APPLEBEE'S INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 4, 2000
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 4, 2000, at 10:00 a.m., CDT, at the Hyatt
Regency Crown Center, 2345 McGee Street, Kansas City, Missouri 64108 for the
following purposes:
I. To elect three directors;
II. To amend the Company's 1995 Equity Incentive Plan to change the
manner in which stock options are granted annually to
non-employee directors and to amend the definition of
Performance Goals;
III. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 2000 fiscal year; and
IV. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof. The
foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
The Board of Directors recommends a "yes" vote on all proposals.
The Board of Directors has fixed the close of business on March 16, 2000,
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 4, 2000
1
<PAGE>
APPLEBEE'S INTERNATIONAL, INC.
--------------
PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Applebee's International, Inc., a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on May
4, 2000, 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 Hyatt Regency Crown Center,
2345 McGee Street, Kansas City, Missouri 64108.
This proxy statement and accompanying proxy ("Proxy Statement") were mailed
on or about April 4, 2000, 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 16, 2000 will
be entitled to notice of and to vote at the Annual Meeting. At the close of
business on March 16, 2000, there were 26,573,686 outstanding shares of the
Company's common stock, par value $.01 per share (the "Common Stock"). Each
share of Common Stock outstanding on the record date is entitled to one vote.
Approval of Proposals II and III requires the affirmative vote of a majority of
the 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 affect the vote on the
proposals in that they will be treated as a "no" vote and 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 16, 2000, the closing sale price reported on The Nasdaq Stock
Market for a share of the Common Stock was $29.25 (as reported by the National
Quotation Bureau, Inc.).
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it any time before it is voted by filing with the Secretary of the
Company at the Company's principal executive office a written notice of
revocation or a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person.
Solicitation
The Company will bear the entire cost of solicitation of proxies in the
enclosed form, including preparation, assembly, printing and mailing of this
Proxy Statement and any additional information furnished by the Company to
stockholders. Original solicitation of proxies by mail may be supplemented by
telephone, telegraph or personal solicitation by directors, officers or other
regular employees of the Company or by agents employed by the Company for the
specific purpose of supplemental proxy solicitation. Such soliciting agents, if
engaged, will be paid a reasonable fee for their services. No additional
compensation will be paid to directors, officers or other regular Company
employees for such services.
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Stockholder Proposals 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 2001
Annual Meeting of Stockholders, the proposal must be received by the Company no
later than February 18, 2001. 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, 2000.
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 2002 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. Abe J.
Gustin, Jr., a director in Class II, will retire from the Board at the end of
his current term and will not stand for reelection.
The following information is furnished for each of the three persons being
nominated for election as a Class II director to a new three-year term (each of
the three a "Nominee"). Among the Nominees is Douglas R. Conant, whom the Board
of Directors appointed as a Class II director in December 1999 upon the
retirement of Robert A. Martin. The stockholders are asked to ratify the
appointment of Mr. Conant as well as elect him to a new three-year term. The
following information is also furnished for Mr. Gustin and for each person who
is continuing as a Class I or Class III director of the Company ("Incumbent").
ABE J. GUSTIN, JR., age 65 (Class II term expiring in 2000). Mr. Gustin will
retire from the Board at the end of his current term and will not stand for
reelection. 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
continued as Chairman of the Board. He serves as a member of the Company's
Franchise Business Council.
LLOYD L. HILL, age 56 (Incumbent - Class III term expiring in 2001). Mr.
Hill became 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. 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.
3
<PAGE>
ERLINE BELTON, age 56 (Incumbent - Class I term expiring in 2002). 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 as a
member of the Executive Compensation Committee and the Nominating Committee.
DOUGLAS R. CONANT, age 48 (Nominee - Class II term expiring in 2000). Mr.
Conant became a director of the Company in December 1999. Mr. Conant is the
president of Nabisco Foods Company, a subsidiary of Nabisco Group Holdings Corp.
He has been with Nabisco since 1991, having served in a number of other
executive positions. Prior to joining Nabisco, Mr. Conant spent more than 16
years with the General Mills and Kraft Foods organizations in a variety of
senior strategic and marketing management positions.
D. PATRICK CURRAN, age 55 (Nominee - 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 JPS
Packaging Company, a publicly-traded company. Mr. Curran serves as a member of
the Audit Committee and the Nominating Committee.
ERIC L. HANSEN, age 51 (Incumbent - Class I term expiring in 2002). Mr.
Hansen became 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 and the Executive Compensation
Committee. Mr. Eric Hansen and Mr. Mark Hansen are not related.
MARK S. HANSEN, age 45 (Incumbent - Class I term expiring in 2002). 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 served in executive positions with Federated Foods, Inc., the Jewel
Companies and The Great Atlantic and Pacific Tea Company. He serves on the board
of directors of Fleming Companies, Inc., a publicly-traded company. Mr. Hansen
serves as a member of the Audit Committee and the Executive Compensation
Committee. Mr. Mark Hansen and Mr. Eric Hansen are not related.
JACK P. HELMS, age 47 (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 Executive Compensation Committee and the Nominating Committee.
BURTON M. SACK, age 62 (Incumbent - Class III term expiring in 2001). Mr.
Sack became a director and was 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 that 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 and as a
member of the Nominating Committee. Mr. Sack is a director of the National
Restaurant Association.
4
<PAGE>
GEORGE D. SHADID, age 46 (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. Mr. Shadid serves as a member of the Nominating Committee.
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. Mark
Hansen. 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 Ms. Belton, Mr. Eric Hansen, Mr. Mark 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 Ms. Belton, Mr. Curran, Mr. Helms, Mr. Sack and Mr. Shadid.
During fiscal year 1999, the Board of Directors held five meetings
(including four regular meetings), the Audit Committee held two meetings, the
Executive Compensation Committee held five meetings, and the Nominating
Committee held one meeting. During fiscal year 1999, 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, Ms. Belton, Mr. Curran, Mr. Gustin, Mr.
Eric Hansen, Mr. Mark Hansen, Mr. Helms and Mr. Sack were considered
"non-employee directors" throughout 1999. In addition, Mr. Conant was considered
a "non-employee director" after joining the Board in December 1999. During 1999,
Mr. Hill, Mr. Shadid and Mr. Martin, who retired from his positions as a
director and employee in December 1999, were "employee directors." In 1999,
non-employee directors received an annual cash retainer of $15,000 plus an
annual fee of $5,000 for each committee on which the director served, up to a
maximum of $10,000 for all such committees. Effective January 1, 2000, the cash
compensation for non-employee directors was changed to an annual retainer of
$30,000 for service as a director, including participation on the three standing
committees. Compensation, if any, for service on special committees will be a
per diem of $1,000, plus expenses, or as otherwise determined by the Board at
the time of establishment of the special committee. Employee directors do not
receive any compensation for their service on the Board.
Additionally, the Company's 1995 Equity Incentive Plan provides 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. This provision is proposed to be changed effective May 4, 2000. (See
"Proposal II" below.) Under the plan, options for 5,900 shares of Common Stock
were granted in May 1999 to Ms. Belton, Mr. Curran, Mr. Gustin, Mr. Eric Hansen,
Mr. Mark Hansen, Mr. Helms and Mr. Sack for serving as non-employee directors of
the Company.
Cash compensation paid and stock options granted to Mr. Hill, Mr. Martin and
Mr. Shadid for services rendered to the Company as employees in fiscal 1999 are
shown in the Summary Compensation Table.
5
<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 26, 1999, is as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Steven K. Lumpkin....................... 45 Executive Vice President of Strategic Development
Julia A. Stewart........................ 44 President of Applebee's Division
Larry A. Cates.......................... 51 President of International Division
Karen B. Eadon.......................... 46 Senior Vice President of Marketing
Louis A. Kaucic......................... 48 Senior Vice President of Human Resources
John F. Koch............................ 40 Senior Vice President of Research and Development
Carin L. Stutz.......................... 43 Senior Vice President of Company Operations
</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.
KAREN B. EADON was employed by the Company in March 1999 as Senior Vice
President of Marketing. From April 1995 to March 1999, Ms. Eadon was Vice
President of Retail Marketing Programs with ARCO Products, a leading gasoline
retail and convenience store chain. From April 1993 to November 1994, she was
employed as Vice President of Marketing by Carl Karcher Enterprises, owner and
franchisor of Carl's Jr. restaurants. From 1985 to 1993, Ms. Eadon held several
key marketing positions with Taco Bell Corporation.
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.
6
<PAGE>
JOHN F. KOCH was employed by the Company in February 1999 as Senior Vice
President of Research and Development. From January 1990 to February 1999, Mr.
Koch held various positions with The Olive Garden, most recently as the Senior
Vice President of Food and Beverage. Mr. Koch has over 20 years experience in
the restaurant industry.
CARIN L. STUTZ was employed by the Company in November 1999 as Senior Vice
President of Operations. From July 1994 to November 1999, Ms. Stutz was Division
Vice President with Wendy's International. From 1993 to 1994, she was Regional
Operations Vice President for Sodexho, USA. From 1990 to 1993, Ms. Stutz was
employed by Nutri/System, Inc. as a Vice President of Corporate Operations.
Prior to 1990, Ms. Stutz was employed for 12 years with Wendy's International.
Security Ownership of Officers, Directors and Certain Beneficial Owners
The following table sets forth information, as of March 16, 2000, 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 (except for Mr.
Martin, who retired in December 1999), 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............................... 3,853,436 14.5%
500 Boylston Street
Boston, MA 02116
FMR Corp............................................................... 2,249,400 8.5%
82 Devonshire Street
Boston, MA 02109
Burton M. Sack (2)..................................................... 1,779,670 6.7%
Abe J. Gustin, Jr. (2)................................................. 560,467 2.1%
Lloyd L. Hill (2)...................................................... 217,788 0.8%
George D. Shadid (2)................................................... 160,870 0.6%
Jack P. Helms (2)...................................................... 79,700 0.3%
Steven K. Lumpkin (2).................................................. 75,590 0.3%
D. Patrick Curran (2).................................................. 74,200 0.3%
Eric L. Hansen (2)..................................................... 53,700 0.2%
Julia A. Stewart....................................................... 20,851 0.1%
Mark S. Hansen (2)..................................................... 7,900 -
Erline Belton (2)...................................................... 6,100 -
Douglas R. Conant...................................................... - -
All executive officers and directors as a group (17 persons) (2)....... 3,101,897 11.7%
<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 sharessubject to options exercisable as of March 16, 2000
or within 60 days thereafter: 70,150 shares for Mr. Sack, 139,900 shares for Mr.
Gustin, 143,000 shares for Mr. Hill, 116,250 shares for Mr. Shadid, 46,700
shares for Mr. Helms, 62,500 shares for Mr. Lumpkin, 46,700 shares for Mr.
Curran, 37,700 shares for Mr. Eric L. Hansen, 5,900 shares for Mr. Mark S.
Hansen, 5,900 shares for Erline Belton and 710,098 shares for all executive
officers and directors as a group.
</FN>
</TABLE>
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Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of the Common Stock,
to file certain reports of ownership and changes in ownership with the SEC.
Officers, directors and persons owning beneficially greater than 10% of the
Company's Common Stock are required by SEC regulations to furnish the Company
with copies of all such reports.
Based solely on its review of the copies of such 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 26, 1999, except that one report was not timely filed by D.
Patrick Curran, two reports were not timely filed by Abe J. Gustin, Jr., one
report was not timely filed by Eric L. Hansen, one report was not timely filed
by Robert A. Martin, and one report was not timely filed by George D. Shadid.
The transactions were reported by each of these individuals in subsequent
filings.
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 2003 Annual Meeting of Stockholders and until his successor is elected
and has qualified or until his earlier death, resignation or removal.
<TABLE>
<CAPTION>
Current Position Director
Name Age With The Company Since
------------------------------- ------------ -------------------------------------------- ---------------
<S> <C> <C> <C>
Douglas R. Conant 48 Director 1999
D. Patrick Curran 55 Director 1992
George D. Shadid 46 Executive Vice President and Chief 1999
Financial Officer, Treasurer, Director
</TABLE>
8
<PAGE>
PROPOSAL II
AMENDMENT OF THE COMPANY'S 1995 EQUITY INCENTIVE PLAN
CHANGING THE FORMULA FOR STOCK OPTION
GRANTS TO NON-EMPLOYEE DIRECTORS
AND TO AMEND THE DEFINITION OF PERFORMANCE GOALS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
Recently, the Company reviewed its non-employee director compensation
program and determined that the procedures for granting non-employee director
stock options under the 1995 Equity Incentive Plan (the "Equity Incentive Plan")
should be amended.
First, the Company believes that the basis on which options are granted to
non-employee members of its Board of Directors should be revised to provide that
options to purchase 6,000 shares will be granted to non-employee directors
automatically on the first day in each calendar year that the Company's Common
Stock trades on a United States stock exchange or inter-dealer quotation system,
as designated by the Board. Such options will vest if the individual continues
to be a director on the one-year anniversary of the grant date and will have an
exercise price equal to the closing stock price on the grant date. In addition,
the amendment will permit non-employee directors to elect to have their annual
cash retainer paid by the grant of Director Options. If, on or before December
15th, a non-employee director elects to forego all or a portion of his or her
cash retainer for the following year in lieu of stock options, the director will
receive in the following January an option to purchase the number of shares
equal to the cash amount foregone divided by three-tenths of the exercise price,
rounded to the next higher multiple of ten. For example, a non-employee director
electing to forego $30,000 of retainer, assuming a share price of $30.00, would
receive an option to buy 3,340 shares at $30.00 per share. These options are
also granted on, and will have an exercise price equal to the closing price on,
the first day in each calendar year that the Company's Common Stock trades on a
United States stock exchange or inter-dealer quotation system, as designated by
the Board of Directors. These options will vest one-twelfth each month for 12
months, so long as the individual continues to be a director throughout such
month.
In addition, non-employee directors elected to the Board after May 4, 2000
would receive 6,000 options as a one-time initial grant. The option grant will
be effective as of the date the director is elected to the Board, and the
exercise price will be the closing stock price on the grant date. Each of the
three non-employee directors elected to the Board in 1998 or 1999 will receive a
one-time grant of 5,000 options on May 4, 2000. The exercise price will be the
closing stock price on the grant date.
The Company is also proposing to amend the Equity Incentive Plan to include
two additional measures of Performance Goals - operating return on invested
capital and total return to shareholders.
The changes described above are reflected in the proposed amendment to
certain definitions and Sections 9.1 and 9.2 of the 1995 Equity Incentive Plan
as attached as Appendix A hereto and are being submitted to the stockholders for
approval. If approved, they will become effective May 4, 2000.
Non-Employee Director Stock Options
As described above, the amendment to the Equity Incentive Plan changes the
manner in which stock options are granted annually to non-employee directors.
Under the Equity Incentive Plan prior to the proposed amendment, each
non-employee director received a base grant of 5,000 shares and 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 determines the formula by which the base grant would increase each
year. The total shares granted to each non-employee director in any year (the
base grant plus the incremental grants) may not exceed 9,000. Director options
expire on their tenth anniversary.
9
<PAGE>
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.
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.
10
<PAGE>
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.
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, (7) satisfaction of
Company-wide or department-based operating objectives, (8) operating return on
invested capital and (9) total return to shareholders. The addition of operating
return on invested capital and total return to shareholders as performance goals
are reflected in the proposed amendment to the 1995 Equity Incentive Plan as
attached as Appendix A hereto which is being submitted to the stockholders for
approval. These performance measures are set forth in the Equity Incentive Plan
and the proposed amendment. 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.
11
<PAGE>
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.
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, if held for more than 12 months after exercise.
12
<PAGE>
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 grant 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.
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
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE 2000 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 2000 fiscal year. The
stockholders are being asked to ratify this selection. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting. Such
representatives will have the opportunity to make a statement at the Annual
Meeting if they so choose and will be available to respond to appropriate
questions.
13
<PAGE>
Executive Compensation
Executive Compensation Committee Report
This report discusses the manner in which 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") was determined for the
1999 fiscal year.
The Company believes that its growth and success is dependent, in large
part, on its ability to attract and retain highly qualified senior executives.
Toward that end, the Company has developed a competitive executive compensation
program designed to reward senior executives over the short- and long-term for
achieving Company financial objectives and increasing shareholder value.
There are four primary components of the Company's executive compensation
program:
o Base salary;
o Annual cash incentive, which is earned primarily by achieving annual
Earnings Per Share (EPS) growth targets;
o Stock awards, which consist of annual stock option and performance share
grants; and
o Executive stock ownership guidelines.
Executive compensation levels are set each year after a review of levels of
compensation in comparison companies. For 1999, compensation levels were set to
be competitive with those of a peer group of restaurant companies. These
companies were selected based on several criteria including revenue size, market
capitalization, revenue and earnings growth rates, and market segment. All the
companies in the peer group are included in the Media General Restaurant
Industry Index, which is used to measure the Company's stock price performance
in the Performance Graph included in this Proxy Statement. In addition, targeted
compensation levels were compared to those in a broad-based group of companies
with similar revenue size to ensure that compensation levels were also
competitive with those of companies outside the restaurant industry.
The following compensation philosophy was used to determine target levels
of executive compensation for 1999:
o Base salary midpoints were set at the median of the base salaries for
executives in the comparator groups;
o Target annual incentive opportunities were set so that target total cash
(base salary midpoints plus target annual incentive opportunities) would be at
the third quartile of total cash for executives in the comparator groups when
target performance levels are achieved;
o Target stock award levels were set so that total direct compensation (target
total cash plus the target present value of annual stock awards) would be at
the third quartile of total direct compensation for executives in the
comparator groups when target performance levels are achieved. To determine
the value of stock awards, a standardized present value was assigned to the
stock of the Company and the companies in the comparator groups.
In developing executive compensation programs and setting target
compensation levels for 1999, the Committee also relied on the advice of an
independent compensation consultant.
In 1999, the Company had written employment agreements in effect with Mr.
Hill and Mr. Shadid. Because the agreements were entered into prior to 1999 and
address only first year base salary levels, they were not a factor in
determining 1999 compensation levels. Base salary, target annual incentive
opportunities, stock option and target performance share levels are established
by the Compensation Committee each year.
14
<PAGE>
In anticipation of Robert A. Martin's retirement at the end of 1999, he did
not fully participate in the executive compensation programs for 1999 that are
outlined in this report for the CEO and the other Named Executives.
Base Salary
In determining base salary increases for the CEO and Named Executives, the
Committee considers several criteria, including competitive practice, growth in
stockholder value, free cash flow, return on capital, earnings per share,
franchisee relations, restaurant openings and performance, as well as group and
individual achievement of other strategic objectives. These criteria are not
weighted by any predetermined formula, but rather, are considered in light of
the overall achievement of the Company's goals and of general industry and
economic factors.
Because the Company did not, overall, achieve its financial and operational
goals in 1998, Mr. Hill requested that neither he nor members of his senior
executive team receive base salary increases for 1999. The Compensation
Committee approved that recommendation. Because base salary increases were last
given in March 1998, salaries shown in the Summary Compensation Table for 1999
vary slightly from those shown in 1998. Based on strong performance in 1999,
merit increases were given to executives in March 2000.
Annual Cash Incentive Compensation
The Committee believes that the awards under the Company's annual incentive
plan (1999 Management and Executive Incentive Plan) for the CEO and Named
Executives should be based on the achievement of annual operating and financial
goals, driven primarily by Company EPS performance. As a result, awards under
the annual incentive plan are driven primarily by achievement of Company EPS
targets but also include, for each executive, strategic goals which the
Compensation Committee believes will drive overall Company performance. For
1999, the Compensation Committee approved an EPS target for the plan which
represented a 15% increase over 1998 EPS performance. No awards would have been
made under the annual incentive plan if Company 1999 EPS performance fell below
90% of the EPS target. Because of the Company's strong EPS performance in 1999,
the awards under the annual incentive plan for the CEO and Named Executives
exceeded targeted levels.
Beginning with the awards from the annual incentive plan in March 2000 for
1999 performance, executives were given the opportunity to receive payment in
either cash or restricted stock at a nominal discount. This opportunity was
provided as a part of the share ownership program established in 1998. For 1999,
the CEO and all of the eligible Named Executives elected to receive a portion of
their annual incentive in stock. The cash and stock awards from the annual
incentive plan for 1999 performance are shown in the Summary Compensation Table.
Equity Compensation
The Committee believes that stock awards are an important element of the
Company's executive compensation program and the primary means of rewarding
executives for increasing shareholder value over the short- and long-term.
Beginning in 1998 and continuing in 1999, the Committee chose to use a
combination of stock options and performance shares to comprise the equity
portion of the executive compensation program in order to provide a focus on
both short-term stock price appreciation and the achievement of goals designed
to achieve continued stock price growth over the long term. Stock awards also
serve as the primary retention tool for the CEO and Named Executives.
A further focus for the Committee has been to put executives at risk based
on the Company's stock performance. To accomplish this goal, the Committee has,
over the last two years, implemented certain stock programs for executives. At
the same time, stock ownership guidelines have been put into place to ensure
that the stock programs result in significantly increased share ownership on the
part of executives.
15
<PAGE>
In 1999, an annual grant of stock options and performance shares under the
1995 Equity Incentive Plan was made to the CEO and eligible Named Executives as
a part of this ongoing program.
Stock Option Grants
In May 1999, annual stock option grants were made to the CEO and Named
Executives. These stock option grants were made at fair market value on the date
of grant and can be exercised (following a required holding period) at any time
over a 10-year period. These options vest three years from the date of grant.
In December 1999, the Committee approved a change in the schedule for the
granting of annual stock options so that performance shares and stock options
could be granted together. The grant date for stock options was moved from May
to the first trading day of the calendar year. The Committee subsequently
approved the year 2000 stock option grants to the CEO and the eligible Named
Executives effective January 3, 2000. No additional stock option grants for the
CEO and Named Executives are contemplated for 2000. The majority of these stock
options have the same provisions as the May 1999 grants. As a part of the
transition, a small number of the stock options were granted with a one-year
vesting period. The Committee expects all options granted after 2000 to have a
three-year vesting period to promote retention of key executives.
Performance Share Grants
Two performance share grants were made in 1999. Awards under the one-year
grant were based on 1999 Company EPS performance. Because Company EPS
performance exceeded expectations for 1999, the performance share awards for the
CEO and the Named Executives included in the performance share program were
above target. Awards under the three-year grants are based on achievement of
three-year Company EPS targets and, if earned, will be paid in February 2002.
EPS performance targets were established based on the Company's annual and
strategic plan EPS goals.
The Committee has established two new performance share award cycles
beginning in January 2000 - a one-year cycle based on 2000 performance and a
three-year cycle based on 2000-2002 performance. Awards from the one-year cycle
will be granted, if earned, in February 2001; the awards from the three-year
cycle will be granted, if earned, in February 2003.
For performance share cycles beginning in 2001 or later, the Committee
expects to use only three-year performance measures. For performance share
cycles beginning in 2000 or later, the Committee intends to introduce two new
performance measures, a return on invested capital measure and a total return to
shareholder measure. (See "Proposal II" above.) Other measures may also be used
in the future.
Performance share awards for 1999 performance and stock option grants made
in May 1999 are shown in the Summary Compensation Table. Performance share
grants for the three-year cycle that began in 1999 are shown in the Long-Term
Incentive Plan Awards Table.
Executive Stock Ownership Guidelines and Loans
In 1998, the Company established stock ownership guidelines that became
effective for the CEO through Senior Vice President levels as of July 1, 1998
and for Vice Presidents as of January 1, 1999.
The targeted stock ownership requirement for each executive officer group is
as follows:
o CEO 3 times base salary
o Executive Vice Presidents/Senior Vice Presidents 2 times base salary
o Vice Presidents 1 times base salary
16
<PAGE>
An executive must achieve the targeted ownership level within five years of
beginning participation in the program in order to continue to participate in
the Company's annual stock option and performance share program after that date.
If he or she does not meet the requirement at the end of five years,
participation in the Company's stock programs can begin again only after the
requirement is met. If a participating executive achieves the targeted levels of
share ownership within three years after entry into the program, he or she will
receive a share bonus of 50% of base salary up to $125,000. The bonus is
restricted until five years of participation have been achieved.
Coincident with the share ownership program being implemented, the Company
adopted a program that provided loans to executives for the exercise of stock
options and to pay taxes on restricted shares. Under this program, an executive
may receive a loan for an amount equal to his or her personal investment in
Company stock, with a maximum loan amount of 50% of his or her stock ownership
requirement. Loans are five years in duration with interest payable annually and
principal payable at the end of the fifth year. Interest accrues annually at the
mid-term annual compound applicable federal rate at the time of the loan. Mr.
Shadid and Mr. Hill availed themselves of the loan program in 1998 and 1999,
respectively, with the Committee's approval.
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 1999 or in any prior year.
EXECUTIVE COMPENSATION COMMITTEE
Erline Belton
Eric L. Hansen
Mark S. Hansen
Jack P. Helms
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee consists entirely of individuals who
are neither officers nor employees of the Company.
17
<PAGE>
Summary Compensation Table
The following Summary Compensation Table sets forth the compensation of the
Chief Executive Officer and each of the next four most highly compensated
executive officers in each of their respective positions with the Company whose
annual salary and bonuses exceeded $100,000 for services in all capacities to
the Company during the last three fiscal years.
<TABLE>
<CAPTION>
=====================================================================================================================
SUMMARY COMPENSATION TABLE
=====================================================================================================================
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
----------------------------------------------- --------------------- -------------
Restricted
Other Annual Stock LTIP
Fiscal Salary Bonus(1) Compensation(2) Awards(3) Options(4) Payouts(5)
Name and Principal Position Year ($) ($) ($) ($) (#) ($)
- ------------------------------- -------- --------- ---------- ---------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lloyd L. Hill 1999 $520,000 $461,370 $23,916 -- 54,000 $491,296
Chief Executive Officer and 1998 491,154 181,559 34,511 -- 20,000 --
President 1997 416,923 94,500 7,076 -- -- --
George D. Shadid 1999 $310,000 $265,980 $16,538 -- 30,000 $276,354
Executive Vice President and 1998 309,462 137,253 16,271 -- 20,000 --
Chief Financial Officer 1997 295,039 111,050 4,941 -- -- --
Julia A. Stewart(6) 1999 $300,000 $273,000 $146,572 -- 30,000 $276,354
President of Applebee's 1998 63,462 76,654 3,516 $94,063 50,000 --
Division 1997 -- -- -- -- -- --
Steven K. Lumpkin 1999 $250,000 $172,047 -- -- 24,000 $214,942
Executive Vice President of 1998 249,231 96,250 -- -- 20,000 --
Strategic Development 1997 228,946 58,125 -- -- -- --
Robert A. Martin(7) 1999 $215,000 $118,250 $ 9,978 -- 15,000 --
Executive Vice President of 1998 214,615 60,011 10,585 -- 20,000 --
Marketing 1997 204,423 38,438 3,333 -- -- --
- -----------------------------
<FN>
(1) Represents amounts earned under the Company's bonus plan. Amounts
applicable to Mr. Shadid and Mr. Lumpkin for 1997 also include $50,000 and
$15,000, respectively, for discretionary bonuses approved by the Executive
Compensation Committee. Amounts applicable to Ms. Stewart include a bonus
of $50,000 in 1998 pursuant to an agreement made at the time she joined the
Company as an officer. Mr. Hill, Mr. Shadid, Ms. Stewart and Mr. Lumpkin
elected to receive a portion of their 1999 bonus in stock and, accordingly,
received 5,295, 1,526, 5,222 and 1,645 shares, respectively, in March 2000.
(2) Represents payments made in connection with the Company's non-qualified
retirement savings plan. Amounts applicable to Ms. Stewart represent moving
and relocation expense reimbursements in 1998 and 1999.
(3) Ms. Stewart received 5,000 shares of restricted stock at the time she
joined the Company in 1998 which vests equally over three years.
(4) Represents options granted pursuant to the Company's 1995 Equity Incentive
Plan. Ms. Stewart received 50,000 options at the time she joined the
Company in 1998 which vest 50% three years after date of grant, 25% four
years after date of grant and 25% five years after date of grant.
(5) Represents the value of performance shares earned for 1999 under a one-year
performance cycle which were issued on February 15, 2000. Shares earned
under this plan were 18,896, 10,629, 10,629 and 8,267 for Mr. Hill, Mr.
Shadid, Ms. Stewart and Mr. Lumpkin, respectively. The closing price of the
Company's Common Stock on February 15, 2000 was $26.00 per share.
(6) Ms. Stewart's employment with the Company commenced October 5, 1998.
(7) Mr. Martin retired from the Company on December 31, 1999.
</FN>
</TABLE>
During 1999, the Company had written employment agreements with Mr. Hill
and Mr. Shadid. Each of the employment agreements provides for periodic salary
adjustments as determined by the Executive Compensation Committee.
18
<PAGE>
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 1999, the Company had change in control arrangements with other
officers of the Company (16 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 (17 persons) had been terminated as of December 26,
1999, 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 $6,300,000.
The following tables set forth information regarding options granted and
exercised and long-term incentive plan awards during fiscal year 1999 with
respect to the Chief Executive Officer and the next four most highly compensated
executive officers:
<TABLE>
<CAPTION>
================================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
================================================================================================================
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants(1) for Option Term(2)
------------------------------------------------------------------------------------ ---------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted(3) in Fiscal Price Expiration 5% 10%
Name (#) Year ($/Share) Date ($) ($)
------------------------- ------------- ---------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lloyd L. Hill 54,000 11.8% $28.50 5/13/09 $967,869 $2,452,770
George D. Shadid 30,000 6.5 28.50 5/13/09 537,705 1,362,650
Julia A. Stewart 30,000 6.5 28.50 5/13/09 537,705 1,362,650
Steven K. Lumpkin 24,000 5.2 28.50 5/13/09 430,164 1,090,120
Robert A. Martin 15,000 3.3 28.50 5/13/09 268,852 681,325
- -------------
<FN>
(1) Options are granted at the fair market value on the date of grant.
(2) The assumed rates are compounded annually for the full terms of the
options.
(3) Options vest three years after date of grant. Mr. Martin's options vested
upon his retirement in December 1999.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
======================================================================================================
Number of Value of Unexercised
Securities Underlying In-The-Money
Unexercised Options Options at
at 12/26/99 12/26/99(2)
Shares (#) ($)
Acquired Value ----------------------- ------------------------
at Exercise Realized(1) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
------------------------- ------------- ------------- ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Lloyd L. Hill 9,000 $ 86,040 164,000 / 124,000 $817,240 / $142,500
George D. Shadid -- -- 97,500 / 87,500 425,550 / 142,500
Julia A. Stewart -- -- -- / 80,000 -- / 459,350
Steven K. Lumpkin -- -- 50,000 / 77,333 61,250 / 166,978
Robert A. Martin 27,071 361,559 66,929 / 50,000 27,000 / 142,500
------------------------
<FN>
(1) Market value less option price.
(2) Based upon the closing sale price of the Common Stock on December 23, 1999
(the last trading day in fiscal year 1999).
</FN>
</TABLE>
<TABLE>
<CAPTION>
============================================================================================================
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
=============================================================================================================
Number of Estimated Future Payouts Under
Shares, Non-Stock Price Based Plans
Units or Performance or Other ------------------------------------------
Other Rights Period Until Maturation Threshold Target Maximum
Name (#) or Payout (#) (#) (#)
------------------------- ------------- ------------------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lloyd L. Hill 24,000 12/28/98-12/30/01 8,000 16,000 24,000
George D. Shadid 13,500 12/28/98-12/30/01 4,500 9,000 13,500
Julia A. Stewart 13,500 12/28/98-12/30/01 4,500 9,000 13,500
Steven K. Lumpkin 10,500 12/28/98-12/30/01 3,500 7,000 10,500
Robert A. Martin -- -- -- -- --
- -------------
</TABLE>
20
<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 26,
1999 (December 25, 1994 to December 26, 1999) 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 100 restaurant companies.
<TABLE>
<CAPTION>
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
------------------------ -------------------- --------------- ------------------
<S> <C> <C> <C>
December 25, 1994 $100.00 $100.00 $100.00
December 31, 1995 $153.32 $129.71 $140.64
December 29, 1996 $184.11 $161.18 $142.27
December 28, 1997 $127.12 $197.16 $146.36
December 27, 1998 $139.15 $278.08 $199.30
December 26, 1999 $191.31 $490.46 $189.64
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 25, 1994
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DECEMBER 26, 1999
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.
21
<PAGE>
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 $158,000 under these leases in the 1999 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 1999 fiscal year, the
aggregate payments made by the Company on the lease were $103,000.
Mr. Gustin's brother and a brother-in-law own two of the Company's
franchisees, A.N.A., Inc., which operates 16 Applebee's restaurants, and Quality
Restaurant Concepts, LLC ("QRC") which operates 27 Applebee's restaurants.
Another brother-in-law of Mr. Gustin owns Apple-Bay East, Inc., a franchisee of
the Company which operates eight Applebee's restaurants. The development and
franchise agreements of A.N.A., Inc., QRC and Apple-Bay East, Inc. are standard
in form and require payment of standard franchise, royalty, and advertising
fees.
In April 1999, the Company completed the sale of 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 26, 1999, the Company had loans in the
amount of $201,000 and $207,000 outstanding to Mr. Hill and Mr. Shadid,
respectively.
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 4, 2000
22
APPENDIX A
AMENDMENT TO
1995 EQUITY INCENTIVE PLAN
The 1995 Equity Incentive Plan is amended to add the following two
additional Performance Goals and Section 9 of the Plan shall be amended by
deleting the existing Section 9 entirely and replacing it with a new Section 9
as follows:
"Operating Return on Invested Capital" means the Company's (i)
Operating Earnings (as shown on its audited financial statements for a Fiscal
Year) after income taxes, divided by (ii) average Long-term Debt plus average
Stockholders' Equity less average Cash and Cash Equivalents less average
Short-term Investments (all as shown on its audited financial statements for
such Fiscal Year).
"Total Return to Shareholders" means (i) the Fair Market Value of a
Share on the last day of a period minus the Fair Market Value of a Share on the
first day of the period plus all dividends paid on a Share during such period,
divided by (ii) the Fair Market Value of a Share on the first day of the period.
In addition, the terms "Operating Return on Invested Capital" and
"Total Return to Shareholders" shall be added to the definition of "Performance
Goals."
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.
(a) Each Nonemployee Director shall receive
an annual grant of Director Options to purchase 6,000 Shares.
(b) Each year, by written election made no later than
December 15, each Nonemployee Director may designate all or a
portion of his or her annual cash retainer for the following
year to be paid by the grant of Director Options. If a
Nonemployee Director so designates, such Nonemployee Director
shall receive Director Options to purchase that number of
Shares that equals the portion of the annual cash retainer so
designated divided by three/tenths (0.3) of the Fair Market
Value of a Share on the Grant Date, rounded to the next higher
multiple of ten.
(c) Each person who first becomes a Nonemployee
Director between January 1, 1998 and May 4, 2000 shall receive
a grant of a Director Option to purchase 5,000 shares on May
4, 2000; thereafter, each Nonemployee Director shall receive a
grant of a Director Option to purchase 6,000 Shares when such
Nonemployee Director is first elected or appointed a member of
the Board.
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 Grant Date. All Director Options issued under Section
9.1.1(a) and (b) shall be granted on the first day in each calendar
year that the Shares trade on a United States stock exchange or
inter-dealer quotation system, as designated by the Board. All Director
Options issued under Section 9.1.1(c) after May 4, 2000 shall be
granted on the effective date of such Nonemployee Director's election
or appointment.
A-1
<PAGE>
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.
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(a) or (c) shall become immediately exercisable on the first
anniversary of the Grant Date and each Option granted pursuant to
Section 9.1.1(b) shall become exercisable in 12 equal monthly
installments on the last day of each month in the calendar year in
which such Option is granted. Notwithstanding the preceding sentence,
whenever an optionee ceases to be a Director for any reason whatsoever,
any portion of his or her Options which are not exercisable at that
time shall lapse and 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.
A-2
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF APPLEBEE'S INTERNATIONAL, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 4, 2000
The undersigned hereby appoints each of Lloyd L. Hill 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 Hyatt
Regency Crown Center, 2345 McGee Street, Kansas City, Missouri 64108 on May 4,
2000, at 10:00 a.m., CDT, and any and all adjournments thereof, and to vote
thereat the number of shares of Common Stock of Applebee's International, Inc.,
which the undersigned would be entitled to vote if then personally present. The
Board of Directors recommends votes FOR proposals I through III.
I. To elect three directors to serve until the 2003 Annual Meeting of
Stockholders or until their earlier resignation;
Nominees: Douglas R. Conant, D. Patrick Curran 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 change the manner
in which stock options are granted annually to non-employee directors
and to amend the definition of Performance Goals.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. To ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company for the 2000 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IV. 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 III.
Signature Date
------------------------ ------------
Signature Date
------------------------ --------------
Sign exactly as name appears hereon. When shares are
held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or
guardian, give full title. If a corporation, sign full
corporate name by President or other authorized
officer. If a partnership, sign in partnership name by
authorized partner.
MARK, DATE, SIGN, AND PROMPTLY RETURN PROXY CARD IN
ENCLOSED ENVELOPE.
