APPLEBEE'S INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 13, 1999
To the Stockholders of Applebee's International, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Applebee's International, Inc., a Delaware corporation (the
"Company"), will be held on May 13, 1999, at 10:00 a.m., CDT, at the Overland
Park Marriott, 10800 Metcalf, Overland Park, Kansas 66210 for the following
purposes:
I. To elect four directors;
II. To amend the Company's 1995 Equity Incentive Plan to increase
the number of shares of Common Stock available for Awards by
1,300,000 shares and to change the formula by which stock
options are granted annually to non-employee directors;
III. To approve the Company's 1999 Management and Executive
Incentive Plan;
IV. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 1999 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 19, 1999,
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 13, 1999
<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
13, 1999, 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 Overland Park Marriott,
10800 Metcalf, Overland Park, Kansas 66210.
This proxy statement and accompanying proxy ("Proxy Statement") were mailed
on or about April 13, 1999, 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 19, 1999,
will be entitled to notice of and to vote at the Annual Meeting. At the close of
business on March 19, 1999, there were 29,358,182 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 shares of Common Stock represented in person or by proxy at the meeting.
Broker non-votes (i.e., shares present by proxy but for which no voting
authority has been given by the beneficial holder) will not affect the vote on
the proposals; however, abstentions (shares not voted by a stockholder present
at the Annual Meeting) will be treated as "no" votes. 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 19, 1999, the closing sale price reported on The Nasdaq Stock
Market for a share of the Common Stock was $26.5625 (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.
1
<PAGE>
Stockholder Proposals and Nominations to the Board of Directors
Pursuant to the regulations of the Securities and Exchange Commission
("SEC"), if a stockholder has a proposal to be considered at the Company's 2000
Annual Meeting of Stockholders, the proposal must be received by the Company no
later than February 28, 2000. If the stockholder proposal is sought to be
included in the Company's proxy statement and proxy relating to that meeting,
the proposal must comply with SEC rules and be received by the Company no later
than December 15, 1999.
Pursuant to the Company's Bylaws, stockholder nominations for director
candidates must be submitted to the Company's Secretary, along with certain
information about the candidate, not less than 60 days nor more than 75 days
prior to the date of the Annual Meeting (or other meeting at which directors
will be elected). However, if first notice or first public disclosure of the
date of the meeting is given or made to stockholders during the 60 day period
prior to the meeting, notice by the stockholder to be timely must be so
delivered or received not later than the close of business of the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made.
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 2000 Annual Meeting, and three
directors in Class III, with terms expiring at the 2001 Annual Meeting. The
following information is furnished for each of the three persons being nominated
for election as a Class I director to a new three-year term as well as for
George D. Shadid, whom the Board of Directors appointed as a Class II director
on March 5, 1999 and whose appointment the stockholders are asked to ratify
(each of the four a "Nominee"). The following information is also furnished for
each person who is continuing as a Class II or Class III director of the Company
("Incumbent").
ABE J. GUSTIN, JR., age 64 (Incumbent - Class II term expiring in 2000).
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. In January 1998, Mr. Hill assumed the full duties of Chief Executive
Officer while Mr. Gustin retained his position as the Chairman of the Board and
continued as an active executive of the Company through December 1998. In
January 1999, Mr. Gustin retired as an active executive of the Company but
continues as Chairman of the Board and serves as a member of the Company's
Franchise Business Council.
LLOYD L. HILL, age 55 (Incumbent - Class III term expiring in 2001). 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. In January 1998, Mr. Gustin
retained his position as the Chairman of the Board and Mr. Hill assumed the full
duties of Chief Executive Officer. From December 1989 to December 1993, 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
1993, having joined that organization in 1980. Mr. Hill serves as a member of
the Nominating Committee.
ERLINE BELTON, age 55 (Nominee - Class I term expiring in 1999). Ms. Belton
became a director of the Company in September 1998. Since November 1991, Ms.
Belton has served as President and Chief Executive Officer of The Lyceum Group,
a human resource consulting firm located in Roxbury, Massachusetts. From April
1990 until September 1991, Ms. Belton served as Senior Vice President of Human
Resources and Organizational Development for Progressive Insurance Companies in
Cleveland, Ohio. She also served as International Human Relations Director, as
well as several other human resources positions, with Digital Equipment
Corporation from 1978 through April 1990. Ms. Belton serves on the board of
directors of Unique Casual Restaurants, Inc., a publicly-traded company.
2
<PAGE>
D. PATRICK CURRAN, age 54 (Incumbent - Class II term expiring in 2000). 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 of
which are publicly-traded corporations. Mr. Curran serves as a member of the
Audit Committee, the Executive Compensation Committee and the Nominating
Committee.
ERIC L. HANSEN, age 50 (Nominee - 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, Hansen & Colville, 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. Mr. Eric Hansen and Mr. Mark Hansen are not
related.
MARK S. HANSEN, age 44 (Nominee - Class I term expiring in 1999). Mr.
Hansen became a director of the Company in August 1998. Since November 1998, he
has been employed as Chairman and Chief Executive Officer of The Fleming
Companies, Inc., in Oklahoma City, Oklahoma. From July 1997 until September
1998, Mr. Hansen served as President and Chief Executive Officer of SAM's Club,
a subsidiary of Wal-Mart Stores, Inc., in Bentonville, Arkansas. He previously
served as President and Chief Executive Officer of PETsMART for eight years. Mr.
Hansen has extensive expertise in the food and retail industries, having served
in executive positions with Federated Foods, Inc., the Jewel Companies and The
Great Atlantic and Pacific Tea Company. Mr. Hansen serves on the board of
directors of Fleming Companies, Inc., a publicly-traded company. Mr. Mark Hansen
and Mr. Eric Hansen are not related.
JACK P. HELMS, age 46 (Incumbent - Class III term expiring in 2001). Mr.
Helms became a director of the Company in March 1994. He is presently a
principal and shareholder in the investment banking firm of Goldsmith, Agio,
Helms and Company in Minneapolis, Minnesota. From May 1978 to January 1986, Mr.
Helms was a partner in the law firm of Fredrikson & Byron, P.A. in Minneapolis,
Minnesota. Mr. Helms serves as a member of the board of directors of Luigino's,
Inc., a company with publicly-traded debt securities. Mr. Helms serves as a
member of the Audit Committee, the Executive Compensation Committee and the
Nominating Committee.
ROBERT A. MARTIN, age 68 (Incumbent - Class II term expiring in 2000). 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 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.
BURTON M. SACK, age 61 (Incumbent - Class III term expiring in 2001). Mr.
Sack was elected a director and appointed an Executive Vice President of the
Company in October 1994. He 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. In January 1996, Mr.
Sack was appointed Executive Vice President of New Business Development with
responsibility for international franchising. Mr. Sack retired as an officer of
the Company at the end of the 1997 fiscal year, but continues to serve as a
director. Mr. Sack is a director of the National Restaurant Association.
3
<PAGE>
GEORGE D. SHADID, age 45 (Nominee - Class II term expiring in 2000). Mr.
Shadid became a director of the Company in March 1999. Mr. 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 he assumed the
position of Vice President and Chief Financial Officer, which he held until
joining the Company. From 1976 until 1985, Mr. Shadid was employed by Deloitte &
Touche LLP.
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. Eric Hansen, and Mr. Helms.
The Executive Compensation Committee is responsible for recommending to the
Board of Directors executive compensation levels, bonus plan participation and
executive and overall compensation policies. It also makes awards under the
Company's 1995 Equity Incentive Plan. The members of the Executive Compensation
Committee are Mr. Curran, Mr. Eric Hansen and Mr. Helms. The Nominating
Committee evaluates and recommends candidates for nomination to the Board of
Directors. The Nominating Committee is also responsible for reviewing any
stockholder nominations of Board candidates. The members of the Nominating
Committee are Mr. Curran, Mr. Eric Hansen, Mr. Helms and Mr. Lloyd Hill.
During fiscal year 1998, the Board of Directors held seven meetings
(including five regular meetings), the Audit Committee held two meetings, the
Executive Compensation Committee held seven meetings, and the Nominating
Committee held two meetings. During fiscal year 1998, 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. Eric Hansen, Mr. Helms
and Mr. Sack were considered "non-employee directors" throughout 1998. In
addition, Ms. Belton and Mr. Mark Hansen were considered "non-employee
directors" after joining the Board in 1998. Mr. Kenneth Hill, a current director
who will not be standing for reelection at the Annual Meeting, was considered a
"non-employee" director subsequent to the expiration of his consulting agreement
on March 31, 1998. During 1998, Mr. Gustin, Mr. Lloyd Hill and Mr. Martin were
"employee directors." 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 provided for
non-employee directors to receive an annual base grant of options to purchase
5,000 shares of Common Stock, subject to increase based on the Company's net
income. (See the description of the Company's 1995 Equity Incentive Plan set
forth under "Proposal II.") Under the plan, options for 5,000 shares of Common
Stock were granted in May 1998 to Mr. Curran, Mr. Eric Hansen, Mr. Helms, Mr.
Kenneth Hill and Mr. Sack for serving as non-employee directors of the Company.
Cash compensation paid and stock options granted to Mr. Gustin, Mr. Lloyd
Hill, Mr. Martin and Mr. Shadid for services rendered to the Company as
employees in fiscal 1998 are shown in the Summary Compensation Table. Mr.
Kenneth Hill served as a director of the Company and received cash compensation
of $19,750 in fiscal 1998 for services rendered as a consultant to the Company
through March 31, 1998.
4
<PAGE>
Certain Information Concerning Executive Officers
Information regarding the executive officers of the Company, who are not
also currently directors of the Company, as of December 27, 1998, is as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Steven K. Lumpkin....................... 44 Executive Vice President of Strategic Development
Julia A. Stewart........................ 43 President of Applebee's Division
Larry A. Cates.......................... 50 President of International Division
Lawrence M. Folk........................ 47 President and Chief Executive Officer of Rio Bravo International, Inc.
(a wholly-owned subsidiary of Applebee's International, Inc.)
Louis A. Kaucic......................... 47 Senior Vice President of Human Resources
</TABLE>
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. In November 1997, he assumed the position of Senior Vice
President of Strategic Development and in January 1998 was promoted to Executive
Vice President of Strategic Development. 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.
JULIA A. STEWART was employed by the Company in October 1998 as President
of its Applebee's Division. From July 1991 until September 1998, Ms. Stewart
held several key executive positions with Taco Bell Corporation, a division of
Tricon Global Restaurants, Inc. Most recently, she served as National Vice
President of Franchise and License for over 5,200 Taco Bell units, and was
previously Taco Bell's Western Region Vice President of Operations with
responsibility for over 1,200 company-owned restaurants. Prior to joining Taco
Bell, she held key marketing positions over a 15-year period, including Vice
President of Marketing, Research and Development with Stuart Anderson's Black
Angus/Cattle Company Restaurants.
LARRY A. CATES was employed by the Company in May 1997 as President of its
International Division. Prior to joining the Company, Mr. Cates spent the
previous 17 years with PepsiCo Restaurants International developing
international markets for that company's Pizza Hut, Taco Bell and KFC brands.
From 1994 to 1997, Mr. Cates was Vice President of Franchising and Development -
Europe/Middle East, and from 1990 to 1994, he was Chief Executive Officer of
Pizza Hut UK, Ltd., a joint venture between PepsiCo Restaurants and Whitbread.
LAWRENCE M. FOLK was employed by the Company in October 1998 as President
and Chief Executive Officer of Rio Bravo International, Inc., a wholly-owned
subsidiary of Applebee's International, Inc. From January 1997 until August
1998, Mr. Folk was President of Don Pablo's Mexican Kitchen, a division of Apple
South, Inc. (now Avado Brands, Inc.), and was Chief Financial Officer from
November 1995 until December 1996. Prior to Apple South's merger with DF&R
Restaurants, Inc. in November 1995, Mr. Folk had served as Chief Financial
Officer of DF&R Restaurants since February 1992.
LOUIS A. KAUCIC was employed by the Company in October 1997 as Senior Vice
President of Human Resources. From July 1992 until October 1997, Mr. Kaucic was
Vice President of Human Resources and later promoted to Senior Vice President of
Human Resources with Unique Casual Restaurants, Inc., which operates several
restaurant concepts. From 1982 to 1992, he was employed by Pizza Hut in a
variety of positions, including Director of Employee Relations. From 1978 to
1982, Mr. Kaucic was employed by Kellogg's as an Industrial Relations Manager.
Mr. Kaucic is a director of the Women's Food Service Forum.
5
<PAGE>
Security Ownership of Officers, Directors and Certain Beneficial Owners
The following table sets forth information, as of March 19, 1999, 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............................... 3,964,067 13.5%
500 Boylston Street
Boston, MA 02116
FMR Corp............................................................... 2,060,000 7.0%
82 Devonshire Street
Boston, MA 02109
Burton M. Sack (2)..................................................... 1,962,020 6.7%
Flippin Bruce & Porter, Inc............................................ 1,544,035 5.3%
800 Main Street, Suite 200
Lynchburg, VA 24505
Abe J. Gustin, Jr. (2)................................................. 857,567 2.9%
Lloyd L. Hill (2)...................................................... 191,268 0.7%
George D. Shadid (2)................................................... 129,091 0.4%
Robert A. Martin (2)................................................... 114,760 0.4%
D. Patrick Curran (2).................................................. 81,800 0.3%
Jack P. Helms (2)...................................................... 63,800 0.2%
Eric L. Hansen (2)..................................................... 52,800 0.2%
Steven K. Lumpkin (2).................................................. 51,353 0.2%
Kenneth D. Hill (2).................................................... 32,300 0.1%
Mark S. Hansen......................................................... 1,000 -
Erline Belton.......................................................... - -
All executive officers and directors as a group (16 persons) (2)....... 3,559,024 12.1%
<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 19, 1999
or within 60 days thereafter: 54,500 shares for Mr.Sack, 158,000 shares for Mr.
Gustin, 173,000 shares for Mr. Lloyd L. Hill, 97,500 shares for Mr. Shadid,
79,000 shares for Mr. Martin, 58,800 shares for Mr. Curran, 58,800 shares for
Mr. Helms, 42,300 shares for Mr. Eric L. Hansen, 50,000 shares for Mr. Lumpkin,
31,800 shares for Mr. Kenneth D. Hill, and 813,700 shares for all executive
officers and directors as a group.
</FN>
</TABLE>
Mr. Gustin is a party to a voting agreement, pursuant to which he has
agreed to vote all voting securities of the Company held by him at any time (i)
to maintain the size of the Board of Directors at ten members unless otherwise
mutually agreed, (ii) to vote for his election as a director of the Company at
each election of directors, (iii) to vote against his removal as a director of
the Company, and (iv) to vote his shares so that the Board of Directors has at
least two independent directors at all times. In addition, in the event of Mr.
Gustin's death, the voting agreement contains provisions relating to voting for
the election of a successor director of the deceased party. The voting agreement
terminates in July 1999, and does not apply to any voting securities transferred
to a third party in a public transaction.
6
<PAGE>
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 27, 1998, except that one report was not timely filed by Edward
J. Gleich, Vice President of Product Development. Mr. Gleich reported the
transactions 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 2002 Annual Meeting of Stockholders (except Mr. Shadid, who would
serve until the 2000 Annual Meeting of Stockholders) and until his or her
successor is elected and has qualified or until his or her earlier death,
resignation or removal.
<TABLE>
<CAPTION>
Current Position Director
Name Age With The Company Since
------------------------------- ------------ -------------------------------------------- ---------------
<S> <C> <C> <C>
Erline Belton ................. 55 Director 1998
Eric L. Hansen................. 50 Director 1991
Mark S. Hansen................. 44 Director 1998
George D. Shadid............... 45 Executive Vice President and Chief 1999
Financial Officer, Treasurer, Director
</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 AND CHANGING THE FORMULA
FOR STOCK OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
Recently, the Company reviewed its compensation programs and determined
that, while the existing 1995 Equity Incentive Plan (the "Equity Incentive
Plan") provides significant flexibility in the types of equity-related
compensation programs available, the number of shares remaining for Awards under
the Plan will not be sufficient for the Company's intended compensation programs
over the next three years.
Because the Company believes that its continued growth and success will be
dependent in part on its ability to attract and retain highly-qualified
employees, and that equity-related compensation programs are important to
achieving that goal, the Company needs to provide for additional shares to be
available for Awards under the Equity Incentive Plan. In addition, the Company
believes that the basis on which options are granted to non-employee members of
its Board of Directors should be the same measurement applicable to management
incentive compensation. Thus, the formula used to determine annual stock option
grants to non-employee directors is proposed to be changed to a formula based on
the Company's earnings per share. This change will be effective for director
options granted in 1999.
The changes described below are reflected in the proposed amendments to
Sections 4 and 9 of the 1995 Equity Incentive Plan as attached as Appendix A
hereto and are being submitted to the stockholders for approval.
Shares Subject to the Equity Incentive Plan
The number of shares available for grant under the Equity Incentive Plan
shall be increased by 1,300,000 shares, from 2,300,000 to 3,600,000.
Non-Employee Director Stock Options
The amendment to the Equity Incentive Plan also changes the formula by
which stock options are granted annually to non-employee directors. Under the
Equity Incentive Plan prior to the proposed amendment, the annual base grant to
each non-employee director of 5,000 shares is increased (i) by 2,000 shares if
the Company realizes an increase in Net Income (defined as income after taxes
determined in accordance with generally accepted accounting principles) of more
than 20% over the prior year, and (ii) by 100 shares for each additional 1%
increase in Net Income. Under the proposed amendment, each non-employee director
would continue to receive a base grant of 5,000 shares. Such amount would
automatically increase if earnings per share for the fiscal year immediately
preceding the year in which the director option is granted (the "Measurement
Year") exceeded the earnings per share for the fiscal year immediately preceding
the Measurement Year by more than 15%. The Board of Directors will determine the
formula by which the base grant would increase each year. Under the Equity
Incentive Plan both before and after the proposed amendment, the total shares
granted to each non-employee director in any year (the 5,000 base grant plus the
incremental grants) may not exceed 9,000.
Director options expire on their tenth anniversary.
Description of the Equity Incentive Plan
The following paragraphs provide a summary of the principal features of the
Equity Incentive Plan and its operation, other than as related to the matters
discussed above. The following summary is qualified in its entirety by reference
to the Equity Incentive Plan, a copy of which may be obtained from the Company
upon written request.
8
<PAGE>
Administration of the Equity Incentive Plan
The Equity Incentive Plan is administered by the Executive Compensation
Committee. The members of the Executive Compensation 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, as amended (for purposes of qualifying amounts received under the Equity
Incentive Plan as "performance-based compensation" under section 162(m)).
Subject to the terms of the Equity Incentive Plan, the Executive
Compensation 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 Executive Compensation Committee
may delegate its authority to grant and administer Awards to a separate
committee appointed by the Executive Compensation Committee, but only the
Executive Compensation Committee may make Awards to participants who are
executive officers of the Company. The director option portion of the Equity
Incentive Plan is administered by the full Board of Directors, rather than the
Executive Compensation Committee.
Eligibility to Receive Awards
Employees and consultants of the Company and its affiliates (i.e., any
corporation or other entity controlling, controlled by or under common control
with the Company) are eligible to be selected to receive one or more Awards. The
Equity Incentive 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. The terms and conditions of options to
be granted to directors are discussed above under "Director Options."
Options
The Executive Compensation 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 Executive Compensation 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 Executive Compensation
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 and 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 Executive Compensation 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 Executive Compensation Committee
determines to be consistent with the Equity Incentive 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
Executive Compensation Committee. Options expire at the times established by the
Executive Compensation Committee, but generally not later than 10 years after
the date of grant. The Executive Compensation Committee may extend the maximum
term of any option granted under the Equity Incentive Plan, subject to the
preceding limits.
9
<PAGE>
Stock Appreciation Rights ("SARs")
The Executive Compensation 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 Executive Compensation 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
Executive Compensation Committee. Proceeds from SAR exercises may be paid in
cash or shares of the Company's Common Stock, as determined by the Executive
Compensation Committee. SARs expire at the times established by the Executive
Compensation Committee, but are subject to the same maximum time limits as are
applicable to employee options granted under the Equity Incentive Plan.
Restricted Stock Awards
Restricted stock awards are shares of the Company's Common Stock that vest
in accordance with terms established by the Executive Compensation Committee.
The number of shares of restricted stock (if any) granted to a participant will
be determined by the Executive Compensation 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
Executive Compensation Committee may impose whatever conditions to vesting as it
determines to be appropriate. For example, the Executive Compensation 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, as amended, the Executive Compensation 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 Equity Incentive Plan. The Executive Compensation
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 Executive Compensation 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 Executive Compensation 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 Executive Compensation 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 Executive Compensation Committee are satisfied. The
applicable performance goals will be determined by the Executive Compensation
Committee. In particular, the Equity Incentive Plan permits the Executive
Compensation Committee to use the same performance goals as are discussed above
with respect to restricted stock. The Executive Compensation Committee may, in
its sole discretion, waive any performance goal requirement.
10
<PAGE>
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 Executive Compensation Committee.
Unvested performance units and performance shares will be forfeited upon the
earlier of the recipient's termination of employment or the date set forth in
the Award agreement.
Nontransferability of Awards
Awards granted under the Equity Incentive Plan may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the applicable laws of descent and distribution; provided,
however, that a participant may (i) designate one or more beneficiaries to
receive any exercisable or vested Awards following his or her death, and (ii)
transfer his or her Award to family members, to trusts created for the benefit
of family members, or to charitable entities.
Change in Control
In the event of a change in control not approved by the Board of Directors,
all Awards granted under the Equity Incentive 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 Equity Incentive 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 Executive Compensation 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.
11
<PAGE>
The Company will be entitled to a tax deduction for an Award in an amount
equal to the ordinary income realized by the participant at the time the
participant recognizes such income. In addition, Internal Revenue Code section
162(m) contains special rules regarding the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers. The general rule is that
annual compensation paid to any of these specified executives will be deductible
only to the extent that it does not exceed $1 million. The Company can preserve
the deductibility of certain compensation in excess of $1 million, however, if
the Company complies with conditions imposed by section 162(m). The Equity
Incentive Plan has been designed to permit the Executive Compensation Committee
to grant Awards which satisfy the requirements of section 162(m).
Amendment and Termination of the Equity Incentive Plan
The Board generally may amend or terminate the Equity Incentive Plan at any
time and for any reason.
PROPOSAL III
APPROVAL OF THE COMPANY'S 1999 MANAGEMENT
AND EXECUTIVE INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
During 1998, the Company reviewed the compensation program for certain
management and highly compensated personnel. As a result of this review, the
Board of Directors approved the Company's 1999 Management and Executive
Incentive Plan (the "Management Incentive Plan"). The Management Incentive Plan
is being submitted to the stockholders for approval in order to assure
compliance with applicable law.
Description of the Management Incentive Plan
The following paragraphs provide a summary of the principal features of the
Management Incentive Plan. The following summary is qualified in its entirety by
reference to the Management Incentive Plan, which is attached as Appendix B
hereto.
Eligibility
To be a participant qualified to receive a bonus payment under the
Management Incentive Plan, a participant must (i) be an "employee in good
standing" (as defined in the Management Incentive Plan) on the date the bonus
payment is to be made; or (ii) have been an "employee in good standing" as of
the end of the fiscal year in question but have terminated employment with the
Company through a "satisfactory separation" (as defined in the Management
Incentive Plan) between the end of such fiscal year and the date the bonus
payment is to be made for such fiscal year. A participant having terminated
employment with the Company through a "satisfactory separation" is entitled only
to receive the bonus calculated through the end of the fiscal year in which the
participant was an "employee in good standing." Approximately 20 persons will be
eligible to participate in the Management Incentive Plan in 1999.
In the event that a person first becomes an employee of the Company at an
employment level eligible for participation in the Management Incentive Plan at
any time other than the first day of a year, such person's participation is
prorated for that year. In the event a participant changes from one employment
level within the Management Incentive Plan to another level within or outside of
the Management Incentive Plan, such change is deemed effective as of the first
day of the first calendar week beginning after the effective date of such
change. Any bonus for an employment level shall be prorated according to the
number of calendar weeks the participant was employed in such employment level.
12
<PAGE>
Committee Designations
The Executive Compensation Committee will determine for each fiscal year:
(i) the name, employee level and "bonus percentage" (as defined below) of each
participant for such fiscal year; (ii) the "target" and "threshold level" (each
as defined below) for such fiscal year; and (iii) the percentage of the bonus,
if any, that will be payable at the discretion of the Chief Executive Officer
based upon the achievement of departmental or individual goals or objectives and
the individuals or employee levels to which such discretionary bonus percentage
shall be applicable. The "bonus percentage" is the percentage of a participant's
base salary used to determine a bonus payment. "Target" means the measurement of
financial performance of the Company selected by the Executive Compensation
Committee. "Threshold level" is the level of achievement of the target at which
bonus percentages begin and below which no bonus is paid.
Calculation of the Bonus
Bonuses under the Management Incentive Plan are calculated by multiplying
the participant's base salary times the applicable bonus percentage determined
by reference to the achievement of the target, all as determined with respect to
the period in question.
Payment of the Bonus
At the end of each fiscal year, the target and bonus calculations are made
on a full fiscal year basis. Each participant then receives the amount of such
participant's bonus calculated on a full fiscal year basis and reflecting the
application of the discretion of the Chief Executive Officer assigned by the
Executive Compensation Committee, as discussed above. Bonuses are paid as soon
as practicable after the end of the year.
Upon a participant's election in accordance with policies and procedures
established by the Executive Compensation Committee from time to time, up to
fifty percent (50%) of the amount of such participant's bonus may be paid
pursuant to the Equity Incentive Plan in "shares" (as defined in the Equity
Incentive Plan), as an award of restricted stock under the Equity Incentive Plan
for which the period of restriction has lapsed, in lieu of the payment of such
percentage of such bonus pursuant to the Management Incentive Plan. The number
of shares payable to the participant is subject to the maximum aggregate number
of shares of restricted stock permitted under the Equity Incentive Plan and is
determined, in the discretion of the Executive Compensation Committee as
announced to participants from time to time, by dividing the cash value of that
part of the bonus to be paid in shares by a percentage (whether equal to, lesser
or greater than 100%) of Fair Market Value (as defined in the Equity Incentive
Plan) on the date the bonus is payable to the participant or pursuant to a
formula based on the closing price, or a percentage of the closing price (which
could result in a discount), of shares on one or more days preceding such date.
Amendment
The Management Incentive Plan may be amended in whole or in part from time
to time by the Board of Directors of the Company.
13
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PROPOSAL IV
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE 1999 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 1999 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.
EXECUTIVE COMPENSATION
Executive Compensation Committee Report
This report discusses the manner in which base salaries and incentive
compensation for Lloyd L. Hill, the Company's Chief Executive Officer ("CEO"),
and the other executives named in the Summary Compensation Table (the "Named
Executives") were determined for the 1998 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. As a result,
the Company established executive total direct compensation levels for 1998 that
it believes are competitive with those of restaurant industry leaders, based on
the compensation surveys 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 and
individual performance-based bonus payments, and equity awards (stock options
and, beginning in 1998, performance shares). 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. In addition, stock ownership guidelines have been established because the
Company believes that executive officers should have their personal financial
interests closely aligned with those of stockholders. The Committee used the
advice of an independent compensation consultant on executive compensation
issues. The Company had written employment agreements in effect throughout 1998
with Mr. Gustin, Mr. Hill and Mr. Shadid. The Company's executive employment
agreements address only first-year base salary levels and, therefore, did not
determine 1998 compensation levels. Base salary, bonus, stock option and
performance share levels are left to the discretion of the Committee each year.
In reviewing compensation levels for 1998, the Committee reviewed and
updated existing executive salary and bonus policies in order to provide the
Company's executive officers with appropriate financial and motivational
arrangements in 1998 and the future. The Committee compared the base salaries,
incentives and total cash compensation paid to the Company's executives with
those paid by other companies in four categories:
o Organizations with similar revenue size across all industries.
o Restaurant organizations of various size across different segments of the
restaurant industry.
o Casual dining restaurants with similar revenue size, either system sales or
company revenues, depending on the executive's responsibilities.
o A peer group of eight publicly-traded direct industry competitors.
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 increases described below.
14
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Base Salary
In determining the 1998 base salaries for the CEO and Named Executives, the
Committee considered several criteria, including competitive practice, growth in
stockholder value, free cash flow, earnings before interest, taxes, depreciation
and amortization ("EBITDA"), net earnings, franchisee relations and new
restaurant openings. These criteria were not weighted by any predetermined
formula, but rather, were considered in light of the overall achievement of the
Company's goals and of general industry and economic factors. The significance
of any particular criterion varied depending upon the particular position or
area of responsibility of the executive in question. Mr. Hill received two
increases in his base salary in 1998 over his 1997 base salary of $420,000 -- a
$50,000 increase in January and a $50,000 increase in July. Mr. Hill's base
salary at the end of 1998 of $520,000 represented an increase of 23.8% over 1997
base salary and reflected the increased duties and responsibilities commensurate
with Mr. Hill's role in 1998 as Chief Executive Officer and Mr. Gustin's
relinquishment of day-to-day management activities of the Company. Mr. Hill's
base salary at the end of 1998 was approximately at the 55th percentile of the
surveyed market data.
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 those of industry
leaders, but not significantly exceed the median of the restaurant industry.
Annual Cash Incentive Compensation
The Committee believes that a significant part of cash compensation for the
CEO and other senior executives should be based on the achievement of operating
and financial goals. The incentive plan was targeted to provide award
opportunities approximately equal to the 75th percentile of total annual cash
compensation for comparable positions among industry leaders. The Company uses a
combination of cash bonuses and equity awards as incentives for its executives
and other employees. Under the cash bonus plan, the Committee established
operating and financial goals for the Company and the individual. The bonus
amount is calculated based on three factors: the level of achievement of the
Company-level goals, the level of achievement of the individual-level goals, and
the weight assigned to each goal. For 1998, the Committee determined that no
bonus would be paid unless the Company achieved 90% or more of its internal
earnings per share target. At that level, the executives could receive 40% of
their target bonus. The bonuses earned by the CEO and the Named Executives
resulting from the bonus plan goal achievement levels in 1998 are shown in the
Summary Compensation Table.
The Committee believes that this program provides an appropriate,
attractive incentive opportunity to the Company's executives for achieving
annual operating goals.
Equity Compensation
The Committee believes that stock option grants, performance shares, 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 deviated from its traditional annual stock option grant approach by
making a larger grant of stock options representing a prospective three years'
worth of grants. Executives were informed that the next scheduled stock option
grant would not occur until 1999. However, as part of a retention program for
the executive team, Messrs. Hill, Shadid, Lumpkin and Martin each received
20,000 stock options in 1998. The vesting schedule for these options is 50%
after three years, 25% after four years and 25% after five years.
For the last six months of 1998, the Committee established a performance
share program for executives. Performance shares were granted under the 1995
Equity Incentive Plan for the achievement of earnings per share targets during
the last six months of 1998. The Committee established the minimum achievement
level to receive payments of performance shares at 92% of the Company's internal
targeted earnings per share level for the last six months of 1998. The maximum
achievement level for 1998 established under the performance share plan was 105%
of the Company's internal targeted earnings per share level for the last six
months of 1998. Because the Company did not achieve the minimum level required
for the payment of performance shares, no performance shares were awarded in
1998.
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<PAGE>
Executive Stock Ownership Guidelines & Loans
In 1998, the Company established stock ownership guidelines that became
effective for the Chief Executive Officer through Senior Vice President levels
as of July 1, 1998 and for Vice Presidents as of January 1, 1999.
Each organization level must attain the following ownership target: Chief
Executive Officer - three times base salary; Executive Vice Presidents/Senior
Vice Presidents - two times base salary; Vice Presidents - one times base
salary. The guidelines must be achieved by the fifth anniversary of the
executive's Effective Date. The Effective Date is the later of (i) the effective
date of the ownership guideline policy; or (ii) the January 1st or July 1st
first following the date of hire or promotion to a position subject to an
ownership guideline. Ownership guidelines may be achieved through the exercise
of stock options, other stock incentives, or open market purchases.
Executives will receive a bonus stock award equal to 50% of base salary (up
to a maximum value of $125,000) if he/she achieves the target ownership level by
the third anniversary of the Effective Date and maintains this level of
ownership through the fifth anniversary of the Effective Date. Executives
failing to meet their ownership guideline by the fifth anniversary of the
Effective Date will not be eligible for future stock-based awards until they
have met the required level.
The Company has established a policy to provide loans for the exercise of
stock options and purchase of shares to assist executives in meeting their stock
ownership requirement. An executive may receive a loan for an amount equal to
his/her personal investment in Company stock, with a maximum loan amount of 50%
of his/her stock ownership requirement. Loans are five years in duration with
interest payable annually and principal payable at the end of five years.
Interest accrues annually at the mid-term annual compound applicable federal
rate at the time of the loan.
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 1998 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
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Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee consists entirely of individuals who
are neither officers nor employees of the Company.
Summary Compensation Table
The following Summary Compensation Table sets forth the compensation of the
Chief Executive Officer and each of the next four most highly compensated
executive officers in each of their respective positions with 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>
Lloyd L. Hill 1998 $491,154 $181,559 $34,511 20,000
Chief Executive Officer, 1997 416,923 94,500 7,076 --
President and Chief 1996 338,432 102,000 14,243 100,000
Operating Officer
Abe J. Gustin, Jr. 1998 $500,000 $ 25,000 $70,000 --
Chairman of the Board 1997 498,654 112,500 -- --
1996 463,462 139,500 -- 100,000
George D. Shadid 1998 $309,462 $137,253 $16,271 20,000
Executive Vice President 1997 295,039 111,050 4,941 --
and Chief Financial 1996 269,362 74,525 23,267 75,000
Officer
Steven K. Lumpkin 1998 $249,231 $96,250 $ -- 20,000
Executive Vice President of 1997 228,946 58,125 -- --
Strategic Development 1996 198,077 50,000 -- 50,000
Robert A. Martin 1998 $214,615 $60,011 $10,585 20,000
Executive Vice President of 1997 204,423 38,438 3,333 --
Marketing 1996 188,077 47,500 3,241 60,000
- - ---------------------
<FN>
(1) Represents payments made under the Company's cash bonus plan. Amounts
applicable to Mr. Gustin for 1998, and Mr. Shadid and Mr. Lumpkin for 1997
also include $25,000, $50,000 and $15,000, respectively, for discretionary
bonuses approved by the Executive Compensation Committee.
(2) Represents payments made in connection with the Company's non-qualified
retirement savings plan. The amount for Mr. Gustin for 1998 reflects
payment of accrued vacation to him upon his retirement as an active
executive of the Company.
(3) Represents options granted pursuant to the Company's 1995 Equity Incentive
Plan.
</FN>
</TABLE>
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<PAGE>
During 1998, 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.
Effective January 1, 1996, the Company and Mr. Gustin entered into an
employment agreement. The agreement allowed periodic salary increases as
determined by the Executive Compensation Committee. The original term of the
agreement was two years, but the agreement was amended as of December 31, 1997
to extend the term for an additional two-year period, expiring on December 31,
1999. In January 1999, the parties agreed to terminate the agreement as Mr.
Gustin retired as an active executive of the Company at that time, but continues
as Chairman of the Board. In this role the Board has approved an annual
Chairman's stipend of $10,000 in addition to the normal non-employee director
fees.
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 that following a change in control, Mr. Shadid resigns or is terminated.
During 1998, the Company had change in control arrangements with other
officers of the Company (13 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 various amounts up 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 agreements (15 persons) had been terminated as of December 27,
1998, 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 $5,900,000.
18
<PAGE>
The following tables set forth information regarding options granted and
exercised during fiscal year 1998 with respect to the Chief Executive Officer
and the next four most highly compensated executive officers:
<TABLE>
<CAPTION>
================================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
================================================================================================================
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants(1) for Option Term(2)
------------------------------------------------------------------------------------ ---------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted(3) in Fiscal Price Expiration 5% 10%
Name (#) Year ($/Share) Date ($) ($)
------------------------- ------------- ---------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lloyd L. Hill 20,000 4.3% $20.875 6/15/08 $262,564 $665,387
Abe J. Gustin, Jr. -- -- -- -- -- --
George D. Shadid 20,000 4.3 20.875 6/15/08 262,564 665,387
Steven K. Lumpkin 20,000 4.3 20.875 6/15/08 262,564 665,387
Robert A. Martin 20,000 4.3 20.875 6/15/08 262,564 665,387
- - ------------------
<FN>
(1) Options are granted at the fair market value on the date of grant.
(2) The assumed rates are compounded annually for the full terms of the options.
(3) Options vest 50% three years after date of grant, 25% four years after date
of grant, and 25% five years after date of grant.
</FN>
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
======================================================================================================
Number of Value of Unexercised
Securities Underlying In-The-Money
Unexercised Options Options at
Shares at 12/27/98 12/27/98(2)
Acquired Value (#) ($)
----------------------- ------------------------
at Exercise Realized(1) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
------------------------- ------------- ------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
Lloyd L. Hill 18,000 $244,876 123,000/120,000 $350,405/--
Abe J. Gustin, Jr. -- -- 108,000/100,000 316,628/--
George D. Shadid 15,000 123,125 60,000/95,000 198,675/--
Steven K. Lumpkin -- -- 25,000/78,333 --/--
Robert A. Martin 30,000 359,544 49,000/80,000 132,450/--
- - -----------------------
<FN>
(1) Market value less option price.
(2) Based upon the closing sale price of the Common Stock on December 24, 1998
(the last trading day in fiscal year 1998).
</FN>
</TABLE>
19
<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 27,
1998 (December 26, 1993 to December 27, 1998) based upon the market price of the
Company's Common Stock, compared with the cumulative total return on Media
General's Nasdaq Total Return Index and the 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 Media General
Restaurant Industry Index includes approximately 115 restaurant companies. Media
General recently reconstituted its Restaurant Industry Index by, among other
things, removing "specialty eateries" such as bagel shops. As a result, the
Media General Restaurant Industry Index includes approximately 35 fewer
companies than it did in fiscal year 1997.
APPLEBEE'S INTERNATIONAL, INC.
Performance Graph
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
APPLEBEE'S INTERNATIONAL, INC. VS. NASDAQ TOTAL RETURN INDEX
VS. MEDIA GENERAL RESTAURANT INDUSTRY INDEX
[GRAPH APPEARS HERE]
Media
Measurement Period NASDAQ General
(Fiscal Year Covered) Applebee's Total Return Restaurant
Measurement Point International, Inc. Index Industry Index
- - ----------------------- -------------------- --------------- ------------------
December 26, 1993 $100.00 $100.00 $100.00
December 25, 1994 $ 72.18 $104.99 $ 87.80
December 31, 1995 $110.67 $136.18 $123.49
December 29, 1996 $132.89 $169.23 $124.92
December 28, 1997 $ 91.76 $207.00 $128.51
December 27, 1998 $100.44 $291.96 $174.99
ASSUMES $100 INVESTED ON DECEMBER 26, 1993
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DECEMBER 27, 1998
20
<PAGE>
Certain Indemnification Agreements
The Company has entered into Indemnification Agreements with each of its
directors and officers. Under the Indemnification Agreements, the Company has
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
One of the Company's restaurants is leased from a corporation in which Abe
J. Gustin, Jr., 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 $148,000 under these leases in the 1998 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 1998 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 three of the Company's
franchisees, A.N.A., Inc., which operates 13 Applebee's restaurants, Quality
Restaurant Concepts, LLC ("QRC") which operates 26 Applebee's restaurants, and
Miss-Ala-Rio, Inc., which operates one Rio Bravo Cantina restaurant. In 1998,
QRC acquired 26 restaurants from Apple South, Inc., the Company's largest
franchisee. The Company has provided a guarantee of $1,000,000 of the amount QRC
borrowed related to this acquisition. The guarantee is reduced by the amount of
principal payments and will terminate after QRC repays $1,000,000 of its
borrowings. As of December 27, 1998, QRC had repaid $509,000 of such borrowings.
Another brother-in-law of Mr. Gustin owns Apple-Bay East, Inc., a
franchisee of the Company which operates seven Applebee's restaurants. The
development and franchise agreements of A.N.A., Inc., QRC, Miss-Ala-Rio, Inc.,
and Apple-Bay East, Inc. are standard in form and require payment of standard
franchise, royalty, and advertising fees.
In 1998, the Company purchased a tract of land for future restaurant
development for $290,000 from an entity in which Mr. Gustin has a one-third
ownership interest. The purchase price was less than current appraised value.
The Company had a consulting agreement with Mr. Kenneth Hill to act as a
consultant to the Company for governmental affairs and restaurant industry
relations that expired March 31, 1998. Mr. Hill was paid $200,000 for the first
year of the agreement, $150,000 for the second year, and $86,000 for the final
period of the agreement. 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 serves as a director and will continue to
serve as a director until his successor is elected at the Annual Meeting.
21
<PAGE>
In February 1999, the Company entered into an agreement to sell its four
specialty restaurants to an entity owned by Mr. Gustin and certain members of
his family for $12 million in cash. The Company believes the terms of this
agreement were fair and are comparable to those that would have been reached
with an unaffiliated third party. In addition, the same entity became a
franchisee of the Company by purchasing seven existing Applebee's restaurants
from another franchisee after receiving the Company's approval.
Pursuant to its policy to loan executives amounts used by the executive to
invest in the Company's stock, and in keeping with the Company's Executive Stock
Ownership guidelines, as of December 27, 1998, the Company had a loan in the
amount of $199,000 outstanding to Mr. Shadid. In addition, a loan made in
connection with her employment with the Company in the amount of $100,000 was
outstanding for Ms. Stewart, which has since been repaid.
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 13, 1999
22
APPENDIX A
Amendments to
1995 Equity Incentive Plan
Section 4.1 of the Plan shall be amended so that the number of shares
authorized under the Plan is increased to 3,600,000 shares.
Note: The following amendments will be effective for options granted in
1999, so that the first Measurement Year will be 1998 and the first base year
will be 1997.
Section 9 of the Plan shall be amended as follows:
SECTION 9
DIRECTOR OPTIONS
The provisions of this Section 9 are applicable only to Options granted
to Nonemployee Directors. The provisions of Section 5 are applicable to Options
granted to Employees and Consultants (and to the extent provided in Section
9.2.6, to Director Options).
9.1 Granting of Options.
9.1.1 Nonemployee Director Grants. Each Nonemployee Director
shall receive an annual grant of Director Options to purchase 5,000
shares of Stock. Such amount would automatically increase if Earnings
Per Share for the Fiscal Year immediately preceding the year in which
the director option is granted (the "Measurement Year") exceeded the
Earnings Per Share for the Fiscal Year immediately preceding the
Measurement Year by more than 15%. The Board of Directors will
determine the formula by which the base grant would increase each year.
In no event shall the number of Director Options granted to each
Nonemployee Director in any Fiscal Year exceed 9,000 shares.
9.1.2 Employee Director Grants. Employee Directors shall only
receive Options in their capacity as Employees and not in their
capacity as Directors.
9.1.3 Date of Grant. All Director Options shall be granted at
the annual meeting of the Board.
9.2 Terms of Options.
9.2.1 Option Agreement. Each Option granted pursuant to this
Section 9 shall be evidenced by a written stock option agreement which
shall be executed by the Optionee and the Company.
1
<PAGE>
9.2.2 Exercise Price. The Exercise Price for the Shares
subject to each Option granted pursuant to this Section 9 shall be 100%
of the Fair Market Value of such Shares on the Grant Date.
9.2.3 Exercisability. Each Option granted pursuant to Section
9.1.1 shall become immediately exercisable on the first anniversary of
the Grant Date. Notwithstanding the preceding, once an optionee ceases
to be a Director, his or her Options which are not exercisable shall
not become exercisable thereafter.
9.2.4 Expiration of Options. Each Option shall terminate upon
the first to occur of the following events:
(a) The expiration of ten (10) years from the Grant Date;
or
(b) The expiration of one (1) year from the date of the
Optionee's termination of service as a Director for any reason.
9.2.5 Not Incentive Stock Options. Options granted pursuant to
this Section 9 shall not be designated as Incentive Stock Options.
9.2.6 Other Terms. All provisions of this Plan not
inconsistent with this Section 9 shall apply to Options granted to
Nonemployee Directors; provided, however, that Section 5.2 (relating to
the Committee's discretion to set the terms and conditions of Options)
shall be inapplicable with respect to Nonemployee Directors.
* * * * *
The definition of "Earnings Per Share" under the Plan shall be amended
to read as follows:
"Earnings Per Share" means as to any Fiscal Year, the Company's Net
Income or a business unit's Pro Forma Net Income, divided by the weighted
average number of Shares outstanding for such Fiscal Year (basic Earnings Per
Share as opposed to diluted Earnings Per Share), rounded to the nearest cent
($0.01). The weighted average number of shares outstanding for any Fiscal Year
will be determined by disregarding any stock repurchases by the Company and the
Net Income or Pro Forma Net Income will be adjusted to reflect the net impact of
any debt service attributable to funds borrowed to effect any stock repurchases.
For these purposes, all funds used to effect stock repurchases will be deemed to
have been borrowed, and at an interest rate equal to the lowest cost of the
Company's then existing borrowed funds."
2
APPENDIX B
APPLEBEE'S INTERNATIONAL, INC.
1999 MANAGEMENT AND EXECUTIVE INCENTIVE PLAN
PREAMBLE
This Applebee's International, Inc. Management and Executive Incentive
Plan (the "Plan") is an unfunded bonus and deferred compensation arrangement for
a select group of management or highly compensated personnel, effective as of
January 1, 1999.
ARTICLE I
DEFINITIONS
"Base Salary" means the weighted average base salary for the
Participant for the year in question as approved by the Committee.
"Beneficiary" means the person or entity designated by a Participant
on the most recently dated Beneficiary Designation Form signed by such
Participant and delivered to the Committee.
"Beneficiary Designation Form" means the form designated by the
Committee from time to time as the document to be used by Participants to select
a person or entity to receive any payments due such Participant in the event of
such Participant's death prior to the date of such payment.
"Board" means the Board of Directors of the Company.
"Bonus" means each Participant's individual bonus for any specified
period of time calculated pursuant to Section 2.02.
"Bonus Percentage" means the percentage of Base Salary of a
Participant used to determine a Bonus payment.
"Change in Control" means an event constituting a Change in Control
under the Equity Incentive Plan.
"Committee" means the Committee that administers the Equity Incentive
Plan.
"Company" means Applebee's International, Inc., a Delaware corporation
and its corporate successors.
"Disability" means mental or physical disability (i) of at least six
months which in the determination of a physician selected by the Company,
prevents a Participant from engaging in the principal duties of his employment
or (ii) has qualified the individual for coverage under the Company's long-term
disability insurance.
1
<PAGE>
"Employee in Good Standing" means a full-time employee of the Company
or a Subsidiary who:
(i) has not been on probation, received a written warning of
performance or disciplinary deficiencies, or been suspended, at any
time during the preceding 12 months; or
(ii) has not failed to perform adequately any duty or
responsibility during the period in question.
"Equity Incentive Plan" means the Applebee's International, Inc. 1995
Equity Incentive Plan, as amended from time to time.
"Fiscal year" or "year" (unless otherwise specified) means the Fiscal
year of the Company as now constituted or as it may be changed hereafter from
time to time.
"GAAP" means generally accepted accounting principles used in the
United States.
"Participant" means an employee of the Company, or of a Subsidiary,
designated by the Committee for participation in the benefits of the Plan.
"Plan" means this 1999 Management and Executive Incentive Plan as it
may be amended from time to time.
"Retirement" means retirement at or after attaining age 65.
"Satisfactory Separation" means the termination of employment with the
Company and its Subsidiaries in instances where:
(i) the termination results from the death, Disability or
Retirement of the Participant; or
(ii) as otherwise determined by the Committee in its sole
discretion.
"Subsidiary" means any corporation or any other entity (including, but
not limited to, partnerships and joint ventures) controlling, controlled by, or
under common control with the Company.
"Target" means the measurement of financial performance of the Company
selected by the Committee to be used to determine the applicable Bonus
Percentage.
"Threshold Level" is the level of achievement of the Target at which
Bonus Percentages begin and below which no Bonus is paid.
2
<PAGE>
ARTICLE II
DESIGNATION OF PARTICIPANTS AND CALCULATION OF BONUS AMOUNTS
Section 2.01 Committee Designations. The Committee shall determine for each
Fiscal year:
(a) The name, employee level, and Bonus Percentages of each
Participant for such Fiscal year;
(b) The Target and Threshold Level for such Fiscal year; and
(c) The percentage of the Bonus, if any, that will be payable at
the discretion of the Chief Executive Officer based upon the
achievement of departmental or individual goals or objectives
and the individuals or employee levels to which such
discretionary bonus percentage shall be applicable.
Section 2.02 Calculation of Bonus. Bonuses shall be calculated by multiplying
the Participant's Base Salary times the applicable Bonus Percentage determined
by reference to the achievement of the Target, all as determined with respect to
the period in question.
Section 2.03 Payment of Bonus.
(a) At the end of each Fiscal year, the Target and Bonus
calculations shall be made on a full Fiscal year basis. Each
Participant will then receive the amount of such Participant's
Bonus calculated on a full Fiscal year basis and reflecting
the application of the discretion of the Chief Executive
Officer assigned by the Committee under Section 2.01(c),
above, if any.
(b) Bonuses will be paid as soon as practicable after the end of
the year.
(c) Upon a Participant's election in accordance with policies and
procedures established by the Committee from time to time, up
to fifty percent (50%) of the amount of such Participant's
Bonus may be paid pursuant to the Equity Incentive Plan in
Shares (as defined in the Equity Incentive Plan), as an Award
of Restricted Stock under Section 7 of the Equity Incentive
Plan in lieu of the payment of such percentage of such Bonus
pursuant to this Plan. The restrictions are determined in the
discretion of the Committee. The number of Shares payable to
the Participant shall be subject to the maximum aggregate
number of Shares permitted under Section 7 of the Equity
Incentive Plan and shall be determined, in the discretion of
the Committee as announced to Participants from time to time,
by dividing the cash value of that part of the Bonus to be
paid in Shares by a percentage (whether equal to, lesser or
greater than 100 percent (100%)) of Fair Market Value (as
defined in the Equity Incentive Plan) on the date such Bonus
is payable to the Participant or pursuant to a formula based
on the closing price, or a percentage of the closing price, of
Shares on one or more days preceding such date.
3
<PAGE>
ARTICLE III
QUALIFICATION; EMPLOYMENT STATUS
Section 3.01 Qualification. In order for a Participant to be qualified to
receive a Bonus payment hereunder, the Participant must meet the following
qualifications:
(a) Be an Employee in Good Standing on the date the Bonus payment
is to be paid; or
(b) Have been an Employee in Good Standing as of the end of the
fiscal year in question but have terminated employment with
the Company through a Satisfactory Separation between the end
of such fiscal year and the date the Bonus payment is to be
paid for such fiscal year.
(c) A Participant having terminated employment with the Company
through a Satisfactory Separation shall be entitled only to
receive the Bonus calculated through the end of the fiscal
year at which the Participant was an Employee in Good
Standing.
Section 3.02 Employment Status Changes. Unless specifically determined otherwise
by the Committee:
(a) In the event that a person first becomes an employee of the
Company at an employment level eligible for participation in
the Plan at any time other than the first day of a year, such
person's bonus shall be prorated based on the weeks worked
during the year; and
(b) In the event a Participant changes from one employment level
within the Plan to another employment level within or outside
of the Plan, such change shall be deemed effective as of the
first day of the first week beginning after the effective date
of such change, and any Bonus for an employment level shall be
prorated according to the number of weeks the Participant was
employed in such employment level.
ARTICLE IV
ADMINISTRATION; MISCELLANEOUS
Section 4.01 Books and Records: Expenses. The books and records to be maintained
for the purpose of the Plan shall be maintained by the officers and employees of
the Company at its expense and subject to the supervision and control of the
Committee. All calculations and financial accounting matters relevant to this
Plan shall, except as otherwise directed by the Committee, be determined in
accordance with GAAP. All expenses of administering the Plan shall be paid by
the Company from the general funds of the Company and shall not be charged
against any Participant account.
4
<PAGE>
Section 4.02 Attachment. To the extent permitted by law, the right of any
Participant or any Beneficiary in any benefit or to any payment hereunder shall
not be subject in any manner to attachment or other legal process for the debts
of such Participant or Beneficiary; and any such benefit or payment shall not be
subject to anticipation, alienation, sale, transfer, assignment or encumbrance.
Section 4.03 No Liability. No member of the Board or of the Committee and no
officer or employee of the Company shall be liable to any person for any action
taken or omitted in connection with the administration of this Plan unless
attributable to his own fraud or willful misconduct; nor shall the Company be
liable to any person for any such action unless attributable to fraud or willful
misconduct on the part of a director, officer or employee of the Company.
Section 4.04 No Fiduciary Relationship. Nothing contained herein shall be deemed
to create a trust of any kind or create any fiduciary relationship. To the
extent that any person acquires a right to receive payments from the Company
under this Plan, such right shall be no greater than the right of any unsecured
general creditor of the Company.
Section 4.05 Beneficiaries. Each Participant shall have the right to designate
Beneficiaries who are to succeed to his/her contingent right to receive payments
hereunder in the event of his/her death. In case of a failure of designation or
the death of a designated Beneficiary without a designated successor, payments
shall be made to the Participant's estate. Beneficiaries may be changed without
the consent of any prior Beneficiaries.
Section 4.06 Amendment. The Plan may be amended in whole or in part from time to
time by the Board of Directors of the Company.
Section 4.07 Notice. Notice of every such amendment shall be given in writing to
each Participant and Beneficiary.
Section 4.08 No Guarantee of Employment. Nothing contained in this Plan shall be
deemed to give any Participant the right to be retained in the service of the
Company or to interfere with the right of the Company to discharge any
Participant, for or without cause, at any time, regardless of the effect which
such discharge shall have upon such individual as a Participant in the Plan.
Section 4.09 Governing Law. This Plan shall be construed in accordance with the
laws of the State of Kansas.
Section 4.10 Interpretation of Plan. The Committee shall have sole and absolute
discretion and authority to interpret all provisions of this Plan and to resolve
all questions arising under this Plan; including, but not limited to,
determining whether any person is eligible under this Plan, whether any person
shall receive any payments pursuant to this Plan, and the amount of any payments
to be made pursuant to this Plan. Any interpretation, resolution or
determination of the Committee shall be final and binding upon all concerned and
shall not be subject to review.
5
<PAGE>
Section 4.11 Rights Non-transferable. Any right to receive payments in the
future pursuant to this Plan shall not be transferable by the Participant other
than pursuant to a Beneficiary Designation Form.
Section 4.12 Change in Control. In the event there is a Change in Control,
Bonuses shall be determined and paid hereunder for the Fiscal year in which such
Change in Control occurs by calculating as nearly as practical the achievement
of the Target as if the Change in Control had not occurred.
Section 4.13 Withholding. Prior to the delivery of any Shares or cash pursuant
to this Plan, the Company shall have the power and the right to deduct or
withhold or require a Participant to remit to the Company, an amount sufficient
to satisfy Federal, state and local taxes (including the Participant's FICA
obligation) required to be withheld with respect to such delivery.
6
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF APPLEBEE'S INTERNATIONAL, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 13, 1999
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 the
Overland Park Marriott, 10800 Metcalf, Overland Park, Kansas 66210 on May 13,
1999, 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 four directors to serve until the 2002 Annual Meeting of
Stockholders (except for Mr. Shadid, who would serve until the 2000
Annual Meeting of Stockholders) or until their earlier resignation;
Nominees: Erline Belton, Eric L. Hansen, Mark S. Hansen and George D.
Shadid;
[ ] 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
1,300,000 shares and to change the formula by which stock options are
granted annually to non-employee directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. To approve the Company's 1999 Management and Executive Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IV. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 1999 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.
