<PAGE>
SCHEDULE 14A INFORMTATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
THE CHEESECAKE FACTORY INCORPORATED
-------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
-------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(l)(7)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount of which the filing fee is calculated and state how it
was determined):
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------
(4) Date Filed:
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1
<PAGE>
[LOGO]
THE CHEESECAKE FACTORY INCORPORATED
26950 AGOURA ROAD
CALABASAS HILLS, CALIFORNIA 91301
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
The 1998 Annual Meeting of Stockholders of THE CHEESECAKE FACTORY
INCORPORATED will be held at The Cheesecake Factory Restaurant located at 605
North Harbor Drive, Redondo Beach, California, on Tuesday, May 19, 1998,
beginning at 10:00 A.M. local time, for the following purposes:
1. To elect one nominee to serve as a director of the Company for a
three-year term and until a respective successor shall be elected and
qualified;
2. To approve an amendment to the Company's 1992 Performance Employee Stock
Option Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on April 3, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting or any adjournment thereof.
You are cordially invited to attend the meeting.
By Order of the Board of Directors,
Linda J. Candioty
CORPORATE SECRETARY
Calabasas Hills, California
April 20, 1998
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING FORM OF
PROXY, SO THAT IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING YOUR SHARES MAY
NEVERTHELESS BE VOTED. IF YOU DO ATTEND AND WISH TO VOTE IN PERSON, THE PROXY
IS REVOCABLE.
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED
----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1998
------------------------
This Proxy Statement is furnished to the stockholders of THE CHEESECAKE
FACTORY INCORPORATED (the "Company") in connection with the solicitation of
proxies for use at the Annual Meeting of Stockholders to be held at The
Cheesecake Factory Restaurant located at 605 North Harbor Drive, Redondo Beach,
California, on May 19, 1998, beginning at 10:00 A.M. local time, and at any
adjournment thereof.
Proxies delivered pursuant to this solicitation are revocable at the option
of the persons executing the same, prior to their exercise, by attendance and
voting at the Annual Meeting or by written notice delivered to the Corporate
Secretary of the Company prior to the meeting, and are solicited by and on
behalf of the Board of Directors of the Company. Unless previously revoked, all
proxies representing shares entitled to vote which are delivered pursuant to
this solicitation will be voted at the meeting by the named attorneys-in-fact
and agents, to the extent authorized, in accordance with the directions
contained therein. If no such directions are given, the shares represented by
such proxies will be voted in favor of the election of the nominee for director
and the proposed amendment to the Company's 1992 Performance Employee Stock
Option Plan. The named proxies may vote in their discretion upon such other
matters as may properly come before the meeting. Assuming a quorum is present in
person or by proxy at the meeting, with respect to the election of directors,
the nominees receiving the greatest number of votes cast will be elected to the
Board. The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Annual Meeting is necessary for approving the proposed
amendment to the Company's 1992 Performance Employee Stock Option Plan.
For purposes of determining whether a matter has received a majority vote,
abstentions will be included in the vote totals, with the result that an
abstention has the same effect as a negative vote. In instances where brokers
are prohibited from exercising discretionary authority for beneficial owners who
have not retained a proxy, those shares will not be included in the vote totals
and therefore will have no effect on the vote.
The cost of this solicitation will be borne by the Company. Proxies may be
solicited by personal interview, telephone and telegraph, as well as by use of
the mails. Banks, brokerage houses and other custodians, nominees or fiduciaries
will be requested to forward soliciting material to their principals and to
obtain authorization for the execution of proxies, and will be reimbursed for
their reasonable out-of-pocket expenses incurred in that regard. Employees of
the Company participating in the solicitation of proxies will not receive any
additional remuneration.
On April 3, 1998, the Company had outstanding 20,032,705 shares of Common
Stock, and there were no outstanding shares of any other class of stock. Each
holder of Common Stock is entitled to one vote for each share of such stock
held. Only stockholders of record at the close of business on April 3, 1998 will
be entitled to vote at the Annual Meeting. A majority of the outstanding shares,
whether present in person or by proxy, is required to constitute a quorum to
transact business at the meeting.
The Company intends to cause this Proxy Statement to be mailed to
stockholders on or about April 20, 1998.
<PAGE>
BENEFICIAL OWNERSHIP
OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership as of April 3, 1998 of the Company's Common Stock by (a) each person
known to the Company owning beneficially more than five percent of the
outstanding shares of the Company's Common Stock, (b) each director of the
Company, (c) each Named Executive Officer of the Company, and (d) all Named
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. Unless otherwise indicated, the
address of each of the stockholders named below is the Company's principal
executive office.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------
<S> <C> <C>
NAME SHARES PERCENTAGE
- ----------------------------------------------------------------------------------------- ---------- -------------
David Overton(1)(2)(3)................................................................... 2,794,081 13.8%
Renee Overton(3)......................................................................... 637,785 3.1%
Overton Family Trust(3).................................................................. 637,785 3.1%
Overton Family Limited Partnership(4).................................................... 95,863 *
Thomas L. Gregory(5)(6).................................................................. 45,000 *
Jerome I. Kransdorf(4)(5)(7)............................................................. 22,500 *
Wayne H. White(5)(6)..................................................................... 45,000 *
Gerald W. Deitchle(8).................................................................... 45,187 *
Michael A. Nahkunst(9)................................................................... -- --
Linda J. Candioty(10).................................................................... 152,602 *
Brown Capital Management, Inc............................................................ 2,020,950 10.0%
HL Investment Advisors, Inc.; Hartford Investment Financial Services Company............. 1,315,350 6.5%
Wellington Management Company, LLP....................................................... 1,311,600 6.5%
The Capital Group Companies, Inc......................................................... 1,164,600 5.7%
All Named Executive Officers and directors as a group (seven persons)(11)................ 3,200,233 15.8%
</TABLE>
- ------------------------
* Less than 1% of the issued and outstanding shares.
(1) Includes 118,125 shares which he has the right to acquire upon the exercise
of options granted under the Company's 1992 Performance Employee Stock
Option Plan. Does not include an additional 97,500 shares granted under the
same Plan which are not currently exercisable. Includes 637,785 shares held
in a family trust pursuant to which David Overton and Renee Overton (sister
of David Overton) jointly maintain voting and investment power. Does not
include 19,300 shares held by Mr. Overton's spouse, 18,000 shares which she
has the right to acquire upon the exercise of options granted under the
1992 Performance Employee Stock Option Plan, or an additional 24,000 shares
granted under the same Plan which are not currently exercisable, all of
which she has sole voting and investment power. See "Executive
Compensation."
(2) Named Executive Officer and director of the Company.
(3) These shares are held in a family trust pursuant to which David Overton and
Renee Overton (sister of David Overton) jointly maintain voting and
investment power.
(4) The general partner of the partnership is an Overton family trust, of which
Mr. Kransdorf has sole voting and investment power over the shares in his
capacity as trustee.
(5) Director of the Company.
(6) Includes 22,500 shares which he has the right to acquire upon the exercise
of options granted under the Company's 1992 Non-Employee Director Stock
Option Plan, and an additional 22,500 shares which he has the right to
acquire upon the exercise of options granted under the Company's 1997
Non-Employee Director Stock Option Plan. See "Board of Directors--Meetings,
Attendance and Fees."
2
<PAGE>
(7) Includes 22,500 shares which he has the right to acquire upon the exercise
of options granted under the Company's 1997 Non-Employee Director Stock
Option Plan. See "Board of Directors--Meetings, Attendance and Fees."
(8) Includes 45,187 shares which he has the right to acquire upon the exercise
of options granted under the Company's 1992 Performance Employee Stock
Option Plan. Does not include an additional 180,563 shares granted under
the same Plan which are not currently exercisable.
(9) Does not include options to acquire 150,000 shares granted under the
Company's 1992 Performance Employee Stock Option Plan which are not
currently exercisable.
(10) Does not include 63,750 shares which she has the right to acquire upon the
exercise of options granted under the Company's 1992 Performance Employee
Stock Option Plan which are not currently exercisable.
(11) Includes 275,812 shares which the Company's Named Executive Officers and
outside directors have the right to acquire upon the exercise of options
granted under the Company's stock option plans.
The address of Brown Capital Management, Inc. is 809 Cathedral Street,
Baltimore, Maryland 21201. The address of HL Investment Advisors, Inc. and
Hartford Investment Financial Services Company is 200 Hopmeadow Street,
Simsbury, Connecticut 06070. The address of Wellington Management Company, LLP
is 75 State Street, Boston, Massachusetts 02109. The address of The Capital
Group Companies, Inc. is 333 South Hope Street, Los Angeles, CA 90071.
ELECTION OF DIRECTORS
The Company's Bylaws provide for a Board of Directors consisting of no less
than five and no more than thirteen members, the exact number within this range
being determined by the Board of Directors. The Board of Directors has set the
number of directors at five. The Board of Directors is classified into three
classes with each director serving a three-year term. Thomas L. Gregory is
serving a term which expires at the Annual Meeting of Stockholders to be held in
1998. David Overton is serving a term which expires at the Annual Meeting of
Stockholders to be held in 1999. Jerome I. Kransdorf and Wayne H. White are
serving terms that expire at the Annual Meeting of Stockholders to be held in
2000. The Board currently has a vacancy for one position with a term to expire
in 1999. The Board of Directors intends to review possible candidates for this
position in order to possibly fill this vacancy during 1998. At each Annual
Meeting of Stockholders, directors are elected for a full term of three years to
succeed those whose terms are expiring. Officers are elected annually by the
Board of Directors and serve at the discretion of the Board of Directors.
The Board of Directors has nominated Thomas L. Gregory for reelection to the
Board of Directors for a three-year term which will expire at the Annual Meeting
of Stockholders to be held in the year 2001. The nominee has indicated his
willingness to serve and, unless otherwise instructed, proxies will be voted for
the election of such nominee unless instructions are given on the proxy to
withhold authority to vote for him.
Nominations for the election of directors, other than by the Board of
Directors, must be made by a stockholder entitled to vote for the election of
directors by giving timely written notice to the Secretary of the Company at the
Company's principal offices. Such notice must be received not less than 60
calendar days nor more than 90 calendar days prior to the meeting; provided
that, if in the event that notice or prior public disclosure of the date of the
meeting is given or made to the stockholders for a meeting date that is not
within 30 days before or after the anniversary of the immediately preceding
Annual Meeting of Stockholders, notice by the stockholder will be timely if
received not later than the close of business on the tenth calendar day
following the day on which such notice was mailed or such public disclosure was
made. Such stockholder's notice must be in writing and must set forth as to each
proposed nominee all information relating to such person that is required to be
disclosed in solicitations of proxies pursuant to Regulation 14A under the
Securities Exchange Act of 1934 ("Exchange Act") including, but not limited to,
3
<PAGE>
such person's written consent to being named in the Proxy Statement as a nominee
and to serving as a director if elected. Such stockholder notice must also set
forth the name and address, as they appear on the Company's books, of the
nominating stockholder and the class and number of shares of Common Stock
beneficially owned by such stockholder.
The following table sets forth certain information with respect to the
nominee for director and of the other directors of the Company.
THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
David Overton............................. David Overton, age 52, co-founded the Company's predecessor with his
parents. He has served as the Company's Chairman of the Board,
President and Chief Executive Officer since its incorporation in
February 1992.
Thomas L. Gregory......................... Thomas L. Gregory, age 62, became a director of the Company upon the
consummation of its initial public offering in September 1992. Mr.
Gregory has over 30 years of experience in the food service industry.
He served as Vice Chairman of the Board of Directors of Sizzler
International, Inc., a restaurant chain, until August 1994. Mr.
Gregory served as President, Chief Executive Officer and a member of
the board of directors of Sizzler from 1982 to 1991, and then served
as President of its successor company until his retirement in 1992.
From 1974 to 1991, Mr. Gregory served as Vice President for Collins
Foods International, Inc., a food service company, and retained such
position concurrently with his positions at Sizzler. Mr. Gregory is a
member of the board of directors of Regis Corporation, the world's
largest chain of haircare retail operations. He is also a member of
the board of directors of Norths Enterprises, Inc., a buffet
restaurant chain.
Jerome I. Kransdorf....................... Jerome I. Kransdorf, age 59, became a director of the Company in
March 1997. Mr. Kransdorf has over 38 years of investment management
experience. From 1959 to 1997, he was employed in investment and
senior management positions at Wertheim & Co. and its successor
companies. Mr. Kransdorf currently serves as Senior Vice President of
J. & W. Seligman & Co. Incorporated, an investment advisory firm.
Wayne H. White............................ Wayne H. White, age 60, became a director of the Company upon the
consummation of its initial public offering in September 1992. Since
January 1993, Mr. White has been an independent investment banker and
management consultant with a special emphasis on gaming and
restaurant companies. He is currently affiliated with Van Kasper &
Co. in San Francisco. Mr. White is currently a director of Trader
Vic's and its affiliates, which are owners, operators and franchisors
of upscale restaurants. He has approximately ten years of senior
management experience in the restaurant industry, including Victoria
Station (seven years) and Famous Restaurants (two years).
</TABLE>
4
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two standing committees, the Audit Committee and
the Compensation Committee.
The Audit Committee recommends to the Board of Directors a firm of
independent certified public accountants to conduct the annual audit of the
Company's books and records. The Audit Committee also reviews with such
accounting firm the scope and results of the annual audit, the performance by
such accountants of professional services in addition to those related to the
annual audit and the adequacy of the Company's internal controls. The members of
the Audit Committee are Thomas L. Gregory, Jerome I. Kransdorf and Wayne H.
White. During fiscal 1997, the Audit Committee held two meetings.
The Compensation Committee reviews and recommends to the Board of Directors
compensation for the Company's senior management; reviews and submits its
recommendations with respect to new executive compensation programs; and
administers the Company's compensation programs, including the Company's 1992
Performance Employee Stock Option Plan and the Performance Incentive Plan. The
members of the Compensation Committee are Thomas L. Gregory, Jerome I. Kransdorf
and Wayne H. White. During fiscal 1997, the Compensation Committee held two
meetings.
MEETINGS, ATTENDANCE AND FEES
During fiscal 1997, the Board of Directors held four meetings. No member of
the Board attended fewer than 75% of the aggregate number of meetings of the
Board and the Committees on which he served.
Each director who is not an employee of the Company receives an annual fee
of $10,000 plus $1,000 for each meeting of the Board of Directors attended.
Non-employee directors who serve on committees also receive $1,000 for each
meeting attended that takes place on a date other than the day of a regularly
scheduled Board of Directors meeting. Thomas L. Gregory and Wayne H. White each
received options under the Company's 1992 Non-Employee Director Stock Option
Plan to acquire 22,500 shares of Common Stock at prices equal to fair market
value on the date of grant. These options have an exercise price of $8.89 per
share which is equal to the initial public offering price as adjusted for two
3-for-2 stock splits which were completed on March 15, 1994 and April 1, 1998.
The options are exercisable for a period of ten years from the date of grant and
are not transferable other than by will or the laws of descent and distribution.
All such options granted to Messrs. Gregory and White are fully vested and
exercisable.
Messrs. Gregory, Kransdorf and White each were granted 22,500 shares of
Common Stock under the 1997 Non-Employee Director Stock Option Plan. These
options have an exercise price of $13.75 per share, are exercisable on the date
of grant and expire after a period of ten years from date of grant.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the personal liability of a director of the
Company for monetary damages for breach of fiduciary duty of care as a director.
Liability is not eliminated for (a) any breach of the director's duty of loyalty
to the Company or its stockholders, (b) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) unlawful
payment of dividends or stock purchases or redemptions pursuant to Section 174
of the Delaware General Corporation Law, or (d) any transaction from which the
director derived an improper personal benefit.
The Company has also entered into indemnification agreements with its
directors and Named Executive Officers. The indemnification agreements provide
that the directors and Named Executive Officers will be indemnified to the full
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of
5
<PAGE>
their services as a director or officer of the Company or of any subsidiary of
the Company or of any other company or enterprise in which they are serving at
the request of the Company. No indemnification will be provided under the
indemnification agreements, however, to any director or Named Executive Officer
in certain limited circumstances, including knowingly fraudulent, deliberately
dishonest or willful misconduct. To the extent the provisions of the
indemnification agreements exceed the indemnification permitted by applicable
law, such provisions may be unenforceable or may be limited to the extent they
are found by a court of competent jurisdiction to be contrary to public policy.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16 OF THE EXCHANGE ACT
Under Section 16(a) of the Exchange Act, the Company's directors, Named
Executive Officers and any persons holding ten percent or more of the Company's
Common Stock are required to report their ownership of Common Stock and any
changes in that ownership to the Securities and Exchange Commission (the "SEC")
and to furnish the Company with copies of such report. Specific due dates for
these reports have been established and the Company is required to report in
this Proxy Statement any failure to file on a timely basis by such persons.
Based solely upon a review of copies of reports filed with the SEC during fiscal
1997, all persons subject to the reporting requirements of Section 16(a) filed
all required reports on a timely basis.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No directors other than those identified above served as members of the
Compensation Committee during the last completed fiscal year. No member of that
Committee was an officer or employee of the Company or any of its subsidiaries
during the year. None of the Named Executive Officers of the Company have served
on the board of directors or on the compensation committee of any other entity,
any of whose officers served either on the Board of Directors or on the
Compensation Committee of the Company.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company for
fiscal 1997 to those persons who were, at December 30, 1997, Named Executive
Officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------------------- ------------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(3) OPTIONS(#)(1)
- ---------------------------------------- ----- -------------- -------- ------------------ ------------------------
<S> <C> <C> <C> <C> <C>
David Overton .......................... 1997 $ 350,000 -- $ 4,765 30,000
Chairman of the Board, President and 1996 $ 350,000 -- $ 18,000 --
Chief Executive Officer 1995 $ 350,000 -- $ 18,000 37,500
Gerald W. Deitchle ..................... 1997 $ 235,000 -- $ 1,913 22,500
Executive Vice President and 1996 $ 225,000 -- $ 24,800 60,750
Chief Financial Officer 1995 $ 104,486(2) -- $ 12,520 120,000
Michael A. Nahkunst .................... 1997 $ 72,115(4) -- $ 29,808 150,000
Executive Vice President and 1996 -- -- -- --
Chief Operating Officer 1995 -- -- -- --
Linda J. Candioty ...................... 1997 $ 205,000 -- $ 10,800 22,500
Executive Vice President and Secretary 1996 $ 185,000 $ 15,000 $ 10,800 22,500
1995 $ 145,000 $ 5,000 $ 10,800 18,750
</TABLE>
6
<PAGE>
- ------------------------
(1) Stock options were granted under the Company's 1992 Performance Employee
Stock Option Plan.
(2) This amount was earned from the time Mr. Deitchle joined the Company in July
1995.
(3) Consists of compensation related to automobile allowances or the personal
use of company-provided automobiles. For Mr. Deitchle in 1996, the amount
consisted of an automobile allowance of $10,800 and relocation expense
reimbursements of $14,000. For Mr. Deitchle in 1995, the amount consisted of
an automobile allowance of $5,400 and relocation expense reimbursements of
$7,120. For Mr. Nahkunst in 1997, the amount consisted of an
automobile-related compensation of $2,590 and an employment bonus of
$27,218.
(4) This amount was earned from the time Mr. Nahkunst joined the Company in
August 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options granted
to Named Executive Officers in fiscal 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE)(2) DATE 5%($) 10%($)
- ----------------------------------- ----------- ------------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David Overton...................... 30,000(4) 4.7% 12.08 12/31/2006 228,000 577,500
Gerald W. Deitchle................. 22,500(1) 3.5% 12.08 12/31/2006 171,000 433,125
Michael A. Nahkunst................ 150,000(1) 23.5% 16.08 8/14/2007 1,516,500 3,844,500
Linda J. Candioty.................. 22,500(1) 3.5% 12.08 12/31/2006 171,000 433,125
</TABLE>
- ------------------------
(1) These options were granted pursuant to the Company's 1992 Performance
Employee Stock Option Plan. The options generally vest 20% per year
provided, however, that no option shall vest unless the Company's
performance for the year in which an option would otherwise vest meets or
exceeds the average earnings performance of all full-menu table service
restaurants reported in the Schroder Restaurant Index or an equivalent
index. The options have a term of ten years.
(2) Market value on the date of grant.
(3) As suggested by the rules of the SEC, the Company used assumed rates of the
Company's stock price appreciation in calculating the potential realizable
value of stock options (calculated based upon a 10-year option term, with
compounded appreciation at 5% and 10% rates). The actual realized value, if
any, will depend on the excess of the stock price on the date the option is
exercised over the option's exercise price. There is no assurance the actual
values realized will be at or near the values estimated above. The Company
does not advocate or necessarily agree that the stated assumed annual rates
of appreciation properly determine the value of the options.
(4) These options were granted pursuant to the Company's 1992 Performance
Employee Stock Option Plan. The options vest 50% per year provided, however,
that no option shall vest unless the Company's performance for the year in
which an option would otherwise vest meets or exceeds the average earnings
performance of all full-menu table service restaurants reported in the
Schroder Restaurant Index or an equivalent index. The options have a term of
ten years.
7
<PAGE>
AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth below further information with respect to
previously granted options which were exercised (if any), or which remain
outstanding for the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
FISCAL YEAR END(#)(1) AT FISCAL YEAR END($)(2)
-------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
David Overton............................................. 118,125 67,500 1,321,819 455,625
Gerald W. Deitchle........................................ 45,187 158,063 196,995 770,993
Michael A. Nahkunst....................................... -- 150,000 -- 600,000
Linda J. Candioty......................................... 49,500 63,750 553,905 498,375
</TABLE>
- ------------------------
(1) These options were granted pursuant to the Company's 1992 Performance
Employee Stock Option Plan. Of the 67,500 unexercisable options for Mr.
Overton at the end of fiscal 1997, 37,500 vest on December 29, 1998 and
30,000 vest on December 31, 1998. The unexercisable options for Mr. Deitchle
at the end of fiscal 1997 vest 20% to 25% per year, with the final portion
vesting on December 31, 2002. The options have a term of ten years. The
unexercisable options for Mr. Nahkunst at the end of fiscal 1997 vest 20%
per year with the final portion vesting on August 14, 2002. However, no
option shall vest and become exercisable unless the Company's performance
for the year in which an option would otherwise vest meets or exceeds the
average earnings performance of all full-menu table service restaurants
reported in the Schroder Restaurant Index or an equivalent index.
(2) Represents the difference between the closing price ($20.08) of the
Company's Common Stock on December 30, 1997, the last trading day of the
Company's 1997 fiscal year, and the exercise price of the options.
EMPLOYMENT AGREEMENTS
In April 1998, the Company entered into a new three-year employment
agreement with Mr. Overton. The new agreement provides Mr. Overton with an
annual base salary, currently $400,000, which is subject to increase from time
to time by the Board of Directors. Mr. Overton is entitled to participate
equitably with other Named Executive Officers in any plan of the Company
relating to bonuses, stock options, health and life insurance, compensated
absences, retirement or other employee benefits. The agreement also provides Mr.
Overton with an automobile allowance, reimbursement of his business expenses,
and certain additional health and life insurance benefits. If Mr. Overton
voluntarily resigns from the Company or is terminated with cause (as defined in
the agreement), he will be entitled to receive any unpaid salary earned up
through the termination date, plus any unpaid pro rata portion of any incentive
plan award for the current fiscal year when such awards are paid to all other
plan participants. If Mr. Overton's employment is terminated without cause prior
to a change in control of the Company (as defined in the agreement), or if he
dies or is permanently disabled, he or his estate will be entitled to receive a
lump sum payment equal to three times his then current annual base salary. If,
during the first 18 months after a change in control of the Company, Mr. Overton
voluntarily terminates his employment or is terminated by the Company without
cause, he will be entitled to receive a lump sum payment of $2 million, and the
Company will also pay for certain health and life insurance benefits for Mr.
Overton and his dependents for an additional 36 months. In the event that any
payment or benefit paid or payable to Mr. Overton under the agreement is subject
to any excise tax in connection with the "excess parachute payment" provisions
of the Internal Revenue Code, Mr. Overton is entitled to receive an additional
"gross-up" payment from the Company such that the after-tax proceeds of the
payment to Mr. Overton will be sufficient to pay any such excise tax in full.
8
<PAGE>
In July 1995, the Company entered into an employment agreement with Gerald
W. Deitchle, the Company's Chief Financial Officer. Under this agreement, Mr.
Deitchle is provided with an annual base salary, currently $240,000, which is
subject to increase from time to time by the Board of Directors. Mr. Deitchle is
entitled to other specified benefits such as an automobile allowance,
reimbursement of business expenses, health and related insurance benefits and a
relocation allowance. The agreement may be terminated without cause by Mr.
Deitchle with 60 days written notice, and may be terminated by the Company at
any time without prior notice. If the Company terminates Mr. Deitchle's
employment without cause (as defined in the agreement), he will be entitled to
receive an amount equal to two times his annual base salary then in effect, plus
any unpaid pro rata salary earned through the termination date. During the first
90 days after a change in control of the Company (as defined in the agreement),
Mr. Deitchle may terminate the agreement and receive a lump sum payment equal to
two times his then annual base salary in effect plus any unpaid pro rata salary
earned through the termination date.
In August 1997, the Company entered into an employment agreement with
Michael A. Nahkunst, the Company's Chief Operating Officer. Under this
agreement, Mr. Nahkunst is provided with an annual base salary, currently
$250,000, which is subject to increase from time to time by the Board of
Directors. Mr. Nahkunst is entitled to other specified benefits such as an
automobile allowance, reimbursement of business expenses, health and related
insurance benefits and a relocation allowance. The agreement may be terminated
without cause by Mr. Nahkunst with 90 days written notice, and may be terminated
by the Company at any time without prior notice. If the Company terminates Mr.
Nahkunst's employment without cause (as defined in the agreement), he will be
entitled to receive an amount equal to one-half his then annual base salary in
effect, plus any unpaid pro rata salary earned up to the date of termination,
plus any unpaid pro rata portion of any incentive plan awards for the current
fiscal year when awards are paid to all other plan participants, plus an
accelerated vesting of stock options according to a predetermined schedule in
the agreement.
In April 1998, the Company entered in to an employment agreement with Linda
J. Candioty, Executive Vice President and Secretary of the Company. Under this
agreement, Ms. Candioty is provided with an annual base salary, currently
$210,000, which is subject to increase from time to time by the Board of
Directors. Ms. Candioty is entitled to other specified benefits such as an
automobile allowance, reimbursement of business expenses, and health and life
insurance benefits. The agreement may be terminated without cause by Ms.
Candioty with 60 days written notice, and may be terminated by the Company at
any time without prior notice. If the Company terminates Ms. Candioty's
employment without cause (as defined in the agreement), she will be entitled to
receive any unpaid pro rata salary earned through the date of termination, plus
any unpaid pro rata portion of any incentive plan awards for the current fiscal
year when awards are paid to all other plan participants, plus immediate vesting
of all stock options granted to her under the Company's stock option plans.
During the first 90 days after a change in control of the Company (as defined in
the agreement), Ms. Candioty may terminate the agreement and receive a lump sum
payment equal to two times her then annual base salary in effect plus any unpaid
pro rata salary earned through the termination date.
PERFORMANCE INCENTIVE PLAN
The Board of Directors adopted The Cheesecake Factory Amended Performance
Incentive Plan (the "Incentive Plan") in 1998. All Named Executive Officers and
other key employees are eligible for annual cash bonuses under the Incentive
Plan. Under the terms of the Incentive Plan, the Compensation Committee will
establish, based upon the recommendation of the Chief Executive Officer,
targeted financial goals based on net income, net income per share, return on
assets, return on equity, growth in earnings or other financial measures.
Participants will be assigned a target bonus equal to 10% to 50% of their annual
base salaries. Actual bonuses shall be awarded by the Compensation Committee at
the end of each year based on the degree of achievement of the targeted
financial goals. Participants will be assigned threshold, target and maximum
cash bonus levels as a percentage of their respective base salaries, based
9
<PAGE>
upon their level of responsibility with the Company. Financial objectives have
been set for fiscal 1998 which are linked to the attainment of a predetermined
earnings per share goal established by the Committee and approved by the Board.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The report of the Compensation Committee shall not be deemed incorporated by
reference to any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of outside directors and is responsible for developing and
making recommendations to the Board with respect to the Company's executive
compensation policies. In addition, the Committee, pursuant to authority
delegated by the Board, determines the compensation to be paid to the Chief
Executive Officer and each of the other Named Executive Officers of the Company.
The Committee is also responsible for setting and administering the policies
which govern the Company's 1992 Performance Employee Stock Option Plan and the
Performance Incentive Plan.
There are three key elements in the Company's executive compensation
program, all determined by individual and corporate performance:
- Annual base salaries;
- Annual incentive compensation; and
- Long-term incentive compensation.
The Company's executive compensation program is designed to enable it to
attract, retain and motivate the highest quality of management talent available.
Furthermore, the Committee believes that the value of the program should
reflect, in large part, the value created for stockholders. The key objectives
of the program are as follows:
- To offer fair and competitive annual base salaries consistent with
similarly situated companies in the foodservice industry;
- To reward executives for corporate and individual performance through an
annual incentive compensation program; and
- To encourage future performance through the use of long-term incentives
such as stock options which align the interests of employees and
stockholders.
ANNUAL BASE SALARIES
Annually, the Committee establishes the base salaries to be paid to the
Company's Named Executive Officers during the coming year, subject to the
approval of the Board. In setting base salaries, the Committee takes into
account several factors including, but not limited to, the executive's
experience, responsibilities, management abilities and job performance, as well
as the performance of the Company as a whole and current market conditions.
ANNUAL INCENTIVE COMPENSATION
The Company's Amended Performance Incentive Plan (the "Incentive Plan") is
the Company's annual cash bonus program for Named Executive Officers and other
key employees. Under the Incentive Plan, the Committee will establish, based on
the recommendation of the Chief Executive Officer, targeted
10
<PAGE>
financial goals based on net income, net income per share, return on assets,
return on equity, growth in earnings or other financial measures. Each
participant will be assigned a target bonus award equal to 10% to 50% of the
participant's annual base salary. The actual bonuses shall be awarded by the
Committee at the end of each year based on the achievement of the targeted
financial goals. Participants will be assigned threshold, target and maximum
cash bonus levels as a percentage of their respective base salaries, based upon
their level of responsibility with the Company. Financial objectives have been
set for fiscal 1998 which are linked to the attainment of a predetermined
earnings per share goal established by the Committee and approved by the Board.
LONG-TERM INCENTIVE COMPENSATION
The Committee believes that employee stock ownership is a significant
incentive in building stockholder wealth and aligning the interests of employees
and stockholders. Stock options will only have value if the Company's stock
price increases. Stock options utilize vesting periods to encourage key
employees to continue in the employ of the Company. The Board of Directors
adopted the 1992 Performance Employee Stock Option Plan (the "1992 Option Plan")
concurrent with the Company's initial public offering. The 1992 Option Plan was
approved by stockholders at the 1993 Annual Meeting of Stockholders. An
amendment to the 1992 Option Plan was approved by stockholders at the 1996
Annual Meeting of Stockholders which, among other things, increased the number
of shares authorized for stock options from 1,406,250 to 2,756,250. The 1992
Option Plan authorizes the Committee to award stock options to key employees at
exercise prices, vesting schedules and on other terms established by the
Committee. In order for stock options granted to executive officers and key
employees to vest, the Company's earnings performance for the year must meet or
exceed the average earnings performance of all full-menu table service
restaurants reported in the Schroder Restaurant Index or an equivalent index.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
At the time of the Company's initial public offering in September 1992, the
Company entered into a three-year employment agreement with Mr. Overton at an
annual base salary of $350,000. The Company and Mr. Overton renewed the
agreement annually since September 1995 with no increase in the $350,000 annual
base salary. In January 1998, the Committee reviewed Mr. Overton's annual base
salary in light of his individual performance and contribution to the Company's
overall growth since September 1992 and increased it to $400,000. In January
1998, the Committee also granted Mr. Overton an option to purchase an additional
30,000 shares of the Company's Common Stock under the 1992 Option Plan.
Compensation Committee
Thomas L. Gregory
Jerome I. Kransdorf
Wayne H. White
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<PAGE>
PRICE PERFORMANCE GRAPH
Set forth below is a graph comparing the total return on an indexed basis of
a $100 investment in the Company's Common Stock; a peer group of the Company,
considered by the Company to be the Nation's Restaurant News Stock Index; and
the overall broad equity market in which the Company participates, considered by
the Company to be The Nasdaq Stock Market-SM-. The measurement points utilized
in the graph consist of the last trading day in each calendar year, which
closely approximates the last day of the respective fiscal year of the Company.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN ON $100 INVESTMENT
AMONG THE CHEESECAKE FACTORY, NATION'S RESTAURANT NEWS STOCK INDEX
AND THE NASDAQ STOCK MARKET-SM-
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE CHEESECAKE FACTORY NATION'S RESTAURANT NEWS NASDAQ STOCK
INCORPORATED STOCK INDEX INDEX-SM-
<S> <C> <C> <C>
12/31/92 $100.00 $100.00 $100.00
12/31/93 $142.80 $109.77 $114.79
12/30/94 $98.50 $110.73 $112.21
12/29/95 $134.46 $164.60 $158.69
12/31/96 $113.32 $169.20 $195.20
12/31/97 $190.74 $169.35 $239.64
</TABLE>
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
The Cheesecake Factory Incorporated $ 100.00 $ 142.80 $ 98.50 $ 134.46 $ 113.32 $ 190.74
Nation's Restaurant News Stock Index $ 100.00 $ 109.77 $ 110.73 $ 164.60 $ 169.20 $ 169.35
Nasdaq Stock Market-SM- $ 100.00 $ 114.79 $ 112.21 $ 158.69 $ 195.20 $ 239.64
</TABLE>
12
<PAGE>
CERTAIN TRANSACTIONS
In August 1992, David Overton entered into a lease for a location in Newport
Beach and began development of a restaurant under The Cheesecake
Factory-Registered Trademark- name. As part of the Company's reorganization
prior to its initial public offering in September 1992, Mr. Overton assigned his
rights to the restaurant and the lease to the Company. He agreed to finance all
of the remodeling and development costs to complete the restaurant, which
totaled approximately $1.3 million, less landlord rent credits of up to
$500,000, if and when received. The Company decided to advance to contractors,
on behalf of David Overton, $500,000 in lieu of the landlord's credits that he
would have been entitled to in the future since the Company would be deducting
these rent credits from rental payments in the future. The $500,000 advance has
been repaid. As of December 30, 1997, Mr. Overton owed the Company approximately
$53,149 in accrued interest related to this transaction.
PROPOSAL TO AMEND THE CHEESECAKE FACTORY INCORPORATED
1992 PERFORMANCE EMPLOYEE STOCK OPTION PLAN
The stockholders will be asked to consider and act upon a proposal to amend
The Cheesecake Factory Incorporated 1992 Performance Employee Stock Option Plan
(the "1992 Option Plan"). The 1992 Option Plan was adopted and approved by the
Company's stockholders at the Company's 1993 Annual Meeting.
PROPOSED AMENDMENT TO THE 1992 OPTION PLAN
To ensure the continued ability of the 1992 Option Plan to attract, motivate
and retain key employees, including restaurant general managers and other key
operational employees, the Board, upon the recommendation of the Compensation
Committee, has proposed an amendment to the 1992 Option Plan to increase the
number of shares authorized for issuance under the 1992 Option Plan from
2,756,250 to 3,956,250, an increase of 1,200,000 shares. As of January 23, 1998,
there were no remaining shares available for grant to key employees under the
1992 Option Plan. As of April 3, 1998, there were 512,375 shares granted to key
employees subject to the approval of the proposed amendment to the 1992 Option
Plan.
REASONS FOR THE PROPOSED AMENDMENT
The Board believes that employee stock options are of critical importance in
the building of longer-term value for all stockholders and effectively align the
interests of key employees and stockholders. Stock options will only have value
to the Company's key employees if the Company's stock price increases. Stock
options issued under the 1992 Option Plan utilize vesting periods to encourage
key employees to continue in the employ of the Company, and can only become
exercisable if the Company achieves certain financial performance objectives.
In order to successfully execute its aggressive growth plan and, at the same
time, maintain its reputation for operational excellence in the upscale, casual
dining segment of the restaurant industry, the Company must have the ability to
recruit, motivate and retain the highest quality executive, corporate support
and restaurant operations talent available. In order to improve its ability to
recruit and retain highly qualified restaurant and kitchen management personnel,
the Company adopted in fiscal 1997 an innovative and comprehensive compensation
plan for its restaurant general managers and executive kitchen managers, each of
whom is responsible for the highly customized and complex operations of
individual restaurants with average annual sales of approximately $9.8 million
per location. An important component of this compensation plan is a long-term
capital accumulation opportunity, based largely on stock options, which is
dependent upon the participants' extended service to the Company in their
respective positions (at least five years) and their achievement of certain
agreed-upon performance objectives during the five-year period. This innovative
compensation plan has significantly increased the
13
<PAGE>
number and quality of restaurant and kitchen management applicants interested in
employment opportunities with the Company, and has also significantly reduced
employee turnover for these critical positions.
While there are many important resources required for growth, the Company
believes the most critical resource is the availability of highly qualified and
experienced management and operations personnel. The Board believes the
Company's 1992 Option Plan provides an important advantage in recruiting,
motivating and retaining such personnel. While the Board is cognizant of the
potential dilutive effect of any increased share authorization for the Company's
employee stock option plans, it also recognizes the significant motivational and
performance benefits that can be achieved from such authorization. Accordingly,
the Board recommends that stockholders vote FOR the additional share
authorization.
SUMMARY OF THE 1992 OPTION PLAN
The following discussion summarizes the principal features of the 1992
Option Plan. This description of the 1992 Option Plan is qualified in its
entirety by reference to the full text of the 1992 Option Plan, a copy of which
may be requested from the Company.
PURPOSE
The purpose of the 1992 Option Plan is to strengthen the Company by
providing to participating employees additional incentives for high levels of
performance and to encourage employee stock ownership in the Company. The 1992
Option Plan seeks to accomplish these goals by providing a means whereby such
employees of the Company and its subsidiaries may be given an opportunity to
purchase, by way of options, Common Stock of the Company. The 1992 Option Plan
is also intended to enable the Company and its subsidiaries to compete
effectively for, and retain the services of, such employees and to provide
incentives for such employees to exert maximum efforts for the success of the
Company.
The options issued under the 1992 Option Plan shall, in the discretion of
the Board, or any committee to which responsibility for administration of all or
any part of the 1992 Option Plan has been delegated, be either incentive stock
options ("Incentive Stock Options") as that term is used in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any successor
thereto, or options which do not qualify as Incentive Stock Options
("Non-Qualified Stock Options"). As of April 3, 1998, all options granted to
employees under the 1992 Option Plan have been Non-Qualified Stock Options.
ADMINISTRATION
The Board of Directors has delegated the administration of the 1992 Option
Plan to its Compensation Committee (the "Committee"). The Committee, composed
solely of non-employee directors, shall have full power and authority in its
discretion to take any and all actions required or permitted to be taken under
the 1992 Option Plan, including the selection of stock option grantees, the
determination of the number of options granted to each grantee, option purchase
prices, and other terms and conditions thereof.
SHARES RESERVED
The 1992 Option Plan currently provides for 2,756,250 shares of Common Stock
to be reserved for issuance upon exercise of options granted. Shares of Common
Stock will be made available from the authorized but unissued shares of the
Company, or from repurchased shares held in the Company's treasury. If any
option granted under the 1992 Option Plan shall for any reason expire,
terminate, be canceled or otherwise be annulled without having been exercised in
full, the shares not purchased under such option shall again become available
for the 1992 Option Plan. An amendment to the 1992 Option Plan was approved by
stockholders at the 1996 Annual Meeting which, among other things, increased the
number of shares available for issuance under the 1992 Option Plan from
1,406,250 to the current maximum number of 2,756,250. As of January 23, 1998,
there were no remaining shares available for grant
14
<PAGE>
to key employees under the 1992 Option Plan. As of April 3, 1998, there were
512,375 shares granted to key employees subject to the approval of the proposed
amendment to the 1992 Option Plan.
ELIGIBILITY
Key employees determined by the Compensation Committee, including executive
and operating officers, middle management and restaurant management personnel,
are eligible to participate in the 1992 Option Plan. As of the date hereof, the
Company estimates that approximately 100 employees are eligible to participate.
The Company may issue Incentive Stock Options provided that the aggregate fair
market value (determined at the time the Incentive Stock Option is granted) of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the optionee during any calendar year (under all Incentive
Stock Option plans of the Company) shall not exceed $100,000. Should it be
determined that any Incentive Stock Option granted pursuant to the 1992 Option
Plan exceeds such maximum, such Incentive Stock Option shall be considered to be
a Non-Qualified Stock Option and not to qualify for treatment as an Incentive
Stock Option under Section 422 of the Code to the extent, but only to the
extent, of such excess.
OPTION PRICE
The exercise price of each Non-Qualified Stock Option shall be determined by
the Committee and shall not be less than 100% of the fair market value of the
Common Stock subject to the option on the date the option is granted. The
exercise price of Incentive Stock Options may not be less than 100%; provided,
however, that the purchase price of the Common Stock subject to the Incentive
Stock Option may not be less than 110% of such fair market value (without regard
to any restriction other than a restriction which, by its terms, will never
lapse) where the optionee owns (or is deemed to own pursuant to Section 424(d)
of the Code) Common Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its subsidiaries. An
option shall be exercised by written notice to the Company upon terms and
conditions as the optionee's stock option agreement provides and in accordance
with such other procedures for the exercise of options as the Board or the
Committee may establish from time to time. The purchase price of Common Stock
acquired pursuant to an option shall be paid by such method as or methods as the
Committee may determine and may consist of cash or check payable to the order of
the Company, or in whole shares of Common Stock of the Company owned by the
optionee having a fair market value on the exercise date (determined by the
Committee in accordance with any reasonable valuation method) equal to the
option price for the shares being purchased. Payments of Common Stock shall be
made by delivery of Common Stock certificates properly endorsed for transfer in
negotiable form. If other than the optionee, the person or persons exercising
the option shall be required to furnish the Company appropriate documentation
that such person or persons have the full legal right and power to exercise the
option on behalf of and for the optionee.
ADJUSTMENTS UPON CHANGES IN COMMON STOCK; REORGANIZATION, MERGER, CONSOLIDATION
If the outstanding shares of the Common Stock of the Company are increased,
decreased, or changed into, or exchanged for a different number or kind of
shares or securities of the Company, without receipt of consideration by the
Company, through reorganization, merger, recapitalization, reclassification,
stock split, stock dividend, stock consolidation, or otherwise, an appropriate
and proportionate adjustment shall be made in the number and kind of shares as
to which options may be granted. A corresponding adjustment changing the number
or kind of shares and the exercise price per share allocated to unexercised
options, or portions thereof, which shall have been granted prior to any such
change shall likewise be made. Adjustments shall be made by the Committee whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final and conclusive. No fractional shares of stock shall be issued
under the 1992 Option Plan on account of any such adjustment. Upon the
dissolution or liquidation of the Company, or upon any reorganization, merger or
consolidation of the Company
15
<PAGE>
where the Company is the surviving corporation and the stockholders immediately
prior to such transaction do not own at least 80% of the Company's Common Stock
immediately after such transaction, or upon any reorganization, merger or
consolidation of the Company where the Company is not the surviving corporation,
or upon a sale of substantially all of the Company's assets or 80% of the
outstanding Common Stock, the 1992 Option Plan will terminate and any options
granted prior thereto shall become immediately exercisable in full and shall
remain exercisable until the effective date of such transaction.
EXPIRATION, TERMINATION AND TRANSFER OF OPTIONS
Subject to earlier termination as provided in the 1992 Option Plan, each
Incentive Stock Option granted and all rights or obligations thereunder by its
terms shall expire on such date as the Committee may determine as set forth in
such stock option agreement, but not later than (a) 5 years from the date of
grant in the case of any Incentive Stock Option granted to an optionee who owns
(or is deemed to own pursuant to Section 424(d) of the Code) Common Stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its subsidiaries, and (b) 10 years from the date
of grant in the case of all other Incentive Stock Options. In the case of
Non-Qualified Stock Options, the term may not exceed ten years. For purposes of
the 1992 Option Plan, the date of grant of an option shall be the date on which
the Committee takes final action approving the award of the option,
notwithstanding the date the optionee accepts the option, the date of execution
of the option agreement, or any other date with respect to such option. Except
in the event of termination of employment due to death, disability or
termination for "substantial cause" (as defined below), options will terminate
three months after an optionee ceases to be employed by the Company or its
subsidiaries unless the options by their terms were scheduled to terminate
earlier but only as to such number of shares as to which the option was
exercisable on the date of termination. If termination occurs by reason of
disability (as defined in the 1992 Option Plan), such three-month period shall
be extended to one year. If employment is terminated for "substantial cause,"
the optionee's right to exercise will terminate at the time notice of
termination is given. Termination for "substantial cause" shall include (a) the
commission of a criminal act against, or in derogation of the interests of the
Company or any of its subsidiaries, (b) knowingly divulging confidential
information, (c) interference with any major customer, or (d) any similar action
that the Committee may deem sufficiently injurious to the interests of the
Company. If an employee dies while in the employ of the Company or within three
months after cessation of such employment (except for "substantial cause"), his
or her estate or personal representation shall have the right to exercise such
option before the date such option would otherwise terminate, but only as to the
number of shares as to which such option was exercisable on the date of death.
An option by its terms may only be transferred by will or by laws of descent or
pursuant to a qualified domestic relations order, and, except as otherwise
required pursuant to a qualified domestic relations order, options shall be
exercisable during the lifetime of the person to whom the option is granted only
by such person (or in the case of disability by his or her court appointed legal
representative). In addition, subsequent to the grant of any option, the
Committee, at any time before complete termination of such option, may
accelerate the time or times at which such option may be exercised in whole or
in part (without reducing the term of such option), notwithstanding the
provision in the option stating the time during which the option may be
exercised.
VESTING OF OPTIONS
The Committee determines vesting periods for options granted under the 1992
Option Plan. In order for options to vest, certain requirements must be
satisfied. In order for options granted to restaurant general managers to vest,
the general manager's restaurant must achieve certain target objectives
established at the beginning of the year for such restaurant. For all other
option holders, the Company's earnings performance for the year must meet or
exceed the average earnings performance of all full-menu table service
restaurants reported in the Schroder Restaurant Index or an equivalent index.
16
<PAGE>
TERMINATION AND AMENDMENT OF THE 1992 OPTION PLAN
The 1992 Option Plan will terminate in 2004 or upon such earlier date
determined by the Board. The Plan will also terminate upon liquidation,
reorganization, merger or consolidation of the Company as discussed above. No
options may be granted under the 1992 Option Plan after it is terminated. No
termination, suspension, modification or amendment of the 1992 Option Plan may,
without the consent of the person to whom an option shall theretofore have been
granted, adversely affect the rights of such person with respect to such option.
No modification, extension, renewal or other change in any option granted under
the 1992 Option Plan shall be made after the grant of such option, unless the
same is consistent with the provisions of the 1992 Option Plan. With the consent
of the holder of an option and subject to the terms and conditions of the 1992
Option Plan, the Committee may amend outstanding stock option agreements with
any optionee, including, without limitation, any amendment which would (a)
accelerate the time or times at which the option may be exercised and/or (b)
extend the scheduled expiration date of the option.
The 1992 Option Plan may be amended by the Board of Directors at any time,
and from time to time. However, except as otherwise provided in the 1992 Option
Plan, no amendment shall be effective unless approved by a vote of the a
majority of the outstanding shares of the Common Stock of the Company,
represented in person or by proxy and entitled to vote, at a meeting of the
stockholders of the Company and any adjournment or postponement thereof if the
amendment will: (a) materially increase the number of shares reserved for
options under the 1992 Option Plan; (b) materially modify the requirements as to
eligibility for participation in the 1992 Option Plan; or (c) materially
increase the benefits accruing to participants under the 1992 Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is only a summary of the principal federal income
tax consequences of the options and rights to be granted under the 1992 Option
Plan, and is based on existing federal law (including administration,
regulations and rulings) which is subject to change, in some cases
retroactively. This discussion is also qualified by the particular circumstances
of individual optionees, which may substantially alter or modify the federal
income tax consequences discussed herein.
Generally, under present law, when an option qualifies as an Incentive Stock
Option under Section 422 of the Code: (a) an optionee will not realize taxable
income either upon the grant or by the exercise of the option, (b) any gain or
loss upon a qualifying disposition of the shares acquired by the exercise of the
option will be treated as capital gain or loss, and (c) no deduction will be
allowed to the Company for federal income tax purposes in connection with the
grant or exercise of an Incentive Stock Option or a qualifying disposition of
the shares. A disposition by an optionee of Common Stock acquired upon exercise
of an Incentive Stock Option will constitute a qualifying disposition if it
occurs more than two years after the grant of the option, and one year after the
transfer of the shares of the optionee. If such Common Stock is disposed of by
the optionee before the expiration of those time limits, the transfer would be a
"disqualifying disposition" and the optionee, in general, will recognize
ordinary income equal to the lesser of (a) the aggregate fair market value of
the shares as of the date of exercise less the option price, or (b) the amount
realized on the disqualifying disposition less the option price. Ordinary income
from a disqualifying disposition will constitute ordinary compensation income.
Any gain in addition to the amount reportable as ordinary income on a
"disqualifying disposition" generally will be capital gain. Upon the exercise of
an Incentive Stock Option, the difference between the fair market value of
Common Stock on the date of exercise and the option price generally is treated
as an adjustment to taxable income in that taxable year for alternative minimum
tax purposes, as are a number of other items specified by the Code. Such
adjustments (along with tax preference items) form the basis for the alternative
minimum tax which may apply depending on the amount of the computed "regular
tax" of the employee for that year. Under certain circumstances, the amount of
alternative minimum tax is allowed as a carry forward credit against regular tax
liability in subsequent years.
17
<PAGE>
In the case of stock options which do not qualify as an Incentive Stock
Option (Non-Qualified Stock Options), no income generally is recognized by the
optionee at the time of the grant of the option. Under present law the optionee
generally will recognize ordinary income at the time the Non-Qualified Stock
Option is exercised equal to the aggregate fair market value of the shares
acquired less the option price. Ordinary income from a Non-Qualified Stock
Option will constitute compensation income.
Subject to special rules applicable when an optionee uses Common Stock of
the Company to exercise an option, shares acquired upon exercise of a
Non-Qualified Stock Option will have a tax basis equal to their fair market
value on the exercise date or other relevant date on which ordinary income is
recognized and the holding period for the shares generally will begin on the
date of exercise or such other relevant date. Upon subsequent disposition of the
shares, the optionee generally will recognize capital gain or loss. The Company
will generally be entitled to a deduction equal to the ordinary income (i.e.,
compensation) portion of the gain recognized by the optionee in the case of a
"disqualifying disposition" of an Incentive Stock Option or in connection with
the exercise of a Non-Qualified Stock Option. Capital gain recognized by an
optionee on shares held more than one year but less than eighteen months prior
to disposition will be taxable at a maximum rate of 28%; capital gain recognized
on shares held for more than eighteen months will be taxable at a maximum rate
of 20%.
Recent amendments to the federal income tax laws limit to $1,000,000 the
annual amount publicly held corporations may deduct for compensation paid to
certain executive officers if such compensation does not qualify as "performance
based compensation" or compensation paid on a "commission basis" as those terms
are defined under the federal income tax laws. The $1,000,000 limitation is
determined for each executive officer to which the deduction limitation applies.
The 1992 Option Plan contains provisions as required under the current
applicable federal income tax regulations to allow compensation attributable to
options granted under the plan to qualify as performance based compensation for
purposes of the $1,000,000 deduction limitation.
If, as a result of certain changes in control of the Company, certain
employee options become immediately exercisable, the additional economic value
attributable to the acceleration may be deemed an "excess parachute payment" to
the extent the additional value (when combined with the value of other change of
control payments) equals or exceeds 300% of the employee's average annual
taxable compensation over the five calendar years preceding the change of
control. Any such excess over the employee's average annual taxable compensation
will be subject to a 20% non-deductible excise tax in addition to any income tax
payable. The Company will not be entitled to a deduction for that portion of any
excess parachute payment which is subject to the excise tax. To the extent that
an excess parachute payment is not deductible and is paid to an executive
officer whose compensation is subject to the $1,000,000 deduction limitation
rules, the $1,000,000 deduction limitation is reduced by such amount, but not
below zero.
18
<PAGE>
GRANTS OF OPTIONS
The following table sets forth certain information with respect to options
granted under the 1992 Option Plan as of April 3, 1998.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS GRANTED
NAME AND POSITION UNDER 1992 OPTION PLAN
- --------------------------------------------------------------------------------------- -------------------------
<S> <C>
David Overton ......................................................................... 333,750
Chairman of the Board, President and Chief Executive Officer
Gerald W. Deitchle .................................................................... 225,750
Executive Vice President and Chief Financial Officer
Michael A. Nahkunst ................................................................... 150,000
Executive Vice President and Chief Operating Officer
Linda J. Candioty ..................................................................... 210,000
Executive Vice President and Secretary
Named Executive Officers Group ........................................................ 919,500
All current Directors as a group who are not Named Executive Officers (pursuant to the
1997 Non-Employee Director Stock Option Plan) ....................................... 112,500
Non-Executive Officer Employee Group(1) ............................................... 1,836,750
</TABLE>
- ------------------------
(1) Excludes 512,375 shares granted to key employees in this group, which are
subject to the approval of the proposed amendment to the 1992 Option Plan.
INDEPENDENT ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P. served as the Company's independent
accountants for fiscal 1997. This firm has advised the Company that it has no
direct or indirect financial interest in the Company. Representatives of this
firm are expected to be present at the Annual Meeting of Stockholders, with the
opportunity to make a statement should they desire to do so, and will be
available to respond to appropriate questions from stockholders.
OTHER MATTERS
The Board of Directors knows of no business other than that described herein
that will be presented for consideration at the Annual Meeting of Stockholders.
If, however, other business shall properly come before the meeting, the persons
named in the enclosed form of proxy intend to vote the shares represented by
said proxies on such matters in accordance with their judgment in the best
interests of the Company.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any stockholder proposal intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received by the Company for inclusion in
the Proxy Statement and form of proxy for that meeting no later than December
10, 1998.
AVAILABILITY OF FORM 10-K
THE COMPANY WILL PROVIDE TO ANY STOCKHOLDER WITHOUT CHARGE, UPON THE WRITTEN
REQUEST OF THAT STOCKHOLDER, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1997, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH REQUESTS SHOULD BE ADDRESSED TO: JANE VALLAIRE,
INVESTOR RELATIONS MANAGER, THE CHEESECAKE FACTORY INCORPORATED, 26950 AGOURA
ROAD, CALABASAS HILLS, CA 91301.
By Order of the Board of Directors:
Linda J. Candioty
CORPORATE SECRETARY
19
<PAGE>
PROXY THE CHEESECAKE FACTORY INCORPORATED
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CHEESECAKE FACTORY
INCORPORATED (THE "COMPANY") FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS (THE
"MEETING") TO BE HELD ON MAY 19, 1998, AT 10:00 A.M. AT THE CHEESECAKE FACTORY
RESTAURANT, 605 NORTH HARBOR DRIVE, REDONDO BEACH, CALIFORNIA.
The undersigned hereby appoints Linda Candioty and Jane Vallaire, or
either one of them, as Proxies, with the full power of substitution, to vote all
shares of Common Stock of the Company held of record by the undersigned on April
3, 1998 at the Meeting or at any adjournments thereof, on the proposals set
forth below and in their discretion upon such other business as may properly
come before the Meeting.
The Board of Directors recommends a vote in favor of Proposals 1 and 2.
<TABLE>
<S> <C>
1. ELECTION OF THOMAS L. GREGORY AS DIRECTOR
/ / FOR the nominee listed above for the term set forth in the Proxy Statement.
/ / WITHHOLD AUTHORITY to vote for the nominee listed above.
2. AMENDMENT TO THE COMPANY'S 1992 PERFORMANCE EMPLOYEE STOCK OPTION PLAN
/ / FOR the amendment as set forth in the Proxy Statement.
/ / AGAINST
/ / ABSTAIN
</TABLE>
<PAGE>
(CONTINUED FROM THE OTHER SIDE)
<TABLE>
<S> <C>
3. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the
Meeting.
</TABLE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. ALL PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED ARE
HEREBY REVOKED. RECEIPT OF THE PROXY STATEMENT DATED APRIL 20, 1998 IS
ACKNOWLEDGED.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING
PREPAID ENVELOPE.
Dated: _________________, 1998
______________________________
(Signature)
______________________________
(Signature)
Please sign exactly as name
appears hereon. If signing as
an attorney, executor,
administrator, trustee or
guardian, please give full
title as such, and if signing
for a corporation, give your
title. When shares are in the
names of more than one person,
each should sign.
