to do so. After the end of 1996, the Committee excluded losses
incurred on the disposition of certain restaurants, and, to recognize the
initial operating costs of developing and expanding the Rio Bravo concept, the
Committee segregated the results of operations of the Rio Bravo division from
the Applebee's division. As a result, the actual achievement level was 95%,
which resulted in the CEO and each of the Named Executives receiving 50% of the
maximum bonus potential under the plan.
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. Stock options are awarded
under the 1995 Equity Incentive Plan. Options are granted at 100% of fair market
value on date of grant, and can be exercised (following a required holding
period) at any time over a 10 year period. In 1996, the Committee implemented
significant changes in the Company's approach to stock options by informing the
executives that grants will be made once every three years rather than annually
and by changing the vesting schedule for these options to vest 50% after three
years, 25% after four years and 25% after five years.
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Stock option grants in 1996, 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 of long-term compensation awards of industry leaders. Thus, the
grant to 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, was at the highest level awarded, comprising 9.3% of all options
granted in 1996.
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 1996 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 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
Raymond D. Schoenbaum (elected in May, 1996)
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee consists entirely of individuals who
are neither officers or employees of the Company. The Company leases certain
office space under an operating lease from a partnership in which Mr. Schoenbaum
holds a 37.5% interest. The Company paid $104,000 under this lease in the 1996
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.
18
<PAGE>
Summary Compensation Table
The following Summary Compensation Table sets forth the compensation of the
Chief Executive Officer and each of the next five 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. 1996 $ 463,462 $ 139,500 $ -- 100,000
Chairman and Chief Executive 1995 423,077 318,750 -- 59,000
Officer 1994 366,965 161,719 369 49,000
Lloyd L. Hill(4) 1996 $ 338,432 $ 102,000 $ 14,243 100,000
President and Chief Operating 1995 308,655 232,500 95,576 72,000
Officer 1994 244,111 119,229 67,418 51,000
George D. Shadid 1996 $ 269,362 $ 74,525 $ 23,267 75,000
Executive Vice President and 1995 238,462 180,000 11,221 30,000
Chief Financial Officer 1994 197,203 86,250 18,378 30,000
Steven K. Lumpkin(5) 1996 $ 198,077 $ 50,000 $ -- 50,000
Senior Vice President of 1995 98,077 93,750 -- 25,000
Administration 1994 -- -- -- --
Stuart F. Waggoner 1996 $ 188,461 $ 47,500 $ 3,241 50,000
Senior Vice President of 1995 148,462 105,000 20,270 38,500
Operations 1994 109,297 47,438 -- 15,000
Robert A. Martin 1996 $ 188,077 $ 47,500 $ 15,715 60,000
Executive Vice President of 1995 139,423 98,000 56,026 29,000
Marketing 1994 126,027 53,906 2,523 29,000
- ---------------
<FN>
(1) Represents payments made under the 1994 Management and Executive Incentive
Plan. In addition, amounts applicable to Mr. Hill include a bonus of
$15,000 paid in 1994 pursuant to an agreement made at the time he joined
the Company as an officer, and amounts applicable to Mr. Lumpkin include a
bonus of $30,000 paid in 1995 pursuant to an agreement made at the time he
joined the Company as an officer.
(2) Represents automobile allowances, club membership fees paid on behalf of
certain officers, and payments made in connection with the Company's
non-qualified retirement savings plan. Amounts applicable to Mr. Hill also
include moving and relocation expense reimbursements of $84,868 in 1995 and
$67,378 in 1994. Amounts applicable to Mr. Martin ($48,249 in 1995) and to
Mr. Waggoner ($3,241 in 1996 and $20,270 in 1995) relate to one-time
payments made to account for increased income taxes incurred by them as a
result of adjustments made by the Company to certain stock options.
(3) Represents options granted pursuant to the Company's 1989 Stock Option Plan
and 1995 Equity Incentive Plan, including options granted to directors who
were also executive officers in 1995 and 1994 (see "Certain Information
Concerning the Board of Directors").
(4) Mr. Hill's employment with the Company commenced February 1, 1994.
(5) Mr. Lumpkin's employment with the Company commenced May 1, 1995.
</FN>
</TABLE>
19
<PAGE>
During 1996, the Company had written employment agreements with Mr. Gustin,
Mr. Hill and Mr. Shadid. Each of the employment agreements provides for periodic
salary adjustments as determined by the Executive Compensation Committee. In
January 1997, Mr. Gustin's salary was increased to $500,000, Mr. Hill's salary
was increased to $420,000, and Mr. Shadid's salary was increased to $296,000.
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.
The Company has entered into severance arrangements with other officers of
the Company (eight 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 (ten persons) had been terminated as of
December 29, 1996, 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 $5,500,000.
20
<PAGE>
The following tables set forth information regarding options granted and
exercised during fiscal year 1996 with respect to the Chief Executive Officer
and the next five most highly compensated executive officers:
<TABLE>
<CAPTION>
==============================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
==============================================================================================================
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants(1) for Option Term(2)
- ---------------------------------------------------------------------------------- ---------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted(3) in Fiscal Price Expiration 5% 10%
Name (#) Year ($/Share) Date ($) ($)
- ----------------------- ------------- ---------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Abe J. Gustin, Jr. 100,000 9.3 $28.00 5/13/06 1,760,905 4,462,479
Lloyd L. Hill 100,000 9.3 28.00 5/13/06 1,760,905 4,462,479
George D. Shadid 75,000 7.0 28.00 5/13/06 1,320,679 3,346,859
Steven K. Lumpkin 50,000 4.7 28.00 5/13/06 880,452 2,231,239
Stuart F. Waggoner 50,000 4.7 28.00 5/13/06 880,452 2,231,239
Robert A. Martin 60,000 5.6 28.00 5/13/06 1,056,543 2,677,487
- ---------------
<FN>
(1) Options are granted at the fair market value on the date of grant.
(2) The assumed rates are compounded annually for the full terms of the
options.
(3) Options vest 50% three years after date of grant, 25% four years after date
of grant, and 25% five years after date of grant.
</FN>
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
====================================================================================================
Number of Value of Unexercised
Securities Underlying In-The-Money
Unexercised Options Options at
at 12/29/96 12/29/96(2)
Shares (#) ($)
Acquired Value ----------------------- ------------------------
at Exercise Realized(1) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ------------------- ------------- ------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
Abe J. Gustin, Jr. 33,000 $469,151 58,000/150,000 $ 670,690/ $ ---
Lloyd L. Hill None None 116,000/140,000 1,251,032/ ---
George D. Shadid None None 45,000/105,000 610,550/ ---
Steven K. Lumpkin None None 10,000/ 65,000 53,750/ ---
Stuart F. Waggoner 20,000 295,692 34,500/ 70,000 360,584/ ---
Robert A. Martin None None 59,000/ 80,000 706,740/ ---
- --------------
<FN>
(1) Market value less option price.
(2) Based upon the closing sale price of the Common Stock on December 27, 1996
(the last trading day in fiscal year 1996).
</FN>
</TABLE>
21
<PAGE>
Performance Graph
The following graph compares the annual change in the Company's
cumulative total stockholder return for the five fiscal years ended December 29,
1996 (December 29, 1991 to December 29, 1996) 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, the S&P Restaurant Industry Index, and the Media General 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.; Spaghetti Warehouse, Inc.; and Uno Restaurant
Corporation. Morrison Restaurants, Inc., which was included in the customized
Industry Peer Group shown in previous proxy statement comparisons, has been
excluded from the results shown below due to a spin-off of its casual dining
operations into a separate entity. The Media General Restaurant Industry Index
includes more than 140 restaurant companies, and the Company has determined that
this Index represents a more meaningful peer group than either the S&P
Restaurant Industry Index or the custom peer group described above. In future
performance comparisons, the Company will not utilize the S&P Restaurant
Industry Index or the customized Industry Peer Group.
APPLEBEE'S INTERNATIONAL, INC.
Performance Graph
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
APPLEBEE'S INTERNATIONAL, INC. VS. NASDAQ TOTAL RETURN INDEX VS.
CUSTOMIZED INDUSTRY PEER GROUP VS. S&P RESTAURANT INDUSTRY INDEX
VS. MEDIA GENERAL RESTAURANT INDUSTRY INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Media
Measurement Period NASDAQ Customized S&P General
(Fiscal Year Covered) Applebee's Total Return Industry Restaurant Restaurant
Measurement Point International, Inc. Index Peer Group Industry Index Industry Index
- ----------------------- --------------------- --------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
December 29, 1991 $100.00 $100.00 $100.00 $100.00 $100.00
December 27, 1992 $200.63 $100.98 $125.79 $128.10 $122.90
December 26, 1993 $445.12 $121.13 $164.51 $149.55 $134.29
December 25, 1994 $321.29 $127.17 $107.00 $149.09 $120.90
December 31, 1995 $492.60 $164.96 $ 97.92 $223.60 $165.23
December 29, 1996 $591.52 $204.98 $120.18 $220.92 $167.06
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 29, 1991
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DECEMBER 29, 1996
22
<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-in-law of Johyne H. Reck. During the 1996 fiscal year, the Company paid
$426,000 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 $185,000
under these leases in the 1996 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 1996 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 Applebee's restaurants, and
Miss-Ala-Rio, Inc., which holds the rights to a development territory for Rio
Bravo. Another brother-in-law of Mr. Gustin owns a 50% interest in Apple-Bay
East, Inc., another of the Company's franchisees which operates four Applebee's
restaurants. The Company has also entered into development agreements for two
territories with Apple Partners Limited Partnership. Johyne H. Reck's
brother-in-law owns a 50% interest in the corporate general partner of this
limited partnership. In February 1997, the Company entered into an agreement to
purchase the assets of 11 operating restaurants in one of these territories for
approximately $36,100,000, subject to adjustment. In addition, Apple Partners
Limited Partnership has also reached an agreement to sell its remaining
territory to another franchisee. The development and franchise agreements of
A.N.A., Inc., Miss-Ala-Rio, Inc., Apple-Bay East, Inc. and Apple Partners
Limited Partnership are standard in form and require payment of standard
franchise, royalty, and advertising fees.
The Company leases certain office space under an operating lease from a
partnership in which Raymond D. Schoenbaum holds a 37.5% interest. The Company
paid $104,000 under this lease in the 1996 fiscal year. The Company believes
23
<PAGE>
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.
The Company has a consulting agreement with Mr. Kenneth Hill to act as a
consultant to the Company for governmental affairs and restaurant industry
relations until March 1, 1998. Mr. Hill was paid $200,000 for the first year of
the agreement, $150,000 for the second year, and will be paid $79,000 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 continue to serve as a director through the term
of his consulting agreement, but has informed the Company that he will resign
from the Board upon the termination of his 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, 1997
24
APPENDIX A
APPLEBEE'S INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE 1 - PURPOSE OF THE PLAN
The Company has established this Plan to provide eligible employees of
the Company and its Subsidiaries a method to purchase shares of common stock of
the Company by payroll deduction at a discount. The Plan is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Code and shall be
construed and operated consistently with the requirements of that Section.
ARTICLE 2 - DEFINITIONS
2.1 "Beneficiary" means the person designated by the Participant on a
form provided by and acceptable to the Committee to receive the Participant's
Payroll Deduction Account in the event of his death. In the absence of any such
designation, "Beneficiary" shall mean the Participant's estate.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Brokerage Account" means the general securities brokerage account,
or such other account or record determined appropriate by the Company,
established and maintained for the Plan with any entity selected by the Company,
in its discretion, to assist in the administration of, and purchase of Shares
under the Plan.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Commencement Date" means the January 1, April 1, July 1 or
October 1, as the case may be, on which a particular Offering begins.
2.6 "Committee" means the committee of persons appointed by
the Company for the purpose of administering the Plan.
2.7 "Company" means Applebee's International, Inc.
2.8 "Designated Person" means the person designated by the Committee to
receive any forms or agreements required or permitted under the Plan. More than
one person may be designated by the Committee. Different persons may be
designated for different forms or agreements. The Designated Person may be an
individual or an entity. The Committee shall notify Participants in writing of
the identity of each Designated Person and the forms or agreements to be sent to
each such person.
2.9 "Effective Date" means January 1, 1997.
2.10 "Ending Date" means the March 31, June 30, September 30 or
December 31, as the case may be, on which a particular Offering concludes.
2.11 "Enrollment Agreement" means the enrollment form acceptable to the
Committee that a Participant who wishes to participate in the Plan must submit
to the Designated Person prior to the Commencement Date.
<PAGE>
2.12 "Offering" means each three (3) consecutive month offering period
for the purchase and sale of Shares under the Plan.
2.13 "Participant" means an employee who has satisfied the eligibility
requirements of Article 3 and who has complied with the requirements of Article
4.
2.14 "Pay" means and includes (i) a Participant's regular salary or
earnings; (ii) a Participant's overtime pay; and (iii) bonuses designated by the
Committee as being eligible to be used to purchase Shares under this Plan. "Pay"
shall not include any other compensation, taxable or otherwise, including
without limitation employee tips, moving/relocation expenses, imputed income,
option income, tax-gross-ups and taxable benefits.
2.15 "Payroll Deduction Account" shall mean the Company's bookkeeping
entry that reflects the amount deducted from each Participant's Pay for the
purpose of purchasing Shares under the Plan, reduced by amounts refunded to the
Participant and amounts applied to purchase Shares hereunder. Amounts deducted
from each Participant's Pay may be commingled with the general funds of the
Company. No interest shall be paid or allowed on a Participant's payroll
deductions.
2.16 "Plan" means the Applebee's International, Inc. Employee Stock
Purchase Plan.
2.17 "Purchase Price" means the price per Share as set forth in Article
6 paid by a Participant to acquire Shares hereunder.
2.18 "Shares" means shares of the Company's common stock.
2.19 "Subsidiaries" shall mean any present or future domestic or
foreign corporation that would be a "subsidiary corporation" of the Company as
that term is defined in Section 424(f) of the Code.
2.20 "Withdrawal" means a Participant's election to withdraw from an
Offering pursuant to Article 11.
ARTICLE 3 - ELIGIBILITY
Any regular employee of the Company or any of its Subsidiaries shall be
eligible to participate in the Plan as of the Commencement Date coinciding with
or next following the completion of twelve (12) consecutive months of employment
following his date of hire. For the purpose of determining an employee's initial
eligibility, an employee's period of employment with any business entity, the
assets, business or stock of which has been acquired, in whole or in part by the
Company or any of its Subsidiaries through purchase, merger or otherwise
("Acquired Business"), shall be taken into account. An employee's period of
employment with the Company, any of its Subsidiaries, or any Acquired Business
prior to the Effective Date shall be taken into account. If an employee
terminates employment with the Company or any of its Subsidiaries for any reason
and is later rehired, such employee, regardless of whether he is eligible to
participate in the Plan prior to his termination, shall be treated as a new
employee and will be eligible to participate in the Plan as of the Commencement
Date coinciding with or next following the completion of twelve (12) consecutive
months of employment following his date of rehire. For purposes of this Article,
an employee's employment with the Company or any of its Subsidiaries shall not
be considered interrupted or terminated in the case of a leave of absence or
suspension, provided that such leave is approved by the Company or the
employee's reemployment with the Company or any of its Subsidiaries upon the
expiration of such leave is guaranteed by contract or statute.
ARTICLE 4 - PARTICIPATION
An eligible employee may become a Participant by completing an
Enrollment Agreement provided by the Company and filing it with the Designated
Person prior to the deadline set by the Committee that precedes the Commencement
2
<PAGE>
Date of the Offering to which it relates. Participation in one Offering under
the Plan shall neither limit, nor require, participation in any other Offering;
provided, however, that at the conclusion of each Offering, the Company shall
automatically re-enroll each Participant in the next Offering at the same rate
of payroll deduction, unless the Participant has advised the Designated Person
otherwise in a written form acceptable to the Committee.
ARTICLE 5 - OFFERINGS
Each Offering shall be for three (3) consecutive months. The first
Offering shall commence on January 1, 1997. Thereafter, Offerings shall commence
on each subsequent April 1, July 1, October 1 and January 1, and shall continue
until the Plan is terminated in accordance with Section 15.5.
ARTICLE 6 - PURCHASE PRICE
The "Purchase Price" per Share pursuant to an Offering shall be the
lesser of (a) 90% of the fair market value per Share on the Commencement Date of
such Offering or, if the Commencement Date is not a business day, the nearest
subsequent business day; or (b) 90% of the fair market value of such Share on
the Ending Date of such Offering or, if the Ending Date is not a business day,
the nearest prior business day. "Fair market value" for this purpose shall mean
the closing price as reported on the National Association of Securities Dealers
Automated Quotation National Market System (the "NASDAQ-NMS") or, if the Shares
are not reported on the NASDAQ-NMS, on the stock exchange, market, or system on
which the Shares are traded as reported that is designated by the Committee as
controlling for purposes of the Plan. In the event shares are not so traded or
reported, no purchase shall be made and each Participant's interest in the
amount credited to the Payroll Deduction Account shall be returned to each
Participant without interest.
ARTICLE 7 - LIMITATIONS ON SHARE OWNERSHIP
7.1 The maximum number of Shares that a Participant may acquire during
an Offering shall be the amount credited to such Participant's Payroll Deduction
Account as of the Ending Date of such Offering, divided by the Purchase Price
per Share.
7.2 The maximum, aggregate number of Shares that will be offered under
the Plan is two hundred thousand (200,000). If, as of any Ending Date, the total
number of Shares to be purchased exceeds the number of Shares then available
under this Article (after deduction of all Shares that have been previously
purchased under the Plan), the Committee shall make a pro rata allocation of the
Shares that remain available in as nearly a uniform manner as shall be
practicable and as it shall determine, in its sole judgment, to be equitable. In
such event, any amount credited to each Participant's Payroll Deduction Account
that remains after purchase of such reduced number of Shares shall be refunded
as soon as reasonably practicable, and no further payroll deductions or
Offerings shall occur under this Plan unless and until additional shares are
authorized.
7.3 Notwithstanding anything herein to the contrary, the maximum number
of Shares that may be purchased by any Participant as of any Ending Date shall
be reduced to that number which, when the voting power or value thereof is added
to the total combined voting power or value of all classes of shares of capital
stock of the Company or its Subsidiaries the person is already deemed to hold
(excluding any number of Shares which such person would be entitled to purchase
under the Plan), is one share less than five percent (5%) of the total combined
voting power or value of all classes of shares of capital stock of the Company
or its Subsidiaries. For purposes of the foregoing, the rules of Section 424(d)
of the Code shall apply. In addition, no Participant shall be allowed to
purchase Shares as of any Ending Date to the extent such purchase would cause
the sum of the fair market value of all Shares purchased by such Participant
under this Plan and any other plan qualified under Code Section 423 during the
calendar year during which such Ending Date occurs to exceed $25,000. For
purposes of the preceding sentence, "fair market value" shall be the value as of
the date of grant of each such Offering and the rules of Section 423(b)(8) of
the Code shall apply.
3
<PAGE>
ARTICLE 8 - PAYROLL DEDUCTIONS
8.1 At the time the Enrollment Agreement is filed with the Designated
Person and for so long as a Participant participates in the Plan, each
Participant may authorize the Company to make payroll deductions of either (a) a
fixed dollar amount per pay period; or (b) a whole percentage (in 1% increments)
of Pay per pay period, provided, however, that no payroll deduction shall exceed
15% of Pay per pay period. The Committee, in its discretion, may establish from
time to time a minimum fixed dollar deduction that a Participant must authorize
under this Plan; provided, however, that a Participant's existing rights under
any Offering that has already commenced may not be adversely affected thereby.
8.2 The amount of each Participant's payroll deductions shall be
credited to his Payroll Deduction Account. No interest or other amount shall be
credited to a Payroll Deduction Account.
8.3 Commencing with respect to the first payroll period beginning on or
after the Plan's Effective Date, a Participant's authorized payroll deductions
shall be deducted from each paycheck paid during an Offering and shall continue
until changed by the Participant or by amendment or termination of this Plan. A
Participant may elect to increase or decrease his authorized payroll deductions
effective as of January 1 or July 1 of each year upon prior notice acceptable to
the Company. Except for a Withdrawal and discontinuance of payroll deductions
permitted under this Plan, no change in payroll deductions may be effective on a
date other than January 1 or July 1, including without limitation, any change in
the amount or rate of payroll deductions during an Offering.
8.4 With respect to each payroll period during an Offering, a
Participant's authorized payroll deductions shall be deducted from Pay only
after all other discretionary and nondiscretionary payroll deductions
attributable to such Participant have first been deducted from Pay for such
period. To the extent a Participant's Pay after such discretionary and
nondiscretionary payroll deductions have been deducted is less than the
Participant's authorized payroll deductions hereunder, the Participant's
remaining Pay, if any, shall be credited on his behalf to the Payroll Deduction
Account and the difference between the authorized and actual deduction shall be
disregarded and never deducted from payroll or credited to the Payroll Deduction
Account.
ARTICLE 9 - PURCHASE OF SHARES
9.1 As of the Ending Date of each Offering, each Participant shall be
deemed to have elected to purchase at the Purchase Price, the maximum number of
Shares (including fractional Shares) that may be purchased with such
Participant's Payroll Deduction Account in accordance with the terms of this
Plan, unless the Designated Person has received timely and proper notice of a
Withdrawal. The Shares purchased hereunder will be credited to the Brokerage
Account. Any cash remaining in the Participant's Payroll Deduction Account which
is not applied toward the purchase of Shares shall be carried forward and
applied in subsequent Offerings. No Participant shall have any rights of a
shareholder with respect to any Shares until the Shares have been purchased in
accordance herewith. Shares purchased hereunder may be treasury or newly issued
shares acquired from the Company or shares acquired on the open market.
9.2 Any cash dividends paid on Shares credited to the Brokerage Account
shall be automatically applied to purchase, at Company expense, additional
Shares from the Company at the fair market value (as defined in Article 6) of
such Shares as of the business day immediately preceding the date of purchase,
or on the open market at the market price at the time of purchase, and such
additional shares shall be credited to the Brokerage Account.
9.3 Notwithstanding the preceding provisions of this Article or any
other provision to the contrary, no Shares shall be purchased hereunder or
credited to the Brokerage Account until the Plan is approved by the stockholders
of the Company as provided in Section 15.1.
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ARTICLE 10 - EVIDENCE OF OWNERSHIP OF SHARES
Following the Ending Date of each Offering, the Shares that are
purchased by each Participant shall be recorded in book entry form and credited
to the Brokerage Account.
ARTICLE 11 - WITHDRAWAL
11.1 A Participant may "Withdraw" from an Offering, in whole but not in
part, by notifying the Designated Person, in writing on a form acceptable to the
Committee, in which event (i) the Participant's payroll deductions shall stop as
soon as is reasonably practicable following receipt of such notice by the
Designated Person, (ii) the Company shall refund the amount credited to the
Participant's Payroll Deduction Account as soon as reasonably practicable, and
(iii) no Shares shall be purchased on behalf of the Participant with respect to
such Offering. The notice described in this Section must be received by the
Designated Person prior to the deadline set by the Committee, provided that if
the Committee fails to set such a deadline, such notice must be received by the
Ending Date (or the immediately preceding business day if the Ending Date is not
a business day).
11.2 An eligible employee who has previously withdrawn from the Plan
may re-enter by complying with the Participation requirements. Upon compliance
with such requirements, an employee's re-entry into the Plan will be effective
as of the Commencement Date coinciding with or next following the satisfaction
of such requirements.
11.3 A Participant hereunder may elect at any time on a form acceptable
to the Committee (i) to have all or part of the Shares credited to the Brokerage
Account on his behalf (including fractional Shares) sold at the Participant's
expense and cash paid to the Participant, (ii) to have any whole Shares
transferred to the Participant's individual brokerage account established at the
Participant's expense, or (iii) to have a stock certificate issued to the
Participant or his designee for any whole Shares credited to the Brokerage
Account on his behalf.
ARTICLE 12 - RIGHTS NOT TRANSFERABLE
No Participant shall be permitted to sell, assign, transfer, pledge, or
otherwise dispose of or encumber such Participant's interest in the Payroll
Deduction Account or any rights to purchase or to receive Shares under the Plan
other than by will or the laws of descent and distribution, and such rights and
interests shall not be subject to, a Participant's debts, contracts, or
liabilities. If a Participant purports to make a transfer, or a third party
makes a claim in respect of a Participant's rights or interests, whether by
garnishment, levy, attachment or otherwise, such purported transfer or claim
shall be treated as a Withdrawal.
ARTICLE 13 - TERMINATION OF EMPLOYMENT
As soon as reasonably practicable following termination of a
Participant's employment with the Company or any of its Subsidiaries for any
reason whatsoever, including, but not limited to, by reason of death, disability
or retirement, (i) the amount credited to the Payroll Deduction Account on
behalf of the Participant shall be returned to the Participant or the
Participant's Beneficiary, as the case may be, subject to Section 15.1 and (ii)
the Participant's interest in the Brokerage Account shall be liquidated in the
manner described below. As part of the procedure to liquidate the Participant's
interest in the Brokerage Account, the Participant may elect in writing on a
form acceptable to the Committee and received by the Designated Person by the
deadline set by the Committee, to have the number of Shares credited to the
Brokerage Account on behalf of the Participant sold at the Participant's expense
and cash paid to the Participant, or to have such Shares transferred to the
Participant's individual brokerage account established at the Participant's
expense. If the Participant does not request a sale or transfer by the deadline
established by the Committee or requests to receive a stock certificate, a
certificate for the whole Shares credited to the Brokerage Account on his behalf
will be issued to the Participant and the Participant will receive cash for any
fractional Shares credited to the Brokerage Account on his behalf.
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ARTICLE 14 - ADMINISTRATION
The Plan shall be administered by the Committee, which may engage such
persons, entities or agents as it shall deem advisable to assist in the
administration of the Plan. The Company may from time to time appoint or dismiss
members of the Committee. A majority of the members of the Committee shall
constitute a quorum and the acts of a majority of the members present at a
meeting or the consent in writing signed by all the members of the Committee
shall constitute the acts of the Committee. The Committee shall be vested with
full authority to make, administer, and interpret such rules and regulations as
it deems necessary to administer the Plan, and any determination, decision, or
action of the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive, and
binding upon all parties, including the Company, the Participants and any and
all persons that claim rights or interests under or through a Participant. The
Committee may delegate all or part of its authority to one or more of its
members.
AMENDMENT 15 - MISCELLANEOUS
15.1 Approval of the Plan. Notwithstanding any provision in this Plan
to the contrary, if the Plan is not approved by the stockholders of the Company
within twelve (12) months after the Effective Date of the Plan, the balance of
each Participant's Payroll Deduction Account shall be refunded in its entirety,
without interest, as soon as reasonably practicable. If an eligible employee
terminates employment after the Ending Date of any Offering but prior to the
approval of the Plan by the stockholders of the Company, then such employee may
elect in writing on a form acceptable to the Committee, which form must be
received by the Designated Person by the deadline set by the Committee, to have
the balance credited to the Payroll Deduction Account on his behalf as of any
such Ending Date retained and applied to purchase Shares following the
subsequent approval of the Plan by the stockholders of the Company, or returned
to the employee at a later date in the event the stockholders do not approve the
Plan. If such election is not timely made or if such employee elects to receive
cash, such employee shall receive the balance credited to the Payroll Deduction
Account on his behalf as of any such Ending Date as soon as reasonably
practicable after the passage of such deadline or making such election.
15.2 Amendment or Discontinuance of the Plan. The Board shall have the
right to amend, modify or terminate the Plan at any time without notice,
provided that (i) no Participant's existing rights under any Offering that is in
progress may be adversely affected thereby, and (ii) in the event that the Board
desires to retain the favorable tax treatment under Sections 421 and 423 of the
Code, no such amendment of the Plan shall increase the number of Shares that
were reserved for issuance hereunder unless the Company's shareholders approve
such an increase.
15.3 Changes in Capitalization. In the event of reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, offerings of rights, or any other change in the capital structure
of the Company, the number, kind and price of the Shares that are available for
purchase under the Plan and the number of Shares that an employee is entitled to
purchase shall be automatically adjusted to reflect the change in capital
structure; provided, however, that the Board shall retain the right to modify
any such adjustment in the manner it deems appropriate.
15.4 Notices. All notices or other communications by a Participant
under or in connection with the Plan, including but not limited to Enrollment
Agreements, shall be deemed to have been duly given when received by the
Designated Person in the form specified by the Committee.
15.5 Termination of the Plan. This Plan shall terminate at the earliest
of the following:
(a) The date of the filing of a "Statement of Intent to Dissolve"
by the Company or the effective date of a merger or consolidation wherein the
Company is not to be the surviving corporation, which merger or consolidation is
not between or among corporations affiliated with the Company;
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(b) The date the Board acts to terminate the Plan; and
(c) The date when all of the Shares that were reserved for
issuance hereunder have been purchased.
Prior to termination of the Plan, the Company may change the Ending
Date of a pending Offering. Upon termination of the Plan, the Company shall
refund to each Participant the remaining amount credited to each Participant's
Payroll Deduction Account after all purchases have been made.
15.6 Notice of, and Limitations on Sale of Stock Purchased Under the
Plan. The Plan is intended to provide Shares for investment and not for resale.
The Company does not, however, intend to restrict or influence the conduct of
any employee's affairs beyond established Company policies. A current or former
Participant may, therefore, sell Shares that are purchased under the Plan at any
time at his expense, subject to compliance with any applicable federal or state
securities laws and Company policies. Each current and former Participant
assumes the risk of any market fluctuations in the price of the Shares. Each
current or former Participant must notify the Company of any disposition of
Shares purchased under this Plan that is described in Section 423(a)(1) of the
Code, which is any disposition within two years after the date of grant of the
option to purchase or any disposition within one year after the transfer of the
Share to him.
15.7 Governmental Regulation. The Company's obligation to sell and
deliver Shares under this Plan is subject to any governmental approval that is
required in connection with the authorization, issuance or sale of such Shares.
15.8 No Employment Rights. This Plan does not, directly or indirectly,
create in any employee or class of employees any right with respect to
continuation of employment by the Company, and it shall not be deemed to
interfere in any way with the Company's right to terminate, or otherwise modify,
an employee's employment at any time.
15.9 Governing Law. The law of the state of Kansas shall govern all
matters that relate to this Plan except to the extent it is superseded by the
laws of the United States.
15.10 Text of Plan Documents Controls. Titles of Articles and Sections
in this Plan are inserted for convenience of reference only and in the event of
any conflict, the text of this instrument, rather than such titles, shall
control.
15.11 Non-gender Clause. Any words herein used in the masculine shall
read and be construed in the feminine where they would so apply. Words in the
singular shall be read and be construed as though used in the plural in all
cases where they would so apply.
IN WITNESS WHEREOF, Applebee's International, Inc. has caused this Plan
to be adopted effective as of January 1, 1997.
APPLEBEE'S INTERNATIONAL, INC.
"Company"
By: /s/ Abe J. Gustin, Jr.
------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
7
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF APPLEBEE'S INTERNATIONAL, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 14, 1997
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 14, 1997, 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 IV.
I. To elect three directors to serve until the 2000 Annual Meeting of
Stockholders or until their earlier resignation;
Nominees: Abe J. Gustin, Jr., D. Patrick Curran and Robert A. Martin;
[ ] 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 increase the
number of shares of Common Stock available for Awards thereunder by
300,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. To adopt the Company's Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IV. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 1997 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
V. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
<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 IV.
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.
